Showing posts with label Books. Show all posts
Showing posts with label Books. Show all posts

Wednesday, May 26, 2010

Douglas North Chapter 1

Taking a short break from our review of Professor Langlois. I noticed that a new and interesting book has been published. The book is "Understanding the Process of Economic Change" by Nobel Prize winning economist Professor Douglass North. I took the opportunity to download the first chapter and I highly recommend the entire book, however, at this time we will only be covering this first chapter in our review.

If there is one word to summarize what People, Ideas & Objects is about, it's change. Moving from the bureaucracies that control the industry today. To a newer more innovative footing as represented in identifying and supporting the Joint Operating Committee. Brings about a significant scope of change in the oil and gas marketplace. How this change is implemented is of great concern to me. Making sure this process is focused on the new innovative footing, and not on the bureaucracies needs is a difficult dynamic to manage. Specifically we can't be concerned with the day-to-day of the industry. These day-to-day concerns are for the bureaucracy to manage for the time being. We can not be constrained by the difficulties that constrain the bureaucracy. People need to approach this project with fresh thinking that is free to be as it should be. This unfortunately makes my life infinitely more difficult, however, we are close to securing some funding. And that funding will be from the appropriate resource, the oil and gas investors and shareholders. Selling out to the bureaucrats at this point would be very destructive in terms of ensuring that we are not constrained by the bureaucrats.

We have also been mindful of how individuals approach People, Ideas & Objects. Mindful to ensure that there is a strong break from the day-to-day to ensure they don't bring their cognitive and motivational paradoxes with them from their day jobs. These paradox defined in 1998 by Carroll and Rosson were spelled out in an appendix to the Preliminary Research Report and are noted for the following.

The “motivational paradox” arises from the production bias. That is, users lack the time to learn new applications due to the overwhelming concern for through put. Their work is hampered by this lack of learning, and consequently productivity suffers.
The “cognitive paradox” has its root in the assimilation bias. People tend to apply what they already know in coping with new situations, and can be bound by the irrelevant and misleading similarities between the old and new situations. This can prevent people from learning and applying new and more effective solutions.
In the first paragraph North provides us with an understanding of where we are and the significance of the times at which we live.
UNDERSTANDING economic change including everything from the rise of the Western world to the demise of the Soviet Union requires that we cast a net much broader than purely economic change because it is a result of changes (1) in the quantity and quality of human beings; (2) in the stock of human knowledge particularly as applied to the human command over nature; and (3) in the institutional framework that defines the deliberate incentive structure of a society. A complete theory of economic change would therefore integrate theories of demographic, stock of knowledge, and institutional change. We are far from having good theories of any one of these three, much less of the three together, but we are making progress. The central focus of this study, and the key to improving economic performance, is the deliberate effort of human beings to control their environment. Therefore, priority is given here to institutional change, with the consequent incentive implications for demographic and stock of knowledge changes; but there is no implication that such an approach deals adequately with the latter two. p. 1
Clearly we have much to learn in terms of how best to approach the development of these systems. The other day I noted that we risk becoming blind sleep-walking experts in the hands of whoever wants to feed us. (Habermas) And this is reiterated by North. To "improve the economic performance" of the oil and gas industry requires that we deliberately exert effort to control our environment. I believe, if we continue in the fashion of the bureaucracy, that the world oil production will begin a serious decline in deliverability. Then we will realize, that some of the tasks that we need to occupy ourselves with are beyond those that are parsed out by managements budgets. North details the impact that existing constraints can have.
The structure we impose on our lives to reduce uncertainty is an accumulation of prescriptions and proscriptions together with the artifacts that have evolved as a part of this accumulation. The result is a complex mix of formal and informal constraints. These constraints are imbedded in language, physical artifacts, and beliefs that together define the patterns of human interaction. If our focus is narrowly on economics, then our concern is with scarcity and, hence, competition for resources. The structure of constraints we impose to order that competition shapes the way the game is played. Because various kinds of markets (political as well as economic) have different margins at which competition can be played out, the consequence of the structure we impose will be to determine whether the competitive structure induces increasing economic efficiency or stagnation. Thus well-developed property rights that encourage productivity will increase market efficiency. The evolving structure of political and economic markets is the key to explaining performance. pp. 1 - 2
If well developed property rights that encourage productivity will increase market efficiency, I think People, Ideas & Objects achieves the appropriate institution of those rights. Here I am talking about the Intellectual Property (IP) rights of the people that are associated with this project. I as the copyright holder to the ideas expressed here and in the Draft Specification license those participants in this project with unencumbered use of this IP. In turn, the derivative ideas generated in the development of the applications is essentially sold back to me, where in turn they become available to everyone in the community that has signed the license. This maintains the IP in its pristine condition and is available to all that need it. The license also provides members of the Community of Independent Service Providers with the rights to build a service based offering that is associated with the People, Ideas & Objects software applications.

