Jason Wells

Something I read got me thinking. Let’s say you’re an energy company and you want to build a new power plant. Such an investment is extremely capital intensive, costing billions of dollars just to build with a return on investment taking decades. To take the risk of investing like this, you have to have confidence that you can in fact get that return. Historically this hasn’t been a big problem, since it’s not like people won’t be demanding electricity in 30 years.

But there’s an assumption built into that thinking: that things will pretty much be as they are now in the future, at least substantively. Maybe we’ll have fancier dishwashers and faster computers, but all in all, things won’t be that different. So we can dare to make the big capital investment, as long as we’re prudent.

I think this assumption is looking more and more like magical thinking. Consider the companies that made a massive investment in coal power. Decades ago it was easy to justify on paper. A very cheap, plentiful fuel, familiar technology, relentless demand. But what they didn’t know was that climate change was in the wings, and that it was upon us within the ROI timeframe. Power companies are beginning to see pouring billions into another coal plant as very risky. Even if they don’t care about climate change, they worry that the government does and could do something unpredictable, like forcing them to capture all the carbon, create a carbon tax or do something else that makes the math not work any more. So why take the risk?

The same goes for nuclear power, which is even more capital intensive. After Fukushima, a number of countries have announced they are phasing out nuclear altogether. Not just Japan; countries like Germany, for example, the most economically powerful country in Europe. If you’re a power company, are you going to be building new multibillion dollar nuclear power plants while one country after another makes them illegal? Can you really be sure that the US won’t do the same sometime before 2041?

I think things are changing faster than they used to. Technology for sure. These changes aren’t constrained to the energy industry, but that’s where they are most obvious. The rise of wind power has almost entirely occurred within the ROI timeframe of a power plant. That’s an entirely new area of energy production that wasn’t even taken seriously 30 years ago. Now it’s a giant global industry growing by leaps and bounds every year. Solar energy is in the early stages of a similar revolution. If Saudi Arabia invests in a gargantuan oil project, what happens if the US shifts substantially to electric, or natural gas, or even fuel cell vehicles in the multi-decade ROI timeframe? Or gets good at growing biofuel crops at enormous scale, reducing or eliminating demand for Saudi oil? It may not happen, but it’s certainly not impossible. It’s a serious risk.

The question increasingly becomes: if I invest for the long haul, how can I protect against these risks? And the answer increasingly becomes: you can’t. Not unless you have a crystal ball and can foresee the next technical or economic revolution. So what to do? The only answer seems to be to make lots of small capital investments rather than a few huge ones. With smaller capital investments, you have shorter ROI and you aren’t putting all your eggs in one basket. That makes it like agile software development: if things turn on a dime, you can turn with it. In an increasingly unpredictable world, what else can you do?

So maybe we’re looking at the beginning of the end of the big-commitment industrial megaproject. The monolithic mainframe gives way to the cloud of small machines; the giant power plant gives way to a zillion wind turbines or rooftop solar panels; the big factories gives way to 3D printers. Maybe industrialism really is on the cusp of truly fundamental change, much deeper than any it has experienced to date. This could create a lot of interesting possibilities and a much more diverse and nimble economic environment that is more competent to rapid unforeseen developments. Ultimately it seems like a good thing, if a painfully expensive transition.

Then a new challenge emerges: how do you make lots of small investments scale the way megaprojects do? Not my problem, I’m glad to say.

Once upon a time, and by that I mean ever since the beginning, if you wanted to get stuff and people to orbit, you had one option: a government space agency. Why? Because launches were incredibly expensive, running to tens and hundreds of millions of dollars each. They were extremely unreliable and risky. Plus, the point wasn’t to make money, or even to explore space; it was national prestige. But perhaps the most daunting obstacle to the emergence of any unNasalike options was the complete nonexistence of any commercial market. If there’s no demand, there’s no supply… unless you’re a national government that can afford to supply it for other non-market reasons.

