Rare Consensus on Economic Growth

            When the Federal Reserve Bank of Philadelphia conducted a recent survey of economists about prospects for growth in 2013, the average guess was a gain in GDP of 2.3%.   More interestingly, there was very little deviation from this figure.  All of the predictions fell within a fairly narrow range.   At the bottom 25th percentile, that is, among those economists who were so pessimistic that only 25% predicted lower growth, the growth forecast was 2.1%. At the 75th percentile, that is, among those so optimistic that only 25% predicted a higher figure, the growth forecast was 2.5%   In only two of the last 45 years has there been so narrow a range of opinion among economists as to where the economy is heading.

            According to an article entitled "Economists Agree? Start Worrying," in the Jan 26-27 issue of The Wall Street Journal, the probable reason for this narrow range of outlooks is that, over the past five  years, we have heard a lot of stark warnings on where the economy was headed, predicting everything from runaway inflation to severe depression--but all of them were wrong.  So now,  the consensus view says we are probably going to get more of what we already have---continued  improvement, but at a fairly slow rate. 

New Ship for a New Kind of War?

                   There's an interesting article in the January issue of The Electrical Worker,  which is the house organ journal of the International Brotherhood of Electrical Workers.   The article is about a new warship being completed in a shipyard in Pascagoula, Miss.  The IBEW has a particular interest in this ship because large numbers of its local members, over 700  of them in IBEW local 733, found employment in constructing this ship. The article, "USS AMERICA, In a Class by Itself", explains that the USS America is the first of a new class of amphibious assault ships, a kind of ship that will make beach landings obsolete.

                  Beach landings, from the Greeks at Troy to Eisenhower at Normandy and McArthur at Inchon, have always been nasty, bloody affairs.  But the Navy is betting that in future wars, such landings will be unnecessary.  In future wars, invading marines will simply fly over the beaches in planes that can take off like helicopters and then fly like regular planes, escorted by jet fighters that can take off in a very short space and land vertically. This ship will carry no landing craft at all, nor would it be capable of launching them. This marks a radical departure from existing amphibious assault ships.

                  The  America also departs from conventional craft in other ways. It will have no boilers and use no steam power. All systems will be electric, including the propulsion system, and will be powered by two 4 mw diesel generators backed up by two 35,000 horsepower jet turbine generators.  The entire ship is a maze of  electrical cables and fiber optic links, installed over a 5 year period by hundreds of electricians. One question left unanswered is how, in these hypothetical future wars, equipment such as tanks, heavy trucks, and artillery pieces were to be hauled ashore.  Will future armies not need these things?  Yet one thing is clear.  There are a few countries in the world whose main importance to anyone is the fact that they would make a good beach-head, if such a beach-head were ever required.  The strategic usefulness of such places is now zero.  Think about it. http://www.ibew.org/articles/13ElectricalWorker/EW1301/USSAmerica.0113.html

Exporting Oil Without a Pipeline

            According to an article the December 29-30 issue of Wall Street Journal, "Disparity in Oil Prices Proves Pesky,"  Americans, particularly those living in the interior,  are now enjoying much lower oil prices than Europeans.  In Iowa, I just filled my tank with regular gasoline for $2.99 per gallon.  In some parts of America, prices are a bit higher, but all Americans have lower prices on petroleum and natural gas than anyone in Western Europe. Historically, the price for European crude oil (Brent Crude) is usually within a dollar or two per barrel of the price of American crude, (West Texas Intermediate).  But according to the article,  U.S. crude is now about $20.00 cheaper per barrel than European oil.

            The reason for this disparity is that we have a temporary glut of oil in the American interior due to shale oil produced by hydro-fracking.  This is temporary, in that the shale formations are shallow and will probably only produce for 10 or 15 years, as opposed to the 30-60 year life span expected for a conventional well.  But at the moment, this surge of production, combined with recent increases in the fuel efficiency of the American automobile fleet, means that there is more oil available than there are buyers, and this is driving down the price of crude.  This is bad news for the oil companies, because the new horizontal drilling and hydro-fracking technology that makes this production possible is extremely expensive. By some estimates, if the price of crude drops below $70.00 per barrel, which it easily could, the drillers won't even break even.

