Coyote Blog

I have zero desire to be  a farmer.  But that would seem to be the logical end result if we take Obama’s recent statement to its logical conclusion.  He said in his Kansas “OK, I really am a socialist after all” speech:

Factories where people thought they would retire suddenly picked up and went overseas, where workers were cheaper. Steel mills that needed 100—or 1,000 employees are now able to do the same work with 100 employees, so layoffs too often became permanent, not just a temporary part of the business cycle. And these changes didn’t just affect blue-collar workers. If you were a bank teller or a phone operator or a travel agent, you saw many in your profession replaced by ATMs and the Internet.

As has been pointed out by economists everywhere since the speech, Obama is fighting against the very roots of wealth creation and growth and our economy.  Productivity improvement has always been the main engine of a better life for Americans, but here Obama is decrying it.

This reduction in employment in major industries due to productivity is not new.  It began with the agriculture.  Check this out from the always awesome Mark Perry

This is exactly what Obama is criticizing.  Without productivity improvements of the type Obama seems to hate, nine out of ten of you would be laboring in a field rather than reading this on the Internet.   Are you poorer because you don’t have to grow your own food?  Of course not.   Every time we increase productivity in a major industry, we fee up labor for the next big thing.  We couldn’t have had the steel or auto or oil industries if agricultural productivity improvements had not feed up labor for them.  The computer revolution would be impossible if we all were working in steel mills.

PS- of course this does not work if the next big thing, say domestic gas productions through fracking, is blocked by the government and private investment capital is diverted by the government to cronies with a solar panel factory.

It is possible for the theory that the climate has a high sensitivity to CO2 (ie that a doubling of CO2 concentrations will lead to global temperature increases of 2.5C or higher) to be correct while still having ten years of flat to declining surface temperatures.  That is because Earth’s great surface heat reservoir is the oceans, not the atmosphere, and so the extra heat from the greenhouse effect could be going into the oceans rather than into near-surface air.

However, it is NOT possible, as least as we (and by “we” I mean everyone, skeptics and alarmists alike) understand the climate, for CO2 to be holding a lot of extra heat and it not show up either in surface temperatures or ocean heat content.  The greenhouse effect does not turn off — its effects may be masked in the chaotic weather systems, perhaps for years, but if the climate sensitivity to CO2 is really as high as the IPCC says, there has to be new heat going somewhere.

That is why a number of folks, including Roger Pielke, have argued for years that the best way to monitor whether we are truly seeing an additional forcing or heat input to the climate is to look at ocean heat content.  Understand, changes in ocean heat content would not tell us where the heat is coming from (e.g. anthropogenic CO2 vs. solar activity).  But it is pretty much impossible for us to imagine a new heat input to the Earth’s surface, like greenhouse gas forcing from anthropogenic CO2, without observing its effect in ocean heat content.

I will turn over the story to Jo Nova, who has a good post on the new tools we have to measure ocean heat content since 2003.  In short, though, we have seen no rise in measured ocean heat content since we started measuring with technology dedicated to the task.  This means, if those who believe the climate has a high sensitivity to CO2 are right, something like 50,000 quintillion joules of energy have gone missing since 2003.  This is the “missing heat”, and though climate scientists sometimes discuss it in private, they almost never do so in public.  Ocean heat is the dinosaur bone fossil that the creationists simply don’t want to acknowledge.

Read the whole thing.  It is very simple and well-written and written.

PS- note in the chart above, the y-axis is mis-labelled a bit, it is not absolute heat content but changes in heat content from some base period.  Scientists call this the “anomaly.”  This is typical of many climate charts.

Well, it appears that Solyndra has not scared solar companies off from feeding at the state trough

More subsidies for the solar industry in Arizona are crucial to avoid being left behind by other states and China, a Phoenix business leader said today at a solar-power conference.

Tax incentives and loan guarantees “make a lot of sense” right now in Arizona, which is already a leader in the industry, said Barry Broome, president and CEO of theGreater Phoenix Economic Council at the Solarpraxisconvention.

Despite the high-profile financial failure of the Solyndrasolar plant this year in California, Broome told a packed conference room that solar power is destined to be a major force in Arizona and elsewhere. The only question, as he sees it, is whether sunny-skied Arizona will take full advantage….

Behind Broome on an overhead screen, a chart showed that Texas, Oregon, Nevada and other states provide more “aggressive economic development tools,” (a.k.a. public money), for solar power than Arizona, and the state can’t compete without doing the same thing.

What is this, a football game?  This strikes me as turn-of-the-century small town boosterism updated to the 21st century, with a dollop of tribal rivalry thrown in. He’s talking mainly about manufacturing of solar components.  I am left with a couple of questions

• Why should the fact that Arizona has sunny skies have any bearing on whether or not it is an appropriate spot to manufacture solar panels.   Should Seattle subsidize umbrella manufacture because it is rainy there?   My sense is that transportation costs are a small part of the price to end users.  Arizona clearly will be a great spot for solar panels to be installed — why does that mean we need to manufacture them?
• If other states like Oregon or China are subsidizing solar products that we might buy, shouldn’t we celebrate that?  Thanks, taxpayers of Oregon, for forking over your tax money so we can buy solar panels cheaper in Arizona.  Why in the hell should be try to out-do them at this?  Now we can go invest our capital in a business that actually makes money.
• I am obviously not a fan of government-led economic/industrial policy, but if I were, why in the hell would I want to direct my state’s capital and manpower towards a business that requires subsidies, ie can’t make a profit  on its own in the marketplace?

Its just too easy to snipe at about everything in this article, but this caught my eye in particular

To help move the industry’s message, Broome said, solar advocates must stop infighting over their competing technologies and present a unified and positive position.

Normally, I think an economist would argue that in an immature (both market-wise and technologically) product, competition and creative destruction between various competitors is critical to ultimate success.  So in fact this advice is totally senseless, unless you see the industry as a taxpayer-money-magnet rather than a real business, and then it makes perfect sense.  Politics, after all, demands simple sound bytes and a unified front.

