Category Archives: Business

New Chinese emperor, will famine not follow

For most of its 2300 year history, the Chinese empire has rattled between strong leaders who brought famine, and weak leaders who brought temporary reprieve. Mao, a strong leader, killed his associates plus over 100 million by his “great leap forward” famine. Since then, 30+ years, we’ve had some weaker leaders, semi-democracy, and some personal wealth, plus the occasional massacre, e.g. at Tiananmen square, and a growing demographic problem. And now a new strongman is establishing himself with hopes of solving China’s problems. I hope for the best, but fear the repeat of the worse parts of Chinese history.

Two weeks ago, Chairman Xi amended the Chinese constitution to make himself emperor for life, essentially. He’s already in charge of the government, the party, and the military. Yesterday (Tuesday), he consolidated his power further by replacing the head of the banks. The legal system is, in theory, is the last independent part of government, but there is hardly any legal system in the sense of a balance of power. If history is any guide, “Emperor” Xi will weaken the courts further before the year is out. He will also likely remove many or all of his close associates and relatives. It is not for nothing that Nero, Stalin, and Mao killed their relatives and friends — generally for “corruption” following a show trial.

China's Imperial past is never is quite out of sight. Picture from the Economist.

China’s past is never is quite out of sight. Picture from the Economist.

Xi might be different, but he faces a looming demographic problem that makes it likely he will follow the president of the stronger emperors. China’s growth was fueled in part by a one child policy. Left behind is an aging, rural population with no children to take care of the elderly. As top-down societies do not tolerate “useless workers,” I can expect a killing famine within the next 10 years. This would shed the rural burden while providing a warning to potential critics. “Burn the chicken to scare the monkey,” is a Chinese Imperial aphorism. Besides, who needs dirt farmers when we have modern machines.

Lazy beds (feannagan) use only half the soil are for planting. The English experts were sure this was inefficient and land-wasting. Plowing was imposed on Ireland, and famine followed

“Lazy beds” of potatoes were used in Ireland for a century until experts forced their abandonment in the mid 1800s. The experts saw the beds, and the Irish as lazy, inefficient, and land-wasting. Famine followed.

Currently about 40% of the country is rural, about 560 million people spread out over a country the size of Canada or the US. The rest, 60% or 830 million, live concentrated in a few cities. The cities are rich, industrial, and young. The countryside is old, agricultural and poor, salaries are about 1/3 those of the cities. The countryside holds about 2/3 of those over 65, about 100 million elderly with no social safety net. The demographic imbalance is likely to become worse — a lot worse — within the next decade.

What is likely to happen, I fear, is that the party leaders — all of whom live in the cities — will decide that the countryside is full of non-productive, uneducated whiners. They will demand that more food should be produced, and will help them achieve this by misguided science and severe punishments. Mao’s experts, like Stalin’s and Queen Victoria’s, demanded unachievable quotas and academic-based advice that neither the leaders nor the academics had ever tried to make work. Mao’s experts told peasants to kill the birds that were stealing their grain. It worked for a while until the insects multiplied. As for the quotas, the party took grain as if the quotas were being met. If the peasants starved, they starved.

I expect that China’s experts will propose machine-based modern agriculture, perhaps imported from the US or Israel: Whatever is in style at the time. The expert attitude exists everywhere to this day, and the results are always the same. See potato famine picture above. When the famine comes, the old will request food and healthcare, but the city leaders will provide none, or just opioids as they did to ailing Elvis. When the complaining stops the doctor is happy.

China's population pyramid as of 2016. Notice the bulge of 40-55 year olds.

China’s population pyramid as of 2016. Notice the bulge of 40-55 year olds. Note too that there are millions more males (blue) than females (pink).

In single leader societies, newspapers do not report bad news. Rather, they like to show happy, well-fed peasants singing the leaders’ praise. When there’s a riot too big to ignore, rioters are presented as lazy malcontents and counter-revolutionaries. Sympathizers are sent to work in the fields. American academia will sing the praises of the autocratic leader, or will be silent. We never see the peasants, but often see the experts. And we live in a society where newspapers report only the bad, and where we only believe when there pictures. No pictures, no story. As with Stalin’s Gulags, Mao’s famine, or North Korea today, there are likely to be few pictures released to the press. Eventually, a census will reveal that tens of million aged have vanished, and we’ll have to guess where they went.

I can expect China to continue its military buildup over the next decade. The military will be necessary to put down riots, and keep young men occupied, and to protect China from foreign intervention. China will especially need to protect its ill-gotten, new oil-assets. Oil is needed if China is to replace its farmers with machines. It will be a challenge for a wise American leader to avoid being drawn into war with China, while protecting some of our interests: Taiwan, Hong Kong, etc. As with Theodore Roosevelt, he should offer support and non-biassed mediation. Is Trump up to this?  Hu Knows?

