Uncategorized

Energy Jobs, Part One

One of the arguments that sold President Trump was that he’d bring back the coal industry.   This was appealing, because over the past 30 years, a lot of miners have lost their jobs:

US_Coal_mining_employment_1985-2015

Viewed in terms of employment, the coal industry is dying.  The most obvious factor of the past 30 years (at least if you’re in the energy industry) is the growth of concerns about global climate change, and the regulations surrounding it.  Thus it’s easy to blame regulations for the decline of coal.

But let’s develop our habit of knowledge.  After all, jobs aren’t the only way to measure the health of an industry.  Wall Street types talk about a company’s fundamentals.  If you’re talking about an industry, one of those fundamentals is how much product it makes.  

And here we find a different story:  

US-coal-production-1985-2015

The two graphs tell a common story:  technology increases productivity, so that industries need fewer workers.  As a general rule, recent job losses—say those that have occurred within the past four hundred years—are due to technology improving the productivity of workers, so that industries need fewer workers.  So consider the logic that helping an industry helps workers:

The most important thing to remember is that corporations don’t want more jobs:  they want more output from fewer workers.

What does this mean?  It’s possible that deregulation will “bring back coal.”  But what it won’t do is it won’t bring back coal jobs.  Those are gone, because today’s coal miner products three times as much coal as his father did in 1985.    The only way to bring back coal jobs in the numbers of 1985 is to triple production levels.

And that’s where things get problematic.  The easiest way to triple production levels is to triple consumption.  But coal already provides 1/3 of US energy, which means that a significant increase in coal consumption is not possible without a significant decrease in the consumption of other energy sources.  

But what other sources?  U.S. electricity is generated by several means.  However, coal can’t compete with three of them, because they offer price predictability.  In particular:  the cost of producing electricity is predictable, and not subject to market variations and the political stability of Certain Countries.  

Businesses like predictability, so they preferentially use these types of sources.  Thus, airlines could simply buy fuel at market rate.  If they’re unlucky, fuel prices will skyrocket, forcing them to pay high prices, which they’ll pass on to consumers in the form of fuel surcharges.   On the other hand, if market prices fall, airlines pay less for fuel, and airlines drop surcharges offer free in-flight meals.  As an alternative, an airline could sign a multiyear agreement to buy fuel at a fixed cost, which protects them against variations in fuel costs:  Southwest Airlines did this a few years ago, and succeeded wildly, though this works against them if fuel prices drop.  

What about energy?  There are three sources of energy that have price predictability:  hydroelectric, solar, and wind.  All three have one common component:  the major expense is building the generating station; after that, the major cost is maintenance.  We can add one more to the list:  nuclear.  While nuclear power plants do need periodic refueling, they don’t need it very often, and so they have a modest amount of price predictability.  These four sources produce about 1/3 of US electricity.

Now, hydroelectric and nuclear are hard to kill, because those power stations have already been built and will produce electricity whether or not you make faces at them.  Renewables are a little easier, because solar and wind installations are still being built, so coal might be able to find a bully an advocate to push them into non-existence.  

The problem is that it won’t help much:  solar provides just 0.6% of US electricity, and wind only 4.7%.  So even if you killed both industries and replaced every solar panel and every wind turbine with a coal power plant, you’d only get a 5.3% growth in coal consumption, versus the 200% growth you’d need to reach 1985-level employment.

So if coal is going to grow, it has to take on the source of the remaining 1/3 of electricity: natural gas.  Yet most analysts believe that cheap natural gas is in fact one of the primary reasons that coal is stuck at 1/3 of US energy production.  If you want to significantly increase domestic coal consumption, you have to kill natural gas.

But let’s get back to the main issue:  jobs.  Again, corporations don’t want to create jobs; they want to make more product with fewer workers, so merely helping businesses doesn’t guarantee employment.  What will create jobs is creating new industries.  We’ll talk about that next.

