That Which Is Unseen

Some economic news:

This morning’s jobs report shows that the economy’s subsidized private sector (industries like health care services that receive big government subsidies) is back as a major source of new hiring.

If a stronger but sustainable U.S. recovery depends on reinvigorating industries not heavily dependent on government largesse, then this hiring out-performance by the subsidized private sector is a bearish indicator.

As Tonelson figures it, the subsidized private sector created 65,000 net new jobs in December, nearly 40% of total private-sector job growth, about the same as throughout the recovery. But is that a lot or a little?

One easy way to tell if an economist is shallow is to see how they analyze the role of government in the economy.  In this case, the assertion is that the government was responsible for about 40% of new net job creation.  But, I wonder, how much net job destruction the government was responsible for.

“Cheap Labor”

Turns out it’s neither cheap nor labor:

“In 2010, 36 percent of immigrant-headed households used at least one major welfare program (primarily food assistance and Medicaid) compared to 23 percent of native households,” summarizes the document which was published by the Center for Immigration Studies and examines a wide variety of topics relating to immigration. Click HERE to read the full report.

The document breaks down the immigrant families by country of origin and gives specific types of welfare and percentages of the families that used it in 2010. An average fewer than 23 percent of native households use some type of “welfare” which is specifically defined in the study. 36 percent of households headed by immigrants use some type of welfare. Families headed by immigrants from specific countries or areas of the world range from just over 6 percent for those immigrants from Great Britain to more than 57 percent of those from Mexico using some type of welfare. [Emphasis added.]

From now on, I’m going to call bullshit on people who tell me how hard-working and thrifty Mexicans are.  If that’s the case, why are 57% of Mexican immigrants receiving money from the federal government of the United States?  Why are the taxes of American citizens being used to pay for people from shithole third world countries?

Also, I’m going to call bullshit on dumbass economists who insist that what we need is more cheap labor from Mexico.  Hint:  labor isn’t actually cheap if it’s federally subsidized.  The savings of cheap Mexican labor are apparently illusory.  What cheap labor really amounts to is federal subsidy scam.

What we’re seeing now is nothing more than a government that is forcing its citizens to pay for their cultural, economic, and social suicide.

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The IRR of UIDAI is over 50 per cent in real terms

We have released a cost-benefit analysis of the UID system. In one line, the result of the calculations, under fairly conservative assumptions, is that the IRR of building the system is 53% in real terms. Hence, building UIDAI is a pretty good use of public money.

Through this page, you can access a short and accessible explanation, a video presentation, and the full PDF paper. We have also released the spreadsheet used in our calculations, so that others can modify the assumptions or other numerical values, and obtain alternative answers.

This is true in the Indian case. Is it true in general? I feel the answer depends on (a) The scale of expenditure on subsidy programs and (b) The extent to which present implementation systems suffer from the kinds of leakages that UID readily addresses (multiple payments to one person, payments to ghosts). If a country has small welfare programs, that would undermine the case for UIDAI. If a country is doing a pretty good job of paying out subsidies through conventional procedures, that would undermine the case for UIDAI.

Transparency in the LPG subsidy

by Viral
Shah.

Recently, the Petroleum Minister launched the LPG transparency portals for all three Oil Marketing Companies (OMCs):

The Oil Marketing Companies have been constantly leveraging technology to launch various initiatives for offering convenience to their consumers For example, some of them are offering the facility for booking refill cylinders 24×7online through their websites as well as through SMS and IVRS. In continuation of their endeavor to leverage technology to achieve more efficiency and improve business processes, Oil Companies have now put in place systems to capture the complete details of customers and track their LPG consumption pattern with an aim to increase transparency in LPG supply chain.  With this information, each OMC has created a transparency portal which is hosted on their individual websites. These portals can also be accessed from MOPNG’s website. These portals provide complete details of each customer with their consumer numbers, name, address, no. of cylinders supplied, dates of supply as well as the indicative subsidy amount for the cylinders supplied.  The portals feature quick search options to find one’s distributor,sort information based on consumer numberand consumer name, see thehighest off take consumer orput in a request to surrender one’s connection.   Logging a complaint is just as easy. Consumers can now even rate the performance of theirdistributors; and this is expected to help the services to improve further. These portals would truly empower the consumers and civil society to verify or seek information under one roof and bring about transparency in a government program where thousands of crores of subsidy is involved.

