Carnegie, Rockefeller, Ford, Westinghouse, Boeing, Gates and Tariffs

Posted by PITHOCRATES - September 10th, 2013

History 101

Ford brought the Price of Cars down and Paid his Workers more without Tariff Protection

Andrew Carnegie grew a steel empire in the late 19th century.  With technological innovation.  He made the steel industry better.  Making steel better.  Less costly.  And more plentiful.  Carnegie’s steel built America’s skylines.  Allowing our buildings to reach the sky.  And Carnegie brought the price of steel down without tariff protection.

John D. Rockefeller saved the whales.  By making kerosene cheap and plentiful.  Replacing whale oil pretty much forever.  Then found a use for another refined petroleum product.  Something they once threw away.  Gasoline.  Which turned out to be a great automotive fuel.  It’s so great that we use it still today.  Rockefeller made gasoline so cheap and plentiful that he put the competition out of business.  He was making gasoline so cheap that his competition went to the government to break up Standard Oil.  So his competition didn’t have to sell at his low prices.  And Rockefeller made gasoline so inexpensive and so plentiful without tariff protection.

Henry Ford built cars on the first moving assembly line.  Greatly bringing the cost of the car down.  Auto factories have fixed costs that they recover in the price of the car.  The more cars a factory can make in a day allows them to distribute those fixed costs over more cars.  Bringing the cost of the car down.  Allowing Henry Ford to do the unprecedented and pay his workers $5 a day.  Allowing his workers to buy the cars they assembled.  And Ford brought the price of cars down and paid his workers more without tariff protection.

George Westinghouse decreased the Cost of Electric Power without Tariff Protection

George Westinghouse gave us AC power.  Thanks to his brilliant engineer.  Nikola Tesla.  Who battled his former employer, Thomas Edison, in the Current Wars.  Edison wanted to wire the country with his DC power.  Putting his DC generators throughout American cities.  While Westinghouse and Tesla wanted to build fewer plants and send their AC power over greater distances.  Greatly decreasing the cost of electric power.  Westinghouse won the Current Wars.  And Westinghouse did that without tariff protection.

After losing out on a military contract for a large military transport jet Boeing regrouped and took their failed design and converted it into a jet airliner.  The Boeing 747.  Which dominated long-haul routes.  Having the range to go almost anywhere without refueling.  And being able to pack so many people into a single airplane that the cost per person to fly was affordable to almost anyone that wanted to fly.  And Boeing did this without tariff protection.

Bill Gates became a billionaire thanks to his software.  Beginning with DOS.  Then Windows.  He dominated the PC operating system market.  And saw the potential of the Internet.  Bundling his browser program, Internet Explorer, with his operating system.  Giving it away for free.  Consumers loved it.  But his competition didn’t.  As they saw a fall in sales for their Internet browser programs.  With some of their past customers preferring to use the free Internet Explorer instead of buying another program.  Making IE the most popular Internet browser on the market.  And Gates did this without tariff protection.

Tariff Protection cost American Industries Years of Innovation and Cost Cutting Efficiencies

Carnegie Steel became U.S. Steel.  Which grew to be the nation’s largest steel company.  Carnegie had opposed unions to keep the cost of his steel down.  U.S. Steel had a contentious relationship with labor.  During the Great Depression U.S. Steel unionized.  But there was little love between labor and management.  There were a lot of strikes.  And a lot of costly union contracts.  Which raised the price of U.S. manufactured steel.  Opening the door for less costly foreign imports.  Which poured into the country.  Taking a lot of business away from domestic steel makers.  Making it more difficult to honor those costly union contracts.  Which led the U.S. steel producers to ask the government for tariff protection.  To raise the price of the imported steel so steel consumers would not have a less costly alternative.

During World War II FDR was printing so much money to pay for both the New Deal and the war the FDR administration was worried about inflation.  So they put ceilings on what employers could pay their employees.  With jobs paying the same it was difficult to attract the best employees.  Because you couldn’t offer more pay.  So General Motors started offering benefits.  Health care.  And pensions.  Agreeing to very generous union contracts.  Raising the price of cars.  Which wasn’t a problem until the imports hit our shores.  Then those union contracts became difficult to honor.  Which led the U.S. auto makers to ask the government for tariff protection.  To raise the price of those imported cars so Americans would not have a less costly alternative.

These two industries received their tariffs.  And other government protections.  Allowing them to continue with business as usual.  Even though business as usual no longer worked.  So while the foreign steel producers and auto makers advanced their industries to further increase quality and lower their costs the protected U.S. companies did not.  Because they didn’t have to.  For thanks to the government they didn’t have to please their customers.  As the government simply forced people to be their customers.  For awhile, at least.  The foreign products became better and better such that the tariff protection couldn’t make the higher quality imports costly enough to keep them less attractive than the inferior American goods.  With a lot of people even paying more for the better quality imports.  Losing years of innovation and cost cutting efficiencies due to their tariff protection these American industries that once dominated the world became shells of their former selves.  With General Motors and Chrysler having to ask the government for a bailout because of the health care and pension costs bankrupting them.  Something Carnegie, Rockefeller, Ford, Westinghouse, Boeing or Gates never had to ask.

