Headed for a lower standard of living?

The amount of oil that is extracted from the ground each year has been close to flat since 2005, regardless of what has happened to price. Since world population has been growing, this means less and less is available for each person. We use oil in many important ways, including growing food, manufacturing and transporting goods, and in some parts of the world, heating homes. There is a clear tie of oil with standard of living. If we have less oil, the tendency is for people’s standard of living to drop.

Figure 1. OPEC and Non-OPEC Oil Production, Compared to Oil Price. (Production is Crude and Condensate from EIA.)

The “natural” approach for fixing this problem is recession and debt defaults. With limited oil supply, oil prices rise. As oil prices rise, the higher prices leave less funding for everything else, because oil is important for many necessities–food and commuting expenses particularly. A person who pays more for food and commuting expenses will cut back on discretionary spending. This leads to layoffs in market segments affected by cutbacks in discretionary spending–especially construction of new homes, building of cars, restaurant spending, and donations to charitable organizations. Those laid off tend to default on loans. Others default as well, especially those who were living “at the edge,” before oil prices rose.

The government tries to fix the problem by “stimulus,” and temporarily “fixes” the situation. This temporarily hides the situation in the governmental sector. What happens, though, is that the government finds itself with increasing debt levels because of its stimulus efforts, and inadequate taxes, because so many have been laid off work, and are not contributing to the tax base.

All of this leads to governmental debt problems, including the United States’ problems with debt limits, and the problems many European countries are having with debt.

How does all of this get fixed? Basically, what the natural system does is push us towards a lower standard of living. This is very uncomfortable. If we need to spend more on food and required energy supplies (as for commuting), we have less to spend on other things. People who are unemployed end up moving in with friends or relatives with jobs. Young adults live with their parents longer. Most of us cut back on discretionary spending.

There are a few ways we can theoretically solve our problem:

1. All of the world could cut back on their standard of living, and reduce their demand for oil products this way. It is hard to see this happening voluntarily. If oil supply should actually decline in the future, multiple cuts in standard of living will be needed.

2. Some parts of the world could cut back on their standard of living, and let the rest of the world live better. Government leaders may push for this, but it is hard to see the population of countries voluntarily accepting this result.

3. Cut back on some parts of the economy that are not critical, so as to try to save the standard of living with respect to the rest of the economy. One that comes to mind is military spending. Another that is often targeted is personal auto use, but if more efficient cars are sold, this change phases in slowly, so is not very effective in the short term. If only few countries cut back, the result is similar to (2) above, however, with the slightly lower oil prices because of the cutbacks benefitting those who choose not to cut back.

4. Ramp up alternative energy supplies to try to offset the shortfall. This approach has been most successful in China and India, where coal supplies have been ramped up greatly, but with negative environmental consequences. When alternative forms of energy are expensive (most energy sources that need subsidies), it is doubtful that the economy benefits at all–the result is just more recession and debt defaults.

Figure 2. World coal consumption by area, based on BP data.

5. Drill for more oil in the US. This doesn’t do very much, very quickly, unfortunately, because of long lead times, and because the most promising areas have already been drilled.

6. Start fighting with each other over the resources that are available, so that declining standard of living is less of an issue for the “winner.” Wars are likely to use up a lot of resources, and don’t really solve the underlying problem.

7. Encourage limited family sizes (one child per family (?)), so that resources will stretch better in the future. It is hard to get agreement on this, however, and the change is very slow to have an effect on total population.

* * *

It is hard to see that any of these approaches will lead to very satisfactory outcomes, in short enough time frames. Ultimately, we are all likely to find ourselves with lower standards of living. This is something governments find it very difficult to talk about and plan for. Perhaps if we could start facing up to the real issues we are dealing with, it would be easier to find mitigations for our problems.

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.
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66 Responses to Headed for a lower standard of living?

  1. David F Collins says:

    Reducing one’s «standard of living» can be done without an equivalent reduction in the «quality of life». But it is not easy. And not everybody can do it. Getting major dental work, a joint replacement, and other such body work, are great for the quality of life, but they sure use money! Furthermore, no matter how great an inventory one has of good books, music, recipes etc., they add little to the quality of life when a tree falls inaccurately and major roof repairs must be done.

    But having some awareness of what is in the offing always helps. Putting a double reef in the mainsail is much better done long before the wind reaches Force 8. This analogy, unfortunately, is a lame horse that does not take the discussion far at all. Our society, long accustomed to easy sailing and making great time with Force 3 winds, has no real comprehension of what Force 8 (or higher) means, and has no idea of what reef points might be, and most probably would not even recognize them if they were on the sail.

    • schoff says:

      Everyone can’t do it. But if I do it, and economically equivalent people do it while keeping our charitable donations the same or growing them then possibly this can work.

      I live in a world where the concept of “downsizing” for retirement still exists, mom and dad who own the farm build on an extension to live in while their son’s family moves into the house to continue the farming. Things like that. The downsizing is planned for some years. That is where we need to go. What are my 12 month, 3, 5, 10 year downsizing plans? And part of that downsizing can be spending money to reduce (to zero) certain operating expenses, especially in energy such as buying PV.

      I’m downsizing on store bought food, which means I had to spend a little bit more money to fence my garden, and build some more raised beds. Now I’m looking at rainwater off my barn roof into a 2500 gallon container that gravity feeds into my gardens instead of using a pump which increased in operational cost by 40% last year.

      I had a zucchini for lunch today, years ago I used to go out and buy a Whopper, I
      actually think my quality of life has improved.

  2. Ed Pell says:

    I would add property tax to your list of necessities and home heat here in New York state (all northern states) where is gets to -5 degree F.

    For the US coal will be used as a mid term stop gap. All that electric transportation will be powered by coal. This should hold out for 40 years.

