Planning for Higher Food and Energy Prices, and their Wider Impacts

Over the years, we have become accustomed to a rising standard of living. One of things that has helped this happen is a gradually declining ratio of food costs to total personal expenditures. Energy costs have not followed as clear a trend, but are higher again now, and seem likely to be higher in the future as well.

Figure 1. Food (excluding restaurant food) and fuel as percentage of personal income, based on Bureau of Economic Analysis data, Table 2.5.5

As long as the sum of food and energy costs were declining, an increasingly larger percentage left over after covering “the basics” could be used for other purchases. This no doubt contributed to a rising standard of living, because a larger share of income could be used for education, and for recreation, and for new homes. The greater share of income that was available to spend on new homes no doubt contributed to the long-term rise in home prices.

Now, it looks like this long-term trend of lower food and energy prices in relationship to personal expenditures is turning around because of higher oil prices and higher food prices (and, as will be discussed below the fold, lower employment figures). Higher food prices are partly the result of higher oil prices, since oil is used in the production and transport of food. Other contributing factors include more land use for biofuels, rising meat expectations from “emerging market countries,” and weather “issues.”

How do we plan for this new situation, in which food and energy seem likely to again be rising in relationship to incomes, and as a result, living standards quite likely declining? The following are a few of my thoughts:

1. Plan as if one of the big issues in the years ahead is likely to be job loss in the conventional oil-dependent market.

Figure 2. Number of jobs from US Bureau of Labor Statistics non-farm employer; oil consumption is "Product Supplied" from US Energy Information Administration

I have shown previously that the number of jobs held by workers tends to follow oil consumption closely. This is not unexpected, given the way today’s economy is constructed: If a worker produces goods or services, this process often uses oil. Furthermore, if the worker has a salary from his job, he/she can afford to buy goods produced with oil. If the job moves to, say, China, the energy use for the job moves over there, and the Chinese employee, (rather than the US employee), will have the income to buy goods and services made with oil. If the Chinese employee’s salary is lower, he/she will be able to buy less goods produced with oil than the American employee, but will still raise the total amount of oil consumed in China.

Figure 3. US Bureau of Labor Statistics employer non-farm employee counts divided by US Census Bureau resident population estimates

It seems to me as though what we should expect is another step down in the percentage of the population that is employed, probably led this time by a reduction in government employees and in jobs funded by “stimulus” programs, as governments find that tax revenue is not sufficient to pay for everything. Note that in Figure 1, a rise is the ratio of food and energy consumption to total personal income can come in two ways: (1) Food and energy costs rising and/or (2) Fewer people employed, and those who are employed working fewer hours or for less pay. It seems to me that we are likely to see a combination of these effects, and it may be that (2) is the bigger issue.

A traditional response to job loss is to move together into large family or friendship groupings. Then those who have formal jobs can help support those without jobs. Very often, people to start providing more services for each other outside the formal economy, including raising a garden, caring for each other’s children, caring for elderly parents, and making crafts for sale.

I should note that the employment count used in my calculations are for “non-farm employees.” Years ago, if people raised their own food on a farm (even if they traded it with others), no one counted their employment. If more people start raising their own food outside of the traditional system, this would seem to be more or less a reverse of what happened in the past.

2. Stay as flexible as possible, since we don’t know how things will turn out.

If you are able to move quickly as conditions change, this flexibility has its advantages. Losing your job is probably the biggest risk right now. Think about how you might deal with the situation.

Also, we don’t know how things will change in the future. One area may be affected by a lack of water; another by an electrical system that no longer works, and can’t be repaired in any reasonable time frame, perhaps after a storm. If you are not too tied to where you are, you can make better decisions regarding changes.

Of course, flexibility comes with its downsides. In many ways, it may be better to stick with family and friends that you know, in order to have a suitable support system.

3. Take advantage of what you can do now; things may not be as good in the future.

While we don’t know about the future, we do know about today. If there are things you have wanted to do, now would be a good time to do them, while you still can. I visited China. There are shorter trips, and easier-to-do things possible as well. You can study a language, or visit family.

