The news business does not do well with numbers. But, some would say the news is full of numbers. And technically that is true. Many news stories feature graphs and charts that are full of very precise very accurate numbers. But the numbers in these graphs and charts aren't really important. Instead what is going on is a "cool graphic". The modern news business is almost entirely about pictures and a "cool graphic" is an effective kind of visual. But so is a picture of a scantily clad starlet. Now I like to gaze fondly at scantily clad starlets so I am all for this sort of thing. But I don't confuse pictures of scantily clad starlets with news. And I bet that if a news producer has the choice between a scantily clad starlet and a cool graphic to illustrate a story the starlet will win 100 times out of 100. So what's important about the cool graphic is not the numbers its the coolness.
And thus I introduce numbers. I use the number "100" above, twice. How important was the specific number I picked? Not very. What I needed was a number that was "big" but not incredibly big. And I am using the word "incredibly" in the sense where it measures how believable something is. In this example "big" was important, I was going for "impact". But credibility was also important. I wanted you to believe what I said. If I had used 1000 instead of 100 I would have gained bigness but lost believability. 100 seemed like the right balance between a number big enough to get impact but not so big to lose believability. And this is a long windy way of demonstrating that the psychological impact of a number is important.
Amping up the psychological impact is incredibly important in the news business. One simple strategy is to use a big number instead of a small number. This plays out by consulting an "expert" who has an ax to grid and who will provide you with an exaggerated estimate of how likely, big, or important something is. If expert #1, who actually is an expert, says "nothing to worry about" and expert #2, who is more interested in shilling for his cause than in enlightenment, says "be afraid, be very afraid", guess who gets lots of air time and who does not. And news producers go into orgasms if they can get two dueling "experts", one saying "it's very very very red" and the other saying "its very very very blue". It doesn't matter that a real expert might say "its mildly green".
This strategy works best in areas where the average audience member doesn't know much about the subject. So we have seen a lot of this surrounding the tragedy in Japan, particular the nuclear problems. Radiation exposure is such a subject. Scientists have gotten very good at measuring radioactivity very accurately. Theoretically, people should know a lot about this subject. It has been a matter of intense public interest since at least 1945, when A-bombs were dropped on Japan. But most of the public discussion has been on a level with my red/blue example above. Over the years the pro-nuclear camp has been saying "no danger here" and the anti-nuclear camp has been saying "any tiny amount of radiation is extremely dangerous". The facts support the green position. We live in a sea of low level radiation. It is literally everywhere. So there are things to worry about but a lot of the "scare" coverage is exaggerated.
The "radiation" story out of Japan is one where there is at least some justification for a difference of opinion. And at least some segments of the media are trying to clarify the situation rather than obscure it. But it is an aspect of the story where these is some justification for the media's actions. Unfortunately, there are many other aspects of the Japan story that illustrate the media's complete inability to deal properly with numbers.
This comes out most strikingly with respect to casualty numbers. The media is very good at conveying the difference between zero and one. A story in which no one dies is covered very differently than a story in which one person dies. The first story becomes a "miracle rescue" story, like the miners in Chile. The second story becomes a "Law and Order" story; who died, who did it, etc. That's OK. But what about where in one case one person dies and in the other case two people die. Given our zero/one example one would think that the coverage would be completely different. But the media coverage is only slightly different. Now it's an "individual" versus a "group" story. But the coverage of the two stories will be not very different.
Moving on, what about a two casualty story versus a ten casualty story? The difference should be large. In the latter case, eight extra people are dead. And remember the death of the one person in the "one death" story was important enough to justify coverage. But the coverage is almost identical. Recently a bus crashed in New Jersey killing 2. This happened within a few days of the Bronx bus crash that killed more than ten. There has been a little more coverage of the Bronx crash but the media approach to each crash has been more similar than different.
This inability to differentiate gets even more pronounced as the numbers get bigger. What if 100 people are killed? Is this different than only 10 people getting killed. No! The media will either choose to cover the story or it won't. If both stories are covered they will both be "a lot of people were killed" stories. The death toll in Japan has crossed 10,000, as I write this. It is expected to continue to rise. The final total will likely pass 20,000. But in the end about one person will be killed in the Japan tragedy for every ten people who perished in Haiti under roughly similar circumstances. The media is completely incapable of differentiating in any meaningful sense between these two numbers. But the difference is hundreds of thousands of lives.
The media has fallen into the "up close and personal" trap. For disasters they show "devastation" video. With their close in emphasis it all looks pretty much the same. They have not figured out how to convey the extent of the devastation. If they have enough devastation video to fill up a "clip loop" it all looks the same. You get a number of short clips, usually about 10, each showing a piece of devastation. The same clip loop is run over and over. So once you have enough devastation to make up the ten short shots all disasters look the same. All disasters are visually boiled down to the clip loop and all clip loops end up looking pretty much the same.
The human toll is handled in a similar manner. We get interviews of survivors or people who knew a victim. Again about 10 of these interviews is all the media can absorb. So if a disaster generates 10 interviewees or millions of interviewees it is all the same. But a disaster which creates 10 interviewees is not the same as a disaster that generates millions of interviewees. But it will be pretty much impossible to tell one disaster from the other based on the media coverage.
Several years ago an earthquake hit my city. Within a few hours the media had put together their clip loop of the event. That's when the calls and e-mails started coming in. Was I OK? Was my home, car, or place of business wiped out in the terrible devastation? How many friends had been killed or seriously injured? That sort of thing. In fact, no one I knew was killed, injured, or even had suffered any property damage. Because no one was killed and only a few people were injured. There was serious damage to a few specific areas but 99% of the city was completely undamaged. You couldn't tell any of this because the national media picked up the same highlight loop showing the few instances of damage and ran it over and over.
Shortly thereafter 9/11 happened. 9/11 was a much bigger event involving thousands of deaths, and much more property damage than my little earthquake. 9/11 looked like a bigger event than the earthquake in my town. And it has received vastly more coverage, partly because it happened in a media mecca. But it is literally impossible to accurately gage the size and scope of the two events based solely on the media coverage. Numbers might help. But, as I have shown, the media is not good with numbers.
Saturday, March 19, 2011
Thursday, March 10, 2011
Pensions
Pension plans, particularly the one in the state of Wisconsin, are in the news these days. I don't know the details of the Wisconsin pension plan and neither do most of the people arguing about it. But I do know that it is what's called a "defined benefit" plan. There has been a lot of talk over the years as to whether defined benefit plans are better or worse than the other general class of pension plans called "defined contribution" plans. As with a lot of things there are pluses and minuses associated with each type of plan. And that's what this piece is about. Not the pluses and minuses of the Wisconsin plan in particular but the pluses and minuses of the two classes of plans in general.
So what is a defined benefit plan? That's a plan where an employer contracts to provide a specific level of benefit at a specific time. I have been a participant in a defined benefit plan in the past. It was typical of the breed. The way it worked was that if I continued working for the company for 40 years they would provide a pension that would cover 60% of what I was getting paid when I retired. The way it worked was that my "guarantee" would go up on average 1 1/2% per year. So if I stayed with the company for a year my pension would be 1 1/2%. If I stayed 10 years I would get 15%, and so on. There were "vesting" rules so I didn't get a thing unless I was with the company for at least 5 years. And the percentage wasn't a flat 1 1/2% per year. Sometimes it was 1% for a year, sometimes, 2%, but on average it went up 1 1/2%. Why the variation? The company was interested in retaining employees so the percentage was designed to encourage employees to stick around (high percentage per year) until they were stuck then the percentage was lower.
This sounds like a pretty good deal and I thought so at the time. And most people like defined benefit plans like this one. So what's not to like? Defined benefit plans are a bad deal if they don't deliver on the promise. For instance, in my case the company was bought by another company after I had more than 15 years in. The new company honored the old plan but they folded it into their similar plan. The problem was that they had a different pattern of percentages. The old plan had higher percentages in the later years and lower percentages in the earlier years. The new plan had the reverse. So if you added up all the percentages in my case (lower percentages in the earlier years and now lower percentages in the later years) it no longer added up to the full 60%. And I got laid off after just under 20 years. In my case I did end up with something. But it was a low percentage of my salary as it was when I was laid off many years before retirement. But I at least got something.
