National Security and Energy Independence

The term, “national security” has come to be synonymous with national defense. But given the geography of the United States, it’s unlikely we would ever need to use our defense forces to secure the homeland from an invading army. National security really has more to do with the protection of those critical infrastructures the loss or degradation of which would place the country in a position of economic and military vulnerability. These infrastructures include:

• Banking and Finance: The nation’s banking system and securities exchanges as well as the public confidence in this system
• Transportation: Road, rail and waterway networks, airports and seaports
• Power: Electrical power generation, transformation and distribution, pipelines for natural gas and oil
• Public Works: Reservoirs, aqueducts, wastewater treatment plants and drainage systems
• Communication: Radio and television networks, satellite networks, computer networks, the internet

Of these critical infrastructures, I would argue that power, or energy production and distribution, is the most sensitive to disruption; not just from physical attack, but because the very sources of energy we rely upon are largely imported from politically and socially unstable regions of the world. For this reason, I believe the United States’ national security is increasingly tied to its energy security.

In the pre-industrial age – before the rise of steam power, gasoline engines and electricity, communities and entire societies were based on an agricultural foundation. Fuel was primarily associated with wood for cooking and heating fires and to generate heat for basic ore smelting and metalworking. This fact of history was brought home to me when we lived in England during the 1980s. The rolling green countryside of central England had once been covered in dense, deciduous forest. By the 20^th century, after thousands of years of human habitation, most of these vast forests had disappeared; the trees having been cleared for farming and grazing land, and subsequently used for fuel and building material.

Today, in a post-industrial world, all the technologies we rely upon for everything from food to shelter to transportation, depend on energy. Securing stable sources of energy has now become a key objective of our national security strategy. Despite all the technological advances in the last century, our primary sources of energy in this country remain fossil fuels: coal, oil, and natural gas. According to the US Energy Information Administration (EIA), as a result of a combination of declining oil production and increasing demand, net US imports of oil and petroleum products increased by 400% from 3.16 million barrels per day in 1970 to 12.04 million barrels per day in 2007. The largest net suppliers of oil and petroleum products to the US are Canada and Mexico, which supply about 30% of the US daily oil demand. Another 28% of this demand is supplied by other countries, including OPEC nations such as Saudi Arabia and Venezuela. This means that the US domestic production supplies only about 42% of our own oil demand.

According to the EIA, about 86% of the coal mined in the US is used for the production of electricity. Coal plants account for 52% of the electricity generated in the United States. Unlike oil, the US is actually a net exporter of coal, so the situation is not nearly as dire. Coal reserves are estimated to be sufficient to last for hundreds of years at current rates of consumption.

The only other existing source of energy for the production of electricity (other than hydroelectric power) is nuclear energy, which provides 19% of the electric power in the US. Nuclear power, while a relatively untapped source of clean energy (nuclear energy comprises only 14% of the world’s electricity production), spent nuclear fuel is highly radioactive and extremely hazardous. Transport and long term storage of nuclear waste is fraught with controversy.

But the point of this article is that US energy supplies are a critical strategic vulnerability for the future security of the country. We know that fossil fuels will become increasingly more expensive to extract, and will eventually be depleted altogether. No new petroleum refineries have been built in the United States for decades, and the existing refineries are operating at near peak capacity. Nuclear energy is unpopular, highly regulated and as a result, new reactors are slow to come on line.

The solution is energy independence. To the degree we can become free of dependence on external sources of fuel we also free ourselves from the threat of being held captive by petroleum supplying nations or cartels who clearly could care less about the economic well being of the United States. Those who are old enough to remember the days of the OPEC oil embargo in the early 1970s realize the potential devastation that might be wreaked on this nation in the event of a major disruption in oil supplies. And that embargo occurred at the point of America’s peak domestic oil production! We have since become embarrassingly dependent on oil imports to fuel our economy.

This need for secure, stable and environmentally friendly sources of energy is so vital to our national security that this country should invest in a national research and development program on the scale of the Apollo project of the 1960s. Such a program’s goal would be nothing less than the invention and development of next generation energy technology, whether that be nuclear fusion, electrical storage technology (batteries) or significant advances in solar, or other sources of renewable energy supply. In the meantime, all efforts should be made to exploit the reserves of oil, coal and natural gas that exist within our borders, whether they are in the Arctic National Wildlife Refuge or off our nation’s coasts.

