Harvesting Al Gore's Investment

I've been struggling in my attempt to determine whether green tech will become a government-mandated mania that, despite the lack of fundamentals, could create a lot of wealth for investors buying into the mania.
Well, news today show that Al Gore is doing his part to hype the bubble. Of course, the only reason it makes any sense to consider investing in green tech is because it will be a government mandated market. Need proof:

While "An Inconvenient Truth" urged viewers to fully inflate their car tires and to install compact fluorescent light bulbs to combat global warming, Gore said he is now focused on ensuring that the United States enacts a national carbon emission cap and ratifies a new global pact on climate change in the next three years.

"The simple algorithm is this: It's important to change the light bulbs, but it's much more important to change the laws," he said. "The options available to civilization worldwide to avert this terribly destructive pattern are beginning to slip away from us. The path for recovery runs right through Washington, D.C."

"The path to recovery runs right through Washington, D.C." Well surprise, surprise. You watch the touchy-feely "Inconvenient Truth" and everyone gets on board when he says that we just have to inflate our tires. I wonder how the movie would've been received if the message of the movie was that we need to raise taxes on gasoline to 5 bucks a gallon. But, like any good cult leader, Gore starts out small and then tightens the screws. I'm just wondering if now is a good time to buy stock in a Kool-aid company.

McCain's Revised Proposal

WASHINGTON (Reuters) - After receiving much heated criticism over his newly released economic proposal for coping with the largest credit and housing crunch in decades, John McCain has astounded his opponents with a sweeping proposal that is perceived by many as more comprehensive than plans put forth by either the Clinton or Obama campaign.

McCain's proposal would sponsor a new 100,000 employee Government Debt Forgiveness (GDF) bureaucracy reporting directly to the President. The crux of the plan is the assertion that many cashed strapped borrows who are in default on their mortgages must also necessarily have difficulty paying their taxes.

"Getting lenders and banks to agree on a plan for forgiving debt and getting people out of foreclosures will take far too long. Under my plan, we will immediately and automatically forgive anyone with an outstanding tax obligation to the Federal Gov't, this is the way to get to the root of the problem. "

Sen. McCain continued, "The Democrats are proposing a shot-gun method of stimulating the economy, dropping money out of helicopters, if you will. Why should we cut a check to families that have money in the bank and are paying their bills? They don't need the help."

The plan would also rewrite the tax law so that income taxes would no longer be withheld from each paycheck. Each citizen would have full access to pre-tax funds, and at the end of the year, pay the assigned tax obligation. The GDF would track households that consistently fail to pay taxes and put them in the "distressed household" category. Each distressed household would be assigned a personal counselor to work out an agreement such as forgiving the tax debt or giving the family a cash subsidy. "This ensures that gov't funds are given only to families that are truly distressed." said Sen. McCain's spokesperson.

Criticism from Democratic candidates was immediate and direct. Sen. Obama retorted, "The last thing the Gov't needs to be doing is rewarding those that renege on their obligations to this great country, the U.S. of K...ummm...of A. When you receive Gov't assistance, whether it be in the form of interstate highways, or access to courts, or national defense, you have a duty to repay what you owe. Not to mention that this would wreak havoc on Federal budgets..."

Sen. Clinton was likewise unsparing in her remarks, "A get out of jail free card for tax evaders? And what about the lost revenue? Is it fair for taxpayers to subsidize people who aren't responsible enough to pay their taxes? I've got news for McCain, you're going to be seeing a lot of "distressed households.""

The McCain campaign furthered the charge claiming that the tax code is too big and cumbersome for ordinary people to figure out what they owe. For people who didn't understand what they were doing when they signed their tax returns there would be more understanding and compassion. Until the full bill was passed, Sen. McCain declared that there would be a "100-day freeze on all late tax payment penalties, and no more interest charged on unpaid taxes."

An economist for the Clinton campaign, who requested to remain anonymous for fear of reprisal, was quoted as saying, "This is blatant plagiarism. This is a knock-off of our own original plans for addressing the crisis. The main advantage of the Clinton proposal is that you're giving away someone else's money [referring to the banks]."

Hillarycare Part Deux

http://www.nytimes.com/2008/03/28/us/politics/28clinton.html?_r=1&ref=politics&oref=slogin

The media campaign accompanying the roll out of the plan will include the slogan: "Price caps. They worked for Zimbabwe so why not here?"

