FT138: “High gas prices mean high food prices.” —Old Pithy

Posted by PITHOCRATES - October 5th, 2012

Fundamental Truth

We use Diesel Fuel in our Ships, Trains and Trucks to move Food from the Farm to the Grocery Store

People don’t like high gas prices.  When the price at the pump goes up more of our paycheck goes into the gas tank.  Or, more precisely, in everyone’s gas tanks.  For even if you don’t drive a car when gas prices go up you’re putting more of your paycheck into the gas tanks of others.  Thanks to oil being the lifeblood of our economy.  And unless you’re completely self-sufficient (growing your own food, making your own clothes, etc.) everything you buy consumed some petroleum oil somewhere before reaching you.

Gas prices go up for a variety of reasons.  The purely economic reason is the market forces of supply and demand.  When gas prices rise it’s because demand for gasoline is greater than the supply of gasoline.  Which means our refineries aren’t producing enough gasoline to meet demand.  And the purely economic reason for that is that they are not refining enough crude oil.  Meaning the low supply of gasoline is due to the low supply of crude oil.  Which brings us to how high gasoline prices consume more of our paychecks even if we don’t drive.  The reason being that we just don’t make gasoline out of crude oil.  We also make diesel fuel.

Diesel fuel is a remarkable refined product.  It just has so much energy in it.  And we can compress an air-fuel mixture of it to a very small volume.  Put the two together and you get a long and powerful power stroke.  Making the diesel engine the engine of choice for our heavy moving.  We use it in the ships that cross the ocean.  In the trains that cross our continents.  And in the trucks that bring everything to where we can buy them.  To the grocery stores.  The department stores.  To the restaurants.  Everything in the economy that we don’t make for ourselves travels on diesel fuel.  Which is why when gas prices go up diesel fuel prices go up.  Because of the low supply of oil going to our refineries to refine these products.

Oil is at a Disadvantage when it comes to Inflation because you just can’t Hide the Affects of Inflation in the Price of Oil

And there are other things that raise the price of gasoline.  That aren’t purely economical.  But more political.  Such as restrictions on domestic oil drilling.  Which reduces domestic supplies of crude oil.  Political opposition to new pipelines.  Which reduces Canadian supplies of crude oil.  Special ‘summer’ blends of gasoline to reduce emissions that tax a refinery’s production capacity.  As well as our pipeline distribution network.  Higher gasoline taxes.  To pay for roads and bridges.  And to battle emissions.  The ethanol mandate to use corn for fuel instead of food.  Again, to battle emissions.  All of which makes it more difficult to bring more crude oil to our refineries.  And more difficult for our refineries to make gasoline.  Which all go to adding costs into the system.  Raising the price at the pump.  Consuming more of our paychecks.  No matter who is buying it.

Then there is another factor increasing the price at the pump.  Inflation.  When the government tries to stimulate economic activity by lowering interest rates they do that by expanding the money supply.  So money is cheaper to borrow because there is so much more of it to borrow.  Hence the lower interest rates.  However, expanding the money supply also causes inflation.  And devalues the dollar.  As more dollars are now chasing the same amount of goods and services in the economy.  So it takes more of them to buy the same things they once did.  One of the harder hit commodities is oil.  Because we price oil on the world market in U.S. dollars.  So when you devalue the dollar it takes more of them to buy the same amount of oil they once bought.

Oil is at a particular disadvantage when it comes to inflation.  Because you just can’t hide the affects of inflation in the price of oil.  Or the gas we make from it.  Unlike you can with laundry detergent, potato chips, cereal, candy bars, toilet paper, etc.  Where the manufacturer can reduce the packaging or portion size.  Allowing them not to raise prices to reflect the full impact inflation.  They still increase the unit price to reflect the rise in the general price level.  But by selling smaller quantities and portions their prices still look affordable.  This is a privilege the oil industry just doesn’t have.  They price crude oil by a fixed quantity (barrel).  And sell gasoline by a fixed quantity (gallon).  So they have no choice but to reflect the full impact of inflation in these prices.  Which is why there is more anger about high gas prices than almost any other commodity.

Perhaps we can lay the Greatest Blame for the Current Economic Malaise on the Government’s Inflationary Monetary Policies

Current gas prices are hitting record highs.  And this during the worse economic recovery following the worst recession since the Great Depression.  Gas prices and the unemployment rate are typically inversely related to each other.  When there is high unemployment people are buying less gasoline.  This excess gasoline supply results in lower gas prices.  When there is low unemployment people are buying more gasoline.  This excess demand for gasoline results in higher gas prices.  These are the normal affects of supply and demand.  So the current high gas prices have little to do to with normal economic forces.  Which leaves government policies to explain why gas prices are so high.

Environmental concerns have greatly increased regulatory policy.  Increasing regulatory compliance costs.  Which has greatly discouraged the building of new refineries.  And making it very difficult to build new pipelines.  Which tax current pipeline and refinery capacities.  A problem mitigated only with their restriction on domestic oil production.  The current administration has pretty much shut down oil exploration and production on all federal lands.  Reducing crude oil supplies to refineries.  These environmental policies would send gas prices soaring if the economy was booming.  But the economy is not booming.  In fact the U-6 unemployment rate (which counts everyone who can’t find a full time job) held steady at 14.7% in September.  So an overheated economy is not the reason we have high gas prices.  But the high gas prices may be part of the reason we have such high unemployment.

Perhaps we can lay the greatest blame for the current economic malaise on the government’s inflationary monetary policies.  Inflation increases prices.  Especially those things sold in fixed quantities priced in dollars.  Like oil.  And gasoline.  The price inflation in refined oil products is like a virus that spreads throughout the economy.  Because everyone uses energy.  Especially the food industry.  From the farmers driving their tractor to work their fields.  To the trucks that take grain to rail terminals.  To the trains that transport this grain to food processing plants.  To the trucks that deliver these food products to our grocery stores.  From the moment farmers first turn over their soil in spring to the truck backing into to a grocery store’s loading dock to consumers bringing home groceries in their car to put food on the table fuel is consumed everywhere.  Which is why when gasoline prices go up food prices go up.  Because we refine gasoline from the same crude oil we refine diesel fuel from.  Oil.  Creating a direct link between our energy policy and the price of food.

