FT138: “High gas prices mean high food prices.” —Old Pithy

Posted by PITHOCRATES - October 5th, 2012

Fundamental Truth

We use Diesel Fuel in our Ships, Trains and Trucks to move Food from the Farm to the Grocery Store

People don’t like high gas prices.  When the price at the pump goes up more of our paycheck goes into the gas tank.  Or, more precisely, in everyone’s gas tanks.  For even if you don’t drive a car when gas prices go up you’re putting more of your paycheck into the gas tanks of others.  Thanks to oil being the lifeblood of our economy.  And unless you’re completely self-sufficient (growing your own food, making your own clothes, etc.) everything you buy consumed some petroleum oil somewhere before reaching you.

Gas prices go up for a variety of reasons.  The purely economic reason is the market forces of supply and demand.  When gas prices rise it’s because demand for gasoline is greater than the supply of gasoline.  Which means our refineries aren’t producing enough gasoline to meet demand.  And the purely economic reason for that is that they are not refining enough crude oil.  Meaning the low supply of gasoline is due to the low supply of crude oil.  Which brings us to how high gasoline prices consume more of our paychecks even if we don’t drive.  The reason being that we just don’t make gasoline out of crude oil.  We also make diesel fuel.

Diesel fuel is a remarkable refined product.  It just has so much energy in it.  And we can compress an air-fuel mixture of it to a very small volume.  Put the two together and you get a long and powerful power stroke.  Making the diesel engine the engine of choice for our heavy moving.  We use it in the ships that cross the ocean.  In the trains that cross our continents.  And in the trucks that bring everything to where we can buy them.  To the grocery stores.  The department stores.  To the restaurants.  Everything in the economy that we don’t make for ourselves travels on diesel fuel.  Which is why when gas prices go up diesel fuel prices go up.  Because of the low supply of oil going to our refineries to refine these products.

Oil is at a Disadvantage when it comes to Inflation because you just can’t Hide the Affects of Inflation in the Price of Oil

And there are other things that raise the price of gasoline.  That aren’t purely economical.  But more political.  Such as restrictions on domestic oil drilling.  Which reduces domestic supplies of crude oil.  Political opposition to new pipelines.  Which reduces Canadian supplies of crude oil.  Special ‘summer’ blends of gasoline to reduce emissions that tax a refinery’s production capacity.  As well as our pipeline distribution network.  Higher gasoline taxes.  To pay for roads and bridges.  And to battle emissions.  The ethanol mandate to use corn for fuel instead of food.  Again, to battle emissions.  All of which makes it more difficult to bring more crude oil to our refineries.  And more difficult for our refineries to make gasoline.  Which all go to adding costs into the system.  Raising the price at the pump.  Consuming more of our paychecks.  No matter who is buying it.

Then there is another factor increasing the price at the pump.  Inflation.  When the government tries to stimulate economic activity by lowering interest rates they do that by expanding the money supply.  So money is cheaper to borrow because there is so much more of it to borrow.  Hence the lower interest rates.  However, expanding the money supply also causes inflation.  And devalues the dollar.  As more dollars are now chasing the same amount of goods and services in the economy.  So it takes more of them to buy the same things they once did.  One of the harder hit commodities is oil.  Because we price oil on the world market in U.S. dollars.  So when you devalue the dollar it takes more of them to buy the same amount of oil they once bought.

Oil is at a particular disadvantage when it comes to inflation.  Because you just can’t hide the affects of inflation in the price of oil.  Or the gas we make from it.  Unlike you can with laundry detergent, potato chips, cereal, candy bars, toilet paper, etc.  Where the manufacturer can reduce the packaging or portion size.  Allowing them not to raise prices to reflect the full impact inflation.  They still increase the unit price to reflect the rise in the general price level.  But by selling smaller quantities and portions their prices still look affordable.  This is a privilege the oil industry just doesn’t have.  They price crude oil by a fixed quantity (barrel).  And sell gasoline by a fixed quantity (gallon).  So they have no choice but to reflect the full impact of inflation in these prices.  Which is why there is more anger about high gas prices than almost any other commodity.

