The Future Of News In Clinton?

Both on the blog and in my professional life I talk a lot about how technology doesn't just allow us to make huge transformations in our economic and social circumstances, technology demands those changes. The modalities of these changes center around a few central theories and movements:

• The wisdom of crowds


• Radical transparency


• Open source culture

Each of these ideas on their own are subjects worthy of books and journal articles. And they exist. Next to each is a link providing a Wikipedia entry as a place to begin. I'll continue to write and speak on them. But I think it is time for action.

One of the hallmarks of 21st Century Technoculture should be strong, participatory communities not only at the global and/or special-interest level, e.g. MySpace and say, model railroaders, but at the local level as well. After all, what good does it do one to have rich, interactive, global, technologically-mediated experiences and relationships if one’s meatspace existence -- the place of living and breathing -- are devoid of any cohesion, organization or community spirit? Better to bring to bear the tools of the global macro- technoculture to bear on the needs of the microculture of Clinton, Iowa.

Now, Clinton has at least two or three pretty active discussion forums. One is hosted by The Clinton Herald and the other by a private person at www.clintoniowa.com. These forums allow for all sorts of discussion on local topics and sometimes even expand on and add to news stores and allow people to build on shared experience. But one of the drawbacks of bulletin boards is that they often descend into bickering and name-calling.

The bulletin boards could be home to original reporting but by their very technological structure they lack cooperative editing tools and a friendly display format for articles.

The local newspaper, The Clinton Herald, as are all newspapers today, a holdout of a previous technoculture. The idea of a news organization that painstakingly crafts its stories once per day and then manufactures and distributes them on dead trees, frozen in that printed form until the paper molders is totally inappropriate on many levels for the 21st Century.

News is slippery stuff. The idea of a news story, frozen for all time on ink on paper is a product of the 18th Century manufacturing processes that brought us the newspaper in the first place. News stories insist by their very nature that they be annotated, corrected, added on to, and collaboratively assembled.

So, in the spirit of brining 21st Century technoculture to bear on the needs of Clinton, Iowa I propose the following little experiment, an open-source news portal for Clinton powered by Wikinews. Behold the Clinton Wikinews Portal!



Okay, it’s not much. But that’s where you come in. For everyone who has ever bitched about the local news coverage in insert name of media organization here, now is your chance. Know the whole sordid back-story of whatever is going on at the Humane Society? Want more meat on City Council goings on? Need an excuse to go to all Clinton High School basketball games?

Then go forth and report. Gather some facts. Facts, for certain of my bulletin board friends, are provable assertions backed up by more than one source and documentable. See the Wikinews article on Writing An Article. Talk to some people, write a story, check your spelling and grammar and post it.

Only have a few facts to contribute? Post a story in development and let other people put meat on the bones of your story. Find a factual error in a story, correct it yourself.

All of this and more is possible through the technology of the Wiki, the software platform running behind Wikipedia. It is a signature of our early 21st Century technoculture; open-source, transparent, shapeable by the masses.

This is an experiment. Is there enough interest and ability for people to report and analyze the goings on in a town of 27,000? Can it be done in such a way to provide additional information and quality that is not available from the local newspaper? Theoretically, because of space and financial constraints the Clinton Herald will never be able to have the breadth and depth of an active user-generated news site. But the question is, can people be motivated to create their own local news in a town the size of Clinton?

That’s what I aim to find out. I think this project is the perfect vehicle for journalism students and teachers at all levels. No longer chained to budgets for ink and paper, budding young muckrakers are free to go forth to write and report and practice their craft. In the coming weeks, I’ll be reaching out to those of you in the business of teaching writing and journalism. If anyone is going to fully embrace this tool from the get-go it will need to be young aspiring writers.

Later in the week, I will post some links on tips for getting started with Wiki news. It is pretty straightforward and there is a minimum of coding needed in order to post stories. Many of the functions can be accomplished with the press of a button in the editing window.

In the meantime, anyone who is interested in contributing and helping with this project should feel free to contact me at cman@cman.cx

Until then, I’ll close this last post of 2006 with Hunter S. Thompson’s famous tag line: Res ipsa loquitur, the thing speaks for itself.

Happy New Year.

Tanned... Well, rested and ready.

It has been a nice vacation and I've been taking it really easy. Nice and the next best thing to a real vacation. But, idle minds are the Devil's playthings. I've been up to no good. One new thing for the new year is a little experiment in participatory culture that I've been noodling around with here.

