Where do continued high oil prices lead us?

We know high oil prices have an adverse impact on the economy, often leading to recession. According to Economist James Hamilton, 10 out of 11 of US recessions since World War II have been associated with oil price spikes. But where do continuing high oil prices lead us? How will economic contraction “play out,” if tight oil supply and high oil prices continue?

Figure 1. Structure built with blocks. (Barkless tree blocks from http://www.childmode.com) Our economy is also built piece by piece, based on the rules and prices that are in effect when individual decisions are made.

Clearly there are many possible ways forward. Using Figure 1 as an analogy, there is the theoretical possibility of continuing to build our economy to ever-higher heights, as we are told by economists and politicians, despite the obstacle of high oil prices. There is the possibility of taking down parts of the economy, and rebuilding in a more fuel-efficient manner. There is also the theoretical possibility of eliminating unneeded parts of the economic structure we have built to date, so that the structure is more compact. And, unfortunately, there is also the possibility that a major portion of what we have built to date will inadvertently be knocked down, as constricted oil supply makes its effects known.

Before discussing what paths may lie ahead, I would like to talk about how contraction of an economy differs from continued expansion.

Economic Expansion vs. Economic Contraction

It is easy to assume that economic contraction is similar to economic expansion, just with the sign reversed, but anyone who has lived through the last few years knows that this is not the case.

For example, on the way up, it appears that the size of the current economic system easily “scales” upward, as the economy grows. The number of available workers gradually rises, as does the number of job openings, and the amount of goods and services produced. Everything rises together, and the system “works”.

On the way down, there is a good deal more “stickiness” to the system. There are now seven billion people on the planet, and they all would like to eat on a regular basis. There are perhaps two-thirds as many potential workers, and most of them would like to have jobs, even if the economy is contracting, and their particular job is disappearing.

Another issue is that we have built millions of miles of electrical transmission, oil and gas pipelines, water and sewer pipelines, and roads. It becomes difficult to abandon parts of these systems, even if total resources for maintaining the system are constricted. If we think of the situation in terms of tax dollars (or charges by utility companies), it becomes increasingly difficult to collect enough tax dollars (or utility charges) to pay for the inflated cost of replacing worn out roads, pipelines, and electrical transmission, as the rising price of oil makes these costs rise much more rapidly than salaries.

Figure 2. Repaying loans is easy in a growing economy, but much more difficult in a shrinking economy.

Another issue is debt repayment (Figure 2). We are used to an ever-expanding economy, where future goods and services produced will always be greater than those produced this year. As long as this growth pattern persists, our system of long-term financing of major expenditures, even if the expenditures are not really income producing, can continue. For example, we are able to buy homes with 20 or 30 year loans, and governments are able to continue borrowing, claiming that they will have more funds to repay loans (with interest) in the future. Once the situation changes to a shrinking economy, it becomes much more difficult to repay loans, and the financial system quickly reaches the risk of collapsing, due to multiple debt defaults.

A related issue is that of financing a new or expanding company. If the economy continues to grow, investment in a new company is likely to make sense because the value of the company can be expected to grow as the demand for products of the type it sells continues to grow. But if it becomes clear that the economy is on a path of long-term contraction, the possibility of failure within a few years rises, so new investment makes much less sense.

Where may continued high oil prices lead?

1. Widespread loan defaults, leading to far less international trade and the manufacture of fewer high-tech goods.

This is my personal view as to a likely outcome of continued high oil prices, unless some approach is developed that will somehow allow economic growth to continue, despite limited oil supply and high oil prices. Renewables at this point are higher priced, and not helpful in this regard.

In this situation, widespread loan defaults would lead to impaired credit availability and difficulty in arranging international trade. Individual countries would presumably continue to issue their own currency, so local trade would continue. In the new environment, countries with debt default problems, such as Greece, would likely have difficulty buying oil (and other scarce goods) without something (besides Drachma) to trade in return.

With limited international trade, there would likely be disruptions to oil and gas extraction, since workers and equipment are traded internationally today. At some point, it may be difficult to make high-tech goods like computers, because of the difficulty in assembling the many inputs from sources around the world.

Political disruptions would seem to be likely as well. Some countries may even see civil war. Some countries may even break into smaller units, similar to the way the Soviet Union did in 1991.

The timing is not clear, but disruption could come as soon as the next few months. The current problems with debt defaults in Europe would seem to have the possibility of spreading to banks and other financial institutions around the world.

We don’t know how much of the system such a contraction would pull down. It seems to me that in the analogy of Figure 1, some vulnerable sections (like Greece) could be pulled down first, with others falling later. Bailouts may help temporarily, but at some point, the bailouts are likely to fail as well, because the underlying problem of restricted oil supply has not been fixed.

2. Planned contraction, with certain parts of the economy left behind.

In this approach, particular unneeded segments of the economy would be discarded. For example, President Obama is planning military cuts. President Obama is also talking about merging agencies and eliminating the Commerce Department.

In a shrinking economy, changes of these types are certainly needed. The problem is that the amount of shrinkage that is being proposed is far too small to have much impact.

Another type of contraction that has been suggested relates to expenditures which seem unnecessary. For example, the US medical care system could be scaled back, because healthcare expenditures in the US accounted for 17.6% of GDP in 2009, far more than for other developed nations. Another area which might be scaled back is animal production on industrialized farms, since corn-fed animals are not good for health, and since the huge amount of meat we eat contributes to global warming. These are just two examples; each of us could name favorite boondoggles to eliminate.

The problem is trying to get agreement on any kind of contraction, such as these. Our current system is the only one most of us have ever known. Most people are not aware of our need for change, and would resist changing what appears to be working at least somewhat well. Employees in the current systems would certainly be unhappy, because they would stand a chance of losing their jobs.

If changes such as these could be made, it would be one way of contracting the current system, hopefully without crashing it.

3. Contraction away from the poles and other areas with bad climactic conditions.

This appears to be a natural approach to contraction.

It takes more fuel to heat homes near the poles. Homes also have to be built more substantially. If we look back at the historical record, populations have tended to be highest in warm climates–India, fairly warm areas in China, and the Middle East. According to scholar Angus Maddison, about 75% of the world’s population lived in these areas in the year 0 AD, and even in 2008, 68% of the world’s population lived in Asia. Northern countries of Europe and America have tended to have lower populations, but higher average real GDP (fueled by fossil fuels).

This past week, newspapers discussed Nome, Alaska’s fuel shortage. They reported that a Russian fuel tanker was being used to deliver additional oil. If oil prices stay high, we will have an increasingly difficult time supporting populations that disproportionately need oil, such as those in very cold areas.

High oil prices may also limit the amount of infrastructure repairs that can be done. If this happens, decisions will need to be made regarding which roads not to repave and which electric transmission lines not to maintain. I would expect that infrastructure that serves the fewest people would be most likely to be subject to cutbacks.  These areas are likely to be in areas that are unattractive for settlement because they are very cold or very dry.