Perhaps we can lay the Greatest Blame for the Current Economic Malaise on the Government’s Inflationary Monetary Policies

Current gas prices are hitting record highs.  And this during the worse economic recovery following the worst recession since the Great Depression.  Gas prices and the unemployment rate are typically inversely related to each other.  When there is high unemployment people are buying less gasoline.  This excess gasoline supply results in lower gas prices.  When there is low unemployment people are buying more gasoline.  This excess demand for gasoline results in higher gas prices.  These are the normal affects of supply and demand.  So the current high gas prices have little to do to with normal economic forces.  Which leaves government policies to explain why gas prices are so high.

Environmental concerns have greatly increased regulatory policy.  Increasing regulatory compliance costs.  Which has greatly discouraged the building of new refineries.  And making it very difficult to build new pipelines.  Which tax current pipeline and refinery capacities.  A problem mitigated only with their restriction on domestic oil production.  The current administration has pretty much shut down oil exploration and production on all federal lands.  Reducing crude oil supplies to refineries.  These environmental policies would send gas prices soaring if the economy was booming.  But the economy is not booming.  In fact the U-6 unemployment rate (which counts everyone who can’t find a full time job) held steady at 14.7% in September.  So an overheated economy is not the reason we have high gas prices.  But the high gas prices may be part of the reason we have such high unemployment.

Perhaps we can lay the greatest blame for the current economic malaise on the government’s inflationary monetary policies.  Inflation increases prices.  Especially those things sold in fixed quantities priced in dollars.  Like oil.  And gasoline.  The price inflation in refined oil products is like a virus that spreads throughout the economy.  Because everyone uses energy.  Especially the food industry.  From the farmers driving their tractor to work their fields.  To the trucks that take grain to rail terminals.  To the trains that transport this grain to food processing plants.  To the trucks that deliver these food products to our grocery stores.  From the moment farmers first turn over their soil in spring to the truck backing into to a grocery store’s loading dock to consumers bringing home groceries in their car to put food on the table fuel is consumed everywhere.  Which is why when gasoline prices go up food prices go up.  Because we refine gasoline from the same crude oil we refine diesel fuel from.  Oil.  Creating a direct link between our energy policy and the price of food.




Even Cutting 28,000 Jobs will not help the USPS Compete against the Internet

Posted by PITHOCRATES - May 27th, 2012

Week in Review

The United States Postal Service (USPS) hates the Internet.  Before the Internet they had a monopoly in the letter industry.  If you wanted to send Granny a letter you had to go through them.  There’s only one problem with a monopoly.  Because they have a captive audience they don’t have to innovate.  They don’t have to improve anything.  Just make a lot of money.  And give your employees generous wage and benefit packages.  Just like the railroads did.  Before trucks came around, that is.  The trucking industry nearly destroyed the railroad industry.  But the railroads learned how to compete.  They helped redefine the transportation industry that now includes trains, ships and trucks.  The railroads are back.  Stronger than ever.  And making money.  But is it too late for the USPS?

The Internet is the USPS’ trucking industry.  It has all but destroyed the snail mail industry.  To survive the USPS has to do what the railroads did.  Reinvent itself.  Reinvent the industry they participate in.  If they can.  And they better hurry.  Because their monopoly is gone.  Not from other people entering the snail mail business.  But by new technology that created a better alternative to the snail mail business.  The Internet.  And it’s tap-dancing all over the USPS (see U.S. Postal Service offers buyouts to 45,000 workers by Emily Stephenson posted 5/25/2012 on Reuters).

The mail agency, which lost $3.2 billion in the first three months of 2012, plans to begin this summer moving mail-processing activities away from smaller sites to reduce annual costs.

As part of that plan, the Postal Service will offer $15,000 in two installments to full-time mail handlers who take early retirement or leave the agency, USPS spokesman Mark Saunders said on Friday…

The Postal Service has been hit hard by tumbling mail volumes as more Americans communicate online and by massive payments for future retiree health benefits…

The agency needs to reduce its workforce by 150,000 people by 2015, Saunders said. Consolidating and closing processing facilities, which will continue through 2014, could eliminate up to 28,000 jobs and save $2.1 billion a year, the Postal Service has said.