Robert Buxbaum, March 21, 2018. The above might be Xi-nephobia, Then again, this just in: Chairman Xi announces that Taiwan will face punishment if it attempts to break free. Doesn’t sound good.

Beyond oil lies … more oil + price volatility

One of many best selling books by Kenneth Deffeyes

One of many best-selling books by Kenneth Deffeyes

While I was at Princeton, one of the most popular courses was geology 101 taught by Dr. Kenneth S. Deffeyes. It was a sort of “Rocks for Jocks,” but had an unusual bite since Dr. Deffeyes focussed particularly on the geology of oil. Deffeyes had an impressive understanding of oil and oil production, and one outcome of this impressive understanding was his certainty that US oil production had peaked in 1970, and that world oil was about to run out too. The prediction that US oil production had peaked was not original to him. It was called Hubbert’s peak after King Hubbert who correctly predicted (rationalized?) the date, but published it only in 1971. What Deffeyes added to Hubbard’s analysis was a simplified mathematical justification and a new prediction: that world oil production would peak in the 1980s, or 2000, and then run out fast. By 2005, the peak date was fixed to November 24, of the same year: Thanksgiving day 2005 ± 3 weeks.

As with any prediction of global doom, I was skeptical, but generally trusted the experts, and virtually every experts was on board to predict gloom in the near future. A British group, The Institute for Peak Oil picked 2007 for the oil to run out, and the several movies expanded the theme, e.g. Mad Max. I was convinced enough to direct my PhD research to nuclear fusion engineering. Fusion being presented as the essential salvation for our civilization to survive beyond 2050 years or so. I’m happy to report that the dire prediction of his mathematics did not come to pass, at least not yet. To quote Yogi Berra, “In theory, theory is just like reality.” Still I think it’s worthwhile to review the mathematical thinking for what went wrong, and see if some value might be retained from the rubble.

proof of peak oilDeffeyes’s Maltheisan proof went like this: take a year-by year history of the rate of production, P and divide this by the amount of oil known to be recoverable in that year, Q. Plot this P/Q data against Q, and you find the data follows a reasonably straight line: P/Q = b-mQ. This occurs between 1962 and 1983, or between 1983 and 2005. Fro whichever straight line you pick, m and b are positive. Once you find values for m and b that you trust, you can rearrange the equation to read,

P = -mQ2+ bQ

You the calculate the peak of production from this as the point where dP/dQ = 0. With a little calculus you’ll see this occurs at Q = b/2m, or at P/Q = b/2. This is the half-way point on the P/Q vs Q line. If you extrapolate the line to zero production, P=0, you predict a total possible oil production, QT = b/m. According to this model this is always double the total Q discovered by the peak. In 1983, QT was calculated to be 1 trillion barrels. By May of 2005, again predicted to be a peak year, QT had grown to two trillion barrels.

I suppose Deffayes might have suspected there was a mistake somewhere in the calculation from the way that QT had doubled, but he did not. See him lecture here in May 2005; he predicts war, famine, and pestilence, with no real chance of salvation. It’s a depressing conclusion, confidently presented by someone enamored of his own theories. In retrospect, I’d say he did not realize that he was over-enamored of his own theory, and blind to the possibility that the P/Q vs Q line might curve upward, have a positive second derivative.

Aside from his theory of peak oil, Deffayes also had a theory of oil price, one that was not all that popular. It’s not presented in the YouTube video, nor in his popular books, but it’s one that I still find valuable, and plausibly true. Deffeyes claimed the wildly varying prices of the time were the result of an inherent quay imbalance between a varying supply and an inelastic demand. If this was the cause, we’d expect the price jumps of oil up and down will match the way the wait-line at a barber shop gets longer and shorter. Assume supply varies because discoveries came in random packets, while demand rises steadily, and it all makes sense. After each new discovery, price is seen to fall. It then rises slowly till the next discovery. Price is seen as a symptom of supply unpredictability rather than a useful corrective to supply needs. This view is the opposite of Adam Smith, but I think he’s not wrong, at least in the short term with a necessary commodity like oil.

Academics accepted the peak oil prediction, I suspect, in part because it supported a Marxian remedy. If oil was running out and the market was broken, then our only recourse was government management of energy production and use. By the late 70s, Jimmy Carter told us to turn our thermostats to 65. This went with price controls, gas rationing, and a 55 mph speed limit, and a strong message of population management – birth control. We were running out of energy, we were told because we had too many people and they (we) were using too much. America’s grown days were behind us, and only the best and the brightest could be trusted to manage our decline into the abyss. I half believed these scary predictions, in part because everyone did, and in part because they made my research at Princeton particularly important. The Science fiction of the day told tales of bold energy leaders, and I was ready to step up and lead, or so I thought.

