Energy Return On Investment

Here is one of the most important graphs I’ve ever seen.  The slide was prepared by Dr. Charles Hall, of the College of Environmental Science, SUNY.

It’s a busy slide, so let’s spend a little time understanding what it says, before we decipher what it means.

EROI

Dr. Hall is a biologist by training, and a professor in the School of Ecology at SUNY.   His early research involved how trout must expend energy in order to eat (i.e., to obtain energy).   In different environments and by using different strategies, animals maximize their survival chances by maximizing their EROEI, their Energy Return On Energy Invested -- expending a minimum amount of energy to obtain a maximum amount of food.   Stated more simply as EROI, the equation is as follows:

If EROI is high, the animal is efficient in obtaining what it needs to survive.   If EROI is low, the animal is inefficient, and susceptible to harm in adverse circumstances.  
By analogy, the same is true of societies.  By maximizing the efficiency with which we obtain energy, we have more time, capital, and energy available to produce food, build housing, and manufacture goods.  If we are inefficient in how we obtain energy, we have less time, capital, and energy available for those things.

Dr. Hall introduced the concept of EROI (Energy Return on Investment) into debates on Peak Oil and our energy future.  It concept is disarmingly simple:  Energy options can be ranked according to how much energy investment is required, in order to produce energy available to society.    The following chart shows a number of energy sources, ranging from hydroelectric, which returns about 100-fold energy to society for the energy invested, to corn ethanol and biodiesel, which essentially are break-even propositions, consuming as much energy as they produce.

High numbers are highly efficient: in the 1930’s, spending one barrel of oil (energy equivalent) to drill an oil well returned the investment 100-fold.  That’s why oil millionaires (e.g. Jed Clampett, Fred Astaire’s “Daddy Long-legs”, J.R. Ewing, and real millionaires, such as the Hunt and Koch brothers) became part of our folk culture.  However, exploration maturity and the law of diminishing returns nibbled away at the excess return.   By the 1970’s, domestic oil had about 30-fold return on investment, and currently, the number is less than 10.  (Keep in mind that there are other financial costs; this is just the return of energy produced compared to energy invested.) 

On Dr. Hall’s chart, the vertical axis is EROI.  This represents the efficiency of a particular enterprise in returning energy to society, compared to the energy consumed in the process.  The horizontal axis represents the volume consumed in the U.S. economy.   The entire United States uses about 100 Quads (quadrillion BTUs).    Note that coal represents about 30% of our current energy budget (about half of our electrical generation), and is very efficient in terms of EROI.  This cheap energy produces economic benefits throughout the economy, but with corresponding environmental costs, including those related to mining, air quality, and CO2 emissions.

Let’s look at how different energy sources appear on the chart, through some of our history.   First, domestic oil in 1930 yielded about 100-fold return on energy invested: for every barrel-equivalent of energy used to drill a well, the well would produce 100 barrels.   Domestic oil production produced about 5 quads annually.

By 1970 (US peak oil) production had increased to about 22 quads annually, but efficiency had fallen.  The EROI for domestic oil was about 30-fold.  

By 2010, production rates had fallen to about 12 quads, and EROI had fallen to 10-fold.  

New oil, and future oil from current exploration, will be located in very deep water, in the Arctic, or extracted with difficulty from low-quality shale reservoirs.  New and future oil is expected to have an EROI of about 3 to 5, which Dr. Hall considers to be the minimum required to sustain civilization (Dr. A.S. Hall, 2010 Complex Systems Lecture, UAA).

Renewable Energy

Now suppose that we want to replace our fossil fuel consumption with renewable energy.    Evidence for climate change is overwhelming, and there is scientific consensus that CO2 emissions from fossil fuels is the cause. 

But currently, Wind energy produces less than one quad of our 100 Quad total demand .   Solar produces less than 1/10 of one Quad.  Despite huge rates of growth, these renewable will not soon make a significant contribution to our energy mix.  

