§1. Class management: presentations and procrastination [00:00]
I'm in favor of not procrastinating — get it done early. My father taught me when I was five years old: if you're old enough to be an adult, you should act like an adult. And he held me to that standard. My older brother didn't do so well to it; he had fights with my father, but I found it was just easier to get it done.
The way I learned not to procrastinate — he'd ask my older brother, have you finished such-and-such? My brother would say no, and he'd get upset with him. When I was about seven or eight, he came to me and did the same thing. I said, yep, all done. He would never congratulate me, but I could tell he was pleased. I reacted positively; my brother reacted negatively to the same inputs.
I know people who say, I do my best work when I'm under pressure. I think that's absolute fallacy. I don't think anyone does their best work when they don't have time to do a good job. I think that's an oxymoron, but anyway, that's another story.
Let's talk about the presentations. The presentation should be limited in scope. I don't want you to come in and spend ten minutes telling us how to solve world hunger. You can get those types of stories out of the Wall Street Journal, and they're worthless, they're not worth reading.
I did give a couple of B's last year because people came in and gave me stories like that. One of them just paraphrased what they'd read in the New York Times about ultra-lightweight composites in Boeing aircraft. At the end of the story they sort of admitted they would never use these composites because they were too expensive and they had no structural integrity — they were so lightweight that they just collapsed. Things like aerogels. An aerogel has a density half that of water, and if you blow on it, it will collapse. It has about the structural integrity of a soap bubble. Put any stress on it and it collapses.
They came in and told us this wonderful story about how aerogels were going to take over the world. This was an article from fifteen years ago. I said, so are they using them? Well, no, not yet. What do you mean, no, not yet? You just told us this was the wonder material of the future. I didn't say that to him in class, but I did give them a B.
So I want something of substance — you're at MIT. And I don't want it to be too general. Using my own talk yesterday as an example: I didn't do 3D printing in general or additive manufacturing in general, I did 3D printing of metals. I could have given you that presentation in ten PowerPoints — Prandtl number, Bond number, and whichever other dimensionless number, on one overhead — and said these are the properties of metals, and talked about the limitations of doing 3D printing of metals. That's something of substance that hopefully most of you didn't already know, so you learn something from it. That's what I want from you. I took fifty minutes, but I'm the professor, I have a certain literary license.
When you're doing a presentation, you don't have to explain everything. That's what questions and answers are for. You're just trying to introduce the topic. So don't tell me about use of composites in automobiles — that's a little broad. If you want to say use of aluminum-silicon-carbide calipers for lightweight disc brakes, great, that's specific enough, and you can get down to why they do it or why they don't do it.
That's actually an example from twenty-five years ago. People were all excited about using aluminum-silicon-carbide composites for brake calipers, and they found everything was fine until you hit the brakes very hard. The aluminum heated up and crept, and all of a sudden your calipers no longer had the same shape, and they wouldn't squeeze the brakes anymore. Minor problem: brake fade. Hit your brakes hard three times in a row and you have no brakes, and you never will have brakes — you have to replace them because they just deformed out of shape.
§2. Yesterday's sound bites: limits to material properties [05:36]
If I remember and have time each day, I'll try to give you my sound bites from the day before. I wouldn't have expected any of you to be able to generalize what I talked about in 3D printing into these themes. But one of them is: material selection is a multi-dimensional problem. People say, why don't we just do 3D printing of metals? Well, there are quite a few reasons, and I spent a whole hour going through them. It's a more complex problem than just substituting plastic for metal in your 3D print head. It involves mechanical and melting problems, and I organized it that way. Most things we'll talk about in material selection are multi-dimensional. You can use a material, dig it out of the ground — sometimes the biggest problem is recycling it. People don't always think about that.
We also talked about Ashby plots, and Ashby plots basically tell us there are limits to material properties. We'd love to have a material with a strength of 5 million psi. Why can't we do that? The strongest material we can get is about 3 million psi, and that has to do with the strength of the individual chemical bonds. What's the strongest bond in the world? Most people say carbon, because that's what we have in diamond, which is the strongest material. It's not the strongest bond. If you're a chemist, it's a silicon-oxygen-silicon bond. I told you that yesterday — silicone rubber has the highest melting temperature of any of the rubbers, 500 degrees, and it's because that backbone of silicon-oxygen-silicon, as opposed to the Kevlar backbone of carbon-carbon, is actually stronger.
