The concept of 5 Whys is generally applied in process improvement to get to the root cause of a failure; though the practice of asking why is generally useful if you want to get to the root of an issue.

I saw in the news recently more talk of cold fusion, thorium reactors and other means of cheap, clean energy.  Cheap, clean energy would transform our world forever.

Before we take a look at what cheap energy would do, let’s think about what expensive energy does.  The most common example is an increase in the price of oil, which affects all energy prices (and all prices in general as energy is always an input).  The price (of oil) often goes up when supply (of oil) goes down; demand is pretty constant in the short term….then what happens?  We wait in line at the gas station, all prices go up, economic activity goes down (since more money is being spent on energy and less leftover for other items), and anxiety goes up.  We get a recession/depression.

So what about the opposite?  What if energy suddenly became very cheap, and to boot it was non-polluting? That would be great right?

Well, the economy would boom everywhere (except oil dependent nations).  We would usher in a new era of prosperity.  Everything would become cheaper to make.  Prospects for nearly everything would look great; capacity would expand, companies would hire and grow.  Negative energy shocks very predictably create recessions (economists can at least agree on that); the opposite would create a boom.

Is there a drawback?  Yes.  Even if the energy was non-polluting it would be bad for the environment.  Why?  People all over the world would suddenly be able to buy things they couldn’t before because all things would be more affordable as the price of the energy inputs used to make them decreased.  In the US, we already have most of the material goods we need, but for the majority of the planet an increase in buying power means they want STUFF.  They want a house; they want clothes; they want a TV, a car, etc.

All of these things require environmental resources to make.  If a billion people could suddenly buy TVs and cars; we’d need to the extract the raw materials to make that stuff.  What if it weren’t 1 billion; what if it were 2? 3 billion? How many TVs and cars could we make without running out of stuff?  Is there enough asphalt to make the roads for those cars to drive on?

I guess the question is:  What is the current bottleneck to making all that stuff?

Is the price of energy a bottleneck?  Is raw materials already a bottleneck? Are skilled people the bottleneck? Is land the bottleneck? Are capital goods (machinery) the bottleneck?  Finally is demand the bottleneck?

Let’s take them one by one:

Is the price of energy a bottleneck? I would say somewhat yes, since cheaper energy will surely cause more production.  Energy might be the primary bottleneck.  Put another way, price of inputs is one of the bottlenecks.

Is raw materials already a bottleneck? I would say no.  I have never heard of a company not making something because the raw materials aren’t there.  I’ve heard of the raw materials being too expensive (which cheaper energy would help), but I’ve never heard of them not existing.

Are skilled people the bottleneck? Perhaps this one has some merit.  If the world were filled with more productive individuals that had excellent skills in their area, production would become easier.  This is a tough one, since governments must be stable, infrastructure must exist, etc. for people to be able to use their skills.  That might be a bottleneck to more production.  This is an issue nations often deal with.  People don’t produce because the nation is corrupt, there is no infrastructure; it isn’t worth it to produce.

Is land the bottleneck? Not land period, but perhaps land rights, which is somewhat a question of stable governments and private property.  I do think this is a peripheral bottleneck, but not the main, systemic one as it is localized.

Are capital goods (machinery) the bottleneck? This is related to the infrastructure question.  I think in many countries this is an issue.  The capital goods don’t exist to facilitate production.  It is quite the loop huh?  Which comes first, the chicken or the egg? In general I would say no, this is not the bottleneck, since making more stuff would create the demand to make the capital goods.  Capital goods are an effect, not a cause.

Finally is demand the bottleneck? So this is an interesting question, one that economists grapple with: Would we produce more if more were demanded or are we at maximum capacity already? If we are at maximum capacity, what would increase capacity? If you think demand is the bottleneck what you must really be saying is that money is the bottleneck, since if you asked someone if they wanted a car, surely they would say yes (except perhaps if you lived in a desert)?  The theoretical demand is there; it just can’t be back up with buying power.

Scratch all that.  Here is what I think is the bottleneck:  Technology…more specifically ease of production.  Hear me out.

When we invented the printing press, we saw a boom in books, because they became easy to produce.  Anything that becomes easy to produce, becomes relatively cheap and widely available.  Cars are not widely available because they are hard to produce.  If cars were as easy to make as pencils, more people would have them.  Same with computers; if computers were super cheap and easy to make….we would all have them (even people in deserts).  If we could invent a 3D printing technology that could make anything for which a blueprint was available with a few raw materials…most things would get really cheap.

Anyone see an issue with this logic?

2 Responses to “Cheap energy, the environment, and why we don’t have more stuff”
  1. Dad says:

    Always enjoy reading your blogs. Very thought provoking.

  2. David Appell says:

    I think you’re not looking at the big picture. A few of us are discussing your post on my blog at:

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