Eight Democrats are gearing up for their first presidential debate tonight in Orangeburg, South Carolina.

A recent national poll showed that Obama was narrowing his lead with Clinton (see Wall Street Journal graph to right). But do these early polls of scarcely informed voters merely reflect the media’s obsessions with a horse race rather than candidates’ policy nuances?

One of the major horse stories driving whipping the media into a frenzy is the fund raising race. The media – especially the Washington Post – seem to use these financial disclosures as a proxy for voter intentions come November 2008. And so the cycle begins. “Obama Exceeds Expectations!” “Hillary Harnesses Bill’s Fund Raising Network!”  Perhaps these headlines simply keep the rich candidates’ names in the minds of would-be voters.

But if we’re going to talk about the fund raising race, we should examine the three states that will have a disproportionate effect on the national electorate: Iowa, New Hampshire, and South Carolina. So where are their campaign contributions going? By examining the campaign contributions to each candidate by state, we see that three Democratic candidates emerge: Clinton, Obama, and Edwards.

Edwards has pulled in 1 in 3 dollars given to Democratic candidates in from donors in Iowa, New Hampshire, and South Carolina, 50% more than Obama and almost double the contributions to Clinton.

This contrasts sharply with national contributions. Is Edwards the dark horse that the media has forgotten? In South Carolina he still trails by a wide margin to Clinton and Obama. Tune in tonight to see whether his fund raising stacks up to his policies.
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President Bush’s 2008 budget hit the Hill yesterday to a frosty reception (so much for global warming). The budget is like having an accountant hold a mirror up to American society, and that society is simultaneously warlike and childish.

Almost half of your income taxes will be spent on national defense, and that doesn’t include the interest on debt from previous defense overspending. The Pentagon will spend 6% of its budget repairing and replacing equipment (mostly for Iraq), but it’s still more than the entire foreign affairs budget for 2008. Diplomacy from the barrel of a recently-repaired gun.

The budget also reveals that we are spending money like spoiled trust fund kids - but without the trust fund. Paying for the $261 billion in interest payments on our past indulgences takes up most (83%) of the revenue collected from corporate taxes. Lest you think that we should cut taxes to spur the economy, may I remind you that tax cuts still don’t pay for themselves no matter how many times Bush insists that they do. In fact, between 2008 and 2012, the Bush tax cuts will cost the Treasury Department more than one year of unemployment and welfare benefits combined.

Gift and inheritance taxes collect enough revenue to pay for nearly all of our national science and technology budget. So if you actually are a trust fund kid and think that so-called death taxes are unjust, consider that they might help keep grandma alive for a few more years. Or was that the point of cutting them?
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Source: Washington Post

In the near future, most of our media will be found on a hard drive. 35mm film is rapidly going extinct, CDs are giving way to MP3s. Filmmakers like David Lynch have announced that they will never use anything but digital video cameras. Meanwhile, Netflix has introduced movie downloads. And whether the execs are ready or not, television is being revolutionized by YouTube among others. But our most ancient media of all hasn’t budged: books. Sure we read and write on computers for school and for work, but at the end of the day when you curl up with a good book, it’s unlikely to be on your laptop. Why hasn’t the e-book taken off? And what happens when it does?

Books are long overdue (ahem) for the digital revolution. For the rest of the week, statastic! will consider the future of e-ink, e-paper, and e-books. What are the implications for our public libraries? Stay tuned for a case study on the e-library of the not-so-distant future. But first things first: You can’t have an e-book without e-ink.

In the 1970s, the legendary Xerox PARC first developed something they called electronic ink, or e-ink. E-ink is comprised of millions of microcapsules the diameter of a human hair. Each microcapsule contains positively charged white particles and negatively charged black particles suspended in a clear fluid. When a minimal electrical charge is applied, the microcapsules flip and remain flipped until the next electrical impulse tells them otherwise.

