Tuesday, March 8, 2011

How to respond to turmoil in the global energy sector!

Dear Colleagues

The increasing turmoil in the oil producing countries around the world has huge risks for the continuing improvement of the US economy. To maintain profits and cash flow, many companies will very soon cut back on their investments, and consumers will cut back all they can on their consumption. It is not time for the same old same old, but time to move into a post-cheap_energy society that presently exists and get ready for tomorrow!

The following came in my email today. It was an idea used a little bit a couple of years back. Someone responded to the idea ... also below, and I have responded as well. The third item below!

This was sent by a retired Coca Cola executive. It came from one of his engineer buddies who retired from Halliburton. If you are tired of the gas prices going up AND they will continue to rise this summer, take time to read this please.

Phillip Hollsworth offered this good idea. This makes MUCH MORE SENSE than the "don't buy gas on a certain day" campaign that was going around last April or May! It's worth your consideration. Join the resistance!!!!

I hear we are going to hit close to $ 4.00 a gallon by next summer and it might go higher!! Want gasoline prices to come down?

We need to take some intelligent, united action. The oil companies just laughed at that because they knew we wouldn't continue to "hurt" ourselves by refusing to buy gas .

It was more of an inconvenience to us than it was a problem for them. BUT, whoever thought of this idea, has come up with a plan that can Really work. Please read on and join with us!

By now you're probably thinking gasoline priced at about $2.00 is super cheap. Me too! It is currently $3.08 at Arco and Costco for regular unleaded in Salem , Oregon and climbing every week.

Now that the oil companies and the OPEC nations have conditioned us to think that the cost of a gallon of gas is CHEAP at $1.50 - $1.75, we need to take aggressive action to teach them that BUYERS control the marketplace..not sellers.

With the price of gasoline going up more each day, we consumers need to take action.

The only way we are going to see the price of gas come down is if we hit someone in the pocketbook by not purchasing their gas! And, we can do that WITHOUT hurting ourselves.

How? Since we all rely on our cars, we can't just stop buying gas.

But we CAN have an impact on gas prices if we all act together to force a price war.

Here's the idea: For the rest of this year, DON'T purchase ANY gasoline from the two biggest companies (which now are one), EXXON and MOBIL.

If they are not selling any gas, they will be inclined to reduce their prices. If they reduce their prices, the other companies will have to follow suit.

But to have an impact, we need to reach literally millions of Exxon and Mobil gas buyers. It's really simple to do! Now, don't wimp out on me at this point...keep reading and I'll explain how simple it is to reach millions of people!!

I am sending this note to 30 people. If each of us send it to at least ten more (30 x 10 = 300) ... and those 300 send it to at least ten more (300 x 10 = 3,000)... and so on, by the time the message reaches the sixth group of people, we will have reached over THREE MILLION consumers .
If those three million get excited and pass this on to ten friends each, then 30 million people will have been contacted!

If it goes one level further, you guessed it..... THREE HUNDRED MILLION PEOPLE!!!

Again, all you have to do is send this to 10 people. That's all!

(If you don't understand how we can reach 300 million and all you have to do is send this to 10 people.... Well, let's face it, you just aren't a mathematician But I am . so trust me on this one.

How long would all that take? If each of us sends this e-mail out to ten more people within one day of receipt, all 300 MILLION people could conceivably be contacted within the next 8 days!

I'll bet you didn't think you and I had that much potential, did you! Acting together we can make a difference.

If this makes sense to you, please pass this message on. I suggest that we not buy from EXXON/MOBIL UNTIL THEY LOWER THEIR PRICES TO THE $2.00 RANGE AND KEEP THEM DOWN. THIS CAN REALLY WORK.

Someone responded to this as follows. I was delighted to see someone looking hard at the issues in a more comprehensive way. I have not shown his name at this juncture, but hope to be in contact with him soon.
Dear xxxxxxxxxxxxxxxxx

This is an excellent plan.

Unfortunately, though, its basic premise is misguided. Low gas prices are exactly the opposite of what we need. We will not rid ourselves of our dependency on this non-renewable, environmentally disastrous resource by focusing our efforts on driving down its prices. Continued reliance on hydrocarbon fuels is a losers game.

The only way to really change things is to accelerate work on finding more efficient, cleaner, and more renewable energy sources. As long as we keep gas prices low, there is little motivation for entrepreneurs and large energy companies to do so. What we need to do is help create an economic environment in which it makes sense to invest in the new and better energy technologies.

For consumers to be motivated by exactly the same kind of short-term, self-interested thinking that they abhor in industry is folly. It's like the luddites smashing looms.

Following the action plan proposed by Ms Mates may produce short term relief, but it is sure to produce long term grief.

I urge you to think it through.

