Gee, they’re coming fast and furious. The New York Times laments that “U.S. Freezes Solar Energy Projects.”  In truth, we’ve done no such thing.  But the Bureau of Land Management has placed a moratorium on large-scale solar deployments in public lands until further study of the impact is conducted.  As I warned in the first post of this series, people are preparing to pave the desert with solar panels in the name of protecting the environment.  And they’re shocked, shocked, that they’re being subjected to environmental scrutiny.

It may not make sense to Ms. Gordon, but it makes perfect sense to me.

Ausra is a venture-backed solar energy startup, though the article mentions only that they’re from Palo Alto, California.  They have a reflector-magnifier-boiler technology that they want to deploy.  All of which seems pretty straightforward.  But why do they need to do it on public land?

Ausra’s web site claims that “All of America’s needs for electric power – the entire US grid, night and day – can be generated with Ausra’s current technology using a square parcel of land 92 miles on a side.”  Which makes one wonder why it’s so important to them to be able to use BLM land.  I mean, if it provides power as efficiently as they claim, they should have no problem finding private land to build on, right?  Or does it depend on the free use of public land to be viable?

“This could completely stunt the growth of the industry,” Ms. Gordon is quoted as saying.

Well, is it as efficient as the claims or not, MS. Gordon?  Honestly, I don’t know how efficient Ausra’s technology is.  But it really doesn’t matter… if it’s good, then with oil at $140 a barrel, they should be able to buy land on which to deploy it.  There’s plenty of private land available in the west.

The BLM wants to conduct various studies on the usual environmental impacts, “the impact of construction and transmission lines on native vegetation and wildlife,” and such.  Unfortunately, it doesn’t mention the most obvious environmental impact… the freakin’ desert would be covered with industrial equipment! Apparently, that’s acceptable, as long as you can prove that the wildlife is okay with it.  But what really caught my eye was was this quote:

Think about that, let it roll around in your brain for a second… “how to restore the land…”  Do you really think the land would ever be restored?  Of course, the equipment would just be replaced as it aged.  Even if the application to the BLM is only for 20-30 years of usage, it’s unlikely that it would ever be rescinded.  Even strip mines eventually get returned to nature, albeit after many decades.   But solar farms would be, for all practical purposes, permanent.  If the land were restored, then the solar power would be lost.  Every square mile of solar panels erected in undeveloped space is a permanent loss of that land.

It’s possible that Ausra has some technology that’s really as good as they claim it is, and if so, I can’t imagine that it requires BLM land to work. More likely, it will turn out like most other alternative energy plans, which simply don’t scale because of their reliance on land and other inputs that seem plentiful on a small scale but which become costly as the amount used increases.

I see nothing wrong with putting solar power on rooftops.  That requires zero land.  That seems like something that could be encouraged.  But claiming that you have to permanently develop public lands on a large scale in order to save the environment seems dubious.  And who is behind this company that’s complaining about the environmental regulatory obstacles?  Well, it turns out that Ausra is backed by venture capitalists Kleiner Perkins.  And who’s a partner there?  Al Gore, of course.  The Times failed to note any irony, or even the connection itself.

By contrast, T. Boone Pickens is on the verge of building the world’s largest wind farm the good old-fashioned way… by paying rent to the ranchers who host his turbines.  He’s not waiting to find out whether he’ll get tax breaks or special access to the public grid, he just figures he can make money buying the inputs and selling the output, and he’s investing his own money to do it. I’ve no doubt that he’ll game the system for every penny he can, but the project’s success or failure will ultimately depend on that equation.  And best of all, it doesn’t sound as if he intends to deface any public lands.

I wish the folks at Ausra well.  It’s great if their technology really provides energy at the price and scale they claim.  But their reliance on public lands makes me suspicious. The venture capitalists should venture some of their own capital and buy or lease their own land.  The shame of it is, solar power has the potential to make a real contribution to our energy needs, with no output of pollutants.   To the extent it can be built on or above private lands, then the contribution is sustainable.  But if it’s dependent on free public lands, that resource will quickly run dry.