E-ink is perhaps best explained by what it is not. It is not an LCD or a plasma display that you may be accustomed to seeing on a laptop computer. Unlike laptop displays, e-ink is not backlit, meaning that if you want to read in bed, you’d better have a light on. The fact that e-ink doesn’t rely on backlighting results in several advantages:

• -Easier to read: E-ink has nearly the same resolution and reflectivity as printed text. Reading using reflected light is much easier on the eyes than backlit screens, and much easier to read in sunlight. Unlike plasma or LCD flat screens, you can view e-ink from several angles just like regular paper.
• -Flexible e-paper: Because e-ink doesn’t require backlighting, it also doesn’t require a rigid glass screen. The simplicity of e-ink means that it can be paired with flexible materials creating an e-paper that can be bent, or even rolled up.
• -No need to recharge: Once the electrical current tells the microcapsules whether to turn black or white, they remain in that state indefinitely with no power input. A page using e-ink (also called e-paper) can remain open indefinitely without drawing down of a battery source. You can read thirty books before you need to plug in an e-reader using e-ink.

Currently several companies are pursuing e-ink and e-paper. Plastic Logic, the developer of the “E Ink,” announced on January 3rd, 2007 that it had completed a $100 million round of equity financing. Their research currently is focused on flexible displays that will enable an electronic reader to hold hundreds of e-books and weigh less than a thin newspaper. For video on the flexible display prototypes, click here.

Several companies have already licensed E Ink for their own devices. Sony’s $300 e-reader holds 80 books, weighs about as much as a paperback and can turn 7,500 pages before it needs a charge. Star eBook just released its 6.2 ounce e-reader in Japan, claiming that it’s the lightest reader on the market. And late in 2006, Hitachi released a 4,000 color e-reader, an innovation that could rapidly earn some converts.

If the $300 to $500 price tag seems unrealistic, consider this: In 1996 DVD players hit the American market for about $600 (in 1996 dollars, no less). The least expensive DVD player at Walmart.com is now $30, less than 5% of the price a decade ago. If e-readers have similar adoption rates, you might be able to pick up an e-reader for less than the price of a hard cover within a few years.

Tomorrow: the e-book market

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The Russian Futurists - imagine the Magnetic Fields playing with a full electronic symphony underwater. Try to pick out the honking geese on the track “Our Pen’s Out of Ink.” A relative inconvenience in this age of e-ink.

Sources: Statastic research, Wikipedia, e-paper.org,

In the Saturday Op-eds, The Washington Post again called out the Bush administration for falsely claiming that tax cuts pay for themselves. Tax cuts pay for themselves in much the same way that a ten cent coupon pays for a can of soup. Yes, some tax cuts help stimulate the economy, but no study has found that tax cuts are self-funding.

Estimates range, but a sample of three non-partisan studies indicates that income tax cuts do not pay for themselves - not even close. Most studies indicate that tax cuts do increase personal income and consumption, resulting in a very moderate economic stimulus. But this minor boost in economic growth does not replenish government coffers. For every $100 lost to tax cuts, the government only recoups between 10% to 28% due to economic growth. Even former chairman of President Bush’s Council of Economic Advisors, Gregory Mankiw’s most rosy estimates demonstrate that tax cuts lose 50% of their value.

So tax cuts cost the government money. End of story. Unless you’re the president writing an op-ed in the Wall Street Journal:

It is also a fact that our tax cuts have fueled robust economic growth and record revenues. … The bottom line is tax relief and spending restraint are good for the American worker, good for the American taxpayer, and good for the federal budget. Now is not the time to raise taxes on the American people.

Tax relief has benefited the American worker - as long as you’re talking about the American worker in a household making more than $100,000 per year. According to a study by the non-partisan Tax Policy Center, last year’s tax “relief” amounted a whopping $68 to the 125 million households making less than $100,000. Meanwhile the 20 million earning more than $100,000 received an average of $2,861 per household, 42 times more tax relief than those at the bottom of the income scale.

Indeed, now is the time for Democrats to end Bush’s tax cuts for the rich.

And if you have to pour over tax policies in great depth, I would recommend Tim Hecker’s album Harmonies in Ultraviolet (number 14 on Pitchfork’s best of 2006): ambient static and dissonance for blogging in the middle of a rainy night.

*Mankiw: Income Tax Cut measured with dynamic scoring

Sources: Washington Post, Congressional Budget Office, Wikipedia, Tax Policy Center

Car-sharing is gaining popularity in cities across the United States. The idea is simple: car-share companies or cooperatives park hundreds of cars in convenient locations that any member can rent by the hour. Most car-share programs cost about $8 to $12 per hour, including gas, insurance and maintenance.

