Category Archives: Detroit

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.

How to tell a genius from a nut.

In my time in college, as a student, grad student, and professor, I ran into quite a few geniuses and quite a few weirdos. Most of the geniuses were weird, but most of the weirdos were not geniuses. Many geniuses drank or smoked pot, most drunks and stoners were stupid, paranoids. My problem was finding a reasonably quick way to tell the geniuses from the nuts; tell Einsteins from I’m-stoned.kennedy thought

Only quick way I found is by their friends. If someone’s friends are dullards, chances are they are too. Related to this is humility. Most real geniuses have a body of humility that can extent to extreme self-doubt. They are aware of what they don’t know, and are generally used to skepticism and having to defend their ideas. A genius will do so enthusiastically, happy to have someone listen; a non genius will bristle at tough questions, responding by bluster, bragging, name dropping, and insult. A science genius will do math, and will show you interesting math stuff just for fun, a nut will not. Nuts will use big words will have few friends you’d want to hang with. A real genius uses simple words.

Another tell, those with real knowledge are knowledgeable on what others think (there’s actually a study on this). That is, they are able to speak in the mind-set of others, pointing out the logic of the other side, and practical differences where the other side would be right. There should be a clear reason to come on one side or the other, and not just a scream of frustration that you don’t agree. The ability to see the world through others’ eyes is not a proof they are right — some visionary geniuses have been boors, but it is a tell. Besides boors are no fun to be with; they are worth avoiding if possible.

education test treeAnd what of folks who are good to talk to; decent, loyal, humble, and fun, but turn out to be not-geniuses. I’d suggest looking a little closer. At the worst, these are good friends, boon companions, and decent citizens — far more enjoyable to deal with than the boors. But if you look closer, you may find a genius in a different area — a plumbing genius, or a police genius, or a short-order cook genius. One of my some-time employees is a bouncer-genius. He works as a bouncer and has the remarkable ability to quite people down, or throw them out, without causing a fight — it’s not an easy skill. In my political work trying to become drain commissioner, I ran into a sewage genius, perhaps two. These are hard-working people that I learn from.

People make the mistake of equating genius with academia, but that’s just a very narrow slice of genius. They then compound the mistake by looking at grades. It pays to look at results and to pay respects accordingly. To quote an old joke/ story: what do you call the fellow who graduated at the bottom of his medical school class? “Doctor” He or she is a doctor. And what do you call the fellow who graduated at the bottom of his law school class? “your honor.”

Robert Buxbaum, November 27, 2017.

Penicillin, cheese allergy, and stomach cancer

penecillin molecule

The penicillin molecule is a product of the penicillin mold

Many people believe they are allergic to penicillin — it’s the most common perceived drug allergy — but several studies have shown that most folks who think they are allergic are not. Perhaps they once were, but when people who thought they were allergic were tested, virtually none showed allergic reaction. In a test of 146 presumably allergic patients at McMaster University, only two had their penicillin allergy confirmed; 98.6% of the patients tested negative. A similar study at the Mayo Clinic tested 384 pre-surgical patients with a history of penicillin allergy; 94% tested negative, and were given clearance to receive penicillin antibiotics before, during, and after surgery. Read a summary here.

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Orange showing three different strains of the penicillin mold; some of these are toxic.

This is very good news. Penicillin is a low-cost, low side-effect antibiotic, effective against many diseases including salmonella, botulism, gonorrhea, and scarlet fever. The penicillin molecule is a common product of nature, produced by a variety of molds, e.g. on the orange at right, and used in cheese making, below. It is thus something most people have been exposed to, whether they realize it or not.

Penicillin allergy is still a deadly danger for the few who really are allergic, and it’s worthwhile to find out if that means you. The good news: that penicillin is found in common cheeses suggests, to me, a simple test for penicillin allergy. Anyone who suspects penicillin allergy and does not have a general dairy allergy can try eating brie, blue, camembert, or Stilton cheese: any of cheeses made with the penicillin mold. If you don’t break out in a rash or suffer stomach cramps, you’re very likely not allergic to penicillin.

There is some difference between cheeses. Some, like brie and camembert, have a white fuzzy mold coat; this is Penicillium camemberti. it exudes penicillin — not in enough to cure gonorrhea, but enough to give taste and avoid spoilage — and to test for allergy. Danish blue and Roquefort, shown below, have a different look and more flavor. They’re made with blue-green, Penicillium roqueforti. Along with penicillin, this mold produces a small amount of neurotoxin, roquefortine C. It’s not enough to harm most people, but it could cause some who are not allergic to penicillin to be allergic to blue cheese. Don’t eat a moldy orange, by the way; some forms of the mold produce a lot of neurotoxin.

