Blogging Break

No posts lately. I've been sick; kids have been sick, and we have plans this weekend. Hopefully I can resume next week.

I'll fill the gap with a few links. For better or for worse, the Internet makes my blog completely irrelevant because every time I think of something to say, I can find where someone else has already said it, only better.

I find the whole peak oil debate between "the economists" and "the geologists" to be very interesting, and need to ponder it some more. Here are a few interesting articles from Econbrowser laying out some of the case of the economists.

On why the concept of "demand is rising faster than supply" is suspect: http://www.econbrowser.com/archives/2005/08/limitations_of.html.

On why oil prices are not expected to rise dramatically in the next few years: http://www.econbrowser.com/archives/2005/07/how_to_talk_to.html.

On why the economists might want to pay at least some attention: http://www.econbrowser.com/archives/2005/08/peak_oil_for_sk.html.

The comments sections on the post can also be enlightening.

Software Development with spreadsheets, continued.

Let’s continue on with yesterday’s theme. I should amend the topic to be spreadsheet development, instead of assuming Excel. I haven’t used Open Office much, but I keep hearing that their macro language is progressing. I hope so; it doesn’t stand a chance of seriously challenging Excel without it.

There are a few serious issues why spreadsheet development gets a bad name: maintainability and scalability.

Let’s start with maintainability, which is essentially the ease with which you can read, understand, and then modify a program, yours or someone else’s. If you’ve done anything serious with spreadsheets you’ve probably seen some pretty messed up stuff; deeply nested formulas which refer to deeply nested formulas scattered around pages of a spreadsheet, with nary a comment to tell you what’s going on. In a word, spaghetti.

No question about it, spreadsheets lend themselves to undisciplined design. I would argue that’s actually a strength, because it lowers the barrier to entry. But yes, I agree, it’s easy, very easy, to write messy spreadsheet code. I’ve done it plenty of times. And yet, I’ve been around enough to have seen (and written) near-undecipherable code in quite a few languages, so that’s nothing unique to spreadsheets. And just like with other languages, you meet this head-on by maintaining coding discipline, thinking about the long-term, and finding out how the experts do it. With Excel in particular you can take advantage of Visual Basic, naming cells, adding comments, and similar techniques. For example, you could write my sudoku spreadsheet using only spreadsheet formulas, but it would be nasty. A judicious use of macros can go a long way.

The other issue I want to address is scalability – if you keep enhancing a spreadsheet, adding functionality, oftentimes you will outgrow Excel, and start trying to push it in directions that it’s not really designed to go in. At this point your choices are usually either to suffer through it and forge ahead, or redo the whole thing using a more appropriate language. Both choices have significant disadvantages. This raises the question of whether you should have picked a different language to begin with.

And that’s a question I’ve struggled with, after some of my spreadsheets have grown to outlandish proportions. But I think in those cases, my conclusion is it was a good problem to have, meaning that by then we had a big, successful program, and the only issue was figuring out the best way to carry it forward. It’s a relatively easy sell to management if you spend a few days hacking up a spreadsheet that a customer can use, and then grow it organically with the customer, than to tell your manager that you need to go away for a few months to develop a heavier-duty program from the get-go. The latter approach is risky, given the percentage of software projects that fail outright, don’t meet the customer’s needs, or are overdue and over budget.

Software Development with Excel

Time for a software development entry.

We were at my parent’s house over Christmas, and my father was getting into sudoku. I’ve dinked around with sudoku occasionally but haven’t spent much time on it. The day before Christmas, I was working on a harder (at least for me) puzzle, and decided it would be nice to have a helper computer program that performs elementary reasoning and bookkeeping. So for example, if you are looking at a cell where the horizontal row had the numbers 9,7,4,8 filled out, the vertical row has 6,4,8,9, and the 3x3 grid has 9,2,6,8, then the program should show you that your possibilities for that cell are 1, 3, or 5. If you want, then you can punch, say, 3 into the grid, and it will show you how that restricts possibilities for the rest of the cells. Basically, I just wanted something that would replace penciling in the possibilities.

So I wrote the program, implementing it as an Excel spreadsheet. I’ve uploaded a copy of it here: home.comcast.net/~autumn-ajax/sudoku.xls. To use it, you need to enable macros (it’s virus-free, honest. If you don’t trust me, you can disable macros and still see what it looks like; you just can’t make edits). Enter your puzzle in the left-hand grid, and see the “penciled-in grid” in the right.

This gets me to the point this post, which is to tout Excel as a development platform. I’ve heard a number of people trash Excel and Excel programs (see any Excel-related slashdot post, for example), but they’re missing out.

Excel programs aren’t for everyone – in particular if your customer base uses Unix or doesn’t have access to Microsoft Office. And obviously Excel is not meant for every type of application. But if your target is in Excel’s sweet spot – data analysis and visualization – it can be a very powerful tool.

It took about an hour all told to write this program, most of which was trying to remember how to hook up a Visual Basic function to the spreadsheet, and how to reference cells. The VB code was 35 lines long, not counting comments or blanks. The spreadsheet programming itself doesn’t really translate into procedural lines of code, but all it consists of is a method call and some formatting. It’s not much.

Big deal, you say. I know some people who could write this program in an hour using VB, Java/Swing, Tcl/Tk, or whatever. And I could do it too. It would take me a bit longer, since I’m not that fluent with GUIs, but whatever, it’s not rocket science. But let’s enumerate some of the advantages of having it in Excel.

• Easy distribution. I handed my father the spreadsheet, and he immediately knew how to load it and run with it. He didn’t have to download Java or other libraries, deal with DLL’s, etc.


• Auto save/save-as. Want to save your puzzle? Ctrl-S. Save it off to a different file if you want. All with no extra lines of code on my part.


• Undo/redo? Check. Copy/paste – individual cells or the whole grid? Check. Cost to implement? Zero.


• My father could change the font size, zoom in or out, change colors, move the grids around, etc, again with no work on my part. Even if your custom solution used some component grid that gave you that for free, there’s still the education problem – your customers have to know how to do it (or even that they can do it).


• Here’s what clinches the deal for me. The program I wrote was pretty rough; for example, it doesn’t show you if you’ve entered a clearly wrong answer. That would be nice to have. And my father can implement that, by writing his own cell formulas that refer to the “penciled in grid”.

Not bad for an hour's work and forty lines of code.

In a former job, I had great success with this model. I would set up the bare-bones data input and write the code to do the calculations (generally using dlls compiled from C++ on the back end), and turn the spreadsheets over to my customers. They could do the formatting themselves or collaborate with me on it, and also add ancillary calculations, as could their customers. It made for fast feedback loops, and got the job done to everyone's satisfaction. Way easier and faster than writing a standalone application.

Safety vs Efficiency

I’ve been thinking about a number of instances where we’ve traded energy for safety.

SUV’s, and heavier cars in general. A lot of environmentally minded people don’t like SUVs. The arguments from the anti-SUV crowd:
1. They guzzle gas.
2. They are unfairly classified as cars when they are really light trucks. This gives a tax break to owners.
3. Although some people use them for their designed purpose, most SUV owners buy them for image. Most SUV’s are never taken off-road. Many in southern climates are never put into four-wheel drive.
4. They make the roads less safe for everyone. In a collision between a small car and an SUV, the small car loses.

My comments: I’m not too much of an SUV hater. In fact, I own one, and it’s nice in snowy conditions and for the one or two times a year we take it off the road. I agree with item (2); we should revise the classifications. I do appreciate the complaint of item (3), and if we do feel an energy crunch, we might regret the significant cost we collectively paid to make ourselves feel macho. But I wouldn’t push the point too far, because we as individuals have the right in this country to make our own personal choices, and if we choose image over cost then that’s our business.

It’s the safety item that bothers me. That’s the point at which our personal decisions cross over and affect the people around us. Two issues here: actual crashes themselves, and then the psychological threat of crashing that keeps people from buying smaller cars. I haven’t quantified either (is the risk of crashing really worth worrying about), but I do know people who drive large cars for safety.

I think the standard economics approach here would be to add some sort of safety surcharge on SUV purchases. The surcharge could either be a tax, or a sum that goes into an insurance pool. Partly to discourage their use; partly to compensate the rest of us, somehow. That kind of makes sense, but I’m not sure how much it would work. I mean, if thought there was a significant risk in driving a Honda Civic down the highway, I wouldn’t let an extra grand or two stop me from getting an SUV. I also wonder if such an approach could backfire; I can see some people paying the safety surcharge and acting like it’s a license to drive aggressively. (Well, probably not; just a thought.)

Here’s another example of the tradeoffs between safety and efficiency: child car seats. In the old days I can remember cramming four adults and five kids into a mid-size sedan, with the kids sitting on laps. These days, when my parents come to visit, if we want to go anywhere as a family it takes two cars to drive four adults and two kids. Man that annoys me. Someday we’ll get a minivan, but until then we’re stuck.

Makes you wonder though; how much gas has been burned since the requirement of using child car seats? I’m not saying that was a bad rule, not at all. Just that there was a cost to it. Already, personal observation leads me to believe that car seat usage is correlated with socio-economic status. If the price of gas increases sharply, it doesn’t take a genius to predict that you will see the rule be ignored more and more often (or we’ll come up with other solutions).

Again, I’m not saying that it’s a bad choice to trade energy for safety. But if the cost of energy increases, we will have to revisit some of those decisions, and that will be hard.

Transitive Football

So the University of Colorado football team lost its first game of the season to Division I-AA Montana State. Montana State promptly lost their next game to Division II Chadron State. The coach of Chadron State subsequently remarked “We're a marked team," meaning that now everybody wants a piece of the team that beat the team that beat big bad CU.

Ok, so there is no Transitive Property of Beating in sports, i.e. that if A beats B and B beats C then A would beat C. For a lot of reasons, which I won’t bother enumerating. But I think it would be an interesting statistics project to determine the correlation between success against common opponents and head-to-head success. I would look at the length of the chain; I would guess that a two game beating chain gives you a good likelihood of winning head-to-head; a three game chain lesser odds, and probably a four game chain means nothing. It would also be interesting to see what the differences are between sports.