Links for the transparency portals are:

* Indane
* Bharat Gas
* HP Gas

LPG distribution

The production, supply, and distribution of Liquified Petroleum Gas
(LPG) is governed by the Essential
Commodities Act, 1955 and the LPG
Control Order, 2000. The LPG Control Order specifies various
aspects of LPG distribution in great detail: storage, transport,
bottling, packaging, consumer connection, etc. Subsidized LPG is
provided largely for domestic use, but institutional use is permitted
for Government schools, hospitals, canteens, police stations,
etc. Subsidized LPG cylinders are red in colour and contain 14.2kg of
LPG, whereas commercial LPG cylinders are purple and contain 19kg of
LPG. LPG is supplied to consumers through distributors, who are paid a
commission for every cylinder they deliver. Distributors have very
thin margins for subsidized LPG, and are given distribution rights by
area by the OMC. Margins for commercial LPG are higher, with no
restrictiction on distribution. Thus, by design, there is no
competition between distributors for subsidized LPG, but commercial
LPG is supplied competitively. Almost 90% of the usage in India is
domestic, and hence subsidized.

LPG subsidy

A detailed price computation for an LPG cylinder shows that as of June 1, 2012, the consumer pays Rs.399 per cylinder in Delhi, and receives a subsidy of Rs.418 per cylinder. The true subsidy is only Rs.22 per cylinder, and the rest is termed under recovery to OMCs. The Government funds the full subsidy amount of Rs.22, but the under-recovery is funded out of profits of ONGC, OMCs, and partially by the Government. It is also worthwhile to note that LPG is exempt from Excise Duty from Central Government, and often also exempt from VAT.