Man, I tell you, I'm really starting to think about voting for Hillary. I mean, I've always felt that one of our biggest problems has been our inability to adopt effective policies from other countries. Ireland implemented a flat tax and its economy has gone gang busters. Yet we haven't adopted that policy. Poland slashed its corporate tax rate and has been attracting business investment like crazy. Yet we haven't adopted that policy. Finally we have a candidate who gets it, Hillary. We all know that Zimbabwe has been having a lot of success with price caps so, I'm glad to see a candidate willing to finally adopt one of those winning policies of other governments.

But, I tell you I'm really torn. I really like Hillary but Obama is a proponent of my number one issue this election which is:

1-Figure out a way to get people who made good decisions take the punishment for the bad decisions made by the idiots

That is huge for me. Punishing good behavior has always been important to me but especially this year. So, what to do, what do... Either way, anytime we see candidates advocating the policies that made Cuba so great we are in good shape. That's why it's so tough to pick this year. We've got two candidates advocating the effective policies that China had before they went and screwed up their economy with capitalistic reforms.

Fannie/Freddie Rule Change

More on the screw the prudent front...
http://finance.yahoo.com/expert/article/business/73923

U.S. government-chartered mortgage companies Fannie Mae and Freddie Mac can raise up to $20 billion in capital, according to their federal regulators. The Office of Federal Housing Enterprise Oversight (OFHEO) agreed last week to lower the amount of capital reserves held by the companies to 20 percent, from 30 percent, in a bid to shore up the housing market. (Reuters) Fannie and Freddie own or guarantee almost half the $11.5 trillion in U.S. residential debt. The $20 billion figure is at "the top end of the range," said OFHEO director James Lockhardt. "We felt at this point it was important to add liquidity to the mortgage market."

The classic way to keep people from making rational decisions is to constantly change the rules on everyone so that no one knows what is rational. In fact, decisions that were formally rational can instantly become irrational with a quick rule change. Take for instance the case of the poor shmuck, Ryan Parker of Alabama. When considering what type of mortgage loan to obtain two years ago, he was informed that he could either take a 30-year fixed rate mortgage or a fancy new 3-1 ARM which would LOWER HIS PAYMENTS! Well he, looking at the current credit/mortgage market thought to himself, "Hmmm…with all of the lending being done right now, Freddie and Fannie (who have capitalization requirements mandated by the government) may soon be tapped out. In that case, they will most likely be unable to offer lending on more mortgages. Which will lead to higher mortgage rates as banks have to guarantee mortgages themselves instead of being able to sell them off to Freddie or Fannie. That means mortgage rates should rise. Which means that an ARM would adjust up. Most likely even HIGHER than the fixed rate I can get now." Being the prudent and rational gentleman that he his, Mr. Parker went with the 30-year fixed mortgage.

Well, two short years later, Mr. Parker is viewing a sudden credit crisis and the rising interest rates that accompany such crisises with satisfaction because his initial thought has come to fruition. Freddie and Fannie are in fact tapped out and mortgage rates are in fact rising and people holding ARMs will in fact have to pay higher rates than Mr. Parker's fixed-rate mortgage. "Phew!", he thinks to himself patting his forehead. But wait! What's this? Freddie and Fannie aren't in fact tapped out? But why? How? Well, it turns out that those government-mandated capitalization rules weren't in fact rules but whims and can be changed at the drop of a hat. Mr. Parker's elation turns to regret. He is suddenly confused. "Why have capitalization requirements at all?", he thinks to himself. "To reduce risk" is the answer that he finds out after some study of the issue. "But, wait, has the risk associated with Fannie and Freddie been reduced so that lower capitalization requirements are justified?", Mr. Parker thinks. Well, no. Rather, with sinking real estate values across the country the risk has in fact INCREASED! So, shouldn't Freddie and Fannie be required to INCREASE their capital reserves instead of the opposite? No, see, the risk has been transferred from them so their risk is in fact lower than it used to be. "Where did the risk get transferred to?", asks humble Mr. Parker. Well, to the government or, rather, taxpayers. Or, more specifically to, well….you, Mr. Parker. See now, thanks to a rule change, not only do you pay a higher mortgage than your neighbor down the street with the ARM but you also are subsidizing his loan by paying his risk premium to the IRS every year. All that is left if for Mr. Parker to weep bitter tears of disappointment for so foolishly choosing the 30-year fixed. Poor fella'.

