We also implicitly understand a trade-off between time and energy (less time to do the same task usually requires more energy). But, when we start to compare different activities, say having steak for dinner versus buying a DVD player or taking a 3-day vacation versus buying a new bicycle we often lack the information to compare the overall efficiency between the two different options in terms of energy or materials or really any possible standard that might interest us.

There is a way around this problem of missing information–the energy standard. We’ve all heard of the gold standard, and there is some historical basis for a silver standard for currency. But, our efforts in defining a common standard for assessing energy content of goods and services has been lacking.

A Labeling Standard

The simplest and least-ambitious energy standard would be accomplished through labeling rules. We already label processed food by how much energy it contains (kilocalories in the US or kilojoules in most of the rest of the world). A energy-labeling standard would involve almost all transactions listing the amount of energy consumed in producing or using that product or service in terms of a single common unit.

So, when shopping for airline tickets or laptop computers rather than only comparing the prices between each option, we could also see how many kilowatt-hours of energy were or will be used to produce it (and in the case of a computer, how many kilowatt-hours {or BTU, joule, calorie} would likely be consumed in the future use of the product).

A Currency Standard

A more ambitious proposal would involve defining the value of currency as a certain amount of energy. Currently, in the US, a kilowatt-hour of electricity at the consumer level would cost about $0.10 give or take. Implementing an energy standard currency would mean that rather than see the cost of electricity fluctuate in the future, it would be set at something like 10 kilowatt-hours per $1 US–the nominal cost of energy would remain constant (through management of the money supply similarly to how a gold standard might operate). In effect, you would be paid in kilowatt-hours and you would spend kilowatt-hours to buy goods and services.

This is not a new idea. Several economists (especially those who study energy) and those in charge of developing world banking systems have proposed this idea before. Some, in fact, already claim that the real value of the US Dollar is defined by the supply of oil rather than the other way around.

The main difference from a commodity-based currency standard like gold is that energy is not nonperishable and is not easy to store–it is produced as demanded to perform some useful activity: drive a car, cook dinner, or listen to the radio. This effect ties the monetary supply directly to current economic activity, and since energy efficiency tends historically to increase over time, increases in the standard of living for a given amount of currency would be the norm rather than the reverse.

Any currency standard does not directly prevent the government or other currency-issuing authority from harming the system with reckless choices; it is only a promise or legally stated objective of the currency manager, whether that be a government or other organization. Money supply would continue to be managed through the traditional mechanisms of currency exchanges, interest rates, and trade balances.

What Are The Benefits?

Objections to “fiat” or floating-value currencies include the fact that units of currency do not have any intrinsic value; that money supply is politically controlled benefiting only some in society. An energy-standard currency is based on a unit of something naturally useful to everyone in society. More than any other commodity, the use of energy is near universal.

The supply of energy and energy-based currency faces natural limits on its expansion or contraction, unlike fiat currency. The supply of energy has expanded over time, although not nearly as much as the money supply, but only inline with the actual utilitarian demand for it–our capability and desire to consume it doing useful things. Additionally, the supply of energy is created by hundreds (or thousands) of firms, and consumed by millions of consumers (just in the United States alone) making the feedback system much more responsible and less open to adverse manipulation unlike a gold-standard where the vast majority of gold supplies are held in relative secret by just a few national governments and financial institutions.

Objections to the gold standard include the fact that gold itself only holds value by its relative rarity and cultural history, rather than being something intrinsically useful to individuals, and that future inflation of the money supply will be governed only by gold mining success. An energy standard, however, is based on something directly useful to individuals (units of energy). We use units of energy to drive around, cool and heat our homes, produce food, cook, and entertain ourselves. And, given historical increases in energy efficiency, over time a given unit of energy should be more valuable in the future (not less).

Then, rather than the supply of money being governed by gold mining investment and success (something arbitrary and disconnected with economic needs), the supply of money/energy would increase over time in conjunction with increases in our demand for it and our ability to do useful things with it. As populations increase and economic development proceeds the monetary/energy supply would increase with it, but never beyond what could actually be used, naturally controlling inflation.

