Experience Curves — Basic Business Concept that Too Many Congresspeople Don’t Understand (or Don’t Care About)

[one...two...tree 2,762]

Experience Curves: Why Doesn't Your Senator Understand Them?

By Rob Day

Do you know what an experience curve is? Does your representative in Congress know what it is?

It's a well-established and oft-proven truth of manufacturing costs that as you make more of something over time, costs come down. This is separate from manufacturing scale effects, which can also drive costs down, but simply put the more we make of something over time, the more we figure out how to drive the costs out. "Incremental innovations" add up to significant cost savings over time.

BCG summarized this way back in the mid-1960s as: Costs fall about 20-30% every time cumulative installations double.

This is not rocket science. It's well understood, and frankly pretty basic.

So why can't many politicians and their lamprey (like the RAND Corporation) understand this very basic business concept?

We've seen attacks on all kinds of renewable energy technology policies because the renewable energy costs are high. That is, high today. Early in their experience curves. Well… duh.

Most recently, some politicians have even gone so far as to deny the military the ability to acquire relatively small amounts of advanced biofuels. The argument made, of course, is that these biofuels cost too much.

Energy is a crucial strategic issue for our military. Much of our military strategy is dictated by energy supply, at both a national and a tactical level. Soldiers regularly carry 20-60 pounds worth of batteries into battle. From 2003-2010, more than 3,000 soldiers were wounded or killed while guarding energy supplies. The US military spends more than $19B per year on energy and that's expected to rise over time. Every 3 days, the US military consumes 1 million barrels of petroleum (pdf). The military has undoubtedly done lots of studies to understand just how vulnerable they are to disruptions from foreign-supplied energy, especially liquid fuel, before making this request. And they've decided it's a strategic priority, as a critical part of their mission, to help buy down the cost of advanced biofuels (as well as advanced energy storage and distributed electricity generation techs) by making some early purchases, to jump start those experience curves. They understand they're under budgetary constraints. They're not making a political request. They're making a strategic request. They're planning ahead, beyond the current budget crisis, to the next military crisis.

Politicians supposedly pride themselves on their business savvy. And supposedly, they support our troops.

Why don't these politicians understand experience curves? And why don't these politicians understand the life-and-death nature of energy supplies for our men and women in uniform?

I would suggest to you, Gentle Reader, that these politicians understand both concepts quite well. And that this is a sign of how toothless the alternative energy lobby is in DC. Because what's really driving this is that the partisan hacks in DC drove a bad political deal last year where there are significant cuts in defense spending to be triggered if they can't make a budget together. And they're realizing they can't make a budget together. Because they're partisan hacks and it's an election year. So therefore when they see an undefended target like advanced biofuels spending, especially since these same partisan hacks have decided to politicize energy technology as an election issue, so therefore it's perfectly fine to ignore well-established concepts like experience curves. And, I guess, to ignore the welfare of our troops.

This simply should not be a partisan political issue. It's not even a "green" issue. It's a strategic military issue. Shame on them.

This should piss you off. They're either being ignorant, or disingenous. And it's far from the only case of this. It's just the most eggregious example. Perhaps the most unpatriotic example.

Source: Clean Technica (http://s.tt/1cZse)

[Obama 2012 1,714]

So the government can buy them after the FREE MARKET vets them and the FREE MARKET drives the costs down. Either that or they will fail.

Basic Business Concept - DONT RELY ON GOVERNMENT to be successful.

Of course I'm sure you left-wingers don't understand how a business works without the help of the government to interfere.

[one...two...tree 2,762]

If you read the OP, he was talking specifically about military expenditures on alternative fuel sources.

[Obama 2012 1,714]

If you read the OP, he was talking specifically about military expenditures on alternative fuel sources.

The military buying alternative energy equates to a government subsidy, especially when you look at the amount that the military would need to buy.

The irony here is one minute the left argues for less military spending, not they are arguing for more.

[IR5FORMUMSIE 850]

The military buying alternative energy equates to a government subsidy, especially when you look at the amount that the military would need to buy.

The irony here is one minute the left argues for less military spending, not they are arguing for more.

But isn't everything that the military buys a government subsidy?

[Obama 2012 1,714]

But isn't everything that the military buys a government subsidy?

It depends on what it is. The military buying a lot of a product that's already at a cheap price isn't going to necessarily boost an industry one way or another. It helps, sure, but if something is already out there and proven and making a profit on its own, then it's not being subsidised.

The article is trying to get the military to be the one who buys up the product to drive the price down for the general market. i/e a subsidy to the industry to further the development of the product (whether it's marketable or not). We're trying to get the military to buy a product that's unproven, perhaps not sustainable over the long haul, on the idea if they do it, then everyone will be able to. But there again, that comes at a huge cost to the taxpayers when there are cheaper alternatives. Which is what the government is supposed to be doing. Buying what's "cheap" or to the lowest bidder to save taxpayer dollars.

