Why Energy is Everything

The story of the last several centuries has been one of the benefits of humanity's technological advances moving faster than the negative effects.

However, the positive impacts are bursty. The negative impacts tend to be linear. It feels like we are past due for a big positive burst, however that in part is because we failed to leverage past positives.

Explaining this, energy transitions, say from wood to coal, and coal to petroleum, are bursty in nature. Accumulated pollution is linear.

The single biggest mistake humanity has made in the last 75 years was not to be more aggressive with the implementation of nuclear power generation. Only France got it right. My lifetime of just over a half a century has been marked by a near-constant series of moral panics related to energy.

One of my early memories is the 1973 energy crisis. This was triggered by the Arab Oil Embargo in response to the U.S.'s material support of Israel during the Yom Kippur War (Operation Nickel Grass).

The Arab Oil Embargo only lasted from October 1973 to March 1974. But the era of the never ending "Energy Crisis" had started.

Energy is everything. Einstein stated energy and matter were the same thing, or another way of looking at this is they are interchangeable. We typically think only of converting matter to energy (burning fuel). However, most of what is created uses energy. We smelt metals and create alloys. We saw and press lumber. We create plastics and other synthetic materials. We lithograph semiconductors. We bend, weld, shape, and assemble metal. We write and test code. We do research. We create medicines. All these acts of creation of products consume significant energy. And as technology increases in capability there will be more need for more energy. There is a very real possibility our ability to innovate will be limited by available energy.

I recently read a short book by Michael Denton, “Fire-Maker". It is an Intelligent Design apologetics book, so it will not appeal to all. But it points out something extremely important: When it comes to civilization, energy is everything. Everything.

Pottery, glass, metallurgy. The ability to take one form of matter and transform it. Fire made that possible. Combustion, or more accurately, creating heat, is the most important form of energy we have.

All of the matter we transform, from mashing potatoes to cutting timber to making steel, to making Portland cement to hammering, screwing, and welding requires energy.

There is energy content in everything, and most of that energy was from heat.

The bigger the transformation of the matter, the more energy is required. And small technology like semiconductors require significant energy.

The more matter we transform, the more energy is required. A growing world population requires more energy.

Energy is everything. It is not just the fuel you put in your car, it is in all the steel, aluminum, plastic, and electronics in your car.

Energy is everything.

We have seen increasing energy consumption driven by computation. At the same time, there have been significant improvements in energy efficiency (i.e., LED lighting), and concepts like cloud computing promise more efficiency. While these efficiency improvements free up energy for other uses, we still are often energy constrained at times (summer heat waves requiring rolling brownouts, etc.).

We have done a great job with energy efficiency. But there are diminishing returns with efficiency. We probably have made most of the gains we can. Certainly, today’s household appliances are much more efficient than those from 50 years ago. Heat pumps went from marginal technology only useful in the Sun Belt to very viable across most of the U.S. Air conditioners and refrigerators are much more efficient, despite being forced to use less efficient refrigerants due to the freon ban. But how much more is possible? We progressed from incandescent, to compact fluorescent, to LED lighting. Tyvek wraps and much better insulation mean houses are much more thermally efficient. Smart thermostats also help. But the marginal efficiency gains beyond 2020 are not likely to see the efficiency gains of the last 50 years.

Another factor which appears to have stabilized is the demand for larger and larger homes. We have seen growth per square foot throughout the 20th century, but that seems to have stalled, and may have reversed, in large part due to decreasing family sizes. There has also been a rise in blended families with the Baby Boomer generation, but those blended families live in the home only for a few years, then the children age out. Large Boomer homes intended to provide plenty of space for holiday gatherings with adult children and grandchildren are declining in demand, and it is likely the late Boomers and early GenXers will leverage nearby hotels and Airbnb to provide the temporary living space for holiday gatherings of family members.

At the same time, early and even younger Millennials are starting to move to the suburbs as they marry and have families. Another factor to consider, especially with the COVID-19 pandemic, is the need for one or even two home offices. But with an average of fewer than two children, at most five bedrooms will be required, and more likely four bedrooms will be the norm, but with a basement or some alternative space for a semi-permanent home office.

Outside of the US, the COVID-19 pandemic forced work from home may change the desired home. Europe is known for space-efficient, compact housing. Many European countries have very low birth rates. In the past, a two-bedroom flat might meet the need. But there may be a demand for larger apartments.

This could drive more energy consumption in Europe, up from current levels.

Then you look at the industrial/business demands for energy.

As Moore’s law’s marginal gains decline, the energy efficiency improvements of computing will decline with it. At that point there will be a rise in energy requirements for computing.

The demand for data analytics and AI will drive the demand for more energy.

The demand for more robotics and automation will drive the demand for more energy.

The demand for electric vehicles will drive the demand for different energy (electricity vs. petroleum).

The demand for autonomous vehicles will drive the demand for more energy.

The demand for more granular autonomous vehicle services will drive the demand for more energy.

The demand for more granular autonomous delivery services will drive the demand for more energy.

The 21st Century lifestyle will demand for more energy than the 20th Century lifestyle.

And the developing world transitioning to a 20th Century lifestyle developed world will demand significantly more energy.

This last point is very important.

What happens when everything becomes digital?

I would bet between 2030 and 2050, a country’s economic success and foreign policy influence will be directly proportional to the percentage of their energy derived from nuclear power.

Also, the first nation to achieve nuclear fusion power at scale will likely propel itself into a global economic advantage.

The cost of AI, robotics, automated manufacturing, and autonomous military drones will plummet for a fusion-powered nation state.

There is a common saying by those in the nuclear power industry: "Fusion power is only 20 years away." Over the decades, the addendum: "This time, we really mean it." could be added. However, if cost-effective, utility-scale fusion power really is 20 years away, that is roughly 2040. And given fusion should have much lower accident and security risks, one can assume the regulatory environment will be less, meaning it will be possible to build fusion power plants much more quickly than fission plants. So, if fusion is readily available by 2040, and fusion plants are easy to build, it could be a significant percentage of a nation's power generation by 2050. Fusion would be a state-of-the-art technology in 2050.