Update:  In the first week of Harvard Business School, I learned a lesson from strategy class, in a series of two cases, that still may be the most important thing I learned there.  The cases were a hot, sexy electronics company, and a boring, dull as dirt water meter company.  To cut to the chase, the electronics company sucked as an investment, and the water meter company was a gold mine.  The moral, among several takeaways, is don’t get fooled into thinking the hot, sexy business of the moment is necessarily a good investment.  Our development agencies in AZ are making this mistake in spades.  In fact, the entire history of government economic development efforts in Phoenix has been to chase sexy businesses at the top of the market, spend taxpayer money to get some plant relocations, and then see the businesses struggle.  We certainly did this with semiconductor fabs a couple of decades ago.

I am willing to believe that the initial push into alternative energy subsidies was undertaken with good, honest (though misguided) intentions to change the US energy mix.  But once such a program is begun, it inevitably gets turned into cronyism.

The best example is probably corn ethanol.  A combination of subsidies and mandates have pushed an enormous proportion of our food supply into gas tanks, for little or even negative environmental effect.   Environmentalists and the Left turned against it, but for a few large corporations like ADM, the subsidies have become life and death, and they do anything they have to to get Congress to maintain them.

The best evidence that corn ethanol shifted from a green program to pure cronyism was the imposition of large import tariffs.  The only possible purpose of these tariffs was to enrich farmers and a few manufacturers.  After all, if one really cared any more about getting more ethanol in the fuel supply, one would welcome low cost imports.

Well, the Solyndra debacle has started to make clear that cronyism has taken over solar subsidies as well.  Every day we find yet another high-ranking Obama supporter with his thumb on the scales tilting the DOE funding decision toward Solyndra.

Now we will see the ultimate test:

A group of U.S. solar-panel makers Wednesday called on the federal government to punish Chinese rivals with extra duties for allegedly dumping their products on the U.S. market…

The U.S. makers are asking the Department of Commerce and the International Trade Commission to impose a duty on panels imported from China, a market that totaled $1.6 billion in the first eight months of 2011. SolarWorld accused Chinese manufacturers of selling solar panels at less than half of what the production costs would be in a comparable free-market economy, and is asking for tariffs to make up the difference.

One could argue that this is in direct response to the Solyndra failure.  Solyndra’s failure has been blamed on low cost panel manufacturing in China.   Again, if we care just about energy, we should be thrilled about low-cost Chinese solar panels.  If the Chinese government wants to somehow subsidize our consumption of solar panels, great!

Watch this proposal.  Any politician that jumps on this solar tariff bandwagon will be saying “My statements about wanting to see more solar usage is just a bluff, I only really care about subsidizing a few selected businesses.”

David Roberts (via Kevin Drum) gives us a simply outstanding view of the mind of a statist:

In these grim economic times, one U.S. industry has defied gravity. Not only is it growing, it’s thefastest growing industry in the country. It now employs 100,000 Americans at 5,000 mostly small businesses spread across all 50 states. Unlike in so many others, in this industry the U.S. has a positive trade balance with China; it is a net exporter of high-tech manufactured products….

The startling counter-cyclical growth of this industry had been unleashed by a modest bit of economic stimulus: a cash grant program that helps project developers compensate for the crippling credit crunch. In contrast to the familiar tax credits — which tend to go to large, mature companies that have enough profit to benefit from them — cash grants help small, innovative, growing businesses that are plowing revenue into growth. In fact, a recent study found that they work twice as well as tax credits. In 2009, this cash grant program pulled in $4.50 of private capital for every public dollar it invested.

The cash grant program expires at the end of the year. Extending it for a single year could support 37,000 additional jobs over and above the industry’s baseline. And here’s the capper: Since the cash grant program is simply repurposing money that’s already devoted to a tax credit program, it requires no new federal revenue.

So you’d think this would be a home run, right? At a time when jobs are at the top of every politician’s mind, surely a bit of low-cost economic stimulus that doesn’t increase the deficit and leverages tons of private capital and creates tens of thousands of jobs can serve as the rare locus of bipartisan cooperation. Right?

Except the industry in question is the solar industry. And because this industry involves clean energy rather than, I dunno, tractor parts, it has been sucked into conservatives’ endless culture war. Rather than lining up to support the recession’s rare economic success story, Republicans are trying to use the failure of a single company — Solyndra — as a wedge to crush support for the whole industry. Odds are they’re going to succeed and the cash grant program (Sec. 1603) won’t be renewed next year.

Do you see the basic assumption — if we don’t take money from taxpayers and give it to businesses in a certain industry, that means we don’t like that business.  Really?  That means that there is not a single industry in this country that I like, since I don’t support subsidies for any of them.   Unless you believe the state is mother and father to us all, the fact that I don’t support state subsidies does not mean that I don’t like the industry somehow.  Kevin Drum even goes so far as to say that opposition to solar power subsidies is an aspect of the culture wars.  Huh?   Oh and by the way, the politicization of this loan process is just amazing to me.  More and more people at Solyndra seem to be fund raisers for Obama, and here is a story of how a cleaning products company turned donations to Democratic candidates into taxpayers subsidies for themselves.

It is interesting that he would mention tractor parts.  Guess what, folks who don’t like the solar subsidies probably don’t support subsidies for tractor parts either.  I was going to say something like, “guess what, we don’t subsidize tractor parts” but in our screwed up corporate state, we probably do at some level, like with some special export program snagged by a John Deere lobbyist.  But I can pretty much guarantee that we don’t subsidize anywhere near the total value of the tractor parts industry like we do the solar industry.

In one silly passage, he says

“In addition to being successful, this industry is wildly popular with the American public, across regions, demographics, and political parties. It has been embraced by mainstream institutions from Walmart to the U.S. military”

I could say the same thing for iPods too, but no one is rushing to provide grant programs for their manufacture.  If it is so wildly popular, why does its use require so many government incentives and subsidies.  Because the author pulls the trick of looking at one narrow solar program, and attributing the entire solar industry growth to that one program.  And then he says, see, look how much benefit we get from this tiny sensible expenditure.

