Friday, February 24, 2012

Review of the DeKo and Specific Details of How an Electricity Backed Currency Would Work

This post is devoted to going into the details of how an electricity backed currency would work, and in particular, I review & analyze a similar idea for an electricity-backed currency,' as presented by Nick Gogerty and Joseph Zitoli. Before I get into the details of their idea, I'm going to start this post off with my conclusions. I'll also restate them at the end after reviewing the paper by Gogerty and Zitoli.

Concrete Plan of Action on How to Fix the Federal Reserve
1) Allow the Federal Reserve to purchase bond funds of power producers, such as utilities and independent power producers, as well as government bonds.
2) Slowly  (i.e. over the span of a few years), the Federal Reserve should sell its mortgage-backed securities and purchase bonds from power producers. It should also sell all of its gold assets and purchase a portfolio of bonds from power producers. A goal of 50% gov't bonds and 50% bonds from power producers would be a good goal to set by 2020.
3) Maintain a constant average price of electrical and mechanical work  (perhaps a running-three month average). This means that the price of electricity and gasoline can fluctuate minute-to-minute, day-to-day, and week-to-week, but the Federal Reserve would either print or remove currency from circulation in order to maintain a constant average price.

4) The money in the Federal Reserve should be separated between private funds and public funds. The profit from private funds should go to the banks. The profits from the newly printed money should go to the US government. There should be a clear demarcation between how much of the money in the US Federal Reserve is private and how much is public money (i.e.  tax payer's money.)

Monday, February 20, 2012

Japan's Electricity Crisis and Nuclear Power in the US

Japan's has imposed on itself a real "Electricity Crisis."
Some people like to throw around the words "Energy Crisis" when talking about US dependence on foreign oil. But Japan is facing a real energy crisis...a lack of electricity.
I've stated many times before that the US doesn't have a energy crisis, instead our problem over the last decade has been a lack of growth. By this I mean, the US needs to return to growth and one way to do this is to figure out ways to lower the price of electricity (i.e. wind and solar are not solutions to the growth problem. Wind and solar electricity increases the price of electricity and/or increases our taxes, and hence makes it harder to grow.)
Well, Japan is facing both an energy crisis and a lack of growth. Pretty soon, all of Japan's nuclear power plants will be closed. In fact, only 2 of Japan's 54 nuclear power plants are currently operating. By April, the number will decrease from two to zero. Nuclear power used to provide nearly 30 percent of the electricity in Japan.

Saturday, February 18, 2012

A Tribute to Andrew Carnegie and His Dream of a Growing Nation

AIn a previous post, I talked about Benjamin Franklin, and why he still matters today. And in this post, I'd like to discuss why Andrew Carnegie should still be seen a hero and a role model for us today. Andrew Carnegie was not a perfect person, but nobody is perfect. The question is: can we learn from his successes and learn from his failings to help us become a better person?

First and foremost, I want to point out the following:   Andrew Carnegie created wealth, and lots of it. He did not take it from other people. He actually generated wealth. He figured out how to make iron & steel products really cheap, and that allowed the development of cheaper and stronger rail lines, buildings, bridges, factories, and power plants. He allowed us to grow, and therefore he generated wealth, i.e. the capability to do mechanical  and eventually electrical work. And while Andrew Carnegie was free to spend his wealth on personal luxuries or luxuries for his children & grandchildren. He did not do this. Instead, he donated the money that he generated to build libraries, universities, public schools, the Peace Palace, Musical Conservatories, and even collegiate sports venues. He gave his money away to projects that he thought could help grow society. And he was smart enough to realize that growing society involves growing the mind of future generations so that they can build the factories and power plants of the future. As Edward de Vere probably once said and Carnegie echoed years later, "It is the mind that makes the body rich."
But what's even better is that Andrew Carnegie not only gave away his wealth, he also articulated his philosophy of life in his many books. He articulated the 'why' behind 'why we should become rich' and the 'how' behind 'how we can become rich.' You can read for yourself what he thinks are the The Laws of Success.  Another good book that articulates his philosophy is Think and Grow Rich.