The effect of scale fusion power is the promise of order of magnitude deflation of energy costs. As all economics happens on the margins, the marginal price of generating a watt of power collapsing to near zero (after the sunk capital costs of the fusion plant) would cause significant pressure on all other forms of energy generation, which would only accelerate the adoption of fusion.

Then you must ask: "What other technologies could be state of the art by 2050?"

Obviously, artificial intelligence (AI) will be much more mature in 30 years. It is possible artificial general intelligence (AGI) will be available. Additive manufacturing (3d printing and similar technologies) will likely have matured to the point of being standard. Advancement in robotics is governed in large part by advancements in AI. Nanotechnology is unrelated to robotics, but benefits robotics greatly.

Additive manufacturing, AI, robotics, and nanotechnology will lead not only to fully automated manufacturing, but to "programmable manufacturing", "tooling as code", software-defined manufacturing in programmable factories. Factories that can be changed on the fly to manufacture different things. This has the impact of amortizing capital over a much broader output. It means the classic desire to offset the cost of expensive manufacturing equipment by leveraging locations with low land, regulatory, and construction costs will not have the same weight. The full automation of manufacturing also means the most significant variable cost becomes not labor, but energy. The possibility of small nations with limited populations not being able to have a significant manufacturing output would no longer be true, if that nation has access to low-cost power.

But for larger, more capable states, the potential of very low-cost power is more significant. The ability to rapidly manufacture military equipment in large numbers–autonomous drones, cruise missiles, combat robots–would be a national capability like naval shipbuilding.

Cheap energy has always been an enabler of significant national strength. The UK's and US's access to large coal reserves drove both country's industrial revolutions, industrial power, and national power. Coal allowed the emergence of blue-water navies. Coal was also critical in steelmaking, which was a key component of industrial products as well as military weapons. Large US petroleum reserves were important in driving military armor and airpower which were critical domains of WW2.

The lack of large amounts of low-cost, zero-CO2 energy is the limiter of progress in areas like AI and other key technologies. One only needs to look at the energy consumption of cryptocurrencies to get an idea of the energy consumption of AI computation.

Raw materials are still required. But robotics and automation offer the potential for not only lower-cost extraction, but precision extraction, and more difficult, risky, and dangerous extraction. The ability of robotic mining to extract more ore from more difficult places means robotic mining offers the potential of much larger defined elemental reserves, which will drive down the cost of these commodities.

As all capital (property, plant, equipment) is manufactured product, produced from raw materials with labor, then robotics, automation, lower costs of raw materials, and low-cost energy will result in lower cost capital equipment. Automated robot manufacturing plants built by automated construction robots will produce lower-cost automated manufacturing robots. It will be a virtuous circle.

Lower cost raw materials, near zero cost of labor, low cost of energy, and the impact these trends will have on lowering capital costs means manufacturing complex products will drop significantly.

Ultimately, the limiting cost is energy, and that is where fusion power comes in.

Regarding intermittent renewables, such as wind and solar, they will require significant energy storage to substitute for base-load power. While solar and batteries are falling in price, the primary reason for that price decline is low-cost labor. 80% of solar panels are manufactured in China. There is the very real aspect of China's human rights violation which rise to the levels of slave labor and genocide. Modern lithium-ion batteries are dependent on cobalt, most of which is mined in the Democratic Republic of the Congo using child labor, another human rights violation. While efforts are being made to remove the dependence on cobalt in modern batteries, one also must consider the sheer scale required for battery storage of intermittent renewable generated energy.

Certainly pumped-storage hydroelectricity (PSH) is an effective means of energy storage, and has been used for over a half a century, but the best locations of utility-scale solar plants is not conducive to PSH. PSH could make sense for utility-scale wind power in some locations. But the biggest limitation of PSH is the need for specific land resources, and the environmental impact.

Regardless of the method, energy storage is subject to the laws of thermodynamics, which says there will be efficiency loss. More energy is required to store the energy than the energy stored, or the energy produced from the storage.

In the near-term, intermittent renewables provide power generation that can contribute to the grid while demand is managed with dispatchable power sources such as hydroelectric and natural gas. Solar, which peaks during summer afternoons, is ideal to offset the increased demand for air conditioning during that time.

However, there was a recent study which found photo-voltaic cells degrade much faster than originally expected. This means a solar panel assume to maintain 90% of its capacity at 20 years might drop to the 90% threshold before 13 years, and be as low as 83% by 20 years. This would either necessitate more frequent panel replacement, or larger solar power facilities.

Another aspect of the developed world's economy is it is increasingly moving towards 24-hour operations, meaning nighttime energy demands are increasing and will continue to increase. In some locations, winds increase in the evenings and night (such as California's Sacramento-San Joaquin Delta "Delta Breezes"). However, long-term changes in climate may mean reductions in wind. Sacramento-San Joaquin Delta Breezes have declined significantly over the 20 year period from 1995 to 2015.

It looks increasingly likely it will require significant planning and investment will be required to build utility-scale renewable power with storage. Due to higher than anticipated degradation of solar panels and changes to wind patterns, larger and more distributed solar and wind farms will be required. And that assumes concerns about human rights violations in the case of solar panels and batteries and environmental impacts for all forms of renewables and storage can be overcome. Even if it is overcome, significant dispatchable power will be required to account for scenarios where storage is insufficient. The next phase will cost more. The low-hanging fruit of renewables has been picked. Solar in sunny places with cheap land, wind in windy places with cheap land. Cheap dispatchable natural gas plants instead of storage.

And the reality is, the moment fusion becomes viable, utility-scale renewables will be obsoleted in the developed world. And the first one there, wins the race not to "Net Zero CO2" but "Zero Cost Energy", or more accurately, nearly free energy.