If you calculate what the strength of that bond is going to be, you get about 3 million psi. You know about this because you've read in the New York Times and the Wall Street Journal all about carbon nanotubes, and they have a strength of 3 million psi. Well, that's a calculation that was done in the 1930s when we first learned quantum mechanics and learned something about bond energy. If you take my solid-state welding course, I spend half a lecture on this. We're limited in our material properties by the strength of the chemical bonds between the atoms. There's a fundamental limitation. You can't get a material with a modulus higher than 60 million psi — about 400 gigapascals if you're metric. Unless you come up with new elements that have stronger bonds, we're not going to get anything stronger.
What's the problem with the 3 million psi of carbon nanotubes? It's the fact that we have defects. I've told you about fracture mechanics and Griffith — little notches can weaken the strength of things. There's the Bob Spray quote that material scientists know it's defects that control properties. A perfect carbon nanotube would have a strength of 3 million psi, but does anyone know of anyone who's ever measured that? How do you grip a little carbon nanotube to measure tensile strength? And if you did, you'd find it probably has about one tenth of that strength. There will be vacancies in there. In that perfect little carbon nanotube there's going to be a missing carbon atom. At any temperature above absolute zero, thermodynamics — the entropy — tells us we're going to have a vacancy. That's a defect, and it will create a stress concentration and be much weaker, maybe ten times weaker. So all of you working on carbon nanotubes for structural applications, you'll get a thesis out of it; you just won't get a useful product. We've known these things for sixty years.
Some physicist down at Rice University, who thought he should win the Nobel Prize — actually I think he did, for discovering buckyballs — did the calculation that had been done in the 1930s and took credit for it. "I've discovered a new material that's going to be ten times stronger than anything else we have." In the 1940s we actually measured iron whiskers with a strength of 2.2 million psi, and we got around the defects of the dislocations because the iron whisker was a single crystal with a screw dislocation right down the axis. When you pulled on it there was no stress on the dislocation — if you know about dislocations and Burgers vectors — and you got 2.2 million psi. A student about twenty years ago asked, how do you do that calculation? I'd explained how you would do it, and they challenged me. I went back to my office, in five minutes I'd scratched it out, got 2.2 million psi for the strength of iron. It's just the strength of the chemical bond between two iron atoms. The calculation was done ninety years ago. But this guy twenty years ago discovers buckyballs and wins the Nobel Prize because he goes around the press: I've discovered a new material that's going to revolutionize the world. He discovered those twenty, twenty-five years ago. Have buckyballs revolutionized your world? Don't think so. Although it has, for all of you doing research — there's a lot of research money to study this.
So there are limits to material properties, and we'll talk about those limits in more detail. That's the summary — I've gone through twenty-five percent of this lecture just summarizing the last one, but hopefully pointing out some other things.
§3. Why we don't 3D-print metals — and how, actually, we have for eighty years [12:27]
I did want to finish up this stuff on why we don't do 3D printing of metals. [Tom passes around a laser-printed metal part from Dr. Belmar.] This is a five-hundred-dollar part, laser printed. I'm sure it took hours — he didn't know how long, but just knowing the solidification process of thin layers, that part took hours to produce. That's why it costs five hundred dollars. So you can 3D print metals, not very economically, but you can do it. If you're talking about something that's going to go in outer space, that's great.
I told you we were trying to make propellers for the Navy so they wouldn't have to buy castings and let them sit in a warehouse for a year in case the propeller broke. We tried some stainless steel because it was easy — simple geometries. You can see on the edge we started to get some imperfect melting, and that defect propagated and got larger because of surface tension. The first part gets a little wavy, but it didn't look too bad. All of that is due to the surface tension of metals, which is ten times higher than the surface tension of other materials.
This one I think I may have passed around. It's actually a pretty good deposit. You'll see some little humps on either end because you scan this way and then back that way, and there's a delay as you go from a finite velocity in one direction and have to accelerate in the other. So you build up a little more material on each end, and that's just Isaac Newton — you can't make an infinite change in speed.