Saunders said he could not speculate how many mail handlers would take buyouts this year, but added that the change “will not affect mail service.”

It’s not enough.  If you annualize that $3.2 billion quarterly loss that comes to a $12.8 billion loss for the year (4 X $3.2 billion).  Cutting only $2.1 billion per year will not solve their problems.  They’ll still have an operating deficit of approximately $9.6 billion.  And if the Internet doesn’t go out of business in the foreseeable future these numbers are only going to get worse.

It’s pretty interesting that a company can cut 28,000 jobs without affecting its business operations.  Why, it’s almost as if they never shrunk their labor force all these years that their business has shrunk.  It’s as if 28,000 people have just been sitting around waiting for the work to pick up again.  While collecting a paycheck.  And while the USPS pours billions into a pension plan for their future retirement.  Hmm.  I wonder if this could have anything to do with that $3.2 billion quarterly loss. 

The clock is ticking.  While the USPS is still struggling to compete with email texting is giving email a run for its money.  And it just may be that the USPS is not as nimble as the railroad industry in pulling up its tracks and laying them on the road to profitability.



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Corduroy Roads, Positive Buoyancy, Negative Buoyancy, Carbon Dioxide, Crush Depth, Pressurization, Rapid Decompression and Space

Posted by PITHOCRATES - May 9th, 2012

Technology 101

Early Submarines could not Stay Submerged for Long for the Carbon Dioxide the Crew Exhaled built up to Dangerous Levels

People can pretty much walk anywhere.  As long as the ground is fairly solid beneath our feet.  Ditto for horses.  Though they tend to sink a little deeper in the softer ground than people do.  Carts are another story.  And artillery trains.  For their narrow wheels and heavy weight distributed on them tend to sink when the earthen ground is wet.  Early armies needing to move cannon and wagons through swampy areas would first build roads through these areas.  Out of trees.  Called corduroy roads.  It was a bumpy ride.  But you could pull heavy loads with small footprints through otherwise impassable areas.  As armies mechanized trucks and jeeps with fatter rubber tires replaced the narrow wheels on wagons.  Then tracked vehicles came along.  Allowing the great weights of armored vehicles with large guns to move across open fields.  The long and wide footprints of these vehicles distributing that heavy weight over a larger area.  Still, nothing can beat the modern rubber tire on a paved road for a smooth ride.  And the lower resistance between tire and road increases gas mileage.  Which is why trucks like to use as few axles on their trailers as possible.  For the more tires on the road the more friction between truck and road.  And the higher fuel consumption to overcome that friction.  Which is why we have to weigh trucks for some try to cheat by pulling heavier loads with too few axles.  When they do the high weight distributed through too few wheels will cause great stresses on the roadway.  Causing them to break and crumble apart.   

Man and machine can move freely across pretty much anything.  If we don’t carry food and water with us we could even ‘live off the land’.  But one thing we can’t do is walk or drive on water.  We have to bridge streams and rivers.  Go around lakes.  Or move onto boats.  Which can drive on water.  If they are built right.  And are buoyant.  Because if a boat weighed less than the water it displaced it floated.  Much like a pair of light-weight, spongy flip-flops made out of foam rubber.  Throw a pair into the water and they will float.  Put them on your feet and step into the deep end of a pool and you’ll sink.  Because when worn on your feet the large weight of your body distributed to the light pair of flip-flops makes those flip-flops heavier than the water they displace.  And they, along with you, sink.  Unlike a boat.  Which is lighter than the water it displaces.  As long as it is not overloaded.  Even if it’s steel.  Or concrete.  You see, the weight of the boat includes all the air inside the hull.  So a large hull filled with cargo AND air will be lighter than the water it displaces.  Which is why boats float. 