On the face of it, car-sharing is a economical and eco-friendly way to get around. Zipcar has about 40 members sharing each car in their national fleet. That’s certainly better than 1 car per person, right? Perhaps. If your goal is to reduce the total area dedicated to parking a vehicle, it does indeed free up valuable urban space. If, however, your goal is to reduce traffic congestion, smog, or reliance on fossil fuels, the jury’s still out.

Car Sharing Increases Mobility - and Traffic - Amongst Urbanites

Car-sharing is most appealing to urbanites who choose to live in densely-populated cities in part to avoid car ownership. Zipcar and Flexcar have both built a business model on enhancing the mobility of these groups. The consequence of increased mobility, unfortunately, is that more urbanites are driving alone. According to a study sponsored by the Federal Transit Administration, 26% of users reported driving more as a result of car sharing.

Flexcar and Zipcar are for-profit companies, and each has recently received $20 million in investments. Those investors expect profit, and that profit will be generated largely by getting more people to drive more of their cars. Most privately-owned cars spend 95% of their time parked. Shared cars have much higher usage rate - most users are unlikely to pay $10 per hour to just to park their car somewhere (which is why commuters who drive to work are unlikely customers for car-sharing). In short, car-share companies generate revenue when people drive those cute little Zipcars around town. (Sorry, but the Flexcars are significantly less attractive. It looks like their marketing department went out for a drive and had a fender-bender with their new logo).

Like public transportation, the economics of car-sharing only make sense with high urban density. In fact, car-sharing is a substitute for other transportation options, many of which are better for the environment. When asked what people would do if a shared car were not available, nearly half of respondents said that they would have taken public transportation or not made the trip at all. It appears that half the time shared cars are used, they have the potential to increase traffic.

This is balanced by another effect of car-sharing: People are more aware of how much they drive. If a user factors in the cost of a Flexcar for a quick trip to the grocery store, the price of a gallon of milk could soar from $3 to more than $10. And that suits the car-sharing business model. Flexcar and Zipcar need high usage rates to remain profitable. But forty members sharing a single car means that each week, a member can only reserve a car for an average of 4 hours. If a member wants a car during premium hours after work or on the weekend, car-share members had better plan ahead: members have an average of about 1 premium hour per week.

Getting Suburbanites Out of Private Vehicles and Into Shared Cars

Although urban car-share members may drive more, suburban users help account for the 46% of drivers who reported that they drove less after they started using car-sharing. Although the FTA report concluded that, “many studies show no statistically significant change (in vehicle miles traveled),” car sharing helps fill a mobility gap created by insufficient public transit in the car-centric suburbs. Suburban two-car households can significantly reduce their expenses by switching to one car plus what Zipcar calls a “fractional second car.” And this may help reduce vehicle miles driven (VMT). Arlington, a northern Virginia suburb of DC, reported that the average car-share member reduced their VMT by 43% between 2005 and 2006.

For now, shared cars are focused on the more densely populated areas with populations that are inherently less reliant on car culture. Flexcar and Zipcar have about 75% of their total fleet in the District of Columbia despite the fact our 515,000 residents make up only 10% of the total DC metro population. Even in close-in suburbs like Arlington, 83% of the 3,500 car share members live in the densely populated Metrorail corridor.

Car Sharing Eases Parking Pressure

Densely populated areas stand to gain the most from car-sharing for a reason that may not be immediately obvious: parking pressure. Despite what urban dwellers may believe, even un-metered street parking is not free. Street parking is public land where private citizens are allowed to store their vehicles. Any taxpayer without a car is effectively subsidizing vehicle owners. All parking spaces have an opportunity cost. That is, there is the opportunity to use that space for something else that is forfeited when we park our cars on the street.

Convenient parking also reinforces America’s car culture. Albuquerque, New Mexico, for example, devotes more land to parking than to all other land uses in the city combined. According to Donald Shoup, the author of The High Cost of Free Parking, 15% of parking spaces must be open at all times or people will be dissuaded from driving. Car share minimizes this problem for neighborhood street parking because its parking spaces are permanently reserved. This means less time, and less traffic, caused by people driving around looking for a spot near home.

