Chicago Boyz

                 
 
 
What Are Chicago Boyz Readers Reading?
 

 
  •   Enter your email to be notified of new posts:
    Loading
  •   Problem? Question?
  •   Contact Authors:

  • CB Twitter Feed
  • Blog Posts (RSS 2.0)
  • Blog Posts (Atom 0.3)
  • Incoming Links
  • Recent Comments

    • Loading...
  • Authors

  • Notable Discussions

  • Recent Posts

  • Blogroll

  • Categories

  • Archives

  • The Age of Unreliability – And the Alternatives of the Elite

    Posted by Carl from Chicago on June 28th, 2008 (All posts by )

    CAPACITY AND RELIABILITY – THE AIRLINES

    One of the oldest lines goes something like “predictions are often wrong, especially if they are about the future”. I thought about this line recently when I had an American Airlines flight from Washington DC to Chicago on a Sunday afternoon. We had just arrived at the airport when the gate agent just said that there was bad weather at O’Hare and they canceled all flights into Chicago.

    In a past life as a consultant I flew literally hundreds of times and I know a bit about airports and airlines. In past eras, the airline would have continually postponed the flight, helped you with alternatives, and bravely kept chugging along, trying to get you to your destination. Nowadays, with current fuel prices and most airlines on the brink of bankruptcy, the equation has changed; the airline that you select is basically on price or your Frequent Flyer mile affiliation, and the airlines are returning the favor – they are cutting flights, packing flights full to the brim, and basically stripping all the excess capacity out of the system.

    The more subtle outcome of this is that airlines have become a significantly less reliable way of getting you from place A to place B. Cruises are now telling passengers that they ought to arrive the day before the cruise; it is too risky to fly out the morning of your cruise because so many flights are delayed that you might miss your departure. When I go on vacations, I often leave a day in front and a day in back just for these sorts of situations; a significant percentage of my recent trips were like the one to Washington DC when an extra day (or 8+ hours late at arrival) was inadvertently tacked on to my return.

    The airline is basically substituting my personal time (which has a cost, especially if it is a day of work lost or vacation day) and my stress level (it is stressful not knowing whether you are going to get home that day to meet commitments or arrive at the start of your trip) for their financial survival. Flying on a plane nowadays is significantly more of a crap-shoot in terms of reliability and cancellation than it was in the past, and just try to fly stand-by if your flight is canceled when all of the subsequent fights are packed to the gills – that is even more stressful.

    The parallels between airlines and electric power are actually very great, although this seems odd at first. For many years the airlines were focused on reliability and services beyond just the lowest price; they didn’t fill every flight to the absolute brim and they had spare planes available in case of weather emergencies or mechanical issues. This extra level of investment helped service in many subtle ways, but cost money – money tied up in airplanes that weren’t flying, ground crew to help with your experience, and in space in their schedule to re-jigger flights if needed.

    Airlines and power have another subtle similarity – they are both services dependent upon time. The price of power famously varies depending on the time of day and weather conditions; this is due to the fact that you don’t want power “as a service” when it is best for the power company, you want it when it is best for YOU. If it is a hot day, you want air conditioning at noon. If you are running a company, you want power while the machines are running. The airlines aren’t just offering to fly me from A to B at a price; they are also balancing my time into the equation. If I have a funeral to attend, I want reliability, not price. If I have to make a critical overseas connection, I need to be in the right airport at the right time. While the airlines are competing on price, they are dropping so much capacity from the system (spare machines, spare people, room in schedule) that they are trading off between the two in a way that is significant and growing.

    All of these items would be important if the airlines were competing on service, or in a financially viable situation. However, the airlines now are mainly competing on price and with the cost of jet fuel where it is today, all excess capacity is being ruthlessly stripped out of the system.

    The ticky-tack fees that the airlines are now hitting you with for checking extra bags are another way to pass on costs – with the price of jet fuel today it makes no sense to subsidize a passenger with more bags relative to someone with a carry on. These types of charges cause passenger dissatisfaction, but that isn’t very relevant to the airlines now since most competition is on price.

