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« March 2011 | Main | May 2011 »

Legislators Putting Benzene, Toluene, Xylene and Ethylbenzene in Their Cars

A breathless headline in the NYTimes: "Chemicals Were Injected Into Wells, Report Says". The Times was reporting on a report by Representatives Henry A. Waxman of California, Edward J. Markey of Massachusetts and Diana DeGette of Colorado about natural gas retrieval by means of hydraulic fracturing (fracking), which contains the not-so-startling revelation that the fluid used for this process contains some unspecified amount of "chemicals" – especially benzene, toluene, xylene and ethylbenzene, which are each either carcinogenic or toxic. Scary, huh? I thought I'd heard of some of these chemicals before so I googled them all together. Turns out they're known as BTEX and are "found in petroleum hydrocarbons, such as gasoline". They are genuinely bad for you. Nevertheless, we – and presumably the legislators – put them into our cars every day.

So the real issue is whether fracking results in these chemicals getting into our drinking water, not that it involves these or even other dangerous chemicals. The Times headline talks about "wells" leaving a reader to conjure a scary picture of bad stuff being dumped into drinking wells. Nowhere in the article does it point out that the natural gas wells in question are usually a mile deep in the bed rock. That is NOT where our drinking water comes from.

The water we drink comes from lakes, rivers, and wells. It gets into these lakes, rivers, and wells from the rain. It doesn't come bubbling up from a mile deep where fracking takes place. Lakes, rivers, and the layer of soil that we drill water wells into are usually a couple of hundred feet deep, rarely but sometimes up to six hundred feet deep. Under it is usually impermeable soil and always bedrock. That's why the water doesn't disappear down deeper. That's why the chemicals injected a mile deep can't migrate upward into the water supply even if they were perversely inclined to do so.

To make sure I remembered high school geology accurately (it was a long time ago), I checked some US Geological Survey maps of aquifers in upstate New York, under which there is a lot of natural gas locked into the Marcellus Shale formation. I couldn't find a place where the bottom of the aquifer was more than 400 feet below the surface or the bedrock more than 500 feet below. Most of the maps look a lot like this cross section below from the border of Onodaga and Cortland Counties:

The line on top is the ground. The cross-hatched area is the water-bearing soil, which sometimes extends down to the bedrock (labeled "r") and sometimes doesn't. Not on the map and at least 5000 feet lower there might be gas-bearing shale. It is particularly reassuring both that so many of these maps exist and that they're so easily made (acoustically). If there were a 5000 foot deep aquifer (there isn't!), we'd know about it before we filled it full of "chemicals".

All of this geology does NOT assure that fracking chemicals can't get into drinking water, it just means they don't come percolating up and fears of wide-spread contamination of aquifers are way over-blown. In fact, just like gasoline, fracking fluid could be spilled on the surface during transport or storage. It gets injected through a lined well, which could leak while going through the surface level. Some of the fluid comes back up and needs to be disposed of properly. Fracking is – and needs to be –regulated by states, just as the underground storage of gasoline needs to be regulated. It is not safe to assume that any industry will take all necessary precautions if regulation doesn't force the cost of those precautions on all members of the industry and the full cost of remediation on anyone who fouls up. There will be accidents as there are with all forms of energy.

In fact there recently was a fracking accident which got lots of media attention. Apparently a wellhead ruptured and, according to The Huffington Post, "spilled thousands of gallons of chemical-laced water into fields and a stream last week, the well's owner said, and officials said early tests show the spill had little effect on the environment but an investigation is continuing." Fact finding should happen after any accident. Note that the contamination from this accident is on a par with what happens when a storage tank at a gas station springs a leak – not good but not usually world news.

However, Christopher Swann and Antony Currie writing in Reuters Breaking News found on the NYTimes website highlight their article about the spill as "An Opportunity for Green Energy". They lament that "Fracking didn't quite get its Macondo moment. Chesapeake Energy's fluid spill in Pennsylvania looks minor compared with BP's Gulf of Mexico explosion a year ago." But they console themselves: "All the same, the spill will galvanize critics of hydraulic fracturing… With thousands of wells now being drilled in the United States and big plans unfolding around the world, this is unlikely to be the last time frackers stumble."

Why so much animosity to a fuel which America has in abundance, who's declining price is a welcome relief from the rising price of oil, and which burns much cleaner than gasoline? The reason is also in the article: "Natural gas has become an unexpected nemesis of wind and solar energy in recent years. Low gas prices have made renewable projects look even more expensive than they seemed before."

