Category Archives: economics

Hydrogen storage


Sabine Hossenfelder
produced an excellent video about renewable energy storage to mitigate the unreliability of sun and wind.

Hydrogen storage being cheap should be explored more. The biggest problem with hydrogen is the danger of storing it as pressurized gas, which requires significant volume and strong materials. The hazard to be mitigated is fire that causes a powerful explosion of expanding gas under high pressure.

The solution to hydrogen storage is metal hydride, which would provide higher density storage than even pressurized gas. Another benefit of metal hydrides in the form of powder or tiny beads is that they are stable at atmospheric temperatures and pressures, they are easily transportable, they are easily stored in small tanks of vehicles, and safe even if the tank is damaged by vehicular collision. Therefore, it is foreseeable that metal hydrides (hydrogen fueled internal combustion engine) would be a viable alternative to gasoline and diesel fueled ICEs in today’s vehicles, especially given that the exhaust from combusting hydrogen is water vapor.

The next problem to solve would be to develop a metal hydride ecosystem, so that the life cycle of “charging” them with hydrogen to fill a vehicle, and then returning spent fuel to the fueling station to “recharge” is as convenient as gasoline/diesel filling stations. We can imagine this being solvable, because it is analogous to refining petroleum and delivering refined fuel to the fueling stations, except with the added return path of the spent fuel back to the refinery (hydrogen production facility, where solar/wind/nuclear power is converted to H) to “recharge”.

I’m a proponent of thorium molten salt reactors (MSR), such as LFTR, for producing electricity. Combining modern (passively safe) and reliable nuclear power generation with hydrogen production (using electrical power to split water molecules) and storing hydrogen in a metal hydride seems to me to be a good long-term solution to replacing gasoline and diesel fuels for transportation.

Digital Economy of Social Cohesion

Web2 is described by Britannica as:

the post-dotcom bubble World Wide Web with its emphasis on social networking, content generated by users, and cloud computing from that which came before.

This era of the Internet has culminated in the concentration of economic power in a few of the largest corporations, a phenomenon that is termed Big Tech. Facebook (Meta), Amazon, Apple, Netflix, Google (Alphabet) are known as FAANG, the dominant Big Tech players. Centralization of control and concentration of power go hand in hand.

The digital economy that has emerged from Web2 is based on either extracting fees from users, as Netflix does with subscriptions and Amazon does with Prime, extracting profits from selling goods as Amazon and Apple do, or selling ads as Facebook and Google do. In each case, the business model relies on positioning the Big Tech company as the dominant supplier in the supply chain. If you produce movies, you have to go through Netflix to reach your audience. If you produce goods, you have to go through Amazon to sell to your customers. If you produce iPhone apps, you have to go through Apple’s App Store to offer apps to users. If you want to advertise, you have to go through Facebook and Google to reach your audience. In every case, Big Tech is an intermediary that gets rich as the middleman.

One feature of Web3 is the incorporation of digital currencies (crypto). This would disintermediate payments by potentially eliminating banks, credit card companies, and payment processors. The payer and the payee would transfer funds directly with a transaction on a blockchain, which itself has no controlling entity and is therefore decentralized (assuming we are talking about Bitcoin, not some shitcoin). Financial transactions paid in crypto require no middlemen. Digital transactions have concentrated power into Big Tech because integration with the fiat financial system is expensive and subject to onerous regulation.

Integrating a crypto payment protocol natively into the Web is a game changer. Not only would it begin to decouple commerce from the fiat financial system, it should also begin to alter the relationship that users have with service providers and each other. Fiat payment processors impose an asymmetric relationship between participants: merchant and consumer. Crypto eliminates that asymmetry by enabling anyone to send funds to anyone with an address who can receive them.