Early sail ships had great range.  As long as the wind blew.  Their range only being limited by the amount of food and fresh water they carried.  Later steam engines and diesel-electric engines had greater freedom in navigation not having to depend on the prevailing winds.  But they had the same limitations of food and water.  And when we took boats under the water we had another limitation.  Fresh air.  Early submarines could not stay submerged for long.  For underwater they could not pull air into a diesel-electric engine.  So they had to run on batteries.  Which had a limited duration.  So early subs spent most of their time on the surface.  Where they could run their diesel engines to recharge their batteries.  And open their hatches to get fresh air into the boat.  For when submerged the carbon dioxide the crew exhaled built up.  If it built up too much you could become disoriented and pass out.  And die.  If a sub is under attack staying under water for too long and the levels of carbon dioxide build up to dangerous levels a captain has little choice but to surface and surrender.  So the crew can breathe again.

Rapid Decompression at Altitude can be Catastrophic and Violent

Being in a submarine has been historically one of the more dangerous places to be in any navy (second to being on the deck of an aircraft carrier).  Just breathing on a sub had been a challenge at times while trying to evade an enemy destroyer.  But there are other risks, too.  Some things float.  And some things sink.  A submarine is somewhere in between.  It will float on the surface when it has positive buoyancy.  And sink when it has negative buoyancy.  But submarines operate in the oceans.  Which are very deep.  And the deeper you go the greater the pressure of the water.  Because the deeper you go there is more ocean above you pressing down on you.  And oceans are heavy.  If a sub goes too deep this pressure will crush the steel hull like a beer can.  What we call crush depth.  Killing everyone on board.  So a sub cannot go too deep.  Which makes going below the surface a delicate and risky business.  To submerge they flood ballast tanks.  Replacing air within the hull with water.  Making it sink.  Other tanks fill with water as necessary to ‘trim’ the boat.  Make it level under water.  When under way they use forward propulsion to maintain depth and trim with control surfaces like on an airplane.  If everything goes well a submarine can sink.  Then stop at a depth below the surface.  And then resurface.  Modern nuclear submarines can make fresh water and clean air.  So they can stay submerged as long as they have food for the crew to eat.

An airplane has no such staying power like a sub.  For planes have nothing to keep them in air but forward propulsion.  So food and water are not as great an issue.  Fuel is.  And is the greatest limitation on a plane.  In the military they have special airplanes that fly on station to serve as gas stations in the air for fighters and bombers.  To extend their range.  And it is only fuel they take on.  For other than very long-range bombers a flight crew is rarely in the air for extended hours at a time.  Some bomber crews may be in the air for a day or more.  But there are few crew members.  So they can carry sufficient food and water for these longer missions.  As long as they can fly they are good.  And fairly comfortable.  Unlike the earlier bomber crews.  Who flew in unpressurized planes.  For it is very cold at high altitudes.  And there isn’t enough oxygen to breathe.  So these crew members had to wear Arctic gear to keep from freezing to death.  And breathe oxygen they carried with them in tanks.  Pressurizing aircraft removed these problems.  Which made being in a plane like being in a tall building on the ground.  Your ears may pop but that’s about all the discomfort you would feel.  If a plane lost its pressurization while flying, though, it got quite uncomfortable.  And dangerous. 

Rapid decompression at altitude can be catastrophic.  And violent.  The higher the altitude the lower the air pressure.  And the faster the air pressure inside the airplane equals the air pressure outside the airplane.  The air will get suck out so fast that it’ll take every last piece of dust with it.  And breathable air.  Oxygen masks will drop in the passenger compartment.  The flight attendants will scramble to make sure all passengers get on oxygen.  As does the flight crew.  Who call in an emergency.  And make an emergency descent to get below 10 thousand feet.  Almost free falling out of the sky while air traffic control clears all traffic from beneath them.  Once below 10 thousand feet they can level off and breathe normally.  But it will be very, very cold.