Further, there are likely to be significant limits or barriers to the growth of renewable energy.  For example, electrical system instability limits the use of wind power to about 20% of capacity of installed power, on a name-plate basis (Paul Morgan, electrical engineer with GVEA, personal communication).   And since even the best wind sites have about a 30% capacity factor (annual utilization), the limit of wind energy in a particular system is about 6% .  The availability and cost of rare-earth elements is likely to be another limit to growth, for both Wind and Solar energy.   It’s interesting to note that there are about 150 pounds of rare-earth elements in every large wind turbine.


Biofuels deserve special mention. Ethanol production from corn is supported by Federal subsidies, with are estimated to have cost $17 Billion from 2007 to 2010, and will cost $53 Billion by 2015, if the subsidies and mandated volumes are not repealed earlier.  In theory, corn ethanol contributes to American energy independence and reduces carbon emissions.   But, does it really?  Estimates for the EROI of corn ethanol are very weak, ranging from a maximum of 1.6 to a minimum of 0.9.   (Dr. Hall comments "....as compared to real fuels, which have EROI of 30 or 40).  If we assume the mean, about 1.35, it means that 135 gallons of fuel must be produced in order to deliver 35 gallons of fuel to society.  And in doing so, producing corn ethanol removes food from global markets, raising food prices in a hungry world; consumes large amounts of water; causes soil erosion and degradation of water runoff.  Corn ethanol is an inefficient fuel, and supporting corn ethanol is bad public policy.

So here is the dilemma, graphically.   How do we move renewable energy from the lower left-hand corner of Dr. Hall’s chart, to the far right?  

The short answer is: We can’t.  Or as Dr. Hall puts it:  At the present time, there is no renewable energy solution that is efficient, scalable, and timely. 

Any alternative to oil and coal must be Efficient, Scalable, and Timely.  1)  Alternatives must have a high EROI.   This is really easy to recognize, because energy is a large component in every investment dollar.   Phrased another way, alternative energy must be substantially profitable, without subsidy.   2)  Alternative energy must be scalable, in order to provide meaningful contribution to total energy supply.   3)Alternative Energy must be Timely.  It must be possible to implement the alternative before serious economic contraction begins, reducing the capital available to build the alternative.

So to make the required reductions in CO2 emissions, and provide a significant amount of power from renewable sources, we have to move the goalposts. 

Large-scale conservation is essential. 

We can start by driving smaller cars.    (Amory Levins, Winning the Oil Endgame http://www.oilendgame.com/)  Redesigning our cities to favor carpools, changing our lighting, and other steps can reduce our energy consumption.    But even with the most dramatic conservation measures imaginable, fossil fuels will be a necessary part of our fuel supply for a long time to come.

Conventional Fuel Supply

EROI  has implications for conventional fuel supply, as well.  As old oil fields are depleted, exploration and technology bring new supplies to the market.   For the last 2 decades, and for the foreseeable future, new oil supplies will come from deep water, in various parts of the world, from the Arctic, and from low-quality unconventional reservoirs, which can be produced by new production technology.    However, all of the new sources of oil have lower EROI than conventional sources.  

This brings up something that I call the Economist’s Fallacy.    Standard economic theory assumes that as price rises, additional production will become commercially viable, increasing supply.  

 So if oil can be extracted from oil at $150 per barrel, at today’s prices, economists assume that expanded supply will become available when oil prices rise to that level.  

However, the cost of extraction will rise as the price rises, because energy is a large component of the cost required to extract the oil.    If something requires more energy to extract than it yields, it will not be commercial at any price!  

Major sources of new oil are approaching EROI of 3 to 5, which is the minimum needed to justify production.  Oil which is more remote (e.g. the Kara Sea, the Chukchi Sea, or deepwater subsalt offshore Brazil) will have even lower EROI, and may not be viable at any price.  More energy is required to extract each barrel of oil, consuming what might have been available for other purposes in the economy.   This progression, requiring disproportionately more energy to produce more energy, may become a factor which will exacerbate Global Peak Oil.  

http://www.wesleyan.edu/econ/seminar/2009s/hall.pdf

http://www.theoildrum.com/node/3786

http://www.theoildrum.com/node/3800

http://teotw.net/energy_EROI.html

http://www.eia.gov/renewable/
http://www.ewg.org/files/EWG-corn-ethanol-energy-security.pdf

http://onlinelibrary.wiley.com/doi/10.1111/j.1749-6632.2009.05282.x/full

The Wealth of Nations

In my first two posts, I compared Per Capita GDP to oil consumption, and then to the Corruption Index published by Transparency International.  In this post, I will improve and combine those themes.

