What we need to do NEXT Part 3

Folks-
This is the third part of my work. This part focuses on Energy and the Environment, areas being neglected as the economy unravels.

Energy and The Environment
In the economic crisis that has finally gotten covered by the press in the last couple of months, we have somehow forgotten the environment. Global warming isn’t going away. Pollution isn’t going away either. For the last 8 years or more, both of these issues have gotten short-shrift from the Republicans. We need to get back on-track on these subjects.

The first thing we need to do is cut tax rates for green power companies. Specifically those that build and use wind turbines and solar power. Current tax breaks for these companies are set to expire this year, right when we need them the most, and Congress has yet to extend them. Not good.

Next we need to invest in research on these areas so we can introduce our technologies to the rest of the world. If we fail to do this, we will be buying these technologies from other countries instead of exporting them. The more of these companies that are producing green energy for us, the better. Not only will it create jobs here, but it will bring back wealth that we have been shipping out to other countries by the shipload. And we need it back, badly.

In my opinion, the Pickens Plan isn’t perfect, but it’s a really good start. Nobody in political power has come up with anything better that could be implemented. I strongly recommend we adopt it in some form.

I remember a study that was done sometime before I was born that came to the conclusion that nuclear power plants didn’t make economic sense. It cost more in energy to build and remove a nuclear power plant than the plant produced in its useful life. These power plants are being used for longer than was expected at that time, and for longer duty-cycles without incident. It’s time we funded a new study on this important question, and if the answer ends up being that the energy cost of building, fueling, and decommissioning these plants is still larger than the energy produced in it’s useful life, we need to bury this technology once and for all instead of bringing it up over-and-over again. If, however, it turns out that newer information shows the opposite, that a nuclear power plant produces a net-gain in energy, then we need to carefully implement them in a safe and secure manner. Either way, the debate needs to end.

Earlier this year we had a wake-up call over Peak Oil. Speculators pulled their money out of financial stocks and put it into oil futures and ran up the cost of oil, giving us a picture of what the world will look like in a few years if we don’t start cutting our oil usage. We really need to get off of oil as a fuel as quickly as possible. Not just because we use so much oil as fuel, but also because oil is our only feedstock for plastics and the only source of jet fuel. There is no biological alternative for either of those yet. Once oil is gone, so are single use medical items and jet airplane flights, including passenger planes and military planes. Don’t like sharing needles? You may not have a choice in the future. Unless we stop using oil and move over to alternatives, our future may start looking more like the past.

One of the best things we can do to fight the problem of peak oil is to stop burning so much of it for transportation. We can stop using nearly as much oil as we are by converting our fleet of personal cars to electric with diesel powered generators that kick in for longer trips. The conversion of our fleet to electric should be done by giving auto makers tax breaks and research dollars to move over to electric. Heavier taxes should be imposed on purely gas driven cars, which in my mind includes Toyota’s Prius and all other hybrids on the market today. Giving owners of electric cars breaks on solar power installations would also help get people to buy these vehicles.

Other things we can do to reduce our reliance on oil as fuel would be to start designing our cities so that cars were less necessary. Urban sprawl and suburbs are the real reasons most people have cars. If you live a long distance from where you work, a car becomes the best way to get to work each day. Design cities so that they are more compact, so that there are well defined living, working, retail, and industrial areas, and suddenly public transportation, bicycles, and walking become viable alternatives.

This also has the interesting side effect of stopping the conversion of farmland to paved-over housing subdivisions. I’ve been watching this happen to Silicon Valley (formerly the Valley of Heart’s Delight) all of my life. I live on a side street of Blossom Hill Road, named so because it used to run through orchards. Now it runs almost continuously through retail and housing areas from one end to the other, a run of more than 10 miles. I sense that we will probably want most of that farmland back at some point. It would be better not to pave it over in the first place.

Mass Commuter Migration

By Ed Smallwood

Right now we are all glued to our sets, wondering how the coming elections are going to go. Will Hillary somehow manage to get the Democratic nomination even though she’s behind? Will McCain manage to get more than 75% of his party to vote for him, even though his only competitor, Ron Paul, is getting less than 8% of the vote, and Huckabee is still pulling about 12% even though he’s no longer in the race?

I’m going to take a much longer term look at what is going to be happening. Much will happen regardless of who is President. The main difference the President and other politicians can make in the next few years will be in how traumatic these changes are.

I’m sure by now that you are aware that we have been in a significant Real Estate downturn for the last year or two. One analyst has said that he expects U.S. home values to decrease by as much as $7 Billion in the next 18 months. Some of the hardest hit areas in the country are in the state of California, specifically Stockton and Modesto. Home foreclosures could hit as much as two-thirds of the properties in Stockton. 90% of the homes for sale in Los Angeles are short-sales—being sold for less than is owned on the property.

Let me throw in another piece of information that may at first seem unrelated, or perhaps related in another way. Goldman Sachs released a study a few days ago that predicted that oil will be priced at $200 per barrel in the next two years. This sent prices for oil up to $123 dollars on Wednesday. We should expect to be paying $7, $8, or even $10 per gallon in 2010 according to this study.

I’m going to be mentioning Modesto a lot in this essay. I live in San Jose, which is the self-proclaimed Heart of Silicon Valley. Modesto, about 90 miles away, has been a bedroom community for Silicon Valley for a couple of decades now. I have known people who have commuted between Modesto and Scotts Valley, 110 miles apart, just because they could afford a home in Modesto. Keep in mind that in this part of California, a 110 mile commute takes about 3 hours each way, more in rush hour.

