[Inexpensive energy and economic growth]

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Introduction

The improved living standards of the developed world rest on industrial processes that make intensive use of renewable and nonrenewable energy sources. Economists' attempts to understand that prosperity tend to focus on legal institutions and commercial practices rather than on resource endowments. As recently as the 1990s, David Landes's (1998) The Wealth and Poverty of Nations focuses on these institutions that enable people to contract with each other and to construct long-lived enterprises of large scale, rather than on resource endowments, including energy, as the foundations of that wealth. Thus, prosperity rests on division of labor, mechanization, and capital markets in a legal framework that enables people to coordinate their activities. (Morell, 2003).

Problem Statement

Although inexpensive energy such as solar, wind, geothermal are better for the environment, inexpensive energy sources are more expensive than fossil fuels, because of low operating costs over time and environmental benefits and risks related with the use of inexpensive renewable energy sources (Layne, 2007).

Research Question

What is the impact of inexpensive energy sources on the economy of the United States?

Many investments involve irreversible commitments to purchase equipment that cannot be easily converted to other uses. Electricity generating plants are large examples of such investments. Home air conditioners and refrigerators are smaller examples. All three are technologies that have the potential to reduce the economy's energy intensity as new units replace older ones, in the first case by reducing the energy intensity of the generating system, in the second and third by reducing household energy use. All three have been the subject of economic research suggesting that investors hold out for returns on their investment that exceed the opportunity cost of capital.

That reluctance, in seeming defiance of all models of rational investment behavior, was observed so frequently among energy producers and energy users that it ...