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How America Pays Taxes—in 10 Not-Entirely-Depressing Charts

Courtesy of The Atlantic. By Derek Thompson.

A brief history of where your money goes and why.

The appropriate thing to say about taxes on April 15 is that they’re absolutely terrible. And yes, sure, they are, in a way. Filling out taxes is miserable (especially considering the IRS could probably do it all for you), watching money leave your bank account stinks, and seeing the difference between your adjusted gross income and your take-home pay is depressing.

But perhaps more than any other law, taxes are a keen reflection of what we value as a country. You know what you’re paying this year. Here’s some information about where your money’s going—and where it would go if you lived in Spain, or France … or in the U.S. 50 years ago.

Where do our federal taxes go?

Defense and insurance. It might not surprise you that about $1 in every $5 of federal taxes paid goes to defense. But the rest of the budget is overwhelmingly designed to insure the old and poor and provide a safety net. Social Security, Medicare/Medicaid/CHIP, safety net programs, and veterans’ benefits account for nearly two-thirds of the budget (not including interest paid on our debt).

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Talent is Arriving

By Lloyd Graff.

PMPA Tech Conference 2014

I attended my first Technical Conference held by the Precision Machined Products Association (PMPA), this past weekend in Indianapolis. Some observations.

I think there are a lot of good things going on in American machining firms now. Talent is arriving, just in time to replace the tiring Baby Boomers whose feet are aching from 40 years of tending gear gnashing machines. Young people are coming in via community colleges, or out of sheer boredom of frying lettuce at Subway for $9 an hour, 26 hours a week. The message that you can earn a decent wage, earn respect, and find economic stability in machining is finally starting to get through the franchise blahs. I find this is particularly true in the Latino community, though Eastern Europeans and Vietnamese are also entering the ranks. They are bringing youth and energy in American job shops, if the PMPA is representative. Miles Free, PMPA Director of Industry Research and Technology, calls Latinos “the new bench.” I think they are first stringers already at many plants. Miles, also proudly told me his youngest son recently left University, enrolled at a community college and is now a certified CNC operator and liking it.


Machining businesses are still male dominated, but not quite as much so as a few years ago. Women are starting to make their mark, but often come in through family knowledge. Very few are coming into management via the factory.


Several members at the conference told me that a bit of tension is brewing within the PMPA about the growing number of “Technical Members” in the organization. Technical Members, such as my company Graff-Pinkert, are firms selling goods and services to manufacturers, who are classified in the PMPA as “Active Members.” With the “Technicals” providing the PMPA a hefty chunk of budget funds and a lot of organizing energy, they will be pushing for the perks of full membership. I think the PMPA’s difficulties in attracting a lot of new machining firms to its ranks yet strong magnetism for suppliers, will make for some interesting politics in the organization in the coming years. I imagine other trade groups have similar issues.


One of the fascinating side stories of the conference was the competing open houses of the machine tool builders Index and ZPS last Monday night, both located near Indianapolis. Index is a 100-year-old German builder of high-end CNC lathes and multi-spindles. ZPS is an Italian owned, Czech builder focused on high quality, modern multi-spindles, both cam and CNC. Olaf Tessarzyk, head of ZPS America, actually used to run Index in the United States.

Index has a magnificent headquarters in the Indianapolis suburb of Noblesville, with perfect lighting, aisles big enough to play soccer, and a sanded and sealed painted floor you’d be happy to eat bratwurst off of. ZPS is smaller and a little less shiny, but still emitted a good energy.

Index’s open house had a polka band with musicians in traditional German garb. Their buffet served sausage and sauerkraut. ZPS featured a “pig roast” and an 18 foot screen showing the NCAA basketball final. Index gave away diaries, while ZPS passed out bright red tee shirts. Our Graff-Pinkert team drove to both places in a hideous rainstorm. We may have been the only folks who did.

Impossible to say who won the Monday Night Fight, but ZPS clearly had the bus-filling edge, due to its strong promotion and a drop dead gorgeous bus recruiter to shepherd the docile undecided men into their transports. She gets my MVP award, hands down.

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Lloyd’s Scuttlebutt

By Lloyd Graff.

Capital Equipment Business Slow in 2014

We’ve seen April Fools Day. My turn. What’s happening?

