SETI Revisited

SETI stands for the Search for Extra-Terrestrial Intelligence.  It was a hot subject in the past but enthusiasm seems to have died down since.  In fact, it's died down to the point where I almost lost track of the fact that I had done a post on the subject in 2010 (see http://sigma5.blogspot.com/2010/11/seti.html).  Have I change my mind since then?  No!  This piece comes to essentially the same conclusion the previous one did.  It just gets there by a different path.

The experts (actually the media and here I include even the science media) tell us that, like so many subjects in our modern times, there are exactly two positions.  Position (1) is "There are no extra-terrestrials so it's a waste of time and pure stupidity to look for them".  Position (2) is "It is very likely, bordering on certainty, that extra-terrestrials exist so we should try hard to find them". As with nearly every example of this idea that there are always exactly two positions, there are other possibilities.  And a third possibility is where I will end up.  But first, as is frequently the case with my posts, I am going to start with some history.

Speculation about beings from somewhere else is as old as human thought.  The classic example is "the Gods".  The ancient Greeks, for instance, invented a whole pantheon of Gods and placed them up on Mount Olympus.  I am not that familiar with Islam, but the case with Christianity runs in a rough parallel.  You have the nuclear family of God the Father, Jesus the Son, and the Holy Spirit (familial relationship unknown).  But then you have a Heaven headed by God the Father who is assisted by angels and that is populated by the redeemed, a Hell headed by Satan who is assisted by fallen angels and that is populated by the condemned.  The redeemed and the condemned are the souls of people who have died.  There is also Purgatory and (maybe or maybe not) Limbo to round out the list of non-earthly locations and their inhabitants.  Other religions and cultures invented other non-human creatures.  I am going to bundle them all together into a single group of non-scientific attempts at ETs.

The first scientific effort at a transportation mechanism for getting off earth was done by Jules Verne.  In 1865 he published "From the Earth to the Moon".  The method he used was a giant artillery gun.  For many reasons it would not work but the idea is not completely ridiculous from a scientific standpoint.  In fact, a design called a "rail gun" has been put forward.  It is more akin to a super-train but the basic idea of using a gun-like approach as a substitute for the first stage of a rocket is an entirely reasonable one.  The rail gun avoids the extreme acceleration of a classic artillery type gun.  And the addition of stages that use non-gun technologies allows for an ability to control and steer the vehicle.  The reduction in the amount of acceleration required and the addition of a steering ability address the two most serious problems with the pure artillery approach.

In 1897 H. G. Wells published "The War of the Worlds".  In Verne's book his travelers were attempting to reach the moon.  They failed and only managed to go around it.  They also encountered no aliens.  In the Wells book it is the aliens, specifically Martians, that come to us.  Wells is purposely vague about the technology the Martians employed.  Details of propulsion systems, etc. are completely lacking.  While not the first, it was by far the most popular early example of the "bad aliens are coming to get us" genre.  It definitely popularized the idea that there might be other creatures out there and that these creatures might be quite unlike us.

Both Verne and Wells prized scientific verisimilitude.  The Verne book was definitely what would now be called Hard Science Fiction, science fiction where the science is taken seriously and frequently figures critically in the plot.  Wells was scientifically very literate but chose to concentrate more on the non-science aspects in his story.  And someone who came along only slightly later and who was also extremely popular in his time was Edgar Rice Burroughs.  He is mostly famous for his many "Tarzan" books.  But he also created a series that was wildly popular in it's time, his "Barsoon" series.  The first few books featured hero John Carter who is transported to Mars (called Barsoon in the books) by what can best be described as magical means.  Burroughs had no interest in scientific accuracy.  But he did populate Mars with a number of fanciful races.  The books were heavy on action and adventure with a dash of romance thrown in.  Their big contribution was to make the idea of travel to other planets (and later star systems) very popular.

It was pretty obvious from the start of the twentieth century and even more so as the century wore on that the Moon was lifeless.  So attention shifted to Mars and Venus.  Burroughs in setting his stories on a fictional Mars fed the interest in Mars and the possibility of life there.  This idea was mainstream science at the time.  Schiaparelli, a noted astronomer of the time, believed he saw canals on Mars.  All telescopic observation of the period was done entirely by eye.  Photography did not come into general use until after Schiaparelli's time.  If you squint in order to make out just that little bit more detail it is easy to introduce distortions and that's what he did.  It took decades for equipment to improve enough to convince scientists that the canals did not exist.  But at the time Burroughs started writing the Barsoon books (1912) life on Mars was a mainstream scientific idea.

Venus was the other planet that was reasonably close.  Scientists of the time could not make out any detail when looking at Venus.  Scientists suspected this was because Venus had a thick atmosphere.  But they didn't know how thick nor much else about it because, among other things, spectroscopic techniques were not yet up to the task (see below for more on spectroscopy).  With little or no scientific information to go on, writers of the time were able to speculate much more widely about life on Venus.  Two popular ideas were of Venus as a steamy swamp (but not nearly as hot as the surface of Venus actually turned out to be) or of Venus as an ocean planet.  We now know that there is no water anywhere near the surface of Venus.

By the '20s the foundations of what we now call the Science Fiction genre were being laid.  Writers soon tired of Mars and Venus and set their sights much higher.  The propulsion systems in the stories of the day typically involved rockets to a greater or lesser extent.  But when it soon became necessary to travel faster than light rocket engines were supplemented by many of the ideas later popularized by the "Star Trek" TV show and its ilk.  Star Trek featured a "Warp Drive" where somehow the "speed of light" barrier was obliterated.  It and early versions of other ideas like "Jump" drives (you pop out of "real" space and, instantaneously or a short time later, pop back in somewhere else) show up in writings of this period.  None of these "faster than light" technologies currently looks feasible.