Thus it stood for decades. But over time, especially since the end of the Cold War, things gradually began to change, and something new came into the picture: private spaceflight. Why? Partly because the job of getting stuff and people into orbit had become humdrum, routine. Aside from the occasional devastating Shuttle explosion, that is, but its frailty can I think be attributed mainly to its design-by-committee engineering. When the Cold War ended, Nasa pursued spectacular robotic missions of great scientific value, but the main purpose of Nasa’s human spaceflight program became to distribute pork. Which is sad, especially for those who once upon a time wanted to be an astronaut when they grew up. I saw the job as exploration of the vast unknown cosmos, not riding questionably designed bombs to LEO and back, over and over.

But quietly, without much fanfare, commercial markets for spaceflight appeared. It began with communication satellites, whose value turned out to justify the enormous launch expense. These private launch capabilities slowly grew and grew, often with the nurturing help (ironically!) of Nasa itself, via it’s COTS program. The hope was that Nasa could transform what had once been the most exotic frontier into a thriving market of competing companies, trying their best to drive the huge costs down in ways that Nasa itself couldn’t.

Fast forward to a few months ago, when a major milestone was reached: a private company known as SpaceX successfully launched a vehicle into orbit and brought it back to Earth for the first time. The company has a billion-dollar contract to transport stuff to the International Space Station for Nasa using their Falcon 9 rocket to launch their Dragon spacecraft into orbit. This should allow Nasa to retire its elderly, dangerous Shuttle fleet without the humiliation of hitching rides to ISS from the Russians.

Ever since Nasa finished the Apollo missions, they’ve been kicking around a mission to Mars. For decades, this vision has led to many, many ever-changing programs, an eternal kaleidoscope of programs–each more expensive and longer-term than the last. Every so often a president would stamp his foot and demand Nasa to cancel the program of the day and replace it with their new one that would really get us there. The latest iteration is known as Constellation, a vast program with multiple rockets, boosters, capsules… all kinds of hardware, supporting not only a Mars mission, but an ill-defined mission back to the Moon. All to be completed by 2025 at the very latest, and all for the low low price of $97 billion!

But here’s the punchline. One of the few concrete products to come from all the time and money is a spacecraft known as Orion. Which, it turns out, does little to nothing that Dragon already does!

Elon Musk knows this. His hardware is ready, it exists. Once it’s man rated, off it goes. So what is the point? Some abstract worry about privately owned and operated vs. privately created hardware? It’s clear what will happen, because the time is ripe. I’m not a rabid supporter of market forces, but in this case, I think it gets the job done. And Nasa will adapt to what it ultimately ought to do–explore and develop. It’s not an LEO freight operation; that can be outsourced.

It turns out that solar power is keeping the BLM busy lately. Since 2006 a tremendous land rush in the deserts of the Southwest has developed, and it’s taking a very novel form. Rather than following the ancient tradition of looking for valuable resources in or on the land–ore, petroleum, water, etc.–they’re looking for value coming toward the land. That is, photons blasting towards it from the Sun. The land is just a place to stick the panels or mirrors that’s flat and preferably conveniently near a road and a transmission line. Whether the land is physically like the moon or the Hanging Gardens of Babylon is irrelevant. In one sense, land on the more moon-like end of the spectrum is better. If it lacks alternate value, there’s less competition for it.

Except for one other form of competition: other solar prospectors. Here the competition is very intense. It’s interesting that Goldman Sachs is buying up a lot of this desert through an investment subsidiary called Solar Investments. Obviously these bankers aren’t about to put on hard hats and gloves and get busy building solar plants. Nor are they barefoot eco-hippies looking to save the world. They’re East Coast speculators. And the fact that the “smart money” (ahem) is moving in to buy huge swathes of desert suggests that solar power is finally real. It also suggests a big-ass bubble is inflating. It recalls a folksy piece of wisdom: the pioneers get the arrows, the settlers get the land. The presumed first mover advantage may ultimately destroy a lot of wealth. This is the essence of speculation.

