274 (20 July 2016)

Welcome to week 274!  The articles below caught my attention this week.  Please note that what are intended to be relatively objective “briefs” are preceded by dashes (——–), whereas additional material or relatively subjective comments are preceded by asterisks (********).  The links to articles preceded by [SR] require a subscription to be read in their entirety, although complete articles may frequently be found by an Internet title search.

(14 July 2016): “Grid Attack: How America Could Go Dark” [SR](http://www.wsj.com/articles/how-america-could-go-dark-1468423254)

——–“The U.S. electric system is in danger of widespread blackouts lasting days, weeks or longer through the destruction of sensitive, hard-to-replace equipment.  Yet records are so spotty that no government agency can offer an accurate tally of substation attacks, whether for vandalism, theft or more nefarious purposes.”  Furthermore, “Most substations are unmanned and often protected chiefly by chain-link fences.  Many have no electronic security, leaving attacks unnoticed until after the damage is done.  Even if there are security cameras, they often prove worthless.  In some cases, alarms are simply ignored.”

********The U.S. electrical grid has been the subject of much discussion in recent years due to its need to be updated to address the expanding use of renewable energy sources like solar and wind.  This article points to the importance of making the grid more secure from attack for whatever reason.  This is an enormous challenge as “The grid was cobbled together during the electrification of the U.S. over the past 125 years.  It is a fragile, interdependent system generally more vulnerable in summer when it is running closer to its limits.  It is also at risk during low-demand periods, when power plant operators and linemen perform maintenance.  Fewer plants and transmission lines operating mean fewer options for delivering electricity during emergencies.”  Although the Federal Energy Regulatory Commission has issued a rule to better secure the grid, “it doesn’t extend to tens of thousands of smaller substations” across the country.

********Not coincidentally, I suspect, there is a review in The Wall Street Journal [SR](http://www.wsj.com/articles/the-marvel-of-electricity-1468616241) of The Grid: The Fraying Wires Between Americans and Our Energy Future (https://www.amazon.com/Grid-Fraying-Between-Americans-Energy/dp/1608196100/), by cultural anthropologist Gretchen Bakke.  As noted by reviewer R. Tyler Priest, “Gretchen Bakke explains . . . [that] a vast network that arose to provide electricity in a centralized and standardized fashion is ‘being colonized by a new logic: little, flexible, fast, adaptive local.’  The large utilities no longer enjoy a monopoly over the power that they spread across the grid.”  Regulatory policies developed during the Progressive Era that emphasized power generation as a natural monopoly are no longer sufficient for current and future conditions.  The book will be released on July 26th.  Regrettably, I was unable to locate a copy of its Table of Contents.  A related is Smart Power Anniversary Edition (2014).  You can learn more about it at: https://www.amazon.com/Smart-Power-Anniversary-Electric-Utilities/dp/1610915895/.

********As noted in Bakke’s book and in the article on attacks on the grid, the grid is highly complicated, almost defying the ability of one person to comprehend it.  This theme is carried over and broadened in Overcomplicated: Technology at the Limits of Comprehension (https://www.amazon.com/Overcomplicated-Technology-at-Limits-Comprehension/dp/1591847761/), by applied mathematician and network scientist Samuel Arbesman.  The book is review in the Journal under the heading “The Rise of the Kluges” [SR](http://www.wsj.com/articles/the-rise-of-the-kluges-1468968418).  So, what are kluges?  In brief, “overly complicated, inelegant, cobbled-together messes.”  They are such that “Even experts can no longer fully understand or control them.”  As Arbesman notes, “From the electrical grid to Toyota’s software to online dating sites, the systems we live by are inelegant messes that no one fully understands.”  So, what is to be done?  “The obvious solution is to simplify our systems, but that is next to impossible.  Once a system is in place it inevitably undergoes a process of accretion—feature is added to feature and new layers to old ones. . . . And so, bit by bit, a kluge is born.”  According to Arbesman, “Our only hope . . . is to approach the Entanglement much as a biologist approaches the natural world.  Biologists do not look for grand formulations.  They conduct experiments and carefully observe.  Over time they learn a great deal about the natural world.”  Perhaps, over time, we will do the same for the artificial world we have created.