There are synergies between current generations (II, III. and III+) of fission nuclear power plants, fourth generation nuclear power plants, and future fusion plants. Some Gen IV fission nuclear reactor designs use earlier generation's nuclear waste as fuel. Replacing one old reactor with a new Gen IV reactor, or adding a reactor to an existing nuclear power plant, allows on-site reprocessing of nuclear waste. The waste from these reactors is much lower in radiation. Also, when fusion becomes viable, it will require hydrogen for fuel, and extracting hydrogen from the super-heated steam of the water used to generate electricity in fission plants takes less energy than from room temperature water. So putting a fusion reactor next to an existing fission reactor makes some sense.

Wind and solar, and especially solar, are inherently decentralized, and hold tremendous promise for the developing world, much of which is located either in equatorial regions or in the sub-tropical regions of the southern hemisphere. The tropical and subtropical areas are the best locations for solar power. For small, decentralized villages in tropical and subtropical regions of the developing world, solar power and battery storage make sense. For isolated locations above 45 degrees latitude, wind power and battery storage make sense. There are some exceptions, desert regions outside of the tropics and subtropics with consistent sunshine, and areas in the subtropics and below 45 degrees with steady winds.

What about high-density population areas in the developing world? Where existing fission plants are not a factor due to security and anti-proliferation concerns, fusion holds the promise of no weaponizable fuel, and no risk of meltdown, along with the associated lower costs of security and containment.

But for developed nations with significant manufacturing and scale agriculture, energy will be everything. And that will require a significant increase in energy generation, which will likely require technologies beyond renewables. Technology marches on. AI, robotics, and nanotechnology march on. Autonomous manufacturing, farming, and distribution are coming. First to fusion matters. First to fusion wins.

The Model is the Problem.

[Editor's Note: This post will be a work in progress. I want to get it up now. Expect edits.]

Is the model the problem? Is the system the problem?

The only obvious answer is yes.

I am going to go out on a limb with this one. It applies to the other problems as well, such as the small business relief.

We are 20% into the 21st Century. But we are still operating the country on a model developed in the mid-1930s, and perfected during World War II. It is the mid-20th Century model of industrial economy bureaucracy. It may well have worked effectively back then. We were able to build the Hoover Dam, to win WWII, to emerge in the post-WWII era as the world's greatest power, and be a bulwark against the Soviet Union and imperial communism.

It gave us the Interstate Highway system. It got us to the moon. It gave us the Century Series Fighter Jets.

However, at some point, that model started failing. Probably in the 1970s.

By the mid-1980s the Space Shuttle exploded because of bureaucratic incompetence. Bridges collapsed. Emergency response was unresponsive. We had to allow dozens of aerospace companies merge into a duopoly and give one (Lockheed) the fighter franchise, and the new "cheap" F-35 costs more than the older, more expensive F-22, an airplane that took 27 years from initial contract to IOC. We are literally trapped by our own bureaucracy.

In the pandemic, the CDC and the FDA proved the biggest impediments to our response.

Maybe we have the wrong model for today?

I read a great book on the Apollo program by Charles Murray (better known for his controversial book, "The Bell Curve"). When I read it, reading about the early days of NASA, I felt like I was reading about Silicon Valley startups. For an early unmanned test of Mercury capsule, one of the administrators literally took a belt sander to the heat shield to make it fit on the booster.

My point? You cannot look to the past successes of government bureaucracies of the 1930s through 1960s and expect the same success today.

Our political model is also broken. During a time when tens of thousands of Americans are dead due to a pandemic, and tens of millions of Americans are unemployed due to government mandated closures, our politicians prefer to try to leverage the crisis for personal and party political gain, instead of working together. Revolutions have started over less.

But even when legislation is passed and money appropriated, we hear stories of multi-billion dollar publicly traded companies getting “small business payments”, while sole proprietorships and LLCs struggle and wait.

Why? Why did the administration of this program spectacularly fail? In part it is in how the legislation was constructed. It is fair to say it was constructed in an incompetent fashion. The Small Business Administration and the Treasury Department clearly failed in administering the program.

But this is not the first time in this century such failures have occurred. The American Recovery and Reinvestment Act of 2009 (a.k.a., “The Stimulus Act”) also was littered with inefficiencies and ineffectiveness. President Obama promised “Shovel Ready” projects in 2009. Only a year later, Obama would state “there’s no such thing as shovel-ready projects.” In 2011, Obama would say “shovel-ready was not as shovel-ready as we expected.” The failures of Solyndra and Abound Solar, who together received almost $1 billion in federal loans, both declared bankruptcy. In hindsight, their products were not viable. How did the bureaucracy fail to qualify these potential recipients?

Then you have to look at the disastrous response of the unemployment insurance system to the record levels of unemployment (over 25 million in three weeks).

The number of unemployment claims was not a surprise. They were expected. How did the bureaucracy fail to ask if state unemployment insurance programs were capable of the processing expected scale of claims?

Many argued for something more like a UBI. Just issue checks to everyone—fast. It would have been simpler to do this, and there could have been some nominal “claw back” tax so those who remained employed, and were making good money, would have the value of the check taxed away. I realize bumping up the higher tax brackets by a few percent would have caused howls of “raising taxes during a pandemic”, but courageous leaders could have explained it.

The point is, the traditional unemployment insurance is the old model. Managed by a bureaucracy. The concept of UBI is something that comes from the libertarian right and the technology left (who is also arguably libertarian-leaning). It is anti-bureaucracy by design. And it would have avoided the challenges with the state unemployment insurance systems.

My argument is the model is the problem. Industrial economy bureaucracies are architected for incremental adaptation. They are generally overbuilt for “peacetime”, because they are expected to surge in time of emergency. That is why they appear fat. The government bureaucracies follow the rules provided them, and rarely change. That is in large part why they appear ossified.

However, in the name of efficiency, starting in the late 1980s and early 1990s (about twenty years after the bureaucracies started failing us), modern corporate management models were applied to government.