It is happening now, and it will be transformative. It is the harbinger of major economic and cultural change. This virtually worthless land has abruptly become a hot commodity. I just went camping in Monument Valley and drove through desert all the way there and back. I can tell you, there is a lot of room for solar plants, and not just on BLM land. Some of these dusty little towns are going to get flush. And I wonder if the Navajo, Hopi or other tribes that got screwed out of the then valuable land in the 19th century, and literally force-marched into the deserts to eke out a marginal living, will suddenly find themselves sitting on prime real estate. That would be an incredible historical irony and a super business opportunity, one that’s healthier and a lot classier than casinos.

This is the most shameless, most indefensible piece of trash I have ever read in the New York Times:

You Try to Live on 500K in This Town

Now, for a trip back to Planet Reality, courtesy of the World Bank:

Poverty Around the World

Fact of note: “1.4 billion people live at th[e] poverty line or below.” The poverty line is $1.25 per day. So, to anyone accustomed to “living a certain way in a certain neighborhood west of Third Avenue” and whining about how hard life is, I encourage you to pull your head out of your ass and find out how people are “living a certain way” in the Third World.

The upcoming Olympic games in China this year have generated a lot of controversy. The reasons are simple. China intends the event to signal their emergence on the world stage, so it’s clearly a matter of national prestige. Yet China has a lot to be ashamed of: the conquest of Tibet, continued crushing of human rights, imprisonment of political dissidents, and atrocious environmental problems. China is a tyranny, and nothing about that is changed by hosting the Olympics, despite the glamour the communist regime hopes it will lend.

On the other hand, the Olympics are almost certainly going to be a venue for political grandstanding intended to make the Chinese government very uncomfortable. It’s already begun, actually. For example, Stephen Spielberg was involved in the event, but he stepped down to protest China’s see-no-evil stance towards the Darfur crisis. I expect to see at least one gold medal winner use his victory as a platform for similar forms of social protest. It’s an irresistible venue for celebrities, athletes, and other media darlings.

All the fuss got me thinking: of the countries that have ever hosted the Olympics, how many were undemocratic? As it turns out, not many. I did a little homework, and according to my research, the list is: Nazi Germany, the Soviet Union, Yugoslavia, and South Korea. (South Korea is included because the Olympics and the establishment of democracy were virtually simultaneous. In fact, fear of pro-democracy unrest at the Olympics was part of the motivation.)

Then I noticed that all of these countries are now democracies! (Of varying qualities, of course.) And I wondered: How long did tyranny last in each country after the Olympics? Here are my findings:

Country: Germany
Games On: 1936
Democratic By: 1946
Tyranny Duration: 10 years

Country: Soviet Union
Games On: 1980
Democratic By: 1991
Tyranny Duration: 11 years

Country: Yugoslavia
Games On: 1984
Democratic By: 1990-92
Tyranny Duration: 6-8 years

Country: South Korea
Games On: 1988
Democratic By: 1987
Tyranny Duration: 0 years (coincident)

Check this out. Not one country maintained its tyranny for more than 11 years after it hosted the games. What does this mean? It suggests that if it follows the pattern of all tyrannies before it, China could be democratic by 2019!

And if you think about it, it’s not that far-fetched. The Olympics tend to be hosted by countries that are at least moderately wealthy and industrialized, for obvious reasons; you need electricity, stadiums, etc. And those countries are, by and large, democracies.

All the tyrannies on this list were industrial–just as China is. And China has followed the trend towards liberty. Authoritarianism is on the decline there already–if only modestly; rules and attitudes are generally relaxing. (All bets are off if there are demonstrations, though; I suspect they would be crushed.)

Much more impressive, though, are the economic strides China has made, especially in the last few decades. it has been growing wealthy at a breakneck pace; it is a hard-core capitalist nation growing at least 10% a year. If there’s any connection between industrialization, wealth and democracy–and I think that’s undeniable–China could see some major political change in the next decade.