21 July 2006

Drug Research Financing and the Lottery

There is a big problem with how we finance drugs. We have private companies work to get patents who then sell drugs for whatever the market will bear.

The are a number of problems with this.

One is that at the foundation of the whole biotech industry is public funding for basic science research. Industry takes chemistry already brought just short of being ready for market in universities, and then does research and safety tests that take the final step, yet get all the profits.

Another is that very often, government is the primary consumer. With Medicare Part D (drug coverage) we are very close to a single payer system for all drugs directed at the elderly. Medicaid overwhelmingly, although not quite entirely, pays for health care for those with long term disabilities, like cystic fibrosis and Down's syndrome. Even when government doesn't pay for the drugs themselves, it often pays for the long term care made necessary by the lack of good drugs. About 70% of nursing home care is paid for by Medicaid.

Particularly in the case of drugs for geriatric illnesses, the government (which also does an excellent job of controlling senior executive pay in large organizations and doesn't make a profit) would be better off simply commissioning research on drugs, rather than waiting for private industry to do so and then paying a premium for government created patent based profits. Government should own the patents to many of these drugs in the first place.

Another aspect of drug research, the reason that drugs like those mentioned get invented at all, is health problems we must urgently want to fix, and health problems we know how to fix, often don't match up. Ritalin was developed as a diet drug, but the side effect turned out to be more valuable. The best bang for your buck heart drug today is asprin, again something it was not designed to cure. Drug research is glorified playing around with chemicals and finding out what they do to people, with a little targetting at the most promising prospects.

Insurance is designed to deal with differences in risks between patients. But, in the area of drug research, one of the better reasons for public funding, as opposed to private research, is that the real risk issue that needs to be spread out is over what conditions we end up finding cures.

Drugs like Remodulin® (a drug that costs $100,000 a year for life to treat a rare circulatory condition known as PAH) were the product of generalized research on circulatory system drugs. PAH sufferers got lucky. One of the things that R&D ended up being able to cure was PAH. It could have been the blood clots people get on long airplane flights. It could have been hemaphillia. It could have been strokes in people with high cholesterol. Everybody pays in, in the hope that somebody is going to win the lottery and have a disease that they suffer from cured. But, it is more a product of accounting rules than scientific fact that the R&D cost was allocated to PAH sufferers, instead of someone else. Making the pills themselves isn't all that expensive. The $100,000 a year drug prices are amortization concepts in action. But, sometimes, it would make better sense to finance drug R&D the same way we finance the lottery. All potential winners pay in a little on a regular basis. Now and then, somebody gets a big payoff. People who participate think the payoff is a good thing. So the game continues. And, unlike the lottery, coming out behind in the drug research game isn't a near statistical certainty.

* * * * *

There are also many people who think that the reason that drugs should not be handled by a pure market based approach is that they are necessities. I don't agree. That is an argument for making sure that people have health insurance, not for changing the way the drug market is organized.

Lots of real necessities, food, clothing and housing, for example, are provided perfectly well through a primarily market mechanism. Being necessary isn't what makes the market problematic for drugs. If people can't afford necessities, the solution is to give them more money, not to redesign the goods market.

(Likewise, the reason other necessities, like water, are provided by public enterprises for the most part, is not because they are necessities, but because of the economies of scale involved. It is a natural monopoly.)

The biggest reason that the market is doing a poor job with drugs has nothing to do with their necessity. It is a combination of the fact that most of the value of a drug is government created intellectual property value rather than ordinary good value, and the fact that government is already and inextribably deeply involved in the market.

Notably, nobody is complaining seriously about problems with the generic drug market. It is working just fine to provide quality products at a reasonable price to large numbers of people, largely free of political games, with only minimal government involvement mostly to insure safety standards, just like the markets for food, clothing and housing.

What the market is turning out to be doing a rather poor job of doing is financing drug research. It isn't that it doesn't finance drug research. Private enteprise spends loads of money on drug research. It's that the wrong people are paying for that research, that people are paying too much for that research, and that economic incentives to conduct that research don't match the health based needs very well.

Should the NAACP Worry About Estate Taxes?

President Bush, in his address to the NAACP said that "the death tax will prevent future African American entrepreneurs from being able to pass their assets from one generation to the next."

Is that concern justified? No. "[O]nly 59 African-Americans will be subject to the estate tax in 2006, and 33 in 2009."

The total number of American decedents subject to the estate tax in 2006 will be about 12,600, and about 7,100 in 2009. So, African-Americans will make up about 0.5% of people who owe estate taxes in 2006, and about the same percentage of people who owe estate taxes in 2009, even though 12.8% of Americans are African-American.

Put another way, about 290,000 African-Americans died in the United States in 2002 (Table 99). In 2006, just 1 African-American decedent in 4,915 will be subject to estate taxes. In 2009, just 1 African-American decedent in 8,789 will be subject to estate taxes.

While we're at it, we should also note how many farms and small businesses in the United States are affected by the estate tax. In 2006, just 123 farms and 135 small business will be subject to the estate tax at all. In 2009, the number will be 65 farms and 94 small businesses. Only about 2% of decedents subject to the estate tax have estates with farms or small businesses.

By comparison, there are 2,129,000 farms in the United States (Table 797) (about 90% are sole proprietorships or owned by a family, about 9% are other partneships, and about 0.4% are corporations (Table 795)). There are about 25 million non-farm small businesses in the United States (Table 726), defining small as receipts of under $1 million a year.

Thus, one in 2,000 farms each year is subject to the estate tax, and about one in 20,000 small businesses each year is subject to the estate tax in 2006.

Most estate with farms and small businesses in them also have ample liquid assets with which to pay estate taxes. For example, in 2009, just 13 farms estates, in the entire United States, will be subject to the estate tax and not have enough liquid assets to pay the estate tax in a single lump sum immediately. Even those that don't have those kinds of liquid assets are unlikely to have to sell land or a business. Farms and small businesses are allowed to pay estates taxes at an artifically low interest rate in payments over fourteen years.

If African-American estates are typical of those of similar size, then only one or two African-American owned farms or small businesses will be subject to the estate tax in either 2006 or 2009, and probably at most one from 2006-2009 combined will not have sufficient liquid assets on hand to pay the estate taxes due immediately.

President Bush and reality aren't friends.

On Evacuations

A lot of people were complaining today about how long it’s taking to evacuate Americans from Lebanon. Lebanon? Hey, we couldn’t even evacuate Americans from New Orleans.

— Jay Leno

Via NewMexiKen.

Tax Shelter Patents

Like a lot of people, I am skeptical of business method patents. The likelihood a granting someone a patent that they don't deserve ("there is nothing new under the sun") is greater than in the physical technology field. Simply put, most of them a junk. But, one particular class of business method patents is particularly disturbing.

Only in America would people think to patent a tax shelter. This means that even if someone else comes up with it independently, you can prevent them from using it. Yes, they exist (by the way, the linked report by the Joint Budget Committee is an excellent introduction to the topic. The staff at the JBC includes some of the smartest people in government.) Business method patents generally are category 705, and tax patents are subcategory 36T of business method patents. Indeed, arguably, they can be traced back at least as far as the infamous State Street Bank case, 149 F.3d 1368 (Fed. Cir. 1998) which is credited with making the current rush to patent business methods generally, as that case involved "a data process system for a partnership structure of mutual funds that had advantangeous tax consequences."

It doesn't help that the PTO which grants patents, is full of engineers who have no clue about business management or tax planning.

What do they look like? Consider Patent No. 6,567,790, which covers using a grantor retained annuity trust funded with non-qualified stock options, as an estate planning method. (An infringement case involving this patent is currently pending in the U.S. District Court in Connecticut in Wealth Transfer Group v. Rowe, Case No. 2006CV24.)

While this is a case where the baby really should be thrown out the with the bathwater, by simply ending business method patents entirely, tax shelter patents are a particular concern, because they put a price on equal protection of the laws. Those licensed to use a tax shelter could pay less in taxes than those not licensed to use it. It is the opposite of transparency in government. And, because these are particular to tax laws that come and go, the public benefit normally associated with patent law, which is that new ideas eventually come into the public domain, isn't present. By the time a tax shelter patent comes into the public domain, the relevant tax law frequently will no longer exist.

Similarly, it also happens to be the case that there is no demonstrated shortage of innovation in the field of creating tax shelters under current law. Tax shelter patents do not solve a problem with lack of innovation, in large part because attorney-client privileges and accountant-client privileges, along with I.R.S. privacy laws make trade secret protection for tax shelters, as opposed to patent law protection, a viable alternative. Trade secret protections, from a public policy perspective, are preferrable to patents, because a trade secret owner can't exclude someone who comes up with the idea independently from using it. Indeed, the threat that tax shelter patent litigation discovery poses to the attorney-client privilege and accountant-client privilege is another reason why allowing people to patent tax shelters, as existing law does, is a bad idea.

Incidentally, while this is a tax issue, it isn't a serious revenue issue. If anything, tax shelter patents may actually increase revenues because some people might choose not to use a tax shelter that is the tax minimizing choice for them because they don't want to pay a license fee to the patent holder.

The House Committee on Ways and Means held a hearing on the subject on July 13, 2006. For an opinion contrary to mine, and believing that tax law patents could be a good thing, read this testimony.

20 July 2006

Divorce and Republicans

Red States and Blue States.

Divorce Rates.

Divorce and Republican voters seem to be strongly correlated. I wonder if it is because Republicans tend to be conservative Christians.

Bob Beauprez, Part Time Prophet.

While my site is called Wash Park Prophet, because it is focused on the future, I don't claims to have insider information on our fate, just sensible guesses based on facts. Honestly, I think my lack of reliance on infallible sources may even enhance this site's credibility. Bob Beauprez apparently doesn't agree. He thinks his legislative agenda is divinely inspired:

The Senate last month rejected -- emphatically -- a constitutional amendment that would allow Congress to ban same-sex marriage, so there was zero chance the amendment could be approved this year. But members of the House were answering to a Higher Authority. . . .