As a sidebar, it is important to note most large corporations operated on the industrial economy bureaucratic model as well, many before the New Deal Era of expanded government. The economy grew slowly, capital was scarce, and there was little need for large corporations to react to smaller, nimble competitors. Even after the Progressive Era trust-busting, the smaller remnants of the former monopolies often operated as regional monopolies. The companies which became the “Arsenal of Democracy” all were organized on the industrial economy bureaucratic model. There were exceptions, Higgins Industries was a very small company before it got the LCVP landing craft contract. But most heavy weapons and components were manufactured by the industrial giants.

In the 1970s, many of these industrial giants had near-death experiences as the economies of Europe and Japan had finally recovered to a point they could compete globally. Deming’s innovative management methods, ignored by the industrial economy bureaucracies in the U.S. took hold in Japan. By the 1980s, U.S. companies were desperate to improve, and adopted similar methods. The problem is you cannot adapt via piecemeal Deming’s methods onto the industrial economy bureaucracy model. You can do something totally new and different. You might be able to do some kind of hybrid model. But you cannot tinker at the edges. Cutting budgets, cutting inventories, etc. simply don’t work. If you have an emergency response bureaucracy whose job is to scale up and provide goods (think CDC’s Strategic National Stockpile), you can’t cut the staffing to all that is needed in peacetime and go to just-in-time inventory models. There might be a radically rethought model that could work and be more efficient, but you can’t adjust what you have.

So why did they? My guess is much of this has to do with federal employee unions. Unions are necessarily protectors of the status quo. Their job is to resist change, and as a side-effect, they resist innovation. Federal employee unions were threatened by modern management models, so they sought to keep the impact to incremental effects. Not complete redesigns of departments, but tolerating the 10% staffing cut here, the A-76 study outsourcing of a function there. We will give up that role to a contractor as long as experienced union members are protected and allowed to find new jobs.

There is another factor about public sector unions which must be considered. The era from 1933 to 1945, and beyond until 1960 was a model based on federal employees as public servants. There was a mentality of duty similar to the military. But after President Kennedy expanded the powers of federal employee unions, the reality is the loyalty shifted from serving the people to the union. This is similar to the trend seen in private sector unions in the 1960s, leading to more aggressive union behavior in the 1970s, followed by anti-union sentiment in the 1980s.

What we did is we took an outdated model and made it worse. The simple truth is the bureaucracy of 1955, if preserved and funded, and operated by a pre-1960 federal employee model, might have served us well.

But even increasing funding and staffing cannot fix the existing environment. I recall hearing a reporter talk about the increase in government workers in the post 9/11 era. This reporter started by stating prior to 9/11, a D.C. press pass allowed reporters to roam the halls of federal agencies. Post 9/11, considerable restrictions were put in place. When he did get into the federal agencies, he noted many more employees, many of whom did not seem busy at all. In other words, the post-Deming 1990s stripped bureaucracies at least featured busy, hardworking employees. But adding employees did not change anything. The new bureaucracies simply were throwing more bodies at the wrong model.

Only a different model can fix this. Only a reinvention can address this. Unfortunately, the 2001 Global Terrorism crisis, the 2009 financial crisis, and the 2020 COVID-19 crisis have proven unable to address this. Perhaps the 2020-2022 Economic Depression will. Trumps and Bidens and AOCs are not the answer. We may see something external to government form. The idea of a group of business leaders, perhaps including high profile figures like Mark Cuban and Peter Thiel, organizing and demanding a fundamental rethinking of government. A large enough organized effort would strike terror in the hearts of traditional politicians, much in the same way Ross Perot’s third party run in 1992 shook up politicians of both parties and got them focused on the debt and deficit.

But there is more. The industrial economy bureaucratic model also applied to education. The rise of the educational model is timed with the Second Industrial Revolution, around the turn of the 20th Century. That is when high schools (secondary education) was mainstreamed, to prepare people for industrial and white collar jobs. Little has changed in the primary and secondary education in a over century. There have been various experimental alternatives in education, but nothing has disrupted the industrial economy bureaucratic model of education.

The COVID-19 pandemic caused 100% primary and secondary public and private school closures throughout the country. Schools rapidly attempted to shift to a distance learning model with mixed results. The only students who were not disrupted were homeschooled students. And that is instructive.

Author and home school mother Bethany Mandel stated the mistake being made was the schools were forcing the students into “home schooling”, when home schoolers had learned the right approach was not home schooling but “home education”. The point Mandel was making is home and education have to be integrated for it to work. The example often put forth is using baking to teach fractions.

Much of the distance learning is focused on workbooks and exercises and limited to little testing. Grading for many students has moved to a pass/fail model, without letter grades. Some schools are simply planning to give all students As.

For some students, the tools for remote learning (computers, Internet access, etc.) are severely limited. Some students have no parent in the home, due to the parent being an essential service worker. Others have parents at home who are not able to adequately support the home schooling effort. In some school districts, a significant percentage of students have simply dropped off the radar.

We are at a point where two things are highly probable. Schools will return to session in the fall of 2020, and there will be a second wave of COVID-19 which will force another round of school closures.

The industrial economy bureaucratic model is likely to drive school systems to simply double-down. Buy more laptops. Maybe fund cellular hot spots. Try to do the same thing done in Spring of 2020 but a little better.

The correct answer is a new model. The obvious approach would be to bring leaders of traditional education together with leaders in the homes schooling community. Building a lesson plan for hybrid schooling, something that offers three alternatives to an individual lesson—a traditional distance learning with workbooks, and two alternative experiential lessons designed to fit most student needs, perhaps one for a student with a parent, and another for a student alone—would be a model that would be far more successful if another round of school closures was required. Yes, it is a lot of work, but the resources are there. And the time is available (we have all summer).

The simple truth is the hybrid model could work fine even in the classroom with no school closures. It would make learning more fun, and it would exercise the hybrid model.