By the way, here is a link to a transitive victory calcultor: http://www.cfbanalyzer.com/cgi-bin/chain.cgi. Using it, you can see that in 2005, there was a 19-link chain whereby Chadron State beat Colorado. So I guess some things never change.

The Historical Record

One barrier to getting our society to take peak oil seriously is that we’ve been here before. Peak oil was a big topic (albeit using different terminology) in the 1970’s. Many people at the time predicted a near-term peak that still has not come to pass thirty years later.

On a related note, a lot of people don’t believe in global warming, saying it is being promulgated by the same doom-and-gloom environmentalists who predicted peak oil back then and are predicting it now.

It would be quite interesting to go back and look at the positions being taken in the 1970’s, and compare them to today. Are people saying the same thing, or have things changed? I don’t have the time or energy for such a project, but I’m guessing that things are at least somewhat different. The whole topic pretty much went away for the late 1980’s and most of the 90’s; why is it recurring now?

The anti-peak oil/global warming argument comes in two steps: (i) the evidence doesn’t suggest it, and (ii) it would wreck the economy to deal with either, so we shouldn’t even take up the question.

Leaving aside the illogicalness of point (ii), I can think of several cases where environmental degradation was predicted confidently by scientists in the know, and then averted by good policy decisions, without disastrous economic effect.
· Acid rain. Not in the news now, but this was a big concern in the mid-1980’s. Clean air laws have significantly reduced the scope of the problem.
· More broadly, air pollution in general has been reduced in this country.
· Ditto for water pollution.
· The ozone layer is healing now, thanks to timely reductions of CFCs in the atmosphere.
For each of these, the facts were greatly contested at the time, but destiny has shown that the environmentalists were correct at least in their assessment that there was a problem that needed to be dealt with.

I would also go so far to say that, except in the last case, the cost of mitigation would have been more than offset by the damage caused by allowing the problems to continue. To me, the whole “wreck the economy” argument is bizarre, because (a) it denies the possibility of a flexible response, and (b) inaction has significant costs that will have to be paid.

My point is: the historical record is important and needs to be understood, but it goes both ways.

Book Notes: The End of Oil

Review of The End of Oil: On the Edge of a Perilous New World
Paul Roberts, 2004
Read September 2006

The best book on energy that I’ve read yet, by far. It’s a good survey of the current energy situation – oil, natural gas, alternatives, conservation, the forces of the market economy, global warming, the energy rise of China and India. Well-written; well-balanced, and reasonably dispassionate. As I’ve read other books, at times I would think, well, they didn’t cover some such topic. Roberts does cover most of those topics.

I won’t try to summarize the book; if you’re interested in this stuff you might as well just read it.

A few selected notes.

As oil demand nears production, we can expect prices to rise. That’s to be expected. But we also need to be aware that volatility will increase even more, and we will be more vulnerable to shocks in the system, major or minor. Such shocks could be wars, political events, hurricanes, breakages, etc.

The “efficiency dividend”. As civilizations mature, their energy needs go down. Products become more efficient. However, Americans have collectively not chosen to “spend” these efficiency gains by reducing consumption. Instead, the efficiency dividend has in a sense been plowed back into buying more energy. For example, building materials have greatly reduced the amount of energy you need to heat or cool a home. Think double-pane windows, improved furnaces, etc. But overall energy consumption for housing has not gone down in this country, because we are building larger and larger houses that more than compensate for the efficiency gains. Likewise, automobiles are much more efficient now than twenty years ago – better engines, materials, body design. But mileage hasn’t changed – a Honda Civic gets about the same mileage now as it did then. The dividend here has been plowed back into engine power.

3rd world energy consumption. China aspires to a first-world standard of living for its citizens. Nothing wrong with that, although it would make the rest of us share more. But what’s scary is if they take the normal path of technical progression, starting with lower-efficiency, higher-polluting mechanization. Especially in view of global warming, that could be disastrous.

Another comment on the 3rd world. Much of the world’s population does not have regular access to electricity. 2.5 billion people rely on biomass (wood, manure, etc) for their cooking, heating, and lighting. Think about reading at night. Candlelight isn’t really sufficient. Think of how this constrains education. Think about what cheap solar power could mean to the third world. Unfortunately, there is little profit and high risk in providing electricity to developing nations, so we can’t expect much from the marketplace.

On efficiency: “Power plants in the United States discard more energy in ‘waste’ heat than is needed to run the entire Japanese economy – and half the electricity generated in the United States isn’t needed to begin with. Barely 15 percent of the energy in a gallon of gasoline ever reaches the wheels of a car.” [Carrying this further, given that most of weight being propelled by the car’s engine is that of the car, and not the ‘payload’, i.e. passengers plus cargo, only a few percent of the energy from gasoline is used to actually propel you to where you need to go.]

Dick Cheney: “[the Bush energy plan] will recognize that the present crisis does not represent a failing of the American people.” It’s our misfortune that Cheney is in a key position of leadership at this time – we can’t trust him to make good decisions where oil is involved – but he is right here in some ways, and this is an important statement to reckon with. I hope to discuss it sometime.

Drilling in ANWR. Roberts claims that the administration is using ANWR cynically; basically they offer giving up drilling there as a compromise in order to win bigger battles. Members of Congress can vote against drilling to get environmental merit points, and then proceed to vote against the environment on more destructive policies. I don’t know if that’s true or not, but certainly, ANWR is small fry, both in the amount of oil it contains and the amount of environmental harm that will be caused by drilling it. As Roberts points out, raising mileage standards would be much more meaningful to the environment and energy situation.

Speaking of mileage standards, Roberts makes the point that increasing standards will deal American carmakers a serious blow, as they have concentrated their efforts on low-mileage high-margin SUV’s, pickups, and larger sedans. It’s a good point, and one that makes me none too happy at Detroit, if it means we have to pursue poor long-term policy decisions because of their short-term profit decisions.

On a related note, the political power of large companies (oil, cars, power) make it hard to change our policies. That’s natural; for example, increasing pollution standards will hurt the average power company executive more than it will help any single American. So those executives have much more incentive to fight such standards; ditto they have more power than any of us individuals. One benefit of growing alternative energy industries is that we get more counterbalancing forces that can help us navigate a better course. This is already happening in Europe, with the rise of the wind industry.

It’s a good book. Read it, if you’re into this sort of thing.

Book Notes: Twilight in the Desert

Review of Twilight in the Desert: The Coming Saudi Oil Shock and the World Economy
Matthew Simmons, 2005
Read August 2006

The Saudi Arabian government has erected a veil of secrecy around their oil operations. They don’t report production numbers, or give any detailed per-oil field analysis, or allow outsiders to investigate or corroborate official estimates of capacities.

And yet, Saudi Arabia is the one country in the world considered to have excess production capacity. In the past, whenever there has been a need for more oil, the Saudis have always been able to ramp up production to meet the demand.

Simmons argues that the Saudis are reaching peak oil, i.e. their production numbers will be peaking in the near future, if they haven’t already. His evidence for this mostly relies on technical papers published by SPE (Society of Petroleum Engineers), written by engineers about technical advancements made in Saudi oilfields. Simmons points to these papers as evidence that the Saudis are working hard just to maintain production, that the papers detail obstacles that must have been overcome just to keep pace.

It’s an ingenious way of gathering data, but it doesn’t really much support Simmons’s main thesis. So I found that thesis fairly unconvincing.

Simmons himself isn’t convinced by the usual arguments that the Saudis have plenty of oil:
· that they are only tapping part of their known oilfields
· that they are only tapping the easily recoverable oil, but should prices rise, they will sink additional wells
· that since they have had plenty of oil there has been no need to fund additional exploration

It is food for thought how much we do rely on the Saudis to have an elastic supply.

Not a great book. There is some decent technical background, but the material is thin. A proverbial “should have been a magazine article, not book” case.

Book Notes: The Long Emergency

Review of The Long Emergency: Surviving the Converging Catastrophes of the Twenty-First Century
James Kunstler, 2005
Read August 2006

Synopsis
[All opinions are the author’s.]

It’s not going to be fun.

We are at, if not already passed, an oil peak. After the peak, oil production will drop steadily and irreversibly. Oil underlays our modern way of life, to a degree that few of us realize. The decreasing amounts of energy will make it harder for us to deal with all the other challenges coming down the pike, especially global warming, disease (think influenza and AIDS), economic fragility, and geopolitical instability.

Energy alternatives will help, but not much. Most are oversold; some (hydrogen) are fantasies; ethanol, because of our mech-heavy agricultural methods is actually a net oil loss. Wind, solar are great, but you still need oil to produce the components. We are already past peak for natural gas. Coal will make a comeback, but it is dirty, and the amount of reserves are probably overstated and not high-quality. Solar sucks; the author had an off-the-grid system in 2001 and it was no good. Nuclear will help, but again you need petroleum to support the construction, mining, and maintenance required. Sure, science may be able to improve some of these, but probably not in the time we have left.

American civilization has been built on the premise of cheap energy. Especially the suburbs, which require massive energy expenditures to be liveable – because of inefficient transportation and inefficient, overlarge houses.

Global warming will wreak havoc on our food supplies. Our agricultural system is based on mechanization and fertilizer, both of which require massive amounts of fossil fuels. Meanwhile, our current factory-farming infrastructure will leave us the legacy of mad cow disease and antibiotic-resistant bacteria.

Too bad our economy is in no shape to meet these challenges. The current American economy is no longer based on creating real value (i.e. goods). Instead, we have a musical-chairs, service economy, and a byte-pushing digital economy that isn’t tangible. Our economy is mostly propped up by speculation in the stock and housing markets, and all that will come spiralling down.

What will happen? Well, first off, a lot of people will die from famine and disease. From there – the prediction is that as transportation becomes more expensive, localization increases. Food and goods will be grown locally; cities will shrink and the suburbs will disappear. More of us will become farmers.