Rep. Bob Beauprez (R- Colo.) . . . found "the very hand of God" at work. "We best not be messing with His plan."

Apparently God isn't into standard English grammar either.

Court Rejects State Secrets Claim

A United States trial court has rejected a federal government request to dismiss a case based on the "state secrets" privilege in an NSA wiretapping case. The full opinion is here. This has the potential to reign in illegal Bush Administration spying that has long been permitted to fester behind procedural barriers and claims that national security overrides the rule of law.

Making A Record.

A good factual presentation in a trial court can turn a difficult appeal into a clear cut case. The 10th Circuit's search and seizure case of United States v. Carrizales-Toledo is an excellent example of a prosecutor presenting testimony that overcomes any objections on appeal. By the time the recital of facts from the record is done on page seven of the opinion, the outcome is a foregone conclusion. The facts brought out are the kind of facts that are present in most search and seizure cases, but few prosecutors are sharp enough, and pay enough attention to the details, to articulate them in a manner that turns a mere hunch into probable cause with a solid factual basis.

Details like the fact that the officer patrolled the area for four years (which in turn makes the fact that he doesn't recognize the vehicle stopped relevant), that a similar bust had been made a week earlier, like a conversation with a local resident about who they knew was behind them on the road, and an exceedingly detailed account of the step by step process by which the bust was carried out (with nuances like the officer smelling marijuana before the suspect said anything, and removing a gun from a holster, but not pointing it at the suspect), made the case easy.

Maybe the statements weren't true. They are almost too good to be true. But, getting that kind of direct examination into a trial transcript, in a way that sounds entirely plausible and even a little funny, is a fine art.

The law in question, concerning confessions obtained after a Miranda warning based on statements made before such a warning, is hopelessly muddy and presented a reviewing court with an opportunity to set aside the conviction. But, because the officer's direct exam was so convincing and was credited by the trial court, it didn't happen. The appellate court, somehow, found its way through the morass, even though it didn't agree with the trial judge's legal reasoning, and affirmed the trial court's decision not to suppress the defendant's incriminating statements.

Court Bans Union Coordination of Campaign Volunteers

The Colorado Court of Appeals held today that the Colorado Education Association and Poudre Education Association illegally contributed to the campaign of State Senate Candidate Bob Bacon in Senate District 14 by coordinating the efforts of union member volunteers to distribute his literature. An administrative hearing had exonorated the teacher's unions, based on an exemption for volunteer services in the campaign laws, but that decision was reversed in this appeal.

The ruling imposes unprecedented limitations on union political activity.

Colorado's campaign finance laws limit contributions of things of value from unions in a campaign coordinated with a candidate. It also provides an exception for volunteer services provided without compensation. Before this ruling, most union officials had interpreted the ban as limiting only monetary contributions to candidates (subject to specific exceptions in the statute), not volunteer efforts on behalf of candidates.

The facts in this case were largely undisputed. Bacon's campaign arranged to have volunteer union members, at sessions organized by the union, distribute literature provided by Bacon's campaign to homes in the district. Bob Bacon, a Larimer County Democrat, went on to win the election with about 56% of the vote, in a race against Republican Ray Martinez and Libertarian Mark Brophy.

While the Court discussed whether the activity was coordinated with the campaign, and discussed whether distributing literature was really something of value, the real issue was the scope of the volunteer services exception.

The Court of Appeals held, contrary to the expectations of many, including the unions, that Colorado's campaign finance law's exception for volunteer services applies only to services provided by individuals, and not to volunteer services coordinated by organizations.

The analysis of the Court of Appeals on this key issue did not reference any prior cases on the subject. It simply applied what it felt was the plain language of the volunteer services exception which does not count as a contribution: "services provided without compensation by individuals volunteering their time on behalf of a candidate. It held that union coordination of volunteer efforts went beyond the scope of this exemption.

While the penalties the unions face on remand are not great, they may choose to appeal the ruling to the Colorado Supreme Court because of the great impact it has on the political power of all unions in the State of Colorado.

Cross Posted at Colorado Confidential.

For Carolyn, Willi and Fred

In August of 2001, Carolyn Wagner came to Cortez, Colorado to honor the life of slain Navajo gay Two-Spirit youth Fred C. Martinez, Jr., and to support her mother, Pauline Mitchell. Fred was killed by Shaun Murphy, who plead guilty to murder and was sentenced to 40 years in prison three years ago. Carolyn had a reason for coming. The experience of her own son Willi. Then, this Spring, she became a victim herself.

Violent bigots in Arkansas, it is hard to agree that they are extremists in that state, attacked Willi and later his mom. I can't offer much to them. But, I join Daily Kos commentor Melvin in offering a flower of sympathy and concern.

One day Willie Wagner got beaten up during school lunchtime in Fayetteville. Again. Broken nose, bruised kidney, hematomas, lacerations. The three guys who did it said, "You're getting what you deserve, faggot."

On another day I met Willie's mom, Carolyn...

Carolyn drew people together, me included, to help with this issue. She told us Willi's story. [Willi has since changed the spelling of his name.] Willi had been harassed since junior high for being gay. It continued into high school. His teachers said that if he chose to be gay, he would have to expect such treatment. Everyone told Willie's parents to ignore such incidents and that there would be no punishment for those who had done the harassment.

After the bashing the school administration said that it wasn't a hate crime, that it wasn't a gay bashing, but maybe it was sexual harassment. So maybe they should write a policy about that. That's when the Task Force and PFLAG got involved. Change started.

Time passed but people in Arkansas didn't. Mom's experience echoed that of her son.

Sat May 13 05:47:15 CDT 2006

Carolyn Wagner, long time progressive activist, one time PFLAG National Vice President, and co-founder with me of Families United Against Hate, has become victim of a vicious hate crime. She has been stalked and harassed since January by a right wing extremist group who know of her work in gay rights. One of them attacked her at her home last month, and she has had major spinal and nerve damage as a result. She suffered some paralysis in her legs and is having emergency surgery tomorrow at St. Anthony's Medical Center, in North Little Rock, Arkansas.

She lived. But, no one should have to pay that price that Carolyn, Willi and Fred have paid in the case of Willi and Fred, for being born gay, and in Carolyn's case, for being a mother fighting to end the injustices that made her child suffer.

A Navy On Borrowed Time: Ours

I'm not the only one who thinks that it is only a matter of time before the U.S. Navy is ripped to shreds with missiles.

One event that shocked [Marine Lt. Gen. Paul] Van Riper occurred in 2002 when he was asked, as he had been before, to play the commander of an enemy Red Force in a huge $250 million three-week war game titled Millennium Challenge 2002. It was widely advertised as the best kind of such exercises -- a free-play unscripted test of some of the Pentagon's and Rumsfeld's fondest ideas and theories. . . .

In the computer-controlled game, a flotilla of Navy warships and Marine amphibious warfare ships steamed into the Persian Gulf for what Van Riper assumed would be a pre-emptive strike against the country he was defending.

Van Riper resolved to strike first and unconventionally using fast patrol boats and converted pleasure boats fitted with ship-to-ship missiles as well as first generation shore-launched anti-ship cruise missiles. He packed small boats and small propeller aircraft with explosives for one mass wave of suicide attacks against the Blue fleet. Last, the general shut down all radio traffic and sent commands by motorcycle messengers, beyond the reach of the code-breakers.

At the appointed hour he sent hundreds of missiles screaming into the fleet, and dozens of kamikaze boats and planes plunging into the Navy ships in a simultaneous sneak attack that overwhelmed the Navy's much-vaunted defenses based on its Aegis cruisers and their radar controlled Gatling guns.

When the figurative smoke cleared it was found that the Red Forces had sunk 16 Navy ships, including an aircraft carrier. Thousands of Marines and sailors were dead.

Do we need another Pearl Harbor class disaster to shake up military thinking? The point of virtual simulations is to identify vulnerabilities and change our force so that they don't recur. It isn't at all obvious that we've taken that step.

We have a Navy perfectly designed during the Reagan Administration to kick the butt of the World War II Japanese Imperial Navy. We've spent hundreds of billions of dollars to buy it. But, the big picture rethink of that massive expense hasn't happened. With the exception of the Littoral Combat Ship program and the catamaran based high speed logistics ships that the Army and the Navy are experimenting with, the Navy hasn't fundamentally rethought a strategy designed to deal with the War in the Pacific.

Hat Tip to Daily Kos diarist London Yank.

19 July 2006

Rockets, Bombers and National Boundaries

World War II changed everything. But, economics and the relative peace of the Cold War put many of those revelations on ice.

Prior to World War II, there were no effective long range weapons. If you wanted to attack your neighbor you had to march your Army into his territory. Sure, there was some fuzziness at the boundary itself. Artillery, ancient and modern, allowed aggressors to lob projectiles a little bit over the border, and defenders could lob projectiles back at the attackers. In the eras of seige warfare, this meant hurling rocks and burning tar a few dozen feet over a wall. In World War I, it meant delivering howitzer and mortar shells a few miles. In theory, artillery could have gone much further, but that technology never got widespread use in practice. To make progress in that conflict characterized by trench warfare, you had to breach the enemy line and swarm your troops over land to enemy positions. Aircraft were used in World War I, but mostly as spotters and sniper weapons, not as the main instruments by which major damage was inflicted.

The same principles applied in naval combat. Prior to World War II, the dominant paradigm was to build large armored ships, with massive artillery batteries, called naval guns, and fire them at the other guy's ships at distances within the over the horizon visual range of about thirty miles. It was a natural progression from the era of sailing ships with cannons, and all the major powers from Italy to France to Great Britain to Germany to Russia to the United States has battleships displacing tens of thousands of tons on the eve of World War II.