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Tesla’s Battery Swap System gives the Gasoline-Powered car a Run for its Money

Posted by PITHOCRATES - June 23rd, 2013

Week in Review

The BIG problem with the all-electric car is range anxiety.  Will I have enough charge to get home?  If I don’t how long will it take to recharge my battery?  So I can get home?  You see, if you’re running low on gas you can always pull into a gas station and fill your tank in about 5 minutes.  Maybe 10-20 minutes if there are cars at all of the gas pumps and you have to wait for them to fuel first.  Then you’re back on the road with your car mechanically exactly like it was before you stopped.  The ONLY thing changed is the amount of fuel in the gas tank.  If the all-electric car can match that then people will get over their range anxiety.  And start buying them.  With a new battery swap system, Tesla believes they have done exactly that (see Tesla Shows Off A 90-Second Battery Swap System, Wants It At Supercharging Stations By Year’s End by Chris Velazco posted 6/20/2013 on TechCrunch).

Tesla can swap a Model S’s battery in just 90 seconds (that’s less time than it takes to fuel up a regular car), and you won’t even have to get out of your seat to do it…

Once a Model S owner parks the car on a designated spot, a platform raises from the ground to disconnect and grab hold of the depleted battery. The platform then descends back into the ground, dumps the battery, retrieves a fresh one, and rises once more to connect it to the car…

Frenzied drivers will still have to do some work, though — they’ll have to drop off the battery on the return leg of their journey and pay an unspecified “transport fee,” though they can also choose to keep the battery and pony up the difference between the price of the old and new batteries…

Outfitting each of those stations with the ability to quickly replace batteries and get motorists back on the road presents quite a logistics problem. There’s the cost to consider — Tesla expects each battery swap station to cost about $500,000 to build, to say nothing of the maintenance and infrastructure costs that will come now that someone presumably has to stop by each station and replace worn-down batteries.

When you get gas you’re not removing nuts and bolts.  There are no studs that can break.  No threads to strip.  Yes a battery swap is quick and hands-free but there is a chance for something to go wrong when you’re replacing a part of your car.  Especially a part that hangs underneath.  The odds may be slim that something will happen.  But when you’re gassing up this cannot happen.  Because you don’t need any tools or machines to put gasoline into the gas tank.

What if it’s winter?  And the bottom of your car is ensconced in ice?  Will there be an attendant there to chisel the ice away so the automated system can work?  And if driving on snow and ice there’s always a chance that you may spin out of control and bounce the bottom of your car off of a curb or something.  Will that cause anything to become misaligned so the automated system won’t work?  And if you cracked your battery pack will the automated system notice that while removing it?  Or will they unknowingly recharge a cracked one and give it to some unlucky driver?  Or are all battery packs new at these recharging stations?  If so that could make this battery swap more costly than buying gasoline.

Will every all-electric car have the same battery pack?  Will they all have the same charging capacity?  Or will each car that has a different battery need its own automated system?  That’s something else you don’t have to worry about with gasoline.  For you will be able to burn gasoline from any gas station in any of your cars.  Which means all you have to look for when you need fuel is a gas station.  For anyone will do.

Pit stops in NASCAR work well.  They’re fast.  And everyone is doing the best job they can with the best spare parts available.  But they don’t share with the other pit crews.  With these battery swap stations you have to place a lot of trust in your fellow Tesla drivers.  That none of them are trying to unload a damaged battery without anyone being the wiser.  I’m sure they’re all trustworthy.  But do you want to take a chance when driving at 3 in the morning?

The Tesla battery swap station is impressive.  But stopping for gasoline is so much easier and simpler to do.  And you never have to worry about what some other driver left you.  This is another huge investment in addition to the charging network they’re installing.  What happens, say, if after making this massive investment a new battery technology comes out that makes the previous ones obsolete?  As well as these battery swap stations?  What then?

Guess I’m still skeptical.  Even when it comes to what may be the finest all-electric car ever built.  For Tesla has made a beautiful car.  And brought it as closer to the gasoline-powered car in terms of range and convenience.  But it’s not a gasoline-powered car.  What we’re familiar with.  Which gives us a sense of security when driving.  Even driving home in the middle of the night through a blinding blizzard.  Confidant that our car will always be up to the task of getting us home.  Even when we may not.

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Tesla to expand Charging Network which may lead to the Success and then Failure of the All-Electric Car

Posted by PITHOCRATES - June 1st, 2013

Week in Review

There’s nothing like hitting the open road.  And just driving wherever your car takes you.  Because for some it’s the journey.  Not the destination.  For America has a special love affair with their cars.  They are symbolic of the liberty our Founding Fathers gave us.  The freedom to go anywhere.  All you need is a tank full of gas.  And a gas station or two along the way.  Which is something the all-electric car just can’t do.  But it’s not for a lack of trying (see Tesla tripling supercharger network for LA to NY trip by Chris Isidore posted 5/31/2013 on CNNMoney).

