Arnold Kling  

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I took a lot of notes on 4 talks given at "MIT on the Road." Unlike the Valley Guys, who think that four new JavaScript function calls constitutes an economic revolution, the MIT folks had lots of interesting things to say. The four big take-aways were:

1. Managing innovation is not like managing projects, so that the politicians who say we need a "Manhattan project" for alternative energy are idiots.

2. China's central government has difficulty getting its constituencies to change, and it is "outsourcing" some forms of regulation and governance to the U.S. and international organizations.

3. Coal is likely to be the main source of additional energy over the next few decades.

4. Prius owners are not going to feel so good as their batteries wear out, but a new generation of batteries has more promise.

The first speaker was Richard Lester, on the topic of innovation. He drew a distinction between project management and innovation. The Manhattan Project and the project to put a man on the moon were examples of projects, each with a narrow objective, a specific customer, and a single implementation. For energy policy, we have multiple objectives, no single customer, and no single implementation.

Flaws in government's approach to energy include ideological biases ("pro-nuclear" vs. "anti-nuclear"), a very bad track record in doing demonstration projects (Synfuels, breeder reactor), over-optimism, bad management practices, and confused goals.

Innovation these days tends to be cross-disciplinary. The lone researcher is no longer effective. Researchers have to communicate with one another and with customers.

Project management has a goal of closure. It requires decisiveness and is harmed by ambiguity. In contrast, innovation is an open-ended process. Researchers must be encouraged to delve into ambiguity, and it is more important to explore possibilities than to reach quick decisions.

This reminded me very much of the Myers-Briggs distinction between J and P, with Lester arguing that P's are needed in order to innovate. At a meeting, the J is the one who charges forward, crisply moving the consensus and making decisions in sequence. The P is the one who, after two hours, says, "I think we need to go back and revisit X," where X is the first decision that was made in the sequence, 90 minutes ago.

During the Q&A, I asked Lester how to measure and evaluate groups that followed a "P" style. With traditional project management, you can measure results against specifications, time, and budget. With a more open-ended research environment, what do you do? He said that this is an important question. He mentioned that since cross-disciplinary connections seems to matter, that might be one measure. But he acknowledged that it is a difficult issue.

The second speaker was Edward Steinfeld. He looked at China's situation the way it might seem to them. Among their problems:

--in manufacturing, they do mostly low-end assembly. They import high-tech components from Taiwan, Korea, and Japan, and do the final assembly to export. Their assembly facilities are often foreign-owned.

--Manufacturing employment is down since 1997, by about 20 million jobs. The gains in jobs have been in construction, retail and services. These are informal sectors, with no benefits, and often temporary work.

--At a local level, "government" consists of powerful party officials who are more interested in business than in public goods. They are outside the central government's control, as exemplified by the fact that there are 100 gigawatts of "illegal" electric power plants in China, meaning plants not approved by the central government. (The entire nation of France uses 80 gigawatts of power. China uses 650 gigawatts.)

--China is "outsourcing" some forms of corporate governance and rules enforcement. WTO forces its companies and local governments to conform. The U.S. is forcing China's factories to produce safer products. Listing their companies on foreign exchanges is forcing Chinese companies to be more transparent.

--China is adopting foreign institutions on a trial-and-error basis. It is authoritarian, but it is no longer centrally planned. In fact, the abandonment of socialism is quite harsh--education is no longer free, and the poor cannot afford it.

The third speaker was Ernest J. Moniz, one of the editors of a report on The Future of Coal. You can go to the link to read the executive summary and decide how much of the report to read. Basically, it argues that a lot of our incremental energy needs over the next few decades are going to be met by coal, even if carbon is heavily taxed. This in turn means that we need carbon sequestration, meaning putting carbon dioxide into liquids and pumping billions and billions of barrels of these liquids into saline aquifers.

This all sounds pretty ugly, compared to the hippie-dippy ideas of wind and solar. But Moniz thinks that coal and nuclear are the only energy sources that can really provide the scale we need for the first half of this century.

Moniz cited poll evidence suggesting that 80 percent of Americans are unwilling to pay more than $10 a month in electric bills to fight global warming. People are more favorable to paying higher electric bills if you tell them they will get an income tax rebate, but it's still only about 50 percent willing to pay more than $10 a month.

Finally, Yet-Ming Chiang talked about batteries. He said that solar power requires batteries (how else do you store the power for when the sun is not out?), and that the cost of batteries often exceeds the cost of the solar panels.

Different battery properties serve different needs. For cars, what is needed is tremendous power and durability. He has developed new battery technology and formed a company, A123 systems. The good news is that these batteries can fully power a car, called a plug-in hybrid, which can go 40 miles without a charge (so if you commute less than 40 miles a day, you would need zero gas). A Prius can't go up a steep hill with its battery alone, but these cars will be able to (look for the Chevy Volt in a couple of years). Also, Chiang says his batteries will be able to last 15 years. Prius owners might find that in a few years their batteries are worn out. This is not a minor event. Unlike the $100 battery in your car today, battery packs in hybrids cost thousands of dollars.