Friday, February 10, 2012

There are No Limits to Growth Anytime Soon: A Critical Analysis of One Anti-Growth Proponent Robert Ayres

Be wary of anybody who tells you:
“There are limits to growth because we live on a finite planet”
“Growth is an addiction” 
“A steady-state economy is good and preferable to a growing economy”
“Zero percent interest rates will grow the economy

We don’t have an energy crisis. Our current problems have nothing to do with a lack of energy or exergy…there’s plenty of both for the next billion or so years. Our main problem is a lack of growth. (Which was in part due to high energy prices, but also due to the fact that we don't have an energy/electricity backed currency to encourage us to save/invest more when energy prices start rising.)
In fact, in the US, Japan, Canada & the E.U. over the last decade, we’ve had essentially zero growth…and that’s a problem. You can call it an investment crisis…we don’t spend enough on those things that yields positive return on investment, and we spend too much on those things with negative return on investment. I think that 5%/yr real growth is the bar that we should try to meet and then exceed.
So, in this post, I want to discuss some quotes from an influential proponent of the anti-growth agenda who happens to be very well versed in thermodynamics: Robert U. Ayres, a professor in France right now, but formerly at Carnegie Mellon University’s School of Engineering & Public Policy. (Ironically, the hard work of Andrew Carnegie a hundred years ago helped support an anti-growth professor like Ayres.)

Thursday, February 9, 2012

Enron was a Virus: The Difference Between Viral Replication & Real Growth


I recently finished reading The Smartest Guys in the Room. It’s a good book, and it yields a frightening look into a company that was able to survive for so long because it was so intimately linked to what drives society (rates of return, energy & power plants), but so out of touch with the basic means of growing life (positive rates of return on work investment.) Meaning…many people were willing to invest in Enron because they thought that it was an energy company, but only a small part of Enron was actually in the business of producing cheap energy. Mostly, Enron was just a scheme to generate and to spend other people’s money and energy…a virus.

As has been pointed out by many authors (including Robert Bradley Jr.), Enron was living in a fantasy world in which one could make money without owning assets. The problem was that it did own assets (that were really liabilities) and the asset-lite world of online trading is as unstable as an active volcano. The story of Enron and its political corruption is well told by Robert Bradley Jr. in his books Capitalism at Work and Edison to Enron. I've only skimmed through these books so far, but from what I've read, I highly suggest reading his books on this subject, especially because he worked for Enron and got to experience this fantasy world first-hand.

Why is it important to go back and study the problems with Enron? Because, as a country, we don’t seem to be that much smarter than we were ten years ago. Even though there have been a lot of positive developments in recent years (such as the rapid increase in the number of shale oil/gas wells using horizontal drilling), we seem to be as delusional about our economy as we were ten years ago. For example, we have a Federal Reserve Chairman who thinks that growth comes from lowering interest rates. (And it's not just him that believes in this fantasy tale.) Let me state this clearly…growth does not come from lowering interest rates. Growth comes from building power plants that achieve high rates of return on investment. If you lower interest rates to zero percent, you encourage the development of power plants with low rates of return on investment…and hence “No Growth.” Only when we have interest rates above 5%/yr can we ever hope to achieve growth rates above 5%/yr. Like Enron, we are living in a fantasy world in which we think that we can achieve growth while discouraging investment and savings. In another example, I'd like to point out that there are entire countries (like Germany and Japan) that believe you can grow the economy while decreasing the production of electricity. This is all part of a post-modern fantasy that economic growth can be decoupled from generating electrical and mechanical work. It's a fantasy that some of us might wish were true, but it's a fantasy all the same. The only way out of the fantasy is to accept reality:  The goal of life is to grow and the only way to achieve global growth is to build power plants with high rates of return on work invested.

In this post, I’d like to point out the four main reasons why I think that Enron was a virus…surviving off of the energy of its host. It’s important to point out the differences between the virus (Enron) and host (the taxpayers and the power plants in the US.)