Housing, Credit, Inflation...oh my!

Mr. Greenspan on the current credit crisis.

I would add only one thing to Mr. Greenspan's comments. In his book he outlines how past recessions were a matter of disjointed supply and demand. People would get exuberant, stuff would fly off the shelves, and the next thing you know, demand would drive off a cliff. Stores and companies then must work off the excess inventory to "unwind their positions", slashing prices and laying off workers to get by.

He predicts, and I think correctly so, that just-in-time inventory practices and digital commerce have lessened the likelihood of these types of recessions. The last two recessions have been asset bubble based (assuming we are in a recession). Fine. I'm not a fan of more regulation or nationalization (thanks Mr. Summers) in general. What I am a fan of is the Fed using moral suasion on the upside of the next bubble.

The chief issue with an asset bubble is that it involves the masses. In past recessions, Ma and Pa only got involved in recession making if they owned their own store and kept too much stock on the shelves. In the last two recessions, we have all been accomplices in bubble making, and the masses are obviously too foolish to manage ourselves in a mania, no matter how recent the previous asset collapse.

If that is the case then the Fed needs to talk people off the ledge earlier. Greenspan did it cryptically and perhaps prematurely with his "irrational exuberance" comment several years before the dot-com crash. Having missed the mark on the first round, Greenspan joined the ranks of the anti-pessimists, and point-by-point outlined exactly why we were not in the midst of a housing bubble...several months before the contraction began the during the 2nd half of 2005. Bernanke soon thereafter took up the mantle of the swaggering, tobacco chewing, anti-inflation sheriff. "We have nothing to fear but inflation itself."

I completely agree that it's not the Fed's job to value asset prices. That's an incredibly complex problem, and the Fed can't be spooking the markets either. I'm not even blaming the Fed for this last round either...how were they to know it would be this bad? So if the Fed can't attack "inflated prices", what recourse do they have? They need to strike at the ideas of which bubbles are made:

Idea 1: In 2000, "This is a new economy where stock prices only go up."
Fed: Wrong, stock prices go up and down. Now as ever, we must be sure that there is underlying value and underlying income to justify our asset valuations. Markets with irrational expectations have always met with disappointment.

Idea 2: In 2003, "Home prices never go down."
Fed: Wrong, home prices are like all other prices and can go down just as easy as they can go up.

Idea 3: In 2004, "A home is the best investment you can make."
Fed: Wrong, a home is shelter. You pay money, you get shelter. If you're lucky, a home is a form of forced savings and you sell for a bit more than you paid. More dangerously, you must not view a home as an investment because it comes unhinged from the real cost of shelter (the vulgar term is "rent"). A decline in housing prices is viewed entirely different by our culture and our government than is a decline in other assets like stocks. This is especially clear now since people cry "Save my home!" not "Save my investment!"

Irrational times

http://finance.yahoo.com/expert/article/yourlife/71740

I really like this quote:
Also bear in mind that, as Warren Buffett says, markets are at first a voting machine, but always eventually become a weighing machine.

That makes the point succinctly that I have tried to make several times! As much as we try to finesse, massage, tweak, and "fix" the symptoms of the financial world, there is some underlying reality that exists. With systems as complex as financial markets, that underlying reality is very hard to infer. Luckily, there is a mechanism for inferring that reality and it is called price. As prices move, all market participants can learn with the best possible accuracy what the reality on the ground is. Like Warren Buffet says, the market becomes a weighing machine. I totally agree with that statement and that's why this quote troubles me:

Why doesn't Mr. Bernanke call in the big bankers and tell them he'll make sure none of them fails? Why not tell them the Fed will always be there to bail them out and recapitalize them if need be? Why not stop solvency-risk fears today? Why wait until another day? Why wait until a million or 2 million more people lose their jobs or homes or both?

