Wednesday, January 10, 2018

Corporations, Inequality and Amazon

I wrote this as a comment on an Ontario Liberal Party discussion platform leading to the 2018 Ontario election. I don't know how long the link will survive, so I am pasting the text of the posted idea and earlier comments below my text.

My long comment, responding to Jenny and to the main idea:
It is a mistake to think corporate tax is not paid by individuals - only individuals pay tax. Sometimes they pay directly and sometimes through their legal entities such as corporations, partnerships and trusts. The government taxes corporations as a way to hide the tax from immediate view by citizens and is totally counterproductive. All the assets and all the profits of a corporation are engaged 100% of the time in creating value for citizens and when you tax something you get less of it.  By taxing business production you get less production and society has a lower standard of living.

The fact that 10% of Canadian already pay 55% of the taxes is not irrelevant to this issue. In many and likely most cases, the most productive people are shareholders of a corporation and thus pay both personal and corporate income taxes already.

The idea's assertion that income inequality is bad and that corporations are totally about greed is a travesty. To better understand this, consider how you become one of the rich people in society. Let's say you come up with an idea to make life better for others - to keep things super simple, say you invent a better vegetable peeler. You must invest your brain power in creating the initial idea, building prototypes, testing them, researching manufacturing and distribution. You must make sure you are not running afoul of the thousands of regulations the province has that restrict trade. You must search for and hire staff to help you get things rolling. You must learn how to deal with the intricacies of trade barriers between countries and also their internal trade barriers such as those between provinces. You must finance the equipment, marketing and inventory of the business and pay staff while the product is being brought to market; you take significant financial risks and might lose it all. 

Now assume you start to have sales, but it may take many months or even years to recover what you have invested, with no guarantees at all that you will do so. All along the way your staff have been paid and have been happy to work for that level of pay, or else they would rationally work elsewhere. No one forced them to work for you and they took no risks except those inherent in working for a small business. Every day in the early life of the company the staff worked, they were making a profit for themselves while the business founder was not. They decided they were better off, that their lives were being improved, that they received more value through their pay than the time they dedicated to the work.

Now let's say the business starts to become profitable. How? Only because enough customers have decided that their lives will be better off for buying your veggie peeler than by holding onto the few dollars it costs them. Their lives are improved in a small measure, and the business owner and all employees are also better off. Trade is a win-win transaction when it is freely chosen - it must be, by definition. If only a modest number of people agree that their lives are improved by buying your peeler.

Now to the meat: how do you become rich? A really large number of people must agree that their lives are improved by trading their dollars for your peeler. Millions of people must agree that you are creating value for them. Not only that, you are competing against all other peelers made by all other companies, plus once your peeler hits the market it will give other people ideas about how to compete with you. To build a successful business you must not only achieve excellence, you must maintain it indefinitely or else another will earn the market share you once had.

Consider Jeff Bezos, founder of Amazon, apparently the wealthiest man in the world today. His business idea has become so loved by his customers and the company has so many millions of customers that his net worth (mostly Amazon shares that could lose 100% of their value if the company fails to maintain excellence) is over $100 billion dollars. Did his wealth come at the expense of others? Did he take their piece of the so-called "income pie"? Did he achieve this by forcing people to work for him at pay lower than they chose? No. No. NO! Amazon employees all work there because they have identified Amazon as a place they want to work and have accepted the pay offered. Many employees have likely become millionaires through ownership of shares int he business. Amazon customers are better off - why else would they shop through Amazon? Thousands of other businesses sell through the Amazon platform. Many other businesses sell services to Amazon. Jeff Bezos is fabulously wealthy because he has revolutionized a portion of the marketplace and created value for hundreds of millions of people and growing. All those people have chosen to trade a small amount of their value for that provided by Bezos and his company - and they can take away everything Amazon has and all its employees and all its share value, just by changing their minds about whether Amazon is creating value in their lives. 

The fact that income inequality rises when Jeff Bezos creates incredible value for millions of people all over the world is an outcome to be celebrated, lauded and recognized as a great moral achievement, not just an economic one.  Morality is our guidelines for surviving and thriving, and the creation of a new mountain of wealth in society is the pinnacle of morality successfully applied to improve human lives. Bezos is not Bernie Madoff - he has not stolen or defrauded anyone - that is the mindset of those who see wealth as a pie to be divided. Bezos has designed, tested, baked and continues to bake new and undreamed of pies that are beloved by hordes of his fellow men. To frame it another way, Bezos' wealth has been voted to him and bestowed upon him through consumer choices as recognition by his fellow men of the value he creates.

Yes, Bezos disrupts the economy, but to improve it, not to denigrate it.

Yes, this is a right and left issue. On the right stand people who wish to be free to choose their own path in life, to be free of coercion by others or their government. On the left stand those who are against individual rights, against human freedom, against reason and the human mind, against win-win trade and for the use of force to make others do their bidding. On the left stand people with guns pointed at citizens. On the right stand people who defend the right of citizens to choose. Which side acts as a bully?

My first, short comment:
This idea is so full of errors and contradictions entire books would be needed to fully address it. A basic course in economics and finance would be a start.

Who creates, operates, finances and owns the businesses, the corporations excoriated above? Who pays the corporate taxes? Who pays individual taxes? Who earns the profits of businesses and uses them to invest in greater future production or to improve their lives? Canadians, Ontarians, taxpayers - they are synonymous. With the most productive 10% among us already paying 55% of income taxes, is that enough? Not for everyone, apparently.

Comment from Jenny:
Hi, David, the 10% paying 55% of income taxes is irrelevant. The idea was the low corporate tax; it is not that the head of the corporate is paying low personal income tax.

Wednesday, September 20, 2017

The Canadian government attacks the values of its own citizens

I wrote this to an Ottawa area MP when I learned of an upcoming "consultation" phone call.