For machining people, the first quarter was solid if not spectacular. The harsh winter hampered production, and inventories piled up in the last quarter of 2013. Automotive was a little soft in January and February, but generally machining folks were satisfied. Not so for companies selling capital equipment.

After a strong finish to 2013, machinery and capital goods firms were looking forward to a strong start in 2014. They did not get it from the scuttlebutt I hear. Nobody knows why for sure. You can blame the rush to use the investment tax savings last year, or tight-fisted big companies who are determined to squeeze more profit out of relatively flat sales (and succeeding). Maybe it’s sticker shock on European manufactured goods, or it’s the ridiculous five-month winter. However you spin it, the first quarter was a disappointment for capital goods sellers. Three more quarters to catch up.


We are coming off a terrific year for the American stock market. It caught everybody by surprise with 25-30% gains for the indexes. It happened with the Fed easing off the gas pedal, interest rates rising (but not a lot), top line sales growth struggling, persistent unemployment, huge budget deficits, Washington gridlock and mediocre growth in the economy. All these headwinds, yet people piled into stocks.

My own feeble answer is “where else do you invest?” Baby boomers see that retirement on interest is impossible at these rates. Real estate is interesting, but difficult for most people to get into on their own. Precious metals and collectibles are tough in times of very low inflation. Starting a business is an option for some, but a forbidding challenge for most. So people pile into index funds and hope for the best. Last year it worked beautifully.

But I always try to keep in mind that the crowd is often wrong, especially if they follow the pundits. Almost every predictor last year was certain that interest rates were going to spike when the Fed stopped priming the pump aggressively. So far, rates are up very modestly on a historical basis. Inflation continues to be almost non-existent. Commodities are flat. Copper and gold have tanked. And this is while running huge federal deficits. The old equations on inflation no longer seem to hold. I ask, can you raise the prices for your product? I doubt it.


This is the best NCAA Tournament I can remember. Overtimes, upsets, tremendous defense. I love it. I like Kentucky with its superior athletes to win it, but I am rooting for Wisconsin.


One of the greatest political ironies is that President Obama has only one play that Vladimir Putin will respect – flooding the world market with cheap oil and gas, plus dirty old coal. If Obama okays the Keystone Pipeline, makes it easy to drill on Federal land, and embraces fracking as the source of national power, he could scare the Ruskies silly. He could even threaten to use the Strategic Petroleum Reserve, which is full, to knock down world oil prices. Oil at $75 would probably end Putin’s political career and wreck the Russian economy, which is built on oil almost as much as that of Saudi Arabia and Venezuela. It would be a juicy irony for Obama, who has catered so ardently to the Democratic Greens, to use American carbon to punish Putin on Ukraine.

Question: Are you working more for less money than you did five years ago?

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A Prayer For Baseball

By Lloyd Graff.

Bull Durham: Baseball Cliches

At the beginning of our observance of the Jewish Sabbath last Friday night, we said the customary opening prayers over the Shabbat candles, wine and bread. I then had the impulse to add one more prayer called the “Shehecheyanu,” which is a special thanks for surviving to that day. It is also tradition to say it when doing something for the first time that year. My wife asked me why I had taken this moment to say it. I said, “Risa, it’s opening day of the baseball season on Sunday. I get to celebrate it again.” And she knew I really meant it.

I know I’m hopelessly sentimental about this stuff, but baseball is a secular religious experience for me. It signals another chance to win, another hopeless challenge against impossible odds as a Chicago Cubs fan. But who knows? Last year the Pirates made the playoffs and Boston went from last in 2012 to winning the World Series behind a Japanese reliever who barely made the roster and David Ortiz who batted .600 in the playoffs after everybody thought he was washed up before the season. Miracles can happen. Kansas City could win it all this year, maybe the Twins. God knows.

Do I know my team, the Cubs, stink? Of course, but it’s April, I still have hope.

One of the things I love about baseball is the language and literature of the game. No other sport has anywhere near the library of books, essays, plays and movies as baseball. I grew up reading THE BABE RUTH STORY, then THE LOU GHERIG story. I was no bookworm as a kid, but those books captivated me. I graduated to Bernard Malamud’s The Natural later, but honestly the movie is better than the book. My favorite movie is Bull Durham, though I loved it more the sixth time I watched it than the first. My runner up flick is the less acclaimed but equally wonderful For the Love of the Game, also starring Kevin Costner. I also strongly recommend book (and film), Moneyball, by Michael Lewis, which is great, but not even his best baseball book. Lewis’ story about his high school baseball mentor, Coach: Lessons on the Game of Life, published in 2005, is his best piece of work.

