A place for me to save a few thoughts

Independence Day and Hamburger Buns

My daughter Julie called this morning and asked if we could bring 3 dozen hamburger buns to our family 4th of July celebration. Right then I wondered if we could find that many buns at the last minute. With millions of people purchasing hamburger buns today, I worried there might be a shortage.

After lunch Marieta and I went to Costco expecting and finding a very crowded store. I started to panic when I saw no buns in the bakery department, but Marieta suggested we would find some bakery items in another part of the store. She was right (of course). Near the freezer cases there were racks and racks of bread and buns. The hamburger buns were fresh, inexpensive, and plentiful. Because Costco sold the buns in bags of 2 dozen each, we bought four dozen. I was impressed. This whole capitalism thing is amazing.

I thought about how different it would be with a “planned” economy. A government commission would start meeting months in advance of the holiday. Studies would be commissioned and data collected. Resources would be allocated to produce exactly 1 hamburger bun for all persons over the age of 3 (who needs 2; we’re all too fat). Literally hundreds of laws would be passed to insure that all buns were produced by union workers, that all ingredients were properly approved and inspected, that buns contain only organic, whole grain flour, that each bun had exactly 17 sesame seeds (some people don’t like sesame seeds, so the seeds would be kept to a minimum), that each bun would conform to a certain texture, freshness, and size (forget the idea of an extra large, high calorie bun), and that all packaging would be biodegradable and recyclable. Millions of dollars in advertising would be spent to encourage us to line up early for our buns and to remind us how lucky we are to have the government protecting our right to have only non-trans fat oils in our buns. Prices would be fixed, profits would be limited, and special bun taxes would be added to provide buns for those people who could not afford them.

Many congressional leaders would be taken by surprise when they learned of the hamburger bun disaster. Shortages in organic flour and union bakeries would significantly slow the production process. Allocation problems would leave some areas of the country, notably Washington, D.C. and Chicago, with way too many buns, and other parts of the country with way too few. Protesters in support of birds and insects would stop a last-minute attempt to use non-organic flour. The average police person, used to spending most of the Independence Day weekend with his or her family, would have to work overtime to keep the bun lines orderly. Many people would spend hours in line only to learn that there were only enough buns for children and seniors.

The government commission would eventually apologize for the shortages, but it would not accept responsibility for forgetting to provide buns for hot dogs or for the arrests of those mothers and fathers who attempted to make homemade buns. Eventually the Supreme Court in a 5-4 decision would reaffirm our right to eat high-fat hot dogs and to bake our own buns, but that would not happen for almost a decade. The President would interrupt all fireworks displays to tell us that President Bush was responsible for all the bun problems (he had not thought to create a government bun commission sooner) and to announce a new bun stimulus program which would guarantee Independence Day buns to every American for years to come. He would also notify us of an executive order which would rename the 4th of July holiday to Government Appreciation Day.

Fox News would probably be the only network critical of the name change. The Tea Party movement would likely rename itself to the Kiss My Buns Party. Al Gore, completely misunderstanding the meaning, would likely try to join the party. A few friends of President Obama would lobby for a law requiring green food coloring in every Government Appreciation Day bun. The only company approved by Congress to make the GAD bun food coloring would be located in Chicago.

Happy Independence Day. Pete

This Doesn’t End Well

I was helping one of my kids with a tax return and noticed an amazing refund. The husband and wife had approximately $1,500 withheld from their paychecks for federal income tax. Back when I was their age, getting back half of that amount would have been great. Getting the full amount back would have been incredible. So, how big was their “refund” this year? Would you believe $4,500?

As you might guess, they are not complaining, but I was shocked. Days later I am still in shock. The additional money came from tax credits (credits, not deductions) for having a child, for having jobs (making work pay), and for paying college tuition.

While I agree these are worthy, deserving, well-intentioned credits, I couldn’t help but think about where the government gets the money to be so generous. A quick calculation would suggest that $1,500 came from my kids’ withholding, $2,000 from the 50% of us who pay income tax, and $1,000 from China and others who have enough bad financial sense to loan money to the USA.