    Politicians can only deal with win/win scenarios. We have a loose/loose scenario. I expect we will have to wait for shortages of food, fuel and electric until any significant action is taken. Of course some people already have these shortages due to a shortage of income. On the other hand we can go the South American model lots of poor and a few rich. In which case nothing will be done.

  3. Risa Bear says:

    Plato has views on this matter: //risashome.blogspot.com/2009/09/unlimited-accumulation-of-wealth.html

    • Keith Akers says:

      The biggest secret in Plato’s Republic is that Plato advocates simple living and a vegetarian diet. Critics of Plato complain that Plato has given us a militaristic and fascist state and a controlled economy. Plato wouldn’t disagree; what the critics have overlooked is that the state which he describes is not his idea, but is in fact the consequence of Glaucon’s requirements which Socrates disavows.

      Simple living has been around for a while.

      • I am not 100% a vegetarian, but I eat very little meat. What meat I eat is usually as flavoring in soup.

        Arguably, my life is sort of simple otherwise too. I go to other folks homes, and see all kinds of “stuff” their decorators have placed around the house. I find the “stuff” more annoying than anything else. If the “stuff” doesn’t have personal significance, why have it?

      • Acoatl says:

        The bigest secret in Plato’s Republic is that Plato DID NOT advocate for a republic. He actually advocated for a Philosophical dictatorship where children would be raised by the state and traditional familys would be banned.

        Most people only read the cliff notes which are not verry acurate.

      • Anony says:

        Thanks for the pointer, that’s an excellent point I hadn’t noticed before!

  4. Jan Steinman says:

    The juxtaposition with the Google ad insertion was enlightening about the current zeitgeist: “To investors who want to retire comfortably.”

    The ad *should* have followed with, “change your idea of what “comfortably” means.”

    • I like the idea of changing your idea of what “comfortably” means. I know I have lived on a wide range of incomes (from graduate student impoverished on up), and have been happy with whatever I have had.

  5. Lee Borden says:

    I agree with your analysis as it relates to the way a society adjusts to declines in the supply of fossil fuels. There really is no good way to keep the balls in the air. However, on an individual level, voluntarily embracing poverty is an appropriate and satisfying way to plan for decline. It’s striking how little correlation there is between wealth and happiness once our basic creature comforts (water, air, food, shelter, clothing) are assured.

  6. Johan Bulmer says:

    Standard of Living and Quality of Life are to separate and distinct items that too many people confuse and try to link.

    Standard of Living is not much more than an economic indicator of the wealth of a nation.

    Quality of Life does not measure wealth.

    I say good for a reduced Standard of Living. For most of us in the western world a reduced Standard of Living will likely equate with an increased Quality of Life as we spend less time chasing the baubles and jewels and toys associated with our consumeristic society.

    • David F Collins says:

      Excellent distinction. Not exactly novel: folks like the Buddha, Jesus of Nazareth and a host of others (including avowed Atheists) have long been saying so. But it might be that the point is more relevant, more urgent, now, operating at more than the individual level.

  7. John Weber says:

    Alternative energies require resources and energy, they are not an answer. Too many people. A gift from the sun and earth – fossil fuels – used as any other lifeform would use it – as much as possible for as many people as possible – overshoot.

    I would like to share the first two paragraphs of my newest essay:
    We will go kicking and screaming down the path to the new Middle Ages as fossil fuels desert us. With the decline of available energy, those of most of us who have sat at the top of the energy pyramid will become the new peasants. With the popular view of the Middle Ages as a brutal and dirty time filled with famine and disease and at the mercy of armed overlords. We cringe at the thought.

    With great sadness, we must recognize the direct connection between present day population levels and the use of fossil fuels in food production, medical procedures, medicines and hygiene. With the fall in fossil fuel availability there will be a reduction in population. Population soared with the industrial revolution and the development of industrial, fossil fuel based agriculture. It cannot be sustained.
    From: The New Middle Ages
    http://sunweber.blogspot.com/2011/05/new-middle-ages.html

  8. Bicycle Dave says:

    Hi Gail,

    Obviously, many factors have caused our current predicament and will influence the most likely course of our near future. So, I don’t want to imply any one factor to be paramount – but, I often wonder why you don’t spend much time on the growing disparity of wealth in the US? It seems to me that this huge transfer of wealth from the poor and middle classes to a tiny financial elite is a factor that is greatly accelerating our decline and leading to greater instability.

    Another factor that seems to be exacerbating our decline is the attack on work rights and unionism. Germany has demonstrated that worker involvement in management and greater profit sharing is beneficial for their economy. The US seems determined to “race to the bottom” and destroy much of the financial equality progress built up over the years.

    Addressing these factors alone is certainly not going to save our bacon – but, they might help in buying time and preserving some semblance of civility as we try to deal with the most basic issues. Perhaps I’ve missed some of your comments, but you don’t seem to put much value on these equality issues – do you think they are unimportant for some reason?

    • schoff says:

      There are two streams in the union space, unions in industries that compete nationwide and worldwide, and unions in “industries” that are monopolies. More simply commercial unions and government unions. In a WTO world the commercial unions from the UAW to the UMW to the Teamsters can make or break the business that they are in, and then compete or submit to Japanese, German, competitive businesses, there is a nice feedback loop there. (Obviously there are factories in the US not unionize).

      Government unions are unions of monopolies that have no real feedback mechanism that is obvious in places like NY, Trenton, Detroit, a slew of cities in California including San Francisco. Quite frankly almost anywhere in the US at the local, county, state level, the
      lack of feedback is obvious to slow commitments/guarantees/workrules etc… There are some interesting documentaries on this including “Waiting For Superman”.

      If we want to to be competitive it might be useful to take a look at what Germany or Japan union situations are on the commercial front. One would hope that the competitive nature on the commercial side has seeped into Detroit at this moment. I do not know. What is interesting is that highly competitive commercial industries in the US tend not to unionized.

