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Energy and money
Kurt Cobb, Scitizen
Is energy merely another commodity among many in the modern industrial economy? Or is it the very basis of our financial and material life?
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… the confusion of money and true wealth often leads to another confusion, namely, the idea that energy is just one among many commodities in modern civilization, the importance of which can be judged by its price. In truth, energy is the master resource without which nothing else gets done. Even if that energy comes from our own physical labor, it must still be harvested and digested in the form of food before we can use it. But in modern society, the amount of energy from human labor that goes into our economic output is so small that it doesn’t even register on a graph of energy sources. Almost all the energy that goes into our products and services comes from elsewhere, fossil fuels, hydroelectric, nuclear power, a very small contribution from renewable fuels, and, of course, the free contribution of the Sun in the form of crops, forestry resources and other biomass.
For the United States in 2006 the total expenditures for energy were 8.6 percent of GDP, according to the U. S. Energy Information Administration’s 2008 Annual Energy Outlook. That’s not inconsequential. But the importance of that expenditure far outweighs its size. If that energy were suddenly to become unavailable, the whole economy would collapse.
This implies that money is nothing more than the ability to command energy to do what we want it to do. This energy can be expended by people doing things we want them to do or by machines running on some form of energy with or without the assistance of people. The reason it is important to understand this is that modern neoclassical economics assumes that it is possible for money to conjure up substitutes for anything. Alas, there is no substitute for energy.
People like to believe that technology will allow us to find and develop the energy needed to grow the global economy. But even that technology presupposes an adequate energy supply to run the technology.
(22 December 2008)
Life Without Bubbles
Paul Krugman, New York Times
… things can’t just go back to the way they were before the current crisis. And I hope the Obama people understand that.
The prosperity of a few years ago, such as it was — profits were terrific, wages not so much — depended on a huge bubble in housing, which replaced an earlier huge bubble in stocks. And since the housing bubble isn’t coming back, the spending that sustained the economy in the pre-crisis years isn’t coming back either.
To be more specific: the severe housing slump we’re experiencing now will end eventually, but the immense Bush-era housing boom won’t be repeated. Consumers will eventually regain some of their confidence, but they won’t spend the way they did in 2005-2007, when many people were using their houses as ATMs, and the savings rate dropped nearly to zero.
So what will support the economy if cautious consumers and humbled homebuilders aren’t up to the job?
A few months ago a headline in the satirical newspaper The Onion, on point as always, offered one possible answer: “Recession-Plagued Nation Demands New Bubble to Invest In.” Something new could come along to fuel private demand, perhaps by generating a boom in business investment.
But this boom would have to be enormous, raising business investment to a historically unprecedented percentage of G.D.P., to fill the hole left by the consumer and housing pullback. While that could happen, it doesn’t seem like something to count on.
(22 December 2008)
Gloomy economy fails to curb Green enthusiasm
Michael MacDonald, Canadian Press via Globe & Mail
Now that Canada is officially in a recession and jobs are disappearing at a rapid rate, it would be reasonable to assume that public concern about the environment — and investment in green technologies — will ebb as worry grows about the economy.
… there’s a growing consensus that Canadians have undergone a profound shift in how they regard the environment and, in particular, the issue of climate change.
“The reaction in the past has typically been: when times get tough, people step back from environmental concerns … and concentrate on their jobs,” says Peter Robinson, CEO of the Vancouver-based Suzuki Foundation.
“This is a much different moment for us. … You don’t see the environment slipping off the minds of Canadians. It’s still there.”
Vinson says his colleagues in the alternative energy business share his optimism about rising sales as consumers try to save money while doing right by the environment, a trend has already taken hold in the United States.
(21 December 2008)
Ambitious climate goals make economic sense
Nora Schultz, New Scientist
Despite the global economic downturn, spending money now to keep climate change in check makes sense as it will save us money in the long run. A new analysis has found that boosting spending is worth it because the chances of preventing catastrophic warming increases linearly with the amount invested.
Michiel Schaeffer at the University of Wageningen in the Netherlands and colleagues used data from climate models to look at how the cost of cutting emissions is linked to the probability of preventing extreme warming.
… Schaeffer says further analysis shows that for every extra dollar spent, the probability of achieving the temperature target rises linearly. In other words, every extra dollar spent increases the chance of success by the same amount.
This linear relationship only holds true for big emissions cuts, though. For relatively lenient emissions targets, costs go up for every small increase in the chances of keeping warming under control.
(23 December 2008)