Man’s Desire is to Go where no Man has Gone before and where no Human Body should Be

Space flight shares some things in common with both submarines and airplanes.  Like airplanes they can’t fly without fuel.  The greatest distance we’ve ever flown in space was to the moon and back.  The Saturn V rocket of the Apollo program was mostly fuel.   The rocket was 354 feet tall.  And about 75% of it was a fuel tank.  In 3 stages.  The first stage burned for about 150 seconds.  The second stage burned for about 360 seconds.  The third stage burned for about 500 seconds (in two burns, the first to get into earth orbit and the second to escape earth orbit).  Add that up and it comes to approximately 16 minutes.  After that the astronauts were then coasting at about 25,000 miles per hour towards the moon.  Or where the moon would be when they get there.  The pull of earth’s gravity slowed it down until the pull of the moon’s gravity sped it back up.  So that’s a lot of fuel burned at one time to hurl the spacecraft towards the moon.  The remaining fuel on board used for minor course corrections.  And to escape lunar orbit.  For the coast back home.  There was no refueling available in space.  So if something went wrong there was a good chance that the spacecraft would just float forever through the universe with no way of returning home.  Much like a submarine that can’t keep from falling in the ocean.  If it falls too deep it, too, will be unable to return home.

Also like in a submarine food and fresh water are critical supplies.  They brought food with them.  And made their own water in space with fuel cells.  It had to last for the entire trip.  About 8 days.  For in space there were no ports or supply ships.  You were truly on your own.  And if something happened to your food and water supply you didn’t eat or drink.  If the failure was early in the mission you could abort and return home.  If you were already in lunar orbit it would make for a long trip home.  The lack of food and hydration placing greater stresses on the astronauts making the easiest of tasks difficult.  And the critical ones that got you through reentry nearly impossible.  Also like on a submarine fresh air to breathe is critical.  Even more so because of the smaller volume of the spacecraft.  Which can fill up with carbon dioxide very quickly.  And unlike a sub a spacecraft can’t open a hatch for fresh air.  All they can do is rely on a scrubber system to remove the carbon dioxide from their cramped quarters.

While a submarine has a thick hull to protect it from the crushing pressures of the ocean an airplane has a thin aluminum skin to keep a pressurized atmosphere inside the aircraft.  Just like a spacecraft.  But unlike an aircraft, a spacecraft can’t drop below 10,000 feet to a breathable atmosphere in the event of a catastrophic depressurization.  Worse, in the vacuum of space losing your breathable atmosphere is the least of your troubles.  The human body cannot function in a vacuum.  The gases in the lungs will expand in a vacuum and rupture the lungs.  Bubbles will enter the bloodstream.  Water will boil away (turn into a gas).  The mouth and eyes will dry out and lose their body heat through this evaporation.  The water in muscle and soft tissue will boil away, too.  Causing swelling.  And pain.  Dissolved nitrogen in the blood will reform into a gas.  Causing the bends.  And pain.  Anything exposed to the sun’s ultraviolet radiation will get a severe sunburn.  Causing pain.  You will be conscious at first.  Feeling all of this pain.  And you will know what is coming next.  Powerless to do anything about it.  Brain asphyxiation will then set in.  Hypoxia.  The body will be bloated, blue and unresponsive.  But the brain and heart would continue on.  Finally the blood boils.  And the heat stops.  In all about a minute and half to suffer and die.

Man is an adventurer.  From the first time we walked away from our home.  Rode the first horse.  Harnessed the power of steam.  Then conquered the third dimension in submarines, airplanes and spacecraft.  We are adventurers.  It’s why we crossed oceans and discovered the new world.  Why we climbed the highest mountains.  And descended to the oceans’ lowest depth.  Why we fly in airplanes.  And travelled to the moon and back.  When things worked well these were great adventures.  When they did not they were horrible nightmares.  While a few seek this adventure most of us are content to walk the surface of the earth.  To feel the sand through our toes.   Or walk to the poolside bar in our flip-flops.  To enjoy an adult beverage on a summer’s day.  While adventurers are still seeking out something new.  And waiting on technology to allow them to go where no man has gone before.  Especially if it’s a place no human body should be.




Carbon, Carbon Cycle, Crude Oil, Petroleum, Hydrocarbons, Oil Refinery, Cracking, Sweet Crude, Sour Crude, Gasoline and Diesel Engines

Posted by PITHOCRATES - April 25th, 2012

Technology 101

Crude Oil is made from Long Chains of Carbon Atoms Bonded Together with a lot of Hydrogen Atoms Attached Along the Way

Carbon.  It’s everywhere.  And in everything.  Like all matter it cannot be created.  Or destroyed.  It just changes.  As it creates the circle of life.  The carbon cycle.  Plants and trees absorb carbon out of the atmosphere.  And converts it into biomass.  Into wood.  And into animal food.  Where the digestive system converts it into carbon-based living flesh and blood.  That exhales carbon.  Plants absorb carbon and release oxygen.  Plants can’t grow without carbon.  And we can’t breathe without plants growing.  Carbon is constantly changing.  But never created.  Or destroyed.  From diamonds to pencils.  From sugar to carbonated soda.  From plastics to human beings.  It’s everywhere.  And everything.  Why, it’s life itself.