The challenge is not to let hysteria generated by those with a business interest in other energy sources – including traditional ones - stop us from realizing the huge economic and environmental potential of American natural gas – especially when the hysteria is magnified by scientifically-illiterate Congressional and news reports. Combating the hysteria does mean acknowledging what the real risks are, just as we do with other energy sources, and dealing with those risks sensibly and promptly.

Related posts:

Natural Gas Disrupts the Energy Industry

The Pickens Plan Bill: The Wrong Way to Get the Right Result

What's the Transportation Fuel of the Future ?

Subsequent information:

Good and Bad News about the Safety of Natural Gas Fracking

Why did Mary’s AT&T iPhone Ask To Use Verizon?

"My iPhone wants to use Verzion," Mary said. As old telco hands, we both know that is impossible. AT&T uses GSM technology on its network; Verizon Wireless (VZW) uses CDMA. The technologies are incompatible. But she was right. Can you figure out what was going on?

Hint1: We were in the car.

Hint2: I was using my computer.

Hint3: I was checking my email.

Did you figure it out yet?

Answer: In order to get a connection in the car, I had my VZW MiFi hotspot turned on. The device uses the VZW network to get backhaul and provides WiFi service for up to five devices; that's how my computer was able to do email while driving.

Mary's iPhone is configured to use WiFi when available. It saw the MiFi hotspot which is named "Verizon AC30 5D47" (yeah, I never changed the default). Because this was a new network for the iPhone, it had to ask permission to use it. Mary saw her iPhone asking to use Verizon. If she'd given permission, she would have been able to make and receive calls on her AT&T phone on VZW's network. Could be useful if we were in a place where AT&T doesn't have coverage [but would have to use Skype or a similar app – not AT&T's native calling – pointed out by commenter GR on Facebook].

Is it possible that carrier wireless technologies like CDMA, GSM, and now-being-deployed LTE will actually end up being submerged beneath WiFi? Food for thought.

Related posts:

AT&T and Verizon Wireless: Opposite Strategies to Win Landline Business

Verizon Wireless Aims Salvo at Residential Landline Market

AT&T "Freeloading" on ISP Pipes

The Pickens Plan Bill: The Wrong Way to Get the Right Result

Getting government to pay your customers for buying your product is no substitute for creating compelling value. A marketplace dominated by political decision making will result in neither innovation nor wealth creation. So why is American business allowing itself to succumb to the weakening influence of wealthfare?

Take T. Boone Pickens – the quintessential American entrepreneur. T. Boone is an oil and gas man. He has been prescient about the opportunity natural gas presents for reducing our dependence on foreign oil and reducing carbon dioxide and other emissions. As a geologist he understood the enormous difference fracking would make in both the price and availability of natural gas. As an owner of natural gas producing properties, he has an economic need to get the price and/or the volume of natural gas use up. Nothing wrong with that. He's spent over $80 million dollars promoting his plan for natural gas use; nothing wrong with that, either; it's his money and he's trying to expand the market for his product.

Originally his plan included wind turbines to REPLACE natural gas for electrical generation and free it up as a transportation fuel. But even Pickens underestimated the pace at which natural gas supplies would increase and prices fall. He abandoned his wind turbine project when he realized that the turbines, despite huge subsidies, couldn't compete economically with natural gas as an electrical source. Now he is for using natural gas for both generation and transportation; he needs a bigger market for the increased supply. Nothing wrong with a business person changing his or her mind in the face of changing economics; good business people do that well. One of the problems with government subsidies is that they are intended to run counter to economics (else why subsidize?) so they are not subject to marketplace reality checks.

Pickens' need and good policy for the United States pretty much coincide. We have huge reserves of domestic natural gas; its price has gone down while oil prices have gone way up over the last couple of years. Natural gas has less carbon and sulfur in it than oil or coal so it releases less sulfuric acid and carbon dioxide when burned. Natural gas can be used to generate electricity (as it already is) and to substitute directly for oil in powering cars and trucks and heating homes (again, existing uses). We don't use much oil for electricity generation; increasing the number of houses heated by natural gas means building more pipelines (which we should do but it'll take time); switching vehicles to natural gas means that we need more natural gas fueling facilities.

The heavy truck fleet is a good place to start since much of it could be served by relatively few fueling stations. 16% of the 20 million barrels of oil we use per day goes to fuel heavy trucks so a switchover could lead fairly quickly to reduced use of oil. More converted trucks will result in more fueling stations which will make natural gas cars practical for more and more applications and people.