 

 

 

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expected value, philosophy

The Cost of Injustice

A number of reviews of my book Constitutional Calculus object to my quantification of events.  For example, after the events of 9/11, there were suggestions (and there continue to be suggestions) that we round up Muslim-Americans and put them  in internment camps, just like we did to Japanese-Americans during World War II.

Arguments around internment invariably lead to arguments about balancing “civil rights” with “national security,” with “How would you feel if your family was killed by terrorists?” countered with “How would you feel if your family was put in a concentration camp?”

I say, run the numbers.  Mathematically, there are two strategies:  internment, or non-internment.  We can compute the expected value of the two strategies, and use that to decide which to pursue.

Internment:

  • It costs about $20,000 per year to house one prisoner in federal custody.
  • Wrongfully detained persons are entitled to $50,000 per year of detention.
  • There are 1.5 million Muslim-Americans.

Total cost of internment would be $105 billion each and every year.

Since the federal government would be footing the bill, then we need to compare how much the 9/11 attack cost the federal government.

At this point, we’ll invoke the following philosophy:  We will give the strategy we oppose on whatever basis the greatest possible benefit of the doubt.  In particular:  whenever we make an assumption about our cost-basis, we’ll give preference to those that make the objectionable strategy a better choice.  If, at the end of the day, that strategy is still the worse choice, then we can, with a clear conscience, object to it.

 

In this case, I find the internment strategy objectionable.  So I’m going to make some wildly generous assumptions about the cost of a 9/11 attack that will make the best possible case for the strategy I don’t like.  So here goes:

  • Cleanup and repair was about $9 billion.  That’s for the Pentagon and municipal cleanup, and not the cost of the World Trade Center buildings.  Those costs were not paid by the Federal Government, and if we are making an honest comparison, we cannot include those costs.  (Even if we’re trying to make the best possible case for internment, we still can’t compare different types of costs without being dishonest)
  • Let’s assume the 3000 dead would have worked for another 20 years.  Here’s a wildly generous assumption:  assume they paid $50,000 each and every year in taxes.  That amounts to another $3 billion in tax revenues lost by the government.
  • Here’s another wildly generous assumption:  The growth rate of the GDP was slower following the 9/11 attacks.  If we attribute all of the decrease to the 9/11 attacks (despite evidence that we were already in a recession at the time), then lost revenues (again, to the federal government) amount to another $90 billion.

Total cost of the 9/11 attack:  $102 billion for each event.

There’s one crucial unknown:  how often do 9/11 attacks occur?  Planning for the actual 9/11 attack took about two years.  Presumably, a new 9/11 attack would take a similar amount of time, if only because the conspirators couldn’t simply cut-and-paste the original plan, and they’d have to confront security measures implemented since the original attack.  Let’s suppose they could put it together in a year.

So if one 9/11 attack occurs each and every year, then the strategy of non-internment costs $102 billion every year.

This means there are three billion reasons why internment is a bad idea.  Actually, the difference is even greater, because we tried to make the best possible case for internment, and made wildly generous assumptions on tax revenue and GDP loss; further, it seems unreasonable to think that a 9/11-sized attack could be executed every year. You don’t need to talk about civil liberties or national security:  the cold equations tell us internment is a bad idea.

Now, you might disagree with the analysis above (and I hope you do, since it would help you develop the habit of knowledge).  Go ahead, find your own numbers.  But the important thing is that you can’t compare apples to oranges:  you have to be consistent, because otherwise the comparison is meaningless.

What of the critics?  Many objected to this type of analysis, because it ignores the pain and suffering of the 3000 dead and their families.  True enough…but that cost isn’t paid by the federal government, while internment would be paid by the federal government.  If you’re going to make an honest comparison of strategies, you can’t compare costs borne by one entity to the costs borne by another.

But let’s go further:  If we wanted to include the pain and suffering of the 3000 dead and their families in the cost tally (economists call this type of thing an externality: thus, the real cost of gasoline isn’t just the price you pay at the pump, but it’s pollution, global warming, and instability in oil producing countries), we could…provided that we also include the pain and suffering the internment of 1.5 million Muslim-Americans would cause.