Drop me a line if you are interested. If you are in the journalism or writing teaching business you can expect to hear from me pretty soon.

World's Largest Wind Farm Gets Go Ahead

The British government has approved plans to do initial construction studies and public input into the London Array, an array of 341 wind turbines in the Thames Estuary 12 miles of the Kent and Essex coast.

The wind farm would be constructed in phases, and when fully complete would generate up to 1,000 MW of electricity. This is enough to meet the electricity needs of 750,000 homes – around a quarter of Greater London or all of the homes in Kent and East Sussex.

The project would contribute significantly to the Government’s target for renewable energy – providing around 10% of their target for 2010. It would also prevent the emission of 1.9 million tonnes of carbon dioxide each year (enough to fill the bowl at the new Wembley Stadium 910 times) compared to a fossil fuel power station producing the same amount of electricity.

Merry Midwinter Spiritual Celebration and Happy New Year (Georgian)

Light posting as I wrap up stuff at work and relax for a couple of weeks.

Insurgents Using New Ideas Choke Iraq, No New Ideas Here Though

James Glanz writes in today's New York Times that Iraq Insurgents Starve Capital of Electricity:

Over the past six months, Baghdad has been all but isolated electrically, Iraqi officials say, as insurgents have effectively won their battle to bring down critical high-voltage lines and cut off the capital from the major power plants to the north, south and west.

The battle has been waged in the remotest parts of the open desert, where the great towers that support thousands of miles of exposed lines are frequently felled with explosive charges in increasingly determined and sophisticated attacks, generally at night. Crews that arrive to repair the damage are often attacked and sometimes killed, ensuring that the government falls further and further behind as it attempts to repair the lines.

Mr. Wahid said that last week, seven of the nine lines supplying power directly to Baghdad were down, and that just a trickle of electricity was flowing through the two others. Western officials agreed that most of the lines were down, but gave somewhat higher estimates on the electricity that was still flowing.

And in a measure of the deep disunity and dysfunction of this nation, when the repair crews and security forces are slow to respond, skilled looters often arrive with heavy trucks that pull down more of the towers to steal as much of the valuable aluminum conducting material in the lines as possible. The aluminum is melted into ingots and sold.

While Mr. Glanz goes on to give a solid, workmanlike recitation of the facts and figures of the country's electrical infrastructure and problems with same, he really misses the point that what he's describing is textbook 4th Generation War: as it starves the Malaki government of credibility and bleeds the population's will to resist... whatever it is the bad guys want. I'm still unclear on that part, but I'm sure the people dynamiting the electrical grid have a diamond-sharp agenda.

So, as the bad guys continue to innovate the nation of Iraq out of existence the powers that be in D.C. as well as the wannabes continue to trot out ideas that are either too little, too late (more troops) or just plain blame the victim rationalizations to get the hell out (Visack, Levin, et. al.). None of which are going to help us gain control or regain the initiative in Iraq.

Sure, it is easy to throw stones. Do I have any answers to Iraq? No. I've thought about it a lot and I really don't see any possible "victory" scenario. Just varying shades of failure, shame and regional unrest.

But the one ray of hope that do have is that the tools needed to, a) prevent another Iraq debacle from happening or, b) help inoculate the United States against internal 4th Generation Warfare tactics are becoming apparent.

Radical Transparency is one path. Pulling the curtain back from the wizards at the controls and allowing the wisdom of crowds to identify and close weaknesses. As John Robb puts it:

A newly vigilant and networked public will push for much greater levels of transparency in government and corporate operations, using the Internet to expose, publish, and patch potential security flaws. Over time, this new transparency, and the wider participation it entails, will lead to radical improvements in government and corporate efficiency.

Certainly the current tactics of Chomsky-esque manufacturing of consent and outright propaganda are reaching the point of diminishing returns, just as an over-stimulated public is also rejecting the ever more omnipresent advertising industry. As Robb continues:

Within the context of 21st century warfare, moral cohesion and innovation (particularly given open source opponents) have emerged as paramount concerns. Up until now, nation-states have relied on propaganda to mobilize the public for war and maintain the effort. In parallel, black box decision making has been relied upon to produce ongoing improvements in capabilities/technology. However, in this long war, these methods are more of a liability than an asset. Propaganda has proven to be both ineffective and harmful (see my critique: "Propaganda Wars" for more on this) -- and -- black box decision making has yet to yield any meaningful improvements in capabilities. In my view, an update to our decision making process (to take advantage of vastly superior information flows) through radical transparency would be a far superior means of maintaining our moral cohesion and innovation over the long haul.