Productivity requires energy.  Every productive activity requires energy:  to extract resources; to change those resources into products; to transport workers to the place of work; to transport products to market; to move water for crops; etc.  So it is not too surprising that nations with higher energy consumption have higher GDP per capita.  Here is a chart showing GDP per capita vs. total energy consumption per capita.   In my earlier post, I used only oil consumption per capita, but analytically, total energy consumption is clearly a better choice.

  Another interesting correlation is to plot GDP per capita vs. the Corruption Index of Tranparency International.    Here's the chart:

There is greater scatter in the Corruption chart than the Energy chart, and the R-squared correlation value is lower.  Still, the relationship is clear and undeniable.

The converse of Corruption is Integrity.   To keep the parallelism with Energy, which has a positive relationship with GDP, I will use the word Integrity to define the second parameter.

As an aside, I should mention that correlation does not prove causation.  That is, we are likely to conclude that nations with high integrity have high GDP because their businesses and government use energy more efficiently.   Direct costs of the Enron fraud approached $50 billion; indirect costs are clearly substantial.   (http://en.wikipedia.org/wiki/Enron_scandal)  Losses from the housing/banking crisis of 2008 are orders of magnitude higher.   The crisis had its roots in corruption at multiple levels: brokers and appraisers fraudulently elevating home prices; lenders using gimmicks and fraud to write loans to people who could not afford them; banks aggregating toxic loans for sale to third parties; rating agencies issuing "A" credit ratings to toxic debt, because of financial interests in the issuing organizations.  Banking losses topped $2.8 trillion (and continue to grow); retirement assets lost $10 trillion.   Total US household wealth fell by $14 -trillion.  These market-value values might overstate the losses, but US real GDP declined by over $500 billion annual through 2008 and 2009.   Economies also suffered globally, by perhaps 4%, or about $2 trillion of lost productivity.  (http://en.wikipedia.org/wiki/Late-2000s_recession, http://en.wikipedia.org/wiki/Global_GDP).

Alternatively, we might also conclude that integrity is a luxury that only people living in a wealthy society can afford.   I believe that both of these relationships are partly true.

What happens if we combine these factors?   I used the trend-line regression feature available in Excel charts, and created an equation combining the influence of Energy and Integrity on Per Capita GDP.  With trial and error, I found the best result by weighting Energy by two-thirds, and Integrity by one-third.   Here's the equation:

GDP =  0.67 (965*BOE ^0.8142) +  0 .33(406*e^{0.5839*Corruption Index})/2

It looks complicated, but the odd numbers are simply correcting for different units of measure.  Essentially, this equation just says that Energy consumption is twice as important as Integrity in determining a nation's GDP.  The graph is easier to understand.

Simplistically, R-squared represents the fraction of observed variance that is explained by the model (note that R-squared values for different variables do not add meaningfully!).  The Integrity factor alone explains about 60 percent of the variance of Per Capita GDP, while Energy alone explains about 80 percent of the variance of GDP.  Combining the factors in a single model improves the fit to the data to an R-squared value of about 0.88, explaining 88% of the variance in Per Capita GDP.  

The wealth of a nation depends primarily on its energy consumption, and secondarily on the intrinsic integrity of that society.   Other factors, such as democracy, free enterprise, the rule of law, and private ownership of capital are either secondary factors, or correlated with energy consumption and integrity.  I will now sit by the telephone waiting for the Nobel Prize in Economics.

http://www.measuringworth.com/datasets/usgdp/result.php

Can We Replace Gasoline By Driving Electric Cars?

I just saw another ad for an electric vehicle.  In light of high gasoline prices, consumers and manufacturers are excited about the possibility of using plug-in hybrids and all-electric vehicles for efficient, clean transportation.  But just suppose for a moment, that the entire US motor-fuel market was converted to electric transportation.  How much power generation would be required?