It's just a wire of manganese-aluminum-bronze welding wire — actually a tube, manganese-aluminum-bronze tube — and we just went around in circles. We did it with an electron beam, for reasons of the Bond number and the high heat transfer coefficient you need to solidify metals. Manganese-aluminum-bronze has a better wetting and surface-tension balance than some other things. You can see we were reasonably successful with that, although we're still going to end up with tremendous residual stresses. It's a fairly simple process.
So the question posed to me by the Technology Review editor was, why don't we do 3D printing of metals? At the end of spending an hour with them, I said, but in fact we do, and we have been for eighty years. For example, the US Air Force about twenty-five years ago decided they needed to rebuild the tips of turbine vanes. These vanes go into a jet engine, they're spinning around, they get hot, they creep and get a little longer, and they wear out the top edge. They wanted to rebuild them — the thing's still good for another three thousand hours of use. They built a little arc welding machine, called it the dabber, and they would build up the edge and machine it back. You're talking about a vane that might be worth five hundred dollars — you can afford to spend a couple hundred dollars to repair it if you're getting a brand new vane. High-value-added part, high heat intensity, very limited geometry. They grew the thin vane an extra quarter of an inch, and then reamed it; it's not critical, it's not a lot of stress on it in service. The big stresses are down at the base where you have the biggest centrifugal forces. The tip doesn't.
The Air Force automated it in their Oklahoma City repair facility — it's a ten-million-dollar machine because of all that precise alignment and control. But they were going to make fifty million dollars with the blades on a ten-million-dollar machine.
So we have not solved the problem of 3D printing of printed circuit boards, but we have done things for eighty years. There's a billion-dollar industry called thermal spraying where we repair old worn-out parts. Companies like Eutectic Castolin — a four or five hundred million dollar a year company — make all kinds of metal powders, put them in a flame, and you take a piece of metal and flame-spray, or thermal-spray, this powder on top of the metal. You might melt it, in which case you probably have to preheat to a very high temperature, because of some of the things we talked about. They've been doing thermal spray repair of parts for eighty or ninety years. Usually nice circular parts or flat parts, not complex geometries, but we have been building things up by additive manufacturing for years and years.
I visited POSCO Steel when it was the largest steel plant in the world, in Pohang, Korea. They took me through a facility where they refurbished the rolls for the continuous caster. These rolls are about twelve feet long, a foot in diameter. A molten band of hot steel comes down out of the casting machine — about seven or eight stories tall — and gets bent ninety degrees, and these rolls, hundreds of them, are bending this hot steel. They wear out — they're touching steel at above a thousand degrees centigrade. They're water-cooled in service, but the surface is touching something basically 1200 degrees centigrade, so they get thermal cracking. So they take them into the shop — about half the size of a football field, lots of lathes. They'd have this twelve-foot roll, do a pass and cut off the bad stuff on the surface. Then they'd preheat the whole thing. There were flames all over the shop — I think I was there in August, it was pretty hot — great big flames preheating to six, seven, eight hundred degrees Fahrenheit. Then just laying down weld metal. They got around the residual stresses because with the flame temperatures they're stress-relieving as they go. They're building up massive metal on the outside of these rolls. They have to replace them periodically, probably after two weeks of service, and this machine runs continuously for two or three years. So we do lots of buildup of metal parts.
Another example: fancier turbine blades — the ones in the hot section of the engine. I've seen two places where they're doing electron beam, adding the tip or melting in there, and they're preheating to a thousand degrees centigrade, 1800 degrees Fahrenheit, because of this problem of sucking out the heat and the fact that the nickel-based superalloys are very prone to cracking. If you have big thermal stresses, you'll get cracks. So they preheat to within a couple hundred degrees of the melting point. We do it, it's just tricky and expensive, and you don't do this on twenty-seven-pound parts — you do it on very high-value-added parts.
So 3D printing is a wonderful technology. Nanotechnology is a technology — I won't use the word wonderful with it — that is oversold.
§4. Productivity vs. competitiveness [21:25]
Let's start, after two and a half hours, actually talking about what we're going to do in this course. Lecture 1, which starts today, is on externalities. Then we'll go to price, costs, and abundance, and talk about limits of properties, which we've already talked about. We'll talk about materials manufacturing productivity — spend a fair amount of time on the productivity of different materials: steel, aluminum, composites. You're going to hear the word steel a lot in this course. Usually after two or three days of lectures the students start making jokes about all he ever talks about is steel. You'll find out why in a little bit. There are statistics on steel that will probably surprise you.
