Tag: economics

“Taking temporarily high rates of annual exponential growth as indicators of future long-term developments is a fundamental mistake.”

Vaclav Smil, writing in Growth: From Microorganisms to Megacities (2019):

Taking temporarily high rates of annual exponential growth as indicators of future long-term developments is a fundamental mistake — but also an enduring habit that is especially favored by uncritical promoters of new devices, designs, or practices: they take early-stage growth rates, often impressively exponential, and use them to forecast an imminent dominance of emerging phenomena.

Many recent examples can illustrate this error, and I have chosen the capacity growth of Vestas wind turbines, machines leading the shift toward the de-carbonization of global electricity generation. This Danish maker began its sales with a 55 kW machine in 1981; by 1989 it had a turbine capable of 225 kW; a 600 kW machine was introduced in 1995; and a 2 MW unit followed in 1999. The best-fit curve for this rapid growth trajectory of the last two decades of the 20th century (five-parameter logistic fit with R2 of 0.978) would have predicted designs with capacity of nearly 10 MW in 2005 and in excess of 100 MW by 2015. But in 2018 the largest Vestas unit available for onshore installations was 4.2 MW and the largest unit suitable for offshore wind farms was 8 MW that could be upgraded to 9 MW (Vestas 2017a), and it is most unlikely that a 100 MW machine will be ever built.

This example of a sobering contrast between early rapid advances of a technical innovation followed by inevitable formation of sigmoid curves should be recalled whenever you see news reports about all cars becoming electric by 2025 or new batteries having impressively higher energy densities by 2030.

Notes: The Rise and Fall of American Growth: The U.S. Standard of Living since the Civil War

Notes from The Rise and Fall of American Growth: The U.S. Standard of Living since the Civil War (2016) by Robert J. Gordon:

* Advertising developed in part as a result of mass production; likewise, it was said that advertising made mass production possible. Firms decided that there was a limit to attracting customers through lower prices, and they tried the alternative strategy of increasing volume by brand-centric advertising. Although advertising began in the late nineteenth century with the development of the first branded products, its true explosion came in the 1920s, when it became increasingly tied to the newly invented radio.

* Electric lights are an example of a technology that had a great burst of innovation early, in this case 1880–1920, and then stood still afterwards. Although the fluorescent bulb had come to dominate lighting in commercial and industrial settings by 1950, virtually nothing changed in home illumination from 1920 until the development of the compact fluorescent bulb after 1990.

* The current system of airport security all over the world represents an overreaction to the September 11, 2001, hijackings. There was only one weakness in the U.S. airline security system on September 11, and this was that the cockpit doors were flimsy. Within days, they were replaced by completely secure doors that nobody could break through. Although the security issue was completely solved within a week, fourteen years later billions of dollars per year of passenger time continues to be wasted in unnecessary additional security precautions. The pre-2001 security system, based on a quick walk through an X-ray machine to check for guns and metal weapons, would be enough.

* If any year can be anointed as the beginning of the Internet revolution, it is 1995. The introduction of Windows 95 was a sensation, creating long lines of eager buyers waiting for hours in front of stores that would sell it before the doors opened on August 24, 1995. This version of Windows represented the transitional moment in the history of the Internet in that Microsoft’s Internet Explorer, a web browser derived from Mosaic, was available as an add-on to Windows 95.

* Virtually every firm making consumer goods (except for basic food and clothing products) had been forced to make something else during World War II, and every one of these producers learned to be more efficient from the process.

* The unrivaled autonomy of the medical profession began to erode after the 1950s. As hospitals became larger and more complex, administrative control fell increasingly into the hands of professional administrators. Patients also began to challenge the authority of the medical profession. While “for the most part, the authority of the doctor was unquestioned” in 1960, with the surgical profession even earning such high praise as being called a “religion of competence,” by the early 1970s patients were demanding greater say in how they were treated. What had always been a tradition of “doctors know best” changed in 1972 when a federal appeals court in Washington, D.C., for the first time established a legal requirement for informed consent. “According to the new standard, the physician had to tell the patient whatever ‘a reasonable person’ would want to know in order to decide whether to accept the treatment.” In 1973, responding to increasing pressure from healthcare consumers, the American Hospital Association came out with a Patients’ Bill of Rights.