I am writing to you as a financial advisor who lived in Orleans for a number of years when I first built my business and who has many clients living in Orleans to this day.  I urge and implore you to push the government to stop all action towards implementing the published proposed tax increases as they could be the most damaging tax increases in our lifetime so far.

When I learned of the proposed changes, my jaw dropped and I felt very angry too.  As a financial advisor for the last 24 years I have gained a very good knowledge of many parts of the Canadian income tax system, particularly individual income tax, as I am a registered eFiler and prepare about 130 returns per year for my clients. Over the years I have done over 2,000 tax returns. In addition, a crucial part of financial advice is understanding how income tax reduces the value of investments made by clients, thus reducing the wealth of Canada forever, and helping clients understand and plan to keep their tax burden to a legal minimum through proper planning.

I think it is crucial for you to clearly understand what it means when a person earns income. It means he has created something of value that another person is willing to exchange his own values for. Money is simply the medium of exchange – the underlying value represent a piece of each person’s life, their energy, their intellect, their physical effort, their personal property, their values. In a country that truly protects the rights of individuals, productive ability is celebrated, not punished. Individuals with prodigious ability to create value must be free to do so and the value they create should not be attacked by their own government. If a man can build a business and create value of $200,000 more than the cost inputs, then this is only possible because the people he trades with agreed that he had created this value – that is to say they willingly traded their own values in exchange and only because they thought they were better off for having traded.  If a man can produce excess value of $2 million then he has created much more benefit to his fellow members of society than the man who created $200,000 of value. Should the man who creates greater value be punished for it? Should his productive ability be stifled? Should his ability to allocate capital that is used to create even more value be impaired? Is it moral for him to have a greater portion of his production stripped from him by force the harder he works? This is exactly the regressive tax system we have today.

For many years I taught a financial planning seminar series for adults through the Ottawa Catholic School Board and in the class focused on income tax I listed thirteen different examples of situations where the tax system claws back income, over and above the basic income tax, leading to sometimes severe punishment for earning more income. I used an example drawn from my real life experience doing a client tax return, where a single parent earning $30,000 faced a 70% effective tax and clawback rate. This is not the only example, the system is riddled with complicated buttons and levers pulled by a series of governments over time.  I’m sad to say this has only become worse since the last Federal election and the punishment for daring to produce more value for fellow citizens has risen.

Consider the possible things a business can do with its earnings. Remember that dollar are simply place-holders for actual economic values such as tools, equipment, buildings, vehicles, clothing and all the other goods and services produced by people to improve their lives. First, it can hold them in a bank account and in this case the cash then is available for the bank to lend to others who may need capital to pursue their own goals in life. Second, the business may spend it on maintaining operations or invest in growing its productive capacity and in this case it also produces value. It may pay salaries or dividends to owners of the business, enabling them to pursue their personal values and improve their lives. The business may hold retained earnings and invest in other businesses, either small private businesses or larger, more liquid and secure businesses; again in both cases serving to maintain and increase the production of human values. All the actions a business may take with its earnings are positive, unless the business is not run well enough to be competitive and profitable and thus closes.

This is economics 101, but it is not well understood by many people, including Canadian elected officials of the last century. When production is taxed, the whole chain of wealth creation in society is slowed down, retarded, held back. Don’t forget, wealth is simply the values chosen by people, values such as homes, cars, communications, schools, hospitals, scientific discoveries, etc. Forcibly taking greater amounts away from those who are better at producing values - no matter what is done with it, no matter how well intentioned the takers may say they are, no matter their justifications - can only impair human progress. Taking ever-higher percentages from people as their productive abilities increase is an even greater harm to the producers and to society. Below is a table from my class slides, showing that a dollar doubled ten times is worth $1,024 but when taxed at 46% is only worth $75. In one case, society has $1,024 of homes, schools, hospitals, etc. and in the other it has only $75 of these. Which society has the greater health of citizens, greater education, greater communications, safer houses and cars, more ability to care for the small fraction of truly incapable individuals?

Note that when I referred to helping clients pay a minimum of tax, “minimum” does not by any means mean low or nil, as many of my clients pay far more than a fair share of tax already. The fact is that the people who are the most productive already pay taxes at a rate far greater than their fair share. As the table below shows, just 10% of our population pays 41% of taxes, four times their fair share. Even worse, the most productive 1% of our people are already forced to pay, despite spending vast amounts on tax and legal and financial advice, 24 times their per capita share of taxes. Twenty four times! Each of them carries on their backs twenty four fellow citizens, weighing down their ability to produce values, to improve civilization, to advance human knowledge, to improve the lives of those they trade with, to innovate, to hire people to help them in their productive efforts. Just imagine the progress that would be unleashed if the greatest producers among us were truly freed to use all their abilities to their fullest!

Actually, you don’t need to imagine it. Until the recognition of individual rights along with proper governments to protect them in the late 1700’s, the natural state of humanity through all history was poverty. Suddenly, an explosion of knowledge and production raised the quality of human life by more in 200 years than in the thousands of years prior.  Countries that adopted the principles of freedom have uniformly flourished beyond the imagination of 18th century Kings. Canada was one of these.  Even today, wherever and to the degree the right to life, liberty and property are cherished in law and in the culture, progress and flourishing occur. To the degree a country violates these three great rights by the force of central controls, regulations and taxation, human life suffers – witness Venezuela in recent years. 

Alas, Canadians have forgotten the philosophical roots of the enlightenment and are unaware of the causes of the industrial revolution and the great advances they see around them. They are moving away from expanding freedom and towards, and even accelerating towards, collectivism, socialism, statism and fascism, which are all essentially the same. The current proposals to raise taxes on private corporations represent a significant slide towards Venezuela and misery and suffering. Notice how there has been NO discussion of the possibility that some people are being taxed too much and their burden should be lowered to create a more level playing field. The only discussion by the Government is to increase taxes on some people to a level paid by some other people - people the government thinks it can persuade to vote for them to continue punishing high producers. The tall flowers are being cut down again. The logical progression of this is to cut a level lower and lower until all are equal in their suffering and the Marxist ideal is achieved, a la Venezuela, where you cannot find a dog, cat or bird in the city because the people have killed them all for food – even zoo animals.