But there's a business problem. Building natural gas fueling stations costs money; whose money is going to get spent? Today truck engines which run on natural gas initially cost more than oil-powered alternatives, even though, according to Pickens, the lifetime cost of running natural gas trucks is lower because of lower fuel costs and the reduced maintenance need which results from burning a cleaner fuel. American truckers are not investing in natural gas trucks as quickly as Pickens would like. We are not displacing a substantial amount of oil as a transportation fuel.

The solution in H.R. 1380: New Alternative Transportation to Give Americans Solutions Act of 2011 (aka the Boone Pickens bill) is billions of dollars in new tax credits for building and buying natural gas vehicles – up to $64,000 per truck - and for building natural gas fueling stations. This wealthfare bill has bipartisan support, even in this time of huge budget deficits. It has 157 co-sponsors in the House; President Obama has mentioned it favorably; Pickens likes it; and columnist Joe Nocera of the New York Times loves it: "If Congress can't pass this thing, there's really no hope."

Promoters of wind and solar projects don't like natural gas elbowing its way to the subsidy table where they (and corny ethanol) have favored positions. There's an understandable business reason for their opposition – but this opposition is also an indication of the problem with the subsidy culture: it shouldn't be government which decides on fuel (or any other) technology. Government has an important role in regulation for safety and environment; in enforcing honest weights and measures and advertising, in preventing monopolies, and as a customer. But the marketplace should determine which technologies within safety and environmental constraints win or lose.

John M. DeCicco, of the University of Michigan's School of Natural Resources and Environment, is quoted in Yale e360:

"In general, I do not look fondly upon these technology winner-picking adventures that have been, and continue to be, a hallmark of America's failed energy policy. The U.S. transportation energy market is way too huge to create a business case for anything through taxpayer subsidies…. How many times does the country have to get it wrong before realizing that such approaches don't work?"

The business problem of customer reluctance to make capital investments so they can buy your products is not a new one. If subsidies (tax incentives ARE subsidies) weren't a possibility, Pickens would have easily figured out the solution. How did wireless carriers get us to buy smartphones when they still cost $500 and weren't a popular technology? They (the private companies) subsidized the price of the phones and recovered their money through a long term usage contract. How did cable companies "sell" us set top boxes? They didn't; they rent them to us explicitly or implicitly. Pickens, whose book is entitled The First Billion is the Hardest, has plenty of capital of his own and access to more. He believes that the lifetime cost-of-ownership of a natural gas truck is less than that of an oil-powered rig. He could buy the trucks and lease them to his customers in a deal which includes buying natural gas from him. That might force his competitors to do the same including those pushing different technologies. Great!

How did we get a network of gas stations? The oil companies built them and leased them out. Natural gas magnates like Pickens could start by building fleet-filling stations (with an exclusive contract to supply them) and go on to public stations. This not rocket science. This is how economies grow and technologies change.

The subsidies already on the books for competitors like electric vehicles and corny ethanol are a problem that natural gas entrepreneurs have which only government can solve. H.R. 1380 methodically goes through the tax code and adds credits for natural gas where there are already subsidies for other politically-popular fuels. A much better approach would be to just delete each of these sections and all of the subsidies from the tax code.

Which brings us back to the question above: why is American business allowing itself to succumb to the weakening influence of wealthfare? Answer: business people have to go after the lowest price capital; if someone else is getting a subsidy, they need one as well in order to be competitive. But grant-grubbing and subsidy-seeking is bad for the national economy and displaces innovation with lobbying. Let's remove the subsidies and some regulatory obstacles; we will probably then see a quick swing to natural gas given the price of oil. Unless some better fuel comes along – which would be fine also. And we'll reduce the deficit instead of adding to it.

Related posts:

T. Boone Pickens' Bold Plan (the original plan)

Ending Tax Giveaways Isn't Raising Taxes

We'll Always have 50 Years of Oil Left

Natural Gas Disrupts the Energy Industry

What's the Transportation Fuel of the Future ?

Bankers Crying Wolf on the Debt Ceiling

Failure to raise the debt ceiling does NOT have to lead to default! That claim is a scare tactic by bankers, the same crowd that TARPed us. The pundits' wisdom that Congress shouldn't discuss deficits while raising the debt ceiling is almost as funny as the line "No fighting in the war room" in Dr. Strangelove.