The cost to the employer of a defined benefit plan depends on a lot of things. How many people will go the full 40 years. How much will they be earning when they retire. Many other things. And there is something called "present value". My old company made contributions to the plan each year and those contributions were invested. So when I worked my 15th year for the company they put in some amount of money that was supposed to cover what my pension would eventually cost. That money would have many years to earn interest. How much money did they need to put in that year? Well, you make a bunch of assumptions and then you perform what is called a "present value" calculation and that's how much money the company put in. Actuaries, usually employed by insurance companies, specialize in doing this kind of thing. And once all the assumptions are made there is a precise mathematical way to perform the present value computation. But it all depends on the assumptions in the end. And that's where the trouble comes from.
There is no way to get the assumptions right. If you make one set of assumptions the present value calculation says put a smaller amount of money in. If you make a different set of assumptions the present value calculation says put a larger amount of money in. Which set of assumptions are right? No one knows so honest and ethical people can disagree. And then there's the real world. As time goes by things can turn out more like the "small money" assumptions. Then it is likely that the pension plan is over funded. And, of course, the real world can turn out more like the "big money" assumptions. Then the pension plan is underfunded. For many years the stock market has grown faster than the historical trend. This has resulted in a lot of over funded pension plans. Then when the stock market crashed a couple of years ago the value of many pension fund investments dropped a lot and many pension funds instantly became underfunded. Neither of these outcomes are the result of anyone doing anything wrong.
For many years most large companies had a pension plan and it was almost always a defined benefit plan. Defined contribution plans are a recent invention. The first thing to notice about defined benefit plans is that how much money a company needs to put into the pension fund is a matter of opinion. To a company pension contributions are just another kind of expense. If you lower expenses you increase profits. So companies always want to put in as little as they can. So the first way a company can game the system is to use the "less cost" assumptions when calculating the pension contribution even if they are not justified. That's not good. But it can get worse, way worse. Back when there were many companies around with defined benefit pension plans a common tactic for an unscrupulous "take over artist" would be to borrow a lot of money, take the company over, then raid the pension fund to pay back all the money that had been borrowed, and finally to pay themselves a large "fee". After that, they didn't even care if the company stayed in business. And many companies were literally driven out of business by these tactics.
And what happens to the pension fund if the company goes out of business? Well, lots of times the fund is raided before the company goes completely under. And even if this doesn't happen there will be no more contributions from the company. So the fund is likely underfunded. It used to be that the retirees just got completely screwed in these kinds of situations. Now there is a federal agency called the Pension Benefits Guarantee Corporation and a law to go with it. It can contain the damage to some extent but it does not pay the full contracted benefit. And it is perennially short of money. It is currently dealing with the GM and Chrysler pensioners, for instance.
So, if everything works out well a defined benefit pension is a good deal for employees. But things frequently don't work out. And many of the things that can go wrong with a private corporation do not apply to governments like the Wisconsin state government. But some of them do. A good way to reduce current spending is to underfund the state pension. And state legislatures do this all the time. It is one of the standard "budget gimmicks" you hear about. The theory is that the state will make up the shortfall later when the economy is better. But later there is always something more fun to spend the money on that a pension contribution. As far as I can tell (the press coverage on this sort of thing is always poor) Wisconsin was fine before the market crashed and will be fine again if the market goes up enough. But in the same way financial considerations affect business leaders, political considerations affect politicians. This can result in bad behavior that jeopardizes retirees ability to get what they were promised.
So now we know the bad news about defined benefit plans. So what's the bad news about "defined contribution" plans? Before getting into that let me explain how a defined contribution plan works. The best place to start is with a 401k plan. In a 401k plan (applicable to a for profit corporation, there are similar plans with different designations for non-profits and governments) the employee makes a contribution to the plan, say 5% of salary. This money is taken off the top before taxes are calculated and put into a fund. Frequently there is an employer match. The most common match is that the employer will match at a rate of 50 cents on the dollar anything the employee puts in up to 6%. So in our case the employee would put in 5% and the employer would contribute an additional 2 1/2% so the total amount going into the fund would be 7 1/2%. None of this so far is a pension. But the employer can contribute in a similar manner to a fund on behalf of the employee that is not dependent on how much the employee kicks in. This is a pension plan. It is called "defined contribution" because there is a formula that determines how much the employer is going to put in (typically a fixed percentage of the employee's salary) but the employer does not guarantee how much income this will translate into when the employee retires.
Before going into the problems let me go into the benefits of this type of plan. The first benefit is that the employer can't game the system by coming up with some optimistic assumptions and underfunding the plan. There is a rule and the employer is bound by law to put in the exact amount the rule specifies. There is no wiggle room. Secondly, the employer looses control of the money. The money goes to the plan administrator, typically someone like Fidelity or Vanguard. The money is no longer under the employer's control. The employer can't raid the fund. Third, and this is not obvious, all of the "defined contribution" pension cost for a particular year is paid in the year the cost is incurred. With a "defined benefit" plan extra money may need to be put in (or possibly can be taken out) because previous years now look underfunded (or over funded). This means that a company can accurately predict the cost of doing business in the current year. In summary, with a defined contribution plan the money is reliably there and corporations get a more predictable cost structure. So what's the down side?
The down side is that the employee does not know how much income he will get at retirement. If enough money is put into the defined contribution plan and the money is invested well an employee can do as well or better than with a defined contribution plan. But if the money is invested badly there may be little or nothing left at all at retirement time. This is not as far fetched as it sounds. Let's say you were an Enron employee and Enron had a defined contribution pension plan. (I don't know what kind of plan Enron actually had). With many companies the 50% match on the 401k is in company stock. And many employees believe in the company they work for so they invest their portion of the 401k money in company stock too. And some companies will contribute company stock in lieu of cash as their pension contribution. So in this case it would be possible for all of an employee's pension money to be tied up in Enron stock. Enron stock is now worthless so people who were 100% in Enron were completely wiped out. Enron was a high flier. But for most if its life Washington Mutual was a well run and staid bank, technically a mutual savings bank. For most of the life of the company, employees would be justified in believing that WaMu stock was a conservative investment. Many WaMu employees had a large part of their retirement tied up in WaMu stock. That investment is now worth a few cents on the dollar and may eventually be worthless. So the down side of defined contribution plans is the investment risk.
In summary, defined benefit and defined contribution pension plans both have risks. With the defined benefit plan you are betting on the company being reasonably ethical and surviving for a long time. It should be noted that the only stock listed in the 1900 Dow Jones Industrial average that was still there 100 years later was GE. You are also betting you can stay with the same company for your entire adult carrier. I worked for three companies as an adult. I worked for the same company for 19, 4, and 15 years. And I worked hard to stay with a company after I got there. In no case did I quit, although I did retire from the last one. Most people are much less successful at longevity than I have been. My 4 year stint would be a dead waste to a defined benefit plan. I do get a nice to have but very modest pension from my 19 year stint. By the time I retired from my 15 year stint the company had converted to a defined contribution plan. So it is a lot harder than it looks to cash in on a defined benefit plan.
I also was able to avoid the "put all your eggs in one stock" problem I have described above. It was part of a pretty conservative investment strategy that has stood me in good stead. But there's no doubt about it. It would have been easy to screw up some time over the years and lose all or a lot of my retirement money. So it is also harder than it looks to cash in on a defined contribution plan. Most people are more aware of the risks inherent in a defined contribution plan so they characterize it as the more risky of the two. I hope I have convinced you that it is not necessarily more risky and is frequently less risky. And the fact that both options are risky is why I strongly advocate leaving Social Security pretty much as it is. Assuming it can survive the current political attack on it, it represents the only truly low risk retirement option available to people. Everyone needs a low risk component in their retirement plan.