Many of the tools required are in our hands. What is needed is some event or catalyst that can force open the black boxes of power and capital and bring a more transparent society. Secrecy (and privacy) may be dead, but that doesn't neccesarily have to be a bad thing.

Jim Webb, Democrat?

This post is about two months late but, hey better late than never. So, much happening in our mad, mad world and so little time for reflection. It wasn't until I read Billmon's post from a month ago that I realized that I had thought things were rather odd about the Virginia Senate election -- other than the whole macacca thing -- all along. I just hadn't really had time to cogitate upon it.

One of the strengths of this whole participatory culture thing; once you have spent the time to find s few trusted commentators it's like having a second brain or offline subconcious. So, Billmon thinking so I don't have to: Comrade Webb

When I came to Washington in the early 1980s, Jim Webb was best known as a vociferous spokesman for the movement to scrap the design for the Vietnam War Memorial -- or, as he and his fellow protestors called it, "the wall of shame." He was the prototypical Angry Vietnam Vet, convinced that the hippies and the campus radicals had stabbed him and his band of brothers in the back while they were fighting in jungle, then spit on them when they returned home.

He was, in other words, a died-in-the-wool reactionary -- the thinking man's Ollie North. Webb once famously refused to shake John Kerry's hand because of Kerry's role in publicizing alleged U.S. war crimes in Vietnam. Some of his fellow anti-memorial activists later went on to run the Swift boat campaign against Kerry in the 2004 election.

Webb was rewarded, eventually, by being named an assistant secretary of defense and then Secretary of the Navy in Reagan's Pentagon, where he became a fanatical advocate of a 500 600-ship Navy -- a defense contracting boondoggle so egregious even the Reagan Administration eventually abandoned it. When Webb quit, in a huff, I assumed he would end up pulling a seven-figure salary as a defense lobbyist and spend the rest of his days helping shovel pork down various congressional gullets and tending the shrine of St. Ronnie.

But instead, nearly two decades later, Webb's now the newly elected Senator from my native state (a stronghold of the Confederacy and the national "right-to-work" movement) who's lined up shoulder to shoulder with Howard Dean and Nancy Pelosi and is writing op eds for the Wall Street Journal explicitly calling for what the Republican chattering classes sneeringly condemn as "class warfare":

America's top tier has grown infinitely richer and more removed over the past 25 years. It is not unfair to say that they are literally living in a different country. Few among them send their children to public schools; fewer still send their loved ones to fight our wars. They own most of our stocks, making the stock market an unreliable indicator of the economic health of working people. The top 1% now takes in an astounding 16% of national income, up from 8% in 1980. The tax codes protect them, just as they protect corporate America, through a vast system of loopholes.

Incestuous corporate boards regularly approve compensation packages for chief executives and others that are out of logic's range. As this newspaper has reported, the average CEO of a sizeable corporation makes more than $10 million a year, while the minimum wage for workers amounts to about $10,000 a year, and has not been raised in nearly a decade. When I graduated from college in the 1960s, the average CEO made 20 times what the average worker made. Today, that CEO makes 400 times as much.

In the age of globalization and outsourcing, and with a vast underground labor pool from illegal immigration, the average American worker is seeing a different life and a troubling future. Trickle-down economics didn't happen.

That's beautiful stuff. Paul Wellstone could have written it. So could Bernie Sanders, although Bernie actually might find it a little too radical for his tastes. But the last person -- well, almost the last person -- on earth I would expect to emerge as a tribune of good old-fashioned New Deal populism (or, dare I say it, democratic socialism) is fightin' Jim Webb, Ronald Reagan's favorite Marine.

Not only that, but Webb's now against the war -- just like us unreconstructed '60s (or, in my case, '70s) radicals. I just hope he doesn't mind being tarred as a stabber of backs or a spitter on the troops by the modern-day equivalents of the old Jim Webb. It kind of goes with the territory.

I don't know. But if Jim Webb and I are now on the roughly same side on the big issues of the day -- the war, globalization, corporate power, economic fairness, social justice -- it tells you something has fundamentally changed in American politics. It may not be a realignment (a political system this polluted and decrepit may not be capable of such a thing) but when Senators from Virginia start talking like Walter Reuther, it sure the hell isn't business as usual.

