Focus Fusion, Deflation and GDP.

The Focus Fusion Society › Forums › Economic Forums › Focus Fusion, Deflation and GDP.

Viewing 15 posts - 1 through 15 (of 43 total)
1 2 3
  • Author
    Posts
  • August 13, 2011 at 7:40 am #1207
    Duke Leto
    Participant

    This post is going to be controversial since it runs up against LPPX/FFS’s stated aims for the FF deployment process and makes assertions based on economic theory (Neo-Keynesian) that not everyone agrees with.

    I am already on record as thinking that the licensing scheme of a fixed rate per FF generator favored by the powers that be is insanely foolish because it takes the power away from LPPX/FFS, who we know to have non-mercenary and altruistic goals and puts it in the hands of the manufacturer/operators, who to put it frankly don’t. But there’s a more subtle and alarming argument for advocating that the fruit of LPPX’s creativity ought to stay with LPPX rather than get distributed across a large number of market operators.

    This requires an understanding of macroeconomic theory that I only partly understand myself, so I’m going to do my best to explain the theory underlying my argument, but make no promises about its overall accuracy.

    All money is debt. This is a somewhat alarming statement, since people have a tendency to think that somewhere there’s “real value” to a dollar, and some actually still believe that only gold is money. (How anyone could profess to be a devotee of Adam Smith’s “Wealth of Nations” and believe in the vital necessity of a gold standard is beyond me because the [em]entire point of the book[/em] is that the wealth of nations is [em]NOT[/em] gold but its ability to produce the “necessaries and conveniencies of life”, in other words the wealth of a nation is its productivity.)

    Let me put the statement that all money is debt another way. Every penny saved must have an equal and opposite penny loaned. The simple version is that when you put your money in a bank, the bank turns around and writes a loan against it. Which is deposited in a bank, ultimately. Where a loan is written against it. (It is actually the case that only 9/10ths of a deposit may be loaned out to keep the amount of money banks can lend from being infinite, but since the base money that they use is either cash printed by the mints or treasury bonds (the national debt) for practical purposes, let’s just say it’s all created from debt.) See the following: http://en.wikipedia.org/wiki/Money and http://en.wikipedia.org/wiki/Money_supply and http://en.wikipedia.org/wiki/Fractional-reserve_banking.

    That is not quite true. When more people try to borrow then save, the total amount of money in the country increases causing inflation. When more people try and save then borrow, the money supply shrinks and deflation happens. Well kind of.

    OK imagine the following scenario described by Paul Krugman:

    The story is told in an article titled “Monetary Theory and the Great Capitol Hill Baby-Sitting Co-op Crisis.” Joan and Richard Sweeney published it in the Journal of Money, Credit, and Banking in 1978. I’ve used their story in two of my books, Peddling Prosperity and The Accidental Theorist, but it bears retelling, this time with an Asian twist.

    The Sweeneys tell the story of–you guessed it–a baby-sitting co-op, one to which they belonged in the early 1970s. Such co-ops are quite common: A group of people (in this case about 150 young couples with congressional connections) agrees to baby-sit for one another, obviating the need for cash payments to adolescents. It’s a mutually beneficial arrangement: A couple that already has children around may find that watching another couple’s kids for an evening is not that much of an additional burden, certainly compared with the benefit of receiving the same service some other evening. But there must be a system for making sure each couple does its fair share.

    The Capitol Hill co-op adopted one fairly natural solution. It issued scrip–pieces of paper equivalent to one hour of baby-sitting time. Baby sitters would receive the appropriate number of coupons directly from the baby sittees. This made the system self-enforcing: Over time, each couple would automatically do as much baby-sitting as it received in return. As long as the people were reliable–and these young professionals certainly were–what could go wrong?

    Well, it turned out that there was a small technical problem. Think about the coupon holdings of a typical couple. During periods when it had few occasions to go out, a couple would probably try to build up a reserve–then run that reserve down when the occasions arose. There would be an averaging out of these demands. One couple would be going out when another was staying at home. But since many couples would be holding reserves of coupons at any given time, the co-op needed to have a fairly large amount of scrip in circulation.

