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Lifeboat Paradox: If every community is self-reliant, an economic lifeboat, they will not be needed.

 

On Sept 14, 1787 Dr. Franklin proposed to the Constitutional Convention that a clause be added for the Federal government to fund highways and canals. James Madison recommended this be raised to a power. George Mason reminded the delegates of the problems of the crown transportation monopoly, a risk of Federal repetition of that defect. The proposal was defeated 8 states to 3, with a specific limitation to only fund "post Roads."

In the ratification of the Constitution, James Madison explained the division of sovereignty in Federalist #45:

"The powers delegated by the proposed Constitution to the federal government are few and defined. Those which are to remain in the State governments are numerous and indefinite. The former will be exercised principally on external objects, as war, peace, negotiation, and foreign commerce; with which last the power of taxation will, for the most part, be connected. The powers reserved to the several States will extend to all the objects which, in the ordinary course of affairs, concern the lives, liberties, and properties of the people, and the internal order, improvement, and prosperity of the State."

Infrastructure was to be State sovereignty so the diverse economies of the States would be a defense against Tyranny of the Majority as outlined in Federalist #9 by Hamilton and #10 by Madison.

On March 3, 1817 President Madison vetoed a Federal transportation bill because it was unconstitutional:

"Having considered the bill this day presented to me entitled 'An act to set apart and pledge certain funds for internal improvements,' and which sets apart and pledges funds 'for constructing roads and canals, and improving the navigation of water courses' . . . I am constrained by the insuperable difficulty I feel in reconciling the bill with the Constitution of the United States to return it with that objection to the House of Representatives. The legislative powers vested in Congress are specified and enumerated in the eighth section of the first article of the Constitution, and it does not appear that the power proposed to be exercised by the bill is among the enumerated powers."

In 1913 the 16th Amendment implemented the Income Tax, the 17th Amendment changed election of Senators from State Legislatures to popular election and the Federal Reserve was created. The power of States to prevent Federal encroachment on State sovereignty and from borrowing and taxing the people was greatly reduced. Instead of raising taxes to fund World War I, President Truman borrowed $30 billion against the power to tax future labor to repay the debt. Communications, power and transportation infrastructures were monopolized/socialized as "natural monopolies."

After nearly century of rotary telephones under Federal central planning, the Federal communications monopoly was declared unconstitutional in 1982. With liberty restored, niche markets developed. Long dormant innovations like the Internet (1969) and radio telephones (1946) commercialized. When the "post Roads" limitation of the Constitution is enforced, the highway monopoly is broken, vast innovation will be applied to both power and transportation.

Great risks will be resolved and self-reliance will be restored:

Cheap Oil is Gone Forever

Assuming that secure access to cheap oil will always be available, America's economy, our jobs, morphed over the last 50 years from self-reliance into dependence.  The myth of cheap secure oil is gone forever.  Politics, decreasing supply and/or expanding demand will erratically push oil prices higher.

Increasing demand may overtake supply as populations grow and the economies of China and India modernize.  Or, after Peak Oil, supplies will decline below demand.  Of the 65 largest oil-producing countries, 54 have peaked and oil production is now in decline.  The tripling of oil prices between 2000 and 2006 is a strong indicator that demand is pushing against supply and/or oil has peaked and availability will soon begin a relentless decline.

Regardless of cause, increased demand or supply shortage, the age of cheap oil is gone forever and our economy is coasting on the last momentum of that era:

·       www.gao.gov search for “07-283”  GAO report on Peak Oil

·       http://abc.net.au/4corners/special_eds/20060710/  Web cast documentary.

We have two or three years to embrace the idea that cheap oil is gone and to channel the current momentum in our economy from a base of cheap oil to invent our future.

There is plenty of room to adjust.  For example, about four billion of the eight billion miles Americans drive every day are highly repetitive.  Yet we use energy and create congestion moving a ton to move a person.  Striving to move only the person saves 27 cents per passenger mile.  If we act while there is momentum in our current economy, ingenuity can preempt waste, harvesting profits to fund the shift.

Up-Side-Down Pyramid

An Up-Side-Down Pyramid model of the economy illustrates how each of us scrambles to find a niche and profit by adding more value than we consume in the competition.  By embracing personal accountability, with leadership and momentum to guide efforts, we can adapt our current economic engine to sustainable power sources.

That same model indicates that if we do not adapt before Peak Oil, or demand for oil exceeding supply, or political instability or Global Warming consequences, the pyramid will collapse with 30-70% unemployment being the most optimistic possibility.  A complete shredding of social fabric is possible.  The 10 worst famines of the 20th Century happened when this social structure collapsed forcing many to compete for few resources; most resulted from government policies.

Nature of an Economy

The economy is a confederation of upside-down pyramids.

Natural resources

Life depends on nature; clean air, clean water, sun light, earth, threads from which we fabricate our living, our social and economic structures.

Individuals

  • The economy is a confederation of working individuals who profit by adding more value than the cost to compete.
  • Each individual is an upside-down pyramid:
  • The base is resources consumed to compete.
  • Our outstretched arms are the value we add.  How far they extend depends on our will and ability to trust, transact, and transport that added value. 
  • Power is the will and ability to act applied to achieving an objective (Clausewitz).  At a fundamental level, self-interest supplies the components of "will and ability".  Individual self-interests, jobs, power the economy.

