Life requires energy. Energy is the currency in which life trades.
People collect what is valuable. Backing money with energy, not gold or debt, will cause people to gather energy. The objective of this article is to suggest the U.S. dollar be backed by 4 kilowatt-hours, or $0.25 a kwhr; people will start collecting and/or conserving energy because energy IS money.
Since solar input is about .5 kwhr per square meter per day ($0.50). An energy collection system 20 feet by 80 feet (148 square meters) would support a family collecting about $18.58 per day or about $6,781 per year from a system that would easily fit in their yard.
The right of individuals and small businesses to compete with power monopolies to sell excess electricity is normally referred to as Feed-In-Tariffs or FITs. FITs were introduced in Germany in 2000. By 2011, 20% of electricity in Germany came from renewable sources with 70% of that provided by FITs.
My guess is that within 10 years of liberty to collect and sell power being restored to the people in America, energy self-reliance will become common, dependence on coal and foreign oil will drop by 20% to 60%. Free markets will develop solutions to store and trade energy. This shift will mimic the shift from mainframes to vast networks of Personal Computers. Central power plant will be displaced by vast networks of Personal Energy Servers. Millions of jobs will be created to aid in the collection, distribution and sale of energy. Thomas Edison's observation from 1910 will be realized:
"Sunshine is spread out thin and so is electricity. Perhaps they are the same, Sunshine is a form of energy, and the winds and the tides are manifestations of energy."
"Do we use them? Oh, no! We burn up wood and coal, as renters burn up the front fence for fuel. We live like squatters, not as if we owned the property.
"There must surely come a time when heat and power will be stored in unlimited quantities in every community, all gathered by natural forces. Electricity ought to be as cheap as oxygen. . ."
Implementing concepts are Wampum, Peak Oil, Oil Famine, Disposable Energy, Economic Flywheel, Net Energy, Growth, and the Constitution.
Wampum
Wampum are beautiful white and purple seashell beads that represented money to the Iroquois Indians when the European immigrants first arrived in America. As the U.S. currency was backed by gold, backing currency with something rare causes that rare substance to be collected and cherished.
In 1971 President Nixon ended gold backing the dollar, backing it with debt. As a result debt has been the massive collection. If the U.S. Federal government declares that the dollar will be backed by 4 kwhr, a massive effort will be undertaken to shed debt and collect energy.
Life requires energy. Basing money on energy will directly link money to supporting life.
Peak Oil
Life requires energy. Oil is finite. Life based on oil will diminish as oil fields deplete. U.S. Peak Oil was in 1970 at 9.6 million barrels per day (mb/d). Fracking will not solve the problem. America has been trading economic strength and blood to keep the price of oil from reflecting domestic depletion. Since 1970, national debt has increased in tandem with oil imports from $0.37 to $16.37 trillion as many oil costs were socialized instead of capitalized into the price of gasoline. Wars and occupation of the oil-rich Middle East has been required since 1990 to defend access to foreign oil.
Oil Famine
Life requires energy. Less affordable energy, less life.
When the potato was brought from South America to Europe it supported an expansion of the population. Potatoes grew well in northern climates, produced far more energy than wheat, expanded the population with a monolithic dependence on a variety of potatoes. When a blight affected that variety, Potato Famine resulted. The U.S. borrows and prints dollars to buy 50% of the oil energy that is the lifeblood of the U.S. economy. At some time faith in the dollar will collapse. Access to 50% of the oil we are accustomed to may suddenly cease. If this happens at planting or harvest, a growing season of food could be lost. The exact shape of how Oil Famine will snap is uncertain. That it has been unfolding since 1970 can be seen in the $16 trillion of U.S. Debt, the 494% increase in oil prices since 1998 and the decrease of $4,155 of disposable income by families.