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Even Cutting 28,000 Jobs will not help the USPS Compete against the Internet

Posted by PITHOCRATES - May 27th, 2012

Week in Review

The United States Postal Service (USPS) hates the Internet.  Before the Internet they had a monopoly in the letter industry.  If you wanted to send Granny a letter you had to go through them.  There’s only one problem with a monopoly.  Because they have a captive audience they don’t have to innovate.  They don’t have to improve anything.  Just make a lot of money.  And give your employees generous wage and benefit packages.  Just like the railroads did.  Before trucks came around, that is.  The trucking industry nearly destroyed the railroad industry.  But the railroads learned how to compete.  They helped redefine the transportation industry that now includes trains, ships and trucks.  The railroads are back.  Stronger than ever.  And making money.  But is it too late for the USPS?

The Internet is the USPS’ trucking industry.  It has all but destroyed the snail mail industry.  To survive the USPS has to do what the railroads did.  Reinvent itself.  Reinvent the industry they participate in.  If they can.  And they better hurry.  Because their monopoly is gone.  Not from other people entering the snail mail business.  But by new technology that created a better alternative to the snail mail business.  The Internet.  And it’s tap-dancing all over the USPS (see U.S. Postal Service offers buyouts to 45,000 workers by Emily Stephenson posted 5/25/2012 on Reuters).

The mail agency, which lost $3.2 billion in the first three months of 2012, plans to begin this summer moving mail-processing activities away from smaller sites to reduce annual costs.

As part of that plan, the Postal Service will offer $15,000 in two installments to full-time mail handlers who take early retirement or leave the agency, USPS spokesman Mark Saunders said on Friday…

The Postal Service has been hit hard by tumbling mail volumes as more Americans communicate online and by massive payments for future retiree health benefits…

The agency needs to reduce its workforce by 150,000 people by 2015, Saunders said. Consolidating and closing processing facilities, which will continue through 2014, could eliminate up to 28,000 jobs and save $2.1 billion a year, the Postal Service has said.

Saunders said he could not speculate how many mail handlers would take buyouts this year, but added that the change “will not affect mail service.”

It’s not enough.  If you annualize that $3.2 billion quarterly loss that comes to a $12.8 billion loss for the year (4 X $3.2 billion).  Cutting only $2.1 billion per year will not solve their problems.  They’ll still have an operating deficit of approximately $9.6 billion.  And if the Internet doesn’t go out of business in the foreseeable future these numbers are only going to get worse.

It’s pretty interesting that a company can cut 28,000 jobs without affecting its business operations.  Why, it’s almost as if they never shrunk their labor force all these years that their business has shrunk.  It’s as if 28,000 people have just been sitting around waiting for the work to pick up again.  While collecting a paycheck.  And while the USPS pours billions into a pension plan for their future retirement.  Hmm.  I wonder if this could have anything to do with that $3.2 billion quarterly loss. 

The clock is ticking.  While the USPS is still struggling to compete with email texting is giving email a run for its money.  And it just may be that the USPS is not as nimble as the railroad industry in pulling up its tracks and laying them on the road to profitability.

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Corduroy Roads, Positive Buoyancy, Negative Buoyancy, Carbon Dioxide, Crush Depth, Pressurization, Rapid Decompression and Space

Posted by PITHOCRATES - May 9th, 2012

Technology 101

Early Submarines could not Stay Submerged for Long for the Carbon Dioxide the Crew Exhaled built up to Dangerous Levels

People can pretty much walk anywhere.  As long as the ground is fairly solid beneath our feet.  Ditto for horses.  Though they tend to sink a little deeper in the softer ground than people do.  Carts are another story.  And artillery trains.  For their narrow wheels and heavy weight distributed on them tend to sink when the earthen ground is wet.  Early armies needing to move cannon and wagons through swampy areas would first build roads through these areas.  Out of trees.  Called corduroy roads.  It was a bumpy ride.  But you could pull heavy loads with small footprints through otherwise impassable areas.  As armies mechanized trucks and jeeps with fatter rubber tires replaced the narrow wheels on wagons.  Then tracked vehicles came along.  Allowing the great weights of armored vehicles with large guns to move across open fields.  The long and wide footprints of these vehicles distributing that heavy weight over a larger area.  Still, nothing can beat the modern rubber tire on a paved road for a smooth ride.  And the lower resistance between tire and road increases gas mileage.  Which is why trucks like to use as few axles on their trailers as possible.  For the more tires on the road the more friction between truck and road.  And the higher fuel consumption to overcome that friction.  Which is why we have to weigh trucks for some try to cheat by pulling heavier loads with too few axles.  When they do the high weight distributed through too few wheels will cause great stresses on the roadway.  Causing them to break and crumble apart.   

Man and machine can move freely across pretty much anything.  If we don’t carry food and water with us we could even ‘live off the land’.  But one thing we can’t do is walk or drive on water.  We have to bridge streams and rivers.  Go around lakes.  Or move onto boats.  Which can drive on water.  If they are built right.  And are buoyant.  Because if a boat weighed less than the water it displaced it floated.  Much like a pair of light-weight, spongy flip-flops made out of foam rubber.  Throw a pair into the water and they will float.  Put them on your feet and step into the deep end of a pool and you’ll sink.  Because when worn on your feet the large weight of your body distributed to the light pair of flip-flops makes those flip-flops heavier than the water they displace.  And they, along with you, sink.  Unlike a boat.  Which is lighter than the water it displaces.  As long as it is not overloaded.  Even if it’s steel.  Or concrete.  You see, the weight of the boat includes all the air inside the hull.  So a large hull filled with cargo AND air will be lighter than the water it displaces.  Which is why boats float. 

Early sail ships had great range.  As long as the wind blew.  Their range only being limited by the amount of food and fresh water they carried.  Later steam engines and diesel-electric engines had greater freedom in navigation not having to depend on the prevailing winds.  But they had the same limitations of food and water.  And when we took boats under the water we had another limitation.  Fresh air.  Early submarines could not stay submerged for long.  For underwater they could not pull air into a diesel-electric engine.  So they had to run on batteries.  Which had a limited duration.  So early subs spent most of their time on the surface.  Where they could run their diesel engines to recharge their batteries.  And open their hatches to get fresh air into the boat.  For when submerged the carbon dioxide the crew exhaled built up.  If it built up too much you could become disoriented and pass out.  And die.  If a sub is under attack staying under water for too long and the levels of carbon dioxide build up to dangerous levels a captain has little choice but to surface and surrender.  So the crew can breathe again.