Environmentally, the benefits of an energy-based currency standard include instant feedback to all consumers on the energy efficiency of their choices (less energy efficient producers would have to charge higher prices or make up the difference in other areas).

It would also simplify decisions to be made in energy production, whether riskier fossil fuel extraction operations or in renewable or nuclear energy production projects. This future price risk is a critical detriment to all current decisions being made for all types of energy production. Removing this financial market risk from energy projects would help stabilize the sources of energy around the world.

Limitations

While an energy standard has many promising features, there are potential issues to address including clarifying the effects on international trade, the effect of disasters that affect the supplies of energy and their downstream effects on the money supply, and the potential impact of oil and gas supply shocks. And, of course, implementation of a new monetary system is potentially tricky. Further investigation of these effects will be necessary to provide confidence through any transition to the currency standard.

Similarly to the gold standard, if we assume generally increasing efficiency for all human activities over time, an energy standard for currency might be deflationary unless designed otherwise. However, as energy production is expected to increase world wide for several more decades probably (and possibly indefinitely depending on supplies and environmental concerns) and deflation would be organically controlled by increases in energy efficiency, this is not as pressing a problem as might affect a gold standard, and might not be a limitation of any sort in the foreseeable future.

This is one of the most straightforward of all the climate control technologies–if Earth is trapping too much heat or the Sun is getting too hot, just block a bit of it. No matter the cause of the increased average temperatures on Earth, this solution will reduce them. Moreover, even if future needs require additional solar radiation to maintain temperatures due to some cooling event, the same shades or reflectors might be quickly redesigned and used for that purpose as well–the beginning of a global climate control system.

How It Works
No, there are not black spots in the sky or shady spots on the ground…

According to the design proposed by Roger Angel a series of thousands of thin semi-transparent shades would be placed in orbit around the sun at the Earth-Sun Lagrange point (L1, see diagram below)–a stable orbit constantly balanced between the Earth and Sun. Each of these shades would diffuse a small amount of the sunlight on the way from the Sun to the Earth thus reducing the total amount of sunlight striking the Earth.

There would be no shady spots on Earth, as most light would just pass through the shades. Even the solid opaque portions of the shade would be unlikely to cause dark shadows (umbra) due to the distance between them and the Earth. Viewing of sun spots and other solar phenomena would not be significantly impaired by the constellation of shades (imagine taking pictures through a chain length fence and focusing on something far beyond it–the fence practically disappears except for a slight fuzziness or brightness reduction in the picture).

Sunlight exerts a pressure on opaque or reflective surfaces (the reason why solar sails work) that can push the shades out of position over time, so the semi-transparent nature of the shade will limit this effect. Then, tiny reflective “fins” will orient themselves properly with respect to the Sun to maintain their proper position. The key to the shades is simplicity and light weight–both to reduce launch costs, and enable a robust networked system not dependent on the function of individual components to be successful.

How Much It Would Cost

Roger Angel proposes the development of electromagnetic rail guns to reduce the space launch costs to $20 per pound down from the current estimate of $10,000 per pound. Several rail guns would be required to launch payloads every 5 minutes continuously for 10 years. Total costs would be in the trillions of dollars. The development of the launch system alone would require a decade or two of serious engineering.

If these costs were averaged over the expected 50-year life of the shades, the average costs for controlling climate in this way would be on the order of $100-$200 billion per year for 50 years. Climate change impacts may last for 100-150 years, however, and the process may need to be repeated if newer technologies have not fully controlled the issue by that time.

These financing numbers are feasible with sufficient political will, however the extent of investment required for this one relatively straightforward solution should force reconsideration of other possible mitigation of these problems. Surface structure modification, complete transition to fully renewable energy, and other significant changes to current ways of doing business could all be implemented with the levels of financing required for this plan, many at much lower cost.