Well, unfortunately, all of those things are how the market signals the underlying reality. If there is a problem that needs to be fixed, people need to know what the problem is and how to fix it. If banks have overextended or residents have overspent on their homes, someone or something needs to let these people know. If people need to be more prudent in the risks they take, that information needs to be communicated to them. Unfortunately, sometimes the only way to communicate that message is to let businesses fail or people to go bankrupt. Otherwise, there has to be another mechanism to let people know that. Apparently Mr. Stein realizes this because he suggests:

Further, why not tell the banks that a condition for recapitalizing them is much stricter regulation about lending policies -- not lending against bad collateral, not lending to borrowers with no credit history? Why not also impose rules about executive compensation to keep top brass from looting their own stockholders even as they kill their own companies?
Regulation to the Rescue
It's a myth that all regulation is bad. In banking, regulation saves greedy, foolish people from killing their own banks and the economy in general. Let's save the banks, save the economy, and lay the foundation for a smarter tomorrow -- starting today.

So, that's fine. Some people think that the best way to run markets is to let them efficiently run themselves. When there are prudent opportunities to invest, the price will indicate that. When there are problems that need to be corrected, the price will again indicate that. Obviously, with this method financial hardships will occasionally occur. The other method is to prevent any pain by bailing out people or businesses that make mistakes but then to prevent them from making bad mistakes in the future, we get the smartest people in the country to figure out rules to force people to make the right decisions. Now both are valid models but, I've always felt that the reason the U.S. is the U.S. and Russia is Russia is because we followed model 1 and Russia followed model 2. Now there are always people that think that the planned economy people always just did it wrong and with even smarter people and even better planning we can make a planned economy work even better than a free-market economy. Apparently Mr. Stein is in the latter camp.

Bear Stearns Meltdown

A $236M sale price basically means that the company had negative equity. Let's get this straight.
The building is worth $1.2B
The Fed guaranteed $30B: The Fed also essentially made the takeover risk-free by saying it would guarantee up to $30 billion of the troubled mortgage and other assets that got the nation's fifth-largest investment bank into trouble.

So, quick math: $236M - $1.2B - $30B = -$30.9B value for Bear Stearns.

How can this be? It's called leverage:
Such an erosion can be devastating for any investment bank, especially one like Bear Stearns, which has a leverage ratio of over 30 to 1, meaning it borrows more than 30 times the value of its $11 billion equity base.

30 to 1 at $11B equity...that's $330B in debt obligations. Maybe that -$30.9B that JPMorgan paid for Bear was overpriced!

New Wiki Tax

The U.S. Senate announced today that a new law (deamed Feingold-Obama) will be passed to tax Wikipedia and other collaborative sites. Although traditionally enjoying a non-profit status, the Federal government felt that a redefinition of prolific non-profits was necessary.

Russell Feingold (D-WI) comments on the need to control free initiative,"Wikipedia is a clear example of what happens when consensual adults operate without paternal supervision. You have people getting their feelings hurt and angry discussions occurring. There can be no free speech without fair speech. Wikipedia can really be viewed as a black market of value exchange. In the olden days, you would buy an Encyclopedia set, and the Federal, State, and local governments would collect a sales tax or corporate tax. These sales created jobs. Encyclopedia makers are being laid off in droves..."

When asked if he thought the incalculable benefit of Wikipedia might offset the job loss of Encyclopedia makers, the Senator replied, "It's not likely. Companies like Britannica provided good jobs for researchers, scientists and the like. I understand that most of the comments on Wikipedia are made by high school dropouts and single moms. And we have yet to address the exploitation of those who contribute to the Wiki with no pay..."

When asked if this might violate free speech rights the Senator replied, "Well first of all, there can be no free speech unless there is fair speech as I've said. Secondly, as Obama has pointed out eloquently regarding our 2nd amendment rights, these must be subjugated by the special interests of the community, though I can't express it quite like he can. Encyclopedia companies are a part of our community, and I see no explicit right to 'blog' or 'wiki' in the Constitution."

In other news, the Barack Obama Campaign decided to rid itself of a $100,000 contribution from Britannica stating that it was a "bone-headed" mistake to accept the money given the current legislation he is working on. The money will be donated to a "Chicago non-profit charity that doesn't destroy jobs."

End of Core Dump

That's it for posts from the old blog. All new from here on. With enhanced cleaning action!

Regulation-driven Bubble

So, in my research trying to figure out whether or not there is enough political will out there to force a purely regulation driven bubble, I came across this:



He said that GE's involvement in a cap-and-trade organization was motivated by "two basic beliefs" which are
1. We see an opportunity to make money for investors by developing green tech to address these issues
2. We are in the worst of all worlds right now. "We see that the government is moving in this way..." to add more regulations/mandates. So, like it or not more regulations are coming, we might as well profit from them.