Industries and Communities

  • Self-interest dictates cooperation and collaboration.  My interests are best served by focusing my time and resources through my strongest talents.  I rely on the talents of others to grow food, mine mineral, have babies, manufacture goods, protect us and other needs and wants of our physical and social nature. 
  • Individuals form alliances, communities, industries, and nations so they can specialize to amplifying individual value added while driving down the cost to compete. 
  • As with individuals, the profit of these structural institutions is the value they create minus the resources consumed to compete for their existence.
  • These institutions are powered by their members; held together by abilities to trust, transact, and transport.

Churn

The economy is constantly churning.  Individuals and institutions scramble to sustain their base, exploit their talents and build relationships that amplify their efforts and resources.   Driven by the will and ability to win we Trust, Transact and Transport knitting our economy into being:

  • Trust:                Risking that someone else will deliver value more than harm is essential; giving terms in a contract, investing in stock.  Trust expands slowly with good experience, evaporates with bad.  Strong self-confidence, self-reliance and shared objectives expand trust.
  • Transact:          Specialization requires trading resources with others to cover all needs and wants. 
  • Transport:        Resources must flow to need.  Just as your body needs a circulation system to stream resources to need and waste to disposal, the life of a complex economy depends on transport.

Changing the Life Blood of our Economy

We are experienced with Churn.  Microcomputers and the Internet did not just happen.  First, individuals like Bill Gates and Steve Jobs defined and pursued opportunity.  With expanding clarity of the opportunity more and more individuals pooled resources and ingenuity combining talents into companies and industries.  Another thread of ingenuity are networks; leverage this value and again talents are combined and opportunities are pursued.  Looking from the outside it must have looked like fish in a school, individuals moving nearly in unison; close up, it was chaos, wildly inventive while guided by a systems engineering framework and wise policy.  The system engineering came from voluntary standards, guides which were replaced by new innovations.  Policy wisdom came from the FCC; there is a greater good.  Communication networks rights of way had priority over local jurisdictions. Ingenuity had priority and attempted to serve the common good.

By embracing our individual sense of accountability and opportunity we can reduce oil consumption by 7% per year.  Example, there is a 27 cent per passenger mile profit in changing moving a ton to move a person towards moving just the person.  There are many techniques and technologies, jobs that can harvest this profit from four billion passenger miles a day.  The “Green Rush” can follow the successful ingenuity pattern of computers and networks. 

In transportation and energy policy, ingenuity, attempting to serve the common good, requires rights of way so innovations can find and serve the need.  As momentum and experience grows, systems engineering standards will emerge, succeed and be displace by the next wave of innovation.

We can change the lifeblood of our economy from oil to ingenuity.

Delay is failure

Innovation is unlikely if we lose momentum and the economy slides into less trust, fewer transactions and a collapse of transport.

Nearly everyone is aware that airlines struggled and many declared Chapter 11 Bankruptcy with the increase in fuel costs after 9/11.  There are a lot more farmers hanging on the edge because of those same unstable fuel prices.  Over time we can adapt to anything.  Short-term oil price shocks are highly correlated with recessions and depressions. 

Any major event in the Middle East could cause oil speculation to jump to $5 a gallon.  Farmers already at their maximum credit limits cannot buy fuel.  Fewer fields get planted.  Corn and wheat futures go through the roof.  Escalating food and transportation costs force working families to choose between rent and food.  The housing market already stressed collapses.  Work for construction trades and manufacturing evaporates.  Real estate and bank loans default.  Confidence shatters, transportation collapses as moving a ton to move a person is no longer affordable.

How many weeks of food is in your house?  If trucks cannot resupply your grocery store how long will your family be comfortable and confident?  Would you keep your job if farmers are planting 50% of normal?  If truckers are hauling 50% of normal? 

Current transportation policy blocks commercialization, the schooling dynamic where the ingenuity of a few can rally the talents of the many to exploit breakthrough solutions of a few.  The flexible dynamics of the Up-Side-Down Pyramid is frozen, brittle.  Only systems approved can be tried.  Only systems in operation are approved, an infinite loop of ever decreasing ingenuity.  No room for the Wright Brothers, the Henry Fords, the Bill Gates, Steve Jobs or Ed Andersons.  Solar powered JPods that can be privately funded and operated at a profit are denied right of way to commercialize.  The strength of the many cannot reinforce the ingenuity of the few without commercialization.

Instead of focusing on adding more value than the cost to compete, transportation policy focuses on subsidies, less value than the cost to compete.  Where can we get our grant? How much Federal Funding is there?  Policy approves buses and trains that require subsidies.  Policy, faced with severe consequences from Peak Oil, increasing gas prices, embargoes, wars to protect oil, and Global Warming, approves highway expansion that will increase our oil addiction.  Reality is about to impact our economy made brittle by policy.

Empowering

Communications network policy works; ingenuity is the economic lifeblood of the Internet.  Ingenuity can flourish or fail based on the value created minus the cost to compete.  It will be chaotic but our economy can adapt and shift creating new jobs, new companies, new industries as ingenuity replaces oil as the lifeblood of our economy.

Contact

Bill James, bill.james@jpods.com, (612) 414-4211         March 31, 2007