Charging your Electric Car will be as Simple as Understanding your Cellular Bill

Posted by PITHOCRATES - March 10th, 2013

Week in Review

People hate the high price of gasoline.  And bought electric cars so they could laugh at those poor saps still buying gasoline.  For with their electric car all they needed was to plug in when they needed some charge and go on their way.  Of course, they didn’t think about that charging part so carefully.  For plugging in at home is one thing.  And appears to be free.  Because your electric meter doesn’t itemize your electric use.  But when you’re looking from a charge away from home some may have been surprised to see there is a cost for electricity.  When they can even find a place to plug in (see Merging networks give electric car drivers more places to charge by Eric Evarts posted 3/8/2013 on Consumer Reports).

It ought to go without saying that with relatively few public chargers for electric cars, if you have an electric car you ought to be able to plug into any one of them.

That wasn’t the case last year, when highlighted the challenges EV owners face when traveling beyond the range of a home recharge…But now with a new partnership forged, it is getting much easier for EV drivers to recharge on the go.

The two largest charging network providers, Ecotality (Blink) and Chargepoint, have come together to create a joint billing and data connection called Collaboratev. As a result, Collaboratev will allow each network’s customers to charge up at any Blink or Chargepoint charger by swiping a single card and get a single bill. The networks are working to recruit other, smaller networks to the system, as well.

So charging your electric car will be like using your cell phone.  Or an ATM.  Where different costs and fees may apply depending where you are.  It’s not like that with gasoline.  Where any cluster of gas stations will have similar prices.  Making it easy to choose.  For the only price you need to know is on the gas station sign.  And you don’t have to worry about getting a monthly bill later with additional charges or fees added in.  Now that’s convenience.

Also, having more charging stations available doesn’t solve another problem.  You can pull into any gas station, pump gas for about 10 minutes, then go on driving.  And you can have your lights on and your air conditioning or heat on high.  Even drive on the highway for another 5-6 hours easily.  And you just won’t be able to do that with an electric car.  Where the limited range will make you very nervous on the drive home if you get stuck in traffic.  At night.  During a snow storm.  With your headlights on.  And your heat and defrosters on high to keep your windows clear.

You’ll be sweating bullets.  And praying that you have enough charge to get home.  While your gasoline-powered companions on the road have no such concern.  For if they run low on gas they can pull into a gas station.  Top off their tank.  And be back in that traffic jam some 15 minutes later.  Whereas if you run out of charge you will have to call a tow truck.  For you can’t go to a service station and come back with a can of charge to pour into the battery.  No.  You’ll need a tow to a charger.  And an hour or so to charge.  Or more.  Depending on the voltage.

This is the price of the all-electric car.  Convenience.  And security.  Something that gasoline gives you.  Which is why it is the dominant fuel we use.  Because there is nothing better.

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The Horse, Waterwheel, Steam Engine, Electricity, DC and AC Power, Power Transmission and Electric Motors

Posted by PITHOCRATES - December 26th, 2012

Technology 101

(Original published December 21st, 2011)

A Waterwheel, Shaft, Pulleys and Belts made Power Transmission Complex

The history of man is the story of man controlling and shaping our environment.  Prehistoric man did little to change his environment.  But he started the process.  By making tools for the first time.  Over time we made better tools.  Taking us into the Bronze Age.  Where we did greater things.  The Sumerians and the Egyptians led their civilization in mass farming.  Created some of the first food surpluses in history.  In time came the Iron Age.  Better tools.  And better plows.  Fewer people could do more.  Especially when we attached an iron plow to one horsepower.  Or better yet, when horses were teamed together to produce 2 horsepower.  3 horsepower.  Even 4 horsepower.  The more power man harnessed the more work he was able to do.

This was the key to controlling and shaping our environment.  Converting energy into power.  A horse’s physiology can produce energy.  By feeding, watering and resting a horse we can convert that energy into power.  And with that power we can do greater work than we can do with our own physiology.  Working with horse-power has been the standard for millennia.  Especially for motive power.  Moving things.  Like dragging a plow.  But man has harnessed other energy.  Such as moving water.  Using a waterwheel.  Go into an old working cider mill in the fall and you’ll see how man made power from water by turning a wheel and a series of belts and pulleys.  The waterwheel turned a main shaft that ran the length of the work area.  On the shaft were pulleys.  Around these pulleys were belts that could be engaged to transfer power to a work station.  Where it would turn another pulley attached to a shaft.  Depending on the nature of the work task the rotational motion of the main shaft could be increased or decreased with gears.  We could change it from rotational to reciprocating motion.  We could even change the axis of rotation with another type of gearing.

This was a great step forward in advancing civilization.  But the waterwheel, shaft, pulleys and belts made power transmission complex.  And somewhat limited by the energy available in the moving water.  A great step forward was the steam engine.  A large external combustion engine.  Where an external firebox heated water to steam.  And then that steam pushed a piston in a cylinder.  The energy in expanding steam was far greater than in moving water.  It produced far more power.  And could do far more work.  We could do so much work with the steam engine that it kicked off the Industrial Revolution.

Nikola Tesla created an Electrical Revolution using AC Power

The steam engine also gave us more freedom.  We could now build a factory anywhere we wanted to.  And did.  We could do something else with it, too.  We could put it on tracks.  And use it to pull heavy loads across the country.  The steam locomotive interconnected the factories to the raw materials they consumed.  And to the cities that bought their finished goods.  At a rate no amount of teamed horses could equal.  Yes, the iron horse ended man’s special relationship with the horse.  Even on the farm.  Where steam engines powered our first tractors.  Giving man the ability to do more work than ever.  And grow more food than ever.  Creating greater food surpluses than the Sumerians and Egyptians could ever grow.  No matter how much of their fertile river banks they cultivated.  Or how much land they irrigated.

Steam engines were incredibly powerful.  But they were big.  And very complex.  They were ideal for the farm and the factory.  The steam locomotive and the steamship.  But one thing they were not good at was transmitting power over distances.  A limitation the waterwheel shared.  To transmit power from a steam engine required a complicated series of belts and pulleys.  Or multiple steam engines.  A great advance in technology changed all that.  Something Benjamin Franklin experimented with.  Something Thomas Edison did, too.  Even gave us one of the greatest inventions of all time that used this new technology.  The light bulb.  Powered by, of course, electricity.

