An Economist Looks at the E-Cat (Part Two): Will the E-Cat Create Jobs?

This is the second post in a series written by Paul Bennett, PhD candidate in economics at George Mason University.

Will the E-Cat Create Jobs?

This is very difficult to predict – at least in the short run. There is some evidence that technology improvements initially have a negative effect on the overall economy, but the theory and empirical evidence also predicts that after a period (which can be anywhere from a month to a year) the economy recovers to its previous level and then expands beyond the original level.

Unfortunately the E-Cat is not your typical technological shock. In a typical technological shock, the new technology allows a product to be made with less manpower than the old technology. The initial dip is caused by two effects:
(a) the staff who used to be employed by the old factory are laid off because the new factory can produce the current demand for the good with fewer staff, and
(b) the inventor of the new technology uses his monopoly position to keep the price of the good close to the price using the old technology and thereby reaps the reward for his genius.

As time passes, the economy seeks a new equilibrium. This new equilibrium will have a higher real value of human labor than the previous equilibrium (before the technology improvement). This must be so because the good that previously took 5 people-hours to produce can now be produced with 3 people-hours.

The E-Cat is different from the above typical technology shock for two reasons:
(a) the cost of oil is not very sensitive to technology: the price is driven by a number of factors that are unrelated to the cost of extraction and distribution or the human effort required to perform these functions,
(b) the size of the shock to the economy could be so disruptive that it could take a very long time to recover from it: the Great Depression lasted for at least five years and it is not clear that it would have ended then if the Second World War had not occurred, and
(c) the product (energy) is such an enormous factor in the economy that a reduction in its price creates a stimulus even before we start adjusting the equilibrium.

I do not know how many people are employed in the oil, coal, and fission industries, or how many people will be needed to produce the equivalent amount of energy using E-Cat technology. It is therefore difficult to assess what the impact will be. Because the owners of oil reserves are currently reaping such enormous profits just from the fact that they can withhold oil from the market to obtain the maximum profits, it is not clear that the E-Cat cannot produce power more cheaply than using oil even if E-Cat power were to require more human labor per watt-hour than the same power produced from oil.

The new technology will certainly create new jobs, but it is not clear that these will exceed the ones it destroys in the old technology sectors, or that the people laid off can easily fill the new positions. The profits made by the current owners of oil reserves will vanish, but the profits made by Mr. Rossi and his investors may be set at a level that only reduces the consumer price of power by a small amount. On the other hand if Mr. Rossi and Co. can produce power for a real cost that is significantly less than the cost using oil and they can effectively protect their patent, they will become so rich that it is difficult to imagine that the rest of the world will allow them to keep their money (Mr. Rossi could easily become the world’s first trillionaire!). Ultimately, the economy will benefit from the introduction of the E-Cat, but it is not clear that this will happen very quickly – except for Mr. Rossi.

Paul Bennett

  • Luca Salvarani

    Happy to be surprised! We have more in common than I thinked! You indicates some interesting items but it would be impossible to further whites about them here… there will be proper occasions.. Thank you!

    Only a curiosity: where do you come from?

  • Luca Salvarani

    Dear John

    First of all thank you for this interesting discussion!
    Some years ago (I’m 25) my point of view was very different! and also very similar to yours! Italian culture and our overall system are very backward (luckily with some exceptions like Andrea Rossi or notably Mario Draghi..)! They don’t even know many basical liberal concepts that are widespread accepted and recognized in common law countries like England, US, Canada… for istance personal responsability, economic, social and religious freedom… and what these really mean and entail. This is mainly due to historical and social-economic well rooted factors! Studing finance, its related items and expecially thanks to internet I can reach a really new unthinkable world (economic history, economic theories, other countries experiences, foreign bloggers ideas, and expecially corporate case studies since I’m specialied in corporate finance..). This has completely turn my point of view in a very liberal one (I don’t mean democratic party, just the opposite). So now I strongly trust in the free market (many people blame it for crisis and demand more government but don’t undestand that it’s the real souce of distorsions thar trigger this crisis…damn) , and adverse welfare or similar systems! not for greed (I’m not very rich, I’m an average middle class person) but mainly because I saw every day that it doesn’t help who really need help (such as poors, unemployed or sick people) but enriches insiders. Let me make an example! Many americans think that government should provide universal health care such as in Italy.. but despite very high taxes (much more higher than yours) when you need heath services you must wait several months or more at best here in the north of Italy (the south except for tourism, no terrorists and no burqa for women, is more similar to Africa rather than Europe) and you are obliged to go to a private operator for istance because that time could make a great and even vital difference for your health! So you are paying twice: to a private (if you have enough money! so poors can’t affort it) and to the government from who you receive very little! Maybe in the US (with much less corruption, more checks, an effective political selection, budget and effective justice system, an efective antitrust…) the outome would be much better…. but it teaches me that welfare could (I’m using the conditional!) has sense and be effective only in very particular contexts: only in technologically , culturally advanced and socially homogeneus countries or regions such as Germany or Finland or Massachusetts that are DECADES ahead of us in any sense (This is the real reason why Euro is, or will, collapsing! because Italy, Spain, Portugal, not Ireland… is mainly at African rather than German level! this is the bitter realty)! In other contexts welfare is an oppression and corruction instrument that concentrates rather than spread wealth and it’s impossible it works! Let me humble remind you some things:
    1) As you write a middle class person now could afford things and services that a very rich person can’t and maybe can’t even dream or conjecture about only some decades ago! Even my grandmother (like many other italians), during her youth, had very very little food for many years…. so I’m not speakig about 200 years ago… We have seen an exponential wealth improvement in very short time! but right now even the richest wants more and better things and services…so the first conclusion is: even in a much richer world (thanks to e-cat or example) there will certainly be shortage of some things and services! so the market will always make perfect sense! The second one is: market not only makes sense in such a world but it’s necessary! it’s essential to reach it! Without market that world never will occur! If you agree that technology is now the main source of development (economic and not) answer me: why a talented person should work hard to invent something (and also to become talented) and an investor should fund that talented man instead of spending his hard earned money for himself? Mostly because they want to improve their wealth! Of course there are also some cases like open source softwares where people provide free servises… but they’re very particular cases… indeed for these programmers it’s a sort of entertainment (they’re enjoyning it) and they already have other money sources…. so you can’t translate this model to the entire economy! You says that many basical things will cost much less than now in such a world so with a relative light welfare system (that doesn’t discourage talented people and investors to use their know how and their money to keep development) would be possible to supply everybody basical things. Maybe! But history teaches that welfare never stays light, it’s always growing! People want always more! expecially when somebody turn richer as we are conjecturing due to e-cat! The light welfare you dream about never will occur! and however in the modern system it wouldn’t work because for istance corporations choose the most favorable legal and fiscal base to prevent it (thinks about GE that doesn’t even pay a cent of taxes…) Welfare will be heavier and heavier, expecially due to the groving number of workers who will become completely obsolete and their influence on politics, hitting the productive forces and obliging them to escape! so turning the system even poorer and corrupted. Only parasitic activities will resist benefiting who has good political connections… in a way that concentrates the power and the wealth in very few and always less hands destroying the middle class and making the poors poorer…. I’m not speaking in theory: it’s the Italian history and current reality (and also many other countries ones think about western ones…) and could will be, due to Obama’s disgrace, the US future reality! Welfare isn’t not only an economic but a democratic also spectacular failure and boomerang! indeed the rich elite that take advantage from the system must limit people’s rights and freedom to retain or even increase its power (Berlusconi for example is limiting judge and antitrust powers; censuring internet and the few media that he doesn’t already control… not so different from Ghaddafi or Putin, his best friends)! Only middle-east style riots could break this system, but western countries are limiting to “indignados” that however are demanding more government… and so shooting oneself in the food!
    2) I’m not against welfare at all! I’m against government welfare, imposed and forced welfare! where who work and pay can’t decide nothing and a political pen pusher decides anything! For example I admire and like very much open source programmers, wikipedia, Buffett and Gates fondations (that indeed are typical of common law countries and aren’t absolutely a coincidence)…. but it must be free and voluntary, not imposed by a Washington pen pusher!