Sr.
Elements (Delhi)
Unit
Effective 1st June’12

1
Free On Board Price at Arab Gulf of LPG
$/MT
852.78

2
Add: Ocean Freight from AG to Indian Ports
$/MT
43.39

3
Cost & Freight Price
Rs. / Cylinder
689.03

4
Import Charges (Insurance/Ocean Loss/ LC Charge/Port Dues)
Rs. / Cylinder
5.82

5
Basic Customs Duty
Rs. / Cylinder
0.00

6
Import Parity Price (Sum of 3 to 5)
Rs. / Cylinder
694.84

7
Refinery Transfer Price (RTP) for Domestic LPG
Rs. / Cylinder
694.84

8
Add : Inland Freight, Delivery Charges etc.
Rs. / Cylinder
39.46

9
Add : Marketing Cost of OMCs
Rs. / Cylinder
12.38

10
Add : Marketing Margin of OMCs
Rs. / Cylinder
6.68

11
Add : Bottling Charges (Filling and Cylinder Cost)
Rs. / Cylinder
38.68

12
Total Desired Price (Sum of 7 to 11)
Before Excise Duty, VAT and Distributor Commission
Rs. / Cylinder
792.04

13
Less : Subsidy by Central Government
Rs. / Cylinder
22.58

14
Less: Under-recovery to Oil Marketing Companies
Rs. / Cylinder
396.03

15
Price Charged to Distributor (12-13-14)
Excluding Excise Duty & VAT
Rs. / Cylinder
373.43

16
Add : Excise Duty (Including Education Cess)
Rs. / Cylinder
0.00

17
Add : Distributor Commission
Rs. / Cylinder
25.83

18
Add : VAT
Rs. / Cylinder
0.00

19
Retail Selling Price (Sum of 15 to 18)
Rs. / Cylinder
399.26

20
Retail Selling Price at Delhi (Rounded Off)
Rs. / Cylinder
399.00

21
Under Recovery due to Rounding Down
Rs. / Cylinder
0.26

The Report
of the Task Force on Direct Transfer of Subsidies on Kerosene, LPG
and Fertiliser provides some other interesting figures. There are
12.5 crore LPG connections, consuming 6 cylinders on average. The
per-capita consumption of LPG is expected to be roughly 1.5 cylinders
annually, leading to a family of four requiring 6 cylinders every
year. The total subsidy to consumers in FY09-10 was Rs.16,071 crore,
when the per cylinder subsidy was Rs.185. With the current
international oil prices being much higher, the total subsidy to the
consumers could add up to Rs.50,000 crore this year. The total
subsidy to the consumer was Rs.76 per cylinder in FY02-03, and has
steadily risen ever since to its current value of Rs.418 per
cylinder.

Benefits from transparency

The  Report
of the Task Force on Direct Transfer of Subsidies on Kerosene, LPG and
Fertiliser  provides a number of suggestions to address the
leakage of subsidies:

* Setting up a transparency portal
* Per-capita or per-connection cap on number of subsidized cylinders per year
* Sale of LPG at market price, with subsidy refunded to the
consumer’s bank account

The Ministry of Petroleum and Natural Gas, along with the OMCs,
have launched transparency portals. Even though there is no
restriction on the number of subsidized LPG cylinders that a consumer
can order, checks have been put in so that there has to be a gap of at
least 21 days between two bookings. The media has been quick to report
on the heavy
consumption of LPG by politicians and industrialists. The
Government expects that the transparency portal will also curb the
usage of domestic LPG for commercial purposes. Many are even asking whether
LPG should be subsidized at all. Over the next few months, we will
learn whether LPG diversion is checked due to transparency
portals. However, the launch of other features such as rating of
dealers, online complaints, and online booking are certainly going to
be beneficial for consumers.

The Right to Information Act, 2005 has provisions that require Government to provide data electronically to citizens. Transparency portals are incredibly powerful accountability tools, and should be the first step towards e-Governance for any Ministry or Department. They take existing databases and make them available online for scrutiny, often without requiring major business process re-engineering. Rather than simply make these portals available for browsing online, care should be put in to produce high quality, anonymized, machine-readable datasets that researchers can use for various purposes. Such datasets can provide interesting insight into the microeconomics of households and also macroeconomic trends, when studied over time.

Republican Hypocrisy

This is no doubt how Mitt Romney and other wealthy people would like the public to see the debate. However the reality is that the government has implemented a wide range of policies that have led to a massive upward redistribution of before tax income over the last three decades. These policies have affected every corner of the market economy.

Just to take a few biggies, the fact that drugs are expensive is entirely due to government-granted patent monopolies. We spend about $300 billion a year on drugs that would cost less than$30 billion a year in a free market. The difference of $270 billion a year is close to 5 times what is at stake in extending the Bush tax cuts to the richest 2 percent of the taxpayers. (There are alternative mechanisms for financing drug research.)

If Republicans, and conservatives, are going to complain about welfare costs, they would do well to take a close look at corporate welfare. It’s just as insidious as individual welfare, it’s extremely costly, it’s undoubtedly unconstitutional, and it provides perverse behavioral incentives. While I have no love for welfare queens or for the pathologies that federal and state welfare programs generally encourage, it seems hypocritical to me to complain about one group of welfare recipients but not the other. Big business is not special or irreplaceable, and if mega-corporations need government to survive then perhaps it would be better to let them die. At any rate, principle demands that opposition to one form welfare be accompanied by opposition to all other forms of welfare. Hopefully Republicans pick up on this point and work to end corporate welfare.

Liberalism’s Incoherence

The guarantee of landline telephone service at almost any address, a legal right many Americans may not even know they have, is quietly being legislated away in our U.S. state capitals.

