Monthly Archives: February 2014

Dream of U.S. Oil Independence Slams Against Shale Costs

Courtesy of Bloomberg. By Asjylyn Loder

The path toward U.S. energy independence, made possible by aboom in shale oil, will be much harder than it seems.

Just a few of the roadblocks:Independent producers will spend $1.50 drilling this year for every dollar they get back. Shale output drops faster than production from conventional methods. It will take 2,500 new wells a year just to sustain output of 1 million barrels a day inNorth Dakota’s Bakken shale, according to the Paris-based International Energy Agency. Iraq could do the same with 60.

Consider Sanchez Energy Corp. The Houston-based company plans to spend as much as $600 million this year, almost double its estimated 2013 revenue, on the Eagle Ford shale formation in southTexas, which along with North Dakota is one of the hotbeds of a drilling frenzy that’s pushed U.S. crude output to the highest in almost 26 years. Its Sante North 1H oil well pumped five times more water than crude, Sanchez Energy said in a Feb. 17 regulatory filing.Shares sank 7 percent.

Rethinking the Ban on Exporting U.S. Oil

“We are beginning to live in a different world where getting more oil takes more energy, more effort and will be more expensive,” said Tad Patzek, chairman of the Department of Petroleum and Geosystems Engineering at the University of Texas at Austin.

Drillers are pushing to maintain the pace of the unprecedented 39 percent gain in U.S. oil production since the end of 2011. Yet achieving U.S. energy self-sufficiency depends on easy credit and oil prices high enough to cover well costs. Even with crude above $100 a barrel, shale producers are spending money faster than they make it.

Missed Forecasts

Companies are showing the strain. Chesapeake Energy Corp., the Oklahoma City-based company founded by Aubrey McClendon, reported profit yesterday that missed analysts’ forecasts by the widest margin in almost two years. Shares declined 4.9 percent. Fort Worth, Texas-based Range Resources Corp. fell 2.3 percent after announcing Feb. 25 that fourth-quarter profit dropped 47 percent.QEP Resources Inc., a Denver-based driller, slid 10 percent after fourth-quarter earnings reported Feb. 25 fell short of analysts’ predictions.

The U.S. oil industry must sprint simply to stay in place. U.S. drillers are expected to spend more than $2.8 trillion by 2035 even though production will peak a decade earlier, the IEA said. The Middle East will spend less than a third of that for three times more crude.

Bulls Crow

Shale wells can vary in price. Chesapeake will spend an average of $6.4 million each this year, according an investor presentation last updated yesterday. Houston-basedGoodrich Petroleum Corp. will spend up to $13 million on some of its wells, Robert Turnham, president and chief operating officer, said in a Feb. 20 earnings call.

Bullish analysts and oil executives have reason to crow. While drilling in Iraq could break even at about $20 a barrel, output will be limited by political risks, Ed Morse, global head of commodities research at Citigroup Inc. in New York, said in a January report. By contrast, the break-even price in U.S. shale is estimated at $60 to $80 a barrel, according to the IEA. The price of a barrel hasn’t dipped below $80 since 2012 and has stayed above $90 since May. Costs in the U.S. will continue to fall as drillers get faster and improve results, Morse said.

Crude Exports

“The U.S. oil and natural gas renaissance is receiving significant investment because return on investment is good and competitive with other opportunities,” Rick Bott, president and chief operating officer of Oklahoma City-based Continental Resources Inc., a pioneer of shale drilling, said in an e-mail. “We’re confident that continued technological advancements will keep the Bakken and other plays at the forefront of investment for the foreseeable future.”

Harold Hamm, the chairman and chief executive officer of Continental Resources who became a billionaire drilling in North Dakota, told U.S. lawmakers Jan. 30 that the country, which U.S. Energy Information Administration data show supplied 86 percent of its own energy last year, can drill its way to energy independence by 2020. Hamm is leading an effort to get Congress to allow crude exports for the first time since the 1970s.

U.S. oil production will average 9.2 million barrels a day in 2015, up from 7.4 million last year, according to the EIA, the statistical arm of the U.S. Energy Department. Colorado boosted output by 11 percent in the first 11 months of last year, Wyoming was up 12 percent and Oklahoma added 24 percent.

“I don’t see the shale boom coming to an end,” said Andy Lipow, president of Lipow Oil Associates, an energy consulting firm in Houston. “We’re just getting started in places like Colorado, Wyoming and Oklahoma.”