Commentary

This is not a very good book. If you like to contemplate dark scenarios or to hear biting critiques of contemporary American society, you may enjoy it. But as far as a realistic considering of the future – the author doesn’t treat his ideas critically enough.

Most of us could write a comparable book. To do that:
· List out all the aspects of our culture that you dislike.
· Imagine all the bad things that might arise out of them, and assume that they all will come to pass.
· Figure out how those bad things will interact to make worse things.
· Read some more books to find out more bad things you didn’t think of, and throw those into the mix.
· Top it all off with cultural and racial stereotypes so you can slam types you don’t like.
· Most importantly, don’t challenge your own assumptions. Just let them all build on each other.

Those of us who are pessimists or cynical might have a good time writing such a book. It wouldn’t make what we write true, however.

The last chapter is especially offensive or entertaining, depending on your tastes. Kunstler cuts loose on the South (“the southern cracker lumpenproletariat”), Hispanics, Blacks, and Christians. The Pacific Northwest will probably do all right, but they should worry because China and Japan, and the hordes might invade.

Where are the mistakes in Kunstler’s thinking? He has three key assumptions:
1. Anything that can go wrong, will, often in the worst way. Oil, the economy, global warming, plague.
2. Oil production will decrease so rapidly as to make adjustments nigh impossible. Actually, he tacitly backs of this assumption as the book proceeds … but once he does this some of his earlier arguments are undercut.
3. Society will have no way of allocating petroleum so that the most important needs are met.

I won’t argue the points here, although I would like to address them in future posts. For now I will say that as for item (2), there is so much needless energy usage (or waste, if you will) in American society, that we could drop our consumption a goodly amount without sacrificing much. That alone buys us a lot of time.

One item for comment. Kunstler hates the suburbs. He really, really, hates the suburbs. In fact, one of his prior books (The Geography of Nowhere) was a hate-filled rant against the suburbs. Did I mention that he hates them? On page after page he drops snide remarks about suburbia and its culture. I hope to write a post someday about suburbia-hating, but for now let me remark that (i) the hating is pretty much beside the point, (ii) the gratuitous insults of the culture of is supposedly his target audience is weird, and (iii) his hatred is so strong that sometimes I get the feeling that it shaped the book more than it should. I’m not sure how to verbalize that, but it’s almost as if he chose some of his conclusions by thinking of which would be worst for the suburbs.

Ok, so the book sucked, but there was one thing I liked about it. It did remind us to be grateful for the cheap energy that we have, and the luxuries that it has provided us with. “Irony, hipness, cutting-edge coolness will seem either quaint or utterly inexplicable to people struggling to produce enough food to get through the winter.” Something we should keep in mind more often.

Book Notes: The Coming Economic Collapse

Review and Notes on The Coming Economic Collapse: How You Can Thrive When Oil Costs $200 a Barrel
Stephen Leeb and Glen Strathy, 2006
Read September 2006

Kind of a sequel to The Oil Factor, but a bit more gloomy and urgent. In fact, Leeb says one reason he wrote this book was that since he wrote the previous one, he realized that the situation was more dire than he thought. His goals are to help sound the alarm and try to spur our society to move on from oil, while at the same time updating his investment advice. I enjoyed the book overall, but again I don’t have the background to really critique his advice.

Synopsis
[All opinions are the author’s, except where otherwise noted.]
Chapter 1:
The Bursting of the Tech Bubble.
One of Leeb’s main points is that we are nearing an energy crisis. That is not the conventional wisdom, and he knows it. So he wants to show us how conventional wisdom can be wrong, and to do so he gives the example of the late 1990’s tech bubble, when otherwise respectable people were saying ridiculous things and making ridiculous predictions.

Pessimistic about the ability of science to save us. The rate of scientific breakthroughs is decreasing. Says the only breakthroughs in the 1970’s were quantum cosmology, chaos theory/fractals, and antiviral drugs. 1980’s – only DNA replication, and none since. [ed note: weird; the impact of the first two is far far less than the explosion of the Internet (granted, that was an engineering triumph, not basic science).]

Chapter 2: A Collision Course with Disaster
Recaps three key points from The Oil Factor
1. Since 1973, the price of oil has been the most important leading indicator of the U.S. economy and stock market.
2. Much of the U.S. oil supply is in the hands of other countries, and therefore vulnerable to external political and economic factors.
3. Oil demand is growing faster than production (if production is growing at all)

But nobody – government, Wall Street, media – seems to care all that much.

Chapter 3: The Collapse of Civilization: Causes and Solutions
Quotes Tainter, The Collapse of Complex Societies, and Diamond, Collapse.

Tainter: energy availability drives complexity, but as that energy becomes less available, complex socities become increasingly vulnerable. Diamond: societies can become unable to make changes that hurt in the short-term but avoid long-term extinction.

Strategies for a society’s survival
1. Become less complex.
2. Zero-growth.
3. Develop new energy supplies

Chapter 4: Our Psychological Blind Spots: Conformity, Authority, and Groupthink

Again, Leeb knows he’s going against established opinion, so he wants to show us he’s not crazy.

The Milgram/Asch experiments, etc. This book wants to be something that sticks up against groupthink.

Chapter 5: The Madness of Wall Street: How Investors Can Profit by Overcoming Groupthink.

Argues against Efficient Market Theory and Modern Portfolio Theory. Key examples are successful investors like Warren Buffett and George Soros.

“The general boom/bust cycle results from investors having a flawed perception of the fundamentals.”

Warren Buffett: “Success in investing doesn’t correlate with IQ once you’re above the level of 125. Once you have ordinry intelligence, what you need is the temperament to control the urges that get other people into trouble in investing.”

To be a successful investor, you need to be able to avoid groupthink, to have awareness and mastery over your own emotions, and to keep an open mind.

The current oil market is influenced by groupthink and as such undervalues oil.

Chapter 6: The Most Dangerous Crisis of All

The coming energy crisis will be severe. It cannot be solved quickly by throwing money at it.

Chapter 7: Chindia and the Future of Oil

Chindia = China + India, two countries that are expected to compete more and more for the world’s oil supply, thus driving prices up.

Energy conservation is great, but it causes recessions (since fewer goods are being purchased). Leeb doesn’t believe that the U.S. economy can stand a recession with its high debt levels, and that the government will not allow one to happen. Likewise, the Chinese economy would suffer severely in a recession, so conservation is out of the question for them as well.

Chapter 8: The Havoc That Will Result from $200 Oil

Inflation, Deflation, and the Policymakers’ Dilemma. Rising energy prices are both inflationary and deflationary. Inflationary for the obvious reason that they make everything more expensive. Deflationary because they reduce the amount of money to spend on other products and services. So they reduce growth and increase unemployment.

Same argument as in The Oil Factor; government spending is on the rise, which will add to inflation.

The Fed will not likely raise interest rates. Especially given the amount of adjustable-rate mortgages now, a serious increase in interest rates will cripple the housing market. Consider that it was only the strong housing market that saved us from meltdown in the early 2000’s. Home prices, stocks, and the economy could slump in a vicious circle, causing massive unemployment. The only way out will be to keep the economy growing, which will hopefully be possible.

Chapter 9: What the 1970’s Tech Us About Investing in the Coming Decade

The basic strategy for the 1990’s was to make regular deposits into an index fund, generally for the S&P 500. That would not have worked in the 1970’s, when real returns were negative.

In the 1970’s: good companies with solid growth often delivered poor returns. Inflation swallowed up the growth. The strongest growth was in small-cap stocks. Oil was one of the best sectors; ditto for gold. Buy and hold was not very successful.

Chapter 10: The World of Tomorrow: Decline, Stasis, or Armageddon?

Doesn’t think that technology will deliver us miracles. Quotes from (but does not always agree with) Kunstler, The Long Emergency.

The fact that energy demand will rise faster than production is scary, since it could cause wars.

Chapter 11: Planning for Survival: Alternatives to Oil

Promotes wind, hydrogen, coal, nuclear. But scaling these up to replace oil will be a massive undertaking.

Chapter 12: Misplaced Priorities: Our Biggest Obstacle Today

Few people are taking the possibility of a coming crisis seriously enough. Government is focused on increasing production. Note that our government currently gives between 9 and 17.8 billion dollars in tax breaks to oil companies. Take those subsidies away, and that would translate to between gas prices from five to fifteen dollars a gallon. In other words, our government is paying us to burn oil. Not a smart move.

Consumers – when gas prices increase, will we bite the bullet or pressure our government to act to reduce those prices, at long-term detriment.

Industry – the oil industry stands to make a mint when oil prices skyrocket due to high demand.

Academia – global warming and the environment are the rage; energy is not on the radar scope.

Chapter 13: Your personal Choice: Insane Wealth or Pitiful Poverty
Investment pitfalls for the high-inflationary times:
· cash
· bonds (except inflation-protected ones) (TIPS)
· stocks, i.e. covering the overall market
o in particular, defensive groups such as food, retail, and cosmetics.
o and companies whose revenues and profits are inversely related to energy prices: airlines, U.S. automakers, and chemicals.
· small-cap stocks (performed well in the 1970’s, but the hot markets in the future will be China/India, where many of these companies will not have access).

Chapter 14: Making Money in the Coming Collapse
Suggested buys
· Gold and gold shares
o streetTracks Gold Trust – invests in actual gold
o Apex Silver
o Impala Platinum
o Tocqueville Gold Fund

· Oil and oil shares – Schlumberger; drillers – Noble (offshore), Nabors (land), Transocean (deepwater)
· Real Estate
· Chindia (i.e. companies that sell to them: 3M, Coca-Cola, Intel, P&G, Texas Instruments)
· Deflation insurance – zero coupon bonds.

