Forbes Covers & Russia/China Gas Analysis Wrong

The world billion is on the June 16 cover.  I suppose it is an element they discovered must be on a cover to get optimum sales.  If so it is promoting personal accumulation as opposed to commonwealth.

This edition has some puzzling stories... A safer cigarette.  Oh.

And how a woman became the head of General Motors.  Well, we know how, General Motors is run by the government and a woman was put in charge.  There has never been a woman in charge before because opportunities are restricted in capitalism.  Putting a woman in charge just means a bit of theatre before it is run into the ground.

Forbes should do a story on how both the Mustang car and Marlboro cigarette were designed by men to be targeted to women.  And imagine that.  Women were not attracted to either.

In a free market there would be the optimum amount of women running whatever companies, because there would be no bar to women running car companies.  And then perhaps we'd see women designed cars.

Another very odd piece is Steve Forbes steps put of character to mock the Putin/China gas deal.

Putin is naturally spinning the pact as an “epochal event,” but in truth it’s really no big deal. Divide that $400 billion by 30 years and you get an annual average of $13 billion. The size of the global economy today is almost $80 trillion. Seen in that context the contract rates barely a footnote. AT&T’s proposed acquisition of DirecTV merits more attention.

Whew, the head spins.  Let’s see if we can find some borders:  we are comparing one deal to the entire earth's economy...  how is that enlightening?  And then comparing an early stage industrial material input (gas) to a final stage consumer service output (TV shows.)  Somehow, we are to equate a $400 billion gas deal with a $50 billion TV deal.  This is good analysis?

Let’s do a more sensible analysis.  Instead of comparing the presumed productivity of couch potatoes watching Seinfeld re-runs to Russian energy in China, let’s get some sort of benchmark by looking at what USA does with energy inputs.  So we head over to the go-to guys on energy, the American Petroleum Institute, with its headquarters in hell, but has pretty accurate records, and we find as to its studies...

They do not capture any forward linkages (i.e., the economic impact on production in sectors that use oil and natural gas as an input). 

Man, we need that info.  Someone should do it.  Sounds like a masters or Phd thesis.   But what this API report does have is this...

The industry’s total impact on US GDP was $1.2 trillion, accounting for 8.0 percent of the national total in 2011. 

So the USA national total was about 15 tril in 2011.  Given the 8% figure above, the multiplier effect for energy usage in USA is roughly 12.5 times.

So let’t take 400 billion Russia/China deal and see what that is worth in supporting economic activity over thirty years...I get five trillion dollars.

OK, let’s take it yearly, like Steve does.  13 billion times 12.5 equals $162.5 billion, per year.

China’s GDP in 2013 was about nine trillion in dollars, so using a USA benchmark,  this single deal adds $162.5 billion, or roughly 2 % to the economy in terms of productive value.  OK, does not seem like much, but 2% of an economy is no small thing.  And one deal out of how many?  Out of what trend?  And then reverse the impact, take that same amount away from Europe, to where the gas was earmarked before the stupid "sanctions", and ask how is Europe going to maintain its welfare state obligations with yet another input source lost?

  But we need to find a Chinese benchmark for how much leverage China gets out of energy.  I suspect China applies energy more directly, with less wastage in USA, getting more bang for the buck. This is another thesis for a masters degree.  I won't do it, but Forbes should have, instead of comparing Russian gas to China as opposed to people watching TV in USA.  

And for those 2014 graduates who are now heading into unemployment with a crushing debt, here is Steen Jakobsen - 

After close to 30 years of doing this job I am realizing that energy is everything in explaining growth, investment, sentiment and market returns.
Understand energy and its marginal price of production and its delivery and you have the keys to predicting the world.

That means top analyst Steen got his start in the mid-1980s, and he is just coming, end-of-career, to this realization about oil and energy.  I was already informed on this while in high school in the 1960s, as the anti-fascists made clear the American war in Vietnam was about the oil in the Spratly and Paracel Islands (over which Vietnam and China are contending today.)  With the switch to the poverty draft for the military, and the destruction of the labor unions by gutting the manufacturing base,   USA no longer has any pro-freedom, anti-fascist movement.  So the word does not get out at the beginning of one's career.  One advantage of taking down the capitalist patterns and practices would be to revive manufacturing and a labor movement in USA.  

So graduates, ask questions, take take the "truth" apart.  When Peter Drucker was in his youth before WWII in Austria, he had read all about the struggles to create the Panama Canal, to shorten northern hemisphere shipping times.  In all those histories, he did not ever read whether it paid off.  Did it have the intended economic result? The purpose was an economic result, but no one had ever bothered to see if it was achieved.  So he studied that and wrote it up.  Look at the facts, and ask the most obvious question.  This will most likely get you into trouble, especially if no one has answered it.  If an obvious question has not been asked, expect some powers that be do not want the answer out there.

But ask and answer the question, and way you go.  Drucker was no one special in his youth, indeed, he considered himself a bystander.  But his questions got him in front of all sorts of top people last century, including Sloan at General Motors, for which he did an efficiency study.  His questions turned Drucker into the premier biz thinker of the 20h century, and Drucker a mere sociologist.

And people who had him in class thought he was ever so boring.  He probably was.  Most of his books are dreadully so, but two I liked a lot, Innovation and Entrepreneurship and Adventures of a Bystander. Very readable and enlightening.

And incidentally, in Innovation and Entrepreneurship, Drucker lays out why entrepreneurs NEVER take risks. His argument is perfectly sound, which sent me off on the trail leading to banks lending off-sheet credit, and now with unlimited credit, needed to introduce the idea of risk to trap people into debt, which is how we got to where we are today.

Innovation and Entrepreneurship

Adventures of a Bystander



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