Another round of school closings, with many students falling even further behind, may cause significant unrest among parents. New thinking is required. New models are required.

And this is where we are. We are in the Fourth Industrial Revolution, but we are still operating governments and education on a Second Industrial Revolution model, the industrial economy bureaucratic model—big, heavy, slow-moving, very slow changing, centralized structures. It is long obsolete, by about a half a century. It could have sustained for a decade or two, but It should have been replaced no later than the 1990s. It has been exposed. It will be replaced. But how soon, and through what process?

What should a "wealth tax" look like?

The topic of a wealth tax has come up quite a bit over the last couple of years. Certainly the writings of Thomas Piketty and concerns about wealth inequality and income inequality have raised the topic of a wealth tax, along with the presidential campaigns of Bernie Sanders and Elizabeth Warren. Recently, Bloomberg's Leonid Bershidsky (who was born and raised under communism in the Soviet Union) wrote on the topic, raising Bill Gates' tepid endorsement to the the title of his column.

It is important to note, Gates' recent tepid support for a wealth tax is very different from his prior position which was to increase the rate of taxation of capital. Gates correctly noted many of the super-wealthy generate income from capital gains, and taxing capital gains at the ordinary income rate would go a long way towards tax fairness. In fact, it is the lower rate of taxation for long-term capital gains that is leveraged in many forms of executive compensation. It is not even stock options any more, where the executive has "skin in the game", now it is direct stock grants.

Another potential form of wealth tax long supported by Gates is the inheritance or estate tax. This is another idea which comes up from time to time, today more focused on very large estates. The estate tax of the 20th century had very low thresholds and was very destructive to small businesses and family farms. It was deeply immoral in how it was implemented. The estate tax was far more destructive to those with small fortunes than those with large fortunes, so it was understandable that the super wealthy like Gates and Warren Buffett favored it--It had the effect of destroying potential rising competitors to large businesses. Gates' lawyer father could afford to send Gates to Harvard. The son of a family farmer who loses his parents farm to the estate tax when his parents dies cannot afford to send his son to Harvard. While generational wealth can create generational plutocrats, generational wealth can also create generational middle classedness, free of the need of government support, and that is something we should strive for.

The last idea for a wealth tax is an expatriation tax applied to those who renounce U.S. citizenship. I am not sure this represents a huge revenue opportunity.

Most of the time, a wealth tax is presented either as a direct or indirect solution to wealth inequality. At the very least, it is presented as an alternative to wealth inequality.  But what is wealth inequality? Equality and inequality suggest two sides of an equation. In the case of inequality, one side of the equation has more, the other side has less. The problem is, taxing those with large amounts of wealth only addresses one side of the equation, and it addresses the less urgent one. It is those without wealth who are believed to be the victims of inequality.

Interestingly, Bershidsky column presents the single biggest argument against a wealth tax: The open-ended nature of what to do with the proceeds. He speaks of "clean energy subsidies" and "useful government programs". What makes these more worthy? Why not use the proceeds from a wealth tax to recapitalize the military? Fund higher education? Or 1,000 other pet projects? One can see the obvious problem with this. It is to politicians what the Sears Wish Book was to children of my generation, or what lottery winnings are hoped for for some.

This raises a more important question: What is wealth? To put it simply, wealth is savings and investments. Wealth is a form of deferred income. How is wealth created? Msot often, it starts with some form of income. Ordinary income saved. Income from a gift or a sale of something. What is wealth used for? Usually, the intent of wealth is to use it in the future as a form of cash flow, or income, if you will. To use wealth, one has to liquidate it and turn it back into cash. What is the most common form of wealth today, and where is it? Most wealth today is directly or indirectly owned by the upper middle class, if the form of capital stock, most often in retirement accounts or in insurance reserves backing up life and property policies owned by those in the upper middle class, or in the pension reserves of middle class pensioners.

What is the intended use for most wealth? Given most of the wealth is in retirement savings and pension funds, the obvious use for wealth is for retirement income, along with insurance to provide financial protection in the case of a lost home or life.

What are the downsides of not having this kind of wealth? What do those in the lower class and lower middle class not have due to their lack of wealth? First, they face financial insecurity in old age, either in the form of underfunded retirement, a lack of ability to purchase supplemental health insurance, and perhaps a need to work far into old age. It also means a likely lack of life insurance in middle age.

So treating the effects of wealth inequality means treating the above. Not with "clean energy subsidies" but with things like addressing the underfunded Social Security and Medicare trust funds. Perhaps increasing Social Security payments for those at the bottom of the Social Security scale. Perhaps broadening Medicare coverage to better handle things like the Medicare Part D "doughnut hole" and to better support Medicaid funding of long-term care. It also means funding SSI and Medicaid for those aged who do not qualify for Social Security and Medicare.

Those would be a moral use for the proceeds of a wealth tax. The only moral use case I can think of. It would directly address wealth inequality, because it would directly address the effects of wealth inequality.

Now what to tax? I personally believe our current tax system is deeply immoral. I do support taxing capital gains at the ordinary income rate. I can support an estate tax with a very generous exemption ($5-10 million), a very graduated scale (starting at about 10%), and a very reasonable top-end rate limit--more like 40% instead of Piketty's insane 90%. One can make the argument the estate tax is simply a form of capital gains tax, since the gains are not yet realized. The idea of the estate tax being earmarked to the Social Security and Medicare trust funds makes considerable sense, and it keeps the politicians hands off of the proceeds for their pet projects.

There are better alternatives to Social Security, and better ways to fund Social Security and Medicare. But they are beyond the scope of this post.

This is not a solution.

There are two U.S. industries who's products have increased in cost at a rate far outpacing standard inflation: Healthcare and Higher Education.

Both of these are information based industries. The cost of reproducing and transmitting information has dropped dramatically over the last few decades. Both of these industries should be seeing dramatic efficiency improvements from the Information Age, but they have not.