Chapter 15: The Next Hot Investment Sector: Alternate Energy
Suggested buys
· FPL group (wind, LNG)
· Scottish Power/PPM
· GE (wind, power)
· Petro-Canada/Suncor/EnCana/Canadian Oil Sands Trust
· Air Products and Chemicals; Sasol (gasification)
· Cameco (uranium)
· Toyota/Honda; Panasonic EV Energy (batteries for hybrids) or Matsushita (parent of Panasonic EV)

Suggested portfolio

	oil rising/falling moderately	rapidly
inflation hedges – precious metals	25%	10%
Chindia	30%	30%
Energy	25%	10%
Deflation hedges	20%	50%

Book Notes: The Oil Factor

Notes on The Oil Factor: Protect Yourself - AND PROFIT – From the Coming Energy Crisis
Stephen Leeb and Donna Leeb, 2004

Read August-September 2006

Leeb writes an investment newsletter, and tries to predict trends. Here he predicts a near-term energy crisis, and suggests how to invest appropriately. I enjoyed the book; it’s easy to read and the writing style is congenial. His predictions are all plausible, but I don’t have enough of a finance or economics background to judge them well.

Synopsis
[All opinions are that of the authors.]

Chapter 2: Our Amazing Oil Indicator

Basically, the price of oil is a guide to how the market (in particular, the S&P 500) will perform. Sharp oil price increases are always correlated with recessions. Leeb’s rule of thumb: if oil prices have increased 80% over the last year, get out of the market, and stay there until the increase is reduced to 20%.

Chapter 3: The Geological Lowdown

Discussion of Hubbert’s Law, concluding that an oil will peak soon.

Chapter 4: Oil Prices: Up, Up, and Away

Predicts $100/barrel oil by 2010. This was a bolder prediction when the book was written than it is now.

Chapter 5: The Debt Burden.

Ordinarily, with rising oil prices, you would think the safe way to react would be to conserve, i.e. to consume less. However, this would shrink the economy. Given the current state of consumer debt (especially in the form of home mortgages), shrinking the economy is not likely to be an option the government will take. The only way out for our policymakers is to tolerate or even foster inflation.

Chapters 6 and 7: Moving Beyond Oil

Good overview of alternative energy.

Chapter 8: Government Spending

Government spending will be increasing, for the following reasons:
· defense, to protect oil supplies
· need to develop energy alternatives
· Medicare and Social Security for boomers
The point of all of this is that government spending generates inflation.

Chapter 9: The Case for Inflation

In the future, the Fed won’t be able to combat inflation by raising real (as opposed to nominal, inflation-adjusted) interest rates, because doing so would kill the real-estate market.

The productivity myth – productivity has been reported to have increased rapidly in the past decade, and that has been keeping inflation low. However, the productivity numbers can be misleading:
· prices have increased on many consumer items, but those items have gained more features. So the government hasn’t counted that as inflation, because you now get more for your money.
· example: a 2x increase in processor speed has been counted by the government as a doubling of productivity in the computer industry.
· finally, have our living standards really increased in the past 30 years, especially given the rise in dual-income families?
So the Leebs reject the theory that productivity gains will negate inflation.

Part II – Making Money

Chapter 10: The ABC’s of Inflation Investing.

Two rules for investing in inflationary periods:
· P/E ratios will be downgraded across the board, so only invest in companies whose earnings growth can compensate for that. In other words, in companies whose businesses are directly based on real assets.
· Abandon a policy of buy and hold, since you have to beware deflation.

Earnings growth has two components: real and inflationary. Inflationary growth is the effect of charging higher prices to reflect higher costs due to inflation, and has little investor value, since it’s common to all companies. Real growth (everything else) is what counts.

“Once inflation becomes entrenched, the economy becomes inherently less stable.” This is because you get into vicious cycle where companies raise prices because of higher costs, which requires other companies to raise prices, etc.

Chapter 11: Energy

What to buy: major oil companies, oil service companies, and independents; or energy funds. But get out of oil when oil prices rise sharply, since high oil prices lead to conservation and reduced demand.

Chapter 12: Gold

Suggests that gold is far undervalued, and that $2000 an ounce is not unreasonable.

Chapter 13: Alternative Energy

Suggested buys:
GE
Exelon (nuclear), EnCana and Petro-Canada (for oil sands), and Toyota (hybrids), and Utah Headwaters (clean coal). Silver and platinum.

Chapter 14: Defense
Suggested buys:
Northrop Grumman, Raytheon, CACI, General Dynamics, Lockheed Martin

Chapter 15: Berkshire Hathaway
Has Warren Buffett leading it, plus the authors like insurance -- especially as global warming heats up.

Chapter 16: Best of the rest
Small-cap stocks – performed well in the 1970’s, although volatility is high.
REIT’s –inflation will drive up real-estate prices.
Weight Watchers (obesity-awareness on the rise)
Tiffany’s
Intel (only when trading under 3x book value)

Stocks to shun – American/European car companies, airlines, S&P 500 index.

Chapter 17: Deflation Hedges
Cash
Bonds, especially zero-coupon bonds

Chapter 18: Putting it all together

A suggested portfolio:

	annual oil price increase under 20%	> 80%
energy	23%	10%
gold	15%	10%
alternative energy	20%	5%
defense	8%	5%
berkshire hathaway	15%	15%
misc	14%	5%
deflation	5%	50%

Book Notes: Beyond Oil: The View from Hubbert’s Peak

Review and Notes on Beyond Oil: The View from Hubbert’s Peak
Kenneth Deffeyes, 2005
Read August 2006

Deffeyes is a geologist at Princeton. He’s one of the more public peak-oil figures, and in the book predicts that oil will peak around 2005. Sort of a sequel to Hubbert's Peak : The Impending World Oil Shortage, which I haven’t read. Kind of a scattershot book, but has decent technical information. Concentrates more on the physical/geological aspects of discovery and extraction than trying to predict the future, although there is some of the latter. I don’t have much to say about the details since nothing really stood out.

Synopsis
[All opinions are the author’s.]

Chapter 2: Where oil came from – again, physical/geological aspects of discovery and the nature of oil fields.

Chapter 3: The Hubbert method – gives an accessible description of Hubbert’s modelling. But I’m not impressed by the physical intuition behind the model; it’s just a curve-fit (if a compelling one).

Chapters on
natural gas
coal
tar sands – good description of the issues here,
Oil shale – he’s fairly pessimistic here. Two problems: water is required; not good in the American desert, and the extraction process actually expands the rock. So there needs to be some way to consume the rock in some saleable byproduct.
Uranium
Hydrogen

Chapter 10: “The Big Picture”. One interesting comment, that the idea of adjusting oil prices for inflation is goofy, since it was rising oil prices that caused some of that inflation.

His basic prediction is that we will have a hard five years or so until we can stabilize with other methods (oil sources or nuclear/coal/whatever), and research has time to pay off. He doesn’t go into what will be hard about those years. A discouraging note: as per tar sands and oil shale – the oil companies have been working on these issues for years, with disappointing results. We shouldn’t assume that the answers will be had for the taking.

The short-term solutions he proposes are all along the lines of improved efficiency: colocating coal mining and generation plants; finding better byproducts; using nuclear power to help process oil sands.

No discussion of solar and wind. The author explains that he is not an expert in those areas. Makes sense, but also makes for an incomplete book.

The Human Spectrum

I have two young children now, but for many years before then I wasn’t around babies much. When our daughter was born, she was sui generis to my wife and I. At times she seemed like a miniature adult, and we had glimpses of how she would be when she matured, but most of the time she was her own fascinating being.

My son was born a few months ago, and I have a lot more perspective now about babies, and how they develop into toddlers. A little while after he was born, I went to a company picnic. Many of my coworkers brought their children, so there were people of all ages there, from a few months on up to fifty years or so. And then things clicked for me; it all came together. Looking at all the people, I could finally see them against the spectrum of human development. I saw the one-year-old who’d just learned to walk, and I knew where he’d been, and where he was going. I could see everyone – children, young adults, middle-agers, at being at exactly their points in transition, if that makes sense.

Maybe that just proves I’d been naïve and without a clue before, but it was a very cool experience. One of the things I’ve enjoyed about being a parent is how it broadens your perspective on life.

Football And Game Theory

One more post on football for now. In the previous post, I noted that while you could gather statistics on whether blitzing was a more effective form of defense than not blitzing, such statistics were not worth much for practical application. I want to take a moment now to show a more valid way of analyzing the game.

The crux of the matter, as I noted before, is that play-calling is a guessing game between the offense and the defense. If the offense knows whether the defense will blitz or not, they can call an appropriate play to take advantage of that. Let’s set up an example with real numbers. We’ll call the case where the defense plans for a blitz ‘DB’, and the defense plans for a conventional defense ‘DN’. Likewise, ‘OB’ and ‘ON’ for whether the offense calls a play designed to handle a blitz or not. I’ll just make up some numbers for how the outcomes play out, but mindful of TMQ’s statistics, I’ll make blitzing versus a prepared offense a costly mistake:
· ON vs DN (conventional play) – 5 yard gain average.
· ON vs DB (defense blitzes against unprepared offense) – 4 yard average gain.
· OB vs DN (offense holds blockers back in anticiption of blitz that never comes) – 4 yard average gain.
· OB vs DB (offense is expecting the blitz) – 10 yard average gain.

This can be represented as a matrix:

	ON	OB
DN	5	4
DB	4	10

There is a whole branch of mathematics called game theory devoted to understanding scenarios like this. This example in fact can be solved easily. Before I state what the solution is, you can make a reasonable prediction just by looking at the numbers. Basically, the defense doesn’t want to blitz very much, because if they do and the offense catches them at it, the defense loses big. But at the same time, it won’t be optimal for the defense to never blitz, because then the offense will always choose ON and pick up the five yards each time. So a good defense will blitz some, but not most of the time. Likewise, the offense will know that the defense will blitz infrequently, and so will plan accordingly, calling ON most of the time, but OB occasionally.