The development that changed that paradigm in World War II was the airplane. The Battle of Britain marked the first time in the history of the world that a sustained military attack was perpetrated deep in the enemy country's territory, entirely from bases outside that territory. In the Pacific phase of the war, far more battleships were destroyed by enemy aircraft, often carrier based and usually launched from beyond the ranch of battleship naval guns, than by naval gunfire. Some of the most lethal moments in World War II, Hiroshima, Nagasaki and Dresden, were carried out with bombs delivered by aircraft.

Rockets were still in their infancy in World War II. They were used to some extent, but were inaccurate and unreliable and didn't materially impact the outcome. But, not long after World War II, partially aided by a space race that was in some ways a peaceful display of potential military prowess designed to intimate potential military opponents, rocket technologies, like missiles, came into their own. While not one was fired in anger during the entire Cold War, the characteristic weapon of that era was the ballistic missile tipped with a nuclear warhead, each of which carried the ability to level a distant city anywhere in the world from distant land and submarine based launching pads in a matter of minutes. For better or worse, the United States and Soviet Union, the two superpowers with large ballistic missile stockpiles (although several other countries had them) managed to intimidate each other into not going to war with threats of mutual assured destruction, until the political scene changed with the fall of the Soviet Union and the Cold War ended.

Naval warfare also learned important lessons from World War II, and the development of accurate missiles further changed the equation. The primary weapons of all of the major U.S. surface combatants (i.e. warships) are missiles, which have a range far greater than naval guns, although they have small residual naval guns. No ship in the world has a naval gun with a barrel wider than 6", while naval guns as large as 16" and an order of magnitude heavier ammunition, were common place in World War II.

Now, not a single country in the world has a battleship. Outside the U.S. Navy which has twenty-four, only two countries, Russia with six and the Ukraine with one, have cruisers. Even aircraft carriers, the darling of the war in the Pacific, are scarce. Outside the U.S. Navy which has twenty four (including both supercarriers and amphibious assault ships), Britain has three, while France, Spain, Italy, Brazil, Thailand, India and Russia each have one. Only the Russian one rivals U.S. supercarriers in size. With the exceptions just noted, there isn't a single surface combatant in the world today over 10,000 tons, a stark reduction in ship size since World War II when many countries had battleships with more than 20,000 tons displacement and the largest reached 70,000 tons. Most countries in the world have frigate navies, if they have navies at all. This reconfiguration of world naval power is driven to a great extent by that fact that a surface combatant can be destroyed by modern anti-ship missiles from hundreds of miles away, and stealth technology for big ships is not currently viable, so large, slow, surface combatants, no matter how heavily armored, are basically sitting ducks in the face of a sophisticated opponent. In theory, sophisticated point defense measures limit this threat, but no one has put this theory to the test in real combat, and been proven right, since the missile threat arose.

During the Cold War, missile technology was contained by economic constraints. Only the bigger, more stable nation-states could afford to build or buy them. But, now the Cold War is over and everything about warfare is changing all over again.

This month has seen two developments that have brought the impact of the missile warfare era to the forefront. First, in early July, North Korea made a volley of ballistic missile tests. Then, a couple of weeks later, the Israeli-Lebanon war errupted.

North Korea

Without missiles, North Korea isn't much of a threat to its neighbors, and the threat that it does pose can be managed with conventional means.

The DMZ between North Korea and South Korea is the most heavily fortified land boundary in the world. And, while North Korea is the most militarized society in the world, few of its troops are quality soldiers, and much of its equipment is second rate. China, likewise, is more than a match of a North Korean land invasion. Also, unlike China, North Korea lacks the resources to transport its huge, if mostly second rate, Army to the shores of U.S. allies like Japan or Taiwan. It has no real amphibious assault or airlift capacity. It might be able to use submarines it has designed for that purpose to get a small number of commandos into territory it considers hostile, but that is it.

North Korea does have a couple of dozen small diesel attack submarines, most of 1950s vintage, which could profoundly muck up shipping in its vicinity for a few months until U.S., Japanese and South Korean anti-submarine warfare efforts took them out, one by one, in a painstaking process. Anti-submarine warfare is not easy work in the best of times, and North Korea has one of the largest submarine fleets in the world. In raw numbers, only the United States, China and Russia have more attack submarines. But, there is good reason to believe that North Korean training is subpar and that its submarines are not in top shape. Tracking down late model submarines is much easier than finding modern ones specifically designed to thwart modern technologies used to find them.

Compared to U.S. or Russian or Chinese or South Korean or Japanese air forces, the North Korean air force is a joke. I'd be suprised if the North Korean Air Force could stay in the air for a week in a conventional war. Its planes are mostly older, maintenance is an even more serious problem for aircraft, and its pilots lack adequate training.

Equally important, North Korea has no allies. Even China sees North Korea as much as a threat as it does as an ally. China recently closed its border with North Korea, not in a protest over ballistic missile tests or its nuclear program, but because North Korea refused to return a train that China had sent to North Korea delivering goods. There is no love lost between Russia and North Korea either.

North Korea seems destined, sooner or later, to see the sort of total collapse that took place in equally isolated Albania in the wake of the Cold War. While communist dictorship Cuba has continued to trade with the outside world, and has made addressing the needs of its people an urgent priority, for example, in a food shortage that followed the collapse of the Soviet Union, and in developing a decent health care system, North Korea allowed millions of its residents to simply starve and die when it faced a famine and stood in the way of international efforts to provide relief.

Ballistic missiles, however, change the equation. This summer's missile tests mostly failed, but the whole point of testing is to find out what you are doing wrong so that you can fix it. The mistakes made this summer might not be repeated when missiles are fired in anger. Even if hitting Guam or Hawaii with a deadly missile might be a stretch for North Korea, wrecking havoc on Japan or China or South Korea, with a much shorter range ballistic missile, is not. Some of the short range missiles in that test worked. And, if it had even a handful of nuclear warheads, which most observers believes that it has, or could have in the near future, the damage could be unthinkably great. Millions or tens of millions of people could be killed before the news could make its way to CNN.

Essentially the only defense these nations have to such an attack is North Korean fear that there would be a counterattack. The United States doesn't have a workable missile defense system, and neither do its allies in the Pacific. But, the power of fear to stop a North Korean attack is hardly certain.

North Korea gets basically one shot. It doesn't have a Soviet sized nuclear arsenal. And, the rest of the world, knowing that once the trigger is pulled that the gun is empty, may not feel it is appropriate to kill millions of innocent every day North Koreans in retaliation for the mad outburst of a dictator who doesn't care much about his people either.

Also, a North Korean dictator may feel that it is in his own personal best interest to make such a brutal show of force, even though it is not in the best interests of his country. For example, he may feel that this kind of action is justified to fend off a brewing coup, or regime collapse at home. The threat of being ousted by foreign armies looses its sting when your going to be ousted, and possible executed, at home anyway. Gambling that the military brass and leadership group will rally around you in the face of a real threat of foreign invasion may be a personally rational decision, even though killing millions of innocent foreigners to hold onto your mismanaged regime isn't rational from the perspective of the nation as a whole.

In another scenario, if a North Korean leader was personally in poor health and near death, and knew that court politics were such that his chosen heir was unlikely to follow in his footsteps, creating a crisis to take control of those court politics might seem wise from the leader's perspective. His own life might be forfeit at that point.

The other down side of a dictatorship is that it is efficient. There is no opportunity for deliberation with competiting forces to slow down a hasty call for action that the dicator may later regret. Part of the message that North Korean missile tests sent was that the people in charge of implementing a North Korean missile strike are sufficiently loyal that orders will be followed.

The Israeli-Lebanon War

I'm not at all convinced that Israel has done the right thing in declaring all out war on Lebanon because it has failed to rein in the Hezbollah guerilla group on Israel's border, which has been lobbing rockets from Southern Lebanon into Northern Israel for years, just as some Palestinian groups have been doing with renewed vigor in Gaza since the Israeli withdrawal, prompting major Israeli military strikes into Gaza earlier this summer.

Ironically, Israel is in the process of building a wall between itself and the Palestinian territories which, where it has been completed, has proven effective at preventing the suicide bomb attacks that have plagued Israel for decades.

But, walls don't stop rockets, and rockets, unlike mortars and artillery shells, can go far beyond the immediate border region. Evil Mommy recently linked to a map that makes this point abundantly clear. All of Northern Israel, from the Lebanese border to the suburbs of Tel Aviv are within the range of the lastest missiles that Hezbollah has obtained from Iran, which, for its part, officially regrets current Hezbollah attacks with those rockets. If similar rockets made their way to Gaza or the West Bank, all of Israel would be within their range.

Hezbollah has also gained access to Chinese anti-ship missiles that rival U.S. Harpoon missiles, the primary anti-ship weapon of every cruiser, destroyer and frigate in the U.S. Navy, and of many of its allies. One of those missiles, probably launched from a truck on the coast, killed four Israeli sailors on the Israeli corvette Hanit. Admittedly, it didn't sink the sub-frigate sized ship. That attack also defeated Israeli countermeasures, in part, because countermeasures hadn't been implemented because no one in Israel knew that Hezbollah had this kind of capability. But, it does have them, and if a terrorist group can get them, there is no telling how many Syria or Iran might be able to muster. While point defense countermeasures might work against a small number of missiles, defeating a large volley is another matter.

Notably, while Israel does have a missile defense system, it isn't working. Even if it did have a system that did work, it might be hard pressed to stop much of the onslaught due to a dramatic increase in the number of rockets Hezbollah is sending in each wave of attacks. Instead of 3 to 8 at a time, it is sending as many as 70 an hour. This is a lot of small, fast moving targets for a missile defense system to keep track of and destroy.

It is estimated that of the 13,000 or so rockets and missiles in Hezbollah’s arsenal, 11,000 of them are of the Katyusha type. These rockets have a short range – maybe up to nine miles or so – and a small warhead of roughly 40 pounds. Based on vintage Soviet technology, these rockets can be rolled out of a hiding place, shot, and rolled back in before any detection can be made. Their flight is over in seconds, making tracking difficult, much less shooting anything down. A system would have to be in exactly the right place to detect the missile once it is launched, then the defensive system would have to make a nearly instantaneous decision to respond, after which the interceptor would have to get to the target quickly enough to destroy it. It is an exceedingly difficult proposition when the flight times are as short as those launched by Hezbollah.

