The Oil Drum | More thoughts from Pedro Prieto on NINJA Financial Issues and Energy

27 comments on More thoughts from Pedro Prieto on NINJA Financial Issues and Energy

Comments can no longer be added to this story.

| Show without comments | PDF version

TheTransition on May 29, 2009 - 11:34pm

I'm not sure I buy into his argument that one must measure goods and services in terms of derived physical quantities.

I can perform calculations in 2009 50,000 times faster than in 1980 with approximately the same amount energy.

Similarly I can cross my city twice as fast with half the energy I used in 1980 because of better roads and a more efficient car.

Again having invested in tertiary education I have a collection of skill sets which are considerably more valuable than before. ie I produce more in a smaller amount of time than previously.

These are examples where technology change and capital investment mean I in turn can produce more goods and services. All the examples above require some some sort of loan of resources. All the above are examples where the result of the loan produces measurable outcomes well in excess of the loan. Given that it is far easier to barter in money than goods and services it makes sense that the loan be given in money and the loan be repaid in money. The measure of whether it is better to loan me money rather someone else money will depend on how quickly I can repay the loan and/or how much extra money I'm willing to pay for the loan.

In a free society with money there is no way this sort of activity is going to stop. Interest bearing loans will continue into the future.

Comments can no longer be added to this story.

WebHubbleTelescope on May 30, 2009 - 2:38am

And that is why in the second figure the straight line diverges with time. So it is partly due to financial creative accounting and partly due to increases in efficiencies, as you state. If energy is the drainage plug keeping the GDP propped up, we will have to wait and see what happens when the plug gets pulled. This is elaborated a bit with the Ayres model posted on TOD a couple of days ago.

I actually would have preferred graphing that figure with the axes reversed, as usually the y-axis is the dependent and the x-axis is the independent variable -- if that was the point being made. But then again I would modify it further and plot Energy on x and GDP/Energy on the y as well. If the marginal return of GDP on Energy input was fixed, this would show as a horizontal line. This would help gauge the asymptotic properties, i.e. if the marginal turn is heading in one direction and whether it will settle in at a higher or lower value than it started at.

My point is that there are a few more ways to plot this kind of data to get some added insight.

Comments can no longer be added to this story.

FMagyar on May 30, 2009 - 8:23am

I can perform calculations in 2009 50,000 times faster than in 1980 with approximately the same amount energy.

But you still don't seem to understand basic arithmetic.

Again having invested in tertiary education I have a collection of skill sets which are considerably more valuable than before. ie I produce more in a smaller amount of time than previously.

My guess is that you like most in our society you have invested in highly specialized skills that may lose their value if we are forced into a major paradigm shift.

Case in point, I have a cousin who is a highly successful heart surgeon, his skills are pretty much useless without the technology that he has access to, he would be unable to do most of the surgeries he does without the current infrastructure. He at least went to med school so he may be able to apply his knowledge to emergency first aid in exchange for a couple of chickens. As for your typical MBA I'm not sure how valuable their education will be.

In a free society with money there is no way this sort of activity is going to stop. Interest bearing loans will continue into the future.

There is that little niggling annoyance commonly known as an exponential function. Either you get it or you don't. You really should watch Chris Martenson's "Crash Course".

Comments can no longer be added to this story.

Pitt the Elder on May 30, 2009 - 8:10pm

I can perform calculations in 2009 50,000 times faster than in 1980 with approximately the same amount energy.

But you still don't seem to understand basic arithmetic.

Reader Guidelines:

3) Treat members of the community with civility and respect. If you see disrespectful behavior, report it to the staff rather than further inflaming the situation.
4) Ad hominem attacks are not acceptable. If you disagree with someone, refute their statements rather than insulting them.

(As an aside, your insult doesn't actually apply; the definition of arithmetic doesn't include exponentiation, other than in the I-can-derive-all-math-from-11-axioms sense.)

My guess is that you like most in our society you have invested in highly specialized skills that may lose their value if we are forced into a major paradigm shift.

Irrelevant to his point - he's giving a concrete example of how investment can increase productivity and efficiency. His skills allow him to be more productive than someone without those skills; ergo, by investing in those skills he increases society's overall productivity, and allows more to be done with the same resource inputs.

Might those skills be less useful in the future? Perhaps, but that's not what's under discussion here.

In a free society with money there is no way this sort of activity is going to stop. Interest bearing loans will continue into the future.

There is that little niggling annoyance commonly known as an exponential function.

If you immediately leap to talking about exponential growth as soon as someone says "interest", you don't understand what you're talking about.

Interest is nothing more and nothing less than rent on money. Buying a house for $100,000 and then selling it for 10 yearly payments of $11,000 is functionally the same thing as lending the eventual buyers $100,000 and charging 10% (overall) interest, and there's not a hint of runaway exponential growth.

Comments can no longer be added to this story.