Potential Problems

Beyond the very high costs and the effort required to be maintained over generations to implement such a solution, there are other consequences of reducing the Earth’s temperature by limiting solar heating. Chief among those concerns is that the solar shades, because they are so far from Earth, would each reduce the sunlight all over the planet by a small amount and result in significant climate shifts. Currently, because of distances and angles, more solar heating strikes the equatorial regions than the polar regions. After implementation of the solar shades, the temperature of the whole Earth would be slightly reduced, but the temperature of the equatorial regions would be reduced more, and the polar regions may experience warming–the temperatures across the whole planet would become more similar.

While this doesn’t sound too bad, especially if you put stock in predictions of catastrophe if business as usual continues, there are substantial concerns to be dealt with even after spending the resources necessary to implement the solar shade system as this report from climate modelers points out:

“We found significant cooling of the Tropics, a warming of the polar regions and related sea ice reduction,” said Lunt. “We also found important differences in the hydrological cycle, with Sunshade World being generally drier than the pre-industrial ‘natural’ world. Average precipitation decreased by five percent with the largest decreases being in the Tropics.”

Given the 25-year development and launch cycle combined with 50 years of maintenance, the persistence of society and government support required is enormous. Without catastrophic harm occurring on a regular basis, it is difficult to see how such support could be marshaled for such an endeavor. And, with catastrophic climate events occurring on a regular basis, it is difficult to imagine that adequate resources would be available.

While the advocacy in favor of or against a gold standard is often intense (especially in certain circles in the United States and the United Kingdom) specifics on the mechanics and policy implications of implementing such a system are often lacking.

A Quick Review of Floating Currency Management

Free floating currencies such as the US Dollar or the UK Pound Sterling have no intrinsic value. Instead their value resides in the prices set between buyers and sellers in the marketplace as to what goods or services are believed to be equivalent to a given amount of currency. The currencies are merely a medium to sustain a complex barter of goods and services between producers and consumers. Two major things affect whether a given good or service requires more currency to purchase in the future (inflation) or less currency to purchase in the future (deflation): [1] the trade balance (and investment balance) between the given country and other countries (overall trade deficit or surplus); and [2] the overall amount of currency created or destroyed by the actions of the nation’s central bank or similar institution.

Nations manage their supply of money and the investment balance through one or more of these tools: [1] bank reserve requirements; [2] interest rates; and [3] actually printing or destroying money.

The US, UK, and most other nations currently manage their money supplies in accordance with what is called Monetary Policy as originally outlined by Milton Friedman and practiced by American Federal Reserve Chair Paul Volcker, although since modified for practicability.

The Mandates of the U.S. Federal Reserve

By law, the US Federal Reserve system (similar to central banks of other national governments) must use the monetary policy tools at its disposal (mainly setting interest rates combined with printing more money) to minimize inflation (without deflation) and maximize employment. Much of the dislike of the US Federal Reserve system is based in the fact that these two mandated objectives can often be at odds in the short term meaning that the subjective choice of which priority to elevate above the other will always seem to be politically motivated by one group or another.

How Does the Gold Standard Change Things?

The gold standard is a mandate to maintain a nearly constant currency valuation for a given weight of gold, for example, freezing the price of gold indefinitely into the future at $1530.17 per ounce. Although many expect that the gold standard would entail a promise to redeem a given amount of gold at that price, this aspect is not necessary and has not been a historically consistent component of gold standard currency systems. The gold standard does not involve using actual gold as money.

Instead, rather than being consumed with other concerns about economic performance or trade balances, in a gold standard regime, the central bank (or currency board or similar authority) uses the tools available (setting interest rates, buying and selling the currency against gold and against other currencies) to maintain an almost constant price for a given amount of gold. For example, if the demand for gold were to rise around the world due to one circumstance or another such as economic uncertainty, the currency authority would have to contract the supply of money (raising interest rates or exchanging gold for currency) to maintain the gold standard. Or, if the demand for gold were falling, the currency authority would have to expand the money supply to maintain the gold price (lowering interest rates or exchanging currency for gold).

Long term changes in the demand for gold versus the currency would be managed through interest rate changes, while short term changes would be managed through gold-currency exchanges or currency exchanges between nations. Trade deficits or surpluses would also have an effect here with their own policy tools, but in general, I have not included them here in this article.

