Friday, June 11, 2010

Fantastic Future Friday: Obsolete Technology

I could have sworn I posted this at 2pm this afternoon, here is a late Fantastic Future Friday.

Watching the Teabaggers protest the lack of government action on the BP oil disaster made me first laugh and think a little. Needing something more to laugh at I turned to one of the greatest comedy gifts to the world: South Carolina. It seems the Republicans in SC are all overjoyed that Boeing is going to build the 787 Dreamliner in their state and the state only had to pay for them to build the plant and give them the operating costs in the form of tax incentives for 17 years. I realized that the same misplaced thinking was behind both projects.

Deep Water oil drilling is not profitable yet, if you have to do full compliance to safety regulations and have insurance to cover the possibility of disaster. The reason oil companies do the Deep Water Drilling is the government pays them billions of dollars to do it. There is a certain (bad) logic to this. As onshore and shallow water oil fields deplete, the oil from the Deep Waters wells will be all that is left. So in order to maintain the centuries old industrial technology we need that oil.

The 787 Dreamliner plant will help the state of South Carolina, if airplane technology doesn’t advance beyond its current level in the next two decades. If the Air Force were to develop a new Airplane technology like the Hypersonic X-43A the 787 will be obsolete long before the taxpayers will be paid back. The Hypersonic Aircraft Industry will need machinist that have a much higher skill level than what is needed to build the Aluminum and composite sub-sonic aircraft. For that Boeing will return to Seattle.

The legislators that vote to give big oil huge subsidies, ruling out corruption, are thinking that we won’t advance past our oil dependant technology.

Unfortunately, investing in obsolete technology is expensive. In Engineering Economics (yes there is such a class) I learned how technology has its own curve. At the beginning a new technology’s rate of return is negative, meaning it costs more money to develop the technology than it pays in sales (or the bleeding edge). As the costs of using the technology go down the rate of return goes up until it is profitable (the leading edge). Suddenly the technology takes off and fortunes are made (the entrepreneurial stage). As it becomes commonplace and everyone gets in on it driving the profits down to at or below the market average (Competition Stage). Then the best companies survive and the others die (Shakeout Stage). Finally, someone comes out with a replacement technology that kills the original technology, and continuing to use the technology costs money (Obsolesce Stage).

The Federal Government plays a role in this technology curve, during WWI through the 80s the federal government supported the bleeding edge of technology with a peak of 3% of GDP. During that time we saw the development of airplanes, then Jet planes, went to the Moon, made computers that people could use and laid down the foundations of the Internet (all because of government funding).

In the 80s and through today government funding has been shifted to support the other end of the curve and keeping obsolete technology afloat after its competitive time is over.

Spending Billions to encourage oil companies to drill in unsafe and uneconomical areas to keep the cost of oil down, instead of investing in the bleeding edge of alternative fuels and conservation. Propping up airlines whose jet planes reached their technological peak in the 60s, instead of investing in research into hypersonic aircraft. The list goes on and on.

As far as the money spent, the 3% of GDP we invested in the bleeding edge from WWI until the 80s accounts for half of our current GDP. The money put in obsolete technology returns one-third, with two-thirds being wasted.

Maybe with the disaster in the Gulf, our political leaders will see the folly of using taxpayers money to prop up obsolete technologies and use that money to fund new bleeding edge technology that will replace them. If this happens we can have a fantastic future.

By Darrell B. Nelson author of Invasive Thoughts


Stephanie Barr said...

Wonderful, wonderful!

Smart money spent. People don't realize that, when we look to the future, even if we spend ow with little in return, we always come out ahead.

I think you've nailed it.

Aron Sora said...

Honestly, we are deep in the Obsolesce Stage. There are green companies who are getting filthy rich now...I remember an economist with the last name Florida (I can't recall the first name) who said to run away from things that have a ton of government finacial support because they are "fundamental to our lifestyle" Those areas are in truth, dieing (Cars and McMansions in the ideal suburban town are on that list too)

You also have kids to worry about, I doubt you can inspire someone to go to college with an oilrig or in an industry trying to hold on to the status quo.

Project Savior said...

Thanks for joining us Aron.
You should like my Friday post where I'll try to get into some real solutions.