How Shared Cars Can Create Bike Lanes

Eliminating the need for free street parking is indeed a worthy goal. Anyone experienced with urban biking has had nightmares about a driver’s door whipping open in front of them. Bike lanes alleviate some risk by granting a wider berth to cars parked curbside, but according to WashCycle, U.S. cities often build bike lanes too close to parked cars. Michael King at University of North Carolina-Chapel Hill advocates at least 14′ from the curb to the edge of the bike lane, but this guideline is ignored by many U.S. cities. This may explain why many cyclists refer to bike lanes as “suicide lanes.”

So what would happen if U.S. cities accepted shared car culture as the norm? Statastic used a Northeast Capitol Hill neighborhood as an informal case study to find out. Assuming that the neighborhood has the same average density as the rest of DC, there are about 4,000 people living in an area about 6 long and 11 blocks wide.

Now for the assumptions. According to census data, about 18% of DC residents drive by themselves to work. We’ll let them keep their cars. Another 28% are car owners who either carpool or don’t drive to work. We’ve decided that one-third of them will be converted to car sharing and will give up their cars. The remaining 32% of DC residents over age 18 don’t have a car, so let’s assume that 100% of them become car share members. The result is that 1,600 of 4,000 residents in this neighborhood are now full-time car share members.

Using the Zipcar ratio of 40 members per car, the neighborhood will need an additional 33 shared cars, bringing the total to 40. Zipcar claims that each shared car replaces 15 to 20 private vehicles, and that means more available street parking. Those 40 shared cars in northeast DC could replace 800 private cars, freeing up twelve miles of street parking. Eliminating street parking on one side of a 44′ wide road would also liberate about 16% of the pavement. Wider bike lanes could be added, existing traffic lanes could be widened, and wider lane for street parking would eliminate risk of getting doored while biking by.

The best part is that by increasing the density of shared cars, there would likely be a tipping point where it would become increasingly popular. As people convert to shared cars, the distance between the average resident and a shared car shrinks. Another way to look at it is that with a high conversion rate, the number of cars within three blocks of any resident would increase from 2 to 15. That means more cars to choose from: hybrids for quick city trips, trucks for hauling, or a convertible Mini for a weekend away.

How could we get to this tipping point? Taxing the free parking along city streets would be a start. To give an idea of how valuable the land is that DC residents park their cars on, consider that the going rate for a private parking spot is about $200 in the Dupont area of DC. Taxing street parking could be done in conjunction with proportionally lowered property taxes to avoid political backlash from homeowners. Although cities won’t necessarily generate more income from street parking taxes, residents would understand the real cost of parking and could make a rational economic decision about car ownership.

Shared cars and biking everywhere. Does the car-free life sound like a pain? It’s easy to get used to - Statastico does it every day.

Yesterday I wrote about the shortcomings of Prahalad’s book, The Fortune at the Bottom of the Pyramid. We left with the question of whether there was even a market to discuss. Several factors make it difficult to estimate disposable income at the bottom of the pyramid (BOP). Even if it is not a fortune, there is likely much more than a nickel a day of disposable income amongst the world’s 4 billion poor.

Most people in extreme poverty live in rural areas and derive much of their diet from subsistence farming. This means that relatively little of their income is spent of food. In family or tribe-oriented societies, there is also an income smoothing effect. Kinship networks, for example, mean that if one person in a family has a high-paying position in the government, many in the family will benefit. In addition, income such as flows from non-governmental aid, international transfers from foreign nationals living abroad, and the grey economy may be under-reported in GNP figures.

In response to Karnani’s paper, the WRI’s NextBillion.net noted that:

BOP households collectively spend money, lots of it, on a wide variety of goods and services, and are clearly willing to pay for services such as connectivity, clean water, financial services, energy, health care, and education for their children, as well as food, housing, and consumer goods. The BOP is already an economic actor, not just a passive, dependent group, and its collective actions define a market.