So, basically GE thinks that a regulation-driven bubble in green tech is coming so they are embracing the trend and preparing to profit from the coming wave.

Here's a guy already surfing the wave:
http://online.wsj.com/article/SB120535230851631199.html

He's among the most successful investors trying to profit from rising environmental awareness, whether by speculating in energy commodities or launching wind-power companies. Last year, the total value of carbon permits changing hands -- whether on public exchanges or in private, off-market transactions, where most still occur -- nearly doubled to €40 billion, or about $60 billion, according to Oslo-based Point Carbon, a market research firm.
Yesterday, Climate Exchange's stock jumped 16% after the firm reported a tripling in 2007 revenue to £13.6 million, or about $27 million. That gives the company, which handles about 90% of the trading on carbon exchanges, a market capitalization of roughly $1.31 billion. Mr. Sandor's 20% stake is worth more than $260 million on paper.

Look, the government is creating jobs!

Citing "huge growth potential," the New York Mercantile Exchange plans to enter the field in this year's first quarter.

So, what is this "huge growth potential"? He has to believe that the global warming gospel has been effectively preached in America and is now ready to sell indulgences to the faithful, right? That's right, partner!

The U.S. hasn't ratified Kyoto. But all three leading Democratic and Republican presidential candidates say they want the U.S. to do more to fight climate change, and would likely set up a carbon-trading program.

There is definitely a quick buck to be made in this environment. The question is, has the gospel been accepted enough to a point where we are willing to make sacrifices (i.e. lower standards of living) for it? If so, invest in the coming green bubble! If not, it will go down as another fad.

Food Storage Economics

http://www.marginalrevolution.com/marginalrevolution/2008/03/brain-twisters.html

I have always struggled with food storage even though it has been a admonition of my church. I've thought it was inefficient because a diverse portfolio should outperform storage of a depreciating asset in the long run. I felt like you could effectively insure against nearly every risk. For example, buy TIPS to insure against massive inflation, etc. That said, it appears there is a scenario where food outperforms other assets. When the global warming mania starts to cause us to burn our food supply in the tanks of our cars, it's time to buy and store food. I've read several articles recently saying that food prices are outpacing inflation (even though food is obviously a component of inflation) and is even outpacing other commodities.

btw, expect more inflation:
http://biz.yahoo.com/ap/080311/fed_credit_crisis.html

Economic Myth-Busting Links

I was reading this piece that disputes the notion that the economic inequality between the rich and poor is increasing and thought to myself, "This is the article that I'll send to anyone who raises that false argument again." Then I realized that I have a couple more articles that I keep in my Favorites to refute popular misconceptions. So, I thought I would put then in one post so I can find them in the future:

Widening Prosperity Inequality Myth:
http://online.wsj.com/article/SB120511125873823431.html (same as above)
also: http://www.nytimes.com/2008/02/10/opinion/10cox.html?ex=1218430800&en=a778f7824fd9e3ba&ei=5087&WT.mc_id=OP-D-I-NYT-MOD-MOD-M032-ROS-0208-HDR&WT.mc_ev=click&mkt=OP-D-I-NYT-MOD-MOD-M032-ROS-0208-HDR

Health Care Policy:
http://www.marginalrevolution.com/marginalrevolution/2007/10/how-to-debate-h.html

Global Warming:
http://www.time.com/time/health/article/0,8599,1666772,00.html

Basic Economic Myths Debunked:
http://www.reason.com/news/show/122019.html

Investing in Green Tech

So, after reading this article, I've been thinking a lot about if/how one should invest in green tech. I agree with several of the premises of the article but disagree with some, particularly the degree to which the government is responsible for the creation of bubbles. The .com bubble was largely a result of its own making. The Internet was a ground-breaking new technology with the potential to unleash massive productivity gains and was going to receive massive amounts of investment whether or not the government suspended sales tax on Internet purchases or not. The fact the Internet was a valid target of investment is demonstrated by all those investments in Internet technologies turned out to be wise investments. Ebay, Amazon, Google, Yahoo, etc. all proved to be very good companies that now generate billions of dollars in profit for their shareholders. But, beyond the purely Internet companies (and Internet suppliers like Cisco) nearly every business benefited from investment in Internet technologies whether it was in the form of banks automating operations or a corner store doing Internet billing. An Internet bubble was coming whether Congress passed any kind of bill facilitating it or not.