Musk said that the expansion of the network of superchargers, which allow the company’s cars to be recharged in about an hour, will cover most major metropolitan areas in the United States and southern Canada. While owners can charge the car using ordinary electrical current at home overnight, the supercharging stations are important for relieving drivers’ anxiety about running out of power and being stranded on long journeys.

“It is very important to address this issue of long-distance travel,” he said. “When people buy a car, they’re also buying a sense of freedom, the ability to go anywhere they want and not feel fettered.”

I don’t know about you but waiting an hour to recharge while on a road trip kind of defeats the purpose of hitting the open road.  Driving.  An hour doesn’t seem like a long time.  But the next time you go to a gas station stay there for an hour and see how it really feels.

At a speed limit of 70 MPH that’s like adding an additional 70 miles to your trip every time you stop to charge.  Or more.  For what happens if all the chargers are in use and there is a line of Tesla cars waiting for a charger when you arrive at one of these charging stations?  Because you’re not the only person driving a Tesla?  What then?  Whenever you pulled into a gas station with every pump in use you never had to wait 2 or 3 hours for your chance to spend an hour fueling your car.  But the success of all-electric cars could very well do this.  If enough people are driving them.  Well, the success would be short-lived.  For after the first hour-plus wait for a charge people will no doubt sell their all-electric cars.  And buy something gasoline-powered instead.

And here’s another thought.  Some horrific storms just blew through the Midwest.  Causing some huge power outages.  Right along some major interstate arteries passing through the state.  What do you do then?  When you need a charge and there is no electric power available?  Chances are that you’d have enough gasoline to get you to a gas station that didn’t lose its power.  But if there is only a charger every 80-100 miles you’re going to need a tow to the next charging station.  Making it harder and harder to enjoy your journey.  While your gasoline-powered companions mock you as they continue on enjoying their journey.

Someone should think long and hard about these things before pouring so much money into a charging infrastructure.  For that infrastructure will only work if they have few cars using it.  In fact, the success of the Tesla could very well lead to the failure of the all-electric car market.  When the reality of the charging problems of the all-electric car become apparent to all-electric car owners.  Who simply won’t want to spend a large part of their day waiting for a charge.  Or a tow truck.

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One of the Finest All-Electric Cars is Beaten by the Cold Temperatures of the East Coast

Posted by PITHOCRATES - February 16th, 2013

Week in Review

The all-electric car is great as long as it’s warm and you don’t plan on driving great distances (see Tesla stock dips on poor Model S review by Maureen Farrell posted 2/11/2013 on CNN Money).

The idea of a driving an electric car has always intrigued me, but after reading a New York Times review of the Tesla (TSLA) Model S on I-95, it sounds like a total nightmare.

According to the writer, the battery on the Model S drained much quicker than promised in cold weather during a recent trip up and down the East Coast. With only a few charging stations in the Northeast, the writer was forced to turn off the heat in 30 degree weather to conserve power. And that didn’t help him much. At one point he needed to get towed for 45 minutes to the next charging station.

Here are some excerpts from the New York Times article.

The 480-volt Supercharger stations deliver enough power for 150 miles of travel in 30 minutes, and a full charge in about an hour, for the 85 kilowatt-hour Model S. (Adding the fast-charge option to cars with the midlevel 60 kilowatt-hour battery costs $2,000.) That’s quite a bit longer than it takes to pump 15 gallons of gasoline, but at Supercharger stations Tesla pays for the electricity, which seems a reasonable trade for fast, silent and emissions-free driving. Besides, what’s Sbarro for..?

I began following Tesla’s range-maximization guidelines, which meant dispensing with such battery-draining amenities as warming the cabin and keeping up with traffic. I turned the climate control to low — the temperature was still in the 30s — and planted myself in the far right lane with the cruise control set at 54 miles per hour (the speed limit is 65)…

At that point, the car informed me it was shutting off the heater, and it ordered me, in vivid red letters, to “Recharge Now…”

I spent nearly an hour at the Milford service plaza as the Tesla sucked electrons from the hitching post…

When I parked the car, its computer said I had 90 miles of range, twice the 46 miles back to Milford. It was a different story at 8:30 the next morning. The thermometer read 10 degrees and the display showed 25 miles of remaining range — the electrical equivalent of someone having siphoned off more than two-thirds of the fuel that was in the tank when I parked.

I called Tesla in California, and the official I woke up said I needed to “condition” the battery pack to restore the lost energy. That meant sitting in the car for half an hour with the heat on a low setting…

The Tesla people found an E.V. charging facility that Norwich Public Utilities had recently installed. Norwich, an old mill town on the Thames River, was only 11 miles away, though in the opposite direction from Milford.