    I’m sure you can’t agree with me, and maybe I’m greatly influenced by italian realty… I know you are thinking about a noble and very different welfare driven directly by citizens rather than government but it seems me very difficult to occur for social, political and economic pressures and interests.. and I must admit due to human natural greed! Hope I don’t disappoint you too much…
    Bye Luca Salvarani from Mantua

    • John Dlouhy

      Luca, you might be surprised but I agree completely with what you say about welfare and the way it is administered by our governments in the context of the monetary system.

      I must apologize as I am not a very good writer. I forget that other people don’t know what is on my mind and what other things I have been studying. I write as though other people could read my mind which of course they can’t!

      When I wrote about welfare, I should never have used the term “welfare” as it would naturally lead someone to think of the systems as they are now or used to be. Let me explain the context of my idea about people not working. I have been reading a lot about a new idea for government that was first started by the technocrats. The idea is being “repackaged” by several new movements like the zeitgeist movement, the venus project, or the seasteading initiative. They are all saying essentially the same thing. That our technology has advanced, but our government has not and that the monetary system is going to collapse because it can’t function with such high productivity nor when the population growth rate drops. I won’t try to support these ideas here. You can google them and watch some videos if you are interested.

      With this context in mind, I spoke about people not having to work in the future, but I should have said people will need to work much less in the future. Today’s welfare system is an abomination, an utter failure. I agree so much with you on that.

      On the other hand, the free market is too susceptible to human corruption to work for the betterment of mankind. A new system is needed. Those who believe eliminating all government regulations will solve the market problems are mistaken. You only need look at the differences between countries with strong and lax regulation to see the effects. Of course, don’t confuse good and bad regulation, because both exist. Consider reading some Noam Chomsky to understand more about this subject.

      We are so indoctrinated and immersed in the monetary based, materialistic society that most people are not even aware that it is our unspoken religion, and that other options exist. This is probably the wrong place to bring up this subject as it is extensive and so unfamiliar to most. It is also straying from the topic of E-Cats but to recap, unlimited energy would allow the new economic system to exist more easily which is why I am excited at its possibilities. I hope Andrea Rossi does not disappoint us on Thursday!

  • John Dlouhy

    I fully expect most people to disagree with my view on the welfare state. Even calling it “welfare” is probably a mistake as it carries such strong connotations.

    We both agree that automation is destroying jobs. (I prefer to say that it is alleviating toil.) And we both agree that automation is increasing. So if you project into the future, it is completely reasonable to believe that the amount of work that will need to be done will be less. This has in fact been the historical trend.

    The real question is simply one of competing rates:

    The rate of increase in people’s desire for goods and services VERSUS

    The rate of decrease in work due to automation improving productivity.

    If you believe the rates are matched, that people’s greed for more is unlimited and will always increase, then people will always need to work.

    If you believe there could be a limit to people’s material wants and needs but no limit to automation, then eventually people won’t need to work, in the distant future.

    This is precisely the relevance of the E-Cat. Unlimited automation will require unlimited energy and if Rossi delivers, then we have it.

    • http://www.nickelpower.org Bruce Fast

      “.. This has in fact been the historical trend.” I have not found this to be true at all. “If you believe the rates are matched, that people’s greed for more is unlimited and will always increase, then people will always need to work.” I do believe, unfortunately, that people’s greed is infinite. Further, we have a currency/work model of sharing the resources. It is not easy, as automation takes over many tasks, to equitably share the remaining tasks and the resultant goods and services. The currency/work model has been effective for millennia, a new model will be hard to find. (They seem to have found it on Star Trek though.)

