Sunday, March 6, 2011

Comparison between the electricity prices ($/MW-hr) and hard drive prices ($/MB) over time

As you already know, the price of hard drive space has been dropping exponentially over the last thirty years.
From the data at the following website  http://ns1758.ca/winch/winchest.html, I calculated a 33% annual geometric (i.e. exponential)  decrease in the price of hard drive space per MB in inflation-adjusted US dollars.

Interestingly, when I did the calculation of the price of commercial electricity in the US between 1980 and 2009. There was essentially no change in the price in inflation-adjusted dollars. While there were increases and decreases in the price of electricity, there's been no real secular trend in the price of electricity as there has been for the price of hard drive space. (Note that the the trends for the residential or industrial price of electricity are similar to the trends for the commercial price of electricity.)



So, while the price of hard drive space has been drastically dropping, there has been no secular (i.e. overall) trend in the real price of electricity. You'd think that with all of the innovation that we've had over the last 30 years, that we would have figured out how to decrease the price of electricity in inflation-adjusted dollars. Instead, what this suggests is that the innovations in the field of electricity production have just offset the difficulty in finding new energy sources and the attempts to make electricity production less environmentally damaging.

In previous posts, such as Electricity Backed Currency, I have argued that there might be some positive benefits of moving to an electricity-backed currency. The largest benefit is that we are guaranteed that the money in our 0% interest banking accounts won't lose value, i.e. the Federal Reserve can't print money when the economy isn't growing, causing the value of the money in our accounts to drop. (As is happening right now as I type with Quantative Easing 2.0) Another benefit of an electricity-backed currency is that calculating the economic feasibility of a process is a lot easier if there is no inflation. You don't have to constantly redo prior cost estimates because of inflation. This means that more work can be spent on creating things of value rather than spent in the calculation of the rate of return on investment. It feels as if very little is being built in the US right now because we're spending all of our time redo-ing past economic calculations, then we have to redo the calculations because we are borrowing money to do all these calculations, and printing money to cover some of the borrowing, and then we have to redo the calculations using more borrowed money because printing money is inflationary, if all other things are constant. The inflation is even worse when the price of energy is also increasing. In an electricity-backed currency, there is no inflation and so more time can be spent building power plants rather than re-calculating the cost in current year dollars.

Another benefit of an electricity-backed currency is that it removes a lot of the fear in the financial markets. If the US dollar is backed by something of actual value, like electricity, then we can all calm down, knowing that money is something of value that can't be manipulated by bankers on Wall Street and the Federal Reserve.  In essence, an electricity-backed currency decreases the role and power of the Federal Reserve. (Check out this future post How to Implement Electricity Backed Currency  )

The connections between non-equilibrium thermodynamics and economics has been and will continue to be a theme of future posts on this blog.

My goal in these posts is to educate (as best as I know) anybody who is interested in learning about the connection between energy/electricity generation and macro/microeconomics. This is an important topic because the generation of work (such as electricity) is the goal of a society, and it's easy to listen to present-day economists (both classicists and Keynesians) and get really confused. It's easy to listen to a series of arguments from one side and agree with them, and then listen to arguments from the other side and agree with them too! This is due to the fact that, in my opinion, both classical and Keynesian economists are misguided, and are good a hiding the self-referential nature of economics.

My goal in these posts is to start with the basics, and then work our way up to more complicated principals in economics. The starting point is the generation of work (such as electricity). If you have to eventually tie everything back to work (in units of kW-hr, let's say), then it's really difficult to over-leverage the economy. Arguments about the multiplier effect of government stimulus go away since the only way that the government can generate a multiplier effect is if it invests in processes that have a positive "average rate of return on investment."


In other words, an electricity-backed currency is one way of removing as much fuzzy math as possible, and making economics more tangible for people without degrees in the subject. Over the next few posts, I'll be going over some the problems in our current theories of economics and how they can be improved with inclusion of the following two items:
1) Non-equilibrium thermodynamics  (i.e. how to generate work from a system far-from-equilibrium)

2) Electricity-backed currency (i.e. maintaining the price of electricity within a certain narrow range, and backing the currency up with a known amount of electricity) See Energy Backed Money for more information.


Let me know what you think.

6 comments:

  1. Power is a useful source, and you should always be on top of things, therefore if you are a company issue then it is essential that you evaluate company power prices. Companies on the whole use considerable amounts of electricity making them some of the greatest customers. Due to deregulation energy companies are able to offer excellent prices on company power prices.
    electric bill.

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  2. Greate Post, Thanks for sharing helpfull information with us. i want to share it with my friends, if you would like to compare gas prices compare gas prices, compare energy prices

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