"Saudi Arabia, Opec’s largest oil producer, moved to take some of the heat out of rising fuel prices yesterday with plans to increase production next month.
The Saudi move followed a weekend of talks between the UN secretary general, Ban Ki-moon; the Saudi ruler, King Abdullah, and the country’s oil minister Ali al-Naimi.
The news is expected to help depress the crude oil price, which hit a record high of $139 a barrel last week, ahead of an unprecedented meeting of oil producers and importers to be held in the Red Sea port of Jeddah on Sunday." Guardian
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Sooo, the Saudi king is going to increase production at the margin on crude oil going into the spot market and this is expected to lower the market price on deliveries of crude to refiners. That, in turn, is expected to cause a failure in confidence in the whole nasty complex of capitalist hedge fund managers, index fund managers, bankers, advisers to same, and individual mega-investors. It is hoped/believed that this failure in confidence will cause the players to lose faith in their ability to pass the risk along to the greater fools waiting somewhere in speculator limbo. After that set of developments the price per barrel is supposed to fall, a lot. I believe this to be true. We will assemble here afterwords to gloat, or not.
A couple of things…
– This declaration by the Saudis means that the Saudi gremlins (something like the gnomes of Zurich but more colorful and with bigger boats at Nice) believe that they can affect the price by doing this. It is intuitively obvious that they thought that all through the time that they assured the cretins in the Bush Administration that they could not possibly increase oil production since they were already at the top of their production limit. I seem to remember that some of you believed that.
– Believing that, they still did not choose to increase production enough to take the steam out of the commodity/financial market upward spiral in price. That spiral gained speed as marginal scarcity fed the greed and confidence of the players.
– Now they are going to boost production because the accelerating rate of destruction of the world economy threatens everyone, including them. Even 300 foot yachts can be threatened by instability.
– Why did they play this game? The Saudis are angry with us and have been for some time. They are tired of being treated like poor relatives at the family reunion. They are tired of being ignored in the matter of policy with regard to Shia triumphalism, Iran and the Palestinian question. The Saudis don’t care about that last one? Only a neocon or a State Department hack toadying his way towards promotion would even try to believe it to be true that the Saudis do not care about Palestine or Jerusalem. Ask the Saudis.
Foreign policy doesn’t matter to the "little people?" Ask yourself if that is true next time you fill up mama’s Explorer. pl
http://www.guardian.co.uk/business/2008/jun/16/oil.saudiarabia
As one of the people who thought Saudi Arabia was at or near it’s production peak, I’m more than willing to say I was wrong. At the time though, I remember the Saudis were telling Bush that speculators were responsible, rather than that they didn’t have the ability to increase production period. Most of the reading I had done on the subject at the time had been focused on the supply and demand part of the equation, and I didn’t honestly think the Saudis were angry enough to allow an oil shock if they could avoid it. I was obviously wrong on both counts.
Since then I’ve read more about what’s happened in the commodity markets.
http://www.spiegel.de/international/world/0,1518,559550,00.html
This article in Der Speigel is probably the best thing I’ve read about the speculative bubble, now inflating in the commodities market.
I do question whether a 3.2% increase in Saudi production be enough to pop or deflate the commodities bubble, however. I hope it is. And the Saudis certainly know the markets better than I do. I suppose it all depends on exactly how irrational the exuberance in the market place is.
I also question how insane we have to be to allow a speculative bubble to form in vital commodities. The famous tulip bubble looks almost rational if you compare it to a market that has been allowed to bid up the price of the sine qua non of the modern world to unprecedented levels.
Traders in the markets say that the Saudis can produce as much as they want, there’s not a lot of demand for it. Saudi oil is harder to process, and so the discount that they have to offer to more attractive crudes has got steadily wider and wider. Make of that what you will.
Perhaps this will help slake Asian demand and reduce pressure elsewhere in the system, but perhaps it’s purely for sure. Perhaps there’ll just be a lot of cheaper Saudi oil sloshing around in the market while the prices of WTI and Brent keep rising.
Statutes against speculation have been a feature of European history since medieval times.
“Forestalling” was the crime of buying food from farmers before it was put to sale in a market stall (ie: Fore’ stall)and then the goods were marked up and resold without the current open market price ever being determined.
“Engrossing” was the crime of buying more than you could personally use, purely for speculative purposes – again to try and “corner” the market.
The first crime denied the market accurate information. The second was a misuse of financial power against less well off individuals
The reason these were regarded as offences was due to questions of equity; in a tight medieval seasonal market for food, committing them meant that somewhere, someone was going to go hungry so that the offenders could profit.
Speculation is fine according to theory today because it adds liquidity, I mean, how boring it would be if people only bought what they needed today?
However in a tight oil market, like a tight food market, speculators can really amplify the damage their activities cause.
Perhaps we could apply a little medieval economic law here……and perhaps the appropriate medieval penalties as well?
Saudi Arabia is run by liars for liars. They don’t have the reserves they claim to have and they ain’t bailing out anything.