      • John Dlouhy

        Bruce you wrote “I have not found this to be true at all.” in response to my suggestion that people work less today than in history, and once again I completely agree with you. It seems wrong because I didn’t clarify the limits of my statement. My post was actually directed to Luca (I neglected to address him by name) who is educated in finance and I count on him to infer my meaning while maintaining an economy of expression. Here’s what I meant:

        If you were to provide for all the people on earth, the average standard of living that was available to our ancestors, a small house, food, clothes, essentially a very limited material lifestyle without travel, services, etc., just the bare essentials, and you were to provide it using today’s technology and automation, the amount of work per person, on average, would be drastically lower than it was in history.

        As an example, a friend of mine who farms shared his accounting details with me one summer. He and a hired man work 3 months out of the year, that’s ½ man year between them. I calculate that they produce enough food calories to support a population of over 3,000 people for an entire year. That is an astonishing leverage. Of course the real world figure is not as fantastic because of the indirect labor associated with his production; fuel production, chemicals, equipment production and maintenance, as well as the need for a varied diet, but the agricultural GDP as a percentage of total GDP is still under 1 %.

        A lot of people today may be working as hard as our ancestors did, but its to provide the many goods and services we enjoy that were unavailable to them, not to provide the basics.

        I go on to say that an unlimited increase in human wants will keep people working and you say you believe that would be the case. Its a commonly held belief that is actually taught in Economics 101. However, it is being challenged by some forward thinkers and by observation of the effects of the internet. People need to be housed and fed, kept healthy, and have something meaningful and enjoyable to occupy their time. The notion that only an endless and increasing supply of material wealth can meet those needs is certainly contestable.

        In Rossi’s E-Cat, the nickel nucleus absorbs a proton which degrades to a neutron emitting a positron (antimatter) which exits the nucleus and annihilates an electron (matter) liberating an enormous amount of energy. This is similar to the matter-antimatter containment drive on the Enterprise which drives the replicators that produce what they need. That is why they don’t need money.

  • Rick Gresham

    You all seem to be far more knowledgeable than I about matters concerning finance and economics. One aspect I haven’t seen discussed yet is the change in population over the next few decades. As I recall, population is projected to peak at around 9 billion mid-century then begin to decline. A growing population generally means growing consumption of pretty much everything, else given that almost all the population growth will be occuring in emerging markets which currently have very low per capita consumption of anything (other than misery). As those economies progress, huge amounts of stuff (that’s an economic term, right?) will be needed if they are to approach per capital consumption parity with the US/Europe/Japan. Then, come mid-century, something the world’s never had to figure out before, a declining population.

    • Luca Salvarani

      You’re right Rick on demographic issues importance… it’s a very wide and complex theme! I think that it should accelerate and boost my conjectured scenario.

      Thanks for reading Luca Salvarani from Mantua.

  • John Dlouhy

    Luca Salvarani, please ignore the double post just above, I’m having trouble with the buttons today! In response to your earlier post:

    1) Originally you said that debt was cheaper than equity for the ISSUER. I understood that to mean the corporation issuing the debt or the shares. From the purchaser’s perspective, of course debt is safer and therefore pays less but when a corporation issues shares and does not pay out royalties, it seems like they have received free money with only the underwriting cost as a one time expense.

    2) I agree with you that the asset value of the energy companies will collapse but I think we differ on how fast it will happen. I think the value loss will be gradual for these reasons:
    2.1 The energy economy is massive and it would be many years before enough E-Cats could be built to seriously affect it. E-Cat’s presently are designed to heat, not to transport, and only threaten a portion of the petroleum market. That would change but will take time.
    2.2 The oil industry is running just to maintain present production rates. If it were to slow exploration, or halt it, existing well output would decline and follow any drop in demand. Again this would be gradual, not overnight.
    2.3 The huge world inventory of machines and vehicles that were built to burn fuel will not suddenly disappear. Fuel will continue to be needed into the foreseeable future as this equipment lives out its useful life.
    If the company value declines slowly enough, creditors and shareholders have a chance to respond appropriately. Of course that doesn’t mean it would happen that way! And bonds with a very long maturity date would no doubt suffer attrition. I just think it would be gradual, discounting of course, short term investor panic.

    3) Countries and Businesses ancillary to the energy industries would definitely be affected. Again we agree, and if anything, I would go even further than you have and suggest that eventually all businesses and all countries will be impacted by the direct and indirect effects of the drop in energy costs. This is because I belong to the school of thought that the entire cost of a good or service is embodied energy, not just a portion as many economists suggest. (They overlook the accumulation of embodied energy as it starts at the bottom of the product chain and moves up, and so largely underestimate it.)

    4) It goes almost without saying that of course the government is subject to this because it is subject to the economy.

    5) Unemployment and a shorter work week: This is where we have some different views, Luca, and its not surprising as you were educated in finance and see the world from that perspective. My suggestion that we move to a shorter work week is only meant to be a temporary “stop gap” measure. You’re right about the unskilled labor problem and robotization. The problem is this. Our present system demands that everyone works to earn money to exchange for the necessities of life. Or at least that is the myth that we are supposed to believe. But it is NOT true, even today. The fact is that only a small minority of people working are responsible for all the wealth that we enjoy. The rest are running in circles doing meaningless work to “earn” there share of the production. A great many more, almost half the world, get their share without working at all. That is not a prediction but a description of how it actually is NOW. And as we both agree, the future will mean more automation and even higher productivity so that even fewer people need work to produce what’s needed.

    The financial system, that is the monetary system must be phased out as it simply won’t work in the future without the scarcity that made it possible in the past. The notion that increased materialism will some how compensate and keep us all buying even more stuff so that everyone can keep working to earn their share is simply a failed model. Its broken. It does not work anymore. We must transition away from a money based economy to an energy based economy.

    You’re idea of a modified welfare state sounds like a good step in that direction. Poorly administered as it is today, it is expensive, demeaning, and not beneficial to its recipients or to society as a whole. That must change as the welfare state is going to be the majority of the future! It is inevitable.

