Ellison Chair in International Floriculture
Ellison Chair in International FloricultureTeaching, Research, Extension and Service

Falling gas prices act almost like a tax cut

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According to the most recent data from the Federal Highway Administration, the total traffic volume over the most recent 12-month period (through July 2008) was 2.944 trillion miles. According to data from the EIA, the average fuel efficiency for all vehicles in 2006 (most recent year reported) was 17.2 miles per gallon. That means that the amount of gasoline required for the traffic volume over the most recent 12-month period was 171,216,860,465 gallons (2.944 trillion miles driven divided by 17.2 miles per gallon).

Therefore, every penny decrease in the price of a gallon of gas would equal more than $1.71 billion in consumer savings over a year (171.216 billions of gallons X $0.01). In that case, the $1.10 per gallon decrease in gas prices from $4.12 in July to $3.02 this week (data here), would represent annual consumer savings of $188 billion from the fall in gas prices just so far over the last three months (compared to a scenario where gas stayed at $4.12 per gallon).

An alternative calculation is to use the EIA estimate of 390 million gallons consumed per day in the U.S. times 365 days per year, or 142,350,000,000 gallons annually. For each penny decrease in the price of gasoline, consumers would save $1.4235 billion annually according to this approach, and will save $156.6 billion over the next year from the $1.10 per gallon decrease in gas prices since July.

If gas prices continue to fall over the next month (which seems likely), it could be like a $200-$300 billion tax cut for the economy.

Of course, it does beg the question of why have we not invested more in fuel efficiency of our vehicles? 17.2 miles per gallon seems ridiculously low.

Who will economists vote for?

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The title reflects a question that I have been asked several times by friends lately. I was surprised that anyone cared, but nonetheless, here is the answer — it depends. OK, I know what you’re thinking. That is the typical retort you might expect from an economist, but hear me out.

Much ado has been made of various lists of economists supporting Obama (click here) and those supporting McCain (click here). But a recent survey (click here) of over 500 economists drawn from a subset of members of the American Economic Association, indicated that “Not surprisingly, 88 percent of Democratic economists think Democratic Sen. Barack Obama would be best, while 80 percent of Republican economists pick Republican Sen. John McCain.” So obviously, there is a strong correlation between favored economic policies and political pursausion.

Why does this matter? Well, for the most part, we need to understand where folks are coming from when we read or listen to them. To me, it is important to know enough to know the difference.

For example, among the plethora of resources I consult each day, I regularly read the column in the NY Times of recent Nobel prize winner Paul Krugman (a very good Princeton economist) who has made no secret of his Democratic leanings. But I also read stuff from Martin Feldstein (another very good economist) who is a professor of economics at Harvard and President Emeritus of the National Bureau for Economic Research. Martin also happened to be Chairman of President Ronald Reagan’s Council of Economic Advisors, so obviously he has a Republican slant.

So when I read comments from these guys [and others], I can better understand WHY they they hold certain positions because I know from “whence they came,” so to speak. The same holds true with mainstream media pundits as well. Unbiased commentary is a rarity, so it behooves us to, again, know enough to know the difference.

A mind is a terrible thing to waste! So read, listen, debate, evaluate, discern — use your gray matter — to decide where you stand. Because as the saying goes: “if you don’t stand for something, you’ll fall for anything!”

See the Forest, not Just the Trees

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“We are not going to have a depression, and we have survived financial crises before. A century of investing experience, as well as insights from the field of behavioral finance, suggest that investors who bail out of equities during times like these are almost always making the wrong decision.

Look at history: The market eventually bounded back from the damaging stagflation of the 1970s and the savings-and-loan crisis of the early 1990s, when a whole industry had to be rescued. Stocks also recovered from the Asian crisis of the late 1990s. Similarly, investors who held on after the more than 20% one-day stock-market decline in 1987 were eventually well rewarded.

Don’t forget that the U.S. economy is still the most flexible in the world and our “innovation machine” is alive and well.