    Now what happened in the Sweeneys’ co-op was that, for complicated reasons involving the collection and use of dues (paid in scrip), the number of coupons in circulation became quite low. As a result, most couples were anxious to add to their reserves by baby-sitting, reluctant to run them down by going out. But one couple’s decision to go out was another’s chance to baby-sit; so it became difficult to earn coupons. Knowing this, couples became even more reluctant to use their reserves except on special occasions, reducing baby-sitting opportunities still further.

    In short, the co-op had [em]fallen into a recession[/em].

    Since most of the co-op’s members were lawyers, it was difficult to convince them the problem was monetary. They tried to legislate recovery–passing a rule requiring each couple to go out at least twice a month. But eventually the economists prevailed. More coupons were issued, couples became more willing to go out, opportunities to baby-sit multiplied, and everyone was happy. Eventually, of course, the co-op issued too much scrip, leading to different problems…

    continued next post…

    August 13, 2011 at 8:52 am #10456
    Duke Leto
    Participant

    OK, short version of the above is that a recession is when you have too much shit and not enough people buying it. A boom is when you have not enough shit and too many people buying it.

    Now the way the federal reserve controls inflation is by contracting the money supply (taking away babysitting scrips) and the way it does this is by raising interest rates. (Fewer people borrow, more people save.) The way it controls unemployment is by doing the opposite, lowering interest rates. (More people borrow, fewer save.)

    All right, “so what” you say?

    OK a nation’s Gross Domestic Product is defined as “the market value of all final goods and services produced in a country in a given period”. In other words it’s all the shit a nation produces. It’s also ipso facto all the income a nation earns. There are several formulas for GDP, but the only one we care about is the expenditure formula.

    Expenditure:

    GDP = Personal Consumption + Gross Investment + Government Spending + (Exports – Imports).

    GDP = C + I + G + (eX – i) (http://en.wikipedia.org/wiki/Gross_domestic_product)

    Another definition of a recession is when GDP goes down rather than up. Right now in the United States the economy isn’t growing fast enough because C is not going up (people are saving more rather than spending), I is not going up (businesses aren’t investing in new capital) and G is going down (because a party of unhinged and economically illiterate morons is insisting cutting government spending will help the economy). ((eX – i) is so small in the US GDP as to be negligible. )

    Now normally to end a recession the Federal Reserve would just increase the money supply by lowering interest rates… oh wait a minute they are already practically 0%. So acoording to good Neo-Keynesian theory an aggressive program of deficit spending by the Federal Government to increase G will boost that GDP right back up to where it ought to be!… oh wait, aforementioned party of imbeciles controls half of congress.

    So in other words there is nothing we can do to get out of the current lesser depression.

    All that make sense? Good. Now remember when I said GDP is all the shit a nation produces? In the US we consume 87,000 kWh per capita per year. Let’s pretend that all of that is C and none of it is I or G. (It really makes no difference.)

    87,000 kWh per capita * an average cost of 12 cents per kWh * 300 million odd capitas = ~$3.1 Trillion. The total US GDP is $15 Trillion. So in other words Energy makes up 20% of the US economy.

    OK, tomorrow FF generators are perfected and instantly the average cost energy in five years all of the energy in the US is Focus Fusion based and costs 0.1 cent a kWh. That means the total consumer spending on energy is now $26 Billion. Therefore the total GDP is now abruptly $12 Trillion.

    We have caused more deflation in the middle of a depression and a sharp contraction in GDP.

    In other words, “Congratulations Eric Lerner, you have with the [em]best of intentions[/em] just caused the [em]biggest economic contraction[/em] in US History.”

    But wait you say, doesn’t all that increased productivity mean that businesses will invest more? Mmmm… somewhat, but it still won’t be enough. You see with all that lessened demand profits are down. But won’t people just buy more and more energy to make up the difference? Using it for what, exactly? What new industries are being invested in when the government is cutting spending and corporations are tightening their belts because of a worsening depression? Won’t people have more disposable income? Yeah and the value of their houses are going down while their mortgages stay the same. But can’t the government step in and deficit spend us out of a slump? Nope, see the know-nothing party currently in control. (The same thing is to a lesser extent true in Europe. The oil producing countries have just seen their export income collapse and China and India are being pulled down by their inability to export any more to the developed world, which is in a depression.)

    In fact, something like this happened when coal power came online. There was depression and mass unemployment in the industrializing world rather than a straight up increase in productivity and prosperity. That’s where the Luddites came from.