            The oil companies would like to sell this oil to the Europeans and get an additional $20.00.   But there is one problem--there is no practical way to get it there. This oil is produced in the northern mid-west, and the present pipeline capacity to ship this oil to gulf coast ports is inadequate to handle the volume.  In November 2011, the Seaway Pipeline, originally built to import oil from the gulf ports to the main storage hub in Cushing, Oklahoma, was re-fitted to pump oil in the other direction.   But this pipe can only handle about 400,000 barrels per day.  One part of the proposed Keystone pipeline, the Keystone XL Southern Leg, would increase this capacity by another 800,000 barrels.   Another Keystone leg would bring tar-sand oil from Alberta, Canada, into the U.S..   But the whole project has been plagued by delays and environmental concerns.   Ironically, the oil industry has been trying to paint the environmentalist opposition as obstructionists who are obstructing a pipeline that would bring in more oil and lower our prices. This propaganda effort has had some success---millions of morons are writing their congressmen demanding that this line be built.   But the part most likely to be completed is the Southern Leg, which will not bring in any oil but ship it out---which will raise prices.  And that's why the oil companies want to build it.  Along with oil, the new drilling is producing massive amounts of natural gas, which would be even harder to ship to Europe. But where there is a will,  there is a way.

            According to another WSJ article, "Kafkaesque Twist in U.S.-Europe Energy Gap", Dec 26, 2012,   Austrian steelmaker Voestalpine is planning to build a $659 million plant in the U.S. or Canada to produce a semi-refined iron product (hot briquetted iron) to be shipped back to Austria to be refined into steel.  The iron smelting done to produce these briquettes will be using cheap American natural gas instead of metallurgical grade coal.  American gas is now  priced at about $3.50 per million British thermal units--about a third of the European price.  Reducing iron from its ore is a very energy-intensive operation.  The fuel used, either natural gas or coke from coal, not only provides the heat but is the main chemical reagent in the process.  But by using cheap gas to produce an energy-intensive semi-finished product, they have found a way to export gas without a pipeline.  Amazing how history repeats itself.

            In Elizabethan England, the British isles were running short of chestnut trees, which was then the only source of charcoal suitable for reducing iron from its ore.   At that time, no one had yet developed a way to use coal to smelt iron. The trick is that you first have to change it to "coke", which is like charcoal, only made from coal.  But no one knew that then.  So the whole British iron industry was in peril.  But colonization of the Americas saved them.  North America had abundant chestnut forests, as well as iron ore.  The arrangement which the British preferred was to have the Americans make semi-finished iron to ship to England, which their own iron industry could turn into useful iron and steel consumer products which they could sell back to the Americans. But the Americans had a better idea:  instead of shipping this iron to England and then shipping consumer products back,  why not just turn the iron into consumer products right here in America?  Why accept low prices for our crude iron exports and pay high prices for all our consumer goods, and have all the money go to British shippers?  So we started making our own things.  To prevent this, Parliament passed the Iron Act.  Specifically, this act forbade anyone in the colonies from owning a "slitting mill."  A slitting mill  is a kind of shears that cuts red hot iron plates into narrow strips. Thick plates were not useful to anyone except an iron mill. They are a semi-finished industrial commodity.  But narrow strips could be sold to any blacksmith and converted into horse shoes, hinges, nails, or just about anything.  They were a consumer  good.

            The Iron Act was originally passed about 1750, but it was not enforced until after the French and Indian War was over. One cannot put a strangle hold on a population that one still needs to help win the war.   But after the war, a number of unpopular acts were enforced upon the colonials. The Stamp Act aroused the most ire among the working classes, but among the elites who actually planned the revolution, the most intolerable of all the so called "intolerable acts" was the Iron Act.  It clearly signaled the intention of the British government to insure that America would remain permanently under-developed industrially-- because British shippers and factory owners wanted it that way.  If we accepted these restrictions, we would remain a "third world country" forever.  So a decision was made to escape from British control while escape was still possible.

            Yet today, we cheerfully offer to the Austrians the precise arrangement which we fought a revolution to deny the British.

Greetings to My Readers in Poland

            In the last few weeks, there has been a surge of interest in this blog from Poland.  For three weeks there have been more visits from Poland than from any other European country, and one week there were more visits from Poland than from all other European countries combined.

            It would be interesting to know just which articles are of interest in Poland, but the statistical information provided to me by Google tells me only the total number of visits to each article, and the total from each country.  To know who is visiting what--I can only guess.   My first guess is that my readers in Poland would like to have a view of the current world-wide economic debacle as seen from inside the U.S., where it all started.  But they are not such fools as to accept explanations from government officials, or from economists paid by business interests, or even from the academic community.  (In recent years, though colleges still pretend to be a free and independent voice,  most of them have become so dependent on grant money from business interests that academic economists now publish mostly whatever the business block would like to hear.   It is not that any dissenting professor would be fired--it is that since about 1970, anyone who would be likely to have a dissenting view would never have been hired in the first place. Except for labor organizations and a few newspapers,  there are few places in America to hire an economist today unless he is a robot who repeats the business block party line.  For example, the wealthiest 1% of Americans now control 5 times as much wealth as the bottom 80%, and yet many academic economists still repeat the business block line that taxes on the wealthy are too high. )   So while government economists are not allowed to tell you the truth, the business block economists are not even allowed to think it.  I spent 40 years as an electrician and during some of that time I was an elected union official and a labor union activist.  If you are from Poland, then you understand that such people are not easily silenced.