After making arrangements to recharge at the Norwich station, I located the proper adapter in the trunk, plugged in and walked to the only warm place nearby, Butch’s Luncheonette and Breakfast Club, an establishment (smoking allowed) where only members can buy a cup of coffee or a plate of eggs. But the owners let me wait there while the Model S drank its juice. Tesla’s experts said that pumping in a little energy would help restore the power lost overnight as a result of the cold weather, and after an hour they cleared me to resume the trip to Milford.

Looking back, I should have bought a membership to Butch’s and spent a few hours there while the car charged. The displayed range never reached the number of miles remaining to Milford, and as I limped along at about 45 miles per hour I saw increasingly dire dashboard warnings to recharge immediately. Mr. Merendino, the product planner, found an E.V. charging station about five miles away.

But the Model S had other ideas. “Car is shutting down,” the computer informed me. I was able to coast down an exit ramp in Branford, Conn., before the car made good on its threat.   Tesla’s New York service manager, Adam Williams, found a towing service in Milford that sent a skilled and very patient driver, Rick Ibsen, to rescue me with a flatbed truck. Not so quick: the car’s electrically actuated parking brake would not release without battery power, and hooking the car’s 12-volt charging post behind the front grille to the tow truck’s portable charger would not release the brake. So he had to drag it onto the flatbed, a painstaking process that took 45 minutes. Fortunately, the cab of the tow truck was toasty.

At 2:40 p.m., we pulled into the Milford rest stop, five hours after I had left Groton on a trip that should have taken less than an hour. Mr. Ibsen carefully maneuvered the flatbed close to the charging kiosk, and 25 minutes later, with the battery sufficiently charged to release the parking brake and drive off the truck, the car was back on the ground.

And this is perhaps the finest all-electric car in the market.  And it is a modern marvel.  But even as high-tech as it is it still can’t change the law of physics.  Batteries don’t work well in cold temperatures.  It takes time to charge a battery.  Even at 480 volts.  And it should also be noted that charging lithium-ion batteries is itself not the safest thing to do.  For if they over charge they can catch fire.  These are the same batteries they have on the Boeing 787 Dreamliner.  That the FAA grounded because their lithium-ion batteries were catching on fire.

Had he been driving at night he probably would have gotten a message that the car was shutting off its headlights, too.  To conserve battery charge.  Which would probably be a little more hazardous than driving without heat in the dark.

If you drive where it is cold the last thing you want is for your car to shut down.  Unable to get you home.  And this is the warmth and security a gasoline engine gives you.  You can top off your tank the night before to be extra safe you won’t run out of fuel.  And if the temperature falls to 40 below zero over night you will have the same amount of gasoline in your tank in the morning.  If you get stuck in bumper to bumper traffic in 40 degree below zero weather you will be able to stay toasty warm.  And if you’re driving after dark you will even be able to see where you are going.  Thanks to gasoline.  And the internal combustion engine.

Or you can try to save the environment and die of exposure instead.  Your choice.  Gasoline.  Or electricity.  Range anxiety or carefree driving.  Shivering in the cold to squeeze out a few extra miles.  Or sitting comfortably in your car with your coat off.  Killing an hour every time you charge your car perhaps once or twice a day.  Or spending 10 minutes pumping gas maybe once a week.  Pain in the ass.  Or convenience.  Your choice.

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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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Nikola Tesla, Sheldon Cooper, Inventors & Entrepreneurs, Compromise & Tradeoff, Theoretical & the Practical, GM and Hostess

Posted by PITHOCRATES - December 4th, 2012

History 101

Geniuses strive for Theoretical Perfection which often doesn’t work in the Market Place

There have been a lot of brilliant inventors that gave the world incredible things.  Nikola Tesla gave us the modern world thanks to his work in electromagnetic fields.  Giving us the AC power we take for granted today.  Electric motors.  The wireless radio.  Etc.  But as brilliant as Tesla was he was not brilliant in making money from his inventions.  He died broke and in debt.  And, some say, insane.  Though he was probably more like Sheldon Cooper on The Big bang Theory.  As one character on the show called him, “The skinny weirdo.”  Tesla had an eidetic memory (often called a photographic memory).  And probably suffered from obsessive-compulsive disorder (OCD).  Which when added to genius can be mistaken for crazy genius.

So Tesla and the fictional Sheldon Cooper have some things in common.  Genius.  And some odd behavioral traits.  As well as something else.  Neither was rich.  Their genius did not make them rich.  Which is a common trait of all brilliant inventors.  Their genius gets in the way of practicality.  They strive for theoretical perfection.  Which often doesn’t work in the market place.  Because perfection is costly.  And this is what separates the theoretical geniuses from practical engineers.  And entrepreneurs.