Equating not raising the debt ceiling with default is so prevalent that I had to search all over the web to find a reliable source that conforms this isn't so. According to The Council of Foreign Relations (which thinks the debt ceiling should be lifted forthwith):

"The U.S. Treasury can take special emergency measures to forestall a default—the point at which the government fails to meet principal or interest payments on its debt. These include under-investing in certain government funds, suspending the sales of nonmarketable debt, and trimming or delaying auctions of securities. However, Geithner expects the gains from last-ditch efforts to be exhausted after about eight weeks.

"If the debt limit is reached despite such measures, federal spending would have to plummet dramatically or taxes would have to rise significantly (or a combination thereof). However, Geithner warns that because the government's obligations are so great, "immediate cuts in spending or tax increases cannot make the necessary cash available." If Treasury is unable to issue new debt or take further emergency actions to bridge the deficit, the government would be forced to default on some of its financial commitments, limiting or delaying payments to creditors, beneficiaries, vendors, and other entities."

In other words, we have until July before there is a real crunch and then we still have the option of reducing spending and/or increasing taxes; but, if we don't do either of those things and Treasury elects to save money by not paying debt, then we would default. The Treasury can continue to borrow under its old authorization and can even roll-over maturing debt, since that roll-over wouldn't increase total indebtedness. But, like the states, the Feds wouldn't be able to use increased debt to fund continuing deficits.

Treasury Secretary Tim "TARP" Geithner and Federal Reserve Chairman Ben "Bailout" Bernanke predict disaster and the end of our financial recovery if the debt ceiling is not raised immediately by Congress. These two, having failed to foresee the great recession, thought that the best way to cure it was by bailing out banks. Actually, they along with Republican Treasury Secretary Paulson sold the Troubled Asset Relief Program (TARP) to Congress as a way to remove toxic mortgage debt and help the housing market; then Paulson ((with the concurrence of the Fed) used the broad powers of the act to simply lend bailout money to banks and help finance greater consolidation of a banking system, which already had too many too-big-to-fail entities. Now Geithner and Bernanke want a "clean" increase in the debt limit, the unconditional power to keep borrowing. Shame on us (or Congress, anyway) if there's another blank check.

Not surprisingly JP Morgan Chase CEO Jamie Dimon agrees with Bernanake and Geithner. Once his bank paid back its $25 billion bailout, he got a $19 million raise. He is essentially threatening the economy in this quote from the The Wall Street Journal's Washington Wire: "

"All short-term funding would disappear.

"I would have hundreds of [people] working around the world protecting our company from that kind of event. We would get prepared for it way ahead of time. Like, I would be taking really drastic action. It would be really unpleasant."

The not very veiled threat is that JP Morgan and others will start selling Treasury Bonds if there's a risk of default. The banks will hold their breath until they turn blue. We better give them what they want now; otherwise how will they pay those salaries?

Republicans are right to hold out for substantive action on future deficits as part of allowing increased borrowing (which we unfortunately will need at some point as we bring the deficit curve down). Adopting some form of the bipartisan Deficit Commission Plan as part of the debt ceiling increase would be a huge constructive step. Wealthfare (welfare for the rich) needs to be ruthlessly cut from the budget and tax code at the same time that unfunded entitlements are cut (including my Medicare).

One form of wealthfare that should be cut is the Fed giving low interest loans to banks with which they buy higher-yielding treasury securities. It is profit from this scheme which enabled the banks to "repay" us the TARP money at our expense without the bother and risk of making real loans to any but the richest corporations and depressed the interest rates banks pay us as well. Just to add insult to injury, under its QE2 program the Fed creates money with which to buy treasury debt itself, which action assures that the price of treasuries doesn't fall due to over-issue thereby costing the banks money on their portfolios. According to the NY Times, the $600 billion the Fed has minted for this program since November has not even kept pace with deficits and the bonds which have been issued to finance them and has had little effect on jobs and the economy. But, according to me, it has been good for the banks.

We shouldn't allow ourselves to be panicked into raising the debt ceiling without a significant reduction in future deficits. Any action to reduce future deficits will make interest rates go down, not up as Dimon, Geithner, and Bernanke threaten. Moreover, the dollar will strengthen once it becomes clear that we have the will to deal with long-term problems. If we simply write another huge cash-advance check, interest rates and the dollar will both go down.

Related posts:

Ending Tax Giveaways Isn't Raising Taxes

Post Stimulus, States Are Where the Action Is

Cutting the Deficit – Just Do It!