4. A transition back to “old” renewables

In my view, there are two kinds of renewables:

(1) Old renewables, like wood, and small wind and water power that can be replenished with local materials. This category would probably also include draft animals. It would also include solar thermal water heaters, similar to hot water bottles that can be left out in the sun to heat water, since they can be made simply with recycled materials.

(2) New renewables, like electricity from large industrially produced wind turbines, solar electric, and large hydro-electric dams, that require modern technology for building and repairs. Electric cars might also be in this category.

In this section, I am discussing the first of these categories, Old Renewables. One concern is that at some point, perhaps many years from now, today’s whole economic structure will collapse (Figure 1). How this would play out is unknown. Perhaps we could continue to reuse parts of our current system. If not (for example, if difficulties with international trade greatly reduce access to fossil fuels), we may be faced with creating a new economy, based primarily on “old renewables”.

The problem with this outcome is that old renewables are quite limited in their quantity. The world could not possibly support seven billion people. McEvedy and Jones, in Atlas of World Population History, estimate that if human population followed the population patterns of similar animals (gorillas and chimpanzees), world human population would be somewhere in the range of 70,000 and 1,000,000. This was the approximate probable initial human population, about 200,000 years ago.

Human population gradually grew, reflecting mankind’s ability to appropriate resources for its use beyond what its normal role in the ecosystem would allow.  McEvedy and Jones estimate that human populations grew to 1.7 million by 100,000 BC and to 4.0 million by 10,000 BC. Over time, humans gradually increased their ability to operate outside ecosystem boundaries, killing off other species, domesticating animals, and using resources such as water power, wind power, and burning wood and peat. Total world population grew as follows, according to Angus Maddison:

1 AD – 225,820,000

1000 AD – 267,000,000

1500 AD – 438,428,000

1820 AD – 1,041,708,000

How far back population would fall in the case of collapse is not at all certain. As long as humans keep their ability to appropriate resources that might theoretically be shared by other species, their numbers will remain high. This propensity, however, is what leads to the tendency toward renewed growth, and new pressure on resource availability.

5. A transition to “new” renewables

Some people are hoping for a transition to new renewables–”unbuilding” the fossil fuel structure that we have, and trying to build a new one based on renewables instead. This approach may be appropriate for some wealthy individuals, but it is not clear that it has significant feasibility for society as a whole, because the cost of most new renewables is higher than that of the fuels they replace, making the high oil price problem worse, not better. If new renewables drop in price, this situation may change.

The extent of today’s new renewables is less than many people understand. In the United States, renewable energy (including hydroelectric, biofuels, wood burned as fuel, geothermal, wind, and solar) amounted to 5.4% of total energy consumed in 2010, according to BP energy statistics. If we lived on today’s renewables alone, our per capita energy consumption would be roughly equivalent to that of India. India generally does not need fuel for heating, while we in the United States do. Taking into account the differing fuel needs, the average US citizen living on renewables alone would be somewhat worse off than today’s citizen of India.

The other issue that people tend not to be aware of is that new renewables, as they are built and used today, are very much part of the fossil fuel system. They are built using fossil fuels, and they are maintained using fossil fuels. Except for biofuels, they depend on electric transmission lines, and these need to maintained with fossil fuels as well. Furthermore, if we are to maintain electric transmission lines, we need oil to maintain the roads that lead to the lines.

We probably also need international trade to maintain new renewables, because replacement parts use minerals from many parts of the world, and depend on the availability of computerized systems to support production. If financial problems disrupt international trade, we may find that our “renewable” systems degrade quite quickly, because we are not able to maintain them properly.

Nevertheless, there is a possibility that new renewables will soften the economic fall for those who have access to them, especially if issues of repairs can be kept at a minimum. Because of this, new renewables such as solar PV remain a popular choice among people who are concerned about continued economic contraction.

6. The “Just Use Less” approach

If oil prices remain high, this view suggests that finding ways to use less should be our primary response oil limits. For example, responses might include planting gardens near home, getting people to change their light bulbs for more energy-efficient models, and building more fuel-efficient cars.

While this approach has merit, it is not clear that this approach, in and of itself, is more than a small part of the solution, because of the bigger picture issues that are causing major strains on the system. Saving fuel in one place puts financial strains on other parts of the system. For example, a utility that fails because of bankruptcy could reduce electricity availability. What appear to be frivolous uses of our current systems (for example, game playing and downloading movies over the Internet), help to keep costs down for more serious users. Because of the complexity of our current system, savings in one area could cause problems in another section of our economic structure.

Thus, this approach would shrink some parts of Figure 1. While this may somewhat work, there is also the possibility that this shrinkage will by itself cause strains or actual breaks in other parts of the economic system.


All in all, we do not have firm answers. Instead, we have a number of views of how the downturn due to high oil prices may proceed, and appropriate responses to it.

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.

67 Responses to Where do continued high oil prices lead us?

  1. Don Stewart says:

    Thank you for an excellent post.

    I think that we frequently underrate the simple expedient of expanding our comfort zone. For example, I read recently that South Korea is suffering from an electricity shortage and that office workers are wearing warm slippers and that sales of long underwear are booming. We could all do that today–no inventions are needed.

    Joel Salatin, the Virginia farmer writing in Folks, This Ain’t Normal, recalls ‘I remember well during my teen years taking my morning pee in the upstairs bathroom and seeing the stream splatter onto ice in the toilet bowl.’

    If someone can become as smart as Joel obviously is while sleeping inside a farmhouse with the temperature below freezing, exactly what is the problem we are trying to solve with excessive reliance on thermostats and unlimited energy to keep them within a degree of what we call ‘comfortable’?

    If Sharon Astyk can achieve energy use 75 percent below ‘normal’, and become a member of the ASPO board, then why do we need to build nuclear power plants which we probably won’t be able to maintain safely in the pretty near future?

    I do agree that living frugally creates problems for the spinmeisters on Wall Street. If any of us are dependent on the spinmeisters being successful, then we probably need to rethink our strategy.

    Don Stewart

    • It is easy to forget that the younger people today don’t have quite the same life experiences older people have had, or have heard about from their parents.

      My mother tells me she first had electricity in her home at age 8. I know she also used an out-house, but I don’t remember hearing until what age. My father tells about delivering babies in people’s homes around 1950.

    • David F Collins says:

      My mother (born in 1906) told us that typical water drinking glasses were in the shape of truncated cones because this way the water in such a glass on the bedside table would not cause it to break when it froze, as would happen in the tulip-shaped glasses now so popular. In winter, her glass regularly froze. The kids got dressed under the covers. Modern kids? Mine got used to getting dressed in their sleeping bags while on family backpacking trips. My granddaughters, too, more recently.

