Ian Sefferman

Localized Energy Independence and the P2P Grid

(Note: Admittedly, this is an area in which I have very little knowledge or education. This is also a very un-fleshed out idea. But, hey, blogs were made for uneducated people to make broad generalizations, right? If you’re more well-informed here, please do comment.)

As we move towards energy independence, I think we should be looking at the energy industry with more of a blank canvas than we are currently. For example, we simply take for granted the power grid and the fact that energy comes from some external provider. Rather, while things like wind turbines and solar panels and battery technology become more efficient, cheaper, and smaller, it seems like we could get to the point of localized energy independence. That is, my house (plus all my belongings: car, etc) could be energy independent.

Obviously, this isn’t something new, people have been saying this for quite some time. What few people are talking about, however, is the fact that once each piece of property becomes energy independent is that we can then re-build our grid to be more P2P. I don’t want to be without power and cut off from the world simply because my solar panel broke and I ran out of my battery reserves. I want to leach, just for a little bit, from my neighbors. They won’t mind, because it’ll come back to them when they have a problem (it’s like knocking on the door asking for sugar!). Of course, power companies aren’t completely forgotten; they can take the role of the “supernodes” we see often in P2P applications.

I think this would really open our country up to thinking about power in entirely different ways:

• It would mean that you can use whatever energy you can provide to your property the most cheaply (and, of course, we could tax those using unclean energy to make it less cost-effective). That opens up worlds of possibilities like, for example, Tyson farms using chicken schmaltz to power their trucks (a great way to recycle waste).
• With more power sources (i.e. one per property), our fault tolerance actually rises. No longer will we have to worry about entire regions blacking out due to software bugs since all bugs will be localized to one or just a few properties.
• Furthermore, if we continue to develop clean power sources without thinking about decentralization, we do run the risk of actually adding single-points-of-failure to our electrical grid. If we go, say, with a combination of wind and solar, most of the solar farms will be in the southwest while most of the wind farms will be in the plains. These farms will be large and will be consolidated very closely to each other. Enemies will have comparatively fewer targets to look for to knock the grid out.
• Rather than having the same shitty power companies to deal with, where we still spend money on power each month, the power companies will become the “supernodes”, who can store our excess power each month until we need it back (and only charging us if we really do go over). Moreover, they can become the technicians who help restore power in case of failures. Their role shifts to a more service oriented company which means competition can begin and the consumer will win as prices fall and quality rises.

My Thoughts On An Auto Bailout

Anybody who knows me knows what Detroit means to me. If you’ve been keeping track, you also know I was against the financial bailout. The Auto Industry bailout has been harder for me to decide my true feelings. I can come up with compelling arguments both ways, not to mention the emotional investment I have with Detroit (and the family ties to Ford).

First, the financial industry is really a bunch of douchebags (sorry, friends, who work there, but you know it, too) who are too greedy for their own good. The workers in the Big 3 are, for the most part, hard working, blue collar factory workers who deserve every dollar they get. If the financial industry was bailed out, so should be the Big 3. +1 for the bailout.

But, cars are fairly substitute-able, and I’m happy to have the best company win. -1 for the bailout.

But, we’ve already given $3.5 TRILLION dollars to financial companies.. What’s another $25 billion to keep people in their jobs long enough to make a difference and hopefully cause these companies to change for the better? I likely wouldn’t feel this way if we hadn’t given so much out already, but since we have, hey, let’s just keep going! +1 for the bailout.

The Big-3 haven’t been mismanaged for a couple years, they’ve been mismanaged for at least three decades now. They don’t deserve a bailout on that basis alone. Moreover, their executives don’t even understand how badly they’ve mismanaged the companies. It’s shocking to me how much of an idiot Rick Wagoner is. And let’s not get started on the executive pay which is clearly not tied to financial performance. -1 for the bailout.

The Biggest Reason: Unions

But, the biggest reason why I think the Big 3 should NOT be bailed out is because of the unions. There is no question in my mind (and this comes from someone with grandparents receiving a pension check — which they don’t need to survive — each month from Ford) that the unions are at least 80% to blame for the failure of the Big 3.

The Big 3 are unfathomably nice. It’s shocking to me, really. As a 24 year old, I can’t imagine any company being as nice to me as the Big 3 are to their current and former workers. (Hey, I’m not complaining about the many discounts my family has received on Fords, Jaguars, Volvos, and others. But we probably didn’t deserve it.)

And the Big 3 continuously backs down the unions. The unions finally made some concessions a couple years ago, but not nearly enough, and not nearly early enough.

But now, in the midst of bankruptcy of the Big 3, they say they won’t make any concessions. Seriously: are they sick?

Now I am 100% confident that the Big 3 must go bankrupt. For one reason: to be able to have a fair way to get out of the unions. This is their chance for a mulligan. A chance to get with the times, and offer competitive pay and benefits, without losing their shirts in the process. Something that benefits both the employees and the employer and aligns the interests of all involved, from the factory workers to the CEO.

Nevertheless, I believe bankruptcy is better than a bailout for American consumers and taxpayers. The main problem with American auto companies is that during the good times of the 1970s, 1980s and 1990s, they made overly generous settlements with the United Auto workers (UAW) on wages, pensions, and health benefits. Only a couple of years ago, GM was paying $5 billion per year in health benefits to retirees and current employees because their plans had wide health coverage with minimal co-payments and deductibility on health claims by present and retired employees. In those days, the UAW was one of the most powerful unions in the US, and it bargained aggressively with the auto manufacturers, carrying out strikes when its demands were not met. When the American auto industry began to face tough competition from Japanese and German carmakers, they were saddled with excessive pay to their workers, and vastly excessive pensions and health benefits to their current and retired workers.