FMagyar on June 1, 2009 - 6:27pm

Pitt,
You and I obviously have very different definitions as to what we consider insulting.

In any case it was an oblique reference to this statement.

They're all tied together. They're tied together by arithmetic, and the arithmetic isn't very difficult. What I hope to do is, I hope to be able to convince you that the greatest shortcoming of the human race is our inability to understand the exponential function.
Dr. Albert Bartlett: Arithmetic, Population and Energy

If you immediately leap to talking about exponential growth as soon as someone says "interest", you don't understand what you're talking about.

Perhaps, however I was making a direct reference to Chris Martenson's Crash course which was part of the original discussion.

Interest is nothing more and nothing less than rent on money. Buying a house for $100,000 and then selling it for 10 yearly payments of $11,000 is functionally the same thing as lending the eventual buyers $100,000 and charging 10% (overall) interest, and there's not a hint of runaway exponential growth.

I understand this quite well however this only works in a growing economy(multiple converging exponential functions describe this kind of growth) and it fails completely in a contracting economy with run away inflation, because the value of your money is continually shrinking, which was the topic being referenced from the Crash Course.

Comments can no longer be added to this story.

Sterling925 on May 30, 2009 - 8:43am

Again having invested in tertiary education I have a collection of skill sets which are considerably more valuable than before. ie I produce more in a smaller amount of time than previously

Like what? 98% of us (in the "developed" world) are urban dwellers in support roles, mostly superfluous in my experience, living on the fat and behaving as primary consumers while putting little back into the system unless you count project plans and meeting agendas as "more production."

These are examples where technology change and capital investment mean I in turn can produce more goods and services. All the examples above require some some sort of loan of resources.

True - as far as it goes. Loans on hallucinated capital (60 trillion debt) that will never be repaid and "loans" from natural resources that are ultimately finite (fossil fuels) or "loans" on renewable resources exploited faster than they can, if ever, renew (forests, soils, fish, water, etc.). The author's entire premise if I may paraphrase seems to be that we are in financial overshoot much the same as we are in ecological overshoot.

Comments can no longer be added to this story.

TheTransition on May 31, 2009 - 11:21pm

Like what? 98% of us (in the "developed" world) are urban dwellers

Yes. That is me. I like to think that I do my bit for society. Posting here is part of it. If the economic landscape changes dramatically I will retrain to be useful in it.

People are fallible. It is far easier to think things will continue as they used to because 99% of the time that is a correct assumption. Earlier on in this thread someone accused me of not understand exponential functions. That's pretty funny, considering I just spent several months teaching a course on thermodynamics :-)

One of the interesting things we studied were phase changes. You make a plot of temperature rise vs heat input and everything tracks along in a pretty smooth curve until you hit the phase change. After the phase change, things are different but then they settle down and track along a new path. Banks generally lend money based on how things used to be in the past. This isn't a good assumption during a phase change but it doesn't mean it's not a good idea to lend money with interest.

In any case, as I pointed out, it will continue to happen into the future. It is one of those great ideas that has given us all wealth.

Comments can no longer be added to this story.

Dryki on May 31, 2009 - 12:12am

I can perform calculations in 2009 50,000 times faster than in 1980 with approximately the same amount energy.

I agree you do that with approximately the same marginal amount of energy. That would be true whether you refer only to the human energy of pressing keys or the small amount of energy a computer or calculator might use to run a single calculation. However. the emergy of the 50,000 times faster calculation is far greater. Not only in the computer, but the infrastructure that supports a world of computers.

cfm in Gray, ME

Comments can no longer be added to this story.

step back on May 31, 2009 - 7:27am

In a free society with money there is no way this sort of activity is going to stop. Interest bearing loans will continue into the future

There is nothing wrong with money per se (money of itself).
There is nothing wrong with interest per se.
What is wrong are the promises made.

EXAMPLE
Consumer: I am thinking of buying that house for $100,000.

Lender: That is an excellent idea. I will lend you the money.

Consumer: But I'm worried if I can repay the loan.

Lender: Don't be silly. I've done the hard hard math. Of course you can.
Would I be lending you this money if I thought you couldn't repay?

Consumer: Good point.
Consumer: But it says here, interest is 50% per annum.

Lender (in sheep's clothes): Don't worry. Real estate is 101% sure to go up threefold in the next 2 years. You can't possibly lose.

Consumer (gullible): How's that?

Lender (in sheep's clothes): At the end of the 1st year your house will be worth $150,000 and you will owe us $150,000. So no worries. Are you with me so far?

Consumer (gullible): OK. That sounds logical.

Lender (in sheep's clothes): At the end of the 2nd year your house will be worth $300,000 but you will owe us a mere $225,000. So you already have a sure fire profit. And it just gets better and better from there on!

Consumer (gullible): OK. That sounds logical. Where do I sign?

Later that day, Lender is on the telephone.