But solar’s growth (I don’t have the data, but I am willing to be real money that his “fastest growing industry” claim is BS) is due not to just this tiny programs but to a plethora of federal, state, and local subsidies and mandates.  The government gives money to capitalize companies, and then then provides tax credits for up to 30-50% of their customer’s purchase, and then through public utility commissions enforce above-market feed-in tariff rates for solar power.  One reason we export so much (the export market for US solar is nearly entirely to Europe) is that European governments have feed-in tariffs for solar power more than 5 times higher than the market rate for electricity.   They are paying something like 70 cents a kilowatt for solar electricity.

So of course solar is growing.  If the government were to buy small cars for $150,000 each, there would be big growth in car manufacturing. This does not mean the product makes sense — in fact, the necessity for so many government supports at every step of the process means almost by definition that it does not make sense economically.  Look at corn ethanol.  Corn ethanol is the stupidest product ever, but it has grown like crazy due to the same combination of government subsidies, price floors, and mandates.

By the way, I am a huge fan of solar, in theory.  I honestly think that solar will some day be the power system of choice in this country, as companies figure out how to roll solar sheets out of the factory as cheaply and quickly as carpet comes out of Dalton, Georgia.  We are not there yet, and I am not at all convinced that the current approaches are anything but dead end technologies.  Beyond wasting a lot of money, there is a real risk the government actually slow ultimate implementation of sensible and economic solar, just as I would argue they did by forcing manned space flight and the transcontinental railroad ahead of their time.

Bruce Krasting at Zero Hedge has been on the case of the Federal Financing Bank.  I am still unclear if the agency is actually providing the cash or just the guarantee, but it was the one rolling out the Solyndra loan (under DOE auspices, I suppose).

In July, it was still sending cash of some sort to Solyndra – it may be that this was just a drawdown of money under its original loan commitment, or it may be new money.  A couple of things you can see are:

• A heck of a lot of money was still going out the door to solar programs, likely with no oversight
• Ford, the supposedly bailout-free company, sure seems to be gobbling up a lot of government guaranteed loans for something.
• We were lending to Solyndra at 0.89% interest.

I was going to leave this topic behind, but I just couldn’t resist after Krugman’s bit of snark on the topic.   Please see my new Forbes column here.  One bit, actually off topic from the rest of the article, that I added as a postscript:

Perhaps the worst Administration decision of the entire Solyndra affair has yet to receive adequate scrutiny.  Just 6 months before Solyndra failed, the Administration allowed Argonaut, the largest shareholder, to grab the senior debtor position from the US taxpayer in exchange for $75 million in new financing.  The Administration’s argument was the loan was needed to buy time, but buy time for what?  Solyndra’s relative cost position was getting worse, and it was experiencing a huge loss on every unit sold.  No one involved has been able to say what the company was counting on to save it in the 6 months this loan bought it, except perhaps the opportunity to cajole another half billion out of the US taxpayer.

But the loan did accomplish two things.  First, it gave Solyndra time to sell every liquid asset it owned that might have been of value to…. Argonaut.  And once this bit of self-dealing was complete and the company was cleaned out, the bankruptcy process could be entirely controlled by Argonaut such that it will likely end up with all the assets, most important of which seems to be a $500 million dollar tax loss carryforward.  If Argonaut can take advantage of these tax shelters, it will end up costing the US taxpayer an additional $150 million or so.

In short, the taxpayer got rolled.  Again.

Update:  Marc Morano:

 ’When we had (Gulf) oil spill, we immediately had moratorium on off shore drilling. The oil industry was demonized & literally shut down’

‘But after the green energy debacle, they are being feted and rewarded — $9 billion more is being sent out to 14 more companies…Solar power is less than 1% of our electricity, yet this is being feted’

I have argued many times that private investors, over the long haul, will make better investment choices than the government, in part because they have better incentives and information to guide their decision-making.  The straw-man argument against this is to point out anecdotes of failed private investments.  Heck, I can do that.  Pets.com famously blew through $300 million of private capital with a corporate strategy that never made much sense to people.

The Pets.com investors were chagrined, and probably learned a lesson from their mistake.  Certainly most of us thought the blame, if blame existed, for the debacle rested on the investors for pouring money into a bad proposition.  Certainly no one accused the management of fraud — I am sure they were diligently, honestly trying to make the company a success, even if they were misguided as to where that success lay.

As it turned out, everyone, not just the Pets.com investors, learned from the mistake.  The failure was an important driver in an industry-wide rethink as to what a successful Internet business model might look like.  This benefit only came because people were willing to acknowledge not just that the Pets.com investment was flawed, but that it represented a systematic mistake that was being made vis a vis Internet startup investments.

Now, consider solar manufacturer Solyndra.  It failed this week, likely taking with it most of $535 million in taxpayer money that the Obama Administration was so eager to give them that it short-cutted its internal processes to fork over the cash more quickly.

Many of us on the outside would love to see the government rethink such investments in a systematic way, and reconsider if it is even possible for the government to make such investments, and in particular whether “green jobs” investments make any sense at all.

But the likelihood of that kind of introspection happening in the public world is about zero, and my bet is that Obama is going to propose more of the same tonight in his speech.

In fact, the Department of Energy (the source of the loan) and the FBI have today sent armed agents into Solyndra looking for evidence of fraud.   While Zero Hedge argues that fraud would be bad for Obama, in fact I think it would probably be the best possible outcome and one he is hoping for.  If he can say, “wow, you and I both got tricked here by some evil folks we are going to put in jail” it deflects attention from the fact that he put a half billion dollars of taxpayer money into a business plan that never made a lick of sense.

Another me-too solar manufacturer with a factory in California of all places was never going to compete in a global commodity market.  This company’s plan was always to sell dollars for 50 cents and to make it up on volume.  I don’t see how any investor thought this was going to work.  My guess is that the private investors didn’t know much about solar and invested because it had a certain hip-ness to it, or less charitably, they knew it never made sense but hoped that Uncle Sam, once it was already in for a half billion, would keep more money flowing or perhaps agree to buy out their production at above market prices.

