Comment 32125

By fractz (anonymous) | Posted June 26, 2009 at 12:11:26

Here's my theory:

Green energy is by definition renewable i.e., theoretically infinite. So its not supply constrained. It has technological constraints, but that never stopped us before.

So, economically speaking, it eliminates the supply constraint from the classical Demand/Supply curves to determine its price.

I hold that its price can be made flexible and adaptive to the conditions in the economy at any given time. This is not true of any other natural resource based energy source.

I further hold that because of this flexibility, it is helpful to compare it to Money Supply. As we have seen, the Fed turns the spigot on or off at will to control the economy. Because there is no supply constraint (at least in the short term) i.e., it is a flexible resource.

If you follow this line of reasoning, I believe that Green Energy has the potential to supplant and/or supplement Money Supply as the gyroscope or flywheel of the economy. Indeed, it can offset the negative effects of unrestrained Money Supply growth. So, for example, it can be made to have a deflationary bias when Money Supply is inflationary, and vice versa.

A natural resource constrained energy supply cannot do any such thing, indeed it is reactionary to the effect of Money Supply, typically exacerbating its effects rather than countering them. We have seen this happen recently in the price of oil heading back to $75/barrel from a low of $30/barrel. So energy prices are fighting the Fed, not helping it. A Green Energy base can be made to do precisely the opposite.

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