Monthly Archives: January 2010

History of natural gas and oil prices

Just recently read an article from the Economic Review by the Federal Reserve Bank of Kansas (here) about energy price states.  I thought that this particular graph from the report (here) highlighting energy prices and recessionary cycles over the course of 40 years gives some perspective on the run up of natural gas and oil prices.

Continuing this trend means guaranteed higher energy prices in the future. How high do energy prices have to go in order to provide incentive for alternative means to be viable?

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17 states have fewer jobs than a decade ago

A little nugget from U.S. Regional at IHS Global Insight: (this is from our internal database but this particular data can be found from the BLS)

The last time employment was as low as it was now in the U.S. was in March 2004.  During the decade,  17 states  have had fewer jobs now than they did a decade ago.

Here they are with the date for when their employment was as low as it was now.  Quite incredible.  Michigan hasn’t added any new jobs for over 22 years!

MI August 1988
OH August 1994
IL August 1995
IN January 1996
MS March 1997
CT August 1997
RI November 1997
MA February 1998
WI April 1998
TN May 1998
KY June 1998
NJ June 1999
PA September 1999
VT September 1999
ME September 1999
CA October 1999
MN October 1999

Econ Rap – Keyenes vs. Hayek

It’s all over the place but I figured I had to post it because, well…, it’s good!

Waste products aftermarket: part II

Production line at Total Reclaim

Production line at Total Reclaim

After reading an article from Oregon Live, (here) I have become really excited about my belief in a future market that I have entitled as a “Waste products aftermarket.”  For a more detailed account, please see my recent posts on a theoretical framework and part I.

The article details the efforts of a recycling business called Total Reclaim located in Alaska, Oregon and Washington.    The primary business of Total Reclaim is through the recycling of e-waste products such as TVs and computer monitors.  Among other services, they recycle other durables that have been thrown away including refrigerators and HVACs.

A video here explains their production process in detail:

Notice towards the end of the video the on-site production process of plastic pellets.  Not only is this a finished product that can go back into new electronics, it adds value to something that otherwise would have gone into a landfill.  There is money to be made there.  Your taking a product worth nothing and processing it into a product worth something.

The primary driver for their business in e-waste is thanks to support from state legislatures.  In all three states that Total Reclaim operates, it is illegal to throw away your e-waste in traditional land fills. (i.e. throw them out onto the curb for trash pickup)  The only legal way to discard e-waste in these states is to bring them to a licensed recycling center such as Total  Reclaim.  For a fee that varies depending on what you bring in, they will recycle your e-waste.

The fee is an important factor to consider.  If there was no ban on curbside e-waste, what would the price be then? Right now, the cost to recycle e-waste can average (give or take) $50.  The ban obviously forces people to demand Total Reclaim services (explains their 30% growth) which can push the price for recycling down.  Thanks to the legislation, the price for e-waste recycling has fallen.  In addition, legislators are looking to eliminate the deferred cost of waste management and instead make the cost upfront by forcing manufacturers to offer a rebate so that the cost of recycling of the device is already factored in the purchase price.  This will lead to more downward pressures on the price of recycling.

Already you can see a viable business opportunity and a large amount of growth given the partnership that Total Reclaim has with the public.   Akin to the beginnings of the railroad and telephone industry, with waste product aftermarkets in its infancy, government support should help nurture growth.  Continued public support, (like the manufacture rebate program) expanding coverage to outer areas of the state, (or even lobbying to change legislation in other states…or better, federally) and the discovering and implementation of new technologies in order to offer more products and services could mean that Total Reclaim is one of the leading companies that could make this into a viable and profitable opportunity that is focused on sustainable business practices and providing value for environmental safety and conservation.

Waste products aftermarket: theoretical framework

This is starting to become a serious interest of mine. Previously, I did a post on bio-diesel made from chicken fat (here) and how it may mark the beginning of a waste product aftermarket within green economies.   I will also write a piece on a company I am currently reading up on, Total Reclaim. (here) Although the idea itself is nothing new, I feel I need to make a theoretical framework for this.

Essentially, for our 21st-century economy, a new economy, the “green economy,” going green is expected to be the next big thing.  This proposition has been made solely on the popular value judgment that there is a rising demand for eco-friendly products.    There is nothing new about this.  We can already see this with products ranging from toilet paper made from recycled paper to cell phones made from recycled materials.

There is nothing new about recycled products or aftermarkets either.  If businesses are able to find ways to cut down and recoup costs by either adding value on site through production or from scrap, most are going to do so.  (see auto aftermarkets as a popular example) Marketing products as green helps signal to eco-conscious consumers that these particular products (such as the cell phone linked above) will lower ones environmental footprint.