Currently, the US uses about 9 million barrels per day of gasoline, or 3.3 billion barrels per year (1).   Converted to equivalent kilowatt-hours, about 4.6 trillion kilowatt hours.  By comparison, the current electrical generation capacity of the United States is about 3.9 trillion kilowatt hours (2).   Electrical demand is somewhat less, at about 3.74 trillion kilowatt hours, giving us about 5% excess capacity over demand.

So my question is: where is the electricity going to come from to power all of the new electric vehicles?  To replace gasoline transportation fuels in the United States, we would need to more than double our current electrical generation capacity, adding 117% of new capacity.  This assumes matching the efficiency of gasoline in engine performance, including losses in transmission and battery storage.

In 2010, the capital cost of new electrical generation capacity ranges from about $1000/kw to $5000/kw, depending on the type of generation (3).  To add the required 528 million kilowatts of new generation would cost a minimum of $528 billion dollars, plus associated transmission and distribution costs.


Of course, we would also need to consume an equivalent amount of fuel, to produce power for electric vehicles.  Assuming 117% of our current electrical consumption, and based on our current fuel mixture, we would need to burn about 94 million tons of coal, 2.9 million barrels of petroleum coke, and 826 billion cubic feet of natural gas per month, to provide power for the vehicles.  I will calculate the related CO2 emissions and costs later.

Of course, we will not replace the entire fleet of gasoline-powered vehicles overnight.  And there is some capacity in the existing system to absorb some electrical vehicles.  But a large scale transition to electric vehicles will require major investments in electrical generation, transmission, and distribution.  And the new generation must be a choice of large-scale generation alternatives: coal, natural gas, nuclear, or hydro; or extraordinary growth in intermittent renewable sources (solar and wind), which would require new storage technologies to make those feasible.

Critics have commented that charging vehicles could be accomplished overnight, during non-peaking hours.  This is true.  Still the magnitude of the required power, and the additional fuel consumption regardless of when vehicles are being charged, make the challenge of powering a fleet of electric vehicles truly daunting.

(1)  http://www.eia.doe.gov/dnav/pet/pet_cons_psup_dc_nus_mbblpd_a.htm

(2) http://www.eia.doe.gov/totalenergy/data/annual/index.cfm#electricity

(3) http://www.eia.doe.gov/oiaf/beck_plantcosts/index.html
(4) http://www.eia.gov/electricity/annual/pdf/table3.5.pdf

Alaska Production Charts

[Updated February 19, 2012]

Here are a couple of charts that should greatly concern every Alaskan.
First, there's the chart of oil production from the North Slope.

Production taxes on North Slope oil production (from state acreage) provide 90% of state revenues.  All of the production flows through the Trans-Alaskan pipeline.   As production has declined from the peak of over 2 million barrels per day, the oil spends longer in the pipeline.  The oil now spends five times longer in the pipeline than at the peak flow rate, of over 2 million barrels per day.   So the oil, which formerly arrived at about 100 degrees F, now arrives at about 40 degrees F. At about half of the current flow rate the oil will cease to flow.   That will occur in about a decade, unless additional oil is produced, or expensive modifications made to the pipeline.

The second chart is the chart of Cook Inlet and Kenai Peninsula gas production.

Most of the gas fields in Cook Inlet basin were discovered in the 1960s.   Several giant fields have dominated production, and provided for local demand, LNG exports to Japan, and ammonia production for fertilizer (also exported).   The export markets provided economies of scale and seasonal production, which provided low-cost gas to local markets for 40 years.   Now, however, the old fields are near depletion, and within a few years, local markets will need to import LNG from Asia.  Large capital expenditures will be needed for import facilities, and the imported gas will be expensive. Offshore rigs are scheduled to arrive in Cook Inlet this summer (for the first time in about 20 years), but it may be too late to fill the production shortfall.
Here is another view of the forecast production shortfall.

There is some activity that may delay the shortfall, but the production decline is a serious problem for South-Central Alaska.

----

Update and New Discoveries, Dec. 7, 2011:
Alaskan North Slope production continues on a slow, but erratic decline.