            I assume that my article about "Why Wall Street Wrecks the Economy" was one of the sites which had a wide audience in Poland.  But here are two others that you may find interesting.   One is labeled Does Keynesian Policy Still Work?  The other is  A Keynesian Error. Keynesian economics was the main engine of growth in America and much of Europe from the mid-1930s until recently.   In the post war years, the economic boom in Western Europe which many in Poland may have envied was all provided by Keynesian expansion. But by the time that Poland became free of the collectivist model, the opportunity to use Keynesian tactics was already closing, for reasons discussed in the article.  And today, it may be too late for Poland to feast at the table which fed its Western neighbors so well. But perhaps it is not too late, if it were done correctly. Here is the link to those articles:

Does Keynesian Policy still work?

A Keynesian Error. 

Best Posts of 2012

Best Posts of 2012

All of these posts can be accessed from the archive list at the left margin, and some have hot links.

.

Is a Cat Microbe Changing Your Behavior?  Mar/5/12  Is an ancient parasite controlling our brains?

Are Bar Flies Just Sex-starved Males?  Mar/23/12

Electric Car Battery Cost  Apr/19/12

1493, by Charles C. Mann   May/6/12  The Cat's book review--this is a must read.

U.S. Debt Not a Problem. Jun/25/12

Why Wall Street Wrecks the Economy.  Jun/29/12

What They Won't Tell You About Farm Bills.  Aug/4/12  The secret success. For eighty years, American Farm Policy has actually been astounding success.  But it's a success that its architects dare not take credit for, as this would require them to disclose what the goals were. No American government will ever do this.

How Ancient Builders Moved Things.  Aug/12/12

Oil, Imperialism, and the Real Causes of WWI.  Sep/18/12  A review and synopsis of Wm. Engdahl's book,   A Century of War.   A must read.

When Computers Were Reliable.  Oct/14/12

The Germs That Make Us Us.  Oct/22/ 12

The Ethicization of Religion.  Nov/20/12  The Long Shadow of Zarathustra.

An Optimist Looks at His Future. Mar/28/12  A grimly whimsical look at modern life.  Are you the type who always finds the worst case scenario?  No, you're not!  Not compared to me.

The Real Housing Crisis.  Feb/4/12  A view from the epicenter of an economic disaster. Probably my best post, it is also the longest. It's  an insider's view of what happens when the job market and housing market in a whole region completely collapses around you.

Gasoline Price Explained

           A few weeks before the election in the U.S.,  gasoline prices began to drop a bit.  Now, everyone knows that voters are more likely to re-elect the party in power when prices are stable--and less likely to do so if prices, especially fuel prices, are high and rising.  So everyone had a theory as to who was manipulating  prices for political purposes. The right wing pundits suggested that Obama was secretly releasing oil from the strategic reserve to buy votes.  My own theory was that the oil barons, although they do not particularly like Obama, realized that the alternative to his being re-elected was to actually have Mitt Romney as President, a prospect which scared the hell out of them.  And so they were trying to beat down the gas price to prevent Romney's election.

            But after sober reconsidering, I realize that no person or agency was manipulating anything at all.  What happened is that in the northern temperate zone, where most of the world's cars are,  winter fuel blend is not the same as summer fuel.   About mid-October, the refineries briefly shut down and re-tool to make winter blend gasoline.  This fuel is lighter and will vaporize at a lower temperature. Back when we used engines with carburetors, this lighter fuel was absolutely necessary for cold weather starting. But in extreme cold weather, even cars with modern fuel injection systems may require a lighter mix to run well.  So about mid-October, we all start buying a different fuel.   The oil companies love this because this lighter blend of hydrocarbons weighs less per gallon, and they can get a few more gallons per barrel of crude oil.  But by dumping more gallons on the market, this bids the price down. 

            And of course, we consumers are delighted to have a lower price.  But nowadays,  a lot of cars are equipped  with a digital readout on the dashboard with gives an instantaneous estimate of fuel consumption in miles per gallon.   And as soon as you start burning winter gas, you notice that the gas you paid 10% less for will also give you 10% fewer miles per gallon.  Why?  What happens is that fuel consumption per pound (or per kilogram) remains exactly the same, but there are fewer pounds per gallon ( grams per liter).  If fuel were priced per pound instead of per gallon, the price and gas millage would have remained unchanged.

