Dissecting the Market

I have written about this before – the oxymoron “free market.” I keep hearing it and reading it, so I guess I’ll keep writing about it.

We all know what the “free” in “free market” means – unrestrained or unregulated. The term “market” has more moving parts. I have read many definitions of a market, and they could be summarized as “a set of rules governing a particular type of commercial transaction.” Sometimes the particular rules are as simple as a defined place and time, but they are always backed up by a host of general rules concerning buying and selling.

Markets can’t be unrestrained because they are made out of restraints. They are intrinsically not free.

The same goes for “free trade.” The trade in question is across national borders, which are, by their very nature, restraints. Part of the very definition of a nation state is the ability to restrict what goes across its border. True “free trade” would means a complete transfer of sovereignty from governments to international businesses. Visualize one world government by Wal-Mart and you get the idea.

“Free enterprise” goes down the drain on the same arguments as “free market.” In short, no rules, no trust. No trust, no transaction.

The thing that surprised me as much as coming to this conclusion was the fact that I hadn’t heard of this basic logical contradiction somewhere else. This is not a political argument, really. It is a matter of the accepted meanings of the words contradicting each other.

It makes me think that popular economics is in the same condition today that human anatomy was 467 years ago. That was just before the publication of De Humani Corporis Fabrica (The Structure of the Human Body) by Vesalius. He had performed many dissections of human bodies and published a seven volume illustrated treatise of his work. It angered a lot of anatomy professors.

Before Vesalius, the medical community relied on the works of Galen, a Roman physician who formulated the four humors theory of illness and wrote about human anatomy. Unfortunately for the clients of medieval physicians, both his four humors theory and his anatomical studies were wrong. Forbidden to dissect human bodies, Galen had dissected apes and pigs. The apes were somewhat close to humans, but pigs are quite different in their internal arrangements.

This resulted in ongoing absurdities in the medical schools of the Middle Ages. The students would sit in an operating theater, grouped around a body and a barber-surgeon. The surgeon would cut apart the body as a professor read from a book of Galen. The surgeon would lift up and display a human liver. The professor would describe a pig’s liver. The description would not correspond to reality, as it hadn’t in any of the past dissections, but the students would nod, take notes, and go on to slaughter another generation of patients. Galen, after all was an authority with 1400 years of tradition. The corpse must be defective, not the theory. (See my essay on triumph of doctrine.)

This disconnect was vital to the medical schools of the time. If the discrepancy was acknowledged, the medical establishment would have had to admit that it didn’t know jack, and that paying to hear its members spout nonsense was a waste of time. Likewise paying for actual treatment. Bleeding and purging, anyone?

Today we have economists spouting self-evident nonsense every time they use the word “free” in conjunction with “market,” “trade,” and “enterprise.” They also write about leveling the playing field, as if a single set of economic rules could equally benefit T. Boone Pickens and a retail clerk. They theorize about an economic environment populated by fully informed, rational individuals making decisions with enlightened self interest.

The students nod, take notes, and go forth to change the rules, bend the rules, obscure the facts, and generally rig the game. After all the analysis they still play hunches. All the while they continue to spout about free markets and rational actors. Our economy goes to hell.

The economists have arguments about the greater or lesser role of governments in regulating markets. The free marketeers would have you believe that there is some possible ideal state where government doesn’t interfere with markets. This is impossible, because governments are the necessary makers and enforcers of laws that make markets possible. The New York Stock Exchange is the bastion of free market economics, right? Utterly wrong. The NYSE couldn’t exist without thousands of laws regulating the sale of stocks. In fact, the NYSE is, in essence, a huge set of laws regulating the sale of stocks. Those laws are enforced by the Securities and Exchange Commission. When the SEC fails to do its job of enforcement, and/or Congress fails in its lawmaking responsibilities, we have disasters such as the present economic collapse.

Proposing that government should stop meddling in markets is like proposing that bricklayers should stop meddling in the building of brick houses. The real question is one of architecture. What design will best serve our needs and protect us from the elements?

There are economists who are beginning to study the real, ill-informed, irrational behavior of human beings participating in markets. There are critics pointing out the imperial nudity of classical economics. We need to start listening to these scientific economists who recognize that economics isn’t an exact science. We need to pressure our government to stop playing a supposedly hands-off game with our economy that is actually hands-on in favor of big campaign donors.