Electricity.  That thing we can’t see, touch or smell.  And it moves mysteriously through wires and does work.  Edison did much to advance this technology.  Created electrical generators.  And lit our cities with his electric light bulb.  Electrical power lines crisscrossed our early cities.  And there were a lot of them.  Far more than we see today.  Why?  Because Edison’s power was direct current.  DC.  Which had some serious drawbacks when it came to power transmission.  For one it didn’t travel very far before losing much of its power. So electrical loads couldn’t be far from a generator.  And you needed a generator for each voltage you used.  That adds up to a lot of generators.  Great if you’re in the business of selling electrical generators.  Which Edison was.  But it made DC power costly.  And complex.  Which explained that maze of power lines crisscrossing our cities.  A set of wires for each voltage.  Something you didn’t need with alternating current.  AC.  And a young engineer working for George Westinghouse was about to give Thomas Edison a run for his money.  By creating an electrical revolution using that AC power.  And that’s just what Nikola Tesla did.

Transformers Stepped-up Voltages for Power Transmission and Stepped-down Voltages for Electrical Motors

An alternating current went back and forth through a wire.  It did not have to return to the electrical generator after leaving it.  Unlike a direct current ultimately had to.  Think of a reciprocating engine.  Like on a steam locomotive.  This back and forth motion doesn’t do anything but go back and forth.  Not very useful on a train.  But when we convert it to rotational motion, why, that’s a whole other story.  Because rotational motion on a train is very useful.  Just as AC current in transmission lines turned out to be very useful.

There are two electrical formulas that explain a lot of these developments.  First, electrical power (P) is equal to the voltage (V) multiplied by the current (I).  Expressed mathematically, P = V x I.  Second, current (I) is equal to the voltage (V) divided by the electrical resistance (R).  Mathematically, I = V/R.  That’s the math.  Here it is in words.  The greater the voltage and current the greater the power.  And the more work you can do.  However, we transmit current on copper wires.  And copper is expensive.  So to increase current we need to lower the resistance of that expensive copper wire.  But there’s only one way to do that.  By using very thick and expensive wires.  See where we’re going here?  Increasing current is a costly way to increase power.  Because of all that copper.  It’s just not economical.  So what about increasing voltage instead?  Turns out that’s very economical.  Because you can transmit great power with small currents if you step up the voltage.  And Nikola Tesla’s AC power allowed just that.  By using transformers.  Which, unfortunately for Edison, don’t work with DC power.

This is why Nikola Tesla’s AC power put Thomas Edison’s DC power out of business.  By stepping up voltages a power plant could send power long distances.  And then that high voltage could be stepped down to a variety of voltages and connected to factories (and homes).  Electric power could do one more very important thing.  It could power new electric motors.  And convert this AC power into rotational motion.  These electric motors came in all different sizes and voltages to suit the task at hand.  So instead of a waterwheel or a steam engine driving a main shaft through a factory we simply connected factories to the electric grid.  Then they used step-down transformers within the factory where needed for the various work tasks.  Connecting to electric motors on a variety of machines.  Where a worker could turn them on or off with the flick of a switch.  Without endangering him or herself by engaging or disengaging belts from a main drive shaft.  Instead the worker could spend all of his or her time on the task at hand.  Increasing productivity like never before.

Free Market Capitalism gave us Electric Power, the Electric Motor and the Roaring Twenties

What electric power and the electric motor did was reduce the size and complexity of energy conversion to useable power.  Steam engines were massive, complex and dangerous.  Exploding boilers killed many a worker.  And innocent bystander.  Electric power was simpler and safer to use.  And it was more efficient.  Horses were stronger than man.  But increasing horsepower required a lot of big horses that we also had to feed and care for.  Electric motors are smaller and don’t need to be fed.  Or be cleaned up after, for that matter.

Today a 40 pound electric motor can do the work of one 1,500 pound draft horse.  Electric power and the electric motor allow us to do work no amount of teamed horses can do.  And it’s safer and simpler than using a steam engine.  Which is why the Roaring Twenties roared.  It was in the 1920s that this technology began to power American industry.  Giving us the power to control and shape our environment like never before.  Vaulting America to the number one economic power of the world.  Thanks to free market capitalism.  And a few great minds along the way.

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Tax Cuts, Roaring Twenties, Farm Prices, Smoot-Hawley Tariff, Stock Market Crash, New Deal, Great Depression and the Great Recession

Posted by PITHOCRATES - November 6th, 2012

History 101

(Originally published March 20, 2012)

Tax Cuts and the Small Government Policies of Harding and Coolidge gave us the Roaring Twenties

Keynesians blame the long duration of the Great Depression (1929-1939) on the government clinging to the gold standard.  Even renowned monetarist economist Milton Friedman agrees.  Though that’s about the only agreement between Keynesians and Friedman.   Their arguments are that the US could have reduced the length and severity of the Great Depression if they had only abandoned the gold standard.  And adopted Keynesian policies.  Deficit spending.  Just like they did in the Seventies.  The decade where we had both high unemployment and high inflation.  Stagflation.  Something that’s not supposed to happen under Keynesian economics.  So when it did they blamed the oil shocks of the Seventies.  Not their orgy of spending.  Or their high taxes.  And they feel the same way about the Great Depression.

Funny.  How one price shock (oil) can devastate all businesses in the US economy.  So much so that it stalled job creation.  And caused high unemployment.  Despite the government printing and spending money to create jobs.  And to provide government benefits so recipients could use those benefits to stimulate economic activity.  All of that government spending failed to pull the country out of one bad recession.  Because of that one price shock on the cost of doing business.  Yet no one talks about the all out assault on business starting in the Hoover administration that continued and expanded through the Roosevelt administration.

Herbert Hoover may have been a Republican.  But he was no conservative.  He was a big government progressive.  And believed that the federal government should interfere into the free market.  To make things better.  Unlike Warren Harding.  And Calvin Coolidge.  Who believed in a small government, hands-off policy when it came to the economy.  They passed tax cuts.  Following the advice of their treasury secretary.  Andrew Mellon.  Which gave business confidence of what the future would hold.  So they invested.  Expanded production.  And created jobs.  It was these small government policies that gave us the Roaring Twenties.  An economic boom that electrified and modernized the world.  With real economic growth.

If an Oil Shock can prevent Businesses from Responding to Keynesian Policies then so can FDR’s all out War on Business

The Roaring Twenties was a great time to live if you wanted a job.  And wanted to live in the modern era.  Electric power was spreading across the country.  People had electric appliances in their homes.  Radios.  They went to the movies.  Drove cars.  Flew in airplanes.  The Roaring Twenties was a giant leap forward in the standard of living.  Factories with electric power driving electric motors increased productivity.  And reduced air pollution as they replaced coal-fired steam boilers that up to then powered the Industrial Revolution.  This modernization even made it to the farm.  Farmers borrowed heavily to mechanize their farms.  Allowing them to grow more food than ever.  Bumper crops caused farm prices to fall.  Good for consumers.  But not those farmers who borrowed heavily.

