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Why Obama's green energy jobs policy will be an economic nightmare
Gerard Jackson
I am forever getting emails from Obama cultists whose idea of a rebuttal consists of parroting Democrat talking points which, in any case, largely consist of outrageous lies. But I am not trying to reach out to those who prostrate themselves in front of the profoundly ignorant President Obama. My aim is to provide readers with facts, not factoids. Irrespective of the fantasies that Obama fanatics entertain there really are such things as natural and economic laws. Far from being chaotic the universe is a remarkably ordered place. Only the existence of natural laws makes this possible.
Obama has announced a program to create masses of green jobs. This is a policy for mass poverty and unemployment. First and foremost, it is impossible for alternative energy sources (apart from nuclear energy which Obama thinks is OK for Iran's genocidal mullahs but not for civilised Americans) to compete against power stations fuelled by coal, dams or even expensive natural gas. And the reason is those pesky natural laws.
Wind and solar (in fact wind is a form of solar power as is hydro-electric power) are what the greens propose to replace centralised power generation with. Now for some basic facts. The maximum amount of energy that a windmill can extract from the wind is 59.3 per cent and is called the Betz limit. This tells us that it is impossible for any windmill or wind turbine to turn more than 59.3 the per cent of the wind's energy into mechanical or electrical energy.
The very rough rule-of-thumb formula p = r2v3 gives us an excellent idea of just how grossly inefficient wind power is. For example, if the radius of the blades is 3 metres and wind power is 30 mph, output will be 243 kilowatts. Should wind velocity drop to 15 mph output will plummet to 33.75 kilowatts which amounts to an 88 per cent drop in output. The fundamental problem is obvious enough: it's the cubic power. Because of this a small drop in wind velocity results in an extremely large drop in output.
Solar power also faces a severe and insuperable obstacle. The maximum amount of energy that the earth receives from the sun under optimum conditions is just under 1 kWh per square metre (11 square feet). So even if these panels were 100 per cent technically efficient they would still be grossly inefficient economically. (One should take note that greenies and their media mouthpieces never mention economic efficiency).
Spain, for instance, allowed itself to be conned into wasting massive amounts of capital on green energy projects that were supposed to create jobs and make the country energy independent. A recent study found that every green 'job' destroyed 2.3 jobs. Of those 'green jobs' only 10 per cent were full time. The country is now in a terrible state. Power shortages are common and unemployment is now 17 per cent.
Spanish politicians swallowed the bulldust that alternative energy employs (that should be waste) massses of capital the spending on which would have a multiplier effect that would raise incomes and increase the demand for labour. But there is no Keynesian multiplier and these investments are what Austrians call malinvestments. The Spanish fiasco proves that these energy policies cannot deliver, a bitter lesson that the Spanish are learning and one that the ideologically driven Obama refuses to acknowledge.
Politicians need to learn that economic laws — let alone physical laws — cannot be broken with impunity.
And speaking of economic laws brings us to the law of returns and its importance to this issue. Simply expressed the law states that with a given number of factors there exists an optimum with a varying factor. As the varying factor increases so does output. Once the varying factor exceeds the optimum the average return to the factor falls. It this law that presents economically unsurmountable problem to solar stations and wind farms.
Please stick with me on this. In industry it frequently happens that because of indivisibilities there is what one might call a technologically determined size with the result that there are disproportionate changes in output when it is not fully utilised. Therefore as the factor becomes more fully utilised there is a disproportionate fall in average costs. This is called increasing returns to scale and explains why centralised power stations are so big.
The opposite situation applies to solar and wind power. In the case of solar the variable factor is the amount of solar energy and the fixed factor is the collecting area. However, the technological optimum (the maximum average return to the variable factor) is limited by the maximum amount of solar energy that strikes the earth. This is less than 1 kilowatt per square metre under optimum conditions, which is rarely obtained. Therefore the amount of energy a solar plant produces per square metre — even with a100 per cent conversion rate — is extremely small compared with centralised power generating plants.
The only way a solar company can increase its generating capacity is by adding more and more land and panels to the plant. Hence, not only are economies of scale impossible but diseconomies of scale will rule production. This means attempts to increase a solar plants output will incur a disproportionate increase in long run average costs. In plain English, substituting solar energy for the current power plants will result in a nassive rise in the cost of electricity.
The same goes for wind power. Not only do changes in wind velocity bring about significant disproportionate changes in output wind — like direct energy from the sun — is also a dilute form of energy with the result that it too suffers from the same insurmountable diseconomies of scale that afflict solar panels. Therefore green claims that the cost gap between centralised power stations and these so-called alternative energy sources is narrowing is pure baloney.
(Every solar-powered generating plant in operation is kept afloat by massive subsidies — hidden and open — along with government mandates that force efficient producers of electricity to buy electricity at exorbitant prices from these grotesque malinvestments).
As we can see, diseconomies of scale actually increase the cost gap because the more one increases output from these sources the greater will be the average costs of production. (This is a lesson Spain learned the hard way). But rising the cost of energy is only half the story. Substituting solar and wind for centralised power production is an attack on the capital structure.
Although it is true that the living standards ultimately rest on the ratio of capital to labour the facts are more complex than this. This 'ratio' consists of heterogeneous capital goods that form an extremely complex structure comprising innumerable stages of production. The effect of raising the cost of energy would be to seriously disrupt this structure and eliminate energy intensive production, causing the structure to shorten. The following figure illustrates this process.
The area A, B and C illustrate the production structure before a so-called energy policy is implemented. A, B' and C' represent the consequences for the production structure of a green energy policy. The grey area represents the loss of capital. The space between B' and B is wider than that between C' and C because the upper area represents capital intensive industries that also happen to be energy intensive. Obama's delusional energy policy is therefore a policy slashing the ratio of capital to labour. In other words, cutting real wages and living standards.
Irrespective of what politicians think, every economist knows that creating jobs is never a problem. The trick lies not in putting people to work — something that Stalin and Hitler had no problem doing — but in providing a steady flow of ever-higher paying jobs for everyone. We call this economic growth. Only free market economies, including very hampered ones, have pulled this one off. Obama's energy policy is — despite what America's corrupt make-believe media would have you believe — anti-market and anti-growth. It is a recipe for creating an economic nightmare in which American living standards would plunge.
One can only hope that Congress will block his insane energy proposals.
More on Obama's economically insane energy plan
Gerard Jackson is Brookesnews' economics editor
BrookesNews.Com
Monday 22 June 2009