Saudi Propaganda
perhaps this to lower prices and reduce effect of military confrontation with Iran?
not into conspiracy theories, but oil gets to $139, falls dramtically, and then spikes back to current levels upon Iran strike. We’ve already been to $139, so it won’t be that big of a deal will it?
and on a somewhat unrelated note, i find it very peculiar that there is once again the talk of resolving the Lebanon, Israel, Palestine, Syria issues. Talk of returning Shebaa farms, Golan Heights, stop building in East Jerusalem.
This was the same BS that was being fed to us right around the start of the Iraq war.
It seems as though we’re living some algorithmic life inside a Matrix.
For some data on this issue:
1. data with Saudi perspectives see the Saudi-US Relations Information Service (SUSRIS)at:
http://www.saudi-us-relations.org/articles/2008/special-reports/080609-oil-crisis.html
2. statistical data by US Department of Energy,Energy Information Administration at:
http://www.eia.doe.gov/
3. British Petroleum Statistical Review of World Eneregy June 2008 at
their website http://www.bp.com under catergory “Reports and Publications.”
“The Review shows that the world’s fossil fuel resource base remains sufficient to support growing levels of production but the continued weakness in oil supply and increasing demand outside the OECD also highlight the challenges that industry faces in maintaining secure energy supplies.
“Declining oil production in the OECD highlights the fact that, while resources are not a constraint globally, the resources within reach of private investment by companies like BP are limited. Political factors, barriers to entry, and high taxes all play a role here. In other words, when it comes to producing more oil, the problems are above ground, not below it. They are not geological, but political,” added Hayward.”
In 2002, when I was In Saudi Arabia, the Minister of Energy indicated to me and several colleagues that the desired price band goal at that time was US$ 22-28 per barrel. Even allowing for inflation and the decline of the dollar, the current price level does appear to be suffering from advanced tulipmania.
Anent tulipmania: http://en.wikipedia.org/wiki/Tulip_mania
An interesting question here is whether MEND and other Nigerian rebels can reverse the effect of the Saudi decision by stepping up attacks on oil production in the Niger Delta.
In other words, is worldwide oil production so tight that any such increase in Saudi output can be reversed by effecting some decrease elsewhere.
The Saudis currently are functioning as a sort of petro-FED. Much as the Federal Reserve Board regulates the money supply by increasing or decreasing interest rates, the Saudis have regulated the oil supply by increasing or decreasing production.
However, if oil supplies are sufficiently tight, then MEND and similar outfits could challenge the Saudis’ Fed type status by imposing their own policies on worldwide world output.
Everything I have read suggests they have both the motive and the means to do just that.
Accordingly, I predict an increase in attacks in the Niger Delta.
It doesn’t much matter whether the Saudis increase production or not. Since they do not release their production figures, nobody will ever know. But maybe their saying these soothing words will help reduce prices…or maybe not. But they won’t look like the villains. And maybe they’ve extracted something concessions from the Bush administration, though they must know that the Bush administration’s promises are about as reliable as the Saudi’s announcements of increased oil production.
I really don’t buy the “speculators are screwing us” argument. If the markets knew Saudi could dump oil on their heads with the flick of a switch, they would never bid up the prices so high.They’d never know when a Bush phone call to Abdullah would would leave them holding a very heavy bag. The markets must have a lot of confidence that Saudi wouldn’t do that.
No. The problem is with an ever weakening dollar and the markets suspicion that it will keep falling. Not to mention a risk premium with the Iraq war and every idiot and his brother threatening to attack Iran.
500 k BPD aint much against all that.
I don’t see how a 500k increase will affect anything. The SA’s supposedly claim to be able to put out 1Mbbl/day more, but they aren’t or can’t do it. From what I’ve read on other forums, they have peaked on light, sweet crude, and now the excess output is made up of heavy, sour crude, which our refineries can’t handle. Didn’t the SA’s claim not too long ago to be able to put out 12Mbbl/day by now? So where is it?
So I don’t see the 500k/day making much difference, maybe the price will drop to $130/bbl at most.
Disclaimer: I am no oil expert.
However, I notice that oil has hit a new record of $140 after the announcement.
Speculation may fuel present high prices, but if the basic concern is that Gulf production is at its ‘peak’ an increase of 200,000 bpd above that already announced is unlikely to change minds. I understand that it is generally possible to increase production temporarily at a cost to the long-term ‘health’ of the field in question.
If the speculation is driven by forecasts of conflict in the Gulf such a production increase would be similarly meaningless.
theoildrum.com is a good source for highly technical discussions on reserves, including Saudi, and the general consensus is that barring short term efforts (i.e., a few million bpd for a few days or week), the Saudi’s cannot sustain an increase. However, a new field has been “coming online” for a couple of years now, and seems to be ready, finally.
I think the reason the markets are ignoring this announcement is that the new field has been factored into the supply/demand equation for several years now.
It is not so much that Middle Eastern oil is at peak but that Mexico, US, and North Sea are past peak.
I’m no expert on oil either so that is why I read the experts (at: oildrum.com for one) and make an informed opinion from there. Look at the world production rates since 2005 (flat) and the demand increases from China (+/- 6 %/year) and this gives you the reason for high oil prices.
If there is a precipitous drop in the price of oil that will probably not be the big news. The big news will be a severe drop in economic activity.
