Energy Products: Return on Investment is Already Too Low

My major point when I gave my talk at the Fifth Biophysical Economics Conference at the University of Vermont was that our economy’s overall energy return on investment is already too low to maintain the economic system we are accustomed to. That is why the US economy, and the economies of other developed nations, are showing signs of heading toward financial collapse. Both a PDF of my presentation and a podcast of the talk are available on Our Finite World, on a new page called Presentations/Podcasts.

My analysis is with respect to the feasibility of keeping our current economic system operating. It seems to me that the problems we are experiencing today–governments with inadequate funding, low economic growth, a financial system that cannot operate with “normal” interest rates, and stagnant to falling wages–are precisely the kinds of effects we might expect, if energy sources are providing an inadequate energy return for today’s economy.

Commenters frequently remark that such-and-such an energy source has an Energy Return on Energy Invested (EROI) ratio of greater than 5:1, so must be a helpful addition to our current energy supply. My finding that the overall energy return is already too low seems to run counter to this belief. In this post, I will try to explain why this difference occurs. Part of the difference is that I am looking at what our current economy requires, not some theoretical low-level economy. Also, I don’t think that it is really feasible to create a new economic system, based on lower EROI resources, because today’s renewables are fossil-fuel based, and initially tend to add to fossil fuel use.

Adequate Return for All Elements Required for Energy Investment

In order to extract oil or create biofuels, or to make any other type of energy investment, at least four distinct elements described in Figure 1: (1) adequate payback on energy invested,  (2) sufficient wages for humans, (3) sufficient credit availability and (4) sufficient funds for government services. If any of these is lacking, the whole system has a tendency to seize up.

Figure 1. One sheet from Biophysical Economics Conference Presentation

Figure 1. One sheet from Biophysical Economics Conference Presentation

EROI analyses tend to look primarily at the first item on the list, comparing “energy available to society” as the result of a given process to “energy required for extraction” (all in units of energy). While this comparison can be helpful for some purposes, it seems to me that we should also be looking at whether the dollars collected at the end-product level are sufficient to provide an adequate financial return to meet the financial needs of all four areas simultaneously.

My list of the four distinct elements necessary to enable energy extraction and to keep the economy functioning is really an abbreviated list. Clearly one needs other items, such as profits for businesses. In a sense, the whole world economy is an energy delivery system. This is why it is important to understand what the system needs to function properly.

What Happens as Oil Prices Rise

When oil prices rise, wages for humans seem to fall, or at least stagnate (Figure 2, below). The comparison shown uses US per capita wages, so takes into account changes in the proportion of people with jobs as well as the level of wages.

Figure 2. High oil prices are associated with depressed wages. Oil price through 2011 from BP’s 2012 Statistical Review of World Energy, updated to 2012 using EIA data and CPI-Urban from BLS. Average wages calculated by dividing Private Industry wages from US BEA Table 2.1 by US population, and bringing to 2012 cost level using CPI-Urban.

Figure 2. High oil prices are associated with depressed wages. Oil price through 2011 from BP’s 2012 Statistical Review of World Energy, updated to 2012 using EIA data and CPI-Urban from BLS. Average wages calculated by dividing Private Industry wages from US BEA Table 2.1 by US population, and bringing to 2012 cost level using CPI-Urban.

In fact, if we analyze Figure 2, we see that virtually all of the rise in US wages came in periods when oil prices were below $30 per barrel, in inflation-adjusted terms. The reason why the drop in wages happens at higher per-barrel levels is related to the drop in corporate profits that can be expected if oil prices rise, and businesses fail to respond. Let me explain this further with Figure 3, below.

Figure 3. Illustration by author of ways oil price rise could squeeze wages. Amounts illustrative, not based on averages.

Figure 3. Illustration by author of ways oil price rise could squeeze wages. Amounts illustrative, not based on averages.

Figure 3 is a bit complicated. What happens initially when oil prices rise, is illustrated in the black box at the left. What happens is that the business’ profits fall, because oil is used as one of the inputs used in manufacturing and transportation. If the cost of oil rises and the sales price of the product remains unchanged, the company’s profits are likely to fall. Additionally, there may be some reduction in demand for the product, because the discretionary income of consumers is reduced because of rising oil prices. Clearly, the business will want to fix its business model, so that it can again make an adequate profit.