The consequences of implementing this tax proposal will not be unintended, but fully intended. The government has been told, warned, notified of the pending damage to society. The assumptions behind the proposal are severely flawed in both moral and economic terms, so to seek ideas in a “consultation” on how to minimize unintended consequences is to entirely and deliberately miss the point. The proposal represents a willful and wanton destruction of real, tangible and deeply moral values like homes, food, education and health so cherished by so many Canadians. Instead of attacking our most productive people, isn’t it time Canada started to encourage them to ever greater heights and encouraged all others to emulate their success and help them in building an even wealthier society? Our entrepreneurs, business people and high producers should be our greatest role models, not the object of scorn, derision, insults and attacks via the force of taxation. While there is so, so much more than could be said on this, I will close with a quote from one of the great thinkers in the field of human freedom and progress.

You cannot bring about prosperity by discouraging thrift.  You cannot help the wage earner by pulling down the wage payer.  You cannot help the poor by destroying the rich. - Abraham Lincoln

I look forward to your thoughtful response to my letter.

Wednesday, September 6, 2017

A Fossil Fuel Free Global Equity Fund? It's not right. It's not real.

In Canada, RBC funds has launched a mutual fund that uses an exclusion process to avoid companies involved in extracting, processing and transportation of fossil fuels.

They state this investment process leads to high conviction research driven portfolios and returns defined by stock-picking, not style, with a low correlation to peers.

I replied to the company's communication with the following message:

I think the concept behind the fund is incorrect, irrational, incoherent and immoral. The energy from fossil fuels has: 
a) powered the industrial revolution, 
b) advanced knowledge and society more in two hundred years than in all prior history, 
c) lifted billions of people from poverty, 
d) enabled the potential for a safe, healthy, long and productive life for all of humanity, 
e) eradicated almost all human deaths from the naturally dangerous climate, 
f) enabled us to wipe out the worst diseases of the past,
g) empowered women, minorities, former slaves and anyone with the mind and determination to do so to succeed beyond the wildest dreams of pre-industrial society,
h) much more.

To in any way promote the concept that fossil fuels, which presently provide 85% of all the power required to operate modern society, represent a meaningful threat to civilization instead of being the salvation of civilization is a monstrous distortion of reality and a disservice to all humanity. 

As a starting reference point, I have attached a fascinating article that studies the interaction between climate, human deaths and energy availability.

I note that every single holding in the fund relies utterly on fossil fuel energy to remain in existence. If fossil fuels were banned tomorrow, these companies would be instantly bankrupt and it would be the end of human civilization as we know it. With centuries of abundant, cheap, dense and portable fossil fuel energy available to us, not only is fossil fuel energy the fastest growing energy source in the world, but it is likely to remain by far the most important energy source for the next hundred years.

The company should be ashamed to be associated with the promotion of such a patently absurd concept as a fossil fuel free fund – it does not exist and should not exist.

Wednesday, June 7, 2017

Ontario Liberals are in love with the ideas of Karl Marx

Below is my quick response to the current Ontario Liberal campaign. They sent me an email asking me to support them in their efforts.  I declined and opted instead to send them a brief response.


Unfortunately you have chosen to launch initiatives that are straight out of the ideology of Karl Marx. Each of the initiatives listed below requires a massive violation of the rights of Canadian citizens the government is elected to protect. I believe Sir Wilfred Laurier would recoil in horror at what the meaning of being a Liberal has become. In his lifetime he lived just long enough to see the ideas of Karl Marx start bloody revolutions that in the end resulted in the deaths of tens of millions of people across the world. More die daily as a result of these same ideas in countries like Venezuela, while countries that are throwing away these ideas like China and India are advancing more rapidly that any country in history.  The Liberal party ideology needs to return to its roots and re-discover the ideas that made Canada a great country – individual rights and a government that protects them, not one that violates them.

While volumes have been written about all that is morally and economically wrong with these ideas, I will simply state here how they violate the rights of citizens, with government forcibly sacrificing a part of innocent lives to the whims, wishes and wants of other people. These actions are the exact opposite of fair.

The five initiatives are:
1. A $15 minimum wage - violates the right of employees and employers to negotiate terms of employment contract free of interference from parties who are not involved in the contract.

2. A basic income pilot - violates the rights of those who are working to create value and exchange it for wages by seizing some of their money and giving to others who are not or who have chosen not to work in support of their own lives.

3. Free pharmacare for youth and children - violates the rights of all those who work to support their own lives and those of their family, forcibly taking part of their hard work and giving it to those who did not earn it.

4. Free post-secondary education - violates the rights of all those people who work to pay for the education of themselves or their loved ones and all the rest of society's producers too, forcing them to pay for the education of strangers at the expense of their priorities in life. Such an action raises the expenses of education, stifles innovation and competition, and punishes those who work the hardest and whose work is the most productive.

5. Rent control - violates the rights of the people who have saved and invested their capital to provide rental accommodations for willing tenants. Such an action can only cause less rental properties to exist and to reduce the quality of such properties.

Wednesday, May 10, 2017

MP McGuinty's October 4 2016 statement in the House is replete with fundamental errors

On October 4, 2016 MPP for Ottawa South David McGuinty made a statement in the House of Commons that was so full of economic and scientific errors I felt it worthy of comment. To find his statement follow the link and then search for his name and go to the second occurrence of it.

1. The statement says the issue of climate change has nothing to do with ideology, yet the very essence of the topic is political control over people's decisions regarding energy and how they live their lives. If advocating for a massive interference in the governance of the nations of the world and the use of political force against all of humanity is not an ideology then I wonder what an ideology is?