Finally, what should be done about government pension plans like the one in Wisconsin? Probably the biggest reason private defined benefit pension plans are risky is bad behavior by company management. They either abuse the pension plan or they run the company badly. There is no reason to believe that state legislatures are likely to do a better job. The current activities of the legislatures in Wisconsin and several other states strongly supports this contention. The money pot invariably associated with a defined benefit plan just represents too tempting a target. So I think that governments should follow the lead of private industry. Private industry has almost entirely shifted over to defined contribution pension systems. I think it is both inevitable and likely that in the coming years governments will switch over to defined contribution systems too. The switchover needs to be watched carefully. It can be done properly so that the employee at least starts out with an equivalent benefit. But it can also turn into a license to steal if done badly.
But once done opportunities for mischief are greatly reduced. It now becomes a discussion between the employer and employee about total compensation. The employer is now indifferent as to how much of the compensation is in salary and how much is in the form of a pension contribution. He only cares about the total amount. And there is no longer an opportunity to raid the pension fund or to underfund the plan in the current year. Pensions would be off the table completely in Wisconsin if the state had a defined contribution plan. And that would be better for state employees and for the rest of us.
So what is a defined benefit plan? That's a plan where an employer contracts to provide a specific level of benefit at a specific time. I have been a participant in a defined benefit plan in the past. It was typical of the breed. The way it worked was that if I continued working for the company for 40 years they would provide a pension that would cover 60% of what I was getting paid when I retired. The way it worked was that my "guarantee" would go up on average 1 1/2% per year. So if I stayed with the company for a year my pension would be 1 1/2%. If I stayed 10 years I would get 15%, and so on. There were "vesting" rules so I didn't get a thing unless I was with the company for at least 5 years. And the percentage wasn't a flat 1 1/2% per year. Sometimes it was 1% for a year, sometimes, 2%, but on average it went up 1 1/2%. Why the variation? The company was interested in retaining employees so the percentage was designed to encourage employees to stick around (high percentage per year) until they were stuck then the percentage was lower.
This sounds like a pretty good deal and I thought so at the time. And most people like defined benefit plans like this one. So what's not to like? Defined benefit plans are a bad deal if they don't deliver on the promise. For instance, in my case the company was bought by another company after I had more than 15 years in. The new company honored the old plan but they folded it into their similar plan. The problem was that they had a different pattern of percentages. The old plan had higher percentages in the later years and lower percentages in the earlier years. The new plan had the reverse. So if you added up all the percentages in my case (lower percentages in the earlier years and now lower percentages in the later years) it no longer added up to the full 60%. And I got laid off after just under 20 years. In my case I did end up with something. But it was a low percentage of my salary as it was when I was laid off many years before retirement. But I at least got something.
The cost to the employer of a defined benefit plan depends on a lot of things. How many people will go the full 40 years. How much will they be earning when they retire. Many other things. And there is something called "present value". My old company made contributions to the plan each year and those contributions were invested. So when I worked my 15th year for the company they put in some amount of money that was supposed to cover what my pension would eventually cost. That money would have many years to earn interest. How much money did they need to put in that year? Well, you make a bunch of assumptions and then you perform what is called a "present value" calculation and that's how much money the company put in. Actuaries, usually employed by insurance companies, specialize in doing this kind of thing. And once all the assumptions are made there is a precise mathematical way to perform the present value computation. But it all depends on the assumptions in the end. And that's where the trouble comes from.
There is no way to get the assumptions right. If you make one set of assumptions the present value calculation says put a smaller amount of money in. If you make a different set of assumptions the present value calculation says put a larger amount of money in. Which set of assumptions are right? No one knows so honest and ethical people can disagree. And then there's the real world. As time goes by things can turn out more like the "small money" assumptions. Then it is likely that the pension plan is over funded. And, of course, the real world can turn out more like the "big money" assumptions. Then the pension plan is underfunded. For many years the stock market has grown faster than the historical trend. This has resulted in a lot of over funded pension plans. Then when the stock market crashed a couple of years ago the value of many pension fund investments dropped a lot and many pension funds instantly became underfunded. Neither of these outcomes are the result of anyone doing anything wrong.
For many years most large companies had a pension plan and it was almost always a defined benefit plan. Defined contribution plans are a recent invention. The first thing to notice about defined benefit plans is that how much money a company needs to put into the pension fund is a matter of opinion. To a company pension contributions are just another kind of expense. If you lower expenses you increase profits. So companies always want to put in as little as they can. So the first way a company can game the system is to use the "less cost" assumptions when calculating the pension contribution even if they are not justified. That's not good. But it can get worse, way worse. Back when there were many companies around with defined benefit pension plans a common tactic for an unscrupulous "take over artist" would be to borrow a lot of money, take the company over, then raid the pension fund to pay back all the money that had been borrowed, and finally to pay themselves a large "fee". After that, they didn't even care if the company stayed in business. And many companies were literally driven out of business by these tactics.
And what happens to the pension fund if the company goes out of business? Well, lots of times the fund is raided before the company goes completely under. And even if this doesn't happen there will be no more contributions from the company. So the fund is likely underfunded. It used to be that the retirees just got completely screwed in these kinds of situations. Now there is a federal agency called the Pension Benefits Guarantee Corporation and a law to go with it. It can contain the damage to some extent but it does not pay the full contracted benefit. And it is perennially short of money. It is currently dealing with the GM and Chrysler pensioners, for instance.
So, if everything works out well a defined benefit pension is a good deal for employees. But things frequently don't work out. And many of the things that can go wrong with a private corporation do not apply to governments like the Wisconsin state government. But some of them do. A good way to reduce current spending is to underfund the state pension. And state legislatures do this all the time. It is one of the standard "budget gimmicks" you hear about. The theory is that the state will make up the shortfall later when the economy is better. But later there is always something more fun to spend the money on that a pension contribution. As far as I can tell (the press coverage on this sort of thing is always poor) Wisconsin was fine before the market crashed and will be fine again if the market goes up enough. But in the same way financial considerations affect business leaders, political considerations affect politicians. This can result in bad behavior that jeopardizes retirees ability to get what they were promised.
So now we know the bad news about defined benefit plans. So what's the bad news about "defined contribution" plans? Before getting into that let me explain how a defined contribution plan works. The best place to start is with a 401k plan. In a 401k plan (applicable to a for profit corporation, there are similar plans with different designations for non-profits and governments) the employee makes a contribution to the plan, say 5% of salary. This money is taken off the top before taxes are calculated and put into a fund. Frequently there is an employer match. The most common match is that the employer will match at a rate of 50 cents on the dollar anything the employee puts in up to 6%. So in our case the employee would put in 5% and the employer would contribute an additional 2 1/2% so the total amount going into the fund would be 7 1/2%. None of this so far is a pension. But the employer can contribute in a similar manner to a fund on behalf of the employee that is not dependent on how much the employee kicks in. This is a pension plan. It is called "defined contribution" because there is a formula that determines how much the employer is going to put in (typically a fixed percentage of the employee's salary) but the employer does not guarantee how much income this will translate into when the employee retires.
Before going into the problems let me go into the benefits of this type of plan. The first benefit is that the employer can't game the system by coming up with some optimistic assumptions and underfunding the plan. There is a rule and the employer is bound by law to put in the exact amount the rule specifies. There is no wiggle room. Secondly, the employer looses control of the money. The money goes to the plan administrator, typically someone like Fidelity or Vanguard. The money is no longer under the employer's control. The employer can't raid the fund. Third, and this is not obvious, all of the "defined contribution" pension cost for a particular year is paid in the year the cost is incurred. With a "defined benefit" plan extra money may need to be put in (or possibly can be taken out) because previous years now look underfunded (or over funded). This means that a company can accurately predict the cost of doing business in the current year. In summary, with a defined contribution plan the money is reliably there and corporations get a more predictable cost structure. So what's the down side?