However, I do believe that the housing bubble was to a larger extent government driven. When the government eliminated capital gains on home sales in 1997, it instantly increased the value of homes across the board and that coupled with historically low interest rates during the early 2000's, set off a housing boom. That said, the housing boom wasn't completely government created either. After people captured a lot of the wealth that was generated by the Internet boom, it was only natural that they would want to begin to consume that wealth in an effort to raise their standard of living. Upgrading one's house seems like a natural place to start. So, a housing boom was probably inevitable as well when people began to realize the standard-of-living gains that were to be had given all of the wealth that was generated by the rise of the Internet. I do, however, believe that the housing bubble was a government-created phenomenon to a larger extent than the Internet boom given the larger roles that interest rates and taxation played in its creation.

The potential green tech bubble, if it materializes, will be almost exclusively government generated. The very fact that government is attempting to pass legislation mandating "greener" practices demonstrates that there are not significant productivity or standard of living gains to be had by implementing these practices. If there were, we wouldn't need the government forcing the hands of consumers or business owners. As I have said before, I think global warming is inevitable when the Second Law of Thermodynamics collides with the Tragedy of the Commons. In this case, the commons happens to be the entire world or, more specifically, the entire atmosphere. We need more energy injected into the system to overcome the naturally increasing entropy and thus increase our standard of living. Unfortunately, the easiest way to inject energy into the system is to burn carbon fuels which releases carbon dioxide into the air resulting in likely higher temperatures. Which could ultimately lead to natural catastrophe. Then comes the tragedy of the commons where the most of the world's inhabitants are more concerned (rightly) about pulling themselves out of poverty than keeping the planet's temperature the way it is. The poor countries will pollute the environment if we don't. That, sadly, is the reality. We already know that the atmosphere is a victim of the tragedy of the commons because we have to force our fellow Americans to stop abusing it through cap-and-trade, carbon taxes, or regulation. Now if we can't convince Americans to respect it, how are we going to get the rest of the world's citizens to comply given we have no jurisdiction over them?

Now comes the dilemma...How should one invest given this political environment? Since green tech returns don't depend on fundamentals (i.e. we can't invest based on how much productivity gain we expect to achieve) we have to invest based on 1) our prediction about how drastic first-world countries are willing to get in staving off global warming and 2) how long we predict the green revolution will last. Are we going to pass a few ethanol mandates and then watch our food prices rise and pull back? Or are we going to drive off the cliff and pass massive, far-reaching mandates that take a two-by-four to our economy (and a jet pack to green tech companies)? That's the question you have to accurately predict to invest in this environment.

I'm hoping that we quickly come to the consensus that there is nothing we can do about the climate change and decide not to bankrupt ourselves in a fruitless endeavour. Even liberals know that ethanol is a bust. So, hopefully we can back-track on that pretty soon. But, maybe we won't, the government drove us off of the cliff with housing. So, that's what I plan researching in the next couple of months: whether or not this green tech is going to take on a life of its own and if so, what companies are going to benefit the most from it. In the mean time, are oil sands a good investment in this environment?

Global Warming Primer

Long article on carbon footprints:
http://www.newyorker.com/reporting/2008/02/25/080225fa_fact_specter

We all consume electricity generated by burning fossil fuels; most people rely on petroleum for transportation and heat. Emissions from those activities are not hard to quantify. Watching a plasma television for three hours every day contributes two hundred and fifty kilograms of carbon to the atmosphere each year; an LCD television is responsible for less than half that number. Yet the calculations required to assess the full environmental impact of how we live can be dazzlingly complex. To sum them up on a label will not be easy. Should the carbon label on a jar of peanut butter include the emissions caused by the fertilizer, calcium, and potassium applied to the original crop of peanuts? What about the energy used to boil the peanuts once they have been harvested, or to mold the jar and print the labels?

