Diatribes of Jay

This is a blog of essays on public policy. It shuns ideology and applies facts, logic and math to economic, social and political problems. It has a subject-matter index, a list of recent posts, and permalinks at the ends of posts. Comments are moderated and may take time to appear. Note: Profile updated 4/7/12

07 January 2011

Vital Numbers

[For the latest on electric cars, and what now appears to be a three-way race between the Volt, Leaf and Ford Focus, click here. For a preliminary report on Ford’s announcement and Website, click here.]

1. Finance’s share of total business profits
2. Per-capita oil dependence
3. Other vital numbers, such as the inflation rate

We Americans live in a society governed by lawyers and words. Politicians (who are mostly lawyers) and broadcast propagandists act as advocates, using words to bend facts to their preconceived conclusions. Professional scam artists—also known as marketers, advertisers and public-relations people—have made twisting words, or using words to twist facts, a high art (see 1 and 2), if not a science.

In such a society, it is useful from time to time to think of numbers. Mark Twain once referred to “lies, damn lies, and statistics,” implying that numbers may be even more slippery than words. But that’s not entirely true. Just as body temperature, blood pressure and blood oxygen can gauge the health of a complex human organism, some numbers accurately reflect the health of a human society.

1. Finance’s share of total business profits

One such number is the percentage of total business profits arising from the finance sector. When human societies developed money, it was just a means of exchange, a mechanism for trading in things that have obvious intrinsic value: food, clothing, shelter, weapons for defense and (later) education, enlightenment, and entertainment.

We humans make money by producing a myriad of goods and services. At the most basic level, we mine minerals and metals and farm food, wood and decorative flowers. In a modern society, we turn these basic commodities into a bewildering variety of products, from furniture to toothpaste, iPods to rocket engines. In the process, we provide services from cutting your hair and repairing your teeth to replacing your kidneys, keeping your books, fixing your car or computer, and calculating your taxes.

In a healthy society, you might think that these many activities, all of which have real intrinsic value, would take precedence over handling money, which has value only by virtue of the things it can buy. You therefore might guess that finance would comprise maybe ten percent of business profits. Oddly enough, some of the oldest “laws” in human culture would roughly agree with you. The Bible sets the maximum interest rate at 10%, the Qur’an at zero.

So when the share of our own business profits derived from finance reached 41% a few years ago, you could tell we were a sick, sick puppy. It was like having a body temperature of 107.

The share has dropped a bit since then, but it’s still way too high. As the global finance sector cranks out more and more derivatives—many of which are functionally equivalent to money—our collective body temperature threatens to rise again. Ignore a fever and it can kill you.

2. Per-capita oil dependence.

Another such vital number has come to my attention recently. That’s the extent to which our society (and Canada’s, too) depends on oil for energy. This simple graph, produced by our own Department of Energy, tells it all. We and Canada use eleven times as much oil per capita as the entire developing world, including the BRIC countries.

Why is that number so telling? Well, to paraphrase Will Rogers’ joke about land, “They ain’t makin’ any more oil.” Regardless of when it actually starts to run out, it’s getting more and more expensive and difficult to find. Worse yet, its economic inelasticity, which increases daily with greater global commitment to internal combustion engines and their infrastructure, plus rapidly rising standards of living worldwide, condemns us all to steady and inexorable price increases, including some in the near-term.

In that sort of world, the societies that have the highest per-capita consumption are at a severe disadvantage compared to others, especially if they are in debt. Both characteristics describe us accurately. Like high body temperature or low blood oxygen, our extraordinary dependence on a commodity in limited supply, whose price will rise inexorably over the next few years, will exacerbate every one of our other real problems, including debt.

3. Other vital numbers, such as the inflation rate.

Other numbers also serve as vital barometers of a society’s health. One that is already well known is the inflation rate. In the Weimar Republic, an inflation rate exceeding four digits utterly destroyed Germany’s economy, leading to Hitler’s rise to power, Nazism, and the untimely deaths of some fifty million people. Some number!

Today we are well aware of the inflation rate as an important economic barometer. That’s why our own Fed obsesses regularly over it. Likewise, virtually every advanced society on Earth has a central bank that watches it like a hawk and uses every trick of monetary (and sometimes fiscal) policy to keep it down. As a result, Argentina’s post-Peronist hyperinflation was short lived, and the only nation suffering it now is Zimbabwe.

But just as medical science no longer contents itself with measuring body temperature, modern economics and politics should not rely just on inflation rates alone to gauge the health of their societies. There are other simple, easily comprehensible numbers that can help do that job.

In this essay, I have suggested two. The percentage of total business profits attributable to finance reflects the extent to which gambling and swindling and unofficial (private) monetary policy have overtaken (and therefore subverted) a society’s economy. The per-capita consumption of oil for energy reflects the degree to which a society’s energy infrastructure is backward, vulnerable to price shocks and steady Malthusian price increases and likely to lead to economic ruin.

There may be other numbers equally simple and useful. In this blog, I will try to discover and explain them when I can, and I’ll refer back to this post to explain their general significance. If we are able to monitor our economy’s and society’s health with simple, indisputable numbers, maybe we can return to proper health before sterile ideological debate ruins us entirely.

Ford’s All-Electric Focus: Preliminary Report (1/7/11)

One of the best and nearest-term expedients to reduce our per-capita oil dependence is electric cars. Today Ford formally announced its all-electric Focus at press conferences at the Consumer Electronic Show and in New York. While the announcement was sketchy on detail, including range, price and initial production quantity, Ford’s Website provided a few more.

Two points stand out from the announcement. First, Ford reportedly promised to produce five electric models in the US by 2012. No doubt this number includes Ford’s existing two hydrids and one commercial electric [same link, click on “HYBRIDS & EVs” tab at top]. So that means one other electric (or hybrid) besides the Focus. Second, Ford declined to specify the range of its all-electric Focus. That refusal makes engineering and common sense: range will depend upon terrain and temperature, among other things. Already GM has gotten into trouble by implying (falsely) that the range of an electric car is an invariable number like the range of a gas-driven car.

Ford’s Website shows a similar sophistication. Recognizing that the car will be an electrical product, it focuses on all the electronic gear to come with it. Most important among them is a set of graphic navigation and operational screens that will help drivers monitor their remaining range and locate remote charging stations as needed. These features address the chief marketing hurdle for electric cars: what I call “range anxiety.” The Website also notes the charging time with 250-volt equipment: three to four hours.

While Ford declined to specify a range, its Website did reveal the capacity of its lithium battery system: 23 kilowatt hours (kWh). This capacity compares favorably with the Leaf’s 24 kWh battery and is almost 50% higher than the Volt’s 16 kWh battery capacity. Specifying the battery capacity only, rather than a nominal range which will vary with driving conditions, once again emphasizes Ford’s understanding that an electric is not just another gas-driven car.

So far, so good. Ford’s spare but well-considered Website suggests that its engineers have informed its marketers of the essential characteristics of electric cars. Its announcement suggests some corporate commitment to the concept.

What remains to be seen is how deep that commitment is. How many all-electric Foci does Ford plan to produce? When will they be available in showrooms? Will they go to all states, or just a few test markets? And most important, what will they cost?

Ford’s announcement was a desperate attempt to avoid complete loss of the first-mover advantage. But since the Volt increasingly appears to be less than a real electric, and since the Leaf is of foreign design, Ford has said enough to get me to wait to learn more before buying a Leaf. Having waited most of my 65 years to drive electrically, I guess I can wait a few months more to make the right choice. Since I now live in a state that is unlikely to be a prime test market, I may have to wait even longer.

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