By 2009 Dr. Deffayes was being regarded as chicken little as world oil production continued to expand.

By 2009 Dr. Deffayes was being regarded as chicken little as world oil production continued to expand.

I’m happy to report that none of the dire predictions of the 70’s to 90s came to pass. Some of my colleagues became world leaders, the rest because stock brokers with their own private planes and SUVs. As of my writing in 2018, world oil production has been rising, and even King Hubbert’s original prediction of US production has been overturned. Deffayes’s reputation suffered for a few years, then politicians moved on to other dire dangers that require world-class management. Among the major dangers of today, school shootings, Ebola, and Al Gore’s claim that the ice caps will melt by 2014, flooding New York. Sooner or later, one of these predictions will come true, but the lesson I take is that it’s hard to predict change accurately.

Just when you thought US oil had beed depleted for good, production began rising. It's now higher than the 1970 peak.

Just when you thought US oil was depleted, production began rising. We now produce more than in 1970.

Much of the new oil production you’ll see on the chart above comes from tar-sands, oil the Deffeyes  considered unrecoverable, even while it was being recovered. We also  discovered new ways to extract leftover oil, and got better at using nuclear electricity and natural gas. In the long run, I expect nuclear electricity and hydrogen will replace oil. Trees have a value, as does solar. As for nuclear fusion, it has not turned out practical. See my analysis of why.

Robert Buxbaum, March 15, 2018. Happy Ides of March, a most republican holiday.

Hydrogen powered trucks and busses

With all the attention to electric cars, I figure that we’re either at the dawn of electric propulsion vehicles or of electric propulsion vehicle hype. Elon Musk’s Tesla motor car company stock is now valued at $59 B, more than GM or Ford despite the company having massive losses and few cars. The valuation, I suspect, has to do with the future and autonomous vehicles. There are many who expect self-driving vehicles will rule the road, but the form is uncertain. In this space, i suspect that hydrogen-battery hybrids make more sense than batteries alone, and that the first large-impact uses will be trucks and busses — vehicles that go long distance on highways.

Factory floor, hydrogen fueling station for plug-power forklifts. Plug FCs reached their 10 millionth refueling this January.

Factory floor, hydrogen fueling station for fuel cell forklifts. This company’s fuel cells have had over 10 million refuelings so far.

Currently there are only two bands of autonomous vehicles available in the US, the Cadillac CT6, a gasoline powered car, and the Tesla. Neither work well except on highways because the number of highway problems are fewer than the number of city problems and only the CT6 allows you to take your hands off the wheel — see review here. To me, being able to take your hand off the wheel is the only real point of autonomous control, and if one can only do this only on the highway, that’s acceptable. Highway driving gets quite tiring after the first hundred miles or so, and any relief is welcome.

Tesla’s battery cars allow for some auto-driving on the highway, but you can’t take your hand off the wheel or the car stops. That battery cars compete at all for highway driving, I suspect, is only possible because the US government highly subsidizes the battery cost. Musk then hides the true cost among the corporate losses. Without this, hydrogen – fuel cell vehicles would be cheaper, I suspect, while providing better range, see my calculation here. Adding to the advantage of hydrogen over batteries, the charge time for hydrogen is much faster. Slow charge times are a real drawback for highway vehicles traveling any significant distances. While hydrogen fuel isn’t cheap — it’s becoming cheaper and is now about double the price of gasoline on a per mile basis. The advantage over gasoline is it provides pollution-free, electric propulsion, and this is well suited to driverless vehicles. Both gasoline and battery vehicles can have odd acceleration issues, e.g. when the gasoline gets wet, or the battery gets run down. And it’s not like there are no hydrogen fueling stations. Hydrogen, fuel-cell power has become a major competitor for fork-lifts, and has recently had its ten million refueling in that application. The same fueling stations that serve the larger fork-lift users could serve the self-driving truck and bus market.

For round the town use, hydrogen vehicles could still use batteries, and the combined vehicle can have very impressive performance. A Dutch company has begun to sell kits to convert Tesla model S autos to combined battery + hydrogen. With these kits, they boast a 620 mile (1000 km) range instead of the normal 240 miles. See the product here.  On the horizon, in the self-driving fuel cell market, Hyundai has debuted the “Nexo” with a range of 370 miles. Showing off the self-driving capability, Nexos were used to carry spectators between venues at the Pyongyang olympics. Japanese competitors, the Toyota Mirai (312 miles) and the Honda Clarity Fuel Cell (366 miles) can be expected to provide similar capabilities.