4. Find ways to be happy, even without material wealth.

Learn to enjoy nature, and the company of family and friends. Join a church or a club of others with similar interests. Start doing things to help other people. Learn to sing, or to play a musical instrument. It is not good to focus on all the bad things that might happen.

All of our worrying is not going to change anything, so we might as well make the best of a less than ideal situation, and do things we can do, even with very limited resources.

5. Plant a garden, if that is convenient for you.

Ideally, you will want to have a garden that can be maintained with little outside inputs other than those provided by nature. If water from your roof can be used for watering, that can be helpful. But don’t assume that you can drive to the store for all the amendments and sprays you have been used to in the past, even if they are “organic.” If you can learn seed saving, that is good too.

6. Consider buying a home with some land, where you can have a garden.

Obviously, such a choice is not for everyone, since for one thing, many people cannot afford this option, and for another, buying such land may make commuting to work difficult and expensive. Also, having a large garden is likely to require a considerable time commitment and will require learning many new skills. However, for some this may give peace of mind, and way to feel that they are making the situation better.

7. Don’t count on paper investments to do well.

We keep being told by investment planners that if you do this or that, and you will have plenty of funds for retirements. If there are fewer goods and services produced in total as energy resources decline (perhaps not starting immediately, but at some point in the future), then it is pretty likely that most of us will find our share of what is available is smaller than what investment planners have led us to believe. For example, pension plans are not likely to be able to pay out as planned, Social Security and Medicare will need to be cut back (or replaced with something that pays less), bonds are likely to have high default rates, stocks are likely to decline in value (at least relative to the things you need to buy), and bank deposits may prove unreliable.

You will probably need to expect to work longer, and to rely more on family and friends. Keep up good relations with your children. As times get worse, consider encouraging one or more to move back in with you, or offer to pay to move in one of them.

Concluding Thoughts

It is easy to get depressed when thinking about the future, but this is not really helpful. It is probably best if we can find ways to be happy now, even if it means ignoring the subject of what may happen in the future altogether. So don’t be too hard on family and friends who “deny” that the situation is likely to go downhill. Denial is a coping mechanism for many people.

If we want to see what may happen in the future, there are a number of countries around the world that seem to be leading the way. Right now, following what happens in Greece and Spain may give an idea what other debtor countries may be facing. With respect to oil countries that are producing less and less oil, Mexico, Egypt, and Yemen are models. Seeing what happens in these countries may give us an idea of where world economies are headed.

About Gail Tverberg

My name is Gail Tverberg. I am an actuary interested in finite world issues - oil depletion, natural gas depletion, water shortages, and climate change. Oil limits look very different from what most expect, with high prices leading to recession, and low prices leading to inadequate supply.
This entry was posted in Financial Implications, Planning for the Future and tagged , , . Bookmark the permalink.

27 Responses to Planning for Higher Food and Energy Prices, and their Wider Impacts

  1. Ed Pell says:

    Heard an interview with Marc Faber recently he recommended Asia stocks that pay a 5% dividend. He say they may go down in value but they will still pay the dividend. I agree that paper investments tied to the trilateral countries will not do well.

  2. schoff says:

    Nice digestible posting, i’ll be forwarding it onto some others who don’t like doomfullness. I know that you are not big on renewables, but i’d add some and a few other things like:

    (1) if you have some space after the garden, plant some fruit trees, especially if you can put up with some imperfections, sour cherry needs little to no sprays in my zone. and my gnarly apples make great apple sauce, and cider which we do by hand.

    (2) if your climate requires heat in the winter, find a local biomass way to generate it through a wood stove or whatever.

    (3) if your climate (and personal desires) need AirConditioning, work on ways to reduce it through fans, whole house fans, kiddy pool, whatever.

    (4) become a 5 day summer vegan. Hopefully out of your garden. With a couple of free range hens, add eggs every day.

    (5) consider PV electric generation with a little battery capability. having 12v lighting is wonderful compared to the alternative of having nothing.