Enter Herbert Hoover.  Who wanted to use the power of government to help the farmers.  By forcing Americans to pay higher food prices.  Meanwhile, the Federal Reserve raised interest rates.  Thinking that a boom in the stock market was from speculation and not the real economic growth of the Twenties.  So they contracted the money supply.  Cooling that real economic growth.  And making it very hard to borrow money.  Causing farmers to default on their loans.  Small rural banks that loaned to these farmers failed.  These bank failures spread to other banks.  Weakening the banking system.  Then came the Smoot-Hawley Tariff.  Passed in 1930.  But it was causing business uncertainty as early as 1928.  As the Smoot-Hawley Tariff was going to increase tariffs on just about everything by 30%.  Basically adding a 30% tax on the cost of doing business.  That the businesses would, of course, pass on to consumers.  By raising prices.  Because consumers weren’t getting a corresponding 30% pay hike they, of course, could not buy as much after the Smoot-Hawley Tariff.  Putting a big cramp in sales revenue.  Perhaps even starting an international trade war.  Further cramping sales.  Something investors no doubt took notice of.  Seeing that real economic growth would soon come to a screeching halt.  And when the bill moved through committees in the autumn of 1929 the die was cast.  Investors began the massive selloff on Wall Street.  The Stock Market Crash of 1929.  The so-called starting point of the Great Depression.  Then the Smoot-Hawley Tariff became law.  And the trade war began.  As anticipated.

Of course, the Keynesians ignore this lead up to the Great Depression.  This massive government intrusion into the free market.  And the next president would build on this intrusion into the free market.  Ignoring the success of the small-government and tax cuts of Harding and Coolidge.  As well as ignoring the big-government free-market-intrusion failures of Herbert Hoover.  The New Deal programs of FDR were going to explode government spending to heights never before seen in peace time.  Causing uncertainty like never seen before in the business community.  It was an all out assault on business.  Taxes and regulation that increased the cost of business.  And massive government spending for new benefits and make-work programs.  All paid for by the people who normally create jobs.  Which there wasn’t a lot of during the great Depression.  Thanks to programs like Reconstruction Finance Corporation, Federal Emergency Relief Administration, Civilian Conservation Corps, Homeowners Loan Corporation, Tennessee Valley Authority, Agricultural Adjustment Act, National Industrial Recovery Act, Public Works Administration, Federal Deposit Insurance Corporation, Glass–Steagall Act, Securities Act of 1933, Civil Works Administration, Indian Reorganization Act, Social Security Act, Works Progress Administration, National Labor Relations Act, Federal Crop Insurance Corporation, Surplus Commodities Program, Fair Labor Standards Act, Rural Electrification Administration, Resettlement Administration and Farm Security Administration, etc.  Oil shocks of the Seventies?  If an oil shock can prevent businesses from responding to Keynesian policies then an all out war on business in the Thirties could do the same.  And worse.  Far, far worse.  Which is why the Great Depression lasted 10 years.  Because the government turned what would have been a normal recession into a world-wide calamity.  By trying to interfere with market forces.

Only Real Economic Growth creates Jobs, not Government Programs

The unemployment rate in 1929 was 3.1%.  In 1933 it was 24.9%.  It stayed above 20% until 1936.  Where it fell as low as 14.3% in 1937.  It then went to 19.0%, 17.2% and 14.6% in the next three years.  These numbers stayed horrible throughout the Thirties because the government wouldn’t stop meddling.  Or spending money.  None of the New Deal programs had a significant effect on unemployment.  The New Deal failed to fix the economy the way the New Dealers said it would.  Despite the massive price tag.  So much for super smart government bureaucrats.

What finally pulled us out of the Great Depression?  Adolf Hitler’s conquering of France in 1940.  When American industry received great orders for real economic growth.  From foreign countries.  To build the war material they needed to fight Adolf Hitler.  And the New Deal programs be damned.  There was no time for any more of that nonsense.  So during World War II businesses had a little less uncertainty.  And a backlog of orders.  All the incentive they needed to ramp up American industry.  To make it hum like it once did under Harding and Coolidge.  And they won World War II.  For there was no way Adolf Hitler could match that economic output.  Which made all the difference on the battlefield.

Still there are those who want to blame the gold standard for the Great Depression.  And still support Keynesian policies to tax and spend.  Even today.  Even after 8 years of Ronald Reagan that proved the policies of Harding and Coolidge.  We’re right back to those failed policies of the past.  Massive government spending to stimulate economic activity.  To pull us out of the Great Recession.  And utterly failing.  Where the unemployment rate struggles to get below 9%.  The U-3 unemployment rate, that is.  The rate that doesn’t count everyone who wants full time work.  The rate that counts everyone, the U-6 unemployment rate, currently stands at 14.9%.  Which is above the lowest unemployment rate during the Great Depression.  Proving once again only real economic growth creates jobs.  Not government programs.  No matter how many trillions of dollars the government spends.

So much for super smart government bureaucrats.

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Generator, Current, Voltage, Diesel Electric Locomotive, Traction Motors, Head-End Power, Jet, Refined Petroleum and Plug-in Hybrid

Posted by PITHOCRATES - June 6th, 2012

Technology 101

When the Engineer advances the Throttle to ‘Run 1’ there is a Surge of Current into the Traction Motors

Once when my father suffered a power outage at his home I helped him hook up his backup generator.  This was the first time he used it.  He had sized it to be large enough to run the air conditioner as Mom had health issues and didn’t breathe well in hot and humid weather.  This outage was in the middle of a hot, sweltering summer.  So they were eager to get the air conditioner running again.  Only one problem.  Although the generator was large enough to run the air conditioner, it was not large enough to start it.  The starting in-rush of current was too much for the generator.  The current surged and the voltage dropped as the generator was pushed beyond its operating limit.  Suffice it to say Mom suffered during that power outage.

Getting a diesel-electric locomotive moving is very similar.  The massive diesel engine turns a generator.  When the engineer advances the throttle to ‘Run 1’ (the first notch) there is a surge of current into the traction motors.  And a drop in voltage.  As the current moves through the rotor windings in the traction motors it creates an electrical field that fights with the stator electrical field.  Creating a tremendous amount of torque.  Which slowly begins to turn the wheels.  As the wheels begin to rotate less torque is required and the current decreases and voltage increases.  Then the engineer advances the throttle to ‘Run 2’ and the current to the traction motors increases again.  And the voltage falls again.  Until the train picks up more speed.  Then the current falls and the voltage rises.  And so on until the engineer advances the throttle all the way to ‘Run 8’ and the train is running at speed. 

