Tinker Bell Economics in Europe

Truth is always politically painful after years of illusion

by Gary North

If you have seen the stage version of Peter Pan, you know the scene in which the audience is asked to clap if they want Tinker Bell to live. It's time.

Janet Daley wrote a provocative essay in London's The Telegraph on the day before the Greek election (June 16). She did her best to explain why the eurozone is in crisis. Europe's leaders are living in an illusion of their own making.

She began with what should be obvious to the financial markets by now. By entering into the eurozone, the politicians surrendered control over the money supply.

The problem is not that politicians surrendered control over the money supply. It is that they surrendered it to the European Central Bank. They should have surrendered it to the free market.

The politicians of Europe asserted control over the international money market in 1914, when they abandoned the international gold standard. They set the precedent. Everything that has followed has been one fiat money crisis after another. But only Austrian School economists teach this. In Europe, bureaucratic control over money has run the show ever since 1999.

The economy is now beyond the control of national governments, and therefore outside the remit of democratic politics. It has become truly global, and thus a law unto itself; nation states have gone broke in their attempt to feed its gargantuan appetites for consumption and debt.

Who owns you

Quote for the Day

“The free man owns himself. He can damage himself with either eating or drinking; he can ruin himself with gambling. If he does he is certainly a damn fool, and he might possibly be a damned soul; but if he may not, he is not a free man any more than a dog.”

                                                                  ~G.K. Chesterton

Abandoning Ship

The Eurozone Is Failing At An Accelerating Rate

by Alasdair Macleod

It will be no surprise to readers that the news coming out of the Eurozone just gets worse and worse. The reality is that Ireland, Portugal, Spain, Italy, Belgium, Greece, and France (in no particular order) are all in debt traps from which there is no escape. A debt trap is sprung when bankruptcy becomes the only outcome. With corporations, this usually becomes readily apparent and directors are forced by law to stop trading, but countries conceal this reality by printing money. Otherwise there is no difference in the two cases, despite what politicians and neoclassical economists would have us believe. This is why we are painfully aware that the Eurozone is in trouble, since nation states are unable to cover and conceal their obligations by printing money, having surrendered this role to the European Central Bank (ECB).

The ECB is meant to be independent of politics and political pressures. But the reality facing any central banker is that s/he cannot stand by and let politicians drown in their own mess. The politicians know this, and it's what is behind current attempts to move away from austerity towards Keynesian growth. The plea is exactly the same as that of the spendthrift who tells his bank manager that the only chance he has of getting his money back is to increase the overdraft to allow him to trade his way out of difficulty.

So the ECB knows, in its role as bank manager, that the argument is flawed. But unlike spendthrift individuals, politicians have real power, and the ECB has an ultimate responsibility not to upset the apple cart. And that is why the election of a new socialist French president is important. President Hollande is leading the charge away from austerity in Europe, and he has powerful allies, including President Obama in his own election year.

The greenest thing we can do is innovate

The Julian Simon Lecture

By Matt Ridley

It is now 32 years, nearly a third of a century, since Julian Simon nailed his theses to the door of the eco-pessimist church by publishing his famous article in Science magazine: “resources, population, environment: an oversupply of bad news”. It is also 40 years since The Limits to Growth and 50 years since Silent Spring, plenty long enough to reflect on whether the world has conformed to Malthusian pessimism or Simonian optimism.

Before I go on, I want to remind you just how viciously Simon was attacked for saying that he thought the bad news was being exaggerated and the good news downplayed. Verbally at least Simon’s treatment was every bit as rough as Martin Luther’s. Simon was called an imbecile, a moron, silly, ignorant, a flat-earther, a member of the far right, a Marxist. “Could the editors have found someone to review Simon’s manuscript who had to take off his shoes to count to 20?” said Paul Ehrlich.