It seems like something really cool comes out every year. Last year 42 came out, the story of the great Jackie Robinson breaking the color barrier. I rate Robinson one of the most important figures of post war America. The movie is no classic, but worth seeing.

The long article in Sunday’s New York Times on Masahiro Tanaka, the Yankees’ huge signing of the off-season, is a worthy read for anybody who likes baseball or is intrigued by Japanese culture. Reporter Barry Bearak went to Itami, Japan, near Osaka, to really get into the life of Tanaka, who signed a $154 million contract after going 24-0 last season in the Japanese Major League. He was a catcher growing up who was considered a prodigy by 5th grade. In Japan, youngsters are recruited for baseball like LeBrons. The Japanese national high school baseball championship is the equivalent of our NCAA Basketball Tournament in prestige and national following. Tanaka could have gone to high school anywhere in the country, but chose to go to Hokkaido to learn the game–a place so cold he literally took grounders on ice and routinely hit in the snow.

Tanaka ultimately turned to pitching at the urging of his high school coach, but credits growing up as a catcher for some of his success. He decided to come to America for the huge money (three times more than he could get in Japan), the competitive challenge, and to follow his model, Yu Darvish, who signed three years ago with the Texas Rangers. Darvish is A favorite to win the Cy Young award this season.

Baseball is back. The planet has cycled. More is right with my world.

Question: Should college athletes be paid?

Bull Durham: Baseball Cliches

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Home Alone

By Lloyd Graff.


Two friends sent me David Brooks’ column, “Going Home Again,” which appeared in last Thursday’s New York Times. Rarely does one person recommend a column out of the blue, so when two astute people send me one I take notice.

Brooks wrote about hearing the British writer-musician, Sting, speak at the TED conference in Vancouver, British Columbia. Sting spoke about how years ago he lost his creative juices. He just could not come up with fresh exciting music. At first it was a short flatness, then weeks and months of drought. It stretched into many years of producing nothing vibrant, nothing that made him happy or excited an audience.

Finally he started thinking about his childhood in the north of England. He lived on a street that led down to a huge shipyard where giant ocean-going vessels were built. He circled back to childhood and his muse returned. He has a new musical, “The Last Ship,” which he is performing in New York and will soon be on Broadway.

The point of Brooks’ column was the value of circling back to our youth to find inspiration. It is not just the memory, it is the experience we bring to the images of our past. He evokes the Robert Frost poem about the path not taken in the woods to illustrate how older people go back in memory and “impose narrative order on choices that didn’t seem so clear at the time.”

I think back to high school baseball, being benched by my coach after a disappointing pitching performance, and then quitting the team in anger. It was perhaps an immature response by a 16-year-old boy, but it quickly led to writing sports for the high school paper, which led indirectly to becoming Sports Editor of The Michigan Daily, which inspired me to be an off-and-on writer for 50 years. The seeds of our creativity lie in our childhoods but they are nourished by experience.

And from an economic and esthetic standpoint it is creativity that gives us joy and success. When I visit my sister, Susan, I always ask her to play the piano. She is a gifted musician and I love to hear her play. Her music stirs my memory and my soul. She plays songs from the great musicals like “My Fair Lady,” “The Sound of Music,” “South Pacific” and “Oklahoma,” and I sing with her and cry. It brings back memories of singing with my Dad and Sue when we were kids. There is a strength lingering in those memories.

I still sing a lot even if I forget the lyrics. It gives me pleasure and ease. It makes me feel more connected to myself. When I have that feeling of peace and connectedness I feel more access to my uniqueness and personal vision of the world.

I had a discussion today with a fellow who builds special attachments for screw machines. He gets fired up when he talks about thread milling. Now he’s starting a new screw machine rebuilding business. I told him he was crazy to get into rebuilding because he is deflecting himself from his creativity to focus on the mundane, for which he was going to be paid by the hour.

I sincerely believe if you have a muse you need to use it and use it hard, or it will evaporate or hide. I hope you all are in touch with your special gift. If not, maybe you should follow the bread crumbs back to your roots.

Question: What songs bring back sweet memories for you?