We need to start calling bullshit on the use of the expression “free market” and its siblings. That would get us into the realm of modern economic medicine. We need to acknowledge that any system of economic rules has winners and losers, and that as a society we can and should decide that question.

An Imperial Presidency, Like It Or Not

“Empire,” “emperor,” and “imperial” all derive from the Latin word imperare, to command. Originally the term imperator was given by acclamation to a successful military commander. It later obtained its more political meaning.

With President Obama’s announcement of an escalation of troop numbers in Afghanistan, the word empire takes on a new meaning for me. It’s a question of who, or what, is commanding.

I can pile up many arguments as to why remaining in Afghanistan, much less increasing our presence, is a bad idea. I can point to history, with the stories of empire after empire breaking their teeth on the rock-strewn mountains of Central Asia. I can lay out the thesis of Jonathan Schell in his book The Unconquerable World, where he outlines the inevitable long-term failure of imperial occupations when opposed by determined indigenous forces. I can point to the mission creep of this invasion, which sought to eliminate an Al Qaeda presence that is no longer there. (The best estimate of the U.S. government is that there are perhaps 100 people associated with Al Qaeda hunkered down in Afghanistan. Not including Osama bin Laden.)

I can consider the unsavory lose-lose choice we face in Afghan government. Presently we support the second most corrupt government on the planet. Hamid Karzai’s warlord and crony-ridden kleptocracy, kept in place by U.S. cash and firepower, has near zero legitimacy after a clumsily rigged election. About 30 of the 238 members of the Afghan parliament are actually showing up to work. What is left of the hundreds of millions of dollars in aid money after Karzai’s friends and relatives have skimmed their share isn’t even being spent.

The alternative force is the Taliban, a group of medievalist religious fanatics. They gained control of Afghanistan originally because the Afghan people preferred legalistic religious zealotry to the indigenous mafiosi known as the Northern Alliance.

So, what shall it be, murderous thieves or murderous zealots? In some provinces, after experiencing extortion and rape at the hands of the Afghan National Police the locals are swinging towards the Taliban. I’ll predict that the Taliban will win this one. They are religious reactionaries, but only a century retrograde of most of the rural Afghan population. They offer people some level of personal security and rule of law. 14th century law, but law nevertheless.

But none of this really matters. What matters is the imperator, and Barack Obama does not hold that office.

An empire has its own momentum. The arc of its story line is stronger than the people who serve it. An empire has its own reasons. Like a shark, it has to keep moving or die.
We still have over 750 military bases around the globe. Like the British Empire of the 19th century, the sun never sets upon us. We are, however, a waning empire. Our client states are leaving us. We have overspent. The corporate virus that infects our body politic has restructured our economy from a manufacturing powerhouse into an unsustainable paper chase. And yet our president can’t look at an obvious disaster in the making, perhaps our final disaster, and turn in a different direction.

I am reminded of a couple of parasitic organisms that modify the host’s behavior. The lancet fluke has a life cycle that includes the cow, the snail, and the ant. When it infects an ant it takes over the ant’s motor nerve system and makes it climb to the top of a grass stem and wait. This makes it more likely to be eaten by a grazing cow and continue the cycle. Likewise, the Toxoplasma gondii parasite, which cycles between the guts of cats and mice, makes mice less fearful of the smell of cats. Biologists have found many other instances where parasites have modified the behavior of their hosts to their own benefit and the host’s peril.

So it is with the U.S. We, the people, have been sold a narrative of the necessity of military force. Evidence that it isn’t working is marginalized in our public discourse. I should be more precise – it isn’t working for the average Afghan or for the average American. For the average Fortune 500 military contractor it is working fine. Hundreds of billions of dollars have churned into the accounts of Kellogg, Brown & Root (KBR), Lockheed Martin, Blackwater, and hundreds of other corporate beneficiaries. They, in turn, finance the campaigns of like-minded legislators. KBR even blackmailed generals in the field into approving suspicious invoices with threats of non-performance of vital support services. The Department of Justice is underfunded and understaffed so it can’t adequately pursue these corporate criminals. The military-industrial complex is taking us down from within.

Obama’s call for more troops was inevitable. He could no more back out of Afghanistan than the CEO of Exxon Mobil could transform that company into an environmental non-profit. He was swept along by a legacy of imperial narrative, a corrupt Congress, the demands of thoroughly integrated corporate parasites, and the advice of generals focused on “kinetic operations” (shooting things). I shouldn’t under-emphasize the power of the imperial narrative. We keep telling ourselves a story of our exceptional nature as a nation, the inevitability of our eventual triumph, our essential goodness, our destiny as a world leader, and the justice of our military exploits. Obama couldn’t deny any of that. Political suicide is a mild term for that kind of truth telling.