If you fire enough rockets, some will get through and kill your citizens. The mere threat of this happening, moreover, leaves your citizens in a state of terror.


The lesson of both the North Korean ballistic missile threat and the Israeli-Lebanon war is that a nation can no longer keep its citizens safe by policing its borders, if enemies on the other side of those borders have missiles.

Versions of this reasoning were behind U.S. invasions of both Afghanistan and Iraq. While Afghanistan's Taliban regime itself was no threat to the U.S., it was unwilling or unable to shut down al Queda terrorists in its territory, so the U.S. felt justified in entering Afghanistan to take down that regime. The justification for the Israeli war on Lebanon is almost identifical to that of the U.S. war on Afghanistan's Taliban regime.

But, there is one important difference. The Taliban was the most horrifically awful regime in the world, with the possible exception of North Korea. No one mourned its fall. The regime that is under attack in Lebanon, in contrast, was a fragile democracy, which had ousted Syrian influence over the country to a great extent and showed promise of restoring Lebanon to its former glory as a modernizing, ethnically diverse, intellectual and commercial hub of the Middle East.

Lebanon's government, like most new civilian democratic regimes, was a little short on competence and had certainly not figured out how to shut down the deeply rooted Hezbollah presence in Southern Lebanon yet. But, rather than working diplomatically with this new regime to achieve this goal, Israel reached a breaking point and has lashed out, not specifically at the Hezbollah forces, but, like the U.S. did in Afghanistan, at the entire regime that has permitted these forces to continue to operate.

The U.S. in Afghanistan basically put its weight on the scales of the resistance in a civil war that the Taliban had all but finished off, leaving it a ready friendly replacement for the Taliban regime. But, Israel has no viable alternative to the Palestinians in the Gaza and West Bank on one hand, or the current regime in Lebanon on the other. Wiping out an existing regime that tolerates terrorists doesn't get you very far if you can't replace it with one that will not do so. And, if there is no effective replacement regime, the removal of the past regime has created the ideal situation for terrorist forces, the vacuum of anarchy that we currently see in places like Somolia which is home to known al Queda operations.

The U.S. invasion of Iraq, and the limited international support it received in that venture, was largely based on the now discredited U.S. intelligence claims that Iraq could threaten its neighbors with weapons of mass destruction delivered by missiles similar to those recently tested by North Korea. We needed to strike first, it was argued, because an unpredictable Iraqi dictator might strike in a way that could do real harm that might not be dissauded by a threat of retaliation.

Replacing the regime that the U.S. thought was a threat in Iraq with a successor, however, has proved to be a more daunting task than the U.S. anticipated. It has been thrust into a nation building enterprise it is inept at, trying to create a more or less Western style democracy from the bare bones up, with mixed results, and is stuck providing security for most of the country in the meantime. The result, in the meantime, has been to create a power vacuum that has provided fertile ground for terrorists and factions in a developing civil war, who have killed, by some estimates, more than 6,000 civilians in Iraq so far this year alone.

In short, missiles have brought us to a point in global history when well guarded national boundaries are no longer sufficient to guard a nation's citizens against foreign military threats. Unless all neighbors within missile range of your nation can be trusted not to fire missiles at your nation, your people are at risk. This does lend credence to President Bush's doctrine of pre-emptive use of military force, one that the historical accident of the timing of affordable missile technology has handed to him, as much as anything about President Bush personally. National boundaries are less relevant than they used to be in earlier ages of military technology.

But, what both President Bush and Israel have failed to appreciate, and have learned the hard way (as did President Clinton before him), is that transitory strikes at specific targets don't solve the problem. Often the problem is not the actual malice of the reigime that is home to the threat itself, so much as its indifference to its neighbor's fate, and its ineffectiveness at shutting down terror groups aimed at a foreign regime rather than it. Unless you can replace the regime that is a problem with a genuinely effective and internationally responsible regime, you still have a problem.

(Substantial copy edits completed on July 26, 2006; substance unchanged)

18 July 2006

User's Fees For National Security

Maybe you've read economics textbooks talk about how national defense is a common good that we all pay taxes for in exchange for receiving the protection of the national government. Forget about it. The Bush Administration believes in user's fees:

While Europe has been chartering its citizens back home for days now, it was just today that this government got its shit together (to use our Evangelical president's thoughtful language), and began evacuating a few hundred out of the about 8,000 who can't wait to leave. But there's a catch, Americans have to sign an agreement stating that they will reimburse the government for the evacuation. Let me repeat that: Americans being evacuated by our government due to attacks that our government supports, have to sign an agreement, before boarding, stating that they will reimburse the government for the evacuation.

House Minority Leader Nancy Pelosi was quoted saying "A nation that can provide more than $300 billion for a war in Iraq can provide the money to get its people out of Lebanon."

I don't remember Congress passing a law authorizing the Defense Department to charge U.S. citizens to be evacuated from war zones, but maybe the President just thinks that this is part of his inherent authority.

UPDATE: Secretary of State Rice rethinks this really bad idea and abandons the user's fee idea.

Weird Materials Do Impossible Things.

Light passing through negative index of refraction media, called NIM, does weird things, things that ought to be impossible.

[I]n a NI metamaterial the phase velocity of light travels faster than in a vacuum; light propogates the opposite direction the energy flows; important physics such as the doppler effect are backwards; [and] you get back information you lost as you recover exponentially decaying near-field components of your image.

While theorists are busy publishing articles saying things like "in general, causality and finite signal speed would be violated if any physically realizable wave (signal) suffered 'negative refraction,'" the guys in the lab are "demonstrating the first detection of negative refraction."

I'm blinded by the science and waiting for further developments in this remarkable field.

Rich Getting Richer.

While tax revenue is growing far faster than the Bush administration forecast in its budget projections in February, the nation's economy isn't. What has changed isn't the size of the economy, but how the economic pie is divided. The share of national income going to corporations and the wealthiest individuals, already large, has expanded, while the share going to typical wage earners has shrunk. Because corporations and the wealthy generally pay income tax at higher rates than does the typical wage earner, that shift benefits the federal Treasury.

From the Wall Street Journal via the Tax Profs Blog.

Xcel: Summer Is Hot, Who Knew?

When all else fails, blame your screw ups on God. He's known to do all sorts of totally unexpected things, like causing high temperatures in late July days in metropolitan Denver, just like he did in 2002, 2003, 2004, and 2005 when you also screwed up due to such unexpected weather.

Xcel officials blamed blistering temperatures over the weekend for equipment failures that led to sporadic outages throughout metro Denver and other parts of Colorado. . . . About 6,300 Colorado households and businesses were without electricity late Monday afternoon. At the height of the problem late Sunday night, 12,000 customers - mostly in metro Denver - were hit by outages.

Perhaps, Xcel let it happen because it knows that it will suffer no consequences for doing so:

[C]ustomers will see no credits for excessive outages this year. In a 2005 settlement with the PUC, Xcel agreed to invest an additional $11 million in system maintenance in exchange for the PUC not levying any penalties for service problems in 2006.

Xcel Energy will be asking Denver customers to lock themselves into twenty more years of service from it in the August 8, 2006 primary election, when voter turnout is expected to hit record lows because there are no contested races in most of the city and there has been almost no publicity about the vote, which was just recently announced.

Temperatures in Colorado at Denver International Airport were 101 degrees Farenheit on Saturday, and 103 degrees Farenheit on Sunday.

Cross Posted at Colorado Confidential.

Ivory Tower Judging

Your twelve year old younger brother steals a pistol and ammunition for a parked car in the neighborhood. You find him walking down the street with it. You are on probation, so a jury is unlikely to believe anything you say. Your brother has a record of juvenile delinquency and is familiar with guns, but is not about shoot anyone this instant. You don't know for sure that the gun is stolen, but have reasonable cause to think that it is because your twelve year old brother doesn't own a gun and doesn't have the money to buy one. In fact, you suspect, and are correct in your belief, that it is illegal to sell or give a pistol to a twelve year old boy. You have an Islamic last name and your brother's name is Hussein. Do you:

(a) Demand that your brother immediately hand it over to someone with a criminal record who is with you who intends to keep it for himself.
(b) March your brother back to the owner of the pistol to return it, knowing that this will almost certainly land your brother in juvenile detention for a long time, and might even cause him to be charged as an adult.
(c) Order your brother to put the pistol on the ground, have the convicted criminal watch over it, and leave to call the police and have them retrieve it.
(d) Grab the pistol from your brother and give it to someone else to deal with.
(e) Grab the pistol from your brother and hide it, so that it can be disposed of once your brother is no longer being investigated.

You have no desire to use the pistol or to sell it in the future. You simply want to get rid of it without anyone going to prison. You don't keep it in any of these situations, for more the a couple of minutes and it isn't stashed in your house or any place that you own.

You have seconds to decide. Choose carefully. Many years in prison will depend upon your choice. And, no, you didn't go to law school. In fact, you weren't even born in the United States and are not entirely familiar with its laws.

The answer:

If you chose (a), (b), or (c), you don't go to prison. If you choose (d) or (e), you will probably spend many years in a federal prison.

The Court hedged on the issue of whether grabbing the pistol from your brother and either promptly turning it over to the police or the owner, could exonerate you, implying that it might not, because choices (a), (b) and (c) were also available.

Either choice, of course, would have created enough evidence to convict you of the more serious crime of stealing a pistol, even though you didn't, particularly if you were obscure enough to hide your brother's involvement in the incident.

It turns out that you later cooperate with police to retrieve the gun when the investigation leads to your brother, so no one is hurt and the gun is returned, undamaged with all of its ammunition in tact, to its rightful owner.

Also, you aren't allowed to even introduce evidence that shows that you knew that the fellow with you had a criminal record, or to argue to the jury that you were justified in your actions because you were trying to prevent your brother from using the gun.