      We used pencil extenders so we did not need so many new ones. Even we boys had to learn how to darn our socks, but Mom reversed frayed collars on our shirts. We traded ice skates and even shoes around the neighborhood. We kept our coats and mittens on in church (our pastor was not into fire-breathing sermons).

      Just as labor-saving technology (in a rising economy) did not result in inordinate job losses, a shrinking economy need not impoverish everybody more than the overall economic shrinkage. The way people adapt to extenuating circumstances can be amazing. Even in the Nazi extermination camps, Victor Frankl in «Man’s Search for Meaning» described how people adapted, sometimes in surprising ways.

      Adaptation won’t be pretty. But life, in general, seldom is. History itself is typically stretches of ugliness interspersed with brief and shining moments. As our brief and shining moment comes to a close (or comes crashing down), let us not make the future uglier than it need be.

      Option #6 is the way to go. Whether we like it or not. I doubt much that it will be as horrid as some would have us believe. And for sure, it won’t be pretty, either!

      • Bicycle Dave says:

        Hi David Collins,

        My mother (born in 1906)

        My dad was born in 1910 – sometime in July. When I got him his first passport (at age 90) we had some difficulty with getting his birth certificate. Long story, but the interesting part is that his parents did not get into town to register his birth until after the fall harvest – and then they tried to remember the exact day he was born. Different times.

  2. John in Va Beach says:

    Hi Gail; Thanks for your carefully crafted and thoughtful articles. Since the entire global economy is in essence a single massive bubble floating on cheap energy and the expectation of continuing cheap energy, one would think that small cracks in that belief system would quickly result in panic responses such as hoarding, militarizing the resource, rationing, collapse of transparent markets and the beginning of black markets, etc.

    As oil becomes more of a strategic resource (to support war fighting and defense in general) and less of a commercial commodity (supporting consumer lifestyles), I would guess the descent would be rapid and chaotic.

    I really appreciate your articles!

    John D, Virginia Beach

  3. Bob Carver says:

    Thank you for the excellent perspective you bring to the reality we inevitably will be forced to face. One of my recommendations for years has been that if people would simply “Do the Math!” they would quickly separate reality from fantasy, and that is something you do very well. I just found another blog that literally does that from a pure science and math perspective and would highly recommend it as another resource in the same general vein as this site. It’s http://physics.ucsd.edu/do-the-math/ which is written by UCSD Physics professor Tom Murphy. He really gets into detail concerning the energy and resource choices we face. And, I think his blog would be an excellent addition to your blogroll.

  4. Don Stewart says:

    Dear Gail
    See my previous comment and your response.

    My thoughts are based on working at a small farm with around 25 interns over the last 3 years, the interns 45 to 50 years my junior. I do not think it is the fact that young people cannot learn to do the mechanical and intellectual work required to survive in a low energy world. Certainly it would help if they had been raised as Joel Salatin describes the rearing of his children (no TV, work as the bond between generations, mechanical inventiveness as opposed to purchase, etc., etc.) But I see college graduates come to the farm who have never done mechanical work or labored in the cold or the hot and who have never had a garden. As one young woman who was finishing her tour told me recently, ‘I never thought I would be 24, unable to pay my college loans, and living in a house with wood heat and a composting toilet’. There were tears in her eyes. So the big disconnect, in my experience is the gap between expectations and reality.

    Another gap is between those who come in with the attitude of doing a good job and those who are trying to slide by. Regardless of one’s background, if one can take pride in growing beautiful tomatoes or peppers, then one CAN learn, even at the advanced age of 22 (which would sound ridiculous in simpler cultures). But if one is just trying to slide by until ‘real jobs’ again become plentiful, then no learning takes place. And if those ‘real jobs’ never do become plentiful, then the future is likely to be pretty dismal.

    Our farm recently hosted a young woman who is mostly interested in animals and pastures, but who wanted a little experience with row crops. She has learned a tremendous amount about soil microorganisms and water management and mob grazing and carbon sequestration and continues to learn about this infinitely interesting world. My guess is that she will do well. Your scenarios would not alarm her. She WOULD have a lot of practical questions such as getting her product to market. If you said the US government would collapse, she would probably be relieved since most small farmers correctly see the government as either an outright enemy or else as a bumbling know-nothing.

    Don Stewart

    • schoff says:

      Don bless you for taking on the role you have described. I have to say living in the very heart of suburbia and all of the suburban mindset with two kids on a 60 acre farmette has been an interesting experience. Going out in the dark in the sleet and snow cutting christmas trees with them, harvesting wheat, vegetables, cutting firewood, and heating with it using an outdoor furnace that you have to top off at 9pm in the dark is almost unexplainable to their peers or their parents. On occasion there has been light pushback, and light complaints, but through time they have discerned that there is a good life in all of that. In fact both of them have been to very poor places on their own in Africa, and found out that Zero Electronics, a bed, some food, and a deck of cards with friends, and a job to do, is a good life.

      I certainly agree with you about the gap. I’d like to believe we can teach the younger people that there are multiple good realities, and that the one they see on TV might not even be good if it is actually realized.

  5. Jan Steinman says:

    Another great post, but I’m not sure I go along with “contraction away from the poles.”

    Have you considered global warming in such a scenario? It may well be that the only creatures who can survive in the future will be migratory, moving toward the poles in the summer and toward the equator in the winter. Consider that James Lovelock (originator of the Gaia hypothesis) envisions survival of only a few hundred thousand humans in a hundred years, clustered around the poles.

    At least that’s why I emigrated to Canada. :-)

    • For most of the 200,000 years that humans have populated the earth, humans have been migratory. We have had an unusually good period with respect to climate, in the last 10,000 years, and I expect that this part of why we have been able to develop agriculture.

      If we go back to instability, we may very well need to go back to migratory patterns.

      I know Dmitry Orlov has written about the fact that being migratory can be helpful. He has his boat. He also has talked about Russian farmers doing hunting to supplement what they get from farming, because they can’t be very certain of crops.

    • I agree with you. Maybe in few years (20-30?) the only habitable places on Earth will be around the poles (see http://westcoastclimateequity.org/wp-content/uploads/2009/03/2099.jpg)

      I’m also emigrating to Canada, it has lots of natural resources and, hopefully, increasingly warmer temperatures.

      • I’m impressed with that map, although how can we know for sure? It could be both with climate change, what if it triggers another ice age? what if during that 20 or 30 year period you get more intensive winters and snow due to el niño, la niña or any other weird and unpredictable weather. During my Permaculture course, Penny Livingston our teacher was talking to us out of classroom, that climate change or global warming, could be an analogy of what happens when you get a fever, you also get chills, that could be the reason for some stronger winters already happening. Anyways I would choose a good place to thrive during the next two decades, and if we have to become nomads after that, I would worry then…. there are too many things to worry about right now on the very short term.