    CAPACITY AND RELIABILITY – POWER

    As I have noted over and over in my posts, you can basically assume that no significant new baseload capacity is being added to the system. The significant baseload plants run continuously after a large capital investment and either run on coal, nuclear fuel or hydro power. You can wring your hands over this or dream that things will change, but they won’t – the system is being stripped of excess capacity in the form of baseload power and this will significantly change the reliability footprint over time.

    Given that electricity is a requirement and air travel is still partially a luxury, the price of electricity is less flexible than air travel. The price of power on peak days will soar, and it will also be less reliable. The reasons for this are very complex, since the system is intertwined between generation, transmission and distribution, but under-investment and the fact that all the money will be MADE by the generating companies (who will just sit on it, since no one is making new investments) but will be NEEDED by the transmission and distribution companies for investments in “smart” grids and “smart” meters.

    Since generation won’t be built and siting new transmission lines is virtually impossible, the likely alternatives are making the distribution grid more efficient. This will be done through time-of-use metering and punitive tariffs on peak (i.e., you want to run your A/C on the hottest day of the year – it will cost you $20).

    The other, more subtle elements, are that businesses are building in backup power for their facilities. Since you can’t rely on the grid (any more than you can count on an airline getting to your destination on time) you need to invest massive amounts of money in fault tolerant electrical systems on your premises, in the form of power units to allow your systems to “fail gracefully” as well as backup generators if you can’t let it fail at all.

    Even for individuals it will likely be more and more common for houses to be built with some sort of backup generation on site and some sort of “power quality monitoring” capability for sensitive electronics. I wouldn’t be surprised to start seeing this as a feature on expensive residential condominiums, as well. These units are expensive and having the fuel onsite is complicated; and when these units turn on they will likely put more pollutants into the environment than an equivalent, monitored controlled generating plant (per capita).

    THE TELEPHONE AND CELLULAR TECHNOLOGY

    Telephones also have a cost / quality / time dimension to them. The AT&T system was famously reliable; in Motorola terms they would have shot for the “six sigma” level of defects (that is to say, very very low). However, there were obvious disadvantages – fixed lines were just that, fixed and not portable, and innovation was low.

    Cell phones now are famously unreliable; since I am in a high rise my service is spotty, and dropped calls are the norm. It is now expected that calls will be dropped and people aren’t necessarily offended if a call is broken off; this is the nature of the system.

    The end state of this is “texting” – a new innovation that was originally kind of “tacked on” to the phone but now is critical and virtually everyone, including your grandparents, has caught on. I have a close family acquaintance who knew Motorola quite well and said that originally they were building a system using high reliability machines and guaranteed delivery, since this is their history. Over time there isn’t a sense of guaranteed delivery today with texting but this service is cheap and “good enough” – one of the hallmarks of “the age of unreliability”.

    It is important to note that the cellular industry has been the most subject to innovation because it has been the most deregulated of the industries being discussed here. While airlines were deregulated, the airports and traffic control are still heavily regulated and they burden the airlines with fees (gate fees) and other devices that impact the free flow of business. Cities used to lean on airlines to pay for new airports; it will be interesting to see how they are funded in the future since the airlines can’t be relied upon to pay back anything in their current financial state. Power hasn’t been deregulated for practical purposes; the funding mechanisms have been irrationally tampered with but essentially it is coasting on past successes. While there are many opportunities for innovation at the local level, who is going to pay for it?

    THE ELITES

    It is important to note another subtle effect of all this – the elites are moving to their own “parallel” systems. Corporate and executive jets are exploding in usage – to bypass security and guarantee delivery at their time and choosing, while paying the high prices that this methodology costs.

    For power, we will likely move to a similar regime over time, when local builders, towns, or regions will “wall themselves” off from the rest of the grid in some way or provide local backup power for when the grid fails. You can be sure that this backup will be placed where the rich and the elite work and live – the poor will basically suffer the brunt of unreliability while the rich suffer in their pocketbook.

