The Theodore Newsletter

 February 1, 2023

Sorry folks. This is another one that is technical in nature. Why? I’ve just finished up a book (for John Wiley & Sons) titled Hydrogen Energy: Principles and Applications. Why did I write it? Because I was told it was a hot topic, and that it might sell. I say might because all my books have one thing in common: they simply don’t sell.

In the 1847 novel, The Mysterious Island, Jules Verne amazingly envisioned the use of hydrogen as an energy carrier. “Yes, my friends, I believe that ordinary water will one day be employed as fuel, that hydrogen and oxygen, which constitute it, used singly or together, will furnish an inexhaustible source of heat and light.” Today, Verne’s dream is being taken seriously by many practicing engineers and applied scientists. Hydrogen has the necessary properties and can fulfill the role of an energy carrier that can be derived from either methane or water, but unfortunately, the economics are not there.

Increased stringent regulations and demand for zero-carbon and zero-sulfur fuels has dramatically increased interest in hydrogen as a source of energy. And, hydrogen may well emerge as a very important fuel toward the middle of this century, but your author doesn’t think so. Since hydrogen is not a basic energy resource (except in the sun), it must be supplied by using some other basic energy resource to separate hydrogen from water or other hydrogen-containing chemical compounds (like methane). Unlike carbon-based fuels, hydrogen used directly as a fuel produces only water and no carbon dioxide. Thus, hydrogen fuel is viewed by environmentalists and politicians as an ecologically friendly fuel.

Today, our nation’s energy requirements for producing electricity and heat are primarily derived from fossil fuels (natural gas, oil, and coal) which when burned, produce carbon dioxide, a supposed pollutant, that can impact the climate. This concern with carbon dioxide has created a free-for-all for the technical community in its quest to replace the traditional fossil fuels. Industry is recklessly (from a financial perspective) pouring money into not only research and development (R&D) but also advertising that this as an energy solution. But, ultimately,  the basic laws of engineering and science are untouchable and non-negotiable.

Here’s the insanity with what is going on. Pure hydrogen does not occur naturally; it takes energy to manufacture it. Once manufactured, it is an energy carrier (i.e., a storer for energy first generated by other means). Energy is required to isolate the chemical bound hydrogen. If a fossil fuel is employed for this purpose, it would require depleting an irreplaceable natural resource and produce carbon dioxide. Thus, the production of hydrogen depends on the availability of a source of energy to assist the process. After the hydrogen is produced, there are companion costs associated with storage, transmission, and conversion, which is then followed by its use. If water (H₂O) is employed as the source of hydrogen, a significant amount of energy must be employed to initially separate the hydrogen from the oxygen. High energy “losses” occur no matter what the source of hydrogen. Therefore, producing hydrogen by any means simply does not make sense. As I said in the title of this article – it’s INSANE!!

What about a solution to the energy problem? Your author is a believer in geothermal (preferably) and nuclear energy. Geothermal energy refers to the heat stored in the Earth’s crust, i.e., the Earth is hotter the deeper one drills below the surface…and, this energy is limitless. Nuclear energy – unfortunately, much maligned by the uneducated and environmentalists – is energy obtained from the nucleus of an atom where fission energy is liberated when an atom is split. This energy corresponds to the loss in mass that occurs because the fragments are less than the mass of the original form. Nuclear fusion occurs when two or more atoms are fused into one larger one without long-lived radioactive waste. Here’s more on fusion – Livermore Labs announced on December 12 that they produced a nuclear fusion reaction that resulted in a net energy gain … a monumental breakthrough that is certain to impact all other applications involving energy.

The present fossil fuel energy economy must be replaced. But it has to be done gradually over several decades, and hopefully, with one of the two above sources of energy.

In conclusion, the implementation of a hydrogen energy economy by the government would be an economic disaster and negatively impact capitalism. The many advantages of traditional and other forms of energy are not well understood by the general public, and mercilessly demeaned, particularly by those (politicians are at the top of the list) for their own agenda.