At the same time, the demand for both industries has increased dramatically. The Bachelor's degree is now considered the entry point for a reasonable job. An aging population has increased the demand for healthcare, as has the technological advancements of healthcare--better detection and improved treatments means more opportunities for treatment.

The final problem is the "Third-Party Payer" issue which pervades both of these industries. Insurance is the payer for healthcare, and student loans are the payer for higher education.

The inability of people to cope with such increasing costs had led many to look at just giving up, and demanding the government pay for it. Medicare for All/Single-Payer is offered as the solution to high healthcare prices. Free college and student loan forgiveness is offered as the solution to high higher education prices.

The problem is, neither of these are solutions to the high cost of the product. If we are going to depend on government to solve the the high cost problem, we need a solution that focuses on cost.

We need to identify the source of high costs in these industries.

We need to identify where entrenched organizations are preventing competition which could lower costs.

We need to actively invest in research which holds the potential for an order of magnitude decrease in specific health care areas (i.e., AI). Disruption of the status-quo must be the goal.

We need to actively subsidize higher education inversely to the cost of the product: more grants for students taking low-cost distance learning living at home, fewer grants for students taking high-cost courses at expensive campuses. Disruption of the status-quo must be the goal.

We need a Secretary of Health and Human Services who is a tyrant to all of the embedded interests in the health care industry.

We need a Secretary of Education who is a tyrant to all do the embedded interests in the higher education industry.

Politicizing Everything

The July 12, 2010 letter from five of the members of the Columbia Accident Investigation Board to Senator Barbara Mikulski is a piece of political, not scientific work, and can only be seen as an attempt to offer a fig leaf to an otherwise naked policy. I do not believe these five people just spontaneously decided to write this letter without being solicited to do so. First, it is a letter from only five of the thirteen CAIB members. Second, those members are claiming to speak on behalf of the CAIB:

"We would be glad to answer any questions that you or other members of Congress may have concerning the CAIB report and its application to today’s space policy issues."

Third, one of the five authors, Shelia Widnall was a Democrat political appointee, and three others, Steven Wallace, Douglas Osheroff, and John Logsdon were all Obama campaign contributors. Without knowing the opinions of the other eight members of the CAIB, these are just the opinions of individuals, and more accurately, potentially biased individuals. Fourth, the letter misrepresents some of the conclusions of the CAIB, specifically the following:

"The design of the system should give overriding priority to crew safety, rather than trade safety against other performance criteria, such as low cost and reusability, or against advanced space operation capabilities other than crew transfer."

"This conclusion implies that whatever design NASA chooses should become the primary means for taking people to and from the International Space Station, not just a complement to the Space Shuttle. And it follows from the same conclusion that there is urgency in choosing that design, after serious review of a "concept of operations" for human space flight, and bringing it into operation as soon as possible. This is likely to require a significant commitment of resources over the next several years. The nation must not shy from making that commitment."

Abandoning Ares I and Orion is being done for cost reasons, not for safety reasons. The primary means of taking people to the ISS will be the Russian Soyuz. Abandoning Ares I and Orion abandons urgency and does not bring a system into operation as soon as possible. It specifically abandons the significant commitment of resources over the next several years. It is shying away from the needed commitment.

Furthermore, the letter misrepresents the Ares I when it compares it to current EELV boosters. The first stage of the Ares I is based on the man-rated Space Shuttle SRB, of which 262 have flown successfully, a fact which escapes the "CAIB Five", because it makes the 34 EELV launches pale in comparison. The J-2X Ares I upper stage engine is based on the man-rated J-2 engine which had a 96% success rate, and despite a handful of engine failures, it had a 100% mission success record.

The Orion spacecraft is a simply scale up of the Apollo Command Module spacecraft. Scaling up an existing design is a proven cost and risk mitigation strategy, and was the same strategy used to develop the highly successful Gemini spacecraft. The Gemini capsule was based on an enlarged Mercury capsule, which allowed engineers to focus on the advanced features of Gemini rather than the capsule itself. This is no different from Orion. Much of the original aerodynamic work done on the Apollo Command Module still applies, so it means a safer, quicker, less costly solution.

Additionally the CAIB noted:

"It is the view of the Board that the previous attempts to develop a replacement vehicle for the aging Shuttle represent a failure of national leadership. The cause of the failure was continuing to expect major technological advances in that vehicle."

Ares I / Orion, by leveraging existing boosters, engines, and spacecraft designs, avoids the expectation of technological advances. Even the decision to move to a splashdown water landing was done to reduce risk and cost.

"With the amount of risk inherent in the Space Shuttle, the first step should be to reach an agreement that the overriding mission of the replacement system is to move humans safely and reliably into and out of Earth orbit. To demand more would be to fall into the same trap as all previous, unsuccessful, efforts."

While the Constellation project encompassed more than simply transporting astronauts to orbit, the Ares I / Orion system was focused only on this. The only additional demand was that a future uprated version of Orion, carrying four astronauts rather than six astronauts, be capable of flying to lunar orbit, be parked unmanned in orbit, and later return to Earth. Most of these capabilities would impact Orion's service module, not the manned capsule.

"Continued U.S. leadership in space is an important national objective. That leadership depends on a willingness to pay the costs of achieving it."

It is clear President Obama does not have the will desired by the CAIB, and Obama's decision represents another failure of national leadership. It also seems the "CAIB Five" no longer agree with the importance of U.S. leadership in space. This letter can only be seen as a dissent from Chapter 9 of the original CAIB report. The authors should be vigorously challenged not only on their statements in this letter, but also on their support of the original CAIB report's conclusions.

On Power and Journalism

Another great quote. This time from Jonah Goldberg:

"But it’s worth remembering that government and corporations aren’t the only institutions that can abuse power. Factions, to borrow a word from the Federalist Papers, have a power all their own. When governments cave to that power, they become mere tools of bullies. And when journalists go along for the ride, there’s no one left to speak truth to power when that is what’s needed most."

