Yet Another Psychological Meltdown

Recent days have brought us an all too vivid reminder that owning equities is a bet against a the trouble in the world, including old Mother Earth having yet another one of her lethal fits. A portion of Japan has been devastated by one of the strongest earthquakes ever recorded and the tsunami it triggered. Unfortunately, the failure of a backup power system at one of Japan’s nuclear power plants has elevated the ensuing drama to a whole new, much scarier for the rest of us level. It is annoying at times to watch market volatility get amped up by an overdose of bad journalism, but this time maybe not so much. As I have noted in recent weeks, the Market has been casting about for excuses to correct some of its recent excesses. The major US indices have been pushed below what past experience suggests is a -6% “perceptibility threshold” for a market correction.

What is more than merely annoying, though, is how the never ending media competition for “eyeballs” has thrust the problems at the Fukushima Daiichi plant onto center stage and played up the drama for all it is worth (e.g., the “fire” at reported at Unit 4 on March 15 was instantly broadcast, but the next day one had to go looking for the report that the fire company found no fire when it got there a few minutes later.) It is troubling because it is perpetrating the illusion that nuclear power is, by any objective criteria by which the dangers of any undertaking might be measured, somehow unsafe. This undeserved imprecation will likely persist not so much because of irresponsible journalism (hardly unique to our time) but because of what seems like an endemic inability to distinguish what is merely “scary” (a wholly subjective phenomenon) from objective considerations of danger, which entail both the probability and the capability of inflicting actual harm. I find myself more that a bit concerned that even after this event has gone down the same memory hole as Katrina, the BP spill and a host of other not so long ago “catastrophes”, lingering misguided perceptions about what happened and what we have learned from it will contribute to human suffering in ways that are beyond our ability to calculate.

The root of this concern can be found in the answer to the question of why the outcome of this earthquake, for all its vividly horrific imagery, was so much less destructive of human life than so many others we can point to. Why was it so much less lethal than the Great Kanto earthquake of 1923 (when Japan’s population was roughly half what it is today), an order of magnitude less powerful than this quake, which took over 130K lives? Or, the quake in Haiti a little over a year ago, only 1% as powerful, which took over 300K and left a million homeless? The former example is complicated by the fact that many of the deaths were due to fires that were fanned by a waning typhoon, along with a bit of ethnic cleansing unleashed on resident Koreans. The essential difference in outcomes boils down to the technological progress that is elemental to improved standards of living. Just like many diseases are not nearly as devastating as in times past because people are well nourished and not struggling to stay dry and warm, earthquakes are far less destructive wherever building codes are practicable and and routinely implemented. The standards of living that render nature’s fury less lethal have certain hallmarks. Respect for rule of law comes readily to mind, and not far down a not so very long list would be affordable, reliable electrical power. There cannot be much progress away from being like Haiti, or Japan c. 1923, if 24/7 electrical power at a price that does not strain the budget of a preponderance of households and businesses is not more or less a “given”. Understood as such, higher standards of living, not so much for those of us who have advanced to where obesity is an epidemic and drug companies and therapists thrive on our obsession with “dangers” that are largely imagined, but for that next couple of billion whose lives are more like Port Au Prince than Tokyo, it is a moral obligation. As such, undue hesitation with respect to the development of power infrastructure brought about by irrational fears, a development that will simply have to include nuclear power if it is going to be affordable and happen any time soon, would be wrong because it would all but certainly exacerbate human suffering brought about by all but inevitable future natural disasters.

Note that my little fit of moral umbrage is directed at undue hesitation. Surely, an industry as well practiced at making improvements as new data becomes available as the nuclear industry has been over the past fifty years is going to learn something from this episode. Some of the data will not be available until things (literally) cool down, but we already know a few new things. We know that a 9.0 earthquake, nearly ten times as powerful as the largest thermonuclear device ever tested apparently did no damage to the structural integrity of any of Japan’s 54 reactors. It did, however, trigger the normal, programmed shutdown sequences. The ensuing tsunami, which breached 14 foot walls meant to protect coastal towns, did no apparent damage to the reactors as well, other than perhaps an intake structure or two. That the situation deteriorated into the drama it has had to do with back-up generators meant to power cooling water being rendered inoperable by the flood water. The extraordinary measure of spraying seawater triggered the hydrogen explosions that have released radioactive material into the atmosphere. We also know that this “systems” flaw has already been in a sense anticipated, in that “passive” backup systems have been incorporated into designs subsequent to the affected plant.

It appears that thus far, the radiation released has been far from life threatening, but given how much mental effort it takes to keep microsieverts and millirems straight, it is all too likely that most people just give up trying and assume something medically awful has just happened. Comparisons with “normal” exposure over the course of a year are less than helpful. Just because we can measure it doesn’t mean it is within orders of magnitude of affecting anyone’s health. Thus far, with the possible exception of those plant workers and fire fighters on the site (could you get a better definition of reckless bravery than to take what we have learned in recent years about men who fight fires and consider that ethos in the land that gave us kamikaze pilots?), it is unlikely that anyone has been exposed to radiation that was within an order of magnitude of being strong enough to actually induce any symptoms of radiation sickness. So in terms occupational hazard, measured in terms of probability of suffering actual harm, it would appear that even in this almost-worst-case-imaginable situation, nuclear plant sites are less hazardous than many other workplaces that seem to give us no pause at all (coal mining, or oil refining, or those fishing boats we saw swept ashore, come to mind.)