Two Things on Politics

I’m not a real political guy, and am certainly not a supporter of a single party (as evidenced by my 4 Democrat, 4 Republican, and 3 Libertarian votes this year), but on this Election Day Eve I do have a couple (not original) thoughts about the overall health of our democracy and how to improve it.

1) We learn as children, and often talk about as adults, that voting is our duty. If we really believe that, let’s make it mandatory. I’ve heard arguments against this, but really, none of them are particularly convincing to me.
2) Along with making voting required, let’s do our best to help lessen the impact of our two party system. One idea I support, which is simple and elegant, is Instant Runoff Voting. It won’t solve the problem entirely, but it’d certainly make it more appealing to vote for a third-party candidate without feeling as though my ballot was wasted.

Just so we're clear: CXO pay is STILL a problem

Lost in the news of WaMu’s collapse is this piece:

But the seizure and the deal with JPMorgan came as a shock to Washington Mutual’s board, which was kept completely in the dark: the company’s new chief executive, Alan H. Fishman, was in midair, flying from New York to Seattle at the time the deal was finally brokered, according to people briefed on the situation. Mr. Fishman, who has been on the job for less than three weeks, is eligible for $11.6 million in cash severance and will get to keep his $7.5 million signing bonus, according to an analysis by James F. Reda and Associates.

Let’s do the math:
Fishman started on September 8. The sale of WaMu happened on September 25. That’s 14 weekdays. Let’s assume he was working 10-12 hour days, so we’ll say on average 11 hours. 14*11 = 154 total hours as CEO. If he doesn’t receive any severance, he will have made $48,701.30 per hour. If he receives his full severance, he will have made $124,025.97 per hour.

Of course, had they not hired anyone, a similar outcome was likely.

Obama's Economics and his background from The University of Chicago

The Libertarian Case For Obama:

3. One word: Osmosis. You couldn’t live in Hyde Park or teach at the University of Chicago with the intellectual curiosity of a Barack Obama without gaining at least some understanding of libertarian economics. That can’t be said for most of the reactionary left-liberal wing of the Democratic Party dominating Capitol Hill. But I believe Obama is educable on free markets and I’m convinced that Democrats are ripe for a return in the next decade to the liberalism of our party’s founder, Thomas Jefferson.

As a UChicagoan, there at the same time as Barack, I absolutely concur with this statement. No matter what your views, learning something about Chicago economics will happen, and will affect you.

For another interesting look at Obama’s economic thoughts, check out this NYT Magazine article from August, entitled “Obamanomics: Barack Obama, A Free-Market-Loving, Big-Spending, Fiscally Conservative Wealth Redistributionist. It explains more about how UChicago affected his economic viewpoints:

Obama, when I asked him, agreed that his years surrounded by Chicago School thinking affected him. He tends to assign his motives to more intimate narratives, though, and he said that his grandmother, a high-school graduate who rose to become the vice president of a bank and was the family’s main breadwinner, had the biggest impact. “She had to think very practically about, How do you make money?” he told me. “How does the system work? That led me to have an orientation to ask hardheaded questions. During my formative years, there was still ideological competition between a social-democratic or even socialist agenda and a free-market, Milton Friedman agenda. I think it was natural for me to ask questions of both sides and maybe try to synthesize approaches.”

There is plenty of evidence that this synthesis isn’t merely a part of a candidate’s inevitable tack to the center for a general election. In Obama’s memoir, “Dreams From My Father,” he sympathetically recounts a conversation he had with a Kenyan farmer, in which the man complains both about rich people who won’t pay their fair share of taxes and about burdensome government regulations on coffee growing. In Obama’s second book, “The Audacity of Hope,” he goes further: “Reagan’s central insight — that the liberal welfare state had grown complacent and overly bureaucratic, with Democratic policy makers more obsessed with slicing the economic pie than with growing that pie — contained a good deal of truth.”

On the Fed's role, transparency, and risk

I’ll make it clear immediately: I think the Fed bailing out failed companies is a bad idea. It’s clear to me that until there is a real relationship between risk, reward, and failure, we’ll go nowhere fast.

If I’m a financial company, I know that I can risk it all for huge reward (big upside), and get bailed out if I fail (no downside), I’m certainly doubling-down on risk.

And I get why the government is bailing them out: When a financial company fails, many people are hurt. Innocent people. People who had no idea what was going on.

But that’s just the thing: if people did know what was going on, it wouldn’t have nearly the impact.

Here’s a proposal: Instead of trying to fix things after the fact, let’s make some rules for financial companies beforehand. How about the following:

• Every quarter, the financial companies must disclose, in plain language (if Warren Buffett can do it, so can they), what they’re investing in. They don’t have to give away secrets — fairly broad strokes would be fine to get the point across. The key here is to ensure that they’re not hiding information.
• This way, shareholders can decide whether or not to invest their money in the company because they actually know what they’re investing in.
• Moreover, if a company is perceived to be investing in more risky things, why would anyone open an account for the same interest rate as a less risky company? The transparency created here will help keep your “safety” money (emergency fund, etc) safe, and help make you more money on the rest — with the understood knowledge that there’s a higher chance of failure.
• Overall, this transparency will fuel efficiencies in the market, help individuals make more informed choices, and stop the Fed from having to bail out private companies.

Thoughts?