Rapid Decompression at Altitude can be Catastrophic and Violent

Being in a submarine has been historically one of the more dangerous places to be in any navy (second to being on the deck of an aircraft carrier).  Just breathing on a sub had been a challenge at times while trying to evade an enemy destroyer.  But there are other risks, too.  Some things float.  And some things sink.  A submarine is somewhere in between.  It will float on the surface when it has positive buoyancy.  And sink when it has negative buoyancy.  But submarines operate in the oceans.  Which are very deep.  And the deeper you go the greater the pressure of the water.  Because the deeper you go there is more ocean above you pressing down on you.  And oceans are heavy.  If a sub goes too deep this pressure will crush the steel hull like a beer can.  What we call crush depth.  Killing everyone on board.  So a sub cannot go too deep.  Which makes going below the surface a delicate and risky business.  To submerge they flood ballast tanks.  Replacing air within the hull with water.  Making it sink.  Other tanks fill with water as necessary to ‘trim’ the boat.  Make it level under water.  When under way they use forward propulsion to maintain depth and trim with control surfaces like on an airplane.  If everything goes well a submarine can sink.  Then stop at a depth below the surface.  And then resurface.  Modern nuclear submarines can make fresh water and clean air.  So they can stay submerged as long as they have food for the crew to eat.

An airplane has no such staying power like a sub.  For planes have nothing to keep them in air but forward propulsion.  So food and water are not as great an issue.  Fuel is.  And is the greatest limitation on a plane.  In the military they have special airplanes that fly on station to serve as gas stations in the air for fighters and bombers.  To extend their range.  And it is only fuel they take on.  For other than very long-range bombers a flight crew is rarely in the air for extended hours at a time.  Some bomber crews may be in the air for a day or more.  But there are few crew members.  So they can carry sufficient food and water for these longer missions.  As long as they can fly they are good.  And fairly comfortable.  Unlike the earlier bomber crews.  Who flew in unpressurized planes.  For it is very cold at high altitudes.  And there isn’t enough oxygen to breathe.  So these crew members had to wear Arctic gear to keep from freezing to death.  And breathe oxygen they carried with them in tanks.  Pressurizing aircraft removed these problems.  Which made being in a plane like being in a tall building on the ground.  Your ears may pop but that’s about all the discomfort you would feel.  If a plane lost its pressurization while flying, though, it got quite uncomfortable.  And dangerous. 

Rapid decompression at altitude can be catastrophic.  And violent.  The higher the altitude the lower the air pressure.  And the faster the air pressure inside the airplane equals the air pressure outside the airplane.  The air will get suck out so fast that it’ll take every last piece of dust with it.  And breathable air.  Oxygen masks will drop in the passenger compartment.  The flight attendants will scramble to make sure all passengers get on oxygen.  As does the flight crew.  Who call in an emergency.  And make an emergency descent to get below 10 thousand feet.  Almost free falling out of the sky while air traffic control clears all traffic from beneath them.  Once below 10 thousand feet they can level off and breathe normally.  But it will be very, very cold.

Man’s Desire is to Go where no Man has Gone before and where no Human Body should Be

Space flight shares some things in common with both submarines and airplanes.  Like airplanes they can’t fly without fuel.  The greatest distance we’ve ever flown in space was to the moon and back.  The Saturn V rocket of the Apollo program was mostly fuel.   The rocket was 354 feet tall.  And about 75% of it was a fuel tank.  In 3 stages.  The first stage burned for about 150 seconds.  The second stage burned for about 360 seconds.  The third stage burned for about 500 seconds (in two burns, the first to get into earth orbit and the second to escape earth orbit).  Add that up and it comes to approximately 16 minutes.  After that the astronauts were then coasting at about 25,000 miles per hour towards the moon.  Or where the moon would be when they get there.  The pull of earth’s gravity slowed it down until the pull of the moon’s gravity sped it back up.  So that’s a lot of fuel burned at one time to hurl the spacecraft towards the moon.  The remaining fuel on board used for minor course corrections.  And to escape lunar orbit.  For the coast back home.  There was no refueling available in space.  So if something went wrong there was a good chance that the spacecraft would just float forever through the universe with no way of returning home.  Much like a submarine that can’t keep from falling in the ocean.  If it falls too deep it, too, will be unable to return home.

Also like in a submarine food and fresh water are critical supplies.  They brought food with them.  And made their own water in space with fuel cells.  It had to last for the entire trip.  About 8 days.  For in space there were no ports or supply ships.  You were truly on your own.  And if something happened to your food and water supply you didn’t eat or drink.  If the failure was early in the mission you could abort and return home.  If you were already in lunar orbit it would make for a long trip home.  The lack of food and hydration placing greater stresses on the astronauts making the easiest of tasks difficult.  And the critical ones that got you through reentry nearly impossible.  Also like on a submarine fresh air to breathe is critical.  Even more so because of the smaller volume of the spacecraft.  Which can fill up with carbon dioxide very quickly.  And unlike a sub a spacecraft can’t open a hatch for fresh air.  All they can do is rely on a scrubber system to remove the carbon dioxide from their cramped quarters.

While a submarine has a thick hull to protect it from the crushing pressures of the ocean an airplane has a thin aluminum skin to keep a pressurized atmosphere inside the aircraft.  Just like a spacecraft.  But unlike an aircraft, a spacecraft can’t drop below 10,000 feet to a breathable atmosphere in the event of a catastrophic depressurization.  Worse, in the vacuum of space losing your breathable atmosphere is the least of your troubles.  The human body cannot function in a vacuum.  The gases in the lungs will expand in a vacuum and rupture the lungs.  Bubbles will enter the bloodstream.  Water will boil away (turn into a gas).  The mouth and eyes will dry out and lose their body heat through this evaporation.  The water in muscle and soft tissue will boil away, too.  Causing swelling.  And pain.  Dissolved nitrogen in the blood will reform into a gas.  Causing the bends.  And pain.  Anything exposed to the sun’s ultraviolet radiation will get a severe sunburn.  Causing pain.  You will be conscious at first.  Feeling all of this pain.  And you will know what is coming next.  Powerless to do anything about it.  Brain asphyxiation will then set in.  Hypoxia.  The body will be bloated, blue and unresponsive.  But the brain and heart would continue on.  Finally the blood boils.  And the heat stops.  In all about a minute and half to suffer and die.