Google and Facebook have thrived on advertising dollars because of the asymmetrical relationship imposed by the fiat payment system. The Social Dilemma is a Netflix documentary that explains how the ad revenue model provides social media companies perverse incentives to design systems that encourage harmful behavior among the user base. Engagement becomes divisive. Information bubbles form. Users become addicted to dopamine hits. All to lure more eye balls and clicks so that advertisers can be charged for more impressions and conversions. Users hate seeing ads, but it is the price they pay to receive free services, as their engagement is monetized. The users become the product that is sold to advertisers.

How does eliminating fiat asymmetry fix this? Users on social media are content creators. Their opinions are an organic source of reviews, endorsements, and complaints. Every day the most compelling content goes viral because the audience is won over and engages enthusiastically. What if a decentralized social media platform, instead of directing advertising dollars to Big Tech, rewarded users for content creation and promotion? Users could be paid to post quality content with their compensation being proportional to the positive engagement they receive from others. This could be achieved through tips from the audience and from promotion fees charged for boosting content. The key is rewarding users for positive contributions. This institutes an incentive structure that increases personal fulfillment and social cohesion. This is what we want to enable with Web3.

Risk-Reward of Entrepreneurship

Entrepreneurship is characterized by willingness to take on higher-than-normal risk in pursuit of outsized reward. To achieve outsized rewards, one must be willing to accept higher risks, because risk and reward are proportional. Success comes from skilled assessment of what risks are worth taking for the rewards that can be earned with respect to capital accumulation (growing the business), production capacity, revenues, profits, market share, innovation (bringing superior products and services to the market), and customer satisfaction (making a positive difference to society).

Start-ups pursuing highly uncertain goals on the frontier of human innovation are at the extreme end of the risk-reward spectrum. Near-certain failure is assumed by outsiders. Most people believe the pursuit to be impossible. Only the entrepreneur has the vision and courage that are uniquely exceptional to overcome the status quo. The culture of a start-up is defiant, contrarian, and non-conformist.

A start-up’s market is initially non-existent because demand follows supply. Supply is zero until the product is produced and its value can be demonstrated to consumers. People could not have imagined the product until the invention brought it into reality. Invention creates a market, where none existed before. Before the automobile was invented, the market for transportation could only imagine a stronger, faster horse. Once an automobile could be supplied, consumers demanded it.

Contrast a start-up with an established corporation. An established corporation has mature processes, regimented procedures, and formalized governance. Standards, guidelines, and best practices are enforced through reviews and approvals for compliance. The intent is to reduce and mitigate risks: financial risk, schedule risk, technical risk, security risk, and market risk. Knowing what has proven to work, it is imperative to institutionalize delivering quality reliably and consistently to engender trust with customers and shareholders. The culture of an incumbent is compliant, conformist, and standard-bearing.

Entrepreneurship often involves recognizing that what has worked for the incumbents can be revolutionized. Processes can be more efficient. Labor can be automated. Products can be better designed or entirely obsoleted by the next generation of technology. Business models including the relationship with customers can be changed (i.e., a perpetual license can be replaced by a subscription). The goal is to win sales from customers by having a competitive advantage. Entrepreneurs seek to disrupt the market for existing incumbents.

Incumbents are intent on protecting their market position. Risk is ever-present that a competitor may win out. New up-starts entering the market are disruptive to the market. There is the risk that an established business can be made obsolete. Obsolescence is almost inevitable, as we are continually advancing to improve quality of life. Danger exists for incumbents who stubbornly cling to their established ways, eschewing novel innovations that are causing the industry to evolve. Incumbents may even resort to erecting barriers to entry through lobbying and regulatory capture. But the relentless march of progress never stops.

There is an uncomfortable tension between maturity (protecting what is proven to work) and novelty (inventing better ways of working). Culturally, it is very difficult for an incumbent to build disruptive technology that threatens its own business, even though it knows this kind of disruption is necessary to make a better future. This clash in cultures is usually overcome by entrepreneurs building start-ups, which are unencumbered by the status quo. The freedom to explore disruptive innovations allows a start-up to break all the old rules and ignore every self-imposed constraint that would hold back an incumbent from going against its established know-how. An incumbent’s financial strength allows it to forego risky experimentation, which is prone to failure, and watch the landscape for successful start-ups that can be acquired before they grow to become a competitive threat. In so doing, an incumbent gets the best of both worlds. It can protect its market position while also benefiting from risky bets taken by entrepreneurs that prove successful.