Meanwhile the complete scientific foundation for rocket flight was being laid down by one man, Robert Goddard.  Between about 1910 and about 1940 Goddard single handedly took rocketry from Chinese fireworks to a usable technology.  He invented the multistage rocket, pioneered the use of liquid fuels, developed a science of rocket nozzle design, developed the fundamentals of control and steering, etc.  Unfortunately, he was mostly ridiculed as some kind of wingnut in the U.S.  As a result he received meager funding and there was no follow up on his work here.  However, the Germans were paying attention.  They took his ideas, extended and refined them, and then used them to create the V-2, the first militarily useful rocket and the foundation of all civilian and military rocketry since.

Since Goddard and the work done in Nazi Germany during World War II little has changed.  The Saturn V used in the Apollo moon landing missions was a further evolution of the V-2.  Much of the development work on the Saturn V was overseen by Wernher von Braun, the chief Nazi rocket scientist.  Materials for building rocket structures, motors, controls, etc. have improved.  Computer technology has certainly made a big contribution.  But the fuels used are for the most part the ones Goddard identified and the Nazis used.  And there is very little difference in the performance of the brand new Falcon-9 from Elon Musk's Space-X and the von Braun Saturn V of the '60s.  (You can find more detail on the history of rocket technology at http://sigma5.blogspot.com/2010/11/space-shuttle-rip.html.  And here's a post on how little progress we have made on making rocket based access to space cheap:  http://sigma5.blogspot.com/2013/03/cheap-spaceflight.html.)  So, on the "getting to space" front, we are making little or no progress.  But maybe those aliens have made some kind of breakthrough that we don't even suspect.  If so, they have either not been here, or have left no identifiable tracks (or, more likely, garbage) behind.  But we can still point our telescopes at the sky and look for ETs, right?

Various people, typically Science Fiction fans, have long agitating for "us" (i.e. the Federal government) to do just that.  They lobbied NASA and other government supported institutions to go looking.  But fans were unable to generate enough enthusiasm within the government to support a long term or well funded search.  So they formed an organization of their own, the SETI Institute, in 1984.  One of the prime movers behind this was Frank Drake.  He was (and is) a well respected professional astronomer.  He is most noted in this context for creating the "Drake Equation" in 1961.  The equation calculates the number of civilizations in the Milky Way galaxy with which radio communication might be possible.  To calculate this number Drake suggests multiplying 7 specific factors together.

The problem is that the correct value for each of these seven factors is unknown.  Drake and people on his side of the argument, the "we should look and look hard" side, come up with estimates for each of the seven factors that suggest that the number of alien civilizations is high.  "Aliens are common, a dime a dozen, and thus easy to find."  People on the other side of the argument come up with estimates for each of the seven factors that suggest that the number of alien civilizations is low.  "There's no one out there or, if there's someone out there, they are too far away".  So the fight between the two sides has devolved into a argument over the appropriate values to plug into the Drake Equation.  It sounds very scientific but it's really not.

Now I want to drill down on one of the Drake parameters:  L - "the length of time for which such civilizations release detectable signals into space" (quotation taken directly from the Wikipedia article on the Drake Equation).  Now by "detectable signals" Drake specifically means "detectable radio signals".  I am going to skip over the "radio" part as I covered it in the earlier SETI post (see above for a link).  Instead I am going to perform a thought experiment.  Thought experiments are a wonderful invention.  Einstein is famous for making effective use of them and for making them a popular scientific tool.  In a thought experiment you do a "what if".  You assume something, whatever you want, and then you analyze the resulting situation to see what you can figure out.  This would seem to be a useless thing to do.  I hope that the following example will enlighten you as to just how useful a carefully constructed one can be.  So here goes.

Imagine a solar system exactly like ours.  Same sun.  Same planets.  Everything is exactly the same.  Everything formed at the same time as ours actually did.  And it evolved in exactly the same way as ours.  The only thing we change is that we displace it by 50 light years.  So what we have is a solar system just like ours that is fifty light years away.  Why?  Well, we can now ask ourselves questions about what we could learn about this solar system.  Since it is exactly identical to ours we can figure out exactly what the result of any measurement we might want to make would be.  And we are going to start out assuming that this "twin earth" solar system shares our exact identical history.  If we could instantaneously transport ourselves to the twin earth and go to same place there as we would here and buy a newspaper (or turn on the TV or whatever) we would see exactly the same thing we actually see right now on the real earth when we do the same thing.  We will relax this assumption later but for now "that's the way it is".

OK.  Now lets go back in history.  And let's do something really extreme.  Let's force the twin sun to go supernova.  I know our sun hasn't gone supernova but the question I want to get at is if the twin sun had would we now be able to tell.  If this happened more than about 2,500 years ago there would be no record.  The Chinese started recording interesting happenings in the sky at about that time.  In the rest of the world between then and quite recently, the odd shepherd might have noticed.  But even for something as gigantic and spectacular as a supernova there would be no written record anywhere in the world outside China and perhaps one or two other places.  There's a much better chance there would be a record elsewhere if it happened roughly 500 or less years ago.  But there would also be no record, even in China, if it happened more than about 2,500 years ago.  2,500 years represents less than one millionth of the time the earth has been in existence.  For everything but the last millionth of the lifetime of the earth a civilization could do pretty much anything except visit us and we wouldn't notice it.  That's bad but it gets worse.

Let's take something else that seems pretty obvious.  Our atmosphere is about 20% Oxygen.  This is unnatural.  Free Oxygen is very reactive.  Combine it with Iron, for instance, and you get rust.  Combine it with Hydrogen and you get water.  Oxygen likes a lot to be combined with other elements to form things that are not gasses so they fall out of the atmosphere.  Now there has been a lot of Oxygen in our atmosphere for billions of years.  So theoretically we could detect the Oxygen in the atmosphere of twin earth any time in the last billion or more years.  And here we are not trying to pull of the same kind of one in a million shot.  Well, actually we are trying to pull something off that is even harder.  Sure the Oxygen has been there since, like, forever.  But how long have we been able to detect it?  The answer turns out to be a whole lot less than 2,500 years.