Horizontal Wells

Sanchez Energy said in a Feb. 19 statement that Sante North 1H isn’t yet finished and the well will produce more oil than the early report suggested. The company said it has 120,000 acres in the Eagle Ford and plans to spend 90 percent of its exploration budget there this year. The company’s shares have risen 63 percent in the past year.

Traditional wells are bored straight down, like straws stuck into large deposits of crude. Shale is tapped by steering the drill horizontally through layers of oil-rich rock, sometimes for a mile or more. The formation is blasted apart with a high-pressure jet of water, sand and chemicals, a practice called hydraulic fracturing or fracking, to open up cracks that free pockets of trapped fuel. The complexity and materials needed to drill horizontally and blast the rock add to the cost.

Yield Little

The boom’s boosters have given rise to the misconception that wringing oil and gas from shale can be easily replicated throughout the country, Patzek said. That isn’t the case, he said. Every rock is different. The Bakken shale, along with the neighboring Three Forks formation, covers an area larger than France, according to the IEA. An oil-bearing formation that’s 400 feet (122 meters) thick in one spot may taper off to nothing just a mile away, Patzek said. What works for one well may yield little in a neighboring county.

The output of shale wells drops faster, too, falling by 60 to 70 percent in the first year alone, according to Austin, Texas-based Drillinginfo Inc. Traditional wells take two years to fall by about 55 percent before flattening out. That forces companies to keep drilling new wells to make up for lost productivity.

“You keep having to drill more and you keep having to spend more,” said Mark Young, an analyst with London-based Evaluate Energy, which tracks production and its costs.

Sweet Spots

A prolonged slide in prices below $85 a barrel may put pressure on operators that have struggled to contain costs or that don’t own acreage in the prolific “sweet spots” of the oil fields, said Leonardo Maugeri, a former manager at Rome-based energy company Eni SpA who’s researching the geopolitics of energy at Harvard University’s Belfer Center for Science and International Affairs.

Companies have boosted well productivity and will continue to whittle down the break-even price, he said. While the boom could survive a brief dip in oil prices, a long slump could slow drilling and cause production to fall swiftly, Maugeri said.

“To sustain in the short term, the U.S. needs prices at $65 a barrel,” Maugeri said. “That’s a critical level. Below that level, many opportunities will vanish.”

The U.S. benchmark oil contract for West Texas Intermediate crude for delivery in April 2016 is trading at about $85 a barrel, almost $18 a barrel less than today and still $20 above Maugeri’s threshold.

Net Debt

Even with crude prices above $100 a barrel, U.S. independent producers will spend $1.50 drilling this year for every dollar they get back from selling oil and gas and will carry debt that is twice as much as annual earnings, said Ryan Oatman, an energy analyst with SunTrust Robinson Humphrey Inc., an investment bank in Houston.

By contrast, the net debt of Exxon Mobil Corp., the world’s largest energy explorer by market value, is less than half of the cash earned from operations last year. The company will spend 68 cents for every dollar it gets back this year, according to company records and analyst forecasts compiled by Bloomberg.

So far, oil prices have been high enough to keep investors interested in the potential profits to be made in shale, Oatman said.

“There is a point at which investors become worried about debt levels and how that spending is going to be financed,” Oatman said. “How do you accelerate and drill without making investors worried about the balance sheet? That’s the key tension in this industry.”

To contact the reporter on this story: Asjylyn Loder in New York ataloder@bloomberg.net

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WhatsApp With the Minimum Wage?

By Lloyd Graff

Jan Koum: Founder of WhatsApp, app sold to Facebook for $19 billion

Connecting the dots …

Jan Koum, an immigrant from Kiev, Ukraine, sells his five-year-old company, WhatsApp, for $19 billion to Facebook. Ukrainian people overthrow Viktor Yanukovych, a corrupt dictator allied with Russia and Vladimir Putin. Democrats make income inequality and minimum wage law reset into campaign issues. Republicans put immigration change off the table for internal political reasons going into 2014 elections. Luxury buses traveling from San Francisco to Silicon Valley become a political issue. Vivek Ranadivé becomes lead buyer of the Sacramento Kings NBA franchise.

Jan Koum came to the U.S. in 1992 as a 16-year-old with his mother and grandmother with no money. They settled in Mountain View, California, in a tiny apartment paid for by a Jewish philanthropic group in the Bay Area, set up to help Jews leaving anti-Semitic Russia and Ukraine. A few years earlier, Sergey Brin, co-founder of Google, had come to America for similar reasons. His father had been kicked out of his university teaching job because he became a Jewish Refusenik in Moscow.