No one has consistently made money by selling America short, and I am confident the same lesson is true today.”

~Burton Malkiel in today’s WSJ (click here)

Interesting commentary

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Some pretty good commentary from Kasey Gahler regarding:

1. A Look Back at the past 18 Elections – See What Elections Have Meant to the Economy Over the Past 72 Years (click here)

2. Past Market Rebounds – How Long Will it Take to Turn this Around? (click here)

3. What To Do During Turbulent Times – Some Tangible “To-Do’s” (click here)

Financial wisdom???

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If you had purchased $1,000 of Delta Air Lines stock one year ago, you would have $49 left.

With Fannie Mae, you would have $2.50 left of the original $1,000.

With AIG, you would have less than $15 left.

But, if you had purchased $1,000 worth of beer one year ago, drunk all of the beer, then turned in the cans for the aluminum recycling REFUND, you would have $214 cash.

Based on the above, the best current investment advice would be…

The other side of the coin

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With the news full of failing banks, dried-up credit and falling stock markets, it’s no shock that people are afraid about what’s ahead, entrepreneurs included. And yet even in the midst of all this, the opportunities ahead are bright for green businesses providing renewable energy.

In a recent post, I outlined the non-financial sections of the “Emergency Economic Stabilization Act of 2008” fully expressing my frustrations. But there are always two sides of every coin. Perhaps the silver lining in the “bailout cloud” was an extension and expansion of tax credits for renewable energy. The impact of the $700 billion bailout remains uncertain as this point, but the impact of these incentives for renewable energy is likely to be huge, helping to solve our financial problems, our climate problem, and our energy problems at the same time.

The bill provides for an eight-year extension of renewable energy investment tax credits covering up to 30% of the cost of solar power projects for homes or commercial sites. The short time frame of these tax credits in the past, and their frequent expiration from year to year have created enough uncertainty to dampen long-term growth. Eight years is long enough to allow for long-term planning, and encourage long term growth.

Along with the extension of the credits, the $2000 cap on the tax credit for residential systems has been removed. With a residential system of $30,000, the tax credit will be $9000 in 2009 rather than being limited to $2000 as before. While a large percentage of the solar market has been limited to states like California that have provided the most generous state-level subsidies, removing the cap will greatly expand the market for solar power across the country.

Distributors and installers will see opportunities expand nationwide. A recent study by Navigant Consulting found that extending these credits will create 440,000 jobs, contributing to the growth of green collar jobs, and these numbers did not include the removal of the cap.

Other renewable energy technologies will also benefit from the measures in the bill, including small wind, geothermal, fuel cells, and ocean (wave/tidal) energy. The measure allows utilities to take advantage of the investment tax credit as well, removing another restriction, and allows clean energy bonds to be created to support the creation of renewable energy production.

As renewable energy continues to grow and its costs fall, it’s becoming increasingly competitive with power from other sources like coal. These tax credits will help to get us there. We’re not out of the woods yet by a long shot, but these moves to a greener economy may help us dig our way out.

Survey indicates slowdown impacting landscape architects

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Less than half of landscape architecture offices responding were busier than usual last quarter, and only a quarter of firms plan to hire in the short term as the economic turmoil begins to be felt across the profession, according to the latest Business Quarterly survey by the American Society of Landscape Architects (ASLA).

Only 44 percent of the 267 responding landscape architecture offices reported average or above billable hours in third quarter 2008, (July 1 – Sept. 30), and just under 43 percent reported average or above inquiries during the same period—12 and 7 percentage-point reductions, respectively, from the previous quarter. Additionally, just over 25 percent plan to hire in the upcoming quarter, down from 29 percent in the second quarter.

“The reduced demand for landscape architecture work comes as no surprise considering the current problems with the economy,” said Nancy Somerville, executive vice president and CEO of ASLA. “International projects, particularly in the Middle East and Pacific Rim, are a strong and expanding source of work for many firms. Domestically, the public sector remains the most robust source of projects.”