Carbon is a time traveler.  Carbon that once traveled through the atmosphere disappeared millions of years ago.  Buried underneath the surface of the earth.  Under intense heat and pressure.  Plankton and algae and other biomasses decayed until there was almost nothing left but carbon atoms.  Long chains of carbon atoms.  Forming great, restless pools of black goo beneath the surface.   Waiting for the modern world to arrive.  Waiting for the internal combustion engine.  The jet engine.  And plastics.  When they could be reborn.  And see the light of day again.

Crude oil.  Petroleum.  Black gold.  Texas tea.  Hydrocarbons.  Long chains of carbon atoms bonded together with a lot of hydrogen atoms attached along the way.  In the ground they’re mostly long chains.  When we get them above ground we can break those chains into different lengths.  And create many different things.  C16H34 (hexadecane).  C9H20 (nonane).  C8H18 (octane).  C7H16 (heptane).  C5H12 (pentane).  C4H10 (butane).  C6H6 (benzene).  CH4 (methane).  Some of these you may be familiar with.  Some you may not.  Methane is a flammable gas.  Hydrocarbon chains from pentane to octane make gasoline.  Hydrocarbon chains from nonane to hexadecane make diesel fuel, kerosene and jet fuel.  Chains with more carbon atoms make lubricants.  Chains with even more carbon atoms make asphalt.  While chains with 4 carbon atoms or less make gases.  All these things made from the same black goo.  A true marvel of Mother Nature.  Or God.  Depending on your inclination.

Older Coastal Refineries make more Expensive Gasoline than the Newer Refineries due to the Availability of Sweet versus Sour Crude

Another great carbon-based product it bourbon.  Made from a corn sour mash.  We heat this and the alcohol in it boils off.  That is, we distill it.  We run this gas through a coiling coil and it condenses back into a liquid.  And after a few more steps we get delicious bourbon whiskey.  Distilleries give tours.  If you get a chance you should take one.  You won’t get to sample any of the distilled spirits (insurance reasons).  But you will get a feel for what an oil refinery is.

An oil refinery works on the same principles.  Boil and condense.  And cracking.  Cracking those long hydrocarbon chains apart into all those different chains.  Long and small.  Into liquids and gases.  Even solid lubricants and asphalt.  All made possible because of their different boiling points.  The gases having lower boiling points.  The solids having higher boiling points.  And the liquids having boiling points somewhere in between.

Refineries are complex processing plants.  Not only because of all those different hydrocarbon chains.  But because of the crude oil introduced to these plants.  For there is light sweet crude.  And heavier sour crude.  The difference being the additional stuff that we need to remove.  Such as sulfur.  An environmental problem.  So we have to remove as much of it as possible during the refining process to meet EPA standards.  The sweet crudes are lower in sulfur.  Making them the crude of choice.  But this has also been the most popular crude through the years.  So its resources are dwindling.  Making it more expensive.  As are all the products refined from it.  Especially gasoline.  The more sour crudes have higher sulfur content.  And require more refining steps to remove that sulfur.  Which means additional refinery equipment.  So the older refineries that were refining the light sweet crude can’t refine the heavier sour crudes.  Which is why the refineries along the coasts make more expensive gasoline than the newer ones in the interior refining the heavier sour crudes.  Due to the availability of sweet crude versus sour crude.