The jury decided that you chose options (d) or (e), even though you claim that you chose option (a). According to the 10th Circuit, this means that you, Mr. Al-Rekabi, are going to be doing some hard time, up to ten years in prison, although it isn't an offense subject to mandatory minimums, so a shorter term is possible if the Utah federal judge has mercy on you.

In all likelihood, if your last name had been Brigham, charges wouldn't have been pressed, and you certainly wouldn't have ended up in federal court.

17 July 2006

Rhythm Method Reconsidered

The Roman Catholic Church, and many non-Catholic anti-abortion activists, have opposed reproductive technologies like emergency contraception, oral contraceptives and IUDs. This opposition has been based on the concern that these methods may sometimes prevent a pregnancy shortly after conception. It has largely endorsed, however, the "rhythm method." The rhythm method amounts to figuring out when a woman is fertile and having sex at other times of the month.

It turns out, however, that even the rhythm method may have this effect. While the discussion is more one of medical ethics based on known statistics about the rhythm method and other contraceptive methods, rather than new experimental evidence the bottom line is that:

Given certain plausible empirical assumptions, the rhythm method may well be responsible for a much higher number of embryonic deaths than some other contraceptive techniques.

Only one assumption not supported or disproven by empirical evidence matters.

The result really depends on the simple assumption that embryos conceived outside the HF [high fertility] period are less viable than embryos conceived during the HF period[.]

All we know now is that the rhythm method makes pregnancies outside the high fertility method less likely. It doesn't tell us if that is due to differing degrees of viability, few conceptions, or a combination of the two factors. But, given the fact that oral contraceptive basically manipulate hormones in a way not all that different from the way that the body does anyway, the notion that viability might vary between high fertility and low fertility periods is very plausible.

Why does it matter? Because, if differing degrees of viability are one reason for the rhythm method's effectiveness, then there is really no moral difference between IUDs, oral contraceptives (including emergency contraception) and the rhythm method from the point of view of those opposed to the former as a form of abortion.

This effectively means that, because we don't know for sure why the rhythm method works, the only way those opposed to the other contraceptive methods can really be morally consistent is to disavow all known methods of contraception and either have sex and try to have children (or at least, not try not to have children), or to not have sex. But, celibacy is standard that historically has been reserved only for the clergy in Roman Catholicism, has been reserved only for Bishops in Orthodox Christian tradition, and has been considered unrealistic for the laity or any class of clergy, in the Protestant Christian, Jewish and Islamic traditions.

Historically, just about everyone took the former path. Women had large numbers of children, and most of those children died before reaching adulthood, thus keeping the world's population in check. Now, very few people choose that approach and almost all children who are really viable at birth live to adulthood.

About 98.8% of births are of first, second, third or fourth children (Table 79), and more than 95% of births are first, second or third children. Just 0.3% of births are eighth or later births. But, in the complete absence of efforts to avoid conception, seven or more children per woman would be the lifetime median (something seen in a few of the least developed countries in the world still today), rather that the U.S. median right now of about 2.1 children per woman per lifetime. With all due respect, most people don't see places like Rwanda as a positive model for modern family life, and even fewer see that lifestyle as an urgent moral imperative.

Almost everyone reaches adulthood. About 98.4% of boys and 98.9% of girls who are born survive to age twenty (Table 97). A majority of the 13 and a half babies per thousand who are born who don't reach adulthood, die in the first twelve months of life, and about a third of those who don't reach adulthood die in the first four weeks after their births (Table 104). Being a kid has never been safer or healthier.

The alternative to following the anti-contraception philosophy to its logical conclusion, of course, it to reject the claim that a fertilized egg is the moral equivalent of a viable human child who has been born. This doesn't necessarily imply a pro-choice position. It is possible to make a morally significant distinction between contraception methods like IUDs, oral contraceptives and the rhythm method on one hand, and surgical or chemical abortions at a stage of development when it is, at least, possible to know that one is pregnant with some degree of certainty.

If one is willing to accept that distinction, as the vast majority of Americans do, then, from a policy perspective, a focus on preventing unwanted pregnancies through contraception, preventing STDs through appropriate measures ranging from vaccinations to barrier method contraception, and preventing unwanted sex is the first priority, and the abortion issue itself is secondary.

Roman Catholic doctrine may not change as a result, but those who base their attitudes on contraception on reasons similar to those of the Catholic Church, rather than simply doing so because the church says so, need to take a hard look at whether this really makes sense.

Hat Tip to Daily Kos diarist Stagarite

Soy A Better Fuel Than Corn.

The natural foods press is big on more soy for healthful living. And, while it has waned a little, the war on carbs, corn included, continues. But, who would have thought that similar advice applies to biofuels for your car. It turns out that soy biodiesel is a better deal on a net energy basis than ethanol from corn according to a recent article in the proceedings from the National Academy of Science:

Ethanol yields 25% more energy than the energy invested in its production, whereas biodiesel yields 93% more. Compared with ethanol, biodiesel releases just 1.0%, 8.3%, and 13% of the agricultural nitrogen, phosphorus, and pesticide pollutants, respectively, per net energy gain. Relative to the fossil fuels they displace, greenhouse gas emissions are reduced 12% by the production and combustion of ethanol and 41% by biodiesel. Biodiesel also releases less air pollutants per net energy gain than ethanol. These advantages of biodiesel over ethanol come from lower agricultural inputs and more efficient conversion of feedstocks to fuel. Neither biofuel can replace much petroleum without impacting food supplies. Even dedicating all U.S. corn and soybean production to biofuels would meet only 12% of gasoline demand and 6% of diesel demand.

In English, soy is better primarily because, as a legume, it is on the soil enriching side of the nitrogen cycle, rather than the soil depleting side. This is important because when we really need biofuels, oil based fertilizers may even more expensive than they are now.

Hat Tip to Science News.

Blogger News Rant

Before you make a new post with the blogger software you see a screen known as the "dashboard" that allows you to choose which of your several blogs to post in. Below it is a part of the screen entitled blogger news. Today, on in the middle of July in 2006 is read as follows:

Blogger News
The Buzz

Looking for news about Blogger? Check out Blogger Buzz!

– Eric [2/01/2006 10:38:00 AM]

Maintenance on Monday, November 14

We are planning a two hour outage this evening from 9p to 11p (PST). This is to complete the network maintenance we've been performing over the last several weeks.

Update: Completed.

– Jason G. [11/14/2005 10:27:00 AM]

Maintenance on Saturday

We will be upgrading our network access this weekend which will require downtime for both Blogger and Blog*Spot. The outage will occur at noon (PST) on Saturday and last for 2 hours. Thanks for your patience during this maintenance window.

Update: Completed.

– Jason G. [11/01/2005 04:48:00 PM]

I know that the folks over in blogger land are strapped, but would it kill them to take a minute to either keep their news feature updated, or to ditch it all together?

Harry Potter and Republicans

Kid: Who's the bad guy, Mommy? Lord Voldemort or Professor Snape?
Mom: Lord Voldemort is the bad guy. He's evil and does bad things.
Kid: But what about Professor Snape? He's not a good guy, is he?
Mom: Professor Snape is like a Republican. He's not evil, but he ain't great either.

From here.

Advanced Harry Potter readers, of course, know that the answer is considerably more opaque than that, even with just one book left to go. But, it is hard to imagine any more accurate answer in two short sentences or less.

Colorado Supreme Court Mulls Watershed Protection

The Colorado Supreme Court agreed to consider two questions related to whether the Town of Carbondale, Colorado, a municipality with home rule powers, has the power to enact a local watershed protection law, today. Opponents of the law claim that state statutes on water quality and agricultural chemicals override the local law.

Carbondale had attempted to prevent the property owner from using or storing herbicides or pesticides on the property near Nettle Creek, without a permit which would have entailed taking measures to prevent contamination of the local watershed, and to obtain compensation for the damage to the town's water main that resulted from it spilling dirt into the creek. When it then sought a permit, it was denied because the city felt that the proposed steps to deal with the problem were inadequate.

At trial, opponents of the law were not allowed to challenge it for procedural reasons. Then, in the Court of Appeals, this decision was overruled and the trial court was directed to consider the merits of the issue. It is not clear at this time if the Colorado Supreme Court's intervention goes to the merits of scope of a home rule local government to regulate watersheds, or will address merely the somewhat esoteric procedural issues presented by the case.

The merits of the proposal about particularly relevant now because Grand Junction voters will be considering their own watershed protection measure this fall. The general rule is that home rule governments may pass laws on any subject matter, but they cannot override a valid state statute and are not allowed to legislate on certain matters considered "statewide concerns." Court guidance on when a matter is a statewide concern has been less than clear.

While this case does not actually involve oil production activities, the $64,000 question is whether allowing home rule municipalities to enact local watershed protection ordinances could seriously impact oil and gas production activities in Colorado.

The case is Cabondale v. GSS Properties, L.L.C. The Court of Appeals decision can be found here.

Cross Posted at Colorado Confidential.

16 July 2006

Harmony In West Denver

The Denver Post delivered the conventional wisdom, backed up by survey research, in its front page, top center Sunday headline, which will arrive on more front porches than any other newspaper this week, due to the way the joint operating agreement between Colorado's two largest dailies works:

Immigration At Forefront

Immigration is the single most important issue facing the state, far surpassing concerns about the economy, jobs and education, according to a poll of voters conducted for The Denver Post.

The story smells. It smells like fish rotting in a river of outrage a mile wide and an inch deep.

Public opinion frequently follows, rather than drives, legislative leadership, and former Mayor Pena correctly identified what is skewing the numbers:

The high polling numbers may be partly due to all the media attention on the state legislature's five-day special session that produced a measure to prevent illegal immigrants from collecting taxpayer-funded benefits. Additionally, the issue has taken center stage in the past few weeks as Congress tried - and failed - to forge a compromise on legislation, said fromer Denver Mayor Federico Pena. . . .

