Re: Viable hydrogen vehicle by 2010

From: william mook (william.mook_at_mokindustries.com)
Date: 09/24/04 

Date: 24 Sep 2004 14:38:11 -0700

tkalbfus1@aol.com (Tkalbfus1) wrote in message news:<20040924025842.20420.00000110@mb-m01.aol.com>...
> >Shifting the cost of something to the government doesn't reduce the
> >cost. In most cases, there's a premium to be paid in having the
> >government handle it.
> >
>
> But it does make the cost more bearable.

You're not getting it. The cost of doing something is the cost of
doing something. Period. That cust *must* be paid or the thing won't
get done.

> A hydrogen subsidy can be paid for by
> a progressive income tax that puts more burden on the wealthy than on the
> Middle and lower classes.

This merely shifts the cost it doesn't change the cost. In fact,
there's a premium to be paid when costs are shifted in this way.
Hiding the true cost of a thing might be defensible if there are
important social benefits. Things like education, or the mails
provide such benefits. Medicine some would argue has the potential to
pay huge social benefits as well. There's just no similar benefit
that you can mention for energy.

Energy is a strategic resource. That means its cost impacts the rate
at which the economy grows or doesn't grow. Look at the price changes
over the past 30 years following the rise of OPEC. There is a clear
correlation between the cost of primary energy and the rate of
economic growth. Plainly providing a subsidy that hides the true
cost of a technology that in the end increases the cost of energy is a
recipe for economic disaster.

> I would consider it part of the defense budget.

Today there are other costs that haven't been considered in the past.
This is reflected by the run-up in cost of energy - $50 per barrel oil
for example - this is likely to cause a dramatic tightening of the US
and other industrial economies. Subsidising alterantives might have
some political support following 9/11 - but it won't help the economy.
 It won't even help the alternative energy business build
infrastructure we really need. It will cause the market to respond to
the subsidy and remain uneconomic far longer than it otherwise might.

> >So, to ask the government to solve our energy problem by subsidizing
> >uneconomic processes is worse than doing nothing. It perpetuates
> >patterns of abuse that waste resources the market would otherwise put
> >to better use. The recent history of coal conversion is a good
> >example of this;
> >
>
> The government can plan ahead, the market cannot.

Not true. In fact, quite the reverse. Ken Arrow proved in the 1950s
that it is impossible for governments to make rational collective
choice - thus explaining voting cycles. That is, not only does
government fail on occasion, government cannot do what we expect it to
do. This is akin to telling the King in the middle ages there is no
God and therefore no royal rights of kings. God wasn't doing in the
middle ages what people thought God was doing to assure good
governance, and voting doesn't do today what people think good
government is capable of.

There are no good alternatives. Arrow's theorem is not prescriptive -
so it does not tell us how to fix the problem, but shows us quite
definitely a problem exists - we CANNOT make rational collective
choices.

On the other hand, markets do work - because they have emergent
properties. When humanity hits on a system of governance that
actually works, it will more likely than not have elements of market
interaction within it - it will be a system of interaction that will
cause rational outcomes to emerge from those interactions (without
voting which necessarily destroys needed information for making
rational choice)

> Energy is a strategic
> resource,

Yes it is, so while you can hide the true cost of it you cannot hide
the EFFECT OF THE TRUE COST - the true cost is what it is, and that
MUST be paid somewhere along the line - and that has serious strategic
results - leading to a decline in economic activity if the cost is too
high. So, subsidizing inefficient means of production of energy is
the absolute worst thing one can do to bring about effective
long-lasting change.

> and it would not do to have a foreign power sudenly cut it off and
> disrupt our economy.

Our current system of industrial nation states relies on the smooth
functioning of international trade - including the international trade
of energy. The failure of that trading regime means an end to the
world as we know it. It is the role of the US Navy to secure the
basis of free-trade around the world for this reason.

> I think its worth a higher price for converting to
> hydrogen if we can preclude this from happening. You want another example:

You might think things are worth it, but unfortunately, your thinking
something is worth it has no impact on the market and the consequences
of high prices. There is a strong correlation between high energy
prices and economic reversals. There is a clear functional
relationship between energy costs and return on investments in an
industrial economy. There is no way that forcing people to pay higher
prices for energy will not have a negative impact on economic growth.

> the government now routinely buys extra doses of vaccines causing drug
> companies to manufacture more than what they perceive is needed for the next
> flu season, this is an insurance policy to guard against the possibility
> than more vaccine

Flu vaccines are not strategic resources, so increasing their costs
slightly to make them more available is easily borne by the economy,
especially if there is a huge social benefit in having the vaccines
around. This makes perfect sense. How does this relate to energy?
The closest thing we have is the Strategic Petroleum Reserve - which
buys reserves when the price is 'too' low and sells reserves when the
price is 'too' high - to keep prices in a trading range - and to guard
against shocks. This doesn't change the fundamental cost of energy
though - it merely smooths out changes.