Student: [What's the difference between productivity and competitiveness?]
Exactly. It's relative, and it involves things like the price of labor in one country versus another. Productivity is how well you can make something, and it's sort of independent of things like labor rates, yen-dollar exchange, yuan-dollar exchange — those exchange rates are part of competitiveness. Can the Japanese make something cheaper than the Americans? Can the Indians make something cheaper than the Americans, at equal quality? Competitiveness is a huge, all-encompassing issue. Productivity is how efficiently you can manufacture something, usually measured in person-hours per ton or person-hours per gram — some amount of effort per quantity.
Back in the mid-1980s — before you were born — the Japanese were eating our lunch. Something like seventy-five percent of Japan's workforce was involved in something that had to do with exporting. The Japanese were selling Toyotas here that were better quality than any of the GM junk being produced. Then GM's improved significantly, and there are a number of books that were written about this. One of them was Dan Roos's book — he was the second author — Lean Manufacturing. You've all heard of lean manufacturing, a term coined by a professor in civil engineering here who was an expert in the automotive industry. Dan Roos twenty years ago was personal friends with the CEO of every major automotive company in the world. He did a study of why Toyota was eating our lunch, and he pointed out they were using lean manufacturing production technologies, which is now a very big buzzword, but in the mid-1980s it wasn't.
In the meantime, mid-1980s, I was a young professor — probably wasn't even a full professor at the time — and a guy named Jerry Wilson was the Dean of Engineering, and he was very concerned about the declining productivity of the American industrial sector. People were looking at manufacturing employment in the United States and it was just decreasing. Back in 1980, over twenty percent of the workforce in the United States was employed in manufacturing — high-value jobs, United Auto Workers. These people made enough money to buy a home and a car and send their kids to college. And the workforce was decreasing.
There was a guy at General Motors, the vice president, very big on robotics. He was going to eliminate all the hourly workers at General Motors. GM always despised the hourly workers, and it was mutual distrust between the two — terrible labor fights. These are some of the externalities that go on. This is before we had PowerPoint, and I used to see some of his presentations — he'd have $50,000 audiovisual presentations on what General Motors was doing with laser manufacturing. During the decade of the 1980s, General Motors spent fifty billion dollars automating their manufacturing facilities. Did you know that in the 1980s, if it had been legal in Japan to purchase Toyota on the stock market for a foreign company, General Motors could have purchased Toyota for fifty billion dollars? They couldn't, because Japanese laws — that's another externality — wouldn't allow an American company to purchase stock of a Japanese company in Japan.
§5. The MIT Commission on Industrial Productivity and the yen-dollar story [27:16]
The Japanese were eating our lunch, and so Jerry Wilson commissioned a book written by Michael Dertouzos, who was head of CSAIL, the computer science lab — almost became president of MIT. Michael's passed away now. He was a Greek, a consultant to the premier of Greece. I remember at Engineering Council they were complaining once that the assistant professors didn't make enough money to live on in the Boston area, and Michael said, well let them go out and consult, I can make twenty thousand dollars a day. I said, what? That's the kind of money Michael was making consulting for the government of Greece. Richard Lester is still around; Bob Solow won the Nobel Prize in economics. These guys were asked to be part of the MIT Commission on Industrial Productivity in the mid-'80s, and they wrote this book. I was a commission member and did something on productivity in the steel industry.
This is the opening part of the book, and I've highlighted the first sentence: to live well a nation must produce well. That's what the whole book was about — why was the United States not as productive as Japan in manufacturing. I'd spent my sabbatical in 1984 and '85 in Japan. I'd walked around these factories and research labs, and they certainly didn't seem like they were as productive as the American factories I'd been through. And it turns out they weren't. They were more competitive because at the time the yen-dollar exchange — when I was renting my home in Tokyo, the exchange rate was 240 yen to the dollar. What is it today? About a hundred yen to the dollar.