      On the government side you are seeing a sea change, I doubt very much that the job conditions of the UAW, Teamsters, UAW, CWA, etc in the early 20th century from say 1901-1950 were every paralleled in the government space (teachers, state workers). They certainly did not document them, such that any of the classic authors of the 20th century could write about them to any significant extent, if they existed at all. As such tools like universal collective bargaining that was an artifact of the commercial union effort were applied to government unions. The Kennedy administration is probably most responsible for the pivot on government unions. It has been an interesting experiment, especially for inner city kids in the US.

      The feedback loop that does seem to exist is the money one. State/Local/whatever
      government automatically takes out of the paychecks of workers and gives them to
      the union (in many case whether you want to be represented by the union or not), who then has a kitty to fund elections of state/local/government officials that create the
      laws, and management the enforcement including the paychecks. It is very pretty, it is like a petri dish bloom. Now you get to watch the dieoff.

      I think the target of your consideration should be the WTO, will the concept of comparative advantage really work for the US in the 21st century? So far we (and France) have voted no on agriculture, and while there are horrible problems in the agriculture sector we still (as does France) export a lot of grain. I think there should be reasoned debat on other industries within the WTO.

      • Bicycle Dave says:

        I realize it is now a popular pastime among some folks to have a condescending attitude towards unions – especially unions in the government sector. And then there is the clever little argument about the evil of unions supporting political candidates. Good thing corporations never resort to that tactic.

        Of course, some unions in some cases, have been guilty of corruption – good thing that governments, corporations and religious organizations have never been guilty of this.

        With all their warts, unions (including government sector unions) have played a hugely important role in creating the standard of living enjoyed by most US citizens. I doubt that any dissertation on my part about the benefits of unionism will change the minds of Tea Party leaning folks.

        I started working in the early 50s and can bear witness to the benefits of unionism. I’ve been a union member and I’ve been a manager in both government and private sectors both with and without unions. On the balance, I think unionism in any sector is a good thing. I think that the statement: “highly competitive commercial industries in the US tend not to unionized”, totally ignores the fact that many of those industries thrive because of the groundwork laid by earlier union organizing efforts. Being highly competitive (ie maximize profits) is not the only way to measure a culture.

        Unionism is just another aspect of democracy – people who don’t like to deal with unions often (IMHO) have problems with the broader aspects of the democratic model.

        • schoff says:

          there is corruption everywhere including in the Church and in our own lives (or at least mine), it is the nature of man.

          There would be no middle class in the US without commercial unions. I fully agree. My grandfather’s founded their locals of the CWA and UMW, and I grew up in a union family. if you have ever been in a coal mine, you can envision why organized labor would need to be present in that work environment. I just can’t leap from the commercial unions to the government unions since they came well after the establishment of the middle class (government unions in the sense we see them were a 60’s phenomena), and there are simply no narratives that I have seen that can compare the two environments.

          I do think there are benefits throughout society due to the historic commercial unionism that have benefited the various new industrial fields that are now present. I would not want to measure a culture based on money only (that would be pretty incongruent for a Seminarian), but the context here is standard of living.

          Democracy of various sorts from Athens, to England, to the US historically of course had nothing to do with Unions, and it would be interesting to understand how Unions affected the newer democracies of South Africa (2000ish), South Korea (1980ish), Tiawan (1990ish), etc. I would guess that in advance Tort society unionism could go away and
          democracy would continue on.

          However, my earlier posting stands, if you want commercial unionism to succeed (and I do in some form), then you need to consider how you alter the WTO and NAFTA situations to protect critical industries (not just unions, the entire stack), in a manner that you are still competitive. This has been done, and is being done in Agriculture (with all its warts).

          I do not believe the way we did it “before” will work “today”, this is possibly the last
          American advantage, the ability to deal with change.

    • The growing inequality seems to be a way of taking a small amount of additional wealth, and simply distributing it to a few, so others can see that there are some getting ahead, even if most do not.

      Trying to fix this problem is difficult–even worse than the problem of over population. Part of what tends to happen is with high income families, two high income people marry each other. This concentrates the wealth further. The financial system, through the use of debt, also takes money from the less well off, and transfers it to those working in the financial system. I see this system as “breaking,” not all that far down the line. Quite a bit of what the wealthy thought they had saved is likely to disappear.

      I haven’t really written about this, partly because it seems like a very difficult to fix. Part of the solution may be higher tax rates on high income and on capital gains. I also think we need taxes on imported goods and services, so that workers are not directly competing with wages with workers from China and India. I think it is this direct competition with workers around the world that is a big source of our wealth inequality problems.

      • Les D. says:

        There are two basic problems with the current concern about “growing inequality”.

        Firstly, is inequality growing? Certainly the available statistics seem to indicate that it is: a larger proportion of wealth and income go to the top x% than thirty or forty years ago. But how reliable are these statistics? When the marginal tax rate for high incomes is 70% or more, the best efforts of the smartest people produce more results by avoiding or evading tax than by producing more income. How much additional income in those days went into foreign tax shelters? How much just went into “off the books” transactions? In 1974 I lived in Denmark, and with a middle class income, all from salary, my overall income tax rate was 54%. Yet Mogens Glistrup, founder of the Progress Party, proudly appeared on television and showed how, with a much higher income, he managed to pay no income tax at all.

        Secondly, the “top x%” simply are not the same people over the decades. A few of them are. But in 1981 Bill Gates was not one of the world’s richest people. In 1951 Warren Buffet was not one of the richest men in the world. Nor were their parents rich. In 2000, Ken Lay was one of the richer people in America. His estate after he died was negligible. Even families rarely last more than a century or so. The Rockefeller brothers, John and David, were likely the richest family in the world a century ago. Yet today their 150 surviving descendants have a total wealth of $110 billion by the wildest estimates, which even if true would not rank them (on average) very high on the table of the world’s richest: according to Forbes, there are now 1210 billionaires in the world.