But is there necessarily a market for it?  I believe that currently, there is, but it is fractured and not on par with the types of commodity markets we have today.  Most business decisions regarding recycled products are not core competencies, but are more along the lines of reducing the marginal unit cost of particular products and their waste. These are the questions I want to continue to ask as more and more examples show up throughout the U.S. (and the world) on how businesses start to shift to waste products as a revenue source rather than efficiency measures.

How do I believe this change will happen?  Remember, most of the important part of the surge in the waste product aftermarket is the demand to go green.  Businesses have incentives to offer value for eco-friendly consumers as the demand to go green becomes even more popular.  But how far will it go? As businesses start to take advantage of utilizing new technologies and implementing cost effective production techniques, cost for recycling will severely plummet.  As profitability ensues, businesses will be able to acquire capital in order for them to grow.  Then industry consolidation should be in order as businesses begin to attain economies of scale.  By then, these companies will be able to sell their products on an open market commodities exchange, much like what we do with many natural resources available today.   And the incentive for doing this? Commodities will be facing a long-term supply shortage as more and more countries begin to develop, demanding more resources and putting a strain on what is currently available.  These forces will drive up the price of commodities, (a long-term trend we have currently experienced via China and other nations) making recycled materials an economic reality.  And the best part is that it won’t be dependent upon the demand for green products anymore, but a means for making our industrial ecology more efficient.

This is the value proposition I am making for the future of our world economy.  Technologies continue to be developed that make the production and reduction of physical goods not only a scientific reality, but an economic one.  As more and more technological breakthroughs make it through the news, I will be there to comment on it. (here)  As more and more environmental policy creates a more economic reality, I will be there to comment on it. (here) As more and more unexpected impacts from economic decisions influence the way we produce and consume products, I will be there to comment on it. (here)

I will continue my posts for waste product aftermarkets in parts as more and more real world cases come to light, charting the progress of this future.  I believe that this is the most realistic avenue that our world can move in, not only for the betterment of the world, but to push possibilities farther then we have ever imagined.

Now that’s a complement!

Turns out cigarettes and gambling are complement goods: (here)

State video gambling tax receipts plummeted by nearly 18 percent in the last quarter of 2009, buffeted by the beginning of a statewide indoor smoking on bars and casinos and a recession that hit Montana hard.The gross video gambling-machine taxes will be about $12.5 million for the quarter that ran from October through December 2009, said Rick Ask, administrator of the Gambling Control Division in the state Justice Department. That’s about $2.7 million, or 17.8 percent, less than what the tax revenues were the previous three months, from July through September 2009.

The quarterly gambling-machine taxes are down by 16.8 percent, or $2.5 million, compared with the previous three-month period from September through December 2008, Ask said.

It certainly shows the unintended consequence of a policy that although is good at heart; can hurt the bank. So why would gambling and cigarettes be complements? Does nicotine help relieve the stress of losing money? Maybe smoking has a direct effect on one’s discount rate for gambling.

Breakthrough spotlight: self-assembling electronic devices

A new break-through in building small electronic components have been achieved not only with fine accuracy and ease, but can be done rapidly.  (here) Specifically, the new method is able to self-assemble electronic components by exploiting the effects of gravity and the interactions of oil and water.  You can read the specifics in the article, but the results, at least for creating a solar panel is this:

The conveyor belt process is to simply dunk the device blank through the boundary and draw it back slowly; the sheet of elements rides up along behind it, each one popping neatly into place as the solder attracts its gold contact.

The team made a working device comprising 64,000 elements in just three minutes.

This leaves two things to be desired: it is automated and can be made very quickly. Already you can see the economic benefits of this. It is cheap as it will not require any manual labor for production and the quality is unprecedented, thanks to the self-assembling nature of the process. Do something like that in a rapid “just-in-time” approach for demand and you have a huge downward pressure on the marginal cost for assembling an electronic component.

This report had me think on a subject that I come across at work a lot: high-tech manufacturing. Unlike traditional manufacturing, especially through the nineties, high tech semi-conductor manufacturing has been booming. Lately, however, that is not the case. High-tech manufacturing is getting hit hard by depressed chip prices thanks to increased competition from low-wage foreign labor costs. With an automated process such as this applied to a range of different electronic component manufacturing, it could be a positive indicator for the high tech manufacturing sector. It already is a reality for creating solar panels at a fraction of the cost, which is great for promoting demand for solar panels in the private market. And let’s not forget the potential for this technology and the possibilities it invites:

The approach should also work for almost any material, stiff or flexible, plastic, metal or semiconductor – a promising fact for future display and imaging applications.

Babak Parviz, a nano-engineering professor at the University of Washington in Seattle, said the technique is a “clear demonstration that self-assembly is applicable across size scales”.