Money measures Energy

[middi]

Who knows NT, my feeling is that we are at that transition stage of human evolution where possessions, valuable goods and services appear to be prerequisite to justify our existence.

If in a few thousands of years humanity has managed to survive and able to peacefully sustain themselves and the planet without the need of money, war or greed, then money and greed would have served their purpose.

 

[Penners]

greed would also be good.

With acknowledgements to Gordon Gecko.

 

[biffvernon]

This article explains why buying goods from China and shipping them around the world can generate LESS carbon emissions than buying them locally.

If it's cheaper, it's 'greener'.

Even cheaper (and greener) is not using drier balls and their accompanying tumble driers. You need a piece of thin cord, two trees or stout posts and some pegs.

Now the real problem is how to allow Gui Yan and her compatriots to lead a happy and fulfilling life without following our example of messing up the planet.

 

[Nemesis]

I've managed so far in life without drier balls - I didn't even know they existed until now.

Still, not much use to us, we have the bit of string method for fine days and a zig zag folding dryer for when it's not.

Work fine, and inexpensive as well.

 

[Penners]

I do find it extraordinary that the BBC chose as their "green" example someone who produces plastic (ie: oil) drier balls (ie: one of the most pointless products on the planet).

 

[Pford75]

Whilst the premise makes sense at a high level....I still have a few problems with it.

1. If price was always determined by the cost to produce....all businesses would produce the same gross margin...this simply isn't the case. For example, my company holds a massive market share in a particular product area...this enables us to charge relatively more for our products than our competitors...nothing to do with the cost to produce or the energy consumed....just our dominant market position

2. In economics, there is the principle of 'Goods of ostentation'. Closely related to the issue of 'brand'. The principle being that normally demand decreases as price increases, but for some products, as price increases a point is reached where demand also increases (a so called 'exclusivity premium'). Completely unrelated to the costs (energy or money) to produce.

3. I guess that the model also assumes that the 'energy cost' of labour is related only to the standard of living that person has (ie. how much 1 hour of their time costs in energy terms). This might be true if all labour resources had the same skills.....which isn't the case. The concept of 'opportunity cost' will have a bearing on real cost....ie. I can spend 1 hour of my time washing my neighbours car....or I can spend that 1 hour at work.....because of my skills, the enjoyment I derive from each activity etc. I may choose to do both...but my costs for the 2 activities would be very different.....neither of them related to my energy consumption

 

[Penners]

An excellent analysis, Pford75. And one which highlights a critical and fundamental marketing question:

How much of the perception of quality of a product or service resides in its price?

When I was a lad, my first school holiday job was in a greengrocer's shop. He sold two grades of tomatoes: 1/6d a pound and 1/9d a pound.

One day we ran out of 1/9d tomatoes (they always sold better), so he told me to put some of the 1/6d ones into the 1/9d bin. I asked if I should change the price ticket, but he said no.

"But you can't charge 1/9d for the cheaper ones" I said.

"I'll let you into a secret," he said. "They're all the same".

"So why do the 1/9d always sell better?" I asked.

"Because they're more expensive, so people think they're better," said the canny greengrocer.

That's a true story.

 

[middi]

Where does a 50 million pounds painting fit in all this context.

Money and energy is a fabrication of our minds.

 

[NT]

Whilst the premise makes sense at a high level....I still have a few problems with it.

1. If price was always determined by the cost to produce....all businesses would produce the same gross margin

I cant think of any reason why this would be so. And good reasons why it would not be.

Are you overlooking total business costs?

...this simply isn't the case. For example, my company holds a massive market share in a particular product area...this enables us to charge relatively more for our products than our competitors...nothing to do with the cost to produce or the energy consumed....just our dominant market position

Establishing and keeping a dominant market position requires more activity aka energy than being a bit player. Also large companies invest more in their product, marketing, infrastructure, and operate to higher standards in some ways and so on.

2. In economics, there is the principle of 'Goods of ostentation'. Closely related to the issue of 'brand'. The principle being that normally demand decreases as price increases, but for some products, as price increases a point is reached where demand also increases (a so called 'exclusivity premium'). Completely unrelated to the costs (energy or money) to produce.

Not unrelated at all. To run a profitable business, Tesco needs to offer both value and finest lines. The differing margins on each line are what they need to keep running and make a profit. Total take is what is required to run the business: if it were more, competitiors would muzzle in, if it were less they'd shut down.

Most companies are not single product businesses. Finest goods are what they need to charge to make a sufficient profit. Value goods are what they need to charge to get customers in to buy the other items too.

Business costs are not costs of production. This is a widespread error. Product costs are in fact all the costs of a business, profits included. A business must spend on all those things IRL to get products out the door.

3. I guess that the model also assumes that the 'energy cost' of labour is related only to the standard of living that person has (ie. how much 1 hour of their time costs in energy terms). This might be true if all labour resources had the same skills.....which isn't the case.

I cant see any possible need for this either.

The concept of 'opportunity cost' will have a bearing on real cost....ie. I can spend 1 hour of my time washing my neighbours car....or I can spend that 1 hour at work.....because of my skills, the enjoyment I derive from each activity etc. I may choose to do both...but my costs for the 2 activities would be very different.....neither of them related to my energy consumption

Both of them dictate your energy consumption 100%. Your total income is what you get to spend on energy, and not a penny more. Some directly, some indirectly.


NT

 

[Flyfisher]

The product in question may be essentially useless and unnecessary, but then so many of the goods in shops fall into that category, don't they?

The real point is that if our consumer society insists on buying such things then paying less by having them made somewhere like China would seem to be a 'greener' option. Counter-intuitive perhaps, but so many environmental issues are, if considered deeply enough.

As for using a line and some pegs to dry the washing, again I entirely agree. If it's cheaper, it's 'greener'.

 

[Flyfisher]

Whilst the premise makes sense at a high level....I still have a few problems with it.

I think the problems only occur at the low level, i.e. when people try to equate money with just the energy cost of the item itself. The premise doesn't work for any given item (well, sometimes maybe), it's the entire energy economy associated with it that counts.

Where does a 50 million pounds painting fit in all this context.

A £50m painting involves a huge amount of energy. Not the painting itself, of course, but the purchaser has to earn £50m in order to buy it and the seller will receive £50m to spend on other things, both of which will inevitably involve a huge amount of energy. Conversely, a £100 painting will involve far less energy as a result of being much cheaper.

It's the big picture that counts (excuse the pun).

 

[MdB]

A lot of people who object to the money = energy idea are getting hung up on examples which at first sight appear to disprove this idea. I don't think they do but they are not really worth worrying about. What is important is what happens at the national and global levels. If money = energy usage then you would expect to see a correlation between GDP and energy usage. As it turns out, there is:

Image from Wikipedia here

Now the correlation is not fantastic but there is a general trend. Also note that the countries high on the graph (Japan, UK) have little oil / gas per capita where as those low on the graph (Russia, Saudi Arabia, Canada) have high oil/gas per capita. This will skew the figures due to the realtive costs of generating the energy used in that country.

 

[NT]

More interesting graphs:
http://en.wikipedia.org/wiki/World_energy_resources_and_consumption

NT
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