Monthly data can be found here:
http://doa.alaska.gov/ogc/production/pindex.html

In the 1980s and 90s, the Alaska DNR (Department of Natural Resources) published an outstanding Annual Report, which provided definitive data on production and remaining reserves.   Over the last decade, the report has been produced sporadically, with noticeable errors in the data.  I am hoping for a new report after year-end 2011, with quality data on production and remaining reserves.

In 2011, the DNR published a Gas Production Cost Study, with some updated reserves data.  When new data is available, I will update the production forecast.
http://dog.dnr.alaska.gov/ResourceEvaluation/Documents/Cook_Inlet_Natural_Gas_Production_Cost_Study.pdf
New Cook Inlet Discoveries
Also in 2011, new gas discoveries were announced by three independent companies: Buccaneer, Nordaq, and Escopeta.   Buccaneer's well is a small but helpful discovery, adding 7 to 10 mmcf/d to supply.  Nordaq's disocovery on the northern Kenai Peninsula is promising, and only five miles from an existing pipeline.  However, the pipeline must traverse the Kenai National Wildlife Refuge, which may result in significant delays in bringing the gas to market.  Nordaq's announced plans suggests that the discovery is in the range of 500 BCF (billion cubic feet), and that about 200 BCF could be delivered to market by 2020.  This would fill  about 40% of the expected production shortfall for the rest of the decade.
Escopeta's discovery is offshore, and likely to require a much longer development time, due to the engineering difficulties of Arctic offshore development.
Niether Nordaq nor Escopeta has significant production or development experience, and may encounter difficulties in executed on the development of their discoveries.
It is important to note that neither of the latter discoveries has had a flowing production test or delineation well.  These are not proved reserves, according to SEC (Securities and Exchange Commission) definitions.  It is premature to consider that these have solved the Cook Inlet gas crisis.

--------

References:

http://doa.alaska.gov/ogc/production/110210HistoricalProd1958-2010.pdf

http://dog.dnr.alaska.gov/ResourceEvaluation/Documents/Preliminary_Engineering_and_Geological_Evaluation_of_Remaining_Cook_Inlet_Gas_Reserves.pdf

http://dog.dnr.alaska.gov/Publications/Documents/AnnualReports/2009_Annual_Report.pdf

http://doa.alaska.gov/ogc/production/pindex.html

http://dog.dnr.alaska.gov/Publications/Documents/CookInlet/Maps/Sentate_Resources_Presentation_Cook_Inlet_2007.pdf

http://dog.dnr.alaska.gov/Publications/Documents/Slideshows/RCA_Presentation_20071015.pdf

http://dog.dnr.alaska.gov/programs/resource_evaluation/res_eval_pub/DOG%20Cook%20Inlet%20Gas%20Study%20Transmittal%20Memo%2012-09%20(fnl).pdf

The Keeling Curve

Take a deep breath.   If you are about as old as I am, every breath you  take now contains about 23% more CO2 than your first breath at birth.   There is a remarkable set of CO2 measurements taken daily on a mountaintop in Hawaii since 1958, termed the Keeling curve.  The data show dispersed CO2 in the Northern Hemisphere, and is taken to represent the rise in global CO2 concentration.   The data shows a seasonal fluctuation (peaking during spring), and an unbroken annual rise in CO2.

 The Keeling Curve, as measured at Mauna Loa, has a seasonal cycle.  Atmospheric CO2 falls in the Northern Hemisphere summer, and rises during the Northern Hemisphere winter.  This is consistent with the absorption of CO2 by plants during the summer growing season, and the return of CO2 to the atmosphere through respiration or oxidation during the rest of the year.

The Keeling Curve at Mauna Loa is only one set of observations, out of a global set of CO2 observations.   There is remarkable consistency of the long-term trend of CO2 across the globe, although details of the cycles differ.  

The amplitude of the cycles varies dramatically by hemisphere and latitude.  The data on this chart are color-coded by monitoring station shown below.

I explore the global data in greater detail in another post, found here:
http://dougrobbins.blogspot.com/2012/03/keeling-curve-and-seasonal-carbon.htmlIce cores from Greenland and Antarctica contain air bubbles preserved in the ice, and forming a continuous record for the past 400,000 years.