Cadillac CT6 with supercruise. An antonymous vehicle that you can buy today that allows you to take your hand off the wheel.

Cadillac CT6 with supercruise. An antonymous vehicle that you can buy today that allows you to take your hand off the wheel.

The reason I believe in hydrogen Trucks and Busses more than cars is the difficulty of refueling, Southern California has installed some 36 public hydrogen refueling stations at last count, but that’s too few for most personal car use. Other states have even fewer spots where you can drive up and get hydrogen; Michigan has only two. This does not matter for a commercial truck or bus because they go between fixed depots and these can be fitted with hydrogen dispensers as found for forklifts. It’s possible trucks can even use the same dispensers as the forklifts. If one needs a little extra range one can add a “hydrogen Jerry can” to provide an extra kg of H2 to provide 20-30 miles of emergency range. I do not see electric vehicles working as well because the charge times are so slow, the range so modest, and the electric power needs so large. To charge a 100 kWhr battery in an hour, the charge station would have to have an electric feed of 100 kW, about as much as a typical mall. With 100A, 240 V, the most you can normally get, expect a 4 1/2 hour charge.

The real benefit for hydrogen trucks and busses is autonomy. Being able to run the route without major input from a driver. So why not gasoline, as with the Cadillac? My answer is simplicity. If you want driverless simplicity, you want electric or hydrogen. And only hydrogen provides the long-range, fast fueling to make the product worthwhile.

Robert Buxbaum March 12, 2018. My company, REB Research provides hydrogen purifiers and hydrogen generators.

Elvis Presley and the opioid epidemic

For those who suspect that the medical profession may bear some responsibility for the opioid epidemic, I present a prescription written for Elvis Presley, August 1977. Like many middle age folks, he suffered from back pain and stress. And like most folks, he trusted the medical professionals to “do no harm” prescribing nothing with serious side effects. Clearly he was wrong.

Elis prescription, August 1977. Opioid city.

Elis prescription, August 1977. Opioid city.

The above prescription is a disaster, but you may think this is just an aberration. A crank doctor who hooked (literally) a celebrity patient, but not as aberrant as one might think. I worked for a pharmacist in the 1970s, and the vast majority of prescriptions we saw were for these sort of mood altering drugs. The pharmacist I worked for refused to service many of these customers, and even phoned the doctor to yell at him for one particular egregious case: a shivering skinny kid with a prescription for diet pills, but my employer was the aberration. All those prescriptions would be filled by someone, and a great number of people walked about in a haze because of it.

The popular Stones song, Mother’s Little Helper, would not have been so popular if it were not true to life. One might ask why it was true to life, as doctors might have prescribed less addicting drugs. I believe the reason is that doctors listened to advertising then, and now. They might have suggested marijuana for pain or depression — there was good evidence it worked — but there were no colorful brochures with smiling actors. The only positive advertising was for opioids, speed, and Valium and that was what was prescribed then and still today.

One of the most common drugs prescribed to kids these days is speed, marketed as “Ritalin.” It prevents daydreaming and motor-mouth behaviors; see my essay is ADHD a real disease?. I’m not saying that ADD kids aren’t annoying, or that folks don’t have back ached, but the current drugs are worse than marijuana as best I can tell. It would be nice to get non-high-inducing pot extract sold in pharmacies, in my opinion, and not in specialty stores (I trust pharmacists). AS things now stand the users have medical prescription cards, but the black sellers end up in jail..

Robert Buxbaum, January 25, 2018. Please excuse the rant. I ran for sewer commissioner, 2016, And as a side issue, I’d like to reduce the harsh “minimum” penalties for crimes of possession with intent to sell, while opening up sale to normal, druggist channels.

Bitcoin risks, uses, and bubble

Bitcoin prices over the last 3 years

Bitcoin prices over the last 3 years

As I write this, the price of a single bitcoin stands are approximately $11,100 yesterday, up some 2000% in the last 6 months suggesting it is a financial bubble. Or maybe it’s not: just a very risky investment suited for inclusion in a regularly balanced portfolio. These are two competing views of bitcoin, and there are two ways to distinguish between them. One is on the basis of technical analysis — does this fast rise look like a bubble (Yes!), and the other is to accept that bitcoin has a fundamental value, one I’ll calculate that below. In either case, the price rise is so fast that it is very difficult to conclude that the rise is not majorly driven by speculation: the belief that someone else will pay more later. The history of many bubbles suggests that all bubbles burst sooner or later, and that everyone holding the item loses when it does. The only winners are the last few who get out just before the burst. The speculator thinks that’s going to be him, while the investor uses rebalancing to get some of benefit and fun, without having to know exactly when to get out.