There are three ways that a business can bring its profits back to a satisfactory level, illustrated in the last three columns of Figure 3. They are

  • Automation. Human energy is the most expensive type of energy a business can employ, because wages to paid to humans to do a given process (such as putting a label on a jar) are far higher than the cost of an electricity-based process to perform the same procedure. Thus, if a firm can substitute electrical or oil energy for human energy, its cost of production will be lower, and profits can be improved. Of course, workers will be laid off in the process, reducing total wages paid.
  • Outsourcing to a Country with Lower Costs. If part of the production cost can be moved to a country where wage costs are lower, this will reduce the cost of manufacturing the product, and allow the business to offset (partially or fully) the impact of rising oil prices. Of course, this will again lead to less US employment of workers.
  • Make a Smaller Batch. If neither of the above options work, another possibility is to cut back production across the board. Even if oil prices rise, there are still some consumers who can afford the higher prices. If a business can cut back in the size of its operations (for example, close unprofitable branches or fly fewer airplanes), it can cut back on outgo of many types: rent, energy products used, and wages. With reduced output, the company may be able to make an adequate profit by selling only to those who can afford the higher price.

In all three instances, an attempt to fix corporate profits leads to a squeeze on human wages–the highest cost source of energy services that there is. This seems to be Nature’s  attempt way of rebalancing the system, toward lower-cost energy sources.

If we look at the other elements shown in Figure 1, we see that they have been under pressure recently as well. The availability of  credit to fund new energy investment is enabled by profits that are sufficiently high that they can withstand interest charges incurred in the payback of debt. Debt use is also enabled by growth, since if profits will be higher in the future, it makes sense to delay funding until the future. In recent years, central governments have seen a need to put interest rates at artificially low levels, in order to encourage borrowing. To me, this is a sign that the credit portion of the system is also under pressure.

Government’s ability to fund its own needs has been under severe stress as well. Part of the problem comes from the inability of workers to pay adequate taxes, because their wages are lower. Part of the problem comes from a need for governments to pay out more in benefits, such as disability income, unemployment, and food stamps. The part that gets most stressed is the debt portion of government funding. This really represents the intersection of two different areas mentioned in Figure 1: (3) Adequacy of credit availability and (4) Funding for government services.

The constellation of energy problems we are now experiencing seems to me to be precisely what might be expected, if energy return is now, on average, already too low.

The Role of Energy Extraction in this Squeeze

When any energy producer decides to produce energy of a given type (say oil or uranium), the energy producer will look for the resource that can be extracted at lowest cost to the producer.

Figure 4. Resource triangle, with dotted line indicating uncertain financial cut-off.

Figure 4. Resource triangle, with dotted line indicating uncertain financial cut-off.

Initially, production starts where costs are most affordable–not much energy is required for extraction; governments involved do not require too high taxes; and the cost of human labor is not too high. The producer may need debt financing, and this must also be available, at an affordable cost.

For example, easy-to-extract oil located in the US that could be extracted very simply in the early days of extraction (say before 1900), was very inexpensive to extract, and would be near the top of the triangle.  Tight oil from the Bakken and bitumen from Canada would be examples of higher cost types of oil, located lower in the triangle.

As the least expensive energy is extracted, later producers wishing to extract energy must often settle for higher cost extraction. In some cases, technology advancements can help bring costs back down again. In others, such as recent oil extraction, the higher costs are firmly in place. Higher sales prices available in the market place enable production “lower in the triangle.”  The catch is that these higher oil prices lead to stresses in other systems: human employment, government funding, and ability for credit markets to work normally.

What Is Happening on an Overall Basis

Man has used external energy for a very long time, to raise his standard of living. Man started over 1,000,000 years ago with the burning of biomass, to keep himself warm, to cook food, and for use in hunting.  Gradually, man added other sources of energy. All of these sources of energy allowed man to accomplish more in a given day. As a result of these greater accomplishments, man’s standard of living rose–he could have clothes, food which had been cooked, sharper tools, and heat when it was cold.

Over time, man added additional sources of energy, eventually including coal and oil. These additional sources of energy allowed man to leverage his own limited ability to do work, using his own energy.  Goods created using external energy tended to be less expensive than those made with only human energy, allowing prices to drop, and wages to go farther. Food became more available and cheaper, allowing population to rise. Money was also available for public health, allowing more babies to live to maturity.

What happened in the early 2000s was a sharp “bend” in the system.  Instead of goods becoming increasingly inexpensive, they started becoming relatively more expensive relative to the earnings of the common man. For example, the price of metals, used in many kinds of goods started becoming more expensive.

