Month: June 2014

How myths shaped reality in World War I

Posted on by j.giglio

Myths have an unfortunate tendency to cripple imaginations. This can lead to the worst kind of unintended consequences, especially when such myths are based on assumptions about how the world ought to be rather than how it actually is.

The bloodiest day in the history of the British Army is a real world example of what this can mean:

Shortly after 7:30 on the morning on July 1, 1916, some 100,000 British soldiers climbed out of their trenches in France’s Somme Valley, arrayed themselves in long lines against the morning sunlight, and began moving forward across No Man ‘s  Land towards the German trenches. They were fully confident they would achieve the long-sought breakthrough in the German lines that their officers assured them would be a piece of cake.

The commanding general of the British army in France was Sir Douglas Haig. He was a long-standing military professional, a member of a Scottish distilling family, and a Presbyterian fundamentalist who believed that he was in direct communication with God (an illusion that he shared with a surprising number of top military commanders throughout history).

In theory, Haig’s strategy should have worked. But there were problems.

Only 40 percent of the British artillery consisted of heavy guns. The rest were lightweight field pieces that could do little damage to trenches and barbed wire. Nearly one-third of the shells fired by the British heavy guns failed to explode because the British munitions industry had not yet come to terms with the need for quality control in shell production. In any case, the Germans housed most of their soldiers 30 feet below the trenches in elaborate dugouts that were impervious to even the heaviest artillery shells.

So when the largely ineffective artillery barrage finally ended at 7:20 that morning, German defenders emerged from the dugouts with ears ringing, but otherwise ready to withstand the British attack that the barrage had told them was coming. They quickly set up their machine guns, which fired .30-caliber bullets at the rate of 600 per minute for hours on end.

By the end of the day, the British army had suffered the greatest single-day calamity in its history. More than 19,000 of its men lay dead in No Man’s Land; over 38,000 had been wounded. Nearly three out of every five British soldiers who had gone over the top that morning had fallen victim to the myths on which Haig based his strategy (presumably after long conversations with God), with little to show for it in the way of captured German territory.

Today, the idea of deadlock sounds pretty good in Iraq. Sunni Muslim radicals who make the Taliban look tolerant are sweeping toward Baghdad in a way that reminds those of us of a certain age of the lightning-fast North Vietnamese drive toward Saigon in the spring of 1975.

We made the wrong call about invading Iraq in 2003 because of flawed intelligence about Saddam Hussein having weapons of mass destruction and because we assumed the Iraqi people would treat U.S. troops as liberators, rise up against their government and welcome us with open arms.

It may have been nearly a century later, but just as in the Battle of the Somme Valley, failure to raise basic questions about the assumptions underlying our decision to invade Iraq are once again yielding tragic results.

originally published: June 28, 2014

Uber is taking taxicab industry for a bumpy ride

Posted on by j.giglio

New firms that use mobile apps to connect passengers with drivers of vehicles for hire and ride-sharing services have been the target of protests by taxi drivers and owners across European and American  cities, most recently Cambridge, underscoring how digital technology is disrupting a regulated industry .

The protests are a study in what happens when well-established incumbents who are protected by regulators seek to maintain a cushy status quo rather than leverage technology to improve customer service.

The cabbies’ cup runneth over with rage because they claim the apps create an unfair advantage and the new market entrants fail to conform to regulatory and licensing requirements. Companies like Uber argue that they are introducing competition and offering customers the luxury of choice and superior service. The technology they use has the potential to transform transportation the way Amazon has changed the retail shopping experience.

As the economist Joseph Schumpeter noted, capitalism is the “perennial gale of creative destruction.” What is occurring in the taxicab industry has been repeated in one industry after another; none are safe from innovative technologies.

The taxicab business model has serious customer-service deficiencies. Too many passengers find cabs unavailable, poorly maintained and aggressively driven, all of which makes for an unpleasant experience. All this is occurring under the umbrella of officially sanctioned taxicab companies with near-monopoly power.