The way you detect the Oxygen is with something called a spectrograph.  It acts like a prism and spreads light out into its components.  And the best way to do this used to be with a photograph.  But being able to do a spectrograph through a telescope has only been possible in the last few decades.  We have only had a spectrograph of the atmosphere of Venus for a few decades (see above) and Venus is right next door.  And there is another problem that crops up when we are trying to take a spectrograph of the atmosphere of our twin earth.  Twin earth is very close to an extremely bright object, twin sun.  Even with the best technology we have now it is very hard to get a spectrograph of the atmosphere of any of the many exo-planets we have been able to discover in the last few years.  It certainly would not be possible to pull this off  before the launch of the Hubble Space Telescope.  And that happened in 1990.  So detecting something as obvious as the Oxygen atmosphere of our twin earth has been possible for less than 25 years.

So we're back to Drake's old standby, radio waves.  Our ability to create and detect radio waves dates back to the late 19th century.  But artificial radio waves of any power only date back to roughly a hundred years ago.  De Forest invented the Triode, the first electronic amplifier in 1906.  It took a while to adapt it to radio use.  So the first regular radio broadcasts of any power coincide with World War I.  And by modern standards these were low power signals.  High power signals date back to the '30s with the spread of commercial radio stations.  Two other sources of high power signals are Radar , which dates back to World War II and TV, which dates back to the '50s.  So in round numbers you are talking about 70 years.  Drake assumed that once begun we would always broadcast high powered radio signals.  So, although high powered radio signals would have started emanating from twin earth 70 years ago and started arriving here 20 years ago, Drake assumes that window of opportunity is actually much wider.

Let's say that the history of twin earth is actually shifted 100 years.  Their history is a hundred years ahead of ours.  (This is me relaxing that assumption I warned you I would relax.)  In this case twin earth would be broadcasting powerful radio signals long enough that the first would have arrived 120 years ago.  But communication requires a sender and a receiver.  We have had the technology to receive radio signals for only about 120 years so it does us no good to shift the history of twin earth by more than 100 years.  But fair is fair.  So let's peer into the future right here on earth.  As I observed in my previous SETI post our use of radio is continuing to evolve.

As I observed in my previous post, TV has already evolved from Analog to Digital.  The digital signal is harder to detect.  But how long will broadcast television last?  When I wrote the post in late 2010 it was already true that most people got their TV over a "cable" and not through the air.  Since then streaming over the internet has become popular.  This has put in jeopardy the whole "send your show out over a channel" model of how TV shows get to us.  If we get everything as a streaming signal over the internet then the whole justification for "TV channels" goes away.  In addition, the broadcast frequencies get more valuable every day.  They can be repurposed to support even more mobile internet use and the mobile companies are willing to pay big bucks to get control of them.  At some point the few people who watch TV shows "over the air" will diminish to the point where broadcasting them makes no sense at all.  That's probably already true but current broadcast TV stations are worried that if they stop broadcasting they will lose various legal rights that are necessary for them to be able to stay in business.

The same kind of thing is happening with radio stations.  Traditional radio stations used something called "AM".  AM uses a signal structure that makes it easy for SETI receivers to detect.  But then FM became popular in the '60s.  Since then we have moved on to digital radio and, of course, audio streaming across the internet.  AM still lives.  But I don't know for how long.  FM seems to be doing OK at this point but it has passed it's prime.  It is easy to imagine both AM and FM radio gone 50 years from now.  So high powered "station" based radio and TV broadcasts might only exist for about 100 years.  The military still uses high powered radar. So that signal is still available.  But the sensitivity and sophistication of radar receivers keeps improving.  So the power of broadcast signals keeps decreasing in all but a few cases.  And the signal complexity across the board keeps increasing.  So, like radio and TV, the "window of availability" of radar may turn out to be roughly 100 years.

I think I have now convinced you of the value of my specific thought experiment.  And I hope I have also convinced you of the value of a well constructed thought experiment.  Scientists now use them frequently and widely.  Now back to the issue at hand.

In our thought experiment we have assumed we are looking for a civilization exactly like ours in every detail.  If you are using the SETI approach that's as good as it gets.  A truly alien civilization may not use radio at all.  Or they may use it is some way that renders their signals entirely unrecognizable to us.  We just don't know.  Besides the specific technical problems I have described I believe there are a lot of implicit assumptions about how an alien civilization operate embedded in the SETI way of thinking.  And apparently I am not the only one who has noticed.

In 2001 the SETI Institute embarked on a project originally called the "One Hectare Telescope".  (A hectare is about 2.5 Acres.)  It was renamed "The Allen Telescope Array" when Paul Allen of Microsoft fame pledged (and eventually delivered) $30 million to the project.  The project was supposed to construct an array of 350 interconnected radio receiving dishes.  This was supposed to enable a thorough search of the skies for SETI signals.  Due to technical problems and cost overruns only 42 dishes have been installed.  That's enough to do interesting things but the ATA is not as sensitive (able to detect weak signals) as it would be if it was fully built out and there is no obvious source for more money.  Allen eventually decided to cap his contribution and pull out.  The University of California at Berkeley was originally involved but they have also pulled out.  The project has been limping along on fumes for the last few years.  And, of course, they have yet to find even a hint of an ET.

So I circle back to where I ended my earlier post.  I do not fall into the "they're everywhere" Drake camp.  Nor do I fall into the "there are no ETs" camp.  I do not know if there are ETs out there or not.  Instead I think we ought to "keep looking up".  We should keep doing the things astronomers and others who look at the sky do.  But I don't think we should do any kind of special ET search.  Instead we should do what we are already doing, looking for the unexpected.  Alien life is alien.  That means two things.  First, it behaves like life.  It modifies its environment to look and be unnatural.  (See the whole Oxygen discussion above.)  Life manifests itself as the unexpected, the unusual, the unnatural.  Second, it is alien.  It is not "us" so it will not behave like we would behave in the same situation.  Again, being on the lookout for the unexpected, the unusual, the unnatural is the right strategy for finding them if they are there to be found.