  9. Joe Clarkson says:

    Standard of Living (Consumption)= ((Resource Extraction Energy x Efficiency) + (Manufacturing Energy x Efficiency) + (Transportation Energy x Efficiency)) / Population

    It is obvious that the only way to increase per capita consumption is either to increase the amount of energy used during the process of extraction, manufacturing or delivery to consumers, or to increase the efficiency of any those steps, or to reduce the population of consumers. If overall net energy dwindles, then either efficiency must increase as fast as the decline in energy or the population must decline. If neither of those two things happen, the population consumes less.

    In a consumer society such as ours, every payment for a consumable item is someone else’s income. If consumption declines, incomes decline; everyone gets poorer. That really wouldn’t be so bad as most people expect; it’s not hard to be poor and happy, except for one big problem.

    As Gail so often points out, if people get poorer, they don’t repay their debts. Our consumer society runs on debt all the way from the mine to the market. If enough debt doesn’t get repaid, the whole system collapses. It may be possible to re-start after such a collapse with a new medium of exchange or pure barter, but I doubt it.

    The worrisome aspect of a debt-collapse is that it could come in ten days, ten months or ten years. As soon as enough people believe that it is inevitable, it will happen very quickly.

    When it happens, one must be prepared to provide for everything one needs without money and with little or no access to outside supplies. We need to look at everything we consume every day and ask ourselves, “Could I make that with my own hands and the resources on my own property?”. If the answer is no, be prepared to do without. Or perhaps just rob those few others who can make or grow necessities. It’s not a pleasant prospect either way.

    • Les D. says:

      Standard of Living (Consumption)= ((Resource Extraction Energy x Efficiency) + (Manufacturing Energy x Efficiency) + (Transportation Energy x Efficiency)) / Population

      That implies that the only factors in consumption are Resource Extraction, Manufacturing, and Transportation. What about Services? I thought they accounted for a large part of consumption.

      • Joe Clarkson says:

        The vast majority of “services” involve the distribution, rental or use of tangible goods as the essential activity of the service. Personal spending on services is 40% of GDP, but just look at the major categories: housing , medical care, transportation, recreation and household operation. All of these involve payment for access to the structures, equipment and operators needed to provide the service. Sometimes only one’s body is the transported item (as in a taxi ride across town), but that still requires Transportation Energy. If you took that taxi ride to watch a movie at the local cinema, your ticket purchased a tiny share of all the energy expended to build the theater, keep it air conditioned and produce the movie shown on the screen.

        I admit that there are a few services, such as psychiatric counseling, that don’t involve manipulation of tangible goods, but I would guess that these are a very minor part of overall consumption. One could even make a strong case that paying for anything that doesn’t extract, make or move something is just increasing the inefficiency of these processes and that this kind of “overhead” should never be counted as part of GDP.

        • Today, a lot of people with psychiatric problems are taking drugs for their problems. These drugs are typically oil based, and certainly transported by oil. The people visit the psychiatrist by driving a car or taking public transportation, so there is that requirement for oil as well. With the distances involved, it would be hard to have the same level of services without oil.

          Also, the buildings are heated and air conditioned, and the medical records are computerized. All of this takes electricity. This is mostly other fossil fuels, but takes repair trucks to repair wires that are down, and wind turbines that need replacement parts, and lubrication for the machinery of all kinds.

    • OldStone50 says:

      Succinct model for consumption. But, in case it’s not immediately obvious anyway, it is also possible to work on all three elements at the same time: increase energy use (this assumes the engineers come up with a practicable way of doing so); + increase efficiency of energy and material resource use; + reduce population size. It would be logical to take such a three pronged approach – I think the situation warrants doing so. Unfortunately, there seems to be little enthusiasm for adopting even one of these approaches. All of them are calls for a “lower” standard of living in most persons’ minds, especially those who live off the growth capitalism model.

  10. David F Collins says:

    One of what are commonly considered to be «benefits» of our current high-wealth society is that we can be separate from each other. Thus, when adult children “have to” move back in with their parents, this is automatically, unthinkingly regarded as unfortunate. My wife and I (well up in years) and many of our friends and relatives have had adult offspring move back in. But this need not be a hardship.

    In Latin America (my wife is a Latin immigrant), adult offspring typically live with their parents until they get married, and quite frequently, well after that. Even in well-to-do families. Oh, it does make good background for some the soap operas for which Mexico is justly famous, but it definitely has its positives. I understand that many Asian and African family traditions share in this. Meanwhile, we Anglo-Americans are nothing if not adaptable.

    Getting families together for more than funerals and the occasional wedding has to be, by and large, an improvement, particularly for those of us blessed to have families comprised of decent folks.

    My late mother once observed (she was in her late 90’s at the time) something nonsensical about one facet of the Modern American Way of Life. She said, “When people have to get in their cars and drive to a health club to get some exercise, no wonder that the environment, the economy and the people’s health are all getting worse!” A few years later, she commented on how the Calorie is a unit of food energy — and also of motor fuel energy. When it is cheap, we consume too much of it. Hence, traffic jams and obesity. From her perspective, having grown up in a horse-and-buggy era (more accurately, a walking era), many of the problems that absorb the intellects of the highly educated were bald-facedly obvious.

    As per Johan Bulmer above, a reduced standard of living need not reduce the quality of life. But if one allows it to be so, it will be so. We are blessed and cursed to have Free Will. As per Genesis, we have eaten of the fruit of the tree of knowledge, and we must live with the consequences. Ask anybody who has known unemployment whether earning a living by the sweat of the brow is a blessing or a curse.

    • We have an adult son living with us, and one a couple of miles away. We have no problem with this set-up. The one living with us is mildly autistic, but has a job, and is good company. We know others who go to great lengths to try to get mildly handicapped children to move to a group home, or some similar arrangement.