Erhlich together with John Holdren then launched a blistering critique, accusing Simon of lying about electricity prices having fallen. It turned out they were basing their criticism on a typo in a table, as Simon discovered by calling the table’s author. To which Ehrlich replied: “what scientist would phone the author of a standard source to make sure there were no typos in a series of numbers?”

Answer: one who likes to get his facts right.

Greece Is A Monty Python Skit

Nothing will ever change in Greece

The new Greek cabinet ready for action

By Jeff Harding

It just keeps getting worse in Greece. With the leaders of the eurozone all exhaling after the election of “centrist” Antonis Samaras, thinking that maybe the Greeks will toe the line set by the Germans, they learn who the new Greek finance minister is:

"Antonis Samaras, the Greek centre-right leader, has made a surprise appointment to the post of finance minister, choosing a career public servant with a close knowledge of the country’s finances and a radical leftwing past.

Vassilios Rapanos will take the key finance portfolio and may attend to­day’s Luxembourg meeting of eurozone finance ministers. …

The Master Narrative Nobody Dares Admit

Centralization Has Failed

By Charles Smith

All centralized systems, open and shadow alike, act as heavy taxes on the society and economy. This is why they cannot compete with the forces of networked decentralization.

The primary "news" narrative may be the failure of the euro, but the master narrative is much, much bigger: centralization has failed. The failure of Europe's "ultimate centralization project" is but a symptom of a global failure of centralization.

Though many look at China's command-economy as proof that the model of Elite-controlled centralization is a roaring success, let's check in on China's stability and distribution of prosperity in 2021 before declaring centralization an enduring success. The pressure cooker is already hissing and the flame is being turned up every day.

What's the key driver of this master narrative? Technology, specifically, the Internet. Gatekeepers and centralized authority are no match for decentralized knowledge and decision-making. Once a people don't need to rely on a centralized authority to tell them what to do, the centralized authority becomes a costly impediment, a tax on the entire society and economy.

In a cost-benefit analysis, centralization once paid significant dividends. Now it is a drag that only inhibits growth and progress. The Eurozone is the ultimate attempt to impose an intrinsically inefficient and unproductive centralized authority on disparate economies, and we are witnessing its spectacular implosion.

The moralistic, Malthusian war against fat people

This degraded depiction of human beings is really about morally indicting people for the original sins of eating and breeding

by Frank Furedi 

Sometimes, I hear something on a news programme that catches me unaware and makes me think: ‘Surely this is an Ali G spoof?’

It is early Monday morning and a professor from the London School of Hygiene and Tropical Medicine is on BBC Radio 4’s Today programme, holding forth on the danger that human beings’ weight gain presents to the survival of the planet. ‘Having a heavy body is like driving a Range Rover’, he argues, with passion and conviction. Before you can even catch your breath, he is warning of the catastrophic things that will occur when ‘we are all as fat’ as people in America. After lecturing listeners about the need to factor people’s ‘body mass’ into all debates about the environment, he pauses and then reminds us again that fatness is an ‘ecological not just a health concern’.

I look across the breakfast table, and my wife affirms my suspicion that this must indeed be an Ali G moment. But alas, a few minutes later, the twenty-first-century equivalent of a Trollope-like, worldly cleric, the weight-conscious priest Giles Fraser, is on the air to give his ‘thought for the day’. He, too, is morally weighed down by the problem of body mass. His little homily on sustainability is on-message in this Ali G world of ours. When I hear him say that ‘bigger is not always better’, it becomes clear why theology is in trouble. But when he finishes by saying ‘economic growth is like getting fat’, I slowly start to realise that this is more than just a bad joke…

Greece Alone and Broke -- Again

History was never kind to the loud and proud but vulnerable Greeks

By Victor Davis Hanson 

The recent indecisive Greek elections could be summed up by two general themes: Greeks want to stay in, and expect help from, the eurozone. But they still do not want to take the necessary medicine to stop borrowing billions of euros from northern Europeans, who want a radical Greek reform of the tax code, deregulation of labor laws, fiscal discipline, massive cuts in bureaucracy, and greater transparency -- all unlikely given Greek history and contemporary culture.

