Random thoughts on energy, debt and economic growth

There has always been a direct correlation between economic growth and the cost of energy: The cheaper the cost of energy, the greater the economic growth. While it is true that low oil prices will negatively affect companies that deal directly in them, the opposite is true for the rest of the economy. If the price of oil remains low for the next few years, there will inevitably be an increase in economic growth throughout the world. This is because there is a "ripple" effect whereby lower oil prices translate into cheaper goods and services - cheaper transport costs a) allow producers to sell their goods at a higher profit margin, and b) allow consumers to have more disposable income left after purchasing them. In short, cheap energy (which means plentiful energy in reality), is a win-win for the entire economy.

As for the "debt supercycle", I am getting more and more convinced that the economy is actually about goods and services that people and businesses produce and consume. Debt and money are simply numbers which affect how much a person/business/government can purchase or produce something. If there is cheap and plentiful energy available to an economy, the numbers involving debt and money will tend to balance each other out more quickly. Prior to the 1980s and the birth of neoliberalism, sharemarkets and debt markets grew at the same pace as, if not lower than, economic performance. This changed from 1981 onwards, as nations began cutting taxes on high income earners and businesses in the hope that this would spur investment. It did spur some investment, but over the long term all it did was create a huge bubble of debt existing alongside skyrocketing sharemarket indices (like the Dow Jones). Flush with massive amounts of cash, the rich and the corporations made money and profit simply through a debt/sharemarket/property balloon. Unlike previous generations, in which what went up went back down, monetary policy (interest rates) was able to simultaneously stop any crash and keep the bubble expanding. Instead of popping, the investment balloon remained and still remains very big. What has changed is that the economy has slowed down. A pre-1981 economic system, in which taxes on the rich and corporations remain high and significant economic resources are transferred to ordinary people, will result in higher economic growth (alongside lower debt levels, lower property prices and lower share market indices).

The Energy part of the equation here is important because obviously a market economy that is dependent upon fossil fuels is more likely to experience peaks and troughs as oil levels move from plentiful to scarce. If the world economy was a game, and if global warming did not exist, it would be far better to pump out oil continually at a pace beyond demand, ensuring that a large reservoir of ready-to-refine oil exists above ground rather than below it, and by doing so keep energy flowing into the economy at a stable pace. But because energy is in the hands of market forces, this doesn't happen.

1 comment:

Eclipse Now said...

Great points, and I really enjoyed your definitions of neoliberalism after 1981! Now imagine our modern economies with a stable source of transport fuel. I've mentioned it to you before, but here's my latest summary. Boron! Now, if this is true and boron powder or pellets can be recycled indefinitely cheaper than oil, the implications for our economies are amazing!

* Boron metal pellets can replace oil for transport fuel.
* They burn in a high-oxygen engine. Oxygen tanks or miniturised concentrators could be attached to car engines.
* Boron is not the source of power: instead it is an energy carrier. Every time you burn it the boron powder must be recycled by having the rust or oxygen stripped off it with a reductant.
* Nuclear power could provide all the primary energy to recharge (or derust) boron so it can be burned again.
* A 'tank' of boron would cost around a few hundred dollars, but with recycling it will be cheaper than oil.

But will Boron really work? The world's most famous climatologist, Dr James Hansen, certainly thinks it is a contender.

James Hansen also recommends the free book "Prescription for the planet".
See Chapter 5 "The fifth element" on page 155.
In summary the advantages are:-
* Hydrogen leaks and makes metal pipes brittle. Hydrogen explodes. Boron never will!
* Boron solves the chicken-and-egg problem of a hydrogen economy. What good is buying hydrogen car without a hydrogen highway? Who is going to waste billions building a hydrogen highway if customers end up buying electric cars? Chicken and egg: fuel without guaranteed customers is too risky, customers will not buy hydrogen cars without the fuel system.
* But born is safe and cheap to mail across the country. If just ONE boron recycling centre is set up in your nation, you could mail old boron to the centre to be recycled (de-rusted), and mail it back, and it should still be cheaper than oil. As the boron economy eventually grew, you would stop mailing boron and just swap old for new at your local garage or shops.
* Boron is inert and only burns in a high oxygen environemnt. This means it is safe to store for years. Your car could operate as a backup power station during blackouts, which is not that big a deal here in Australia but in Canada could be the difference between life and death in a snowstorm. Nuclear power and boron would solve energy security, climate change, air pollution and associated health costs, and deliver clean driving in clean cities with a far safer fuel.