Koum’s mother eventually fell ill with cancer and the family had to survive on food stamps. Koum developed a passionate interest in computer programming and attended San Jose State University. He then got a job at Yahoo!. He left Yahoo! in 2007 with his friend, Brian Acton, and went traveling for a year, playing a lot of Ultimate Frisbee and thinking about a new company to start. He had friends and family spread across the world in Ukraine, Israel and South America. He saw an opportunity to create WhatsApp, a cheap messaging app that would be difficult to trace and insure privacy for people in places like Russia and Ukraine.

Facebook announced it was purchasing WhatsApp for $19 billion on February 19. The app was reportedly used by many people in Kiev during the rebellion that culminated in Yanukovych leaving office last Friday.

When Jan Koum was looking for venture capital, he connected with Jim Goetz of Sequoia Capital, which put up the money for early development. They often met at Red Rock Coffee in Mountain View, around the corner from the government office that helped sustain Koum’s family with food stamps. The baristas that served him were making $10 an hour, but if they were working for primarily tips, the minimum wage was $2.31 per hour. The controversy over raising the minimum wage and the bigger argument over the gulf between the rich and poor and the rich and middle class in America is sowing the seeds of a national sense of resentment. The minimum wage is all over the map. For a disabled person working in a sheltered workshop it is $2.50 per hour. It is $4.76 per hour for tuna canners in American Samoa. The minimum wage in 1968 is worth $9.40 today, and the $5 per day that Henry Ford instituted in 1913 is the equivalent of $14.71 per hour today.

Personally, I think the country would be better served with a $10 minimum wage, though we would see fewer fruit pickers and maybe higher priced fries at McDonalds. Perhaps there would be fewer workers, too. I doubt it would do much one way or the other for employees at Starbucks and Red Rock Coffee.

We hear the Republicans cannot get their act together to pass immigration reform because it might hurt Mitch McConnell in his re-election bid in Kentucky. A guy like Mark Zuckerberg will give big money to Chris Christie and Corey Booker, a Republican and a Democrat, because immigration and education reform brings in people like Koum from Ukraine, the family of Zuckerberg’s wife, the Chans, from Vietnam, and the vast talent needed to fuel Silicon Valley firms like Facebook. The Republicans lost the Presidential election in 2012 because Mitt Romney stupidly alienated immigrants and received 29 percent of the Latino vote. When will they ever learn?

Meanwhile, the Googles and Apples and Intels are running luxury busses from San Francisco to Silicon Valley to bring in the folks who no longer can afford to live in Koum’s Mountain View, but not to bring busboys and floor sweepers making low wages. It is symptomatic of the economic divide that includes the war veterans of Iraq and Afghanistan, who often come back with few marketable skills. Jan Koum’s firm, WhatsApp, has 55 employees. He doesn’t need busses, yet.

The Ukraine and India seem like exotic, faraway places. But if you go to Silicon Valley, you see a place filled with a lot of people who have struggled to come there, whether they are the Jews who lucked out of Ukraine and Russia, Mexicans doing the tough jobs others put up their noses at, or the intellectual elite of India who seek a place where their smarts will be rewarded, such as Vivek Ranadivé. Ranadivé came to the U.S. with $100, talked himself into MIT, and today is the majority owner of the Sacramento Kings NBA franchise.

The people of Ukraine want a chance. Today they know WhatsApp in the world.

Question: Would a $10 minimum wage have a positive effect on your business?

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What exactly is an entrepreneur?

Courtesy of The Economist.

Entrepreneurs are everybody’s favourite heroes. Politicians want to clone them. Popular television programmes such as “The Apprentice” and “Dragons’ Den” lionise them. School textbooks praise them. When the author of this blog was at Oxford “entrepreneur” was a dirty word. Today the Entrepreneur’s Society is one of the university’s most popular social clubs.

But what exactly is an entrepreneur? Here the warm glow of enthusiasm dissolves into intellectual confusion. There are two distinctive views. The first is the popular view: that entrepreneurs are people who run their own companies, the self-employed or small-business people. The second is Joseph Schumpeter’s view that entrepreneurs are innovators: people who come up with ideas and embody those ideas in high-growth companies.