  6. schoff says:

    One possibly minor insight into this high price of oil is to beware of the “one person’s debt, is another’s asset” for me personally. The CD or MoneyMarket that I as a person who stayed
    away from debt is related to a debt of another who may/will default. My desire for so-called liquidity doesn’t mean risklessness under some set of scenarios. I need to have some kind of assets that are not debt on the flip side, which could include: simple useful skills, land with good soil, tools, gold, silver, food, friends, cords of wood, a woodlot.

  7. phil harris says:

    That wooden model Figure 1 is an effective image. It, or a derived form, entered a dream I had overnight!
    The big-picture numbers are interesting because most of us have been educated and have worked within and for that growing system. Few of us wanted a ‘command economy’ (that supposedly rational model of industrialization & growth as in the USSR) but what we have built is already a good deal more deformed than your model might suggest. The continuing vast incoming flow of resources needed to sustain advanced economies, speaks, er ,,, volumes!
    We in UK were doing globalization very big-time in my great-grandfather’s day, and using a lot of fossil fuel per person to do it – the numbers of ‘joules per capita’ were very substantial. There has been a further substantial rise in energy per person here only since 1950. Despite the vast recent spread and increased complexity of ‘your and mine’ type of advanced economy, and this ‘globalized’ outreach continuing to rapidly involve ever more people, a substantial number of the world’s present 7 billions, perhaps as many as 40 or 50%, are still not fully reliant on the big fossil energy based system. Although the position of that 40% is very precarious, they mostly rely on growing their own food supply with very little help from fossil fuel, even indirectly in the form of fertiliser and tools. By our standards their critical reliance on fossil fuel is tiny.
    The parts of the world ‘that filled-up first’ with people were, and are, those places where potential sustainable agricultural yields are high. Historically, these areas have demonstrated large people ‘carrying capacities’. With some inputs from fossil fuel (running at perhaps 2-5% of the fossil fuel inputs per person that are ‘needed’ in the USA), such areas might just sustain in some places relatively high populations. That is not to say that these geographical areas are not at serious risk of failing to feed future populations, and will not suffer major climate disasters. And, the same logic cannot apply to places like Egypt (subject of an earlier essay of yours) where food supplies from the ancient Nile-based system are a small fraction of what is that country’s modest enough per person intake of wheat and beans! Similarly, the ‘old’ carrying capacities of Northern Europe were a very small fraction of the modern population numbers. Seasons are short, good light is brief, trees and grass grow slowly and grain yields were lower than the lower-latitude deltas and flood plains. Liebig Minimum applied severe constraints. Even comparatively well-favored England never got to more than 6M inhabitants until 1750. However, while we have fuel enough for some semblance of a modern system, and while there are still a few very large grain surplus producing countries, e.g. USA, Canada, parts of Europe and South America, and if we can ‘pay’ for it, and there are still financial ‘mechanisms’ for payment, we can continue importing enough food for the next while.
    Thanks again for your thoughtful tour of the limits to growth.
    What happens to dashed aspirations though is food for much thought.


    • Thanks for your insights on the food situation.

      We don’t often see comparisons between Europe and South Asia. Two growing seasons a year is no doubt helpful for South Asia.

      Europe had trouble with cutting down to many trees a long time ago–then went to colonialism, to import more food from around the world. They have been short on food for a long time. My ancestors came from Norway–a horrible place to grow food. Emigration to the United States helped solve population problems in Norway and the rest of Europe.

      • schoff says:

        A great segue for a systems engineer…. in a transition it is going to be the little things that get your civilization. Sweden during WW2 had material issues with vitamin deficiencies, especially with vitamin C, they eventually identified a plant that had incredibly bitter berries (at that time), they then organized a national effort to process them and get them into the schools.

        I certainly pray for a slow downwards transition and not a big down step function, i can’t imagine trying to substitute for certain things (like PVC junctions), trace minerals, sanitary napkins, or amino acids for my vegetarian friends who all depend on nuts from California.

        But borrowing from Don Stewart, the psychological issues would be enormous even for those who are currently not taking medication. How does one cope when what you expected didn’t pan out for 95% of the population?

      • phil harris says:

        Thanks Gail
        Not all Europe. And then there is Ukraine. There are and will be large enough surplus grain producing areas using modern inputs. At the moment though the EU imports most (about 80%) of the primary protein (e.g. Soy) that is needed for EU livestock production.

      • Seaharvester says:

        Norway is a wonderful place to fish for your food though.

  8. Shunyata says:

    These are just my personal thoughts…

    Although energy is the ultimate nemesis of our economy, it is not the immediate problem. In 2006 all was (relatively) well with the world and energy availability has not declined too much since then.

    The immediate issue is our financial system that is used to allocate limited resources. If you have “money” you can trade it for resources; if you don’t, you can’t. The problem is that we have adopted a “Wimpy” financial system. We have used promises to pay money next Tuesday (with additional interest) as money for a hamburger today. This allows production of a massive number of hamburgers because no one actually needs to have money today. But when noone gets paid next Tuesday, these promises are shown to be empty and no more hamburgers are produced, even though the production capability still exists.

    So what happens immediately?

    1. Right now we are simply borrowing more (using sovereign credit lines) to keep the hamburger joints humming. This course cannot last very long.

    2. We could shutter the hamburger joints and let people go hungry, even though we actually have the physical ability to operate them. This could happen at least temporarily. (Think of burning-off crops during the depression because farmers could find no buyers, even though there was starvation in portions of the population.) This is called “deflation”.

    3. We could replace the promises with cash printed out of thin air, extinguishing the promises and keeping the hamburger joints humming. While this works in the short term, it winds up creating “inflation” and allocates the repayment burden disproportionately to the hamburger producers rather than the hamburger consumers. This course shuts down the hamburger joints just as surely as outright shuttering. Right now we are printing cash on a limited basis and have yet to see any penalty. We are likely to see significantly more of this course before we are through.

    To summarize, things are sort of OK right now. But expect to see gyrations of both deflation and inflation before we are through. It is very difficult to preserve wealth through this kind of upheaval. One might make investing today in “self-reliance” a priority rather than solely thinking of accumulating wealth into the future.

    Another issue is that some people have access to the “Wimpy” system, while others are forced to pay cash or real goods (e.g. barrels of oil) to get what they want. This divided system is perceived as fundamentally unfair. This fairness dichotomy presents a problem, because there are likely not enough energy resources to raise the entire world to a Western standard of living. So who gets more and who gets less? And as Gail points out, this problem will quickly become more pronounced as population grows and energy availability declines.

    • You are right about the financial system, but I think the oil component is larger and more hidden than most people realize.

      It is easy to lose sight of how much effect oil limits are having on a world-wide basis. We are basically working in a “fixed-sum” situation. Whatever is available, has to be shared.