In the meantime, kudos to the BLM for protecting another piece of the environment from the “environmentalists.”

Another illustration of the value of land vs. the value of energy.  U.S. Sugar has agreed to go out of business and sell nearly 300 square miles of land in central Florida for Everglades restoration.  Wait a minute… I thought sugar was a valuable source of ethanol?  I mean, it’s great to make new Everglades, but why aren’t the greens upset about the loss of this valuable source of renewable alternative energy?

In fact, few if any will oppose this on environmental grounds… or on capitalist grounds, for that matter.  I was pretty happy to read about it, especially since I no longer live in Florida and won’t have to pay for it.  But the restoration of the Everglades in the area will… well, it’ll create some conservation land, and eliminate 1700 jobs.  Of course, the jobs will be lost not because of the Everglades restoration, but for economic ones… it simply doesn’t make sense to be growing sugar there.  The State of Florida has decided that the land is more valuable as conservation land than as farmland.  And, as I said, I don’t personally disagree with that assessment; given the choice, I’d probably have voted for it.

But again I ask… why not 300 square miles of wind farms?  Why not 300 square miles of biofuel farming?  Why not 300 square miles of solar panels?  Why aren’t the alternative energy pimps complaining about a lost opportunity?

The fact is, on this land, using some of the lowest-paid workers in America, it’s not economical to grow sugar.  That sugar will go off the market, and it will not be missed.  This land, which occupies a huge chunk of central Florida, produces so little sugar output that we don’t even need it.  Sugar futures did not spike on the news.

And people want to replace oil with biofuels?  How much land would THAT take?

The argument always comes forward that it will take a “combination of alternatives” to replace oil.  But you can’t reduce the price of energy by forcing people to use alternatives that cost more.  No combination of more-expensive alternatives can ever reduce energy costs.

Unfortunately, if you extrapolate the input requirements of those alternatives, it becomes obvious that they can’t scale well enough to supply more than a tiny fraction of our energy needs, unless we were to drastically expand the land used.  We do not have an unlimited supply of farmland, farmers, water, or fertilizer; in fact, they’re all quite scarce.  And as I noted earlier, it doesn’t matter what you grow for biofuels, diverting farm resources to fuel always impacts the food supply.  There’s scarcely a greater environmental sin than inefficient land use, especially if it becomes systemic.

Of course, the Department of Agriculture recently opened up 10 times this much protected land for cattle grazing, so it’s hard to be too optimistic. But thankfully, this piece of the environment has been saved from the “environmentalists”.

I see that the federal government has agreed to open 24 million acres of protected land for agriculture. Of course, the demand for that land has been created, at least in part, by the policies that favor ethanol production, but that’s somewhat beside the point. More important is that it reminds us that land is a limited resource. But unlike oil, there’s no substitute for land.

It’s sadly ironic that the environmental movement has come to this. Traditional conservation values have been completely forgotten in the drive to develop new fuels. Even as we fret over oil exploration in a few square miles of an obscure, remote Alaskan preserve, we are perfectly willing to pave the desert in solar panels, cover every available mountain pass with turbine towers, and plant every available acre…. all in the name of protecting the environment. Unfortunately, this is the cost of the “green” movement’s focus on CO2 as if it were the only environmental issue of concern.

Biofuels require land, wind power uses land, solar power uses land. At the current low levels of usage, it’s not a serious problem. But for these alternative energy sources to actually did make up a worthwhile portion of our energy use, it would place great pressure on our undeveloped open spaces. This is a cost that is NEVER mentioned by their proponents.