North provides us with an understanding that we need to be ever vigilant in terms of these concerns.
While the uncertainty that pervades our existence may be reduced by the structure we impose, it is not eliminated. The constraints that we impose have, themselves, uncertain outcomes reflecting both our imperfect understanding of our environment and the equally imperfect nature of both the formal rules and the informal mechanisms we use to enforce those constraints. p. 2
I am unsure at this point if there will be a second post on this chapter. I have downloaded a number of Professor North's papers and we will review those for applicable content. I have also set up a "North" label so these posts can eventually be aggregated.
This book is a study about the ceaseless efforts of humans to gain greater control over their lives and in the course of that effort continually confronting new and novel problems to solve. It is a study of the perceptions that induce institutional innovation intended to reduce uncertainty or convert uncertainty into risk. It is also a study of a continually changing human landscape. This landscape poses new challenges, as a consequence of which policies emanating from “non-rational” explanations frequently play a part in the structures we create. p. 2
Our appeal should be based on these eight "Focused on" priorities and values of how better the oil and gas industry and its operations could be handled. They may not initially be the right way to go, but we are committed to working with the various communities to discover and ensure the right ones are. If your an enlightened producer, an oil and gas director, investor or shareholder, who would be interested in funding these software developments and communities, please follow our Funding Policies & Procedures, and our Hardware Policies & Procedures. If your a government that collects royalties from oil and gas producers, and are concerned about the accuracy of your royalty income, please review our Royalty Policies & Procedures and email me. And if your a potential user of this software, and possibly as a member of the Community of Independent Service Providers, please join us here.

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Thursday, March 04, 2010

McKinsey a Case for Change

McKinsey Consulting have another interview that is topical for the work we are doing here at People, Ideas & Objects. This interview is with Stanford Professor Chip Heath who has written a book called "Switch: How to Change Things When Change Is Hard".

The Preliminary Research Report reviewed Noel Tichy's book "Managing Strategic Change Technical, Political and Cultural Dynamics." Since that time there has been no real discussion on this web log about how change is managed within organizations. Organizational behavior is the difficult work of building support for change and dealing with the psychological aspects of human nature. Which are not my personal forte'. This topic is an area of great concern and of currently little capacity to deal with it. Therefore it is one of the areas that I think the Community of Independent Service Providers can take on and build significant value for the users and producers of People, Ideas & Objects software applications.

Professor Heath documents that we share a disdain for "best practices". He suggests that we incorporate "bright spots" which is a way of highlighting the areas that we are good at.

Chip Heath: Many companies try change themselves by benchmarking other organizations and borrowing their procedures or practices. The irony of benchmarking is that we’re essentially telling organizations to be more like GE or Apple or Nike. As Dev Patnaik, the author of Wired to Care,4 said to me one time, we know this doesn’t work on a personal level: we resist when members of our families say, “Be more like your brother.” The principle of bright spots is that you shouldn’t try to be more like Apple; you should try to be more like yourself at your best moments. Think about what you’ve done in the past, or what you’re doing now, that has worked tremendously well.


I won’t say there’s no value in benchmarking. But if you believe that organizations differ in their cultures, capabilities, and structures, there’s something fundamentally odd about saying that you want to be more like another company that has a very different culture, structure, and set of capabilities. At the very least, the idea of looking to your own bright spots is a useful addition to your tool kit.
Well stated. He also comments about fear as a motivator for change. I noted the sense of urgency in the oil and gas marketplace toward the need for change had diminished since the economy has recovered. That a complacency to make the needed changes was beginning to show.
The Quarterly: What’s your view of the notion that change is easier when you have a “burning platform” from which to motivate it?
Chip Heath: That is one of the silliest pieces of business jargon. The idea of the burning platform is that people only change when they’re scared. But fear, as an emotion, creates tunnel vision. Police officers call this “weapon focus”: crime victims can often give great descriptions of the weapon, but nothing about whether the assailant was tall or short or had facial hair, because they focus on what evoked their fear.
That kind of tunnel vision is devastating in times of change. If you’re doing everything basically right and you just need to improve execution, you can scare people and they’ll execute better and faster. But that’s not true of most change situations, where you need to be doing something new. Fear is the worst motivator here because it makes people work harder at what they did in the past.
Good news to this project. As I note above, my aptitude for organizational change is low. I thought the fear as a motivator was really the only time that people do act. I see now that the financial crisis has shown people what is and isn't working and the need for change in a constructive and positive environment is what we need.

I would direct his final comment to those who need to act. The senior executives of oil and gas firms.
The Quarterly: What messages do you want to leave with senior executives who are seeking to catalyze change?

Chip Heath: Pay attention to creating an emotional case for change, not just an analytical one. Scale up bright-spot successes. And use your power as a top leader to smooth the path to change. Your people are ready to step up to the plate, but if systems or procedures are getting in the way of change, you are the one with the power to eliminate them.
This article reflects the importance of this topic to business. What I see happening is that someone who has the skills and aptitude to apply this knowledge to join the Community of Independent Service Providers (CISP). They could then review the research of Heath, Tichy and others to develop the planning and implementation of the appropriate change management elements. Then provide a comprehensive change management service for the CISP, the developers, users and producers.

March 31, 2010 is the deadline for raising our 2010 operating budget. After which a variety of consequences, such as financial penalties and a loss of one years time will occur. Our appeal should be based on the 21 compelling reasons of how better the oil and gas industry and its operations could be handled. They may not be the right way to go, but we are committed to working with the various communities to discover and ensure the right ones are.

If your an enlightened producer, an oil and gas director, investor or shareholder, who would be interested in funding these software developments and communities, please follow our Funding Policies & Procedures, and our Hardware Policies & Procedures. If your a government that collects royalties from oil and gas producers, and are concerned about the accuracy of your royalty income, please review our Royalty Policies & Procedures and email me. And if your a potential user of this software, and possibly as a member of the Community of Independent Service Providers, please join us here.

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Thursday, September 11, 2008

Professor Robert Shiller

"Shiller Sees Subprime Crisis as Opportunity for Change"

Bloomberg has some of the best PodCasts about the economy. Particularly Tom Keene's "On the Economy" is a must for everyone that participates in the economy. The guests provide the show with depth and analysis that I don't think is available anywhere else. Truly original and informative, make sure you also check out the "Best of On the Economy". This particular PodCast is with Professor Shiller.