      One effect is higher oil prices. These are being masked in the US, first by shifting value of the dollar, and second by the cheaper oil we are getting from Canada. The Midwest oil glut is also holding down WTI prices and Bakken prices, so we are getting better oil prices than the rest of the world. Another issue is that we have extraordinarily cheap natural gas. Coal is also cheap. So our energy costs are significantly cheaper than the rest of the world.

      Another issue is recession, and where it is hitting. The high oil /NG prices are to a significant extent behind the Euro problems, in my view. (If oil and natural gas were cheap and plentiful, Southern European growth would have continued, and the inherent problems with the Euro would have been masked a while longer. China is not growing as fast as in the past. I expect that a number of other “developing countries” are also slowing down on growth.

      A third issue is a mild winter. That is helping to hold down oil demand, around the world. If the situation returns to normal, it will make things much worse.

      A fourth issue is where the oil is being pumped and refined. US supply has been up, at least a little. With the cheap oil prices that the US has been getting, it is able to sell refined products more cheaply, helping its balance of payments problems and also helping the profits of those refining the oil.

      So in the US, the oil situation doesn’t look to bad, but it is still bad in Europe. China is lagging behind in growth now, and I expect that other developing countries are not forging ahead as quickly.

      I should probably look into these issues some more, and write a post on the subject.

  9. Andras says:

    Gail, thank you for the excellent post.
    I think there is one more reason why the “old” renewables could have more “share”. This is the human psycho – the “consumer mind”. You know this site can be considered as an “alternative” approach, but most of the people want to consume more! I’m writing from Hungary, EU. Before the “consumer sociaty”, before 1990, more people unterstood what you are wrinting, but today just a small segment. 99% think that this is a “temporary” crisis. I think this human – consumer mind – is one of the biggest obstacle.

    • It seems like a lot of people don’t spend very much time thinking, except perhaps during their work hours. Every hour of the day is spent with the TV blaring, or a video playing. It is hard to go anyplace–doctor’s office, restaurant, airport waiting area–without some sort of background TV for distraction.

      The messages from TV and from news media tends to be that everything is fine, so people don’t bother to even consider looking for more information.

      • David F Collins says:

        Good point, Gail, that one about thinking. A quibble point: TV and the smothering infotainment tend to numb our brains into not thinking. Information is everywhere, hard to ignore: the trouble is that without “digesting it” or “ruminating” the information is useless. A big advantage of the day is that information tends to be more digestible now than in times past.

        But thinking can also be disturbing. As Satchel Paige warned, “Don’t look back. Something might be gaining on you.” Wile E. Coyote was always heeding the advice. But we can benefit from having eaten of the fruit of the tree of knowledge and look into the abyss without staring and being disoriented.

      • Gary Peters says:


        I’ve long thought that if Karl Marx were to return today he would see TV rather than religion as “the opium of the people.”

        • John Dunn says:

          You are right Gary.
          TV is indeed, likely, the new opiate of the people. But worse than this, it is an opiate feed that can be turned on and off at the flick of a switch.
          Here in the UK, (yesterday), our regulatory body on broadcasting, Ofcom, have revoked the licence of Press TV which up until a few days ago had the right to broadcast across the UK. Why? Press TV is an Iranian channel which gives an alternative view on the middle east.

          Make your own mind up as to the reasoning or politics behind this action.

          • I don’t think people realize either that TV is giving them a set of values to live by. They just notice that religion is not as relevant any more. TV is telling them, “He who dies with the most toys wins.” In a way, TV is providing repetition of the values that economists believe people live their lives by — more and more goods and services, at the cheapest price possible. Hopefully, religion would be telling them something else.

            • Bicycle Dave says:

              Hi Gail,

              Hopefully, religion would be telling them something else.

              The predominate religions in the western world “tell” people that they have a bargain to offer: you support my agenda and I will promise you a good deal in the “afterlife”. I realize that you feel many aspects of that agenda are meritorious – I can point to the overriding aspects of that agenda (like encouraging breeding and their role in wars) that have no redeeming value for humans or the planet. That argument aside, the fundamental danger of these religions is the obfuscation of truth, the promotion of delusions, and the derision of critical thinking (trying talking about atheism at a republican convention). The fundamental proposition of these religions is based upon the presumed existence of a supernatural realm, a deity with whom you have a personal relationship, and a personal-spiritual existence after your physical death. This proposition is steadfastly proclaimed to be a “truth” – even an “eternal truth” or a “revealed truth”. As a scientific hypothesis, these beliefs fail miserably to meet any rational test for being “true” – indeed they are usually labeled “false”. Of course, with that said, comes the chorus “science is just another religion” or “you can’t mix faith and reason”.

              I really don’t see much hope for either people or the planet as long as humanity is inclined to put faith and reason on the same footing for determining what is true or false. I don’t see TV as an inferior replacement for religion; I see it as a natural progression for a population whose dominant culture is based upon the tools of religion: delusion and manipulation.

            • I see more of a purpose of religion than you do.

              A major purpose of religion is to pass on to people within the religious group views on the right way to live in today’s world. Different religious groups (even following the same book) have quite different views on this. Another purpose is to get people to sit down and think about what is important, and how their lives might be improved. A number of different religions have come up with variations on the “Golden Rule” (Do unto others as you would have them do unto you.) There are many other precepts that can be important as well, such as “Love your neighbor as yourself,” and “Honor your father and your mother.” Another thing that can be important is forgiving others who have wronged you in some way, and going on with life.

              One thing some religions do is encourage giving thanks for things that are going well, or that are positive. Focusing on the positive side of life can be helpful for anyone. Keeping a journal of what positive things happened each day might serve the same purpose.

              Even if a person does not believe in God (or god), I think there is a good reason to join a religious group and study their understanding of what is important. I would choose wisely–probably a more liberal group that does not believe in the literal interpretation of the Bible, Koran, or other religious document.

            • David F Collins says:

              “There is no God, and Bicycle Dave is his Prophet.”

              P.A.M. Dirac was once carrying on along this line at an otherwise festive gathering of S.T.E.M. intellectuals. I paraphrase what Wolfgang Pauli said in humor.

              Please, Dave, chill. I appreciate your observations in general, and look forward to what you have to say.

            • Bicycle Dave says:

              Hi David Collins,

              I do get a bit cranked on this topic. And, I really like that saying you quoted -thanks!

              “There is no God, and Bicycle Dave is his Prophet.”

              You can be assured that some variant of it will be put to good use to confound my friends in these types of discussions.

            • Bicycle Dave says:

              Hi Gail,

              Awhile back I promised not to get too far into the religious weeds on your forum – so, I’ll forgo digging into each point you make but there is one idea I can’t resist expressing. You mentioned:

              I would choose wisely–probably a more liberal group that does not believe in the literal interpretation of the Bible, Koran, or other religious document.

              I think you are one small step away from what I’d like to see replace religion/churches and that is a nonsectarian community center concept that deals with the points you raise along with a variety of other things. Long discussion, so I’ll leave it at that.