The industry structure in major American cities revolves around the issuance of a fixed number of medallions, operating licenses which are freely tradable so the right to operate a taxi is divorced from the actual work of driving one. The happy few medallion holders make their money by leasing cabs to drivers – independent contractors who receive no benefits. The restricted supply translates into high medallion prices; in Boston the current price is about $625,000. The system is a classic example of government regulation that creates wealth for a happy few at the expense of society as a whole.

The taxicab industry is an easy target for entrants using the latest digital technology, and they are  making a meal of it. Mobile communications technology facilitates a wide range of business concepts to address opportunities posed by a flawed industry model and an increasing number of city dwellers who choose not to own cars.

Uber was launched in 2010 in San Francisco. It lets customers use an app to call for a car with a few taps on their smartphones. The car arrives within a few minutes. The fare, including gratuity, is charged directly to the customer’s credit card, so no cash changes hands, enhancing safety for both passenger and driver. An email receipt is sent to the customer when the trip is completed.

Uber does not own its cars but relies on a network of established, licensed drivers who apply to be part of its network. In this sense, Uber is not in the taxi business but serves as a referral or dispatch system. It uses sophisticated data analysis to determine where drivers should wait so they can respond quickly to service requests.

Drivers and passengers rate each other. During peak demand periods, fees increase. Drivers get 80 percent of the total fare and the balance goes to Uber.

The firm uses technology to provide superior customer service in a mature industry that offers an undifferentiated product. Uber has entered a locally regulated market that has evolved over a long time to protect established interests.

Taxicab regulators are not elected and work closely with existing companies, to whose interests they are highly sensitive. The result is regulation that is designed to improve conditions for the regulated, not promote the public interest. As the Boston Globe Spotlight Team uncovered in April 2013, the taxicab industry mainly enriches the holders of government-issued medallions while drivers earn subsistence wages and passengers pay some of the nation’s highest fares.

Despite all the talk about the virtues of competition, businesses seek to move away from competition and toward monopoly. Instead of adapting to new technologies , the taxicab industry looks to government, like the cavalry in a John Wayne western, to ride to the rescue and protect the status quo.

originally published: June 21, 2014

Be careful of trade-offs with cap-and-trade

Posted on by j.giglio

By 2030, the U.S. power sector must cut carbon dioxide emissions 30 percent from 2005 levels, according to federal regulations announced on June 2.

The proposed rule, served up by the Environmental Protection Administration with a generous helping of gravity, is the cornerstone of President Obama’s pledge to combat climate change. The trick will be implementing it without further burdening an already battered middle class with fewer jobs and even slower economic growth.

This is arguably the most significant American environmental rule ever proposed and could transform the power sector. It is largely targeted at cutting pollution from coal-fired plants, which are the nation’s largest source of greenhouse gas emissions.

Coal has had a good run in the United States because it is abundant and therefore cheap. America has far larger reserves than any other country and has been called the “Saudi Arabia of coal.”

The new rule has come under attack from business groups and by Republicans and Democratic lawmakers from coal states. For example, the U.S. Chamber of Commerce claims it would cost the economy $50 billon a year and result in the loss of hundreds of thousands of jobs.

Despite concerns about the environmental consequences of natural gas, the president supports development of this resource as a means to combat global warming. In his 2012 State of the Union address he said, “We have a supply of natural gas that can last America nearly 100 years. And my administration will take every possible action to safely develop this energy.”

The fossil fuel natural gas is most frequently compared to is coal. The comparison much favors natural gas. It is the cleanest burning of all fossil fuels and produces the smallest amount of carbon dioxide per unit of energy. Burning natural gas for electricity produces roughly half the carbon dioxide that burning coal does.

Natural gas has been the fastest-growing energy source for electric power generation since the 1980s. Natural gas from shale has grown more than five-fold in the past five years. The domestic boom in shale drilling has led to a glut of cleaner natural gas, lower prices, ease of use and low levels of pollution. By 2012, the amount of natural gas used in electrical generation had grown to 28 percent from 11 percent in 1990.