An interesting illustration of the choices exists in southwest Florida, where there is an ongoing project to restore 85 square miles of the Everglades in an area that had been partially developed a half-century ago. Southern Golden Gate Estates was a real estate development project that failed on a large scale. The developers cleared the area, added landfill, built a grid of roads, dredged canals for boats, and waited for the buyers to show up. Only a few did, and the development was never completed, leaving a vast area of roads and canals that’s basically in the middle of nowhere. I’ve visited it, and it’s downright spooky. It’s so remote that in the 1980’s it was a popular landing spot for drug-smuggling planes. With only a couple of roads leading to it, many nearby residents are unaware of its existence, except the ones who dump their trash there.

So now, it’s being restored to its previous state, and it should become useful recreation land, and will restore much of the previous water flow. And if you’re a nature lover like me, that’s great.

Now suppose that, instead of a project to restore the land, a proposal had been put forth to establish a wind farm. Or perhaps a switchgrass farm from which we could make celluosic ethanol, once they finish inventing it. Or maybe both. “Greens” would have supported such a proposal without hesitation. People like myself, who appreciate nature in its raw form, would not.

But suppose the same land had never been developed, suppose it had remained Everglades all along. Of course, in that case, “Greens” would have opposed any development, even for wind or solar farms.  At least I think they’d oppose it.  Hard to be sure.

What this illustrates is a lack of appreciation of the full value of natural, undeveloped land. Instinctively, we all know that it’s wrong to ruin natural spaces for frivolous reasons. But fewer of us see the value of “un-development”. The value comes not from our acts of preservation, but from the existence of the land itself, and its availability to us for non-destructive uses.

The national parks are getting more and more crowded every year. You wouldn’t think of planting corn in them, and using the crop to fuel SUV’s. So why would you do it next door?  That space is just as valuable.

If the rising price of oil puts you in a fright, you can take some solace from the falling prices of flash memory. I was just going through the web sites of some vendors where I’ve been shopping for a few years, so they have a pretty good history of my orders. It shows how quickly memory prices have fallen.

Here are a couple of purchases

December, 2003 - Sandisk 1GB compact flash - $268

June, 2006 - RiData 8GB compact flash - $173

September, 2007 - Sandisk 8GB compact flash - $149

Today, an 8GB compact flash card will cost you about $40 for a generic card, and about $90 for a brand-name card. USB flash drive “sticks” are often sold at computer-store checkout counters for less than $40 for 8GB.

So, in the space of five years, the cost of flash memory has plunged from $268 per gigabyte to about $5-$10. Even at the high end, it’s about 1/25th what it was five years ago. At these prices, solid state disk drives still are expensive; it translates to $400-$1000 for a 100-gigabyte drive, just based on the cost of the memory. But the rate of price reduction is dramatic.

Suppose the rate of price decline slows, so that five years from now, it costs only 1/5th as much as it does now. Then, a 100GB solid state drive would be closer to $100-$200.

By contrast, disk drives seem to be limited by the physical needs of the manufacturing process. They require many raw materials, they have many moving parts. Disk drives have never sold for much less than $50, even in OEM quantities. They can produce bigger and bigger drives for that price, but the cost of the basic drive mechanism limits how low prices can go.

Add in the fact that flash memory tends to be more energy-efficient, and the handwriting is on the wall; disk drives are destined for near extinction within a decade. To be sure, they will probably be the cheapest solution for massive data storage for many years to come, and there will be many uses where they live on. But I can’t imagine consumers using disk drives ten years from now. No iPod or similar device will use hard disks. Few laptops will have hard drives. Some PC’s may have them, but over time, people will start storing their personal data on solid state devices.  The transition will start to be evident within a couple of years.

Flash memory is the paper of the future.

Okay, so how high will the price of oil go? The answer is pretty simple, the price will rise until Americans start driving less. Much less. Then the price will back off some. Market prices are generally capped by the marginal buyer… the buyer who will cut back consumption the most when prices rise. In the case of oil, the marginal consumer is the American motorist.