That bitcoin is a bubble may be seen by comparing the price three years ago. At that point it was $380 and dropping. A year later, it was $360 and rising. One can compare the price rise of the past 2-3 years with that for some famous bubbles and see that bitcoin has risen 30 times approximately, an increase that is on a path to beat them all except, perhaps, the tulip bubble of 1622.

A comparison between Bitcoin prices, and those of tulips, 1929 stocks, and other speculative bubbles; multiple of original price vs year from peak.

A comparison between Bitcoin prices, and those of tulips, 1929 stocks, and other speculative bubbles; multiple of original price vs year from peak.

That its price looks like a bubble is not to deny that bitcoin has a fundamental value. Bitcoin is nearly un-counterfeit-able, and its ownership is nearly untraceable. These are interesting properties that make bitcoin valuable mostly for illegal activity. To calculate the fundamental value of a bitcoin, it is only necessary to know the total value of bitcoin business transactions and the “speed of money.” As a first guess, lets say that all the transactions are illegal and add up to the equivalent of the GDP of Michigan, $400 billion/year. The value of a single bitcoin would be this number divided by the number of bitcoin in circulation, 12,000,000, and by the “speed of money,” the number of business transactions per year per coin. I’ll take this to be 3 per year. It turns out there are 5 bitcoin transactions total per year per coin, but 2/5 of that, I’ll assume, are investment transactions. Based on this, a single bitcoin should be worth about $11,100, exactly its current valuation. The speed number, 3, includes those bitcoins that are held as investments and never traded, and those actively being used in smuggling, drug-deals, etc.

If you assume that the bitcoin trade will grow to $600 billion year in a year or so, the price rise of a single coin will surpass that of Dutch tulip bulbs on fundamentals alone. If you assume it will reach $1,600 billion/year, the GDP of Texas in the semi-near future, before the Feds jump in, the value of a coin could grow to $44,000 or more. There are several problems for bitcoin owners who are betting on this. One is that the Feds are unlikely to tolerate so large an unregulated, illegal economy. Another is that bitcoin are not likely to go legal. It is very hard (near impossible) to connect a bitcoin to its owner. This is great for someone trying to deal in drugs or trying hide profits from the IRS (or his spouse), but a legal merchant will want the protection of courts of law. For this, he or she needs to demonstrate ownership of the item being traded, and that is not available with bitcoin. The lack of good legitimate business suggests to me that the FBI will likely sweep in sooner or later.

Yet another problem is the existence of other cryptocurrencies: Litecoin (LTC), Ethereum (ETH), and Zcash (ZEC) as examples. The existence of these coins increase the divisor I used when calculating bitcoin value above. And even with bitcoins, the total number is not capped at 12,000,000. There are another 12,000,000 coins to be found — or mined, as it were, and these are likely to move faster (assume an average velocity of 4). By my calculations, with 24,000,000 bitcoin and a total use of $1,600 billion/year, the fundamental value of each coin is only $16,000. This is not much higher than its current price. Let the buyer beware.

For an amusing, though not helpful read into the price: here are Bill Gates, Warren Buffet, Charlie Munger, and Noam Chomsky discussing Bitcoin.

Robert Buxbaum, December 3, 2017.

Why Warren Buffett pays 0% social security tax

Social Security is billed along with Medicare (health care for the poor) as an anti-flat tax called FICA where middle class workers pay 7.65 -15.3%, and rich people pay essentially 0%. The reason that Warren Buffet and other rich people pay 0%, on a percentage basis, far less than their secretaries, is that there is a FICA cap of $127,200 currently, and he earns far more than $127,200. Buffett’s secretaries pays 7.65%, or which 6% approximately is social-security payment, and the rest Medicare. Buffett’s company then matches the 7.65% — a situation that applies to virtually every employee in the US.

A self employed person though, a gardener say, pays both the employee and employer portion or 15.3%. The same $127,200 cap applies, but since few gardeners make more than this amount, they are likely to pay 15.3% on all earnings, with no deductions. FICA really socks the poor and middle class, and barely touches a rich man like Buffett. This is the tax-inequality that most needs addressing, in my opinion, and one I have not heard discussed.

A short history of FICA

A visual history of FICA rates (right), and of the salary cap (left). Medicare contributions were added in 1966.