For people who are not allergic, a thought I had is that one could, perhaps treat heartburn or ulcers with cheese; perhaps even cancer? H-Pylori, the bacteria associated with heartburn, is effectively treated by amoxicillin, a penicillin variant. If a penicillin variant kills the bacteria, as seems plausible that penicillin cheese might too. Then too, amoxicillin, is found to reduce the risk of gastric cancer. If so, penicillin or penicillin cheese might prove to be a cancer protective. To my knowledge, this has never been studied, but it seems worth considering. The other, standard treatment for heartburn, pantoprazole / Protonix, is known to cause osteoporosis, and increase the risk of cancer.

A culture of Penicillium roqueforti. Most people are not allergic to it.

The blue in blue cheese is Penicillium roqueforti. Most people are not allergic.

Penicillin was discovered by Alexander Fleming, who noticed that a single spore of the mold killed the bacteria near it on a Petrie dish. He tried to produce significant quantities of the drug from the mold with limited success, but was able to halt disease in patients, and was able to interest others who had more skill in large-scale fungus growing. Kids looking for a good science fair project, might consider penicillin growing, penicillin allergy, treatment of stomach ailments using cheese, or anything else related to the drug. Three Swedish journals declared that penicillin was the most important discovery of the last 1000 years. It would be cool if the dilute form, the one available in your supermarket, could be shown to treat heartburn and/or cancer. Another drug you could study is Lysozyme, a chemical found in tears, in saliva, and in human milk, but not in cow milk. Alexander Fleming found that tears killed bacteria, as did penicillin. Lysozyme, the active ingredient of tears, is currently used to treat animals, but not humans.

Robert Buxbaum, November 9, 2017. Since starting work on this essay I’ve been eating blue cheese. It tastes good and seems to cure heartburn. As a personal note: my first science fair project (4th grade) involved growing molds on moistened bread. For an incubator, I used the underside of our home radiator. The location kept my mom from finding the experiment and throwing it out.

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 1609 m (1 mile) is 90*9.8*1609/15 = 94,600 J. Multiplying by the $-per-J 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.

Activated sludge sewage treatment bioreactors

I ran for water commissioner of Oakland county in 2016, a county with 1.3 million people and eight sewage treatment plants. One of these plants uses the rotating disk contractor, described previously, but the others process sewage by bubbling air through it in a large tank — the so-called, activated sludge process. A description is found here in Wikipedia, but with no math, and thus, far less satisfying than it could be. I thought I might describe this process relevant mathematics, for my understanding and those interested: what happens to your stuff after you flush the toilet or turn on the garbage disposal.

Simplified sewage plant: a plug-flow reactor with a 90+% solids recycle used to maintain a high concentration of bio-catalyst material.

Simplified sewage plant: a bubbling, plug-flow bio-reactor with 90% solids recycle and a settler used to extract floc solids and bio-catalyst material.

In most of the USA, sanitary sewage, the stuff from your toilet, sink, etc. flows separately from storm water to a treatment plant. At the plant, the sewage is first screened (rough filtered) and given a quick settle to remove grit etc. then sent to a bubbling flow, plug-flow bioreactor like the one shown at right. Not all cities use this type of sludge processes, but virtually every plant I’ve seen does, and I’ve come to believe this is the main technology in use today.

The sewage flows by gravity, typically, a choice that provides reliability and saves on operating costs, but necessitates that the sewage plant is located at the lowest point in the town, typically on a river. The liquid effluent of the sewage, after bio-treatment is typically dumped in the river, a flow that is so great more than, during dry season, more than half the flow of several rivers is this liquid effluent of our plants – an interesting factoid. For pollution reasons, it is mandated that the liquid effluent leaves the plant with less than 2 ppm organics; that is, it leaves the plant purer than normal river water. After settling and screening, the incoming flow to the bio-reactor typically contains about 400 ppm of biomaterial (0.04%), half of it soluble, and half as suspended colloidal stuff (turd bits, vegetable matter, toilet paper, etc). Between the activated sludge bio-reactor and the settler following it manage to reduce this concentration to 2 ppm or less. Soluble organics, about 200 ppm, are removed by this cellular oxidation (metabolism), while the colloidal material, the other 200 ppm, is removed by adsorption on the sticky flocular material in the tank (the plug-flow tank is called an oxidation ditch, BTW). The sticky floc is a product of the cells. The rate of oxidation and of absorption processes are proportional to floc concentration, F and to organic concentration, C. Mathematically we can say that

dC/dt = -kFC

where C and F are the concentration of organic material and floc respectively; t is time, and k is a reaction constant. It’s not totally a constant, since it is proportional to oxygen concentration and somewhat temperature dependent, but I’ll consider it constant for now.