Professor Shiller's fame is partly attributable to the S & P / Case - Shiller housing index that is widely quoted today. He is also the Arthur M. Okun Professor of economics at Yale University. (Check out his new book "The Subprime Solution".) What he sees in this current economic malaise is

...an opportunity for change, for fundamental change. Where the financial crisis is a systemic mis-allocation of capital, and we can do better. We want to go forward, we can think creatively.
Obviously he is talking about the sub-prime and housing related issues, but I think in his comments we see the same information that Professor Carlota Perez has been suggesting for the last few years.

Perez has researched the previous economic cycles and has mapped out how the long wave economic cycles impact the day-to-day economy. She has suggested that due to Information & Communication Technologies (ICT) we have a 25 to 30 year economic up-swing ahead of us. In her writings she stated that the .com meltdown was not substantial enough to mark the end of the previous long range cycle. (Autos) Projecting that a housing bubble may be the beginning of the end of the old economic cycle and the commencement of the ICT based economic upswing. A projection she made before 2004.

Perez has also claimed, and is confirming Shiller's assertion, that the financial capital markets should be re-regulated. And she suggests that product capital markets will be the new drivers of value. Anyone looked at Apple's stock recently? Shiller takes this one step further and suggests that our reliance on the Efficient Market Hypothesis is flawed. Neither of these professors is suggesting the end of markets. What they are saying is that it is necessary to have broader regulations to ensure leverage is not enabled again through innovations in the financial marketplace. Both Professors are quick to point out that highly engineered financial innovations are good and necessary, but regulations are needed to stop the over the top leveraging of wealth.

These ideas resonate with me, and as a result Professor Perez' theories have made a substantial contribution to the Draft Specification. But are they right? And here we see the beginnings of the resolution to the decline of the auto phase, and the beginning of the ICT stage in the current productivity numbers.

We are rocking, economically that is. The annual U.S. productivity was revised upwards to 4.3% in the second quarter of 2008. Based on most of the comments on that page it is assumed that this level of productivity growth is due to people being told to do more with less. I think they show that ICT is having a substantial, and predicted, effect on the economy. Perez suggests these "golden age" attributes are systemic through the various economic cycles that she has studied.

In terms of re-regulation Professor Shiller points out the Blueprint that Treasury Secretary Paulson published in March 2008. Therefore all the parts are in place for this golden age to begin and carry us for the 25 - 30 year life.

A lot is happening in the economic world. Opportunities are difficult to focus on, however, I think we have to look beyond the current and looming train wrecks to see where the world is heading. These two Professors help to identify the direction. A direction where People, Ideas & Objects is moving to. If you wish to participate in this development please email me. If you wish to donate please use the PayPal button in the left hand column.

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Friday, July 25, 2008

New Institutional Economics, A Guidebook.

This may become mandatory reading for the users of this software development project. That's all that I can say after I read the table of contents of this book. (Click on the title of this entry to go to the editors website.)  I can't wait until its published. (Some time in August.)  In fact I think I will buy one for each of the users that are signed up for this development.  Just reading the chapters makes me drool. Here is the introduction from the editors website.

Institutions are today recognized as the main drivers of differences of performances among industries, nations, and regions. Thanks to Ronald Coase, Douglas North and Olivier Williamson, New Institutional Economics has been developing a comprehensive and consistent knowledge about the infrastructures required for the performance of an economy. The field is burgeoning with researches on firms’ organizational strategies, the reshaping of industries, the design of markets, alliances and networks to manage innovations, the interplay between private self-regulation and public ordering, the performances of alternative legal systems, the respective role of formal (e.g. legal) and informal (e.g. beliefs, customs) institutions, the design of political and constitutional systems, the management of reforms, development and transition policies, etc.
and
To carry out such a program, multi-disciplinarity stimulates cross-fertilization among political sciences, anthropology, sociology, management sciences, law, and economics. The goal of this book is to provide theoreticians, practitioners and advanced students in economics and social sciences with a guide to reconcile these many developments and better grasp the underlying methodologies. Based on contribution of recognized scholars, it draws a synthesis of the current knowledge and identifies the most relevant questions to be explored.
Kind of makes you feel we are on to something here.

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Friday, July 11, 2008

Profit from the Peak.

The end of the oil game and the greatest investment event of the century.

Profit from the Peak is a book that I've been wanting to review for a while. An interesting premise is suggested in the sub-title. From some of the blogs that I follow it sounded like it may provide for an interesting read.

A little background on myself. With over 25 years of experience in the oil and gas industry I could see this "Peak Oil" energy train wreck starting. In August 2003 I came up with an idea on how to solve it. And in September 2003 started the research into using the oil and gas industry standard JOC (Joint Operating Committee) as the key organizational construct of the innovative oil and gas producer. If we moved the compliance and governance that the hierarchy managed, with the legal, financial, operational decision making and cultural frameworks of the JOC. We would achieve an alignment in all five frameworks that would enable the science and engineering needs of the industry to be the focus, and mitigate the effects of Peak Oil.

What does this mean. As most people know oil and gas is made up of partnerships between companies. This is to reduce the risks inherent in the business, and because the aerial extent of many of the properties, multiple owners work together. Since its beginning this has been the culture of the industry. And as one can imagine their are legal documents, financial distributions and operational decisions made with the input of the producers in the JOC. What isn't done is the competition to this software development project, SAP, Oracle and Qbyte, haven't a clue what a JOC is. Their focus is on the compliance and governance and therefore only provide the producer with at best 20% of the functionality.