The Modern World is brought to us by a Complex Economy which is brought to us by Petroleum

One of the main uses of refined crude oil is fuel for internal combustion engines.  In particular, gasoline engines and diesel engines.  Which are very similar.  The difference being the mode of ignition.  And, of course, the fuel.  Gasoline engines compress an air-fuel mixture in the cylinder.  At the top of the compression stroke a spark plug ignites this highly compressed and heated mixture.  Sending the piston down.  If the combustion occurs too early it could place undo stresses on the piston connecting rods and the crank shaft.  By trying to send the piston down when it was coming up.  Causing a knocking sound.  Which is a bad sound to hear.  And if you hear it you should probably make sure you’re using the right gasoline.  If you are you need to have you car serviced.  Because continued knocking may break something.  And if it does your engine will work no more.  So this is where octane comes in the blending of gasoline.  It’s expensive.  But the more of it in gasoline the higher the compression you can have.  And the less knocking.  Which is its only purpose.  It doesn’t give you any more power.  The higher compression does.  Which the higher octane allows.  Using the higher octane gas in a standard compression engine won’t do anything but waste your hard earned money.

And speaking of higher compression engines, that brings us to diesel engines.  Which are similar to gasoline engines only they operate under a higher compression.  And don’t use spark plugs.  These engines compress air only.  Which allows the higher compression without pre-ignition.  At the top of their compression stroke a fuel injector squirts diesel fuel into the hot compressed air where it combusts on contact.  Diesel fuel has a higher energy content than gasoline.  Meaning for the same volume of fuel diesel can take you further than gasoline.  Which is why trucks, locomotives and ships use diesel.  But diesel tends to pollute more.  The smell and the soot kept diesel out of our cars for a long time.  As well as the difficulty of starting in cold climates.  Advanced computer controlled systems have helped, though, and we’re seeing more diesel used in cars now.

The modern world is brought to us by a complex economy.  Where goods and raw materials traverse the globe.  To feed our industries.  And to ship our finished goods.  Which we put on trucks, trains, ships and airplanes.  None of which would be possible without a portable, stable, energy-dense fuel.  That only refined petroleum can give us.  It’s better than animal power.  Water power.  Wind power.  Or steam power.  For there is nothing that we can use in our trucks, trains, ships and airplanes other than refined petroleum products today that wouldn’t be a step backwards in our modern world.  Nothing.  Making petroleum truly a marvel of Mother Nature.  Or God.  Depending on your inclination.





Posted by PITHOCRATES - April 1st, 2012

Week in Review


















Posted by PITHOCRATES - February 22nd, 2012

Technology 101

Man harnessed the Energy in Moving Water with a Water Wheel















FDR, Wage Ceiling, Arsenal of Democracy, Benefits, Big Three, Japanese Competition, Legacy Costs, Business Cycle and Bailouts

Posted by PITHOCRATES - February 14th, 2012

History 101

After the Arsenal of Democracy defeated Hitler the Wage Ceiling was Gone but Generous Benefits were here to Stay

FDR caused the automotive industry crisis of 2008-2010.  With his progressive/liberal New Deal policies.  He placed a ceiling on employee wages during the Great Depression.  The idea was to keep workers’ wages low so employers would hire more workers.  It didn’t work.  And there was an unintended consequence.  As there always is when government interferes with market forces.  The wage ceiling prevented employers from attracting the best workers by offering higher wages.  Forcing employers to think of other ways to attract the best workers.  And they found it.  Benefits.

Adolf Hitler ended the Great Depression.  His bloodlust cut the chains on American industry as they tooled up to defeat him.  The Arsenal of Democracy.  America’s factories hummed 24/7 making tanks, trucks, ships, airplanes, artillery, ammunition, etc.  The Americans out-produced the Axis.  Giving the Allies marching towards Germany everything they needed to wage modern war.  While in the end the Nazis were using horses for transport power.  This wartime production created so many jobs that they even hired women to work in their factories.  Bringing an end to the Great Depression finally after 12 years of FDR.

The Arsenal of Democracy defeated Hitler.  U.S. servicemen came home.  And the women left the factories and returned home to raise families.  With much of the world’s factories in ruins the U.S. economy continued to hum.  Only they were now making things other than the implements of war.  The auto makers returned to making cars and trucks.  The ceiling on wages was gone.  But those benefits were still there.  Greatly increasing labor costs.  But what did they care?  The American auto manufacturers had a captive audience.  If anyone wanted to buy a car or truck there was only one place to buy it.  From them.  No matter the cost.  So they just passed on those high wages and expensive benefit packages on to the consumer.  Times were good.  The Fifties were happy times.  Good jobs.  Good pay.  Free benefits.  Nice life in the suburbs.  All paid for by expensive vehicle prices.