As I write this, there is a debate about tax reform that mostly involves income tax, but not at all FICA. Income tax could be improved, in my opinion, and should be. We could remove some exemptions that are being abused, and we should lower the general rates, especially for foreign-earnings, but the current income tax isn’t that bad, in my opinion. Buffett likes to brag about the high rate he pays, but it’s not a bad rate compared to the rest of the world. And Buffett benefits from a lot of things we don’t. His income is taxed at a lower rate than a worker’s would be since most of it is unearned. And, like most rich folks, he has exemptions and deductions that do not apply to most. He can deduct cars, private airplanes, and interest; most folks don’t deduct these things since they don’t spend enough to exceed the “standard deduction”. I’m happy to say these issues are being addressed in the current tax re-write.

The current, House version of the GOP tax proposal includes a raise in the standard deduction and a cap on interest and other deductions. There is a general decrease in the tax rate for earnings, and a decrease for earnings made abroad and repatriated. I’d like to see tariffs, too but they do not appear in the versions I’ve seen. And I’ve very much like to see a decrease in the FICA rate coupled with a removal of the salary cap. Pick a rate, 4% say, where we collect the same amount, but spread the burden uniformly. Why should 7.65%-15.3% or the workmanship wages got to the window, the orphan, and healthcare of the poor, while 0% of Buffett’s go for this?

Some other tax ideas: I’d like to see shorter criminal sentences, especially for drugs, and I’d like to see healthcare addressed to reduce the administrative burden.

Robert E. Buxbaum, November 17, 2017. In the news today, the senate version puts back the tax exemption on private jets. The opposite of progress, they say, is congress.

The energy cost of airplanes, trains, and buses

I’ve come to conclude that airplane travel makes a lot more sense than high-speed trains. Consider the marginal energy cost of a 90kg (200 lb) person getting on a 737-800, the most commonly flown commercial jet in US service. For this plane, the ratio of lift/drag at cruise speed is 19, suggesting an average value of 15 or so for a 1 hr trip when you include take-off and landing. The energy cost of his trip is related to the cost of jet fuel, about $3.20/gallon, or about $1/kg. The heat energy content of jet fuel is 44 MJ/kg. Assuming an average engine efficiency of 21%, we calculate a motive-energy cost of 1.1 x 10-7 $/J. The amount of energy per mile is just force times distance. Force is the person’s weight in (in Newtons) divided by 15, the lift/drag ratio. The energy use per mile (1609 m) is 90*9.8*1609/15 = 94,600 J. Multiplying by the $-per-Joule we find the marginal cost is 1¢ per mile: virtually nothing compared to driving.

The Wright brothers testing their gliders in 1901 (left) and 1902 (right). The angle of the tether reflects the dramatic improvement in the lift-to-drag ratio.

The Wright brothers testing their gliders in 1901 (left) and 1902 (right). The angle of the tether reflects a dramatic improvement in lift-to-drag ratio; the marginal cost per mile is inversely proportional to the lift-to-drag ratio.

The marginal cost of 1¢/passenger mile explains why airplanes offer crazy-low, fares to fill seats. But this is just the marginal cost. The average energy cost is higher since it includes the weight of the plane. On a reasonably full 737 flight, the passengers and luggage  weigh about 1/4 as much as the plane and its fuel. Effectively, each passenger weighs 800 lbs, suggesting a 4¢/mile energy cost, or $20 of energy per passenger for the 500 mile flight from Detroit to NY. Though the fuel rate of burn is high, about 5000 lbs/hr, the mpg is high because of the high speed and the high number of passengers. The 737 gets somewhat more than 80 passenger miles per gallon, far less than the typical person driving — and the 747 does better yet.

The average passengers must pay more than $20 for a flight to cover wages, capital, interest, profit, taxes, and landing fees. Still, one can see how discount airlines could make money if they have a good deal with a hub airport, one that allows them low landing fees and allows them to buy fuel at near cost.

Compare this to any proposed super-fast or Mag-lev train. Over any significant distance, the plane will be cheaper, faster, and as energy-efficient. Current US passenger trains, when fairly full, boast a fuel economy of 200 passenger miles per gallon, but they are rarely full. Currently, they take some 15 hours to go Detroit to NY, in part because they go slow, and in part because they go via longer routes, visiting Toronto and Montreal in this case, with many stops along the way. With this long route, even if the train got 150 passenger mpg, the 750 mile trip would use 5 gallons per passenger, compared to 6.25 for the flight above. This is a savings of $5, at a cost of 20 hours of a passenger’s life. Even train speeds were doubled, the trip would still take 10 hours including stops, and the energy cost would be higher. As for price, beyond the costs of wages, capital, interest, profit, taxes, and depot fees, trains have to add the cost of new track and track upkeep. Wages too will be higher because the trip takes longer. While I’d be happy to see better train signaling to allow passenger trains to go 100 mph on current, freight-compatible lines, I can’t see the benefit of government-funded super-track for 150+ mph trains that will still take 10 hours and will still be half-full.

