If you sat and read a book by the light of an 18-watt compact fluorescent light bulb and you read by that light for an hour, you would consume 18 watt hours of electricity. If you’re on the minimum average wage (£479 a week) and pay the average tariff for your electricity (9p per kWh), that hour will have cost you about a quarter of a second of labour – a little more if you include the cost of the bulb.

According to economist William Nordhaus, to get the same amount of light with a conventional filament lamp in 1950 and the then average wage, you’d have needed to work for eight seconds. Using a kerosene lamp in the 1880s, you’d have needed to work for 15 minutes; a tallow candle in the 1800s, more than six hours. From a quarter of a day to a quarter of a second is an 86,400-fold improvement. That’s how much better off you are than your ancestor two centuries ago – in lighting, at least.

Deflation is supposed to be a bad thing. When prices fall, people sit on their hands and wait for things to get cheaper, which depresses consumption, which causes firms to fail and jobs to be lost. This argument may not be convincing as far as it applies to consumer goods. People rushed out to buy iPhones and plasma TVs even though they knew they would soon become cheaper and/or more powerful. Obeying Moore’s law. The computing power of one of today’s pocket calculators would have cost you a lifetime’s wages in 1970, yet I don’t recall ever calculating that it would be sensible to wait until 2009 to buy one.

Besides, this kind of deflation is the root cause of prosperity. Your living standard rises to the extent that more or better goods and services cost you less labour. So this can’t be what economists mean when they say that deflation is a bad thing, when they remind us that the falling prices of the 1930s, or Japan in the 1990s, crushed the life out of the economy – depressing wages, inflating debts and preventing spending. It was not the cheapening of goods and services that devastated; it was the cheapening of assets and wages.

If people are not buying cars today, it is not because they think they will be cheaper tomorrow, but because they are afraid of losing their jobs and do not want more debt. When assets deflate and debts don’t, it makes you poorer. The confusion comes to a head with housing, which is treated as both a service (somewhere to live) and an asset (something to sell for profit). House price deflation can both enrich first-time buyers and impoverish those with mortgages.

Yet all our lives the cost of living has been rising. Why? Its partly because prices are quoted in money, rather than in hours worked, and partly that the basket of goods used to measure inflation is slow to include new inventions, which are the items that are the fastest to fall in price.

Also, when things get cheaper you find you need more of them – be they avocados, megabits or watt-hours. The price of a DVD player may have fallen from £400 in 1999 to £40 in 2004, but now its time to upgrade to blu-ray. Moreover, in satisfying your needs more cheaply, you have more money to spend, so you chase up the cost of your wants. So the money that youve saved on candles now gets spent of homeopathic pet medicines.

Consumer deflation is the whole point of the industrial revolution and its after-math. Whereas it took 18 man-hours to turn a pound of cotton into cloth in the 1760s, it only took 90 minutes to do the same a century later. A person therefore needed to work a twelfth as long to cloth him/herself. Most of the great industrial barrons got rich by making things cheaper. Andrew Carnegie cut the price of steel rail in the 30 years between 1870 and 1900; John D Rockefeller slashed the price of oil by 80% over the same period. Henry Ford’s first Model T sold for $825. Four years later hed cut the price to $575.

Its still happening today. Wal-Mart, Aldi and Ryanair won their market shares by ruthlessly charging us viciously lower prices. And here lies a cause for optimism in the midst of this recession. Even though jobs are being lost, houses repossess and firms bankrupted, the underlying deflation caused by innovation is still going on – indeed on the web, its accelerating. All over the internet, people are dreaming up ways of making things available to you more cheaply, more conveniently, more copiously and more quickly. That is what will cause prosperity to return one day.

Source: Matt Ridley Wired

As you point out,deflation was generally benevolent in the 19th century as industrialisation lowered the prices of goods dramatically. The general price level was deflating throughout most of the century,as indicated by low returns on the 2 1/2% Consolidated bonds in Victorian novels.

Or more simply:



[period of falling prices, fourfold increase in output: 1870-1900]

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Imagine if they had the internet

wakeupcall

I would actually argue that we are entering the energy economy, the old saying is true, time is money, this also works in the opposite direction money is time.

If you need your house painted you do it yourself if you have no money, you employ a painter if you are wealthy. And fundamentally when you spend money on any purchase, the energy cost of making that product is in some cases the major cost input but in all cases is a significant percentage of what your money pays for.

We are now entering the phase of civilisation, which the think tanks of the sixties and seventies called the resource wars, people, countries and multinational company's fighting for their share of the dwindling resources of water, oil, and minerals. We see this all around us, Iraq and Afghanistan are really about creating creating societies that would be amenable to the free flow of hydrocarbons.
We see disputes over water rights both internationally and between neighbours.

This leaves Ireland with a poor outlook, we have no natural resources, has been the mantra repeated over and over again. We need to earn foreign exchange but we are running out of money to buy the raw materials to make our products, and in any case the price of oil is going to increase again, as the world recession begins to lift, and will increase again as it becomes scarcer. What are we to do.

The answer my friend is blowing in the wind and surfing in the waves. Ireland is extremely rich in the one resource that really counts. Renewable energy.

Ireland has 6% of the total wind energy available to Europe with only 2% of Europe's landmass, and the ratio is even higher for wave energy. This gives this poor open economy, which Brian Cowen loves to whinge about, such an advantage in the coming decades that our return to prosperity can be very swift indeed. The electricity market in Europe is worth hundreds of billions of euro's each year, and all we have got to do is harvest our very own natural resources, which are economically free, and to all extents and purposes limitless, and then we can afford to give credit cards back to Fas, but more importantly put a hundred thousand people back to work within 2 years. Think about it, because it is very do-able, but will we bother??????

Time is Money and Money is Energy

Imagine if we had sound money!

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Excellent post!

I agree with you completely. However, this cannot be our only focus. We cannot risk putting all our eggs in one basket. We need to be multi-focused. I understand that we can focus on many different products within renewable energy but I am sure some sort of competition could come along very soon.

I hear and read many things lately in relation to the progress of Nuclear Fission for example.

The deflation is happening, innovation is always increasing in speed and we cannot be left in the wind, so to speak.

Wakeupcall

I will take prosperity over bankrupt whinging anyday.

Nuclear could take years

Renewables we can do next week

We should have renewable/infinite energy as part of our main priorities.

What else can we do?

The Spirit of Ireland ethos is spread the loot and help each other to help ourselves

That is how the engineers of the country see hope for the country, could other professions follow the lead in their fields