There may have indeed been fraud, but as in the case of Pets.com, it is perfectly possible no real internal fraud existed and they ran through a ton of money against a stupid business plan that should never have been funded.  Obama would greatly prefer to call it fraud rather than his own failure of judgement.  As an aside, Fannie and Freddie are pursuing exactly the same course in suing banks, arguing that they were defrauded by the banks in buying mortgages, a fairly laughable proposition in the great scheme of things when one considers Fannie and Freddie were at the forefront of the industry in driving down lending standards and promoting the expansion of the mortgage market.

Most of you will know that the California solar company Solyndra has failed, burning through in less than two years nearly $535 million in taxpayer money.

I wrote in Forbes yesterday that it was a headscratcher why anyone thought this a sound investment

Obama’s investment of taxpayer money into Solyndra is a great example.  It is clear little due diligence was completed before the loan guarantees to Solyndrawere rushed out the door in 2009 in time to meet Energy Secretary StevenChu’s artificial target date for the first loan of Obama’s green jobs program.  A good, well-timed sound bite on the evening news was more important that the actual details of the investment.

But, in fact, little due diligence should have been necessary.  Already in 2009 it was clear that the solar panel industry had commoditized, and low-cost manufacturing would be the key to succefully competing in the market.  Further, European countries whose subsidies and high feed-in tariffs for solar were driving most of the market growth were already in the process of dialing back those incentives.

Surely any reasonable investor would have been leary about entering such a market with an under-scale startup, much less one which chose California of all places to build their plant.  Most rational investors would cite California as a huge liability in a falling-price commodity market, but it was an asset for a company trying to compete in capturing taxpayer dollars, being the home of many of the most powerful politicians most likely to buy into the green jobs boondoggle (of course it did not hurt that Solyndra’s largest investor is a major Obama campaign contributor).

It turns out that the numbers were worse than I imagined, and reading ZeroHedge, it seems like some outright fraud may be involved (hat tip to a reader who I cannot never figure out if he wants to have his name mentioned or not)

What was in the prospectus was, no doubt, the real reason that investor chose to take a ‘pass’ on the deal. There were revenue/expense numbers for the nine months preceding the proposed deal:

Revenue: $58.8mm

Cost of Goods Sold: $108.0mm

That is an absolute complete disaster. This is a low margin business to begin with. At Solyndra they were losing 84 cents for every dollar of sales. Adding in SG&A and CapEx the losses and cash drain had to be very heavy.

Wow, that is really a fail.  Even in the worst run late 90′s Internet company I ever encountered, they were not selling dollars for 50 cents.  One wonders what numbers Steven Chu and company saw before they funded this dog, and whether from the very beginning these guys were counting on a steady stream of 9-figure government subsidy checks.

This is like the third one in just a few weeks:

Solyndra, a major manufacturer of solar technology in Fremont, has shut its doors, according to employees at the campus.

“I was told by a security guard to get my [stuff] and leave,” one employee said. The company employs a little more than 1,000 employees worldwide, according to its website….

Solyndra was touted by the Obama administration as a prime example of how green technology could deliver jobs. The President visited the facility in May of last year and said  “it is just a testament to American ingenuity and dynamism and the fact that we continue to have the best universities in the world, the best technology in the world, and most importantly the best workers in the world. And you guys all represent that. “

The federal government offered $535 million in low cost loan guarantees from the Department of Energy. NBC Bay Area has contacted the White House asking for a statement.

Beyond the whole green jobs boondoggle, trying to compete at low-cost manufacturing of a commodity product in California of all places is simply insane.

here.

It’s a wonder how, when over “97 percent to 98 percent” of scientific authorities accepted the Ptolomeic view of the solar system that we ever got past that.  Though I could certainly understand why in the current economy a die-hard Keynesian might be urging an appeal to authority rather than thinking for oneself.

When, by the way, did the children of the sixties not only lose, but reverse their anti-authoritarian streak?

Postscript:  I have always really hated the nose-counting approach to measuring the accuracy of a scientific hypothesis.  If we want to label something as anti-science, how about using straw polls of scientists as a substitute for fact-based arguments?

Yes indeed, the number of people in the newly made-up profession of “climate science” that are allowed by the UN control the content of the IPCC reports and whose funding is dependent on global warming being scary probably is very high.  The number of people in traditional scientific fields like physics, geology, chemistry, oceanography and meteorology who never-the-less study climate related topics that wholeheartedly are all-in for catastrophic man-made global warming theory would be very different

 Decide for yourself – see my video on global warming.  Am I anti-science?

Today in Forbes, I have an article bringing the layman up to speed on Henrik Svensmark and this theory of cosmic ray cloud seeding.  Since his theory helped explain some 20th century warming via natural effects rather than anthropogenic ones, he and fellow researchers have face an uphill climb even getting funding to test his hypothesis.  But today, CERN in Geneva has released study results confirming most of Svensmark’s hypothesis, though crucially, it is impossible to infer from this work how much of 20th century temperature changes can be traced to the effect (this is the same problem global warming alarmists face — CO2 greenhouse warming can be demonstrated in a lab, but its hard to figure out its actual effect in a complex climate system).

From the article:

Much of the debate revolves around the  role of the sun, and though holding opposing positions, both skeptics and alarmists have had good points in the debate.  Skeptics have argued that it is absurd to downplay the role of the sun, as it is the energy source driving the entire climate system.  Michael Mann notwithstanding, there is good evidence that unusually cold periods have been recorded in times of reduced solar activity, and that the warming of the second half of the 20th century has coincided with a series of unusually strong solar cycles.

Global warming advocates have responded, in turn, that while the sun has indeed been more active in the last half of the century, the actual percentage change in solar irradiance is tiny, and hardly seems large enough to explain measured increases in temperatures and ocean heat content.

And thus the debate stood, until a Danish scientist named Henrik Svensmark suggested something outrageous — that cosmic rays might seed cloud formation.  The implications, if true, had potentially enormous implications for the debate about natural causes of warming.

When the sun is very active, it can be thought of as pushing away cosmic rays from the Earth, reducing their incidence.  When the sun is less active, we see more cosmic rays.  This is fairly well understood.  But if Svensmark was correct, it would mean that periods of high solar output should coincide with reduced cloud formation (due to reduced cosmic race incidence), which in turn would have a warming effect on the Earth, since less sunlight would be reflected back into space before hitting the Earth.

