Synopsis: Clean energy and the economic problem of free razorblades.
The legend about Gillette is that he realized that a disposable razor blade would not only be convenient, but also generate a continuous revenue stream. To foster that stream, he sold razors at an artificially low price to create the market for the blades.[1][3] But Gillette razors were expensive when they were first introduced, and the price only went down after his patents expired in the 1920s: it was his competitors who invented the razors-and-blades model.
Razor and blades model
The key is that the best path to success is to have a continuous revenue stream, rather than just one off-sales of products with long lifetimes.
While there are profits to be made from building coal plants, it is very clear the real money is in supplying the coal. The trouble with getting profits from renewables, is that there is no revenue stream to replace the coal.
EVs and the decline of automotive revenue streams.
Today in the 2023, the common belief is the EVs are a more expensive alternative. Yet, given it is well known that EVs are far less complex, logic suggests they should be less expensive.
The answer lies in “Wright’s law”, as discussed in detail in “What’s needed to profitably make vehicles“, but the short summary is that “as more and more of any product is made, the cost decreases and the quality increases”. So, people are better at making ICE vehicles that have been mass produced for over 100 years, than EVs that have been mass produced for more like 10 years, and so far, during very low volumes during those 10 years.
Although the video here is focused on reliability, the same principles apply to cost of manufacturing. The analysists observe there is less to go wrong with EVs, but the manufacturers are newer to making EVs.
They divide EV makers are in two groups: those like Tesla and BYD that have increasing levels of experience at making electric drive trains but are less experienced than established brands at make the rest of the vehicle, and traditional brands that are less experienced at making electric drivetrains. The reliability data fits this pattern: Tesla vehicles have more problems with paint and vehicle build issues, other brands have more problems with the electric drivetrain.
These same issues that affect quality also effect price, and as the total number of EVs made increases, more will join the currently small group that have become more price competitive than ICE vehicles. EVs are already less expensive to maintain, and as quality further matures it will get even less, creating a real headache for car dealerships that will see the fall of their own critically important recurring revenues.
Sometimes it is the economy that is stupid.
The dangerous assumption that what’s best for the economy will be best for the people.
“The economy, stupid” is a phrase that was coined by James Carville in 1992. It is often quoted from a televised quip by Carville as “It’s the economy, stupid.” Carville was a strategist in Bill Clinton‘s successful 1992 U.S. presidential election against incumbent George H. W. Bush. His phrase was directed at the campaign’s workers and intended as one of three messages for them to focus on. The others were “Change vs. more of the same” and “Don’t forget health care.”
It’s the economy, stupid
Australia in late 2023 provides an example of living standards can fall significantly, even when the economy indicates growth, trade allows government surplus, and profits are strong for businesses large enough to be part of the stock market index.
Australia has long relied on population growth to boost the economy as having more people can offset the effects of individuals having less to spend:
Renowned macroeconomist Gerard Minack says Australian policymakers are “doubling down on a dumb strategy” by relying on population growth rather than increased investment to grow the economy.
Australia is ‘doubling down on a dumb strategy’ with high migration
People delivering for the economy or the economy delivering for the people.
Using the analogy of farming chickens for eggs, you can operate the farm for the largest population possible, but if you have to live in the farm as the chickens do, then there is an optimum population where you are neither lonely, nor overcrowded.
Ideal population of humans
The economy is like the total egg production, and if you have a farm and seek to produce eggs, the denser population from battery hens will produce the most eggs. Egg production per chicken may be lower, but you still get more eggs.
Australian economy analogy with farming chickens for eggs.
The relationship between citizens and a national economy can be considered to be like the chickens in the egg farm, with the contribution of each person to the economy being the equivalent of “eggs”.
The slides shown here illustrate the story. By number:
- Each quarter the economy (equivalent to total egg production) is growing.
- But per capita GPD (eggs per person) is declining.
- Record immigration boosts population and the economy, more than compensating for fall in per capita GDP.
- Population growth since 2005 has been boosted to levels matching the 1960s and 1970s.
- The boosted population growth initially allowed living standards to continue, but then they fell sharply.
- Total GDP growth has been constant the entire time with no recessions.
- But GDP per capita has been falling decades this is the 5th “per capita recessions” over that time.
This data does not provide evidence that the population growth is the cause of falling living standards, but it clearly shows that population growth prevents falling living standards from resulting in a recession, which allows governments and big business to allow living standards to fall without they suffering any consequences.
The “economy” is about big business and government, not the people.
It is often assumed that if “the economy” is doing well, then individuals will also be doing well, but while this can be true, it is not necessarily true. What is actually measured is the success of business and government in “farming the population” for profits and taxes and while that success can lead to job opportunities and increased pay, and the economic success of individual can be a factor driving that success, neither is necessarily the case.
The reality is that the economy is a measure of economic activity that can lead individual prosperity, rather than a measure of individual prosperity itself. In fact, economic activity can also undermine Indvidual prosperity and still grow the economy as examined in the webpaper “economic activity: an illusion of prosperity“.
The economy is a measure of total economic activity, and not economic activity per person, or per capita economic activity because for big business profits or tax revenue, its total revenue that is the bottom lines, not revenue per person.
The economy doesn’t like cost savings.
Every step that saves costs reduces economic activity and risks recession through “negative growth”. Imagine the loss of economic activity if a mechanism of free teleportation was invented: people would save time and money but all the cost savings in fuel, and operation of transport would devastate the economy.