Schumpeterians distinguish between “replicative” entrepreneurs (who set up small businesses much like other small businesses) and “innovative” entrepreneurs (who upset and disorganise the existing way of doing things). They also distinguish between “small businesses” and “high-growth businesses” (most small businesses stay small). Both sorts have an important role in a successful economy. But they are nevertheless very different sorts of organisations.

Most people who try to measure how entrepreneurial a society is try to measure the first type of entrepreneurship. They measure the number of small businesses or the number of people who are self-employed or the number of startups. But this produces perverse results. Egypt regularly comes out as more “entrepreneurial” than the United States. It also produces a highly distorted picture of entrepreneurial activity within advanced economies.

In America most self-employed people do grunt-work in highly conservative industries: construction, landscaping, car-repair, restaurant and truck driving for men and cooking, cleaning and beauty salons for women. Most small companies are Mom-and-Pop stores that will always stay in the family. Three-quarters of people who start companies say that they want to keep their companies small enough to manage themselves.

In a new paper Magnus Henrekson and Tino Sanandaji argue that the number of self-made billionaires a country produces provides a much better measure of its entrepreneurial vigour than the number of small businesses. The authors studiedForbes’s annual list of billionaires over the past 20 years and produced a list of 996 self-made billionaires (ie, people who had made their own money by founding innovative companies as opposed to people who inherited money or who had extracted it from the state). They demonstrated that “entrepreneur density” correlates with many things that we intuitively associate with economic dynamism, such as the number of patents per head or the flow of venture capital.

They also demonstrated it correlating negatively with rates of small-business owners, self-employment and startups—in other words that many traditional measures are about as misleading as you can get.

Countries with a lot of small companies are often stagnant. People start their own businesses because there are no other opportunities. Those businesses stay small because they are doing exactly what other small businesses do. The same is true of industries. In America industries that produce more entrepreneur billionaires tend to have a lower share of employees working in firms with less than 20 employees.

This makes sense: successful entrepreneurs inevitably destroy their smaller rivals as they take their companies to scale. Walmart became the world’s largest retailer by replacing thousands of Mom-and-Pop shops. Amazon became a bookselling giant by driving thousands of booksellers out of business. By sponsoring new ways of doing things entrepreneurs create new organisations that employ thousands of people including people who might otherwise have been self-employed. In other words, they simultaneously boost the economy’s overall productivity and reduce its level of self-employment.

Who are the Schumpeterian entrepreneurs who dominate the modern economy? And how do you create more of them? Messrs Henrekson and Sanandaji argue that the majority of the world’s wealthy entrepreneurs acquired their riches by starting a business: 65% in America, 42% in Europe and 52% overall. The list of entrepreneurial hot spots contains a cross-section of countries (see chart), some in the West such as America (ranked at number 3) and Switzerland (4) but also some Asian dragons such as Hong Kong (number one by some way), Singapore (5) and Taiwan (8). Israel (2) is the only country from the Middle East.

Entrepreneurs tend to be highly educated: 45% of American self-made entrepreneurs have advanced degrees, a sharp contrast with the early 20th century, when men like Henry Ford dropped out of school to become tinkerers. They also tend to focus on high-tech and finance. The bulk of American entrepreneurs come from just three clusters: Boston, New York and Silicon Valley. The millionaires may live next door to the average American, as a bestselling book once argued, but billionaires live in their own little enclaves.

The authors are less informative about the second question. They warn that high taxes can encourage replicative entrepreneurship rather than innovative entrepreneurship. The self-employed face lower tax rates than the employed (and can evade taxes more easily). They also face a lower chance of being audited. This encourages companies to stay small and encourages workers to sell their labour to small companies rather than big companies. The same is also true of heavy regulation. They warn that conceptual confusion over the nature of entrepreneurship can also create policy confusion: attempts to boost the number of small businesses can reduce the likelihood that one of those small businesses will outcompete all the others.

Schumpeterian entrepreneurship is all about innovation and ambition to turn small businesses into big ones. Small business entrepreneurship is all about flexible employment and poor opportunities. But the authors have little to say about how to create the network of institutions that they think helps to create entrepreneurship: high-powered universities and dense clusters of activity of the sort that flourish in Boston and Silicon Valley.

Still, if Henrekson and Sanandaji do not provide us with the key to the secret kingdom, they at least make sure that we are trying to get through the right door.

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Talented at Doing Nothing

By Noah Graff

People sitting around doing nothing

In January, I vacationed in a Latin American country. I won’t name the country out of respect for a few friends who were offended by me singling out people from their nation.