How can our government afford to be so generous when it has to borrow $2 for every $5 it spends? The standard answer to our debt is to say we will raise taxes on the rich. Unfortunately, raising taxes does not increase revenues.

An article entitled “Maryland’s Mobile Millionaires” appeared in the March 12, 2010 issue of the Wall Street Journal. The article explained how a tax increase on millionaires designed to increase tax collections had actually lowered the monies collected. For 2008, the year the tax increase was enacted, the number of millionaires in Maryland fell sharply to 5,529 from 7,898. So even though the tax rate went from 4.75% to 6.25%, revenues from millionaires fell by $257 million. Part of the decrease likely came because of the recession, but part of the decrease was due to rich people moving to states with lower tax burdens. Of the millionaires who filed Maryland tax returns in 2007, one in eight did not file a return in 2008.

This is just one example of how raising taxes on the very rich does not increase revenues. As taxes go up, a few rich people will move to another country, but most will make changes to their investment strategies. They just lower their income by moving more of their money to tax-free or tax-deferred investments. Then they wait for the government to learn again that higher tax rates produce lower revenues.

This doesn’t end well. The government will borrow more money in the short term and print more money in the long term. Taxes will go up for everyone. Eventually our lenders will quit lending. Our currency will be significantly devalued. Government services and entitlements will be cut. The pain will be enormous. We will learn again that good intentions may pave a road we do not want to travel. Pete

What We are NOT Getting

I can’t stop myself from writing a few words about the current health care debate.

A little Internet research suggests that the US spends about 16% of our GDP on health care (GDP or Gross Domestic Product is the total of all goods and services produced in a country), while other modern countries with government-run health care systems spend closer to 10% of their GDP. These percentages are used as a strong argument for passing health-care reform.

What gets me writing is how little these numbers have to do with the bills before the US Senate and House. We are not choosing between a free-market system and a government-run system. We are choosing between a bad system and a very bad system.

Our system today includes private hospitals, health-care professionals, insurance companies, lawyers, government taxes, regulations and reimbursements, and lots and lots of paperwork. Obamacare simply adds more regulations, more taxes, more reimbursements, special deals for unions and certain states, and payoffs for drug companies, insurance companies and lobbyists (like the AARP) to get them to sign on to the changes. Obamacare is not a government-run health care system that will suddenly bring our costs down to 10% of GDP. It is our current system made worse.

Those in favor of the bills before Congress repeat a mantra that goes something like this: “Our health care system is broken, so we have to try something else.” The problem with this argument is that the change may not be for the better. If my hand hurts, for example, and if I have tried to stop the hurt using traditional methods, then I could decide to try amputation. It’s an alternative. It’s a change. It even might stop the pain. But it is also ridiculous. And it is also ridiculous to think that more taxes, more regulations, more paperwork, and more mandates will save any money at all.

I understand that we have problems with our health care system, but I don’t understand how Obamacare will solve anything.

A letter to the editor of the Deseret News

Dear Editor:

Your publisher Jim R. Wall writes on page C7 of your December 7, 2009 Deseret News that a newspaper must “infuriate.” From my point of view, you are doing a great job of just that. Two recent articles illustrate my point.

On the Sunday, December 6, 2009 front page a headline reads, “Deep down, Utahns want health care reform bills.” That headline is derived from a poll asking us if pre-existing conditions must be covered (59% strongly agree), if most American’s should be required to have health insurance (27% strongly agree), etc. From the poll answers, your headline writer concludes that Utahns really want one of the reform bills before Congress to pass. I just don’t see the connection. That’s like asking us if we like food (I suspect that 95% would strongly agree), and then concluding that we would like to eat stale, moldy bread.

In Monday’s paper (December 7, 2009) a front page headline reads, “Climate finale in Copenhagen is looking up.” The article suggests that an international agreement to limit carbon dioxide emissions has a great chance of success. From my point of view, such an agreement would be a catastrophe, not a cause for celebration.