    (6) if you buy that house with some land, and you can afford more PV, find a house with its own septic system, and its own well. I live in a town with a septic system that is the opposite of resilient. Last week the next door town got taken down by a tornado, I couldn’t imagine living here without sewage and water.

    Last: teach other people to do things like this, but especially gardening. Share what you know and can do.

  3. Dana Visalli says:

    Thanks Gail; your presentations are very clear and helpful. I would be interested in how you would address our addiction to war. I did some calculations and came up with the total poundage of bombs the USA has dropped on the living earth in the last 60 years: 15 million tons, 30 billion pounds of explosives. The friendly little homesteaders who are growing their gardens and working towards ‘sustainability’ are in fact paying for the destruction of Mother Earth and the people and other lifeforms on it. What would be a rational and compassionate response to this situation?

  4. George says:

    I assume you have come across Chris Martenson’s Crash course: http://www.chrismartenson.com/ ( which has largely predicted this )
    A very easy to watch simplified explanation via a series of “you tube” vidoes, which covers the issues of peak oil and energy surplus vs the problems of increasing energy expenditure on diminishing energy returns.

    • There is a lot of cross-fertilization around. I know Chris well. Chris is good at taking peak oil things he has learned elsewhere, and making them easily understandable.

  5. Kenneth says:

    Gardening is likely to become very important to families in the future. Victory gardens were encouraged during both World Wars. Gardening is not as easy as you think. You need experience at what crops do well on your land. Set aside part of your backyard and see how it does. Poor soil can be a problem, but composting leaves can enrich your soil. Raised beds work well in small back yards.

    This year I have tomatoes, okra, squash, watermellon and cantalope planted in my backyard. Heat and lack of rain is posing a problem, even with daily watering. Don’t wait until times get bad to try gardening.

    Also fruit trees, fruit vines and fruiting bushes need to be planted now. Plant varieties that need little insecticide and are resistant to pests. Blueberries, Fig trees, Kiwi vines, thornless blackberry vines, Pecan trees, Satsuma trees ( I live in the Deep South) all can reward you once established.

  6. Arthur Robey says:

    We are having tough Union negotiations at the Port where I work. I suggested that we use our forfeited pension funds while they still have value to leverage other pension funds and buy the port.
    We would then operate a Distributist organization.

    http://en.wikipedia.org/wiki/Distributism

    Distributism is an alternative to Capitalism or Socialism.
    Fundamental rule. The workers own the means of production. To work at the organisation you have to have shares in the organisation, and to own shares in the organisation you have to work in the organisation. No part timers, no absent owners. Definition of Worker: Anyone who works in the organisation. From Janitor all the way down to CEO.
    I got no takers. We are unable to wrap our heads around the idea that the rules have changed. Our pensions are forfeit, stolen, gone, vanished, (substitute your favorite euphemism.)

    • Interesting idea. I have had experience over the years with various forms of employee ownership of companies. The downside I have run into is that when a person is an owner, quite a lot of their savings tends to be tied up in the company. If the company doesn’t do well, not only does the person lose his/her savings, he/she also loses a job. Having had one employer go belly-up after I left, and another almost bite the dust, I became quite aware of this issue.

      I guess I haven’t been involved when everyone had to own shares in the company, but I would expect that this would be an obstacle to adding new employees.

      I wonder whether if there might also be issues with the sale of shares. For example, if the company needs to reduce the size of operations, and lay off employees, it will need to give back quite a bit of capital as well. This might make downsizing a problem, even if it is needed.

  7. Doug W. says:

    Good post. I do wonder in the near term if we are headed for a two-tier food system in the US where the big boys are producing for overseas markets where prices may be higher. That would spur “security gardens” with people producing for local consumption and their own use. Everyone needs to be involved in food production at this point, even if it is a potted tomato plant on the balcony of their 8th floor apt. Don’t want to garden? Then support people who do via Farmers Markets or CSA’s.