Disposable Energy
The pursuit of happiness is powered by Disposable Energy; the energy people can afford beyond subsistence. Disposable Energy is a single metric combining disposable income, the price of energy and how efficiently energy can be applied. This metric should replace GDP as the metric of government fulfilling its Constitutional duties. Disposable Energy has been crashing since $12 a barrel oil prices in 1998. Life requires energy, less affordable energy, less life.
Wealth increases with energy. If people collect as much energy than they want and need, abundance will be common.
Gasoline prices and their effect on unemployment two years later illustrate the human cost of declining Disposable Energy. This illustrates why the Federal Reserve's money printing will be great for banks and bad for workers.
Economic Flywheel
The economy is an artifact of how people apply energy and labor. Momentum builds into an Economic Flywheel as Disposable Energy increases, energy prices drop, money is spent, taxes decrease and other positive factors increase. Momentum drains from the Economic Flywheel as debts must be repaid, money is saved, taxes increase, energy prices increase, unemployment increases and other negative factors decrease the amount of labor applying energy.
QE is Quantitative Easing, debasing the value of the dollar.
Net Energy
Net energy is like take home pay. It is the energy available to the economy relative to one unit of that energy required to get that energy to the economy. Oil before 1930 has a Net Energy of over 100:1. As oil fields depleted more and more energy was required to get oil. With Oil Sands and Shale, the Net Energy has dropped below 5:1. The Net Energy of solar and wind is over 20:1.
Growth
Economic Growth in the U.S. is highly correlated to World Oil Supply Growth. World Oil Supply Growth has dropped to zero so future U.S. economic growth will depend on growth in some other source of energy or in energy efficiency. Making a dollar worth 4 kwhr, there will be a push to collect energy to support economic growth. When people realized they can collect $13,563 a year of energy in their yard/roof, vast numbers of renewable energy collectors will be deployed to displace fossil fuels.
There are 36 kwhr in a gallon of gasoline. If the dollar is valued at 4 kwhrs, a gallon of gasoline would be worth about $9. This is much higher than current prices ($3.55) because the costs of wars to protect foreign oil, pollution, and resource depletion costs are socialized into national debt instead of being properly capitalized into gasoline prices. The true cost of gasoline to the economy is about $14 a gallon. Socializing costs distorts the free markets ability to adapt and fulfill our duty to Posterity.
The Constitution
As Oil Famine impacts the U.S. economy, I believe Americans will reject being governed by the whims of the governing and will return to be governed by Law, with the Constitution as the supreme law of the land:
- "To coin Money, regulate the Value thereof. . ."
- "To declare War. . ."
- "secure the Blessings of Liberty to ourselves and our Posterity. . ."
The Constitution is a contract between "We the People." It is the maximum enumerated powers granted to the Federal governing to "establish Justice, insure domestic Tranquility, provide for the common defence, promote the general Welfare, and secure the Blessings of Liberty to ourselves and our Posterity." The Constitution divides Sovereignty between Federal government to "provide" defense and State governments to provide Welfare. Federal powers are specifically limited to only "promote" welfare.
If the governing wish more power, they must use Article 5 to ask "We the People" to amend our instructions to them to grant such power. Violating the Constitution to provide welfare to drivers in the form of Interstates, the whims of Federal officials debased the value of labor, oil-wars since 1990, and, created Oil Famine.
Devaluing labor, "To coin Money, regulate the Value thereof. . ."
Congress must vote on the value of money, just as it votes on the level of taxes. The value of money must be regulated relative to something voters understand and can hold votes in Congress accountable. When President Nixon removed the Gold Standard in 1971 the value of a dollar was regulated so that $35 would buy one ounce of gold. Congress avoiding its Constitutional duty to "regulate the value thereof" as debased the value of the dollar to the extent that today $1,561.
An ounce of gold is still exactly an ounce of gold. A gallon of gasoline in that cost $.36 in 1971 is the same as a gallon of gasoline that costs $3.55. The gasoline did not change. The Federal government debased the value of the labor, requiring workers to work more hours or seek pay raises to earn $3.55 while government benefits from spending money printed beyond its value.