  11. Andras says:

    Really good article Gail! Thanx!
    I’m wondering how Americans could live without personal auto usage. You know, I’m from Hungary, where, similarly to Western Europe, the alternative transportation type gets more and more popular. We have significant improvement in # of biker (not only for sport purposes). Some W. europian countries gives tax allowance if someone use thier bike instead of car to get to work.
    As oil production has been flat for a while but that is spread among more and more customers therefore average US or European customer consumes less and less. This is easy if spare time activity (travel) is concerned, BUT if erevy day activity then it gets interesting.
    What I see (maybe I”m wrong), Europeans are preparing slowly. How people in US are preparing for it? I heard something about that less and less SUV are sold – so you drive smaller cars. I do not think this is enough.

    • Ed Pell says:

      I would say the biggest effort is population migration from cold northern states to warm southern states.

    • I think the big response in the US to date is laying people off from work, so a particular segment of the population is less able to buy products and services made with oil. This is not really satisfactory.

      I also think young people are paying disproportionately, by not being able to find good-paying jobs. Without funds, they cannot buy goods and services made with oil.

  12. Keith says:

    Hi Gail,

    It’s rather ironic I think that someone who works as an actuary has through your contributions in these posts contributed to me concluding that contributing to a pension (I’m in my early 40’s) is probably a waste of money and that better uses could be put to those funds.

    • I personally would not contribute more than the minimum amount to a pension plan, especially if you are in your 40s.

      It seems like you would be better off putting your money into land and tools, if you can do gardening/farming. There is too much risk that that far away, your plan will not be there to do much of anything–but maybe it will pay out, at a reduced rate from what you hoped. So there is perhaps some point in putting some in, especially if you are near retirement, and aren’t looking 20, 30 or 40 years into the future.

    • Owen says:

      There is considerable merit to that conclusion.

      Saving for retirement is a phrase poured into the media by mutual fund companies primarily, starting in the 1960s. Every dollar you place with them is about 1.2 pennies per year they keep as annual expense ratio. This is true of all vehicles: bond funds, stock funds and even money market funds. The fund takes its slice from you, and uses a bit of their slice to advertise the need to save for retirement.

      Some reasons why you might not want to:

      1) The die off coming. Soon. This should inform every thought you have, every discussion you participate in, every calculation you perform, and every political choice you make.

      2) Inflation outstripping returns. Bonds have outperformed stocks over the past decade.

      3) Risks of retirement account confiscation in an asset (as opposed to income) tax scenario.

  13. Texasjune says:

    A friend recommended your blog – and I’m happy he did! Will subscribe.

  14. Ian says:

    Keith,

    Gail has a very interesting blog and those of us in the United States should pay heed to her warnings of what our society could look like in the future. However, she is a Casualty actuary (like myself), as opposed to a Pension actuary. To not save money because it may be worthless in 20 years would not be wise. The US will not enter the Stone Age overnight.

    • It is hard to know how to deal with planning for old age. We don’t have good ways of saving, other than having stocks and bonds of companies and governments, and related securities.

      There is land and gold and other tangible investment–but this has risks too. Someone (or a government) can take it away from you, or taxes may rise too high to keep it.

      So we end up making choices. I do have quite a bit of my savings in traditional “safe” investments, but my level of confidence that this will work for the long term is not very high. Maybe it is OK for the short term–we do need to think about that as well.

      • schoff says:

        An old Jewish woman, who had too many bad experiences in the 20th century, told me once, they can’t take away what you know (your knowledge or expertise).

        I’m reading a prophetic book from 1953 by Robert Nisbet “The Quest For Community” (Columbia and Berkeley Sociologist) discussing what was going to happen in the Statism of the US as we depend more and more on a central federal government instead of the historic local organizations that Americans had, before they fully embraced the fully autonomous individual of modernity.

        One could create another Axiom: “They can’t take away your relationships.” (Assuming you have them). It is a good thing to be in relationship with people in various communities from family onwards.

        Comparable writings might be Bonhoeffer’s “Living Together” (more theological), to “Bowling Alone” (more sociological).

        Drilling down to a practicality, I’m not super mechanical, but a decent gardener, and a budding farmer. My friend from school and church keeps my combine going and I keep him in grain and veggies.

      • Les D. says:

        The best plan for old age is to live as far as possible in a way which will allow you to work all your life. Your work in extreme old age may be as simple as watching children as they play, but you will still be working, and getting paid (though maybe not in money).

        I cannot think of a single ten year period of my adult life when the risked, post-inflation, after-tax return on any readily available investment is positive. At present, for example, “safe” investments might return 3%, but that is about what can be expected in the way of inflation, and there is a serious risk of inflation being higher. Yet you can be sure taxes will be payable on any dollar income, regardless of inflation.

        Land — of the agricultural kind — makes a lot of sense as an investment in theory. But in addition to taxes you have maintenance costs for things like fences and any buildings on the land.

        • schoff says:

          Given the tool reference, possibly Gail, means a “bit” of land as in 10 acres of self sufficiency per John Seymour in “Complete Book of Self Sufficiency”. John has a 1,5, and 10 acre plan, beautifully illustrated in the book. Pick the right place in the US with a small house and a small outbuilding and your taxes might not be huge, a couple of years ago I was looking at $40,000 houses in the dakotas on 1/2 acre lots with annual taxes of $300 total. Add some PV and some solar heating and it might be a sustainable pleasant life for some.

          As for fencing. I put in 3 miles of wood fencing around my farm, and there is some maintenance but I’d say it is a couple of hours per year, and around $30/yr to mend it. The costs are more up front then ongoing for $.

  15. Rebecca says:

    Don’t all these Federal budget negotiations have a lot to do with deciding who will have their standard of living decline first?

    • Rebecca,

      The Federal Budget negotiations do indeed have quite a bit to decide who will have their standard of living decline first.

      I think the problem is that while maybe we can get through this set of negotiations, the underlying problem will be there and getting worse. Ultimately, I don’t see a way of getting the negotiations to work.