But that's what scientists do.  The unexpected, the unusual, the unnatural is what they live for.  A scientist going about the business doing science is the best "alien detector" there is.  Doing some kind of special SETI search wastes resources that could be more productively used doing other things.  Even in its current form, the ATA can do valuable science.  But it needs to be configured and used in such a way as to maximize the science product.  The useful scientific work it can do under the current setup has turned out to be so modest that it justifies neither its current operating cost nor the cost of building it out the rest of the way.  And the chances of it finding an ET before someone else does are vanishingly small.  
  

Metaeconomics - Markets

In my other posts on the subject of Metaeconomics I have been critical of economists.  In this post I cover a subject that I think Economics and Economists generally do a good job with.  But it is a subject that is misunderstood and abused in general public discourse.  So there is more the flavor of a primer than a critique to this post.  I will, however, apply the lessons learned from a serious discussion of markets to some real world situations.  So, . . .

What is a market?  Here am not talking about a supermarket or a public market like a flower market or other place where people congregate to buy and sell but rather what economists and politicians are talking about when they use the word.  Rather than starting with a definition I am going to start with an example, the wholesale wheat market.

There are literally thousands of wheat farmers in the country.  Each has his own cost structure.  Some can produce wheat relatively cheaply but for others the cost of production is much higher.  So if farmers are getting a certain price for wheat a certain number of them are making a profit and the rest are not.  All this information is usually aggregated together into a "cost curve".  If the price of wheat is low then only a few farmers can produce it profitably.  As the price rises more and more farmers can make a profit.  If the price is particularly high then pretty much every farmer and his brother in law can profitably produce wheat.

If we graph this we typically get a "knee shaped" curve.  Price is usually laid out on the horizontal axis with low prices on the left.  The vertical axis tracks how much wheat can be profitably produced.  Typically at a low price only a small amount of wheat can be profitably produced.  As we slowly increase the price the amount of profitable wheat increases slowly.  The line on the graph rises slowly.  At some point it starts getting pretty easy to produce wheat profitably.  The line starts curving sharply up.  And so on.  The line ends up looking like a leg bent at the knee where it is pretty straight and horizontal and then it bends up more toward the vertical.  Hence the name.

Now lets go through the same exercise only with people who buy wheat.  If the price is high then few people are interested.  As you slowly lower the price then more and more people are interested but interest grows slowly.  But at a low price then all of a sudden lots of people get interested in buying wheat.  So we see the same knee shaped curve only it has been flipped to become a mirror image.  It is pretty flat and rising only slowly as we move from right to left (the opposite direction as we did with the supply curve).  Then at some point the curve bends up sharply as the price gets to be low.  So again we have a curve with a knee in it.

Now let's put both curves on the same graph.  We have the supply curve with the high part of the knee on the right (high price) end of the graph and the demand curve with the high part of the knee on the left (low price) end of the curve.  This is the kind of graph used in all introductory economics classes to describe "supply and demand".  And the curves should cross.  There should be a point where the "supply" graph crosses the "demand" graph.  In a market that is supposed to be where the price settles.  Why?  Because at that point supply and demand are in balance. But that's only the starting point of our discussion.

Let's say for some reason the price is below (to the left of) the "equilibrium point", the point where supply and demand are in balance.  At this point the "demand" line is above the "supply" line.  But that means that a bunch of people want wheat and are willing to pay more than the current price.  What should happen is that they bid the price up.  This means we move to the right toward a higher price.  This higher price attracts more supply and the market moves closer to equilibrium.  Similarly, what if somehow the price is above (to the right of) the equilibrium price?  Then purchasers decide to exit the market because they can't buy wheat at a price that makes sense to them.  There are lots of sellers (supply line is high) but not enough buyers (demand line is low).  Suppliers find that they can't find buyers for the wheat they want to sell and the price moves lower.  The price moves to the left toward the equilibrium price.  That's why it is called the equilibrium price.  Any deviation puts pressures on the market to move toward the equilibrium price.  Only at the equilibrium price are market forces in balance.

Economists assume that's how markets work.  If the price is above or below the equilibrium price then "the invisible hand of the marketplace" will be seen moving the price toward the equilibrium price.  So one attribute of a "market" is that "market forces" always move the price toward the equilibrium price.  Now economists make two assumptions they don't talk about.  The first is that there is an equilibrium price.  And the second is that market forces exist and that they always move the market price toward the equilibrium price.  Now if the "supply curve" is this nice knee shaped curve and the demand curve is this nice knee shaped curve both of these assumptions are true.  And they don't have to be exactly knee shaped.  Mathematically, the supply curve needs to be "continuous" and "monotonically increasing".  Similarly, the demand curve needs to be "continuous" and "monotonically decreasing".  Continuous means no kinks or gaps.  Monotonically increasing/decreasing means the curve always goes up/down at least a little as you move from left to right.  If these assumptions are not true then there may be no equilibrium price (or more than one) or there may be no "market force" to move the price.  Or, worst of all, the market force may move the price in the wrong direction.

There is another simplification going on.  In introductory economics classes all the analysis starts out using static curves.  They don't change with time.  Once the basics have been covered then the idea that the curves may change with time is introduced.  But this is usually done in a very simplistic manner.  Frequently a situation where the shape of the curve remains the same but the whole curve is slid slightly up or down the price axis is the only one discussed in any detail.  This vastly underestimates the complexity of the real world.

Most obviously either or both curve may not be the pretty knee shape from the textbook.  It may have twists and turns.  You can roughly calculate the "market force" that pushes the price toward its equilibrium point by looking at the distance between the curves.  A big distance results in a big force and the price moves quickly.  A small distance results in a small force and the price moves slowly.  This kind of thinking allows economists to calculate the "price trajectory" of a market.  But if the curves are more complex the market force may become less predictable and the price trajectory essentially a mystery.

