- work in progress
- 2014.12.31, 13:01
Q: Where will the money come from? How do we make sure that UBI allowance is not eaten by inflation? A: State it in terms of energy (kWh).
I hope this will not derail the general discussion of UBI, as this article is also discussion of nature of money, and argument why UBI really should be a basic right.
First, I need to talk about the nature of money. If we say UBI should be 12 000$, the number really is meaningless. Run-away inflation, or QE (money printing) can destroy the value of currency in a flash^1. To have meaningful UBI, we need to focus on what money can buy, and fundamentally, we should think about UBI as allowance of energy^2.
I wish to further drive home the point that everything is or can be expressed as energy.
The food you buy, it's a form of energy storage. Food is energy captured and prepared for consumption. By eating, the stored energy of food is released in your body as heat and you basically continue living^4. Food is body's fuel, and about 3000 kcal might be all need^5 per day, which is equivalent to 12.55 MJ (megajoules) or 3.487 kWh [3].
Speaking of fuel, a visceral^6 experience of spending your money is at the gas pump, tanking up your car.
Calculate how many liters of gasoline your income buys (or diesel, for that matter). Calculate how many miles/kilometers you can drive^7 with that energy equivalent. Calculate how many kWh of electricity you can buy.
Think how you spend income. Some part you spend to pay the electricity bill. In winter you pay for heating (you receive heat energy). If the city has natural gas pipes, you may be receiving some energy in form of natural gas, for cooking or possibly heating.
The electricity bill is the most obvious way your income can be expressed as energy quota. If you really think about it, the real **value** you get out of having electricity to your home, is staggering. Can you guess how much would you REALLY be **willing** to pay, if the price was not fixed? What would you give to have lights on, to make all household appliances run, and your electronic gadgets and internet too.
Or, consider the opposite: how much really your **money** would be worth, if your apartment did not have electricity (or the cost of getting it was prohibitive^8).
What would you do with your money other than save up and pay the asking price, any price?
Money means nothing, if it's not covered by energy produced or available for sale.
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The income you get means you are participating in the energy distribution in the country. You receive products (that are representation of energy) by spending money, and as others receive money from you, they can further exchange it for other products (representation of energy) in turn.
I can see poverty as being excluded from this distribution of energy: people who are poor, get their energy allowance withheld. All income (wages, pensions, etc) in my eyes are all just representation of energy allowance that you receive.
And it is obscene that rich get to manage huge amounts of energy (millions or billions of units worth), while poor get nothing. They get nothing of energy that they as citizens should be entitled to.
Really if there is some amount of energy produced and circulated in a country, every citizen is entitled to slice, as the energy is produced from resources (fossil fuels, wind and sun) that all citizens of the land should own equally (for a moment ignoring the idea of "private property" that has allowed some citizens to be more *equal* than others).
Would you agree that all citizens have same rights to sunshine that hits the land, to wind that blows over the land and water and, well, the minerals and the oil that may reside in soil under their feet? It seems obscene that oil-producing land could be owned by private corporation^9 (not a state-owned enterprise).
I am proposing that the difference between a "rich" country and a "poor" one, is energy efficiency. How efficient the country is producing energy, how productive it is transforming the energy into products and services, and how well the energy is distributed - is everybody getting a fair share. In rich country, there is a lot of energy to go around. In poor country - both less energy, and less people have access to it.
* If country produces a lot of energy (and the citizens/residents of country get fair share). Basically Norway, Canada, and potentially Scotland. Not many countries are lucky enough to have such natural resources. In a weird way, quality of life for most is rather poor in the oil-producing countries.
* If the country is able to capture healthy margin by buying raw energy, transforming it into products and services (adding value), and selling the products and services to get some energy for citizens to consume and enjoy. (This basically is model of Germany, as Germany does not have the natural resources to "produce". It buys the raw materials and builds someting out of them and sells the finished products back, in order to carve out an amount of energy for itself.)