    The investment situation is maddening. No one wants to feel like they are sitting around waiting to be wiped out financially. It is very difficult to know what to do. One younger couple we know has stopped funding their retirement account for now and put up a greenhouse on their large village lot and invested in energy efficiency improvements to their house.

    • You are right. It is hard to know what to do. Hoarding dollars for the future, assuming that there will be capital appreciation is extremely iffy. Doing things now with the dollars, especially when you have a plan with long-term benefit like the young couple, may make sense for some people. I know I have increased my charitable contributions, since the money can be better spent now, where it is needed, than letting it disappear in the future.

    • schoff says:

      Smart move. It captures my judgement as well, everytime I install another PV panel, gravity water
      collection system or another acre of wheat in a field that needs fixed with some day labor, I look at my checkbook and think it’s ($) not real or at least I suspect it won’t be.

      I’d really like to take my pension money out and buy a permanent share in a CSA, maybe we’ll see that someday.

  8. Shunyata says:

    The two biggest barriers to transition are perspective and practice. I am trying to instill both of these with my family.

    1. Learn foraging skills. Foraging sounds archaic but one quickly learns that their evironment is filled with food. In a pinch, these food sources might be vital. More importantly, foraging teaches you to be aware of and sensitive to your environment. How do food plants work? Where are they found? What is necessary for their success. All of these insights directly translate successful gardening. The books by Samuel Thayer are a great start.

    2. Learn gardening skills. Getting things to grow consistently takes skill and experience. Knowing what to do with the fruits of your garden (it tends to come all at once) is another set of skills. Changing your eating/cooking habits to use the products is something new. “War Vegetable Gardening and Home Food Preservation” is a great, free resource from WWI!

    3. Learn to re-use and repair. Our economy is based upon the idea of use, dispose, repurchase. Even finding the “permanent” tools and materials that our parents used is a challenge. Frequent yard sales and collect them now. Learn how to use them. Make a point to avoid buyinging “replacement” anything unless it is a permament replacement. Spend time with an old-timer in your neighborhood. Have a project or something to fix? As the old-timer, then give it a go.

    4. Learn wilderness skills. Do you know how to fish, trap or snare? Do you know how to prepare game? Can you make a shelter, start a fire, make a tool? Do you know how to properly handle rope. Believe it or not, you will find these basic skills are even useful around the suburban yard. And in a pinch, these skills might be vital. Avoid the modern “survival industry” books and go with classics from the ’70s and early ’80s. (You’ll know them when you see them.)

    5. Build an inventory of quality tools and materials – saws, screws, hammers, planes, tents, sleeping bags, canning jars, quality cookware, knives, rope, twine, toilet seals, duct tape, etc. This will happen naturally and you practice the other skills. Remember, buy permanent, not cheap. Glass and steel good. Plastic bad.

    All of these practices will plug you into “living”, make you more resilient in the face of uncertainty, and unplug you from the infotainment, docusoap world we live in today.

    • Sounds good. If there is a food shortage, it is the folks who do as you suggest who are likely to come out ahead. Standing in line at the grocery store, or just relying on your own garden, are not likely to work as well. Around here, I believe the Indians used to eat acorns (among other things). There is work that needs to be done to make them edible, but it is better than starving.

  9. Ed Pell says:

    I have little fear for my wife and I we can get by on very little. My issue is how to get my three kids established in life. They are 27, 25 and 16. The oldest has just started a masters in teaching in California. So he may have a government job in teaching, good. The middle son makes about $11,000 after tax. He has a high school diploma. The youngest needs four years of college and two years of grad school to possibly get a job. More like six years of grad school or medical school would be better. So gardening is fine but it wont pay for med school.

    • Medicine as we know it may not be around when your youngest son finishes med school. It is frustrating to know what to do. My father was a doctor, and he was always disgusted with modern doctors because all they did was rely on a whole list of tests to diagnose illnesses. My father attended medical school in the 1940s and learned techniques based on observation (how the patient was breathing, his color, the feel of an area, etc.), since back then they didn’t have all of the diagnostic tests that we have today. He later taught himself hypnosis (with the help of some records for that purpose) and delivered babies while the mother was hypnotized. He sometimes sewed up wounds using hypnosis instead of anesthetic as well.