Signed xxxxx
I have responded as follows. My response has some of the perspective that is built into TrueValueMetrics.
Dear Colleagues

Thank you, xxxxx for raising this question. The United States, and to a lesser extent Europe have created extremely energy intensive societies at the same time that they have created amazing innovations in productivity.

Sadly the metrics that are used to measure progress of society are fatally flawed. Corporate performance is simply money profit, with society better when it is bigger ... higher GDP, more consumption, higher stock market ... etc etc.

But society really is about quality of life ... happiness, reduced worry, family and friends, jobs, income, retirement, safety and security, good health, good education, good opportunities, beauty, spiritual support, etc. The metrics for this are conspicuously absent from the everyday dialog about economic and business performance.

In a responsible society there would be a financial reserve set aside so that we have the funding for energy when the FREE oil resources are gone. Norway is doing this. Kuwait has been doing this since the 1970s which explains why they had the money to pay the USA and others to get Iraq out of their country in the early 1990s! But the USA runs on low price energy that cannot last. The emergence of China and India as middle class economies changes the demand equation ... and people's democracy in most of the oil producing countries will change the supply equation. If there is war in the oil producing areas then supply equation is even more compromised.

The oil industry engineers are technologically amazing ... but they are not good corporate citizens for the United States, the places where they operate or the planet as a whole. They can find and exploit new resources better now than in the past, but they are merely facilitating more rapid consumption of these finite limited resources. Their profits and payout to their stockholders are based on accounting that puts ZERO cost on the oil in the ground. The reality is that these zero cost natural resources have taken a zillion years to produce, and one day we will have to be doing that in real time to have energy equilibrium for the planet.

Does this matter? You bet it does. In my own little way I want to see better metrics so that the real issues that we ought to be facing are in play!

Peter Burgess

Friday, March 4, 2011

Income distribution in China worse than in the USA?

Dear Colleagues

Someone suggested that I should read an article about income distribution posted on the Roubini website. I do not have access to the whole article but the start is not promising. The URL is:

I sense from the title of the article ... Just How Rich Is the National People’s Congress? ... and the first small snippet of the main text that the idea is that the fact of huge wealth in among the governing elite in China makes the situation in the United States quite desirable. This is absolute hogwash.

Here is the snippet of text.
Just How Rich Is the National People’s Congress?
Adam Wolfe Mar 4, 2011 6:04PM
A Bloomberg News article from Michael Forsythe on China’s National People’s Congress is making waves today. Coming on the heels of the failed “Jasmine Revolution” in China, the article seeks to show that the NPC is representative of the widening income gap in China.

The richest 70 of the 2,987 members have a combined wealth of 493.1 billion yuan ($75.1 billion), and include China’s richest man, Hangzhou Wahaha Group Chairman Zong Qinghou, according to the research group Hurun Report. By comparison, the wealthiest 70 people in the 535-member U.S. House and Senate, who represent a country with about 10 times China’s per-capita income, had a maximum combined wealth of $4.8 billion, data from the Washington-based Center for Responsive Politics show.
In my view, the success of China is much more about many millions of very poor Chinese becoming somewhat better off. In the process the elite has also become very very rich, which is the way the enterprise system tends to work.

But the problem in the United States is that while the poor Chinese are moving up the economic ladder, the once rich Amnerican middle class is moving down the economic ladder. In absolute terms Americans are wealthy by world standards ... but they are incredible concerned about the direction of the American economy.

Until American leaders ... and that includes corporate and financial sector leaders ... take the jobs issue seriously, the USA is in trouble. President Obama cannot be a lone voice talking about jobs, when every institution in the USA is doing all it can to handle its own "agenda". Republicans in Congress have a focus on cutting government spending even though it has been government spending that successfully saved the USA and the global economy from catastrophe after many years of regulatory failure, greed and a whole lot more.

Corporate leaders have done a good job for their stockholders building back profitability ... but in the process there have been jobs lost with a huge impact on US quality of life. But that is not a corporate responsibility ... a corporate management team has responsibility to its stockholders ... and this might well be a fact of law ... but it is a bad situation for society.

And the dialog about taxation does not help. The argument goes that lower taxes stimulate the economy and create jobs ... but again taxes can be legally reduced in many different ways, but government services cannot be paid for without appropriate levels of revenue. The first job in corporate social responsibility (CSR) must be for a company to pay the right amount of taxes.

Government has a responsibility to spend money wisely, and it is true to say that there has been profligate spending in good times and then crisis job cutting in bad times. There is blame for this both on the side of the government and also on the side of the workers and their unions. But there is another issue, and that is the accounting used in government and the public sector. Most of the accounting is cash based rather than accrual based, and the balance sheets that are so important in corporate accounting really do not exist in the public sector. This means that the dialog around matters like current wages and future pensions are not included in any rigorous accounting, and over years this has become a terrible problem. Many unionized public employees are going to get great pensions that have to be paid for ... but the decisions that made this problem go back a very long time.