Now for the solution. Assuming perfectly rational opponents who can’t be predicted, the optimal strategy for the defense in this example is to blitz one seventh of the time, chosen randomly, and run a conventional defense the other six-sevenths. The optimal strategy for the offense is also to run a play for the blitz one seventh of the time, and run a normal play the other six-sevenths. This works out to an average of 4.85 yards per play. (All that’s assuming I did the math correctly.)

One interesting property of this result is that in this optimal case, the average yards per play is the same whether the defense blitzes or not. In fact, one way to look at solving the problem is to find that crossover point. If you gave up more yards blitzing, then that should tell you that your strategy is not optimal and you should blitz less. Likewise if you gave up less yards on your blitzes, you should blitz more. Coming full circle, if Easterbrook’s statistics (i.e. that blitzes perform statistically worse than non-blitzes) are valid and can be applied to real football, they do show that teams should blitz somewhat less than they do.

So TMQ’s methodology could be given firmer mathematical grounding. It would require a lot of data – for best results you would have to break things out per team, and find out how each defense and offense with and without the blitz. You would want to use probability distributions instead of simple averages, as above. Once you have the data, you could apply game-theoretic techniques to figure an optimal strategy for a pair of teams. Then, and only then, can you criticize a team for blitzing too much (or not enough), because then you have a take on what would have been better.

I should mention that I take a dim view of the chance of success of such a programme. I doubt you can really break out the statistics like that, or that they would be that reliable, and I also doubt you could factor in all the non-numeric issues, such as beating up on the quarterback. But such an effort would be more grounded and noble than the cheap shots over at TMQ.

My key point here is that once you buy into this game-theoretic approach, the whole TMQ idea of pointing out individual cases when blitzes fail, and mocking the teams involved, becomes quite silly. Of course calling a blitz is bad when the offense is ready for it. But you still need to do it; getting burned at times is the price you pay for applying an optimal strategy.

Random

Sorry for the randomness of these posts. I want to continue developing the energy discussion, but I also have a huge backlog of things to get off my chest.

I Hate TMQ

If you’re a football fan, and you’ve never read Gregg Easterbrook’s Tuesday Morning Quarterback columns at espn.com (or previously, nfl.com), you’re in for a treat. I got hooked on them a few years ago – smart, funny, insightful. Wonderfully entertaining.

But as you might guess from the title of this post, I come to bury TMQ, not praise him. These days his columns annoy me like all get-out. Part of this is that the act is wearing thin – the jokes don’t change; the lines are the same, just some of the names and teams have changed. But more seriously, I object to Easterbrook’s cavalier and probably dishonest use of statistics.

Case in point. Easterbrook has been on a crusade for some number of years to warn the world about the dangers of the blitz. His latest diatribe can be read at http://sports.espn.go.com/espn/page2/story?page=easterbrook/060912. Sometimes it’s hard to tell what exactly his point is, but my understanding is that he believes that calling a blitz is inferior to using a standard defense, and therefore that teams shouldn’t blitz; at the very least that they should blitz much less than they do. Certainly, TMQ believes that if a team blitzes, and gets burned by it, then it is worthy of ridicule. This theory wouldn’t bother me much, except that Easterbrook keeps using his column as a bully pulpit for it, with a very smug, condescending tone and using statistics in wholly inappropriate ways. Grrrrrr.

Before I get to the statistical arguments it would be good to note that you don’t even need to hear them to tell what the actual state of affairs is. Blitzes, while not infrequent, are called much less than half the time. So obviously, defensive coordinators throughout the league believe that the blitz is less effective on average than not blitzing. At the same time, all defensive coordinators in the NFL do call blitzes, a fair percentage of the time so they must feel that the blitz has some worth. Whose judgment sounds better, that of experienced, knowledgeable people whose jobs are on the line, or some number-crunching armchair quarterback talking head?

But on to Easterbrook’s evidence. Every column has a section called “Stop Me Before I Blitz Again”, which has three or four examples from the previous week’s action where blitzes were ineffectual. Wow. So he cherry-picks a few plays and uses them to prove his theory. That’s as meaningless as it is predictable. Hey, why not run a “Stop Me Before I Pass Again” section, where you replay a few interceptions each week to prove that passing is bad.

He crunched some numbers one weekend, and determined that “On 158 long-yardage downs … offenses averaged 4.3 yards per play against conventional defense and 8.7 yards per play against the blitz and scored touchdowns on 2.6 percent of plays against conventional defense and on 6.7 percent of plays against the blitz. Offenses scored three touchdowns against conventional defenses, a 2.6 percent touchdown rate, and three touchdowns against the blitz, a 6.7 percent touchdown rate … This is pretty much a slam-dunk for conventional defense over the blitz.” (http://www.superbowl.com/news/story/9156476)

Interesting statistics. But honestly, you don’t even need to think about them to know that there’s something rotten with his conclusion. Let’s take a wholly analogous situation and see where that kind of logic leads us.

The average pass play in the NFL yields what, something like seven yards (or thereabouts; I’m too lazy to look it up). And the average rushing play gains on the average of three-and-a-half yards. A higher percentage of passes result in first downs than runs; ditto for touchdowns. So, using Easterbrook’s logic, rushing sucks … slam-dunk. Teams, stop rushing! (By the way, TMQ actually applied a version of this logic in a basketball column. He noted that in an NCAA game last March, one team had a better average points-per-shot for two-point attempts than three-point attempts, and concluded that they should only have taken two-point shots the entire game.)

So the stats, accurate or not, are meaningless in the big picture. But while I’m here, I’ll take the trouble to point out the issues with them.

1. These numbers are too coarse to make apples-to-apples comparisons. For example, the touchdown numbers (which are too small to be significant) are meaningless without knowing field position. More to the point, the statistics need to be broken down by the comparative strength of teams to be meaningful. In at least some cases, blitzes are called by weaker teams because their standard defenses are even worse.


2. More importantly, an essential part of football strategy is to keep the opponent guessing. If you never blitzed, your opponent can take advantage of the fact. Even if the blitz is a suboptimal tactic (and maybe it is), you still need to call it relatively often to keep the foe off-balance. This, of course, is one fallacy committed by my run-pass example above.


3. And all that is just a way of saying that blitzing has ramifications beyond the play at hand, which the statistics don’t take into effect. Another example of this is that some teams blitz because it means they get to hit the quarterback more often. If it’s a sack, great, but it’s still beneficial just to hit him, which can rattle him, physically or emotionally, and throw him off his rhythm on future plays.

When I was ten, I figured that with a 3.5 yard average rush, all a team had to do to get a first down every time was to run for three straight plays. Three times 3.5 is 10.5 yards, first down. Heck, if you’re willing to go for it on fourth down, you only need to average 2.5 yards. Surely a team can do that, right? Took me a while to discover the flaw in my logic, but then I was just a kid.

One more example of his use of statistics on the blitz and then I’ll move on. In the latest column, he says “If blitzing works better during the regular season than the playoffs, we'd expect to see the best teams blitz steadily less come January. And that is exactly what happened last season. During the regular season, the Steelers … on 32 percent of its 2005 regular-season defensive snaps, versus the league average of about 15 percent blitzing. As the playoffs progressed, Pittsburgh backed away from the blitz, dropping into conventional defense. Against Cincinnati in the first round of the playoffs, the Steelers blitzed on 18 percent of Bengals plays; in the second round, Pittsburgh blitzed on 25 percent of Colts plays; in the AFC championship, Pittsburgh blitzed on 16 percent of Broncos plays; in the Super Bowl, the Steelers blitzed on 13 percent of Seahawks plays.”

Now the theory that blitzing is less effective against good teams might well be true; it’s certainly plausible. I just don’t like the evidence marshalled here. Let’s see, the champion team, the best of the best, blitzed 32% of the time, more than most teams, and this is used as evidence by a guy who wants to convince us that the blitz is bad. Sweet! That’s pretty funny in itself. But consider that trend of 18%, 25%, 16%, 13%. I would hardly call that “blitzing steadily less”; in fact, consider the raw numbers. I’m too lazy to look them up, but I think that in a typical NFL game, each offense runs about 50 plays. This would put the number of blitzes at 9, 12-13, 8, 6-7. Wow, so Pittsburgh blitzes once or twice less often in a couple of games, and it’s a trend. Needless to say, there’s not a whole lot of statistical significance here in the technical sense. More likely explanations for the variation would come from game circumstances, or the fact that the Pittsburgh coaches decided that it would be more effective against certain teams than others.

Let me get off Easterbrook’s back and ask if his statistical case (i.e. by comparing yards per play) can be salvaged. A better approach would use that branch of mathematics called game theory, although I have serious doubts about its success. (Update: I fleshed this out in a subsequent post. See http://northern-flicker.blogspot.com/2006/09/football-and-game-theory.html.)

Easterbrook’s latest crusade is on something he calls the “Maroon Zone”, which is that part of the field that is not quite the red zone. Too close to the end zone to punt, too far to kick a field goal. His theory is that teams should go for it on fourth down more than they do – which I actually agree with. On a related note, he also likes to taunt losing teams for not going for it enough late in the game, when they have nothing to lose. Again, I think he has something of a point. But of course, this instantly raises the question of where you draw the line. Fourth and seven on the opponent’s 36-yard-line? Go for it, or punt? Fourth and two on your own 35, five minutes left in the game, you’re down 35-21. Go for it, or punt? Fourth and six on the opponent’s 26, ten minutes left, you’re down 24-10. Go for it, or field goal?

Easterbrook answers that question in his usual facile, cherry-picking way. If the team punted, and it turned out that the opposing team scored on their ensuing possession, then he points out that the punt was a bad choice. If they went for it and made it, he congratulates them on following his advice. Counterexamples, such as punting, bottling up the opponent’s offense, and getting the ball back with good field position are ignored. Well, that’s ummm, hard to argue with, but then that sort of logic doesn’t really lend itself to making good decisions in the future.