Because of these needs–even with a gold standard–to actively management money supply in response to changes in gold demand, the redemption of gold for currency would not likely be a part of any modern gold standard. This is because with a redemption policy, the actual physical gold reserves of a country on one end and the available gold supply for purchase in the market on the other end would set hard limits on the possible money supply changes necessary to maintain the currency’s value against gold. For example, if a nation had to sell gold for currency to maintain the gold standard valuation and satisfy all redemption requests, it could only do so until all gold reserves were gone at which point the redemption would have to be suspended (as often happened historically during “runs” on gold). As any one nation does not control global gold demand, it is unlikely that any would want to have their hands tied on maintaining the gold standard only for a certain range of possible future conditions were they to implement it.

What are the Ramifications of the Gold Standard?

Whether to one’s chagrin or elation, a gold standard does not remove the need for a federal reserve or a central bank. Instead, it changes the mandate by which such an institution operates. It also does not necessarily remove any of the typical central bank tools for managing the money supply (e.g. interest rates, bank reserve requirements, and currency sales/purchases), it simply changes their objective.

The overall impact on the economy (in the current globalized situation, which is quite different from the pre-1930s economy) is difficult to predict with any kind of certainty. Money supply management under a gold standard would be very different from what most nations exercise today.

Today, times of slow growth in economic output or contractions in economic output (recessions) generally result in central banks applying low interest rates and increasing the supply of money as an incentive for capital holders to invest in economically productive purposes and dis-incentivizing saving. The intention of this policy is to make equipment purchases and business loans more attractive versus saving money, thus hopefully leading to increased employment and greater economic output in the future.

Under a gold standard, times of slow growth or contractions in economic output, if global and not localized in nature, would likely lead to an increase in demand for gold as is typically the case. As gold becomes more valuable in terms of other floating currencies, the central bank tied to the gold standard would have to contract its money supply in order to maintain a constant gold price, or equivalently would have to increase demand for the currency by increasing interest rates or by buying up the circulating currency. Many economists believe that this would dis-incentivize business investment, encourage keeping more capital in the bank, and thus prolong the economic recession; while gold standard advocates believe that overall increased stability in the monetary system overall will reduce excesses of the market like investment bubbles that cause their own problems.

Long Term Deflation

This may sound scarier than it is, but given the anticipation in the long term of a growing population combined with a growing economy, and a very slightly increasing gold supply, overall prices including prices for labor (wages) would be expected to fall over time in a gold standard currency regime. That means that while you make $40,000 this year in income, in 20 years time, you may make only $30,000 in income, even though your actual standard of living would be higher.

This already, in fact, happens with much of the electronics market: cell phones and computers next year will be both more capable and lower cost. However, the implications of training generations of people who expect inflation to not be discontent with deflation might be more than any political system could handle.

On the other hand (as the favorite saying of economists goes…), a gold standard currency regime could be designed with a pre-programmed inflationary rate, so that rather than maintaining a constant price for an ounce of gold, instead the price of gold would be managed to increase at 2% (or whatever value) per year.

How Beneficial (or Harmful) Would the Gold Standard Be?

This question is very difficult to answer mainly due to the fact that the devil is in the details of implementation combined with the historical uniqueness of an established western economy converting from a free floating currency to the gold standard (the nearest example being Germany in the 1920s). If many had attempted it previously, we could have more confidence in its effects, but an economy such as that of the United States implementing such a policy would be a first time occurrence. Even while some technical benefits may exist, economic performance is determined as much by subjective population responses, which can be unpredictable.

Some believe that the countercyclical nature of money supply management when one nation is on the gold standard and others are not, would exacerbate the extremes of the business cycle making booms and busts both more frequent and severe. With high interest rates when the economy is bad and low interest rates when the economy is booming. Whether the worst case consequences would happen in fact, is little more than a guess on either side at this point, but it would be wise for any nation implementing a gold standard to include risk control provisions to mitigate this kind of situation.