The internal combustion engine is a technological marvel.  It has changed the world.  Modernized the world.  It gave us inexpensive modes of transportation like cars, trucks, ships, trains and airplanes.  But the engine is not theoretically perfect.  It is a study of compromise and tradeoff.  Providing a final product that isn’t perfect.  But one that is economically viable.  For example, pistons need to compress an air-fuel mixture for combustion.  However, the piston can’t make such a tight seal that it can’t move up and down in the cylinder.  So the piston is smaller than the cylinder opening.  This allows it to move.  But it doesn’t contain the air-fuel mixture for compression and combustion.  So they add a piston ring.  Which contains the air-fuel mixture but restricts the movement of the piston.  So they add another piston ring that takes oil that splashes up from crank case and passes it through the ring to the cylinder wall.  The heat of combustion, though, can leave deposits from the oil on the cylinder wall.  So they add another piston ring to scrape the cylinder wall.

Selling a ‘Low Price’ is a Dangerous Game to Play Especially if you don’t Know your Costs

Every part of the internal combustion engine is a compromise and tradeoff.  Each part by itself is not the best it can be.  But the assembled whole is.  A theoretical genius may look at the assembled whole and want to add improvements to make it better.  Adding great costs to take it from 97% good to 99% good.  While that 2% improvement may result with a better product no one driving the car would notice any difference.  Other than the much higher price the car carried for that additional 2% improvement.

This is the difference between the theoretical and the practical.  Between brilliant inventor and entrepreneur.  Between successful business owner and someone with a great idea but who can’t bring it to market.  The entrepreneur sees both the little picture (the brilliant idea) and the big picture (bringing it to market).  Something that a lot of people can’t see when they go into business.  The number one and number two business that fail are restaurants and construction.  Why?  Because these are often little picture people.  They may be a great chef or a great carpenter but they often haven’t a clue about business.

They don’t understand their costs.  And because they don’t they often don’t charge enough.  A lot of new business owners often think they need to charge less to lure business away from their competition.  And sometimes that’s true.  But selling a ‘low price’ instead of quality or value is a dangerous game to play.  Especially if you don’t know your costs.  Because as you sell you incur costs.  And have bills to pay.  Bills you need to pay with your sales revenue.  Which you won’t be able to do if you’re not charging enough.

If Business Operations can’t Produce Cash a Business Owner will have to Borrow Money to Pay the Bills

The successful small business owners understand both their long-term financing needs.  And their short-term financing needs.  They incur long-term debt to establish their business.  Debt they need to service.  And pay back.  To do that they need a source of money.  This must come from profitable business operations.  Which means that their sales revenue must make their current assets greater than their current liabilities.  The sum total of cash, accounts receivables and other current assets must be greater than their accounts payable, accrued payroll, accrued taxes, current portion of long-term debt, etc.  And there is only one thing that will do that.  Having sales revenue that covers all a business’s costs.

The successful business owner knows how much to charge.  They know how much their revenue can buy.  And what it can’t buy. They make the tough decisions.  These business owners stay in business.  They see the big picture.  How all the pieces of business fit together.  And how it is imperative to keep their current assets greater than their current liabilities.  For the difference between the two gives a business its working capital.  Which must be positive if they have any hope of servicing their debt.  And repaying it.  As well as growing their business.  Whereas if their working capital is negative the future is bleak.  For they won’t be able to pay their bills.  Grow their business.  Or service their debt.  Worse, because they can’t pay their bills they incur more debt.  As they will have to borrow more money to pay their bills.  Because their business isn’t producing the necessary cash.

Those restaurants and construction companies fail because their owners didn’t know any better.  Others fail despite knowing better.  Like GM, Chrysler, Hostess, just about any airline, Bethlehem Steel, most print newspapers, etc.  Who all entered costly union contracts during good economic times.  Costs their revenues couldn’t pay for in bad economic times.  Which was most of the time.  As they struggled to pay union labor and benefits they run out of money before they could pay their other bills.  As their current liabilities exceeded their current assets.  So instead of producing working capital they ran a deficit.  Forcing them to incur more debt to finance this shortfall.  Again and again.  Until their debt grew so great that it required an interest payment they couldn’t pay.  And now they are no longer with us today.  Having had no choice but to file bankruptcy.

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Thomas Edison, Patents, Intellectual Property Rights, Nikola Tesla, George Westinghouse, DC, AC and the War of Currents

Posted by PITHOCRATES - March 27th, 2012

History 101

Thomas Edison protected his Intellectual Property Rights with over 1,000 Patents

Thomas Edison was a great inventor.  A great entrepreneur.  But he wasn’t a great scientist or engineer.  He was home-schooled by his mom.  And didn’t go to college.  But he read a lot.  And loved to tinker.  He grew up in Port Huron, Michigan.  At one end of the train line that ran between Port Huron and Detroit.  Where he sold newspapers and other things to commuters during the Civil War.  Then he saved the life of some kid.  Pulled him out of the way of a runaway boxcar.  The kid’s dad ran the train station.  Out of gratitude for saving his son’s life he taught the young Edison Morse Code.  And trained him to be a telegraph operator.  He mastered it so well that Edison invented a better telegraph machine.  The Quadruplex telegraph.  Because he liked to tinker.