The concentration of wealth in China is a problem for the Chinese. The wealth differentials in the USA are different, but are also bad. Sorting it out is going to be difficult, but it must be done.

TrueValueMetrics will help because of its focus on value and the importance of a value balance sheet for all the actors in society!

Peter Burgess

Thursday, March 3, 2011

The motion is 'Clean Energy Can Drive America's Economic Recovery?'

Dear Colleagues

I would like to share this note with you. I have been contacted in connection with attending an Intelligence Squared Debate in New York. I decided that a quick note to the organizers was in order, since while the premise of the debate is interesting, it fails to address the reality that no matter how much this agenda is promoted, it will be subsumed by all sorts of other issues with bigger financial and political import.

My bottom line, as always is simply that you manage what you measure ... and nothing that is of vital importance is being measured by the key institutions engaged in policy formulation and decision making, and accordingly there is a serious disaster in the making. This is what I wrote:
Dear Colleagues

Thank you for inviting me to come to the next of your debates. The motion is 'Clean Energy Can Drive America's Economic Recovery?'

I am very interested in the topic and have been for a long time ... but the current dialog about this and many other important issues really disappoints me.

There are huge opportunities but most of the time the dialog misses the point. If one starts off with the premise that technology is now more productive by an order of magnitude or two or more ... that is resource use effective ... then the progress of modern society on a global basis is rather pathetic. There are real reasons for this, notably that leadership has made poor decisions over and over again and the high powered high profile analysts and the dialog in the media avoids looking at this.

The prevailing metrics that are the starting point are fatally flawed. Most decision making ... that is allocation of resource ... metrics are simply about money and profit, about GDP growth and about the performance of the capital markets. These have some importance, but other metrics have importance as well, such as the progress in improving quality of life and issue regarding sustainability.

There are a number of well known people who have highlighted the issues around economic metrics besides myself. The huge mistakes that get made by investors and macro-economic managers as they focus on profit and growth without looking hard at the socio-economic and sustainability dimensions make it difficult to be optimistic about any future for the American economy. If profit, measured as it is now, is the only goal then the corporate community will use low cost workers and as a result will leave the American economy a hollowed out shell. The government will be asked to help unemployed more and more and more ... and it is not inconceivable that there will eventually be economic revolution in the US just as there is now in North Africa and the Middle East.

A value construct would change the trajectory of the US economy in meaningful ways. The profit one will send the US economy over the cliff ... essentially the same cliff that almost consumed the US just over two years ago.

Green jobs can make a huge difference to the United States and the world ... but it is a value construct that is an essential prerequisite in order for decision makers who have resources to flow funds into that segment of the economy. Neither the media nor the well-known academics, economists and policy analysts seem to have any deep understanding of this ... and it scares me to death.

Peter Burgess

These are points make FOR and AGAINST the motion
** The current administration expects its clean energy policies to generate 800,000 jobs over the next two years, laying the foundation for lasting economic growth.
** Consumers can save billions of dollars relying on clean energy sources and increasing energy efficiency, leaving more money to be spent on other goods and services.
** Major investment in clean energy will lead to innovation and new technology.
** Reducing dependence on imported energy frees us to spend our limited resources domestically and protects us from fluctuations in oil prices and climate change.
** The Department of Energy’s own job creation estimates are far more modest than those of the President’s Council of Economic Advisers.
** A significant portion of clean energy funding has gone to foreign companies who have the advantage of having been heavily subsidized by their own governments for a number of years.
** Clean energy jobs face the same problems any other industry faces--competition from cheap foreign labor.
** A real green economy wouldn’t rely on government regulation and taxpayer financed subsidies.

Peter Burgess
Meaningful Metrics for a Smart Society
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Of course, there is a lot more to say ... but what bothers me is that most of the people that engage in the dialog avoid the core issue of unbelievable waste of available resources while bemoaning the lack of resources that are in short supply. Nothing is going to change until profit is diminished in importance and value adding is increased in importance.

I see obscene waste when 10 or 15 million capable workers are unemployed in the USA. The reason for this is that there is not enough profit in putting these workers on a payroll to do the many things that need to be done. The economy needs a better infrastructure ... but how to profit from this. Not easy, but commuters lose millions ... billions of hours a year wasting time in traffic jams ... that comes free within the prevailing system of socio-economic metrics. If there are 15 million unemployed workers (say $400 a week) that is like throwing away about $4 billion a week of lost economic product. Actually it is worse than this because social costs go up when unemployment is elevated. Nothing will change as long as the corporate community can make no money from employing these people ... and nothing will change as long as the public sector is constrained by all sorts of rules about what they can and can not do with the budget ... and I might add, when there is no value balance sheet to hold government authorities accountable for their decision making.

It is a mess ... but TrueValueMetrics is a methodology that can help.

Stay tuned ... the truevaluemetrics.org website evolves.

Peter Burgess