Something else removing my enthusiasm for super trains is the appearance of new short take-off and landing jets. Some years ago, I noted that Detroit’s Coleman Young airport no longer has commercial traffic because its runway was too short, 1051m. I’m happy to report that Bombardier’s new CS100s should make small airports like this usable. A CS100 will hold 120 passengers, requires only 1463m of runway, and is quiet enough for city use. The economics are such that it’s hard to imagine mag-lev beating this for the proposed US high-speed train routes: Dallas to Houston; LA to San José to San Francisco; or Chicago-Detroit-Toledo-Cleveland-Pittsburgh. So far US has kept out these planes because Boeing claims unfair competition, but I trust that this is just a delay. For shorter trips, I note that modern busses are as fast and energy efficient as trains, and far cheaper because they share the road costs with cars and trucks.

If the US does want to spend money, I’d suggest improving inner-city airports, and to improve roads for higher speed car and bus traffic. If you want low pollution and high efficiency, how about hydrogen hybrid buses?

Robert Buxbaum, October 30, 2017. I taught engineering for 10 years at Michigan State, and my company, REB Research, makes hydrogen generators and hydrogen purifiers.

Health vs health administration

One of the great patterns of government is that it continually expands adding overseers over overseers to guarantee that those on the bottom do their work honestly. There are overseers who check that folks don’t overcharge, or take bribes, or under-pay. There are overseers to check shirking, and prevent the hiring of friends, to check that paperwork is done, and to come up with the paperwork, and lots of paperwork to assert that no one is wasting money or time in any way at all. There have been repeated calls for regulation reform, but little action. Reform would require agreement from the overseers, and courage from our politicians. Bureaucracy always wins.

The number of health administrators has risen dramatically; doctors, not so much.

By 2009 the number of health administrators was rising dramatically faster than the number of doctors; it’s currently about 20:1.

The call for reform is particularly strong in healthcare and the current, Obamacare rules are again under debate. As of 2009 we’d already reached the stage where there were fourteen healthcare administrators for every doctor (Harvard Business Review), and that was before Obamacare. By 2013, early in the Obamacare era, the healthcare workforce had increased by 75%, but 95 percent of those new hires were administrators: we added 19 administrators per doctor. Some of those administrators were in government oversight, some worked in hospitals filling out forms, some were in doctors offices, and some were in the government, writing the new rules and checking that the rules were followed. A lot of new employment with no new productivity. Even if these fellows were all honest and alert, there are so many of them, that there seems no way they do not absorb more resources than the old group of moderately supervised doctors would by laziness and cheating.

Overseers fill ever-larger buildings, hold ever-more meetings, and create ever-more rules and paperwork. For those paying out of pocket, the average price of healthcare has risen to $25,826 a year for a family of four. That’s nearly half of the typical family income. As a result people rarely buy healthcare insurance (Obamacare) until after they are too sick to work. Administering the system take so much doctor time that a Meritt Hawkins study finds a sharp decline in service. The hope is that Congress will move to reverse this — somehow.

With more administrators than workers, disagreements among management becomes the new normal.

With more administrators than workers, disagreements among management becomes the new normal. Doctors find themselves operating in “The Dilbert Zone”.

Both Democrats and Republicans have complained about Obamacare and campaigned to change or repeal it, but now that they are elected, most in congress seem content to do nothing and blame each other. If they can not come up with any other change, may I suggest a sharp decrease in the requirements for administrative oversight, with a return to colleague oversight, and a sharp decrease in the amount of computerized documentation. The suggestion of colleague oversight also appears here, Harvard Business Review. Colleague oversight with minimal paperwork works fine for plumbers, and electricians; lawyers and auto-mechanics. It should work fine for doctors too.

Robert Buxbaum, September 19, 2017. On a vaguely similar topic, I ask is ADHD is a real disease, or a disease of definition.

Detroit 1967 to 2017: unemployment comes down, murder rate doesn’t.

Almost 50 years ago today, July 23, 1967 white policemen raided an unlicensed, “blind pig” bar in a black neighborhood, the 12th street of Detroit, and the city responded with four days of rioting, 43 killings (33 black, 10 white), 2509 stores looted, and over 1000 fires. In 2017, at last the city is beginning to show signs of recovery. By 2015 the city’s unemployment had gone down from about 20% to 12%, and  in the first six months 2017, the firs six months of the Trump presidency, 2017 it’s gone down again to 7 1/2%. It’s not that 7 1/2% unemployment is good, but it’s better. Per-hour salaries are hardly up, but I take that as better than having a high average salary at very low employment. As a point of reference, the unemployment rate in Detroit in 1967, before the riots was 3.4%. Within weeks, 150,000 jobs were lost, and anyone who could leave the city, did.