It’s quite true that global demand, not American demand, is driving the price up. Countries like China and Russia are using more and more as their economies develop. But for developing countries, the demand comes from relatively non-discretionary projects such as infrastruture and construction, as well as supplying rapidly growing middle-classes. They may feel some pain, but their usage will barely be reduced because of the high prices, and that demand can continue to increase for quite some time. They’re not going to stop developing their economies simply because it become expensive…. paying high oil prices is still preferable to living in poverty.

By contrast, American motorists have great discretion over how much they drive and how much gas they consume. Our summer road trips are completely optional. We can reduce our oil usage and still be a wealthy country, if slightly less so.

Typically, commodity prices rise gradually until there’s a real shock to buyers, one that makes everybody say, “I didn’t think it could go that high.” This causes people to cut back sharply, as happened during the oil squeeze in the 1970’s. That demand reduction is the signal to the market that it has found the top of its price range. In the case of oil, the signal will come from American consumers, because nobody else in the world uses as much oil for discretionary purposes as we do. When we start canceling our summer vacations, then you can expect the oil price to go down a little.

It’s slightly encouraging that refining stocks have been extremely weak over the last few months. Refiners buy crude oil and refine it into gasoline and heating oil. They make money on the “spread” between the price they pay for oil and the price they can charge for gasoline. And that spread has been at historic lows, or even negative recently. In addition, they’re seeing reduced sales volume of gasoline, as people start to reduce their driving. In fact, gasoline is only up 20-30% during a period in which oil has doubled. So that’s a sign that the American consumer is starting to push back, but just a little. I suspect we’ll need to see another dollar or two in gas price increases before we radically alter our driving habits. But when we do, the price of oil will respond to our signal.

As an aside, recent proposals for a gas-tax “holiday” would probably not affect the price of gasoline at all. The price is currently limited somewhat by Americans’ willingness to pay. If the tax were reduced, we’d still be willing to pay the same price. So we’d expect supply and demand to find a new balance at the same price. The winners in such a scenario would be the refiners, who would probably pocket nearly all of the tax savings, as the price spread between crude oil and wholesale gasoline prices increased.  I’m in favor of most tax reductions, but a temporary one such as this would likely have few good effects.

By now, pretty much everybody is staring to realize the folly of making ethanol from corn. Most obvious, of course, it the pressure that it puts on food prices, as crops are diverted from the dinner plate to gas tanks. As the public is starting to catch on, the ethanol pimps have a new pitch, that we should make biofuels from “something outside the food chain.”

Here’s the problem…. farmland is part of the food chain. Soil and water are part of the food chain. Fertilizer is part of the food chain. Farmers are part of the food chain. Simply changing from corn seeds to some other seed won’t take crops out of the food chain. Even if they developed a magic seed that grew into petroleum plants, it would still impact food prices, if that’s where farmers directed their efforts and resources. As long as farmland and farmers are producing more fuel and less food, then food will become more expensive compared to fuel.  It’s really as simple as that.

Everything is more exciting with Japanese announcers.  Skip ahead to 2:15 for my favorite part.

I confess, I stayed on the Danica bandwagon long after it seemed worthwhile. But then again, I became aware of her early on. The most interesting aspect of her story has been the incredible monkey on her back, forced to carry the hopes, dreams, and marketing aspirations of others, on top of the normal challenges facing a young driver trying to establish a career. It’s great to see her shed that.

Of course, some will say that she’s struck a blow for womanhood, I’m more inclined to say that she’ struck a blow for racing, and shown that it’s a sport where men and women can compete side by side at the highest levels. By the same token, she did win on fuel strategy, so that means that she was able to drive longer without a pit stop than the men. That’s a landmark of sorts, I suppose.