Man is an adventurer.  From the first time we walked away from our home.  Rode the first horse.  Harnessed the power of steam.  Then conquered the third dimension in submarines, airplanes and spacecraft.  We are adventurers.  It’s why we crossed oceans and discovered the new world.  Why we climbed the highest mountains.  And descended to the oceans’ lowest depth.  Why we fly in airplanes.  And travelled to the moon and back.  When things worked well these were great adventures.  When they did not they were horrible nightmares.  While a few seek this adventure most of us are content to walk the surface of the earth.  To feel the sand through our toes.   Or walk to the poolside bar in our flip-flops.  To enjoy an adult beverage on a summer’s day.  While adventurers are still seeking out something new.  And waiting on technology to allow them to go where no man has gone before.  Especially if it’s a place no human body should be.

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Carbon, Carbon Cycle, Crude Oil, Petroleum, Hydrocarbons, Oil Refinery, Cracking, Sweet Crude, Sour Crude, Gasoline and Diesel Engines

Posted by PITHOCRATES - April 25th, 2012

Technology 101

Crude Oil is made from Long Chains of Carbon Atoms Bonded Together with a lot of Hydrogen Atoms Attached Along the Way

Carbon.  It’s everywhere.  And in everything.  Like all matter it cannot be created.  Or destroyed.  It just changes.  As it creates the circle of life.  The carbon cycle.  Plants and trees absorb carbon out of the atmosphere.  And converts it into biomass.  Into wood.  And into animal food.  Where the digestive system converts it into carbon-based living flesh and blood.  That exhales carbon.  Plants absorb carbon and release oxygen.  Plants can’t grow without carbon.  And we can’t breathe without plants growing.  Carbon is constantly changing.  But never created.  Or destroyed.  From diamonds to pencils.  From sugar to carbonated soda.  From plastics to human beings.  It’s everywhere.  And everything.  Why, it’s life itself.

Carbon is a time traveler.  Carbon that once traveled through the atmosphere disappeared millions of years ago.  Buried underneath the surface of the earth.  Under intense heat and pressure.  Plankton and algae and other biomasses decayed until there was almost nothing left but carbon atoms.  Long chains of carbon atoms.  Forming great, restless pools of black goo beneath the surface.   Waiting for the modern world to arrive.  Waiting for the internal combustion engine.  The jet engine.  And plastics.  When they could be reborn.  And see the light of day again.

Crude oil.  Petroleum.  Black gold.  Texas tea.  Hydrocarbons.  Long chains of carbon atoms bonded together with a lot of hydrogen atoms attached along the way.  In the ground they’re mostly long chains.  When we get them above ground we can break those chains into different lengths.  And create many different things.  C16H34 (hexadecane).  C9H20 (nonane).  C8H18 (octane).  C7H16 (heptane).  C5H12 (pentane).  C4H10 (butane).  C6H6 (benzene).  CH4 (methane).  Some of these you may be familiar with.  Some you may not.  Methane is a flammable gas.  Hydrocarbon chains from pentane to octane make gasoline.  Hydrocarbon chains from nonane to hexadecane make diesel fuel, kerosene and jet fuel.  Chains with more carbon atoms make lubricants.  Chains with even more carbon atoms make asphalt.  While chains with 4 carbon atoms or less make gases.  All these things made from the same black goo.  A true marvel of Mother Nature.  Or God.  Depending on your inclination.

Older Coastal Refineries make more Expensive Gasoline than the Newer Refineries due to the Availability of Sweet versus Sour Crude

Another great carbon-based product it bourbon.  Made from a corn sour mash.  We heat this and the alcohol in it boils off.  That is, we distill it.  We run this gas through a coiling coil and it condenses back into a liquid.  And after a few more steps we get delicious bourbon whiskey.  Distilleries give tours.  If you get a chance you should take one.  You won’t get to sample any of the distilled spirits (insurance reasons).  But you will get a feel for what an oil refinery is.

An oil refinery works on the same principles.  Boil and condense.  And cracking.  Cracking those long hydrocarbon chains apart into all those different chains.  Long and small.  Into liquids and gases.  Even solid lubricants and asphalt.  All made possible because of their different boiling points.  The gases having lower boiling points.  The solids having higher boiling points.  And the liquids having boiling points somewhere in between.

Refineries are complex processing plants.  Not only because of all those different hydrocarbon chains.  But because of the crude oil introduced to these plants.  For there is light sweet crude.  And heavier sour crude.  The difference being the additional stuff that we need to remove.  Such as sulfur.  An environmental problem.  So we have to remove as much of it as possible during the refining process to meet EPA standards.  The sweet crudes are lower in sulfur.  Making them the crude of choice.  But this has also been the most popular crude through the years.  So its resources are dwindling.  Making it more expensive.  As are all the products refined from it.  Especially gasoline.  The more sour crudes have higher sulfur content.  And require more refining steps to remove that sulfur.  Which means additional refinery equipment.  So the older refineries that were refining the light sweet crude can’t refine the heavier sour crudes.  Which is why the refineries along the coasts make more expensive gasoline than the newer ones in the interior refining the heavier sour crudes.  Due to the availability of sweet crude versus sour crude.

The Modern World is brought to us by a Complex Economy which is brought to us by Petroleum

One of the main uses of refined crude oil is fuel for internal combustion engines.  In particular, gasoline engines and diesel engines.  Which are very similar.  The difference being the mode of ignition.  And, of course, the fuel.  Gasoline engines compress an air-fuel mixture in the cylinder.  At the top of the compression stroke a spark plug ignites this highly compressed and heated mixture.  Sending the piston down.  If the combustion occurs too early it could place undo stresses on the piston connecting rods and the crank shaft.  By trying to send the piston down when it was coming up.  Causing a knocking sound.  Which is a bad sound to hear.  And if you hear it you should probably make sure you’re using the right gasoline.  If you are you need to have you car serviced.  Because continued knocking may break something.  And if it does your engine will work no more.  So this is where octane comes in the blending of gasoline.  It’s expensive.  But the more of it in gasoline the higher the compression you can have.  And the less knocking.  Which is its only purpose.  It doesn’t give you any more power.  The higher compression does.  Which the higher octane allows.  Using the higher octane gas in a standard compression engine won’t do anything but waste your hard earned money.

And speaking of higher compression engines, that brings us to diesel engines.  Which are similar to gasoline engines only they operate under a higher compression.  And don’t use spark plugs.  These engines compress air only.  Which allows the higher compression without pre-ignition.  At the top of their compression stroke a fuel injector squirts diesel fuel into the hot compressed air where it combusts on contact.  Diesel fuel has a higher energy content than gasoline.  Meaning for the same volume of fuel diesel can take you further than gasoline.  Which is why trucks, locomotives and ships use diesel.  But diesel tends to pollute more.  The smell and the soot kept diesel out of our cars for a long time.  As well as the difficulty of starting in cold climates.  Advanced computer controlled systems have helped, though, and we’re seeing more diesel used in cars now.