Another assumption is that the curves move slowly and smoothly.  But "price discontinuities" are common in the real world.  A curve may be abruptly replaced by a curve with a considerably different shape located in a different place on the price scale.  This too throws any kind of traditional economic analysis out the window until things settle down.  Wars, bankruptcies, and regulatory changes, are a few examples of events that can have a radical impact on one or both curves.

Finally, wheat is traded in a "pit" at the Chicago Board of Trade.  The pit represents the marketplace.  It performs two functions.  First, it brings together a large number of buyers and sellers.  And second, it records and publicly broadcasts the results of transactions.  The price and quantity of each wheat sale is recorded and distributed publicly. 

That leads me to my definition.  A "market" is a situation where you have a commodity, in this case wheat.  There are a large number of independent buyers and sellers.  There is a marketplace where sales are recorded and the information is distributed.  So price and quantity information for each sale is publicly available.  And finally, prices conform to the attributes of a market.  There is an equilibrium point, although it can change with time.  And market forces move the price toward the equilibrium point.

The wholesale market for wheat is a classic "market".  Let's look at the opposite, a natural monopoly.  Consider sewerage.  Your house generates sewerage.  Buildings and businesses generate sewerage.  There's lots of supply.  But there's no demand.  No one wants the stuff.  Theoretically this could be fixed by considering negative prices.  "I will buy a gallon of your sewerage for -$10".  In other words, you will pay me $10 to take away a gallon of your sewerage.  In terms of the graph and curves this works just fine.  So mathematically there is no problem.  But there is a practical consideration.  Sewerage is usually transported through underground pipes.  It is fantastically expensive to install and maintain this system of pipes.  No one is going to take a flyer and build a sewerage system "on spec" in the hopes that they can eventually turn a profit.

From a practical point of view building and maintaining sewerage systems ended up being handed over to government.  City and county governments build and maintain sewerage systems.  Things work like a market in the sense that negative prices are paid (fees are collected) for the product.  But you have many independent sellers (for a negative price) and only one buyer in an area.  This results in no market pressure.  Political pressure is substituted.  Elected politicians are pressured to provide a good quality of service for a "reasonable" price.  Is the price the proper "equilibrium price" we would expect of a market?  There is no way to know.

We are all familiar with natural monopolies.  We know them as "utilities".  The common utilities, besides sewerage, are water, electricity, electric power, telephone, cable TV, and natural gas.  Recently the FCC decided to add another, Internet access.  Ignoring Internet access for a moment, the latest addition to the list is Cable TV.  It is possible to imagine multiple cable TV companies competing for your business but that never really worked out.  One company usually was able to sign up way more customers than anyone else.  At that point, in a financial calculation that mirrors the "sewer pipe" scenario I discussed above, other companies decided it was too risky to lay out the money to run the necessary wiring to each person's house.  There may be a market served by two cable companies somewhere in the U.S.  But I don't know where it is.  And theoretically satellite TV delivery represents competition.  But so far most people opt for wired cable over satellite cable.

And let me turn for a minute to a traditional utility:  phone service.  Not that long ago the only practical way to provide phone service was to run wires all over the place and install an expensive "central office" facility in each neighborhood.  This led to the standard "utility" situation where it was not practical for a second company to come along and spend the large amount of money necessary in hopes of picking up enough business to make a profit.  But this model in on longer the whole story.  Duplicating the traditional wiring plant of an old line phone company is still fantastically expensive.  However, it is no longer necessary.

It is now possible to use Voice over IP (VoIP) technology to replace all that wiring.  So you have companies like Vonage and Skype.  An inexpensive box can bridge the traditional phone wiring in your house so that your phones are connected over the Internet.  Beyond that is the mobile phone business represented by companies like T-Mobile and Verizon.  The typical homeowner now has a half a dozen alternatives to the traditional "land line" approach to providing telephone service.  As a result I believe that the regulatory burden of land line phone companies should be drastically reduced.  All pricing regulation should be eliminated.  I would even be open to reducing the "must serve" requirement.  Now land line phone companies must provide service to everyone in their service area regardless of cost or difficulty.  A small amount of regulation should remain, 911 service, a few other things like that, but the rest should be dropped.

This "you have to spend fantastic amounts of money up front" attribute is what defines natural monopolies.  Where there is no practical way to get multiple providers we are forced to fall back on a regulatory approach as a substitute for the "market forces moving us toward the equilibrium price" action of a functioning market.  Frankly, Internet providers have been behaving like natural monopoly players for some time.

In the early days Internet service was provided via dialup modems.  It was relatively easy and relatively inexpensive to set up a service.  To switch providers all a customer had to do was change the phone number his modem dialed and a few other things.  So we had a lively market frequently consisting of a half a dozen or more viable options.  Then (initially not very) "high speed Internet" came along.  There were two technology options.  Cable companies figured out how to piggyback Internet service on the same wiring used to deliver the cable signal.  This allowed them to use the same wiring to distribute both Internet and cable service.  They had to add equipment at their office and at the customer end.  But once that was done the system worked well and instantly became a big moneymaker.

And when this technology was initially being rolled out the cable companies were supposed to lose to the telephone companies.  There was a technology called DSL that was supposed to be much better than anything the cable companies could come up with.  But DSL never lived up to its promise.  DSL was supposed to allow the phone companies to do the same thing as the cable companies, namely piggyback an Internet signal over the already existing phone line.  So, like the cable companies, they would not have to string any additional wires, just put some more equipment in their offices and another box in the customer's home.  The problem is that it never really worked.  Only some phone lines were suitable.  It turned out that most phone lines weren't.  So the phone companies could not DSL most of their customers.  But the cable companies could Internet all of their customers.  And then the advantage the phone companies were supposed to have went away.  The cable companies kept upping their speeds.  Soon DSL was slower than cable.  As a result of all this phone companies were never able to roll out enough DSL installations to make the business profitable. 