“Ilia iactus sunt!” The oil Rubicon has been crossed and now the PEAK will become heavily documented whatever the result of the Saudi efforts. As long as daily world-wide demand increases and exceeds production the new world order has arrived in full force.
It is critical to understand “peak oil” even if in the end you decide to disagree. Why? Because if Matt Simmons is correct, then many geopolitical calculations need to be changed.
Here’s what clinched it for me: Look in ExxonMobil’s 10-K. You will see that in recent years they have spent more buying back their own stock than capital expenditures for oil exploration and development.
In other words, the company with the most experience, best technology and ready funds has decided that propping up their own stock is a better investment than crude oil extraction.
Some respond that ExxonMobil is trapped by “above-ground” political factors that cut off their access to reserves. This overlooks the fact that all the super giant oil fields have been discovered decades ago and are now in decline. There is more oil to be found but not enough to offset the depletion of the best fields.
Final argument: We have had very high prices for several years now and still no supply response — crude oil production has been roughly flat since 2005. (Don’t be distracted by tar sands and the other junk, focus on the OIL).
And, by the way, Saudi Arabia is no longer Number One. That distinction belong to Russia. Check the BP stats.
Good luck to all!
The laws Walrus mentions in his comment presume a ‘moral economy’ and regulation based on social values. A market economy is not a ‘moral economy.’
Sir,
In a speculative bubble, the demand has to decrease (relative to supply) before the price crashes. In the current market, supply is fairly fixed. So we need to wait for the other shoe to drop before calling an end to the bubble.
The news that Taiwan and other countries are dropping their gasoline subsidies is a signal that the global demand will start changing soon.
At the same time, the commodity market has already bought up most of the near-future delivery contracts. The futures instrument is now contributing to near-term price inflexibility. Interesting how an instrument meant to promote liquidity is now hindering price discovery.
Colonel:
As always, thanks for fostering discourse on important topics…
The Saudi move, if they can even pull it off, is tactical in nature. I would guess that they are jawboning for some reason, perhaps to deflect blame away from Gulf States for western economic disarray (since said blame might be part of an information operations campaign to drum up support for a US attack on Iran, for but one example).
The strategic picture is more bleak, as others here have pointed out. The best attempt by DOE to estimate the long-term nature of the oil supply threat resulted in the Hirsch Report, which can be found via the links here:
http://en.wikipedia.org/wiki/Hirsch_report
Hirsch published a good summary in ACUS, and it’s required reading for anyone interested in fossil fuel eschatology. And Hirsch’s viewpoint is strategic, concerned with the decades-long time frames required to plan for transitioning from oil to whatever might replace it. He’s done the math, unlike all too many energy pundits.
Replacing humanity’s reliance on fossil fuels is not going to be easy. We seem to believe that technological solutions are just out there ripe for the picking, but that’s not the case here. This is a hard technological problem, perhaps one of the most difficult humanity has ever faced. We may not like what it takes to get out of this one alive.
Finally, it’s important to note that the concept of “oil reserves” is actually not an estimate of remaining oil stocks, but is instead an estimate of fossil fuel capacity that can be extracted at a given price.
Thus proven reserves tend to go up with price, and vice versa. With high enough prices, reserves begin to include otherwise-less-than-cost-effective supplies, e.g., marginal oil shales and tar sands, which often generate economic externalities, e.g., diversion of water resources that affect food production, etc. This relationship of reserves with oil prices is a big part of why such wildly differing oil supply statistics can be found, and especially when the price is all over the map.
Look at the world production rates since 2005 (flat) and the demand increases from China (+/- 6 %/year) and this gives you the reason for high oil prices.
The US consumes 24% of the world’s oil, China still only 8% – one-third as much. That means a 2% increase in US demand requires as much increased production as a 6% increase in consumption in China.
China is merely making the problem apparent a few years earlier.
@John Howley:
Look in ExxonMobil’s 10-K. You will see that in recent years they have spent more buying back their own stock than capital expenditures for oil exploration and development.
In other words, the company with the most experience, best technology and ready funds has decided that propping up their own stock is a better investment than crude oil extraction.
That is easily explained – according to World Watch 80% of the world’s proven reserves are government-owned.
I know Col. Lang won’t like this but the writing was on the wall for Exxon etc., even in 2000; one of the reasons for the Iraq war was precisely to get private Western oil companies into the state-owned Iraqi reserves, and get that 80% figure moved downwards.
Perhaps it was on this web-sit e where it was said that you don’t want a business MBA running your war. The correct thing to do may be to go in with overwhelming force; the MBA, counting $$ will allocate only enough force to do the job.
Similarly you don’t want oilmen running your country’s foreign policy. They’re fighting last century’s wars, where wealth comes from sitting on top of natural resources. A Silicon Valley type might have made a better President or VP at this point – they understand better the source of wealth.
Today Honda unveiled its first entirely-hydrogen car. Yes, it is a long way from practicality. But a trillion dollars sunk into Iraq would have bought a hell of a lot of research and development.
One should notice the record of large American corporations too – whether it be the auto makers, the electronics guys, they have spent more effort in a futile attempts to guard what they have and thus have fallen behind. Kodak perhaps is a poster child – it almost missed the digital photography revolution. The music recording industry would be another example – trying its best to avoid the implications of the Internet.