    You suggest a real free market, but I think that would be a disaster. Adam Smith was wrong. There is no guiding hand. Money and its greedy pursuit does not make the right decisions. We see that in the grossly unfair stratification of wealth, in the destruction of our environment, in predetermined obsolescence of our products, and in the corruption of our banks, just to name a few examples. Our abundance is due to energy and technology and was only hindered by democracy and free market capitalism, not aided as most people think. This subject is a little to big to go into here though.

    We don’t need more people, doing more useless work. We need less people doing less work, only more effectively. That is why cheap clean nuclear would be more than just an energy source. It would actually be a turning point for humanity. I fear its going to be rough ride while we make that turn though.

    • Luca Salvarani

      Thanks for your reply, it’s really very interesting and help me to consider other points of view and keep open my mind. I desagree on some few points such as welfare state but it’s ok!

      PS Chineses generally like that joke, which is very popular here, indeed they consider it as a compliment! Luca Salvarani from Mantua.

      • John Dlouhy

        Luca, please see my response below.

  • John Dlouhy

    LOL Thanks for the translation. I vaguely remember a reference to China dealing with the person Rossi says it to so your explanation makes perfect sense. I certainly hope it wouldn’t offend any Chinese readers as it is not intended too.

    I will respond to your other larger post above in a new box below as the writing space gets too small from the “nesting”

  • Hampus ericsson

    LERN, Internet and 3d printing. These are the 3 most important tools for tomorrows society. 3d printing give the people the power over production (what Marx always wanted), LERN makes it cheap and internet is the information highway were all of the blueprints for 3dprinters will be distributed.

    Imagine this scenario, every home have there own 3d printer where they can get all of there material needs, there might be one big 3d printer in every town where you could print bigger things like cars and stuff.

    in a world were material things are in an abundance will there be a need for money? ofc we need doctors and engineers and stuff but why would they need money? In this future world couldn’t every1 just work for free. I know that I would work for free if I didn’t need money for food, material things.

    What do you think could this be the future?

    • admin

      Great point,Hampus. I agree that. E-Cat combined with 3D printing and Internet is a revolutionary combination with the potential to lead to a scenario like the one you describe.

      Many would work for free if they had the attitude of wanting to be productive and useful, and benefit society, but technology may not have the effect of changing human nature. Maybe there would be people who don’t want to be positive contributors.

      • Hampus ericsson

        This is a slow process, it will start with a couple of people who stops working and grow food for themselves. But this people will still create things and with the 3d printer it’s easy to share them,think of Linux but with stuff. After a while the open source movement will have grown so strong they make better things then the companies.
        Imagine millions of people creating stuff for free, Linux was just the beginning.
        If people have a choice between free stuff and expensive stuff they will go with the free. Thus the fall of capitalism, ofc there will be screaming and violence from the companies owners but they will soon fade away.

        Utopia here we come 🙂

  • http://www.nickelpower.org Bruce Fast

    A lot of the bloggers seem to see the jobs lost in the energy sector, rather than the jobs gained in the other sectors. The energy sector is toast! For every 50 jobs that are energy related, there will be one job left with e-cats. However, everything else in the economy will be lubricated by the fact that energy costs are eliminated. Farmers will be able to produce food for less money because they won’t have to fuel their tractors (and their cell phones will be cheaper). Cell phone manufacturers will be able to pay people less because their food will be less expensive and they won’t have to buy gas to commute to work. Cell phone manufacturers will pass the savings along BECAUSE THE OTHER CELL PHONE COMPANY WILL. (Its the joy of a free market economy.) So more people will have more stuff with less output. Will we then just decide that we need to work less (via unemployment, via shorter work weeks or via more vacation time)? Nope. Rather, we’ll decide that we want more stuff & services. When we want more stuff & services, there’ll be more jobs to provide the more stuff and services!

  • Luca Salvarani

    To John Dlouhy on monetary system

    I’s very difficult to predict such a thing! I strongly supports the gold standard, or other resources based systems. The fiat money is indeed the primary and structural cause of this crisis. Here in Italy and also Europe quite nobody undestand these ideas (we have a quite communist economic and political system led by a gangster: Berlusconi, where electors can’t even choose their representatives.. it’s incredible i know!) but US (God blesses you) is very different… you even have a presidential candidate, Ron Paul, among others, who has been speaking people about this since many years… It would be a very complex and off-topic theme, i can only say you that a definitive change towards resource based or real assets based is very difficult and unlikely! There are too many and too big interests in play and in the short term it would be very painful. Now we are very very far from it…. just think about Obama’s disastrous economic policies: more debt, more taxes, more regulation, more burocracy, more state discrectionary power, bailing out inefficient corporations ar the expenses of efficient corporations, unions with veto powers, printing money and inflactioning everything causing riots in the poorest countries and destroying people’s savings and so on… exactly the measures that bring us (italy) on a decade of stagnation early anf now on the thershold of default. I’m really sorry for you!
    Warm regards Luca Salvarani from Mantua.

    • John Dlouhy

      I don’t think our system is any less corrupt, just maybe a little bit better at hiding it!

      My question may have seemed a bit off topic as I didn’t elaborate, but I was referring to the idea of actually using energy accounting as a replacement for the monetary system which is what makes it pertinent to an E-Cat discussion.

      At the beginning of the 1900’s, an organization was started by scientists in the US called technocracy. To read some of their early documents is amazing. They are completely relevant to today’s situation and you might not know they were written almost 100 years ago if they weren’t dated. The technocrats believe that over abundance caused the great depression and that artificial scarcity maintains an obsolete monetary system. They promote the idea of dividing the worlds energy production among its inhabitants, and using the embodied energy cost of goods and services as a metric to distribute them. A few years of work is all that is necessary to claim your right to lifelong wealth.

      This is what I was referring to by resource based economy. I should have said an economy based on energy accounting. Your idea that change would be difficult because of entrenched interests is of course very applicable.

      If I can indulge you in one very off topic question as you speak Italian. Andrea Rossi always ends his messages to one of his posters with “lavolale lavolale” Is this Italian and can you explain what it means?