    This already occurs with schooling – you can segregate by location (move to a wealthy suburb) or by price (do what Cl*nton and O*ama do and send your kids to private schools) and then leave the poor to suffer through the terrible schools of the inner city.

    Another subtle impact on this is patriotism – these “elite” worlds will often look the same around the world, whether they are in Chicago, Rio, Dubai, Moscow, or Lagos (don’t laugh – there is a lot of oil wealth in Nigeria). They are self contained, with their own security, their own power, their own schools, their own travel corridors, and their own communications. The people that travel between these worlds have more in common with each other (the other elites) than with the huddled masses in their own countries (regardless of origin), and over time their attitudes will likely become more and more similar as they disengage from the world (of the commoner).

    Originally the elite vs. poor was by country but it is really moving to segregation across countries AND within countries. Certainly if your country is wracked by civil war, everyone will suffer. And if your country starts out richer (US, UK, Japan) you are that much further ahead of someone coming up in the pack (India, China, South America). But over time the elites in all the major countries will be essentially walled off from their citizens to a larger or lesser degree and mostly be interchangeable, moving their wealth with them from place to place depending on local tax laws, beauty, the weather, and fashion.

    THE AGE OF UNRELIABILITY

    Who would have predicted the age of unreliability, which is what is coming for us, as the public and semi-public infrastructure (travel, schools, electricity, security) rides off past investments and the elites build their own mechanisms to cope with this, becoming more and more alike in the process, and more and more unlike the citizenry in their own country of origin.

    Some technologies, like cellular technology and texting, have empowered the poor and are a bright story to counter the overall gloom of disinvestment in infrastructure and systems. But these systems are the exception, not the rule, and they benefit from some items (Moore’s law, wireless and not fixed grids) that don’t apply to the other elements, which require massive capital investment, fixed infrastructure, and a heavy service component (which as we know goes UP in costs, while electronics go DOWN in costs).

    I don’t offer solutions because that isn’t my business, my business is to look at the world “as it is” not “as the way it ought to be”. And I have been frankly surprised by the “age of unreliability” since it hasn’t been widely trumpeted to the best of my knowledge. I also think that this unreliability is closely linked to the walled-off nature and similarity of the world’s elite, which I believe will become more and more pronounced in the future, for good or ill.

    Cross posted at LITGM

     

    18 Responses to “The Age of Unreliability – And the Alternatives of the Elite”

    1. Phil Fraering Says:

      You wrote:

      The people that travel between these worlds have more in common with the huddled masses in their own countries (regardless of origin), and over time their attitudes will likely become more and more similar as they disengage from the world.

      I think you need to clean up that sentence, at first glance it seems to be saying the opposite of what you mean to be saying.

    2. Daran Says:

      In a democracy the huddled masses are able to vote in regulation in their favor. Delayed flights? Mandatory reimbursements (as per EU regulation). Mobile roaming tariffs excessive? Set price limits (again per EU regulation). I’m not sure whether current EU acutions for mobile spectra include quality of service requirements, but such would be relatively easy.
      If free markets fail to deliver the goods, politicians are always eager to meddle. And once the regulations are in place, they tend to stick around.

      The emergence of a global elite is a common theme in science fiction/cyberpunk.

    3. Carl from Chicago Says:

      Phil – thanks for the tip and that was a badly worded sentence.

      I agree that the global elite is a common theme in science fiction… what I haven’t seen is how our systematic disinvestment in infrastructure is contributing to them walling themselves off.

      As far as price limits and such, they are not working because you can’t tax an industry that is fundamentally broken. I agree that regulation is part of the process but it doesn’t help in the long term with industries like power that require continuous investment and the public will to force some to have discomforts (live near transmission lines) for the benefit of others.

    4. david foster Says:

      A very interesting and thought-provoking post. A couple initial thoughts:

      1)I’m not sure it’s a new thing for elites to often have more affinity with other elites than with the masses in their own countries…it’s likely that many cases of this could be found in the history of the European aristocracies.

