Wednesday, March 08, 2006

Mr. Greenspan, meet Mr. Newton

This ongoing shift of [gross domestic product] to more conceptual and less physical products and services has, and will continue to slow the growth of our energy requirements. This will be important to our future since the worldwide growth in the demand for oil and natural gas, coupled with the prospect of inadequate investment by the nationalized oil companies, is likely to keep energy prices high. I will offer a set of policies that, although problematic in the current political climate, must be adopted if we are to fend off a crisis. Alan Greenspan's not so modest book proposal

While reading Mr. Greenspan's views on energy above, the country boy in me was wondering, what does a saxophone blowin' city boy like Greenspan know about work anyway. The physics boy in me then pricked up his ears, figuratively writing, and thought, that's right, what does a computer screen readin' city boy like Greenspan know about work-that's work defined as force times distance and force defined as mass times acceleration. In my view, he might know something about macro-economics, but he doesn't know much about energy. I think his view may well be shared by others at the Fed.

Greenspan likes to use words like technology but when discussing energy I prefer the word machine which I define as a device consisting of fixed and moving parts that modifies mechanical or potential energy and transmits it in a more useful form.

A few generations ago, machines were lauded for their labor saving quality. This didn't mean less energy intensive, but rather less human energy intensive. Moreover, the total amount of work done in any specific task did not change, the energy source of the work did.

For instance, a 20 mile trip that used to require human power, in the form of walking, running (if you were in shape) or riding a bike can now be accomplished by an automobile and some gas. As a physicist, the energy expended walking, or riding a bike is far less than that expended driving a car, because moving you now also means moving an automobile. In other words, while driving is much less labor intensive, it is much more energy intensive. Mr. Greenspan, meet Mr. Newton.

Greenspan seems to think our economy is less energy intensive because GDP is rising faster than the physical products and services component thereof. There is, it seems to me, an easier way to check US energy use. Go to the EIA.

They tell me that the US used 54 Quadrillion btu in 1965 and 100 Quadrillion Btu, a record, in 2005. So the US is consuming more energy than ever before, almost doubling consumption in 40 years. Labor saving yes, energy saving, no.

Admittedly, the slope of the energy use curve over time has flattened out from the rapid growth during the 50s and 60s when the US used to make those "physical products and services" Greeenspan wishes we wouldn't make but was building the plants to make those "physical products and services." Even oil refineries require energy to build.

All of which is to write that Greenspan, and many others, in my view, have confused the effects of inflation on economic variables with reduced energy use. 'Cause you see, Al, work is work. But you wouldn't know anything about that anyway. Maybe I should invite him over to split some wood with me.


On a related note while doing some research for this article I came across this information. In 1976, the median household income was $12, 686, the cost of a new home was $48,000 and a gallon of unleaded was $0.61. In 2004,
the median household income was $44,684, the cost of a new home was $264,000 and a gallon of unleaded was $1.88 (now 2.44). Relative to income, driving was a little more expensive in 1976 but housing was more expensive. That technology better start making the average guys life better soon.