      Thanks for the interesting discussion.

      • Luca Salvarani

        To John

        Of course you can! “lavolale lavolale”…. it’s a real funny joke!
        “Lavolale” in italian doesn’t exist! We say “lavorare” with R instead of L.
        It means I’m working hard… but all Chineses here in Italy are unable to speak the “R” (I don’t know why!) and they always speak “L”… and they have a deserved reputation of working a lot! expecially compared to an italian or even american average worker. Foxxcon teaches!

        I don’t know if it’s true but Rossy has been saying thay he works more than 18 hours per day…. Andrea please take a break once in a while!

        • John Dlouhy

          LOL Thanks for the translation. I vaguely remember a reference to China dealing with the person Rossi says it to so your explanation makes perfect sense. I certainly hope it wouldn’t offend any Chinese readers as it is not intended too.

          I will respond to your other larger post above in a new box below as the writing space gets too small from the “nesting”

  • Luca Salvarani

    I have just reread my comment, and there are plenty of errors…. Hope you can understand the content anyway… I’m sorry.

  • Luca Salvarani

    To John Dlouhy

    Thank you for the answer! and your mercy on my poor english…
    1) You’re right about the inverse relationship between the price of fuel and consumer spending! Lower energy costs means more potential discrectionary income to spend that could eventually benefit not energy companies and offsetting, in part, the job and financial losses of the traditional energy sector… But it works only in theory because there’s a great problem: this is true only if you have an income! Or in other words if your income has not been affected, directly or indirectly, by the e-cat! Previously i have explained, with some examples, that millions of workers could be affected (only my opinion)… So for example a former oil worker that lost his work due to e-cat can’t benefit from future lower energy costs and he will stay worse that before! The case of an oil worker this is very simple to understand, but think about the millions of workers active in the traditional energy sector and its satellite industries with also many skilled and very well payed workers that could be hit and largely could became obsolete… Few of them, perhaps the most skilled, can find another job, but what about the others? Lower energy costs will not repay them! In future there will be very few opportunities for not skilled workers or whose skills has become obsolete; due to delocalization and automatization and robotization. This phenomenon is occurring just now and the structural high unemployment rate demonstrates this. . Of course somebody can take huge advantages of this situation but will be few people, just like now! Sorry for my pessimism.. but I prefer to be frank, hoping to be wrong!
    2) On finance I’m feeling more condifent. Yes there’s indeed an inverse relationship between bond prices and interest rates! You have only considered the interest rates decided by the Central Bank (Fed for you). Certainly if my scenario for the mid to long term hat to occur (financial caos, high unemployment, declining gdp…) the Fed would leave the interest rate at zero for a long period, just like now, and this is the risk-free rate! But when investors buy a risky or only less liquid asset , for instance Exxon Mobile bonds, they want a compensation for the risk they take instead of buying risk free t-bills… so there’s also the risk premium to consider! Imagine that e-cat works as said and it has quickly spread over (within some years in a favorable context)…. traditional energy corporations and their satellite corporations will be in great troumble! Indeed their debts don’t lower by 1 cent, but their assets could devaluate sharply, their cash flows could collapse, they could experience serious difficulties even in raising liquidity to finance their current operations…probably they must deeply reorganize and reinvent themselves (and it’s expensive)… they should issue equity (risk capital) also in order to subsequently issue new bonds (debt is cheaper than equity for the issuer) but it would be very very difficult because investors would demand very high premium due to skyrocketing risk and current investors (expecially shareholders) could oppose these solutions because they would dilute them… in few words the history of financial crisis before the government and Fed intervention. For example the BCE has decided a low risk free rate, but my country, Italy, must pay a much higher rate on the debt market to raise money and the interbank marker, despite bce and government guarantiees is frozen… so a mere risk perceived increase determines a fall of bond prices, it’s not necessary a formal default! But even a little fall of bond prices could have serious consequences because of leverage (I control assets for 100 with only 10 of equity and 90 of debt, so a mere 10%assets fall triggers off a default) and no collateral for assets that investors have been considering safe heavens…. so if there’s a signigicant loss there ins’t enough capital to match it!
    For istance think about this: with structural low energy costs many oil fields (perhaps all offshore fields, not to speak about oil sands) aren’t profitable anymore and the new balance sheet fair value of that billionarie assets would be zero, and this it’s only the first-level effect… I think that billions of dollars in write-offs inevitably impact on bond market, or at least should! Do you agree?
    Luca Salvarani from Mantua.

    • John Dlouhy

      Thank you Luca for the detailed answers to my questions. You are most kind.

      1) We are very much in agreement about the eventual structural employment the E-Cat would bring. Energy is about 6% of GDP and would be replaced by E-Cat production and servicing probably less than 1% of GDP if Rossi’s price predictions are realized. And then there’s the loss of businesses more ancillary to the oil industry which are harder to estimate. Some would like to believe that new business made possible by cheap clean energy would offset these losses, but I suspect the high efficiency precludes that. It did in the case of the internet and the present structural job loss that I attribute to the internet’s realized efficiencies.

      Of course there is an easy solution to this “problem” of increased productivity. Shorten the work week and thereby distribute the remaining jobs. However, you mention the issue of labor skills averaging higher as technology increases, and this is indeed a difficult issue. Someone whose limit is pushing a broom is easily replaced by a robot. Training that same person to design, fix, or build that robot may not even be possible given the natural range of human intelligence and aptitudes. Already a great many people are employed by society’s “make work” activity that could easily be obviated.

      2) I think I understand you’re view on bonds. To recap, if unemployment rises, consumer purchases fall, companies are less profitable, and therefore their debts become risky to investors demanding a higher premium. You say that debt is cheaper than equity for the issuer. This is something I did not know and I always just assumed it was the opposite. Upon reflection it makes perfect sense. I don’t know the size of the corporate bond market as versus gov’t bonds, but I imagine your argument could be extended to gov’t as well. As the deficit rises, and tax revenues fall, the debt becomes risky to investors and drives up the rate as well.