The down side is that the employee does not know how much income he will get at retirement. If enough money is put into the defined contribution plan and the money is invested well an employee can do as well or better than with a defined contribution plan. But if the money is invested badly there may be little or nothing left at all at retirement time. This is not as far fetched as it sounds. Let's say you were an Enron employee and Enron had a defined contribution pension plan. (I don't know what kind of plan Enron actually had). With many companies the 50% match on the 401k is in company stock. And many employees believe in the company they work for so they invest their portion of the 401k money in company stock too. And some companies will contribute company stock in lieu of cash as their pension contribution. So in this case it would be possible for all of an employee's pension money to be tied up in Enron stock. Enron stock is now worthless so people who were 100% in Enron were completely wiped out. Enron was a high flier. But for most if its life Washington Mutual was a well run and staid bank, technically a mutual savings bank. For most of the life of the company, employees would be justified in believing that WaMu stock was a conservative investment. Many WaMu employees had a large part of their retirement tied up in WaMu stock. That investment is now worth a few cents on the dollar and may eventually be worthless. So the down side of defined contribution plans is the investment risk.
In summary, defined benefit and defined contribution pension plans both have risks. With the defined benefit plan you are betting on the company being reasonably ethical and surviving for a long time. It should be noted that the only stock listed in the 1900 Dow Jones Industrial average that was still there 100 years later was GE. You are also betting you can stay with the same company for your entire adult carrier. I worked for three companies as an adult. I worked for the same company for 19, 4, and 15 years. And I worked hard to stay with a company after I got there. In no case did I quit, although I did retire from the last one. Most people are much less successful at longevity than I have been. My 4 year stint would be a dead waste to a defined benefit plan. I do get a nice to have but very modest pension from my 19 year stint. By the time I retired from my 15 year stint the company had converted to a defined contribution plan. So it is a lot harder than it looks to cash in on a defined benefit plan.
I also was able to avoid the "put all your eggs in one stock" problem I have described above. It was part of a pretty conservative investment strategy that has stood me in good stead. But there's no doubt about it. It would have been easy to screw up some time over the years and lose all or a lot of my retirement money. So it is also harder than it looks to cash in on a defined contribution plan. Most people are more aware of the risks inherent in a defined contribution plan so they characterize it as the more risky of the two. I hope I have convinced you that it is not necessarily more risky and is frequently less risky. And the fact that both options are risky is why I strongly advocate leaving Social Security pretty much as it is. Assuming it can survive the current political attack on it, it represents the only truly low risk retirement option available to people. Everyone needs a low risk component in their retirement plan.
Finally, what should be done about government pension plans like the one in Wisconsin? Probably the biggest reason private defined benefit pension plans are risky is bad behavior by company management. They either abuse the pension plan or they run the company badly. There is no reason to believe that state legislatures are likely to do a better job. The current activities of the legislatures in Wisconsin and several other states strongly supports this contention. The money pot invariably associated with a defined benefit plan just represents too tempting a target. So I think that governments should follow the lead of private industry. Private industry has almost entirely shifted over to defined contribution pension systems. I think it is both inevitable and likely that in the coming years governments will switch over to defined contribution systems too. The switchover needs to be watched carefully. It can be done properly so that the employee at least starts out with an equivalent benefit. But it can also turn into a license to steal if done badly.
But once done opportunities for mischief are greatly reduced. It now becomes a discussion between the employer and employee about total compensation. The employer is now indifferent as to how much of the compensation is in salary and how much is in the form of a pension contribution. He only cares about the total amount. And there is no longer an opportunity to raid the pension fund or to underfund the plan in the current year. Pensions would be off the table completely in Wisconsin if the state had a defined contribution plan. And that would be better for state employees and for the rest of us.
Saturday, March 5, 2011
Robot Cars
This is the third and final installment of my "robots in transportation" series. The first one was http://sigma5.blogspot.com/2010/12/space-final-frontier.html. It argued in favor of shutting down the manned part of the space program and going with robot space probes. The second installment: http://sigma5.blogspot.com/2011/01/robot-jet-fighters.html discussed unmanned airplanes. Here I discuss robot cars. But before I get into replacing drivers with robots I am going to discuss some other aspects of cars of the future.
Does the car have a future? There are some who would argue that it does not. There is a small but vocal contingent of people in my town that hate cars. They walk, bicycle, or take public transportation. They see cars as evil incarnate. In the most general sense they are arguing against personal transportation, unless it is people powered. So, taking things in reverse order, is people powered transportation practical? People have been walking since there were people. And animals have been walking for a lot longer. So in some sense walking is practical. But during the long period when walking was how most people got around most people never ventured more than 25 miles from where they were born. I for one, do not want to give up the option of venturing further abroad.
Walking also has another disadvantage. You can't carry much along with you. If you intend to walk more than about 10 miles in a day I would estimate that it would be impossible for most people to carry more than about 100 lbs. Many people couldn't handle even this amount. And if you want to go further you need to cut down on your load. If you want to carry more, and the limit would be less than 200 lbs, you would not be able to walk even 10 miles per day. Domestic animals have been around for about 10,000 years as a way to improve the distance/load calculus. People have also been inventing things like ships and wagons as another solution to the problem.
A more recent invention is the bicycle. It is another approach to beating the distance/load calculus. There is an annual "Seattle to Portland" bicycle race in my neck of the woods that demonstrates this. Most participants travel the roughly 200 mile distance in two days. Many of them do it in a day. So a bicycle allows you to travel four to eight times as far as pure foot power would permit. This is a definite improvement. But most people, given the option of trading a bicycle for an automobile, opt for the car. This is most obvious in China. We all have seen video of hordes of bicycles on the streets of Beijing a few years ago. But Chinese are deserting their bikes for cars in the millions. China is now the largest single car market in the world.
Public transportation, typically in the form of buses, but also in the form of light rail, is touted by many as the "correct" alternative to cars when feet or bicycles are not the answer. Why? Well, when you strip the argument down it is efficiency. Public transportation is more efficient and produces less pollution than cars. There is also the gridlock problem. Let's take each of these issues separately.
The theory is that public transportation is more efficient. But is it? If you take a bus and fill it full of people it will be cheaper per passenger mile than the equivalent number of cars, each with only one person in it. That's the way the efficiency argument is usually presented. But are the buses really full? Currently the answer is pretty much yes. But this is because the number of buses is far less than the number that would be needed to meet the demand in a car free environment. Bus systems all lose money and are limited in size to what the taxpayer will support. Tax payer support falls off rapidly as the load (number of people on the typical bus run) decreases. So the current subsidy is only enough to provide for a few pretty full buses. This works because there are lots of cars around to take care of most of the transportation need.
There is also a hidden cost to buses and other mass transportation solutions. That is lost time. One of the real benefits to a car is in it I can go long distances whenever I want. I take a lot of short in-city trips. Frequently I have some flexibility as to when I go so theoretically I could time the trip to fit the bus schedule. But much of the time this is not true. I got my hair cut today. It took me about 10 minutes each way. In a bus, if I timed it right, it might have taken me 20 minutes each way. So right away my travel time doubled. Next, it was to an appointment. So I really needed to travel to the appointment at a specific time. It is possible to go early but whatever time I would have waited between when I arrived and when my appointment started would have been lost time. Even on the most traveled bus routes an "every 20 minutes" schedule is about as good as it gets. So I would have lost another ten minutes in synchronizing with the bus schedule. And all this is true for my trip home too. So in this semi-ideal situation 20 minutes of travel time has ballooned up to 60 minutes. And this is for an in-city to in-city trip.