The actual speed is controlled by the RPMs of the diesel engine and fuel flow to the cylinders. Which is what the engineer is doing by advancing the throttle.  In a passenger train there are additional power needs for the passenger cars.  Heating, cooling, lights, etc.  The locomotive typically provides this Head-End Power (HEP).  The General Electric Genesis Series I locomotive (the aerodynamic locomotive engines on the majority of Amtrak’s trains), for example, has a maximum of 800 kilowatts of HEP available.  But there is a tradeoff in traction power that moves the train towards its destination.  With a full HEP load a 4,250 horsepower rated engine can only produce 2,525 horsepower of traction power.  Or a decrease of about 41% in traction horsepower due to the heating, cooling, lighting, etc., requirements of the passenger cars.  But because passenger cars are so light they can still pull many of them with one engine.  Unlike their freight counterparts.  Where it can take a lashup of three engines or more to move a heavy freight train to its destination.  Without any HEP sapping traction horsepower.

There is so much Energy available in Refined Petroleum that we can carry Small Amounts that take us Great Distances

The largest cost of flying a passenger jet is jet fuel.  That’s why they make planes out of aluminum.  To make them light.  Airbus and Boeing are using ever more composite materials in their latest planes to reduce the weight further still.  New engine designs improve fuel economy.  Advances in engine design allow bigger and more powerful engines.  So 2 engines can do the work it took 4 engines to do a decade or more ago.  Fewer engines mean less weight.  And less fuel.  Making the plane lighter and more fuel efficient.  They measure all cargo and count people to determine the total weight of plane, cargo, passengers and fuel.  So the pilot can calculate the minimum amount of fuel to carry.  For the less fuel they carry the lighter the plane and the more fuel efficient it is.   During times of high fuel costs airlines charge extra for every extra pound you bring aboard.  To either dissuade you from bringing a lot of extra dead weight aboard.  Or to help pay the fuel cost for the extra weight when they can’t dissuade you.

It’s similar with cars.  To meet strict CAFE standards manufacturers have been aggressively trying to reduce the weight of their vehicles.  Using front-wheel drive on cars saved the excess weight of a drive shaft.  Unibody construction removed the heavy frame.  Aerodynamic designs reduced wind resistance.  Use of composite materials instead of metal reduced weight.  Shrinking the size of cars made them lighter.  Controlling the engine by a computer increased engine efficiencies and improved fuel economy.  Everywhere manufacturers can they have reduced the weight of cars and improved the efficiencies of the engine.  While still providing the creature comforts we enjoy in a car.  In particular heating and air conditioning.  All the while driving great distances on a weekend getaway to an amusement park.  Or a drive across the country on a summer vacation.  Or on a winter ski trip.

This is something trains, planes and automobiles share.  The ability to take you great distances in comfort.  And what makes this all possible?  One thing.  Refined petroleum.  There is so much energy available in refined petroleum that we can carry small amounts of it in our trains, planes and automobiles that will take us great distances.  Planes can fly halfway across the planet on one fill-up.  Trains can travel across numerous states on one fill-up.  A car can drive up to 6 hours or more doing 70 MPH on the interstate on one fill-up.  And keep you warm while doing it in the winter.  And cool in the summer.  For the engine cooling system transfers the wasted heat of the internal combustion engine to a heating core inside the passenger compartment to heat the car.  And another belt slung around an engine pulley drives an air conditioner compressor under the hood to cool the passenger compartment.  Thanks to that abundant energy in refined petroleum creating all the power under the hood we need.

The Opportunity Cost of the Plug-in Hybrid is giving up what the Car Originally gave us – Freedom 

And then there’s the plug-in hybrid car.  That shares some things in common with the train, plane and (gasoline-powered) automobile.  Only it doesn’t do anything as well.  Primarily because of the limited range of the battery.  Electric traction motors draw a lot of current.  But a battery’s storage capacity is limited.  Some batteries offer only about 20-30 miles of driving distance on a charge.  Which is great if you use a car for very, very short commutes.  But as few do manufacturers add a backup gasoline engine so the car can go almost as far as a gasoline-powered car.  It probably could go as far if it wasn’t for that heavy battery and generator it was dragging around with it.

This is but one of many tradeoffs required in a plug-in hybrid car.  Most of these cars are tiny to make them as light as possible.  For the lighter the car is the less current it takes to get it moving.  But adding a backup gasoline engine and generator only makes the car heavier.  Thus reducing its electric range.  Making it more like a conventional car for a trip longer than 20-30 miles.  Only one that gets a poorer fuel economy.  Because of the extra weight of the battery and generator.  Manufacturers have even addressed this problem by reducing the range of the car.  If people don’t drive more than 10 miles on a typical trip they don’t need such a large battery.  Which is ideal if you use your car to go no further than you normally walk.  A smaller battery means less weight due to the lesser storage capacity required to travel that lesser range.  Another tradeoff is the heating and cooling of the car.  Without a gasoline engine on all of the time these cars have to use electric heat.  And an electric motor to drive the air conditioner compressor.  (Some heating and cooling systems will operate when the car is plugged in to conserve battery charge for the initial climate adjustment).  So in the heat of summer and the cold of winter you can scratch off another 20% of your electric range (bringing that 20 miles down to 16 miles).  Not as bad as on a passenger locomotive.  But with its large tanks of diesel fuel that train can still take you across the country.

The opportunity cost of the plug-in hybrid is giving up what the car originally gave us.  Freedom.  To get out on the open road just to see where it would take us.  For if you drive a long commute or like to take long trips your hybrid is just going to be using the backup gasoline engine for most of that driving.  While dragging around a lot of excess weight.  To make up for some lost fuel economy some manufacturers use a gasoline engine with high compression.  Unfortunately, high compression engines require the more expensive premium (higher octane) gasoline.  Which costs more at the pump.  There eventually comes the point we should ask ourselves why bother?  Wouldn’t life and driving be so much simpler with a gasoline-powered car?  Get fuel economy with a range of over 300 miles?  Guess it all depends on what’s more important.  Being sensible.  Or showing others that you’re saving the planet.

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FT110: “You can’t blame our dependence on foreign oil for high gas prices AND say that producing more domestic oil won’t lower gas prices.” -Old Pithy

Posted by PITHOCRATES - March 23rd, 2012

Fundamental Truth

The Combination of Low Demand and High Supply caused Oil Prices to Fall over 70% by 1986

The Organization of the Petroleum Exporting Countries (OPEC) is a cartel.  Made up currently of Algeria, Angola, Ecuador, Iran, Iraq, Kuwait, Libya, Nigeria, Qatar, Saudi Arabia, the United Arab Emirates and Venezuela.  Their purpose is to set oil quotas for their oil-producing members.  To limit the amount of oil they bring to market.  To reduce supply.  And increase oil prices.  At least that’s the idea.  It’s been hard to keep the individual OPEC members from cheating, though.  And a lot do.  Often selling more than their quota.  Because when oil prices are high selling a few percentages above their quota can be very profitable.  Unless everyone else does so as well.  Which they usually do.  For their choice is either not to cheat and not share in any of those ‘excess’ profits (beyond their agreed to quota).  Or cheat, too.  Thereby increasing supply.  And lowering oil prices.  Not something any oil producer wants to do.  But it’s the only way to share in any of those ‘excess’ profits.