2. The statement refers to 2,200 Nobel Peace Prize winners. Aside from the fact the Nobel Peace Prize has nothing to do with science but rather is ideological, only the IPCC organization was awarded the prize, not 2,200 scientists. The scientists referenced are those whose work is cited in support of the IPCC hypothesis of dangerous man-made climate change warranting a massive restriction of human rights, a hypothesis which is explicitly rejected by many of the scientists whose work is cited by the IPCC.  Dr. Frederick Seitz, in reference to the 1995 IPCC report: "I have never before witnessed a more disturbing corruption of the peer review process than the events that led to this IPCC report." Richard Lindzen, prof of meteorology at MIT, who at first participated in the IPCC process but then gave up: "There's little doubt that the IPCC process has become politicized to the point of uselessness." "They controlled who participated and who were the lead authors, especially of critical chapters."

3. The statement refers to IPCC scientists as if the IPCC was a scientific body, when in fact it is a political body composed of government representatives. A small number of scientists write chapters for the IPCC reports and an even smaller number review the full content.

4. The statement states that we have droughts and floods. While no doubt true, this statement is meaningless since it ignores all context. Are such weather events similar to the past or not? Do they represent a greater or lesser danger to mankind due to our use of fossil fuel energy? There is massive evidence that humanity is safer from nature and nature is safer from humanity due to our use of fossil fuels. Global death rates from extreme weather events declined by 98 percent since the 1920s, while economic damages corrected for population growth and wealth have not increased. Similarly, the incidence of droughts and famines in history is well documented and has declined massively since the advent of fossil fuel energy.

And what about the IPCC itself? In the 2013 IPCC Technical Summary, under Key Uncertainties, there are a few interesting statements.

"There is only medium to low confidence in the rate of change of tropospheric warming and its vertical structure."

"Based on model results there is limited confidence in the predictability of yearly to decadal averages of temperature both for the global average and for some geographical regions. Multi-model results for precipitation indicate a generally low predictability. Short-term climate projection is also limited by the uncertainty in projections of natural forcing."

"In Antarctica, available data are inadequate to assess the status of change of many characteristics of sea ice (e.g., thickness and volume)."

"There is low confidence in an observed global-scale trend in drought or dryness (lack of rainfall), due to lack of direct observations, methodological uncertainties and choice and geographical inconsistencies in the trends."

"There is low confidence that any reported long-term (centennial) changes in tropical cyclone characteristics are robust, after accounting for past changes in observing capabilities."

5. The statement references the Stern report, which is an economic paper referenced to give support for the use of massive political power over citizens' activities. Economic analysis of the Stern report, however, shows that Stern chose to use an extremely low, near-zero discount rate (0.1%) instead of a normal rate such as 3.5%, thus essentially Stern equates cost and value today with that in the distant future, when we know that economic growth has made us many times wealthier today than a hundred years ago and that this trend continues. To highlight this, at 3.5% growth we would have 31.2 times more wealth in 100 years whereas at 0.1% growth we will be 1.1 times wealthier. This is not a trivial difference and reveals the uselessness of the Stern report.

6. The statement references the carrying capacity of the planet and the need to live within it. The notion of a planetary carrying capacity is an anti-concept that uses non-essential characteristics to make us think there is a problem. An essential characteristic of man is that he creates resources from raw materials found in nature. The raw materials have always been there and they only become resources through the application of human reasoning to make them valuable for human life. The concept of value is a moral one and not a scientific one, thus no scientist can identify a threshold for the excess creation of value, since there is no measurable limit to value creation. The entire physical matter of the planet is a potential resource for humans, as are other planets and stars.

The challenge of human food supply provides one illustration of the limitless ability of humans to create value. Before the discovery, commercialization and industrialization of fossil fuel energy, the basic condition of humans was to be hungry, weak and sick. With fossil fuel energy we live longer, healthier lives with abundant food. Only in the shrinking portion of the world that has yet to adopt a greater degree of capitalism and industrialization is widespread hunger a problem. 150 years ago, 25 men working all day harvested and threshed a ton of grain. Today with a combine harvester it takes… six minutes. Farm productivity is up 2,500-fold by this measure. In just the last 25 years 2 billion people have emerged out of a condition of hunger and only a single country's population gets less than 2,000 calories per day: Zambia. In just 25 years (1990-2015) extreme poverty was reduced by 138,000 people per day, for a total of 1.25 billion.

How does a reasoning being, faced with the incredible improvements in the human condition due to the use of fossil fuel energy that provides 85% of world energy not see the wonders we have accomplished? Only an ideology that sees humanity as a blight upon the face of the planet - a philosophy that is fundamentally anti-human - can oppose human freedom to produce more energy and progress naturally towards the discovery of even more abundant, more concentrated and even more powerful energy sources we will no doubt find. To quote Amory Lovins, one of the leaders of just such an ideology that has become known as environmentalism, "Complex technology of any sort is an assault on human dignity. It would be little short of disastrous for us to discover a source of clean, cheap, abundant energy, because of what we might do with it." Oh, the horrors of clean, cheap, abundant energy!

Friday, April 21, 2017

Data used to promote "sustainable" mutual fund shows a big economic problem

The promotional piece for a mutual fund based on “sustainability” shows the graphic in Figure 1 below. I thought it would be interesting to parse this claim a bit to see what I could learn.

Figure 1

I note that this figure makes a claim about the number of jobs and not about economic reasoning or “sustainability”, whatever that actually means.  Since the subject of the day is investment, clearly economic reasoning should play the crucial role in assessing the merits of any claims made about the mutual fund’s mandate.

What might an analysis of the data for jobs and energy use tell us about the productivity of investments made in solar and wind energy projects when compared to fossil fuel energy production? How would workers in the wind and solar sector compare to the output of people working in coal, oil and gas energy production?  Given that wind and solar are intermittent, dilute and non-portable energy sources that have not been adopted by producers and consumers until recent huge taxpayer subsidies, one would suspect the traditional energy worker to be more productive than the newer ones in wind and solar, but by how much?  Would there be a small gap in favour of fossil fuel energy workers? Would the wind and solar workers be able to take advantage of the “sustainability” and “renewability” of wind and solar to leverage these innovation in energy production and perhaps be even more productive than the old-fashioned workers toiling in “dirty” oil, gas and coal companies?  