AT&T and Verizon, the dominant telephone companies, want to end their 99-year-old universal service obligation known as “provider of last resort.” They say universal landline service is a costly and unfair anachronism that is no longer justified because of a competitive market for voice services.

The new rules AT&T and Verizon drafted would enhance profits by letting them serve only the customers they want. Their focus, and that of smaller phone companies that have the same universal service obligation, is on well-populated areas where people can afford profitable packages that combine telephone, Internet and cable television.

Disclaimer: I don’t know if Johnston is a liberal. I do know that this opening sentence personifies quite nicely liberals’ view of rights.

The liberal dichotomy—and corresponding hypocrisy—is typified by how they desire for everyone to have everything while simultaneously condemning everyone for materialism (talk about projection!). In this case, liberals would agree with Johnston’s assertion that basic telephone service is a right. This positive view of rights implies that someone will have to provide them with the service, even if it isn’t profitable.

This view of rights extends to everything—education, health care, internet service, wages, employee benefits, etc. Everyone should have everything they want.

Unfortunately, not everyone wants the same things, and so what people do with their newly-acquired positive rights is try to get whatever they can for themselves. This behavior is individualistically rational, and entirely predictable. It also tends to promote materialism, which is often condemned by liberals.

The modern condemnation of materialism is seen in the environmental movement. Consumption is condemned, as evidenced in the condemnation of burning fossil fuels, which is an essential source of energy, particularly in regards to the propulsion of automobiles. The solution to our current environmental problems is to burn less fuel in particular by driving less.

Interestingly, one reason why we drive so much is because it is cheaper to live in areas that are not as population-dense, thanks in no small part to federal subsidies. One contributing federal subsidy is that of mandated telephone service (seriously, how many people would live in the country if there were no communication infrastructure?). There are other subsidies besides this, like FDR’s programs to bring electricity to rural areas, or other programs to bring urban levels of infrastructure to rural areas.

And so, this is liberalism’s incoherence in a nutshell. First they demand all sorts of subsidies for everyone (like with phone service), then they get upset at people being wasteful. Solving the first “problem” begets the latter problem and also its solution. Ironically, they’d have what they wanted if they simply left everything alone. Of course, I’m assuming that they want a specific outcome, and not merely the power to control other people’s lives.

Education Inflation

Paul Krugman is aghast at this chart, which shows how the Pell Grant has declined in relative cost coverage:

This is pretty much how inflation works. In the early stages, its effects are not very noticeable because an incentive has not yet taken place. As the incentive shift takes place—marking the beginning of a bubble, the price of the bubble product begins to rise, mostly as a way to reflect the actual supply of the bubble product relative to the currency supply and actual demand. Over time, the price of the bubble product rises to roughly match the rate of inflation (although I suspect it’s slightly lower than that in reality as inflation encourages overproduction, which increases supply relative to demand, which is then realized in larger numbers because the price declines slightly, all relative to demand elasticity, of course). As such, subsequent rounds of inflation will never be as effective as the first round of inflation because the first-mover advantage disappears.

This is pretty much what this chart shows. At first, the Pell Grant can cover virtually all tuition costs. There are probably few recipients and minimal initial demand. However, these conditions won’t remin once people learn that the government will contribute X amount of dollars to their education. Everyone wants in on this, and so everyone applies for the Pell Grant. An increasing number of applicants receive the grant, and then college prices rise because, fundamentally, increases in supply cannot match the pace of increases in demand. In order to allocate the scarce resource of postsecondary inflation, an informal price floor takes effect, coincidentally hovering near the amount of the subsidy. When all is said and done, the initial round of inflation doesn’t change a whole lot in the short- or long-run because the fundamental problem is not high nominal costs but the small amount of supply.

Thus, there is no sense in complaining about the decreasing coverage of the Pell Grant. Inflation in the form of subsidies faces the same fundamental problem that normal inflation faces. Quite simply, the issue is a lack of supply, no amount of currency can fix that.