(16 July 2016): “Buying drugs online: Shedding light on the dark web” (http://www.economist.com/news/international/21702176-drug-trade-moving-street-online-cryptomarkets-forced-compete)

——–“Though online markets still account for a small share of illicit drug sales, they are growing fast—and changing drug-dealing as they grow.  Sellers are competing on price and quality, and seeking to build reputable brands.  Turnover has risen from an estimated $15m-17m in 2012 to $150m-180m in 2015.  And the share of American drug-takers who have got high with the help of a website jumped from 8% in 2014 to 15% this year, according to the Global Drug Survey, an online study.  Online drug markets are part of the ‘dark web’; sites only accessible through browsers such as Tor, which route communications via several computers and layers of encryption, making them almost impossible for law enforcement to track.”

********The Economist was enabled to conduct a study of dark web transactions via 1.5 terabytes of “information for around 360,000 sales between December 2013 and July 2015” obtained from a web crawler and this article reports on it.  Its discussion of the role of drug price (higher online than on the street), drug quality (higher online than on the street), and shipping costs (higher online than on the street) was quite interesting.  As it turned out the dollar value of the drugs MDMA and Ecstasy (combined) just nudged out marijuana, and then cocaine for the period studied.  Those involved in the dark web would certainly fall under the subject matter of Illicit (https://www.amazon.com/Illicit-Smugglers-Traffickers-Copycats-Hijacking/dp/1400078849/), by Moisés Naím, which I just finished reading.  I found the book a bit of an effort to read until I got to chapter 9 and beyond, were broader issues were encountered; chapters 2-7 were largely a recounting different areas where illicit activities take place.  The book, however, reinforced my understanding that almost every legal market has a “shadow” illegal (illicit) market.  That being the case, conventional analysis of markets, which is carried out on the implicit assumption that all transactions are legal, would benefit from considering the adjacent illegal markets.  This is a natural way to bring the invisible foot—legal and political forces—into everyday economic analysis.  It is also a natural way to bring the invisible handshake—social and historical forces—into the analysis.  From the handshake the role of ethics and religion are immediate.

********The article reminded me of “You Can Lose Out Just Being Associated With Pot” (http://www.bloomberg.com/news/articles/2016-07-08/you-can-lose-out-just-being-associated-with-pot), which discusses some of the unanticipated consequences of being associated with the marijuana industry.  A case in point is Derek Peterson, the CEO of Terra Tech, a publicly traded pot company.  Peterson lost his application for life insurance from Mutual of Omaha because of his employment.

(18 July 2016): “Report: NC’s regional disparities, income gaps growing” (http://www.newsobserver.com/news/business/article90354967.html)

——–“N.C. State University economist Michael Walden’s biannual economic diagnosis for the state warns that much of North Carolina’s post-recession growth is bypassing the so-called ‘routine’ middle-income vocations and exacerbating the state’s growing regional gap and income inequality.  Walden’s report . . . shows that the most dramatic job growth in the state has taken place at the extremes of the pay scale.”  Said Walden, “The routine jobs are much more being taken over by technology . . . The changes in economic structure are really behind the regional disparities that we see.”  According to Walden, “Ret[r]aining displaced workers and training new workers for the jobs of the future will require a significant commitment from the state to avoid massive ‘technological unemployment.’”

********It is interesting to see at the state level changes that are taking place nationally and globally.  You can read the 22-page “Economic Outlook” prepared by Walden at: http://pulse.ncpolicywatch.org/wp-content/uploads/2016/07/Mike-Walden-Economic-Outlook-July-2016.pdf.  On page 18 of the report it is noted that “Unfortunately, one region—the Rocky Mount metropolitan area—has continued to lose payroll employment since 2010.”  No doubt that is one reason why Rocky Mount (successfully) pursued the location of the just-announced $272 million CSX rail hub and its 149 jobs averaging $64,000 each.  You can learn more about the hub at: http://www.newsobserver.com/news/local/counties/johnston-county/article90484642.html.

May you have a good week!

Bruce

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