The other major finding that I published was the software defines and supports the organization. Noting that SAP is the bureaucracy. To change an organization, one must first change the software. If we want innovative oil and gas producers, we need to build the software first. Or be relegated to manual systems. So this is what I have written about since the publication of my research in May 2004 and the posts in this blog. But enough about me lets review this book.

The first point I want to make is based on the following quotation in the Introduction and its associated implications. And regarding this graph entitled "Worldwide Oil Production".

For the past 50 years, we have explored the entire earth intensively looking for more oil. But despite the latest technology and the most elaborate efforts, global oil discovery peaked in 1962 and has declined relentlessly ever since. Generally we are finding less and less oil each year, and for the past 25 years, we have consumed more oil than we have found. In 2006 we found about 6 billion barrels of oil, but we consumed 28 billion, and the trends continue in the direction of increasing demand and decreasing supply. pp xvi - xvii
Although Peak Oil accurately captures where I think we may be in the history of the industry. My opinion is that we have established a high water mark that may be permanent. The graph clearly shows the discoveries peaked in 1962 and have declined since that time.

My question to the authors and everyone interested in this topic. Does this graph mean all the oil was discovered by 1962? Or did the industry stop looking for more oil after 1962. Now this is not an accusation that they purposely stopped exploring. But consider the world had an abundant volume of energy. Prices were in the very low single digits, and the need to "develop" these resources became the focus. This situation was followed by the 1980's and 1990's where low oil prices were causing no end of greif to the producers. The industry more or less cannibalized itself to survive over those two decades. To say that technologies in 1965 discovered all of the oil is an assumption that the Peak Oil theorists may have incorrectly assumed. Based on my current understanding of the oil and gas industry. And the process necessary to explore for oil and gas. The industry generally doesn't have a clue on what exploration is. The generation of oil and gas workers that started in the 1980's and 1990's never experienced an exploration mindset.

The next incorrect assumption of the authors is stated on page 4 of the book.
"Matthew Simmons, the top oil investment banker in the world" p. 4
Now I have read Matthew Simmons for many years and overall he is correct in many things that he states. However he is the worlds top investment banker in the oil and gas services industries. Based on Mr. Simmons comments about the need to publish the worlds reserves data. So that it can be pointed to as the gospel truth of the Peak Oil situation, unfortunately disqualifies himself from making any comments about reserves.

I have now worked in the industry for over 30 years and have gone through the accounting, audit and systems areas extensively. I have been a CFO of small producers and I have looked at my fair share of reserves reports. I can't tell you if the reserves are the greatest thing since Ghawar, or the latest scam. Looking at reserves reports is the same at looking at art. Why would someone pay that much for those reserves, or art, reflect the beauty is in the eye of the beholder. And indeed oil lives in the minds of oilmen.

The same criticism can be leveled against Dr. Daniel Yergin. He claims he and his 220 PhD's on staff have the best global oil and gas reserve data. This prompted him to make the claim in 2005 that "the world would soon see an unprecedented increase of 16 million barrels of oil". If I were you I would dig out some of those paintings your kids made in elementary school, I think I see a market for them.

Some minor criticisms as to the accuracy of some of the claims made in the book. On page 42 of the book it is claimed that "hydrogen sulphide (sour gas)" is in injected into oil formations. H2S is one of the most toxic substances known to man. One breath of it and your dead, instantly. I'm sure the safety concerns of injecting H2S are adequate to assure that no one is doing it.

Enough criticism of this book now lets get on to many of the jewels. On page 49 "Its as though the adults of the oil industry have been forced to sit and watch as the children take control." In reference to the industry being knocked aside by the National Oil Companies (NOC's) desire for control. I can't agree more with that statement, and I'll comment on this later in the review.

On page 67 the authors suggest "Essentially, it looks as though oil majors are running a shell game here, no pun intended. The question is: When will investors figure it out?" They have hit the pile driver on the pile with this one. As I have mentioned many times the management of the producers are acting in their best interests, not the investors or societies in general, with their muddling attitude toward the energy business. One has to take a jaded look at the stock options that are being distributed in many of these companies.

The first knock your socks off comment that is made by the authors, and I have not seen anything like this analysis before, but intuitively believed it to be so. And is the underlying reason why I blame the companies for the risks we now face. Is reflected in this quote;
"A strong man, working hard all day long, can do less work than an electric motor can with 10 cents worth of electricity." and "A barrel of oil contains the equivalent of 18,000 man hours of energy." p. 72
If the fact that the physical labor equivalent of energy is now static or declining doesn't scare you, then you must be a different type of animal. It was in 1870 when mechanical leverage exceeded the labor output of man. The reason we live in such a prosperous world is the fact that we have figured out how to mechanically leverage one barrel of oil so extensively. This however does not mean that we should consume most of it by hurtling a 4,000 lb. vehicle down the highway at 60 miles / hour. I'll have more to say on this point later.

I am not a believer in the scare tactics of the Al Gore's et al. To me climate change is real when the news of the day has video reflecting strange weather occurrences we only ever heard of before. Much in the way that the world thought the Japanese economy would rule the world in the 1980's; when the majority of people saw the world through a Japanese TV. Turn off the TV and go outside, notice any change? Nonetheless, that should not preclude us from coming up with solutions. The authors ring the bell with this next set of suggestions.
"The ultimate culprit is the American consumer culture that is responsible for most consumption in the world. At the end of the day, the culture of consumption must change." p. 88
and
"To heavily invest U.S. tax dollars in renewable energy production in China. Why? Because the Chinese have a chance to build their burgeoning economy on renewables from the beginning." p. 92
Brilliant! Although I would suggest not just the U.S. but the western world should subsidize renewable energy production in China. Not only does it limit the production of the highest levels of CO2 (China), but provides immediate value (reduction in CO2). Changing the western worlds infrastructure is not going to happen as quickly. These two authors should win an Academy Award and a Nobel Prize each for these comments. Its this out of the box type of thinking that we need a lot more of, if there is a climate change problem.