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Why We Can’t Get Along

By Lloyd Graff.

I admit I was surprised at the tempo and fervor of the comments on my last blog (“Working For Nothing“). I thought I was writing a little piece about the challenge to wages by technology. But what you, the readers, took off on was the generational divide, which apparently lurks below the economic and political issues of the day like an active volcano.

Younger folks see a structure rigged to protect the entrenched interests of fading older people who want all the goodies for themselves as they work longer than they should, and then draw on fat pensions. Older folks see yuppies who don’t want to pay their dues like they did. As the aging see their strength ebb they want to hang in there at all cost. Let the younger generation wait, they have time on their side.

The way the insurance companies played Obamacare only abets this drama, because its linchpin is that younger healthier people will support older sicker ones. But the younger folks have not followed the script, apparently shunning supposedly favorable rates and gambling that they can beat the game by staying healthy or trusting the emergency room at the hospital. Perhaps we would have been better served by Medicare for everyone, but in the end we are all stuck with the Obamacare compromise brokered by big insurance companies which everybody dislikes and the young are trying to game.

Then there is the minimum wage push, labeled “income equality,” by self-serving Democrats going into the next election. The statistics all show a widening gap between rich and poor, and a shrinking middle class. Today’s Europe has addressed income inequality with heavy progressive taxation and wealth redistribution through social programs. Americans still viscerally hate government intrusion, so European-style Socialism is generally still unpopular. But lousy entry level pay and a more distant path to a “middle class lifestyle” is pitting the young versus old in this country.

I see neither political party able to figure out how to maneuver the young versus old resentment because both are victims of their traditional cronies. Unions straddle the age divide, as the UAW Chattanooga vote epitomized. The young Volkswagen workers voted against the Union because they saw it as siding with the older $28 per hour workers in the North. Unions “talk the talk” for the poor but keep shrinking in popularity. But they are potent politically because they ladle a lot of money to politicians. Unions advocate prominently for a rise in the minimum wage, but the economists remind them it will shrink their memberships. The Republicans are not dead set opposed to a rise in minimum wage for exactly the same reason. They know it means more efficiency. Apple may make the next iPhone battery here, but it will be in a robotized factory. Tesla’s huge new battery plant will employ a few folks, but they will be sophisticated and well paid.

I am writing this piece at my local Starbucks. The $10 per hour employees, most of whom work less than 28 hours per week, are smart, personable and mostly on their way up. Many are in school. Few will make Starbucks a career. I do not see the resentment at Starbucks that appeared in the last blog, but now I know it seethes below the surface. But what really took me by surprise in the blog’s comments was the anger of the older folks–and they were all men, I think.

So I wonder whether the older guys, who used to have the economy all to themselves, may be resentful about the onslaught of smart younger women challenging them. Maybe we are labeling the conflicts as intergenerational and are missing an equally significant backlash against the tide of women making their mark in the economy.

Question:  What bugs you about older/younger workers?

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Machinery of an Energy Dream, The Challenge: How to Keep Fusion Going Long Enough

Courtesy of The NY Times. By KENNETH CHANG.

LIVERMORE, Calif. — Fusion, the process that powers the sun, is the forever dream of energy scientists — safe, nonpolluting and almost boundless. Even here at Lawrence Livermore National Laboratory, where the primary focus of fusion work involves nuclear weapons, many scientists talk poetically about how it could end the world’s addiction to fossil fuels.

“It’s the dream of the future, solving energy,” said Stephen E. Bodner, a retired physicist who worked on fusion at Livermore in the 1960s and ’70s, recalling that the military focus was basically a cover story, a way to keep government money flowing to the lab for energy research.

“Everyone was winking,” he said. “Everyone knew better.”

The basic concept behind fusion is simple: Squeeze hydrogen atoms hard enough and they fuse together in helium. A helium atom weighs slightly less than the original hydrogen atoms, and by Einstein’s equation E = mc2, that liberated bit of mass turns into energy. Hydrogen is so abundant that unlike fossil fuels or fissionable material like uranium, it will never run out.

But controlled fusion is still a dream, avidly pursued and perpetually out of reach. Scientists have never figured out a way to keep a fusion reaction going long enough to generate usable energy. The running joke is that “fusion is 30 years in the future — and always will be.”