      To answer your specific question about the write-offs impacting the bond market, I don’t understand the mechanics of the market well enough to agree or disagree, but I suspect the market would be impacted as you suggest.

      • Luca Salvarani

        Dear John
        If I can, let me explain better some things and listen your opinion:

        1) Of course debt is cheaper (and could be much cheaper) than equity! and this is basically why the world is full of debts… First of all it’s structurally less risky than equity indeed you as a bondholder will be refund before shareholders. Then interest rates are, and probably will be, kept at exceptional low levels for a long time by central banks to prevent the collapse of the financial system and last but not least (expecially in Italy) debt has several fiscal advantages that equity hasn’t! So in nearly all case more debt instead of more equity boosts share prices.
        2) For any corporation there are mainly 2 ways to repay its debt: making profits and selling assets! and so use that cash flow to refund bondholders! The main reason why corporate bonds will depreciate is not the one you have written (It’s right but is’t very secondary..). With low energy prices companies such as Exxon Mobile could will not post profits anymore and their assets value could will collapse (offshore fields for istance..think about the Gulf of Mexico) so there will simply be not enough money to entirely refund bondholders!!! and the bond prices will react immediately when investors expectations will change! For istance for Exxon bondholders It does’t matter that overall consumption decrease or not… snyway their company will be structurally out of market and so they’re going to loose a lot of money! None deception or financial tricks by the central bank could prevent this due to e-cat structural and phisical competitiveness except taxing e-cat to artificially and fraudulently keeping Exxon alive !
        3)Think now to an apparently safe heaven like IBM… how many computers, softwares and other sorts of information technology services does it sell to oil, gas, coal, nuclear corporations but expecially to corporations that work for them or to states that finance quite everyhing using energy revenues… How many revenues does IBM make in Saudi Arabia, or in Texas? How many revenues does IBM make with Caterpillar that will work much less than today because there will be a much lower commodities need… You must look to the very wide picture and not consider also the first-level effects! The 6% of gdp you have suggested is only a little fraction of the market that will be affected… So IBM will make much less profits and many assets will depreciate! and the company will not be a safe haeven anymore…. We are speaking of enormous losses due to immense size of these markets! Even in a healthy financial system no financial istitution could survive such a wave… and you can bet our financial system is all but healthy!
        4) For the government it’s the same! fiscal revenue will collapse (corporate taxes, consumption texas), expeditures will skyrocket (for istance welfare expeditures) … and the central bank will certanly print and print producing a financial caos… Financial problems could be overcome in the long term, even if in a painful way, but phisical issues can’t change: e-cat and software, robotization/automatization/division of production in many very simple phases will leave a lot of people unemployed! E-cat or not! And it’s happening just now! For istance consider the millions of workers in fast food that could be shortly replaced dy automatic systems…. (MacDonald’s is already evaluating that option)!
        5) Your proposal of work less to work everybody is unfortunately very popular here in Italy… but I don’t support it for many reasons… Shortly:
        5.1: The economy (expecially US and Germany) is going toward very skilled and professional works so if you haven’t the right know how you are useless and you can’t work, doesn’t matter the wage, the working hours….
        5.2: In the past there were many opportunities for unskilled workers and their wage was “fair” letting them to live decently… that opportunities will structurally disappear! Many works are delocalized in China and even in China Foxxcon is planning to substitute them with robots (i’m not joking, you can check).. robots and automation are replacing their jobs so there aren’t jobs anymore to be shared by unemployeers!
        5.3: If you work less, you will produce less and so earn less… so you will spend less for example don’t go to the restaurants or to the cinema as before and this destroy futher jobs (expecially remaining unskilled jobs). it’s just the opposite: more you work, more you procuce and more you create other jobs because you have an higher purchasing power.
        My humble to face this situation is simple
        1) Implement a real free market to create as many jobs and business opportunities that are possible.
        2) A welfare state that is universal but very essential (food, basic health coverage..no frills! such as Southwest Airlines for example using a well done and much more cheap e-learning instead of paying thousands of theachers to repeat just the same things…)! so it’s not too expensive to finance and it could be much more effective for a growing number of poors and unemployeds… What a biblical comment! Sorry!

        Warm regards Luca salvarani from Mantua.

        • admin

          Hi Luca, I have been following your very interesting posts, along with others’ in this and related threads. I think there are many perceptive comments being made. Certainly an effective E-Cat will be a very disruptive technology which could have a major impact on people’s livelihoods. What we could see happening with cheap and abundant energy is less of a need to work for a living.

          If you have your energy needs met cheaply there would be less of a need for high wages. You talk about a growing number of poor and unemployed — if the poor and unemployed had their fuel needs taken care of, there would be less pain involved in being in their condition.

          Cheap energy also should theoretically bring down the price of raw materials and manufactured goods, since much of the cost of such is involved in the energy required to extract the materials used to make goods, to make products and transport them.

          So while incomes might go down, costs of living should also decline. There’s lots to speculate on, but how it all happens in reality remains to be seen.