Since I was a child Modesto had filled two roles—It was the bedroom community for Silicon Valley, and it was an agricultural community. The population of Modesto has grown from 194,506 in 1970 to 446,997 in 2000. In short, it grew about 230% in that time. I’m sure if we had more recent information you would find that Modesto had grown even more between 2000 and 2005.

In the 20^th Century, the single biggest change in our society was brought about by the introduction of the relatively inexpensive automobile. Fueled by cheap gas, it allowed its owner to go almost anywhere they wished to go (within reason), pretty much anytime they wished to go. People were no longer restricted by how far they could walk, or what time the train was leaving. In addition, a car could be much faster than virtually any previous form of travel.

This resulted in many changes to our society. The one I am most interested in as far as this essay is concerned is our living habits. Before the car, you lived close to where you worked. Either you worked on the farm where you lived, or you lived in the town or city where you worked. You either walked to your worksite, or you rode a horse or took a train of some kind the short distance to your workplace. The idea of living in one town and working in another was unheard of, even for the rich. It was simply too expensive and too time consuming to do this.

With the introduction of the Model T by Henry Ford’s car company, this all changed. It started to be possible to live further from your workplace and commute. Suburbs started to form. This trend accelerated in the post World War II era, and continued on until very recently.

Some of you may be asking why I would talk about this trend in the past tense. The reason is because I believe it is over. The new trend will be the reversal of the past 80 years of suburbanization.

The popping of the Real-Estate Bubble about 2 years ago is simply the first shot. People ran up the cost of homes they could not afford, and when they could no longer pay back the money, the banks started to foreclose on the assumption that they could sell these properties to someone else and make their money back. In some circumstances they are tragically wrong. The smart banks are going to negotiate with the borrowers and write-off their losses. The stupid banks are going to foreclose on the assumption they will find buyers, and then find themselves stuck with many homes that they will never be able to sell.

You may be thinking that I must be wrong. People have to live someplace, right? Those homes will be sold to someone at some price, even if it is a loss, and probably most will be sold eventually for more than they did originally, right?

Not when gasoline is $8 per gallon. We are running out of oil. No amount of hope or denial is going to change that. Gasoline prices are going to ratchet up from this point out. There will be times when it is a bit cheaper, but the trend is going to be. This is unavoidable. This will have a direct effect on where we choose to live.

We should not be asking ourselves what we can do to bring down the cost of gasoline. We need to be asking ourselves what we can do to bring down transportation costs. Hybrid and electric cars may not be a solution for many people. In the near future it may cost as much to fuel up a Prius as it currently costs to fuel up a large SUV. As demand for rechargeable batteries increases, the cost is likely to increase as well. This will increase the cost of hybrid and electric vehicles. The most obvious way of bringing down the costs of commuting is not to commute very far. Living close to where you work is an easy way spending less of your paycheck on transportation.

This is an ominous thing for cities like Modesto. Modesto has very little industry outside of building homes and shrinking agriculture. Most of the jobs there are services provided to people who live there. Over time, the combined cost of commuting plus the smaller mortgage payment in the bedroom city will begin to approach, and eventually surpass the cost of the larger mortgage payment closer to the workplace. For example, a person commuting in a Honda Accord, getting 31MPG Highway commuting between Modesto and San Jose is going to be paying $465 a month for gas at $4 a gallon. When the cost hits $8 a gallon, it will go up to $930. Commuting in a Jeep Grand Cherokee getting 20 MPG brings those costs to $720 and $1440 respectively. The amount that you are paying in gas at $8 per gallon can make up the difference in your monthly mortgage payment between a $300,000 loan and a $455,000 loan for the Honda driver, or a $540,000 loan for that Jeep driver. That makes up for the difference right now between living in Modesto and San Jose, easy.

Cities that are closer to Silicon Valley than Modesto will face this issue a little later, but not a lot. Tracy and Salinas at about 60 miles away from San Jose and Gilroy at about 30 miles away may have a little bit more time than Modesto, but they will have to face a declining population of commuters eventually.

The big question for leadership in these areas is how they will face this issue. You can ignore it and allow significant parts of a city to become a ghost town. You can look to create another industry. This could involve adding Indian Gaming Casinos, and living with a greater crime rate, or adding an amusement park, and living with more noise. It could involve something else entirely. It could involve the city declaring imminent domain on abandoned tracts, bulldozing the properties, and putting in parks to improve property values nearby. You could even allow people to buy vacant properties next to their own and combine the lots, and build a nicer home on the combined property. This might be a good idea in certain areas of a city. Some of these combined properties might even be returned to agriculture as large gardens or small farms.

Regardless, the trend is obvious: With expensive gas, people will choose to live close to their job. Doing otherwise will not be an option for most people. Political leaders will have to deal with this sooner or later. Smart ones will deal with it sooner. Lesser ones will deny the problem until the trend is obvious to everyone, and difficult to deal with because tax revenues will already be dropping. Stupid ones will say having abandoned properties in a city is not a problem, and hopefully, will be voted out.

Bringing these facts to the attention of local politicians will help. People living in these areas ignore the migration of commuters toward their job city at their own peril.

Sources:

Modesto’s population:

http://recenter.tamu.edu/data/popmd/pm5170.htm