Now, however, scientists here have given the world some hopeful progress. Last month, a team headed by Omar A. Hurricane announced that it had used Livermore’s giant lasers to fuse hydrogen atoms and produce flashes of energy, like miniature hydrogen bombs. The amount of energy produced was tiny — the equivalent of what a 60-watt light bulb consumes in five minutes. But that was five times the output of attempts a couple of years ago.

When a physicist named Hurricane generates significant bursts of fusion energy with 192 mega-lasers, the Twitterverse revels in the comic book possibilities.

“Wasn’t he in X-Men?” one person tweeted.

“Awesome science story, but there’s a zero percent chance that a fusion laser scientist named Dr. Hurricane isn’t a supervillain,” another chimed in.

Actually, Dr. Hurricane, 45, is more Clark Kent than superhero. Instead of saving the world, his ambition is to explore the scientific puzzle in front of him.

He said it was too early to speculate about future laser-fusion power plants, and tried to deflect credit to the more than 20 scientists on the team. “I don’t want it to be about me or my funny name,” he said.

The fusion reaction occurred at the National Ignition Facility, a Livermore project with a controversial and expensive history. After the United States ended underground nuclear testing in 1992, lab officials argued that some way was needed to verify that the weapons would work as computer models said they would. The National Nuclear Security Administration, part of the Department of Energy, agreed.

The key to the facility is its middle name — ignition. For simplistic government purposes, ignition was defined as a fusion reaction producing as much energy as the laser beams that hit it. To achieve that, an initial smidgen of fusion has to cascade to neighboring hydrogen atoms.

The center of NIF is the target chamber, a metal sphere 33 feet wide with gleaming diagnostic equipment radiating outward. It looks like something from “Star Trek.” Indeed, it has been in “Star Trek,” doubling as the engine room of the Enterprise in last year’s “Star Trek Into Darkness” movie. (NIF’s vast banks of laser amplifiers also served as a backdrop for a starship commanded by a renegade Starfleet admiral.)

The laser complex fills a building with a footprint equal to three football fields. Each blast starts with a small laser pulse that is split via partly reflecting mirrors into 192, then bounced back and forth through laser amplifiers that fill a couple of warehouse-size rooms before the beams are focused into the target chamber, converging on a gold cylinder that is about the size and shape of a pencil eraser.

The laser beams enter at the top and bottom of the cylinder, their heat generating an intense bath of X-rays that rushes inward to compress a peppercorn-size pellet. The pellet contains a layer of carefully frozendeuterium and tritium, the heavier forms of hydrogen, and in a brief moment — about one ten-billionth of a second — the imploding atoms fuse together.

The scientists call it bang time.

Each shot is so short that the cost in electricity is just $5.

Livermore officials were confident enough that NIF would achieve ignition soon after it was turned on that they laid out a plan for building a demonstration power plant, called Laser Inertial Fusion Energy with the appealing acronym LIFE, technology they said could be ready for the world’s electrical grids by the 2030s.

Dr. Bodner, who had left Livermore in 1975 and set up a competing program at the Naval Research Laboratory, was a persistent critic of NIF. In 1995, he wrote a paper predicting that instabilities in the imploding gas would thwart ignition.

“Why did they go forward with something that failed almost immediately?” he said in an interview.

Dr. Bodner championed a different laser fusion concept that he believed would work far better for a power plant. The gold cylinder in Livermore’s design is inefficient. Not all of the laser energy is converted into X-rays; most of the X-rays miss the pellet. Only 0.5 percent of the laser energy reaches the fuel.

In Dr. Bodner’s designs, the lasers shine directly on the fuel pellets. That creates other technical difficulties, but Dr. Bodner said his team was able to show those could be overcome. He retired in 1999.

NIF began firing its lasers in 2009. A banner unfurled on the outside of the building proclaimed, “Bringing Star Power to Earth.” But for all of the technical wizardry, the first three years of bang time were largely a bust.

Livermore’s computer simulations had predicted robust implosions leading to ignition. Instead, each pellet released just a bit of energy. Livermore officials remained publicly confident. Edward Moses, then NIF’s director, told the journal Nature, “We have all the capability to make it happen in fiscal year 2012.”

It did not happen. The cost of building and operating NIF to date is $5.3 billion.