The Deficit Reduction Draft Proposal is the Stimulus Program We Need!

AT&T and Verizon Wireless: Opposite Strategies to Win Landline Business

Both AT&T Wireless and Verizon Wireless (VZW) charge $19.99 (plus the usual extras) for unlimited US calling from residences. Both plans are clearly aimed at winning business away from the legacy landline carriers in those areas where the big dogs themselves are not the landline providers. Both services are competitive with VoIP offers from companies like Vonage, although slightly more expensive. However, the two giants have taken diametrically opposed approaches to both customer experience and use of their networks.

VZW, obviously confident in both the reach and capacity of the can-you-hear-me-now network, uses that wireless network to connect existing home phones for ingoing and outgoing calls (their offer is fully described here). AT&T insists that customers use their mobile phones but translates the signal to IP so that it is carried to and from their homes on the customers' existing broadband connections rather than relying on AT&T's less extensive and over-burdened wireless network (more on the AT&T offer here). In fact AT&T pitches the service as a way to improve cellular reception at home and only incidentally sells the extra-cost unlimited calling plan; saving money on phone calls is the whole thrust of the VZW marketing plan.

Both services will help to hasten the demise of small rural carriers whose landline business is already disappearing rapidly and will make it more difficult for VoIP only providers to succeed. AT&T will get more revenue from its existing customers by seizing the home-calling minutes but is depending on the willingness of customers to give up the home phone instruments. They will probably also stem defections from those who are frustrated by a poor signal in their own homes even though they may prefer AT&T at work. VZW, on the other hand, should gain new subscribers among those who still use their home phones extensively and may not even have broadband service. This is the only remaining demographic with low cellular penetration and is price sensitive but technophobic; those who still don't use cell phones will like being able to keep their home phones, although they will also be put off by the process of installing the VZW interface device.

From an industry PoV, VZW is increasing the use of its network and adding to the economic justification for each new tower and each new radio. The pricing of their voice offer makes it more affordable to use VZW for all the voice and data needs of even moderate data users who can hear them now; this proposition will get even better in terms of speed as VZW proceeds with its next generation LTE rollout. The AT&T plans seems like a way for them to defer the expense of network buildout and cedes ground to landline-based broadband providers.

Related posts:

Verizon Wireless Aims Salvo at Residential Landline Market

AT&T "Freeloading" on ISP Pipes

Verizon Wireless Aims Salvo at Residential Landline Market

The banner in the window of the Verizon Wireless (VZW) store in Montpelier was a declaration of war on local landline providers. "Save on your home phone service," it said; "Unlimited [nb. US] calling for $19.99/month." This is particularly interesting here in Northern New England where Verizon (55% owner of VZW) sold its landline business to FairPoint Communications in 2007 after years of underinvestment in infrastructure. FairPoint went bankrupt not too long afterwards and has since reemerged; now they and other local landline carriers face a very serious threat to their already shrinking landline business from VZW. FairPoint charges $58.99/month for unlimited US calling in Vermont and that price does not include features like voice mail, which are part of the VZW Home Phone Connect service. (You actually pay more than the headline price monthly for both plans once the "additional charges" are added on). You can keep your existing landline number if you switch.

One reason you wouldn't switch your service is if you don't get a good VZW signal at your house. The service works through your existing home phones – not through mobile phones – but it connects from your house to the world over Verizon's cellular network. VZW supplies a device into which you plug your existing phones; the device is free with a two year contract or $129.99 with month-to-month service. If you have only a single phone (but who has that?), you would just plug it into the device. If you have cordless phones, you plug the base station into the device. If you have multiple phones connected with internal wiring, you either put the device at the point where your existing landline service enters the house or plug it into an unused jack after disconnecting your landline service. This is exactly the way that VoIP service like Vonage utilize your home phones.

VZW is very serious about having a successful competitor to landlines. The device has a battery so that, like existing landline services, it can survive a lengthy power outage. It has a GPS in it to assure that 911 calls have accurate location information (so long as the device is near a window). In fact some users have discovered an interesting use for the device given these two features – they take it with them when they go on vacation or even out in a boat. As long as there is a phone plugged into it and you have a VZW signal, you are taking your home phone service including inbound and outbound calling with you. I doubt if the device will switch from cell tower to cell tower while you move, though.

