by Rick Davis
Photo of interior of Chernobyl school (englishrussia.com)
The recent nuclear emergencies in Sendai have drawn media comparisons to Chernobyl -- although the causes, character and harm (to-date) of the two events are vastly different. However, when reflecting on the lessons of Chernobyl, at the Consumer Metrics Institute we can't help but think about the economy.
The Chernobyl reactor design had several critical and counter-intuitive characteristics that, when coupled with an inadequately trained operating staff and a lax safety culture, resulted in a 100% man-made disaster:
-- The reactor used graphite to amplify the nuclear reaction and water to slow it down, meaning that the reactor increased power exponentially when a portion of the water coolant turned to steam -- leading in turn to more steam "voids" and more power in a dangerous feed-back loop. (Most other reactors, including those at Sendai, inversely use water instead of graphite to maintain the critical chain reaction, with the loss of water actually quenching the reaction rather than amplifying it -- until the loss of cooling becomes the more critical problem.)
-- At low power levels the reactor tended to accumulate a fission by-product, xenon-135, which acts as a neutron absorber and slows the reaction down even further. This accumulation of a reaction moderating gas at low levels resulted in the counter-intuitive situation where the reactor was actually less stable at low power levels than when operating at full power.
-- The seven meter long boron control rods used to shut down the reactor had 1.3 meters of graphite at their leading edge -- meaning that while being inserted the control rods actually increased the reaction rate while the first 1.3 meters of control rod was passing through the core. Again, a counter-intuitive situation where the "shut down" process would initially cause a surge of power before the reaction was quenched.
The accident occurred during an experiment to test a new emergency shutdown process that would provide an alternative source of power for the coolant pumps while the backup diesel generators (similar to those damaged by the tsunami at Sendai) came up to speed. As a consequence of scheduling delays the experiment was being conducted at 01:23 a.m. by night shift operators that lacked adequate training in the experiment itself, let alone full understanding of the operational characteristics of the reactor under abnormal conditions.
The reactor was running at dangerously unstable low levels of power when the experiment commenced, and the experiment itself -- when coupled with several operator errors -- put the reactor into a supercritical state. When the operators finally realized the severity of a number of warning signals -- signals that they had previously ignored -- they initiated an emergency "SCRAM" shutdown process. That process quickly moved 1.3 meters of additional reaction amplifying graphite through the reaction zone, flash vaporizing the coolant into a steam explosion, and 3 seconds later triggering a nuclear explosion roughly 1/1,000,000th the power of a WWII era atomic bomb.
Photo city of Chernobyl (former population 50,000) showing nuclear plant within city. (englishrussia.com)
Why is this story relevant to the current U.S. economy?
The Federal Reserve has been conducting experiments of unprecedented scale on a non-linear and often counter-intuitive economy. Indications are that their traditional means of controlling (e.g. stimulating) the economy no longer work. And recent experiments in quantitative easing have caused bond rates to move in counter-intuitive directions. This raises several relevant questions:
-- Can too much liquidity cause the economy to become unstable (e.g. creating asset bubbles)?
-- Can the Federal Reserve deflate those asset bubbles without harming most Americans?
-- Is there some level of liquidity that generates a dangerously supercritical economy that can tip into either deflation or hyperinflation at the slightest exogenous shock?
The operators at Chernobyl did not fully understand that hitting the "SCRAM" button to shut the reactor down would ultimately be their death sentence. They simply did not understand the complexity of their situation.
Let's hope Mr. Bernanke fully understands his.
Rick Davis is founder and CEO of the Consumer Metric Institute. The Consumer Metrics Institute (CMI) provides timely and quality information about the consumer economy in the United States. Background information on CMI is available at http://www.consumerindexes.com/Overview.pdf.