Smaller nations that have been ravaged by the ineptitude of dictators seeking to avoid difficult choices and having been led instead to hyperinflation would probably be better served by a gold standard (even though the gold standard still requires competent money supply management as described above). However, many of these nations might also be served by fixing their currency to one or more of their bigger trading partners. In any event, frequent transitions to and away from a gold standard would not be advisable, so even those with a history of poor money management should not proceed down such a path without considerable debate.

The Earth today has about 4,100 million hectares of arable land (land with adequately fertile soil and sufficient rainfall capable of supporting traditional agriculture)–that’s 41 million square kilometers or about 16 million square miles. A little less than 5% of this land is part of protected parks and wildlife preserves. Of the rest, only 15 million square kilometers are presently used for agriculture according to the FAO (Food and Agriculture Organization of the United Nations). Arable land in these statistics includes forest land and pasture lands that could possibly be used for traditional agriculture, but might be realistically needed for other purposes. A small amount of actively farmed land in the world (mostly in the Middle East) is actually not arable–think desert land made viable by irrigation and fertilization–so, this is not an absolute limit on agriculture.

We would likely not be content turning all arable land, much of which exists as forest and other semi-wild ecosystems, into high productivity grain farming. The effects on wildlife and aesthetics would be dramatic. So, let’s assume that the world as a whole decides to protect twice the current arable area protected by parks and other reserves, and let’s assume that another 10% of the area would be made up of semi-wild managed forest, managed game lands, and similar uses. That leaves a total of 33 million square kilometers of arable land available for agriculture of which we are currently using 16 million, or about half. One might then assume that we could easily support twice the current population, but this neglects that about a billion people are malnourished today, and many more are poorly clothed and housed (agriculture also produces the fibers for clothing).

To begin, we should assure that we can generate at least 2500 calories per person per year (the average need for an adult man), which is somewhat more than necessary because it does not account for the lower needs of women and children. 2500 calories per person per year for 9.2 billion people is a global need of 23 trillion calories per day in 2050. If every acre of arable land were planted with potatoes (the highest caloric yield per acre of any crop), we could produce 8 times more than we need to support all 9.2 billion individuals’ energy needs, although potatoes alone would not meet people’s nutritional requirements for protein and other nutrients. {interestingly, apples might provide even more calories per acre than potatoes}

Instead, relying on a one-third each mixture of corn, beans, and squash combined with a rotation in similar crops would provide for almost all nutritional needs including protein, vitamins, and minerals (data on yields and caloric content can be found here, here, here, and here, organic farming yields were used where available). This combination produces a average total of 2.7 million calories per acre or enough with all arable land in production to feed 2.5 times the population in 2050. If we were to allow for more variety in our diets and incorporate additional servings of a wider array fruits and vegetables our average yield might fall to 2.4 million calories per acre and reduce the surplus to 2.3 times the population in 2050 (using tomatoes at 80 calories per pound and 20,000 lbs per acre as a proxy for a mix of other vegetables).

Next, however, we should account for the needs of fiber (textiles and paper), and timber (paper and construction materials). Cotton consumption in the US peaked in the 1990′s at about 6.7 kg per person per year, and is currently about half of that. If we use the higher figure as a basis for worldwide needs in a fully developed economy, we would have a need of 62 million metric tons (tonnes), or a little more than twice the estimated cotton production for 2012. At current yields of 0.8 tonnes per hectare, worldwide fiber needs could be met by less than one million square kilometers (0.77 million sq. km). The demand for other fibers like wool and synthetics can be estimated at a value equal to cotton demand, for another 0.8 million sq. km. Total timber consumption in the US in 2005 (including pulp for paper, hardwood, softwood lumber, veneer, and other products) was about 20 billion cubic feet or 67 cubic feet per person. This translates into a global demand of 620 billion cubic feet or 12 billion tonnes. Using sustainable forest management practices, a yield of 6,600 kg per hectare of wood might be possible, while bamboo could yield up to 40,000 kg per hectare. This implies arable land needs of 3 million square kilometers (bamboo) to 18 million square kilometers (mix of hard and soft wood). Assuming bamboo will be able to meet half of the demand for these products, we would have a projected need of 10 million square kilometers for all timber together with the 1.6 million square kilometers for fiber.