            This change in mass density of the fuel would itself have explained a 10% drop in price.  But by today, the total price decrease in my area has been about 14%.  The additional 4% is due to the fact that in cold weather, people drive less.  If you live in the "frost belt", there aren't many things to do or places to go in cold weather that would actually be a pleasant experience, so people stay home as much as possible.  And with fewer gallons of gas sold, normal supply and demand factors have depressed the price.

            When we feel miserable, we try to put a face on our problem.  We look for an "oil executive in the woodpile".    We like to identify some particular individual or institution to blame for our misfortune.  But sometimes our fortunes are tied to the impersonal forces of supply and demand.  Do not think I am championing the value of "free markets."  Having watched market forces all my life, I can assure you that except perhaps for John Maynard Keynes, no man ever lived who had a lower opinion of "the market."  Schumpeter believed that markets cause "creative destruction."   He was partly right.  Market forces are almost always destructive--but not always creative.  When we say we have free market forces, that is merely a polite way of saying that we have  chaos.  There was a time when Saudi Arabia could control the price of crude oil. And there was a time when the US, acting as the world's largest consumer, could also dictate the price of crude. In the 90s, the U.S.  broke the price of crude oil simply by using less.  But with China entering the market, those days are gone. Today, no one controls the market--it's simply chaos.  But with chaos, at least no one is in charge of it.

Ingenious Old Boilers

           I just helped cut up an old steam boiler--a 1913, Kewanee 300 hp coal fired, fire tube, low pressure steam boiler.  This is the boiler which originally heated the building where I now reside.  I live in an abandoned school building.  Not a cute little one-room school, but a three story brick building that once held classes for grades 1 thru 12.  As larger farms replaced small farms throughout the 20th century, rural areas such as the one where I live lost population, and many schools were shut down as the districts were re-organized.  My building was last used as a school in 1961, and I obtained it about a decade later.  I carved out a small apartment, about one fifth of the total square footage, which I then heavily insulated, and which I heat with a small LP gas furnace.  So since 1961, the old boiler has just sat there rusting.   A good thing, since it burned 300 tons of coal the last winter it was used.  The carbon footprint of operating such a monstrous teakettle (about the size of a small railroad locomotive) would be absurd.

            The thermal efficiency of coal boilers has improved since the days of the old fire tube boilers.  A modern "water tube" boiler in a coal fired power plant can yield over 90% efficiency, whereas the old fire tube boilers were lucky to get 15%.  So I was surprised to discover that these old boilers still showed some ingenious engineering. For instance, the thickness of the iron plate walls was not uniform throughout, but each area was only as thick as it had to be.  The main boiler walls were 1/2 inch thick, but the crown plates were only 3/8th".

              My boiler  was a "scotch boiler" design, but perhaps I should  digress a bit to explain exactly what that means.  A "straight through" boiler is simply a heavy walled horizontal barrel with a "crown plate"  welded or riveted across each end.  About 72  three inch tubes run through the length of  the barrel and through 3" holes in the plate, and then end. The tubes are secured and sealed to the plate around the outside of each tube, so that fire can flow through the tubes, but steam cannot get out of the chamber which surrounds the tubes.  The reason that the crown plates could be thinner is that the 72 tubes fastened to it would reinforce it.   A "straight through" boiler simply had a fire box at one end and the flames went through the boiler tubes to the other end and up the chimney.  The barrel, laid horizontally, had to be heavy enough to withstand the pressure of the steam, and long enough to allow the fire to travel far enough for the heat to be absorbed by the water and steam.

            But with a Scotch boiler,  the whole barrel is only half as long, but the flue gasses travel the same distance.  This is done by having the hot gasses first travel through only the lower 36 tubes, then be directed back through the upper 36 tubes.  So the fire goes through the boiler twice.  But this means that the last 5 ft before the fire goes up the chimney, it goes right over the fire box where it started. That means that the barrier between the fire box and the steam chamber is a flat plate that forms the roof of the fire box. So at that point, the steam chamber is a "D" shaped space with its floor as the ceiling of the fire box, and the ceiling being the top of the outer hull. So although the roof of the fire box was flat, it had steam pressure above it. But being flat, it did not have the strength of cylindrical walls found in the rest of the boiler.   To compensate for this, a forest of  3/4" iron rods connected this flat plate to the arched walls above.  When I discussed this with my brother, a former Navy boiler man, he explained that these rods would not only reinforce the walls, but also conduct heat.  And the fire box itself had double walls on three sides, with water circulating in between. Any heat which escaped from the fire box would still be heating water. Yet these walls, being flat,  also had to have 3/4" iron rods between them.

            Those who built boilers one hundred years ago did not have the sophisticated technology that we have today--but they were certainly not fools.

Note:  If this kind of post interests you, I have another post called, Ingenious Old Windmills