Update 11/29 10:30 AM: From The Hill (one of several competing congressional fishwrappers):

At a private reception held at the White House with newly elected lawmakers shortly after the election, Bush asked Webb how his son, a Marine lance corporal serving in Iraq, was doing. Webb responded that he really wanted to see his son brought back home, said a person who heard about the exchange from Webb.

"I didn’t ask you that, I asked how he’s doing," Bush retorted, according to the source.

Webb confessed that he was so angered by this that he was tempted to slug the commander-in-chief, reported the source . . .

Now I'm really starting to like this guy. It's just a shame that Shrub will get the Secret Service protection for life treatment after he leaves office, or I think Webb might eventually give in to temptation and take a swing at him. And if there is one person on this planet who deserves a couple of good ones to the jaw, it's the Dauphin.

Prediction: The Internet Will Defy Prediction.

On the heels of my presentation to the Leadership Institute this morning on the disruptive effects of technology comes this:

Cman Blog muse and inspiration, futurist, Bruce Sterling, pens his final column for Wired magazine today. His final prediction: the Internet will defy prediction:

In coming decades, are people going to vanish into the Net, permanently absorbed by addictive VR-style experiences? The reaction stretches predictably from "You must be nuts" to "Of course, it's happening already." And what's the centrist opinion? If an innovation works, some people will thrive on it, while others who are screwed up to begin with will face severe new problems.

The bubble-era vision of a utopian Internet is dented and dirty. The Pew respondents seem to agree that personal privacy is a thing of the past, and they're split nearly 50-50 on whether the costs will outweigh the benefits. Technophobic refuseniks are likely to carry out violent resistance, and they may have good reason: Out-of-control technology is a distinct risk. The Lexus has collided with the olive tree, and its crumpled hulk spins in a ditch as the orchard smolders.

The future of the Internet lies not with institutions but with individuals. Low-cost connections will proliferate, encouraging creativity, collaboration, and telecommuting. The Net itself will recede into the background. If you're under 21, you likely don't care much about any supposed difference between virtual and actual, online and off. That's because the two realms are penetrating each other; Google Earth mingles with Google Maps, and daily life shows up on Flickr. Like the real world, the Net will be increasingly international and decreasingly reliant on English. It will be wrapped in a Chinese kung fu outfit, intoned in an Indian accent, oozing Brazilian sex appeal.

One upshot is that futurism itself has no future. Once confined to an elite group, the tools and techniques of prognostication are all widely available. As for pundits: The world used to be full of workaday journalists, with just a thin sprinkling of opinion mongers. Now a TypePad account is a license to deliver nose-to-the-pavement perspective with an attitude. The very word futurism is old-fashioned, way too 1960s. Today's Internet-savvy futurist is more likely to describe himself as a strategy consultant or venture capital researcher. That development doesn't surprise me.

As a futurist, I've often licked my chops over rather grim possibilities. But my lasting fondness for the dark side is a personal taste, not an analysis. I'm frequently surprised, and when I consider the biggest surprises, I'm heartened that they were mostly positive. The Internet, for instance, crawled out of a dank atomic fallout shelter to become the Mardi Gras parade of my generation. It was not a bolt of destructive lightning; it was the sun breaking through the clouds.

Everything we do has unpredicted consequences. It's good to keep in mind that some outcomes are just fabulous, dumb luck. So mark my last little act of prediction in this space: I don't have a poll or a single shred of evidence to back it up, but I believe more good things are in store, and some are bound to come from the tangled, ubiquitous, personal, and possibly unpredictable Net.

New Library Proposal, Part 1: What's On The Table

Earlier in the week I weighed in over on the Clinton Herald forums on the question of the proposal for a new location for the Clinton Public Library at the site of the existing (shuttered) Harding Elementary School.

That response was a bit off-the-cuff and as I said, uncharitable to the Library Board of Trustees and their long and thoughtful deliberations. It deserves a more thoughtful response.

This then will be the first in a series of posts on the New Library Project. This post will talk about the proposal that the Library Board unveiled last Wednesday. Part 2 will examine the long, tortured history of efforts to get a new library building for the city. And Part 3 will weigh the pros and cons of the current proposal.

First, a bit of full disclosure. I am the immediate past President of the Friends of the Clinton Library, having resigned the post in November. That resignation next to nothing to do with any disagreements I had with either the Friends' Board or the Board of Trustees. It was due to the increasing level of my work and family commitments. I also felt strongly that the organization needed someone else who could step up to give full attention to the matter of making the new library happen.