Life requires energy. Congress must regulate the value of money relative to something people understand. Fixing the value of the dollar to 4 kwhr allows voters to hold Congress to its Constitutional duties.
Oil Wars: "To declare War. . ."
By statute, to commit the nation to war requires a 2/3rd majority vote. The whims of the governing violated laws made under the Constitution with wars in Korea, Vietnam, Iraq and Afghanistan, all resulting in stalemates. Von Clausewitz noted that "Power is the will and ability to win applied to achieving an objective." No amount of bravery, nor personal sacrifice by America's soldiers, could compensate for politicians' failure to define an objective or rally the will of the nation to win. (Author's note: I am not anti-war. As a West Point graduate and an eight-year Infantry veteran I understand that peace is the enforced absence of war. I support the ethical use of violence to defend liberty, the nation as prescribed by laws under the Constitution).
Oil Famine, "secure the Blessings of Liberty to ourselves and our Posterity. . ."
There is a usufruct duty to Posterity. Usufruct, means to use for profit without harm. Thomas Jefferson's "The Earth Belongs to the Living" letter of James Madison explains the usufruct duty to Posterity:
- "Then no man can by natural right oblige the lands he occupied, or the persons who succeed him in that occupation, to the paiment of debts contracted by him. For if he could, he might during his own life, eat up the usufruct of the lands for several generations to come, and then the lands would belong to the dead, and not to the living, which would be reverse of our principle."
- ". . .nor the nation itself can validly contract more debt, than they may pay within their own age, or within the term of 19 years?"
Tyranny of the Majority is the barrier to a stable currency and energy policy. Unconstitutionally the Federal-Aid Highway Act of 1956 taxed and spent to build the Interstate Highway network. Interstates are 1.4% of American roads and carry 25% of car miles institutionalizing oil as the lifeblood of America's economy. A majority of voters are drivers. Depending on gasoline resulted in drivers voting for politicians that socialized $16 trillion of oil-war, imported oil, pollution and other costs into the national debt. Debt is the tax on future labor. Federal politicians have bound the liberty and future labor of children to $53,000 in debt for each child to provide drivers with cheaper gasoline today. This is Taxation without Representation; children did not vote or consent to owing $53,000 each.
Tyranny of the Majority and Taxation without Representation are unconstitutional. The Constitution very specifically limits Federal taxing and spending on highways to "postal roads." President Madison, the Father of the Constitution and Bill of Rights, stated this when he vetoed a transportation bill on March 3, 1817:
"Having considered the bill this day presented to me entitled 'An act to set apart and pledge certain funds for internal improvements,' and which sets apart and pledges funds 'for constructing roads and canals, and improving the navigation of water courses' . . . I am constrained by the insuperable difficulty I feel in reconciling the bill with the Constitution of the United States to return it with that objection to the House of Representatives. The legislative powers vested in Congress are specified and enumerated in the eighth section of the first article of the Constitution, and it does not appear that the power proposed to be exercised by the bill is among the enumerated powers."
Socialism, Federal control of the means of production in power and transportation is unconstitutional. Funding Interstates created a government monopoly, causing the loss of thousands of miles of railroads that average 480 ton-miles per gallon. Funding Interstates delayed expansions of Personal Rapid Transit (PRT) networks. The PRT network in Morgantown, WV has delivered 110 million oil-free, injury-free passenger-miles since being built as a solution to the 1973 Oil Embargo. In the same period that the Morgantown's PRT has been injury-free, the Federal highway monopoly has killed 1.6 million Americans.
A similar unconstitutional Federal monopoly of communications resulted in a century of rotary telephones. When declared unconstitutional in 1982, free markets were restored. Long dormant technologies of the Internet (1969) and radio telephones (1946) were able to commercialize. When Federal central planners chose networks, they chose consistency. When liberty to choose communications networks was restored to the people, people chose value.
Bill James
OilPrice.com