Opportunities in Clean Mining: Dallas Kachan

Dallas Kachan Cleantech companies are exploring—and exploiting—the connections between many sectors of the energy, infrastructure and other industrial markets. Dallas Kachan, principal of cleantech research and consulting firm Kachan & Co. in Vancouver, points to the emergence of “clean” mining as an important investment theme for 2012. In this exclusive interview with The Critical Metals Report, Kachan shares some companies using green techniques to improve their bottom lines.

The Critical Metals Report: Dallas, can retail investors make money in the near-term in cleantech companies or should they be more focused on the long-term?

Dallas Kachan: If you had asked this question three months ago, my answer would have been different. Recently, cleantech stocks have outperformed the broad indexes and investors have made money in cleantech investments in the short-term.

Three indexes in particular, the Australian Cleatech Index (ACT), the Clean Edge Indexes (CLES) and the Cleantech Index (CTIUS) are all outperforming the NASDAQ and other benchmarks, largely because cleantech did not have much farther to fall. Companies have taken a battering in recent months. With the recent rise in oil prices, investors have started to remember the alternative energy sector.

What’s more, the cleantech umbrella is much wider than renewable energy. Transportation, air, water, waste and heavy industry also contribute to the increase in the cleantech index.

TCMR: Roughly how much was invested in cleantech in 2011? And how does that compare with previous years?

DK: We have followed the flow of venture capital in cleantech since 2006. The data show that while 2011 was a difficult year for cleantech company valuations, it was a great year for cleantech venture capital investment. A total of $9 billion (B) was put to work in 2011, up 13% from the previous year and higher than any other year in history with the exception of 2008, back in the heyday of solar and biofuels. Cleantech mergers and acquisitions (M&A) reached record highs in 2011, with 391 transactions worth $41.2B and 153% growth over 2010.

TCMR: With that amount of venture capital coming into the sector, does the U.S. government need to continue to subsidize the sector while it finds its feet?

DK: Neither the U.S. nor any other government needs to pass more subsides to encourage cleantech innovation. Governments shouldn’t be in the business of using taxpayer money to make technology bets. Instead, governments really need to pass aggressive mandates and standards, like renewable portfolio standards, that mandate a certain percentage of power from renewable sources by certain dates, and then step back and let the private sector figure out how to achieve them. Or, mandate efficiency or emission standards for coal-powered plants and let the private sector figure out how.

TCMR: If you could make that recommendation, what portfolio percentage would you recommend?

DK: I would take a cue from a jurisdiction like California, which is pursuing 33% of its power from renewable sources by 2020. That’s an aggressive number. Anything over 40% does not feel achievable in the short term, because renewable sources are not ready for baseload power at this time. Arguably nuclear and natural gas are can play that role, but those quickly become political discussions.

TCMR: What role does China play in these cleantech venture capital investments?

DK: China is receiving a small but growing percentage of global cleantech venture capital. Starting in 2009, China accounted for almost three-quarters of all cleantech IPO proceeds worldwide, and that still roughly remains the case today.

Asia is the top region for cleantech M&A activity, averaging around 30% of the total. Europe is also around 30% and North America has about 26%. So China has become an important global cleantech powerhouse, already dominating manufacturing in many important cleantech subsectors such as solar and wind.

TCMR: Nonetheless, China produces more power from coal-fired plants than any other country.

DK: It is fashionable to point to China as the world’s largest polluter. At the same time, China has put more money and more brainpower into solving the pollution problem than any other country. For instance, the amount of stimulus funding China has allocated to clean technologies, including water, waste and other non-energy cleantech infrastructure, is four times that of the U.S. ($221B vs. ~$60B). China has also taken a very aggressive stance in pursuing next-generation nuclear technology. That is encouraging.

TCMR: What other encouraging signs do you see coming out of China?

DK: The “Rising Tigers, Sleeping Giant” report from the Breakthrough Institute claims China, South Korea and Japan have already collectively passed the U.S. in the production of virtually all clean energy technologies. Over the next few years these countries will out-invest the U.S.