  16. Shunyata says:

    Gail is reminding us of several things:

    Increasing population, increasing global development and decreasing resource quality are reducing the availability of goods and services.

    Our monetary system generally acts to increase the amount of money available. Initially this action stimulates greater availability of goods and services. In the end this action only stimulates inflation, effectively reducing availability of goods and services.

    Money is only useful to the extent that it can be converted into goods and services. In the absence of goods and services accumulated savings has no practical value. When making investment decisions, a wise investor will consider the purchasing power of money today vs. what savings can buy tomorrow.

    • Shunyata,

      I agree. We have been taught something different–that money is a store of value in itself. That is only true if the amount of goods and services available is increasing, and the amount of money in circulation is not rising too much.

  17. Robert says:

    Gail,
    With the shortage of oil and other resources coming down the road, What is your opinion about the current U.S. immigration policies? It seems to me that importing and artificially growing our population is a terribly unwise thing to be doing.

    • A Real Black Person says:

      I think you mean that Illegal immigration is unwise. Remember,only a small portion of society benefits from illegal immigration. The elite believe that cheap (voluntary slave-labor) immigrant labor is another source of wealth that acts as a damper on wage inflation. Slavery was common in just about every advanced civilization, and was common in the West until slaves were replaced with fossil fuels. In energy accounting, fossil fuels are sometimess referred to as “energy slaves” as a reference to what they have replaced. Cheap labor still has its place, since there is work that machines cannot due but pay too little and are too precarious for the local workforce. As fossil fuels disappear, the act of importing cheap desperate labor to support the crumbling remains of America’s elite, will look attractive as they may seek to retain a lifestyle similar to what they had before, even if it’s at everyone else’s expense. This solution will be temporal because as resources dwindle, this arrangement will become increasingly unstable.

  18. Gary Peters says:

    A nice article, Gail. As one who started teaching and writing about population in 1971, I can assure you and readers that nothing we can do will curb population growth in the short run unless something catastrohic occurs. It is not that we have not been warned about the planet’s inability to sustain population growth, it is that we, especially economists, have ignored those warnings and created instead an economic system that is addicted to growth.

    As a geographer, I’ve never had problems accepting that Earth is finite. I’ve always been suspicious of those, especially economists, who argued otherwise. More and more evidence suggests that our economic system has hit a wall, perhaps many walls. As you and many of your readers know, before the era of cheap fossil fuels began our population struggled to grow slowly to around one billion. It is not unthinkable that a sustained population decline lies ahead, though to what lower level and for what reasons none of us can say right now.

    • Bicycle Dave says:

      Hi Gary,

      we, …., have ignored those warnings

      I submit that the word “ignored” does not adequately convey the underlying cause of our collective inaction. When people ignore something there is usually a reason. I can point to corporate and political machinations and disinformation campaigns, but again we need to ask why people are so willing to be manipulated in self destructive ways? My opinion is not shared by Gail nor most other people – perhaps I’m the child that blurts out that the “Emperor is wearing nothing at all” – perhaps some think I’m dead wrong and will pay for all eternity (not going to happen).

      For a variety of evolutionary reasons, we have come to the point where the great majority of Earth’s people have been indoctrinated to hold an anachronistic belief that there is a supernatural dimension to our existence and, in most cases, some type of continued personal existence after we die. Billions of humans worship, pray and engage in behaviors they believe will enhance the deal they will get in their afterlife – behaviors that have not been helpful in understanding our current predicament. All of this is predicated/justified on the concept of “faith” – which, by definition, does not require any rigorous pursuit of “truth”. And, this is the fundamental problem: the collective human species is not able to effectively deal with the concepts of “true” and “false” (also what can’t currently be known). We can therefore be manipulated by any Shaman that promises some type of reward or comfort. Although supporters of religion suggest that “good deeds”, mental comfort, and noble values emanate from these belief systems – these arguments pale in the face of the suffering that will surely come from “ignoring” our predicament and failing to take rational steps to mitigate the ultimate consequences of the “limits to growth”.

      I’ve heard all the arguments about the limits of rationality, “science is just another religion”, “people need religion” and “who are you to question the existence of god”, and all the other nonsense used to perpetuate myths that should have been discarded a couple hundred years ago. None of these arguments are going to help reverse the insanity of our over breeding and destruction of the planet’s ability to support billions of humans for generations to come.

      What are needed are more voices demanding separation of church and state and a promotion of a new cultural worldview. A worldview that is not human centric but rather an appreciation that humans are only one part of the biosphere – no better or worse than any other living creature. A worldview that understands that the only “afterlife” we have is just like every other species on the planet – it is what we pass on in our DNA and the condition of the environment we leave behind. We need to stop thinking about the “deal” we get from personal salvation and start thinking about future generations of our species and all the other species we depend upon. The movie “Avatar” may be a simple Hollywood fantasy, but I think the Na’vi have a better moral code than we do. There is good reason to envision a more joyful and ennobling lifestyle if we embrace this new kind of “spirituality” (non-supernatural) compared to the self-centered stuff of personal salvation, reincarnation, etc. There actually are some movements in this direction – but, admittedly very small at this time.

      Of course, the above will mostly be categorized as a “rant” against religion – but the stakes could not be higher and perhaps we should be thinking about the underlying causes for our “ignoring” the obvious condition of the Emperor.

      • schoff says:

        This causal link seems Deism/Theism and ignorance of Peak Oil / “Doing the Right Thing”
        might require a little more logical development, energy exploitation of course parallels the enlightenment. At the policy/wonk level I think i’ve met few deist/theist, they almost all
        appeared to be atheist/agnostic, in fact the last meeting I was at in Cern (other than me) there were no theists in the room, from DOE to OECD, UN, etc.. In fact in my slight earlier days dealing with Goldman, UBS, Ibankers I don’t remember meeting any theists there either.