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September 1, 2022

Inflation! You have been hearing a lot about it since President Biden took office. Here is my take on this controversial issue.

Let’s start with what Webster has to say on inflation: “increase in the amount of money in circulation, resulting in a relatively sharp and sudden fall in its value and rise in prices.” The opposite is deflation, which is defined as “a lessening of the amount of money in circulation resulting in a relatively sharp and sudden rise in its value and fall in prices.” Thus, inflation and deflation are terms used to describe a decline or an increase, respectively, in the value of money and in relation to the goods and services it will buy.

Since inflation is the continuous rise in prices in goods and services, these price increases erode the purchasing power of money and other financial assets with fixed values, creating serious economic concerns. Repeated price increases were historically unique and often directly linked to wars, poor harvests, political upheavals, etc.

Effects? Inflation initially increases  business profits, as wages and other costs lag behind price increases, leading to more capital investment and payments of dividends and interest. Despite this temporary gain, however, inflation eventually disrupts normal economic activities, particularly if the pace fluctuates. Interest rates typically include the anticipated pace of inflation that increases business costs, discourages consumer spending, and depresses the value of stocks and bonds Higher mortgage interest rates and rapidly escalating prices for homes discourage housing construction. As noted above, inflation also erodes the real purchasing power of current incomes and accumulated financial assets, resulting in reduced consumption, particularly if consumers are unwilling to draw on their savings and increase personal debts. Business investment suffers as overall economic activity declines, and profits are restricted as employees will demand immediate relief through some form of automatic cost-of-living escalator clauses. It is fair to say that inflation is a major element in the prevailing pattern of booms and recessions that cause unwanted price and employment distortions and widespread economic uncertainty.

Impact? The impact of inflation on individuals depends on many variables. People with relatively fixed incomes, particularly those in the low-income groups, suffer during accelerating inflation, while those with flexible bargaining power may keep pace with or even benefit from inflation. Those dependent on assets with fixed nominal values, such as savings accounts and pensions, suffer erosion of real wealth. Borrowers usually benefit while lenders suffer, because all forms of loans are paid with money that loses purchasing power over time and interest rates tend to lag behind the average rate of price increases.

Stabilization measures? I have no answer since I am not an economist. However, it seems to me that any serious anti-inflation effort will be difficult.

I close with these thoughts:

1. Politicians like to spend money because it gets them votes and power. They spend more than what is raised by taxes so they have to seek money elsewhere. They turn to printing money and / or borrowing money. Money is borrowed from government trust funds such as Social Security and Medicare and from the open market via Treasury Bonds. This assumes that the government can always borrow money without consequences. It also assumes that interest payments can also be borrowed. Elected officials know they must be right because this scheme has worked out pretty well since 1964 with the start of the Great Society and the War on Poverty. But now,  it appears that a day of reckoning may be fast approaching.
2. The question of money always arises in inflation discussions. A nation can only create money of value when there are businesses creating useful goods at a profit. With these conditions, it is then a function of government to print money to facilitate commerce. As businesses prosper and trade increases, then governments, of necessity, print more money, However, if government prints money faster than the increase in business activity, then excess money will begin to chase the supply of goods available and prices will rise. Enter inflation.
3. Our nation is blessed with an economic system which is very productive and efficient. It is able to take materials of low cost and make them into very valuable products. (The productivity of workers today is orders of magnitude higher than in those days of handcrafting.) As a result, workers are paid salaries that allow them to save money. These savings are a result of goods that have been made. If businesses borrow savings, it is usually to create more production and more money of value, and that is good. However, government spending rarely creates useful goods at a profit which would result in new money creation. In fact, the opposite happens. Most government spending destroys the value of money since government spending can result in the earlier statement of too much money chasing after a limited supply of goods. Once again, enter inflation.
4. Treasury debt now exceeds 30 billion dollars and is still rising rapidly. Ouch!!

Note: Thanks are due to fellow Cooperite, colleague and friend Dick Graven for providing some of his thoughts on this controversial topic.

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