As shown in the figure above, the process relies on a high recycle of floc (solids) to increase the concentration of cells, and speed the process. Because of this high recycle, we can consider the floc concentration F to be a constant, independent of position along the reactor length.

The volume of the reactor-ditch, V, is fixed -it’s a concrete ditch — but the flow rate into the ditch, Q, is not fixed. Q is high in the morning when folks take showers, and low at night. It’s also higher — typically about twice as high — during rain storms, the result of leakage and illegal connections. For any flow rate, Q, there is a residence time in the tank, τ where τ = V/Q. We can now solve the above equation assuming an incoming concentration C° = 400 ppm and an outgoing concentration Co of 2 ppm:

ln (C°/Co) = kFτ

Where τ equals the residence time in the tank. Since τ = V/Q,

ln (C°/Co) = kFV/Q.

The required volume of reactor, V, is related to the flow rate, Q, as follows for typical feed and exit concentrations:

V = Q/kF ln( 400/2) = 5.3 Q/kF.

The volume is seen to be dependent on F. In Oakland county, thank volume V is chosen to be one or two times the maximum expected value of Q. To keep the output organic content to less than 2 ppm, F is maintained so that kF≥ 5.3 per day. Thus, in Oakland county, a 2 million gallon per day sewage plant is built with a 2-4 million gallon oxidation ditch. The extra space allows for growth of the populations and for heavy rains, and insures that most of the time, the effluent contains less than 2 ppm organics.

Bob Martin by the South Lyon, MI, Activated Sludge reactor

Bob Martin chief engineer the South Lyon, MI, Activated Sludge plant, 2016. His innovation was to control the air bubblers according to measurements of the oxygen content. The O2 sensor is at bottom; the controller is at right. When I was there, some bubblers were acting up.

As you may guess, the activated sludge process requires a lot of operator control, far more than the rotating disk contractor we described. There is a need for constant monitoring and tweaking. The operator deals with some of the variations in Q by adjusting the recycle amount, with other problems by adjusting the air flow, or through the use of retention tanks upstream or downstream of the reactor, or by adding components — sticky polymer, FeCl3, etc. Finally, in have rains, the settler-bottom fraction itself is adjusted (increased). Because of all the complexity. sewer treatment engineer is a high-pay, in demand, skilled trade. If you are interested, contact me or the county. You’ll do yourself and the county a service.

I’d mentioned that the effluent water goes to the rivers in Oakland county. In some counties it goes to the fields, a good idea, I think. As for the solids, in Oakland county, the solid floc is concentrated to a goo containing about 5% solids. (The goo is called unconsolidated sludge) It is shipped free to farmer fields, or sometimes concentrated to more than 5% (consolidated sludge), and provided with additional treatment, anaerobic digestion to improve the quality and extract some energy. If you’d like to start a company to do more with our solids, that would be very welcome. In Detroit the solids are burned, a very wasteful, energy-consuming process, IMHO. In Wisconsin, the consolidated sludge is dried, pelletized, and sold as a popular fertilizer, Milorganite.

Dr. Robert Buxbaum, August 1, 2017. A colleague of mine owned (owns?) a company that consulted on sewage-treatment and manufactured a popular belt-filter. The name of his company: Consolidated Sludge. Here are some sewer jokes and my campaign song.

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.

Nestle pays 1/4,000 what you pay for water

When you turn on your tap or water your lawn, you are billed about 1.5¢ for every gallon of water you use. In south-east Michigan, this is water that comes from the Detroit river, chlorinated to remove bacteria, e.g. from sewage, and delivered to you by pipe. When Nestle’s Absopure division buys water, it pays about 1/4000 as much — $200/ year for 218 gallons per minute, and they get their water from a purer source, a pure glacial aquifer that has no sewage and needs no chlorine. They get a far better deal than you do, in part because they provide the pipes, but it’s mostly because they have the financial clout to negotiate the deal. They sell the Michigan water at an average price around $1/gallon, netting roughly $100,000,000 per year (gross). This allows them to buy politicians — something you and I can not afford.

Absopure advertises that I t will match case-for-case water donations to Flint. Isn't that white of them.

Absopure advertises that I t will match case-for-case water donations to Flint. That’s awfully white of them.

We in Michigan are among the better customers for the Absopure water. We like the flavor, and that it’s local. Several charities purchase it for the folks of nearby Flint because their water is near undrinkable, and because the Absopure folks have been matching the charitable purchases bottle-for bottle. It’s a good deal for Nestle, even at 50¢/gallon, but not so-much for us, and I think we should renegotiate to do better. Nestle has asked to double their pumping rate, so this might be a good time to ask to increase our payback per gallon. So far, our state legislators have neither said yes or no to the proposal to pump more, but are “researching the matter.” I take this to mean they’re asking Nestle for campaign donations — the time-honored Tammany method. Here’s a Detroit Free Press article.