So what lies in the future for Greece as it is slowly eased out of the eurozone and its civilization goes into reverse?

In theory, with the ability to devalue the drachma and be freed of enormous debts, the Greeks could return to business as it was practiced in the 1970s. In those sleepy days before the massive transfers of northern European money, I lived in a Greece that was a Balkan backwater without advanced surgery, autobahns, suspension bridges, sleek subways or a modern airport. In that era of genteel poverty, Greek divorce, abortion, drug use and crime were rare. Now, all are commonplace. Rural Greece outside Athens was more Middle Eastern than European.

How both right and left have infantilised Greece

The Greek election wasn’t a clash of visions but a competition between alternative forms of responsibility avoidance

by Brendan O’Neill 

Last weekend’s elections in Greece were depicted as a massive ideological punch-up of the sort we no longer see very often in politically bland Europe. On one side there were anti-EU leftists like SYRIZA, railing against Angela Merkel and her stringent bailout plans, and on the other side more right-leaning parties, who insisted that austerity is the only solution for deeply indebted Greece. Meanwhile outside of Greece, everywhere from Berlin to London, there was a seemingly sweeping divide between pro-EU people telling Greece it had to embrace austerity, and anti-EU people suggesting Greece should reject the bailout package and give Brussels the finger.

Yet for all the fantasies about a return of Politics with a capital P, the most striking thing was how much the two sides in the election debate shared in common. Both inside Greece and outside it, on both the right and left, in both the pro- and anti-EU camp, the overriding political instinct among all protagonists and observers was to infantilise Greece, to treat it as a hapless child. The right and the Brussels brigade did it by depicting Greece as an immature entity incapable of governing its economic affairs. And the left and the anti-Brussels brigade did it by painting Greece as the pitiable victim of ‘other people’s hubris’. These alternative forms of national infantilisation reveal a lot about what is wrong with the politics of the EU and with what now passes for being ‘anti-EU’.

In the Brussels set and also among right-wing political observers, there has long been a tendency to denounce Greece as unfit for governance, especially economic governance. The Greeks, in contrast to Germans, are a bit too feckless, emotional and corrupt to do economics properly, we’re told. In the run-up to the elections, one economic magazine reported that German officials and Brussels bigwigs, speaking anonymously, describe Greece as a ‘broken bureaucracy… incapable of implementing decisions taken at the top’. In short, it’s a wilful child, which needs clear rules and occasionally a firm slap from Mother Merkel and other outsiders in order to keep it chugging along.

Krugman’s Greek Temple of Keynesianism

The elephant in the living room

by William L. Anderson

A lot of people have weighed in on the Greek Morality Play, better known as the collapse of Greece's economy, and there is no shortfall of "wisdom" and advice. (For that matter, I made comments myself on the Greek situation during an interview on the RT network last March.)

Not surprisingly, Paul Krugman has weighed in again, and this time he not only claims that the problem is not enough inflation, but also deliberately ignores the real problem behind much of the Greek collapse: Greece's notorious and "bloated" (to use a term from Krugman's employer, the New York Times) bureaucracies led by its militant public employee unions. Instead, Krugman sets up other straw men and then claims that if only – If Only! – the Germans would crank up the monetary printing presses, Greece could be saved.

Before going into specifics, I would like to point out that Krugman is correct when he notes that a single currency union of many states indeed does impose certain fiscal restrictions. The examples he uses for the United States are dishonest, and even when explaining the European currency union, he does not tell the whole story, lapsing, instead, into his usual spate of accusations coupled with his demands for more inflation. (And, yes, I will explain my point later in this piece.)

Socialists Win Absolute Majority

The downward spiral of the French economy is set to continue apace

by Pater Tenebrarum

On the same day the world's attention was focused on Greece, an arguably more important election took place in France. As was already deemed highly likely after the first round of the parliamentary elections a week earlier, Mr. Hollande's socialist party received an absolute majority.