Danica first drew media attention in the late 1990’s, when at the age of 15 or so, she “made the rounds” of Indy’s media center and Gasoline Alley under the wing of Lyn St. James. At the time, Danica was a kart racing champion, and Lyn was busily promoting young women drivers. It was but one of the zillion sideshows that happen each May at Indianapolis. In this particular year (1997 by memory), I was a reporter at the “500″. Another sideshow that year was a media go-kart race, two teams of scribes racing against each other in a relay sort of event. Teammate Jim Murphy, ever on the alert for an unfair advantage, made some inquiries about perhaps signing a certain “ringer” to write a token story and join our team, but it turned out the race was after Danica’s bedtime, and it never happened.

St James had made a few Indy starts and had some credible runs, but was beyond the age where she could really challenge. Later Sarah Fisher made some headlines, won a pole position and had some near wins in 2002. But Fisher hasn’t shown top-caliber driving ability since those early successes, and her personality is perhaps a little too “garage” to interest major sponsors. So Fisher has had to settle for lower-tier rides since the initial excitement wore off.

Likewise, Danica is not really natural under the spotlight. But she’s been savvy enough to handle it well and to deliver what’s expected of her, as best she can. She’s done the glamour stuff, but I dare say, if she weren’t a young and fit race car driver, she wouldn’t attract much notice, nor would she seek it. As the ESPN announcer noted in victory lane, “she’ll never be accused of being the Anna Kournikova of racing,” and, for perhaps different reasons, I concur. But it’s her ordinariness that is most likable… at heart, she’s simply another racer trying to make it in the big time, enduring the absurd attention, but at least enduring it with a smile and an effort to please. She’s overhyped, but she doesn’t encourage it, she just plays along. That counts as modesty by modern standards, and it’s refreshing.

Still, with the monkey off her back, let’s not forget that Danica is still a good second-tier racer, still not as fast as top drivers like Castroneves or Kanaan or those two bland guys who drive for Gannassi.  With some new talent coming in from Champ Car series, wins will be harder and harder to comeby.  Fortunately, she’s done a good enough job of managing her career that she should be able to stay in competitive cars for many years to some, and she’s still young, so there could be more wins ahead.  But it’s by no means a certainty.

Back when I was living in south Florida, the Marlins were struggling to build a new ballpark, or talk somebody into building one for them. They eventually ended up striking a deal to build a typical modern stadium with an ugly retractable roof on the unspectacular site of the Orange Bowl. But one of the earlier proposals involved building at the little-used Bicentennial Park. The waterfront location would have been the perfect way to showcase Miami… when you saw a game on TV, you’d know where it was being played.

Florida teams suffer attendance problems because of the frequent evening thunderstorms throughout the summer, and a covered stadium is pretty much a necessity. But it’s warm enough that there’s no real need to be “indoors” as such…. just some rain (or sun) protection. My idea was to fashion some sort of giant beach umbrella that could be opened to provide cover when needed, although I could never quite imagine how it might be engineered to work without, y’know, a big pole planted behind second base. The ground rules would have been a nightmare. But I figured that if some sort of eye-catching “soft” cover could be devised, and were combined with an urban waterfront location, it would make for a very telegenic and exciting ballpark. Palm trees beyond the outfield, and maybe a moat full of ‘gators instead of a warning track. Of course, it was just a fanciful vision of mine, one not likely to ever be implemented.

Turns out my vision will come to pass, but in St Petersburg instead of Miami. I missed the original announcement, but the Tampa Bay Rays’ new ballpark is a near-perfect realization of my concept, minus the ‘gators. Instead of the beach umbrella, they’re going to have a clever retractable roof that resembles a sail. Brilliant. It’s open at the sides, has a waterfront location, and should be a fantastic setting in which to watch baseball.

I suppose I should have blogged about my idea several years ago, so I could file a frivolous suit against the Rays and maybe settle for some free tickets. But it’s just not practical to write up every wacky idea that emanates from my brain. In any case, the Rays’ new ballpark is a great design, and provides some much-needed assurance that I’m not entirely crazy.

We keep hearing about the “housing bubble,” and how rampant speculation has caused turmoil on Wall Street. But was the housing bubble a result of excess speculation, or an excess aversion to speculation?