      2)I’m particularly concerned about the nexus between electricity and water. In the U.S. at least, almost all water pumping seems to be done electrically, and I believe backup power is rare. A power outage of some length (hours? days?) can be ridden through with water from the gravity tanks, but once they’re empty…

      A city without electricity for a week would be a pretty grim sight…one without water for a week would be much grimmer.

    5. Shannon Love Says:

      My grandfather used to say that the worst place to lose your footing was half-way over the fence. We’re getting in trouble because we’re trying to jam systems at a point half-way between two stable states: the wholly private or the wholly public. With both power and air flight we have dangerously hybridized systems in which the free-market operates on some sections while others remain under regulation. This simultaneously severs the free-market feedback systems while not granting enough authority to the state to create a functional (if less efficient) command and control system. Without feedback, the free-market cannot function and the system spirals into the ground.

      California’s electricity deregulation is a textbook example. California deregulated the production of electricity and let produces and distributors buy in an open market but they continued to regulate the price that consumers paid. The result: Consumers never received the price feedback loop that electricity was in short supply so they continued to consume at previous levels even as supply shrank until the system collapsed.

      We have a similar problem nation wide with transmission assets. We still socialize those cost but we’ve severed the feedback loop that routes resources into creating that infrastructure. The result: no one will invest in transmission and the system is decaying.

      We need to get off the fence. Either we need to create complete and integral market systems or we need to return to the politically managed model. Keeping halfway between will kill us.

    6. Carl from Chicago Says:

      Shannon – I agree with your half-way fence analogy. That is a good one.

      As far as why the “deregulation” failed, I agree that a lack of price signals was one element – but another element was that there was no incentive (or even mechanism) to build new generation, and those that had existing generation PROFITED from this situation. I am not disagreeing with your point, just adding to its merits.

      I was involved heavily in the power industry for over a decade and California was a singular example of its failure. Montana, the birth place of my mother, also got wrecked, too.

    7. david foster Says:

      I don’t see any inherent conflict between deregulated airlines and government-managed air traffic control, any more than there is an inherent conflict between private trucking and government-managed signal systems for roads.

      The primary capacity limit in aviation is a very concrete one–concrete in a literal way, as in runways and taxiways. Total government ownership of all airports would not solve this problem unless it came in the form of strong legislation (probably requiring a Constitutional amendment) preventing all interference with expansion in the form of environmental lawsuits, etc.

    8. Carl from Chicago Says:

      The issue regarding the airlines is that heavy financial burdens are placed upon them by various governmental entities. For example, they are often forced to pay for airport and gate upgrades.

      The air traffic control system has to be a textbook example of a government entity that needs help. They still have their ancient computers right out of “Airplane” despite various plans for upgrades.

      Southwest upended the game by getting out of the major airports where they can avoid congestion and fees… plus the “secondary” airports that they went to were happy to have Southwest as a tenant. In this way they injected a bit of competition into a system that would otherwise have been a monopoly, albeit a monopoly where one end is being strangled (the airlines) and the other end (airports full of government cronies) are gorging and getting fat. Ever wonder why Chicago has such strange geography? Because they wanted to hold O’Hare within the city proper so that they can hold all the revenues and lucrative contracts (with opportunities for the scraps for themselves).

      Certainly the airport / airlines / hub & spoke system is dying right now, before our eyes. Likely the future is something like Southwest for the states, a bus-like trip overseas, and super elite overseas travel. Everyone who can is avoiding airports nowadays, anyways (the boom in corporate jets).

      Like power, it is the half on / half off method of regulation that is killing everything and propelling the elite to find their own solutions. You won’t see them in line in front of you at O’Hare or waiting forlornly at the baggage carousel, unless they have no other options.

    9. david foster Says:

      The radar-and-computer part of the air traffic control system has its problems (as I’ve discussed in this post) but these are considerably exaggerated by the media, who often refer to “the FAA’s vacuum-tube computers.” Not only are there *not* any vacuum tube computers in the system, there have *never* been any such computers in the national airspace system (unless you count some strictly-experimental work in the late 1950s.)