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Any product that you can buy can be broken down into energy balance, of everything that went into designing, manufacturing it, and warehousing, selling and delivering the particular unit to you.
Also any service you may buy, you can break it down into components that represent energy.
The income that you receive usually is in exchange for you spending your own life energy (exerting yourself physically and mentally), by transforming some raw material, by creating a product or by providing a service. The more tools you use, the more energy you direct, your work is more valuable. As result your compensation may be increased. (And for management jobs, you are directing how subordinates exert and shape their energy, and that's why manager's pay is even larger.)
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^1 See how rouble dropped a third of it's value in Russia just during course of few days.
^2 Giving UBI in terms of energy allowance also allows us to side-step the problem of inflation. How much that 10 000$ will be worth in 5 years? 10 years, 15 years. But if you set UBI allowance as energy equivalent of 150 barrels of oil, it's going to be same 150 barrels indefinitely, no matter the dollar price (or effects of QE, or financial speculation).
The fluctuation of energy prices can be puzzling. Let's say if your income were 2000 USD/month, how come one year you could buy 20 barrels of crude oil with it (priced 100$ per barrel), and on November 2014 - 26 barrels (at 75$ per barrel). Or 33 barrels at current spot price (December 2014 - hovering around 60$ per barrel of Brent crude). And now, who knows?
A barrel of oil is energy equivalent [1] to roughly 1700 kWh (kilowatt hours - not counting conversion losses). In these terms, last year your pay as units of energy was about 34 000 kWh, in november you got a good raise to 44 200 kWh, and for December - a tidy sum of 56 100 kWh.
All on exact same 2000$. What gives?
Electricity price is however much more interesting than crude oil price. Though derived, electricity is a better representation of energy that you can use. And every measure of energy that matters, converts [2] to electricity in the end to produce useful work. (A barrel of crude oil is very good way to visualize it as something physical, kWh or megajoules is just very abstract.)
In Germany, the end-user price that I pay for 1 kWh of electricity is about^3 € 0.304.
My household used about 3250 kWh of electricity last year. (Which is just below national average for 2-person houshold. Comes out to about 8.90 kWh/day usage for us.) This being Germany, my bill for whole year 2014 is nearly 1000 €.
We also have metered heat. We spent about 5000 kWh heating the appartment last year. (And previous winter up a bill of 7700 kWh, as it was colder).
This digression above shows how the energy prices are all relative, though the real unit of account should be how many MJ (megajoules) your money can buy.
And in the end, you might even ditch the idea of counting expenses in € or $, and simply count how many MJ (or kWh) your income gets you.
^3 I round the prices and figures that I give. I am not going be all pedantic with cents and fractions - I want to illuminate only the general gist, ratios and connections. I try to include all taxes and fees, to show real money paid. Energy company loves to position the "base" price while meticulously disclosing all the extra fees and surcharges they are forced to add up on it. But not the end figure. I have to actually calculate the end price paid. It's similar to not showing the tax portion on price sticker, though you are sure as hell gonna pay that at the cash register.
^4 Also see brilliant documentary series presented by physicist Brian Cox: http://en.wikipedia.org/wiki/Wonders_of_Life_%28TV_series%29
The first episode goes into depth how process of life is product of converting energy from one form to other (to heat).
^5 I looked up canola cooking oil nutrion label - 100ml is equal to 828 kcal which is about 3478 kJ. The energy equivalent of fuel that your body needs daily thus can be expressed as 362 ml of cooking oil (as equivalent to 3000 kcal) - if your belly could process oil and there were no conversion losses.
Look again at the Wolfram's calculation [1], notice it says a barrel of oil is equivalent to 640 × recommended food energy per day for an average person (8.4×10^6 to 1.1×10^7 J)" - a bit less than 3000 kcal actually. So if you spend 2000$ to buy and take delivery of 33 barrels of oil, you would have secured for yourself energy store equivalent to about 58 years of food. If only you had a way to eat it... And see also: "Soylent".