What you have proposed would fundamentally increase the cost of energy
through government fiat - which would slow the economy likely past the
breaking point. This will cause an economic decline so that neither
business or government will have surplus cash to invest in new
technology that does work.

> may be needed than the drug companies anticipated. You see, drug companies
> have an incentive to keep the vaccine supply tight, if they produce too
> much vaccine for a given year, they won't sell it all and they'll lose
> money. The extra vaccine won't be good next year as the flu virus would have
> mutated by then, so
> drug companies try to come close to the mark and err on the side of vaccine
> shortages rather than over supply. Since the government has an interest in
> preventing vaccine shortages, it deliberately buys too much to guard against
> a
> vaccine shortage. Most years this is a waste of money, but you don't know
> its a
> waste of money until the flu season is over with, but sometimes the drug
> companies underestimate next years need and the government's wasteful
> expendituren actually saves lives by preventing vaccine shortages.

There are a host of ways the government can play a positive role in
health care to provide a wide range of positive public benefits.
There are similar things the government does in the energy business -
like running the strategic petroleum reserve. But the government
cannot, and never has, and likely never will, effect a fundamental
change in the way industry does business. Governments didn't invent
automobiles, airplanes, radio, telephone, television, computers, and
so forth. Governments didn't promote their use. Government didn't
invest in the capital needed to bring about lasting change in
lifestyles based around these technologies.

Why do you believe government can play a role now in bringing about
effective and lasting change in the way our industrial economy creates
an uses energy?

There is no basis for such belief, and quite frankly, the record where
such intrusive attempts have been made on behalf of society is rather
dismal in their results.
 
> A similar role can be envisioned for government to prevent gasoline
> shortages,
> both accidental and deliberate.

Companies that sell gasoline would not deliberately create shortages
because by doing so they don't have any product to sell - and thus
their income is hurt. The reason there are shortages is because
reserves have been inflated in the past - and our estimates of
available oil are likely vastly inflated - and shortages are the
natural outcome of such misinformation.

The US government has taken the long view with respect to limited oil
supplies and the fact that we don't have good alternatives to oil.
They have arranged things so that prices were artificially raised and
maintained by OPEC after US oil supplies went into secondary
production, they have arranged things in international trade so that a
portion of the major oil reserves in the world were removed from
trading - effectively putting those reserves in storage. As Saudi
Arabia comes near the end of its reserves (going off earlier more
accurate reporting of ultimate reserves) - it is bringing rogue
nations removed from the market earlier back onto the market. What
this has done is put into a short period all the economic shocks - and
created an extended period of higher priced energy - near the limit of
 what our society can sustain at present. In this environment the
government has subsidized research into all sorts of alternative
energy sources - none of which have proven to be economic. We have
about 20 years or so to come up with a good solution, or transition to
even higher priced energy where the world will become largely
post-technical - with a high caste of technology users in a definite
minority.

Of course solving the problem of energy for humanity returns us to the
scenarios of the 'too cheap to meter' heyday of nuclear power.

I do believe that if the end of cheap oil is inevitable, and the best
alternative is twice as expensive as oil is today - say nuclear power
plants. Then, the government could make a rational decision to
a)increase the price of energy by taxing it to raise the level to
point it will be at with new alternative to oil, and b) use the
revenue stream to subsidize investment in the new technology. That
way the market will respond to the new pricing paradigm and money will
be invested very rapidly into the new alternative (in this scenario
nuclear power plants)

Of course, if a private company through a totally private initiative
should come across an energy technology that is competitive with oil -
making oil from sunlight and air for example at $9 per barrel - then
the government need do nothing but make sure there is a level playing
field and honest markets. In that environment the private company
will first price to the market price of the diminishing oil supply to
make huge profits. As the new company (and its copy cat competitors)
grows in output the price of oil will start to drop to meet the new
pricing structure. This will result in massive economic growth,
increases in tax rates, or both.

Another thing government might do is to insulate the marketplace
against price increases. That is, government could cut back on major
spending in one area - say welfare or the military - and use that
money to subsidize low-cost energy. This has huge social
consequences, but could maintain the fiction that we live in a world
of low energy costs. And if the economy grows beyond the capacity of
government to give up programs (increasing tax rates has negative
strategic consequences to economic growth ala Schumpeter) - society
then pays the price of energy excess - created by this false signal
sent by government.

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