The funny part being is the reverse holds true here too in playing devils advocate. If the military were to use less fossil fuels, it would cause stock piles to go up and have the adverse effect of driving down the costs of those fuels by an increase in supply for the general market. Theorhetically that is.

[IR5FORMUMSIE 850]

It depends on what it is. The military buying a lot of a product that's already at a cheap price isn't going to necessarily boost an industry one way or another. It helps, sure, but if something is already out there and proven and making a profit on its own, then it's not being subsidised.

The article is trying to get the military to be the one who buys up the product to drive the price down for the general market. i/e a subsidy to the industry to further the development of the product (whether it's marketable or not). We're trying to get the military to buy a product that's unproven, perhaps not sustainable over the long haul, on the idea if they do it, then everyone will be able to. But there again, that comes at a huge cost to the taxpayers when there are cheaper alternatives. Which is what the government is supposed to be doing. Buying what's "cheap" or to the lowest bidder to save taxpayer dollars.

The funny part being is the reverse holds true here too in playing devils advocate. If the military were to use less fossil fuels, it would cause stock piles to go up and have the adverse effect of driving down the costs of those fuels by an increase in supply for the general market. Theorhetically that is.

That could describe most of the stuff that comes out of the Skunk works.

[one...two...tree 2,762]

People like Paul wallow in their historical ignorance of just how much of an interdependency there exists between the public and private sector. For example, nuclear submarines and aircraft carriers came from an enormous amount of R and D, all paid for with tax money. In fact, our entire line of history of energy in this country is riddled with public money used in the exploration, research and development in finding, capturing and harnessing energy.

[Obama 2012 1,714]

People like Paul wallow in their historical ignorance of just how much of an interdependency there exists between the public and private sector. For example, nuclear submarines and aircraft carriers came from an enormous amount of R and D, all paid for with tax money. In fact, our entire line of history of energy in this country is riddled with public money used in the exploration, research and development in finding, capturing and harnessing energy.

Not exactly. Just because the government offers up money (or it lobbied to do so) doesn't mean teh government is by any means the backbone or driving force for those things.

Take oil for example. The money that the government gave away that many try to attribute to boom towns had nothing to do with government money at all. Investors in the day took the money because it was there, but were laughing their way to the bank because oil was perfectly marketable on its own. They got to 'double dip.' - People made millionaires by their hard work turned in the millionaires x20 by extra money from the government.

The world's greatest inventions don't need government funding. That's where you've lost your way in thinking. The best ideas are always drawn up from the individual. They are then funded by said individual or investors who believe in the idea. It's always been that way.

Do you know how many dead-end scientific grants there are from the government? Do you know how much money big pharma makes while stealing taxpayer dollars at the same time? Oh yeah, government research led to big finds in medicine alright. Big finds into your pocketbook that is. Double-dipping yet again. They get the grants, and they get the millions of dollars after without re-paying a dime to the taxpayers.

[Nina~ 431]

*** Post derailing topic and those quoting it removed. ***

[IR5FORMUMSIE 850]

Not exactly. Just because the government offers up money (or it lobbied to do so) doesn't mean teh government is by any means the backbone or driving force for those things.

Take oil for example. The money that the government gave away that many try to attribute to boom towns had nothing to do with government money at all. Investors in the day took the money because it was there, but were laughing their way to the bank because oil was perfectly marketable on its own. They got to 'double dip.' - People made millionaires by their hard work turned in the millionaires x20 by extra money from the government.

The world's greatest inventions don't need government funding. That's where you've lost your way in thinking. The best ideas are always drawn up from the individual. They are then funded by said individual or investors who believe in the idea. It's always been that way.

Do you know how many dead-end scientific grants there are from the government? Do you know how much money big pharma makes while stealing taxpayer dollars at the same time? Oh yeah, government research led to big finds in medicine alright. Big finds into your pocketbook that is. Double-dipping yet again. They get the grants, and they get the millions of dollars after without re-paying a dime to the taxpayers.

You've contradicted yourself. Government funding is the catalyst that allows people to make risk-free ventures and that does facilitate R and D. Whether or not such products or services would otherwise become viable is moot because an investor is more likely take a chance if he or she has some assurance of government funding.

[Mr. Big Dog 10,747]

So the government can buy them after the FREE MARKET vets them and the FREE MARKET drives the costs down. Either that or they will fail.

Basic Business Concept - DONT RELY ON GOVERNMENT to be successful.

If we stuck to that concept, we wouldn't have this online conversation. Funny how that works, eh?

Edited May 30, 2012 by Mr. Big Dog