Here was a theory, then, that would increase the theoretical impact on climate of an active sun, and better explain why solar irradiance changes might be underestimating the effect of solar output changes on climate and temperatures.

I go on to discuss the recent CERN CLOUD study and what it has apparently found.

It does not appear that Rick Perry is the guy to dismantle our growing corporate state.

The LA Times investigates the big-money culture of Texas politics, which has gotten even bigger and money-er since Rick Perry became governor:

Perry has received a total of $37 million over the last decade from just 150 individuals and couples, who are likely to form the backbone of his new effort to win the Republican presidential nomination….Nearly half of those mega-donors received hefty business contracts, tax breaks or appointments under Perry, according to a Los Angeles Times analysis.

Perry, campaigning Monday at the Iowa State Fair in Des Moines, declined to comment when asked how he separated the interests of his donors from the needs of his state. His aides vigorously dispute that his contributors received any perks. “They get the same thing that all Texans get,” said spokesman Mark Miner.

Nearly half! And this doesn’t even include anything about David Nance and the largesse Perry distributes via his $200 million state-managed venture capital slush fund. Doling out political favors in industrial quantities is obviously something that isn’t frowned upon by Texas political culture, and Perry has taken it to whole new levels.

Kudos to the LA Times and folks like Kevin Drum for digging this up, but everyone involved should be embarrassed by just how partisan outrage on this kind of thing can be.  The same folks who are rightly upset at Perry actively cheered on Obama as he took ownership of GM away from the secured creditors and handed it to his major campaign supporters in the UAW.  His stimulus program has been a trillion dollar slush fund to pay off nearly every liberal constituency, and while I find the idea of a state-run venture capital fund horrifying, I see no difference here with Obama’s green job investments, many of which have gone triends, campaign supporters, and even spouses of prominent administration officials.

As I asked the other day, if the President is really supposed to be our VC in chief (an absurd thought) who in the hell would pick Obama for the job?  As one random example out of my feed reader:

Last year, Seattle Mayor Mike McGinn announced the city had won a coveted $20 million federal grant to invest in weatherization. The unglamorous work of insulating crawl spaces and attics had emerged as a silver bullet in a bleak economy – able to create jobs and shrink carbon footprint – and the announcement came with great fanfare.

McGinn had joined Vice President Joe Biden in the White House to make it. It came on the eve of Earth Day. It had heady goals: creating 2,000 living-wage jobs in Seattle and retrofitting 2,000 homes in poorer neighborhoods.

But more than a year later, Seattle’s numbers are lackluster. As of last week, only three homes had been retrofitted and just 14 new jobs have emerged from the program. Many of the jobs are administrative, and not the entry-level pathways once dreamed of for low-income workers. Some people wonder if the original goals are now achievable.

“The jobs haven’t surfaced yet,” said Michael Woo, director of Got Green, a Seattle community organizing group focused on the environment and social justice.

“It’s been a very slow and tedious process. It’s almost painful, the number of meetings people have gone to. Those are the people who got jobs. There’s been no real investment for the broader public.”

At the same time, heavily subsidized Evergreen Solar is going bankrupt.

Bloomberg News reports that the firm Evergreen Solar will file for bankruptcy and close its operation in Midland, Mich. The maker of solar cells cites over-capacity in the industry, competition from China and fewer government subsidies as contributing factors. According to Bloomberg, the firm has 133 employees worldwide.

Given a Michigan location and participation in a politically faddish industry, readers won’t be surprised that Evergreen was the beneficiary of special state subsidies and a local tax break. Specifically, three years ago Evergreen Solar was offered a $1.8 million “refundable” tax credit by the Michigan Economic Growth Authority. For firms with little or no tax liability, this amounts to an outright cash subsidy, contingent on attaining certain employment and investment milestones. Evergreen Solar’s specific tax liability is not public information.

The deal was based on crystal-ball projections from the Michigan Economic Development Corporation using a software program known as REMI, which predicted that an Evergreen deal would create exactly 596 direct and “spin-off” jobs by 2018, producing $18.5 million in new state tax revenue.

The city of Midland also granted property tax abatements worth $3.9 million over 12 years, according to Mlive.com. It’s not known how much, if any, of these subsidies and tax breaks were ever collected by the company.

This actually understates the total subsidies, as it ignores subsidies to its customers, incoluding above market geed-in tariffs, to buy the solar panels.

Closer to home, a Tucson solar panel manufacturer that was opened to great fanfare with the help of Janet Napolitano and Gabby Giffords just closed after being open barely 2 years.  They scored some subsidies, got some large government and utility contracts on the promise of local employment, and then packed up shop for China.  Apparently they were attempting to compete in the commodity solar panel market on a strategy of having a higher fit and finish on their product, a product that sits on the roof and no one ever looks at.  Good plan.

There may be something interesting coming out in the climate front over the next few weeks from CERN.

Years ago, a researcher named Henrik Svensmark developed a hypothesis that cosmic rays can seed cloud formation, and thus when there are more cosmic rays, there may be more clouds.  This is interesting because it may act as a sort of solar amplification.

Changes in the sun’s output through varying solar cycles are measurable, but seem to some scientists to be too small to drive substantial temperature changes on Earth.  But a more active sun tends to blow cosmic rays away from the Earth, thus reducing their incidence.  Therefore, if a more active sun reduced cooling clouds, and a less active sun increased cooling clouds, this might explain a larger effect for the sun.

I have avoided discussing Svensmark much, since the evidence seemed thin, though several labs recently have confirmed his hypothesis, at least in the laboratory.  But Svensmark is definitely a topic among some climate skeptics.  The reason is that higher solar activity levels  in the second half of the twentieth century coincided with much of the 20th century warming that is blamed on manmade CO2.  Svensmark’s theory, if true, might force scientists to apportion more of the historic warming to natural causes, thus reducing the estimated sensitivity of the climate to man-made CO2.