The modern world is brought to us by a complex economy.  Where goods and raw materials traverse the globe.  To feed our industries.  And to ship our finished goods.  Which we put on trucks, trains, ships and airplanes.  None of which would be possible without a portable, stable, energy-dense fuel.  That only refined petroleum can give us.  It’s better than animal power.  Water power.  Wind power.  Or steam power.  For there is nothing that we can use in our trucks, trains, ships and airplanes other than refined petroleum products today that wouldn’t be a step backwards in our modern world.  Nothing.  Making petroleum truly a marvel of Mother Nature.  Or God.  Depending on your inclination.

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The Private Sector is Investing in Natural Gas because there’s a Real Market for it unlike Solar and Wind

Posted by PITHOCRATES - April 1st, 2012

Week in Review

The environmentalists have finally got something they wanted.  Private businesses choosing a cleaner fuel because they want to.  Not because they were forced to.  Or because they were bribed to.  But because these greedy little bastards can make more money by going green.  They hate the profit motive.  But at least these profits come with a cleaner environment.  You’d think they’d be happy.  But, of course, they’re not.  Because for this cleaner world they’d have to accept something they just hate too much (see Natural-Gas Vehicles Will Run Best Without Subsidies by the Editors posted 3/29/2012 on Bloomberg).

Few areas of American governance have been as incoherent in recent decades as energy policy, which is saying something. But lately, we keep seeing reasons for optimism.

Almost miraculously, the U.S. is both reducing its greenhouse-gas emissions and becoming increasingly energy independent. As Bloomberg News recently reported, the share of U.S. energy demand met by domestic sources increased to 81 percent through the first 10 months of 2011 — the highest level in 20 years — and emissions are expected to decline 12 percent by 2020.

A major factor in both trends is increased use of natural gas, a cleaner-burning fossil fuel now being extracted in abundance across the country. Hydraulic fracturing, a new production technology also known as fracking, has helped push prices for the fuel to a decade low, and has created plenty of jobs in the process…

Natural gas has many advantages — which is exactly why the industry doesn’t need more government help.

Proponents of federal aid argue that the costs of switching to natural gas on a large scale are prohibitive for trucking companies and consumers. But as Bloomberg News has reported, trucking companies are already buying more long-haul natural-gas trucks simply because the fuel is so cheap. Annual savings over diesel can add up to $20,000 for a single truck — so a company can recoup the extra cost of the new technology in about two years…

To meet increased demand, companies are building infrastructure on their own: Clean Energy Fuels Corp., which provides natural gas fuel for transportation, plans to build 70 liquefied natural-gas stations by the end of the year. General Electric Co. and Chesapeake Energy Corp. have formed an alliance to help make compressed natural gas available at more filling stations. Honda plans to install fueling stations at some of its dealerships. Fleets of taxis, trucks and buses across the country are using the fuel in growing numbers.

In other words, market forces are working. It’s not yet clear what will be the most efficient means to get natural gas to power vehicles — many options are on the table — but the private sector is the best place to experiment. Billions of dollars in government subsidies will only further distort the energy sector, threaten to create another industry reliant on Washington’s largesse and drive up prices by artificially boosting demand.

No trucking firms are buying any electric long-haul trucks and installing recharging stations across the country.  For that would be too costly.  And waste too much time.  But time is money for a trucker.  They don’t have time to wait for a battery to recharge every time they need to’re-fuel’.  That’s why they stick to fossil fuels.  Even the change to a cleaner and cheaper fuel is still a change to fossil fuel.  Because there’s no other fuel source outside of science fiction that can do what fossil fuels can do.

Because there is a market for natural gas-powered trucks the private sector is providing the infrastructure for it.  Without any ‘Solyndra’ subsidies or loan guarantees.  There’s money to make so private capital is flowing to where it needs to be to make this a reality.  Without any help from the government.  The way it should be in a free market economy.

This is everything the Obama administration could ask for.  Less fuel emissions.  Less dependence on foreign oil.  And they don’t have to use the power of government to make anyone adopt this technology.  There’s no downside.  Except, of course, the environmentalists.  Who hate hydraulic fracturing.  AKA fracking.  (And basically any fossil fuel in general.)  They say it contaminates the ground water.  So they don’t want it.  Just as they don’t want oil.  Or coal.  Or nuclear.  Or hydroelectric power.  Which basically leaves out every way to generate electricity except solar and wind.  Which can’t come close to producing the amount of electricity the other sources of electricity-generation can.  Which will be a big problem for the environmentalists.  Who want everyone to drive an emissions-free electric car.  Cars that will be very difficult to charge if the environmentalists don’t let us produce any electricity.  And the only things that’ll let us do this are the fossil fuels.  Or hydroelectric power.

There’s no pleasing some people.  Unless we all go back to the horse and buggy days.  Maybe that would make the environmentalists happy.  Having the air thick with horse manure.  With our streets covered in horse poop, pee and swarms of flies.  Maybe that would make them happy.  As it would all be natural.  Then again, this may be a problem with PETA.  Who would rather have the pollution if the alternative meant violating animal rights.  Which we would be violating if we enslaved horses to work for us.

You know who’s not having silly debates like this?  Brazil.  Russia.  India.  China.  And South Africa.  The BRICS emerging economies.  And the reason why they’re emerging and we’re wallowing in recession is that they don’t let their environmentalists sit at the big table with the grownups. 

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Flint Tools, Levers, Wheels, Animal Power, Water Power, Wind Power, Steam Power, Electrical Power, Nuclear Power and Solar Power

Posted by PITHOCRATES - February 22nd, 2012

Technology 101

Man harnessed the Energy in Moving Water with a Water Wheel

When prehistoric man first chipped a piece of flint to make a sharp edge he learned something.  It made work easier.  And his life better.  This tool concentrated his energy into that sharp edge.  Increasing the amount of energy he could put to work.  Allowing him to skin an animal quickly and efficiently like never before.  Making better hides to protect him from the elements.  Yes, he said, this tool is good.  But in a somewhat less sophisticated manner of speech.

From that moment forward it has been man’s singular desire to improve on this first tool.  To find ways to concentrate energy and put it to work.  Levers allowed him to move heavier things.  Wheels allowed him to move heavier loads.  The block and tackle allowed him to lift or pull heavier weights.  Harnessing animals allowed him to do all of these things even better.  And we would use animal power for millennia.  Even today they still provide the primary source of power for some less developed countries.