According to Bloomberg: 

„French President Francois Hollande’s Socialist Party and its allies won an absolute majority in the National Assembly, exit polls showed, paving the way for them to pass legislation without the aid of other members of parliament.

The Socialist bloc won 314 out of the 577 seats, pollster CSA said, with 289 needed for a majority. Former President Nicolas Sarkozy’s Union for a Popular Movement party and its allies have 228 seats, CSA said, and the anti-euro National Front won two seats. Turnout in the second and decisive round of legislative elections yesterday was 56 percent.

“The French people have amplified their call for change,” Socialist Party Head Martine Aubry, said on France 2 television.

Disconnecting from Reality

François Hollande on Collision Course with ... France

By Wolf Richter 

During the French presidential election, it became clear that François Hollande, if he were to win the presidency, would try to align other Eurozone countries, particularly Italy and Spain, into a southern front against German Chancellor Angela Merkel and her government—to fix the problems of the Eurozone à la française. Among his ideas: pushing the ECB to buy government bonds of troubled debt-sinner countries and instituting eurobonds—or euro-bills, as he now calls them—that would give any member access once again to cheap unlimited loans. Everyone would benefit, except the German taxpayer, who’d have to foot the bill. Both policies are despised in Germany where budgetary discipline is seen as the solution to the debt crisis—rather than even more debt and monetizing of that debt.

Free Economy and Social Order

Property protects the individual sphere against the government and its ever-present tendency toward omnipotence

by Wilhelm Röpke

Most of us, and all of us most of the time, deal with the market economy as a definite type of economic order, a sort of "economic technique" as opposed to the socialist "technique." For this view, it is significant that we call its constructional principle the "price mechanism." Here we move in the world of prices, of markets, of supply and demand, of competition, of wage rates, of interest rates, of exchange rates, and whatnot.

That is, of course, right and proper — as far as it goes. But there is a great danger of overlooking an important fact: the market economy as an economic order must be correlated to a certain structure of society, and to a definite mental climate which is appropriate to it.

The success of the market economy wherever it has been restored in our time — most conspicuously in western Germany — has resulted, even in some socialist circles, in a tendency to appropriate the market economy as a technical device capable of being built into a society which, in all other respects, is socialist.

The market economy then appears as part of a comprehensive social and political system which, in its conception, is a highly centralized colossal machinery. In that sense, there has always been a sector of market economy also in the Soviet system, but we all realize that this sector is a mere gadget, a technical device, not a living thing. Why? Because the market economy as a field of liberty, spontaneity, and free coordination cannot thrive in a social system which is the very opposite.

Public-Private Partnership

Another Phrase for Fascism

by James E. Miller

The word “privatization” is a loaded term these days.  Unions and big government worshippers scoff at the idea of any public services being in the hands of ruthless, greedy capitalists.  The left has the distorted view that people in the private sector are driven primarily by their desire to cut costs and throw workers out on the street.  To them, government workers are angels sent from heaven to do God’s work like picking up the neighborhood trash or maintaining a public pool filled with the bodily discharges of kids whose derelict parents decided to drop off and go shopping for a few hours.  On the right, conservatives who supposedly hold high regard for market forces and Ronald Reagan’s classic declaration “government is the problem,” typically have a favorable view of privatization schemes.

Good People

A couple of tips

By Eric Peters

What does it mean to be a “good person”?

One hears the term fairly often. So and so is a good person. Or the plural – they’re good people. But what is meant is rarely defined. It is accepted that we’re all talking about the same thing – but if you look at it a little bit, very often we’re not. Because many of us seem to have a view of goodness that is completely at odds with the concept of goodness as defined by others.

The liberal Democrat, for example, thinks of himself as a good person because he expresses concern for others, typically those less well-off than others. He wants to “help” – but his goodness (as he defines it) does not manifest itself via himself personally helping those he believes are in need. He does not invite the homeless into his home (or even his garage). He invites them into your home.