In stars like our sun, the immense gravity provides the squeeze that enables fusion. On earth, there are two main possibilities: powerful lasers to jam the hydrogen together, as at NIF, or magnetic fields to contain a hot hydrogen plasma until the atoms collide and fuse. Most fusion energy research has focused on the latter approach, particularly doughnut-shaped machines known as tokamaks.

From the 1970s to the mid-1990s, the amount of power produced by ever larger machines doubled every year, on average. In 1994, the Tokamak Fusion Test Reactor at Princeton generated 10.7 million watts of powerfor a brief moment. Three years later, the Joint European Torus in England topped that, at 16 million watts.

But by then, without an immediate energy crisis, government financing of fusion research had dipped sharply.

The next step is a mammoth international collaboration known asIter, originally an acronym for International Thermonuclear Experimental Reactor, but now referring to the Latin for “the way.” Construction on Iter has begun in southern France, with the first operations expected to begin in the 2020s — if it comes together.

Under a byzantine, dispersed management structure, the partners in the project (the European Union, Japan, China, Russia, the United States, India and South Korea) agreed to contribute pieces of the reactor, with the central Iter organization attempting to coordinate. A review criticized Iter’s management for delays and cost overruns. Iter officials, however, say they are fixing the problems.

“This is a risk we consider well managed,” said Carlos Alejaldre, an Iter deputy director general.

General Atomics, a company in San Diego, is responsible for a main piece of the American contribution, a stack of huge magnetic coils at the center of Iter that will help control the shape of the hydrogen gas within the doughnut-shaped ring. The company has spent the past few years rounding up the machinery it will need to produce the seven coils, each more than 13 feet wide and weighing 120 tons. It will begin manufacturing a test coil this summer, and company officials say they are on track to finish production on schedule.

If Iter succeeds, a demonstration fusion power plant is to follow.

Tony S. Taylor, General Atomics’s vice president for magnetic fusion energy, started there in 1979. “I wanted to do something that was useful for the future of mankind,” he said. Back then, practical fusion power was expected to be 30 years away.

Thirty-five years later, Dr. Taylor, nearing retirement age, is still waiting. “It could have happened on that time scale,” he said. “What’s limiting our progress is funding.”

For most of his Livermore career, Dr. Hurricane worked in the classified shadows as a nuclear weapons designer. In 2009, he received a prestigious award for solving a mystery first recognized in the 1960s involving the physics of what happens inside nuclear bombs, although he still cannot say much about that.

“There was a discrepancy there,” he said, carefully choosing words. It was not a limitation of computer simulations but something more fundamental. “It was more mysterious,” he said. “We actually did resolve what the discrepancy was and understand the origin of the problem..”

With NIF’s failure at ignition, Dr. Hurricane was asked to take a fresh look. “The managers knew I just like solving problems,” he said. “And I don’t have any other ambition,” he joked.

In the rush to achieve ignition, the NIF scientists had used laser pulses that hit the fuel pellet as hard as possible, but the pellet was being ripped apart before fusion occurred. Dr. Hurricane adjusted the laser pulse to warm the gold cylinder initially. That reduced the implosion pressure, but calmed some of the instabilities, yielding a higher rate of fusion.

In September, Dr. Hurricane’s team had its first shot that showed signs of the fusion reaction spreading through the fuel.

“Now we at least have a sparking match,” said Jeff Wisoff, NIF’s acting director.

Since then, they have nudged up the energy by using cylinders of depleted uranium instead of gold, although the output is still considerably short of ignition.

But Dr. Hurricane is not aiming to solve the world’s energy problems.

“I actually don’t constrain myself personally with the practical applications at this point,” he said. “We don’t have to get a home run here.” In his baseball analogy, he said, he was looking to just get on base with singles and walks, and if enough small things work, then perhaps NIF will get to ignition.

Even then, practical fusion would still likely be decades away. NIF, at its quickest, fires once every few hours. The targets take weeks to build with artisan precision. A commercial laser fusion power plant would probably have to vaporize fuel pellets at a rate of 10 per second.

And if Dr. Bodner is right, the best approach is not even being pursued.

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Working For Nothing

By Lloyd Graff.

Workers sew at typical sweatshop in Guatemala City. Photograph: Jaime Puebla/AP.