    Let me put this another way. FF comes online. All coal industry workers are out of a job. They can’t buy anything. People selling to the coal miners go out of business. More people are out of a job. And so on in a vicious cycle.

    The faster FF comes online, the [em]worse[/em] the heightened depression.

    The only way out of this is for someone to [em]borrow and spend[/em] the $3 trillion to make up the difference. (Actually $12 Trillion because of the size of the energy economy of the whole world.)

    But who could have such an enormous credit?

    LPPX if it’s making and operating its own FF generators, that’s who! LPPX in this scenario would borrow against its future profits to invest in completely new industries. (Say for example a global vacuum MagLev transit network. And powerful recycling tech and mass desalinization and everything else. Hey how about a space elevator and asteroid mining?)

    The only downside to this scenario is that Eric and the LPPX stockholders become exorbitantly rich. Given Eric’s commitment to social justice, I can think of much worse outcomes.

    See my discussion at Internet Infidels: http://www.freeratio.org/showthread.php?t=305047

    OK discuss and hurl tomatoes. I’m done.

    August 13, 2011 at 5:59 pm #10457
    tcg
    Participant

    A truly fascinating discussion.

    I can only take issue with one point. The math indicating a drop in GDP of three trillion seems valid, as far as it goes. It represents a store of money not expended in electricity costs, but what would happen to it then? I am not sure of the proportions, but a substantial part of electrical usage is in homes. A savings in electrical costs there would put more money in the hands of consumers, a group notorious for spending into the economy any spare cash they have lying around. The rest of the savings would be enjoyed by industry which could use it to expand and create more jobs. Electrical costs are the main limiting factor to profitability of many businesses. I suggest that this savings of money would jump back into the economy in a variety of ways.

    I believe the Duke is right in that control of Focus Fusion, if it works, would best be in the hands of Eric Lerner and his team. I trust them more than I would power company executives or entrepreneurs. The legal structure and demographics of many states would provide opportunities to build and operate FF plants. In California, 40% of all electricity is not generated by the power companies but by private firms who chiefly burn natural gas. State law requires the power companies to buy this electricity and pay the same rate that it would have cost them to generate it, a price the power companies have worked for years to make as high as possible. I am not sure what sort of licensing procedures would be in play, but the trail has already been blazed.

    I am hoping that Focus Fusion will be a success. If it is, there will be three areas where great changes will occur — the technical, where LPP is right now, the political, which has hardly been discussed yet, and the economic, which Duke Leto has begun to explore. I hope other contributors will express themselves on this issue.

    August 13, 2011 at 6:11 pm #10458
    zapkitty
    Participant

    Just a correction: Obama and the “Democrats” heading up the national party are all DLC-Third Way neoliberal supply-siders and Obama is actually an outright Reaganite.

    This is relevant to your premise in that the GOP isn’t “stopping” them from implementing proper Keynesian measures to deal with the current crisis much less the advent of aneutronic fusion. The Demwits in charge actually believe the plutocratic party line and wouldn’t implement a proper stimulus package even if they could… because they didn’t when they had the means and used the GOP as an excuse.

    In fact, Obama has used the GOP as an excuse for a lot of the crap he’s pulled since he took office. A corporate tool par excellence.

    So that’s three strikes against proper handling of the new technology… both parties and therefore the government are part of a true plutocratic oligarchy.

    August 13, 2011 at 8:36 pm #10459
    Duke Leto
    Participant

    tcg wrote: A truly fascinating discussion.

    I can only take issue with one point. The math indicating a drop in GDP of three trillion seems valid, as far as it goes. It represents a store of money not expended in electricity costs, but what would happen to it then? I am not sure of the proportions, but a substantial part of electrical usage is in homes. A savings in electrical costs there would put more money in the hands of consumers, a group notorious for spending into the economy any spare cash they have lying around. The rest of the savings would be enjoyed by industry which could use it to expand and create more jobs. Electrical costs are the main limiting factor to profitability of many businesses. I suggest that this savings of money would jump back into the economy in a variety of ways.