He does not “give” of his own time – or money. Rather, he demands that others be made to “give” of theirs. Which of course does not strike him as oxymoronic – let alone vicious. This good person will not feel bad about demanding that some be enslaved for the benefit of others – so long as the former are “deserving” (as defined by the good person) and the latter are “paying their fair share” (again, as defined by the good person).

Money & Credit

Why Duration Mismatch Will Always Fail

By Keith Weiner

I have written a number of pieces on fractional reserve banking and duration mismatch.  I have argued that the former is perfectly fine, both morally and economically, but the latter is not fine.  I have dissected the arguments made against fractional reserve banking, and pointed out that it is nothing more than a bank lending out some of the money it takes in deposits.

I have debunked the most common errors made by opponents of fractional reserve

Banks print money;

They lend more than they take in deposits;

They inflate the money supply;

Money is the same as credit;

Fractional reserves banking is the same thing as central banking;

It is the same thing as duration mismatch.

Duration mismatch is when a bank (or anyone else) borrows short to lend long.  Unlike fractional reserve, durati& Crediton mismatch is bad.  It is fraud, it is unfair to depositors (much less shareholders) and it is certain to collapse sooner or later.  This is not a matter for statistics and probability, i.e. risk.  It is a matter of causality, which is certain as I explain below.

Back to the City

Young millennials prefer urban living

By Howard Husock

Serving as executive editor of Governing magazine for nearly two decades, Alan Ehrenhalt would have had a record to boast about had he done no more than assemble his crackerjack staff of writers and reporters, who made the magazine a must-read for those wishing to understand the workings of American federalism. He also penned a consistently insightful—and politically unpredictable—column on state and local government. As a columnist, moreover, Ehrenhalt often built on his own original reporting. A column, say, on light rail in Minneapolis would discuss not just transportation but also the potential impact on property taxes for the lots on one street corner. A column on politicians caught up in patronage scandals would come around to accepting the inevitability of such unfair hiring—and provide some good reasons for it. Like a policy-oriented version of Calvin Trillin’s “U.S. Journal” columns in the New Yorker, Ehrenhalt’s editorials would regularly uncover local situations that showed how America was changing—such as Chicago mayor Richard Daley’s support for neighborhood activists seeking to shut down the city’s legendary taverns.

Out Of Africa

Africa will Matter

By NOAH MILLMAN

So, I was having lunch earlier this week with an old friend of evol-con inclinations, and as conversations with such people do, the conversation turned to What Really Matters – the point of the conversation being to knock the stuffing out of whatever everybody else seems to think matters, and set them straight. We didn’t bother with obvious targets for stuffing-knocking like the Presidential election or gay marriage and went straight for the big stuff. Do schools actually matter, or it basically a combination of babysitting and sorting by IQ, with almost everybody doing their most important learning outside of formal education? Does religion actually matter, or is it an epiphenomenon, accommodating itself to whatever scientific, economic and political facts it has to in order to survive?

My candidate for something that Actually Matters: the demographic explosion in sub-Saharan Africa.

In 2010, the U.N. estimates there were over 850,000,000 people in sub-Saharan Africa. That’s nearly double what the population of the region was 25 years prior, in 1985. By 2035 – 25 years further on – the population of sub-Saharan Africa is projected to nearly double again, to nearly 1.5 billion people. In another 25 years, the population will be nearly 2.3 billion. In 50 years, over 1.4 billion people will be added to the world population from this region.

Markets First, Elections Later

Why democratization fails from Russia to Iraq

Andranik Migranian

By MARTIN SIEFF

It was November 1989, and I was in Moscow accompanying a delegation of senior Washington Times editors. They were eager to gloat over the coming collapse of communism with their own eyes.