Buses (or light rail) don't go most suburban places. And they do not go every 20 minutes and they do not run all the time. Let's say we fixed that. Buses would now go everywhere and they run all the time on an "every 20 minutes" schedule. What do things look like now? First, we need a lot of buses, between 10 and 100 times as many buses as we now have. We would also have to use some kind of "hub and spoke" system. It is impractical to have buses running from everywhere to everywhere. So for a lot of trips you would take a local to a hub, a trip to a second hub, and finally a local to your actual destination. That means a 10 minute delay at the first hub, a 10 minute delay at your second hub, and arriving at your destination 10 minutes early. We add an hour to a typical longer round trip. And, in order to meet our "every 20 minutes" and our "goes everywhere" requirement we are going to be running most buses pretty empty a lot of the time and some buses completely empty some of the time. This scenario I have outlined may seem unrealistic but it is exactly what cars provide. I can get in my car whenever I want and go reasonably directly to wherever I want. My route and schedule is completely independent of anyone else's route and schedule. What is your time worth? There is an incredibly large time penalty to shifting most people from traveling by car to traveling by public transportation.
And, once you increase the density of public transportation sufficiently to reduce the time cost to a reasonable amount the efficiency goes out the door. And the efficiency of public transportation is none too good now. There is no public transportation system in existence that recovers all of its costs. If you increase the quality of service of a public transportation system to anything approaching that currently provided by cars it becomes fantastically expensive. Even in a place like New York City with its subway system that was built 100 years ago and its very high density, public transportation is heavily subsidized and they have lots of automobile traffic.
Next, let's consider pollution. Cars are a definite improvement over horses. The release far less pollution per mile. But is a car inherently a polluter? The answer is no! We know this because we can now buy electric cars. The single problem with electric cars is that the current battery technology sucks. The motors that turn the propellers of the aircraft carrier Enterprise are electric. Given this it should be clear that there is absolutely no problem making electric motors that will provide all the performance anyone could want. But current batteries can't store much power. So manufacturers put in wimpy motors to make the batteries last longer so people think electric cars are wimpy. Fix the battery problem and you fix the wimpy problem. Until the crappy battery problem is fixed electric cars are not for everybody.
Given cheap gas and a lack of powerful cheap batteries we will continue to have gas powered cars that pollute. The obvious solution, if we want to reduce the pollution problem, is to make gas more expensive. I drove a big old car while I was in college. It ran on "super". One day I bought super for 29.9 cents/gallon. I said to myself "I will never buy super cheaper in my life". I was right. That was a lot of years ago but it demonstrates what has been happening to gas prices over the last 40 years. Even with the price increases gas is still cheap. But let's assume it gets expensive or we decide for other reasons that we need to make cars much more efficient. What will we do?
The current answer is a hybrid. This is a combination of gas and electric. There are a number of ways to do hybrid and it is not clear how most hybrids work now. In a purely gas car you have an engine, a transmission, some mechanical connections like the differential and this all this spins shafts that turn wheels. This is a pretty inefficient process. There is another way to do this, the way aircraft carriers and diesel locomotives do it. There the primary motor (nuclear or diesel) that is connected to a generator. The electricity is fed to electric motors that spin the wheels. For powerful machines like locomotives and aircraft carriers, this is the most efficient way to do it. It seems to me that this should be the most efficient way to do cars. You would also throw some batteries and a more complex "control" system in between the generator and the motors on the wheels. This approach has many advantages. You can put more or less batteries in. You can add in the capability of charging the batteries from the electric grid. More batteries and charging allows you to run the car on electricity more of the time. The motor generator approach allows you to make the motor more efficient because it doesn't have to run at different speeds and loads. It is no longer connected to the wheels. You get rid of the transmission and other mechanical equipment that is inefficient at transferring power along the line to the wheels. This general approach should result in the most efficient car. So why don't all cars do it this way?
It turns out that if you do the same thing a lot of times for a long time you get very efficient at it. Auto makers have been making a lot of traditional cars for a long time. They have gotten very efficient at it. Going to the design I recommend means learning how to do a lot of new things very efficiently. It may be cheaper to do the theoretically less efficient thing (a car with a lot of old technology) because you are so darn good at doing the old thing. Eventually some auto makers will figure out how to be good at making the new kinds of cars. They will force the rest to figure it out too. It might take a while but probably less than 10 years.
Moving from our current "gas" car to hybrid cars is hard but doable. Most of our infrastructure; most of the manufacturing process, roads, gas stations, etc., will require little or no modification. Switching to all electric cars would require a much greater change. Batteries are the critical problem. I have been following battery technology for 30 years. The newest batteries are better than the old ones but we have merely moved from appalling to awful. We need to move all the way to good. Then there is our electricity grid. It is not set up to handle the load that moving our transportation system over to a high percentage of electric would require. Part of it is just more as in more generating capacity and more transmission lines. We know how to do these things. The part we don't know how to do is storage. Our electric grid is real time. It has a little inertia built into it but mostly it generates and distributes what is needed now. Any serious imbalance between supply and demand results in outages. And wind, solar, and some other sources are intermittent. It would be nice if we could store the excess from some periods to cover the shortages from other periods. Being able to store large amounts of power for a few days or even a few hours would make a tremendous difference. This is the wholesale version of the electric car battery problem. Again, I have been watching this area for over 30 years and not much progress has been made. Nuff said. Back to cars.
There is another "clean car" idea out there. That's fuel cell/hydrogen. The idea is to use a fuel cell to turn hydrogen into electricity. NASA has been doing this since the '60s so its something we know how to do. The problem is not in the fuel cell it is in the Hydrogen. If you are NASA sending a space probe to the back side of beyond, the many problems associated with dealing with Hydrogen are worth the hassle. But this is not true here on Earth. Hydrogen has two problems: making it and storing it. There is no Hydrogen loose around to collect. You have to make it. Hydrogen is a constituent of lots of things including water. But Hydrogen really likes to combine with stuff. So it does. To make it into a fuel we have to uncombine it. That takes lots of energy. Well, the whole point of Hydrogen is as a source of energy so this whole thing about consuming a lot of energy to create Hydrogen is just wrong. A simple way to make Hydrogen is to use electricity to separate out the Hydrogen in water. Other than the fantastic amounts of energy this requires it works pretty well. And that's the problem with the many alternatives. You end up having to use a lot of energy to make the Hydrogen. This is not good. Then when you have made the Hydrogen you have made something that loves to recombine with other stuff. The name for this "combine" process, in many cases, is explosion. So you need to be very careful how you handle things or you get explosions or perhaps just a very large very hot fire.
So Hydrogen is dangerous to store and you have to be very careful. That sounds like the "storage" problem but it's not. To store gas in a car you make this thing that is a couple of cubic feet in size out of sheet metal called a gas tank. It's not very big and it's not very heavy, even full of gas. But in this not very big not very heavy thing you can put enough gas with enough energy to move a big SUV 300 miles. To store the same amount of energy as Hydrogen under similar conditions you would need a tank many times the size of the SUV. So you have to do something. One thing is to compress it. But you have to compress it a lot. So you need a very strong tank and you need to transfer the Hydrogen from the gas station to the car under these very high pressures. This is dangerous and expensive. And probably the gas tank is now very heavy in order to be strong enough.
Another approach is a sponge. It turns out that there are certain materials that wick up Hydrogen. They do it so well that you can get a lot of cubic feet of Hydrogen into a few cubic feet of tank. And the pressure is not very high. It's some kind of chemistry magic but it works. Effectively you get a lot of compression without a lot of pressure. You need a kind of sponge material that will store a lot of Hydrogen in each cubic foot of sponge. There are some materials that do this but not many. And it's tricky. You have to get the Hydrogen to go into the sponge material at a reasonable rate at roughly room temperature and pressure. This is tough. And the Hydrogen needs to leak out of the sponge material without a lot of encouragement so that you can get the Hydrogen back to use in the fuel cell. And it has to be cheap enough to be practical to put into millions of car fuel tanks. So far no one has come up with a magic sponge material that has all these characteristics. I don't see Hydrogen fuel cell cars in any numbers any time soon.