Figure 5. Commodity Metals Price Index from the International Monetary Fund, adjusted by CPI-Urban to 2012 price levels. Commodity Metals include Copper, Aluminum, Iron Ore, Tin, Nickel, Zinc, Lead, and Uranium.

Figure 5. Commodity Metals Price Index from the International Monetary Fund, adjusted by the US CPI-Urban to 2012 price levels. Commodity Metals include Copper, Aluminum, Iron Ore, Tin, Nickel, Zinc, Lead, and Uranium.

There seem to be two reasons for this: (1) In the early 2000s, oil prices started rising (Figure 2, above), and these higher prices started exerting an upward force on the price of goods. At the same time, (2) globalization took off, providing downward pressure on wages. The result was that suddenly, workers found it harder to keep a job, and even when they were working, wages were stagnant.

It seems to me that prior to the early 2000s, part of what buoyed up the system was the large difference between:

A. The cost of extracting a barrel of oil

B. The value of that barrel of oil to society as a whole, in terms of additional human productivity, and hence additional goods and services that barrel of oil could provide.

As oil prices rose, this difference started disappearing, and its benefit to the world economy started going away.  The government became increasingly stressed, trying to provide for the many people without jobs while tax revenue lagged.  Slower economic growth made the debt system increasingly fragile. The economy was gradually transformed from one which provided perpetual growth, to one where citizens were becoming poorer and poorer. This pushed the economy in the direction of collapse. Research documented in the book Secular Cycles by Turchin and Nefedov shows that in past collapses, the inability of governments to collect sufficient taxes from populations that were becoming increasingly poor (due to more population relative to resources) was a primary contributing factor in these collapses. The problems that the US and other developed countries are having in collecting enough taxes to balance their budgets, without continuing to add debt, are documentation that this issue is again a problem today. Greece and Spain are having particular problems in this regard.

A More Complete List of Inputs that Need Adequate Returns

My original list was

  1. Energy counted in EROI calculation–mostly fossil fuels, sometimes biomass used as a fuel
  2. Human labor
  3. Credit system
  4. Cost of government

To this we probably need to add:

  1. Profits for corporations involved in these processes
  2. Rent for land used in the process – this cost would be highest in biofuel operations.
  3. Costs to prevent pollution, and mitigate its effects – not charged currently, except as mandated by law
  4. Compensation for mineral depletion and degradation of soil. Degradation of soil would likely be an issue for biofuels.
  5. Energy not counted in EROI calculations. This is mostly “free energy” such as solar, wind, and wave energy, but can include energy which is of limited quantity, such as biomass energy.

Given the diversity of items in this list, it is not clear that simply keeping EROI above some specified target such as 5:1 is likely to provide enough “margin” to cover the financial return needed to properly fund all of these elements. Also, because the need for government services tends to increase over time as the system gets more stressed, if there is an EROI threshold, it needs to increase over time.

It might also be noted that the amounts paid for government services are surprisingly high for fossil fuels. Barry Rodgers gave some figures regarding “government take” (including lease fees as well as other taxes and fees) in the May 2013 Oil and Gas Journal. According to his figures, the average government take associated with an $80 barrel of US tight oil is $33.29 per barrel. This compares to capital expenditures of $22.60 a barrel, and operating expenditures of $7.50 a barrel. If we are to leave fossil fuels, we would need to get along without the government services funded by these fees, or we would need to find a different source of government funding.

Source of the EROI 5:1 Threshold

To my knowledge, no one has directly proven that a 5:1 threshold is sufficient for an energy source to be helpful to an economy. The study that is often referred to is the 2009 paper, What is the Minimum EROI that a Sustainable Society Must Have? (Free for download), by Charles A. S. Hall, Steven Balogh, and David Murphy. This paper analyzes how much energy needs to provided by oil and coal, if the energy provided by those fuels is to be sufficient to pay not just for the energy used in its own extraction, but also for the energy required for pipeline and truck or train transportation to its destination of use. The conclusion of that paper was that in order to include these energy transportation costs for oil or coal, an EROI of at least 3:1 was needed.

Clearly this figure is not high enough to cover all costs of using the fuels, including the energy costs to build devices that actually use the fuels, such as private passenger cars, electrical power plants and transmission lines, and devices to use electricity, such as refrigerators. The ratio required would probably need to be higher for harder-to-transport fuels, such as natural gas and ethanol. The ratio would also need to include the energy cost of schools, if there are to be engineers to design all of these devices, and factory workers who can read basic instructions. If the cost of government in general were added, the cost would be higher yet. One could theoretically add other systems as well, such as the cost of maintaining the financial system.