An Excellent Observation on the Financial Bailout

Great comment from Mark Steyn on the Hugh Hewitt show last Thursday:

" ... what the government has been trying to do since October has been to re-inflate a credit bubble, to say that people should be able to get spectacular returns on mediocre assets as a permanent feature of life. And that is simply unsustainable. And my objection to what started back in mid-September is that no matter how much you pump into it, you cannot re-inflate a credit bubble, and you shouldn’t try. And that is something that if necessary, people have to take a bit of temporary pain ... "

Steyn is exactly right. We should be trying to ensure a soft landing on a reasonable bottom (i.e., preventing the crashing through a reasonable bottom into a worse situation), we should not be trying to reinflate a balloon with a huge gash in its side. That money is lost, and worse, takes with it more.

UPDATE: Another great comment by Steyn, where he calls the press "eunuchs to the PC sultans". That one's going to leave a mark (pun intended).

Thoughts on "Great Depression 2.0"

When I was in junior high (I think it was 8th grade), my Social Studies teacher (Mr. James) made everyone in the class interview someone who had lived through the Great Depression (that would be "Great Depression 1.0", or "Great Depression 29"). For Generation X, that generally meant interviewing a grandparent.

Mr. James gave us a list of questions to ask in our interview.

So, I took my Radio Shack monoural cassette tape recorder, and interviewed my grandmother, born in 1909 (or maybe it was 1908). The one thing I remember from that interview was one question: "What ended the Great Depression?" I still remember my grandmother's answer: "The wower" That would be "The War" for those who cannot translate a southern accent. "The War" refeedr to World War II. Now, "The War" didn't happen for America until twelve years after the stock market crash, and nine years after the election of FDR.

Wasn't there a New Deal? What about the WPA? The CCC? What, building the Hoover and Grand Coulee Dams didn't pull us out of the depression? Rural Electric Administration and the TVA? Nope.

Now, after we all did our interviews, we had to listen to them. For a week, we all listened to each of the interview tapes. And the one thing I remember is almost every subject answered the "What ended the Great Depression?" question the same way: World War II.

Is there a lesson in this? Perhaps. Perhaps the lesson is spending billions of dollars of taxpayers' money on make-work will not pull you out of depression, but spending billions of dollars of taxpayers' money on trucks, tanks, airplanes, and ammo will. Perhaps the lesson is economic problems are rarely solved quickly from the bottom up (i.e., jobs programs, consumer focused programs, tax cuts to individuals, etc.). Does it mean economic problems can be solved faster at the top (money supply, business lending, business taxes, etc.)? One could say the war spending was a direct subsidy to large American industrial companies, like GM and Boeing, and the jobs were a byproduct, that is, it was top-down. Certainly the decade-long economic downturn of 1973-1984 never adequately responded to the demand side economic efforts of Nixon, Ford, and Carter, and only recovered after Reagan's tight money supply and supply side focused efforts.

One thing I can say is, I can lean on that CCC-built rail at the Grand Canyon. I can use electricity from the TVA. They might not have pulled the U.S. out of depression, but one could argue we got something for the money, and some people were employed for some period of time.

But can we say the same thing about the current stimulus plan?

A stuck clock moment

Even Saturday Night Live gets it right sometimes:



Now I hear George Soros and Herb and Marion Sandler are not happy with the skit, so SNL has pulled the video from the official SNL site.

Supposedly, the skit now does not meet SNL standards, and they are going to "edit" the skit.

Wait a minute, I thought it was Saturday Night Live? Did I miss something? Editing a live skit after the fact?

I guess the new Lorne Michaels is George Orwell.

It's too bad Whoopi Goldberg did have a dad like this

Today on The View, Whoopi Goldberg showed an incredible ignorance of the United States Constitution. It made me think of this scene from the movie The Jerk:



When it comes to the Constitution, Whoopi does not know the difference between ... well, you know.

The best political speech in history

So today is September 11th. I remember back on that fateful day, September 11th 2001, what I did once I returned home. As I watched the events of the day unfold, I recalled Ronald Reagan's most famous speech, given in 1964 in support of the candidacy of Barry Goldwater.

Specifically, I recalled the phrase "You and I have a rendezvous with destiny", and a few other choice lines, such as "We are at war with the most dangerous enemy that has ever faced mankind in his long climb from the swamp to the stars", "You and I have the courage to say to our enemies, "There is a price we will not pay." There is a point beyond which they must not advance." and of course, "You and I have a rendezvous with destiny. We will preserve for our children this, the last best hope of man on Earth, or we will sentence them to take the last step into a thousand years of darkness."

When I got home, I searched "rendezvous with destiny" on the Internet, and found the speech on the web site for the Reagan Presidential Library. While parts of the speech may be specific to the Goldwater-Johnson Presidential election, the speech itself is truly timeless. It is a speech about the freedom of man, the threats to that freedom, and what free men must do to preserve that freedom.

So without further adoo, here is Ronald Reagan's speech, "A Time for Choosing" (a.k.a., "Rendezvous with Destiny"):



And a link to the site of the text of that speech: A Time for Choosing

Experience

I am hearing a lot of comments in the media about the experience (or lack thereof) of the Republican VP candidate, Governor Sarah Palin.

Here are some interesting facts:

Barack Obama was a Community Organizer for 3 years, and later spent six months running a voter registration drive.
Sarah Palin was a City Council Member for 4 years.

Barack Obama was an Illinois State Senator for 7 years.
Sarah Palin was a mayor for 6 years.

If elected President, upon inauguration, Barack Obama will have been a U.S. Senator for 4 years.
If elected Vice President, upon inauguration, Sarah Palin will have been Alaska's Governor for 2 years.

In addition to being a Mayor and a Governor, Palin was Chair of the Alaska Oil and Gas Conservation Commission for a year (basically a sub- cabinet position, under Alaska's Department of Administration).