But, the real reason it smells is because the survey numbers don't match the zeitgeist on the ground. On the eve of April 29, 1992, the first day of the Los Angeles riots, the racial tension in the South Los Angeles neighborhoods where they began was palpable. This isn't true at ground zero of demographic change in Denver today.

No one denies that there has been a great deal of immigration in the United States in the last three decades or so.

In 1970, there were fewer than 10 million immigrants in the country - less than 5 percent of the population - and almost none of them were undocumented.

Since then, the immigrant population has grown to 35 million, with about 30 percent estimated to be undocumented.

And, no one denies that this has had a profound effect on Denver's demographics.

For those unfamiliar with the invisible boundaries of segregation that remain pervasive in Denver, the West side of Denver is the center of the Hispanic community in the city. North Denver is heavily African American, Southeast Asians co-exist with Latinos in a small part of West Denver, and whites are mostly found in the Southeast part of the city.

The experience of Southwest Denver's Lincoln High School, in the middle of Denver's two contested primaries this August, House District 1 and Senate District 32, is representative of the changes that have taken place in Denver's West Side, as part of the larger national trend. According to the school's official profile:

In the forty-two years that Abraham Lincoln High School has been serving Denver's southwest community, it has seen a dramatic shift in the students it educates. In 1960, 95% of the students at Abraham Lincoln High School were white. Since 1980, Lincoln High School has seen a steady growth of students from Sudan, Somalia, China, Vietnam, and Mexico. This current school year, 2002-2003, 80.5% of our students are of Hispanic descent, 8.4% White, 7.0% Asian, 3.3% African-American, and 0.8% American Indian.

Yet, despite these dramatic changes, there is little noticeable tension where you would expect it to be most palpable, at the interfaces of the immigrant and non-immigrant communities in Denver.

Consider Lakeside Amusement Park, where I spent my Sunday afternoon with my family.

The rides haven't changed much since Perry Como's big band considered it a necessary stop on their national tour in 1950s. Now, it is a family oriented attraction, overshadowed by Elitch's, which was once just down the road, but has since moved to Denver's Platte Valley neighborhood, near downtown.

Its location at Sheridan, from 44th Street to I-70, is on one of the invisible boundary lines of segregated Denver. Lakeside itself is one of Colorado's smallest incorporated municipalities, with fewer than two dozen residents and the vast majority of the land owned by just one woman, who owns and operates the amusement park and owns the neighboring strip mall as well. To its East is Denver's predominantly Hispanic West side. To its Southwest is Wheat Ridge, a working class, predominantly white first ring suburb of Denver in Jefferson County in the politically pivotal 7th Congressional District, where I worked for three years and from which I still draw a notable share of my business. To the North are more Denver suburbs. Republican candidate for Governor Bob Beauprez calls nearby Arvada home, at least officially.

If you were seeking out modern day Sharks and Jets, with ethnic dimensions, this would be the place to look. But, the story wouldn't be there. The harmonious reality would make any college viewbook editor, always under pressure to create an appearance of diversity whether or not it exists, wet himself with joy. Young African-American and white couples dating were common place and raised no eyebrows. Probably about half the crowd was Hispanic, mostly Chicano, and much of its the part of the crowd was predominantly Spanish speaking. Most of the rest of the crowd was working class white, a demographic not stereotypically known for politically correct tolerance. Sprinkled amongst them were a few Asian tourists, some of whom looked to be short term visitors from abroad, enjoying a family vacation in the American West.

Ethnic and racial tensions were almost complete absent. The body language that indicates tension or discomfort just wasn't there. The somewhat involved rules that govern behavior in amusement parks (with tickets, lines, etc.), a near total absence of non-English signage, and a significant share of visitors who did not speak English as their native language provided all sorts of opportunities for misunderstandings to go bad, but there wasn't so much as a raised voice in the entire facility for the entire time that I was there. There was only one incident at all that had even the potential to be notable.

Just as I walked in, a middle aged Chicano man, in cowboy attire, had been backed up, as much by body language, as by force, against a deserted ticket stand by someone in a uniform (it later became clear that he was one of Lakeside's finest; one of the virtues of owning almost the entire city is that your amusement park security force can have genuine law enforcement status).

What was going on? Was this a case of police overzealousness? Was this an immigration official? Would this lead to "trouble"?

The man in the uniform took a sheathed knife from a holster on the man's belt, opened it, confirmed that it was neither too long to violate the law, nor a switchblade, and returned it to him politely. The incident ended as quickly as it had arisen, and all suspicions dissolved.

In isolation, this might not mean much. But it is part of a larger picture.

Earlier this year, just about the only actually debated issue in the platform of the Denver County Democratic Party Assembly was immigration. Denver is a town which is overwhelmingly Democratic and the assembled party overwhelmingly rejected a hard line approach to immigration. At this year's Colorado Democratic Party Assembly, gubinatorial candidate Bill Ritter's rhetoric on immigration argued in favor of care and practicality, over hysteria.

Saturday, I dropped my son off for a play date with some family friends who live a couple of blocks from Morrison Road in Southwest Denver, which runs diagonally from Alameda to Sheridan Street, the Western boundary of Denver. Almost every business on Morrison Road either caters primarily to a Spanish speaking Latino customer base, or is Hispanic owned. This Saturday, the Alameda end was marked by a local Spanish language AM radio station promoting itself with Latina dancers strutting their stuff to the station's music. A parking lot near the other end had a mobile taco truck with a line of people waiting in line to buy its wares.

The family we were visiting was white, as were perhaps a half of the people out and about on their block. The rest were Latino, with taxis parked in many of the neighborhood driveways. All along Morrison Road, in a nearby independent pet shop on Sheridan where we stopped at to comparison shop for Goldfish supplies, and in talking with these friends of the family at length, there wasn't a note of tension or fear.

This isn't terribly surprising in light of national trends that show that states with the largest immigrant populations are the most pro-immigrant, while those with the smallest immigration populations are the most anti-immigrant, the opposite of what one would expect if immigration concerns were reality based.

The lack of a sense of crisis also isn't limited to places where immigrant communities and non-immigrant communities collide.

I visited some of my devoutly Republican relatives in Akron, Colorado, deep in Marilyn Musgrave's 4th Congressional District, last summer. Two Christmas cards one with a photograph from President George W. Bush, and another card from his Presidential father, sits just over the kitchen table. We talked about many political issues. Several members of the family were putting up signs in favor of Referendum C. Nobody was concerned about immigration. The lack of a burning sense of crisis from them wasn't surprising. George W. Bush isn't exactly a firebreathing extremist on immigration either. In the run up to the 2004 election he proposed to allow some eight million illegal immigrants to obtain legal status as temporary workers, and he reiterated this (albeit with some harder line rhetoric thrown in) as part of the plan he pushed in Congress in May.

I spent three years in the late 1990s living Grand Junction, Colorado, home both to Democrat and Joint Budget Committe Chairman Bernie Buescher, and to fervently anti-immigrant State Senator Ron Teck, who proposed a constitutional amendment to end birthright citizenship in the just concluded special session. Every Friday, while working in a law firm there, working for, among others, a former chairman of the county Republican Party, I had lunch in a local country club. Immigration was not a priority or a major fear of people there.

Ken Gordon, the State Senator from the Democratic Party, and the Democratic party candidate for Secretary of State in 2006 was more frank than most in his mass e-mailing last Friday:

Business went to the Governor and pointed out that nearly 200,000 people who would not be able to provide documentation are working in Colorado. There was a bill pending that would have caused all of these people to lose their jobs. I wasn't in the meeting, but when I heard that statistic, I thought we need to understand the impact of what we are doing a little better before we risk the economy of Colorado.

Maybe the Governor decided the same thing.

The attitude throughout Southeast Denver, where I live, is one of overwhelming benign neglect. There is a lot more Spanish language polkaesque music coming out of construction jobs, gardening crews and cleaning crews in this part of Denver than there is country western music. Few people are alarmed. Few people feel threatened. Few people are afraid.

It is also notable that the rallying cry of those who care most, concern about state spending on illegal immigrants, is more myth than reality.

[A] broad majority of those polled - including a majority of Hispanic voters - believe that illegal immigrants "cost the Colorado state government a lot of tax money," . . .

But, this isn't the case.

Even former Governor Lamm, who was the public face of a proposal to limit state services to illegal immigrants sponsored by a group known as Defend Colorado Now, thinks the public has it wrong:

Former Colorado Gov. Richard Lamm, who spearheaded the group that sponsored the constitutional amendment, said he was "bothered" that voters believed the state's No. 1 issue was illegal immigration.

"It makes me think I was almost too successful bringing attention to the issue," he said. "This is not a very good reading on what problems the state faces. It's a serious issue, but people seem to have gone from an underreaction to overreaction."

Governor Owens, the man who called a special session to deal with the "emergency" of inaction on the Defend Colorado Now proposal to cut state services to illegal immigrants himself took the position before the Joint Budget Committee that: "state government was the wrong place to look for the costs of services provided to illegal immigrants."

Defend Colorado Now, the backer of the proposals whose removal from the ballot propelled Governor Owen's into calling a special session, also found so little enthusiasm for "defending Colorado" here in the state that it collected 30% of its funds from an organization in Petroskey, Michigan, with links to white supremacist groups.

Yes, the fear is finally starting to percolate. But, it is a top down phenomena. It is being stirred up, not arising from the grass roots.

Cross Posted at Colorado Confidential.

Waiting For Ethanol In Colorado

Reading the blogs, you'd think that ethanol (i.e. plant based alcohol, often from corn) as a fuel for vehicles was sweeping the nation. Its devotees routinely discuss their successes. But, in Colorado, ethanol is a trend that hasn't yet taken hold.

Corn growers, who see ethanol as salvation in the face of looming loss of unpopular federal farm subsidies, are well aware of its potential. Few others are, and few others use ethanol. While almost 7% of vehicles in Colorado are capable of running on the E85 blend of ethanol and gasoline most commonly available, finding it, and finding it at a reasonable price, is another story.