      The biggest problems with the system are (a)the physical airport constraints, as I discussed above, and (b)the hiring and retention of controllers. There seem to be some management practices which make the job even more stressful than it needs to be, such as the recently-adopted dress code, which seems ridiculous for people who work in towers and radar rooms.

      There are indeed some big opportunities to improve the system technically, especially through the use of GPS-linked transponders to provide aircraft position information (in addition to or maybe someday in replacement of radar) but these aren’t going to fix the problems of physical runway constraints.

    10. Dan from Madison Says:

      Excellent post and interesting discussion. I don’t have a lot to add to the main discussion, but can give you an example showing how totally broken the “system” is.

      For one, I am one of the people who always try to drive to our summer vacaion destination if at all possible. Screw losing a vacation day – I work to hard to lose them.

      Recently, I was made aware of a business trip I must take to Atlanta in September. Luckily for me, there is a direct flight from Madison to Atlanta on Delta – the price including taxes was just over $800, plus I have to pay to park my car $9 each day, and it is a six day trip so that totals $854. Alternately, I can fly from Milwaukee to Atlanta on Midwest round trip for $217.50, which also includes taxes. I will need a hotel room in Milwaukee for the night before, that will add $100 (not mandatory, but does make it easier in the morning), however I can park my car at the hotel for free for the duration of the trip, and get a free shuttle to the airport from the hotel and back to the hotel when I return. If you include gas, this puts my cost at about $375. I am out about a total of three hours of drive time round trip for the ride from Madison to Milwaukee and back (1.5 hours each way).

      I can see charging a premium for the convenience of flying out of the local, small airport, but for that premium to be more than twice the cost seems a bit crazy to me.

    11. RES Says:

      It is typical of struggling firms and industries that the first costs cut are infra-structure, R&D and extra capacity. What can we conclude about the state of air travel that they’re engaging in that?

      As to in-home generators, I live where winter ice storms and multi-day power outages are common; my next-door neighbor had a back-up installed a few years back. I would guess the neighborhood runs, oh, mid-upper middle class. I’ve heard radio ads for generators running on natural gas (or propane) at costs not too unreasonable – so your depiction of upper-scale homes having back-ups seems reasonable.

    12. Kelly Says:

      I had not thought before reading this article that air travel and electricity (and telephone service) also fall under the 2-of-3 rule of thumb for public goods: Universal, Affordable, Effective: Choose Any Two. The trade-offs in both airlines and energy grids as Affordable becomes paramount are currently lowering Effectiveness, with the promise of market segmentation away from Universal access. As cell phones become increasingly Universal, Effectiveness and Affordability become issues.
      I wonder if the history of regulation in these industries altered capital investment enough that this rule of thumb for government programs applies, or if there is something more general at work here.

    13. Xennady Says:

      Great post.

      I think the US elite already regard themselves as citizens of the world and consider most of the American people as nothing more than another kind of peasant.

      This manifests in the continuous attempts of the elite to ensure that election results are as close to meaningless as they can make them. Real power is passed to unelected and effectively unaccountable organizations such as the courts, NAFTA tribunals, the UN, and executive agencies.

      The question for American democracy is whether the constitutional framework can produce an elected government strong enough to overcome the wishes of the elite and impose the will of the majority.

      Time will tell.

    14. Mrs. Davis Says:

      We pretty much have a government that reflects the will of the majority. The problem is that the elites have had control of the will of the majority through the MSM, academia, and big business management. Those elites are losing their control, particularly the MSM, but academia will go too. New elites will emerge as they have on the net. But the transition will be painful and there will be the opportunity for non-elites to move up.

      Another service industry that is suffering is financial services. We have had three major bubble collapses in the last decade; Asia ’97, .com ’00 and mortgages ’08. The viability of financial institutions is now so threatened that the Fed had to step in to save a non-member from collapse. Yet the Fed and the Comptroller of the Currency barely perform their examination function. Very large banks are having a hard time raising capital. And you don’t even get a toaster any more. I wonder how Brown Brothers, Harriman is faring.