              BTW, as I’m sure you know, I really appreciate your work . However, we can’t expect to agree on everything just because we both experienced formative years in Minnesota :-)

            • Quite a few of my formative years were in Wisconsin–only part in Minnesota. That is my excuse.

  10. Pingback: Where do continued high oil prices lead us? »

  11. MrColdWaterOfRealityMan says:

    High energy prices eventually makee the world’s product and service supply chains unsustainable. Since supply chains are interdependent, the combination of unaffordable transportation plus unaffordable production costs will rather quickly break down our current economic model of “just-in-time” production and delivery, and drastically reduce the number and variety of available goods and sevices. Since energy production too, is dependent on functioning supply chains of goods and services, we are unlikely to recover once the breakdown begins. Unfortunately, this will probably not happen slowly. Once the breakdown begins in earnest, the cascade effects could be quite rapid.

    • I agree. It is these interdependent events that are hard to predict, and will lead the way down.

      Now we are closing three East Coast refineries, because East Coast refineries buying North African crude (which is high priced) cannot compete with refineries getting Bakken and Canadian crude, which is priced lower (due partly to pipeline bottle necks). But the East Coast needs to be able to refine its own oil, or it will be very dependent on the Gulf coast. In times of hurricanes, there could be supply shortages. A little redundancy is helpful for preventing breakdowns in supply chains.

    • schoff says:

      The supply chains have a lot of assumptions. While I usually use this for kids education consulting or even personal material investment advice, my priorities in thinking for supply chain would be water, food, energy (especially heat here in the northeast & mid-atlantic), security. I was at the sheriff’s office on friday and they appear to be having a run on concealed weapon permits…

  12. The currency we use for Money has been a proxy for Oil since Standard Oil first gained a Monopoly in the 1800s, which was then solidified when the Rockefeller and Rothschild banking houses gained hegemony over FSofA currency creation with the establishment of Da Fed in 1913. The value of all Fiat globally is tied to the Industrial economy based on Oil, and as this economy disintegrates, the value of the money based on it also disintegrates. Either the money supply will shrink in tandem with the shrinking supply of Oil, or the value of the money will decrease as more of it is printed into existence.

    In either case, real purchasing power for Oil and its products and services will decrease, creating a form of triage in the global economy. Marginal areas will be cut off, briefly keeping central areas still operating under this economy. However, the political consequences of the triage are more Wars and then further traige inside developed ecomies as various services are cut off or shrunk in size. The developed economies will see an ever growing population of “Have Nots” in the society, leading to further instability then the eventual breakdown of the Nation States.

    Local Economies will have to develop in order to fill the vacuum left by deteriorating energy dependent systems based on Oil, but they are unlikely to be sufficient to maintain anywhere near the current global population. Its impossible to say exactly how the necessary Global Population Reduction will run its course, how long it will take or at what point a new balance can be achieved with lower per capita energy resources. If you look at the work of Richard Duncan, we probably are going to see reductions in population and per capita energy available through at least 2050 or so before it might level off. How things proceed in various areas of the globe through this period are likely to be highly assymetric, so it will depend on exactly where you live as to how it will play out in that neighborhood. There isn’t a single solution here to this problem.


    • schoff says:

      I’d take a slightly more tortured path and say that money is a proxy for power (non-energy power) which many times is related to energy, but not exclusively nor always. For the US this HAS been aligned both through historic domestic oil, and then through the resurrection of Standard Oil through ARAMCO and then through the House of Saud.

      While one could make the argument that Iran, Iraq, Libya have been held down by “The Powers” or that the USSR was too, it is hard to believe that anyone in the future or the past would take their currencies seriously despite considerable energy assets. In a similar manner one could make the same argument about Mexico & Venezuela. Canada and Norway do get some respect, and Brazil may when they decide if they are gong to be an exporter of oil, or an exporter of manufactured goods.

      The contra indicator would be that two if not three countries have made this through manufacturing: Germany (pre euro), Japan, and increasingly China.

      • In the final analysis, Money evolves from the Power to control resources under an ownership paradigm, so even prior to the discovery of means to access the thermodynamic energy of fossil fuels, it was possible to run monetary systems based on other resource control, generally speaking productive land in the old days. In the Industrial era though, the power of fossil fuels so swamped everything else that the money became tied to that resource primarily.

        Countries that have successfully run a positive balance sheet without their own supplies of energy have done so in a couple of ways, all mercantilist based. For the Germans, they got their industrial infrastructure rebuilt through the Marshall Plan and have been doing vendor financing of their production to their PIIGS clients for the last 40 years. Inthe latter stages they have undertaken the same kind of Ponzi Finance to keep the game rolling that the Banksters in the Anglo-American cartel have done. For the Chinese, they came in a day late and a Yuan Short on the Industrialization game, but made up for that by running the largest Slave labor camp of all time. Neither of these systems are contraindications of the connection between Oil and Money currently in practice.

        Far as the emerging economies with some Oil, count Mexico out of that equation, they are close to fresh out of the stuff. The rest of them are going to have a hard time holding onto what they do have, since Theft is likely to be the name of the game as global supplies diminish.


    • It is hard to see how things will play out. We have a lot of manufactured goods that will continue to “work”, and clothes and other items that we can continue to use, but this usefulness will decline over time. This cushion of goods that we already own will cushion the fall somewhat. That is one reason I can understand a 20 or 30 year decline period.

      There are a lot of unknowns, though. If sanitation becomes a problem and antibiotics are no longer available, we could see many die of diseases, even though food and water may still be available. Or lack of fresh water could become a problem in an area, leading people to moving away, causing conflict in the new areas they move to.

      • Agreed, the overhang of already produced goods that can be scavenged and salvaged will be part of a transitionary phase, at least in terms of things like keeping the lights on a while longer.

        The bigger problem in the near term is the political fallout resultant from ever increasing Unemployment and concommitant evisceration of various support structures in the social welfare states that have masked the negative outcomes of industrialization for these last 30 years or so.

        What makes the whole bizness so truly impossible to predict is how societies will react in aggregate to the mounting problems, or “Long Emergency” as Kunstler phrases it. My general feeling is that a tipping point will be reached somewhere along the line which creates massive social instability, leading to Civil Wars in the Nation States. That period will make any move toward more resilient and sustainable energy systems a moot point until it is over and done with.


    • Bicycle Dave says:

      Hi RE,

      establishment of Da Fed in 1913

      I suspect you may have some thoughts about the actual need for a Federal Reserve as it is constituted in the US. Some time ago, I waded through the book “Web of Debt” and got the anti-Fed perspective. Essentially, the author was alleging that this institution was an unnecessary rip-off perpetuated by greedy international bankers for their own profit and they could care less about the well-being of the US. She felt there were historical precedents for better ways to have a monetary system to accommodate today’s needs. However, the book left me puzzled for several reasons – a couple of which stand out:

      - I could never find any serious critique of the book or counter arguments for her logic. The mainstream of the financial world seems to have just dismissed the book as irrelevant. And yet, many of her arguments seemed persuasive to me. Is this a serious book or just a clever but misleading argument to sell a book?