To determine this, we need to know what percentage of energy is produced by these different sources, then combine this with the number of workers in each energy sector. Every year a report titled “BP Statistical Review of World Energy” is published and provides great depth of information on trends in energy consumption by geographical distribution and by energy type. The report lumps wind and solar together with other alternative energies under the category of “Renewables” energy, so the data will somewhat overstate the true amount of wind and solar energy, but since other renewables such as biofuels are much smaller, this is not very important for our discussion.  Figure 2 shows the world consumption of energy. I note that the thin but growing upper orange slice is the renewable energy category and that it only represents 2.8% of global energy production.

Figure 2. World energy consumption in 2015, BP Statistical Review of World Energy 2016, p.42

However, the United States is far more advanced technologically than most countries, and one would expect that after a few decades of massive taxpayer subsidization of wind and solar that it would be a larger percentage of energy than for the world, and so it is. In fact, in the United States renewables account for 3.1% of total energy consumption, about one tenth more than for the world average. Not too impressive an accomplishment, as measured by promoters of renewable energy, is it?

Now to the heart of the matter - the integration of jobs data (which I will refer to as workers instead of jobs because I find it to be a more human term and it focuses our attention on the essential characteristic of work done instead of position held) with energy production data (which must be equal to energy consumption as shown in the research source). So, which of the following are you betting on?
  1. Fossil fuel workers are somewhat more productive than wind and solar workers.
  2. Workers in both categories are about equally productive.
  3. Wind and solar workers are somewhat more productive than fossil fuel workers.
  4. None of the above

Figure 3 combines the energy data from the 2016 edition of the BP statistical review of world energy with jobs data from the U.S. Energy and employment report of January 2017.  It turns out that in 2016 fully 86.0% of all U.S. energy came from fossil fuel sources, while as previously stated only 3.1% came from all renewables, including wind and solar. Given the number of workers in each sector, it takes 95.4 fossil fuel energy workers per million tonnes of oil equivalent energy whereas it takes 6,632.4 workers in renewables to produce the same amount of energy.

Figure 3. Energy production per worker in the United States in 2016

In other words, the average fossil fuel worker produces 69.5 times more energy than one in the renewable energy sector and the multiple choice answer is d) None of the above.  When advocates for renewable energy are promoting investment because it creates jobs, they really, really mean it.  A company that produces renewable energy needs to hire about seventy workers for every one worker needed by a fossil fuel company, but is this a virtue?  Does this mean the renewable company is more deserving of receiving an investment?

If the key criterion for making an investment is the number of jobs created then the motivation is to make the worker as unproductive, as inefficient, as regressive as possible.  In the fossil fuel business this would mean giving up trucks in favour of wheelbarrows, sacrificing excavating machines in favour of pick-axes, eliminating tanker ships in favour of wooden barrels. Sure, many more jobs would be created, but the cost of energy would skyrocket back to the level it was before industrialization and the entire world, not just the non-industrialized countries, would be back in an era of energy poverty. In fact the world would be in total poverty since it is energy that enables production of all other good than support our civilization.

The problem is that advocates of renewable energy use the wrong standard of value. They use standards like “nature as untouched by man” or “climate stability” or “bio-diversity.” By their standards, value is detached from human lives and thus actually loses all meaning, since without humans to value it there is, by definition, no reasoning being to assign value by choosing from the alternatives.

When human flourishing is the standard of value then decisions are focused on what promotes human well-being, human life and human happiness. By adopting a standard of value that is in keeping with the ideas of the best enlightenment thinkers, and more recently as elaborated by philosopher Alex Epstein, author of “The Moral Case For Fossil Fuels,” humanity can accelerate the pace of progress and continue to make our environment safer, cleaner and more enjoyable for future generations.

Friday, August 12, 2016

The economics of air and an anti-human ideology

I was engaged in an online discussion about climate change when another writer challenged my comments. When he asked "Perhaps you could start with why you believe you are not responsible to pay Market rent for fossil waste disposal by use of other people's air?" multiple times I thought a good response was in order and I have copied it below.
I get the strong impression that no matter how many highly intelligent, experienced, published and distinguished scientists from a range of fields identified factual contradictions and errors in your ideology it would not matter, so I will switch to the evidently hyper-important question that you have stated ad-nauseum above. It is evident you have no concept of the meaning of economics or freedom or capitalism, or else you would not ask such an irrational question. You might as well ask why you do not pay me for the use of the oxygen that you consume when you breathe. First, there is no such thing as a market rent for what you refer to. Second, what you refer to is not waste disposal but a natural by-product of human civilization and progress, a very mild side effect in exchange for an incalculable benefit, like an occasional headache in exchange for a cure for cancer. Third, other people do not own the air as it does not meet the criteria for private property. More broadly, it is the energy from fossil fuels that has enabled all of the advances of the industrial revolution, enabled your birth, being fed, clothed, housed, educated, your health care, your communications, your transportation and your leisure time. Until the discovery of a commercial means of mass producing energy from fossil fuels, you would have lived a short, diseased, starving, laboring, painful, cold and hot and extremely local life - if you lived at all. The energy from fossil fuels is the industry that underlies and enables all other industries and has been an incalculable good for humanity and has vastly improved your own life, yet you oppose it, perhaps even despise it like many catastrophists. To be fully consistent then, you would have to loathe yourself for owing so much to fossil fuel energy and the intelligent people who produce it. You appear to have an ideology based on looking only at potential harm in the distant future as predicted by computer models. This reduces to a base antagonism against human life and that which it depends upon. My philosophy is based on the irreplaceable value of human life and my standard of value is that which advances human life. I love fossil fuels, but not because they are fossil fuels, but for the wonders they have enabled humanity to achieve and continue to accomplish. As we speak, hundreds of millions of lives are being raised out of poverty and despair through fossil fuel energy. Fossil fuel energy has already solved the problem of world hunger, essentially eliminated the risk to human life from a naturally dangerous climate (deaths due to extreme climate conditions have decreased about 96% in the last 80 years, a period in which most of the fossil fuel in history has been used), enabled a vast division of labour and incredible specialization that has led to incredible wealth for the average person that was unimaginable to kings a hundred years ago. Yet this is what you are against and what you would have us give up - for what and in the name of what? For a life much shorter, poorer and filled with wretchedness where self-declared people who know better than we do dictate to us how we must live our lives. This in the name of the prophets of doom and their dis-proven computer models whose predictions are all over the map and have all over-predicted factual measurements - all in the same direction, because they contain the same false premises. Let the models and their true believers compete on an open betting market for accuracy and let the catastrophists place their bets on the accuracy of their predictions and let's see who loses all their money and who takes it all away. Now THAT would be a real type of market rent - a market for forecasting ability that rewards success and punishes irrationality. My money and the smart money is on the null hypothesis. I have no doubt that thanks to fossil fuels we will discover even better and more abundant sources of energy, but until then coal, gas and oil are the very best we have - and we are getting ever better at discovering sources of them, extracting them and converting them into usable energy that has lower and lower negative effects and greater and greater positive benefits. We now know of enough sources to last about a thousand years and we have just begun to discover how much energy is truly available to minds left free to search, discover, experiment and create. I believe that thanks to fossil fuel powered science we will soon have the use of essentially unlimited fusion power with a density a million times that of oil, that will replace almost all other sources of energy and will advance human progress as much as fossil fuels have already done. Until then, we owe it to ourselves, our lives, our children and those whose societies are still way behind ours to make the best use of fossil fuel energy we can and to continue to improve its use in every way possible.

