Tag Archives: economy

Keep Austin Weird by Making Austin Wealthy … all of it

(This post was an opinion editorial in the Austin American Statesman, September, 2, 2016: Keep Austin Weird by Making Austin Wealthy … all of it.)

Keep Austin Weird. The mantra is everywhere – on shirts, coffee mugs, and bumper stickers.

And yet Austin seems to be losing its weirdness.

Downtown music venues are struggling.  Leslie, the scantily clad, homeless, former mayoral candidate, has passed. Perhaps the clearest sign of losing our weirdness is that Austin hosts a Formula 1 race – a combination of glamour and technology that leaves no trace of “weird” in its tracks.  But such are the challenges of a growing city.

Some weirdness remains. Just take a look at the early mornings at Barton Springs pool. Austin is the largest city that doesn’t host a major league sports team. And we still have vibrant movie rental stores.

But I think we need a new mantra: Make Austin Wealthy – and by “wealthy,” I mean emphasizing all kinds of assets, and by “Austin” I mean every person and neighborhood in Austin.

Most of the time when we think about wealth we think of money, or financial capital. We also usually consider how many assets we own either individually (home, car, etc.) or collectively (buildings, roads, water and energy system, etc.) This is built or physical capital.

But there are other forms of capital that we need to consider to ensure a vibrant community, economy or city.

Natural capital is the water, land, trees, animals, clean air and other natural resources that surround us. Political capital is access to structures of power and the ability to influence rules that shape the distribution of resources, such as the district-based representation on the Austin City Council. There is human capital:  Austin has this in spades – the sum total of knowledge and skills acquired through educational channels. And we have cultural capital: cultural understandings and practices that shape how we grasp the world.  Keep Austin Weird was about buying local to maintain local character.

The increasing social tensions in various cities across the United States is the reason why these ideas are important. These tensions are sometimes manifestations of racial injustice, voter redistricting, or income stagnation and inequality, among other drivers.  No one wants increased social tension in Austin, but Austin is not immune. At least one study shows that the Austin metro area is among the most economically segregated in the country.

We should ensure that the rising tide of Austin’s prosperity lifts all canoes on Lake Austin, not only yachts on Lake Travis.  But there are global pressures as well.

Since the beginning of the Industrial Revolution, the cost of the core goods of energy and food were getting cheaper until around the year 2000. After 2000, they have become slightly more expensive.  For 200 years, human ingenuity, beginning with the advent of the steam engine for producing coal, had continually enabled us to prosper while making our core needs more affordable.  But since 2000, no longer.

This and other feedbacks from our finite Earth are applying pressure to separate local communities, between those adapted to a globalized world and those that are disconnected.  We hear this in the speeches of both Donald Trump and Hillary Clinton. They both claim to be against new free trade treaties. However, Pandora’s Box has been opened, we can’t put globalization back into it without some ramifications.

We usually focus on increasing wealth, and we still can and should.  But what we can more directly choose is how to share all various forms of wealth that we have, no matter how much there is.

The past century was about unrestricted growth in a resource-abundant world.  This next century is about reorganizing an increasingly unequal society in an increasingly resource-scarce world to enhance cooperation. Austin’s smart. Austin’s still a little weird. Perhaps the weirdest thing we could do is to become the best city in the world at spreading the wealth. Let’s increase the distribution of capital within our capital city. Keep Austin Weird by Making Austin Wealthy – all of it.

Carey W. King is Research Scientist and Assistant Director of the Energy Institute at The University of Texas at Austin.

The Most Interesting Chart I’ve ever Made: Energy versus Money Leverage

Figure 1 is perhaps the most interesting chart I have ever made. The purpose of this figure (from my publication here) is to provide context into metrics of net energy and see how they relate to economic data. Here, I’m asking a fundamental question: should our (worldwide) society be able to leverage money more than we can leverage energy? My hypothesis is “no” and would be represented by values < 1 in Figure 1. Clearly the plotted ratio of ratios in Figure 1 is not less than one (for all years) per my hypothesis, so why might this be the case?  As I discuss below, understanding the data in Figure 1 is crucial for making better macroeconomic models of the economy that properly account for the role of energy.