So what had happened in the 1980s: Toyota wanted to sell in the United States because we were the world's market — one third of the world's gross domestic product. Everyone wanted to sell in the United States. Toyota was manufacturing cars in Japan, doing a wonderful job with lean production, and shipping to the United States. Ronald Reagan in the meantime was doing Star Wars, he was going to defeat the Soviet Union. And he did — he defeated them economically by bankrupting them. They couldn't keep up with all the money we were spending on Star Wars. The Soviet Union fell apart in the early 1990s for economic reasons.
The Japanese were loaning us money — we were running huge federal deficits we'd never run before, because Reagan was going to outspend the Soviets. The Japanese were loaning us money at 240 yen to the dollar so we could purchase their Toyotas. And we did. They were better cars than General Motors, and there was a big upheaval. Eventually we had to pay the piper, and we're now paying the Japanese back at a hundred yen to the dollar. So we're taking our sixty percent discount, because the Japanese thought they could just suck up those dollars and keep hoarding them — except it doesn't work that way.
There's another country doing that right now. What's that country? Who's doing all the manufacturing in the world, where everything you get says Made in China? You've heard about fights over the yuan-dollar exchange rate? The Chinese have trillions of dollars. And now they're finding, you can't eat dollars. You might be able to buy something with dollars, but they don't taste good. Eventually they're going to have to let the yuan float in the international currency, and we will be paying the Chinese back. All these VCRs and things we've been buying from them, we're going to pay them back twenty cents on the dollar. They're not going to be happy about getting twenty cents on the dollar for the trillions of dollars worth of goods they manufactured and sold us.
There's only one country in the world that can do this — the country whose currency is the market for energy. The price of oil is denominated in dollars around the whole world. Whoever controls the dollar is defining the world's currency, and everyone else has to adjust to where we're the reference point. You're seeing this right now. The European currencies are being devalued with regard to the dollar. Why? It turns out, to live well a nation must produce well. Which country has had the highest manufacturing productivity rate for the last hundred years? The United States. We are the most efficient producers — even in the 1980s when we were buying Toyotas to build Star Wars and to drive the Toyotas, and the Japanese were loaning us the money to do it, we still had better productivity.
§6. Comparative advantage and the productivity-employment paradox [33:33]
And why were we building Star Wars and the Japanese were building cars and someone else in Taiwan was building whisk brooms? It's called the law of comparative advantage. If we can both make a computer, but I can make it faster and more productively, less cost, than you — and I can also make the computer chip better than you, comparatively five times better — I'll make the computer chip, I'll let you assemble the computers. I could do both, but I'd rather take the comparative advantage of making the high-value part. Or I'd like to be Boeing — get the high value of assembling and designing the aircraft, and let you build some components I'll stick on in my factory. The law of comparative advantage: I'm going to take the high-value stuff, I'm going to leave you the lower-value stuff.
We have the highest productivity in the world, and we always have for the last hundred years. We stole it from the British, who had it in the industrial revolution. Why has manufacturing employment been going down for the last fifty years in the United States? Because our productivity has been going up. Everybody thinks, if you read the Wall Street Journal, we're losing our manufacturing competitiveness — all the jobs are going offshore. The jobs we don't want are going offshore. We're exporting our pollution. Let the Chinese make the stuff that pollutes. We want nice pretty views, we want to walk through clean air; we'll let them choke on their smog. This is what we do because we have been the world's dominant productivity king for a century. And the world buys its energy, and energy determines cost of things in general in dollars. Whoever has the gold rules — the golden rule. We have the dollar, as long as we keep our productivity up.
I actually used to give a talk on this. At the time of the American Revolution and Constitution and George Washington — anyone have any idea what fraction of the workforce was involved in agriculture in 1790? Seven percent? Ninety-seven percent. Ninety-seven out of a hundred were toiling away to make food, and they made enough extra that three percent of the people could be George Washington or Thomas Jefferson or Ben Franklin. Those people were in the minority. If I went back to 1980, what fraction of the United States population was working in food production? Three percent. We had a thirty-fold improvement in two hundred years in productivity in food production, which is a pretty basic need.