I read a provocative article by Jeremy Rifkin in last Sunday’s New York Times, “The Rise of Anti-Capitalism.” His thesis is that much of work as we know it is being devalued by the use of machines and robots. Things and services are also trending toward zero in price. The old view of the scarcity of commodities and labor is being turned on its head by the unlimited availability of stuff at almost no cost. He cites robotics and 3D printing using discarded plastic as feedstock as evidence of the trend towards endless deflation of prices. Rifken understands better than Barack Obama that a $10 minimum wage is becoming steadily more uneconomic in the age of Fanuc factories that produce a billion dollars of controls with virtually no people and car making plants like Tesla’s that are highly robotized.

It is a bit terrifying for me, a baby boomer who grew up in a time that almost deified the “work ethic,” to see the promise of abundance for the many without the rigor of work. Consider the dilemma of China, India and Bangladesh (with its $.40/hour pay rate), which have built their economies on cheap labor as they witness the value of human labor steadily devalued. Potentially I see traditional storehouses of value like copper,  protein and hydro carbons trend down because of replenishable substitutes.

Intelligence will also be a purchasable commodity, as significant advances in artificial intelligence over the next 15 years occur. Many predict that by 2029 a robot will actually be able to hold a “real” conversation with a human.

I recently saw the movie Her, which brilliantly explores this theme of the “human” machine. My son-in-law Scott, out in Palo Alto, is working in this field and thinks it may be sooner than you think.

Jeremy Rifkin’s old school socialist point of view is that the government should guide people into non-profit, charitable pursuits, because profitable work will be so hard to find.

I am not in his corner, but I do believe that the steady deflation of the value of labor, stuff and money is going to change life as we know it. As a practicing “worker by choice” I am scared and baffled by the promise of this brave new world. Are you?

Question: Do you “work to live” or “live to work”?

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China Wakes Up to Its Environmental Catastrophe

Courtesy of BusinessWeek. By Elizabeth Economy.

At its worst, the “airpocalypse” that settled over Beijing and northern China in late February had a fine particulate matter reading 16 times the recommended upper limit, turning Beijing into a veritable smoking lounge. Satellite images, a click away on the Internet, showed a massive toxic haze. Farther south, cadmium-tainted rice has been a staple of Guangzhou’s food supply since at least 2009. The dead pigs that floated down Shanghai’s Huangpu River last year were grotesque enough to haunt citizens even in their sleep.

With such scenes as a backdrop, Premier Li Keqiang suitably declared a “war on pollution” at the National People’s Congress (NPC) in early March and outlined an array of targets, policies, and campaigns to address the environmental ills. His pronouncements are just the latest attempt to stay ahead of an issue that could be a grave threat to the leadership’s credibility.

China’s new leaders, including President Xi Jinping, haven’t embraced environmental protection by choice. They’ve been compelled by a new political reality: an informed Chinese public. Throughout 2011 and 2012, American Embassy officials in Beijing measured and tweeted the true levels of hazardous pollutants in the capital. (Twitter (TWTR) is banned in China, but information boomerangs to Sina Weibo, the country’s dominant microblogging platform, and spreads there just as fast.) Soon, the Chinese were demanding that their own government provide similar data. Beijing complied in 2012, and popular pressure to address the scourge of air pollution grew, even as Li sought to tamp down expectations of a quick solution. “There has been a long-term buildup to the problem,” he said in January 2013, “and the resolution will require a long-term process.”

Over the course of the new leadership’s first year in office, however, playing for time has become unfeasible. A July 2013 study found that air pollution in China’s north reduces life expectancy by an average of five and a half years. Water pollution has been linked to increased rates of cancer in almost 500 villages along China’s highly polluted rivers. An analysis by research firm Beijing Zhonglin Assets Appraisal estimates that Beijing’s traffic congestion costs the city about $10 billion a year in lost economic activity and $7 billion in environmental damage. The capital’s tourism industry has also been hit hard by the life-threatening smog, with the number of visitors to Beijing dropping 10 percent in 2013. Overall, environmental degradation and pollution are estimated by the Chinese Academy of Environmental Planning to cost the $9.3 trillion economy the equivalent of 3.5 percent of gross domestic product annually.

Most important, the Chinese people are voting with their feet. Almost two-thirds of the country’s wealthy—those with assets of $1.6 million or more—have left or plan to leave the country, with the environment one of their most frequently cited reasons, according to the Hurun Report, a Shanghai-based wealth research firm. Those who can’t leave are taking to the streets: The environment has surpassed land expropriation as the leading inspiration for the more than 180,000 popular protests each year.

