Energy (in)Dependence

How does one achieve energy independence? The same way we achieve, say, gold independence?

If we produce all the gold we use, does that mean we’re independent? Does that mean we can set the price of energy we want (and not fund bad guys in the ME), vice what the worldwide market decides?

Energy is fungible. There’s absolutely no way, short of taxes and subsidies that grinding corn into gasoline can compete with the marginal cost of delivering the next barrel of oil or coal-produced kilowatt hour – which for those who haven’t looked at the numbers is roughly $2 a barrel in a supertanker and under a penny for the coal-based KWH delivered to the meter at your home. Consider that a buggy-whip was never less expensive than when the automobile entered the mass-market. This is why there is no independent market in alternative energy yet (save if burning neutrons is deregulated allowing it to compete at its native (marginal) cost v. pay-off-everyone cost). Someday we’ll treat nuclear power with the same (lack of) respect that we treat the gasoline in our cars – which, pound for pound yields twice as much energy as our best high-explosive.

And to make these alternatives competitive with fossil fuels, taxes must be collected and regulations enforced world-wide, by military force. We’ll see more babies starved to death on the nightly news because governments could not avoid the temptation corrupt the market in the name of a science that wouldn’t pass the first FDA sniff-test for a new drug’s effectiveness (where double-blind statistics only need apply). The AGW folks would be laughed out of the office.

I was in Egypt after the food riots. The army there is still baking bread and suppressing unrest the countryside. Again, this is because food is fungible just like energy.

If the proponents believe there’s been no effect on prices then suppliers won’t object to removing their subsidy since they expect prices to remain stable (granted they should return to a historical longterm decline that tracks productivity gains and increasing competition).

Well, I do dream.

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The “Pubs Pledge, Ryan’s Plan, etc.

I like the objectives but I suspect they are impossible to accomplish as long as self-government is defined as 50M+1 voters deciding for 50M-1. Not that we shouldn’t make every attempt, but I think a much more fundamental change would yield the desired result – for socialists, conservatives, and others.. but not those in love with power. Which is where we conservatives and libertarians fail – we really don’t trust the power it takes to dictate to 50M-1. Even this blowout election was closer to 50M+1 than 2/3rs or 3/4s.

I’d much rather have all these domestic issues determined by community governments of no more than, say, half the average congressional district (about 300,000 citizens). Which is roughly one gigawatt (electric and gas plants), a water and sewer plant, a (small) airport, a few courts, jails, (perhaps a lethal injection gurney), hospitals, about 5,000 classrooms, etc. It’s also larger than most States in the early 1800s, and as much economic power as all but the largest companies in the Fortune 50.

Then I wouldn’t have to care if today’s 50M-1 (or tomorrow’s 50M+1) want progressive policies. I’ll be able to vote not only at the ballot box but with my (and my enterprise’s) feet to a nearby environment that is competing for my favor. And since the current entitlements are nothing but a political promise (without assets), those can devolve to these same self-governing units. Cast the law as an "opt-in" by the states for their communities, those that don’t opt-in keep the current system and federal tax regime, those that do are free of all federal regulation, administration, and tax, save a 10% tithe of all local taxes collected payable to a new institution created to manage the common defense including: customs, national borders, department of war, etc.. and given the war department has all the same ability as the state department, for those communities that opt-in, these state department activities will be subsumed into the existing military attaché system.

(continuing): My hope is that given a choice between possibly poor-er yet free-er (with the promise of faster growth than today’s less-free status) most conservative states will opt-in, and their ability to draw the citizen and their enterprise out of the socialist states will drive them into also opt-ing in. Shrinking the size of the governed (not just Federal government) will closely connect action and consequence, and we’ll see what governing style yields the best results for the citizens across these 1,000 independent communities. With larger issues dealt with by voluntary associations of the affected communities. Maybe San Francisco can make communitarianism work. And some communities of Manhattan can escape rent controls and bloom. But we won’t have SFO dictating to the Central Valley and v.v. Granted it will make those in love with power crazy. And make special interests into general interests if they are to succeed.

