Jevons paradox, oil and the money supply

"The Jevons Paradox, named after its discoverer, William Stanley Jevons, states that as technological improvements increase the efficiency with which a resource is used, total consumption of that resource may increase, rather than decrease. In particular, Jevons' paradox implies that the introduction of more energy efficient technologies may, in the aggregate, increase the total consumption of energy." (Wikipedia)

Following a link on Downing Street Says (there's a link in the list on the right), I found myself reading a presentation on Peak Oil to the US Congress by Conservative Senator Roscoe Bartlett, Chairman of the Projection Forces Subcommittee of the Armed Services Committee.

The report is interesting in its own right, because here is a conservative senator realising that there ain't gonna be no more oil, and instead of avoiding the issue, is actually saying: hell, how are we going to buy time to achieve sustainability? You can read the presentation at Energy Bulletin (http://www.energybulletin.net/newswire.php?id=4733).

I want to talk about Bartlett's take on the Green Revolution, which I think is fascinating, not only because I hadn't heard this angle before, but also because it reminded me a mind-blowing conversation I had with my resident economics expert James Murray a few weeks ago. But we'll get to that in a sec.

In particular, Bartlett mentions the Jevons Paradox. Bartlett's point is that people responded to the oil crisis of the 70s, and the emergence of the Green movement, by taking responsibility, i.e. by reducing their personal consumption. While this appears to be the appropriate (if not the only) moral action to take, it has only made matters worse, because of the fact that their voluntary increase in efficiency (reduction in personal consumption in one form) will only ever promote an overall increase in consumption.

Bartlett gives the following example:

"Let me give one little example. Suppose there is a small businessman who owns a store. He is really concerned about peak oil, and he is concerned about energy, and he wants to do something. His little store is using $1,000 worth of electricity a month, and he decides that he can really cut that use. So he does several things. He gets a storm door. He puts on storm windows. He insulates more. He turns down the thermostat, and he asks his workers to wear sweaters. And he is successful because he reduces his electric bill from $1,000 to $500. Almost no matter what he does with that $500, he has just made the situation worse by doing that.
[...]
One of the things that he may do, and it is a natural thing for a small businessperson to do, he may decide, I could hire more people and have a bigger business if I expanded. And so now he will expand, and he will still be using as much energy. Or if he decides to invest his money, if he invests his money in the bank, the bank will lend his money out five or six times, and at least some of those loans will be to small business people. And what the small business people will do is to create jobs and use energy. So the store owner is concerned about energy and the environment and being a responsible citizen, cutting his use of electricity, because everybody did not do it, because only he did it and nobody took advantage of the opportunity that was presented because he used less energy, he really contributed to the problem.

Because after he expanded his business, he would be using still more energy. Or if the money was lent out by the bank and small businesses created more jobs and they used more energy, the situation would have just gotten worse.

All that the "green revolution" did was temporarily extend the caring capacity of the world. If we think about that, ultimately if we cannot do something about it to stabilize it, the green revolution just made matters worse.

[..] what we have done with the green revolution is to permit the population of the world to double and double again. So if we cannot now make sure that we stabilize population and bring it to the point where it can be supported by a technology where there is not what was ordinarily perceived as an inexhaustible supply of oil, there will simply be more people out there to be hungry and starved if we cannot meet their needs. So we have got to make sure that whatever we do to solve this problem that Jevons Paradox does not contribute."

Perhaps that is interesting enough, but it's the next paragraph that really made me twinkle:

"...Albert Einstein was asked this question: Dr. Einstein, you have now discovered the ability to release energy from the atom. We get just incredible amounts of energy from the atom. A relatively small amount of fuel in one of our big submarines will fuel it for 33 years now. Enormous energy density. And they asked him, Dr. Einstein, what is the most energy-intensive thing in the world? He said, "It is compound interest."

Now, I can find no solid evidence that Albert Einstein ever said this, but I'm not really interested in the authenticity of the quote. What intrigues me is the connection between Jevons Paradox and compound interest.

...more coming...