What made him a great entrepreneur and not a great scientist or engineer is that his inventions had a commercial purpose.  He didn’t invent to solve life’s great mysteries.  He invented to make money.  By creating things so great that people would want them.  And pay money for them.  He also had an eye on production costs.  So he could build these things the people wanted at affordable prices.  For if they were too expensive the people couldn’t buy them.  And make him rich.  So his inventions used technology to keep production costs down while keeping consumer interest high.  Because of the profit incentive.  But the POSSIBILITY of profits wasn’t enough to push Edison to set up his invention lab.  Where he employed a team of inventors to work full time inventing things.  And figuring out how to mass-produce inventions that made everyone’s life better.  He needed something else.  Something that GUARANTEED Edison could profit from his inventions.  The patent.  That gave the patent holder exclusive rights to profit from their invention.

Inventors and entrepreneurs spend a lot of money inventing things.  They do this because they know that they can file a patent when they invent something that people will buy.  Protecting their intellectual property rights.  So they alone can profit from the fruit of all their labors.  And Edison was one of these inventors.  One of the most prolific inventors of all time.  Filing over 1,000 patents.  Including one on the incandescent light bulb.  Which was going to replace gas lamps and candles.  And provided a need for another new invention.  Electric power distribution.  Something else he spent a lot of time tinkering with.  Producing electrical generators.  And an electric power distribution system.  Which was going to make him an even richer man.  As he held the patents for a lot of the technology involved.  However, he was not to become as rich as he had hoped on his electric power distribution system.  Not for any patent infringements.  But because of a mistreated former employee who had a better idea.

Thomas Edison and George Westinghouse battled each other in the War of Currents

Nikola Tesla was a brilliant electrical engineer.  But not a great entrepreneur.  So he worked for someone who was.  Thomas Edison.  Until Edison broke a promise.  He offered a substantial bonus to Tesla if he could improve Edison’s electric power generating plants.  He did.  And when he asked for his bonus Edison reneged on his promise.  Telling the immigrant Tesla that he didn’t understand American humor.  Angry, Tesla resigned and eventually began working for George Westinghouse.  An Edison competitor.  Who appreciated the genius of Tesla.  And his work.  Especially his work on polyphase electrical systems.  Using an alternating current (AC).  Unlike Edison’s direct current (DC).  Bringing Edison and Tesla back together again.  In war.

Direct current had some limitations.  The chief being that DC didn’t work with transformers.  While AC did.  With transformers you could change the voltage of AC systems.  You could step the voltage up.  And step it back down.  This gave AC a huge advantage over DC.  Because power equals current multiplied by voltage (P=I*E).  To distribute large amounts of power you needed to generate a high current.  Or a high voltage.  Something both DC and AC power can do.  However, there is an advantage to using high voltages instead of high currents.  Because high currents need thicker wires.  And we make wires out of copper or aluminum.  Which are expensive.  And the DC wires have to get thicker the farther away they get from the generator plant.  Meaning that a DC generating plant could only serve a small area.  Requiring numerous DC power plants to meet the power requirements of a single city.  Whereas AC power could travel across states.  Making AC the current of choice for anyone paying the bill to install an electric distribution system.

So the ability to change voltages is very beneficial.  And that’s something DC power just couldn’t do.  What the generator generated is what you got.  Not the case with AC power.  You can step it up to a higher voltage for distribution.  Then you can step it down for use inside your house.  Which meant a big problem for Edison.  For anyone basing their decision on price alone would choose AC.  So he declared war on AC power.  Saying that it was too dangerous to bring inside anyone’s house.  And he proved it by electrocuting animals.  Including an elephant.  And to show just how lethal it was Edison pushed for its use to replace the hangman’s noose.  Saying that anything as deadly as what states used to put prisoners to death was just too deadly to bring into anyone’s house.  But not even the electric chair could save Edison’s DC power.  And he lost the War of Currents.  For Tesla’s AC power was just too superior to Edison’s DC power not to use. 

Nikola Tesla was a Brilliant Engineer who Preferred Unraveling the Mysteries of the Universe over Business

George Westinghouse would get rich on electrical distribution.  Thanks to Nikola Tesla.  And the patents for the inventions he could have created for Thomas Edison.  If he only recognized his genius.  Which he lamented near death as his greatest mistake.  Not appreciating Tesla.  Or his work.  But Edison did well.  As did Westinghouse.  They both died rich.  Unlike Tesla.

Westinghouse could have made Tesla a very rich man.  But his work in high voltage, high frequency, wireless power led him away from Westinghouse.  For he wanted to provide the world with free electric power.  By creating power transmitters.  That could transmit power wirelessly.  Where an electric device would have an antenna to receive this wireless power.  He demonstrated it to some potential investors.  He impressed them.  But lost their funding when they asked one question.  Where does the electric meter go?  Free electric power was a noble idea.  But nothing is truly free.  Even free power.  Because someone had to generate that power.  And if you didn’t charge those using that power how were you going to pay those generating that power?