So today the "Internet access from home" business belongs 90+% to the cable companies.  Given this situation it makes complete sense that the FCC has decided that Internet access needs to be regulated like the natural monopoly it is, in other words like a utility.  The cable companies have been squawking.  But the FCC says it is not going to regulate prices.  As a result, the price of the stock of the major cable companies went up the day the FCC made its announcement.  I expect the squawking to dry up pretty quickly.

Having looked at the extremes I now want to look at a commodity that lies somewhere between, money.  And let me start with the most basic question of all: what's money?  My definition of money is "tangible value".  We all have an intuitive idea what the word "value" means.  What money does is turn that intuition into a tangible thing.  You can hold money in your hand.  More importantly, you can trade money for valuable things (food, jewelry, etc.) and you can trade valuable things (jewelry, labor) for money.  A unit of money, say a dollar, is the tangible incarnation of a unit of value (the worth of a dollar).

Theoretically, a unit of money is supposed to have a constant value.  That allows us to trade one thing of value for an appropriate amount of money and then turn an appropriate amount of money into some other thing of value.  And theoretically the value of money should remain constant over time.  That lets you borrow a certain amount of value in the form of a specific amount of money and then return the same amount of value in the form of the same amount of money later.  This is a temporal transaction.  You can also turn something valuable (i.e. labor) into money (i.e. a paycheck) and then immediately turn that money back into a different something valuable (i.e. groceries).  Think of this as a lateral transaction.  And money allows you to mix temporal transactions with lateral transactions and it allows you to mix transactions involving different amounts of value/money.  That's very convenient.

Actually economists have determined that for reasons of economic health the value of money should decrease slowly over time.  Why?  It is often difficult to reduce the price of many goods.  But for economic reasons it is important that those prices be reduced.  Inflation, the hopefully slow decrease in the value of a unit of money does this automatically.  Since the value of money has turned out to never be exactly constant the economy has developed many methods of dealing with low rates of inflation.  And it would appear that even a small amount of deflation (the opposite of inflation - the increase in the value of a unit of money) is destructive to economies.  The details are complex so I am going to skip them.

Then there is the idea of tying the value of a unit of money to a specific quantity of a commodity.  Over time many things have been tired:  Salt, sea shells, beads, and silver are some of the commodities that have been tried out at some place or some time or another.  And then there is the modern favorite:  gold.  I am going to use gold as my example of why this does not work as well as people think it does.

When I was a kid the price of gold was pegged to the dollar.  An ounce of pure gold would get you $35 and vice versa.  Then in 1972 the price of gold was set free.  It immediately went up a lot.  This was what everyone expected.  It was why the U.S. went off the "gold standard".  After not too long a time it soared to $200/oz.  Then it crashed to under $100.  A few years later it soared to over $800/oz then it crashed again.  It stayed under $800 for many years.  Then a few years ago it started rising.  It went up and up and up.  It eventually reached more than $1,900/oz.  Since then it has crashed back.  It has been down in the $1,100's and currently sits at about $1,200/oz.

You know that part about where the value of a unit of money is supposed to stay relatively constant?  Well, gold has flunked that test.  Any graph of the value of the dollar for the same time period will show some ups and downs.  But they will be extremely modest ups and downs compared to a similar graph of the price of gold.  You have to take money that is not anchored to a commodity on faith.  This makes lots of people uncomfortable.  That's why so many people are drawn to anchoring the value of a dollar to some specific amount of gold or possibly some other commodity.  But, as I demonstrated above, it just doesn't work.  So we are stuck with that uncomfortable feeling whether we like it or not.

Everyone agrees that the goal is to keep the value of the dollar nearly constant.  Economists typically think it is a good idea to keep inflation between say 1% and 2% per year.  That's not constant but it is not a big change either.  And the economy has figured out how to deal with a small amount of inflation, especially if it is pretty predictable.  The inflation rate has stayed within this range in the U.S. (with the exception of a few short term blips) for about 20 years now.   Expectations are that this will continue to be true for at least the next 5 years.  That track record for stability beats any commodity you can think of and it especially beats the track record of gold.

I have been talking about the value of money, specifically the dollar.  Now let me turn to the price of money.  It sounds like pretty much the same thing but it is not.  The price of money is the interest rate you pay to borrow money or receive when you lend money.  Here things get very interesting.

A good working description for how we get high inflation is "too much money chasing too few goods".  Keeping inflation under control is the core goal of the "monetarist" school of economics most notably associated with Milton Friedman.  It also goes by the nicknames "Chicago School" (Freidman was in residence at the University of Chicago for many years) or the "freshwater school" (the University of Chicago is near Lake Michigan, a freshwater Great Lake). In our modern world everything is boiled down to a two sided "black and white" struggle.  This role of "the other guys" is currently filled by Keynesian economists.  Many of them are located on the Atlantic seaboard and the Atlantic Ocean is composed of salt water.  So they constitute the "salt water school".

The Friedman approach is to use the "money supply" to control inflation.  If inflation is too high we fix the "too much money" side of the formula by directly reducing how much money is around.  If we bring the amount of money into balance with the amount of goods inflation should come down.  We monitor the money supply and inflation.  If inflation is too low we increase the money supply.  If inflation is too high we decrease the money supply.  Friedman went as far as to recommend money supply growth targets which he thought would result in a steady and sustainable rate of growth in the economy as a whole coupled with a low rate of inflation.

That's not how it has been done historically.  Historically you didn't control the money supply.  You controlled interest rates.  If inflation is too high you raise interest rates.  High interest rates caused borrowing to dry up which effectively reduced the money supply and got rid of the "too much money" problem.  If inflation was too low you lowered interest rates.  This effectively increased borrowing which increased the money supply and so you had more money chasing the available goods and things would come back in balance.  That was how it was supposed to work.