I also served as an ex officio, non-voting member of the Board of Trustees and participated in all of the planning process that led up to the proposal that was unveiled on Wednesday, December 6. I will remain as active in that process although no longer in any official capacity.

So, what is on the table with this proposal? The plan calls for a 42,000 square foot facility on a single level that will replace the current Carnegie Library's just under 28,000 square foot building. In 2003 the City took a five year option from the School Board that allowed the Library Board to examine the possibility of using the closed Harding Elementary School as site or the foundation for a new library building.

In the Spring of 2006 a revised library planning document was produced by the Board of Trustees. This planning document was put together with the help of several open public meetings.

The plan's key points were:

• Room for a 100 seat auditorium and meeting facility.


• Adequate shelf space for the core collection to expand from 119,000 volumes to 140,000 volumes.

In the Summer of 2006 the Board went through a long and competitive process of soliciting the interest and proposals of architecture firms, finally settling on Scholtz-Gowey-Gere-Marolf (SGGM) of Davenport. Greg Gowey also held a couple of open public meetings to solicit input on what users wanted to see in a new building. In addition, Mr. Gowey was given a firm limit of $7 million dollars for a budget.

With those guidelines in mind, Greg Gowey has come up with a wonderful concept that makes terrific use of the green space, the old building and adds an airy yet intimate new addition.

Here are some highlights from the report, the full version of which I have made available here. Either click to open in Acrobat in your browser window or right-click the link and choose "Save As" to download. Warning: 15mb PDF.

Click on each picture below to go to a full-sized image.


Figure 1: Plan of the site. The old Harding School building is shown in dark brown, the addition in yellow.


Figure 2: An aerial view of the proposed building. The roof of old Harding is black.


Figure 3: Exterior view of the covered entrance to the new addition.


Figure 4: Interior view from the main circulation desk facing the main entrance and the lounge with fireplace.


Figure 5: Interior view of the Children's Department showing the different color scheme.

New Orleans is Uninsurable, Part 2

The progressive blogsphere is picking up a story that has not yet caught the attention of the major media. Over at MyDD and
Firedoglake they are lashing out at the decision by St. Paul Travelers Insurance not to renew its commercial insurance policies in New Orleans starting next year. This has stoked fears that St. Paul will be lead a flight by other companies out of New Orleans. This may well be the case.

In previous posts here, Florida Becomes Uninsurable Part 1 and New Orleans is Unisurable, I have discussed at length the price that will have to be paid for global climate change. Although many of the gross macroeconomic and geopolitical effects will not manifest for decades to come, I think that we can consider New Orleans the canary in the coal mine.


Many progressives and liberals insist that the levees be rebuilt; that the insurance companies be forced to insure these areas or that the federal government step in as the insurer of last resort. All of these proposals have their hearts in the right place. And all of them are dead wrong.

The people of New Orleans have been victimized in many ways; victimized by poor levee design, victimized by the devil-take-the-hindmost attitude of the federal government following Katrina. But most of all they are victims of fate, disastrous land use policies, and global climate change. In many ways they are the first to pay the dues for our industrial culture's massive carbon dependency. But they will hardly be the last.

Markets work because when not meddled with too much, they are pretty efficient. The insurance industry is -- despite its other micro-problems -- at the macro level a pretty efficient risk-assessment machine. What St. Paul Traveller's is essentially saying with its actions is: "it is our calculation that given the pace of levee reconstruction combined with the long-term prospects for more severe hurricanes and rising sea levels we cannot find any way to ever turn a profit in this region." That calculation is no doubt made by also looking at southern Louisiana in an aggregate context with other high-risk areas. Southern Louisiana on its own is a huge insurance risk that threatens to drag down policies in other areas that are not as threatened (yet).

As for the questions that are posed in many of the blog posts above such as what will become of the essential businesses in the region, many of which are crucial to our nation's energy and trade infrastructure. The answer is:

The bottom line is that old Mama Nature is going to re-assert her control over the coastlines. It will become economically impossible for people to maintain a presence along those coasts unless they fall into one of the following buckets: a) Individuals or companies wealthy enough to rebuild frequently, b) performing work or conducting business that is profitable enough to place them in Bucket A, c) performing work or conducting business that is unable to be done elsewhere and pass the costs of rebuilding on to customers, or finally d) Building (or re-building as the case may be) one's structures in the mode of Hitler's Atlantic Wall.