I strongly suspect we should use this opportunity to raise the price by a factor of 400 to 4000, to 0.15¢ to 1.5¢ per gallon, and I would like to require Absopure to supply a free 1 million gallons per year. We’d raise $300,000 to $3,000,000 per year and the folks of Flint would have clean water (some other cities need too). And Nestle’s Absopure would still make $200,000,000 off of Michigan’s, clean, glacial water.

Robert Buxbaum, May 15, 2017. I ran for water commissioner, 2016, and have occasionally blogged about water, E.g. fluoridationhidden rivers, and how you would drain a swamp, literally.

May 1, St. Tammany day

May 1 is St. Tammany day, a day to rejoice in the achievements of Tammany Hall, and of St Tammany, the guardian of crooked politicians everywhere. The Sons of St. Tammany started in 1773 as a charitable club of notable revolutionary-era individuals including Benjamin Franklin, John Hancock, and John Dickenson, but evolved into perhaps the most corrupt, and American, of political organizations. The picture of a US politician – the cartoon version at least — is the Tammany Democrat: a loud, drunken, womanizer, willing to do or promise whatever the people seem to want at the moment. Tammany and its bosses helped form this image. They helped new immigrants, but did so by creating needless government jobs, by filling them often with incompetent loyalists, and by overcharging on government contracts. Today, these Tammany ways rule in every major American city; the other clubs of the day are gone or influence-less.

John Hancock leads a meeting of the St. Tammany (Columbian) society. Note the "Appeal to Heaven flag and the Indian, real or imagined. Indians participated in several, early St. Tammany meetings.

John Hancock leads a meeting of the St. Tammany society. Note the “Appeal to Heaven” flag. While Indians participated in some, early meetings, the one here is, I suspect, a ghost: St. Tammany.

In revolutionary-era America, the Sons of St. Tammany was just one of many social-charitable clubs (Americans like to form clubs), in many ways it was similar to the Masons and the Cincinnati, but those clubs were international and elitist. The sons of Tammany was purely American, and anti-elitist. It was open to anyone born on this side of the Atlantic, and had Indian customs. The Cincinnati society, for comparison, started with members who were as notable (Alexander Hamilton, George Washington, Marie, Marquis de Lafayette, Henry Knox, etc.) but was originally open only to high officers of the regular army, including foreigners like Lafayette, but not ordinary soldiers, minutemen (militia), or the general public. The symbols of the Tammanies were American: the liberty-cap and the “Appeal to Heaven” flag, now a popular symbol of the Tea Party; the leader was called by an Indian name: Sachem. By contrast, the Cincinnati society symbol was the Imperial Eagle (Washington’s was gold with diamonds), and the leader was called “general”. The Tammany society began admitting immigrants in 1810 or so, while the Cincinnati society remains closed to this day, except to descendants of Revolutionary officers — an aristocratic affectation in the eyes of some.

It was Aaron Burr who first saw the opportunity to use the Tammany organization as a for-profit, political machine. In the years 1795-9, New York was suffering from yellow fever and a variety of other diseases that were taken to be caused by a lack of clean water. Burr proposed, with Tammany support, the creation of a corporation to build a new water system to bring fresh, clean water from the Bronx River to lower Manhattan via iron pipes. The Manhattan company was duly chartered, with directors who were primarily Tammany men, Republican-Democrats, and not Federalists. Federalists (Hamilton, primarily) controlled the only NY banks at the time and controlled the directorate of every chartered company in the city. The Manhattan company requested a $2,000,000 perpetual charter, twice as big as the charter of Hamilton’s Bank of New York, and a monopoly on water distribution. These were reasonable requests given the task, but unusual in the lack of Federalist or governmental oversight. But the Manhattan company was a water company, and water was needed. But Burr’s intent, all along, it seems was to build a bank, not a water company. After the charter was approved, but before signing, he amended it to allow any excess funds to be used for any legal purpose. 

In this cartoon by Dr. Seuss, The Tammany Tiger says, "Today is the Big Day Folks. Vote Early and Often."

In this cartoon by Dr. Seuss, The Tammany Tiger says, “Today is the Big Day Folks. Vote Early and Often.”