Edison and Westinghouse were great entrepreneurs.  Whereas Tesla was a brilliant engineer.  He preferred unraveling the mysteries of the universe over business.  Tesla probably suffered from obsessive-compulsive disorder.  Think of the character Sheldon Cooper on The Big Bang Theory television sitcom.  He was a lot like that character.  Brilliant.  Odd.  And interested in little else but his work.  He lived alone.  And died alone.  A bachelor.  Living in a two-room hotel room in the last decade of his life.  Despite his inventions that changed the world.  And the fortunes he made for others.  Sadly, Tesla did not die a rich man.  Like Edison and Westinghouse.  But he did live a long life.  And few men or women changed the world like he did.  A brilliant mind that comes around but once in a millennium.

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Tesla unveils a Sweet All-Electric Luxury Sports Car that may qualify for Tax Incentives and Rebates

Posted by PITHOCRATES - February 11th, 2012

Week in Review

Here’s a toy for the rich to add to their automobile stable.  Something to take out for the occasional cruise down Main Street.  And then quickly back to the garage while there’s still a charge in the battery to get you home.  To plug in overnight.  So you can do it again the next day (see Tesla Model X, All-Electric SUV slideshow posted on ABC News).

The company says it will go from zero to 60 in 4.4 seconds. (Courtesy Tesla)…

Tesla said production of the Model X would begin late in 2013, and the car would be ready for sale early in 2014. Prices might range from $55,000 to $75,000 before tax incentives and rebates, depending on whether a buyer chooses two- or four-wheel drive and various other options. (Tim Rue/Bloomberg via Getty Images)

Pretty car.  And nimble.  But excluded from this slideshow is the distance one charge will take you.  Which I’m guessing won’t be far if you’re accelerating from zero to 60 in 4.4 seconds.  Or driving at night with the headlights on.  Or somewhere cold with the heat on.  No, you’re not taking this car on any long road trips.  For unlike the great gasoline-powered roadsters this car must stay within a small radius from home.  Because you just can’t recharge batteries like you can fill a gasoline tank.  Quickly.

Being that this will be a toy for the rich are tax incentives and rebates really necessary?  I mean, should we be subsidizing a luxury car for those who can already afford a luxury car?

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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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FUNDAMENTAL TRUTH #11: “Before you condemn capitalism, imagine a world without professional sports, movies, cell phones and tampons.” -Old Pithy

Posted by PITHOCRATES - April 27th, 2010

PEOPLE HAVE SOME strong opinions about capitalism.  Both good and bad.  So what is it?  What is capitalism?

Merriman Webster OnLine defines it as:

An economic system characterized by private or corporate ownership of capital goods, by investments that are determined by private decision, and by prices, production, and the distribution of goods that are determined mainly by competition in a free market.

To explain this let’s start by explaining what it replaced.  In fact, let’s go further back.  A few hundred years when life truly sucked by our standards.  During the Middle Ages, people barely lived.  People worked very hard and had little time off.  When they did they usually spent it sleeping, being sick, dying or being dead.  You grew or killed what you ate.  You built your own house.  You made your own clothes.  You died probably no further than a short walk from where you were born.  And you worked your whole life somewhere in between.

Think of peasant or serf.  That’s what most were.  Tied to the land.  You had no choices.  If you were born on the land you worked the land.  Until you died.  The land owned you and someone owned the land.  You worked the land at the grace of the owner.  You helped produce his food and, in return, he let you have a small parcel of land to grow your food.  There was a bond of loyalty between landlord and tenant.  Land and protection in exchange for backbreaking, never-ending labor.  Doesn’t sound good until you consider the alternative.  Death by famine.  Or death by murder at the hands of roving bands of outlaws.

Improvements in farming led to more food production.  Eventually, there were food surpluses.  This meant not everyone had to farm.  Some could do other things.  And did.  They became specialists.  Artisans.  Craftsmen.  Cities grew in response to commerce.  People went to market to trade for things they wanted.  Then they started using money, which made getting the things they wanted easier (it’s easier to go to the market with a coin purse than with a sack of grain or a side of beef).  Life got better.  People enjoyed some of it.

THUS BEGAN THE rise of a middle class.  Those city folk making things or doing something.  They were good at what they did and people gladly paid for what they did.  These specialists then improved what they did and thought of new things to do.  They created things to make their work easier.  These individual specialists grew into manufacturing shops.  The cost of production only limited their output.  And banking solved that problem.

Alexander Hamilton, one of America’s Founding Fathers, was a capitalist.  And he thought big.  Money is nice but what can it get you?  A few things for the home?  Something for the wife?  Maybe some new farm tools.  Good stuff, yes, but nothing big.  Lots of little sums of money all over the place can buy lots of little things.  But when you pool lots of little sums of money you get one big-ass pile of it.  That money is now capital.  And you can do big things with it.