So there let’s assume that there is indeed a market of billions at the bottom of the pyramid. Should companies try to reach it? Karnani cautions that viewing the BOP as a vast market of micro-consumers is “potentially a dangerous delusion.” Let’s look more closely at his argument.
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Distribution and Economies of Scale

Concerned about the apparent gullibility of multinational corporations (MNCs), Karnani warns that:

“Not only is the BOP market quite small, it is unlikely to be very profitable, especially for a large company. The costs of serving the markets at the bottom of the pyramid are very high…. This increases distribution and marketing costs and makes it difficult to exploit economies of scale. Weak infrastructure (transportation, communication, media, and legal) further increases cost of doing business.”

Two words: Coke and Guinness. Both have very deep penetration in West Africa. Granted these are not going to improve the health and well-being of the BOP (though Guinness bottles do read, “Guinness is Good for You“). Somehow these MNCs have overcome the challenge of distributing and marketing their products across a large geographic area.

Regardless of infrastructure and marketing costs, the market will help align buyers and sellers if the price is right for each.
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Reducing Prices at the Bottom of the Pyramid

Prahalad’s thesis hinges on the idea that attracting more competition to the BOP will drive down product prices, thus freeing up their disposable income for other purchases. This is basically how Wal-Mart has made low-income Americans feel richer even as real income has stagnated over the last decade. But Karnani takes issue with Prahalad’s assertion that the private sector can deliver high quality goods to the world’s desperately poor at competitive prices:

“There are only three ways to reduce prices: 1) reduce profits, 2) reduce costs without reducing quality, and 3) reduce costs by reducing quality…. the only realistic way to reduce price is to reduce cost. The BOP proposition is adamant that we should not reduce quality in this process.

“Unless all the current producers are grossly inefficient, the only way to reduce cost… without reducing quality will always require a significant improvement in technology. Good examples of this are found in the areas of computers, telecommunications and various electronic products. It is difficult to find examples of such dramatic cost reduction in other product categories. It is not surprising that the BOP proposition repeatedly uses these same examples. We should also note that the ultimate impact on the real income of the poor due to these major price reductions is quite low because the poor spend only a small part of their income on such electronic products. The poor spend over 80% of their income on food, clothing and fuel – products that have not benefited from such dramatic technological changes in a long time.”

Let’s evaluate that last statement and have a look at how technology might help deliver improved food, clothing, fuel, and public health.

Food: There are constant improvements in pest-resistant crops, hybrid seeds, or high volume animal husbandry. Many famers in Africa still till individual family farms by hand. Certainly technology could help them improve efficiency which would lead to lower prices.

And technology improvements in computers and telecommunications do not exist in a vacuum. There are numerous positive spillover effects that affect the BOP as producers. The Washington Post recently reported that cell phones in Congo have enabled farmers and fishermen to “…use text messaging to check market prices, eliminating middlemen and increasing profits — and preventing long trips to the market on days it is canceled.” So a technology unrelated to agriculture has helped farmers saved on input prices (transport to the market on days when it’s canceled) and output prices.

Clothes: Apparel prices have tumbled over the past decade. Much of this is due to reduced quotas on Chinese apparel imports in the U.S. and Europe. Thus, the assertion that “the only way to reduce cost… without reducing quality will always require a significant improvement in technology” is inaccurate. Clothing prices have dropped as a result of trade policy, not an improvement in technology. This does have a trickle-down effect for the world’s poor.

Fuel: Fuel has indeed become more expensive. Women have to scavenge farther for firewood. Oil prices lead Nigerians into the deadly practice of siphoning off crude oil from pipelines running through their villages. But technology can improve access to energy sources. Military applications such as SkyBuilt mobile solar power could find a market at the BOP helping medical centers or providing a short term power source for harvesting and processing crops.

Public Health: As patents expire on novel drugs, cheaper generic drugs will enter these markets. Playpump is an innovative approach to water delivery. LifeStraw promises to exploit economies of scale in order to drive down prices for its personal water filtration device.

Technology: Last week, the Wall Street Journal ran a front-page story about an American entrepreneur, Greg Wyler, who was building an Internet infrastructure in Rwanda. The focus of Terracom is to first focus on market access, then profits. Mr. Wyler might disagree with Karanani’s ideas about providing a quality product at reasonable prices for the poor. He is quoted as saying, “We’re on a mission here to see what happens when we drive prices down and quality up.”

And lest you think that Rwanda is an obvious market for an outside investor, have a look at the graph at the right.