One of the key characteristics of this book is its focus on the facts. When it comes to the renewables, I find the activities in the U.S. so focused on keeping people in their cars that they can't see or think straight. Here the authors note that the value generated by ethanol is approximately equivalent to the inputs of oil. Therefore if the U.S. stopped producing ethanol. People would be able to afford food and a bunch of bureaucrats in Washington would lose their jobs. That's it, you'd have just as much energy. The facts are clear this is a foolish and dangerous game.

I have suggested in my blog many times that the oil and gas industry is in need of a desperate transition. One in which the survival and cannibalizing of the industry in the 1980's and 1990's be replaced by an exploration mindset that hasn't existed since 1962. A move to a science based industry and away from the banking mentality that pervades the incumbent management. The reason this hasn't happened is as I suggest. An organization today that doesn't have the software systems in place to make the transition, will be reduced to manual systems. Something that I know the incumbent management readily appreciate. I have also suggested many times that the investors will need to fund this software development project to ensure that there is an alternative method for them to manage their oil and gas assets.

This transition is necessary and time is wasting. What the industry did learn in the 1980's and 1990's was how to draw down the reserves of a field much quicker then they did in the 1960's. So not only are we not exploring, we don't know how to explore, can't get organized to explore, and, the past exploitation methods are the proverbial brick wall we are about to crash into.

I therefore disregard the comments of the authors made in chapter 6 "Twilight for Fossil Fuels" and suggest that oil lives in the minds of oilmen. On page 120 they note;
Ironically, one of the causes of the receding horizons problems is the very success of the oil and gas industry. Record oil revenues being raked in by oil producing countries of the Middle East are causing a boom in building and expanding their infrastructure.
Imputing, I think correctly, that the U.S. based oil and gas industry has not been welcome in the Middle East, Russia and China. I think it was reflected clearly around the time that Halliburton moved their head office from the U.S. to the Middle East. But was this transition away from western based capabilities a mistake? I believe it was. Since then the industry has had their head stuck in tar. The tar sands I mean. Their herd mentality is noted by the authors.
"In some cases the price of oil itself is stifling oil projects. For example, at Shell's Alberta oil sands project, the cost of producing a barrel of oil, after a planned 100,000 bpd expansion, will be six times higher than the cost when the project first started." and "Depending on a host of factors, the total net energy gain for tar sands production is in the range of 5 - 10 percent." p. 121
But hell, it is seen as the thing to do.

I think the energy executive, if that's not an oxymoron, is beginning to wake up to a brighter future. I note the following from Thursday July 10th's news. The Calgary Herald on Russia's changing attitudes towards western technology. ASPO International notes BP CEO Tony Hayward stating "He said the problem was a failure of supply growth to match demand growth." "Pemex oil output fell by 10% in May." And Total pulling out of Iran due to their fireworks.

The Russians are considering tax incentives for the western based companies! Is this an admission that the western technologies are superior? Russian production certainly leaped when they were invited in, now with Shell and BP more or less financially abused by the Russians the production declines. With Mexican production in steep decline it is fair to assume that the world could benefit from more western based producers and service industries. Iran wasn't expecting to be on the losing side of their missile launches, but western technology walked on a critical investment in Iran.

I would recommend this book to any and all oil consumers where ever you may be. It provides an understanding of the industry and its difficulties. But also educates them to use energy more wisely. In a globalized world we need everything that we can think of. If Ludwig von Mises correctly noted that the industrial revolution was the solution to hunger and over population, IT needs to be the solution to today's problems. Albert Einstein said, that today's problems are not solved by today's thinking. These authors give you the facts so that new thinking can begin to address these problems. I personally think that IT and Segway's are two of the real solutions.

On the topic of alternatives the book provides excellent information about the changing economics of some alternatives. On page 137 they note;
The portion provided by solar and wind energy -- what most people think of when they think about renewable energy -- is a fraction of 1 percent of the total mix.
And bio-diesel has the potential of producing;
400 million gallons a year of bio-diesel. p. 143
Or 26,000 barrels / day. We've probably wasted more energy thinking and talking about bio-diesel then it will ever produce. There are three good alternative energy sources noted in this book. Unfortunately none of these alternatives has the ability to propel a 4,000 pound vehicle down the road at 60 miles / hour. But they are commercial, have huge potential and as the authors note, companies are making money.

Chapter 9 Endless Energy: "Here comes the sun." Starts with a quotation of Thomas Edison "I hope we don't have to wait till oil and coal run out before we tackle that." The future is solar, but the issues are daunting and much research should be put into the field.
The price of solar power has fallen to less than 4 percent of what it was in the 1970's. It is already economically competitive in states where electricity is expensive, including Hawaii, Massachusetts, and New York, and states with good solar exposure and lots of land, like California, Nevada, and Arizona. p. 156
The entire chapter provides the comprehensive review of the solar industry with some very good recommendations on how to get in on the ground floor of this industry. Making Chapter 9 a must read for everyone who lives in a house.

The same can be said about Chapter 10 "Pressure Cooker: Tapping the Earth's Heat" on geothermal energy. And Chapter 11 "Nuclear's Second Act". Nuclear, solar and geothermal energy are now commercial, clean and available to be used in areas where gas and coal are used today. An opportunity to replace the electricity produced from gas and coal and leave those commodities to support industrial mechanized labor, or the 18,000 man hours per barrel.