In about 1970 the supposedly impossible happened.  We had what was then called stagflation.  We had high inflation couple with a stagnant economy (low to non-existent economic growth).  Lowering interest rates was supposed to fix the problem but it didn't.  Keynesians were the group associated with the "control the economy by manipulating interest rates" approach.  When this didn't work they fell out of favor and the monetarists came into vogue.  More recently the crash of 2008 did in monetarists.  Making the recommended change to the money supply did not fix things.  That's why Keynesians are back in favor now.  But as I have pointed out elsewhere (see http://sigma5.blogspot.com/2015/01/metaeconomics-introduction.html) none of the various economic schools work all the time.  So, with all that as background let me get back to my original question:  is the "money market" a market?

And by "money market" I am not talking narrowly about, for instance Money Market Funds.  Instead I am talking about the broad market for money.  And by "market" I mean what I was discussing above.  So we have a commodity, money.  There are all kinds of ways to buy and sell money.  For instance you can make or recoup loans.  You can make or cash out investments.  And there are other ways.  If the market for money is a "market" then we should see the supply and demand for money act as the invisible hand of the marketplace directs.  The price of money should move toward the equilibrium point (a specific interest rate which may change over time).  And if the market for money is out of equilibrium (supply and demand are not in balance) then the  price of money should move toward the equilibrium point.

In fact, everything right now is all messed up.  Interest rates are extremely low.  Every measure says that there is way to much money sloshing around.  That should mean that inflation should be skyrocketing but it isn't.  And with lots of supply around (both lots of money and low interest rates - a low cost of money) people should be falling all over themselves to borrow money, spend, and do all those things that increase the demand for money.  But they are not.  We are at a point that every economic theory says should be impossible.  It should be impossible to have lots of money around while simultaneously having low inflation and low interest rates.  There is no economic theory that says this is possible for any length of time.  But this is the state we have been in since 2008.  That's plenty of time for the "invisible hand of the marketplace" to kick in and start fixing things.

Part of this is understandable.  As I indicated above it is possible to change the interest rate for policy reasons.  It was SOP a few decades ago.  And that's precisely what the Fed has done.  They have driven the short term interest rate (the rate for funds loaned for short periods of time - overnight to a few months at most) to near zero.  That is a traditional lever that has been used in the past to manipulate the economy.  But the Fed has gone far beyond that.  Historically the Fed has only manipulated short term rates.  It was thought impossible for the Fed to directly influence intermediate term rates (roughly 1 - 5 years) or long term rates (roughly 10 - 30 years).  All they could do was jawbone, make ominous pronouncements without any actual power, that were supposed to encourage intermediate and long terms rates to move.  But in the fire of the crash of 2008 the Fed found, created, and in some cases was given more power.  They now have tools (the details are complex and I am not going to go into them) to directly manipulate intermediate and long term rates.  And the Fed has used these tools to force intermediate and long term rates down to historic lows.

So interest rates are where they are due to direct manipulation by the Fed rather than market forces.  Inflation has ended up at a low level, under 2%.  The Fed is supposed to manage the economy to achieve, among other things, a low inflation rate.  But mostly what they have done is notice it is where it is supposed to be.  They have noticed that the other things they are doing have not increased inflation so they have restricted their actions to continuing to keep an eye on it.  But in a low interest rate and a low inflation rate economy economic activity is supposed to take off with a roar.  People with money are supposed to invest.  Buying bonds, for instance is a bad idea because the interest rate is low.  So people should buy things or start companies or that sort of thing.  But they haven't been doing that.

The same is true of corporations.  Corporations have tons of cash and excess borrowing capacity.  With the interest rate for "blue chip" companies (those with very good credit ratings) the interest rate they borrow at is near zero.  So an investment that nets a 3% to 5% rate of return should look really good.  Senior executives are really smart.  We know this because they are paid a lot of money because they are really smart.  So they should have no problem coming up with ideas for investments that yield those kinds of returns.  An idea doesn't have to be very good because those are very low rates of returns.  But corporations have kept their borrowing to a minimum and have not been investing.

Let me say a word about poor and middle class people.  Both of these groups ran up high levels of debt in the run up to the crash of 2008.  So they were caught out when everything went bad.  Since then they have been reducing their levels of debt like mad.  And, since neither group has seen any kind of increase in their income, in fact, frequently it has gone down, it makes sense that these two groups have not been spending or investing in spite of the pro spend/invest climate.  But rich people and corporations were hurt less by the crash and have done very well since.  Both groups have seen income and net worth grow substantially in the interim.  So, unlike poor and middle class people, they have lots of money.  They have just not been parting with it and that has hurt economic growth.

Paul Krugman has noted all this and come up with a suggestion.  In a low interest rate environment it is easy for governments to borrow and spend.  Study after study after study has indicated that our infrastructure, roads, bridges, the power grid, etc., could productively absorb vast quantities of investment.  The construction business has not been busy and there are lots of construction workers around.  There is also lots of excess capacity in the segments of our manufacturing industries that produce the materials like steel and cement that would be used building and repairing infrastructure.  In other words there is not a "too few goods" problem here at the moment.  So now would be a great time to go on an infrastructure spending binge financed by government.  Since no one else is stepping up to the plate, even if you think it is a bad idea for some reason, it is the least worst idea out there for getting the economy moving again.  But Republicans have been continuously blocking this kind of thing since 2011 when they first got into a position where they could.

So the bottom line is that the market for money is not a "market" as defined above because it doesn't behave like one.  We have seen that wheat is a market.  We have seen that utilities are not a market.  And we have seen that money, although not as extreme a case as utilities, is not a market.  Another way to look at the market for money is that it is a deeply flawed market.  It has some market like characteristics but the flaws interfere with market-like behavior.  This view works very well.

It turns out that all markets are flawed.  In the case of wheat the market is flawed but in modest ways.  Crop subsidies and other agricultural programs distort it.  But there are adjustments that can be made so that it generally exhibits "market" behavior.  Utility markets are so deeply flawed that any market-like behavior must be created artificially by regulation.  Historically money has behaved more like a market.  But the amount of distortion and intervention has been so extreme in the period since 2008 that during this entire period it has behaved more like a utility market.

