So I’m reading Grrl Power, a cheesy superhero comic, and in the author comments, going off on a tangent, the author says:
After all, if you wanted to topple the world economy, find a way to power every automobile that doesn’t use established fuel sources and start selling it (along with conversion kits.) If it was tech that would take humans 20 years to reverse engineer, all the oil companies would go out of business (or be reduced to a handful of much smaller businesses – oil is useful for a lot more than just fuel after all.) Unemployment would skyrocket and the global economy would be turned on its ear.
Now, I’m not here to pick on Grrl Power (which I quite enjoy), or pretend that economic views expressed in the author comments of a webcomic are particularly representative of anything. But I’ve seen similar comments before, in an RPG.net thread on a different superhero providing free power, and I think that there is a significant fraction of the public which simply does not understand how these kind of core economic questions work. Probably not a majority of the public, but a noticeable minority.
So here it is, guys:
Power — whether electricity from the grid or gasoline or propane or even solar panels — is a cost associated with basically every good. It gives you nothing by itself, it just enables the things that you actually want in the world. Money spent on power goes pretty much nowhere. If some magical technology came along and made power — a subset of all power or all of it — free or extremely low cost, then that would be very good for the economy. Almost everyone in the world would suddenly be effectively richer.
Let’s expand on that, because it’s not completely obvious. There are two ways to become richer. First, you could get more money (say you win the lottery or get an inheritance). I think everyone understands this. Second, the things that you buy could get cheaper. If you’ve got $50,000 and you spend $48,000 on your lifestyle, but then all of a sudden everything in your lifestyle costs 1/2 as much, so now you’re spending $24,000 on your lifestyle, it makes you just as rich as would getting another $24,000.
That latter type of getting richer would apply to everyone affected by the free/cheap power. A lot of their money that was earmarked towards “paying for power” (either directly through their utility bill or buying gasoline for their car, or indirectly through buying, say, a meal at a restaurant (where the food was grown using tractors (that use fuel), transported using planes, trains, and trucks (that use fuel), then refrigerated in the restaurant (using electricity), then cooked in an oven (that uses gas), then served in a dining room (that’s lit and probably climate controlled, using electricity and/or gas)) which has all those costs wrapped up in its final cost to you. And as you can see, everything you buy has power as a component of its cost.
If suddenly that power cost was zero or much lower, then everything would be cheaper, and suddenly there would be effectively a lot more money in the world.
It is sometimes possible when technology increases the effective wealth of the world for the increase in wealth to be suddenly captured by a small portion of the population. But in this particular case, that seems unlikely — most people directly pay a lot of money for power. If you just stop going to the gas station, that’s additional money directly in your pocket — it would be very hard for someone else to capture that wealth, barring direct theft.
Now, let’s look at the down-side. There is an industry dedicated to power generation. If that industry were suddenly obviated, the people whose wealth is derived from that industry would find themselves poorer. But some things to understand about that:
- There is a certain cost to get, say, oil out of the ground (or solar panels manufactured and set up, or whatever). Call that $X. Then the people who are involved in that industry want a certain profit on top of that. Call it $Y. The rest of the world pays $X + $Y in order to get power. If the rest of the world suddenly gets power for free, we could imagine a system where, say, a government taxes everyone else in the world for just $Y, and then distributes that $Y money to the original oilmen. The oilmen would get just as much money for no work at all, and the entire rest of the world would still be richer to the tune of $X. That’s not likely to be how the whole situation would work itself out, but it illustrates how very good for the economy it would be if power were free.
- If this whole thing happened magically overnight, you can see how a certain amount of chaos would be caused that could potentially spiral out of control. But the scenario that we are examining involves some new industry starting up and selling power plants. That gives plenty of time for markets to respond.
In technological disruption of an industry, some people usually come out as losers. But the average wealth of the world increases. And in this particular disruption we’re examining, it seems likely that the losers would largely be relatively wealthy people (owners of oil companies, and the fairly highly paid workers of the world), and the winners would be relatively poor people (the people for whom gas prices are a big chunk of their paycheck).
Magical technology that made our cars run forever with no fuel costs would be a huge unambiguous good for the world and the world economy. It would be the exact opposite of economic devastation. And the reasoning behind this helps you understand the real world, not just sci-fi thought experiments, and can be applied to realistic technological advances.