As WRI writes in response to Karnani’s critique:

The pertinent development question is whether the BOP is well served by the present (often informal) markets, and whether there are unmet needs that could be better served by more competitive markets and broader participation by the legitimate private sector.

I believe that private sector innovation help can drive prices lower, maintain or increase quality, and help deliver goods that result in better livelihoods for those at the bottom of the pyramid. But what if multinationals start marketing products that the poor don’t need? Are BOP consumers rational economic actors? Or is Karnani correct when he says that, “The problem is that the poor often make choices that are not in their own self interest.”

More on that soon…

Throughout history, walls have been built primarily for the purpose of defense (The Great Wall of China), politics (Berlin), religious separation (Northern Ireland), ethnic divide (Cyprus), or some nasty combination of all four (Israel). But rarely are walls built purely to rebuff wage invaders.

Illegal immigration is an economic issue, thus the rules of supply and demand apply. If the demand for illegal workers is cut, wages for illegals will fall, and the supply of immigrants will fall as well. Right now it is a challenge for employers to verify the legal status of some workers (although, our policy of turning a blind eye doesn’t help).

The immigration bill currently in Congress addresses this by adding $1.6 billion for a computerized system to verify the eligibility of applicants for lawful employment. Once this is in place, fines could be increased for employers caught employing illegal immigrants. Voila, demand for illegal immigrants falls and so would the number tempted to cross an open border.

But the immigration bill directs twice as much money to the Department of Homeland Security. DHS is being authorized to spend $3.3 billion on border defense that consists of 370 miles of fencing and 500 miles of vehicle barriers that will only cover 47% of our border with Mexico. Construction of one foot of the fencing alone will cost $568.

Israel has spent billions of dollars on walls, trenches, even a proposed sunken highway. Meanwhile, smugglers between the Sinai Peninsula and Gaza spent just $76 per foot to tunnel underneath. We should count ourselves lucky to only have impoverished day workers trying to cross our border (I discount the terrorism threat - terrorists could more easily cross our 5,500 mile border to the north).

By employing a historically military tactic to a primarily economic issue, we will spend ourselves into a hole.  At least there will plenty of illegal immigrants to help us dig it.

Sources: Sunken road: Cornell University, The Current; U.S. Mexico Border Fence: Congressional Budget Office estimate; Isareai Wall of Separation: Palestinian Environmental NGOs Network; Fourth generation of Berlin Wall: Berlin Wall Online; Smuggling Tunnels: Defense Update; Vinyl Picket Fence: Hoover Fence, Co.

Notes: According to Berlin Wall Online a 3.957 foot wide segment of the Berlin Wall cost 359 East German Marks in 1975. Because this was not a freely traded currency, historical exchange rates are hard to come by. However, as a note of comparison, Berlin Wall Online mentions that a loaf of bread cost 1.04 East German Marks at the time. Thus the store of value in a segment of the wall is equivalent to 345 loaves of bread. In 2006 in the price of a loaf of bread in the U.S. averaged $1.30, so each 4 foot segment of the Berlin Wall was valued at $448.75. It’s not perfect, but you get the idea.

State fairs are in full swing, and presidential hopefuls are getting acquainted with Iowans. As the first state to hold a caucus in the 2008 presidential primary, politicians take advantage of the state fair’s 1 million visitors to test the political waters.

It’s an odd setting for DC politics. The Iowa State Fair is a demonstration of how agriculture has helped shape a quirky Midwestern culture. Today’s events, for example, include a Mom Calling Contest, hot beef sundaes, rubber stamp art techniques, “Focus on Ostrich,” by the Iowa Ostrich Association, at least two goat milking competitions, and a titillating program entitled “How’s My Wienerschnitzel?” Ambivalent fairgoers can escape to the Iowa Wine and Cheese Garden starting at 11 am.