Tuesday, July 19, 2016

Ottawa-Vanier climate consultation was a setup

Note: I posted this on the Ecology Ottawa site yesterday and today it has been removed after just a few hours.  I tried to re-post it but they seem to have blocked me. This time I edited a few remarks they may have considered inflammatory and wrote a preamble asking them to treat this as a reasoned, thoughtful argument and let readers make up their own minds by allowing them to read it.  We'll see if they allow it.

The Federal Government wants to hear ideas from everyday Canadians about climate change. In many communities in Canada there are consultations going on that are supposed to enable us members of the public to have a voice in policy making.  I attended one of these in Vanier (Ottawa) in July 2016 and can tell you the entire event appeared to attract mostly people with a certain view, funnel them into discussion on topics that were pre-selected, have group notes taken by people whose minds are made up and have full-group statements made only by those same note takers with no opportunity given for individuals to address the full audience or speak up to the municipal politicians in attendance.

The event was hosted by Ecology Ottawa, whose website report on the event can be read here.  On the way into the event the reception table had literature about stopping energy pipelines such as the proposed Energy East, which would allow the product of Alberta and Saskatchewan to be shipped to refineries in eastern Canada with less wasted energy and much more safely than by using trucks and rail. This immediately made it obvious the town hall was not to be a full and reasoned discussion but a directed lobbying effort with foregone conclusions.

At the start of the session there was no initial presentation of facts upon which the discussion was supposed to be based. Rather, there were pre-written questions written on cards that were placed on tables - questions that presume to summarize a vast scientific data set that in fact remains under great debate and dispute, never mind the extrapolated implications that can be dis-proven with a little knowledge of economics. It was perfectly clear to me that the presumptions of the evening included the idea chain known as dangerous anthropogenic global warming (DAGW), namely that:

  1. the planetary mean temperature is rising
  2. this rise is outside the historical range
  3. the rise is caused by atmospheric carbon dioxide (CO2)
  4. human activities are causing the rise of CO2
  5. the rise of CO2 and temperature represent a significant danger to human life
  6. human industrial society cannot easily adapt to the temperature change
  7. drastic measures to reduce then eliminate the use of energy sources that produce CO2 are warranted
  8. governments are morally correct to initiate force against energy producers and consumers (everyone) to coerce them into taking these drastic measures.
In a chain of reasoning if one link is erroneous then the conclusion cannot be supported. When I first began to study these issues in the early 2000s I accepted some of these assumptions as true but I quickly learned there was a great deal of contradictory evidence and that much of the information supporting DAGW was exaggerated, misleading or even falsified. I found that except for item 4 in the chain above, everything else in the list was either patently wrong or at least there was serious concern about its validity and/or significance.  Eventually I realized that the whole concept of DAGW was so fundamentally flawed that it could be safely rejected as irrational but that it would likely take humanity many years to purge the errors from the realm of public discussion. As the weight of scientific evidence de-bunking DAGW continues to grow, its advocates are doubling down on their rhetoric and lobbying effort to gain political power before the scheme is exposed as delusional.

Now back to the town hall event. As I said, the discussion questions were pre-selected and presumed all of the eight statements above are true. Participants were asked to discuss topics such as innovation to reduce CO2 production, ways to reduce CO2 production in daily life and the like. I chose to sit at a table where innovation was the main topic.  Realizing the group leader (an Ecology Ottawa representative) and the group itself would likely stop listening and become hostile to further ideas if I voiced my direct opposition to their DAGW assumptions, I chose to actively listen and to try and inject an element of rationality into the discussion. For example, when others advocated for massive use of government force against citizens in the areas of housing and transportation I suggested that all proposed measures should be tested against a vital standard - the harm they might do to our most vulnerable citizens if the measures were enforced, absent such distorting side-measures such as subsidies and wealth confiscation and redistribution, which mask the true and intended policy effects. If a policy makes energy more expensive and thus makes life harder for citizens, the damage to their lives must be considered, not to mention the more important moral propriety of causing them harm in the first place. Taking one person's wealth and giving it to the damaged person does not solve the problem, it only expands the scope of damage.