The imperator is not a man in an oval office. It is the structure of our empire itself. That structure, parisitized to the crumbling point, will lurch forward till it can’t sustain itself any longer. The long, torturous, bloody, losing proposition of occupying Afghanistan is on that path.

Solar Surge

Contrary to appearances, your Minor Heretic has neither fallen down a hole, nor lapsed into a coma. My recent post-vacation-post silence is the result of a full schedule. That schedule includes two concurrent solar installations, finishing the curriculum for a two-day solar workshop for electricians, delivering said curriculum, plus creating and presenting two other renewable energy workshops for homeowners. Plus life in general.

The renewable energy business seems to be the only one holding its own in this recession. Solar and wind power aren’t experiencing the same geometric increase that they were a couple of years ago, but things are still moving along.

The sign-up for the photovoltaic portion of the Act 45 queue here in Vermont filled the same day it opened on October 19th. To refresh, Act 45 will allow providers of renewable energy to contract with utilities at a fixed rate for 20 years, that rate being sufficient to make as good a return as any existing generator. The limit on the entire program is 50 megawatts, and no single technology is allowed more than 25% of that, meaning 12.5 megawatts. There was a subscription of 176 megawatts of PV on the opening day, meaning that there had to be a lottery to see who would get a piece of that 12.5 MW.  Nothing like a 14:1 over-subscription to show the level of interest.

Even outside of Act 45 things are doing well. One of our local utilities, Green Mountain Power (GMP), had a sudden flash of brilliance about spot market power prices. Many states have a net metering program, where a homeowner or business can install a photovoltaic system and feed excess electricity back into the utility grid, racking up credits against future electric bills. GMP has gone one better, offering an extra 6 cents per kilowatt-hour (kWh) for solar production.  Are they insane?

Crazy like a fox. During summer peak demand GMP might have to buy power on the New England spot market for as high as a buck a kWh. Of course, it is during the middle of those long, hot, sunny summer days when photovoltaic systems are pumping out the most power. Nineteen cents per kWh looks cheap during those times. GMP did the math and offers a price that encourages solar but still let’s them come out ahead. Why the other utilities aren’t doing the same, I don’t know.

There’s an added benefit for the utilities from solar. I take anything Amory Lovins says with a grain of salt, but he did a very interesting set of calculations about the life span of transformers. You have probably seen a utility substation – a fenced-in array of huge gray objects with cooling fins and ribbed insulators, power lines converging on them. The transformers drop the high voltage of transmission lines down to the medium voltage of your local distribution lines. The key thing to understand about the life span of these transformers is that they do 90% of their aging during 5% of their operating life. That 5% is when they are running at high temperature during peak load times in the summer. That is exactly when solar arrays are pumping out the most power and reducing the amount of power that needs to go through those substation transformers. The more power generated downstream of the transformers, the less they heat up and the longer they last. Lovins calculated that even at the prices of five years ago utilities could save money by installing solar downstream of their substations and delaying the replacement of their transformers. Considering that the price of solar modules has dropped by half since then, I’d say it’s a viable option for a forward thinking utility.

I was talking with my elected representative today and he said that the important factor in shutting down the Vermont Yankee nuclear power plant in 2012 is replacing the 600 jobs and the tax revenue. I offered that renewable energy was the only business actually expanding in this economy, and that energy efficiency work is labor intensive and pays back better than 5:1 on the initial investment. The renewable energy and efficiency path offers lower risk and higher local job creation per dollar invested than the dinosaur energy sources.

I’ve said it before, but it bears repeating: We are heading towards a geologically inevitable end state. That is a time when the fuels we get out of the ground are so scarce and difficult to extract that they are impractical and too expensive to use. The earth stopped making oil and natural gas millions of years ago and coal hundreds of millions of years ago. It had some amount of uranium when it formed, and that was that. There is less of all these every day, and over time new discoveries get smaller, lower quality, and more difficult to extract. Someday this state, this nation, this planet will run on renewable energy. We can argue about the timing, but geology won’t change to meet our desires.

Given the inevitability of this, and especially given the unpredictability of the timing, we should be gearing up for renewable energy as fast as we can. I have used the analogy of a skydiver free-falling through clouds. If you don’t know how far away the ground is, and you don’t know how far from the ground you will find out, your best bet is to pull the ripcord now. Otherwise you may be rewarded with just enough time to say “Oh sh-“ after the clouds part.