There are limitations. This from the VZW site: "Home Phone Connect is not compatible with home security systems, fax machines, dial-up or DSL internet service, DVR services, medical alert services (e.g. Life Alert), or credit card machines." It does work with answering machines and most autodialers. But note, if you are getting DSL from your local landline provider, you may have to continue to buy at least their minimum phone plan in order to keep your DSL. For example, I pay FairPoint for $13.15/month plus another $7 .71 in local charges for this part of my service. So this would erode but not eliminate your savings if you are switching from FairPoint unlimited to VZW unlimited.

Note also that you can get VoIP service from Vonage and other at a lower price than VZW Home Connect assuming that you have reasonably good Internet access (not satellite!). AT&T also offers a device which lets you make unlimited US calls from your cell phone when you're at home; that service also costs $19.99/month and connects to the Internet over your existing Internet connection. But the VZW service, as they proudly promote, doesn't require an Internet connection.

VZW is also going after the low end of the market and making the service attractive to those who already do the bulk of their calling on VZW cellphones. You can just add the device as an extra line to your existing Family Share Plan for $9.99/month plus "other charges". This does not give you unlimited calling but would be very useful for mainly receiving calls or as a very cheap way for children who aren't ready for their own cell phones to have the convenience of home phones at little incremental monthly cost.

Related posts:

AT&T "Freeloading" on ISP Pipes

No More Landlines – Comm Forecast #1

What Does Verizon Selling Northern New England Landlines Mean?

AT&T and Verizon Wireless: Opposite Strategies to Win Landline Business

Bill Gates and I: 60 Milliseconds on 60 Minutes

Billg was berating a group of us. "Somebody's confused. Somebody just doesn't understand. You guys are all wrong. I'm not going to use this thing!" The camera cuts to me looking dour, then back to Bill. The episode is part of a 60 Minutes interview (I'm at 6:50 into it) with Microsoft co-founder Paul Allen and is meant to illustrate that billg had an aggressive management style. Actually, this was a pretty mild illustration; he didn't even say "this is the dumbest f..ing thing I've heard since I've been at Microsoft."

Friends were nice enough to phone, email, and post on Facebook that they'd seen me on 60 Minutes. I don't remember the incident or whether or not I was responsible for the offending product but I do know how it happens that CBS has this video and can certainly remember plenty of episodes like this

Paul Allen says immediately afterwards that you had to stand up to Bill when he shouted; he's right. If you were wrong, best to say so and not try to bluff or make excuses. If Bill kept on shouting, you had to tell him that you get it and there's more stuff to cover. If Bill was wrong, you had to tell him that – not easy to do but no choice. There was no respect and ultimately no career for those who knuckled under. There was also no immediate praise for standing up to him – but that's how Microsoft careers were made (as long as you were right most of the time).

The tape was shot during a period when reporter Connie Chung had permission to tail Bill on the Microsoft campus. The company was just getting big and successful enough to attract negative publicity and the PR firm convinced Bill that he could get good PR in this way. At first he loved it; Connie flattered him and asked softball questions. We had ways to meet without the cameras but she got plenty of good footage. Once she had all her footage, she came into Bill's office with her camera man and started to ask really tough and hostile questions, ambush journalism at its best. Apparently Bill got upset, knocked over a chair, and ordered her away – all on camera.

I happened to be with Bill a couple of days later when he was bemoaning this and wondering why the press was so hostile. "You can make them less hostile if you want," I said.


"Stop winning all the time. Success invites attack." He didn't take my advice. Losing isn't part of his personality. I'm sure he's also grown a thicker skin over time. Done a lot of great things, too.

More Microsoft memories:

Microsoft Memories

Microsoft Memories – Sleeping with Telcos

Microsoft Meetings

How MAPI Beat VIM (an historical footnote)

Moore’s Law and Medicine: Why We Should Be Spending More

Within twelve hours of granddaughter Lily's birth, we knew she might have a hearing problem. Within two weeks we knew she did. She had hearing aids almost immediately. After several anxious months for genetic testing and many visits to specialists, we knew that the mutation causing her hearing problem was not one of those which would have also meant heart and eye problems; moreover, there is a good chance that her hearing won't degenerate further and that she won't need a cochlear implant – if she does, we'll know it in time to act before she misses any significant part of the aural world.

When we went to California last month, Lily was 14 months old; she is talking! She greeted us by name (learned on Skype, of course). Her favorite game is to repeat what you say to her. Wow! Priceless? No, all parts of this miracle cost money. It costs money whether paid for directly by her parents, paid through insurance, or paid by the state.