Chapter 12 "What's Needed: A Manhatten Project for Energy. President Bush is quoted as saying "we need an energy bill that encourages consumption." and Vice President Dick Cheney "Conservation may be a sign of personal virtue but it is not a sufficient basis for a sound, comprehensive energy policy." Then the authors note the result of big government science based programs.
While both projects were famous for unprecedented technical achievements -- the Manhattan Project cracked the secret of the atomic bomb, and the Apollo Project put a man on the moon -- we need to do more than come up with new technology to solve the problems we now face. We also need to rethink and remake our entire infrastructure, our economies, and even our culture. p. 180
A Manhattan Project will only boost the bureaucrats in Washington. This is a global problem. As a part time wanna be economist, I would suggest the market price mechanism is motivating the forces necessary to solve this problem. There was no market for the Manhattan or Apollo projects, I suggest we leave these energy problems to the market to solve.

I therefore disagree with the authors on their call for a Manhattan styled project. And fundamentally agree with the President and Vice-President. If 18,000 man hours of effort are contained in each barrel of oil, then we should encourage its use at any cost. Its a competitive advantage to those who use it most effectively, which happens to be the U.S. The alternative is to hire 18,000 people to do the work of one barrel. Therefore the President and Vice President are absolutely correct.

If we look at the numbers of the oil dollars flowing to the Middle East we will be distracted into believing that we should reduce our consumption. I suggest we start using our heads here and employ the Information Technologies and stop waisting the energy hurtling vehicles down the road at 60 miles an hour. I repeat get a Segway as a supplement to your vehicle. Use it for the short trips (24 mile range on most models) and cut your costs substantially. (Segway's cost less then $1.00 of electricity for that 24 miles). Secondly the Segway runs at 12.5 mph which is 4 mph faster then a car stuck in grid-lock. I repeat, IT and the Segway are the solutions to the problems of today.

On page 193 Carbon Taxes and Cap-and-Trade Systems are introduced by the book;
Carbon taxes are probably the simplest, most effective, and least economically damaging option, because they let the market decide what the best solutions are.
July 11, 2008 the Wall Street Journal wrote an article entitled "Kyoto's Long Goodbye" which addresses these mechanisms silly and wasteful ideas.

The irony is that Kyoto has handed them every reason not to participate. Europe knew all along that it couldn't meet its quotas, so it created an out in "offsets." A British factory, say, buys a credit to pay for basic efficiency improvements in a Chinese coal plant, like installing smokestack scrubbers. This is a tax on the Brits to make Chinese industries more competitive. Sweet deal if you can get it.
and

It gets worse. The offsets are routed through a U.N. bureaucracy that makes them far more valuable in Europe than the cost of the actual efficiency improvements. So far, Kyoto-world has paid more than €4.7 billion to eliminate an obscure greenhouse gas called HFC-23; the necessary incinerators cost less than €100 million. Most of the difference in such schemes goes to the foreign government, such as China's communist regime.
Lets not chase any bunny trails that lead us down this ridiculous waste of money and energy. Recall that Al Gore hasn't reduced his personal large "carbon footprint", he just offsets his abundant use of energy with these bureaucratic Cap-and-Trade Systems. Enough said?

Gasoline taxes are are also recommended as deterrents to people using too much energy.
Most observers agree that the best, and possibly the only, way to achieve a reduction in the amount of oil used in this country is through the price mechanism, particularly in transportation fuels. It seems a pinch in the pocketbook is necessary to make consumers drive less.
It is well known that the U.S. has the lowest taxes on gasoline in the western world. This is the motivation in the authors desire to raise more taxes. I would assert this is the wrong direction on two fronts. Increasing the cost of fuel will impede the productivity of the U.S. economy. Taxes at high levels, such as in Europe certainly deter driving, however, the U.S. out performs Europe by a substantial margin. This is why China chooses to subsidize the use of fuel in their economy. At 18,000 man hours per barrel, the lowest cost producer will ultimately win. That is China in the developing world and the U.S. in the western world. For example France currently has a per capita GDP that is lower then Mississippi's, the poorest state of the union.

It seems the authors are on the other side of the political fence in terms of how and where the solution to these problems will come from. Thankfully they debunk the Hydrogen fuel source as an alternative. Through their calculations they show that Hydrogen requires 5 energy inputs for each energy output. Not a smart direction to turn. What the authors don't mention is the cost of building an appropriate delivery system that can scale to what gasoline is now distributed as. Hydrogen requires stainless steel in all of its pipelines, tanks everything that it touches. And the cost of that is beyond what we are able to calculate with modern computers.

But then again, maybe the authors and I are not so far off in our expectations. On page 239 under the heading "Never Sell Short Humanity" the authors note;
And that's the true moral of the story: Every crisis -- no matter how dismal it looks -- contains the blueprints for its own solution.
And with that I highly recommend this book. For the average consumer, little is known about the complexity and difficulty in bringing the abundant and valuable energy resources to their door, and place of work. This fact-based book refutes many myths on its own and I have pointed out some of where I think they may be a little short. Given the price of the commodities today. And given the volume of words that are being consumed by the energy issues. The solutions will soon be at hand and society as a whole will be able to profit from the peak.

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Wednesday, December 13, 2006

Some books I like.