If you don’t include this, then you are selling their lives for your benefit.  There are many words for that, none of them pleasant.

statistics

The Big(ger) Picture

If you’re a data junkie like me, then you drool over sites like the Bureau of Labor Statistics.  These and similar sites allow you to find and download data about virtually every aspect of American society.  Data from these sites is used to develop government policy, so it’s in the best interest of the government that the data be as accurate as possible:  inaccurate or falsified data will eventually be found, most likely by catastrophic policy failures.

In any case, here’s a Shocking Statistic ™:  The American auto industry lost about 400,000 jobs between 2000 and 2015.  You can find similar numbers for other types of manufacturing, and for coal, and it’s part of the reason why a Certain Person became President:  he promised to bring those jobs back.

But the numbers suggest this is nothing more than another empty promise.

Tote on over to the Bureau of Transportation Statistics.  Here you’ll find that in the year 2000, American car companies produced about 12 million vehicles, while in 2015, American car companies produced about…12 million vehicles.  In other words, American car manufacturers are producing as many cars as they did 15 years ago, with significantly fewer workers.

There are lots of reasons for this.  Some of the decline can be attributed to the fact that “American” cars are often built from parts made in other countries, so the jobs making these parts have disappeared (those of my political generation will recognize the phrase “giant sucking sound“…)  However, a large part of the decline comes from the fact that newer factories, built after the (second) collapse of the American auto industry in 2008, are more automated.

Thus if you look at the category “Motor Vehicles Manufacturing,” as opposed to “Motor Vehicle Parts Manufacturing” or “Motor Vehicle Bodies and Trailers Manufacturing,” we see that in 2000, about 292,000 people were employed actually putting cars together, while in 2015, that number had dropped to 194,000:  that’s 98,000 jobs lost.  But again, that smaller workforce produced about the same total number of cars.

We see similar trends in other industries.  Here’s the number of coal miners, between 1985 and 2015:

US_Coal_mining_employment_1985-2015

That’s more than 100,000 jobs lost in 30 years.  

But at the same time, here’s coal production:

US-coal-production-1985-2015

Coal production hasn’t changed significantly; what’s changed is that a coal  miner in 2015 produces three times as much coal as his father did in 1985.

The thing to remember is this:  Companies don’t want more jobs.  Every worker is someone they have to pay, which cuts into their profitability.  This isn’t a value judgment:  it’s a statement of fact.  Technology allows companies to produce more product with fewer works (this is measured by worker productivity).

So the situation looks dire:  those 400,000 no-longer-employed autoworkers will likely never again work in the auto industry.  Traditionally, we let the unemployed suffer,

hooverville

and if they dared to do anything more than suffer in silence, we’d sic law enforcement and the military on them.

bonus_army

But there’s a better way:  retraining for new industries.  I’ll talk more about this in a later post.  Or if you can’t wait, here’s a short video on the subject)

philosophy, statistics

The Habit of Knowledge

One of the biggest mistakes people make when they finish school is they get out of the habit of knowledge.

Knowledge isn’t about acquiring information.  We gain information anytime we read an article about the antics of the Kardashians.  The problem is that this type of information doesn’t require a human brain:  pictures of Kim will be on the internet forever.

Knowledge is about the habit of wrestling information to the ground, of tracking it down, of verifying and validating it.  If the President claims sanctuary cities are hotbeds of criminal activities, you can either believe this claim…or you can hunt down its source (there is none).

And having found none, you ask yourself the next question:  What’s the real story?  If you do that, you find that the opposite is true:  sanctuary communities actually have lower crime rates, as well as higher median incomes, and lower unemployment.

For more about the mathematics behind this conclusion, you can watch this video:

philosophy

The Art of Estimation

I have another site, Math for Everyone, which I’d started in because I like to talk about mathematics.  The problem is that as the year moved on, it became clear that what I really wanted to talk about was politics…and how mathematics should play a key role in determining public policy and sentiment.

Because of that, I’m transitioning my more political posts to this one.  But here’s a post from my Math for Everyone site, regarding how to estimate crowd sizes:  The Art of Estimation.