We were in the shabby, very much the worse for wear, unpretentious little office of the chief ideologist of the Institute for the Study of Systems of Socialism. His name was Andranik Migranian. Today he is a wealthy and successful man, running a think tank in New York, and has been consulted by Russian leaders for more than 20 years.

For all his stature in Russia and his practical professional success, Migranian remains almost unknown to the American media. His influence in the halls of Congress, the White House, and the State Department is zero. In those days he was an enthusiastic champion of democracy for Russia. But he believed that it would take at least 20 years, maybe more. A free market would have to be created first. Migranian argued passionately that the worst way to create democracy was to create it instantly from a standing start.

Why Berlin Is Balking on a Bailout

Greece has received a staggering 115 Marshall plans, 29 from Germany alone, and yet the situation has not improved
By HANS-WERNER SINN

Although Europe may seem far away from the economic life of the average American, the fate of the euro zone weighs heavily on the United States economy. Pension funds have invested in bonds issued by southern European states, while banks and insurance companies have underwritten a sizable fraction of the credit-default swaps protecting investors against default.

It’s no wonder, then, that President Obama is urging Germany to share in the debt of the euro zone’s southern nations. But in doing so, he and others overlook several critical facts.

For one thing, such a bailout is illegal under the Maastricht Treaty, which governs the euro zone. Because the treaty is law in each member state, a bailout would be rejected by Germany’s Constitutional Court.

Moreover, a bailout doesn’t make economic sense, and would likely make the situation worse. Such schemes violate the liability principle, one of the constituting principles of a market economy, which holds that it is the creditors’ responsibility to choose their debtors. If debtors cannot repay, creditors should bear the losses.

Eutopia, Limited

"Are you lost, Daddy?"

By Mark Steyn

As the advanced social-democratic Big Government state sinks under a multi-trillion-dollar debt avalanche, the conventional wisdom remains all too conventional, and disinclined even to mount an argument. So much "progressive" debate boils down to Ring Lardner's great line:

"Shut up," he explained.

It's an oft-retailed quote. But fewer people know the line that precedes it (in Lardner's novel The Young Immigrunts): a kid asking, "Are you lost, Daddy?"

The Futility of European Elections

The more elections are held, the more the public will force their leaders in various directions

By George Friedman

Europe and the financial markets watched intently June 17 as Greece held general elections. German Chancellor Angela Merkel, French President Francois Hollande and Italian Prime Minister Mario Monti all delayed their flights to the June 18 G-20 summit in Mexico to await the results.

The two leading contenders in the elections were the center-right New Democracy Party (ND), which pledged to uphold Greece's commitments to austerity and honor the country's financial agreements with the European Union and the International Monetary Fund, and the Coalition of the Radical Left (SYRIZA), a group of far-left politicians who pledged to reject Greece's existing agreements, end austerity and maintain the country's position in the eurozone. A third major party, the center-left Panhellenic Socialist Movement (PASOK), shares the ND's position of maintaining Greece's bailout agreement. PASOK had been Greece's ruling party until it formed a unity government with the ND late in 2011.

The Price of Life — Afghan and American

A lesson in the price of "collateral damage."

By TOM ENGELHARDT

“Do you do this in the United States? There is police action every day in the United States… . They don’t call in airplanes to bomb the place.” — Afghan President Hamid Karzai denouncing U.S. air strikes on homes in his country, June 12, 2012

It was almost closing time when the siege began at a small Wells Fargo Bank branch in a suburb of San Diego, and it was a nightmare. The three gunmen entered with the intent to rob, but as they herded the 18 customers and bank employees toward a back room, they were spotted by a pedestrian outside who promptly called 911. Within minutes, police cars were pulling up, the bank was surrounded, and back-up was being called in from neighboring communities. The gunmen promptly barricaded themselves inside with their hostages, including women and small children, and refused to let anyone leave.