So what are we going to see on the road in the next 20-40 years? I don't see anything replacing the car. So we will see lots of cars. I see a lot of hybrids, some electrics. And a lot of old style gas cars unless gas gets up to $40/gal. I also don't see cars looking a lot different than they do now. One reason to change the shape of cars is aerodynamics. The first aerodynamic car was introduced in the '30s. Wind resistance does not make much difference in the 30-60 MPH speed range. It makes even less difference under 30 MPH. So if you can make the power train more efficient or the car drastically lighter you will get a lot more bang for the buck. I'm sure auto designers will find new and different ways to bend the sheet metal but this will be due more to fashion trends than anything else. We will see more plastic, especially carbon fiber but that won't make much change in the look and feel of cars.
But I do predict a major change in one area. It gets back to congestion and the title of this piece: robot cars. A robot car as anything other than Science Fiction is a pretty recent development. The idea of a practical robot car that you could imagine sharing a street with regular cars is only about 10 years old. But the field is now moving rapidly. The first development to demonstrate this was the DARPA Grand Challenge series of rallies. DARPA, a DOD agency, issued its first challenge in this area for an event that took place in 2004. Driverless cars were to navigate on their own over a 150 mile route on regular roads on a closed course (no other traffic). The best car went 7.3 miles before coming to a stop. Not a very impressive showing.
But oh what a difference a year makes. Round two took place in 2005. The course was similar. But this time 6 out of 15 vehicles finished including one that was a 30,000 lb military vehicle. The winning vehicle was put together by a team from Stanford University. Two years later in 2007 round three was held. This time the course was only 60 miles long but it was over an "urban" route. Vehicles had to obey speed limits, stop for traffic signs, and avoid other "moving hazard" vehicles. Again, 6 teams finished.
So the DARPA challenges resulted in autonomous vehicles that could tell road from not-road, identify stop signs, avoid moving vehicles and perform other basic driving tasks. This was a tremendous accomplishment but could they drive on ordinary roads beside vehicles driven by ordinary people? Other than the last one, the DARPA challenges represented a more sophisticated version of what people had been experimenting for longer. Several demonstrations had been done earlier with robot vehicles that could navigate in a closed "toy" system. The last DARPA challenge introduced a more "real world" environment.
Things have been moving forward rapidly since. Google has been experimenting with a driverless car. Most of the testing has been in closed "toy" environments but not all. The Google car has driven on California freeways. It has even navigated Lombard Street, the famous twisty road in San Francisco. The Google car has not been actually driverless. There has been someone aboard who can take over if necessary. But it has rarely been necessary. The Google car has even been involved in an accident. It was rear ended while stopped at a stop sign. So I have every confidence that we will crack the "robot car" problem from a technical point of view in the next few years.
But the robot car question is also one of those "how do we get there from here" problems. If all cars were robot cars then we can imagine all cars being robot cars but they are not. I think it is idiotic to think that we will have dedicated robot car roads and other non-robot car roads so robot cars need to be able to work in a "real world" environment where there are lots of non-robot cars around. DARPA, Google, and whoever come next are busy proving that it is possible to build robot cars that can do this. So technology will not be the impediment. So we can see the end. But it is necessary to see the intermediate steps too.
I believe the foundation we can build the intermediate steps on is a Collision Avoidance System (CAS). Cars have had crude cruise control systems for many years. These are capable of maintaining a constant speed. But it was the driver's responsibility to do collision avoidance. And the systems were so dumb that you can't even lower the target speed. But we are now seeing much more sophisticate systems coming on line in new cars, especially luxury cars. A simple version of this ties into the cruise control system. It will detect that the vehicle in front is getting too close and alert the driver and disconnect the cruise control. Another improvement is a system that checks what's behind you when you are backing up and alerts you. Another system will parallel park your car. I believe the current version of the parallel park system operates blindly but I can see an upgrade that checks for obstacles and stops. Another possible component is a system that looks for vehicles in your blind spot.
These are the beginning steps. But sensors are getting cheaper and computing power is getting cheaper. Adding more sensors and tying them together to give you a smart cruise control, a "blind spot" (to the side and rear) detection system and other features gives the auto manufacturing companies something to build on. They can market them not only as a differentiator (my CAS has more features than your CAS) but at least some of the features will bring real value to the driver. If you can use your cruise control in heavier traffic and go faster with greater fuel economy, that's worth something. The features that warn you of vehicles in your blind spot, save you from backing into things, and do most of the work in parking your car would all be appealing to me. The equipment that enables all this is the equipment that can be enhanced to provide the robot car capability.
There is one feature that I see that is important to moving things along in the proper direction. GM has an "EN-V" program. The cars themselves are cute and toys, in my opinion. But they do have one feature I see as a good idea. The cars talk to each other. This allows one EN-V to not run into another EN-V. But the system is proprietary. I think it would be a big help if the automakers got together and built a standard for cars talking to each other. The difference in road knowledge possible when a car is on its own versus even the situation where a only few of the cars are exchanging information is tremendous. Imagine a simple situation where one car is following another car. Assume the cars are exchanging information and the rear car is following the front car in "cruise control" mode. The rear car could easily maintain a constant distance because it knows the speed of the front car. Now let's say that he front car needed to brake severely to avoid an obstacle. It could pass the information back to the rear car so that it too could slow and avoid a collision. And in a more mundane case, say the front car was about to exit the freeway. It could signal the following car so it could break off station keeping. There would be fewer situations where the rear car could provide information useful to the front car but there would be some.
Now imagine a situation where most cars were information sharing and had sophisticated robot car capability. Here you could transition to convoying. This would let cars stay closer together and go faster safely. This increases the effective capacity of our current road system thus reducing congestion. And with many sensors in many vehicles the chances of a surprise that might lead to an accident become very small. From here it becomes possible to transition to a true robot car environment. The result would be a cleaner, safer, and more efficient situation than what we have now. Why more efficient? As with bicycles, slowing down and then speeding up uses a lot of energy. If you can save the energy you save the cost of generating the energy. So we get the benefits the car haters desire without getting rid of the convenience benefit car lovers love. A win all around.
Does the car have a future? There are some who would argue that it does not. There is a small but vocal contingent of people in my town that hate cars. They walk, bicycle, or take public transportation. They see cars as evil incarnate. In the most general sense they are arguing against personal transportation, unless it is people powered. So, taking things in reverse order, is people powered transportation practical? People have been walking since there were people. And animals have been walking for a lot longer. So in some sense walking is practical. But during the long period when walking was how most people got around most people never ventured more than 25 miles from where they were born. I for one, do not want to give up the option of venturing further abroad.
Walking also has another disadvantage. You can't carry much along with you. If you intend to walk more than about 10 miles in a day I would estimate that it would be impossible for most people to carry more than about 100 lbs. Many people couldn't handle even this amount. And if you want to go further you need to cut down on your load. If you want to carry more, and the limit would be less than 200 lbs, you would not be able to walk even 10 miles per day. Domestic animals have been around for about 10,000 years as a way to improve the distance/load calculus. People have also been inventing things like ships and wagons as another solution to the problem.
A more recent invention is the bicycle. It is another approach to beating the distance/load calculus. There is an annual "Seattle to Portland" bicycle race in my neck of the woods that demonstrates this. Most participants travel the roughly 200 mile distance in two days. Many of them do it in a day. So a bicycle allows you to travel four to eight times as far as pure foot power would permit. This is a definite improvement. But most people, given the option of trading a bicycle for an automobile, opt for the car. This is most obvious in China. We all have seen video of hordes of bicycles on the streets of Beijing a few years ago. But Chinese are deserting their bikes for cars in the millions. China is now the largest single car market in the world.
Public transportation, typically in the form of buses, but also in the form of light rail, is touted by many as the "correct" alternative to cars when feet or bicycles are not the answer. Why? Well, when you strip the argument down it is efficiency. Public transportation is more efficient and produces less pollution than cars. There is also the gridlock problem. Let's take each of these issues separately.