In addition, China makes decisions quickly, unencumbered by a democratic process. Last January, China announced intentions to build a 2 GW $5B concentrating solar thermal plant. Bill Gross, CEO of eSolar—the company whose technology was selected—recounts that, in the time it took the U.S. Department of Energy to complete the first stage of an application review, China approved, signed and started construction on a project that is 20 times bigger. Things happen fast in China.

TCMR: We watched oil rise about $106 a barrel (bbl) recently. What would a sustained run above $110/bbl mean to the cleantech space?

DK: Cleantech falls in and out of favor with retail and institutional investors as oil prices ebb and flow. When oil prices drop, cleantech falls out of fashion. As they creep back up, cleantech becomes in demand again.

The biggest single issue has been the high upfront capital costs of renewable energy. It is hard to raise the magnitude of money needed when finances are scarce and investors are short-sighted and risk-averse.

TCMR: In addition, a number of these plays have not proven profitable even with verbal power purchase agreements.

DK: Most solar and wind firms have struggled to stay profitable. Overcapacity in the renewable sector has resulted in massive pricing pressure. While that pressure is driving a more rapid move to grid parity, it erodes margins. In the long term, these price drops are good for the economy, the environment and the uptake of the product. But they are a significant negative for near-term corporate profitability.

TCMR: What advice would you give retail investors looking to add cleantech exposure to their portfolios?

DK: Although competing interests may be delaying investor’s financial returns in cleantech, the sector’s three fundamental drivers are sound.

First, the world is running out of the materials we need to sustain modern life. The supply-and-demand issues related to water, food, energy and resources are only going to get worse. Plus, the infrastructure to deliver them is under stress.

Second, countries are increasingly seeking resource independence, and as the supply-and-demand deltas get bigger, you’ll see more nationalism and protectionism.

Finally, even though it’s taken a backseat of late, climate change is a very real issue.

TCMR: How would retail investors get exposure to each of those themes?

DK: A good strategy might be to take a long position in any of the cleantech indexes: the ACT, CLES or CTIUS. They are broad indexes that attract an array of companies that will offer investors a certain amount of insurance. Buying exchange traded funds that track these indexes would be a safe way to enjoy returns in the cleantech space without having to do in-depth due diligence on individual companies.

TCMR: Looking at small-cap equities in cleantech, what are your investment themes?

DK: Each December, our company issues annual predictions for the year ahead, and for 2012 our first theme is betting against energy storage. Energy storage made headlines as the subsector that received the most global cleantech venture investment in Q311. That was driven by large investments in stationary cell fuel makers Bloom Energy and ClearEdge Power. We do not see any more investments of that size on the horizon. Of the 60 or so companies vying for this tiny market, many are selling at zero or negative gross margins.

The main reason we are not bullish on the storage sector is that smoothing the intermittency of renewable, solar and wind power might soon lose importance. We believe that utility-scale renewable power storage might be less necessary if utilities embraced other ways to generate clean, base-load power. We believe base-load power options will start to include new, safer forms of nuclear power or natural gas turbines powered by renewable natural gas. All of these promise to be less expensive than solar and wind when you factor in the expense of storage systems.

TCMR: OK, that is one theme. What is another?

DK: A second favorite theme we’re watching for 2012 is increased venture investment, M&A and public exits in the water and agriculture space, specifically what is called “’solutions to produced water.”

Until recently, only cleantech industry insiders were talking about water as an investment category, and it remains a small percentage of the $9B dollars we talked about in cleantech venture investment. However, industrial wastewater is driving growth in today’s water investment. Two of the top VC deals of Q411 focused on oil-and-gas water solutions.

Regulations aimed at making hydraulic fracturing, or fracking, less environmentally destructive will spur innovation and water-related investments in 2012.

TCMR: How does this technology work?