Interestingly enough, these sorts of questions do lend themselves to mathematical analysis, although such analysis wouldn’t be easy. Easterbrook has never even mentioned that there is risks to his strategy. That risk is blindingly obvious, but I’ll mention it for the sake of completeness. If you go for it and fail, you give the opponent better field position. Even when you are down at the end of the game, you always have a shot (however small) of winning by playing it safe, but that shot gets worse if you give your opponent get easy chances to score.

Anyways, you could build a model for analyzing the tradeoffs with assumptions like:

• chance of making a first down on 4th and n yards to go


• chance of scoring once you make the first down


• probability distribution of opponent’s offense given that they start on the x yard line


• probability distribution of your offense given that they start on the x yard line


• probability distribution of time of possessions, for both teams

(By probability distribution, I mean a spread of outcomes. A sample distribution could be that, for the case that your team starts on the 10 yard line, then there’s a 10% chance of an eventual touchdown on that drive, 15% chance of field goal, whatever percent chance of punting/turnover and the opponent getting the ball on the m yard line, etc. You really need to use entire distributions here and not simply go with averages to get valid results.) I would be hesitant about applying the results of such a model in any detailed sense, but it could give you some rules of thumb on when it’s better to go for it. (By the way, I kind of did something like this a long time ago, in a very abstract way; maybe I’ll write a post about that someday.)

While I’m at it, let me dispute another of Easterbrook’s notions, that all that matters is winning or losing, and the score is irrelevant. So, for example, say the situation is 4th and three at the opponent’s 20 yard line, and you are down 28-0, early third quarter. This is your best drive of the game. Easterbrook would argue that you have to go for it here, instead of kicking the field goal, as that will give you the best shot of winning the game. Other examples that he’s given include going for it in your own territory early in the fourth quarter.

I disagree for several reasons. One is that, taking my example, kicking the field goal builds momentum, helping your team down the stretch, whereas coming away with nothing deflates it. This is the reason many coaches give in explaining their conservative choices.

My second reason is a bit long-winded. Consider this example. You are down 21-0, and have the choice between strategies C and R. Strategy C is conservative, but unlikely to win the game. Using this strategy, you have a 5% chance of winning 24-21, and a 95% chance of losing 21-14. Strategy R is riskier, but has a higher risk of winning. Here, you have an 8% chance of winning 24-21, a 10% chance of losing 21-17, and an 82% chance of losing 50-0 (since you go for it on fourth down often). Sure, winning matters, a lot, but losing big has its own repercussions. It can hurt the psyche of your team, detrimental to their performance next week. If you’re the coach, it’s something your bosses could feel humiliated about – not a good way to keep job security, especially if you take these risks week after week.

In fact, this scenario played out once (sort of), with most interesting results. November 23, 2001, Colorado versus undefeated Nebraska. Colorado rushed out to an early 35-3 lead in the second quarter. Nebraska came back to make it 42-30 at the start of the fourth quarter. Then the pressure of being behind late caused Nebraska to abandon their bread-and-butter rushing game, and throw the ball recklessly. Turnovers (and hilarity) ensued, and Nebraska got blown out, 62-36, their worst loss in decades. If they had played it close to the vest, who knows what would have happened – they probably still would have lost, but by a respectable amount.

The blowout fallout was significant. Nebraska was, if not a shattered team, a team whose confidence had been severely undermined. They still maintained their #2 BCS rating (causing a furor in itself), but were just marking time until they could get blown out again in the championship game with Miami. In fact, Nebraska’s self-image has never returned to where it was before that game, and that score was probably a significant factor in the firing of their coach two years later. Meanwhile CU surged to a Big-12 championship victory over big-game-choking-Texas. They spent the next few weeks arguing that they were the real #2 team in the country, despite two losses on their record. Their protestations continued right up until their bowl game, when they were summarily dispatched by an Oregon team that was altogether stronger in every way.

Ok, I guess that got off-topic. I do like to reminisce about the good old days. The point (whether that story illustrates it or not) is that margin of victory is not irrelevant. It can better to marginally reduce your odds of winning a game that you’re probably not going to win anyways to keep the score close.

Back to Easterbrook. I think I see what he’s doing. As a professional “thinker”, you like to come up with ideas that nobody else has thought of, or at least has published, and make them yours. I can see him dreaming of some future History of Football Strategy textbook passage:

… The evolution of football strategy had come to a standstill by the year 2000, until it was revolutionized by the brilliant amateur Gregg Easterbrook, who decisively proved that the blitz had been massively overused by the entire professional and collegiate ranks. Moreover, Easterbrook’s Maroon Zone Theory gave teams an insurmountable tactical edge, at least until its adoption became standard …

If you think I’m exaggerating, note that one of TMQ’s columns is titled “New Key to Success: Maroon”. Yeah, right. At best, if you did the math, which Easterbrook doesn’t, and knew the right way to play situations, you could probably help yourself to maybe an extra point a game on average. A better key to success might be improving your running, passing, or defensive skills.

Back to the main point, it doesn't bother me that he's doing this. But when you propose a theory, you ought to weigh the evidence impartially to determine whether your theory is true, not indulge yourself in post-hoc reasoning, mine the statistics to find some that support your theory, and ignore the rest.

Sorry for such a long post. I usually don’t bother wasting my time pointing out why people’s math is crap, but this dude got under my skin.

Weaning Off Oil

I’m positive that our country, and indeed the world, has a great deal to gain by reducing our dependence upon oil. So how can we make faster progress in that direction?

Heck if I know, but here is my plan nonetheless. Three parts:
1. Shift taxes to ensure that the cost of energy covers all externalities. Align our short-term interests with the long-term.
2. Fund more basic research into energy alternatives.
3. Strengthen the U.S. economy to make sure we have reserve strength to bear in any crisis.

In detail:

Reallocate tax sources. Economists use the term “externalities” to refer to side effects that have additional costs or benefits that are not included in the market price for an some item. For example, coal-fired power plants generate pollution, which cause health problems, which must be paid for. (The data is controversial, of course, but generally indicates that such pollution costs over 10,000 lives and millions of dollars in the U.S.) But the costs of those health problems are not borne by the power plants; instead it’s the poor schmucks who suffer the problems, as well as local taxpayers, who pay. My recommendation is to use taxation as a way of assigning the costs equitably. So figure out the real cost of purchasing a unit of a certain kind of energy, and tax it commensurately. Meanwhile, reduce other taxes (sales, income, whatever) so that the overall tax load remains constant.

The beauty of this approach is three-fold.
· It’s fair.
· It’s revenue neutral; maybe not in pure taxation terms, but in the overall cost to the economy.
· Most importantly for the big picture, representing the true cost of fossil fuels makes alternatives much more cost-effective.

Elaborating a little, I would either remove all subsidies for the oil industry or recoup those subsidies through a surcharge at the gas pump. The 300 billion dollars we’ve spent on Iraq – gas tax. Expenditures on homeland defense, required because our gas purchases fund Middle Eastern psychos – gas tax. I would go further in the transportation sector, and fund all public infrastructure for transportation (roads, parking lots, highway patrol, etc) from targeted taxes, either on gas, vehicles, or roads (i.e. tolls).

Note that I’m not saying that gas consumption is morally bad, or that we should all be carpooling, or we should tear down the suburbs. All I am saying is that if you want to drive a Hummer, then you should pay what it truly costs. We’re paying for these costs one way or the other – let’s make it explicit and equitable.

One of the key techniques to adopting alternate energy should be to utilize the power of the marketplace. I’m not sure the best way to do this, but increasing energy taxes is a big start. As conventional energy becomes more expensive, companies have more incentives to develop and utilize alternatives. I’m not as big into massive government subsidies; it seems like those often tend to turn into handouts for corporations. So I would want to use those carefully.

There are two sub-goals in getting the marketplace involved. The first is that currently, energy companies are heavily vested in the status quo. They have billions of dollars in current infrastructure, and tossing that for something new and maybe more expensive isn’t a good way to keep the stock prices up. So one sub-goal is to figure out how to realign energy companies so that their interests are the same as the country’s as a whole. The second goal is to strengthen the market power of the alternative energy industry. Once that happens, that industry will also grow in lobbying power, which will be critical to counterbalance the political influence of the massive energy companies. For example, Exxon recorded a profit of thirty-six billion dollars in 2005. That kind of money affords you enormous power in this country.

There are a lot of people suggesting higher energy taxes, and I think it’s an idea whose time has come. To put it another way, the goal here is to align our short-term policies with what’s best in our long-term interests.

Fund more basic research into energy alternatives.

Like I said, I’m not always that keen on massive government handouts, and prefer to let the market do its magic. But the free market isn’t good at everything. In particular, companies need to be able to confidently predict a decent return on investment before they will sink money into a project. In particular, private investment doesn’t always work well with basic science, where the paths to explore are unclear, the payout is unknown, and the risks are high. Secondly, there aren’t too many companies that can afford to sponsor major-league research projects (i.e. that run in the billions of dollars). So this is one area where the government is better suited to help.

Here are the areas where I’d like to see more government-funded research:
· Transportation. Right now, oil is far and away the best fuel we have for vehicles and airplanes. The most likely alternatives are hydrogen and electric power, both of which have issues that need to be worked out.
· Electricity generation. Wind technology is rapidly maturing, but solar still needs help. Nuclear doesn’t need as much help, but could still use it (in the areas of safety and waste disposal). Note: this item might sound off topic, since oil is not generally used to generate electricity. However, most electricity in the world is generated from natural gas and coal, both with their own issues, not least of which being that they are in finite supply. The large deposits of natural gas that we will need to tap in the future come from those same unstable countries whose oil we are trying to get away from now, and burning coal generates large amounts of pollution. Since we will need to replace the oil we use for transportation with electricity, our demand for electricity will increase greatly.
· Efficiency. Our current energy infrastructure wastes a huge proportion of energy. For an example of what I mean, the next time you pass by a power plant, check out the cooling towers. Those disperse extra heat created by the generation process, i.e. … wasted power. We waste power all throughout the energy “lifecycle”, from extraction to transformation to consumption. The marketplace should take care of some of this after energy prices are adjusted per my Step 1, but more basic research will be helpful.
· Futuristic stuff. Nuclear fusion. Space-based solutions. Geothermal. Ocean tides. Heck if I know, but let’s pay some scientists to figure out what makes sense.