But animals have their limitations.  They’re big, they eat, drink, pee and poop.  Which doesn’t make them an ideal source of power to turn a mill wheel.  A big wheel that grinds grain into flour.  It’s heavy.  But it doesn’t have to spin fast.  Just for long periods of time.  Then man had another moment like he did when he chipped a piece of flint.  He noticed in his environment that things moved.  The wind.  And the water in a river.  The wind could blow fast or slow.  Or not at all.  But the water flow was steady.  And reliable.  So man harnessed the energy in the moving water with a water wheel.  And connected it to his mill wheel via some belts and pulleys.  And where there was no water available he harnessed the less reliable wind.

The Steam Engine eliminated the Major Drawbacks of Water Power and Wind Power 

The water flowed day and night.  You didn’t have to feed it or clean up after it.  And a strong current had a lot of concentrated energy.  Which could do a lot of work.  Far more than a sharpened piece of flint.  Which was ideal for our first factories.  The water wheel shaft became a main drive shaft that drove other machines via belts and pulleys.  The main drive shaft ran the length of the factory.  Workers could operate machinery underneath it by engaging it to the main drive shaft through a belt and pulley.  Take a trip to the past and visit a working apple mill powered by a water wheel.  It’s fascinating.  And you’ll be able to enjoy some fresh donuts and hot cider.  During the harvest, of course.

While we built factories along rivers we used that other less reliable source of energy to cross oceans.  Wind power.  It wasn’t very reliable.  And it wasn’t very concentrated.  But it was the only way you could cross an ocean.  Which made it the best way to cross an ocean.  Sailors used everything on a sailing ship from the deck up to catch the wind and put it to work.  Masts, rigging and sails.  Which were costly.  Required a large crew.  And took up a lot of space and added a lot of weight.  Space and weight that displaced revenue-earning cargo.

The steam engine eliminated the major drawbacks of water power and wind power.  By replacing the water wheel with a steam engine we could build factories anywhere.  Not just on rivers.  And the steam engine let ships cross the oceans whenever they wanted to.  Even when the wind didn’t blow.  And more space was available for revenue-earning cargo.  When these ships reached land we transferred their cargoes to trains.  Pulled by steam locomotives.  That could carry this revenue-earning cargo across continents.   This was a huge step forward.  Boiling water by burning coal to make steam.  A highly concentrated energy source.  A little of it went a long way.  And did more work for us than ever.  Far more than a water wheel.  It increased the amount of work we could do so much that it kicked off the Industrial Revolution.

With Nuclear Power our Quest to find more Concentrated Forms of Energy came to an End 

We replaced coal with oil in our ships and locomotives.  Because it was easier to transport.  Store.  And didn’t need people to shovel it into a boiler.  Oil burners were more efficient.  We even used it to generate a new source of power.  Electrical power.  We used it to boil water at electrical generating plants to spin turbines that turned electrical generators.  We could run pipelines to feed these plants.  Making the electricity they generated even more efficient.  And reliable.  Soon diesel engines replaced the oil burners in ships and trains.  Allowed trucks and buses to run where the trains didn’t.  And gasoline allowed people to go anywhere the trains and buses didn’t go.

The modern economy ran on petroleum.  And electricity.  We even returned to the water wheel to generate electricity.  By building dams to build huge reservoirs of water at elevations.  Creating huge headwater forces.  Concentrating more energy in water.  Which we funneled down to the lower elevation.  Making it flow through high-speed water turbines connected to electrical generators.  That spun far faster than their water wheel ancestors.  Producing huge amounts of reliable electrical power.  We even came up with a more reliable means to create electrical power.  With an even more concentrated fuel.  Fissile material gave us nuclear power.  During the oil shocks of the Seventies the Japanese made a policy change to expand their use of nuclear power.  To insulate them from future oil supply shocks.  Which it did.  While in America the movie The China Syndrome came out around the time of the incident at Three Mile Island.  And killed nuclear power in America.  (But as a consolation prize we disproved the idea of Keynesian stimulus.  When the government created massive inflation with Keynesian policy.  Printing money.  Which raised prices without providing any new economic activity.  Causing instead high inflation and high unemployment.  What we call stagflation.  The Japanese got a big Keynesian lesson about a decade later.  When their massive asset bubble began to deflate giving them their Lost Decade.)

And with nuclear power that quest to find more ways to make better and more efficient use of concentrated energy from that first day we used a flint tool came to an end.  Global warming alarmists are killing sensible sources of energy that have given us the modern world.  Even animal rights activists are fighting against one of the cleanest sources of power we’ve ever used.  Water power.  Because damming rivers harms ecosystems in the rivers we dam.  Instead political pressures have turned the hands of time backwards by using less concentrated and less efficient sources of energy.  Wind power.  And solar power.  Requiring far greater infrastructure installations to capture far less amounts of energy from these sources.  Power plants using wind power and solar power will require acres of land for windmills and solar panels.  And it will take many of these power plants to produce what a single power plant using coal, oil, natural gas or fissile material can generate.  Making power more costly than it ever has been.  Despite wind and sunshine being free.  And when the great civilizations become bankrupt chasing bankrupt energy policies we will return to a simpler world.  A world where we don’t make and use power.  Or machinery.  Much like our flint-tool using ancestors.  Albeit with a more sophisticated way of expressing ourselves.

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FDR, Wage Ceiling, Arsenal of Democracy, Benefits, Big Three, Japanese Competition, Legacy Costs, Business Cycle and Bailouts

Posted by PITHOCRATES - February 14th, 2012

History 101

After the Arsenal of Democracy defeated Hitler the Wage Ceiling was Gone but Generous Benefits were here to Stay

FDR caused the automotive industry crisis of 2008-2010.  With his progressive/liberal New Deal policies.  He placed a ceiling on employee wages during the Great Depression.  The idea was to keep workers’ wages low so employers would hire more workers.  It didn’t work.  And there was an unintended consequence.  As there always is when government interferes with market forces.  The wage ceiling prevented employers from attracting the best workers by offering higher wages.  Forcing employers to think of other ways to attract the best workers.  And they found it.  Benefits.

Adolf Hitler ended the Great Depression.  His bloodlust cut the chains on American industry as they tooled up to defeat him.  The Arsenal of Democracy.  America’s factories hummed 24/7 making tanks, trucks, ships, airplanes, artillery, ammunition, etc.  The Americans out-produced the Axis.  Giving the Allies marching towards Germany everything they needed to wage modern war.  While in the end the Nazis were using horses for transport power.  This wartime production created so many jobs that they even hired women to work in their factories.  Bringing an end to the Great Depression finally after 12 years of FDR.