It is the same thing with oil. The world can survive with $10/gallon gasoline; and at that price a lot of alternatives become practical. What shape or form it will take if I knew, I’d not be writing here, but rather investing. BTW, the New York Subway gets the equivalent of 540 miles/gallon.
Will American innovation lead the way? Not if so much American energy and resources are wasted in trying to maintain its empire.
I know nothing about oil but didn’t the Saudis also raise production in the last election?
“Even 300 foot yachts can be threatened by instability.”
After Iraq? Iran? Perhaps a Shiite uprising in the Eastern Province?
Maybe the Saudis know something we Americans don’t have a clue about.
“Only a neocon or a State Department hack toadying his way towards promotion would even try to believe it to be true that the Saudis do not care about Palestine or Jerusalem. Ask the Saudis.”
Why do American Jews care about Israeli or Iranian Jews or Catholics about Rome?
Colonel, are you trying to tell us that even after the WOT, Iraq, the Levant and perhaps Iran the “Dumbyas” still haven’t figured out that the true nature of the problem is?
Maybe the Saudis know something we Americans don’t have a clue about.
Interesting posts, just my two cents on the subject.
wait,
are they really going to war with Iran in August?
1. Saudi July cheap oil (preparing military build up)
2. One month ultimatum given to Iran.
http://www.atimes.com/atimes/Middle_East/JF17Ak02.html
Iran will have a month or so to give an official response to the package and in the event it is negative (ie, with respect to the key demand that Iran suspend its uranium-enrichment activities), then Tehran will likely be confronted with a fourth round of UN sanctions, as well as new unilateral sanctions by the EU, targeting Iran’s banking system.
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Wow, somebody is going to make boatload of money speculating oil price. The insider information alone is worth a couple of $Billions.
With major banking all desperate for cash. This is the best time to be Iranian diplomats. .. “pssst, wanna hot tip?” nuke deal is happening/not happening …next monday. spread the words.
Bonk…$6-$10 price movement.
We are screwed ladies and gentlemen.
Cieran, Arun,
One of the worst possible scenarios would be if resource shortages led to highly militarised competition.
That really risks being a non-zero sum game where all — or most — players lose. And vast military power would not guarantee that the United States was a winning player.
American capacities for innovation should mean it has a vast amount to contribute, in a non-zero sum game where most players gain.
But, as Arun says — not if so much American energy and resources are wasted in trying to maintain its empire.
But a trillion dollars sunk into Iraq would have bought a hell of a lot of research and development.
Upon the tombstone of the American Empire shall be inscribed that line.
Latin translation, anyone?
Ozymandius drove a Hummer!
Arun wrote:
“Will American innovation lead the way? Not if so much American energy and resources are wasted in trying to maintain its empire.”
But does economics really work that way? I mean, there’s an assumption built into this sentiment to the effect that if that money were not spent trying to “maintain empire” it would at least largely go—either via government investing or via lesser taxes and thus via private investing—into innovation. And I don’t know that that’s true. Why wouldn’t it just go into more and bigger wasteful government programs, T.V.’s, SUV’s, vacations and/or homes?
In fact isn’t it the case that innovation very often takes off mainly due to changed circumstances? E.g., war. Or, e.g., the U.S. trying to maintain its empire, thus causing huge stresses and changed circumstances (such as sky-high oil prices), thus placing innovation in much more demand, desirability and etc.?
Not saying that some investment isn’t necessary or good, (although I think the gov’t doing it is usually a waste), nor saying that war or maintaining the empire is a good idea or that the above scenario will even happen. Just that I disagree with what seems the true zero-sum assumption that seems built into the idea that wealth is finite and that if it weren’t being spent on X then Y would flourish.
Seems to me that ultimately wealth stems from ideas, (a concept specifically denied by Marx for instance, who escaped the interesting results therefrom), with ideas of course often being especially stimulated by change, crisis and etc. And if it has any civic religion, America’s clearly has been an oftentimes even naive belief in ideas, progress, innovation and etc.
Bottom line is … if you had to bet on where the next big innovation or set of same was coming from, would you really really bet against the U.S. given its long history of not just leadership in the field, but indeed its utter domination?
Cheers,
Just a note for the record. While the Russians have taken the top producer position production is flat and Moscow has indicated that increases are unlikely. This comes despite increased investment in production.
TomB:
But does economics really work that way? I mean, there’s an assumption built into this sentiment to the effect that if that money were not spent trying to “maintain empire” it would at least largely go—either via government investing or via lesser taxes and thus via private investing—into innovation.
History has demonstrated that much of what we might call “good old American know-how” is due to U.S. federal R&D policy, and that the federal funding that followed the policies fostered many of the best technologies that we generally assume were created without government assistance.
Integrated circuits, supercomputers, photonics, networks, genomics, etc… the list of technologies developed first because of federal policy and then made useful in the consumer marketplace is long and distinguished, and consists of a lot more interesting technologies than the space race’s Teflon and Tang.
Just about every indispensable aspect of American technological life (including the Interstate highway system and the electrical grid) is due in substantial part to federal policy decisions, and often to defense-related decisions, too.