My trip was wonderful. I went to the beach, danced a lot of salsa and most importantly got to know a lot of the native people. I found the people there intelligent, outgoing and warm, but the more time I spent with them I noticed a distinct trait — they were very “talented at doing nothing.” As I walked the streets, I often saw many people standing outside their doors simply watching time go by. Maybe they were playing dominoes or making small talk with each other, but other than that — nothing. When I use the word “talented” to describe this trait, I’m not saying it entirely tongue and cheek. “Doing nothing” truly is a skill — a skill that I am poor at.

My intention is not to accuse the people of this country or any other Latin American countries of being lazy and unproductive. Maybe many people there are lazy and have no ambition. Perhaps they have no money to participate in stimulating activities. That’s not my point. Sitting around, not doing much of anything is the cultural norm over there, and the more time I spent with the locals, the more culture shock I experienced.

I stayed the first two days of the trip with some friends who ran a bed and breakfast in a sleepy beach town. I was aching to go see some tourist sites, go to the beach, or even just go for a run. But I also wanted to spend time with my friends, and they mostly just wanted to sit around the house. I had no cell phone, no Internet access, no TV and my Spanish is slow and mediocre, which made conversation an effort — although at times a fun challenge. I felt awkward in the idleness. I felt frustrated because I was squandering my precious vacation time to “do stuff.” But then I forced myself to relax to some extent and go with the molasses-like flow. I realized that “doing nothing” was an important part of truly experiencing their culture, so I stopped fighting it.

I think most Americans have trouble doing nothing. For me, stimuli from either work or entertainment are a constant consumption, on par with water. If I’m alone at a restaurant, if I’m waiting for a bus, if I’m in the bathroom, I’m probably reading something — a newspaper, my computer, my phone. In the car, 99 percent of the time I’m listening to an audio book or music. After work, I usually go work out, then do some work or watch TV. In this scenario, I am classifying watching TV as “doing something,” because the native people on my vacation seldom watched TV.

After spending 11 days with virtually no Internet, newspapers, or TV, I feel slightly more patient with mundane, empty time. Only slightly more patient, but at least I’m aware of the constant stimulation I crave and take for granted.

Question: Could you be happy without TV and Internet?

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By Helping Detroit, Did The UAW Lose Its Future?

Courtesy of Forbes. By Micheline Maynard

Reverberations continue from the United Auto Workers’ unexpected defeat Friday night in its campaign to organize workers at Volkswagen’s Chattanooga, Tenn., plant.  One key question being asked in automotive and labor circles is whether the UAW gave up its future when it helped the Detroit carmakers get back on their feet.

The discussion stems from the two-tier wage provisions in contracts governing union workers that have been hired since since the 2009 bailouts at General Motors GM +0.89% and Chrysler.

Two-tier provisions have been around for some time, but with the car companies slashing jobs, they weren’t much of a factor until after the bailouts took place.

Thanks to concessions made by the union, the auto companies have added back thousands of new workers, buoyed by less-restrictive hiring terms.

Initially, the UAW agreed that newly hired workers could earn around $14 per hour, compared with $28 for veteran union members. These starting workers, who are called “two-tiers” in auto lingo, have since gotten a raise, but their pay remains significantly below that of longer-term workers.

This creates something of a second-class citizen situation within a union that has always prided itself on solidarity, even affecting workers in the same family, whose pay depends on when they were hired.

While the two-tier structure was devised as temporary, there’s no indication when or if these new hires will ever be able to catch up to the wages their assembly line “elders” make. (In Canada, the auto workers union included a clause that gives two-tiers the chance to get to full pay, although it could take years.)

According to the Detroit News, some VW workers cited lower starting wages for new workers at Detroit car plants as a reason why they turned down the UAW. They didn’t see the point of joining a union, paying dues, and potentially losing political support for Volkswagen, when it wasn’t clear that the UAW could help them earn more money. 

One VW worker, Mike Jarvis, said he already earned more than two-tier workers at Detroit factories (although VW workers earn less than veteran workers in Detroit plants). Another VW employee, Ronnie Shaver, said he doubted the UAW could help VW workers catch up to the highest earning Detroit hourly workers. “That’s not going to happen,” Shaver said. “They haven’t had a raise in 10 years.” Both workers opposed the organizing drive.

The two-tier strategy “proved the union’s undoing in the organizing election last week,” wrote David Barkholz, a reporter for Automotive News. “The value proposition to VW workers just wasn’t there.”