    If we were in a normal economy a lot of it would get consumed, but we’re in a depressed economy where everyone is trying to save. If you’re fighting against your mortgage on an underwater home the first thing you are going to do with a windfall of money is try and pay off that mortgage. That decreases your indebtedness. That decreases the overall quantity of indebtedness, which shrinks the money supply, which further depresses the entire economy. I was trying to make that clear but I didn’t do such a good job. We’re still reeling from the effects of the credit crisis in the US and may be for years to come.

    August 13, 2011 at 8:37 pm #10460
    Duke Leto
    Participant

    zapkitty wrote: Just a correction: Obama and the “Democrats” heading up the national party are all DLC-Third Way neoliberal supply-siders and Obama is actually an outright Reaganite.

    That is to some extent true and to some extent unfair but I won’t dispute the general point.

    August 13, 2011 at 8:52 pm #10461
    AaronB
    Participant

    This is an interesting discussion. Focus Fusion won’t solve the systemic problems caused by fractional-reserve banking by private banks, but it could provide the power for the system that replaces it when it crashes. The crash is inevitable, regardless of who is in office, or how long they stave off the crash. The elements don’t disappear, and neither does most of the infrastructure, so I’m not too worried about the long-term effects. The short-term crises will be painful, but hopefully we’ll come out smarter in the end. Cheap energy will definitely have bad effects in certain industries, but will have good effects in others. The evolution in the energy industry will force change, but over a couple of decades, people will adapt.

    August 13, 2011 at 9:00 pm #10462
    Matt M
    Participant

    I believe you have to compare the sudden arrival of low cost unlimited power to the arrival of the Internet.
    It would appear out of nowhere and change our lives drastically and it would grow our economy so much
    so quickly that we would not really be aware of the contractions it caused.

    You cannot really evaluate the impact of aneutronic fusion on the short term business cycle.
    That is because it will actually facilitate a new long term business cycle like the steam engine,
    the rail road, the automobile or the integrated circuit.

    This would initiate a new Kondratiev Wave, named after the Russian economist by that name that
    first quantified the process.

    The impact on production of goods would be astromonical. The desalinazation of water alone
    would make deserts bloom and feed starving millions.

    August 13, 2011 at 9:10 pm #10463
    Duke Leto
    Participant

    AaronB wrote: This is an interesting discussion. Focus Fusion won’t solve the systemic problems caused by fractional-reserve banking by private banks, but it could provide the power for the system that replaces it when it crashes. The crash is inevitable, regardless of who is in office, or how long they stave off the crash. The elements don’t disappear, and neither does most of the infrastructure, so I’m not too worried about the long-term effects. The short-term crises will be painful, but hopefully we’ll come out smarter in the end. Cheap energy will definitely have bad effects in certain industries, but will have good effects in others. The evolution in the energy industry will force change, but over a couple of decades, people will adapt.

    Well the systemic problems with fractional reserve banking were well controlled in the US until about 1980 when the usual gang of idiots convinced everyone that bank deregulation was the way to go. There were no major bank crises for about 40-50 years and the Savings and Loan crisis hit within 10 years of the first round of deregulation, the mortgage backed securities crisis hit within 10 years of the second round when Glass-Steagal was fully repealed. I think we need someone with the resources and willpower to push a national campaign of bank regulation. Namely you.

    Is it odd that I’m in the position of arguing that someone else should make themselves rich and powerful?

    :cheese:

    August 13, 2011 at 11:24 pm #10464
    Breakable
    Keymaster

    Fusion Power is a game-changing technology. It would be naive to think that the only concept that emerges in the end would be FF. Once over-unity is demonstrated fusion race will kick into over-drive. Emerging concepts will have their own advantages and disadvantages and multiple different approaches will persist (just like the storage technologies we have today). So LPP will probably not have much say in how fusion power is going to be used, I can only hope they will be able to hold on their ideals for long enough to reduce the wealth gap, maybe just a little.

    August 13, 2011 at 11:48 pm #10466
    tcg
    Participant

    Duke Leto wrote:

    If we were in a normal economy a lot of it would get consumed, but we’re in a depressed economy where everyone is trying to save. If you’re fighting against your mortgage on an underwater home the first thing you are going to do with a windfall of money is try and pay off that mortgage. That decreases your indebtedness. That decreases the overall quantity of indebtedness, which shrinks the money supply, which further depresses the entire economy. I was trying to make that clear but I didn’t do such a good job. We’re still reeling from the effects of the credit crisis in the US and may be for years to come.

