5X CAFE, Five Times Current Transport Efficiency

This is an odd format for an investment article.  It is formatted so investors can talk to politicians and bureaucrats about creating free markets in power generation and transportation infrastructure.  With free markets we stand a chance to:

• Change the lifeblood of the US economy from oil to ingenuity.
• Strengthen employment by putting people to work re-tooling transportation and power generation.
• Strengthen the dollar based on America’s energy self-reliance, strong agricultural base and rebuilding the manufacturing base with infrastructure re-tooling.
• Constrain inflation by preempting exposure to escalating and uncertain petroleum supplies.
• Increase income, as the US becomes the leader in sustainable infrastructure exports.

In the mobilization for World War I, communications infrastructure was monopolized for security reasons.  The belief in “natural monopolies” for infrastructure expanded from communications into transportation and power generation.  For a nearly century we locked in place and protected from competition the great advances of Bell, Ford and Edison.

In 1984 communications infrastructure was de-monopolized exposing the rotary phone and analog network of Bell to competition.  Investment, creative and production opportunities resulted.  De-monopolizing power generation and transportation infrastructure will expose to competition trillions of dollars of costs that are 69-96% inefficient.

This graph from Livermore Nation Lab shows sources and uses of energy.  At the top is power generation at 69% inefficiency.  At the bottom is transportation at 80% inefficiency.

Transportation’s 20% efficiency assumes moving a ton to move a person is necessary.  If this assumption is challenged, then current urban transportation is less than 4% efficient.  Cars at rush hour typically get 10-25 miles per gallon of fuel.  CSX Railroad is currently running a TV commercial where they show a Prius being loaded on a rail car and state the can “move a ton 423 miles on a gallon of fuel.”  In four billion of the eight billion miles Americans drive daily, about 70% of current costs can be recovered as profit.

Besides the spectacular improvements in communications after de-monopolization, there are other great examples of free markets in power generation and transportation.

Power Generation Example. 

Germany, the size of two mid-western states and the latitude of Winnipeg, Canada has more installed solar collectors than the entire United States.  Why?  Herman Scheer and the German Parliament implemented free market policies in power generation.  If a German wants to invest her capital building renewable power generation, she can take the capital risk and sell her excess power to the grid at a profit. 

Here is a graph showing the growth in jobs and exports caused by implementing free markets in German power generation:

Unlike the regulatory monopoly of the US power generation, Germany allows the risk/reward of private capital.  Several states in the US are considering adopting the German Feed-In Tariff policies.

Transportation Example.

The Wright Brothers did not invent flight under government contract.  Henry Ford was a mechanically gifted farm kid who democratized the car.  The Transcontinental Railroads were built with private risk.  Incentives can help.  Subsidies confuse costs that should be attacked.

Creating a Free Market

How do you tell a politician we need the transportation equivalent of the laser, personal computer, MySpace, Google, penicillin, vulcanization of rubber, etc….  In my conversation they ask, “If we give you a free market, what are you going to invent?”  That is like asking your father before you were conceived, “What will your child do for a living?”  Like your father, we need to make a few billion trys and every now and again, we’ll get lucky.

Inventors driven by passion, married to private capital, hunting outlier returns from taking outlier risks is a free market to create breakthroughs.  We need to tinker and get lucky.  Edison proudly stated he found thousands of ways not to make a light bulb. 

Politicians, bureaucrats and academics do not take outlier risks.  Do you know any politician whose personal profile lists the patents they have filed?  Following is a resolution you can ask politicians to support to create a free market in sustainable infrastructure.  It is adapted from Governor Schwarzenegger’s Hydrogen Highway Executive Order.  It is not intended to be technology specific. 

Getting action from politicians requires talking to them in a format they use in their business.  The hope is that if enough investors send this or something like this to their politicians, we will create a free market.  We might get lucky and change the lifeblood of our economy from oil to ingenuity.  Outlier efforts will result in outlier returns.