So we do have a long history of the federal government making the startup investments that got things rolling technologically, and then the government got out of the way so that it appeared that private investments were the key all along. The history of NSFNet (including its various critiques) is one really good example of how this works.
But the cost of empire is killing federal R&D expenditures. The DoD is not the only agency having troubles paying its electric bills at facilities here in the U.S. — virtually every arm of support for the exploratory R&D that leads to technological leadership has been crippled by the cost of the Iraq war. The opportunity cost of empire is obvious to anyone working in the federal R&D apparatus, including research performed at universities in support of training U.S. students for careers in science and technology. We’re eating our seed corn on that front.
And measured relative to GDP, virtually every component of federal R&D support has dropped substantially since Bush took office, while the trend in other nations has often been exactly the opposite (which doesn’t support your suggestion of betting on the United States… you’d probably do better betting on Korea).
So I agree with Duncan Kinder’s and Arun’s assessments here. I’d wager that American leadership in technology is not over yet, but it’s by no means guaranteed, unless we make some big changes, and soon.
Eliot Watts,
Your comment possesses more significance than merely “a note for the record”. Perhaps the Russians are playing the long game; they let the West and Chindia duke it out in their efforts to secure supplies of petroleum, further depleting our social, economic and military resources, all the while sitting atop their reserves of petroleum and natural gas. Maybe their coyness about increasing supply is not strictly from an inability to increase production, but rather is motivated by a desire to let us bleed one another for a goodly little while, only at some future date to be comfortably ensconced in the catbird’s seat politically and economically. Why do you think that Putin would so forcefully reassert state control over the Russian energy sector if not from a recognition of its critical geopolitical significance in this changing world?
It is worth noting that Russia’s possession of large numbers of thermonuclear weapons mounted on ICBMs discourages freebooting adventurism targeted against their natural resources. This is a lesson not lost on powers such as Iran whose national territory contains reserves of these vital natural resources.
Cieran wrote:
“History has demonstrated that much of what we might call “good old American know-how” is due to U.S. federal R&D policy, and that the federal funding that followed the policies fostered many of the best technologies that we generally assume were created without government assistance.
Integrated circuits, supercomputers, photonics, networks, genomics, etc… the list of technologies developed first because of federal policy and then made useful in the consumer marketplace is long and distinguished….”
——————–
Well, it seems to me there’s two things we’re discussing here, with one being the effect of government *policy* on innovation and etc. and the other being innovation that the gov’t itself is otherwise somewhat more directly responsible for.
As to the former, so long especially as one concedes that “governmental policy” includes simply not getting in the way, not taxing profits to death, and etc., then there’s nothing to argue about. Of course governmental “policy” in this regard is enormously important, crucial, what-have-you…. And I also wouldn’t deny that some directly governmentally funded research has led to some major innovations, and that it has also helped in terms of general funding of research and etc.
Where it seems we might differ however is to the degree you seem to believe that the U.S. gov’t is more directly responsible for the great bulk of modern U.S. innovation. While of course this varies and is more difficult to define and etc., nevertheless in the main I’d respectfully disagree with your seeming take on the relevant history generally, and indeed even with the specifics you cited:
Integrated circuitry was innovated at two private companies, Texas Instruments and Fairchild Semiconductor. Supercomputers are of course just big computers for big customers, with computers in their modern form having been innovated by a private company (the forerunner of IBM). Photonics as Wikipedia tells me was the innovation of a number of private U.S. companies, and genomics the brainchild of some Brit genius.
So even as to your specifics, absolutely none seem to have been the direct product of gov’t at all, nor even do any seem to have even been especially invented at the behest of government. And then look at the (arguably) biggest techno innovation of all of modern times: desktop, consumer-type computers: Not the result of gov’t, but private guys trying to make a killing making something the public likes.
Again, admittedly, “governmental involvement” is a broad, vague concept, so put it this way: I’d bet that proportionately, the gov’ts of Japan and your favorite, South Korea, have plunked far more dough into R&D and have been far more “involved” in trying to foster innovation with blatantly corporatist policies than the U.S. gov’t has in the recent past. And yet look at the results, with the people I’ve read at least saying that while the Japanese and Koreans seem to excel at *exploiting* ideas and etc., derivatively, they don’t seem to have overtaken the U.S. in innovation in even any one big field, have they? (Not being a big techie I don’t know for sure, but still you get my larger point even if I’m wrong on the smaller.)
And look at the fate of those types of gov’t where they really really tried much more directly to direct and come up with innovations, such as the Soviet Union and etc. China did, and even it didn’t like the results. And you hardly see any queues forming of American kids clamoring to get into the techno dept’s of foreign universities, with our own of course being simply flooded with applications from the best and brightest from around the world, including the Japanese and South Koreans.
Not definitive, but not irrelevant either I don’t think.
Of course it’s a matter of degree and opinion and so to the degree we disagree you might be right. And no doubt the U.S. gov’t cutting back on R&D would not help. But even if it did, I’d still bet on the U.S. over S. Korea, any day.
I.e., innovation is more than government I think. Way way more.
Cheers,
I believe both Cieran and TomB raise good points. The precusor to the internet that we know today was the original work on packet switched data networks funded by ARPA. That led to ARPAnet and the rest is history.