The bad news is that the production cost of Chiang's batteries needs to fall by a factor of 2 or 3 in order to make them cost-effective. They already manufacture them in China. This not only saves money, but it enabled them to get up to speed quickly--they got a manufacturing plant up and running in 9 months. Incredible.

What is the carbon impact of switching from gasoline power to electric power? At today's average mix of fuels for electricity, it is favorable. But my guess is that at the margin the mix leans toward coal, so that if we were using plug-in hybrids for 90 percent of our driving, I would not be surprised to see little or no improvement in terms of carbon emissions--but certainly some downward pressure on the price of oil.


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COMMENTS (14 to date)
Gary Rogers writes:

I partially disagree with point number one. Look at what came out of Lockheed's Skunk Works, AT&T's Bell Labs, Xerox's Palo Alto Research Center and the Manhatten Project itself. The thing politicians need to recognize, though, is that they would have to give complete freedom to a group of people about which they have absolutely no clue. For this same reason, I would not want politicians to select the participants on the project. It could work but the chances are low.

General Specific writes:

I think it unnecessary--and perhaps lacking in insight on the part of the speaker who proposed the idea--to create a dichotomy between innovation and project management without accepting the following fact: the project of the manhattan project included a significant investment in innovation of all types. Nobody knows where that innovation will lead. That's why they invested in multiple approaches, including the plutonium and the uranium bomb.

The same can be said for digital electronics, information theory, computer technology, radar technology, etc.

As Gary Rogers wisely points out above--and I know from my own government r&d experience--a lot of great ideas come out of money thrown at a problem. And a lot of great energy ideas would come from money thrown--wisely of course--at energy issues.

The comment on solar and batteries needs to take into account that solar is also a way to address peak power needs by creating local power plants on each and every roof. That reduces the need for additional power plants to meet peak requirements--at least in areas like Southern California when peak requirements are caused by air conditions--when a lot of sunlight is available.

Also note that Prius owners tend to have fairly liberal warranties on batteries. I have an Honda Insight and a Toyota Prius and both have warranties to something like 100,000 miles. Still a problem if they go out early, but at the same time these cars have less wear and tear on the drive train, the engine, and the braking system, so an additional tradeoff to consider.

Finally note that hydrogen can be used as a battery technology, though I think more solid state type batteries--or chemical--will prove more efficient.

As the reality of peaking energy production sets in (e.g. recent price of oil), I find it interesting that more and more conservative and libertarian blogs are finally seeing the light--dimming as it is at times. Welcome to the reality based community.

Gary Rogers writes:

I am also surprised at your comments about the Google presentation being about four new javascript funciton calls. Have you looked at the API? Have you considered how much planning it takes to make seamless interaction between applications written by different teams in different languages running on different hardware platforms seem as easy as four javascript functions? This may not revolutionize the internet but it could be big, depending on how many developers can come up with creative ways to use it. For that matter, this is the kind of innovation that drives our economy to better and better products. A subject that I think is misunderstood by many economists.

Lord writes:

The Manhattan Project certainly did not pursue a single implementation; almost everything was pursued in multiple contexts to determine what would work and the best method to work. Centrifuges and cyclotrons, diffusion and mass separation, uranium and plutonium, implosion and critical masses.

Sequestration will be important, but likely not as gas or gas dissolved in fluids. Nearly any other method will be safer, more efficient, and effective.

A carbon tax may well promote the use of more oil and certainly more gas.

Bob writes:

General,

No flame intended (seriously) but I find it interesting and ironic that you would welcome crisis skeptics to the "reality based community" with heavy sarcasm for waiting to accept a claimed problem until market prices (reality) indicate the problem. What reality are you living in?

General Specific writes:

Bob: I think my point is that the markets are not the only reality--nor is Julian Simon's cornucopian "what me worry" attitude.

There is significant scientific fact--and modelling based upon it--pointing to peaking energy supplies and/or production (particularly in EROEI terms), data that was available five years ago for those willing to look at it without ideological blinders. I've been studying that data, for maybe the past seven years (and investing accordingly), taking into account economic argument as well as geological and physical ones.

On a personal level, money is to be made when one is ahead of markets, whether it be the real-estate market or the energy market. Or global warming.

So in summary, my point is that I find it ironic that libertarian and conservative blogs are finally coming around to the facts of peaking energy, a real estate market that is overtaxed and decreasing nationally (first time in recent US history since records kept), and global warming is proving true.

Note I specify no policies to deal with them. That's a tricky question. But I'm not going to let my own ideological predilections allow me to ignore issues in energy, real-estate, and global warming (to pick three topical examples). I think many examples can be found of libertarian and conservative pundits arguing that those three were not problems--yet now are forced to change their argument to "maybe let's not do anything about them--if we can." As I've said in the past here, people making arguments like that aren't saying much of value--particularly in the sense of actually making money.

That's all. I think a lot of people let their desired policy outcomes interfere with their ability to look at the reality on the ground because the reality on the ground may not support the more optimistic aspects of their ideology.

fly fisher writes:

I struggle to see how it is that a libertarian ideology leads one to "ignore issues in energy". I do see how a libertarian would resist the efforts of those who would use an issue like energy to gain control over the economy and convert a capitalist system into a socialist one, but many people who have a libertarian philosophy about government simply look at the energy issue in a different way than those who have a socialist philosophy about government.