I know what you’re thinking – this all sounds great, and why not throw in ponies for everybody while we’re at it. How to pay for all of this? Not sure. I would seriously consider repurposing some of NASA’s budget, if not most of NASA itself. Of course, if I were really king I would also be reconsidering the budget for the Iraq war. But really, I don’t know. We’re increasing the national deficit for everything else under the sun, might as well chuck in a few more billion in research that will get us out of a pickle one day. As to how much money to invest, again, I'm not sure, but I would think a few billion dollars would not be too much of an extra burden, and would pay real dividends.

Strengthen the U.S. economy to make sure we have reserve strength to bear in any crisis.

I’m on shakier ground here, as I’m no economist. But there are a number of long-term trends that I don’t like to see. A sizeable national debt, that’s growing rapidly. Personal debt at an all-time high, with bankruptcies on the rise to match. Health-care costs on the rise as our population ages. Increasing proportion of retirees, with a smaller proportion of workers to support them. A possible housing bubble.

Most of the apocalyptical out-of-energy scenarios involve a collapse in the American economy as it gets hit by one shock too many (generally by massive oil price increases), and the dominoes start collapsing. I don’t really buy into the apocalypse, but I don’t feel like our economy is in great shape either. I’d like it to be strong so that we can be confident that we’ll handle whatever comes along.

What to do here? I don’t know; I’m no economist. But it might help to honestly start having a real national debate on some of the issues mentioned above, and start working towards solutions that smarter people figure out.

The Age of Uncertainty

As I’ve stated before, I have no idea what the future of oil supplies looks like. That’s cool; most people don’t. (On a side note, you would figure that the experts might know, but given that some of them have different predictions, the ones with incorrect predictions are wrong, so they don’t really know what’s going to happen. And even the ones with predictions that will indeed be borne out … do they really know that they know what’s going to happen?) I find it troubling that our government makes decisions without regarding the possibility of uncertainty in its judgments.

Exhibit A here would be the Iraq war, where our planning basically assumed best-case scenarios all around. Allies cooperating, Iraqis not fighting, Iraqis hailing us as liberators, Iraqis working together to rebuild their country. Unfortunately for everyone involved, it hasn’t turned out that way, and we’ve been struggling ever since.

Our current energy policy posits that we do know what is going to happen: plenty of oil out there for the next thirty years plus; we just need to drill for it and enforce order in the Middle East. I don’t see much in the way of preparation for if those assumptions are wrong.

Take another example, that of global warming. Our current policy is to deny that it exists. The strategy, if any, that our government has is:
· Determine if global warming will be a problem. Collect enough data to convince the skeptics.
· When/if it is determined to be a problem, come up with a plan to solve the problem.
· Execute the plan.
That plan works great if global warming is all a big hoax, but if not, we’ve lost valuable time. That’s important since most proposed solutions take decades to have any significant effect.

Here’s my point: instead of rolling the dice and hoping we’re right, we should be hedging our bets more. Too often I hear people ignore evidence of warming by saying we shouldn’t wreck the economy on the off chance that global warming will be disastrous. I would certainly agree with that, but there is some middle ground between full-scale mobilization and doing nothing.

Ask not what your country can do for you

Speaking of energy crises and a national sense of purpose, it struck me that the last time a president urged Americans to make voluntary sacrifices was in the late 1970’s, when Jimmy Carter made the case for energy conservation. Although many Americans heeded the call, in the eyes of others it made him (and his vision of America) look weak. He promptly got bounced out of office for his pains, by a man with a much more robust vision.

Our presidents since have learned the lesson well, and none have made the mistake of challenging the American people. Ask not what you can do for your country; let me tell you what your country can do for you. That’s even more surprising considering that three of those four presidents have been Republicans, who nominally believe in small, limited government.

JFK’s inauguration speech was what, 42 years ago. Can you imagine anyone running for president (or any other office for that matter) saying that they were going to challenge Americans to give their best effort for the future? That’s completely inconceivable at this point in time.

If we do have an energy crisis, we as Americans are going to be called on to make sacrifices, willingly or not. That doesn’t scare me; I think we’ll rise to the challenge. What worries me is that our leaders will be afraid to choose any course that might cause short-term pain, and that by doing so we will make poor long-term decisions. In other words, I’m not terribly confident that our leaders have leadership ability. Of course, we elect the leaders, so their shortcomings are our fault.

Five Years Later, continued

Let's review what our country has done in the five years since 9-11.

1. We toppled the Afghanistani regime that had sheltered and supported the terrorists. The story there is not over by any means, but so far so good.
   


2. We launched an international attempt to roll back Al-Qaeda throughout the world. We haven’t shut them down, but there have been no repeats with the damage of 9-11.
   


3. We beefed up domestic security. Unclear how effective our measures are, but so far, so good.
   


4. Our main response, where we’ve sunk most of our effort and resources, was to invade Iraq, a country which had nothing to do with the 9-11 attacks. Three years later, it’s still unclear how this will play out, but the fruits of our efforts so far have been:
   
   
   
   • A vicious dictator was deposed.
   
   
   • Thousands of Americans dead, many more significantly wounded.
   
   
   • Many more Iraqis dead; the country on the verge of tearing itself apart.
   
   
   • The entire region destabilized; an important bulwark against Iran removed.
   
   
   • By torturing prisoners and running secret prisons, we’ve trashed much of our moral prestige.
   
   
   • We’ve lost goodwill by belittling our allies for refusing to help us with this disastrous undertaking.
   
   
   • Our government has undermined the peoples’ confidence by playing games with pre-war intelligence.
   
   
   • The war has cost us hundreds of billions of dollars, to be paid off in the future.
   
   
   • All that effort has gained us no measurable effect on terrorism

Whoa, didn’t mean to go off like that. Getting back on track: the events of 9-11 left me with a heavy heart, but I did think we had a real shot at redemption. I hoped that Bush, or anybody in power, would say, “Let’s deny these guys their funding. We’ll cut them off at the knees. Cut off their breathing supply. It will take a while, and it won’t be easy, but let’s do what we can to make oil worthless.” And we would have followed him. It was a shining opportunity – actually there were many opportunities we could have taken – and instead we chose a shameful and wasteful course.

When you hear someone go off against alternative energy for being expensive, consider that we have already dropped 300 billion dollars on our Iraq adventure. Think about what else we could have done with that money and manpower.

I thought another opportunity was lost in the days after 9-11. Not sure about the best way to describe it, so bear with me. It seems that in some ways our society is becoming less cohesive; we as Americans are getting more wrapped up in our individual lives, and are feeling less and less like we have a shared and/or higher purpose in this life. (See the book Bowling Alone for a good discussion of this.) With 9-11, and the reminder of mortality and the cruelty of the world, we felt this more keenly. I think there was an opportunity for someone to make a call to arms, for a way for us to become more connected as Americans. I’m not sure what form that could have taken, but I know that many people would have been receptive. But our leaders did not take that opportunity; in fact, quite the opposite. Bush’s recommendation was to carry on if nothing had happened; to continue shopping. And so we did, and so we are in the same place five years later.

Our Current Energy Policy

Our current energy policy is almost totally supply-driven; although renewable energy is given minor amounts of funding, the main goal is to try to find new sources of hydrocarbons, in particular oil. We are operating on the assumption that oil is and always will be plentiful, with little care as to whether that assumption might be wrong.

And maybe that key assumption will prove to be correct. But do we want to bet the farm on it?

My take is that there’s a good chance that oil production will peak and then start to decline in the next ten to thirty years. Once you accept that possibility, then it becomes imperative to start seriously considering contingency plans, and I don’t see us doing that.

One of the big questions in the peak oil arena is “how much time do we have left?” This breaks down into: how much time do we have until oil peaks; then how rapidly does oil production decline, and how much time does it take us to switch to alternatives. Of course, nobody really knows the answer to any of those questions. I would feel safer if we charted a course that recognized the uncertainties and didn’t, well, bet the farm on any one approach. We don’t need to break the bank now preventing something that we don’t know will happen, but it would be prudent to start preparing a little.

We shouldn’t get too focused on peak oil in any case. There are a number of excellent reasons why we in the U.S. should try to reduce our oil consumption.

· By purchasing oil, we are giving money to Saudi Arabia and other countries with corrupt governments. Some of that money is going to terrorists, and has already funded 9-11.
· By depending on oil, we place the security of our country in the hands of oil producers in general, including, once again, countries who might not have our best interests at heart.
· The correlation between energy price spikes and recessions is strong. As demand grows, small disruptions in supply, or even the threat of such disruptions, can send prices skyrocketing. We are seeing this right now.
· Oil consumption leads to global warming, which has its own significant costs.
· The shift to renewable resources is going to happen eventually; let’s have our industry lead the world and make this a profit source for the US instead of giving our money to the current leaders in Europe and Japan.

The big critique against trying to wean our dependence on oil is that the alternatives cost too much. I would consider that the real costs of oil are huge, getting larger every year. The U.S. currently consumes over 20 million barrels of oil per day, which works out to over 400 billion dollars a year at current market rates, not to mention the significant associated costs listed above. It would be altogether better for us to drop an extra billion or two per year to take us in a better direction.

9-11, Five Years Later

My experience of that day was probably fairly typical of most Americans not directly involved.

Tuesday, September 11, 2001. My wife and I had just moved into our new house; our house-warming party was Sunday the 9th.

I was telecommuting, at the computer in the basement. My wife called from her office to ask if I'd heard the news. Nope; what news? An airplane had just flown into the World Trade Center. I assumed she meant a light plane; a Cessna or something. Whatever, back to work. I browsed some news sites a few minutes later and found how horribly wrong I was. Internet connectivity was spotty; finally I realized I should turn on the TV. A few minutes later, I watched one of the tower collapses. It was the most sickening, gut-wrenching thing I've ever seen in my life.