I also believe that what led to success here in the US was that government funded research was open and researchers were encouraged to collaborate to commercialize concepts. Europe on the other hand also had huge government funded projects in networks (note their X.25 and OSI based network protocols), semiconductors and other computing and communications technologies. Their concept was to link these projects with their large bureaucratic “national” companies. In contrast there was a unique culture of innovation that was created here in the US with entrepreneurs, venture capital and researchers working together to bring innovation to market. Many failed but from those failures came the few huge successes. BBN got the first ARPAnet contract. Hundreds of companies came and went as network technology evolved and the internet got built. cisco wound up the behemoth and provided its original investor Sequoia Capital a massive return and made Don Valentine a legend.
Now we are largely a debt saddled finance based economy run by Wall Street financial “engineers”. If only the government would allow many of these wealthy speculators to fail and not use taxpayer funds to bail them out and we get back to some belt tightening and our traditional work ethic we have a chance to once again get back into fighting shape. I am confident that will occur but it needs a can-do environment. The last 8 years have sapped our confidence – with Iraq and Katrina that symbolize the depths of incompetence to which we have plunged – that’s what happens when we allow crooks and liars ( and I would even say traitors) to run our ship of state with no checks or balances.
Re: NYC subway getting 500+ MPG – I was just reading today about the consortium of GM, Firestone & one of the big oilies (STandard?) – GM wasn’t selling enough cars in the 1920s because all our American cities had such terrific electric city rail services that most people didn’t need a car to get around. So the consortium formed National City Lines and bought up light rail in every American city, large or small; looks like only Boston and SF got to keep theirs, don’t know why. National City Lines tore up all the track, replaced with buses (run on diesel and need tires) and leveraged in contracts specifying that only buses would run on these lines forever.
Over the years of course bus service goes down, gets inefficient, they cut lines, more people “need” cars because the service gets worse, and so forth.
I knew this story re: California but I didn’t realize it was a nationwide conspiracy.
http://en.wikipedia.org/wiki/National_City_Lines
Think about it. If we still had great rail service, many Americans would still be driving their own cars but our little old ladies, teenagers, low-wage workers etc. wouldn’t have to have cars to survive. We wouldn’t need four cars for a four-person family, or two for a family with two adults.
And we could be running street car lines on solar and wind power (currently 20% of California electric power is from alternative sources)
How many MPG does a solar powered electric streetcar get? just saying…
I lived fifteen years of my adult life without access to a private automobile, a dozen in NYC and three in the SF Bay Area. I have used transit exclusively, and I have owned a car now for a dozen years. Of course it’s “more convenient” to have a private auto to get around, but I’m here to tell you that even with my major health issues, I still take public transit sometimes because it’s easier than fighting rush hour traffic.
Good public transit can be a real pleasure. You can sit and watch the world go by. It forces you to walk around a bit, and it forces you to look your fellow citizens in the face. I think it’s good for personal health and the health of communities.
This street car story reminds us why good old American technology can include solutions to our oil and geopolitical problems. The Founding Fathers did not write in the Constitution that we have to have freeways and no decent transit service to live the American dream.
Conventional “wisdom” laughs at Jimmy Carter, but what if we’d continued his good ideas and begun reinvesting in transit and in fuel efficiency thirty years ago when he suggested it? We would be in much better shape on many fronts, not only on the geopolitical.
Both Cieran and Tom B have good points. Cieran says US gov’t has funded major technological innovation – yes. Silicon Valley would still be apricot orchards and canning factories without US Gov’t R&D funds. My dad worked for a private engineering co. in Sili Valley in the early 60s, developing enormous satellite dishes for use by the military… we know what that technology has led to.
I also agree with Tom B that innovation takes many forms. I have hope for the dirty hippie innovators, the long-haired ones growing organic potatoes, installing grey water systems in their bath tubs, lobbying for solar panels on city rooftops, and more. You East Coasters and old-timers laugh at us Californians but we are in the forefront of sustainable agriculture which is going to save all of us when oil prices make industrialized agriculture out of reach.
We are implementing recycling and alternative energies. Our Federal gov’t won’t invest in these technologies so our State gov’t and local businesses (like Chevron and Applied Materials) are putting their money into R&D. I have a friend who runs Chevron’s wind energy development business. Applied Materials is a giant maker of the tools that make semiconductor chips – they decided to start making photovoltaic cells in quantity and work on reducing the price to manufacture.
And meanwhile we Oaklanders are composting and growing schoolyard gardens and installing solar panels on the Post Office and Fed Ex warehouse roofs, and so forth. We have an official 100 year plan to make our city energy self-sufficient. Go ahead, laugh. What’s *your* town’s plan for energy use?
Laugh at us with our backyard chickens in the city and our organic bee hives in the ghetto and our permaculture conventions. Go ahead. We are working on the solutions even though our government won’t. You will thank us one day and we will be happy to share our innovations with you – we always have. Yes we sent you baked goat cheese and self-important foodie snobs, but now we’re sending you compost toilets, windmills and maybe even some solar-powered electric street cars. One day!
TomB:
I would suggest that we are in violent agreement.