Figure 1.  This is a ratio of how much the worldwide economy leverages money spent by the energy sector relative to how much surplus energy is produced by the energy sector itself.  Specifically this calculation (using world numbers) = (GDP/money spending on energy by the energy system) / [ (world primary energy production – energy spending by the energy system) / energy spending by the energy system)].

I created Figure 1 by dividing the data from Figure 3 by the data from Figure 2.  Figure 2 is a calculation of the leverage of energy, and Figure 3 is a calculation of the leverage of money. I now describe each of Figure 2 and 3.

For a full description of the underlying data and calculations, see Part 2 (and Part 1) of my papers in Energies in 2015.

Net Energy

Net energy provides an additional lens, besides money, to understand how our economy works.  Net energy is the amount of energy that is left over for consumption after we subtract the energy inputs that are required to produce that energy.  The energy production and consumption quantities you see in statistical databases (such as those housed by the Energy Information Administration (EIA), BP, and International Energy Agency (IEA)) is gross energy, often referred to as total primary energy supply (TPES) consumed per year.  For example, the world TPES is approximately 550 EJ as reported by the EIA.

Figure 2 shows the data used in the denominator of the calculation of Figure 1.  The solid red line indicates the average value for the world. The underlying data come from the IEA. This figure indicates that since around 1995, for every unit of energy consumed by the energy industry, the energy industry provides about 14-15 units of energy for all consumers and other industries.  Before 1985, this “energy return on energy invested” was greater than 20 (data are not available to for a viable estimate before 1980).  In the case of this figure, there are no other types of inputs considered besides energy itself.  No wages. No materials. No computers or consultants. Nothing but energy.


Figure 2.  This is a ratio of how much net energy the worldwide energy system produces for all other sectors and consumers after it consumes the energy it needs for its own operation.   The solid red line represents the world average.  The dashed red line represents the average for OECD countries only. Each gray line represents the data for one country (the countries with high values are countries that are net energy exporters). Specifically this calculation (using world numbers) = [ (world primary energy production – energy spending by the energy system) / energy spending by the energy system)].

Money Leverage

Figure 3 is about money, not energy.  Consider adding up all energy spending (in money) by the worldwide energy industry and dividing that by the GDP of the world. A typical quantity is 0.04-0.07, or 4-7%.  Essentially this is an input (spending by energy sector) divided by an output (GDP).  In order to compare these monetary data to the net energy data of Figure 2, I need to phrase them in an equivalent manner.  Figure 2 shows energy outputs divided by energy inputs.  Thus, by inverting the monetary energy spending ratio, I turn it from a ratio of input/output to a ratio of output/input.  Thus, if world energy sector spending was equivalent to 5% (or 0.05), 1 divided by this number is 20. Thus, we can say that the economic output of the economy is 20 times larger than the monetary spending of the energy sectors.  Figure 3 plots this ratio for the world.


Figure 3.  This is a ratio of how much the worldwide economy leverages money spent by the energy sector.  Specifically this calculation (using world numbers) = (world GDP / money spending on energy by the energy system).

Why this is interesting

Fundamentally the ratios of Figures 2 and 3 are about measuring inputs of “something” to the energy industry in comparison to outputs of that “something” consumed or created by the rest of the economy.  In Figure 2 the “something” is energy, and in Figure 3 that “something” is money.  Figure 1 shows the data of Figure 3 divided by the data of Figure 2.

Should the output:input (“leverage” or “return on investment, ROI”) of energy (often termed EROI) be greater than or less than the output:input (“leverage” or “return on investment”) of money?  My hypothesis is that the energy ratio should be larger than the monetary ratio.  Thus, the measure in Figure 1 should less than 1.