Money was raised, but only $100,000 used for the water system. The remaining 95% of the charter funds, $1,900,000, went to found “The Bank of The Manhattan company” — later to be known as “The Chase Manhattan Bank” or “The Manhattan Bank of Cholera.” Instead of building the reservoir in upper Manhattan and filling it with clean water as originally proposed, Burr’s Tammany trustees voted to dig wells in lower Manhattan, and placed its reservoir in lower Manhattan too, near Chamber’s St,  next to a cemetery where Cholera victims were buried. New York suffered with Cholera, Typhoid, and leaky, wooden pipes until 1842 when Peter Cooper brought clean water to lower Manhattan from the Groton River via iron pipes. To this day, crooked water contracts are a staple of Tammany politics

The Bank of the Manhattan company opened at 40 Wall St on September 1, 1799, a mere four months after the water company’s incorporation. Hamilton was furious. The company continues today as The JP Morgan, Chase Manhattan Bank, one of the largest banking institutions in the world. Burr used the money and power of his company to reward supporters and to run for vice president with Thomas Jefferson’s tacit support. Except for his Tammany candidacy, John Adams would have won New York and a second term as president. Burr’s career pretty-well died after the Hamilton duel, but Tammany did well without him. By 1812, the Society built its first Tammany Hall, officially called the Wigwam, a $55,000, five-story building with a meeting hall for 2000. New York Democratic politics would center on Tammany Hall for the next century at least.

Following disappointment with John Quincy Adams, “the bitter branch of the bitter tree,” Tammy leaders went national. They recruited Andrew Jackson, a war hero and early recruit of Burr’s. They’d support Jackson if he’d hand over spoils, control of government jobs. He agreed and, as president, fired perfectly good, long-standing government employees He replaced them with Democratic loyalists. When Jackson stepped down in 1833, Tammany elected an equally corrupt New Yorker, Martin van Buren. Though there were periodic Whig and Republican reforms, Tammany learned they could wait those out. They always re-emerged like mushrooms after a rain.

Boss Tweed and other Tammany leaders: who stole the money?

Boss Tweed and other Tammany leaders in a cartoon by Nast, Tammany Ring. “Who stole the money? He did.”  

A key vote-getter in the Tammany system is to provide Thanksgiving dinners and other charitable giveaways for the poor, as well as promises of jobs. By the late 1800s, William J. Brian added promises of soft money and wealth redistribution, cornerstones of the Democratic platform to this day. Tammany also tends to be for low tariffs as opposed to the high tariff ideas of Hamilton and many Whigs and 19th century Republicans. A case can be made for either view.

Tammany helped New York immigrants, particularly the Irish to get citizenship and avoid legal troubles in return for votes and occasional muscle. In other cities, Democratic clubs were less open to Catholics, reflecting the views of the common voter in each state. In the North they were pro-union, in the South anti, electing Klu Kluxers like George Wallace, Sam Ervin, and Robert Byrd. This lead to a famous split in the Democratic party about the 1968 convention. Famous Tammany leaders include William M. “Boss” Tweed, “Big” Tim Sullivan, and “Gentleman” Jimmy Walker. Sullivan famously authored the first anti-gun law, the Sullivan act; it was designed to protect his thugs against private citizens shooting them. It didn’t always work.

Edwin Edwards, Democratic Governor of Louisiana. 1972-1996. Who would not trust this man?

Hon. (?) Edwin Edwards, Governor of Louisiana. 1972-1996. Tammany lives

If you want to see Tammany politics in action, visit almost any large US city, or read its newspaper. In Chicago, the dead vote, and 4 of the last 6 governors have gone to jail. Mayor Daily famously told Kennedy that 90 percent of the registered voters of Cook County would vote for him. They did (sort of); because of this, JFK won Illinois and the presidency. In New York, voters discovered only in the 1960s that Tammany’s leader, Carmine DeSapio had been working for 30 years with known gangland murderer, Charles “Lucky” Luciano. In Detroit, where I live and corruption in the water department is legendary. Race-based job handouts, unemployment is high along with high minimum (living) wages. We’re now in the process of a $70,000,000 project to replace 100 feet of sewer pipe, and we’re building a $140 million, 3.3 mile trolley. Tammany loves all public works.

Then there is Louisiana, home to St Tammany parish. Louisiana Democrats like Huey Long and Edwin Edwards (shown at left) are unusual in that they’re proud to say that their corrupt methods are corrupt. Edwards has had two long runs as governor despite several convictions for doing illegal things he admits to doing. When Edwards was asked why he did favors for his friends. He responded: “Who should I do them for? My enemies?” Or, to quote one of Edwin Edwards campaign ads. Vote Edwin EdwardsPeople seem to love it, or did until the levy broke. There is a particularly American grandeur to all this. As Will Rodgers said, “America has the best politicians money can buy.” Today is the day to be proud of that uniquely American tradition. You too can grow up to buy a president.