    The Duke’s point is certainly valid for a segment of the population, those with mortgage payments starting to crush them. In my experience, those people have already lost their homes or they will soon, and nothing can save them. The small, monthly savings on their electric bill would never do it.

    Most of the people I know, young and old, have hunkered down, cutting their discretionary spending. No vacations, less eating out, forget the new HDTV. Contractors have to make their bids more competitive (less lucrative), pay cuts for many, less hours worked for others. Most of these are not worried about their mortgages, they are just treading water at this point, living on less income. Any increase in pocket change would be spent. I grew up with a generation of people who never did believe in “savings”. I doubt they would now.

    The economic circumstances we find ourselves in may prove to be a relatively short term phenomenon, perhaps prolonged only by political motives. The benefit from cheaper electricity will be more long lasting and could open up countless possibilities for expansion of the economy. We would be limited only by our ingenuity.

    August 14, 2011 at 5:12 pm #10470
    AikenWhiteCorn
    Participant

    I’m not convinced of the postulates in this part of the OP’s point-of-view:

    Duke Leto wrote:
    […] the licensing scheme of a fixed rate per FF generator […] puts [the power] in the hands of the manufacturer/operators, who to put it frankly don’t [have non-mercenary and altruistic goals].

    When we start with the idea that Lerner’s plan is the one that would put the most power into the hands of the people who most want to promote equitable societies, I don’t think LPP or anybody else needs $3 trillion or $12 trillion to prop the world up.

    To see why Lerner’s plan gets the FF-generator-world started right, look at this post by Duke Leto in the other discussion he started on the topic (he already linked it above, but here it is again: Focus Fusion Macroeconomics).

    Which of the following is the ideal scenario from the viewpoint of social responsibility on the part of the patentholders:

    1) License the technology for a fixed fee per generator. (Lerner’s plan.)
    2) Take a fixed licensing fee per kWh and let the market build the generators.
    3) Build the generators yourself, take the market value of the produced electricity and reinvest as much as possible in completely new industries. (What I would do if I was Lerner.)”

    1) and 3) are actually two aspects of the same scenario: Lerner licenses the tech, people build the generators, and people use the enterprise to pay it forward. And doesn’t second item above, pay-by-the-kWh, exactly oppose the goal of the developers, to free the end-user from endless requirements by the producer?

    Why not start your own group to build the generators and pay LPP the unit fee? Get a co-op going of engineers and machinists, and/or an LLC going of like-minded people who have been sitting on cash, and who see the opportunity to make a lasting material improvement in the lives of their brothers and sisters.

    By the way, how does one “take the market value of the produced electricity and reinvest as much as possible in completely new industries”? Is that something like getting people to buy shares in the projected income of the enterprise, or like an IPO?

    Did you see that video feature on a bread company in California in which employee/co-op members average $65,000 – $70,000 annually, and the president’s is in the same range? Manufacturers and operators do have non-mercenary and altruistic goals, and some have the standard operating procedures, and history, to prove it. See for example, “Alvarado Street Bakery” and “Worker-owned companies”.

    The Dense Plasma Focus device will put the power of shared, economic self-determination into the hands of ordinary, team-based, educated people better than any previous invention.

    We need someone with the resources and willpower to leverage the benefits of a Focus Fusion industry.

    Namely you!

    August 14, 2011 at 5:46 pm #10471
    Duke Leto
    Participant

    Assuming LPPX is selective about who it grants the licenses to in terms of builders/operators then yes your scenario might work. I have a few buts though.

    Even assuming the profit-taking on the part of the licenser and the producers is kept to a minimum, you still have the extant distribution network to worry about, and they are going to be inclined to charge as much as they can get away with.

    Even if the amount of money that is saved gets passed on to the electricity consumers, most of them are still big industries who won’t necessarily do any good with it, and it’s certainly not guaranteed that they’ll lower prices enough to pass significant savings on to the end consumer, even though a deflationary spiral may have set in.

    Even if you get most of the profits passed on to the end consumer, you still haven’t solved the central problem of the paradox of thrift that is strangling the world economy right now in will initially be worsened by the rapid FF rollout. Fine and good to say things will work out for the best in the long run but in the long run, as Lord Keynes observed: “We’re all dead.”