I tried to get our group talking about energy innovation and to show that while fossil fuel energy is currently the best source of dense, abundant, safe, cheap and portable energy, that it was not likely to remain so as nuclear fission energy could be unshackled and replace much fossil fuel energy with far less CO2 production, never mind the exciting potential of nuclear fusion in the near future that has unlimited potential to produce safe, distributed, cheap and abundant energy to all of humanity, improving human life by an enormous measure without CO2 emissions. To my dismay but not my surprise, one group member spoke strongly against fusion energy by saying that abundant cheap energy would release heat and cause the planet to warm dangerously.  He apparently has no idea that the amount of heat itself is not a dangerous issue and that the Earth's climate system has a number of auto-regulatory mechanisms that prevent large changes in temperature, absent external changes in energy from the Sun. The fact that he saw what could be the greatest source of energy ever discovered, that could advance the quality of human life beyond measure and lift entire civilizations out of poverty, starvation and disease if allowed to progress as to be avoided at all costs was a scary testament to the philosophy of those who believe in DAGW. Maybe he thinks solar panels and windmills do not produce heat as a by product or that society should stop progressing or even regress to pre-industrial times.

At another point I tried to help the group see that cooperation (persuasion by means of reason, a part of the political-economic system known as capitalism) was the proper and moral path to energy policy and that coercion (use of force to override the free will of individuals) was to be avoided as improper for a free, human, reasoning society. While there were a couple of faces that appeared sympathetic to the idea, I sensed a lack of understanding of what political force really means and a young man beside me stated clearly that while persuasion and cooperation are good, that at a certain point force must be used.  In this context I did not dare to point out to him and the group that his was the political ideology of Lenin, Mao, Stalin, Pot, Chavez, Castro and many others whose policies led to the death and suffering of hundreds of millions of human beings. I did not point out that his idea was contrary to the discovery of political freedom in the enlightenment, the advance of humanity in the consequent industrial revolution and the founding principles of the country he lives in. Such statements would have certainly provoked strong emotions and blocked any modest, reasonable ideas I was trying to get on the table.

I must give credit to our group leader dutifully and quite fairly recorded comments and did not override the discussion. During the summary session he actually mentioned my idea of having a "harm test" for every policy initiative. However, the entire event was structured so that no participant had any opportunity to speak to the whole group since only Ecology Ottawa group leaders were given the floor, and they generally spoke from the very same perspective, having likely had only participants from that same perspective.  I think most people like me, who have opposing views based on considered research and reasoning, would not consider attending an event positioned like this as they would see it as a waste of time and they would not be listened to.  That was my expectation yet I chose to use the event as an opportunity to look inside the minds of those who have opinions different from my own, to see if I could learn more about them, how they came to hold these ideas, how well reasoned they are and if they are open to discussion. 

I am sad to say my impression is that they are not at all open on this subject. When have you heard of a public debate on the science of climate change? When has such an event been held by your political representatives to help them understand the related issues? Why do people like Al Gore steadfastly refuse to engage in a public debate? Why are people with differing opinions being prosecuted for holding these ideas? Why does David Suzuki advocate for jailing people who produce life-promoting fossil fuel energy and those who advocate for its continued use? Why do so many people ignore the basic science done by hundreds of researchers all over the world that contradicts and even disproves all aspects of the DAGW hypothesis chain of ideas and instead continue to advocate for massive political force against innocent citizens?  These questions and many more will need to be answered and understood if humanity and our life-promoting industrial civilization is to survive long into the future. Such crucial topics will very likely not be discussed at climate change town halls across Canada.

Monday, June 6, 2016

Comments on "Our car runs on the sun"

The June-July 2016 Image article “Our car runs on the sun” not only contained a number of explicit and implicit fallacies, but more importantly it omits the economic and moral aspect of government solar panel and electric car subsidies. Let me explain.

First, the economic side of the issue.  Having personally installed, maintained and used solar panels at my off-grid cottage for more than 20 years, I am very familiar with the technology. It galls me when people speak glowingly of their solar panel installations and completely miss the deliberate negative consequences when government interferes in the market for energy. Basic economics indicates we have abundant, safe, dense and portable fossil fuel supplies to last us centuries, long before which we will certainly have found even better energy sources, with nuclear fusion a most likely candidate I think (and hope). While photovoltaic panels are coming down in price and getting better, they are nowhere near viable as sources of reliable industrial scale energy, costing several times as much as existing energy sources and suffering from being intermittent, unreliable and low in power density.

To build solar panels requires intensive mining for rare earth minerals, often done in third world countries that are less wealthy and so do not take such great care in the handling of toxic by-products and in site restoration. To build electric cars and their huge batteries again requires large amounts of mining for minerals, not to mention all the other industries required to build the car. Then there is the fact that every panel connected to the grid decreases grid reliability and efficiency since, in contrast to existing sources, solar panels spit out power in an unpredictable fashion, forcing reliable power plants to ramp their use of coal, gas, nuclear and hydro up and down to balance the grid second to second. Thus, reliable industrial power sources are made less efficient because of the constant adjusting for solar power. For every kilowatt of solar panel connected, the grid requires 100% backup by a reliable energy source for the majority of the time when the sun doesn’t shine, thus making the whole system more expensive for everyone, harming most those who can least afford deliberately jacked-up prices. When the people harmed most complain, government gives them subsidies too, so they are first being punished and then rewarded for the same thing, both actions being outside the proper role of government.

Now to the moral problem. If solar panels and electric cars were in reality such wonderful products, people would flock to buy them and create a large and viable market for them. Exactly the opposite has happened. Unless government uses money forcibly taken from taxpayers to heavily subsidize panels and cars, almost no one buys them of their own free will and based on their rational judgement. The writer of the article is being paid about ten times the price at which energy can be produced, absent government interference. In truth, he is being paid on the backs of the people who cannot afford to put $20,000 panels on their roof and buy $40,000 cars. This is pure “weathfare” - the more wealthy being subsidized on the backs of the less wealthy, and is immoral since it is a case of government violating the rights of some citizens to benefit others. Ontario’s Auditor General has highlighted how Ontarians have paid tens of billions more for power in recent years than they would have if not for government interference. This has caused great harm to all Ontarians and is blatantly anti-freedom.