Fewer than a dozen in Colorado have E85 pumps, according to the Colorado Corn Growers Association.

And the pump price of E85 varies widely and can be higher than regular unleaded.

At an Acorn Food Store in Brush, for instance, a gallon of E85 sold for $3.05 on Friday, and a gallon of regular was $2.95.

[Mark] Mang, who filled his Tahoe with E85 at Silco Conoco on South Broadway and Alameda Avenue Friday, paid $1.99 per gallon. A gallon of regular at the same station would have cost him $2.99. . . . .

"The pumps that are selling for $1.99 have connections with suppliers who can supply at a favorable price and still make money," said Mark Sponsler, director of agronomic services for the Colorado Corn Growers Association. "The ones that aren't either are not as well positioned or just don't choose to market it at that price."

Ethanol supply is tight right now, but new ethanol plants are being built throughout the country, including one planned in Colorado. Over the past year, two new plants went on line in Colorado in Sterling and Windsor. Coors Brewing Co. was already producing a small amount of ethanol from spent grain.

As some context for those dozen E85 providing gas stations, "There are currently approximately 2350 retail gas stations . . . in Colorado." Your odds of randomly encountering a gas station that provides ethanol in Colorado are roughly one in 200. You are about six times as likely to win something when you play Lotto in Colorado, an opportunity you can find at almost every gas station in Colorado.

Cross Posted at Colorado Confidential.

Maine's AG Sues Cult

As previously discussed in this blog, the Maine based religious organization known as the Gentle Wind Project is an organization that tries to get people to buy its bogus health products (it calls the payments donations), and has harassed former members with frivilous lawsuits. A federal lawsuit was dismissed and a new one was commenced in Maine's state courts.

Now, the attorney general of Maine has stepped into the fray. A copy of the attorney general's complaint is available here.

The complaint alleges that the Gentle Wind Project has intentionally made false claims regarding the health benefits of its remedies, failed to disclose that testimonials came from people with a financial interest in the organization, improperly characterized purchases of health products as charitable donations, failed to keep proper non-profit organization records, and used charitable funds for improper purposes on multiple occasions.

As relief the attorney general seeks to have the claims declared fraudulent, to ban the use of the false claims to sell the remedies, to collect sales taxes on the sales of the products, to declare that the leaders of the group of breached their fiduciary duties and bar them from official roles in any Maine charities, to force the leaders to disgorge the benefits they have received, to ban the leaders from operating under the name of the organization, to freeze the organization's assets, to dissolve the organization as a non-profit under the supervision of a receiver, to reimburse everyone who was defrauded, to distribute anything left over for the benefit of the mentally ill, and to assess hefty civil fines against the leaders.

In short, the attorney general has done everything short of bringing criminal charges against this group and its leaders, vindicating the claims that those who have been sued by the organization have been making all along. Because the claims involve breaches of fiduciary duty, the debts could not even be escaped through bankruptcy, which is probably where most of the leaders of this group are headed in the near future.

Because no criminal charges were brought, the attorney general will need to meet a "preponderance of the evidence" standard, rather than a "beyond a reasonable doubt" standard. The attorney general will also be able to compel leaders to either testify under oath about their conduct, or claim the 5th and allow the judge or jury to make negative inferences from that decision. The decision not to bring criminal charges also deprived the organization and its leaders from a right to representation from the public defender if they can't afford their own attorneys. And, the decision to bring civil charges allows the attorney general to obtain preliminary and injunctive relief from a judge, and greatly limits the scope of the issues, if any, which can go before a jury. Generally speaking, there is no right to a trial by jury in matters in which relief other than money damages is sought, and in matters concerning breaches of fiduciary duties by corporate officers and directors.

Of course, if the leaders of the group choose to testify, rather than taking the 5th, anything they say can and will be used against them in later criminal cases, and nothing prevents the attorney general from bringing criminal charges against the leaders after this case is concluded, or parallel to it. Since many of the sales were interstate transactions, federal civil and criminal charges are also possible once the attorney general has laid out the factual basis for the state charges.

Almost every state attorney general has general supervisory authority over charities in that state, but it is very rarely exercised, and when it is, the suits are frequently brought when there is overwhelming evidence that a non-profit has spun entirely out of control, as the Gentle Wind Project has, to the point where it has become a virtual criminal enterprise (although the AG's suit does not itself make any civil RICO claims). If this suit is successful it could serve as a step by step manual on how to shut down organizations that make intentionally false health claims and try to use a religious or charitable status to cover their tracks.

14 July 2006

Colorado And Oil Prices: A Big Picture View.

For those of you who aren't paying attention, Israel and Lebanon are in the midst of a war right now. Israel has blown up Lebanon's airport, bombed its major highway, blockaded its ports and lobbed artillery shells into Lebanon. Lebanese guerillas have sent hundreds of rockets flying into Israel. The result, on top of the ongoing Iraq War, military saber rattling from the Bush administration directed at Iran (one of the financial backers of the guerilla group attacking Israel), unrest in Nigeria, and various other geopolitical tensions is that oil is selling at $78 a barrel. This is the story of what that means to Colorado.

A Brief History of Oil Prices

Chart from here.

What does $78 dollar a barrel oil mean? Consider some historical context. In inflation adjusted dollars, the price of a barrel of oil hovered for about three decades (1946-1974) between $15 and $25, actually showing a slight declining trend.

Then, the energy crisis associated with the Carter Administration, although it actually started two years earlier, hit. Between 1974 and 1976, oil prices (again in inflation adjusted dollars) lept to just under $50 a barrel and stayed there for a couple of years. From 1976 to a peak in December of 1979, oil prices shot up again, steadily, to $99.83 a barrel in May 2006 dollars. When the Iranian hostage crisis ended in 1980, shortly after President Reagan took office, oil prices started to return to normal, reaching a pre-energy crisis level of $20 a barrel, in inflation adjusted dollars, by 1986.

The energy crisis was a major cause of the stagflation (i.e. combination of stagnant economic growth and inflation) of the late 1970s and early 1980s. Unlike many periods of high inflation, the problem was not simply poor management of the money supply and interest rates, but a genuine shortage of a key factor of production in the American economy which increased the real cost of goods, rather than merely increasing their nominal prices, in an economy which, at the time, was far more manufacturing centered and far less energy efficient than it is today.

The 1970s energy crisis coincided peak oil in the lower 48 states of the United States (i.e. the point at which new discoveries were no longer keeping pace with consumption of existing reserves), which took place in 1971. Oil production in the lower 48 states has fallen steadily since then and has now reached 1940s levels. Of course, the 1970s energy crisis itself was artifical. It was a form of retaliation by OPEC countries for U.S. support for Israel in the Middle Eastern wars with Syria and Egypt that it was engaged in at the time. The problem then was not that there was not enough oil, but that a cartel was not willing to sell it to the U.S. at a reasonable price.

Nevertheless, the 1970s energy crisis had consequences, in addition to the immediate economic impact. It produced dire predictions that there would be no oil left in a matter of decades, which proved premature and have hampered the credibility of peak oil scholars looking at peak oil in the relevant world market, rather than simply the United States. It was pivotal in developing an awareness that help lead to the modern environmental movement, to new legislation mandating energy conservation measures (such as the CAFE fuel efficiency mandates for car makers), and an increased awareness that our nation's reliance on foreign oil was an issue that had national security implications. The intensity of these concerns gradually waned as high oil prices subsided, but they never died and have returned with a vegenance to the public debate as oil prices have returned to record high levels.

This drop in oil prices in the early 1980s is what precipitated the oil bust that devistated Colorado's oil industry, and with it towns like Grand Junction, Rifle and the then much more oil economy based Denver. As Wikipedia notes:

Denver's position near the mineral-rich Rocky Mountains, encouraged mining and energy companies to spring up in the area. In the early days of the city, gold and silver booms and busts played a large role in the economic success of the city. In the 1970s and early '80s, the energy crisis in America created an energy boom in Denver captured in the soap opera Dynasty. During this time, Denver was built up considerably, with many new downtown skyscrapers built during this time. Eventually the oil prices dropped from $34 a barrel in 1981 to $9 a barrel in 1986, and the Denver economy dropped with it, leaving almost 15,000 oil industry workers in the area unemployed (including mayor John Hickenlooper, a former geologist), and the highest office vacancy rate in the nation (30%)[15]. Energy and mining are still important in Denver's economy today, with companies such as Newmont Mining, Patina Oil and Gas, and Western Gas Resources.

The period from 1986 to 1999 was marked by volatility. For most of that thirteen year period, oil prices shot back in forth in a wide range between about $20 a barrel and $33 a barrel (in inflation adjusted dollars). There was a brief spike in 1991, associated the one of the few brief recessions in the long period of economic growth that made up most of the 1980s and 1990s, where oil prices topped $50 in inflation adjusted terms. This period ended with a steady decline in oil prices from 1997 to 1999 from $30 a barrel to $10 a barrel (in inflation adjusted dollars).

The story from 1999 to the present has been a relentless increase in oil prices, briefly interrupted by the demand reducing technology bust in 2000 and 2001, from $10 a barrel in inflation adjusted terms, to today's $78 a barrel. In terms more familiar to most people, each $25 a barrel in oil prices translates roughly into $1 gallon for gasoline. Prices have been at energy crisis levels in the $40 a barrel plus range since roughly around the time the Iraq War began in 2003.

Colorado's Oil Resources and Industry

According to the Energy Information Administration, Colorado ranks 11th among the states in petroleum production. Texas, Alaska, California, Louisiana, New Mexico, Oklahoma, Wyoming, Kansas, North Dakota and Montana all produce more.

While Colorado has significant oil resources, many, like Western Slope oil shale deposits, are relative expensive to exploit. Unlike Alaska, Texas, the Persian Gulf, the North Sea, and the Gulf of Mexico, much of Colorado's oil supply doesn't come in vast underground reservoirs of oil that you can simply put a glorified straw into and let it burst out of its own accord or remove with a simple pump.