But that’s not the only problem OPEC has.  There are a lot of oil producers who aren’t members of OPEC.  Who can bring oil to market in any quantity they choose.  Especially when they see the high price OPEC is charging.  OPEC’s high price allows non-OPEC suppliers to sell a lot of oil at a slightly lower price and reap huge profits.  Which puts pressure on the OPEC target price.  Forcing them to lower their target price.  For if they don’t lower their price they will lose oil sales to those non-OPEC producers.  Which is exactly what happened in the late Seventies.  While OPEC was cutting back on production (to raise prices) the non-OPEC nations were increasing production.  And taking over market share with their lower prices.  Causing OPEC to reverse policy and increase production during the mid-Eighties.  Giving us the 1980s oil glut.

Of course, this rise in non-OPEC production was a direct result of the 1973 Oil Crisis.  Many of the OPEC members are Muslim nations.  Who don’t like the state of Israel.  In response to the West’s support of Israel in the Yom Kippur War (1973) OPEC announced an oil embargo on those nations who helped Israel.  Giving us the 1973 oil crisis.  Where this sudden reduction in supply caused the price of oil to soar.  Making the oil business a very profitable business.  Causing those non-OPEC producers to enter the market.  Then the Iranian Revolution (1979) disrupted Iranian crude production.  Keeping Iranian oil off the market.  This reduction in demand caused oil prices to rise.  Then Jimmy Carter broke off diplomatic relations with the Iranian state.  And boycotted their oil when it returned to the market.  Further encouraging the non-OPEC producers to bring more oil to market.  Meanwhile U.S. demand fell because of those high prices.  And our switch to smaller, 4-cyclinder, front wheel drive cars.  Saying goodbye to our beloved muscle cars of the Sixties and Seventies.  And the V-8 engine.  The combination of low demand and high supply caused oil prices to fall over 70% by 1986.  Giving us the oil glut of the 1980s.  When gasoline was cheap.  Enticing the V-8 engine back into the market.

Improved Fuel Economy AND Increased Oil Supplies can Reduce the Price at the Pump

So, yes, Virginia.  The amount of oil entering the market matters.  The more of it there is the cheaper it will be.  As history has shown.  When less oil entered the market prices rose.  When more oil entered the market prices fell.  And anything that can affect the supply of oil making it to market will affect the price of oil.  (And everything downstream of oil.  Jet fuel.  Diesel.  And gasoline.)  Wars.  Regional instability.  And governmental regulation. 

So what are things that will bring more oil to market?  Well there’s the obvious.  You drill for more oil.  This is so obvious but a lot of people refuse to accept this economic principle.  As supply increases prices fall.  The 1980s oil glut proved this.  Even John Maynard Keynes has graphs showing this in his Keynesian economics.  The economics of choice for governments everywhere.   Yet there are Keynesian politicians who avert their eyes to this economic principle.  So there’s that.  More drilling.  You can also make the permitting process easier to drill for oil.  You can open up federal lands currently closed to drilling.  And once you find oil you bring it to market.  As quickly as you can.  And few things are quicker than pipelines.  From the oil fields.  To the oil refineries.  (And then jet fuel, diesel and gasoline pipelines from the refineries to dispensing centers).  So before oil fields are ready to produce you start building pipelines from those fields to the refineries.  Or you build new refineries.

Improving fuel economy did help reduce our demand for imported oil in the Eighties.  As well as lowered the price for that imported oil.  But it wasn’t fuel economy alone.  The non-OPEC nations were increasing production from the mid-Seventies through the mid-Eighties.  Without that oil flooding the market oil prices wouldn’t have fallen 70%.  And they won’t fall again if we ONLY try to reduce our demand for foreign oil.  For reducing demand is marginal at best in reducing oil prices. 

Only if we Drill and Build Pipelines can we Reduce the Price at the Pump

For there are no electric airplanes.  The cost to electrify all railroad tracks is too prohibitive to consider.  The capital costs to build that electrical infrastructure.  The maintenance costs to maintain it.  And the electricity costs from the increased demand for electrical power while supply remains the same.  Or falls.  Because excessive regulation inhibits the building of new power plants.  And speeds up the shutdown of older plants.  Especially coal-fired because they pollute too much.  And hydro power.  Because of the environmental impact of dams.  Severely straining our electric grids.  And moving into electric cars will stress our electric grids even further.  Leading to brown outs.  And rolling blackouts.   Or worse.  Causing wires to overheat and sag, coming into contact with trees.  Shorting out.  Causing cascading blackouts as power plants disconnect from the grid to prevent damage from the resulting current surges.  Like they did in the Northeast Blackout of 2003.

You can’t replace oil with electricity.  In some cases there is just no electric equivalent.  Such as the airplane.  Or the cost of moving from oil to electricity is just prohibitive.  Such as updating the nation’s electrical infrastructure to meet an exploding demand.  Which leaves oil.  We need it.  And will keep using it.  Because there is no better alternative.  Yet.  So we need to produce it.  And do everything we can to help bring that oil to market.  Not fight against it.  And it all starts with drilling. 

We must drill.  Bring that oil up from under the ground.  Put it into a pipeline.  And pump it to a refinery.  If we do this enough we will be less dependent on foreign oil.  And have more control over the price at the pump.

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Tax Cuts, Roaring Twenties, Farm Prices, Smoot-Hawley Tariff, Stock Market Crash, New Deal, Great Depression and the Great Recession

Posted by PITHOCRATES - March 20th, 2012

History 101

Tax Cuts and the Small Government Policies of Harding and Coolidge gave us the Roaring Twenties

Keynesians blame the long duration of the Great Depression (1929-1939) on the government clinging to the gold standard.  Even renowned monetarist economist Milton Friedman agrees.  Though that’s about the only agreement between Keynesians and Friedman.   Their arguments are that the US could have reduced the length and severity of the Great Depression if they had only abandoned the gold standard.  And adopted Keynesian policies.  Deficit spending.  Just like they did in the Seventies.  The decade where we had both high unemployment and high inflation.  Stagflation.  Something that’s not supposed to happen under Keynesian economics.  So when it did they blamed the oil shocks of the Seventies.  Not their orgy of spending.  Or their high taxes.  And they feel the same way about the Great Depression.

Funny.  How one price shock (oil) can devastate all businesses in the US economy.  So much so that it stalled job creation.  And caused high unemployment.  Despite the government printing and spending money to create jobs.  And to provide government benefits so recipients could use those benefits to stimulate economic activity.  All of that government spending failed to pull the country out of one bad recession.  Because of that one price shock on the cost of doing business.  Yet no one talks about the all out assault on business starting in the Hoover administration that continued and expanded through the Roosevelt administration.