The way I understood the 5:1 ratio was that it was more or less a lower bound, below which even looking at an energy product did not make sense. Given the diversity of what is needed to support the current economy, the small increment between 3 and 5 is probably not enough–the minimum ratio probably needs to be much higher. The ratio also seems to need to change for different fuels, with many quite a bit higher.

The Add-On Problem for Fossil Fuel Based Renewables

With renewables made using fossil fuels, such as hydroelectric, wind turbines, solar PV, and ethanol, the only way anyone can calculate EROI factors is as add-ons to our current fossil fuel system. These renewables depend on the fossil fuel system for their initial manufacture, for their maintenance, and for the upkeep of all the systems that allow the economy to function. There is no way that these fuels can power the whole system, based on what we know today, within the next hundred years. Thus, any EROI factor is misleading if viewed as the possibility what might happen if these fuels were to attempt to operate on a stand-alone basis. The system simply wouldn’t work–it would collapse.

A related issue is the front-ended nature of the fossil fuels used in creating most of today’s renewables. People today think of “financing” any new investment, with easy payments over a period of years. The catch (as Tom Murphy pointed out in his BPE talk) is that Nature Doesn’t Do Financing. Nature demands up-front payment in terms of any fossil fuels used. Thus, if we build a huge new hydroelectric dam, such as the Three Gorges Dam in China, the fossil fuels required to make the concrete and to move huge amounts of soil come at the beginning of the project. This is also true if we make a huge number of solar panels. The saving we get are all only theoretical, and will take place only if we are actually able reduce the use of  other fossil fuel energy sources in the future, because of the energy from the PV panels or other new renewable.

In nearly all cases, adding renewables requires increasing fossil fuel use for this reason. We could, in theory, reduce fossil fuel use elsewhere, to try to cover the greater fossil fuel use to add renewables, but this would mean cutting industries and jobs currently using the fuel, something that many find objectionable. Several readers have suggested that we could greatly ramp-up solar PV. Yes, we could, but we would have to greatly ramp up fossil fuel usage (mostly coal in China, if current manufacturing approaches are used) to create these panels. Any future savings would be theoretical, depending on how long we keep the new system operating, and how much fossil fuel energy consumption is actually reduced as a result of the new panels.

Conclusions

At this point, the foregoing analysis suggests that products created using today’s oil and other energy products are not producing an adequate financial return to cover wages, interest expense, and necessary taxes. If EROI plays a major role in determining financial returns, EROI on average is already too low for many developed economies.

It is convenient to think that an economy can keep adding lower and lower EROI resources, but at some point, a “stop” signal starts appearing. I would argue that the issues we are seeing in many sectors of the economy are clear indicators that such a threshold is already being reached. An economy in which the wages of the common worker are buying less and less is an economy in trouble. I talk in another post (Energy and the Economy–Basic Principles and Feedback Loops) about the fact that economic growth seems to be the result of one set of feedbacks. As the price of oil rises and related changes take place, these feedbacks change from economic growth to economic contraction. It is these feedbacks that we are already having problems with.

One can argue that EROI has nothing to do with these issues. But if this is the case, what is the point it analyzing it in the first place? We clearly need to understand when an economy is giving us “stop” signals with respect to increasingly low quality energy inputs. If EROI is not helpful in this regard, perhaps we need to be looking at other indicators.

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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242 Responses to Energy Products: Return on Investment is Already Too Low

  1. timl2k11 says:

    Very interesting. I was reading an article on Bloomberg that talked about how the biggest players in US shale, by their own metrics, have not yet been able to turn a profit. It would be interesting to see a graph that shows not just total US crude output (which appears to be rising), but net energy. It would seem that oil shale is not even worth extracting from the ground.

    • Danilo says:

      I agree, According to Joseph Tainter, Sustainability is a function of solving problems. It takes resources to solve problems. We need more and more resources to be sustainable.
      So Gail is factually demonstrating what J. Tainter is explaining

      • Yes, it takes resources to solve problems. Tainter talks about the problems leading to increased complexity. As a practical matter, it is the government that is called on to solve problems. Also, this increased complexity has a cost–more programs, more employees, and so forth. So it is the government that gets to be the one that cannot pay its bills, when there are not enough resources.