I believe that too much of the criticism against libertarian approaches comes from a failure to understand -- in a real and meaningful way -- the fundamental differences between 'consequence' and 'motive' arguments as has been described very clearly by Dr. Kling.

There are many ignorant people in the alternative energy debate who argue from an ideological point of view that has little to do with science and economics, but is instead based on ideological notions. However, no ideology is immune, and there are many people who believe large-scale, complex problems like energy are the opportunity to move control of the economy to the government.

On the topic of Manhattan Projects for innovation, I believe digital electronics provides a good example to reinforce the points in Arnold's original post. Here is a nice quote from T.R. Reid's book "The Chip" on the invention of the integrated circuit:


The search (for the integrated circuit) became a top-priority technological concern throughout the established world. The Royal Radar Establishment, racing to bring the honor of this important accomplishment to Great Britain, developed a promising concept as early as 1952 but failed to make it work. The French, the Germans, and the Russians competed against one another; in the United States, the Army, the Navy, and the Air Force competed just as fiercely, each service pushing its own preferred solution, each rejecting the ideas of the others. Private firms, sensing a gold mine, poured millions of dollars and man-hours into the effort. But through most of the 1950s none of these endeavors really helped. Patrick Haggerty, the president of Texas Instruments, complained that most of the proposed solutions to the tyranny of numbers "tend to exacerbate the tyranny."

Ultimately, two private people, Jack Kilby of Texas Instruments and Bob Noyce of Fairchild, came up with the solution and changed our world. But the management of this project by politicians didn't make this happen.

Bob writes:

Consider that the average American taxpayer is already spending $153 per year ($23.4B/153M in the work force*) to fund the Department of Energy. This includes $6B to nuclear weapons** and the balance which operates like a research foundation, albeit without voluntary contributions.

I wonder if Monitz' poll asked if 80% of Americans are willing to pay $153 per year in taxes to support that work plus the $120 that was indicated in his poll?

* from Wikipedia, the Bureau of Labor Statistics ** from the U.S. Department of Energy

Brad Hutchings writes:

Interesting Arnold. GS, your idea of every house in SoCal having solar panels has a couple problems: (1) Many roofs don't face a favorable direction. Back in the 80s, when I lived in NorCal, my folks had a solar water heater system installed and our roof orientation was just within the range where an attractive unit could be installed. Much more likely in my mind that those with favorable roof orientations and those with large flat roofs could sell juice back to the grid, so we'd have more local sources of power in the market. (2) It's a long way from paying for itself beyond feeling good. A lot like hybrid cars... My grandfather, who lives near Carson City, recently became infatuated with the idea of getting a Toyota Highlander Hybrid. Aside from the fact that his electric motor would kick in (due to speed and elevation changes) on all of about 1/10 of his trips into town, with gas at $4/gallon, it would take him 150,000 miles to justify the price versus keeping his previous car. He came to his senses and bought a Sequoia Limited. Solar is the same deal. It might work if small producers could sell back to the grid and wholesale prices were high. It's not so easy to tap into home equity for fun projects like solar panels as it was a few years ago.

Ryan writes:

While I agree that "projects" are needed for innovation, I believe that the speaker missed the boat, so to speak. While alternative energy is an innovation in energy production, specific projects must be implemented to achieve our goals of "energy independence."
The great divide comes from the manners by which we are going to achieve our independence on foreign fuels (evildoers, 9-11, and such).
It seems that everyone government agency, grass-roots campaign, and community action group has a different idea on how this might be accomplished. In that light, a project would be inefficient in producing results.
What we need is a consistency, not in one idea, but a mix of ideas which collude with each other. It is through that symbiotic relationship that any results will be accomplished,

Buzzcut writes:

I believe that it is an amazing admission that General Specific claims to own a Prius AND an Insight.

Wow, talk about commiting to a technology.

On a computer or gaming blog, GS would be called a "fanboy".

Daniel Hall writes:
What is the carbon impact of switching from gasoline power to electric power?

I did a little research on this recently and was somewhat surprised to find out that electric-powered cars entail significantly fewer carbon emissions than gasoline-powered vehicles. Even if powered entirely on coal-fired electricity, electric cars involve about 20% fewer life-cycle carbon emissions than cars run on gasoline.

How do you store power if not for batteries? Hydroelectric reservoirs. Duh, that's what we've done for the better part of a century.

Larry writes:

Successful endeavors I've been part of artfully mix project management and innovation in varying degrees. Writing software isn't like building cube warrens(at least not yet) but it also isn't magic (that back-to-the-beginning P wouldn't last long in many of my meetings.)

On energy matters, batteries are much closer than hydrogen storage to reality and their power density continues to improve at 3%+/year. And plugins offer a partial solution to the mid-afternoon peak demand problem in that they allow drivers to sell power from their batteries back to the grid at a higher price than the night-time price they pay to charge up. Coal is a great peak-power provider because you can turn a boiler on or off quickly, and batteries reduce that need.

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