Robert Buxbaum, April 28, 2017. I ran for water commissioner, and have written about sewage treatment, flood avoidance, and fluoride, as well as the plusses and minuses of trade unionization, and the difference between Republicans and Conservatives.

Black folks have no savings (poor whites too)

The wealth of the mean American household has dropped significantly since 2007, a result of the general de-industrialization of America. It’s not that America has gotten poorer, but in the last 8 years we’ve increased the economic divide, enriching the richest few percent while leaving behind the working and bourgeoise classes. We are beginning to come back, but a particularly nasty legacy remains, especially among black families. Some 47% of black families have no liquid savings  — a far greater fraction than in 2007. The lack of savings also appears in white families (19%), and Hispanics (41%), but it’s most desperate among blacks.

College graduation rates have increased among black students, and along with the increase there has been an increase in salaries, but savings have declined. As of 2015, 22.5% of black students and 15.5% of Hispanic students had completed four years of college. This compares to 36.2% of white students, an inequality, but not a horrible one. By 2013, the average salary of a black college grad was somewhat over $1000/week, somewhat less than the average for whites, but enviable compared to the world as whole. The problem is that black workers manage to save very little compared to other ethnic groups, and compared to previous savings rates as shown by the graphic below. By 2013, the net worth of the median black family (savings, plus paid-off part of home and car) was a mere $11,000 (Pew Research Data, below), down from $19,200 six years earlier, and much lower than the net worth of white families (also down since 2007). Liquid savings among blacks are much lower — near zero — and this is just the mean. Half of all black families are doing worse.

Net worth disparity 2007 - 2011. Black folks are doing poorly and it's getting worse.

Net worth disparity 2007 – 2011. Black folks are doing poorly and it’s getting worse.

The combination of low savings and low net worth puts black folks at a distinct disadvantage to their condition six years earlier. Without savings, it is near-impossible to weather the loss of a job, or even to fix a car or pay a ticket, Surviving through a disease is basically a one-way ticket to the welfare office. Six years ago, when people saved more and prices were lower, problems like these were major annoyances. Now, a job loss or a major repair is a family disaster.

The growth of check-cashing services in black neighborhoods is a symptom, I suspect, of the lack of liquidity. A person without savings will not have a checking account. As such, he or she will not have a credit card or check cashing privileges.  The only way to cash a check will be via a for-fee service, and these tend to come at a steep cost (2-5%). People with savings accounts can cash checks essentially for free, and can usually borrow money by way of a credit card. People without savings can’t get approved. Black people and poor whites tend to use debit cards instead. They look and work like credit cards, but they incur fees upon use, and do not provide instant loans. When black folks and poor whites need quick cash, their options are the loan-shark or the pawn shop: high-cost options that take a giant toll on the family.

As mentioned above, black individuals and families have lower incomes than whites at all education levels. While racism, no-doubt plays a role, as best I can tell, the largest single cause seems to be family stability. Employed, college-educated blacks earn, on average, 95% as much as employed, college-educated whites — not great, but not bad. The real problem with black income is that black unemployment rates are higher, black education rates are lower, and single-parent families are significantly more common among blacks than among whites and Orientals. Roughly 40% of black families are single-mother, or mother+grandparent households compared to “only” 26% in the population generally. In both populations, the number of single parent households have increased dramatically in the last few years, a result I suspect of the government’s desire to help. The government gives more aid to a split-up couple than to one that stays together, but the aid brings with it long-term damage to net worth. A family with one parent will naturally have a lower-income and savings rate than a family with two. The lack of stability and savings that comes from having a single parent family, I suspect, has contributed to crime, births out-of-wedlock, and the tendency of blacks to drop out of college.

Black families don't benefit as much from college --in part a result of the choice of courses.

Black families don’t benefit much from college –in part a result of course choices, in part the result of borrowing. (Forbes, 2015).

One finds that do-gooders in the white communities want to eliminate check cashing businesses and pawn shops in a misguided desire to help the low-income neighborhoods, but the success of these companies tell me that they are needed. Though check services and pawn brokers take a nasty bite, urban life would be much worse without them, I suspect.

Another so-called solution of the do-gooders, is to tax savings and transfer the wealth to the poor. This form of wealth redistribution has been a cornerstone of the Democratic party for the last century. The idea of the tax is that it will transfer “idle wealth” from rich savers to poor folks who will spend it immediately. The problem is that great swathes of the nation don’t save at all currently; net worth is down all across the US — among white and black families both. Taxing savings will almost-certainly reduce the savings rate even further. Besides, savings are the stuff of self-determination and dreams — far more than spending, it is savings that allows a person to start a new business. One does not provide for the dreams of one group by taking them from another — particularly another group chosen to be immediate spenders. That is a route to community disaster, is seen by looking at Detroit.