With our governments already spending so much more money than they have, I have trouble understanding how the Deseret News can be a cheerleader for the current health care reform bills or a carbon dioxide treaty. Both are certain to lead to increased deficits, more and higher taxes, and more government regulations. For someone like me who believes that a government needs to keep its spending under control, your paper truly proves itself infuriating.

W E Pete Peterson, an infuriated subscriber in Orem, Utah

Should We Care about Btus?

For a few weeks I have been planning to write a message about Btus. It would have started something like this:

A Btu, or British thermal unit, is the amount of energy necessary to raise a pound of water one degree Fahrenheit. (A pint of water is equal to a pound of of water.) A Btu is equal to 252 calories, or about the amount of energy in two tablespoons of olive oil or a cookie. Put another way, you would need about 8 to 10 Btus to power your body for 24 hours. Utility companies typically talk about BTUs in “quads” or in quadrillions of Btus (a quadrillion is a trillion with three more zeros), or “therms” (100,000 Btus), which is the unit you normally see on your gas bill.

Why should we care about Btus? Well, it gives us a way to compare the costs of different types of fuel. To produce one million Btus, we would need 293 KWhs of electricity, 80 pounds of coal, 250 pounds of hardwood, 11 gallons of propane, 975 cubic feet of natural gas, 8 gallons of gasoline, 12.5 gallons of ethanol, or one-sixth of a barrel of oil. (A note on ethanol: It’s just plain stupid. You need 130,000 Btus to produce a gallon of ethanol, which is only worth about 80,000 Btus.)

And that is as far as I got. I was trying to compare the costs of producing and delivering different types of energy so I could explain which ones made the most sense. But as I was writing, I realized that the production and delivery costs of the different fuels were only one part of a very complicated energy puzzle.

In the last few decades, we have relied on oil for our transportation fuels (gasoline, diesel, and jet), coal and natural gas for our electricity, and natural gas for heating. We have enough natural gas reserves in the US to power everything for 200 years or so, and enough coal to power everything for 500 years or so. That leaves oil as our only “real” problem. Given that natural gas is clean and cheap, we could solve our oil problem within just a few years if we shifted to natural gas as our primary transportation fuel. (With electric cars, we are headed in that direction. We’ll burn mostly natural gas to produce the electricity to power the new cars.)

A natural gas solution would save us the $1 trillion or so it would take to upgrade to a “smart” electrical grid. We could eliminate the costly subsidies for wind and solar power. We also could forget about trying to find enough lithium for millions of hybrid and electric car batteries. We could go back to using corn for food. We could let other energy options compete in a free market environment. If all we had to worry about was our “real” problem, we wouldn’t need some sort of “moon shot” energy solution.

Unfortunately, we live in a world of speculators, special interest groups, and irrational tree huggers (I’m sure there are a few rational tree huggers, but most of them are immune to facts.). To this we add government intervention in the form of taxes, subsidies, tariffs, and regulations. We also have wars and rumors of wars and natural events like hurricanes. We also have to add-in dishonest and disreputable people pushing schemes like CO2 credits or manipulating markets. And then we have the fear, uncertainty and doubt that comes from the possibility of even more government intervention, more unrest around the world, more dishonesty, and any number of stupid decisions that might be made because of the possibility of global warming or other environmental concerns.

The energy world is even too complicated for someone like T. Boone Pickens, a billionaire who made his money in the energy business. He concluded that the answer to our problem would be to use wind power for much of our electricity needs and natural gas for our cars. He spent millions promoting his solution, but his plan requires the US government to come up with large subsidies for wind power and a smart electrical grid (one that could transport electricity more than a few hundred miles with a storage capacity for times when the wind isn’t blowing). Even with the help of an appearance on 60 Minutes, his holdings have lost billions waiting for the government to support his plan.

In a reasonable world, we wouldn’t have big energy problems. In a reasonable world, there is enough and to spare. But we don’t live in a reasonable world. In our world we have to save farmers, coal miners, and polar bears. We have to worry about CO2 parts per million and a temperature increase of 1.7 degrees derived from bogus data. We have to live with governments and crooks (am I being redundant?) and all those with special interests. We have made our world way too complicated for a few simple facts about Btus.