      I don’t know how a person learns techniques that will be helpful for the long-term. Everything we are doing now assumes that everything will be the same as it has been in the past. It is likely that we are going to have to be generalists to a greater extent in the future. A lot of what colleges and universities teach today is likely to be useless if we lose some of the things that we are used to (like imports of high-tech goods or electricity).

      • George says:

        i have often wondered how peak oil will impact on Medicine, it is now a very energy intensive industry reliant on materials sourced from all over the world, and the nature of large centralised hospitals that can only be accessed by cars, makes me wonder if the whole hospital based system will collapse.

        I think the future of medicine will favour generalists and those with practical skills.( But as a General Practitioner I probably would ! ), but really this is just like everything else. There is almost certainly will be a transition to more locally oriented, locally interdependent, community culture where complex tests and treatments become rare or unaffordable.
        I recently wrote an article for one of our national GP magazines called “Peak Health” ( http://www.medicalobserver.com.au/news/are-we-in-danger-of-passing-peak-health ) rather like the perfect storm facing food security, I think we could face the same fate with our health. ( though there are some potential health benefits of Peak Oil or rather the co-benefits in addressing it ).

        • Thanks for the link! That is a nice article.

          Besides tests for everything, our current system uses disposables of all types. I checked and for 2009 (the last year shown in Figure 1), the outlay for health care in the US was higher than that for food, utilities, and fuel combined. It seems to me that things have gotten completely out of hand. There has to be some cost benefit analysis done that makes sense for all of the treatments. If lancing a boil, and treating it in a doctor’s office costs a few dollars, and running around to all kinds of specialists and doing all kinds of tests costs thousands, maybe the simpler procedure makes sense (and has fewer false-positives from tests).

          Doing surgery and all kinds of expensive tests on impaired elderly patients often seems to make little sense. I know when my mother in law was failing, the doctors came and said, “It looks like all systems are shutting down. Should we put her in intensive care?” My husband and I replied, “Whatever for? She is 86 years old, has several ailments, and has been in the hospital three times in the last three months. You are saying all systems are shutting down. Why would we want to put her in intensive care?”

          So it seems like in the US, we have let common sense go out the window, with the idea that everyone can have everything. I am sure Australia is less bad in that respect, but it is still very oil and automobile dependent.

        • Ed Pell says:

          My Grandfather at 86 was told he had calcium deposits on his heart values. The doctor could operate with a 50% chance the operation would kill him and the cost of the operation would cost him his whole farm. My grandfather declined the operation and went home. He gave the farm to my uncle who has supported his family with it ever since. My grandfather died six moths later at home with his son provided for.

          It is not just us. There is a bible story of a women who spends all her money on doctors. The fear of death destroys some peoples judgement.

          Then there is the system. I know a person who workers in a hospital. They tell if it can be billed it is done for everyone wither or not they need it and if it can not be billed it is not done. I was in Taiwan and I ask what do you do if you get a bad cut that needs stitches? The answer was we go to a nurse and she stitches it. No doctor involved. I would like the AMA monopoly to end.

          • People seem to make better decisions when they can really see the costs involved. Having worked in insurance, I can see that it really distorts the system.

        • Bicycle Dave says:

          Hi George,

          From your excellent essay:

          But only when we have recognised where we are going

          This is the heart of the problem – recognition of the problem. In the news today, Romney (Republican presidential candidate) was told by Rush Limbaugh that he could never be the Republican Party candidate because he support the “hoax” of global warming. So, the folks in charge of the House of Representatives are in total denial of the of overwhelming scientific evidence.

        • George says:

          It is extraordinary. I regularly get patients coming to see me asking ” I just want to get tested for everything”. Peoples expectations of “healthcare” ( which it actually isn’t ) has become more shaped by fashion and entitlement.
          We have collectively lost sight of what “health” actually is. We spend ( in Aus ) less than 3 % of our healthcare budget on prevention and all of the public dialogue is on emergency waiting times and hospital beds – which is about illness and politics. In fact health and well being is what we all really value but largely ignore. If every government policy and decision should include health considerations. We might not create so much illness.