DK: Produced water is created by most hydraulic fracturing. There are more companies than ever bringing new remediation technologies to bear to try to clean up this produced water. In some cases, they are trying to remove and recycle metals and other dissolved solids and repurpose them as revenue streams.

TCMR: So, instead of just pumping produced water into a basin, it would be recycled and reused, for example in oil sand plants where steam is used to separate the oil from bitumen. Is that the gist of it?

DK: Yes. And in the case of fracking, the goal is returning clean water back to the ground water. Many companies are chasing what they believe are commercial opportunities.

TCMR: And what is your third theme?

DK: We expect to see more clean mining companies in 2012. After centuries of environmental effects ranging from toxic emissions to tailings ponds, mining is slowly cleaning up its act.

Why? Because new, clean technologies can increase industrial efficiency and lower mining companies’ power needs. They can even help reduce water requirements and remediate the mines of years past. That can translate into cost savings for mining companies.

Companies to watch here include American Manganese Inc. (AMY:TSX.V; AMYZ:OTCPK; 2AM:FSE), which has developed a lower power process intended to use only about 6% of the energy required by the high-temperature roasting process of conventional manganese production. It also intends to reduce its water requirements by using nanofiltration and precipitation to remove contaminants.

TCMR: Are those processes the primary reason to invest in American Manganese?

DK: We recently published an in-depth report looking at American Manganese and its process developed for its Artillery Peak resource in Arizona. We looked at the company’s probability for success based on a technology assessment and market supply-and-demand perspective. Our findings were cautiously optimistic that the company stands to have an impact in the global market for manganese given its net opportunity.

TCMR: How much does the price of manganese affect the share price of American Manganese?

DK: Well, we need to remember that the company is not yet in production. Its target for production is 2014.

Our investigation suggested that prices for manganese could be heading up given global supply-and-demand issues and what China, the world’s leading producer of electrolytic manganese, is expected to do in terms of consolidation of its production. Rising prices for electrolytic manganese spells better and better things for American Manganese, as long as the company can keep its production costs as low as currently planned.

TCMR: As far as its position as the only manganese project in America, what does that mean for the company?

DK: If American Manganese becomes a significant North American producer of electrolytic manganese and electrolytic manganese dioxide, it could potentially also do so at much lower costs for North American-based customers, which could make it very attractive for North American companies to do a lot of business with American Manganese.

TCMR: What are some other companies in this subsector?

DK: In toxin remediation and resource recovery, I would watch BacTech Environmental Corp. (BAC:CNSX; A1H4TY:WKN) and REBgold Corp. (RBG:TSX.V), which are using bacteria that the companies claim is harmless to humans and the environment to liberate precious and base metals from difficult to treat ores and tailings.

The process provides the bacteria with optimal conditions in closed reactors, according to the companies. Bactech and REBgold say they can oxidize sulfides in as few as five or six days, a process that normally takes many years in nature. The recovery of these materials allows Bactech to offer mine tailing remediation services at no charge to governments and for REBgold to pursue interests in gold mines and operations in Australia, Tasmania and China.

BioteQ Environmental Technologies Inc. (BQE:TSX) of Vancouver, Canada, is one of the handful of companies specializing in acid mine discharge. The company has built 14 industrial water treatment plants ranging in size up to 23,000 cubic meters a day. It has sites in Canada, the U.S., Mexico, Australia and China.

TCMR: Basically, BioteQ collects the water runoff at existing mining operations or past producing mining operations, and separates the water from the various heavy metals. Is that right?

DK: Correct.

TCMR: With its 14 water processing facilities around the world, what is its growth plan?

DK: The last time we spoke with the company, we were told it was focused on execution and keeping its head down.

TCMR: Do you have some parting thoughts on the cleantech space?

DK: I would restate the three drivers of cleantech I mentioned earlier. First, we are running out of materials we need to sustain life as we live in on earth. Second, countries are pursuing resource independence now more than ever. Third, climate change is not going away. Those three points are a great reminder that the demand for cleantech products and services is not going away anytime soon, short-term economic issues notwithstanding.