For anyone born and raised in Iowa, the real highlight is the butter cow. Lines typically snake around the Agriculture Building as eager Iowans wait for look at the cow crafted from 500-600 pounds of butter. While the Butter Cow Lady, Norma “Duffy” Lyon, has sculpted a new butter cow annually for the last 45 years, this year she gave up the reigns to her 29 year-old apprentice, Sarah Pratt. Over the years, Norma has also sculpted butter objects to keep the cow company in her refrigerated showcase. These butter creatures hold a funhouse mirror to Iowa culture: Grant Wood’s “American Gothic,” Elvis Presley, Leonardo da Vinci’s “The Last Supper,” John Wayne, The Peanuts Gang, Tiger Woods holding a tiger (really), and this year, Superman.

The Iowa State Fair also has another proud tradition: politicians eating fair food. Former Speaker of the House Newt Gingrich visited the fair last week and ate a pork chop on a stick. Delaware Senator Joseph Biden, who first visited the fair 20 years ago during his bid for president, was reportedly devouring a hoagie in one hand and an ice cream cone in the other.

Other politicians couldn’t help but compare the Iowa State Fair to home. Indiana Senator Evan Bayh commented that “I see you serve beer at your fair and we don’t” in Indiana. (Wait until he finds out what time the wine garden opens.) George Pataki observed that, “We have a great state fair in New York but… we don’t have pork on a stick.” Republican Senator Sam Brownback was at the Iowa State Fair yesterday and Senators John McCain and Bill Frist are expected today or tomorrow. Iowa Governor, Tom Vilsack, has also visited several times - no word on what he’s been eating, but as a native Iowan it’s unlikely to make much news.

So are the state fair visits paying off? According to WHO-TV’s informal “Cast Your Kernel” poll taken on August 16th, not really. Of the Republicans, Senator John McCain came out on top with 24 percent, followed by Rudy Giuliani and Condoleezza Rice each with 20 percent. Neither of the leading Democrats has yet paid a visit to the butter cow. John Edwards and Senator Hillary Clinton were tied at 33 percent, while Iowa’s own governor Tom Vilsack came in third with 13 percent.

It seems that the 500 pounds of butter in the butter cow are enough to sustain the hopes of at least eight politicians. It is a copious amount - about 2000 sticks in all. That’s enough buttersticks to nickname 2,000 baby pandas, or draw butter for 2,000 lobsters. Or, you could butter 4,000 tubs of popcorn, or 16,000 pieces of toast.

And if you get addicted to shaving with butter like Kramer, you can get 16,000 close shaves out of this year’s butter cow. Those 500 pounds of butter would also fuel a very successful bake sale: 20,000 pieces of fudge, 35,000 of my mother’s famous brownies, 60,000 Toll House cookies, or 64,000 Rice Krispies Treats. Of course, if you’re in Iowa, you would most likely use 500 pounds of butter on 32,000 ears of sweet corn.

In a letter about his trip to Iowa, Newt Gingrich closed with this:

“…the process of electing the President of the most powerful country on earth passes through a state fair in rural America where more than one million people come with their families to eat nearly anything that comes on a stick, compete in numerous agricultural competitions and contests, ride the rides, enjoy the shows and see the ‘butter cow,’ but that is how we do it in America, where a free people get to put their candidates to the test face to face.”

Fair enough.

Notes: According to the new butter cow lady, Sarah Pratt, this year’s butter cow is a Jersey and requires about 500 pounds of butter.

Assumptions: One ear of Iowa sweet corn only requires half a tablespoon of butter. Popcorn needs 1/4 cup per tub. Lobsters apparently require 1/2 a cup. Statastic does not advocate sautéing pandas, no matter how delicious that might be. Butterstick was blogosphere’s attempt to name Tai Shan, the baby Panda at the National Zoo.

It’s statastic’s first contest of contestation.

There are five disputed territories below. Once you’ve figured out the name of the disputed territory, match the letter of the description to the number of the correct map. The first to email me all five correct answers wins a prize. (Possibly the opportunity to buy Statastico a beer.)

Let the contest begin!

A. This region occupies the area between two countries with impressive corruption. Today it was reported that the independence leader of this potentially oil rich territory said, “The people have declared their own republic!” They also have a snappy new blue and white flag.

B. This territory has been a de facto independent state since a 1993 war forced 300,000 into exile. The geography is mostly mountainous forests, with tea and citrus plantations in lower areas.

C. The livestock of this unrecognized de facto sovereign state outnumbers the Muslim population by 7 to 1. May 17-18 is this state’s “Restoration of Sovereignty” holiday.