    15. Xennady Says:

      Mrs. Davis,

      I disagree that we have a government that reflects the will of the majority. I recall that Prop 209 in California restricted services to illegal aliens but a court overturned it. This happens time and again- ballot propositions and laws produced by elected officials at the state level get thrown out by courts.

      Each time this happens some number of voters get so p@$$ed off that they cease participating in the political process- and effectively give up on democracy. As you note the elites are slowly losing their hold on the public discourse but the question is will that actually matter?

      I sure hope so.

      Of course you’re spot on about Wall Street. See here http://market-ticker.denninger.net/

    16. virgil xenophon Says:

      Funny that David Foster mentions how “grim” a city would be without power or water for a long period. Think KATRINA. Come down and talk to those of us in New Orleans who lived it if you want an ear-full. KATRINA has many lessons to teach.

      Elites always have influence out of proportion to their numbers–not only by dint of their money, but also because of their free time and flexible work schedules. Look at all the “Good Government” and “Civic Improvement” organizations/commissions in any major city and the extent to which they influence the course of a city’s development. These are essentially UNDEMOCRATIC institutions comprised mainly of well educated and financially well-off professionals who have the time and skills to volunteer their efforts. Blue collar workers and below(the majority) gain input only through their elected representatives. Elites have access and influence both ways.

      A note on cost v. reliability: Just think, if one has a land line phone, the monthly cost just to get the dial-tone (which will probably be there even after a nuclear attack–thats why so many switching centers look like the Fuhrerbunker) is roughly the same as a basic cable package.

    17. toad Says:

      Well the “elite” have contributed to the age of unreliability by their NIMBY attitudes and political influence.
      No windfarms where I sail, no drilling off my private beach, no refinery where I might have to smell it, and so on.
      Nothing is forever and sooner or later the mob shows up and burns down the dacha.

    18. Jonathan Says:

      Very interesting post. I think that you are obviously right about some things but also that you are overgeneralizing. Some goods and services are better now, despite the fact that they are provided in ways that appear to be cutting corners relative to past practices.

      Examples off the top of my head:

      -Automobile bodies are made of thinner metal than used to be the case, yet automobiles are more durable than ever. The extra metal is superfluous despite the fact that modern cars lack some of the perceived solidity of older vehicles.

      -Cheap hard-disk arrays can be at least as reliable as are expensive, “high reliability” hard disks used singly.

      -An example from my own experience (that I’ve mentioned previously). For an application requiring highly reliable point-to-point Internet service with low latency, shared-loop consumer-grade DSL was too unreliable and a point-to-point dedicated connection was too expensive. However, a combination of two, independently routed (easy to check via tracert) consumer-grade DSL accounts turned out to be adequately reliable at a small fraction of the cost of the dedicated line.

      -Cellphones are unreliable but people almost always use them in conjunction with other communication methods, so the communication system as a whole is fault-tolerant. If your cellphone doesn’t work for voice you can text, and if text doesn’t work you can email or IM. And there’s always the highly reliable landline, formerly the only commonly available system of networked communication, as a backup.

      So there are 1) goods and services that were, to use a metaphor, overbuilt in the old days and that are now produced more efficiently (the car bumper), and 2) goods and services for which it’s more efficient to use the equivalent of a computer RAID than to put all resources into a single, high-quality service point which also becomes the critical point of failure.

      However, I think that you’re probably entirely correct WRT electrical power generation and air travel. My caveat in these cases is to suggest that things may work out OK as long as degradations in centralized service happen gradually and people can adjust their behavior. For example, in my area property developers have started to offer high-end condos built to exceed local codes for windstorm resistance and including backup power generators. I assume that the trend toward increasingly local and personal self-reliance will continue, and I don’t think that this trend is necessarily a bad thing, though I assume that electrical power will become more expensive as you and David Foster have predicted.

      In sum, we appear to be moving from one set of tradeoffs to another. This shift is being driven both by policy errors and unpredictable events (9/11). I agree with Shannon that the risk is not so much the shift itself as it is the possibility of sudden discontinuities during the transition.