  10. arthurrobey says:

    I suppose it is the per capita food costs that are the issue.
    There are some who place the emphasis on the population numbers. A solution might be at hand, courtesy Monsanto.

    Te Commission has previously ignored
    or dismissed many other findings from the
    independent scientific literature showing that
    Roundup and glyphosate cause endocrine
    disruption, damage to DNA, reproductive and
    developmental toxicity, neurotoxicity, and cancer,
    as well as birth defects.

    from http://www.scribd.com/doc/57277946/RoundupandBirthDefectsv5

  11. Sylvia says:

    I want to do an experiment this year which is to have 1 day where we will only eat which comes from our garden. That means no cooking oils, no dairy, no salt, no sugar,……
    I think just that one day will be very hard.
    And then a 2nd experiment where it is not just about food – but nothing which is not produced on the own land, garden, in the house – can be used. No soaps, no use of toothbrushes, allergy pills, no commercial dog food for the dogs, nothing from the freezer, nothing from the fridge, no car and only very limited electrical power….you get the idea. (I am a bit scared about the outcome)…..

    • Bicycle Dave says:

      Hi Sylvia,

      In the 40s, my dad and I often canoed into one of the most remote parts of Canada and partially lived off the land for a week or two. I understand why our ancestors seldom lived beyond 40 years of age. Lots of fun when you are young and healthy and it’s mid-summer.

      I admire your experiment – perhaps you could get some members of congress to join you.

    • I think your idea is a good one. Schools should be teaching our children things like this as well. There is so much we take for granted.
      .

  12. Owen says:

    Everyone does grope around for an answer to the question of how to prepare optimally. My personal examination of a great many survivalist websites and essays suggest that first of all, the vast majority do an inferior jot to this little write up above. Some are better. Here are some thoughts:

    1) First of all, the number one obstacle to people going somewhere and buying some land with a house (not vice versa) is they can’t sell the one they have. It’s not the job that is the obstacle. HOUSES ARE NOT SELLING. This is monumentally huge and not understood by anyone who hasn’t tried to sell. The bottom line really is . . . you’re not going anywhere and you’re also not going to survive in place. For most, the odds are poor.

    2) Water is first. Not second. Gardens are not important. A garden is just an invitation to passersby to chow down after dark. Water is all important. Sewage is all important. When the Upheaval arrives, the guys who get paid to keep water in your pipes aren’t going to be going to work. Period. A septic tank is going to fill up. Have a way to pump it out (without power) and deposit the result somewhere on a wheeled cart. Forget sewers. The guys who keep them running aren’t going to work, either. Sewage is an enormous problem, especially when the rivers will be choked with bodies tossed there by people without caloric energy to dig graves. The same effect renders water supplies undrinkable if they come from above ground and are not in mountains.

    3) Tetanus. Tetanus. Tetanus. A world of white collar workers are going to be spending all their time doing manual labor and they will be unskilled at it and will cut themselves again and again. There are now non refrigerated tetanus vaccines available.

    4) Solar power is a loser. The cells deteriorate over time and they are only about 13% efficient off the Solar Constant to begin with. If you are near mountains, find a stream and have a plan for micro hydro. Far superior to solar.

    5) Ether can be synthesized. Many antibiotics are now provided in powdered form for mixture with saline before IV. The point being, no refrigeration required. Have a plan to loot all the bleach from surrounding convenience stores after the hordes strip the food shelves clean. Bleach won’t be recognized as important. It is.

    6) Manual air pumps. Tires on carts will go flat and collecting wood without a cart is not possible for substantial quantities. Have spare tires, too.

    7) Keep your mouth shut pre Upheaval. The hordes WILL be coming, and you may even know them by name.. Don’t force yourself to shoot people by telling anyone your plans.

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