Barkholz noted that the union, whose workers did not take a wage cut as part of the bailout, did not try to win wage increases during 2011 contract talks, which took place after the companies were again profitable. The union is now vowing to do so in 2015 contract talks, as Nick Bunkley of Automotive Newsreported Monday.

But, said Barkholz, “That’s going to be too late to win the hearts of VW Chattanooga workers.”

Throughout the past 30 years, the UAW has argued that its representation of workers at Detroit companies benefited those at foreign companies in the United States, which are known as transplants. Indeed, in the initial round of factories opened by Honda, Toyota and Nissan in the mid-South, workers earned wages at or close to rates for veteran workers. This high pay was seen as a crucial weapon in the companies’ ability to keep out the UAW, despite efforts to organize the factories.

But employees at the newer wave of factories in the Deep South are receiving much less than veteran UAW members make. Auto companies doing business in Texas, Alabama, Georgia and elsewhere are able to pay significantly lower wages than the top UAW scale, and even the wages that other transplant workers earn.

While that seems unfair to the newest auto workers, the prospect of jobs in car plants has still drawn hundreds of thousands of applicants, making it clear to the companies that people are satisfied with these lower rates.

The UAW’s future organizing efforts could be made even more difficult if it decides to get pay raises and higher two-tier rates at the Detroit factories in 2015.

On one hand, the UAW feels an obligation to look out for the workers who have formed the core of its automotive membership. But on the other, their higher wages simply raise expectations for the employees the UAW would like to represent. And, those high wages are promises the UAW may be unable to keep, putting the union’s future organizing efforts at risk.

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A Book Review — Windfall: The Booming Business of Global Warming

By Jerry Levine, Writer for Today's Machining World

I am a global warming (GW) cynic—not a total skeptic, nor a true believer. I am cynical because I know what motivates many of the people involved—what else, money. I know the hypocrisy of those who talk tough about others’ requirements, but renege on their own actions. And I know that this is a rich world’s problem that may be laid on the backs of the poor.

In McKenzie Funk I’ve found a fellow traveler. His recently published, Windfall: The Booming Business of Global Warming is about people looking for an opportunity to profit off GW. Whether there is a real crisis or not, it doesn’t matter. Making money is the objective. Their legions are many—wind and solar manufacturers, oil and mineral companies, seawall builders, bottled water companies, genetically modified seed producers, and inventors and patent holders in new technologies like geoengineering.

Funk cynically notes the first big GW financial success was Al Gore’s movie, The Inconvenient Truth. While the movie was not much more than a power point presentation, it grossed about $50 million. In full disclosure, from 1997-1998 I served on a committee chaired by Gore to determine a ballpark estimate for the U.S. to meet the Kyoto Treaty. The total estimate was between $500 billion and $1 trillion per year (about 3-6% of GDP). That’s enough of a tax to throw the economy into a severe tailspin. This is the real “Inconvenient Truth” that stalls significant emission reductions in the U.S. and around the world. The immediate cost is far too high, and the savings are much too far into the future.

That is why I am a cynic. Many countries talk tough, but waffle when their economy is impacted. The European Union’s recent backdown from their self-imposed 2020 requirements is a perfect example.

So, what are we to do about climate change? After examining many alternatives, Funk points to geoengineering as the answer—seeding the stratosphere with microscopic sulfur dioxide particles to shade the sun’s rays—but the potential downsides gave him cold feet at the end.

To write this book, Funk spent six years traveling the world, talking to creative people. Among them was Bill Gates, whose foundation has spent billions on disease eradication and genetically modified (GM) seeds but has not spent a penny on mitigating carbon emissions. Gates believes the best way to address climate change is to help poor farmers adapt. “A stalk of GM rice is just like a seawall, and far more cost effective” he said.

Funk visited Nathan Myhrvold, Microsoft’s former chief technologist and current CEO of Intellectual Ventures (IV). Intellectual Ventures is working on geoengineering and patenting methods to stop hurricanes, refreeze the Arctic and cool the Earth using sulfur dioxide aerosols. The idea is to simulate the effect of large volcanic eruptions. This phenomenon was first observed by Benjamin Franklin in 1783 when he was stationed in Paris and severe Icelandic volcanic eruptions caused temperatures in the Northern hemisphere to plummet. The Mt. Pinatubo eruption in 1991 in the Philippines was the most recent example. World temperatures fell by about 1 F for a year after Pinatubo. Newt Gingrich, before his 2012 presidential run, echoed the sentiment in his campaign literature when he said, “Instead of imposing an estimated $1 trillion cost on the economy, geoengineering holds forth the promise of addressing GW for just a few billion dollars a year.” Myhrhold has now attracted funding from the Gates Foundation.