Where we should design for competition in all things – including law and regulation, some communities could just take adopt the gigabyte disk of existing federal law and regulation, other could choose to adopt the (west) German legal code that we wrote for them post WW2 – where there are no torts, just reading of the law with no reference to precedents – don’t like the law, use the vote to encourage the local council change it. And no dicta beyond the Federal constitution for these new self-governing units. Amusingly, as each community will be arguably more independent and powerful than a small European State they could claim a seat in the U.N. General Assembly. Would grow from 200 to 1200, and those that didn’t like it could be challenged to set up equally sized independent, self-governing communities (perhaps an easier path to Mr. Bush’ goal of freedom for the world’s people).

Well, I can (and do) dream.

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Entitlements, Other Difficult Challenges

re: entitlements, other difficult programs.

One solution is to get the federal government out of all these businesses – delegate them to the local communities (and disestablish any federal agency that is engaged in same).

Set a schedule, allow the states to "opt-in" to allow their communities of 300,000 citizens to take ownership, both authority and responsibility, and then take the $ off of the federal books (if they were even there to begin with – most are not), as well as those communities’ citizen’s federal tax obligation.

As it is with SSI and Medic/are/aid there are no assets that need to change hands, the cashbox is empty, Congress has spent it all. These IOUs and hand-to-hand transfers that are generational promises remain the same, but they will be managed much closer to the citizen and by their neighbors rather than by something that must still appear to be almost a foreign power in D.C. (where 50M+1 voters seem to think they should decide what’s right for 50M-1, and/or be dictated to by these far removed courts and special interests). For those states that don’t want to entrust self-government to their communities, retain the status-quo and pay for it with (rapidly increasing given a balanced budget law) federal taxes of citizens in those states (and ask again after each state election).

When the dis-aggregation is complete about all that will be left is the common defense, and national level volunteer associations of these communities that look after concerns of shared interest.

Good news is the 1,000+ sovereign communities (in all things domestic) can and will rapidly solve all these entitlement challenges, especially since the citizen and their enterprise will not only vote at the ballot box but with their feet as these communities experiment with alternatives for care of the abandoned and indigent, and elderly and infirm, and those others who believed a national political promise was as good as their own money invested, or family or own neighborhood’s charity and care.

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Questions Questions

Are we convinced yet that even the conservatives will be unable to govern and sustain their principles from the center? That we need to return the crown to the people in units of no more than a couple of hundred thousand – at least in terms of all things domestic? And let not only the local ballot sort these issues out but the citizen voting with their feet? Do we believe that competition in most, if not all things is the remedy for the unchangeable, non-perfectible heart of the human condition? Why should we use force (government) when an alternative exists?

If we don’t decentralize now, when? And I do mean everything, including entitlements and their (bankrupt, only political, no basis in financial obligation) promises of current and future care for the old, infirm and childish in all of their forms – a poor substitute for extended family responsibility but when absent it should be a local responsibility. Better a jury of my (local) peers, and my neighbors deciding these things than 50M+1 or our ~1,000 representatives, all reeds in the special-interests’ wind. What system can survive that requires that the government be any more perfect than the governed?

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But China Is A Totalitarian State

Yes, it is. I’ll grant all the critics say about the domination of CCP in all things political. When visiting with employees around China their reluctance to enter into any political discussion is an indicator that even a generation that didn’t experience the cultural revolution is still trained to avoid politics – save by the approved path of joining the party, expressing a vigorous love of country (nationalism) and working within that system. And it has its share of corruption. However the U.S. has both forms, cross-my-palm and "legalized" corruption of an even greater magnitude (certainly by $ and fraction of the economy that’s directed by non-market dicta).

Consider that once the CCP removed its dead hand from the market it boomed, and the amount of literature and access to foreign ideas of necessity became a torrent. Those ideas are everywhere and as Richard notes, they ARE living the (economic agenda of the) Tea Party. And it’s not just the citizen and their enterprise that benefits – when there’s a market in housing (and no neighborhood party officer required to approve) you now have a thriving gay community in Shanghai (and other big coastal cities). And the examples go on and on. The first freedom is the freedom to trade your time (and become less of a slave). Political freedom often follows when some non-violent means is needed to deal with corruption that the market makes visible. Granted, it could still end in disaster, but they’re more than 50% along the path to being as free as, say, HK under the Brits or S. Korea’s first 30 years.