As it is, many poor, inner city children do not see a path out via education. Detroit school attendance hovers around 50%, and business startups are lacking. As best inner city people can tell, the only ways out are sports, music, prostitution, crime, and the church. With higher savings rates and higher family stability, folks could start businesses, and/or take advantage of job opportunities that come along. People seem to think that wealth redistribution should help, but it just seems to reduce savings and family stability. Every effort to increase wealth redistribution only seems to make things worse in Detroit.  It sometimes seems that the only businesses in Detroit are check cashing, pawn brokers, churches, hair-salons, fast food, and medical marijuana — businesses that require little investment, but provide little community return too. Detroit has lost its manufacturing center, and now has more medical marijuana providers than groceries — a sad state of affairs.

The Check cashing services of south-eastern MI are concentrated in poor black and white neighborhoods.

The Check cashing services of south-eastern MI are concentrated in poor black and white neighborhoods.

In 2016, both presidential candidates touted major infrastructure projects, highways and the like, to help the inner city poor. In principle this can help, but I have my doubts. One basis of doubt: inner city youth do not have the training to build roads and bridges — they have barely the training to work at McDonald’s. For another thing, if the project itself isn’t needed, it becomes another form of income redistribution. There tends to be a lack of pride in doing it well, and the benefits are basically nothing. A major war could provide jobs, of course, but most sane people prefer peace. Trump has made the case for tariffs (closing off free trade) as a way to rebuild the industrial center of cities like Detroit. It’s an approach that I think has merit. He’s also suggested closing the border to low-wage, Mexican workers, and recently signed a bill that raised the minimum wage for foreign workers. This is expected to raise the price of California lettuce and NY hotel stays, but is likely to increase employment among low-skill Americans — blacks and poor whites. Small steps, I think, to solving a serious national problem.

Robert E. Buxbaum, April 21, 2017. I ran for water commissioner 2016 (Republican). I lost. I also have some infrastructure suggestions, including daylighting some rivers and adding weirs to improve water quality and stop flooding. If you like my ideas (or don’t) please provide comments.

The argument for free trade is half sound

In 1900, the average tariff on imported goods was 27.4% and there was no income tax. Import tariffs provided all the money to run the US government and there was no minimum wage law. The high tariffs kept wage rates from falling to match those in the 3rd world. Currently, the average tariff is near-zero: 1.3%. There is a sizable income tax and a government income deficit; minimum wage laws are used to prop up salaries. Most economists claim we are doing things right now, and that the protective tariffs of the past were a mistake. Donald Trump claimed otherwise in his 2016 campaign. Academic economists are appalled, and generally claim he’s a fool, or worse. The argument they use to support low tariffs was made originally by Adam Smith (1776): “It is the maxim of every prudent master of a family, never to attempt to make at home what it will cost him more to make than to buy…. If a foreign country can supply us with a commodity cheaper than we ourselves can make it, better buy it of them with some part of the produce of our own industry.” As a family benefits from low cost products, a country must too. Why pay more?  How stupid would you have to be to think otherwise?

A cartoon from Puck 1911. Do you cut tariffs, and if so how much. High tariffs provide high wages and expensive prices for the consumer. Low tariffs lead to cheap products and low wages. Uncle Sam is confused.

A cartoon from Puck, 1911. Should tariffs be cut, and if so, how much. High tariffs provide high prices and high wages. Low tariffs lead to low prices for the consumer, but low wages. Uncle Sam is confused.

Of course, a country is not a family, and it is clear that some people will benefit more from cheap products, others less, and some folks will even suffer. Consumers and importers benefit, while employees generally do not. They are displaced from work, or find they must compete with employees in very low wage countries, and often with child labor or slave labor. The cartoon at right shows the conundrum. Uncle Sam holds a knife labeled “Tariff Revision” trying to decide where to cut. Any cut that helps consumers hurts producers just as much. Despite the cartoon, it seems to me there is likely a non-zero tariff rate that does not slow trade too much, but still provides revenue and protects American jobs.