Low natural gas prices also give a significant boost to the competitiveness of United States manufacturing by driving down electricity generation costs. The abundant supply of natural gas has kept prices so low that it is attracting manufacturing industries from overseas and positioning the United States to become a major player in the emerging globalized natural gas market. It may someday make  the United States an important source for countries now dependent on supplies from Putin’s Russia.

As the United States attempts to achieve ambitious greenhouse gas reductions, Americans would be wise to heed the advice all heard countless times from their parents: “Be careful!” Americans ought to recognize the possibility of economic trade-offs and what they may be.

In the midst of a still-fragile economic recovery, America cannot afford to make life further hell for the diminishing middle class.

originally published: June 14, 2014

America mugged by good intentions

Posted on by j.giglio

The Obama administration has unveiled a sweeping 645-page pollution control rule limiting carbon dioxide emissions from the hundreds of fossil-fuel power plants. It’s a noble gesture, but one that ignores the fact that climate change is a global problem that requires a global solution.

The rule requires a 30 percent cut in carbon dioxide emissions by 2030 relative to 2005 levels. Hardest hit are the roughly 600 coal-fired power plants that account for 40 percent of U.S. electricity and about 38 percent of carbon pollution, the single largest source of greenhouse gas emissions. They contribute to the U.S. being the world’s second largest source of such emissions.

In 2007, the Supreme Court ruled that carbon dioxide and other global warming pollutants could be regulated under the Clean Air Act. The Court gave the EPA the green light to regulate heat-trapping gases in automobile emissions and regulate greenhouse gases such as carbon dioxide that contribute to global warming.

The proposed rule is the strongest action the president has taken on climate change. It fulfills the pledge he made in his first year in office that, compared to 2005 levels, the U.S. would reduce its greenhouse gas emissions such as carbon dioxide roughly 17 percent by 2020 and 85 percent by 2050. During his first term, the president increased vehicle fuel efficiency standards.

The various stakeholders have a year to comment on the proposed rule. Each state will then have a year to design and submit implementation plans. States can employ a variety of measures to meet the target, including plant upgrades, requiring plants to switch from coal to natural gas, enacting measures to reduce demand for electricity, producing more energy from greenhouse gas-free renewable sources such as solar and wind, or by starting “cap and trade” programs in which states agree to cap carbon pollution and firms buy and sell permits to pollute.

If states do not develop plans, the EPA will impose one.

The transition to a low-carbon economy won’t be free. It will likely drive up the price of electricity and of goods down the energy chain. Environmentalists and others argue that some of the expense will be offset by decreased health care costs and that new clean energy technologies will create jobs.

But the problem is not American warming, it’s global warming. The U.S. is only one player in the climate game.

China, India and other developing countries are poised to see an explosion in carbon pollution as millions of people join the middle class and enjoy cheap, available coal-fired electricity. Coal is used to generate nearly 40 percent of all the electricity produced in the world.

China has already passed America as the leading emitter of greenhouse gases due to its increased reliance on coal-fired power plants and growing use of automobiles. As recently as 2007, China was bringing one or two new coal-fired plants on line each week. With a growing economy and rampant urbanization, it is the world’s biggest energy consumer; its use of coal, oil and other fossil fuels doubled between 2000 and 2010.

Coal accounts for 70 percent of China’s total energy consumption and 80 percent of its electricity. Its share of global coal usage rose from 27 percent in 2000 to 47 percent in 2010, twice the volume consumed in the U.S.

Emissions have leveled off in the industrial world but continue to grow rapidly in developing countries. The question is whether developing countries have an interest in accepting economic constraints that would change that dynamic. What evidence is there that the environment edges out economic growth as developing countries’ top priority?

The logic behind the proposed mandate seems to be that by leading by example, the U.S. will spur others to reduce greenhouse gas emissions. The U.S. being one strong voice among a chorus of reasonable nations might be a splendid idea if nations were reasonable, but how many times must the U.S. get mugged by countries pursuing their own self-interest?

Sadly, as Walter Cronkite himself might have said, “that’s the way it is.” Case closed.

originally published: June 7, 2014