The fact that families still “buy-the-bullet” for a member that steps-over-the line is a horrific punishment, but it works to keep the people in line, and forces them to take their competitiveness, pride-of-country, and search for wealth and power into the business sphere.

Re: cheating. Very true. But at least they test. And the cheating quickly sorts out when the students are employed and have to produce. Consider that our leading schools have stopped testing so what a graduate gets is a credential with little meaning to a future employer, save perhaps if they need a “member of the gentry” to schmooze other members because D.C. is far too involved in businesses. Be wonderful to return to an era where government had no role in picking business winners and losers. China doesn’t have this curse for large parts of their economy. Guess who really wins if, say, a government supported GM has to compete with (today’s Korean and) tomorrow’s Chinese auto companies?

10-15 years ago my teams did a lot of college hiring, around the world. And the best and brightest U.S. (engineering and science) students I hired had succeeded in spite of their so-called great high-schools. Irrespective of great SAT scores and placement, they found themselves behind the Asians in math and science because their (great, exurban, #1 rated) high-schools had stopped challenging their brightest (as in challenge to the point they failed) and focused their time and $ on the average (and politically correct nostrums). They often had to take remedial courses to catch up with what they thought they understood but didn’t as well as their foreign competitors. Many in those same classes didn’t want to spend the money towards courses that didn’t count towards a degree, so they switched majors and went into law which also rewarded good minds, but didn’t require great tools. So we got the worst of possible results. Supply creates demand (lawyers, litigation, numerically ignorant political class), and more and more technical work in the U.S. is being drawn (not driven) offshore (because that’s where the talent is, to say nothing of we tax, regulate and litigate our successful companies to death – esp. the > 200K$ intellects who create jobs for more employees.. – because “progressive taxation” is “only fair”).

Re: patriotism and the market. Be careful here. It’s easy to say “buy American” but if the competitive product is honestly better do we want to go without, do we want to ignore a “price signal”? At that end of the spectrum is Soviet Russia where billions of workers entire-lives’ of effort amounted to nothing in terms of bettering their condition – the inputs to their factories were worth more than the outputs. And save for a few artists and weapons designers, they invented nothing of value.

If we, say, deny our children the best childhood drugs who suffers? Perhaps not just patriotism but due to nationalizing health care because we thought third-party pays has too large a political cost to fix but didn’t like the costs so we stopped funding the gold-rush in medical technology (which today is still closer to the age of witch-doctors than, say, what we understand about building bridges). Irrespective of the political system, if we’re not at war, not embargoed or placed under sanction that government, we should certainly be willing to allow the market to deliver better products to us. And if we (continue to) stand still (and handicap our citizens and their enterprise), that’ll be the case in all these technical domains. And we’ll see a return of export medical tourism – except rather than flying 747s of heart patients into Houston and Dallas, the flow will invert. Already has in some small part to India – where they are willing to start from scratch to build MRSA-free facilities. So using patriotism to tip the market to poorer products will only hurt the masses. The elite and wealthy will be able to get it irrespective of government sanction (just like we saw with the Politburo in the USSR.)

re: hacking into computers, stealing us blind. Yes, they don’t have our sensibilities. Imagine what would happen if we incentives (PLA uses $ and cars), say, MIT students to use their lab days to hack into Chinese government and businesses? Don’t imagine too much, Chinese hack into their own systems more than they hack into ours – but they know who buys the bullet if they use the information politically, or offend or blackmail one of the powerful families in a province. I’ve heard talk of how hacking activity follows lab days at schools, with grades being assessed based on what was collected from whom, and creativity required to obtain. Some of its paid for by the PLA, most by businesses who want something to (re)sell, like music, movies, software, etc. Which is a good news and bad news story. Like the U.S. in the late 1800s, it means the poor will be able to “buy” (pirated) CDs and DVDs. Bad news is that until they get wealthy, there will be no local market for good ideas not expressed in something physical (no market in intellectual property by itself). Even more bad news is the "first world" is well along the same path, at least for high-value content.. means we’ll have less music and movies unless the price of product & actors & musicians drops along with revenues which appear to be settling at 10% of the 80s. We shall see who gets more of what because they value it more, tax, regulate, and litigate it less.