          Regards,

          Frank

          • Luca Salvarani

            To admin,

            Thanks for your reply. I greatly appreciate this.
            1) I agree with your some considerations! Indeed I have stated that E-Cat should have “very much positive NET effects”! E-cat could be a wonderful thing and could really change the world as we know! I’m very excited by related news you are reporting and also proud for my country that is experiencing a very difficult (and maybe also humiliating) moment, and seems to has become (rightly) a worldwide laughing stock…
            The e-cat potential could be enormous, even hard to imagine… but I think many people, due to enthusiasm and hopes, don’t see the inevitable downsides, that in the short/medium term could be painfull, hitting a lot of people…. and this is why I white NET.
            2) You says that if producing hardwares and services becomes cheaper (mainly due to lower energy costs in this case) people can have more with less and becomes richer than before….! I strongly disagree! In theory it’s perfect but in the real world there are some critical problems! And the reason why is very simple: you can became more productive, more efficient thanks to e-cat, automation, software… whatever you want…. and produce more with less but if I want to buy your products and take advantage from the new lower price, I must give you something in exchange… and that’s the crucial point! Many people could will not have nothing to exchange anymore! Energy could will cost less, such as many other devices and services but if you become obsolete you don’t earn enough money and can’t buy anything! In my view a lot of people risk to become obsolete due to technology improvements and labour market huge changes! The future is hard to predict but we can observe the past… so maybe you’re right but real economic data seem to negate it. For istance in the last decade producing virtually everything has become cheaper but in the US the poverty rate has spreand, such as the unemployment rate (it’s not further growing only “thanks” to Fed and government tricks that unavoidably will last sooner or later). Many people, expecially millions of unskilled workers like many immigrants has an only one asset to echange, their hand labor and unfortunately it has been becoming obsolete and this is the only main explanation of this long term phenomenon that is only starting and it’s unstoppable.
            A good example could be the textile market. Textiles have become very cheap comparing to some years ago, thanks China low cost production so now you can buy much more textiles than before with the same amount of money (if you earn it)! But many former textile manufacturers now have lost their jobs and can’t buy (very extreme simplification) new low cost textiles because they have nothing to exchange for it.. (I was born and live in Mantua where has been manufactured a large portion of worldwide women socks so I has been seeing this process in person). Few manufacturers were able to reorganize and survive but the most ones were forced to close and their workers, in large part, aren’t unable to find another productive work because they are unskilled…. so they stay worse right now! I know that this has been occurring also in the US …. thinking about North Carolina or Virginia former textile manufacturers… What do you think about this specific examples that i think feats good the below economic process?
            Warm regards Luca Salvarani Mantua.

  • Brad Arnold

    I am having trouble understanding how the LENR’s impact on our economy could be anything but great. Yes, the number of fossil fuel energy sector jobs will be reduced, but that ought to be minimal at first as their is still a gigantic market for oil, coal, and natural gas. On the other hand, there is a gigantic market for transitioning to a new energy generation technology, so you can expect tremendous amounts of money and resources going into switching from fossil fuel to LENR.

    Furthermore, we import a lot of our energy, so that will eventually be money our economy isn’t hemorrhaging. Finally, obviously fossil fuel prices are fungal, meaning less demand anywhere reduces the price everywhere, so we can expect a gradual lowering of energy costs across the board.

  • Luca Salvarani

    To John Dlouhy and Paul Bennett

    1) I think that you greatly underestimate the job losses expecially in the medium and long terms! Not only in the traditional energy sector (coal, oil, gas, nuclear, electric utilities, renewables) but expecially in its satellite industries such as mining equipment (for example Caterpillar), mining technologies (for example Schlumberger for offshore deep underwater oil fields), infrastructures construction and management (oil and gas pipelines and in part electric grid that will not be as necessary as now) and so on… Remember that they represent MILLIONS of jobs right now ! And expecially local jobs: in USA, not in China!
    2) The e-cat technology seems to need much less workers than any other technology to produce a specific quantity of energy. And it mainly needs unskilled and so low payed workers! Much less payed than for example geologists or oil engineers. The hardware’s production for example could be virtually quite totally automated requiring no workers or more likely could be totally and easily delocalized in China or other emerging countries with low production costs!
    3) You don’t consider at all the financial effects (p. s. I have a degree in finance)! If e-cat works as sad, when it will begin to spread for example many shares and bonds prices will go down, significantly decreasing people’s savings and cutting people’s consumptions…. we are speaking of billions in write-offs, immagine its impact on already zombie banks… Many countries like Mexico could default, others such as Saudi Arabia could will not have anymore enough money to mantain its people that could riot… Their currencies probably would collapse and don’t speak about related derivatives and leverage that multiply losses… Even some american states like Alaska, or Texas (my favorite one!), could will be heavily hit considering the amount of traditional energy related revenues and jobs. So there could be a worldwide financial and social caos….. I think this is not an impossible or even unlikely chance and it’s similar to the recent middle east riots mostly caused by increasing food prices and not enough state money to subsidize people’s consumptions.
    4) As you has stated, I agree that e-cat has very much positive NET effects, not only on economics (mainly via productivity growth) but for istance also on environment, or making wars for oil or other commodities not profitable anymore and efficiently preventing them…. so a much better new world, in any sense….. but the job effects will be negative (and maybe very negative), expecially in the mid to long term. It’s similar to automation and robotization… I hope you can understand my comment despite my poor english (sorry). What do you think about this?

    Warm regards Luca Salvarani Mantua.

    • WaltC

      In a static world, what you say with respect to job loss would be true. However, historically whenever energy costs have become dramatically cheaper (fire wood to coal, whale oil to kerosene, kerosene to electricity…), the lower costs have driven increased ways to use energy and increased job opportunity. Maybe that trend will come to an end someday, and (metaphorically) firewood gatherers will no longer become iPad designers (and the myriad of other sorts of things that we do today that our g-g-grandparents couldn’t have imagined).

      That’s not to say there won’t be some bumps in the road along the way however.

    • John Dlouhy

      Your English is fine Luca. The ideas are what counts when someone is writing in English as a second language. It is very interesting to hear from someone who has studied finance and I very much enjoyed reading your post.

      1) I realize you addressed both Paul and myself but just to be clear I actually wrote “in the LONG term, E-Cat’s will destroy jobs on a scale the world has never seen”. Clearly I agree with your notion of job loss. The medium term is less clear. I chose the time period somewhat arbitrarily based on my observations of the implementation of the internet. E-Cat’s would both create jobs and destroy jobs at different rates and which would be larger is difficult to guess.

      2) Indeed E-Cat production will lend itself to mass production and automation, supplanting much more labor intensive energy production like oil well drilling.