The Big Three could not Sell Cars when there was Competition because of their Legacy Costs

But it wouldn’t last.  Because it couldn’t last.  For those factories destroyed in the war were up and running again.  And someone noticed those high prices on American cars.  The Japanese.  Who rebuilt their factories.  Which were now humming, too.  And they thought why not enter the automotive industry?  And this changed the business model for the Big Three (GM, Ford and Chrysler) as they knew it.  The Big Three had competition for the first time.  Their captive audience was gone.  For the consumer had a choice.  They could demand better value for their money.  And chose not to buy the ‘rust buckets’ they were selling in the Seventies.  Cars that rusted away after a few snowy winters.  Or a few years near the ocean coast.

The new Japanese competition started about 30 years after U.S. workers began to enjoy all those benefits.  So the U.S. car companies paid their union auto workers more and gave them far more benefits than their Japanese competition.  And those early U.S. workers were now retiring.  Giving a great advantage to the Japanese.  Because those generous benefits provided those U.S. retirees very comfortable pensions.  And all the health care they could use.  All paid for by the Big Three.  Via the price of their cars and trucks.

Well, you can see where this led to.  The Big Three could not sell cars when there was competition.  Because of these legacy costs.  Higher union wages.  Generous pension and health care benefits that workers and retirees did not contribute to.  (By the time GM and Chrysler faced bankruptcy in 2010 there were more retirees than active union workers).  The United Automobile Workers (UAW) jobs bank program where unemployed workers (laid off due to declining sales) collected 95% of their pay and benefits.  (You can find many quotes on line from a Detroit News article stating some 12,000 UAW workers were collecting pay and benefits in 2005 but not working.)  The Japanese had none of these costs.  And could easily build a higher quality vehicle for less.  Which they did.  And consumers bought them.  The Big Three conceded car sales to the Japanese (and the Europeans and South Koreans) and focused on the profitable SUV and truck markets.  To pay these high legacy costs.  Until the gas prices soared to $4/gallon.  And then the Subprime Mortgage Crises kicked off the Great Recession.  Leading to the ‘bankruptcy’ of GM and Chrysler.  And their government bailouts.

The U.S. Automotive Government Bailout cut Wage and Benefits once Set in Stone

The Big Three struggled because they operated outside normal market forces.  Thanks at first to a captive audience.  Then later to friends in government (tariffs on imports, import quotas, union-favorable legislation, etc.).  All of this just delayed the day of reckoning, though.  And making it ever more painful when it came.

During economic downturns (when supply and prices fall) their cost structure did not change.  As it should have.  Because that’s what the business cycle does.  It resets prices and supply to match demand.  With recessions.  Painful but necessary.  Just how painful depends on how fast ‘sticky’ wages can adjust down to new market levels.  And herein lies the problem that plagued the Big Three.  Their wages weren’t sticky.  They were set in stone.  So when the market set the new prices for cars and trucks it was below the cost of the Big Three.  Unable to decrease their labor (wage and benefit) costs, profits turned into losses.  Pension funds went underfunded.  And cash stockpiles disappeared.  Leading the Big Three to the brink of bankruptcy.  And begging for a government bailout.

Well, the bailout came.  The government stepped in.  Gave the union pension fund majority control of the bailed out companies.  Screwing the bondholders (and contract law) in the process.  And created a two-tier labor structure.  They grandfathered older employees at the unsustainable wage and benefit packages.  And hired new employees at wage and benefit packages that the market would bear.  Comparable to their Asian and European transplant auto plants in the right-to-work states in the southern U.S. states.  And put the market back in control of the U.S. auto industry.  For awhile, at least.





Posted by PITHOCRATES - April 28th, 2011









Rockefeller benefited Consumers.  The ICC did not.





In a Free Market there is always a Choice