Re: a community of several hundred thousand being more vulnerable to outside influence that the current federal/central government (in terms of domestic affairs). Yes, potentially (remember that this community has more economic clout and people than all but a few Fortune 50 companies), but to have a large effect whomever is buying influence will need to buy it 500+1 times to have a majority (v. today’s single point of failure, either in DC, or being able to convince 50M+1 to dictate something to 50M-1).

I’m hopeful, but not optimistic, that this election sets us on a better path. We’ve far too many people that think government intervention helps, v. simply insuring civil society can do its magic with a minimum of interference, and/or masking of market signals by putting its thumb (arbitrarily) on the scales.

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Trade Surplus empowers China Directly

Need to dig a little deeper on the numbers and the issue. Note that buying $400M of phones from China no more enriches the Chinese government than it does enrich the U.S. government when the Chinese buy a $400M Boeing 747. And arguably much less since their corporate taxes are (near) zero, and Boeing’s are huge (and of course we tax what we want less of.. clearly we want fewer cigarettes, Boeings, and >200k job-making-jobs). The fact that they loan us our own dollars back from their savings (banks, deposits owned by businesses and individuals) does not necessarily accrue (either $ or power) to their government, especially since the state run enterprises are on the decline (mostly in the hinterlands, dealing with a restive rural population), and our (state-owned/influenced/regulated) enterprises are on the increase (esp. in areas critical to a free economy). China is now much less controlling than the U.S. in many areas of their market. And they have not created the artificial barriers we have separating the government, academy and business – which can lead not only to great corruption, but great success. They are in the late 1800s – early 1900 period of the U.S.

We need to do a better job at understanding and explaining these issues than assuming some elite in Beijing is in charge (v. the powerful families in the provinces and the successful entrepreneurs) and all this power must be accruing to them. It’s not. They’ve unleashed the engine (of the market) and know they can’t take their foot off the accelerator (without revolt).

In both cases we’re going to end up competing on free-intellect and cost-of-overhead. We need to get our aggregate government bill down to under 5% of the economy and return those (clearly very bright and educated people because they are so much better compensated than the private sector employee) to the workforce that builds things – that create an above-the-line return rather than being a below-the-line cost (a dead-weight loss if/when we have competitors that can match /beat us with that much less – Intel faced a hard choice recently that shouldn’t have even been close – locate its next generation fab here or move (them all) to China. They made a political decision, and did not follow the advice of their technical and business advisors.

Our technical workforce is in decline (mostly due failures to educate the brightest in even our best high schools), we’ve made immigration of skilled people hard, and we tax and litigate our great companies to death – all of our vectors point to a worse future, and all of China’s point to better. A sad state of affairs. And one that can only be fixed by disestablishing the federal central government and complex in terms of all things domestic and returning both authority and responsibility for all these affairs to municipalities of several hundred thousand citizens. It’s just too easy – we’re guaranteed that 1,000 gods in central government will be seduced by their ability to spend $10B a day directly, and dictate (thru regulation, litigation and the courts) how we spend an addition $10B a day. No saint (or god-given tablets, or contract or constitution) can stand uncorrupted against those flows.

The answer is radical disaggregation, distribution, similar to what happened to Fortune 500 corporations in the 70-80s when information technology made headquarters staffs largely redundant, and boards split the savings with the executive office to motivate the shrink and loss of empire – to be able to survive against the small, focused and nimble competitors on the rise (and the arterial sclerosis of the command-and-control Carnegie and Sloan industrial-age organization – an era when information was scarce and very expensive). Of course, some responded by conspiring with the regulators to raise barriers to entry so no small company could threaten. Be it big pharma, and now the high-tech industry (thanks to Sarbanes Oxley), we’ll not again see an Apple or Microsoft grow from nothing to knock off the incumbents. The loser? Us.

This isn’t to say China doesn’t have its challenges. Just that we should get our own house in order first and be appropriately humble. Remember that technical leadership by the U.S. is not the natural state of affairs. And we should not care, given well-functioning markets.

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Is Recreating Federalism Feasible?

Re: Is this (decentralization) even feasible given the Constitution as amended?

I think so, but don’t know so. Could start small, using Leo’s (L3’s) interstate compact idea to build-up the self-rule muscles and address those immediate issues most likely to get support, and get the Federal government accustomed to the idea that their world is changing, shrinking.