Remember the economic environment in 2002-2003. We had just seen the bursting of the Internet bubble. Dot-com stocks went from stratospheric valuations to worthless in a matter of months. The Dow and S&P indices had been halved. It had been a classic speculative “greater fool” bubble, and even large-cap S&P stocks had been bid up to P/E ratios of nearly 30. The crash was painful, and wiped out many. And in the aftermath of the burst stock market bubble, we endured 9/11, a recession, and the Iraq war.

In response, Alan Greenspan and the Federal Reserve cut interest rates to historic lows. Of course, this remains a controversial policy decision. Regardless of the wisdom of the policy, though, lower interest rates make investments more profitable, compared to leaving one’s money in a safer place like a bank or money market account. But in 2002-2003, despite the inducements of low interest rates, Americans had no stomach for risky investments. At the time, Apple looked like a risky investment at $10 a share.

So we started buying houses. Houses aren’t investments, they’re savings, right? Well, that’s the conventional wisdom, and in truth, if you buy a house and stay in it for a decade or more, it’s almost certain to increase in value.

But houses, like any other asset, are an investment. They’re a relatively safe investment, but they’re an investment nevertheless. On top of that, they’re a leveraged investment. Huh?

If you buy a house with a 20% down payment, you’ve borrowed the other 80%. You’re leveraged four to one. If the house goes up 5% in value, the return on your down payment is 20%. Likewise, if the value declines 5%, then that represents 20% of your down payment.

In the era of low interest rates and rapidly-appreciating home prices, many lenders required smaller down payments. Ten percent down became common. If somebody buys a house with 10% down, they’re leveraged nine to one. If the house goes down in value by 15%, then they’ve lost their money and they’re in the hole. It become more profitable to default on the mortgage than to pay it off.

Of course, people buying homes rarely think in those terms, and it’s hard to fault people for investing in homes rather than in stocks. But what was overlooked was the amount of leverage that was quietly being built into the economy. And that’s before the banks got hold of it.

In the aftermath of the Internet bubble, institutional investors and hedge funds liekwise experienced some risk aversion of their own, and rather than piling into stocks, they started buying… more and more mortgages. Since mortgages by their nature normally pay a small but steady return, the various bankers and investors leveraged themselves up… they’d put up one million, borrow 19 million at a low interest rate, then buy 20 million dollars worth of mortgages, and profit from the higher interest rates paid by the mortgages. Nothing could be safer… or so it seemed. It’s been a common practice on Wall Street for decades. But in this housing bubble, too many people made the same bet at the same time, and there was nobody to pay it off.

Eventually, of course, we experienced a housing downturn, many folks started defaulting, investors started asking for their money back, and suddenly everybody tried to sell the toxic mortgages to each other (remember, they had to dispose of several million dollars’ worth of mortgages for each million that investors withdrew). And there were no buyers, only sellers. And that’s been the basic problem plaguing the fixed-income markets over the last year or so. The bubble wasn’t caused by speculative excess in the way we normally think of it, but by a large accumulation of very small risks… combined with somewhat invisible leverage. It’s great on the way up, but when it comes time to unwind that leverage, it’s a messy business.

I suppose this was inevitable. Amtrak will start screening passengers’ carry-on bags. They’ll show up unannounced at boarding platforms with bomb-sniffing dogs and all sorts of other equipment. Lovely.

All this might be tolerable if we had a problem with terrorism on intercity trains. But I don’t think there’s ever been a serious terror incident on a long-distance train anywhere in the world. At least none come to mind. In North America, train riders have more to fear from beaver dams than from terrorists.

Which begs the question: Does Amtrak suddenly have some budget to spare? If they do, is this a good way to spend it? If not, then which government agency is paying for it?  In any case, I expect that as long as no terrorists try bringing bombs aboard trains, they’ll tell us it’s working.

Not only is this a waste of money, it’s a completely unnecessary intrusion.