I didn't get much work done that morning. I had lunch with a coworker; didn't feel like being alone. Stumbled through work that afternoon. Didn't feel like doing anything, but at the same time I had to do something, and that was the most productive thing I could think of. My wife came home. Didn't feel like hanging out around the house, so we took our heavy hearts and went out for a very glum dinner.

Those were scary times; we worried about what else the bad guys had in store for us. My biggest fear was for the economy, which was already teetering because of the collapse of the dot-com bubble. For my family, and for most people I know, things have gone very well in the past five years. I'm thankful for that.

I don't have anything eloquent to say, but may all the people who departed the earth that day rest in peace.

Colorado State 14, Colorado 10

Well, the Dan Hawkins era for CU football is off to a rocky start, with two losses to less-than-stellar teams.

On recent CU coaches: it always struck me that you could make a telling analogy of: Gary Barnet was to Rick Neuheisel as George W. Bush was to Bill Clinton. Take Clinton and Neuheisel. Both were young for their positions; both were smarter than average. At the same time they were deeply distrusted by older, socially conservative people; Neuheisel for not being a disciplinarian and for fraternizing with his players. And most of all, both guys were too slick for their own good. You always felt like they were trying to get away with something, staying just inside (or not) the letter of the law while doing something shady. And that turned out to be the undoing of both. If they’d both kept their hands a little cleaner, they could have saved themselves and their team/country a whole lot of heartbreak.

Enter Barnet/Bush. Older, more reassuring after the hijinks of their predecessors. Both promised to restore dignity to their office. And both, while having some success at times, were generally considered failures in the end, evidenced by massive disapproval ratings by their constituents. Here the analogy breaks down, since they failed for different reasons. But I would argue that in both cases their pride and inflexibility led to avoidable breakdowns.

I wonder if the analogy will continue to the next president? Probably not, and I’m not sure who the Dan Hawkins of politicians is anyways. But I will wish Hawkins immense success just in case.

Conclusions – An Oil Peak

Ok, so what to make of all of this?

I guess the bottom line is that I’m unconvinced that we are nearing peak oil production. As I’ve indicated before, the graphs alone don’t tell us much without economical and geological context. For now I’m subscribing to the claims that the Middle East has plenty of oil for a while, and the theory that as oil prices rise, production of previously unrecoverable oil fields will rise. For better or for worse, we should find out in the next few years whether this theory is true or not. Oil prices in real dollars have increased by a factor of more than three since 1998 (source). If the optimists are right, we should see U.S. production start to reverse its course, or at least significantly slow its decline. According to the numbers, the latter has already happened, but it’s hard to tell how significant, in a statistical sense, the data is.

I also believe that we won’t truly know that oil production has peaked until it has already happened. There is simply too much uncertainty out there, not to mention too many strongly held opinions that will keep partisans from recognizing an oil peak until the evidence has become insurmountable.

To sum up, my best guess is that we won’t hit a peak next year. And that will be my prediction every year. Paradoxically, I also think that someday we will hit an oil peak, so I’m predicting that one day my prediction will be wrong.

I should be honest, and admit that perhaps the biggest reason for my skepticism of a near-term peak is that the people predicting such appear to be significantly in the minority. If most of the people who are in the know think we’re fine for a while, I’ll need harder evidence to overrule them. Likewise, everybody who has predicted a peak by 2006 or earlier has been wrong, and you’d be a fool to ignore that. At the same time, I think our society is overconfident about the energy issue at present, which is one reason why I started this blog.

At the same time, I certainly don’t buy the economists' argument, that rising prices will spur discovery and production to whatever levels the world needs. (Now their argument actually is correct in some sort of tautological economist sense – more on that later – but it is not a sense that should give the world much comfort.) It does sound like discovery rates are declining, and the fact that consumption outpaces discovery is a recipe for eventual depletion.

The fact that U.S. production peaked over thirty years ago is sobering. Current production is half of what it was in 1970, and I haven’t heard anybody argue that it will ever return to that level, no matter what we do. The U.S. is large and geologically diverse. I find it hard to believe that somehow OPEC nations live in some geologically different reality.

Ok, so I’m kind of chickening out. When do I think oil will peak? Heck if I know. It wouldn’t totally surprise me if it was next year, and it would not surprise me if it was thirty years or more. To come up with a better prediction, I would have to dig deeper into what the geologists are saying. At the least, I’ll say this. I do think there will be a peak within my lifetime. I also think that while the peak might not be for a long ways off, there is a significant chance that it will be soon, within ten-fifteen years. Even a ten-percent chance of that should be enough to shake us from our current complacency.

I’ve edited this post many times, trying to come up with something more definitive to say, but I really don’t have a good guess as to what’s going to happen. It does look like the pace of oil discovery is drastically slowing down; oil companies are publicly stating that they are more and more looking to develop heavier oils, which they wouldn’t do if there were plenty of more convenient oil. I think the key unknown for me is what the rate of depletion of existing oil fields is, and I don’t have much of a take on that.

By the way, I definitely don’t believe in that application of “Hubbert’s Law” that states that the oil production curve is symmetric. That might hold for individual oil fields, but it ignores technological advances and economic conditions.

The Optimists Are Wrong

Ok; in previous posts I laid out the arguments that the world is headed towards an imminent energy crisis, and then presented the arguments against that position. Now let me rebut those counter-arguments. After that, I just may get around to stating what my actual opinions are.

· The U.S. government and OPEC forecast plenty of oil reserves for the next thirty years.

Both sources are suspect. George W. Bush and Dick Cheney are ex-oil men, and deeply believe in the future of oil. They would not drive this country in any direction that would either offend their petro-compatriots or cost them money.

OPEC determines quotas for member countries by calculating the ratio of each country’s oil reserves to the OPEC total. Therefore each country has a significant motivation to exaggerate the status of their reserves. Moreover, some OPEC nations, in particular Saudi Arabia, do not let independent analysts verify their claims.

Oil reserve figures are also suspect in the sense that nobody really knows how economical it is to retrieve the dregs of an oil field (take your pick: the last 10, 20, 25 percent).

There are plenty of projections from different sources; for example geologists and oil companies, showing peaks between now and the next ten years.

· There are plenty of alternative energy sources to take the place of petroleum.
The responses here fall into two categories. There are questions as to whether the known alternatives can scale enough to the levels needed.

To go through the list of alternatives and knock them down:
o Hydroelectric – pretty much maxed out in the U.S. Destructive to riparian ecologies.
o Natural gas – continental North American production is already peaking. Natural gas can be shipped, but that’s expensive and dangerous. It’s still a fossil fuel, and while there might be a few decades worth of supplies, we’ll run out of natural gas too. Also, burning gas contributes to global warming.
o Nuclear – can’t dispose of the waste safely; it pollutes and can be stolen by terrorists. The known supply of uranium in the world is limited; will only supply us with a few decades of power. The U.S. hasn’t built a new nuclear plant in 20 years anyways.
o Solar – not cost-effective, and not dense enough; you’d have to cover some crazy percentage of the U.S. with photovoltaic cells to replace our fossil-fuel power plants. The power source is intermittent. Takes oil to create the materials anyways.
o Ethanol – our mech-heavy agricultural techniques consume huge amounts of oil between fertilizers, cultivation machinery, and transportation. If it takes more than a barrel of oil to synthesize a barrel of oil, what’s the use? Ethanol is only currently viable because of massive government subsidies which hide the inefficiency.
o Coal – contributes significantly to global warming. It’s still a fossil-fuel, so we will run out of that. Requires oil to mine and transport.
o Wind – rapidly growing in effectiveness, but not dense enough, and the source is too intermittent. Takes oil to construct and maintain the infrastructure.

Even if some of these can carry the load, it is doubtful that they can be ramped up quickly enough to compensate for rapidly decreasing supplies of oil.

There are also arguments that for some applications cheap oil is irreplaceable; in particular, transportation. For example, it would be hard to design a coal or electric-powered airplane. Cheap oil underlies our civilization’s infrastructure; particularly for transportation and materials (namely plastics).

· Oil discovery rates are declining in spite of increased exploration efforts.

This argument is aimed at “the economists” who argue that discovery and retrieval efficiency will improve as the price of oil increases. Oil is plenty valuable already, and oil exploration has continued at a feverish pace over the last twenty years. We aren’t finding much new oil simply because there isn’t that much more to find. Oil companies are very worried about this.

It’s also worth noting where the new oil is being found. Generally, that would be offshore and in the Arctic. The places that have already been well-explored, such as the continental U.S., are not yielding much in new discoveries. Once we finish exploring the unexplored, that may be it.

(A partial counterargument here. According to Roberts in The End of Oil, the multinational oil companies are so big that they need huge discoveries to maintain their growth. As such, they aren’t interested in any finds under a billion barrels. This will change if supplies grow tighter.)

Here is a secondary argument, also in reference to the economists. True, advanced techniques are greatly improving the fraction of oil that can be extracted from a reservoir. But think about how that impacts the production curve. The area under the curve stays the same, but you are extending the peak level. This implies that at some point the drop-off is going to be even more sharp. To put it more dramatically, if production techniques were perfect and could suck an oil field dry, how much oil would you get the year after you did that? Yikes.


On some more peripheral topics:
· There is no oil refinery shortage.
Even though new refineries are not being built in the U.S., capacities have been steadily growing and keeping up with demand. If there was a bottleneck, the vast sums of money involved would have found ways to get new refineries built.

In fact, some peak oilers argue that the fact that new refineries aren’t being built in the U.S. proves that oil companies know the production peak is imminent. If they expect huge increases in production, wouldn’t they invest in more refinery capacity?


· Cartels and corporations can manipulate the supply to drive up prices, but that is irrelevant.
So maybe the price of gas is twice what it would be if the market were free. That’s interesting, but it doesn’t address the question of how much oil is left in the ground.