The good news is that we can do it. The New Rules Project, a program of the Institute for Local Self Reliance, just updated a study on local renewable power production. Their research indicates that many states could produce most of their power locally. Some, such as Maine, could produce far more than their local needs, mostly through a combination of wind power and energy efficiency. Maine could produce six times its need with commercially viable onshore wind power. North Dakota tops the wind potential list at 140 times demand.

Let’s look at just their numbers for Vermont. The percentage of demand that could be met by various renewables and efficiency is as follows:

Onshore Wind: 111%

Rooftop PV: 18%

Percentage of land area required for 100% PV: 0.16%

Untapped Combined Heat and Power: 8%

Untapped Small and Micro-Hydro: 15%

Matching California’s Energy Efficiency: 38%

Combined Renewables: 152%

If we pursued California-style energy efficiency it would give us plenty of leeway in rejecting renewable energy projects that were unsuitable for our communities.

One of their startling conclusions is that maximizing renewable energy use in Vermont would cost something on the order of 5.7 cents per kWh at a wholesale level. That beats Vermont Yankee by a mile.

Of course, that’s just electricity. We still have to heat our houses and get to work. We waste a huge amount of energy in those sectors, basically because we can.

It is not impossible to cut the heating load of an average house in half with serious weatherization. A friend of mine in the weatherization business says, “I talk to people about energy efficiency and they say that they have done all they can. Then we work on their house and cut their energy use by another 30%.” Likewise, there is a lot of waste in our transportation system. We still drive huge, inefficient vehicles, alone, a lot. The solution to that problem is a combination of zoning, gas mileage standards, public transportation, and, sadly, really expensive gasoline. Some people won’t do jack until they can’t afford to drive.

Let’s remember the geological imperative – the problem will solve itself, but not in a nice way. The alternative is for us to start the transition away from non-renewable fuels now, before we have an emergency. Is that possible with our political structure and our present mindset? No. Which is why we need to focus on our educational system and the way we elect our local and national representatives . The ground is down there, through the clouds somewhere, and it isn’t getting farther away.
 

Ancient and Modern

Your lucky Minor Heretic just returned from two weeks in Greece, mostly on the island of Kefalonia. There’s nothing like travel for perspective on your home, and Greece has contrasts aplenty. Some thoughts, in no particular order:

Our country is an infant. I visited an archaeological excavation near the town of Poros on Kefalonia that had uncovered layer upon layer of burials going back at least 3,000 years. I held in my hand a coin that had been placed in the mouth of a deceased Greek 2,600 years ago. The ancient Greeks believed that a dead person’s soul had to pay Charon, the ferryman, in order to get across the river Styx to the realm of the dead. One of the problems of construction in Greece is that excavating for a foundation anywhere near an inhabited area will generally expose some structure that is at least 1,500 years old. Buildings from the era of Venetian dominance (1400’s to the 1700’s) are characterized as “modern.” The Athenian city-state was holding town meetings 2,400 years ago, and attendance was mandatory.

On that final point: My beach reading for Greece was I.F. Stone’s “The Trial of Socrates.” My opinion of Socrates has fallen as I read it – he wanted an oligarchy and sandbagged people in debate without proposing much himself. One of the asides that interested me was the origin of the word “idiot.” The ancient Greeks used the word “idiotes” to describe a private person, that is, someone who shunned public political life. They considered it a serious character flaw to avoid political participation.

Mobile phones are ubiquitous in Greece. Most people I met didn’t have a land line phone, including a number of small businesses. At the archaeological excavation I visited, halfway up a mountain near a village of a few hundred people on an isolated island, cellular reception was fine. If a mountainous, rural island off the coast of Greece can have universal cellular coverage, why can’t Vermont?

The Greeks don’t seem to expect flawless produce in their grocery stores. A few dings are no big deal as long as the stuff is fresh. Food is expensive, though. Greece experienced some brutal inflation when it switched to the Euro.

The Greeks aren’t as particular as we are about guardrails. When driving, sometimes the only thing between you and a 500-foot drop is a tuft of grass. The same goes for walkways and various kinds of drop-offs. Passers by are expected to watch where they are going and not fall off. I would prefer a little more attention to railings, but their attitude towards liability is refreshing.