A job-protecting tariff was part of the Republican platform from Lincoln’s time, well into the 20th century, and part of the Whig platform before that. Democrats, especially in the south, preferred low tariffs, certainly no more than needed to provide money for government operation. That led to a diminution of US tariffs, beginning in the mid- 1800s, first for US trade with developed countries, and eventually with third world as well. By the 1930s, we got almost no government income from tariffs, and almost all from an ever-larger income tax. After WWII low tariff reductions became a way to promote world stability too: our way of helping the poor abroad get on their feet again. In the 2016 campaign, candidate Donald Trump challenged this motivation and the whole low-tariff approach as anti- American (amor anti America-first). He threatened to put a 35% tariff on cars imported from Mexico as a way to keep jobs here, and likely to pay for the wall he claimed he would build as president. Blue-collar workers loved this threat, whether they believed it or not, and they voted Republican to an extent not seen in decades. Educated, white collar folks were uniformly appalled at Trump’s America-first insensitivity, and perhaps (likely) by the thought that they might have to pay more for imported goods. As president, Trump re-adjusted his threat to 20%, an interesting choice, and (I suspect) a good one.

The effect of a 20% tariff can be seen better, I think, by considering a barter-economy between two countries, one developed, one not: Mexico and the US, say with an without a 20% tax. Assume these two countries trade only in suits and food. In the poor country, the average worker can make either 4 suits per month or 200 lbs of food. In the developed country, workers produce either 10 suits or 1000 lbs of food. Because it’s a barter economy with a difference in production, we expect that, in the poor country, a suit costs 50 lbs of food; in the rich country, 100 lbs of food. There is room here to profit by trade.

The current state of tariffs world-wide. Quite a few countries have tariffs much higher than ours. Among those, Mexico.

Tariffs world-wide. While we put no tax on most imported products, while much of the world taxes our products rather heavily.

With no tariff, totally free trade, an importer will find he can make a profit bringing 100 lbs of US food to Mexico to trade for 2 suits. He can return two suits to the US having gotten his two suits at the price of one, less the cost of transport, lawyers, and middlemen (relatively low). Some US suit-makers will suffer, but the importer benefits immediately, and eventually US consumers and Mexican suit workers will benefit too. Eventually, US suit prices will go down, and Mexican wages up, We will have cheaper suits and will shift production to produce what we make best —  food.

In time, we can expect that an American suit maker will move his entire production to Mexico bringing better equipment and better management. Under his hand, lets assume his Mexican workers make 6 suits per month. The boss can now pay them better, perhaps 100 lbs of food and two suits per month. He still makes a nice profit, more than before: he ships two suits to the US to buy the 200 lbs of food, and retains now two suits as profit. Hillary Clinton believed this process was irreversible. “Those jobs are gone and they’re not coming back,” her campaign told CNN. She claimed she’d retrain the jobless “for the jobs of the future” and redistribute the wealth of the rich, a standard plank of the democratic platform since 1896. But for several reasons industrial voters didn’t trust her. Redistribution of wealth rarely works because, for example, the manufacturer can keep his profits off-shore, as many do.

While a very high tariff would stop all trade, but lets see what would happen with Trump’s 20% tariff. With a 20% tariff, when the first two suits come to the US, we extract 0.4 suits in tax revenue, but nothing on export. The importer still makes a profit, but it’s now 0.6 suits, the equivalent of 60 lbs of food. He can sell his suits for less than the American, but not quite as much less. If the manufacturer moves to Mexico he makes more money than by trade alone, but not quite as much. Tax is still collected on every suit brought to America — now 20% of the 3 suits per Mexican worker that the Boss must export. The American worker’s wages are depressed but he/she isn’t forced to compete with the Mexican dollar-for-dollar (suit for suit). In barter terms, he isn’t required to make 6 suits for every 100 lbs of food.lincoln-national-bank-internal-improvements-tariffs

Repeating the above for different tax rates, we find that, in the above fictional economy a 50% tariff in the maximum to allow any trade (or the minimum rate to stop trade completely): the first two suits might enter; but they’d be taxed at one suit, just enough to pay for the 100 lbs of food. There would be no profit for the importer, and he/she would stop importing. At 50% tariff, we would get no new goods, and we’d collect no new revenue – a bad situation. Lincoln’s “protective tariffs” of 1861 may have contributed to Southern succession and the start of the civil war. While there is a benefit to trade, it seems to me that some modest tariff (10%, 20%) is better for us — a conclusion that Trump seems to have intuited, and that many other countries seem to have come to, too (see map-chart above). As for the academic economists, I note that they also predicted that stock market crash should Trump be elected; it’s gone nearly straight up since November 8, 2016. For experts on money, I find that most economists are not rich.

Robert E. Buxbaum, March 27, 2017. I learned such economics as I have from my one course in economics, plus comic books like the classic “Once upon a dime” produced by the New York Federal Reserve. Among the lessons learned: that money is a distraction, just a more convenient way to carry around a suit, 100 lbs of food, or a month of work. If you want to understand economics, I think it helps to work things out in terms of barter. As