We can see from the data that over the last 100 years, the concentration of atmospheric CO2 abruptly increased beyond the levels of the previous 400,000 years.  The causes and the consequences of the rise in CO2 will be the subject of future blog posts.

I have added four additional posts on the topic of global atmospheric CO2, found in the links below.

The Keeling Curve and Seasonal Carbon Cycles

http://dougrobbins.blogspot.com/2012/03/keeling-curve-and-seasonal-carbon.html

Seasonal Carbon Isotope Cycles

http://dougrobbins.blogspot.com/2012/03/seasonal-carbon-isotope-cycles.html

Long-Term Trends in Atmospheric CO2

http://dougrobbins.blogspot.com/2012/03/long-term-trends-in-atmospheric-co2.html

Modeling Global CO2 Cycles

http://dougrobbins.blogspot.com/2012/04/modeling-global-co2-cycles.html

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Source for CO2 data:   Keeling et al,  http://cdiac.ornl.gov/trends/co2/

Source for ice-core data:  http://planetforlife.com/co2history/index.html

Edmund Burke

Here's a nice quote from Edmund Burke, an Irish/British politician who supported the American Revolutionaries during our little spat with Britain.   "Your representative owes you, not his industry only, but his judgment; and he betrays instead of serving you if he sacrifices it to your opinion."   1774

In Praise of GDP

About a year ago, EARTH magazine published an article, titled "Greening of the Gross Domestic Product".  http://webcache.googleusercontent.com/search?q=cache:http://www.earthmagazine.org/earth/article/32b-7da-4-1
The authors made the claim that GDP is a poor measure of a country's wealth, because it does not include externalized environmental costs.  This may be true, but the authors went a step further.   They said "....using GDP to measure a country's true wealth is remarkably poor at best, and highly damaging at worst."

But what do the data say?   Click the links!   These are really cool!

Data visualization on Gapminder shows that increasing wealth, measured by GDP, is correlated with nearly doubling human lifespan in almost every country on earth: www.bit.ly/c6ItL7

The data show stunning (>95%) reductions in child mortality as GDP rises:  www.bit.ly/bzATzV 
(Note the logarithmic scale for both child mortality and income.)

And perhaps most importantly, how fertility has fallen from 5 children per woman to about 2 children per woman (stable population!) as prosperity has risen, as measured by GDP.  www.bit.ly/cV3azc

A remarkable aspect of these relationships is that they hold for every nation in the data.   As shown in an earlier post*, per capita GDP even shows a strong positive correlation to integrity, as measured by the corruption index published by Transparency International.   Given high integrity, I would infer more effective governments in fair and free societies.


Imagine for a moment, that there was an economic indicator that showed the reverse correlation:  that as the indicator rose, human life expectancy was cut by half; child mortality increased twenty-fold; population growth rose from zero to doubling in every generation; and corruption flourished.   Would the authors dismiss such an indicator as remarkably poor and highly damaging?


Does there exist any other indicator, other than GDP, that is so useful in measuring the 
progress of a nation in improving the lives of its people?


*http://dougrobbins.blogspot.com/2010/12/corruption-vs-per-capita-gdp.html  

Executive Compensation

In 1976, the average CEO made 36 times as much as the average worker.   By 1993, the average CEO was paid 131 times as much as the average worker.   And by 2008, the average CEO was paid 369 times more than the average worker.*
Salary adjustments for CEO's are based on recommendations from compensation committees and compensation consulting firms (called "Ratchet, Ratchet and Bingo" by Warren Buffett), which compare one company's overpaid executive to other companies' overpaid executives.  The recommendations are enacted by Directors who were nominated by committees controlled by company management.

It is a simple process; quid pro quo.   Management chooses directors, directors reward management, and compliant directors may be chosen to serve on other boards.  It is institutionalized corruption.

Really, now.  Isn't it time that shareholders were allowed (or required!) to nominate candidates for the Board of Directors for publicly owned companies?