This post is NOT about who should pay for this care; it is about why it is entirely reasonable that an increasing percentage of our gross national product and an increasing percentage of our wallets should go for health care. Even if we didn't have the distortions of third party coverage, government participation, an artificial doctor shortage, unhealthy lifestyles, and a convoluted payment system, we would be and should be paying more for health care than we were in the past because medicine can do more than it ever could before. Medicine is a greater value than ever.

Medical technology is responsible for many of the advances in medicine and medical technology benefits from Moore's Law, which observes and predicts that the price of electronics declines by 50% every 18 months.

How did the screeners know that Lily had a hearing problem? She couldn't tell us, obviously. They made a sound in each of her ears and used an instrument to "listen" for corresponding brain waves. The non-invasive precise detection of a minute signal and distinguishing a particular neural response among the cacophony of waves in a newborn's brain would have been impossible a generation ago and unaffordably expensive a decade ago. Now the electronics are cheap enough to be part of standard screening and travel around hospitals in a small box. A generation ago Lily's parents wouldn't have known about Lily's hearing problem until she had already missed years of speech and the associated neural development. The cost to her and to society would have been much greater than what we pay today for the equipment that made this test possible and all the experimentation that allows us to interpret brainwaves. But the cost of this screening adds to the cost of medical care.

Similarly the genetic testing which made it possible to isolate the precise cause of Lily's problem is only possible because cheap computing made it possible to decode the mysteries of the human genome – another example of Moore's Law at work. A generation ago, though, there would have been no cost for genetic testing because it was simply impossible to do – its price was infinity. As genetic testing gets to be a greater and greater value, we do more and more of it. Just like we spend more on computing and communications than we used to BECAUSE the unit prices for both have gone down.

Today many men have their prostates operated on by doctor-controlled robots. The robots are expensive, but the precision of surgical robotics results in less incontinence and other side effects from the operation.

We have a drug to relieve the agony of gout. It's much more expensive than leeches. Worth more, too.

The point is that rising expenditures on medicine are an indication of the greater value that medicine and medical technology have for individuals and society and not just a bad news story. Yes, the United States spends more on health care than other developed countries, but the lion's share of advances in medicine are made here as well. When the rich and powerful need specialized care, they're very likely to have their private jets take them to the Mayo Clinic. When well-to-do Canadians get tired of waiting in line for treatment, they come across the border to the US. In a sense, the rest of the world gets a free ride on what we pay for medicine. (I know that our overall public health measures like life-expectancy and infant mortality DON'T support the thesis that our more expensive care is better – but I think these are distorted by both demographics and bad lifestyle choices).

Because medicine is so important – increasingly important – it is crucial that we keep trying to make each intervention less expensive. It is strange, to me at least, that an MRI is billed at thousands of dollars and that the cost of these electronics don't seem to have followed Moore's Law down (to be speculated on in a future post). But, as each medical intervention gets cheaper, the percentage of our budgets that we spend for medicine is likely to go up because medicine will be a better and better value. Yes, we need better lifestyles, a rational billing system, more doctors and/or less procedures which require MDs; and, yes, we will have to admit that ability to pay limits the care that we get both individually and as a nation. What would be a tragedy is a solution to the problem of who pays for medicine which means that breakthroughs like Lily's neonatal and genetic screening don't happen anymore and the cost of medicine is reduced by eliminating its potential to further improve our lives.

Related posts:

Moore's Law and the Economics of Abundance

We Can't Have All the Medical Care We Want


Foodstuff Benefits

Talking About Moore's Law, Medicine, and Innovation

My friend Bill Sayre interviewed me today on Common Sense Radio on WDEV. The show is sponsored by the Ethan Allen Institute, where I recently talked about the Economics of Abundance and some of the reasons why Moore's law doesn't apply to every thing.

The show was more a conversation than an interview - more fun that way - and a few listeners joined in as well. (mouse over the player below to see the controls)


Bill Sayre and I

 Related post:

Moore’s Law and the Economics of Abundance

Moore’s Law and Medicine: Why We Should Be Spending More

Ending Tax Giveaways Isn’t Raising Taxes

OK. Now we all agree that the deficit needs to be cut by some huge amount in the next decade. That's some progress. We also mostly agree that the deficit cutting has to start real soon. That's even more progress. And President Obama says he believes that you can't and shouldn't make the deficit go away just by raising taxes. Serious people in both parties agree and acknowledge that the growth trajectory of entitlements is unsustainable and needs to be brought back to earth and that there isn't enough spending to cut in the non-entitlement parts of the budget to ever get deficits under control. No matter what you think about Rep. Ryan, he took entitlements out of the closet and put them on the table. No matter what you think of President Obama, he acknowledged today both the general need for huge deficit reduction and the specific need to control Medicare and Medicare costs.