    August 15, 2011 at 4:39 pm #10474
    dennisp
    Participant

    Oddly enough, lower energy prices historically correlate with higher growth, while higher energy prices depress the economy.

    Whether it’s Lerner or licensees, somebody is going to make a lot of money on FF. That money has to go somewhere. It won’t be going to the coal industry anymore, but it’ll go *somewhere*. (Incidentally, 80% of coal jobs have been lost since WWII, as the industry has automated. There are only 80K miners left in the U.S.)

    If Lerner avoids exclusive licensing, competition will quickly bring down energy prices. As for utilities, bear in mind that their rates are regulated by the states.

    Yes, distressed homeowners may pay down their mortgages. Most people would consider that a good thing, especially if the alternative is foreclosure. Better to refinance a mortgage than to disintegrate it.

    However, as optimistic as I am about a quick rollout, I think the mortgage crisis will be long over by the time FF makes a large dent in energy prices. We’re talking four or five years to be production-ready? And then several years after that while the plants get licensed, built, and integrated into the grid.

    Meanwhile, if this stuff actually works I expect practical, cheap fusion to kick off the biggest stock market boom in history, when people discover that all their grim expectations of climate change and exhausted resources have been made suddenly obsolete, and cheap energy has made all sorts of new businesses possible…large-scale desalination, indoor farms, cheap liquid fuels made from ambient CO2, who knows what else. It’ll reach another level when SpaceX puts a FF in a rocket and kicks off a *real* space age.

    Bottom line, I think there’s one thing that will be best for the economy: roll out FF reactors as quickly as possible. The way to do that is to license it far and wide. Great inventors don’t have a great track record for industrial-scale commercialization, and monopolies don’t tend to do near as well as widespread competition.

    August 15, 2011 at 5:30 pm #10475
    Duke Leto
    Participant

    There’s no question that lower energy prices will help growth But remember the automation of the Coal industry has largely been a gradual process. We’re talking about the entire industry shutting down in 5 years or less.

    And I respectfully say that LPPX doesn’t need licensees, it will have sufficient credit to do the entire job itself. I think it rollout to the entire developed world in 3 years this way. We’re basically talking about a clash between the big and the little and I think the big is the obvious winner.

    Also there will be an initial Stock Market Crash as Exxon, Chevron and its ilk experience a nosedive in value. The Dow would probably go down while the Nasdaq remains steady. It’ll take time for investors to figure out that all the industries with energy costs are going to experience a long term boom. Also also keep in mind that it ain’t just the 80k coal workers we’re talking about there are all the workers at all the generating plants all over the US and the world as a whole, which is probably another million at least in the US alone, plus all the jobs directly dependent on them, another few 100k. A $3 trillion sector employs a hell of a lot of people.

    What I’m talking about is a stock market boom while the overall economy remains stagnant. Look again at the economic theory. Obviously consumer deleveraging would be a great thing in the long term but not if wages remain stagnant. With my scheme of LPPX taking over where the Federal Government can’t or won’t we’ll be looking at the opposite of the 70s with “boom deflation”, with headline deflation of a moderate to high level in the face of rising wages and high employment.

    A big LPPX could also advocate for more favorable policies such as higher corporate and a restoration of the pre-Reagan tax rates, single payer Healthcare, environmental regulation and cleanup, restoration of Glass-Steagal to prevent another financial catastrophe on the lines of the mortgage crisis, unionization, ending the drug war…. Basically be the anti-Exxon.

    It would also incidentally be able to provide a much better wage and benefits package to the FF work force than would currently occur with the licensee scheme, see for example General Motors.

    It would also get broken up on the expiration of the patent and the generators would probably end up going to the municipalities. (Which is who they should belong to in the long term.) Likewise if it develops the desalinization and the pipelines, that’s another thing that can get gradually handed over to the public sector. If it does the vacuum mag-levs than once that is fully recapitalized it can be slowly turned over to all the world’s governments creating a new international organization to encourage cooperation and economic integration.

    The points of this are that big could be better than the little and guaranteeing that enough credit is created to counteract the loss of the current energy capital and employment. These are important issues and I want to lay them out.

  • Author
    Posts
Viewing 15 posts - 1 through 15 (of 43 total)
1 2 3
  • You must be logged in to reply to this topic.