So, the food (14 M sq.km), timber (10 M sq.km), and fiber (1.6 M sq.km) needs of the projected population in 2050 can be met with only 78% of our available arable land (26 of 33 M sq.km). In fact, every man, woman, and child on the planet would be able to consume as much of these things as Americans typically do (or more in the case of vegetables), and that level of production would satisfy up to 11.6 billion people. While annual crop rotations are assumed in these calculations, multiple crops in a given year are not even though they are common in many places. What these figures do not include explicitly are animal products, although fish and game harvested in sustainable quantities would be an addition with no impact on the other values as would animals raised on agricultural waste products including wheat and rice straw, winter cover crops such as alfalfa, and discarded produce as well as those raised on pasture lands that do not qualify as arable (hill sides, rocky grasslands, arid grasslands, etc.). Adding animals raised on grain or other primary agricultural produce would reduce the caloric and protein productivity of the land overall, but would still be possible given the 7 million square kilometers of unused arable land revealed in this scenario. Future changes in the amount of arable land due to climate change or sea level rise are not considered here.

So, why don’t we feed everyone sufficiently today given that we have more than enough worldwide agricultural land in production? There are several reasons. One is waste. In the US 20-40% of agricultural produce is wasted for one reason or another. Another is high value but low productivity agricultural activities including grain fed cattle and alcohol production. Another is the combination of adverse incentives created by rich and poor world governments actively involving themselves in the agricultural markets to different ends. None of these practices needs to be eliminated in order to supply adequate food and other products to the worldwide population, but official encouragement and innovation and open trade between regions will be required to meet these needs. We can say then that we are not necessarily heading for an impending disaster, but whether we succeed in sufficiently providing for everyone will remain an open question.

In industrializing America, the sometimes so-called “robber barons” Andrew Carnegie and John D. Rockefeller both amassed great wealth that they began to give away in the form of great public works and other charities before they died.

Foundations established in their names continue to disperse their wealth in the name of what they consider the greater good to the present day. These men stated that the wealthy like themselves could be more responsible and productive with wealth than governments or poor laborers. These men like Bill Gates and Warren Buffett today were among the most wealthy in the world with more money to their names than they could even hope to spend on private consumption. However, the situation faced by many professionals today is a unique one, far from insecurity as many laborers face, and yet living off of yearly salaries that clearly cover more than basic necessities.

First, can significant charitable donations along the lines advocated by Toby Ord even work in nations such as the United States without substantial social safety nets? Mr. Ord states that with an average salary of 45,000 pounds sterling ($72,700) over 35 years he would expect to pay 5,000 pounds ($8,100) in taxes and retain 10,000 pounds ($16,150) for living expenses (incidentally, his stated figures for year one were a salary of 25,000 pounds ($40,375) and a total tax and living expenditure of 15,000 pounds ($24,225)). Mr. Ord’s wife Bernadette, is a doctor with an undisclosed but higher salary, who has agreed to give away all but 25,000 pounds ($40,375) of her salary after taxes. Toby Ord certainty would benefit from this money as well, although there is no mention of whether children are present or might be expected in the future nor how that might change his calculations. These contribution levels mean that Mr. Ord can contribute over 1M pounds ($1.62M US) to charitable causes during his working career, and quite possibly more than twice that when considering his total family contributions.

For an individual in the US, one might expect a higher salary and lower taxes in exchange for no guaranteed pension and more expensive healthcare. On the other hand, living expenses tend to be significantly reduced in the US as compared to the UK. For a pair of married college graduates in the US, one might expect an average lifetime family income of $123,000 during their careers <from NCES>. Here, we will assume that tax payments will remain more or less on average similar to what they were in 2009 or about $31,000 in total ($1,780 for Medicare, $7,600 for Social Security, $18,420 for Federal income taxes, and $3,200 in state taxes). The 35,000 pounds sterling or ($56,500) in the UK for living expenses by Mr. Ord’s family would be approximately equivalent to $42,100 on equivalent living standard terms for average cities in both countries. A two-person family in the US would also be expected to spend at least $3,000 for health insurance each year and to set aside about $12,300 per year for retirement (sufficient investment for a 90% probability of generating at least 80% of pre-retirement income during a 20-year retirement). These expenses would then leave $34,600 each year (28%) for charitable donations–enough to generate over $1.2M for charitable causes during one’s career without sacrificing any necessities. This is slightly less than Toby Ord’s projection, but very close, and assumes both a lower level of overall pre-tax family income, as well as less financial security from government programs.