And that’s what banking has given us.  People with ideas, entrepreneurs, could now borrow money to bring their ideas to market.  And this is, in a nutshell, capitalism.  The free flow of ideas and capital to make life better.  Making life better wasn’t necessarily the objective; it’s just the natural consequence of people mutually partaking in a free market.

BUT WHAT ABOUT the Soviet Union?  Didn’t they do big things, too?  They built jetliners.  They had a space program.  They had factories.  They did these and other things without capitalism.  They did these things for the good of the people, not for profits.  Isn’t that better?

Talk to someone who wiped their ass with Soviet-era toilet paper.  Let me save you the trouble.  It didn’t feel good.  Unless you enjoy the feel of sandpaper back there.  And to add insult to injury, you had to wait in line to get that toilet paper.  If it was available.

When you think of the Soviet economy you have to think of stores with empty shelves and warehouses full of stuff no one wants.  This is what a command economy does for you.  Some bureaucrat, not the consumer, determines what to sell.  And one person simply cannot figure out what a hundred million plus want.  To get an idea of how difficult this is, pick a movie that 4 of your friends would love to see.  Pick a couple of guys and a couple of girls.  For diversity.  And remove the possibility of sex completely from the equation.  Now pick.  Not so easy, is it?  Now try to pick a movie a hundred million people would love to see.  Can’t do it, can you?  No one can.  Because people are diverse.  One size doesn’t fit all.

Soviet president Mikhail Gorbachev asked Margaret Thatcher how she made sure her people had enough food to eat.  The Soviets were having difficulty feeding theirs.  In fact, they were importing grain from their archenemy.  The United States.  The answer to Gorbachev’s answer was that Thatcher did nothing to feed her people.  The free market fed her people.  Capitalism.

As far as those other big things the Soviets did, they acquired a lot of the knowledge to do those things through an elaborate network of espionage.  They stole technology and copied it.  And they were the first into space because their captured Nazi rocket scientists did it before our captured Nazi rocket scientists did.  (The seed of the space industry was the Nazi V-2 rocket that reigned terror on London and other cities during World War II).

(Lest you think that I’m ripping on the Soviet/Russian people, I’m not.  Just their economic system during the Soviet era.  Their people have suffered.  And persevered.  It was them after all who first threw back Napoleon in Europe.  And it was them who first threw back the Nazis in Europe.  They gave us Pyotr Ilyich Tchaikovsky, Sergei Rachmaninoff, Leo Tolstoy, Fyodor Dostoyevsky, Mikhail Dolivo-Dobrovolsky and, of course, Maria Sharapova to name just a few of the greats.  Good people.  Just sometimes bad government.  As in most nations.  Even in the U.S.)

SO WHAT IS the basic difference between capitalism and a command economy like that of the former Soviet Union?  Probably the freedom to take and accept risk.  Bankers take a risk in loaning money.  They analyze the risk.  If the return on the loan is greater than the risk, they’ll make the loan.  It’s their call.  And they’re pretty good.  Their successes are far greater than their failures.

Some loans are riskier than others.  There’s a greater chance of failure.  But it could also be the next, say, Microsoft.  Or Apple.  If so, even though there’s great risk, the potential of reward is so great that people will want to loan money.  They’ll buy junk bonds (high risk/high yield) or an initial public offering of stock.  They’ll risk their money for a greater return on their investment.  If it pays off.  And they don’t always do.  But good ideas with potential typically find financing.  And investors typically make more money than they lose.  It’s a pretty good system.  Capitalism.

WHEN YOU HAVE risk takers who choose to participate in the free flow of ideas and capital, great things happen.  Modern AC electrical power that we take for granted is invented (thank you Nikola Tesla for the genius and George Westinghouse for taking the risk).  You develop modern commercial jet aviation (thank you Boeing for the 707, 727, 737, 747, well, you get the picture).  You transform the world when you add impurities to semiconducting material and sandwich them together (thank you John Bardeen, Walter H. Brattain and William B. Shockley for the transistor).

These great things, along with others, give us professional sports (stadiums, transportation to and from the stadium, jetliners to take teams to other stadiums, oil exploration and refining for jet and car fuel, etc.).  They give us movies (financing, cameras and production equipment, special effects, theaters, popcorn, DVDs for home viewing, etc.).  They give us cell phones (cellular towers, switching networks, compact and long lasting batteries, interactive handheld devices, voicemail, email, texting, etc.).  And they liberated women to do whatever they want wherever they want by making feminine hygiene protection portable and plentiful (mass production, rail and truck transport, retail and vending outlets, etc.) and by providing convenient privacy (public toilet facilities with vending machines and disposal bins). 

Imagine any of these things provided by the same people who renew our driver’s license.  Do you think any of it would be as good?  Or do you think it would be more like Soviet-era life?  There’s so much we take for granted in capitalism because we can.  It’s a system that works on basic human nature.  It doesn’t require sacrifice.  It doesn’t depend on consensus.  It just needs the free flow of ideas and capital.  And great things follow.

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