Herbert Hoover may have been a Republican.  But he was no conservative.  He was a big government progressive.  And believed that the federal government should interfere into the free market.  To make things better.  Unlike Warren Harding.  And Calvin Coolidge.  Who believed in a small government, hands-off policy when it came to the economy.  They passed tax cuts.  Following the advice of their treasury secretary.  Andrew Mellon.  Which gave business confidence of what the future would hold.  So they invested.  Expanded production.  And created jobs.  It was these small government policies that gave us the Roaring Twenties.  An economic boom that electrified and modernized the world.  With real economic growth. 

If an Oil Shock can prevent Businesses from Responding to Keynesian Policies then so can FDR’s all out War on Business

The Roaring Twenties was a great time to live if you wanted a job.  And wanted to live in the modern era.  Electric power was spreading across the country.  People had electric appliances in their homes.  Radios.  They went to the movies.  Drove cars.  Flew in airplanes.  The Roaring Twenties was a giant leap forward in the standard of living.  Factories with electric power driving electric motors increased productivity.  And reduced air pollution as they replaced coal-fired steam boilers that up to then powered the Industrial Revolution.  This modernization even made it to the farm.  Farmers borrowed heavily to mechanize their farms.  Allowing them to grow more food than ever.  Bumper crops caused farm prices to fall.  Good for consumers.  But not those farmers who borrowed heavily.

Enter Herbert Hoover.  Who wanted to use the power of government to help the farmers.  By forcing Americans to pay higher food prices.  Meanwhile, the Federal Reserve raised interest rates.  Thinking that a boom in the stock market was from speculation and not the real economic growth of the Twenties.  So they contracted the money supply.  Cooling that real economic growth.  And making it very hard to borrow money.  Causing farmers to default on their loans.  Small rural banks that loaned to these farmers failed.  These bank failures spread to other banks.  Weakening the banking system.  Then came the Smoot-Hawley Tariff.  Passed in 1930.  But it was causing business uncertainty as early as 1928.  As the Smoot-Hawley Tariff was going to increase tariffs on just about everything by 30%.  Basically adding a 30% tax on the cost of doing business.  That the businesses would, of course, pass on to consumers.  By raising prices.  Because consumers weren’t getting a corresponding 30% pay hike they, of course, could not buy as much after the Smoot-Hawley Tariff.  Putting a big cramp in sales revenue.  Perhaps even starting an international trade war.  Further cramping sales.  Something investors no doubt took notice of.  Seeing that real economic growth would soon come to a screeching halt.  And when the bill moved through committees in the autumn of 1929 the die was cast.  Investors began the massive selloff on Wall Street.  The Stock Market Crash of 1929.  The so-called starting point of the Great Depression.  Then the Smoot-Hawley Tariff became law.  And the trade war began.  As anticipated.

Of course, the Keynesians ignore this lead up to the Great Depression.  This massive government intrusion into the free market.  And the next president would build on this intrusion into the free market.  Ignoring the success of the small-government and tax cuts of Harding and Coolidge.  As well as ignoring the big-government free-market-intrusion failures of Herbert Hoover.  The New Deal programs of FDR were going to explode government spending to heights never before seen in peace time.  Causing uncertainty like never seen before in the business community.  It was an all out assault on business.  Taxes and regulation that increased the cost of business.  And massive government spending for new benefits and make-work programs.  All paid for by the people who normally create jobs.  Which there wasn’t a lot of during the great Depression.  Thanks to programs like Reconstruction Finance Corporation, Federal Emergency Relief Administration, Civilian Conservation Corps, Homeowners Loan Corporation, Tennessee Valley Authority, Agricultural Adjustment Act, National Industrial Recovery Act, Public Works Administration, Federal Deposit Insurance Corporation, Glass–Steagall Act, Securities Act of 1933, Civil Works Administration, Indian Reorganization Act, Social Security Act, Works Progress Administration, National Labor Relations Act, Federal Crop Insurance Corporation, Surplus Commodities Program, Fair Labor Standards Act, Rural Electrification Administration, Resettlement Administration and Farm Security Administration, etc.  Oil shocks of the Seventies?  If an oil shock can prevent businesses from responding to Keynesian policies then an all out war on business in the Thirties could do the same.  And worse.  Far, far worse.  Which is why the Great Depression lasted 10 years.  Because the government turned what would have been a normal recession into a world-wide calamity.  By trying to interfere with market forces.

Only Real Economic Growth creates Jobs, not Government Programs

The unemployment rate in 1929 was 3.1%.  In 1933 it was 24.9%.  It stayed above 20% until 1936.  Where it fell as low as 14.3% in 1937.  It then went to 19.0%, 17.2% and 14.6% in the next three years.  These numbers stayed horrible throughout the Thirties because the government wouldn’t stop meddling.  Or spending money.  None of the New Deal programs had a significant effect on unemployment.  The New Deal failed to fix the economy the way the New Dealers said it would.  Despite the massive price tag.  So much for super smart government bureaucrats.

What finally pulled us out of the Great Depression?  Adolf Hitler’s conquering of France in 1940.  When American industry received great orders for real economic growth.  From foreign countries.  To build the war material they needed to fight Adolf Hitler.  And the New Deal programs be damned.  There was no time for any more of that nonsense.  So during World War II businesses had a little less uncertainty.  And a backlog of orders.  All the incentive they needed to ramp up American industry.  To make it hum like it once did under Harding and Coolidge.  And they won World War II.  For there was no way Adolf Hitler could match that economic output.  Which made all the difference on the battlefield.

Still there are those who want to blame the gold standard for the Great Depression.  And still support Keynesian policies to tax and spend.  Even today.  Even after 8 years of Ronald Reagan that proved the policies of Harding and Coolidge.  We’re right back to those failed policies of the past.  Massive government spending to stimulate economic activity.  To pull us out of the Great Recession.  And utterly failing.  Where the unemployment rate struggles to get below 9%.  The U-3 unemployment rate, that is.  The rate that doesn’t count everyone who wants full time work.  The rate that counts everyone, the U-6 unemployment rate, currently stands at 14.9%.  Which is above the lowest unemployment rate during the Great Depression.  Proving once again only real economic growth creates jobs.  Not government programs.  No matter how many trillions of dollars the government spends. 

So much for super smart government bureaucrats.