104 Titles of some of the best books that I found.

The Strategy of Conflict
Thomas C. Schelling

Classical and nonclassical logics : an introduction to the mathematics of propositions
Schechter, Eric, 1950-

Winning at collaboration commerce : the next competitive advantage
Collins, Heidi.; Gordon, Cindy.; Terra, Jose Claudio Cyrineu.
August 23, 2005

Computational Economics
David A. Kendrick, P. Ruben Mercado, Hans M. Amman
December 15, 2005

The Constitution of Society: Outline of the Theory of Structuration
Anthony Giddens
January 11, 1986

Execution: The Discipline of Getting Things Done
Larry Bossidy, Ram Charan, Charles Burck
June 15, 2002

Extreme Competition: Innovation And the Great 21st Century Business Reformation
Peter Fingar
January 31, 2006

The fast forward MBA in project management
Verzuh, Eric.

Freakonomics : a rogue economist explores the hidden side of everything
Levitt, Steven D.; Dubner, Stephen J.

The Future of Work: How the New Order of Business Will Shape Your Organization, Your Management Style and Your Life
Thomas W. Malone
April 2, 2004

Genome
Matt Ridley
October 3, 2000

Happy Lives and the Highest Good : An Essay on Aristotle's "Nicomachean Ethics"
Gabriel Richardson Lear
January 5, 2004

Human accomplishment : the pursuit of excellence in the arts and sciences, 800 BC to 1950
Murray, Charles A.

Ideas Have Consequences
Richard M. Weaver
September 15, 1984

Income Distribution in Macroeconomic Models
Giuseppe Bertola, Reto Foellmi, Josef Zweimuller
December 1, 2005

Innovation, Organization and Economic Dynamics: Selected Essays
Giovanni Dosi
September 23, 2001

It's About Time : Understanding Einstein's Relativity
N. David Mermin
November 1, 2005

The Java programming language
Arnold, Ken, 1958-; Gosling, James.; Holmes, David (David Colin)

Java: An Eventful Approach
Kim Bruce, Andrea Danyluk, Thomas Murtagh
July 29, 2005

Leading with questions : how leaders find the right solutions by knowing what to ask
Marquardt, Michael J.

Learning the bash Shell
Newham, Cameron.; Rosenblatt, Bill.

Lecture Notes in Microeconomic Theory : The Economic Agent
Ariel Rubinstein
December 16, 2005

Max Plus at work : modeling and analysis of synchronized systems : a course on Max-Plus algebra and its applications
Heidergott, Bernd.; Olsder, Geert Jan.; Woude, J. W. van der.

On Adam Smith's Wealth of nations : a philosophical companion
Fleischacker, Samuel.

The only sustainable edge : why business strategy depends on productive friction and dynamic specialization
Hagel, John.; Brown, John Seely.

Philosophy as a Humanistic Discipline
Bernard Williams, A. W. Moore
January 2, 2006

Politics and Vision : Continuity and Innovation in Western Political Thought
Sheldon S. Wolin
May 3, 2004

The Politics of Good Intentions : History, Fear and Hypocrisy in the New World Order
David Runciman
May 5, 2006

Producing security : multinational corporations, globalization, and the changing calculus of conflict
Brooks, Stephen G., 1971-

Radical evolution : the promise and peril of enhancing our minds, our bodies--and what it means to be human
Garreau, Joel.

The Singularity Is Near : When Humans Transcend Biology
Ray Kurzweil
September 22, 2005

The State of Democratic Theory
Ian Shapiro
August 18, 2003

The Strategy of Conflict
Thomas C. Schelling
June 26, 2003

The Success of Open Source
Steve Weber

Swarm creativity : competitive advantage through collaborative innovation networks
Gloor, Peter A. (Peter Andreas), 1961-

The Theory of Corporate Finance
Jean Tirole
December 15, 2005

Understanding institutional diversity
Ostrom, Elinor.

The West's last chance : will we win the clash of civilizations?
Blankley, Tony.

Wicked cool Java : code bits, open-source libraries, and project ideas
Eubanks, Brian D.

Winning at collaboration commerce : the next competitive advantage
Collins, Heidi.; Gordon, Cindy.; Terra, Jos©♭ Cl©Łudio Cyrineu.

Winning the Knowledge Transfer Race
Michael J. English, William H. Baker
October 25, 2005

The World Is Flat: A Brief History of the Twenty-first Century
Thomas L. Friedman
April 5, 2005

Infrastructure: A Field Guide to the Industrial Landscape
Brian Hayes
September 26, 2005

It's Not What You Say...It's What You Do: How Following Through at Every Level Can Make or Break Your Company
Laurence Houghton, Laurence Haughton
December 28, 2004

Knowledge Accumulation and Industry Evolution : The Case of Pharma-Biotech
Mariana Mazzucato, Giovanni Dosi
March 9, 2006

The Nature and Dynamics of Organizational Capabilities
Giovanni Dosi, Richard R. Nelson, Sidney G. Winter
January 15, 2001

Technology, Organization, and Competitiveness : Perspectives on Industrial and Corporate Change
Giovanni Dosi, David J. Teece, Josef Chytry
May 21, 1998

Technology and Enterprise in Historical Perspective
Giovanni Dosi, Renato Giannetti, Pier Angelo Toninelli
August 1, 1992

The Economics of Technical Change and International Trade
Giovanni Dosi, Keith Pavitt, Luc Soete
March 23, 1991

Technical Change and Economic Theory (Ifias Research Series, Number 6)
Giovanni Dosi
October 23, 1990

Technical Change and Industrial Transformation
Giovanni Dosi
August 23, 1984

Technical change and survival: Europe's semiconductor industry (Industrial adjustment and policy)
Giovanni Dosi
February 23, 1981

Sisomo: The Future on Screen
Kevin Roberts
November 15, 2005

An Army of Davids : How Markets and Technology Empower Ordinary People to Beat Big Media, Big Government, and Other Goliaths
Glenn Reynolds
March 7, 2006