Many people I normally agree with say this is a typical case of big business sticking it to the little guy and playing pick-and-choose with regards to class. As blogger Athena puts it:

Look, I know somebody's gonna respond with risk-analysis graphs and such and I get it, I do, but the fact of the matter is that it's past time we stopped with the unconditional surrender in the class warfare that leads to these insurers saying eh, too bad, so sad, see ya later every time people actually need them to do what they exist to do and what you pay them every single month to do….

New Orleans is a tragedy, made worse by the fact that the worst effects were avoidable and FEMA's assistance efforts criminally negligent. The federal government can and should fulfill its commitments to assist people in resettlement or rebuilding. But it would be poor policy indeed to begin to either force insurance companies to carry insurance on property that has a nearly 100% likelihood of being destroyed again within our lifetimes or to saddle the government with the cost and to build the public expectation that when we literally reap the whirlwind of our carbon emissions Big Government will cover our bad bets.

Tragically, the people of Southern Louisiana are but the first to find out that their once enviable real estate is now situated a live-at-your-own-risk zone. But as the picture above says, their fate is ours. A fate that will be shared by millions of Americans and billions of human beings during my lifetime, the lifetime of my children and my children's children. Many of us just haven't come to grips with it yet. But it is high time we did.

It must start by those who live in the at-risk zones realizing that their property is on borrowed time. Sooner or latter the hammer will fall, the seas rise, the crops fail and if you don't have a Plan B you are basically fucked. And yes, I'm quite aware that many billions of people do not have the freedom, resources or other requirements to have an effective Plan B. That is why I'm in the shrill chorus of people who say that global climate change is the number one social, economic, and political problem facing the world today.

RSS Feed

Another bug in Blogger beta. As I go back and tag past articles, they show up as new posts in the feed. This is a known bug. Best bet for now is to bookmark the blog home page at www.cman.cx/connor/blog.html.

Ethanol Market Fundamentals

Based on research and footnotes I encountered in doing the last post, I said it was worthwhile to revisit ethanol fundamentals. From the website of Cumberland Advisors, from whom much of the information in the previous post was gleaned, comes additional interesting information on the fundamental economics of the ethanol industry. Little of it will be comforting to ethanol's supporters or investors.

The economics of ethanol from corn can be divided into two categories: 1) the basic math and physics involved in growing corn and brewing it into ethanol as a replacement for part of our oil budget, and 2) the market economics of producing ethanol from corn (as opposed to say, sugar beets) and competitiveness of ethanol as an additive per se.

For background on the first factor, see this summer's posts on Bottom Line Economics On Ethanol and Gas and What Part of $3.50 a Gallon Don't You Understand?.

As for the markets for corn-based ethanol, Cumberland Advisors comments in Ethanol, Gas Prices and Your Pocketbook

Some US politicians deserve to walk not ride. Their ethanol protectionist policies are causing energy prices to be higher than they might otherwise be. Those same policies will harm the lower income folks in the US because they are causing the price of food to rise. Lastly, this policy may contribute to the hunger of millions of folks around the world.

In the US, the combination of $1.05 ethanol protectionism is still not enough to render corn-based ethanol competitive. See the Simons piece for the math. What happens when protectionism fails? Simply put, the ones who want the special treatment seek even more of it. That is probably coming in the new Congress.

We expect a move to raise this corn-based ethanol subsidy after the new Congress convenes. The corn crowd may also seek greater mandate of corn-based ethanol usage. The Bush Administration tried to repeal the tariff on sugar-based ethanol. On May 9, 2006, five corn state Senate Democrats effectively blocked lifting the tariff. The Senators were Harkin (Iowa) Dorgan (North Dakota) Durbin (Illinois) Johnson (South Dakota) and Obama (Illinois). Cries for energy independence and environmental protection were used to cover the real culprit which is a politically misguided raid on the pocketbooks of our country.

The best outcome would be a total repeal of the 51 cent subsidy and of the 54 cent tariff. That would lower ethanol cost and take the pressure off food source prices in the grain markets. It would also lessen the starvation that will occur in some parts of the world where the marginal cost of grain negatively impacts the hungriest and the very poor.

Cumberland advisors cite the work of Chicago-based Bianco Research in a paper entitled An Impending Ethanol Cost Squeeze that demonstrates how falling margins on ethanol production combined with the rising costs of corn-based ethanol essentially in lockstep with gasoline prices mean that ethanol is far from an effective oil substitute.