The theory is that public transportation is more efficient. But is it? If you take a bus and fill it full of people it will be cheaper per passenger mile than the equivalent number of cars, each with only one person in it. That's the way the efficiency argument is usually presented. But are the buses really full? Currently the answer is pretty much yes. But this is because the number of buses is far less than the number that would be needed to meet the demand in a car free environment. Bus systems all lose money and are limited in size to what the taxpayer will support. Tax payer support falls off rapidly as the load (number of people on the typical bus run) decreases. So the current subsidy is only enough to provide for a few pretty full buses. This works because there are lots of cars around to take care of most of the transportation need.
There is also a hidden cost to buses and other mass transportation solutions. That is lost time. One of the real benefits to a car is in it I can go long distances whenever I want. I take a lot of short in-city trips. Frequently I have some flexibility as to when I go so theoretically I could time the trip to fit the bus schedule. But much of the time this is not true. I got my hair cut today. It took me about 10 minutes each way. In a bus, if I timed it right, it might have taken me 20 minutes each way. So right away my travel time doubled. Next, it was to an appointment. So I really needed to travel to the appointment at a specific time. It is possible to go early but whatever time I would have waited between when I arrived and when my appointment started would have been lost time. Even on the most traveled bus routes an "every 20 minutes" schedule is about as good as it gets. So I would have lost another ten minutes in synchronizing with the bus schedule. And all this is true for my trip home too. So in this semi-ideal situation 20 minutes of travel time has ballooned up to 60 minutes. And this is for an in-city to in-city trip.
Buses (or light rail) don't go most suburban places. And they do not go every 20 minutes and they do not run all the time. Let's say we fixed that. Buses would now go everywhere and they run all the time on an "every 20 minutes" schedule. What do things look like now? First, we need a lot of buses, between 10 and 100 times as many buses as we now have. We would also have to use some kind of "hub and spoke" system. It is impractical to have buses running from everywhere to everywhere. So for a lot of trips you would take a local to a hub, a trip to a second hub, and finally a local to your actual destination. That means a 10 minute delay at the first hub, a 10 minute delay at your second hub, and arriving at your destination 10 minutes early. We add an hour to a typical longer round trip. And, in order to meet our "every 20 minutes" and our "goes everywhere" requirement we are going to be running most buses pretty empty a lot of the time and some buses completely empty some of the time. This scenario I have outlined may seem unrealistic but it is exactly what cars provide. I can get in my car whenever I want and go reasonably directly to wherever I want. My route and schedule is completely independent of anyone else's route and schedule. What is your time worth? There is an incredibly large time penalty to shifting most people from traveling by car to traveling by public transportation.
And, once you increase the density of public transportation sufficiently to reduce the time cost to a reasonable amount the efficiency goes out the door. And the efficiency of public transportation is none too good now. There is no public transportation system in existence that recovers all of its costs. If you increase the quality of service of a public transportation system to anything approaching that currently provided by cars it becomes fantastically expensive. Even in a place like New York City with its subway system that was built 100 years ago and its very high density, public transportation is heavily subsidized and they have lots of automobile traffic.
Next, let's consider pollution. Cars are a definite improvement over horses. The release far less pollution per mile. But is a car inherently a polluter? The answer is no! We know this because we can now buy electric cars. The single problem with electric cars is that the current battery technology sucks. The motors that turn the propellers of the aircraft carrier Enterprise are electric. Given this it should be clear that there is absolutely no problem making electric motors that will provide all the performance anyone could want. But current batteries can't store much power. So manufacturers put in wimpy motors to make the batteries last longer so people think electric cars are wimpy. Fix the battery problem and you fix the wimpy problem. Until the crappy battery problem is fixed electric cars are not for everybody.
Given cheap gas and a lack of powerful cheap batteries we will continue to have gas powered cars that pollute. The obvious solution, if we want to reduce the pollution problem, is to make gas more expensive. I drove a big old car while I was in college. It ran on "super". One day I bought super for 29.9 cents/gallon. I said to myself "I will never buy super cheaper in my life". I was right. That was a lot of years ago but it demonstrates what has been happening to gas prices over the last 40 years. Even with the price increases gas is still cheap. But let's assume it gets expensive or we decide for other reasons that we need to make cars much more efficient. What will we do?
The current answer is a hybrid. This is a combination of gas and electric. There are a number of ways to do hybrid and it is not clear how most hybrids work now. In a purely gas car you have an engine, a transmission, some mechanical connections like the differential and this all this spins shafts that turn wheels. This is a pretty inefficient process. There is another way to do this, the way aircraft carriers and diesel locomotives do it. There the primary motor (nuclear or diesel) that is connected to a generator. The electricity is fed to electric motors that spin the wheels. For powerful machines like locomotives and aircraft carriers, this is the most efficient way to do it. It seems to me that this should be the most efficient way to do cars. You would also throw some batteries and a more complex "control" system in between the generator and the motors on the wheels. This approach has many advantages. You can put more or less batteries in. You can add in the capability of charging the batteries from the electric grid. More batteries and charging allows you to run the car on electricity more of the time. The motor generator approach allows you to make the motor more efficient because it doesn't have to run at different speeds and loads. It is no longer connected to the wheels. You get rid of the transmission and other mechanical equipment that is inefficient at transferring power along the line to the wheels. This general approach should result in the most efficient car. So why don't all cars do it this way?
It turns out that if you do the same thing a lot of times for a long time you get very efficient at it. Auto makers have been making a lot of traditional cars for a long time. They have gotten very efficient at it. Going to the design I recommend means learning how to do a lot of new things very efficiently. It may be cheaper to do the theoretically less efficient thing (a car with a lot of old technology) because you are so darn good at doing the old thing. Eventually some auto makers will figure out how to be good at making the new kinds of cars. They will force the rest to figure it out too. It might take a while but probably less than 10 years.
Moving from our current "gas" car to hybrid cars is hard but doable. Most of our infrastructure; most of the manufacturing process, roads, gas stations, etc., will require little or no modification. Switching to all electric cars would require a much greater change. Batteries are the critical problem. I have been following battery technology for 30 years. The newest batteries are better than the old ones but we have merely moved from appalling to awful. We need to move all the way to good. Then there is our electricity grid. It is not set up to handle the load that moving our transportation system over to a high percentage of electric would require. Part of it is just more as in more generating capacity and more transmission lines. We know how to do these things. The part we don't know how to do is storage. Our electric grid is real time. It has a little inertia built into it but mostly it generates and distributes what is needed now. Any serious imbalance between supply and demand results in outages. And wind, solar, and some other sources are intermittent. It would be nice if we could store the excess from some periods to cover the shortages from other periods. Being able to store large amounts of power for a few days or even a few hours would make a tremendous difference. This is the wholesale version of the electric car battery problem. Again, I have been watching this area for over 30 years and not much progress has been made. Nuff said. Back to cars.
There is another "clean car" idea out there. That's fuel cell/hydrogen. The idea is to use a fuel cell to turn hydrogen into electricity. NASA has been doing this since the '60s so its something we know how to do. The problem is not in the fuel cell it is in the Hydrogen. If you are NASA sending a space probe to the back side of beyond, the many problems associated with dealing with Hydrogen are worth the hassle. But this is not true here on Earth. Hydrogen has two problems: making it and storing it. There is no Hydrogen loose around to collect. You have to make it. Hydrogen is a constituent of lots of things including water. But Hydrogen really likes to combine with stuff. So it does. To make it into a fuel we have to uncombine it. That takes lots of energy. Well, the whole point of Hydrogen is as a source of energy so this whole thing about consuming a lot of energy to create Hydrogen is just wrong. A simple way to make Hydrogen is to use electricity to separate out the Hydrogen in water. Other than the fantastic amounts of energy this requires it works pretty well. And that's the problem with the many alternatives. You end up having to use a lot of energy to make the Hydrogen. This is not good. Then when you have made the Hydrogen you have made something that loves to recombine with other stuff. The name for this "combine" process, in many cases, is explosion. So you need to be very careful how you handle things or you get explosions or perhaps just a very large very hot fire.