What fraction is it today? About one and a half percent. We're losing those farm jobs — haven't you read that in the Wall Street Journal? Rural America, they're all moving to the cities. Why? Because the law of comparative advantage. You might have been able to live for free on the family farm, but you can come here and pay twenty-five hundred dollars a month for a two-room apartment. That's competitiveness. To live well a nation must produce well is the beginning of Made in America. And it's Paul Krugman — who's Paul Krugman? He's an economist, started at MIT, went to Stanford, won the Nobel Prize, now he's at Princeton. Another one of these people Lester Thurow was talking about — they tend to hire our extinct volcanoes. As Paul Krugman says, productivity isn't everything, but in the long run it's nearly everything.
§7. Political externalities: rare earths and oil [38:27]
So what are the things that determine productivity in materials selection and economics? Well, there are externalities. Anyone taking an economics course know what an externality is? Right out of Wikipedia, which is the source of all knowledge: in economics, an externality is the cost or benefit that affects a party who did not choose to incur that cost or benefit. Something external, like air pollution. All the rest of us have to endure air pollution because someone designed and built these trucks that are dirty.
There are lots of different types of externalities. Political — there are political externalities. Rare earth metals. What's the political externality of the last eight years on rare earth metals, and why are rare earth metals important? We export our pollution — let someone else breathe that air. You've heard of neodymium-iron-boron magnets? Neodymium is a rare earth metal. Samarium-cobalt magnets. Rare earth metals are functional materials, not really structural materials, but functional materials used in many high-value applications.
About eight years ago — you were maybe in elementary school — it turns out China has tremendous rare earth metal reserves. They're not really that rare; it's a misnomer. The United States has tremendous reserves too, but China has lots of rare earth ores. It is a very dirty process — you think you're in the Black Hole of Calcutta to go see a rare earth metal plant. People die at an early age who do this, because they do it by technology that's a hundred years old. The Chinese had dropped the price — the law of comparative advantage. We had produced rare earth metals back in the 1970s and 1980s, but as China opened up after Richard Nixon, the Chinese decided they had all these reserves, they had cheap labor, they weren't worried about pollution, and they could produce rare earth metals cheaper than anybody else. So all the American mines and factories shut down — it's a dirty industry, they were going to get fined by the EPA anyway, so send it to China.
And the Chinese, all of a sudden, were producing ninety percent of the world's rare earth, and they decided they were having a fight with Japan. Who needs all these rare earth metals in their magnets and batteries? The Japanese, for their consumer electronics. It's replaced automobiles as one of the big high-value export industries in Japan. The Chinese just decided, we're going to put an embargo on, we're not going to ship you any rare earth metals. The Japanese government and the companies went berserk. They were going to be shut down because they couldn't get this critical material. It wasn't rare, but the Chinese had a de facto monopoly because everyone else had gotten out of the business. So for the last six or seven years, half the faculty at MIT working on materials are dabbling in some way to produce rare earth metals by a clean technology, so the next time the Chinese pull this stunt, we'll be ready.
Same thing happened in 1973 with the Arab oil embargo. We were all buying two-dollar-a-barrel gasoline — crude oil was being pumped out of Saudi Arabia for two dollars a barrel in 1972, and all of a sudden the Arabs got together and said we're not going to ship you any more crude oil. The world economy came to a screeching halt in many areas. The price of energy shot up — we called it the oil crisis. My wife and I, and everybody else, would sit in line for four or five hours waiting to fill up our gas tank. All these cars running their engines sitting in lines a hundred yards long. Wonderful.
They tried it again in 1978, and by 1978 it was nowhere near as effective, because all the American industry said we're not going to let you do that to us again. We can use natural gas or oil, and we can flick a switch. American industry spent millions of dollars to be able to switch from firing electrical plants with oil or gas. So the next time they had an oil embargo, we'd just switch. Yes, the price of gas went up, but nowhere near as big a disruption as in 1973. The try in 1982 wasn't so effective.