But apparently the CERN lab has been undertaking a substantial study to confirm or deny Svensmark’s hypothesis.  The results have not been released, but skeptics are beginning to anticipate that CERN’s work has confirmed the hypothesis of cosmic ray cloud seeding.  Why?  Because of the dog that did not bark, or rather was told not to bark.

Via Watts Up With That:

CERN Director General Rolf-Dieter Heuer told Welt Online that the scientists should refrain from drawing conclusions from the latest experiment.

“I have asked the colleagues to present the results clearly, but not to interpret them,” reports veteran science editor Nigel Calder on his blog. Why?

Because, Heuer says, “That would go immediately into the highly political arena of the climate change debate. One has to make clear that cosmic radiation is only one of many parameters.”

Skeptics are suggesting that had CERN disproved Svensmark, and thus protected the hypothesis that CO2 is driving most current warming, they would not have hesitated to draw exactly this conclusion in public.  Only a finding considered more consistent with the skeptical position would cause them to go silent, trying to avoid the taint from the politically correct intelligentsia that would come from even partially confirming a skeptic talking point.

I have to agree that Heuer’s comments seem to telegraph the result.  I have read a ton of global warming related studies.  And every single one I have read that has ever published negative results vis a vis the hypothesis of catastrophic manmade global warming has felt obligated to put in a sentence at the end that says something like “but of course this does not in any way disprove the hypothesis of anthropogenic global warming and we fully support that hypothesis despite these results.”  The absolute fear of becoming an outcast for coming up with the “wrong” result is palpable in reading these papers, sort of like the very careful language a report in Soviet Russia might have used to even mildly criticize some aspect of the state.  Of course, no such disclaimer can be found with narrow positive results – these are always immediately extrapolated  (in fact over-extrapolated in press releases) to be the final nail in the coffin proving once and for all that man is changing the climate in dire ways.

Newsweek has for a number of years been the poster child for the lost traditional media trying to find its way in the digital age.  Tina Brown was supposed to have been the brilliant media mind brought in to save Newsweek, but if anything she has made Newsweek even more of a joke.

Her major focus seems to be to use Newsweek as a platform for self-promotion, beginning in her first issue when she used the cover to promote her upcoming women’s conference and stroke her friend Hillary.  This week, she gives the cover over to promoting her biography of Lady Diana with a concept that People Magazine would probably have passed on — what would it have been like if Diana were still alive.  Seriously.  This is how far this magazine has fallen, trying to envision how the recent Royal Wedding would have been any more of a circus for the rich and over-dressed had Diana been in attendance.

But I probably would not have bothered to blog about it had it not been for this cover I saw in the airport.  Check out the horrible zombie Diana.  Jeez, is this a real story or a preview of Left 4 Dead 3?  Pre-order now and get custom DLC including the solar-powered chainsaw and the zombie Lady Di.  (You may have to click to enlarge to see the full horror).

I have to take this with a grain of salt, because it is coming from GE, the current American poster-child for rent-seeking, particularly in attempting to be a magnet for green energy subsidies.   But since the statement can be seen as under-cutting the subsidy argument, I have to take it more seriously:

Solar power may be cheaper than electricity generated by fossil fuels and nuclear reactors within three to five years because of innovations, said Mark M. Little, the global research director for General Electric Co.

“If we can get solar at 15 cents a kilowatt-hour or lower, which I’m hopeful that we will do, you’re going to have a lot of people that are going to want to have solar at home,” Little said yesterday in an interview in Bloomberg’s Washington office.

….GE, based in Fairfield, Connecticut, announced in April that it had boosted the efficiency of thin-film solar panels to a record 12.8 percent….The cost of solar cells, the main component in standard panels, has fallen 21 percent so far this year, and the cost of solar power is now about the same as the rate utilities charge for conventional power in the sunniest parts of California, Italy and Turkey.

I am all for that.  I have always had faith that solar would make sense someday, and that we would be ranking out cheap solar conversion surfaces like carpet out of Dalton, Georgia, but every time I have priced it to date on my house, even with huge government subsidies, it has not made sense.    In Europe, it requires 50-60 cent feed in tariffs (basically a subsidy in the form of above-market electricity prices paid by the utility for solar-sourced electricity) to get solar capacity installed, so 15-cents would be great and is approaching the cost of electricity in some high cost areas.

Here in Phoenix, FirstSolar does a ton of thin film.  I have always had mixed feelings about FirstSolar.  On the one hand, they live off subsidies and would basically not be in business if it were not for huge European subsidies of various forms.  On the other, though, they have been one of the few solar companies that actively have talked for years of a development path to a cost position that does not require subsidies.

The sun follows an (approximately) 11-year cycle as sunspots ebb and flow.  The peak of these cycles, ie the number of sunspots at the cycle’s maximum, is thought to correlate with the strength of the sun’s output.  In the past, periods with very low sunspot activity through an entire cycle have correlated with very cold temperatures (e.g. the Maunder Minimum and the Little Ice Age).

Well, NASA has updated its forecast for this cycle and it does not look good:

Current prediction for the next sunspot cycle maximum gives a smoothed sunspot number maximum of about 62 in July of 2013. We are currently over two years into Cycle 24. The predicted size would make this the smallest sunspot cycle in nearly 200 years.

The low cycle 200 years ago coincided with a decade or more of wicked-cold temperatures, particularly in Northern Europe  (think Napoleon’s army freezing to death in 1812).

One of the reasons this probably has not gotten much coverage is that climate scientists have worked hard in the media to attribute the vast majority of past warming, particularly in the period 1978-1998, to ppm changes in CO2 concentration.  But this same 2-decade period saw extremely high solar activity (as measured by sunspots) and ocean cycles like the PDO in the warm phase.  To maximize how much past warming was attributed to CO2, warming alarmists had to take the fairly absurd position that these ocean cycles and changes in solar output had only trivial effects on temperatures (much more here).

Well, we may find out over the next few years just how trivial Mr. Sun is or is not to the climate.  And we may well find out something else many skeptics have said for years — for activities like agriculture, cooling is way more damaging than warming.  In the Middle Ages, agriculture boomed from 1100-1300 even as temperatures rose higher than they are today (at least in Europe).  In the first decades of the 1300′s, cooling led to agricultural failure and famine, famines that are often credited for weakening the population and thus increasing the mortality from the Black Death a few years later.