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The Horse, Waterwheel, Steam Engine, Electricity, DC and AC Power, Power Transmission and Electric Motors

Posted by PITHOCRATES - December 21st, 2011

Technology 101

A Waterwheel, Shaft, Pulleys and Belts made Power Transmission Complex

The history of man is the story of man controlling and shaping our environment.  Prehistoric man did little to change his environment.  But he started the process.  By making tools for the first time.  Over time we made better tools.  Taking us into the Bronze Age.  Where we did greater things.  The Sumerians and the Egyptians led their civilization in mass farming.  Created some of the first food surpluses in history.  In time came the Iron Age.  Better tools.  And better plows.  Fewer people could do more.  Especially when we attached an iron plow to one horsepower.  Or better yet, when horses were teamed together to produce 2 horsepower.  3 horsepower.  Even 4 horsepower.  The more power man harnessed the more work he was able to do.

This was the key to controlling and shaping our environment.  Converting energy into power.  A horse’s physiology can produce energy.  By feeding, watering and resting a horse we can convert that energy into power.  And with that power we can do greater work than we can do with our own physiology.  Working with horse-power has been the standard for millennia.  Especially for motive power.  Moving things.  Like dragging a plow.  But man has harnessed other energy.  Such as moving water.  Using a waterwheel.  Go into an old working cider mill in the fall and you’ll see how man made power from water by turning a wheel and a series of belts and pulleys.  The waterwheel turned a main shaft that ran the length of the work area.  On the shaft were pulleys.  Around these pulleys were belts that could be engaged to transfer power to a work station.  Where it would turn another pulley attached to a shaft.  Depending on the nature of the work task the rotational motion of the main shaft could be increased or decreased with gears.  We could change it from rotational to reciprocating motion.  We could even change the axis of rotation with another type of gearing.

This was a great step forward in advancing civilization.  But the waterwheel, shaft, pulleys and belts made power transmission complex.  And somewhat limited by the energy available in the moving water.  A great step forward was the steam engine.  A large external combustion engine.  Where an external firebox heated water to steam.  And then that steam pushed a piston in a cylinder.  The energy in expanding steam was far greater than in moving water.  It produced far more power.  And could do far more work.  We could do so much work with the steam engine that it kicked off the Industrial Revolution.

Nikola Tesla created an Electrical Revolution using AC Power

The steam engine also gave us more freedom.  We could now build a factory anywhere we wanted to.  And did.  We could do something else with it, too.  We could put it on tracks.  And use it to pull heavy loads across the country.  The steam locomotive interconnected the factories to the raw materials they consumed.  And to the cities that bought their finished goods.  At a rate no amount of teamed horses could equal.  Yes, the iron horse ended man’s special relationship with the horse.  Even on the farm.  Where steam engines powered our first tractors.  Giving man the ability to do more work than ever.  And grow more food than ever.  Creating greater food surpluses than the Sumerians and Egyptians could ever grow.  No matter how much of their fertile river banks they cultivated.  Or how much land they irrigated.

Steam engines were incredibly powerful.  But they were big.  And very complex.  They were ideal for the farm and the factory.  The steam locomotive and the steamship.  But one thing they were not good at was transmitting power over distances.  A limitation the waterwheel shared.  To transmit power from a steam engine required a complicated series of belts and pulleys.  Or multiple steam engines.  A great advance in technology changed all that.  Something Benjamin Franklin experimented with.  Something Thomas Edison did, too.  Even gave us one of the greatest inventions of all time that used this new technology.  The light bulb.  Powered by, of course, electricity.

Electricity.  That thing we can’t see, touch or smell.  And it moves mysteriously through wires and does work.  Edison did much to advance this technology.  Created electrical generators.  And lit our cities with his electric light bulb.  Electrical power lines crisscrossed our early cities.  And there were a lot of them.  Far more than we see today.  Why?  Because Edison’s power was direct current.  DC.  Which had some serious drawbacks when it came to power transmission.  For one it didn’t travel very far before losing much of its power. So electrical loads couldn’t be far from a generator.  And you needed a generator for each voltage you used.  That adds up to a lot of generators.  Great if you’re in the business of selling electrical generators.  Which Edison was.  But it made DC power costly.  And complex.  Which explained that maze of power lines crisscrossing our cities.  A set of wires for each voltage.  Something you didn’t need with alternating current.  AC.  And a young engineer working for George Westinghouse was about to give Thomas Edison a run for his money.  By creating an electrical revolution using that AC power.  And that’s just what Nikola Tesla did.

Transformers Stepped-up Voltages for Power Transmission and Stepped-down Voltages for Electrical Motors

An alternating current went back and forth through a wire.  It did not have to return to the electrical generator after leaving it.  Unlike a direct current ultimately had to.  Think of a reciprocating engine.  Like on a steam locomotive.  This back and forth motion doesn’t do anything but go back and forth.  Not very useful on a train.  But when we convert it to rotational motion, why, that’s a whole other story.  Because rotational motion on a train is very useful.  Just as AC current in transmission lines turned out to be very useful.

There are two electrical formulas that explain a lot of these developments.  First, electrical power (P) is equal to the voltage (V) multiplied by the current (I).  Expressed mathematically, P = V x I.  Second, current (I) is equal to the voltage (V) divided by the electrical resistance (R).  Mathematically, I = V/R.  That’s the math.  Here it is in words.  The greater the voltage and current the greater the power.  And the more work you can do.  However, we transmit current on copper wires.  And copper is expensive.  So to increase current we need to lower the resistance of that expensive copper wire.  But there’s only one way to do that.  By using very thick and expensive wires.  See where we’re going here?  Increasing current is a costly way to increase power.  Because of all that copper.  It’s just not economical.  So what about increasing voltage instead?  Turns out that’s very economical.  Because you can transmit great power with small currents if you step up the voltage.  And Nikola Tesla’s AC power allowed just that.  By using transformers.  Which, unfortunately for Edison, don’t work with DC power.

This is why Nikola Tesla’s AC power put Thomas Edison’s DC power out of business.  By stepping up voltages a power plant could send power long distances.  And then that high voltage could be stepped down to a variety of voltages and connected to factories (and homes).  Electric power could do one more very important thing.  It could power new electric motors.  And convert this AC power into rotational motion.  These electric motors came in all different sizes and voltages to suit the task at hand.  So instead of a waterwheel or a steam engine driving a main shaft through a factory we simply connected factories to the electric grid.  Then they used step-down transformers within the factory where needed for the various work tasks.  Connecting to electric motors on a variety of machines.  Where a worker could turn them on or off with the flick of a switch.  Without endangering him or herself by engaging or disengaging belts from a main drive shaft.  Instead the worker could spend all of his or her time on the task at hand.  Increasing productivity like never before.