* Predictably Irrational, Dan Ariely, 2008.
Also, please see my previous post about corporate governance.
http://dougrobbins.blogspot.com/2011/03/corporate-governance-reform.html

Data Visualization

One of the greatest things about the Internet is free access to data visualization tools.   There are some remarkable sites available, that quickly allow anyone to see significant data, and develop their own models and conclusions.   Here are some examples:
http://www.gapminder.org/   Gapminder is the site I discovered first, and like the best.
http://www.google.com/publicdata/home    Google's site is clearly modeled after Gapminder.   Imitation is the sincerest form of flattery.
http://www.tableausoftware.com/public/   Tableau Software hosts this site.  The gallery of visualizations generated by other users is very interesting, covering every topic from tooth decay, to the growth rates of technology businesses, to the milk productivity of Wisconsin dairy cows.   Moo!

http://www-958.ibm.com/software/data/cognos/manyeyes/   Many Eyes is collaborative site hosted by IBM.   I need to update my Java plug-in to view these visualizations again.

When I collected these sites last year, there was another site "Swivel.com", which hoped to become the YouTube of data visualization.  Unfortunately, although the content and tools were good, the business failed within a few months, after the company had spent 3 or 4 million dollars.  A technology journalist commented, "These free tools on the web are easy to use, and easy to lose."
http://eagereyes.org/criticism/the-rise-and-fall-of-swivel

But back to Gapminder.   I encourage you to explore this site, especially the featured visualizations "Health and Wealth of Nations", "200 Years that Changed the World", and "Stop Calling Them Developing Nations".  http://www.gapminder.org/
Above all, these visualizations show that globally, despite everything you may read, the quality of life for people on the planet Earth is improving.

The world really is getting better.

Geography of a Recession

The time-series map seen on the following link is an outstanding example of data visualization.  The map was produced by Latoya Egwuekwe, a journalist and labor writer.

The map illustrates the progress of the recession (and geographic concentration) better than numbers.  The recession is seen plainly in color, spreading across the country like a cancer, spreading from county to adjacent county.   I am watching to see how the map will illustrate the economic recovery.
http://www.latoyaegwuekwe.com/geographyofarecession.html

The map suggests that additional analysis might reveal new insights.  It occurs to me that adjacent counties strongly affect their neighbors.  The data underlying "Geography" might be used for a mathematical analysis to show the economic dependence of counties upon adjacent counties.  That in turn helps characterize the local component of the economy, as compared to the national component.

The "cancerous" appearance marking the spread of the recession may be an accurate representation.  It may be possible to analyze the recession as an epidemic, in terms of the parameters set out in "The Tipping Point", by Malcolm Gladwell.   This might provide policy-makers with additional tools for fighting future recessions.

Military Spending

Considering the depth of our Federal Deficit, we should ask why our military spending is so much out of proportion with the rest of the globe.   Admittedly, these figures are not adjusted for purchasing power: I am sure that a Chinese soldier earns less than a US soldier.  Nevertheless, it seems unreasonable that our military spending is more than the next 18 largest counties combined.  

During Ronald Reagan's presidency, the US engaged in a military arms race with the intent to bankrupt the Soviet Union.  This strategy, combined with an engineered drop in the price of oil, succeeded in bringing down the Soviet Union.   The Soviet situation in the 1980's is similar to the United States today -- but we are doing it to ourselves.

Federal Budget

The Federal Debt in 2010 is about 14.2 trillion dollars, or about 97% of annual GDP.
The annual increase, including supplemental appropriations (not included in the "budget deficit", was $1.7 trillion in 2010, following increases of $1 trillion and $1.9 trillion in 2008 and 2009, respectively.
http://en.wikipedia.org/wiki/Federal_budget_deficit

The NY Times has two interesting graphics about the budget.

http://www.nytimes.com/interactive/2010/02/01/us/budget.html

http://www.nytimes.com/interactive/2010/11/13/weekinreview/deficits-graphic.html

Note the size of the blocks represented on the NYtimes budget graphic.  Military spending, Social Security and Medicare are by far the largest components of Federal spending.  Any discussion of spending cuts which does not include major cuts in these three areas is not worthy of serious consideration.

Corporate Governance Reform

One of the most needed reforms of the financial system is in the process for nominating directors of publicly traded companies.