^6 For a medium-sized car the fuel tank is about 50 liters. The price for liter was about € 1.5948 in 2013 [4]. You'd spend about € 80 to fill it up. As side note, the basic refinery price of gasoline is € 0.5477 and the rest that creates price-at-the-pump is taxes + assorted fees and expenses.
The sad part here is that the energy companies aren't actually "producing" any of the stuff - that refinery price is all profit for the oil company, because the oil is pumped out of the earth basically pre-made and free for them. In sense that they don't "create" the oil. Once the earth is pumped dry, we are all basically screwed as there's no technology to generate new hydrocarbons: so far only technology we have, is very good pumps to extract the stuff.
^7 The energy content of 1 liter of gasoline is 32.5 MJ or equivalent to approximately 9 kWh. You can drive a reasonably efficient gasoline car about 10-12 kilometers on 1 liter of fuel. Tesla Model S energy consumption is 237.5 Wh per kilometer [5]. On 9 kWh it will go 37,89 km.
As a side note, Tesla has 85 kW-hr battery; it can be said it holds energy equivalent of 10 liters of gasoline. For me and you, it would cost about € 25 to charge the battery at consumer electricity prices. But the funny thing about Germany is that there's also whole another price for industrial electricity, that manufacturing sector gets - it's about 0.0570 €/kWh. So for for a large industrial firm it would cost about € 5 to charge up that battery.
^8 I know people building a house sometimes have to pay tens of thousands of euros just to get connected to "the grid". After that "connection cost", they pay same per-kWh price as everybody. Imagine if kWh price was not controlled!
^9 Completely as a side note, the real reason why Putin is popular in Russia is that he nationalized the oil companies and the oil-producing land so that profits can flow into state revenue, paying for schools and teachers. The oligarchy in Russia was no joke - if a small group of private individuals can "own" the oil-producing land and simply funnel the extracted energy outside the country, they were making trillions, and none of it was shared with population - all funnelled to tidy offshore accounts wholesale.
^10 In todays terms contrast this with running a marijuana grow-op out of your house as arbitrage: would the amount of money you stand to gain by utilizing electricity to produce a few kilos of weed, be offset by the risk and amount of prison time you will be facing?
Same story and same question an entrepreneur was facing in Soviet Union - if somebody discovers you were growing and selling flowers, that might land you in a prison, if not forced labour camps (depending on party line on given year). I repeat: only state-sanctioned enterprise was allowed in USSR, and private business was criminalized and heavily interdicted. If you were wondering, that's why life was miserable as shit in USSR and why their whole experiment was such a disaster.
I was born 1978, in what was then USSR. When Soviet Union broke apart in December of 1991, I was 13 years old. I live in Germany now, employed in IT. So I did happen to catch the tail end of "communism". I vividly remember how my grandfather would explain to me that when communism comes, "there would be no money". Trouble is, there were no products, nothing worth buying too.
The electricity was rather inexpensive though. But as all private entrepreneurship was forbidden, there wasn't any acceptable way to make that electricity produce any goods. As consequence, people might have some money ("paper" roubles, they were called), but nothing to speak of, to spend it on.
This is what makes me constantly worry about the value and worth of money. What can it buy? What does it buy?
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[1] http://www.wolframalpha.com/input/?i=convert+1+BOE+to+joules
[2] Did you know what most locomotives are diesel-electric, where engine really is only a huge portable generator, that happens to be fuelled by diesel? The generated electricty is transmitted to the traction motors turning wheels. http://en.wikipedia.org/wiki/Prime_mover_(locomotive)
[3] http://www.wolframalpha.com/input/?i=convert+3000+kcal+to+kWh
[4] I am taking the prices from german wikipedia article http://de.wikipedia.org/wiki/Motorenbenzin
[5] http://en.wikipedia.org/wiki/Tesla_Model_S - 0 rakstair doma
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