Free Market Capitalism gave us Electric Power, the Electric Motor and the Roaring Twenties

What electric power and the electric motor did was reduce the size and complexity of energy conversion to useable power.  Steam engines were massive, complex and dangerous.  Exploding boilers killed many a worker.  And innocent bystander.  Electric power was simpler and safer to use.  And it was more efficient.  Horses were stronger than man.  But increasing horsepower required a lot of big horses that we also had to feed and care for.  Electric motors are smaller and don’t need to be fed.  Or be cleaned up after, for that matter.

Today a 40 pound electric motor can do the work of one 1,500 pound draft horse.  Electric power and the electric motor allow us to do work no amount of teamed horses can do.  And it’s safer and simpler than using a steam engine.  Which is why the Roaring Twenties roared.  It was in the 1920s that this technology began to power American industry.  Giving us the power to control and shape our environment like never before.  Vaulting America to the number one economic power of the world.  Thanks to free market capitalism.  And a few great minds along the way.

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The Great Depression

Posted by PITHOCRATES - December 20th, 2011

History 101

The  Roaring Twenties were a Time of Unprecedented Innovation and Manufacturing

The Roaring Twenties were good times.  Kicked off by the Warren Harding administration.  Thanks to one of the few honest guys in his administration besides Harding.  Andrew Mellon.  Secretary of the treasury extraordinaire.  Some say the best secretary of the treasury since our first.  Alexander Hamilton.  High praise indeed.

So what did Mellon do?  He did some research that showed rich people paid less in taxes the higher the tax rates were.  The higher the rate the less they invested in plant and equipment in America.  Instead they invested their money out of the country.  In other countries’ plant and equipment.  So Mellon was a tax-cutter.  And that was his advice to Harding.  And that’s what Harding did.  And Calvin Coolidge continued.  Kept taxes low.  And kept government out of the business of business.

And how business responded.  The 1920s were a time of unprecedented innovation and manufacturing.  Low taxes, little government spending and limited government produced record employment.  Record upward mobility.  And record per capita income.  Gains in the decade touched 37%.  How?  I’ll tell you how.

The auto industry was booming thanks to Henry Ford’s moving assembly line.  Everyone was driving who wanted to drive.  The car companies sold one car for every 5 people.  This production created a boom in other industries to feed this industry.  And cars did something else.  They gave people mobility.  And opportunity.  People left the farms in droves and drove to better jobs.  Which didn’t hurt the farmers in the least as mechanization on the farm put more land under cultivation with fewer people.  Housing and cities grew.  Radio debuted.  And radio advertising.  Motion pictures went from silent to talkies.  Telephones became more common.  New electric utilities brought electricity to homes.  And new electric appliances filled those homes.  Including radios.  New electric motors filled our factories, increasing productivity and slashing consumer prices.  More people than ever before flew.  An increase of nearly 1000%.  It’s nowhere near today’s number of flyers but it was a reflection of the new industrial dominance of the United States.  There was nothing we couldn’t do.  And Europe was taking notice.  And not liking what they saw.  And talked about a European union to compete against the Americans.

Businesses scaled back Production in Anticipation of the Smoot Hawley Tariff Act

So the spectacular economic growth of the Roaring Twenties was solid growth.  It wasn’t a bubble.  It was the real deal.  Thanks to capitalism.  And a government willing to leave the free market alone.  It was so dominating that the Europeans wanted to stop it anyway they could.  One way was protective tariffs on farm imports.

American farm exports boomed during World War I.  Because most of Europe’s farmers were busy fighting.  With the end of the war the Europeans went back to their farms.  Which reduced the need for American farm imports.  And the tariffs compounded that problem.  To make things worse, prices were already falling thanks to the mechanization of the American farm.  Producing bumper crops.  Which, of course, dropped farm prices.  Good for consumers.  But bad for farmers.  Especially with the Europeans shutting off their markets to the Americans.  Because they paid for a lot of that land and mechanization with borrowed money.  And this debt was getting harder and harder to service.  Throw in some weather and insect problems in some regions and it was just too much.   Some farms failed.  Then a lot.  And then the banks that loaned money to these farms began to fail.

We created the Federal Reserve to increase the money supply to keep pace with the growing economy.  By making money cheap to borrow for those businesses trying to expand to meet demand.  They weren’t exactly doing a stellar job, though, in keeping pace with this economic expansion.  And when the bank failures hit the money supply contracted.  Thanks to fractional reserve banking.  All that money the banks created simply disappeared as the banks failed.  Starving manufactures of money to maintain growth to meet demand.  Things were getting bad around 1928.  The Fed did not intervene to save these banks.  Worried that investors were the only ones borrowing money for speculation in the stock market, they shrunk the money supply further.  About a third by 1932.  Manufacturers had no choice but to cut production.

While businesses were dealing with a shrinking money supply they had something else to worry about.  Congress was moving the Smoot-Hawley Tariff Act through congressional committees in 1929 on its way to becoming law in 1930.  This act would add a 30% tax on most imports.  Meaning that the cost factories paid for raw materials would increase by up to 30%.  Of course, sales prices have to include all costs of production.  So sales prices would have to increase.  Higher prices mean fewer sales.  Because people just can’t afford to buy as much at higher prices.  Businesses knew that once the tariff was passed into law it would reduce sales.  So they took preemptive steps.  And scaled back production for the expected fall in sales.

It was Government Meddling that Turned a Recession in the Great Depression

This brings us to the stock market crash.  The Roaring Twenties produced huge stock market gains as industry exploded in America.  Things grew at an aggressive pace.  Stock prices soared.  Because the value of these manufacturers soared.  And investors saw nothing to indicate this growth was going to stop.  Until the contraction of the money supply.  And then the Smoot-Hawley Tariff Act.  Not only would these slow the growth, they would reverse it.  Leading to the great selloff.  The Great Crash.  And the Great Depression.

As feared the Europeans responded to the Smoot-Hawley Tariff Act.  They imposed tariffs on American imports.  Making things worse for American exports.  Then President Hoover increased farm prices by law to help farmers.  Which only reduced farm sales further.  Then the banking crisis followed.  And the Fed did nothing to help the banks.  Again.  When they did start helping banks in trouble they made public which banks were receiving this help.  Which, of course, caused further bank runs as people hurried to get their money out of these troubled banks.  Tax revenue plummeted.  So Hoover passed a new sales tax to raise more revenue.  Which only made things worse.

Hoover was a Republican.  But he was a Big Government progressive.  Just like his successor.  FDR.  And all of their Big Government Keynesian solutions only prolonged the Great Depression.  It was government meddling that turned a recession into the Great Depression.  And further government meddling that prolonged the Great Depression.  Much of FDR’s New Deal programs were just extensions of the Hoover programs.  And they failed just as much as they did under Hoover.  The Great Depression only ended thanks to Adolf Hitler who plunged Europe back into war.  Providing an urgency to stop their government meddling.  And to let business do what they do best.  Business.  And they did.  Building the arsenal that defeated Hitler.

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