While it is tempting to read the simple story of one family and think it is a nice, encouraging story of how to make Ontario better, while it is actually a cautionary tale of the economic destruction, rights violations, inadvertent consequences and immoral outcomes that have to occur when government force interferes in the free decisions of citizens.

Thursday, May 26, 2016

Financial illiteracy in the press and in society as a whole

While Ottawa east opinion writer Brynna Leslie belittles the importance of financial literacy, she exemplifies it in her opinion piece. It is clear she has not sought any professional advice, nor did the CBC Radio economics reporter she refers to. If they had, they might have learned some of the following basic financial principles.

She likely would have learned that you don't "make some good money in interest." Interest is a payment in return for borrowing your money and interest is normally a part of what is left over after the borrower has made a profit using your money. The source of wealth creation is ownership of the means of production, meaning businesses, companies, shares, stocks or whatever name you prefer to give them. With financial literacy she certainly would not have labeled the source of all wealth as "junk."

She could have learned how important it is to match the time horizon of an investment with a suitable investment type. Earning interest through a bank is suitable for short term goals because there is little fluctuation, but is spectacularly unsuitable for longer term goals because of the inherently lower returns of fixed income investments, especially one inflation is subtracted.

She could have discussed how growth investments fluctuate, but with diversification and prudence the probability of a negative outcome decreases exponentially with time. An advisor would have shown her how important it is to have patience and to understand the fluctuating nature of investment markets and coached her to avoid making mistakes of timing and selection.

With advice, she would have understood the difference between saving and investing, earning interest versus earning profits, and thus embraced the crucial incentive to save and invest - the pursuit of wealth accumulation and creation through rational self-interest.

If she was financially literate or rational enough to seek help from a financial advisor, the economics reporter Leslie refers to would have never dared advise her own daughter to "blow her pocket money on Cheezies" instead of learning about investing and personal financial independence, then reported it to the world.

The state of financial education in our schools is nothing less than a travesty and a moral outrage - testimony to the awful result of government monopolies.  Ask yourself the same question I do when I start a conversation about finance with someone I know little about: "in your primary, secondary, college and university education, how many minutes of instruction were dedicated to the understanding of critical, real-world personal financial principles?"  The usual answer is... zero.

What percentage of high school graduates are not only expected, but required by law to file annual income tax returns once they have their first job, which is usually before graduating from high school?  100%.  What percentage of these graduates is even remotely familiar with the structure and principles behind income tax? The answer is scary - for all of society.

Brynna Leslie's column is testament to the failure of our education system to prepare students for reality and the failure of our society to value financial education. Until such time as the subject is embraced (and even more so if it ever is), financial advisors provide an essential service to their clients and create enormous value in society.

Sunday, March 20, 2016

Morality and fossil fuel energy production vs. global warming alarmism

A letter to the editor prompted me to write directly on the subject of the morality of fossil fuels and global warming. +++++++++++++++++++++++++++++++++++ Let's address the question of morality head on. My standard of morality is human life. That which improves human life is the good, that which opposes human life is the bad.

The industrial revolution, powered by the energy ingeniously discovered and then released by humans from dense, inexpensive, portable and abundant fossil fuels like coal, oil and natural gas, has led to the most magnificent advance in human life in all history. Our food supply has been multiplied many times over due to fossil fuel powered machinery, irrigation, fertilizers and transportation; our housing quality has improved many times over by fossil fuel powered machines for lumber production, the creation of cement, the mining for minerals and smelting of steel; our education has improved immeasurably by machines that enable the production of paper, presses for printing books, the transportation of knowledge, the creation of schools, and lately the storage and sharing of knowledge in electronic form; our health and longevity is fantastically better due to fossil fuel powered machines that have purified our water, transported it to our homes and taken sewage away for treatment, the improvement of our supply of nutritious foods transported quickly and safely from afar, the hospitals, machines and pharmaceutical discovered due to fossil fuel powered civilization.

In short, there is no area of human life that has not improved vastly due to our use of fossil fuels. What about the dangers we face from the climate? Has our climate become more dangerous in the last one and two centuries? Has there been global warming caused by man's activities that has led to death and suffering? I dare you to look around and conclude that the climate is more dangerous with the use of fossil fuel energy than without. Until the advent of fossil fuel powered civilization the climate was an ever-present danger, with millions suffering from malnutrion, drought, floods and storms every day. In fact, climate related deaths are down 98% in the last eighty years, meaning humans are 50 times less likely to die from extreme weather events like storms, floods and drought - and this during the same period when most of the fossil fuel energy (and CO2 production) has been produced. The alarmists speak as if the small possibility of a degree or two of warming will leave humanity unable to adapt and lead to wholesale death and suffering, when the overwhelming evidence is that we could easily adapt to such change and would most likely benefit tremendously from it, as long as we are left free to produce energy to power our industrial civilization using the abundant, inexpensive, dense, safe and portable power of fossil fuels.

Being moral means placing human life at the top of your priority list and judging based on all factors, positive and negative, not ignoring the positive and only looking at speculative negatives. The global warming alarmists are indeed profoundly immoral to the degree they fail to fully recognize the immense good that fossil fuel energy brings to humanity and the fact that with this energy we can easily adapt to the small changes we know are happening and even larger ones that are the subject of much speculation. The travesty consists of failing to acknowledge the great human/moral good created by man-made energy processes that produce carbon dioxide, never mind the fact that carbon dioxide is the food of life itself. A side benefit of industrialization is that it is re-energizing plant life on Earth that grows faster with a higher level of life-giving CO2 in the atmosphere.