More important, the 54¢ per gallon tariff on imported ethanol, distilled primarily in Brazil from sugar, de facto makes U.S. ethanol distillation a corn conversion process.

...the diversion of corn from domestic and export human and livestock feedstock to yeast feedstock inevitably will affect the economics of all industries involved. The distortions to come in agricultural economics will be the largest disruptions since the early 1970s. Global grain, oilseed, livestock and fuel markets will be affected, as will competitors for agricultural land.

The increases in food prices will affect commonly quoted consumer price indices. Core inflation, we are happy to report, will remain unaffected. This inescapably will be a divisive public policy issue from which there will be no escape.

That ethanol prices expand to capture the rent of higher gasoline prices should give pause to anyone operating under the illusion blending ethanol into gasoline can painlessly lower retail prices at the pump. A deterioration of either gasoline or ethanol prices, or as is most likely the case both in tandem, coupled with higher corn prices will turn ethanol production uneconomic in the absence of further subsidization in addition to the 51¢ per gallon exemption from the federal motor fuels excise tax and the aforementioned tariff.

The entire corpus of international economics from the 18th Century forward has been based on the theory of competitive advantage. You do what you are good at doing and import cheaper goods and services as warranted. Brazil and other sugar producers are better at feeding yeast than are American corn farmers. Producers of conventional hydrocarbons are better at fueling internal combustion engines than are American ethanol distillers. The impulse to declare energy independence in a dangerous world is understandable, but should be resisted if it is uneconomic in the absence of subsidization.

That these market analysts are on to something is reflected in the latest ethanol plant news from across the state. A proposed plant in Belmond, Iowa (near my childhood stomping grounds) has been canceled. Whether or not due to construction costs, the finger points to longer payback due to lower margins. The builders were two large ethanol companies and I'm sure they are looking at the fundamentals as hard as the suits in the investment think-tanks.

The long-term solution is to eliminate both the 51-cent a gallon subsidy and the 54-cent a gallon tariff on imported ethanol. Scarcity in the oil market will eventually make corn (or cellulose-based) domestic ethanol production economically viable as a fuel additive, especially in regions located close to the production zones. Or not.

The take-aways for the reader should be: 1) That ethanol is not and will never be a solution to oil scarcity and our dependence on foreign oil and, 2) the U.S. ethanol market resembles more a socialist, centrally planned market circa the Soviet Union of the 1980's than it does what most Americans expect to see in a modern 2006 free market of goods and services.

The long term solution to oil scarcity and dependence on foreign oil remains as simple and as controversial as it ever was: drive less, consume local goods.

Oil Futures

The slip in oil and gas prices over the last few months is mostly due to fundamentals. However, there is the likelihood that some of the drop in domestic gasoline might have been due to some election year thumb-on-the-scales. Regardless, the motoring public seems to have put the price shocks of last fall and spring behind it as a Katrina-dependent aberration. That would be wrong.

Oil has been edging up. Crude has crept back up to the $63 range and has been trending slightly upward since late October after its precipitous drop in late summer.

Barry Ritholtz brings us the analysis of David Kotok, Chief Investment Officer of Cumberland Advisors on oil fundamentals.

Given yesterday's pop to $62 in Crude -- up from $53 when last month's Futures' contracts expired -- its worth taking another look at energy sector.

I am friendly with David Kotok, Chief Investment Officer of Cumberland Advisers. Like me, David remains Bullish on the Energy Sector, and has had some rather astute comments on Oil recently. Back in September, he wrote:

"Many folks are bailing out of oil. Some forecasts now call for a price decline to under $30 per barrel. One extreme forecast suggests the oil price could go as low as $15. We do not agree.

The recent drop in the oil price from the high $70s to a few pennies under $60 per barrel is the result of the lessening of two risk premia. 1. The hurricane season seems to be passing without incident. 2. The Chavez/Ahmadinejad bluster is known and the market is assuming that we have seen the worst. Some players are suggesting that the European initiative with Iran will succeed and lessen the tensions over Iranian development of nuclear enrichment facilities.

Oil risk premia are estimated by computing the cost of adding a barrel to inventory. This helps explain the pricing of oil in the futures market. When the risk premia declines as it is doing now the nearest term oil price declines the fastest. That is what we have seen in the August/ September period. Longer term futures prices are suggesting that the current decline is nearing an end. Oil for delivery 18 months from now is trading near $68 per barrel."