D. This separatist region has an economy based on the production of a strong spirit that appears on their currency, out-moded industry, and, allegedly, the trafficking of women.

E. This province is currently in talks with the United Nations about a path toward independence.

Note: Maps are not to scale, but they are oriented with north at the top.

Today’s announcement that British Petroleum would be taking crude oil production offline to make urgent repairs drove up oil prices to $77 a barrel. So what about those renewable resources we keep hearing about? We want to break the oil addiction!

Ethanol is indeed sparking renewed interest and a flurry of investment in the U.S. Most of the 3.9 billion gallons of ethanol came from corn and was used in the states where it was grown. Impressive until you realize that Brazil produces 4.8 billion gallons of sugarcane-based ethanol, providing about 40% of their annual gasoline needs.

We have been producing ethanol-based fuels in the United States for decades. Most of the Midwestern states (see charts below) that benefit from $4 billion in corn subsidies have an available 10% mix of ethanol in their gasoline. And with low corn commodity prices, high gas prices and a lack of ethanol refining in the Midwest, it has created the perfect investment storm.

Profit from Archer Daniels Midlands’ (ADM) corn bioproducts increased from $259 million to $446 million this year, and they have aggressive expansion plans. According to today’s Barron’s:

“In the past year, the difference between ethanol [prices] and corn prices has soared from less than 50 cents to about $3.10 a gallon…. That’s lifted the annual return on capital for some ethanol plants toward 50% and set off a stampede of new investment in ethanol refining.”

So it will come as no surprise that the ethanol industry has a strong lobby to protect itself. It’s a twisted relationship. The federal government’s price supports and subsidies regularly create overproduction of corn. This drives corn prices lower suppressing world prices (something the developing nation’s rightly bemoan).

Some of this surplus is used for ethanol. Why? Refineries - and consumers - are incentivized by a $.51 per gallon tax credit for 10% ethanol-based gasoline. Ethanol producers also enjoy significant trade protection in the form of a 2.5% ad valorem tariff and import duty of 54¢ per gallon of ethanol.

In August, 2006, Amani Elobeid and Simla Tokgoz from Iowa State University published a paper that analyzed the economic effects of removing these protections:

“The study finds that the removal of trade distortions induces an increase in the world price of ethanol and a decrease in the U.S. domestic ethanol price, which results in a decline in U.S. ethanol production and an increase in consumption. Consequently, U.S. net ethanol imports increase significantly….”

The Iowa State paper shows that if we were to remove trade barriers and the tax credit, we would see a 14.46% price drop in ethanol for consumers. Ethanol currently makes up 10% of our gasoline in a limited number of markets in California and the Midwest. Lifting trade barriers would allow Brazilian ethanol to more easily reach ports on the East Coast.

Yet we continue to protect ethanol refineries. ADM Chief Executive Patricia Woertz told Barron’s that “ethanol demand could triple. ‘It looks like it has room to grow to 14 billion or 15 billion [gallons per year],’ she said, ‘which is a full 10% blend in the gasoline pool in the United States.’”

Barron’s analysis of the ethanol market was about as sheltered as the heavily-protected ethanol refining industry: “Unfortunately, before ethanol refiners can reach that goal [14 billion or 15 billion gallons per year], they might reach the limits of the country’s corn supply. America’s entire corn crop would satisfy just 12% of gasoline consumption, leaving no corn to feed livestock and humans.”

No corn to feed our delicious cows? Once we remove ADM’s trade protections and give the Brazilians a new market for their ethanol, we should have plenty of corn to feed those future Big Macs. It will help our farmers counteract the predicted 1.7% drop in domestic corn prices, and it might help lift some desperate Brazilians out of poverty.

Didn’t most of us learn competitive advantage in econ 101? This may be a good time for Congress to brush up.

Sources: Statastic research; Environmental Working Group - Farm Subsidy Database

Trade model based on scenario 2 in the following paper: “Removal of U.S. Ethanol Domestic and Trade Distortions: Impact on U.S. and Brazilian Ethanol Markets,” Amani Elobeid and Simla Tokgoz, Working Paper 06-WP 427, August 2006, Center for Agricultural and Rural Development, Iowa State University