[Map deleted for technical reasons. Some nice person cleaned up the problem in the cross-post at Colorado Confidential.]

Map of Colorado oil operations from the Colorado Department of Natural Resources.

In times of high oil prices, Colorado is an attractive place for a burgeoning oil extraction economy. In times of low prices, Colorado's oil industry is little more that a minor sideline for farmers lucky enough to have oil deposits on their land. The future of the oil industry in Colorado will depend to a great extent on how sustained current high oil prices remain. If they remain high, the current oil driven boom in places like Rifle will be effectively permanent. If they collapse as conflicts like the Iraq War and the current Lebanon-Israel conflict are resolved (if ever), Colorado could easily see a repeat of the 1980s oil bust, although it would likely be more localized because Colorado's economy, which was largely oil driven in the 1980s, has since diversified.

Higher oil prices may also, ironically, impact the Eastern Plains of Colorado for a very different reason. One major agricultural product these days is ethanol, a renewable alternative to gasoline made from a variety of grains, such as corn. Because it is a substitute, its prices move in lockstep with those of gasoline, which in turn move in lockstep with the price of oil. Higher oil prices encourage farmers in the Eastern Plains to grew fuel crops. Right now, this is pretty much a sideline for Colorado farmers. But, if sustained high oil prices continue, this could change.

On the other hand, many Colorado farmers also rely on petroleum based fertilizers to make it possible to farm at all. The price of these fertilizers also rises with the price of oil, and this factor has the potential to drive Colorado farmers who rely on enriching poor soils artificially out of business. Thus, high oil prices encourage organic farming.

Oil Price Prospects For The Future

Further oil price increases are well within the range of possibility.

This could come from increased international tensions. If there are military strikes on major oil supplier Iran, for example, a surge in oil prices is almost inevitable. U.S. support for Israel in its current conflict with Lebanon (and indirectly with the Syrian and Iranian backers of the guerilla group behind most of the rocket attacks) could trigger an OPEC oil embargo like response from Arab nations sympathetic to Lebanon's plight. Another shoe could drop in oil industry regulation in Venezula where Hugo Chavez has expressed an interest in not making Venezulan oil available to a United States whose government has openly opposed his regime, not that this, in isolation, matters much when oil prices are set in a world market. Political uncertainty after the close Presidential election in Mexico could spook oil traders. A full fledged civil war between the North and the South, or regionally, could break out in Nigeria, another major oil producing nation. The list goes on.

But, the bigger concern is that there could be a fundamental, long term shift in oil prices based upon factors less transitory than the international conflicts of the moment and domestic turmoil in oil producing nations.

World demand for oil is rising. China is rapidly industrializing and increasing its demand for oil with it. India has similar ambitions. Those countries alone make up more than a third of the world's population. As more countries that historically used little oil because they were undeveloped and lacked the industry and transportation infrastructure that consumed it, industrialize, worldwide demand for oil is growing faster than already industrialized countries can retool themselves to produce economic output with less oil through greater efficiencies.

Industrialized countries have already been working to wean themselves from oil, slowly but steadily, at least since the energy crisis of the 1970s. For example, oil based electricity production has virtually disappeared from the American economy outside Alaska and Hawaii (and from most of Europe), and industrial processes are increasingly being converted to natural gas from petroleum, in part, to ease compliance with Clean Air Act, and in part out of concerns about the rising price of petroleum. Europe has used very high gas taxes, urban planning, investment in high speed rail infrastructure, and a push to get the auto industry to produce fuel efficient small cars for their market to reduce transportation industry consumption of oil, and Japan has taken similar steps. The United States has lagged behind in these efforts. The trouble is, that weaning the nation from its addition to oil is a slow process (although rising oil prices will certainly speed up conservation efforts), while the foreign economic development driving an increased demand for oil is a more rapid process.

Increased production can also ease the squeeze. But, even the biggest unexploited oil deposits in the United States, such as those in the Artic National Wildlife Reserve (ANWR), would be largely a drop in the bucket of the larger world market, where the United States is a player, but only one of many big players. Blogger NewMexiKen lists the countries that now have oil reserves [correction, current production] of, at least, two million barrels (see also here):

*Saudi Arabia 10.37 Million
*Russia 9.27 Million
*United States 8.69 Million
*Iran 4.09 Million
*Mexico 3.83 Million
*China 3.62 Million
*Norway 3.18 Million
*Canada 3.14 Million
*Venezuela 2.86 Million
*United Arab Emirates 2.76 Million
*Kuwait 2.51 Million
*Nigeria 2.51 Million
*United Kingdom 2.08 Million
*Iraq 2.03 Million

The United States is number three on the list, but already consumes far more than it produces. About 60% of U.S. oil consumption is imported.

More promising, but still pie in the sky at this point, are Montana Governor Brian Schweitzer's ambitions to convert its ample coal supplies into diesel for transporation uses, something that was been done in Germany and Japan (in World War II) and in South Africa.

Many of the participants at the Denver World Oil Conference held last November, think that there is more to the 21st century's oil price surge than international mayhem.

Still, at the global level there is strong evidence that new discoveries and production, while continuing, are declining in volume, while demand continues to surge. When production fails to keep up with rising demand, you have peak oil. Some experts think that global peak oil may either have already arrived in the mid-2000s, or may be on the verge of happening around 2010. This would imply that, even in the absence of international tensions, we can expect a steady and relentless increase in oil prices in the future. This would flow from basic principals of supply and demand driven by fundamental factors like increasing industrialization of the world economy and finite oil supplies.

Of course, major technological advances in the production side or on the consumption side could makes these predictions obsolete. But, the peak oil hypothesis is based largely on empirical, statistical trends that have held steady for long periods of time, which makes it a robust model. While the "black box" empirical nature of the peak oil model means that it may work due to hidden assumptions that could turn out to be false in the future, this also means that the model is not dependent upon detailed and technical assessments of particular technologies and oil finds, which are individually more easily subject to dispute and interpretation.

Only fringe scientists believe that material quantities of mineral petroleum are still being created. Everyone else agrees that the global oil supply is effectively fixed. There is likewise widespread consensus among informed observers that the cost of exploiting existing reserves varies from deposit to deposit. The cheaper oil is being exploited first, while the more expensive to exploit oil is remains in the ground. The size of the true world oil supply is a function of the price one is willing to pay to get it. We will never use all of the oil on earth. Some of it will always be too expensive to exploit. The real disputes among informed observers is over how fast prices will rise, and how much technology advances in oil exploitation technologies can mitigate this trend.

Reasonable optimists believe that new technologies will allow oil prices to retreat considerably for a sustained period of many years once international tensions in the Middle East and elsewhere subside, much as they did after the 1970s oil crisis. Reasonable pessimists think that while international tensions are contributing to current $78 a barrel oil prices, that, unlike the 1970s energy crisis, which took place well before global peak oil, that any retreat in oil prices will be modest and fleeting. Just about all reasonable observers believe that in the long term we will eventually reach a peak oil threshold leading to higher oil prices driven by the fundamentals described above. But, whether this is happening now, will happen in the next few years, or is decades away, is a matter of considerably dispute that keeps commodity traders in business.

Demand Side Impacts in Colorado

When and if Colorado faces sustained period of higher and higher petroleum prices, this will impact both the Colorado economy and the national and world economies. In a summer when gasoline is costing $3 a gallon, this may end up happening sooner, rather than later.

While the industry can respond to pressure on the supply of oil by looking at new production options, the rest of the economy has just two choices to address rising oil prices: use less or spend more. So far, the U.S. economy has largely opted to spend more. As economists would decribe it, demand for gasoline is inelastic in the short term.


Transportation is far and away the predominant use of oil in Colorado. There are also forms of oil consumption outside the transportation sector. Oil is used for fertilizers, plastics, and industrial processes. Particularly in the Northeast, it is often used to heat homes. But, in 2002, in Colorado, about 83% of oil consumption went to the transportation sector. Another 12% of the total in Colorado is used in the industrial sector. Only about 0.1% is used to make electricity. The remain 5% or so is split a little more than two-thirds in the residential sector and one-third in the commercial sector, mostly doing things like providing heat in isolated rural areas, oiling squeaky hinges and running lawn mowers.

Oil consumption in the transporation sector is driven by decisions made in the long and medium term like where you live, where you work, and what vehicles you purchase, to a much greater extent than it is by day to day decision making. Some people can decide in the short term to bike or ride a bus to work, instead of driving, but most cannot. A household can consolidate the number of shopping trips it makes, and can curtail vacation and recreation driving, but this is a relatively small share of most family's driving, and at the very least, households need to drive enough to have groceries and clothe themselves. Once you make decisions about where you live and where you work, the amount of driving you do is inflexible. For most people unwilling to change their address or their job, the only way to change the amount of gasoline consumed is to buy a more fuel efficient vehicle, and this only makes sense, in most cases, if their existing vehicle is old enough to need replacing.

People can choose to live closer to work and shopping, and they can buy more fuel efficient vehicles. But, these decisions are made on time frames of multiple years and decades, rather than months or days. These decisions also depend on their individual guestimates about how important fuel costs will be in the coming decade or so.

Thus, we are likely to see lower income Coloradans, who don't have excess funds to spend on rising gasoline prices, face an economic squeeze before conservation measures can kick in over the longer term. And, in the medium term, more compact urban areas (as suburbs and exurbs grow less popular due to fuel costs) are likely to develop. Also, fuel efficiency, both through more fuel efficient vehicle choices, and by putting more people in the same vehicle with either car pools or public transportation, is a natural medium term responses. For commercial transportation, there is also likely to be a shift from trucks to far less fuel price sensitive freight rail, for intercity shipping. Eventually, in the long term, we may have to return to a society parallel to that of a century ago, before oil became the lifeblood of our economy.

Cross Posted at Colorado Confidential.