      - What support I could find for the book seemed to came from libertarian sorts who want minimal government and often advocate a return to a gold standard. The Author was definitely NOT in favor of a return to the gold standard. And, she seemed to suggest that a Federal Reserve Bank should actually be a federal government entity that is actually owned and operated by our government (as it once was). Of course we have all heard the argument that the Fed should be independent from the government for all sorts of reasons – she disagrees. Aside from the Ron Paul type of position for eliminating the current Federal Reserve, is there a useful discussion to be had about alternatives to the current arrangement? If so, where/what is that discussion?

      BTW, what the heck is the FSofA?

      • FSofA=Fascist States of Amerika.

        Far as Da Fed goes, this is a LONG topic to hash out. I’ll try to write a short version sometime tonight.

        BTW, did you catch my reply to your last set of questions on Reverse Engineering?


      • schoff says:

        I agree with RE, this ia long topic. Some errata for the moment, at least one state (north dakota) has a kind of “US State Fed” for its banks. My personal wish would be that several other states constituted these as well. At the minimum they would provide experience for individuals and for us to learn what “best practices” might actually be, instead of running the current circus.

        Whatever the legal structure of the Fed, the actual execution seems worse to me. In the creation of the Fed oh so long ago, there was significant concern about “Eastern Capture” and so there were various geographical limitations put in, one had to be “from” a region to serve in certain allocated slots. Our leadership now goes through some laughable contortions for some of the appointees, such as they once “lectured” in Kansas to qualify for those.

      • Before you can discuss what the Federal Reserve is and what it does, you really have to get global understanding of what Money is, how it evolved and who controls it. I write on these subjects regularly. I’ll post some Links below here for some recent articles that can help you bone up on this subject.

        For good reading on the Federal Reserve and the Global Monetary System in Book form, I suggest first reading

        The Creature from Jekyll Island
        by G. Edward Griffin


        Tragedy and Hope: A History of the World in Our Time
        by Carroll Quigley

        Ellen Brown is not an economist but she is a very bright lady who is looking for a monetary fix to the mess we are currently in. There are however many weaknesses in the type of Credit money system she is advocating for, way too complex a subject for me to address here. What is definitely true though is that if we are to try to use some form of Money as part of a resource distribution scheme, Money Creation has to be taken out of the hands of Private Banksters and put under Public Control. If you do not know that the Federal Reserve is NOT a part of Da Goobermint already, this is the first thing you need to know. The Federal Reserve is wholly owned by its member Banks, including of course the House of Rothschild, Chase (the Rockefeller bank), JP Morgan, Bank of Mellon and a few other notable historical Banking Houses, which all have common etiology running back to the Medici era, and quite possibly a good deal further back than that.

        Anyhow, here’s a few articles for you to read on Money, Gold and assorted related topics. The first one listed published on The Burning Platform as part of my Frostbite Falls series is Open and available for anyone to read. The rest are published in our Private Group on Reverse Engineering. You can find Michael Hudson’s article on his own Blog and also Zero Hedge Republished it as well.

        Here’s a short reading list of recent stuff.

        RE’s Monetary Theory of Everything

        Musings on Money

        Collapsing Ponzi of the Retail Investor http://tech.groups.yahoo.com/group/reverseengineering/message/4862

        Large Public Works Projects

        Collapse of the Euro and the End of Money

        More Musings on Gold and Money

        History of Debt (by Michael Hudson, republished on Reverse Enegineering)


  13. DBowman says:

    Another great post Gail, I appreciate your site and your insights.

    Perhaps at some point the U.S. citizenry could agree to contract the amount of spending on health care by cutting out the various middlemen and the stockholder profit motives by adopting some sort of national/universal health care system as is found in numerous other countries…most of which spend less on health care and realize better outcomes than is the case in the U.S.

    I concur with the premise that, as energy availability circumstances change, ingrained ways of thinking may have to change to adapt to the new realities.

    Healthier diets and increased exercise need to be adopted concurrently with any such national healthcare system. It is a shame that low-nutritional value, yet high calorie, foods are so inexpensive to consumers yet profitable to market. I truly hope the joys of home cooking are discovered by more folks…perhaps with an economic paradigm shift coming, more folks will have more time to live more simply and healthier.

    • I agree. Part of today’s problem is the oversized salaries of doctors especially. Part of the problem is today’s food system, with its reliance on corn and over-processing. Part of the problem is consumers who don’t realize how bad this diet is, and how important exercise is. Hopefully you are right, and things will change for the better.

  14. I think your sense of economic growth and decline as “rising together” but “falling apart” is quite apt. Growth is actually a construction process, so decline a demolition process, after all. So it’s not like an “accordion” expanding and contracting. The variables are continuous, like equations, only in very narrow ranges. That’s certainly one of the great missing questions from the whole discussion.

    I think another key missing question is what really steers the pace and direction of economic development, once you think of it as a construction process. There’s a very reliable general answer. It’s always how the profits of the system are invested in changing the system. That’s true in growth and it’s true in confronting limits to growth both, that it’s always the construction done by the profits of the system that build it. You only need to connect their money with the instructions investors give for what the ask the economy to build with it.

    You might consider various ironies of our investment strategies in this regard. For example, American retirement savings used to be invested in creating jobs for our kids. For decades now those savings have been making better returns from investing in eliminating jobs for our kids… More of my views on that are in the article in New European Economy, “A decisive moment for Investing in Sustainability” http://www.synapse9.com/pub/ASustInvestMoment-PH.pdf

    • Those are good points. Profits for investors need to be aligned with jobs for people in this country. In many ways, globalization is a serious problem. Our workers are competing with people with a much lower standard of living. If they live in warmer parts of the world, they also don’t have the issues of building sturdy homes and heating them.

    • Strav7 says:


      Excellent points. Your construction/destruction framing, and Idea that reinvestment in construct leads to future profits there is totally awesome.

  15. Bob in NM says:

    Gail, Thanks for yet another thoughtful and thought-provoking article. In re-reading it, I kept feeling that your “old” and “new” renewables was onto something, but not quite right. A perhaps more useful perspective and descriptors is to think of “old” renewables as “small/simple/appropriate scale” renewables, and “new” renewables as “large/complex/industrial scale” renewables. There is a continuum between simplest and most complex, smallest and largest, appropriate (natural) and industrial. If energy descent results in deindustrialization, then small/simple/appropriate appears more likely to be able to be produced, maintained, and useful.

    • That is a good point. The issue is really small/simple/ appropriate scale renewables versus large/complex/industrial scale renewable.

      It seems like large/complex/industrial scale renewables are just another dead-end, perhaps a little farther away.