This is all real progress, sort of – we are still on track to spend more money and have a bigger deficit this year than last despite the "historic" cuts agreed to last week in an historically high budget. Even though the right issues are on the table, none of the big decisions – the really hard decisions – have been made.

Some Republicans have drawn a line in the sand against "any" tax increases. This argument goes beyond deficit reduction; it is actually an argument (with which I largely agree) that government has become too large in relation to the gross national product. If this were not the case, if government somehow had become too small (hard to imagine), than raising taxes would be a very good way to close the deficit and cutting programs would not.

Many Democrats say the rich are not paying their fair share. Some rich people like President Obama say that as well. Of course, taxes are only a minimum. Anyone who feels undertaxed can actually contribute more to government. But put that aside; the rich are getting more than their fair share of benefits from the government; handouts to the rich need to be cut completely. The trouble is that many of these handouts to the rich are hidden in the tax code. They don't look like expenditures and closing loopholes looks like raising taxes which can be an excuse for keeping government bloated. Nevertheless, the tax loopholes need to be closed as part of reducing the deficit. They do make a difference.

Let's look at just one egregious example: the infamous Hedge Fund Tax Break, estimated to cost the treasury somewhere between three and five billion per year. The only rational explanation for this break is that it is the best loophole that lobbying money can buy. So far it has enjoyed bipartisan protection. Listen to Huffington Post in 2009:

"If there is one tax loophole that looks dead in the water, it's the law that lets hedge fund and private equity managers pay a 15-percent capital-gains rate on the multimillion-dollar fees they collect -- substantially less than the top income tax rates paid by their secretaries, chauffeurs, and the pilots of their private jets….

"But reformers seeking to raise the taxes of the super-rich should not assume this is a slam dunk. The Democratic majority in the Senate has looked at this provision before -- most recently two years ago. Many Senate Democrats saw the legislation as biting the hand that fed them and breathed a sigh of relief when, on December 6, 2007, Republicans mustered enough votes to filibuster the proposal to death."

It wasn't a slam dunk. This tax break is still on the books. No one from either party can claim any deficit reduction creds without committing to eliminate this and a host of other special purpose tax breaks. This may look like raising taxes but it isn't – putting these handouts to the rich on the tax side of the ledger is simply an accounting gimmick. These expenditures are very much like entitlements in that Congress doesn't know how much they're going to cost until after the fact – if at all.

Well, you may say, this is outrageous but $3-$6 billion a year is chump change. You're right, of course; but there are a lot more handouts to the rich buried in the tax code. Rep. Ryan proposed going after some of them but we need to go much, much further.

For example, according to a spreadsheet for the Tax Policy Center based on federally supplied numbers from the tax expenditure , the 2010 budget awarded almost $9 billion in tax breaks for energy. If you are thinking this is all some green boondoggle, you're wrong. Yes, there are credits here for solar, wind, and corny ethanol – but they are out-numbered by the various tax breaks for oil and other fossil fuels. Does anyone really need an incentive to drill for oil when the price is over $100 barrel (yes, I know it was lower last year)? One excuse for distorting the "alternative energy" market with grants both in the tax code and outside it is the amount of subsidy given to traditional fuels. It's a good argument; the answer should be don't subsidize any of them and we've taken a huge step towards a better energy policy and deficit reduction.

Natural Resource and Environment subsidies in the tax code amounted to over $2 billion in 2010. The biggest item here is $770 million for "Excess of percentage over cost depletion, nonfuel minerals". Do you think anyone you know benefitted from that?

The point is that the tax code is full of loopholes which are handouts to the rich. Closing narrowly-targeted loopholes should not be considered raising taxes by Republicans or Democrats. Closing these loopholes would be a very good indication of whom Congress is working for; loophole closing is the one easiest places to start closing the budget gap even though it certainly won't get us all the way there. Welfare should be for the involuntarily needy. It can't be for the middleclass because we're the ones who are paying for it anyway. It certainly shouldn't go to the rich.

Related posts:

We Can't Have All the Medical Care We Want

Read Rep. Ryan on His Budget Plan

Rep. Ryan's Budget: Change You Can Believe In

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