Much of what the leadership has proposed thus far (targets to limit energy consumption, sulfur dioxide emissions, and chemical oxygen demand, a measure of water quality) is simply a continuation of previous environmental efforts. Even a policy to hold local officials responsible for how well they protect the environment—promoted by the Chinese leaders as a new initiative—has been around for decades but never effectively enforced. Sweeping campaigns such as the one Li announced at the NPC to shut down 50,000 small coal-fired furnaces and remove 6 million high-polluting cars and trucks from Chinese roads sound good, but they’ve traditionally fallen well short of their targets. And a policy to relocate China’s most polluting industries to the western provinces neither serves the country’s long-term environmental interests nor advances stability in a politically fraught region.

What are needed are not bold promises but bold structural reforms. Better coordination among the multitude of government agencies and other actors with a stake in environmental policy is at the top of the list. While Beijing has been busy establishing commissions on economic reform, domestic security, and cybersecurity, it desperately needs to restore the State Environmental Protection Commission—an oversight body eliminated during a government reorganization in 1998. Such a powerful supraministerial commission, which would have the power to convene ministries and push for the resolution of environmental problems, is essential to resolving ongoing interagency battles on issues ranging from pollution fees to resource management.

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Cars, Cry Babies, Crimea

By Lloyd Graff.

Robotic manufacturing of the Model S at the Tesla Factory in Fremont, California.

Automotive is back. America has become a great car-making mecca again. Almost every major builder has a manufacturing presence here. The market for cars is solid, if not exuberant. The industry has headed to the South in Tennessee, the Carolinas and Texas, and even further south into Mexico, which has integrated itself into North American manufacturing like Canada did 25 years ago. The UAW is no longer such a dominant player in the car building scene. The recent rejection of the Union by Volkswagen workers in Chattanooga is representative of its marginalization by younger workers who see the UAW as a vestige of hobbled Detroit that protects its bureaucracy and the interests of its older highly paid Northern workers, at their expense.

An interesting parallel to the UAW civil war among auto workers is the battle auto dealers are waging with Tesla. Tesla rejects the entrenched system of auto franchisees who are bestowed the right to sell cars in a given area. Somewhat like the Starbucks model of company owned stores, Tesla thinks it should own its distribution, create the selling atmosphere it wants, and keep the middleman’s profit. Cry baby car dealer groups are fighting this approach with big expenditures for clout and lawyers. While Tesla is a small player in the market, it has tremendous caché and visibility. If Elon Musk wins his right to sell from company stores, or even by mail-order or in malls, it could erode the value of traditional dealerships, which are already hurting from Costco intruding and Internet price shopping. The specter of Amazon Prime selling Honda Civics also has to be scary for dealers.


Automotive business is strong, but not everybody in the industry is happy. Aluminum, plastics and composites are trampling on steel all over the car. Weight reduction to meet gas mileage requirements is forcing every component maker to experiment with lighter weight options. Steel is the target. Ford’s F-150’s aluminum bed is the symbol of the switchover, but weight reduction is being considered for every component.


We are seeing better mileage everywhere, yet gasoline prices stubbornly stay high. While we are pumping more petrol out of the earth in North America, refining capacity is static. Oil is also being exported to a world market that sucks it up. Fracking has been successful but has not ramped up as fast as people expected because of politics. President Obama still sits on the Keystone XL Pipeline from Canada. The Ukraine standoff is as much about petroleum as it is about Vladimir Putin and his ego.

Crimea has enormous frackable oil reserves. Ukraine has not developed this incredibly valuable resource, but Putin may do so if Crimea ends up part of Russia, which appears likely now. Even if Russia doesn’t develop Crimea’s potential oil reserves (if it acquires Crimea), Ukraine would be at Russia’s mercy without petroleum.

Obama and John Kerry are talking tough, but if Germany, which gets much of its fuel from Russia and provides three quarters of Russia’s investment funds, does not get tough with Putin, Ukraine will be isolated and cold. Putin will probably not be a big winner in this tiff, but he will not be a forsaken loser. He will be seen as a power-hungry thug in the West, but still an important world player. Russia has a lot of negatives – decreasing population, rampant corruption, un-democratic politics, but its control of vast hydrocarbon resources will probably keep it going for at least a decade or two.

Question: Is GM still way behind its competitors?

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