The technology for extracting fossil fuels with a minimum of environmental disruption exists today. Contrary to the assertions of environmental lobbies, this is not an “either/or” situation. It is possible to shift the production of energy back to a domestic basis while at the same time driving toward the next generation solution. As a nation, we should accept that the goal of achieving independence from fossil fuels will involve a period in which we simultaneously cushion ourselves from disruptions in external sources of supply while we wean ourselves from oil. This cushion is necessary. Neither should we hamstring ourselves with the needless burden of cap and trade regulations, the outgrowth of a completely fabricated global climate “emergency”.

Those critics of President Bush, who accused him of waging a “war for oil” may not have been that far off the mark. The middle east would likely not be such a strategically significant part of the world for America were it not for the fact that is currently in our national interest to ensure middle east oil supplies continue to remain on the open market. That’s a reality we must live with. Imagine what it would be like if we didn’t have to.

The Economics of Traffic Congestion

Like most people who must commute to work, I am forced daily to think about the perpetual problem of traffic congestion. It may seem like a pretty mundane thing to write about. It’s not really controversial; nobody likes being stuck in a traffic jam. But attempts to solve traffic problems can be very controversial. For example, if a solution involves building more roads or widening existing ones, there are issues of how to pay for the construction. Should state or local taxes be increased? Should a revenue bond be issued to raise the money? Should new residential development be restricted? I’d like to spend a little time thinking about the basics of the problem before moving to proposing solutions.

On the surface, the problem of traffic congestion really seems like a straightforward one: too many cars trying to use a limited road network. But the causes of traffic congestion are many and varied, so any potential solutions will not be simple ones. I propose that, fundamentally, traffic congestion is a function of economics; that is, the choices we make regarding our desired outcome (a smooth and easy commute) and the costs of our choices, whether those costs be monetary, or in the frustration we experience when we are delayed in reaching our destination due to a traffic jam.

When designing highways, traffic engineers are trying to maximize the flow of traffic. That is, they are trying to design a system that will allow the movement of the largest volume of vehicles as rapidly as possible. This flow is the product of traffic density (the number of vehicles that can fit in a linear stretch of roadway) and the average velocity of the traffic. There is a theoretical maximum flow a highway can accommodate. You’ve probably experienced this when you’ve been in a very fast moving flow of very dense traffic. This can be a dangerous time because the least perturbation in the flow will cause a car to slow suddenly, causing a wave of brake lights to come on and the average velocity of all the vehicles drops dramatically. This is illustrated in the graph below. Traffic flow increases gradually with traffic density until this magical maximum is reached, at which point the efficiency of the roadway begins to degrade as traffic velocity approaches zero.

In theory, one could achieve a higher traffic flow, but to do this, drivers would have to surrender their autonomy as drivers: each vehicle would be bumper to bumper – almost connected like cars in a train – such that all the vehicles moved as one. This would maximize the traffic density. If all the vehicles moved simultaneously (and didn’t change lanes) very high speeds could be reached and thus traffic flow would increase with no possibility of traffic jams. Of course, that isn’t reality! The whole idea behind the private automobile is the freedom and autonomy of being able to control where you want to go. Optimal traffic flow requires the cooperation of many individual drivers following (hopefully) a standard set of traffic regulations.

The notion of autonomy and control of our cars gets us back to my thesis that traffic congestion is primarily a function of economic choices. If we try to solve the problem of traffic congestion by widening existing roadways or building additional ones, we will simply have increased the opportunity for more vehicles to be on the roads without having done anything to improve the efficiency of the traffic flow (remember that traffic flow is made up of the number of cars on the road and the speed they are traveling). I propose that we first focus on solutions that target these two components of traffic flow. Such solutions would simply do two things: they would reduce the number of vehicles on the road (traffic density) and regulate the traffic velocity. The solutions I am in favor of are also economic solutions, because they involve choices with costs and benefits.

At six AM on a Sunday morning, you will likely have no traffic problems, but at seven AM on Monday morning… needless to say, the time of day and the day of the week has a significant impact on the number of vehicles on the road. Here are several ways this number can be reduced:

• Carpooling – one of the reasons that higher gas prices are not necessarily bad is that it forces commuters to consider choosing the minor inconvenience of sharing a ride with two or three others who are going to the same destination. When gas prices topped $4.00 a gallon a year and a half ago, several of us at work decided to explore a carpool. We were amazed to discover how many of us lived close enough to each other that it made sense to consider. Now, when three of us ride in to work together, we are effectively taking two unnecessary vehicles off the road. The carpool has the added benefit of reducing wear and tear on our vehicles, not to mention the savings in fuel costs.
• Congestion Pricing – Most drivers use the road as if it were a commodity they didn’t have to pay for. We know from basic economics that when you reduce the price of something, the demand for it increases. So if drivers perceive that they are not having to pay for the privilege of using a stretch of highway, they will think nothing of using as much of it as they want. Many localities around the country are now considering imposing tolls or fees on particularly congestion prone segments of highways. These tolls are graduated based on the time of day and day of the week. So the highest tolls would be imposed during morning and evening rush hours, while there might be no toll at all on Sunday. The city of London, England has had great success in using congestion pricing to reduce the number of vehicles coming into the city during weekdays. This is truly an economic decision: it forces drivers to compare the benefit of taking a particular trip to the cost. And before you leap to the conclusion that such congestion pricing amounts to economic discrimination, realize that possessing a driving license is a privilege, not a right. Collecting tolls directly supports the maintenance of roadways, bridges and tunnels, and reduces the tax burden for everyone.
• Mass Transit – Bus and streetcar service is widespread and convenient in Europe. It is not as popular in the US because our larger distances and suburban-style residential development have made the automobile the transportation means of choice for most people. But particularly as fuel prices increase, more and more Americans will be willing to consider public transit as a viable alternative to private cars for routine commuting.

We haven’t even touched on the related topic of urban planning and its effect on traffic volume. This addresses the fundamental reason we need to commute in the first place because it addresses where we live and work, the origin and destination of virtually all commutes. In a future blog posting, I’ll try to get to the second component of traffic flow, which is velocity. There are actually unexplored economic solutions to this part of the problem as well. All that is needed to get some of these ideas “on the table” is a little creativity and a willingness to risk being laughed at. I’ll give you a chance to laugh in a future column!

Climate Change

There are so many perspectives and angles of approach one can take when trying to think clearly about the issue of global warming, or as it is currently being referred to: “climate change”. There’s the scientific perspective (what is the evidence for climate change and how rigorous is the science?) and the public policy perspective (what regulations should be in place to deal with climate change?). There is also a social science perspective (why is climate change controversial and seemingly divided along ideological lines?) and even a religious perspective (did God give man stewardship over the earth, or is the earth to be venerated by man?)

My thinking on this subject tends to be drawn to the structure of the relationship between the claim that the effects of climate change demand a response by governments on a massive scale, and the nature of that response. The French philosopher, Blaise Pascal, once proposed an approach to decision making that has come to be known as “Pascal’s wager”. The question for Pascal was the relationship between the existence of God and the state of his own belief in God. Should he believe in God or not? He suggested that there were two possible “states of nature” with respect to the existence of God: Either God existed, or he did not. There were also two possible responses Pascal could take with respect to these states of nature: Believe in God, or don’t believe in God. So Pascal created four possible outcomes based on these states of nature and his responses to them:

1. God exists/I believe in God – therefore a positive outcome
2. God exists/I don’t believe in God – most likely a very negative outcome!
3. God does not exist/I believe in God – a less negative outcome than (2)
4. God does not exist/I don’t believe in God – a rather neutral outcome

As in the case of climate change, there are also two basic “states of nature”: either the planet is warming or it is not. But unlike Pascal’s simple decision aid, our problem is more complicated (it is actually a decision tree, and if this were not a blog post, I’d probably try and show an illustration of that at this point). But I think you can get an idea of the complexity of the decision problem by examining the table below:

The potential states of nature range from no global warming to significant increases in world temperatures in a relatively short period of time. The potential responses can be grouped into three categories: 1) do nothing, 2) take defensive measures (that is, assume that global temperature increases are incapable of being reversed, so we must protect civilization from the inevitable effects – rising sea levels, increasing areas of arid land, etc.), 3) take pro-active measures (reverse the effects of global warming).

The problem is that there is a great deal of uncertainty surrounding the actual “state of nature” of planetary warming. All of the scenarios describing the projected effects of planetary warming are based on computer modeling. The ability to forecast the local weather (also based on computer models) over the next week is not a certain science, yet predictions of specific global temperature increases over a period of 50 to 100 years are viewed as certain. So we really don’t know how dire the situation is.

If global warming is a reality and is unstoppable (that is, will not yield to efforts by humans to reverse it) then the best recourse for public policy makers would be to take defensive measures; e.g., divert resources to protecting civilization from its effects. Sea walls and dikes should be constructed around vulnerable coastal communities like New York and New Orleans to protect these cities from the inevitable rising sea levels caused by melting polar ice.