* One of the most important improvements in American industrial efficiency was the establishment by Herbert Hoover of the National Bureau of Standards. Its aim was to create a system of uniformly sized parts, down to screws and bolts, aimed at “simplification of practice, elimination of waste, conservation of materials, minimum training of workers, reduction and savings in supply purchasing and unwieldy inventories, defeat of confusion, and speed in production.”

Updated: 2023/05/03

“Bottled water is an indulgence.”

Charles Fishman, writing in The Big Thirst: The Secret Life and Turbulent Future of Water (2011):

Americans spent $21 billion on bottled water in 2009. It doesn’t seem like an astonishing sum of money—about $65 per person, $1.25 a week. But in the context of water, $21 billion is huge.

Consider, for instance, what Americans spend for all the water delivered to their homes—350 gallons per family per day, 365 days a year. The water bill comes to about $412 a year. Which means we spend $46 billion a year on all the household water we use all year long—to run the morning shower, to boil the pasta, to water the lawn. As a nation, we spend $46 billion for a year’s water, always on, whenever we need it. And we spend another $21 billion—almost half as much—for bottled water, for an amount of water that wouldn’t get us through eight hours of water use at home on any given day.

But there’s an even more arresting comparison. We spend about $29 billion a year maintaining our entire water system in the United States—the drinking water treatment plants, the pump stations, the pipes in the ground, the wastewater treatment plants.

So as a nation, we spend very nearly as much on water delivered in small crushable plastic bottles as we do on sustaining the entire water system of the country.

When we buy a bottle of water, of course, what we’re often buying is the bottle itself, as much as the water. We’re buying the convenience—a bottle at the 7-Eleven isn’t the same product as tap water, any more than a cup of coffee at Starbucks is the same as a cup of coffee from the coffeemaker on your kitchen counter. But we’re also buying the artful story the water companies tell us about the water: where it comes from, how healthy it is, what it says about us.

Bottled water, in that sense, is often simply an indulgence. The problem is that it is not a benign indulgence. We’re moving 1 billion bottles of water around a week in ships, trains, and trucks in the United States alone. That’s a weekly convoy equivalent to 37,800 18-wheelers delivering water. (Water weighs 8.33 pounds a gallon. It’s so heavy you can’t fill an 18-wheeler with bottled water—you have to leave empty space.)

“The top 1 percent…”

Joseph E. Stiglitz, writing in The Price of Inequality: How Today’s Divided Society Endangers Our Future (2012):

The top 1 percent have the best houses, the best educations, the best doctors, and the best lifestyles, but there is one thing that money doesn’t seem to have bought: an understanding that their fate is bound up with how the other 99 percent live. Throughout history, this has been something that the top 1 percent eventually do learn. Often, however, they learn it too late.


David E. Hoffmann, writing in The Oligarchs: Wealth And Power In The New Russia:

The Soviet system also had another kind of funds, known as non-cash, or ‘beznalichnye’. This was not banknotes or coins, but a kind of virtual money that was widely distributed as government subsidies to factories. The ‘beznalichnye’, or ‘noncash’, existed only as an accounting unit. A factory would be transferred subsidies in beznalichnye, which it would record on its books and might use to pay another enterprise—but it was not something you could put in your wallet.

The key dilemma for a factory manager was that the system was rigid: mixing the two kinds of money was prohibited. The factory manager was not allowed to take the beznalichnye and turn it into real cash. Both kinds of money were controlled by Gosbank, the official state bank, and by the central planners.

However, factory managers almost always needed more cash than they could get out of the system. The supply of cash was tight, but the supply of beznalichnye was very plentiful — maybe because there was not much use for it. The result was an imbalance in the value of the two kinds of money. Cash was much more valuable and sought after. By some estimates, a cash ruble was worth ten times a noncash ruble.

This imbalance was an invitation to huge profits. Someone who figured out how to turn the beznalichnye into cash would make a fortune. The planners’ greatest nightmare was that someone would do this and pump the relatively worthless state subsidies into real cash rubles.

Guess who figured it out.