Funk points out that climate activists strongly oppose a broad set of solutions. They have the one solution—cut back, live lightly and go renewable. They believe everyone must do with less.

That solution is impractical, yet adherents preach it like a religious ideology. They say global warming is God’s punishment for the world’s population growth and profligate life style of its inhabitants.

Myhrvold stated that the strategy of relying only on emissions reductions was particularly burdensome to the poor, who cannot afford to do much. Asian countries want industrial development to move out of poverty. I don’t know how one can morally or physically stop them. Africa’s people live on the edge. Right now they are starving and dying of malaria, dengue fever and other diseases that could be alleviated by a fraction of the amount the rich world wants them to spend on ameliorating climate change. It’s clear the poor and hungry don’t have the same priorities as the wealthy elites.

Funk concludes with a discussion of magical thinking—namely that a growing belief in the impending cataclysm of global warming will lead to a real worldwide effort to stop it. But all he sees in reality is a bunch of entrepreneurs looking for short term gain.

Question: Does climate change worry you?

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Down with the Experts

By Lloyd Graff

Onlookers snapping shots on the Royal couple’s wedding day, 2011

The do-it-yourself wedding photography approach asks wedding guests to take pictures with their phone cameras or digital cameras, email them to the bride and groom and let them edit the photos for an online or printed album.

Is this a better approach than the traditional wedding photographer who poses the family and walks around shooting candids, and then charges a small fortune for the finished product? Maybe a great wedding photographer can come up with a few unforgettable images which frame a memory of the historic event. But the potential of the guest photo shoot approach, if you can really enlist friends and family in the effort, is sensational. And the price of the product is a fraction of the pro’s work.

This idea of forsaking the “expert” by using new tools available to the masses has interesting ramifications in business.

This week I have been analyzing our machinery business’s performance last year, and two glaring expenses leaped out at me, accounting and insurance. In both cases we relied upon big firms with good reputations. They let us down with big fees and mistakes.

On insurance, we changed Workers’ Comp firms and the new firm doubled our rate after one year, without any reason. It took the credible threat of a lawsuit to extract us from their clutches. Our insurance brokers just threw up their hands and left us to fight with them. They did not offer to mitigate our losses resulting from placing our business in the hands of an unscrupulous firm.

Our new national accounting firm won our business by telling us an amount to expect to pay for their services. Their fees came in three times their estimate, partly because they forced us to redo everything because they messed up which year to put certain sales in. We had to pay extra because they misunderstood the way we identified the sales dates of machines.

Now I am wondering if we should dump the experts who failed us badly last year. I am considering hiring consultants for insurance and accounting to advise us on how to do them ourselves. The CPA could put their name on the financial statements for our lender. I think we could save major money, but I wonder what you folks think. There is a lot of good software and data to help us on this.

On the machining front, I see many companies bringing work in-house that they had thought was beyond their expertise. With good machines, tooling and support, they can take control of vital processes from distant suppliers in China.

I take a cue from our lawyer, Russell Etheridge, a solo practitioner in Detroit who has helped us out of many legal hassles over 20 years. He operates without a cumbersome, expensive staff and pursues a common sense approach, not a legalistic one. I think he is ahead of his time.

Question: Do you prefer to work with small firms or large firms?

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Impossible art: Mind-bending, 3-D printed masterpieces

Courtesy of CNN. By William Lee Adams

3-D printers deposit material layer by layer to create a solid object, as in this dramatic headpiece by Joshua Harker. In the past each of the elements would have been crafted separately and then pieced together. 3-D printing simplifies the process and prints the work in one go.

(CNN) — Thanks to 3-D printers, dentists can today print false teeth and medical device manufacturers can print hip replacements.

Such creations are useful, but not exactly sexy. Thankfully, artists are demonstrating another dimension of the technology, printing remarkable creations that wouldn’t have been possible even a decade ago.

Take Tobias Klein. The German artist wanted to meld the architecture of St. Paul’s Cathedral with representations of his own body.

Approximating the shape and dimensions of your own heart is a challenge, but Klein did not have to guess. He underwent a series of MRI scans, and then, with a few clicks of the mouse, was able to view his own heart in 3-D.