This is true. The NYMEX website is readily accessible and the futures table is available to anyone. As of this writing, oil for May, 2008 delivery is bid at $70.48.

David's view is that "energy prices are going higher and that our overweight ETF investment position should continue in this energy sector."

He also recently criticized what he termed "the ethanol mess" and offered how it didn’t help the energy price -- but it did help create shortages in grains. He notes that some folks in this world are going to starve because of it.

Why does he want to stay overweighted Energy? These factors suggest higher oil prices:

• The dollar has declined about 10% (trade weighted) from where it was a year ago. Oil is about the same price per barrel as it was a year ago. Oil is priced in dollars. Therefore, we in the US have had a price run up to near $80 and back to $60. The rest of the world has had a smaller price run up and is now looking at an oil price 10% lower than it was a year ago.



• The relative price is important because it allows us to estimate the stimulus that occurs from the oil price change in various parts of the globe. In the rest of the world that stimulus has spurred demand. Oil consumption is about 1 ½ million barrels a day (mbd) higher than it was about a year ago. In the US the change has been nearly flat. Our oil consumption is not the growth area. Look to Asia to find it.



• Oil futures prices suggest a return to nearly the $70 level in 18 to 20 months. McKinsey & Co. forecast continuing rise in world oil demand at about 2.2% a year until 2020. We agree. Oil could easily be $100 before then as world consumption rises between 1 ½ and 2 mbd each and every year.



• The unrest in Nigeria continues and may be worsening. Press reports usually do not include this in the top of the list. They should. Nigeria is becoming an increasingly dangerous place for the folks who work in the oil industry. Investors need to keep an eye on this geography.

Nigeria? You didn't know Nigeria was a linchpin producer in the world oil market? Producing 2.5 mbd (million barrels per day) it is the eighth largest producer in the world, producing more than both the United States and Mexico. A good background on the general state of affairs in Nigeria can be had from the PBS News Hour website. The complex and sophisticated nature of the anti-corporate indigenous guerilla groups operating in Nigeria can be had from John Robb in an article entitled, Nigerian Evolution.

• Speaking of geography, the Middle East is deteriorating and the market has ignored it. In Iran, we see Russia supplying missile defense material to protect Iranian nuclear sites. We see the breakdown in Lebanon and the Syria-Hezbollah connection strengthen. The Israel-Hamas battle continues unabated. Clearly we see a murderously intense civil war in Iraq. Soon we will witness the forthcoming pullout of the British. What will that mean? They are in the Basra region; that is where a lot of Iraqi oil exports originate. Basra is Shiite and close to Iran which is also Shiite. Instability in Basra is almost certain to rise when the Brits depart. Right now Iraq still exports about 1.6 mbd. As much as half of it is at risk if the civil war spreads and intensifies in Basra. Also, only about 1600 of the 2300 oil wells in Iraq are working. The civil war prevents regular maintenance and precludes development. So every time a well loses functionality it goes offline. We expect that to continue and intensify.



• All this leads to a strange alignment. In Iran, the Shiite center of power, there is an interest in the higher oil price. Iran has no love for the west and would spend the money on the mischief it spreads in the region and on domestic social spending so as to endear the Ahmadinejad regime to the populace. In Sunni Saudi Arabia, they wish to maintain the present oil price or see it a little higher. They do not want to kill the west but they would welcome the higher oil price if the source of the pressure was from other than OPEC cartel price maintenance. So we have both the Sunni [center of] power and Shiite [center of] power supporting their respective allies who are the combatants on one side of the Persian Gulf while enjoying the benefits of any higher oil price and attendant risk premium. This bodes ill for Basra and any other place where the civil war might spread.

By way of disclosure, Cumberland maintains an overweight position in energy, with the Vanguard energy ETF (VDE) as their first choice. VDE has 118 stocks, with the heaviest weighted components being ExxonMobil (XOM) Chevron (CVX) and ConocoPhillips (COP) Schlumberger (SLB) and Occidental Petroleum (OXY).

I'm going to revisit the ethanol situation soon. But as I've pointed out in previous posts: here (bottom half) and here, ethanol is at best a regional solution to oil dependency. Furthermore, the corn and ethanol industries are hardly pure market-based plays. There are literally tons of federal and state subsidies which enable the industry to exist at all. Read the link above on the "ethanol mess." Key players in this mess are, of course our own state's elected representatives.