I think a part of the problem here is that we have become addicted to “crises” that might be a crisis or even a catastrophe for those caught up in it but are really just drama for the rest us. If you lived in one of those coastal towns in Iwate Prefecture, this was a bono fide catastrophe. Fifty miles away, it’s a challenging situation, perhaps significantly so. For the rest of us, though, we can dream up some potential knock-on effects that might find their way into our lives, and we might even choose to enter into the grief that the people we read about are experiencing, but the whole exercise strikes me as an indulgence for civilizations arguably too far advanced and too much at leisure for their own good. The world is, in fact, fraught with actual dangers (A quick scan of headlines as this news was developing suggest that based on objective criteria, it was more dangerous to take a bus tour in NYC, fly a helicopter in LA, or raise one’s family among Palestinians, or just about anywhere in the Middle East, than to live just outside the gate of this nuclear power plant.) I strongly suspect that Japan is going to surprise us with how quickly it puts this behind it. I did say recover, reconstruction will do little if anything about systemic challenges like a declining population. The strong social cohesion and other Japanese distinctions are something of a two-edged sword, real assets when it comes to recovering from setbacks (like 66 years ago), not so helpful when it comes to competing in businesses where agility is paramount. They will do fine, it’s the rest of us I would wonder about (“The sky is falling!”). We need to consider why generations of children were told some version of the fable that was Chicken Little, because eventually, something genuinely dangerous, as opposed to merely scary, will actually happen.

The nuclear industry faces what is certainly a challenge, arguably a crisis but in no way a catastrophe. The lessons learned from this episode, and what we are going to do about it, will have to be clearly articulated. Like the aviation industry, which has incorporated the feedback of a century-long succession of spectacularly lethal “bad days” to bring us to where we take thousands of takeoffs and landing each day without incident for granted, a cultural of continuous improvement on matters of safety, reliability and efficiency must continue. However safe air travel has become, we know that its sheer ubiquity makes it inevitable that at least occasional accidents will continue to occur. Similarly, the nuclear industry must consider the distinct likelihood that a future with many hundreds of reactors in service, some operating in countries less scrupulous or inclined towards methodical execution than Japan, means that eventually there will be incident with an outcome worse than Fukushima Daiichi, and be prepared to deal with it. But the industry must press on. This is because bringing a decent standard living to more of the world is a moral imperative, and not merely so those at the margin can better withstand the next natural disaster. Prosperity will not banish all ills, indeed it tends to produce new ones, but when we consider the havoc that comes out of abject “want” and the hopelessness that often accompanies it, it certainly seems prudent to do what we can to make prosperity more accessible.

A more widespread sharing in the blessings of technological progress means clean, affordable and reliable power. This is not going to happen with solar or wind, not in our lifetimes anyway, at least not without imposing a staggering cost on all but the richest households in the developed world. Increased use of natural gas will be a part of it, given the huge transformation that has occurred around shale in the past few years, but how much sense does a massive increase in the transport and storage of gas make if your policy shift is aimed at reducing risks related to earthquakes? Coal could do it, and will be a big part of the mix for decades to come, but even global warming skeptics should not utterly disregard the possibility that there might be something to it. No, the best way forward is incrementally more gas-fired turbines to handle peak load requirements, just enough emphasis on solar to keep the technology moving forward toward some possible future breakthrough, and a concerted effort to harvest what the nuclear power industry has learned over the past sixty years about how to produce safe, clean affordable electricity.

The industry will step up and do its part to keep the nuclear renaissance on track, but government has a part to play as well. Policy responses, in the US anyway, to the Three Mile Island (TMI) incident were, in hindsight, outlandishly overwrought (though a silver lining might be found in the fact that we now have the opportunity to build even safer, more efficient plants than would have been installed during the long hiatus). If the accident at Chernobyl (a much more disaster-prone technology in the hands of an epically corrupt management regime during the final phases of its terminal decay) caused a slowdown in nuclear development, it is not perceptible in the long light of history. This is because the risks and the outcome was objectively and accurately assessed, which led to the decision to press on. The US Department of Energy has stated that nuclear power will be a part of our “diverse mix”, and reiterated as much in the wake of the Fukushima accident. They have a golden opportunity to, as we like to say out here in less enlightened precincts, put their money where their mouth is, by moving ahead with loan guarantees that have been funded to encourage the development of nuclear energy in the US (or put another way, help facilitate the “catch up” that is necessary as a result of the 30+ year hiatus induced by policies in the wake of TMI). From the distance perspective of those of us not used watching government at work, this eminently sensible project, which is to facilitate the development of proven technology, has been moving at an excruciatingly slow pace. A bit of vigor, something at a pace faster than stereotypical bureaucratic lassitude, would provide a strong signal that the US government really is behind nuclear power and all of the benefits that it brings to so many people around the world.

(F.D. Not surprisingly, I own stocks likely to be affected by the developments described herein. While it is always possible that this affects my perceptions and so judgement, after thirty years of doing this, maybe not so much. These would include, in approximate order of position size, USEC, a fuel enricher (USU), Precision Castparts, a maker of gas turbine components (PCP), Allegheny Technologies, a maker of high performance metals (ATI), Hexcel, a leading producer of composite materials (HXL), and Exelon, an electric utility (EXC). In aggregate, these holdings represent about 14% of my investable net worth. I also bought a Japan based ETF (EWJ) on 3/15).