He then merged that with a representation of the dome of St. Paul’s and sent the design to a 3-D printer, which deposited material layer by layer to create a solid object.

The result was ‘Inversive Embodiment,’ a twisting, mind-boggling sculpture that links man-made architecture with the architecture of a man.

“It allows me to move into more eccentric areas,” Klein says. “We see a super beautiful influx of people working with the medium. We’re just seeing how far this can go.”

New possibilities

According to Wohlers Associates, a manufacturing research firm, the market for 3-D printing topped $2 billion in 2012, up nearly 30% from the year before. And while most of the cash comes from manufacturing companies, artists are throwing ever more dollars at 3-D printers and related technologies.

The desire to innovate is driving the trend, as are falling prices and the increased availability of 3-D printers.

Suzy Antoniw organized “3D: Printing the Future”, an exhibition running at London’s Science Museum until June 15.

“Although 3-D printing as a technology isn’t that new, there has been an explosion of creativity around it in recent years,” she says. “It gives artists more design freedom and enables them to create amazing things.”

Bernat Cuni, one of the artists featured in the exhibition, takes children’s drawings and, using computer aided software, blows the images up like balloons. A 3-D printer then produces these so-called ‘crayon creatures,’ turning scribbles into mini sculptures.

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Why Volkswagen is helping a union organize its own plant

Courtesy of The Washington Post. BY LYDIA DEPILLIS

This week at Volkswagen’s plant in Chattanooga, Tenn., 1,570 workers will vote on whether to join the United Auto Workers. It’s a big deal: While the big three American carmakers are all unionized, so far the foreign companies have avoided it by locating in Southern states with strong Right to Work laws. From their perspective, unions usually just mean work stoppages, expensive benefit plans, and the inability to fire people at will.

That’s what’s weird about the VW vote: The German company is campaigning for the UAW, not against it, in a kind of employer-union partnership America has seldome seen. What gives?

Well, VW is kind of different, as automakers go. It understands how having a union can boost productivity and allow it greater flexibility in adjusting to downturns. It should know: The rest of its plants are unionized too.

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50 and Out of Work

By Lloyd Graff

Courtesy of “The Chicago Tribune.” Diana O’Connor poses Tuesday in downtown Chicago. Even with a Teacher of Distinction award from Golden Apple, she has been unable to find a teaching job.

Diana O’Connor, a high school music teacher in Suburban Chicago, had the best of days and the worst last February. She recounted it in an excellent column by Mary Schmich in yesterday’s Chicago Tribune.

O’Connor received a letter in the mail a year ago saying she was a finalist for the prestigious Golden Apple Award, which is given to a few of the best teachers in Illinois every year. Tucked into the same batch of mail was a letter from her school stating that she had been fired from her job at Lakes Community High School in Lake Villa.

The column denoted O’Connor’s difficulty in finding another position as a high school music teacher, a job she loved, despite her noteworthy accolade as a Golden Apple finalist. In the article, Schmich quoted many of O’Connor’s peers who gave her glowing praise.

My wife Risa read the article before I did and gave me the gist of it. My reaction was that of a hardened cynical boss who had seen many washouts with good reps. “I wonder what’s wrong with the woman?” I said. “There are always people looking for somebody good.”

Diana O’Connor has now been out of work for a year, and her unemployment benefits are running out in a few days. She is recently divorced with two teenagers at home. She gets child support from her ex-husband but is now filing for Medicaid. But my response was a hard-hearted “what’s wrong with her?”

In the machining world where I live, know-how, experience and peer recognition are highly valued. If she was a setup person with 25 years in the field, or a journeyman mechanic, or a sophisticated quality consultant she would be snapped up in no time — unless she had a history of job hopping or union organizing.

The Tribune columnist implied that O’Connor has had difficulty finding work because she is 50 years old — and is perhaps expecting a high salary because of extensive work experience. In my world, experience is gold and highly sought. I’d be shocked if it is not prized in the teaching field, but am I wrong?

I recently hired a highly experienced and fully vetted person as Graff Pinkert’s office manager. I was looking for an “adult,” a seasoned veteran who was sophisticated in business. I felt fortunate to find such a person. So when I read the Tribune piece about the award winning teacher who cannot find a job, my antennae perked up. I was perplexed and a tad cynical.

I am interested if you find her story emblematic of today’s job world and troubling. Or is your reaction similar to my own? What’s the rest of the story? What’s wrong with her?

Question: Are you skeptical of somebody who’s been out of work a long time?

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