Currently, the nomination process is controlled by corporate management.  Management presents a slate of directors to the shareholders for approval, but there is no alternative to the management slate, and no easy way to for shareholders to present an alternative.  During the Bush administration, a proposal was presented to the SEC to allow shareholder nominations for directors.  SEC commissioners voted down the proposal in a party-line vote, with the Republican majority prevailing.

It is all too easy for management to nominate candidates who are compliant and inclined to vote large bonuses for management.  No alternative choices are presented to the shareholders.  These directors then become attractive candidates to serve on additional corporate boards.  The conflict of interest is blatant.  No particular knowledge of business or a particular industry is necessary, so you often see retired generals and astronauts, university presidents or other prestigious candidates without business experience.
This system, where management controls the nomination process for company directors, contains intrinsic conflicts of interest.   It is institutionalized, systematic corruption.  And it is the legal and everyday way to conduct business in America today.

It is disappointing to me that the financial reforms recently enacted have not included a reform of the process of nominating directors.   Shareholders should have not only a right, but an obligation to nominate the directors who will supervise the management of publicly traded companies.

Also see:
http://dougrobbins.blogspot.com/2011/04/executive-compensation.html

Oil imports, trade deficits, and the US international investment position

The consequence of importing oil at a rate of a billion dollars a day is that the net foreign investment position of the United States is steadily eroding.
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Note: This post has been updated, as of February 28, 2012.
http://dougrobbins.blogspot.com/2012/02/oil-imports-trade-deficits-and-us.html
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The US annual trade deficit has been growing since 1980, reaching about $750 billion a year in 2006.   The annual trade deficit diminished sharply in the 2009 recession to about $380 billion a year.  It's interesting to note that at a billion dollars a day, oil imports accounted essentially for the entire trade deficit during the recession.

I placed the trade balance chart as a scaled inset into the oil import chart shown in my last post.  As oil imports rise, the trade deficit grows.  I should convert the oil import chart to dollars and show it as a percent of the trade imbalance, but for now, here is the composite chart.

The accumulated trade deficit is reflected in the Net US International Investment Position.  Foreign ownership of US financial assets now greatly exceeds US ownership of overseas assets.  The first chart is taken from the US Bureau of Economic Analysis, and the second, from Wikipedia, shows the same data, but with a scale-bar showing percent of GDP.  

As foreign ownership of US financial assets grows, of course, the earnings from those assets also grow.  

And earnings of American productivity then flow overseas, along with the dollars already flowing overseas for oil and foreign goods.  And there is no end in sight for the current dependence on foreign oil.

US Oil production and oil imports

As seen in the attached graph, US oil production peaked in 1970, at about 10 million barrels per day, and has since declined to about 5 million barrels per day.  But consumption has continued to increase, enabled by imports.   Imports exceeded domestic production in 1993, and in 2009 provided 11.7 million barrels of our 18.8 million barrels per day consumption (EIA, http://tonto.eia.doe.gov/energy_in_brief/foreign_oil_dependence.cfm)
At $90 per barrel, we are paying over a billion dollars a day for imported oil, and as I wrote in 2001, much of it is going to people who don't like us very much.

As a sense of scale, consider that for the US population of 308 million, a billion dollars a day amounts to about $1200 per person annually, or $4800 annually for a family of four.  This is money simply removed from our economy, and not returned as paychecks, dividends or taxes.

The figure is from Wikipedia; author David Moe, using data from the US Energy Information Agency.

If GDP is a function of oil consumption, as we saw in a previous post, what will happen if oil imports decline?

Oil Consumption and Productivity

Plotting GDP per capita versus oil consumption per capita shows how much wealth is being created in different countries, and the efficiency with which they do so.   It is interesting that almost all countries plot below an "efficient frontier" indicating a ratio of productivity to oil use.   Despite major efforts in some countries (think about the number of bicycles in Holland) few countries are more than marginally more efficient at using energy than the United States.

Corruption vs. Per Capita GDP

Transparency International publishes a corruption index, quantifying the badness in every country.  Plotting against Per-Capita GDP shows that corruption in society, or conversely, integrity, is one of the main factors determining the wealth of an economy.   I will be waiting by the telephone for the Nobel Prize in Economics.