Your summary assertion that innovation is more than government is exactly right, but there’s a bit more to the story of technological adoption…
Creating the concept behind an important technology is generally not the role of government. Sometimes great ideas come from within federal circles, most times they don’t. But there’s a long road between “the idea” and “the broad adoption of said idea”, and that’s where the government has successfully intervened in the U.S. And that’s a big part of why there is U.S. leadership in high technology.
Technologies are adopted by real-world processes that look a lot like diffusion models in epidemeology, e.g., Rogers’ model for acceptance of innovations:
http://en.wikipedia.org/wiki/Technology_adoption_lifecycle
The trick in getting technology to work in the real world is gaining a critical mass of users, which requires considerable initial investments with low likelihood of success.
This leads to the famous “crossing the chasm” problem, and it’s where federal intervention comes in, e.g., every example we’ve cited included substantial federal R&D investments before the technologies were adopted broadly enough to generate the revenue streams that made subsequent commercial deployment successful.
Last week’s LANL/petaflop computing is one example (with IBM as a partner). And BlueGene is another (again, with IBM). And so it goes, with the U.S. government promoting key technologies as a matter of national policy, and then having the good grace to get out of the way, because the federal role for technology has traditionally been commercial adoption, not government control.
Or closer to home, this website is an excellent example of how government funds support the practical development of useful technologies. The internet protocols that form SST’s lowest-level support infrastructure were funded by ARPA/DoD, the web browsers that demonstrated the practical utility of the http protocols for our discussions here were funded at UIUC by NSF (Mosaic), and the networks that demonstrated the national utility of the whole idea for commerce and community were also funded by NSF (e.g., NSFnet, which carried much of the nation’s Internet traffic until the late 1990’s).
The innovative idea started with Paul Otlet in the 1930’s, and he never spent a dime of U.S. R&D funds. But then again, the idea didn’t go anywhere until the feds starting putting money into UCLA and Stanford and UIUC and IBM and… (the list of federally-supported institutions involved is long and distinguished).
Without federal intervention, it’s not apparent that sites like this would even exist. They might, but that outcome is by no means guaranteed. In fact, with the pullback of U.S. R&D support, we’re embarking on a large-scale experiment to learn whether that’s true or not, and the downside risk is substantial.
My bet’s still on the U.S. retaining its role in technological leadership, but if that continues, rest assured it will happen in spite of Bush administration policies, not because of them. Here’s a picture that’s worth a thousand words on the topic:
http://www.aaas.org/spp/rd/nsfauth07p.pdf
That graph shows the budget for the lead federal agency in exploratory R&D in science and engineering (NSF). The upper curve is what congress authorized, and the lower bars are what the Bush administration submitted for the actual NSF budget.
That’s the R&D agency that promoted the broad adoption of most of the technologies we’re using right here, right now, on SST. That’s not a picture that supports the notion of continued U.S. “utter domination” in science and technology.
Leila:
I’ll pass on the composting toilets, but the proliferation of windmills from California (where state utility regulations promoted their use early and often) across the country has been a great example of the spread of useful technology.
A fun place for wind energy geeks to visit is Altamont Pass at the other end of Alameda County from your neck-of-the-woods. You can see the whole history of wind energy technology there, especially if you get off I-580 and take the back roads over the ridge. There’s a lot of interesting technological thinking and tinkering spread across those hills, with some of the earliest designs rusting away in the delta breezes.
And the best designs have now proliferated to the east. For example, there’s so much wind power development going in now on the I-40 corridor in the TX panhandle that there’s not enough electrical grid capacity to get all the power out…
So please keep sending those windmills eastward across the continent!
Leila, get off the internet and get back to writing your book. (And may I say I invariably liked your blog and posts elsewhere almost as much as I love the gracefulness of your name. Leila, Leila, Leila….) But, still, get back to your book. Those endure. This is vapor.
Cieran wrote:
“I would suggest that we are in violent agreement.”
Well, I’d say that great minds run together and all but your knowledge of the specifics is so much greater than my own people would obviously spot the self-flattery by association. (Not that I wouldn’t still try it if it wasn’t so obvious….)
You then wrote further:
“Creating the concept behind an important technology is generally not the role of government. Sometimes great ideas come from within federal circles, most times they don’t. But there’s a long road between “the idea” and “the broad adoption of said idea….”
No doubt. And that’s where I think we were talking a bit about different things. It was the “creating of the concept” that I was focusing on in somewhat dissing government, but of course it’s gotta be developed too as you note.
I still wonder a bit though about what exactly the effect would be of absolutely no governmental support of R&D other than, again, simply staying out of the way, allowing good profit-taking and etc., and being a big demander/consumer.
That is, for example, given how great an idea the internet is (i.e., simply tying computers together), wouldn’t you think that eventually at least even without DARPA and etc. it would still have been innovated and developed? Or, to put it another way, doesn’t it still somewhat make sense that if you come up with a really really great new innovation the world will still beat a path to your door eventually at least? I think, for instance, of that now indispensable PCR genetic technique thought up by that great surfer dude/now Nobel Laureate Kary Mullis as he was just driving his beat up VW down the coast to catch some waves. Some things just don’t need no stinking governmental badges, do they?