  16. Don Stewart says:

    This will be a comment on ‘deconstruction’.

    Joel Salatin is the Virginia farmer made famous by Michael Pollan. His current book is Folks, This Ain’t Normal. In the chapter We Only Serve White Meat Here, beginning on page 93, he describes how the current model of fast food is inconsistent with local farms and thus will fail if energy restrictions require the relocalization of restaurant food. He gives quite a good detailed description of what a farmer has: a complete chicken in pastured rotation with cows and rabbits in a certain ratio which maximizes nutrient cycling. Availability is also seasonal–chickens are of tropical origin and do not thrive with snow on the ground.

    But what the fast food joints want is an unlimited supply of particular cuts or products (e.g., eggs) with no seasonality whatsoever. So…in a relocalized food economy fast food as we know it will disappear. (So will winter eggs.) It will probably be replaced with more eating at home and a return of the neighborhood diner which featured a chef skilled enough to make use of what was available seasonally and all the parts of the animal. Interestingly, there are a couple of local restaurants, using beef and pork, that specifically buy entire animals from local farmers. This is a return to the neighborhood diner model.

    This is either a cyclical return to the traditional low energy diner, or a modern variant on that diner, or a new way of running a restaurant with localization of supply…depending on how you want to look at it. I do not see this as at all disastrous, and heartily applaud it. I don’t think the fast food chains can do it because their mindset is completely different.

    Don Stewart

    • The decline in the availability/use of all the various parts of animals is one of the changes over the years. I am sure these parts still get used somehow–as animal food, or as sausage, or something. But you don’t see liver on the menu at McDonald’s.

  17. Don Stewart says:

    While talking with my wife at dinner, it occurred to me how to capsulize the Joel Salatin/ Fast Food divide. Joel does not object at all to generic fast food–he thinks slow cookers are marvelous. He likes soups and stews. which are ready to eat.

    Joel is trying to maximize the nutritional product of the sun. The sun is capable of growing X amount of grass which is capable of supporting Y number of cows which need Z number of chickens to rotate behind them to clean up the cow patties and speed the recycling of nutrients. The Earth needs recycling of nutrients in order to sequester carbon and maintain a stable climate while maintaining the fertility of the soil and providing a healthy Earth for our children to inherit. He understands, and indeed celebrates, the fact that utilizing such products requires intelligence in the food preparation and consumption and recycling stages.

    The fast food companies are not on that page at all. They are trying to maximize profits any way they can. Only a fool or an Economist thinks that the two answers are even vaguely similar. The fast food companies require an enormous world wide distribution system which chews up fossil fuels and reduces humans to cogs in a machine. One goal is to eliminate thinking on the part of those employed in production and consumption, and to foist recycling off on some ‘methane capture’ industry.

    Hope this summary suggests the divide….Don Stewart

  18. Pingback: Deep Change in Reality – Reversing Productivity of Productivity… « Reading Nature's Signals

  19. Don Stewart says:

    It is true that absolutely everything gets used in a global system. The problem is that it requires a global transportation network to get it to the place where each component is used. Contrast the delivery (in a small truck) of a few animals to a single restaurant where they are butchered and prepared and sold to patrons. (How they get around government regulations on inspection, I don’t know and won’t ask). The same for home use. My wife, when she was a young girl, went with her girlfriend to pick up live chickens at a store in the neighborhood. The chickens grazed out back of the store. The owners picked out a few chickens, gave them to the girls, who took them home, their mothers killed them and separated them into parts and prepared them for their families to eat. This was Jersey City, circa 1950. Think about the different logistical requirements of the current industrial system. And think about the transport fuels required to support that different logistical system.

    Can we go back? Of course we can if we have to. The obstacles are bone-headed government regulations designed to make sure that this sort of thing doesn’t endanger Frank Perdue or Don Tyson and the ignorance of the current crop of cooks. Would any system that evolves be exactly like Jersey City in the 1950s? No, but as somebody said ‘history doesn’t repeat itself, but it does rhyme’.

    Don Stewart

  20. Don Stewart says:

    One more angle on my wife and the chickens. Assume that a chicken is worth perhaps ten dollars, live, at a neighborhood store/henhouse. Our hypothetical little girl would pay 10 dollars and that would be that. A little fuel used for cooking and the GDP generated can’t be more than, say, 11 dollars.

    But if the chicken is grown on an industrial scale and sold in fractions to a wide variety of global enterprises who turn their little piece part into consumer and industrial end products, the GDP can be very much larger. For one thing, enormous amounts of transport fuels are consumed shipping the piece parts from the source to one and possibly more producers in each chain which results in something to sell the public or businesses. For example, the feathers can be sold to those who make feather meal which is sold to those who retail feather meal to farmers.
    Wikipedia: Feather meal is made from poultry feathers by partially hydrolyzing under elevated heat and pressure and then grinding
    So energy is used to heat and apply pressure and to grind and all this stuff has to be transported. I wouldn’t be surprised if there are hundreds of distinctly labeled products which can be made from a chicken.

    And assuming that the public is rich enough, they can be persuaded to part with a lot of money to get edible chicken parts which have been manipulated to exactly fit their idea of a tasty snack. For example, many children today do not realize that chickens have bones.

    So I would just guess that a ten dollar chicken can be turned into 50 dollars of GDP. So the GDP multiplier is 50 dollars vs 10 dollars, or 5 to 1. This is like fractional reserve banking. A dollar on deposit can be leveraged into 15 or 25 or 50 dollars of debt. A 10 dollar chicken magically becomes the 50 dollar chicken.

    Everyone is intimately familiar, since 2008, of the things that can go wrong with leveraged financial systems. What about leveraged chickens? What immediately becomes obvious is that transport fuels make the whole industrial cycle and the magic multiplication of GDP possible. This magic multiplication of GDP shows up as income for someone which permits them to show the bank earnings statements and thus borrow more money. And so it goes around.

    So one obvious threat to the system is transport fuels. A second would be a turning in consumer preferences. Suppose (horrors!) people actually began to prefer to live the way Joel Salatin describes. Their life becomes much more a closed loop system. The chickens in the back yard eat the scraps of food that are left over and pesky bugs and weeds and lay eggs and provide manure to earthworms which provide compost to grow more veggies in the kitchen garden. There is very little GDP (since nothing much is bought or sold), but perhaps a lot of satisfaction. (And the feathers are used for pillows or comforters or put in the compost pile and back into the soil.)

    Don Stewart

    • Your point about leveraged chickens is a good one.

      I got some of the same impression as to what was happening when I got into a discussion with someone about whether US manufacturing was expanding, and the person provided links to US manufacturing statistics. A lot of the food that was minimally processed before is now manufactured into something which sells for more money. I think the example was boxes of cereal with 4 cents worth of corn in them.

      I personally try to buy food is as close to the original condition as possible–produce, dried beans or peas, oatmeal, salt, fish, etc.

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