The Arsenal of Democracy defeated Hitler.  U.S. servicemen came home.  And the women left the factories and returned home to raise families.  With much of the world’s factories in ruins the U.S. economy continued to hum.  Only they were now making things other than the implements of war.  The auto makers returned to making cars and trucks.  The ceiling on wages was gone.  But those benefits were still there.  Greatly increasing labor costs.  But what did they care?  The American auto manufacturers had a captive audience.  If anyone wanted to buy a car or truck there was only one place to buy it.  From them.  No matter the cost.  So they just passed on those high wages and expensive benefit packages on to the consumer.  Times were good.  The Fifties were happy times.  Good jobs.  Good pay.  Free benefits.  Nice life in the suburbs.  All paid for by expensive vehicle prices.

The Big Three could not Sell Cars when there was Competition because of their Legacy Costs

But it wouldn’t last.  Because it couldn’t last.  For those factories destroyed in the war were up and running again.  And someone noticed those high prices on American cars.  The Japanese.  Who rebuilt their factories.  Which were now humming, too.  And they thought why not enter the automotive industry?  And this changed the business model for the Big Three (GM, Ford and Chrysler) as they knew it.  The Big Three had competition for the first time.  Their captive audience was gone.  For the consumer had a choice.  They could demand better value for their money.  And chose not to buy the ‘rust buckets’ they were selling in the Seventies.  Cars that rusted away after a few snowy winters.  Or a few years near the ocean coast.

The new Japanese competition started about 30 years after U.S. workers began to enjoy all those benefits.  So the U.S. car companies paid their union auto workers more and gave them far more benefits than their Japanese competition.  And those early U.S. workers were now retiring.  Giving a great advantage to the Japanese.  Because those generous benefits provided those U.S. retirees very comfortable pensions.  And all the health care they could use.  All paid for by the Big Three.  Via the price of their cars and trucks.

Well, you can see where this led to.  The Big Three could not sell cars when there was competition.  Because of these legacy costs.  Higher union wages.  Generous pension and health care benefits that workers and retirees did not contribute to.  (By the time GM and Chrysler faced bankruptcy in 2010 there were more retirees than active union workers).  The United Automobile Workers (UAW) jobs bank program where unemployed workers (laid off due to declining sales) collected 95% of their pay and benefits.  (You can find many quotes on line from a Detroit News article stating some 12,000 UAW workers were collecting pay and benefits in 2005 but not working.)  The Japanese had none of these costs.  And could easily build a higher quality vehicle for less.  Which they did.  And consumers bought them.  The Big Three conceded car sales to the Japanese (and the Europeans and South Koreans) and focused on the profitable SUV and truck markets.  To pay these high legacy costs.  Until the gas prices soared to $4/gallon.  And then the Subprime Mortgage Crises kicked off the Great Recession.  Leading to the ‘bankruptcy’ of GM and Chrysler.  And their government bailouts.

The U.S. Automotive Government Bailout cut Wage and Benefits once Set in Stone

The Big Three struggled because they operated outside normal market forces.  Thanks at first to a captive audience.  Then later to friends in government (tariffs on imports, import quotas, union-favorable legislation, etc.).  All of this just delayed the day of reckoning, though.  And making it ever more painful when it came.

During economic downturns (when supply and prices fall) their cost structure did not change.  As it should have.  Because that’s what the business cycle does.  It resets prices and supply to match demand.  With recessions.  Painful but necessary.  Just how painful depends on how fast ‘sticky’ wages can adjust down to new market levels.  And herein lies the problem that plagued the Big Three.  Their wages weren’t sticky.  They were set in stone.  So when the market set the new prices for cars and trucks it was below the cost of the Big Three.  Unable to decrease their labor (wage and benefit) costs, profits turned into losses.  Pension funds went underfunded.  And cash stockpiles disappeared.  Leading the Big Three to the brink of bankruptcy.  And begging for a government bailout.

Well, the bailout came.  The government stepped in.  Gave the union pension fund majority control of the bailed out companies.  Screwing the bondholders (and contract law) in the process.  And created a two-tier labor structure.  They grandfathered older employees at the unsustainable wage and benefit packages.  And hired new employees at wage and benefit packages that the market would bear.  Comparable to their Asian and European transplant auto plants in the right-to-work states in the southern U.S. states.  And put the market back in control of the U.S. auto industry.  For awhile, at least.

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LESSONS LEARNED #63: “There is no such thing as a monopoly in free market capitalism.” -Old Pithy

Posted by PITHOCRATES - April 28th, 2011

Even the mighty Coke-Pepsi Duopoly can’t stop People from Drinking Tap Water

Coke and Pepsi have a near monopoly in the cola market.  Or a duopoly.  They dominate.  And they’re bitter enemies.  Few brands are locked in such a bitter struggle that we call it war.  The Cola Wars.  They are archenemies.  Even though they may cooperate by alternating their discounting to limit their losses.  One month Coke may be on sale.  The following month, Pepsi.  They’re big and their powerful and when you ask for a Coke at a restaurant you’ll either get a Coke.  Or they’ll ask you if Pepsi is okay.  Or vice versa.  Because they own the market.

But do they?  There’s always another choice.  At a restaurant, we can order ice tea.  Hot tea.  Coffee.  Orange drink.  Beer.  Wine.  A cocktail.  Or even water.  Ditto at the grocery store.  Walk down an aisle and there’s more to choose than Coke or Pepsi.  RC Cola, for one.  And then there’s the un-cola (7-Up).  VernorsA&W Root BeerSquirtDr. PepperCrushSnapple.  And other name brands that aren’t owned by the Dr. Pepper Snapple Group.  Not to mention all the store brands.  And, of course, tap water.  Which I personally drink with most of my meals.  Even though there’s nothing finer than a Coke or Pepsi to wash down a greasy pizza.

Try as they might Coke and Pepsi can’t limit entry into the beverage market.  The barriers they can erect are minimal.  They can offer a special price to a store or restaurant in exchange for keeping out their hated rival, but they can’t prevent people from asking for tap water.  Or from people simply going elsewhere to get the Coke or Pepsi product they want.  Or the million other options out there.  And if they raise their prices in their ‘duopoly’, people will just seek out those other options.  Yes, they may be able to tell the difference between Coke and Pepsi in blind taste tests.  But if the price isn’t right, they’ll enjoy RC Cola just fine.  Or even the store brand cola.