When an incumbent acquires a start-up to absorb successful innovations the clash in cultures becomes apparent. There is a desire to incorporate the smaller start-up into the larger incumbent’s organizations, and subject them to mature policies, processes, and procedures. Often, what is discarded are what made it possible for the start-up to be entrepreneurially successful: the freedom to be agile, rule-breaking, disruptive, and anti-establishment. The incumbent usually incorporates innovative technology but resists incorporating innovative culture and spirit, especially entrepreneurial risk-taking.

DDT

Here is my childhood story about dichlorodiphenyltrichloroethane.

I grew up on a 30 acre vegetable farm north of Toronto. When I was a toddler, my parents would leave me to play by myself as they and my older sisters worked the fields. I’d climb on the mountain of stacked bags of fertilizer and DDT.

My family would fill burlap sacks full of DDT and walk among the vegetable fields, shaking the powder into a fog. Womp! Womp! Womp! I don’t remember if they bothered to wear respirators.

One day, my mom returned to the DDT mountain to find me digging into a bag with my hands elbow deep. I had smeared the white powder all over my face. I told her I was wearing it as makeup. She tells everyone that is why I grew up to be healthy and strong.

The moral of the story is: DDT was so safe, farmers used it without any protection and children played among it without being harmed. After DDT banned, we switched to toxic chemicals like Malathion, Parathion, Captan, Diazinon, and others.

Unlike DDT which harmed no one and nothing, after spraying these potent chemicals, we would return the next day to find a field sometimes littered with dead birds. No one sprays these without wearing respirators. Deadly stuff.

Wealth versus Quality of Life

Conflating “wealth” with “quality of life”—in criticism of wealth inequality—is a fatal error. It is important to recognize that wealth in the form of capital accumulation (savings that are re-invested into factors of production toward increasing capacity for supplying goods and services into the future) speaks to supply-side capacity. The abundance created by this productive capacity is what provides for quality of life. On the demand side, quality of life comes from consumers with incomes that have purchasing power to acquire those goods and services. The greater the abundance of supply, the greater the purchasing power that consumers can wield (as expenses on the income statement or outflows on the cash flow statement) WITHOUT wealth (assets and equity on the balance sheet) playing any role for consumers. The role of wealth is to associate ownership for management responsibility over factors of production to create and maintain supply. The role of income is to have purchasing power to enable quality of life for consumers. Savings (retained earnings that are re-invested) is how consumers cross over to participate in wealth toward the management of supply.

Economics of Human Valuation

(My evolving thoughts that extend from https://www.jetpen.com/blog/2010/06/20/currency-of-goodwill/)

The currency of life is life-energy. When we give things of value to someone to improve their well-being, whether it is material or intangible, we transfer life-energy from ourselves to the recipient. The esteem that we hold for others is counted in life-energy credits and debts registered in our personal accounting system. For strangers who we hold at arm’s length there is a direct conversion of life-energy into monetary units when we conduct transactions. Even then, the quality of such transactions is accounted for with non-monetary life-energy to account for goodwill that is earned or extinguished.

currency of goodwill

Success and failure in life and our relationships—personal and professional—relies in large part on goodwill. Goodwill is measurable. We maintain an account for every interpersonal relationship. We trade in goodwill. It has a currency.

People wonder what makes them liked or respected or appreciated. We hold others in esteem in proportion to the amount of goodwill they’ve accumulated in their account. If someone has been kind and thoughtful in the past, their account carries a higher balance. If someone has done many favors and has called in very few of them, they have earned a wealth of goodwill.