So Hydrogen is dangerous to store and you have to be very careful. That sounds like the "storage" problem but it's not. To store gas in a car you make this thing that is a couple of cubic feet in size out of sheet metal called a gas tank. It's not very big and it's not very heavy, even full of gas. But in this not very big not very heavy thing you can put enough gas with enough energy to move a big SUV 300 miles. To store the same amount of energy as Hydrogen under similar conditions you would need a tank many times the size of the SUV. So you have to do something. One thing is to compress it. But you have to compress it a lot. So you need a very strong tank and you need to transfer the Hydrogen from the gas station to the car under these very high pressures. This is dangerous and expensive. And probably the gas tank is now very heavy in order to be strong enough.
Another approach is a sponge. It turns out that there are certain materials that wick up Hydrogen. They do it so well that you can get a lot of cubic feet of Hydrogen into a few cubic feet of tank. And the pressure is not very high. It's some kind of chemistry magic but it works. Effectively you get a lot of compression without a lot of pressure. You need a kind of sponge material that will store a lot of Hydrogen in each cubic foot of sponge. There are some materials that do this but not many. And it's tricky. You have to get the Hydrogen to go into the sponge material at a reasonable rate at roughly room temperature and pressure. This is tough. And the Hydrogen needs to leak out of the sponge material without a lot of encouragement so that you can get the Hydrogen back to use in the fuel cell. And it has to be cheap enough to be practical to put into millions of car fuel tanks. So far no one has come up with a magic sponge material that has all these characteristics. I don't see Hydrogen fuel cell cars in any numbers any time soon.
So what are we going to see on the road in the next 20-40 years? I don't see anything replacing the car. So we will see lots of cars. I see a lot of hybrids, some electrics. And a lot of old style gas cars unless gas gets up to $40/gal. I also don't see cars looking a lot different than they do now. One reason to change the shape of cars is aerodynamics. The first aerodynamic car was introduced in the '30s. Wind resistance does not make much difference in the 30-60 MPH speed range. It makes even less difference under 30 MPH. So if you can make the power train more efficient or the car drastically lighter you will get a lot more bang for the buck. I'm sure auto designers will find new and different ways to bend the sheet metal but this will be due more to fashion trends than anything else. We will see more plastic, especially carbon fiber but that won't make much change in the look and feel of cars.
But I do predict a major change in one area. It gets back to congestion and the title of this piece: robot cars. A robot car as anything other than Science Fiction is a pretty recent development. The idea of a practical robot car that you could imagine sharing a street with regular cars is only about 10 years old. But the field is now moving rapidly. The first development to demonstrate this was the DARPA Grand Challenge series of rallies. DARPA, a DOD agency, issued its first challenge in this area for an event that took place in 2004. Driverless cars were to navigate on their own over a 150 mile route on regular roads on a closed course (no other traffic). The best car went 7.3 miles before coming to a stop. Not a very impressive showing.
But oh what a difference a year makes. Round two took place in 2005. The course was similar. But this time 6 out of 15 vehicles finished including one that was a 30,000 lb military vehicle. The winning vehicle was put together by a team from Stanford University. Two years later in 2007 round three was held. This time the course was only 60 miles long but it was over an "urban" route. Vehicles had to obey speed limits, stop for traffic signs, and avoid other "moving hazard" vehicles. Again, 6 teams finished.
So the DARPA challenges resulted in autonomous vehicles that could tell road from not-road, identify stop signs, avoid moving vehicles and perform other basic driving tasks. This was a tremendous accomplishment but could they drive on ordinary roads beside vehicles driven by ordinary people? Other than the last one, the DARPA challenges represented a more sophisticated version of what people had been experimenting for longer. Several demonstrations had been done earlier with robot vehicles that could navigate in a closed "toy" system. The last DARPA challenge introduced a more "real world" environment.
Things have been moving forward rapidly since. Google has been experimenting with a driverless car. Most of the testing has been in closed "toy" environments but not all. The Google car has driven on California freeways. It has even navigated Lombard Street, the famous twisty road in San Francisco. The Google car has not been actually driverless. There has been someone aboard who can take over if necessary. But it has rarely been necessary. The Google car has even been involved in an accident. It was rear ended while stopped at a stop sign. So I have every confidence that we will crack the "robot car" problem from a technical point of view in the next few years.
But the robot car question is also one of those "how do we get there from here" problems. If all cars were robot cars then we can imagine all cars being robot cars but they are not. I think it is idiotic to think that we will have dedicated robot car roads and other non-robot car roads so robot cars need to be able to work in a "real world" environment where there are lots of non-robot cars around. DARPA, Google, and whoever come next are busy proving that it is possible to build robot cars that can do this. So technology will not be the impediment. So we can see the end. But it is necessary to see the intermediate steps too.
I believe the foundation we can build the intermediate steps on is a Collision Avoidance System (CAS). Cars have had crude cruise control systems for many years. These are capable of maintaining a constant speed. But it was the driver's responsibility to do collision avoidance. And the systems were so dumb that you can't even lower the target speed. But we are now seeing much more sophisticate systems coming on line in new cars, especially luxury cars. A simple version of this ties into the cruise control system. It will detect that the vehicle in front is getting too close and alert the driver and disconnect the cruise control. Another improvement is a system that checks what's behind you when you are backing up and alerts you. Another system will parallel park your car. I believe the current version of the parallel park system operates blindly but I can see an upgrade that checks for obstacles and stops. Another possible component is a system that looks for vehicles in your blind spot.
These are the beginning steps. But sensors are getting cheaper and computing power is getting cheaper. Adding more sensors and tying them together to give you a smart cruise control, a "blind spot" (to the side and rear) detection system and other features gives the auto manufacturing companies something to build on. They can market them not only as a differentiator (my CAS has more features than your CAS) but at least some of the features will bring real value to the driver. If you can use your cruise control in heavier traffic and go faster with greater fuel economy, that's worth something. The features that warn you of vehicles in your blind spot, save you from backing into things, and do most of the work in parking your car would all be appealing to me. The equipment that enables all this is the equipment that can be enhanced to provide the robot car capability.
There is one feature that I see that is important to moving things along in the proper direction. GM has an "EN-V" program. The cars themselves are cute and toys, in my opinion. But they do have one feature I see as a good idea. The cars talk to each other. This allows one EN-V to not run into another EN-V. But the system is proprietary. I think it would be a big help if the automakers got together and built a standard for cars talking to each other. The difference in road knowledge possible when a car is on its own versus even the situation where a only few of the cars are exchanging information is tremendous. Imagine a simple situation where one car is following another car. Assume the cars are exchanging information and the rear car is following the front car in "cruise control" mode. The rear car could easily maintain a constant distance because it knows the speed of the front car. Now let's say that he front car needed to brake severely to avoid an obstacle. It could pass the information back to the rear car so that it too could slow and avoid a collision. And in a more mundane case, say the front car was about to exit the freeway. It could signal the following car so it could break off station keeping. There would be fewer situations where the rear car could provide information useful to the front car but there would be some.
Now imagine a situation where most cars were information sharing and had sophisticated robot car capability. Here you could transition to convoying. This would let cars stay closer together and go faster safely. This increases the effective capacity of our current road system thus reducing congestion. And with many sensors in many vehicles the chances of a surprise that might lead to an accident become very small. From here it becomes possible to transition to a true robot car environment. The result would be a cleaner, safer, and more efficient situation than what we have now. Why more efficient? As with bicycles, slowing down and then speeding up uses a lot of energy. If you can save the energy you save the cost of generating the energy. So we get the benefits the car haters desire without getting rid of the convenience benefit car lovers love. A win all around.
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