Cross-posted from Climate Skeptic

I couldn’t care less what happens to my body after I die and I am done using it.  So the following, which I suppose is intended to freak me out, simply leaves me amazed yet again at green thinking

Undertakers in Belgium plan to eschew traditional burials and cremations and start dissolving corpses instead.

The move is intended to tackle a lack of burial space and environmental concerns as 573lbs of carbon dioxide are released by each cremated corpse.

Under the process, known as resomation, bodies are treated in a steel chamber with potassium hydroxide at high pressure and a temperature of 180c (350f).

The raised pressure and temperature means the body reaches a similar end point as in standard cremation — just bones left to be crushed up — in two to three hours.

My first thought on reading this was “Soylent Green is People!”

My second is to wonder how a torched body creates 573 pounds of CO2.  12 pounds of carbon combusts to 44 pounds (approx) of Co2.  This means that to combust to 573 pounds of Co2, the human body must have 156 pounds of carbon.  WTF?   But carbon in 18% of human body weight, which means that to produce 573 pounds of CO2, the human body would have to weigh 867 pounds.   One might be able to get this number by including the cremation fuel in the equation (though this is a generous interpretation since this is not how the article is written), but since it is usually gas used for cremation it would take a hell of a lot of gas given its low carbon content.

My third thought is what does any of this have to do with CO2 reduction

• The process occurs at 350F.  You mean no fossil fuels are used to get the chamber up to 350F.  What, are they using solar mirrors?
• The process occurs at high pressure.  This takes energy
• The end product is a carb0n rich soup that they pour down the drain or pour on their garden.  I have a clue for you, all oxidation is not combustion.  That carbon dumped in your garden or in your compost heap will still become CO2 even without seeing aflame.

Via Christopher Horner:

Spain’s Dr. Gabriel Calzada — the author of a damning study concluding that Spain’s “green jobs” energy program has been a catastrophic economic failure — was mailed a dismantled bomb on Tuesday by solar energy company Thermotechnic.

Says Calzada:

Before opening it, I called [Thermotechnic] to know what was inside … they answered, it was their answer to my energy pieces.

Dr. Calzada contacted a terrorism expert to handle the package. The expert first performed a scan of the package, then opened it in front of a journalist, Dr. Calzada, and a private security expert.

The terrorism consultant said he had seen this before:

This time you receive unconnected pieces. Next time it can explode in your hands.

Dr. Calzada added:

[The terrorism expert] told me that this was a warning.

The bomb threat is just the latest intimidation Dr. Calzada has faced since releasing his report and following up with articles in Expansion (a Spanish paper similar to the Financial Times). A minister from Spain’s Socialist government called the rector of King Juan Carlos University — Dr. Calzada’s employer — seeking Calzada’s ouster. Calzada was not fired, but he was stripped of half of his classes at the university. The school then dropped its accreditation of a summer university program with which Calzada’s think tank — Instituto Juan de Mariana — was associated.

Additionally, the head of Spain’s renewable energy association and the head of its communist trade union wrote opinion pieces in top Spanish newspapers accusing Calzada of being “unpatriotic” — they did not charge him with being incorrect, but of undermining Spain by daring to write the report.

More here on the failure of European green energy subsidies.

At a speech a while ago, I told this to an investing group a while back:  Do the math.  You can’t build a growth company on public subsidies.  It may be possible to grow at first when the subsidized activity (e.g. solar) is a tiny percentage of the market.  But once it starts to grow, the projected subsidies are astronomical.  The German solar subsidy is something like 50 cents per KwH — to give one a sense of scale, the typical electricity price from fossil fuels there or here is something like 8-10 cents per KwH.  Subsidizing just 20% of US electricity production at this kind of rate would cost $50 billion a year.  Subsidizing all production would cost a quarter of a trillion dollars a year.

Take a company dependent on subsidies, figure out what their implied size is in 10 years based on current stock multiples, and then calculate what the public subsidy at current rates would have to be to support that size and a reasonable market share (because competitors are following the same model).  Investors who do this will quickly figure out that the subsidies needed to support their favored company are unsustainable.  Phoenix-based FirstSolar, a sometimes-darling of Wall Street, has had  a rocky year.  Its stock price has had several steep falls, each one just after rumors that Germany would cut its solar subsidy rate (actually its feed-in tariff, but the same idea).

My advice to the group was that if you were investing in green energy, either your company had a three year plan to reduce costs to be able to compete profitably in a subsidy-free environment, or else you are investing in pets.com.

Update: If you have Nancy Pelosi’s husband on your board, you can probably extend your window to five years.

Of course this was going to happen.

An audit of solar-power generation from November 2009 to January 2010 found that some panel operators were paid for doing the “impossible” — producing electricity from sunlight during the night, El Mundo reported today, citing a letter from Secretary of State for Energy Pedro Marin….

Preliminary evidence shows some solar stations may have run diesel-burning generators and sold the output as solar power, which earns several times more than electricity from fossil fuels, El Mundo said, citing unidentified people from the energy industry. The power grid received 4,500 megawatt-hours of power from midnight to 7 a.m. in the months audited, El Mundo said.

Electric current is electric current.  However, in a country like Germany, the price that utilities are required to pay for electric current varies based on its source.  While electricity from, say, a diesel generator gets 4-5 Euro cents per KwH, ground-based solar gets about 48 Euro cents per KwH.  This is a 10x greater price paid solely for absolutely identical power manufactured in a different way.  So of course there is going to be fraud as to the current’s source.

Next week I am on a panel talking about alternative energy.  These guys have already told me they don’t want to re-fight the global warming science battle at this venue, and my guess is that there will be a lot of pragmatist corporate types who won’t really care about individual liberty or role-of-government issues  — they will only care if there is money to be made, even if it is by rent-seeking.  My best bet, I think, will be to discuss why alternative energy is a bad investment.  My sense is that it is a bubble investment, like goofy Internet stocks in the 1990′s or housing in the 2000′s.  Already, I think we see the crash in the corn ethanol business.