Detroit Unemployment rates are way down, but the city still looks like a mess.

Detroit Unemployment rates are way down, but the city still looks like a mess.

Another issue for Detroit is its uncommonly high murder rate. In the mid-80s, Detroit had the highest murder rate in the US, about 55 murders per 100,000 population per year (0.055%/year). As of February 1, 2017, the murder rate was virtually unchanged: 50 per 100,000 or 0.05%/year, but two cities have higher rates yet. At present rates, you have a 3.5% of dying by homicide if you live in Detroit for 70 years — even higher if you’re male. The rate in the rest of the US is about 1/10th this, 0.005%/year, or 5 per 100,000, with a dramatic difference between rural and urban populations.

Murder rate in 50 cities with Detroit highlighted. From The Economist, February 2017.

Murder rate in 50 cities with Detroit highlighted, from The Economist.

One of the causes of the high murder rate in Detroit, and in the US generally, I suspect, is our stiff, minimum-penalties for crime. As sir Thomas Moose pointed out, when crime is punished severely, there is a tendency to murder. If you’re going to spend the next 20 years behind bars, you might as well try any means you can to escape. Another thought — the one favored by social liberals — is that it’s the presence of guns in the US encourages murder. It may, but it also seems to prevent crime by allowing the victim to defend himself or herself. And the effect on murder is not so clear, if you consider suicide as a form of murder. In countries like Canada with few guns, people kill themselves by hanging or by throwing themselves off high buildings. My hope is that Detroit’s murder rate will drop in 2017 to match its improved economic condition, but have no clear reason to think it will.

Robert Buxbaum, July 20, 2017. Here are some suggestions I’ve made over the years.

If the wall with Mexico were covered in solar cells

As a good estimate, it will take about 130,000 acres of solar cells to deliver the power of a typical nuclear facility, 26 TWhr/year. Since Donald Trump has proposed covering his wall with Mexico with solar cells, I came to wonder how much power these cells would produce, and how much this wall might cost. Here goes.

Lets assume that Trump’s building a double wall on a strip of land one chain (66 feet) wide, with a 2 lane road between. Many US roads are designed in chain widths, and a typical, 2 lane road is 1/2 chain wide, 33 feet, including its shoulders. I imagine that each wall is slanted 50° as is typical with solar cells, and that each is 15 to 18 feet high for a good mix of power and security. Since there are 10 square chains to an acre, and 80 chains to a mile we find that it would take 16,250 miles of this to produce 26 TWhr/year. The proposed wall is only about 1/10 this long, 1,600 miles or so, so the output will be only about 1/10 as much, 2.6 TWhr/year, or 600 MW per average daylight hour. That’s not insignificant power — similar to a good-size coal plant. If we aim for an attractive wall, we might come to use Elon Musk’s silica-coated solar cells. These cost $5/Watt or $3 Billion total. Other cells are cheaper, but don’t look as nice or seem as durable. Obama’s, Ivanpah solar farm, a project with durability problems, covers half this area, is rated at 370 MW, and cost $2.2 Billion. It’s thus rated to produce slightly over half the power of the wall, at a somewhat higher price, $5.95/Watt.

Elon Musk with his silica solar panels.

Elon Musk with his, silica-coated, solar wall panels. They don’t look half bad and should be durable.

It’s possible that the space devoted to the wall will be wider than 66 feet, or that the length will be less than 1600 miles, or that we will use different cells that cost more or less, but the above provides a good estimate of design, price, and electric output. I see nothing here to object to, politically or scientifically. And, if we sell Mexico the electricity at 11¢/kWhr, we’ll be repaid $286 M/year, and after 12 years or so, Republicans will be able to say that Mexico paid for the wall. And the wall is likely to look better than the Ivanpah site, or a 20-year-old wind farm.

As a few more design thoughts, I imagine an 8 foot, chain-link fence on the Mexican side of the wall, and imagine that many of the lower solar shingles will be replaced by glass so drivers will be able to see the scenery. I’ve posited that secure borders make a country. Without them, you’re a tribal hoard. I’ve also argued that there is a pollution advantage to controlling imports, and an economic advantage as well, at least for some. For comparison, recent measurement of the Great Wall of China shows it to be 13,170 miles long, 8 times the length of Trump’s wall with China.

Dr. Robert E. Buxbaum, June 14, 2017.