Go ahead and Tax our Tea.  We’ll just drink Coffee Instead.

You see, to keep out the competition, you need the power of government.  Just ask the sugar importers.  Who would love to sell to the cola companies.  But don’t.  Because government has erected a barrier to that market.  Now, we don’t know what their highly guarded secret recipes are, but we do know that they each use the same sweetener.  High fructose corn syrup (HFCS).  They don’t use sugar.  Why?  Because Big Ag lobbied Congress to slap high tariffs on imported sugar.  Which they have.  Now the price of sugar is so high the cola companies use HFCS instead.  Though that may be changing as of late with a new round of health concerns about HFSC.  But that’s a whole other story.

To limit consumer choice, you need government to step in.  Because only government can write laws to erect market barriers.  For example, the last straw of British oppression before America’s Declaration of Independence was about a British law that erected a market barrier.  British Americans, being of British stock, liked their tea.  But they didn’t like paying the high price of East Indian Company tea.  In the Mercantile economics of the day, everything bought and sold in the British Empire shipped on British ships through British ports.  Indian opium shipped on British ships to China (via Calcutta).  The British than used the proceeds from those sales to purchase tea.  Which they shipped on British ships back to London.  Where they paid a duty on it.  And then on to America.  Where the colonists paid a tax on it.  All these markups made their tea pretty expensive.

Famine and recession caused financial problems for the East India Company.  To help alleviate their problems, British Parliament stepped in.  Said they could ship their tea directly to British North America (without going through London).  And sell it tax-free in the colonies.  Which made all other tea more expensive.  Which did not go over well with the American tea merchants.  Or the colonists in general.  This led to the Boston Tea Party.  American Independence.  And the switch from drinking tea to drinking coffee in America.  Because even when there is only one tea that is legal to drink, there is always another choice.

Rockefeller benefited Consumers.  The ICC did not.

People love Teddy Roosevelt for his trust busting.  Attacking the big robber barons.  To help the little guy.  And one of the big guys the little guys loved to hate was John D. Rockefeller.  Of Standard Oil fame.  Rockefeller was richer than most nations.  And some people just hated that.  He made his wealth by making refined oil products affordable to the consumer.  And he was a great environmentalist.  He saved the whales by replacing whale oil with kerosene.  And his relentless research and development made every bit of refined oil into a useful product.  While his competitors dumped most of their waste back into the environment.  Not Rockefeller.  He hated waste.  He even experimented in finding the least number of welds it would take to hold an oil barrel together.  He invented vertical integration (controlling industries up and down the product pipeline from the collection of raw resources to the sale of a finished product).  He not only made refined oil products cheap.  He made them plentiful.  Which made America the world’s leading economic power.  Successful corporations follow his example today.

Sure, he put a lot of his competitors out of business.  But it wasn’t because he was a monopoly.  It was because he was just that much better.  He produced refined products better and cheaper than his competition.  By the time the trust busters busted up Standard Oil, competition was coming into being on the Standard Oil model.  Which ultimately produced more refined products at lower costs.  He forced the competition to step up to his level which benefited consumers.  While the trust busters tried to bring Rockefeller down to his competitor’s level which benefited his competitors.  Not the consumers.  No, consumers did very well by John D. Rockefeller.  He created and produced at a relentless rate.  He didn’t ask for government help.  Unlike his competitors.  Who complained to the government.  (It is never a consumer that complains about predatory pricing).  Because when you can’t compete legitimately, you petition government for special favors.  Much like some of the railroads did.

Building a railroad is costly.  And takes a lot of friends in government.  At all levels.  Because you have to lay track through federal land, state land, county land as well as through cities.  Of course, everyone wanted that track to go through their land because the railroad was the way to ship goods.  And people.  So the system was ripe for corruption.  And it often was.  Once built some shippers complained about unfair shipping rates compare to what others got.  Rockefeller, for example, was highly criticized for getting better rates by far than any of his competitors.  Of course, he shipped by far more product than any of his competitors.  Which probably had a lot to do with his rates.  But the government saw that things were unfair in the railroad business.  So they stepped in.  And created the Interstate Commerce Commission (ICC).  Which was to right all the wrongs.  Which, of course, it didn’t.  It just made it easier for the big companies to fix things in their favor.  For they now had a single governing body to buy.  Which made it easier to buy political influence.

But none of this made a difference to save the railroads.  They started to die in the Fifties.  Of arrogance.  When people asked the big railroad executives what business they were in, they replied, “The railroad business.”  But they weren’t.  They were in the transportation business.  What’s the difference?  The ‘railroad’ business had only other railroads for competition.  The transportation business had cars, trucks and, eventually, planes, as competition.  So even though those who used the power of government to restrict other railroads from entering their markets, there was still competition.  The interstate highways and the automobile killed passenger rail.  And the trucking industry almost killed the freight railroads.  What saved them was realigning their operations into the transportation business.  Intermodal transportation combined container ships, railroads and trucks into a seamless and cost efficient transportation system.  Roadrailers took that concept to a higher level.  These are truck trailers that can be pulled by a locomotive without the need of a rail flatcar.  Trucks deliver these trailers to a rail yard.  They add a train bogey to the trailer.  Put it on the track.  Couple them together.  And attach them to a single locomotive.  Very little non-revenue weight.  Making it very efficient.  John D. Rockefeller would be impressed.

In a Free Market there is always a Choice

Wherever there is a market there is competition.  For any market where a profit can be made will attract others to that market.  Companies can try to restrict competitors.  But that’s all they can do.  Try.  Because if it’s a free market, it’s open to competition.  There are no barriers that a competitor can’t overcome.  Except one legislated by government.  And competitors can even crack that barrier.

And this is what it takes to make a monopoly.  Government.  Railroads had monopolies for awhile.  But creative business people found a way to crack their government-imposed monopoly.  Truckers came in and shipped at rates lower than the ICC said was fair.  Of course, fair is a relative term.  What’s fair to the railroad is not fair to the shipper.  Or the consumer.  But a trucker shipping at rate that he can cover his expenses and support his family is fair to everyone.  Except the railroad who depended on government instead of innovation for their business profits.

Coke and Pepsi can fight their cola wars but they can’t keep out competition.  There’s always root beer, ginger ale, orange drink, beer, wine, liquor, water, coffee or tea.  And even when government uses their full weight and power to create and maintain a tea monopoly, tea drinkers can simply become coffee drinkers.  For in a free market there is always a choice.  Always.

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