The Prepared Mind of a Leader : Eight Skills Leaders Use to Innovate, Make Decisions, and Solve Problems
Bill Welter, Jean Egmon
October 24, 2005

License to Harass : Law, Hierarchy, and Offensive Public Speech (The Cultural Lives of Law)
Laura Beth Nielsen
August 30, 2004

Plato's Fable : On the Mortal Condition in Shadowy Times (New Forum Books)
Joshua Mitchell
March 3, 2006

China the Balance Sheet: What the World Needs to Know about the Emerging Superpower
Institute for International Economics, Center for Strategic & International Stu
April 10, 2006

A Machine to Make a Future : Biotech Chronicles
Paul Rabinow, Talia Dan-Cohen
April 7, 2006

Dynamic Models in Biology
Stephen P. Ellner, John Guckenheimer
March 31, 2006

Information Science
David G. Luenberger
February 15, 2006

Information Revolution : Using the Information Evolution Model to Grow Your Business
Jim Davis, Gloria E. Miller, Allan Russell
January 9, 2006

Managing in the Next Society
Peter F. Drucker
July 24, 2002

The Long Tail : Why the Future of Business Is Selling Less of More
Chris Anderson
July 11, 2006

A New Kind of Science
Stephen Wolfram
May 14, 2002

The Second Cycle: Winning the War Against Bureaucracy
Lars Kolind
April 24, 2006

Competing on the Edge : Strategy as Structured Chaos
Shona L. Brown, Kathleen M. Eisenhardt
April 15, 1998

The Innovation Killer: How What We Know Limits What We Can Imagine... And What Smart Companies Are Doing About It
Cynthia Barton Rabe
June 30, 2006

A Whole New Mind: Moving from the Information Age to the Conceptual Age
Daniel H. Pink
March 24, 2005

Schumpeter on the Economics of Innovation And the Development of Capitalism
Arnold Heertje, Jan Middendorp
March 24, 2006

Infrastructure: A Field Guide to the Industrial Landscape
Brian Hayes
September 18, 2006

Choice and Consequence
Thomas C. Schelling
April 4, 2006

Micromotives and Macrobehavior (Fels Lectures on Public Policy Analysis)
Thomas C. Schelling
October 23, 1978

Technological Revolutions and Financial Capital: The Dynamics of Bubbles and Golden Ages
Carlota Perez
April 23, 2003

Innovation, Organization and Economic Dynamics: Selected Essays
Giovanni Dosi
September 23, 2001

Evolutionary Economics and Creative Destruction (Graz Schumpeter Lectures, 1)
J. Metcalfe
January 28, 1998

Knowledge, Institutions and Evolution in Economics (The Graz Schumpeter Lectures)
Brian Loasby
September 23, 2002

Schumpeter and the Endogeneity of Technology : Some American Perspectives
N. Rosenberg
June 23, 2000

Joseph Alois Schumpeter
Wolfgang F. Stolper
August 8, 1994

Democracy, Education, and Equality: Graz-Schumpeter Lectures (Econometric Society Monographs)
John E. Roemer
January 9, 2006

Invisible Engines: How Software Platforms Drive Innovation and Transform Industries
David S. Evans, Andrei Hagiu, Richard Schmalensee
October 1, 2006

Twilight in the Desert: The Coming Saudi Oil Shock and the World Economy
Matthew R. Simmons
June 10, 2005

iWoz: From Computer Geek to Cult Icon: How I Invented the Personal Computer, Co-Founded Apple, and Had Fun Doing It
Steve Wozniak, Gina Smith
September 25, 2006

Mavericks at Work: Why the Most Original Minds in Business Win
William C. Taylor, Polly G. LaBarre
October 2, 2006

America Alone: The End of the World as We Know It
Mark Steyn
September 16, 2006

Power, Speed, and Form: Engineers and the Making of the Twentieth Century
David P. Billington, David P. Billington Jr.
October 2, 2006

Painting outside the Lines: Patterns of Creativity in Modern Art
David W. Galenson
January 18, 2002

Old Masters and Young Geniuses: The Two Life Cycles of Artistic Creativity
David W. Galenson
December 27, 2005

Capitalism and Freedom: Fortieth Anniversary Edition
Milton Friedman
November 15, 2002

The Road to Serfdom Fiftieth Anniversary Edition
F. A. Hayek, Milton Friedman
October 15, 1994

The Constitution of Liberty
F. A. Hayek
October 15, 1978

Law, Legislation and Liberty, Volume 1: Rules and Order
F. A. Hayek
February 15, 1978

Law, Legislation and Liberty, Volume 2: The Mirage of Social Justice
F. A. Hayek
October 15, 1978

Law, Legislation and Liberty, Volume 3: The Political Order of a Free People
F. A. Hayek
March 15, 1981

Individualism and Economic Order
F. A. Hayek
June 1, 1996

Capitalism and Freedom: Fortieth Anniversary Edition
Milton Friedman
November 15, 2002

Free to Choose: A Personal Statement
Milton Friedman, Rose Friedman
November 18, 1990

A New Kind of Science
Stephen Wolfram
May 14, 2002

The Emotion Machine: Commonsense Thinking, Artificial Intelligence, and the Future of the Human Mind
Marvin Minsky
November 7, 2006

Organizations,
James G. March
June 5, 1958

Lectures on Economic Growth
Robert E., Jr. Lucas
February 15, 2002

The Attention Economy : Understanding the New Currency of Business
Thomas H. Davenport, John C. Beck
June 6, 2001

Change or Die: How to Transform Your Organization from the Inside Out
M. David Dealy, Andrew R. Thomas
November 30, 2005

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