TCMR: Dallas, thank you for your time and your insights.

For more clean energy investment ideas, go to The Energy Report.

Dallas Kachan, managing partner of Kachan & Co. is former managing director and executive editor of the Cleantech Group, credited with coining the term cleantech and founding the cleantech investment class. He is author of 400+ cleantech articles and reports, a regular speaker at cleantech events worldwide and is cited widely as a cleantech market dynamics and technology expert.

Mandated Heath Market Inefficiencies

We cannot permit America to be the “pay line” for every worldwide drug and device development program. The same pill sold here in America for $25 is $2 in Canada and other nations.  The cost of reproduction is covered by the $2, but development is not.  The free market would normally prohibit this activity since people would simply buy the drug in Canada and re-import it here, but the drug and device makers lobbied Congress to make that illegal.

A good portion of these sort of inefficiencies could be eliminated simply by removing patent protection for drugs. If the US eliminated the patent system, drug companies wouldn’t be able to prevent competitors from selling identical drugs on the cheap (although competitors would not be able to recreate any placebo effects that occur with brand names).

Of course, this action is opposed because it would lead to less drug research, particularly in the treatment of rare diseases. But, were this the case, the market would work as effectively as it should. One of the problems the US faces in regards to medical care is that everyone wants a drug to solve their medical issues. Between patent law, health insurance mandates, and anti-competition laws, the US government has managed to effectively subsidize research for diseases that would not ordinarily merit research.

One effect of this effective subsidy has been the increase in unhealthy behaviors. Since people are implicitly promised health care and medicine no matter what, it would be reasonable to expect people to take more health risks. And, given the current obesity epidemic, it seems that this is certainly the case. As such, removing the effective subsidy of drug research would help to encourage people to live healthier because drug companies would be much less inclined to research drugs that cure rare or complex diseases. Thus, by removing subsidies, health becomes cheaper.

What’s The Point of Financial Aid?

I suppose that the original intent of financial aid—most particularly scholarships—was to attract good scholars who would be likely to become famous and thus increase the prestige of the university. By offering intelligent, driven individuals an opportunity to be educated for reduced rates or for free, universities could be assured that they would attract some number of desirable students, and increase their prestige. Note that increasing prestige has a tendency to turn into a self-reinforcing feedback loop, which means that increasingly prestigious universities attract increasingly desirable students, thus making the university more prestigious. As such, universities engage in a sort of arms race to increase their prestige, and thus offer scholarships to scholastically-minded students.

However, the role of financial aid has morphed in recent years to serve as a marketing tool, and functions similarly to a price-sensitivity indicator.* By this I mean that financial aid is to colleges as coupons are to grocery stores. The comparison is not perfect, of course, but the general comparison is the same in that both financial aid and coupons both serve to differentiate the price-sensitive from the price-insensitive.

What’s interesting is that both the original function and the modern function of financial aid are both the same: marketing. The original form, though, is less direct and has a longer time horizon. The latter is more price-driven. This suggests that the product has changed in some way. Assuming that a postsecondary education is a way to signal employ-ability, it should make sense that colleges emphasize affordability in their advertising because the signaling benefit has declined due to the increase in noise.

When only a few people graduate from college, there is likely an appreciable difference in the graduates of different institutions, hence the need for prestige. However, if a lot of people graduate from college, it will likely be difficult to discern a difference in the graduates of different institutions. The lesson in all this is that colleges that emphasize prestige in their marketing are colleges that will offer a clear signal of prestige while colleges that emphasize affordability are all likely interchangeable in terms of signal utility. Therefore, if you aren’t going to a prestigious university, the best course of action is to acquire a college education as cheaply as possible. And if you can’t a get a cheap college education, you are probably better off skipping college.

* I recall when I was being recruited by various colleges that many would state what percentage of students received financial aid. There were a large number of colleges that claimed that over three-quarters of their students received some sort of scholarship money.