Involves unanswerable or at least undefinable questions of the “greatness” of different innovations and etc. though, and a review of just how many really great ones the gov’t has really been responsible for that wouldn’t likely have come about otherwise I know. I tend to suspect that with the really great new mousetraps the world would still have beat a path to the inventor’s doors, but then again I have no doubt that as time goes on coming up with better mousetraps is an ever more difficult, involved and expensive proposition *needing* gov’t help.
Interesting point somewhat on this subject: The Supreme Court recently issued a big patent decision that is important if only because they rarely have done so, which somewhat purported at least to significantly change what is patentable. Essentially, the Supremes seemed to feel that patents have been awarded and upheld by the lower courts a bit too promiscuously. So, in layman’s terms, they seem to have essentially tried to say “no, patents ought be awarded only for the really *really* new things,” or, as someone else put it, things with a “wow” factor.
Is unclear yet just how the patent examiners and the lower patent court are taking this.
Another interesting thing: A patent lawyer friend tells me that for all the humungoid number of patent applications each year in the U.S. there’s only some absolutely miniscule number of examiners tasked with assessing same. A few thousand only I think, to review hundreds of thousands of applications or something like that. Don’t remember the numbers but just blew me away. Staggering stupidity not to have more, but I guess they just refuse to pay ’em anything so….
Be a cool job for a techie though, wouldn’t it? I guess they’re so in demand elsewhere they just can’t afford to take the job.
In any event good to see I still gotcha betting on the U.S. over S. Korea, though I gotta say I like their cars.
Cheers,
Good points all, Leila, and it brings to mind another example of how special interests and crooked government are actively working against oil dependency in this country; Stephen Johnson, the Bush appointed head of the EPA has acted contrary to the findings and advice of career EPA scientists, and denied California’s state right to set lower greenhouse emissions standards. So, in effect, the Bush admin has come out in favor of pollution and wasting fuel–and supporting crooked, inefficient dinosaur companies who have to resort to trickery, bribery and subterfuge to sell their inferior products (I’m looking at you, Detroit!)
Tom B – I’m busted. OK. Just promised my former professor & writing teacher that I would quit commenting on other people’s blogs, too. Came home from that chance meeting in the local cafe to log on here. Now you. The universe is conspiring to keep me honest and disciplined. Thank you.
TomB:
Regarding this:
I still wonder a bit though about what exactly the effect would be of absolutely no governmental support of R&D other than, again, simply staying out of the way, allowing good profit-taking and etc., and being a big demander/consumer.
I really do believe that this is one of the great questions of our age. I sure wish I knew the answer. I wonder if it’s even knowable.
The government definitely picks winners and losers in the technological marketplace (e.g., KBR, Halliburton, Lockheed, BAE, etc.). and it’s hard not to ask whether the current crop of anointed winners is anywhere near as good as those of old, e.g., KBR’s complacency in Iraq today vs. SOM’s responsiveness during the Manhattan project.
One can only wonder what would happen if we let a true intellectual free market arise.
And while the problems of relying purely on private capital for technology development are well-known, there are lots of smaller firms that have sprung up to remedy those concerns (e.g., Guy Kawasaki’s Garage Technology Ventures), so there’s reason to hope that the answer might be “if the government just got completely out of the way, things would be fine”.
It’s a darned good question. Thanks for sharing what you think…
Tom B – in spite of my lollygagging I managed to write 1,100 new words today on the novel, first longhand then retyped into the chapter draft. Thanks again for the reminder.
Fortunately for Mullis the essentials for PCR, Taq polymerase and primer synthesis technology were both “public domain” products of government-funded research in the 60s and 70s.
Cieran wrote:
“Thanks for sharing what you think….”
Likewise, and same to everyone else on this thread. An important issue, usually rendered dull, but not by anyone here other than me perhaps that’s for sure.
Leila:
Well good for you. Would ask what effect you think word processors have had on writing as opposed to long-hand or typing and whether you think it renders same a bit more glib/less reflective or etc, but don’t wanna do anything to distract you from your book so I’ll save it for later.
Heard an anecdote once about Steinbeck. Was invited to give a talk to aspiring writers so showed up and owlishly asked in a surprised tone if indeed that was who the audience was composed of. Naturally everyone nodded or said yes or whatever, whereupon Steinbeck reared back and roared at ’em “Then what the hell are you doing here instead of being out there writing?!”
So good to know you’ve had your nose to the grindstone even if it means reading you less here and not at all on your blog. Write something amazing. Write something true.
Cheers,
rjj: As Homer Simpson might say, you keep pointing up the weak points in my arguments and I’ll stop making arguments with weak points in ’em, so there.
Cheers,
If I were truly perspacious in regard to oil, I might look for very small, but significant changes in the complete middle east political infrastructure, projecting ahead, ten to twenty years. I would include in this a split in OPEC policy, say, those holding on to the old oil ways, and those trying to co-opt, (or even contain) alternative sources, while pushing for more progressive policies. I would look to see how this affects government functions,and output, and plan, accordingly.
I would also invest in alternative seed energy sources, for the long term, with an understanding oil output and export to the US will eventually decline, despite dead cat bounces, here and there.
I would also try to understand the level of corruption.