The Chinese Kleptocracy Is Like Nothing Ever Seen In Human History

This Is How It Works

by John Hempton

China is a kleptocracy of a scale never seen before in human history. This post aims to explain how this wave of theft is financed, what makes it sustainable and what will make it fail. There are several China experts I have chatted with – and many of the ideas are not original. The synthesis however is mine. Some sources do not want to be quoted.

The Experiment Has Failed

Finance the government, save the banks, screw the people

By Simon Black

After about an hour’s worth of air traffic congestion delays around JFK airport, I finally departed New York City yesterday evening en route for Vilnius, Lithuania… one of my favorite inconspicuous corners of Europe.

The route took me through Helsinki, Finland for a brief connection, and I was on the ground long enough to witness something truly bizarre: a complete and utter lack of people.

I could practically count on two hands the number of passengers milling around the airport this morning during peak business hours… it was almost something out of a zombie movie.

Ordinarily I would have seen hundreds, thousands of people… and I have in the past as I’ve traversed this route many times before. And no, today was not a holiday.

The Folly of ObamaCare

Is it a case of bad judgment?

By Robert Samuelson

We pay our presidents for judgment, and President Obama committed a colossal error of judgment in making health-care "reform" a centerpiece of his first term. Ahead of the Supreme Court's decision on the Affordable Care Act (ACA) -- and regardless of how the court decides -- it's clear that Obama overreached. His attempt to achieve universal health insurance coverage is a massive feat of social engineering that, by its sweeping nature, weakens the economic recovery and antagonizes millions of Americans.

Let's review why the ACA ("Obamacare") is dreadful public policy:

Energy, Democracy and Freedom

Energy Abundance vs. the Poverty of Energy Literacy

By Kenneth P. Green

Energy is all around us and we consume copious quantities of it. We only question it when it’s expensive or not there. Therein lies a challenge for politics and society

In the midst of all the debate over fossil fuels, we seem to have forgotten this fundamental role of energy in life. We think that all we need energy for is to drive our cars, fly around the world, run our electrical gadgets. But more important is that abundant energy is necessary for our way of life, for our civilization.

If that energy were to vanish, we would find ourselves once again living at the margin, and might well see the end of many things that we don’t associate with an energy supply, including democracy and the freedom and creativity that leisure makes possible. —Daniel B. Botkin

Even though energy is all around us, and we consume copious quantities of it in virtually every form imaginable, most people only really think about energy when one of two things happens: Either they open their mail one day and have an unwanted epiphany when they realize that one of their energy bills has become uncomfortably high—for diesel fuel, electricity, natural gas, heating oil, propane, and so on. Or, they suddenly have one of their energy systems or energy-dependent devices let them down, as, for example, when the electricity goes out; the alarm clock fails; the stove won’t light; the water heater breaks down; the car runs out of gas or has a flat battery; their Kindle, netbook, iPod, or Droid is powerless; or, worse, they wake up to a dead coffeemaker (something that would probably disturb many Americans most of all).

A Whole Different Kind of Innovation

New business models may not be as sexy as new technology. But their impact could be just as great.

By ELIZABETH M. BAILEY AND CATHERINE WOLFRAM

Until 2008, most people paid for their rooftop solar panels upfront, usually laying out at least $15,000 and sometimes as much as $60,000. Such a hefty cost limited the market for residential solar installations to cash-rich homeowners, restricting the potential for growth.

Then came solar leases, which allow customers to make monthly payments. Solar costs have come down, so customers with smaller systems can now pay as little as $100 per month and nothing upfront.

The result: The market has opened up to a whole new group of homeowners.

Since 2010, third-party-owned residential solar installations have taken off, while customer-owned systems have remained flat. In California, the biggest solar market, most customers are now opting for third-party installations.

Outside the Lab

Energy innovation typically calls to mind a scientist in a lab, working with new materials for solar photovoltaic cells, or a new enzyme to convert plant matter to biofuels. As important as such technology innovations are, there is another kind of innovation that is crucial to meeting the challenges associated with energy use.