Friday, July 08, 2005

Opportunity Cost

In business and in life, there is this thing called opportunity cost.

The POTUS has a MBA you know,

so you know he's bound to talk about this stuff.

After all, he was a baseball club owner.

The true cost of something is what you give up to get it. This includes not only the money spent in buying (or doing) the something, but also the economic benefits (UTILITY) that you did without because you bought (or did) that particular something and thus can no longer buy (or do) something else. (check the utility link)

For example, the opportunity cost of choosing to train as a lawyer is not merely the tuition fees, PRICE of books, and so on, but also the fact that you are no longer able to spend your time holding down a salaried job or developing your skills as a footballer. These lost opportunities may represent a significant loss of utility.

Going for a walk may appear to cost nothing, until you consider the opportunity forgone to use that time earning money. Everything you do has an opportunity cost (see SHADOW PRICE). ECONOMICS is primarily about the efficient use of scarce resources, and the notion of opportunity cost plays a crucial part in ensuring that resources are indeed being used efficiently.

So the cost of the War in Iraq, which is staggering, is about $177 million

a day.

We spend more in one day in Iraq, than we have spent in total

on defending mass transit in this country,

which is somewhere around $130 million.

There is a billboard on Times Square which counts the Iraq war cost.

The billboard features a constantly updated clock counting

the cost of the Iraq war.

It increases at a rate of $177 million per day,

$7.4 million per hour,

and $122,820 per minute.

I want to focus on the lost opportunity cost for renewable energy .

Paul Gipe did it already, but I want to massage it a little,

because he made some conservative estimates in his analysis,

and his numbers are hard to get your head around.

So try this.

Every day that we stay in Iraq,

we lose the opportunity to put up 177 MWs of windpower.

(that's at 1,000 dollars KW, which I know is realistic)

177 MWs will annually provide about 500,000 MWhs of energy.

Assume you own a plug in hybrid car.

First, assume they exist.

Now, a standard all-electric car will get about 3 miles to the KWh.

When you compare it with a standard gasoline car

that gets 20 miles to the gallon,

it takes about six, maybe seven KWhs to equal a gallon of gas.

(don't worry that I am saying that 20,000 equals 140,000)

trust me.

So, 500,000,000 kWhs equals about 70,000,000 gallons of gasoline.

There are 42 gallons in a barrel of oil, so that is what?

1,500,000 barrels? Its a little more actually.

Doesn't sound like much does it?

After all, we use over 20 million barrels every day.

But after 365 days, after investing 177 million dollars every day,

we now have 64,605 MWs of windpower that annually produce

550 million barrels.


That's around 7% of our annual oil consumption.

That's half our imports from Saudi Arabia.

In two years we're making over a billion barrels a year out of wind.

And we don't need Saudi oil at all.

In the fourth year, we replace Hugo.

After eight years, we have replaced all imports.

We would have a national fleet of duel fuel plug in hybrid vehicles,

that are efficient and often non polluting.

And, we would have 6 thousand less dead and perhaps

40,000 less wounded and maimed soldiers.

Rumsfeld says it may go on for 12 years.

I'll let him do the math on that.

The POTUS once made a joke at Yale about William F. Buckley Jr.

He said that while Buckley was at Yale, he wrote a book.

"When I was there", he said in his best stand up comedian routine,

"I read one".

Let's hope it was the one about opportunity costs.

Oh, and did I forget to say.

These barrels of oil from the wind are already paid for.

Knock, Knock.

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Blogger Charlie Loving said...

Doesn't wind kill birds? I was listening to the neocon station and they were squawking about wind generators killing bald eagles. They didn't say anything about pesticides.

And GW continues to smirk and strut. This new attack may play into his hands. He will be able to say, "See, look," All quotes from the best seller he read last; 'Dick and Jane'.

6:06 AM  
Blogger oZ said...

The wind\bird kill issue is a "your mother wears combat boots" response. Perhaps they were stolen from the army too.

Right wingers use the issue to justify death and environmental destruction of a whole different order.

The raptor bird kills around wind turbines have been substantially reduced by the discontinuation of lattice towers. Pole towers, which are now the standard, do not create the same habitat.

Bigger turbines (now the standard) with giant rotors moving almost in slow motion at 12 RPM are also more benign on our winged friends.

8:02 AM  
Anonymous Anonymous said...

With the $122,820 thousand spent for one minute, an employee on staff would be able to pay the entire bill from one week spent in the hospital.

She cannot return to work and will loose her insurance next month. It is criminal - with the wealth this country enjoys.

8:31 AM  
Anonymous Anonymous said...

Why are there no plug in hybrids? It seems like such an simple yet elegant solution.

11:32 AM  
Blogger oZ said...

I made a correction this afternoon. It takes 8 years to replace all imports. the orginal post says 6.

12:10 PM  
Blogger memo said...

How long would it take to give every driver in the US a hybrid car?

6:21 AM  
Blogger oZ said...

good question, I'll look it up

8:47 AM  

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