On the other hand, if we know what causes global warming, and can reverse its effects, we should do so. But here is the problem: scientists are not certain what causes global warming. There is no “scientific consensus” about climate change. A number of distinguished researchers in this area have studied the evidence and have found that if we are in a planetary warming period, it may simply be cyclical (due to activity by the sun or other causes). In addition, they have noted that, while increases in carbon dioxide in the atmosphere have been associated with temperature increases, such a correlation may not infer causation; that is carbon dioxide may not actually be causing atmospheric warming, but may actually be a “lagging” indicator of it.

From a public policy standpoint, then, we really do not have enough information about the extent to which human beings actually cause global warming (if, in fact, it is taking place) to commit our nation to policies and treaties that would have immediate and dire economic effects such as placing caps on carbon dioxide emissions.

To return to our decision matrix, it appears our government and society in general has decided on the solution before the problem is really defined. Continued repetition in the media of a particular theme is not a substitute for scientific rigor and evidence. Global warming may be real, but much more work needs to be done to clarify the true state of nature before committing public resources to politically acceptable “solutions”.

Health Care 1

The issue of health care has been center stage for months now. It is the centerpiece of the president’s legislative agenda and has generated a great deal of controversy. Amid all of the punditry and soundbites, I wonder if the actual issue (problem to be solved) has become obscured.

The first task of any systems analyst or engineer is to make sure you are solving the right problem. It may seem obvious, but I think that much of the angst associated with this, or any, political issue is that people already have the “solution” to the problem in mind. So their efforts are not so much focused on coming up with an answer to the problem as they are on selling their particular solution. Often such “solutions” are conveniently tied to political ideologies or economic self-interest.

The complexity of this issue becomes evident when you try and capture all of the justifications for why the health care issue is problematic. Some argue that access to health care is a fundamental human right. But such a statement is freighted with a lot of unanswered questions: What is the definition of “health care”? Is it the ability to go to a doctor when you are sick or injured and not have to pay for it? How sick do you have to be? Who makes that determination? What about elective medical procedures? What about preventative medicine? And then there is the question of what exactly constitutes a “fundamental human right”. Where do “human rights” come from? If access to health care is a fundamental human right, what about access to clean water or food? What about clothing and shelter? If one agrees that all of these are fundamental human rights, how does one define the degree to which they should be provided? Is it the role of government to ensure the granting of these human rights?

If the problem is focused on the basic economics of medical care (note that I switched from the term “health care” to “medical care”) then we might be honing in on the potential problem. If I am sick, but I think it’s just the flu, or if I sprain my ankle, I can make an appointment with a physician and receive an examination, a diagnosis, and a prescribed treatment. I expect to pay for it, but I know that it won’t bankrupt me. On the other hand, if I am injured in an industrial accident or a car crash, or am diagnosed with cancer during a routine visit to the doctor, the cost of paying for the medical care I will need will far outweigh my ability to pay for it out of my personal savings. That is why the concept of medical insurance was invented – to fill a specific need in our economy. A company pulls together a pool of people, all of whom share the risk that a small percentage of them will have a catastrophic medical expense. Each member of the pool pays what is called a premium, which is mathematically calculated based on the likelihood of members of the pool succumbing to statistically unlikely medical events (most people will not die of cancer or be disabled as the result of an automobile crash).

So, I’m thinking that there might be a number of Americans who don’t have such insurance, which is true. The figure being bandied about is 47 million. Of course, a significant percentage of that 47 million are people who could afford catastrophic medical insurance, but have opted not to acquire it. We may be getting closer to what the real problem is… What if the market for “major medical”, or catastrophic insurance, was unconstrained sufficiently such that market forces allowed enough competition in that market to drive “prices” for premiums to an affordable level? Of course, this raises the question of exactly what is considered “affordable”. This, then, reduces the problem space to one in which we are asking the question, “how best to allow premiums for medical insurance to find a level at which most Americans could reasonably afford to purchase such a premium (as they do with auto or homeowner’s insurance premiums)? If this is the fundamental question, then one must ask what is the role of the Federal government in bringing this about? If we are now assuming that the Federal government actually has a role in solving this problem, we must analyze the extent to which the government has participated in creating this problem in the first place. If it has, then the primary goal of government would be to extricate itself from contributing to the problem. This question must be addressed prior to the imposition of any governmentally-mandated solutions.