My two assumptions are

• I can’t think of any industries that were initially heavily subsidized that eventually found their way to competing successfully and growing without subsidies.
• With the exception of agriculture, the public’s tolerance for growing subsidies to a single industry eventually wanes.

I would love for commenters or emailers to send me contra-examples if they have them to either of these assumptions.  In particular, can you think of an industry that could not have grown initially without subsidies eventually prospering without subsidies.

To the second point, I looked at the numbers two ways.

1. In Germany, which is often held up as the model, feed-in tariff subsidies are between $0.06 (wind) and $0.50 (solar) a Kwh.  If the US reached a goal of 20% of its production in wind and solar (total production today is about 4000 billion KWh) then the subsidy would be between $50 billion and $400 billion a year.  It is hard to imagine these remaining popular for any period of time.  (lots of German numbers here and in the linked PDF)
2. Venture capitalists and investors are expecting the growth stocks they invest in to grow at, say, 30% a year.   Let’s assume alternative energy companies grow at 30% a year and the number of companies, attracted to the growth and subsidies, doubles every two years.  In this scenario, assuming unrealistically that the supply curve for alternative energy is flat rather than upward sloping, the amount of subsidies to support this growth would have to nearly double every year.  They would increase 21-fold in five years and 440-fold in 10 years.   In fact, given the shape of real supply curves, new more expensive capacity at the margin is replacing cheaper and cheaper alternatives, resulting in the need to grow subsidies even faster to keep up.   Never has happened, never will.  Once the industry outgrows the government’s willingness to grow subsidies, the whole thing crashes.

(PS – the subsidy could also be in the form of taxes that increase the cost of alternatives, or production and/or import restrictions on the alternatives).

Any help along these lines in the comments is appreciated.

Update: This seems relevant:

First Solar shares skidded 8% Friday to close at $116 after the company issued a murky business outlook beyond June. Until then, however, “orders look very strong,” First Solar CEO Robert Gillette said in a post-earnings conference call.

This commentary, along with price pressure and expected subsidy cuts solar panel makers get from the German government is making investors a bit more wary of First Solar, whose shares have been on a bumpy ride the past 18 months….

First Solar, helped by government tax credits extended to businesses for using solar power, has rewarded its investors since going public in November 2006 at $20 a share. The stock peaked at $317 in May 2008. But the shares have been skittish ever since.

Germany, the world’s biggest solar market, is weighing a 15% cut on so-called solar feed-in-tariffs. This could make solar installations less attractive.

First Solar projects 60% of its 2010 sales from German-related contracts, according to Wedbush Securities analyst Christine Hersey.

Remember from above, the German feed-in tariff for solar is around $0.58 per KwH, or fully $0.50 above the price paid for the fossil fuel base load.  At this subsidy level, the US would be paying $400 billion a year in subsidies and/or higher prices.

First Solar has grown at over 150% per year for the last 3 years so the 30% assumption above is conservative, as is the assumption about the number of competitors doubling every two years.

Another interesting note – First Solar makes a pre-tax margin around 33% of sales, which is over 6x larger than health insurance companies make (and are excoriated for).  Is it any wonder Germany no longer wants to keep subsidizing First Solar’s bottom line to levels far above most equipment manufacturing companies.

Bloom Energy is introducing what looks like a 200kW fuel cell that runs on natural gas for about $700,000.  That compares pretty favorably with the current cost of at least $2,000 per KW to build a coal plant, especially when one factors in reduced distribution and pollution costs.  We have gobs of natural gas and are finding more all the time, and (unlike something like hydrogen) the distribution and storage infrastructure is already in place.  Hope it works.

I often critique new energy technologies here, and that critique is often confused with a hostility to new technologies.  This is far from the case.  Living here in Phoenix, I would love to have cheap solar cells to spread over my roof like carpet.  What I am opposed to is government subsidies for technologies that are not even close to economic compared to current alternatives.   I don’t know the Bloom business model  (I am suspicious they have a large rent-seeking component if KP is funding them) but if they can make these work subsidy free, that’s great.

I often respond to various articles that a group of politicians are going to create a strategic plan** for the local economy that this is similar to my trying to choreograph a ballet .  TJIC has similar words for this effort:

Governor Deval Patrick and Senate President Therese Murray plan to propose this week several ways to improve the Bay State’s business climate, saying they need to be more aggressive in steering the region out of its economic malaise.

Both have lifelong careers in non-business sectors (government, academia, journalism, legal, non-profit).  TJIC responds:

Asking them to design programs to better the business climate is about like asking me to design menstrual pads – I don’t understand the sector, I don’t understand the features, I don’t understand the problems, and there’s no way that the effects of my work will ever come back to make an impact on me.

This is reminiscent of this great comment from Kevin Williamson  via Instapundit

The good news is that, when it comes to reshaping the U.S. mortgage market [any market for that matter — ed.], the Obama administration’s top guns are bringing to bear all of the brisk, rough-’n’-ready entrepreneurial know-how they picked up in their previous careers as university professors, nonprofit activists, and holders of political sinecures.

But we are spending more and more to get this “expertise”, as documented in a depressing post at Carpe Diem on the growth of government employment and salaries.  One chart out of many:

** Footnote:  About once a month we get some group lamenting that Phoenix has no master plan to create some kind of economic focus for itself.  One of the hilarious things about this is that if you go back and look, about half of the past proposals have Phoenix focusing on some super-hot industry (e.g. semiconductor manufacturing, e-commerce) that is just about to crash.  Lately, everyone has decided that Phoenix should be the center of the solar industry, because, uh, we have a lot of sun, without any particular explanation of why having a lot of sun should be an advantage in precision manufacturing and assembly of solar components.  But we are shelling out all kinds of tax breaks and subsidies for these companies to come here.  My prediction – solar will be the next ethanol.  In ethanol, increases in government subsidies caused a lot of manufacturing capacity to be built.  But subsidies could not grow as fast as capacity, and a glut resulted in a huge shakeout.  The solar boom will occur when a technology is perfected that makes solar economic without subsidies.  When that occurs, I will be the first in line to cover my roof in the new tech.