Now forty years later, Saudi Arabia decided they didn't like all the other oil cartel folks cheating on them. Saudi Arabia can pump twelve million barrels a day at a production cost of five dollars a barrel, and they were selling at a hundred dollars a barrel. They were very wealthy. Now they decided, we're not going to keep losing market share. They were at nine or ten million barrels a day, and every time there was a little price increase, the Saudis would lose market share because Nigeria would just keep pumping. Nigeria is one of the most corrupt countries in the world, and they'd violate all the cartel quotas — their production cost is about ninety dollars a barrel. Finally Saudi Arabia said, we're going to shut down those frackers in the United States and we're going to put Nigeria out of business, because they've been cheating on us for thirty years. We can keep pumping oil all the way down to five dollars a barrel and make money. Nigeria's hemorrhaging at ninety dollars a barrel with a price of thirty. How'd you like to be in Nigeria right now? All those sins of the past are coming back.
Our frackers' marginal production cost, once you've already drilled the well, is slightly less than thirty dollars a barrel. They can barely make it right now, but they can. They can't drill a lot of new wells, but the Saudis have not driven them out of business yet. They will eventually drive some of them out of business. So there are political externalities. They have nothing to do with the technology of buying a particular type of oil or product.
§8. Economic and social externalities: Oil City, lead, mercury [47:06]
Economic externalities. I had an explosion — someone was welding on an oil storage tank in Oil City, Pennsylvania. Oil City is just down the river from Titusville. Do you know what Titusville, Pennsylvania is famous for? Edwin Drake discovered oil in 1857 — he drilled for oil. Before that, the only oil one had was bubbling up out of the ground on the North Slope of Alaska or the oil sands in Alberta, where oil is right on the surface. But Edwin Drake actually drilled for it, found it, rather than drilling for water. They built a refinery there around the 1890s in Oil City, Pennsylvania.
They had an explosion and killed someone, and I had to go out there. This was around 1995. I get to Oil City — it's not the easiest place to get to. The first time, it didn't make any sense: old riveted 1920s storage tanks; the tank farm had two or three feet of gravel; if you dug down about a foot you'd strike oil because for the last hundred years they'd been spilling oil from the tank farm, so the ground was saturated. It's a small production facility. To me, a thirty-thousand-gallon storage tank — you go down to Houston, some refinery, there's a hundred-thousand-gallon storage tank. Why was Pennzoil keeping this plant running? It makes no sense economically.
Well, it made perfect sense economically. I figured it out the next morning at breakfast. They couldn't afford to shut it. Because as long as they were operating, the EPA had no control over them other than to keep them from polluting off their premises. But the law is such that if you're an operating facility, the government is not going to touch those jobs. When you shut the plant, the EPA comes in, and you're no longer protecting jobs — they will assess you billions of dollars in cleanup costs. So Pennzoil was keeping this inefficient refinery operating in 1995 because they couldn't afford to shut it. It was a money loser. But if they shut it and put all these people out of work, it would be a humongous money loser because the EPA would make them clean it up.
Since then they have shut it — it's too inefficient — and they do have to clean it up, and they're cleaning it up; the rules have changed over the years. Do you know how they used to get the oil from Titusville, just up the river, down to Oil City? Just floated it on the river and skimmed it off at the other end. Nowadays you see an oil sheen on the water and the environmentalists are out there to put you in jail as a felon. Back in those days there were no fish in that river — they all had oil for dinner. So Oil City, Pennsylvania, and Pennzoil. Sometimes the regulations won't let you choose the best material.
Social externalities. Lead. What do we know about lead? Flint, Michigan is in the news. My wife and I rented a house down the street ten houses down — moved in October, we'd lived in our other house for thirty-seven years. Last week they came in to start the construction. You can go through my house, see the studs, see the outside walls. I'm ripping out all the plumbing, all the wiring, in this ninety-year-old house. I wanted to get rid of the lead paint. One of these days that old house, built in the 1930s, they're going to come by and I'll never be able to sell it — it's got lead paint. Some environmentalist is going to say you can't sell a house that has lead paint. The rules were different in 1938. But there's no lead paint in that house anymore — it's all in the dumpster.
Mercury. Where's mercury used? Used to be in lots of things, but there's mercury all over this room — look at the fluorescent lights, every one has an arc igniter that uses a little mercury. Why can't you dispose of a fluorescent light in the regular old dumpster? Because it's got mercury in it. For environmental reasons we try to get rid of mercury. Diamonds — there are social reasons there. Blood diamonds, they're making movies about this stuff now. There are all kinds of things. We're running out of time. I'll talk about some of the other externalities tomorrow, but there are all kinds of social.