In Greece gasoline costs about 1.2 Euros a liter, or $6.72 a gallon. They still drive, but most of their cars are tiny by our standards. You just won’t see SUVs or large pickup trucks over there. Traffic in Athens is brutal, but a lot of it is taxis and maniacs on small motorbikes. Out on Kefalonia I saw a local grocer deliver two 50-pound sacks of potatoes by slinging them in front of him on his motorcycle.

As far as I can tell from casual observation, about one out of every four houses in Greece has a solar hot water collector on the roof. Some houses just have a black water tank on the roof, which is sufficient most of the time in that climate. On the downside, in many places they haven’t figured out the efficacy of attaching the showerhead to the wall.

Up until very recently Greece had nothing like our system of credit. If a family wanted to build a house they saved up money and then started one. If they ran out they stopped construction and saved more. The result is that Greece is dotted with unfinished buildings of all kinds. It is also covered with abandoned and collapsed buildings. I walked up streets where brand-new buildings alternated with weathered, half-completed shells and collapsed 18th century mansions. Sometimes one building would be half-occupied and half-abandoned. Now that the Greeks have access to credit there is a saying: “A Greek family has two houses, two big screen TVs, two cars, and two Euros in its pockets.”

There is a locally distilled liquor called tsipouro, made from the residue left over from crushing grapes for wine. Avoid it. Really.


 

A Wind Turbine Up Close

I was travelling across northern New York last week and went through the town of Chateaugay. A prominent feature just east of the village is the 103 megawatt wind farm spread across the countryside. The turbines are an industry standard size and type – General Electric 1.5 megawatt units, standing 80 meters (about 262 feet) tall at the hub, with a 77 meter blade diameter. The wind project is spread out enough that from one vantage point the most distant turbines have to be carefully picked out along the horizon.

My travelling companion and I stopped in the breakdown lane of Route 11 next to a recently mown hayfield with a turbine standing at the back end, about 750 feet away. We took a stroll up to the base of the turbine. I took some video clips with my admittedly low-resolution pocket camera. What struck us was that the turbine was inaudible at the road, and produced a gentle wuff-wuff-wuff noise when we were standing right under it. Ordinary conversation drowned it out. At a few hundred feet away the noise from the road completely overwhelmed it. It wasn’t an extremely windy day, but the turbines were producing. See the assembled clips below and make your own judgment.

I emailed a friend of mine in the industry and got the information on the turbines and the wind farm. I asked him if this was typical. He noted that the turbines do make more noise in higher winds, but that the ventilation fans in the nacelle are the real problem. They tend to come on during hot days with relatively low winds. He wrote that in his latest project they were installing extra sound attenuation on the nacelles to quiet the fans. The main point, in his opinion, was getting the spacing of the turbines and the distance from residences correct. I take this to mean that the right distance for one turbine is less than the right distance for the combined effect of two or three. His most telling comment was that the people who have the turbines on their land and get lease payments don’t seem to find the noise level a problem. It is the folks who didn’t get the payday who complain. I guess when that distant wuff-wuff is the sound of the cash register ringing it is music.

The dairy farmer accepts the smell of manure. So too, does the chicken farmer, who also tolerates the early morning rooster. Their neighbors, less so. To someone living next to a busy road, the noise of cars fades into the back of their consciousness. To someone like me, who lives in the boonies, the endless white noise of a city is oppressive. The endless fluting of a mourning dove is charming background music. I started my work career as a blacksmith, so the smell of coal smoke and the clang of the hammer fill me with joy. I like the look of wind turbines, but find concrete farm silos, those ones that show up in Vermont Life Magazine, appallingly ugly.

Wind projects require road building, excavation, concrete, and have all the impacts of any large construction job. They do produce noise and alter the appearance of the landscape. There are important, legitimate questions for a community to ask and standards that an installer must meet.

And yet, some of the opposition I hear has a flavor of emotional desperation to it, an intensity out of scale to the debate. I suppose it is ungenerous of me, but I wonder how much of the opposition to wind power is based on a gut reaction to change, or resentment at being left out of the payday. We have emotional reactions to the sights, sounds, and smells of our environment that depend on our experiences and beliefs. We tend to enjoy the familiar, and the novel sensation pleases us only when it associates with an existing positive category in our minds. The tricky thing with judging the merits of a commercial wind farm is to separate the legitimate concerns from our preconceptions and our emotional comfort zone. That principle applies to both the nearby homeowner and the engineer with the wind development company.