This latter position is the most interesting, and Palin's experience there reads like a Grisham novel.

So let's assume for a moment, serving on a City Council provides similar experience to being a community organizer (low-level public service experience). And let's assume being a Mayor provides similar experiences to being a State Legislator (mid-level public service experience). Finally, let's assume running a 25 member state commission, and later being a Governor provide similar experiences as that of a U.S. Senator (high-level public service experience).

I believe many will say being a Mayor is far more challenging, and therefore far more valuable experience than being a state legislator. Likewise, I believe many will say being a Governor is far more challenging, and therefore far more valuable experience than being a U.S. Senator. But for now, let's call these experiences equal.

If so, that basically gives Obama one year of advantage at both the middle and high levels of public service.

So I find the argument that Palin is too inexperienced to be a heartbeat away from the Presidency weak compared to Obama being in the Presidency.

And like I said, her experience on the Alaska Oil and Gas Conservation Commission read like a Grisham novel. Check out the link below.

Link:

Palin explains her actions in Ruedrich case

Who else can stand up for liberty in the world?

A rhetorical question, no doubt, but one which had to be asked.

Who else can stand up for liberty in the world?

Well, who?

The Empire Strikes Back

Playing the part of Darth Vader is Dmitri Medvedev:

And of course, Vladimir Putin is Emperor Palpatine:

Random House commits an "Honor Killing"

In a world where all to often people love to establish moral equivalence between western and third-world cultures, permit me to add one.

Random House's decision to kill Sherry Jones' new novel "The Jewel of Medina", about Muhammad's wife A'isha is the literary moral equivalent of an Honor Killing.

University of Texas' history professor Denise Spellberg, according to Random House's Jane Garrett, advised strongly against publishing. I cannot help but wonder what Dr. Spellberg teaches about Islam in her classes. Does she teach it is includes a significant element of unstable, easy to anger, medieval, barbaric, and terroristic sects, which are so influential, as to preclude the entirety of Islam from being subject to popular fiction, avant-garde art, political cartoons, or comic routine, unlike every other other major religion and culture, which often are the subject of critical or tasteless speech or expression.

I think Dr. Spellberg, based on her comments, strongly believes Islam, due to its extremist component, is not compatible with the secular, post-Enlightenment, western world. I just wonder if she teaches this in her classes.

More:

You Still Can't Write About Muhammad

Free Speech Jilted by Muhammad Romance Novel 'Warpath'

And some worthy background reading:

Victor Davis Hanson: Traitors to the Enlightenment

That was leadership

It was 20 years ago today:

"There is one sign the Soviets can make that would be unmistakable, that would advance dramatically the cause of freedom and peace.

"General Secretary Gorbachev, if you seek peace, if you seek prosperity for the Soviet Union and Eastern Europe, if you seek liberalization: Come here to this gate! Mr. Gorbachev, open this gate! Mr. Gorbachev, tear down this wall!"

Are there any pragmatic libertarians?

The emergence of the Fair Tax as a viable, well-researched consumption based alternative to the income tax should have libertarians (both small "l" and large "L") ecstatic. It is the first proposal in years to try to return power to individuals, and away from the Federal government and Washington lobbyists. However, many self-described libertarians seem opposed to the Fair Tax because of their unrealistic vision of a taxless American society. Or perhaps it is the natural conflict between well-researched pragmatism and political purism. I mean if you research something, you might actually be asked to do it.

Which brings us to the crux of the problem. Every journey begins with a single step. If you live in New York, but want fly to to California, you probably have to take some other form of transportation (train or car) to get to the airport. Libertarians seem like somebody who believes traveling by land from their New York residence to JFK somehow violates their vision of "flying" to California.

Because of this, many libertarians seem to be more comfortable as political outsiders, who would rather criticize from a position of political purity rather than roll up their sleeves and start the hard work of solving problems. They are like the proverbial dog chasing the car. What will the dog do with the car if he actually catches it?

This can also be seen in the Libertarian Party's intolerance with those who do not toe the LP line 100%. This was eerily similar what the Democrats did to Bob Casey Sr. Do we really need such political muttawas in American political parties? And how on earth can such a puritan party ever lead a multi-political party government?

While widely varying views on many issues are the norm in the Republican party, and even to some extent in the Democrat party, the LP would rather be small, pure, insignificant, and whiny, rather than actually lead. It's tiring, unproductive, and immature.

And I would add, I firmly believe the Libertarian Party (and many self-described small "l" libertarians) are simply jealous of the success Americans for Fair Taxation has had rallying tens of thousands of people to its Fair Tax rallies. I would not be surprised if more people have attended Fair Tax rallies in the last year than have attended LP national conventions over the last 10 years.

So if you are smug, you like to think you are better than everyone else, you like complain, you like to champion the impossible, you like to bitch, and you really, really do not have any desire whatsoever to actually lead, the Libertarian Party needs you.

Was Margaret Thatcher the last real man in Britain?

A disgusted Ralph Peters asks the question:

Where's Winston?
It's Iran 15, Brits 0 In The Gulf

If you are not familiar with Ralph Peters, he is a retired Army Intelligence officer, novelist, columnist, and television commentator.

The Economy is Booming

Don't pay attention to the Dow's recent correction. Just check vacancy rates of hotels, airline load factors, and rental car availability.

Every flight I have booked recently has been nearly full, forcing my employer to have to pay higher fares. I have also had serious problems finding vacancy in hotels, and have been forced to stay in hotels on the outskirts of town. And for my next trip, not only are those first two points a factor, but there are no rental cars available.

Granted the airlines have reduced flights. And perhaps rental car companies have reduced their fleets. But other than the Stardust Hotel in Vegas last night, I don't recall hotels being imploded to reduce capacity.

I don't remember air, rental car, and hotels being this tight since 1999 and 2000, in the peak of the dot-com era.

Huge cheers. Loud applause.

Worth the read:

Bull market cheers