        I simply don’t see the elites, or the people capable of writing the $1B+ checks describable in this manner. Having spent considerable amounts of time in Scandinavia they certainly appear to be post-God, and the PEW Trust data would support that, yet Norway is a worse per capita consumer of energy than the US.

        [I have to do this]

        Perhaps what is happening is all about one of those seven deadly sins? Greed, Lust, Gluttony and cultures that support them (or even celebrate them). What I find interesting especially in the Hebrew Scriptures are the (negative) narratives of the various individuals, they seem timeless, they are just like my neighbors, just like me! So maybe Solomon was right, there really isn’t anything new under the sun.

  19. Pingback: Headed For a Lower Standard of Living? | Earth's Energy

  20. sunweb says:

    Bicycle Dave – I agree totally and add that the “mine is bigger than yours” “the wholier than thou” the Us against them is one of our major concerns. A natural response of a herding animal, it has lead us down the paths of violence, ethnic cleansing (consider missionaries), genocide (again consider missionaries as well as other violence), blue laws and gender abuse.

    As an expression of life, as a representative animal and as ourselves, we are exactly how we would end up. We are not dysfunctional, as some would have it. We did not take a wrong turn in the past, ten thousand years ago at the agricultural revolution. We are not a cancer on the earth and we are not disconnected from our environment.

    There are several natural factors that have aimed us at this particular moment in human history, where population pushes against resource availability, where as a social animal we stand against each other, where we are immersed in an environment of our own creative making and where our brilliance threatens us.
    From: http://sunweber.blogspot.com/2011/05/we-are-here.html

  21. A Real Black Person says:

    I think’s it’s absurd to try to save everyone. It’s that kind of thinking that has the more religous folks labeling science as “another religion”. If we really want to promote rationality, why not let thosw who refuse to heed the warnings of the experts perish? Let nature weed them out. In biology, it’s called “evolutionary pressure.” It’s natural. If their kind of thinking will lead to doom, then let it lead to doom. Let nature do its work.

    I k thin Noah’s Ark solution or an enclave solution would be more plausible. Of course, that entails having a good idea what the world is going to look like in 200 years and the ability to start planning for that situation now, Wishful thinking, I know.

  22. A Real Black Person says:

    I think’s it’s absurd to try to save everyone. It’s that kind of thinking that has the more religous folks labeling science as “another religion”. If we really want to promote rationality, why not let thosw who refuse to heed the warnings of the experts perish? Let nature weed them out. In biology, it’s called “evolutionary pressure.” It’s natural. If their kind of thinking will lead to doom, then let it lead to doom. Let nature do its work.

    A Noah’s Ark solution or an enclave solution might be more plausible. Of course, that entails having a good idea what the world is going to look like in 200 years and the ability to start planning for that situation now, Wishful thinking, I know.

  23. Gary Peters says:

    Dave and others above,

    Whatever your reasons may be, we seem to agree that humans are unlikely, as a group of nearly seven billion of us, to change the numerous courses history has us on today in order to “save ourselves.” The vast majority don’t even think we need saving.

    Whatever your religious preferences, economic goals, etc., we remain an animal species on a planet dominated by physical laws that we cannot reshape to our own liking. H. sapiens has been around for about 200,000 years, but we’ve been in the era of cheap fossil fuels for only the last couple of centuries, and it has tainted our views of ourselves and shaped our hubris. However much people talk today about population growth, 2011 is on a path to add another 80 million or so people this year (140 million births, 60 million deaths). Little distortions like Somalia, however tragic, won’t change this.

    Any clear reading of the longer geological record shows one thing for sure: all species go extinct. There is no reason to believe that humans will be an exception.

    • Bicycle Dave says:

      Hi Gary,

      Overall, I suspect you are right. However, it seems that humans do actually have the capability to be an exception to the usual extinction process as we are more aware of the factors that influence our survival than other species. This doesn’t mean we will actually use that capability.

      I don’t think in terms of “saving ourselves”, rather a more modest goal of mitigating some of the worst possible consequences of our current path and perhaps avoiding extinction.

      I suspect that someday we will seriously consider the physical laws of living on this planet and attempt to avoid extinction. How soon and how effective is the real question. On one hand, I think it is technically possible to avoid massive, sudden, die-offs. On the other hand, I’m not very hopeful we will rise to the occasion. Also, I find it a bit callous to simply say “tough luck” and not make much effort to speak about the issues. Of course, the folks who comment here (from any POV) are actually speaking out about the issues – maybe we help in some tiny way.

  24. Joe Clarkson says:

    You are absolutely correct, but I also see little effort except on the efficiency side (recycling, CAFE standards, etc), and even those efforts are puny. Population control will be too slow unless we have a massive pandemic and I see insufficient effort to make much of a dent in the non-fossil energy supply. My back-of-the-envelope calculations suggest that we would need to spend $1-2 trillion per year for thirty years just to convert the US over to renewable energy. Theoretically possible, but not likely.

    What continues to astound me is that even though everyone has known that it will always take energy to get resources into peoples hands and mouths, we have allowed a finite source of energy to become the principle source of energy. Everyone in power, except perhaps Jimmy, has ignored the simple question – “What do we do when the fossil fuels we are using run out”? How silly we have been to work ourselves into a dead end.

    • Joe Clarkson says:

      The above was meant to be a reply to OldStone50.

    • schoff says:

      The back of the envelope stuff is pretty scary. Projecting 50GW of PV manufacturing capability next year (a bit aggressive maybe), making some standard assumptions about
      the duty cycle and picking actually “sunny” countries, it takes many years to get them done.
      (Obviously i’m ignoring storage and the funding).

      What is an interesting question that Gail might consider someday is the kind of life you build with an intermittent grid, or intermittent household electrification. This seems increasingly true in a number of countries and they cope to some degree or another. Water is pumped during the day by PV or grid availability into elevated tanks, email is sent then, some batteries are charge for small lighting (especially to read or educate by), etc….