But would this level of contributions matter? Well, there are approximately 30 million people in the world with this level of income. If all were donating to charity at these same dollar levels (not percentages) that would be more than $1 trillion of financing available each year to address the world’s most pressing problems. This is nearly 2% of the world’s total economic output, and more than the total yearly economic output of many countries. All charitable giving in the United States is only $300 billion, and much of this is domestically directed, only $10.6 billion goes to developing nations. The US government provides another $25-30 billion in development assistance on our behalf. In European nations, the relative contributions are proportionally less for individuals and greater for the government, but the per capita expenditures are similar. These figures are dwarfed by the $1 trillion possible from concerted private donations. Even if only 10% of people could be convinced to act in this way, development assistance available today could be doubled, so it is a considerable sum.

Clearly, what is being discussed here is unusual and possibly counter-cultural among western-styled economies but not impossible as Toby Ord’s and my calculation shows. While greater amounts of financing are not guaranteed to produce more positive results, it seems likely that large numbers of significant donations could produce the same benefits of competitive efficiency towards meeting the goals of their supports as the competitive economy has done to producers of consumer goods and services. When the relatively small quantity of resources devoted to development by the worldwide group of relatively well-off and savvy investment-minded professionals it should be evident that there are substantial benefits yet to be realized in this arena rather than only being able to hope for little more than the typical status quo preserving disaster triage we normally experience.

First, C4C did result in an increase in the fleet’s average fuel economy, and therefore resulted in a savings in terms of expected gasoline consumed in the US. The following chart displays the level of gasoline savings as compared to doing nothing (or business as usual (BAU). The business as usual assumption also produces a savings in gasoline as current vehicles are more efficient than older vehicles, but not as significant as the C4C program.

Next, considering financial benefit to individual consumers we have to examine which vehicle they may be trading in and which vehicle they might purchase. This part of the analysis considers only the top 10 vehicles traded in and purchased under the program. As might be expected, loan interest, fuel costs, insurance costs, and vehicle purchase costs, along with miles expected to be driven, and length of time the car will be owned, in addition to resale costs, all affect the consumer’s bottom line. The following matrix displays the net present value (NPV) to the consumer for a 100 different trade in and purchase combinations assuming 20,000 miles driven per year and a time horizon of 5 years between purchase and resale of the new car.

As seen from this high mileage scenario, only 60 of the 100 options provide a positive financial return to the consumer. Driving only 12,000 miles per year or less would mean than all of the vehicle trade options would provide a negative return to the consumer.

The main caveat to this analysis is that maintenance costs were not considered, due to a lack of data available. This would be expected to be a benefit (perhaps slight or significant) to the purchase of a new vehicle over retaining the old one, although, I would anticipate only a slight to moderate benefit in that direction.

In summary, while specific trades of certain older cars for newer one’s was financially in the consumer’s interest, especially if they were high mileage drivers and expected to keep the new vehicles for a long period of time, as a whole the program was not cost effective in reducing gasoline consumption or emissions on the national level. Those goals, in fact, would be better accomplished by subsidized efficiency and emissions regulations levied on all new vehicles sold in the market, since older vehicles naturally are removed from the vehicle fleet without any intervention.

In conclusion, I believe that a certain skepticism has to be entertained regarding the stated goals of the program (which have to be politically justified) and the actual unspoken goals of the program–which in this case was to push a lot of capital into the economy in a timely and popular fashion. This unspoken goal was clearly accomplished, although perhaps at a greater benefit to foreign corporations than anticipated.

*Jose Alfredo Galvan, Mohd Nor Azman Hasan, Rebecca Mayer, and myself conducted equal portions of this analysis. Full report available here (pdf).