I think this is no more radical than what the Congress has done over the last two years. But the politicians will need a template and some hope for success, and be willing to embrace a George Washington “give the crown back” future of greatly reduced domestic power and their own influence at the federal level. i.e. the average (county or a TBD more rigorously defined (i.e. not gerrymandered) metropolitan statistical area) council will have more power over domestic issues than what remains in D.C. The states may well object that this is a usurpation of their rights, but perhaps that could be handled a voluntary opt-in in the enabling legislation. If the states want to maintain the status quo, so be it, else they can free their people – and they themselves repeat the federal disestablishment of their own bureaucracies (unless their own communities again see value in their services and are willing to pay the bills).

If and where there are hard constitutional issues, attempt to avoid or postpone dealing with them until the larger disaggregation is completed. i.e. even though the IRS is authorized to collect income taxes from everyone, it need not (can be told by legislation that the tax rate is zero) and after a while we can consider a constitutional “clean-up” amendment that documents then current practice as limiting Federal (and State) governments to largely voluntary mechanisms for coordination of common interests among the communities. Until then we will have to use the ballot to discipline the Federal politicians (which will be hard work as long as 50M+1 can tell 50M-1 how to live).

In my dreams even the DoJ and FBI go thru this process – where some communities may choose not to adopt our current system of torts and civil-code. Rather something similar to what we wrote for the post war Germans and Japanese where the law is what the lawmakers and people write and approve, not an interpretation informed by past judicial decisions and penumbra. So if someone wants/needs a change in the law, they (must) act politically. Which will cause the legal profession to shrink to a few percent of what it is today (at least in communities which decide they need not compete on number of lawyers, amount of time and dollars spent litigating).

Call it a dream (today). I’m not a lawyer or a constitutional scholar. I’m a businessman, an engineer, a mathematician and physicist (and am reminded every day by (often foreign-born) youngsters how little I used to understand about these disciplines). I’ve founded schools – and companies – in several countries. I’m more than willing to settle for half-a-loaf. Maybe, just maybe, we’ve a 20-30 year conservative/libertarian wave about to take power that will transform the Federal government to something 21st century with attributes competitive with what I describe but still managed from the Center – and not locally. But I don’t see how anyone in our current system of centralized power can avoid the temptation and corruption that is currently wired into 50M+1 deciding for 50M-1 on day-to-day issues. There’s just too much money and power in that one place. And it’s just too easy to buy influence once they have decided to interfere.

I’m interested in the opinions of others in how to make this work, improve it, critique it. Perhaps we’ve some members of the Federalist Society who could create a map of how to legally (and politically) achieve this, incrementally, using small (achievable) changes in the law that would arrive at the final result – of returning government to the people and their communities. Or perhaps argue for a “big-bang” – one law that’s a catalyst that sets this all in motion (I don’t think this can be addressed top-down, a large part has to be bottom up). Corporations didn’t make these changes overnight, it took months of planning but once the incentives were changed, it happened quickly, and often from the edges in. I’ve a friend at George Mason (Maurice McTigue*) who was part of an equivalent transformation in New Zealand 20 years ago – which even though there’s been backsliding (they failed to find a mechanism to prevent domestic power from returning to their federal government – which is near impossible without a written contract with the people) it does give me hope.

re: why target 300M or so citizens per self-governing community.. this is roughly one power-plant (a gigawatt or so for homes, business, and some industrial), a water and sewage plant, 10,000 classrooms, a few jails, courts and hospitals, (perhaps a lethal injection gurney), a (small) airport, a community college, a fair sized retail and services complement, etc. In dense areas with lots of (social and economic) diversity, it allows people to pick their community of comfort and commute to jobs if elsewhere. Means left, right and other can have communities in and around San Francisco and the Central Valley, without having each attempting to / able to dictate to the other. Implies that some parts of NYC will have rent control, and not far away there will be other parts without. Lots of diversity and experimentation possible, though with this freedom will come responsibility and near-term consequences. Communities that choose poorly will go bankrupt (and/or their citizens will flee) and we’ll need mechanisms to manage their dissolution and salvage.

* see/listen:

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