      • Writing about an intermittent grid sounds like a good idea. I don’t think I would like to have a baby when the grid is down, or drive when traffic signals are on part of the time and off part of the time. (Afternoon thunderstorm already give us a peak at what this looks like). Walking down from the 50th level of an office building would be interesting. (Walking up would be even more interesting.) Gas stations would only dispense gasoline when the electricity is on. It would take quite a bit of planning to work around.

        • schoff says:

          Those are good points. An unscheduled intermittent grid would cause the abandonment of floors 6-60 undoubtedly. The Japanese certainly tried scheduling, and the British did this in the 70’s. Isn’t this what the smartgrid euphemism “demand management” is all about though?

          Drawing up that scenario might be that Hospitals in fact get 24×7, residences that stay under 1000kwh/month never get cut off, but those above 1000kwh/month get cutoff at sundown during the Summer.

          Interestingly I was looking at airconditioning systems that freeze water, but they all want to do it at night (midnight to 6am) due to assumption of lower electric rates (off peak) and cooler outside temps for the cycle. I of course have excess electricity during the day from my PV……

      • David F Collins says:

        In the mid-1990’s my wife & I lived with what I would call an «unreliable» grid; it was not as far gone as «intermittent». We had a nice apartment in Mexico City (the Polanco neighborhood), on what in the US is called the 6th floor (in Mexico, the 1st floor is the 1st one up from the ground floor, so to get off the elevator on our floor we pushed the 5-button). Carrying groceries upstairs when the power was off was a workout, but we were peppy youngsters in our 50’s then. What was bad was being in the elevator, between floors, when the electricity went out.

        Upscale hospitals, banks (& ATM’s), the Metro, etc. had backup power. Upscale stores, too; downscale stores never had cash registers, just cash boxes and calculators; midscale stores made do thanks to the great Mexican work ethic. And almost all the restaurants served great food, regardless of the state of the grid. (It is said that you could not find a bad restaurant in Mexico City; we found one, on the ground floor of the building where my wife had her office.)

        In the office (we also worked at home), we quickly got to appreciate laptops for the battery; I never did learn to regularly enough.

        Of course we had candles. We envied neighbors with an Alladin lamp. But the outages were never long enough or frequent enough to inspire us to shell out for one. And we loved our French-press coffee makers. (Mexicans drink instant coffee. Heathen barbarians! The French occupation, for naught.)

        I could go on, but I think the point is clear: an unreliable electric grid was certainly an annoyance, but it had little effect on our quality of life.

  25. Gary Peters says:

    Dave,

    The geological record provides no hope for the long-term survival of our species. In the meantime we are rapidly altering Earth’s environment, mostly for the worst, because we so love our current economic system, which, like cancer, depends on sustained growth to keep it alive. Economists and other humans are free to deny the laws of thermodynamics; Earth cannot.

    Shelley caught for us a moment of human hubris that should make everyone think, but thinking has become unAmerican.

    I met a traveller from an antique land
    Who said: “Two vast and trunkless legs of stone
    Stand in the desert. Near them on the sand,
    Half sunk, a shattered visage lies, whose frown
    And wrinkled lip and sneer of cold command
    Tell that its sculptor well those passions read
    Which yet survive, stamped on these lifeless things,
    The hand that mocked them and the heart that fed.
    And on the pedestal these words appear:
    `My name is Ozymandias, King of Kings:
    Look on my works, ye mighty, and despair!’
    Nothing beside remains. Round the decay
    Of that colossal wreck, boundless and bare,
    The lone and level sands stretch far away”.

    Dave, I have spent decades trying to focus attention on population growth as one of the most obvious and controllable factors in our struggle with the planet. Since I started my career the world’s population has nearly doubled, so my impact has been infinitesimally small or nonexistent. Human hubris will lead us to the brink, if not to extinction. Though as you suggest, we are smart and may be able to escape that fate, you also suggest, and history supports, the notion that we probably won’t.

    Long ago our behavior gradually shifted from cooperation (illustrated for example by the Potlatch communities of the Pacific northwest) to competition (illustrated by the U.S. and most market economies today). Shakespeare was probably right or close when he described a human life as “a tale full of sound and fury, signifying nothing.”

  26. wiseindian says:

    Every day I think about it, I get more pessimistic. I am always looking for pointers that say that it’s going to be better but the amount of debt in the world just keeps increasing (visit the economists world debt clock).
    Effectively every dollar that we take in debt is a draw on our future money and resources, things which we don’t have now, the world is banking on an unstoppable growth in GDP for years to come by the looks of it, and when this illusion of unending growth stops it will take down all debt with it and all current and future investments by definition.

  27. hemp says:

    BTW I am a heavy skeptic and this is from Michael Moores movie Sicko one which some of you might disagree with. And if it does then what will this new order be and what affect will it have on the living standards of Americans? Just what can we do to stop this equalization with the rest of the world where we are dragged down to their level?

  28. sunweb says:

    Gail – Have been thinking about the next essay for my blog. It was going to be called “On The Way Down: Hope is Doing”. I think I will write one on living with intermittent grid since I lived 30 years without outside power, the first ten without electricity in my home, the next 20 with electricity from the wind and sun which was stored in batteries but which required judicious use when neither the sun or wind was giving me juice.
    The “Hope is Doing” concept comes from a speech I gave at a cancer RelayForLife about my experience during and right after treatment.

    • schoff says:

      sounds like a great article. it would be great if you could find a co-author who did an appendix to it on intermittent grid in the 3rd world. the DR comes to mind, if you are interested i might be able to scare someone up, if you don’t have someone from Paksitan, Bangladesh, Liberia, DR,…………………

      love “hope is doing”

  29. sunweb says:

    would be interested in connecting with someone later. I have several essays in the pipeline meaning my head but am way to busy and exhausted to be writing too much. After growing and building season – October plus. Am preparing to build a greenhouse of my design for a northern climate. Laying the base before winter so I can build first thing in the spring.

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