      3) To me the financial effects are very interesting and important. Presently we see an inverse relationship between the price of fuel and consumer spending. As fuel rises, people have less discretionary income to spend. Conversely, as it falls, they can spend more and non-energy businesses do better. So if E-Cat’s reduce people’s energy expense, its reasonable to think that some other businesses, and of course their shares, could actually benefit.

      I can’t understand why bond prices would fall. I’m not disagreeing with you, I simply done’t see the mechanism. Rising interest rates (falling bond prices) are used to restrict the money supply and counter inflation but I think ultimately deflation would be the concern as the embodied energy cost of all goods and services is reduced. I would be very grateful if you could explain to me your view on this. Why do you think bonds would fall?

      Also, do you think that the monetary system could ever come to an end and be replaced by a resource based system as some predict? I don’t know if you have an opinion on this but it would be interesting to hear from someone who has studied finance.

  • Johan Hemberg

    The question is, will it increase welfare? I would say – most definitely it will, at least as we define it today. How fast is dependent on how fast the world can adapt to it and use properly. Energy cost is a very important factor in every business. Directly influenced or indirect. We wouldn’t be where we are today unless we discovered oil that made energy very cheap. That got us to a position where we could use less manpower to do more. Or more per capita. A cheap energy source is very likely to make the economy blossom. Jobs will come as an effect of that.
    I think it would be very surprising if Rossi got a monopolistic position in this. The technology is bigger than him. Since it seems to be a pretty simple device it will be back engineered fast by a lot of countries and used without rights if it isn’t readily available in other form. Compared to conventional nuclear power this isn’t something that big nations could block by saying it is a hazard or that whoever is using it will use it to make bombs with it. It would be hard to deny someone from using it. The technology is evidently too simple to use compared to nuclear power. Once the phenomena behind it is more well understood variations of the device will show up. So if it is cheaper to make energy with this device it will lower cost pretty quickly.

    Unfortunately our economy isn’t well adapted how to treat natural resources. We basically see them as free and don’t put much effort in getting in balance with how much we can take out from the resources without disturbing the balance of the environment. If badly used this technology could increase CO2 emissions by lowering the price of oil and speed up the economy especially in developing countries. That would make us have a lot more people using too much of different kind of natural resources.
    Personally I’m very optimistic e-cat, it could solve a lot of issues, but we would be running fast into new ones unless we can get a more decent view how we should use our resources. The way economic growth are defined today has to be redefined because this device will also give us a potential to grow faster than ever before. And we are not exactly turning in the right direction so far. It would be very pleasant to see this technology phased into our society in a way that we phase out bad ones and don’t start to consume more too fast. I think that would be one of the biggest dilemmas to deal with. It’s not going to happen by itself.

  • http://www.replication-meyer.be.ma Stanislas Bauer

    Certainly, exactly like for the photovoltaïc panels. A few hours to make the furnace, 4-5 hours to sell it, 2 X 8 hours to replace it and it will need more maintenance to replace the cartridge.

  • John Dlouhy

    Will the E-Cat create jobs? To properly answer this question I think it helps to define the time period that you are considering.

    In the SHORT term (months to a few years) the nascent industry will be ramping up creating jobs, building the necessary factories, educating workers, doing research, and much else. Impact on other industries will be slight as the amount of energy provided by E-Cats is still small relative to the enormous size of the economy.

    In the MEDIUM term (from a few years to 1 to 2 decades) E-Cat production will pass through the exponential “knee” of its growth curve as do all new technologies. During this period the new jobs created by the industry, while still growing, will start to show some moderation due to increased productivity, again as is common in most industries. As well, the availability of cheap, clean, and abundant energy will lead to many exciting new ventures that were previously unviable creating yet more employment. However this job growth will be increasingly offset by job loss in other industries that are finally substantially being replaced by the new energy source. As they shrink, the dismantling of those industries and their infrastructures will require labor, but this will obviously be temporary. Throughout the medium term, net jobs will pass through phases of strong growth, to weak growth, and eventually mild loss.

    In the LONG term (many decades) the effect of limitless energy is being under appreciated. To understand why, you need to understand the spectrum of thought that exists in economics regarding energy and its fundamental role.

    Originally economists considered the inputs to production to be land, labor and capital. Energy was pretty much overlooked. Then, as record keeping improved, it was found that a correlation between those inputs and production was lacking. Eventually adding energy to the inputs corrected the problem but there remains to this day a wide range of beliefs as to the importance of energy in the economy ranging from the neo-classical economists on one side, resource and ecological economists in the middle, and the fringe bio-physical economists (thermo-economists) on the other, the neo’s still undervaluing the importance of energy, the resourcer’s giving it much more consideration, and, on the fringe, the bio’s believing that energy is essentially the sole determinant of wealth creation.

    Not surprisingly, a wide range of opinions results as to the potential long term impact of unlimited energy. I believe energy’s role is fundamental and without any doubt, in the LONG term, E-Cat’s will destroy jobs on a scale the world has never seen, but in a GOOD way! A review of human history shows that the productivity of man has been consistently rising, and even though our standard of living has risen so drastically, the amount we have to work for it has continued to fall. It is entirely reasonable to expect this trend to continue as technology advances, and even more so as energy becomes ubiquitous. The ultimate consequence of this path will be a utopia in which all of man’s material needs are met by technology and the need to work will eventually disappear. It sounds like a science fiction fantasy, but it is merely an extrapolation from historical data, and present observations. Even now, less than half of the people on earth work, providing for everyone.

    Of course there are a lot of obstacles to reaching this end goal, chief among them the failings of human nature. But I hope at some point the human race will begin to broach this subject and find a way towards improvement. Meanwhile the communication revolution of the internet has positioned society for the global energy transition that is now ensuing. Jeremy Rifkin calls it the “third industrial revolution and some powerful leaders are listening to what he has to say.

    • http://www.nickelpower.org Bruce Fast

      “In the LONG term (many decades) the effect of limitless energy is being under appreciated.”

      That’s the understatement of the year! A world with limitless energy will be much different than both you and I think.

      • John Dlouhy

        I couldn’t agree more Bruce.