The reasoning is as follows.  The energy inputs used in Figure 2 only include energy consumed by the energy industry.  As I wrote before, no other inputs such as wages, materials, offices, or administration are considered.  By considering any number of these other inputs (and converting to units of energy), the energy return on investment ratio can only decrease.  However, the assumption behind the monetary ratio of Figure 3 is that all types of inputs have been included in units of money.  That is to say, the energy sector purchases inputs as energy, machines, and various services from itself and other economic sectors.  Thus, there are many more inputs (theoretically all required monetary investments) considered in the monetary output:input ratio for the energy sector and economy.

So back to my hypothesis that the ratio plotted in Figure 1 should be less than 1.  How can we explain values > 1?  The general (but not satisfying) answer is that GDP (gross domestic product) is a measure of economic throughput that is not backed by anything purely physical, but by what we (as consumers) perceive as valuable.  Thus, we can value a service or product at one level in one year, but change our mind as to the value in another year.  Much value is also currently placed in information-related companies (Facebook, IBM’s Watson, etc.), and there is ongoing debate as to whether the value of this information (e.g., in social network companies) is overvalued.  Is social networking overvalued, as a business, and will these valuations decline if people can’t actually afford to buy new products suggested by the ads targeting them?  I suppose we don’t know the answer, and we’ll eventually find out.

Debt as an Explanation

But I think debt accumulation is likely the best explanation for why the economy seems to be able to leverage money more than energy spending by the energy sector.  To some degree, increases in debt in the 10-20 years leading up to 2008 (when the ratio in Figure 1 reached a value of 1) were responsible for increasing the quantity GDP.   Government and consumer spending beyond their means shows up as increases in GDP.

Also, if we consider increased debt a expectation of increased future consumption, and consumption (and production) require energy, then increases in debt are an expectation for increases in energy consumption.  And don’t get confused here with discussions of “decoupling” energy from economic activity.  There is yet no evidence that worldwide economic growth occurs without increasing total worldwide energy consumption.  Possible evidence for this debt explanation is the fact that debt accumulation stopped in 2007/2007 (with the financial crisis and peak in commodity prices) when the ratio in Figure 1 was no longer greater than 1.  If I were to have the data through 2015, my guess is that the number would have stayed near 1 through 2013/2014 before again increasing in 2014/2015 as oil prices were falling dramatically (assuming the energy return ratio of Figure 2 remained relatively steady).

I also anticipate (could be confirmed by further research) that the ratio of Figure 1 would be < 1 for all years before 1980 leading to the beginning of the Industrial Revolution. Largely speaking, we extract the easiest to reach resources first, and these resources have high net energy (= low cost).  Thus, resources with higher net energy translate to larger values for Figure 2 which is the denominator for Figure 1. Thus, smaller values of Figure 1. Further, I know from my previous research that spending on energy was never lower than around the year 2000 (see my papers here and here for detailed explanations), which is what is indicated in Figure 3 (e.g., the higher the value the cheaper was energy). Energy continually became less expensive since the beginning of the Industrial Revolution until the 1970s and then again (much slower) through the end of the 20th Century.  Thus, the values for Figure 3 (the numerator of the calculation in Figure 1) will always be larger for the previous 100+ years.

This concept of Figure 1 is so interesting because it is likely that the time period of 1985-2007 is unique in all of history as the time period when the economy leveraged monetary spending by the energy system more than the leverage in energy that was provided by the energy system.  This is a ripe area for further understanding of macroeconomic modeling that properly accounts for the role of energy.

How much can the next president influence the U.S. energy system?

There have been dramatic changes in the U.S. energy system under our current president – a big drop in the use of coal, a boom in domestic oil and gas development from fracking, and the rapid spread of renewable energy.

But in terms of influencing energy technology deployment, the next president will have a lot less influence than you might expect.

When it comes to educating U.S. citizens on energy’s relationship to the broader economy, though, the next president could have a great impact. But I’m not holding my breath. In fact, I’d say it’s likely not going to happen.

Here I pose a few relevant questions about energy and the economy that could be asked of our next president and suggest some answers.

Read the rest of the post at The Conversation …