There is an effort underway, it has been ongoing for several years now, to change conditions to a point where enough of the distortion and intervention have been removed that money can again behave in a more market-like way.  It seems to be the goal of everyone, the Fed, its detractors, outside commentators of all stripes, to pull this off.  Various predictions have been made as to when this state can be achieved.  Those estimates have regularly required revision to push the date further out into the future.  Last year people were holding out hope for some time this year (2015).  Now it looks like 2016.  We'll see.

It turns out to be valuable to look at any market and try to spot the flaws.  If we look at Wall Street generally and the market for various kinds of securities a flaw that has been exploited by the "street" as long as the street has existed in the information divide.  Wall Street insiders work hard to be in a position to know a lot more than their customers.  In the run up to the crash of 2008 many Wall Street insiders knew they were dealing in crap investments.  But they told their customers and the ratings agencies that that the investments were high quality.  This allowed Wall Street to sell a lot of crap at high quality prices.  This resulted in tremendous amounts of profits and bonuses.  Before everything fell apart this system was working very well for insiders.  They had every reason to not change it.  And lobbying and campaign contributions were a cheap "cost of doing business" investment in maintaining the status quo.

Oil is another flawed market.  Most obviously many of the biggest players are countries like Saudi Arabia.  The Saudis use the Oil market as an extension of their foreign policy.  They are not alone.  Argentina, Mexico, even the U.S. has at times used Oil to bolster foreign policy objectives.  And I'm not even going to go into all the special Oil related taxes provisions.  Instead ask yourself what happens when the price of Oil changes drastically either up or down.  The wholesale price of a barrel of crude oil has halved from about $100 to about $50 within a period of less than six months recently.  I am old enough to remember more than one "Oil shock" where the price jumped up by large amounts.  In each case where the price moved a lot, either up or down, what happened to demand?  Demand should have shot up a lot when the price dropped recently.  Demand should have shot down a lot as a result of those Oil shocks in the past.

What actually happened was that demand changed very little over the short run (days to weeks and even to months).  That's because the kinds of changes that would move demand for Oil are not possible to do quickly.  You still drive back and forth to work regardless of whether Oil is cheap or expensive.  You still have errands to run, a home to heat, etc.  You can cut back a little if the price goes up or increase your consumption a little if the price goes down.  But these changes move demand for oil by at most a few percent.  Over time you can get a big car/truck that gets terrible gas mileage or go on more and longer vacation trips if the price drops.  Or you can buy an econo-car or sell your motor home if the price goes up.  You can even change your house from Oil heat to Gas heat.  But these changes take years.  So when viewed over a time frame of years Oil behaves somewhat like a market.  It does not when viewed for short intervals.

I used to work for a dairy.  The price we bought raw milk from dairy farmers at was set by a complex formula based on the price of milk on a small exchange in Minnesota.  Only a tiny percentage of milk produced in the country was traded on that exchange.  But it was the only milk exchange in the country.  So that's what got used.  The price we sold the products we made from that raw milk, 2% milk or butter or whatever, in the supermarket for was much more based on the usual market forces.  It made the financial management of the business very complex.

Then there's the issue of social benefit.  A market achieves a purpose.  The question is:  does it achieve the right purpose?  In many cases the right purpose may be low price and plentiful availability.  Most people would be happy to characterize the wheat market that way.  But consider Oil.  Oil consumption generates greenhouse gases which contribute to global warming.  You may say "I don't care.  I want the benefits Oil brings me and I am a Climate Change denier".  OK.  This is consistent with the Republican/Conservative position that markets solve all problems and deregulated markets solve them best.  But how about abortions?  An unregulated abortion market would make them cheap and widely available.  That's all to the good, right?

Republicans and Conservatives think that cheap and widely available abortions would serve the wrong purpose.  So what do they do?  The do what they can to make abortions expensive and difficult to obtain.  And one way to do this is to pile on the regulations.  I am not trying to get into a big political fight here.  I picked a pair of markets that were important to Republicans/Conservatives because I wanted to show that even someone who generally favors market based solutions and deregulation finds that for social benefit reasons the right thing is to do the opposite.

It would be easy to find a similar pair of markets where Democrats/Liberals would similarly find themselves in favor of a market based low regulation market  even though they are more suspicious of markets and generally more in favor of regulation.  In other words, they would favor the Republican/Conservative approach.  And of course with the other market they would favor a non-market based solution and/or more regulation, a position more in line with their general philosophy.  It doesn't matter what your belief system is you are going to end up on one side of the argument in some cases and the other side of the argument in others.  In other words, social benefit is important to all of us.  It makes sense for people to disagree on what is the appropriate social benefit to aim for.  It does not make sense to argue that social benefit should not be taken into consideration.

Every market has flaws.  Some are serious.  Some are not.  In some cases there is general agreement on what flaws a market has and how serious they are.  Where there is a disagreement on the social benefit of a particular market there will likely be a disagreement on the degree and type of flaw associated with that market.  The flaws found in many markets require some kind of intervention, typically regulation.  Wall Street must be forced by regulators to be honest and transparent with its customers.  (Others may disagree but I think the crash of 2008 speaks loudly in favor of my position.)  The wholesale milk market is already highly regulated and frankly the dairy business would not exist without these regulations.  As a result of this consensus there is no push to deregulate.  And so it goes.

Politicians, currently mostly Republicans, are the great champions of markets, and in particular unregulated markets, as the solution for everything, except of course when they are not.  It is dishonest to claim to always be in favor of (or opposed to) unregulated markets.  It is also dishonest to claim that social benefit analysis does not figure into things.  Everyone takes social benefit into account either consciously or unconsciously.  Being unwilling to admit that this is so is just a way of lying to yourself.