My thesis has always been that price is a simply a measure of carbon footprint. A good or service is just some representation of a particular way that the universe has been ordered, a way that entropy has been removed from a system. Order is the only thing that has any intrinsic value. Even raw materials have no intrinsic value. They only have value as they are ordered. Gold in a mountain is worthless to me. It is not until it is mined, smelted, and transported to me do I care anything about it. Everything of value is simply a measure of order. A car orders my universe by taking the myriad of vectors that my body could move on and moves me in a ordered direction of my choosing. So all value is a measure of order. So, price is simply a measure of order. Well, the second law of thermodynamics says that the entropy of the universe is increasing and the only way to decrease the entropy of a closed system is to add energy to the system. So, price is simply a measure of how much energy has been added to the system. Now I know that the burning of carbon fuels is only one way that energy is added to the system. Others include the a masseuse eating an apple that has captured the sun's energy and then her metabolic process turning that energy into useable energy for her muscle cells which, in turn burn that energy in ordering my universe with a back massage. That said, every form of energy can be traded for burned-carbon-generated energy and thus through the huge web that we call, the global economy, eventually the trade that will be to obtain some order will be for carbon-fuels. Thus, if you want to know what the carbon footprint of any good or service is, simply look at the price. Your carbon footprint is equal to your consumption. CarbonFootprint=Consumption. Simple math.

"I wonder. You can feel very good about the organic potatoes you buy from a farm near your home, but half the emissions—and half the footprint—from those potatoes could come from the energy you use to cook them. If you leave the lid off, boil them at a high heat, and then mash your potatoes, from a carbon standpoint you might as well drive to McDonald’s and spend your money buying an order of French fries."

Simple math. Is it cheaper to buy McDonald's fries or make mash potatoes? The answer will tell you the most environmentally friendly thing to do.

Paying attention to the emissions associated with what we eat makes obvious sense. It is certainly hard to justify importing bottled water from France, Finland, or Fiji to a place like New York, which has perhaps the cleanest tap water of any major American city. Yet, according to one recent study, factories throughout the world are burning eighteen million barrels of oil and consuming forty-one billion gallons of fresh water every day, solely to make bottled water that most people in the U.S. don’t need.

Yeah, but so what? If that money is not spent on bottled water that was bottled by the hands of the indigenous people of…wherever, that money would be spent on a flat-screen TV which consumes electricity for the next 10 years. Or the talk about buying local, organic food instead of food shipped from thousands of miles away via airplane. But, what difference does that make? The cost of the local produce is more expensive. That money goes to local Farmer Bob who takes the money and buys an iPod and a computer which burn a lot of electricity. All you can do to lower your carbon footprint is to not spend. It doesn't matter how you spend. Either earn less, or earn and take the money out of circulation by cashing it and lighting the cash on fire.

In his speech last year, Sir Terry Leahy promised to limit to less than one per cent the products that Tesco imports by air. In the United States, many similar efforts are under way.

I don't know why food has become the target of the "Buy Local" campaign. Why don't we say the same thing about TV's or socks or cars or whatever? Why does the carbon matter so much on food but not on a TV?

The environmental burden imposed by importing apples from New Zealand to Northern Europe or New York can be lower than if the apples were raised fifty miles away. "In New Zealand, they have more sunshine than in the U.K., which helps productivity," Williams explained. That means the yield of New Zealand apples far exceeds the yield of those grown in northern climates, so the energy required for farmers to grow the crop is correspondingly lower. It also helps that the electricity in New Zealand is mostly generated by renewable sources, none of which emit large amounts of CO2.

Keeps making my point. How do you know what apples are the most environmentally friendly? Price.

Nonetheless, the carbon footprint of the roses from Holland—which are almost always grown in a heated greenhouse—was six times the footprint of those shipped from Kenya.

Duh. If Kenyan roses can compete economically with Dutch roses, it's because they cost less energy to produce them.
Solution. Totally agree with this point:

"This is the greatest remaining opportunity we have to help address global warming," Niles told me. "It’s a no-brainer. People are paying money to go in and destroy those forests. We just have to pay more to prevent that from happening."

We can't change the demand side. If we use less carbon-fuels, developing countries like China and India will only use more. So we have to do it on the supply side. We need more forests (let's pay Brazil and Indonesia not to chop and burn theirs down) and we need new technologies like carbon sequestering, etc. We can work to take carbon out of the air. Working to stop putting carbon into the air is fruitless.

Getting us up to speed

We didn't like the orginal domain name of this blog we started so, we're switching it to here, freemarketfreepeople.blogspot.com. I'll be posting the few posts that I put up at the old site to get us up to speed.