    • Interesting! Do you have a link to the Bloomberg article?

      • timl2k11 says:

        http://www.bloomberg.com/news/2013-06-13/shale-drillers-squeeze-costs-as-era-of-exploration-ends-energy.html

        Under “Recycle Ratio” section;
        “Producers use a calculation called the recycle ratio as a measure of profitability, dividing profit per barrel of production by the cost of discovery and extraction. So a $40 profit divided by $20 in costs yields a recycle ratio of 2:1, or 2. A higher number represents more profitability.
        QEP’s recycle ratio was 0.69 in 2012 and Chesapeake posted 0.97, data compiled by Bloomberg show.”
        (Less than 1 means no profit, Just like EREI)
        Even the best performing companies only had RR’s of around 2.7. Even Exxon scored an RR of only 4.5.

        • Thanks for the link and discussion. I suppose Exxon bought assets cheaply long ago. It is one that has been buying back its company stock–apparently can’t find investments up to its standards today.

        • K N says:

          Please read the definition of the recycle ratio once more. It clearly states that you divide the profits made from a given barrel by the costs. This means that if any profit is made at all, then the numerator of this fraction will be positive. This ratio suggests that profits are not made when this ratio is either less than or equal to 0.

          A recycle ratio of 1 does not suggest it didn’t make profit. This would say that they made $1 of profit for $1 of costs, so there was initially $2 of incoming revenue.

  2. timl2k11 says:

    I’ve noticed lately someone is obsessed with voting your articles(which usually have had a 5 star rating) down (you can do multiple votes from different computers). I can see someone just rated it one star but didn’t bother to leave a comment.

    • Some of my articles seem to get more readership from a higher proportion of people who come from a standard economics background, because my posts are shown on a lot of non-peak oil sites. (A lot of people read my posts on other sites, and never come over to Our Finite World. I have no idea what total readership is.) I suspect it is these folks who give my posts low ratings. They don’t fit with their perception of how the world should be.

  3. Tony says:

    My own feeling, on EROEI, is that the minimum ratio needed for an economy/society as it currently is, is roughly what it is now. I’ve seen estimates over recent years, that put the overall EROEI at between 12 and 20. So I would think that the overall EROEI needs to be at about that level. The only way society, as currently constituted, could run on a lower EROEI would be through energy efficiency but there are limits there and efficiencies take time to be implemented and work through. A finger in that air would be that our current living arrangements cannot be maintained with less than 10:1, though a different kind of society could be.

    • Danilo says:

      According to Jørgen Randers, we will try to grow, but after 40 years, our society will collapse and go back to more simplicity by entropic and thermodynamic process.

      • The model Jørgen Randers and others use in the current Limits to Growth model is seriously flawed, in my view. It leaves out major financial aspects, and it does not recognize that it will likely be lack of demand/debt defaults/breakdown of the financial system/government collapse that will bring an end to our society. In many respects, having a bad model is worse than having no model at all. Back when the analysis was first done, these aspects were not as important, because the model was dealing with a distant event. Now they make all the difference in the world.

    • My impression is fairly closely related to yours. I think that as more energy availability comes on line, economies tend to “soak it up”. This occurred, up through about 2000, with the low energy prices. I am not sure we really understand the average world EROI. The EROI’s we are measuring are mostly in the West, while the distribution of oil and coal extraction is more in the East. Published EROIs tend to be based on locations where it is convenient to measure them, not distributed based on world supply. Based on oil tax rates around the world, EROIs are much higher outside the developed world.

      Also, the mix of world fuels is now changing increasingly toward coal, which has a higher EROI. This mix of fuels used varies greatly by country. The EROI of the fuels the US uses is probably quite a bit lower than the EROI for the mix of fuels used by say, China or India, because of their emphasis on coal. With respect to oil, probably world EROI matters, since it is internationally traded; with respect to other fuels, local EROI is probably more important.

      An economy is somewhat like a rapidly expanding group of cancer cells. It expects a steady increase in the amount of net energy supplied to it. Once this starts shrinking, or even not growing as rapidly, this becomes a problem. We seem to be getting to that point.

    • Robert Firth says:

      For what it’s worth, I also feel that our current civilisation could not be maintained with an EROEI less than about 12, even with all feasible conservation in place. For the US as it is now, 20 seems more likely.

      But that is because we use energy in hideously inefficient ways, for example by burning gasoline in an engine with 15% efficiency to move a tonne of metal back and forth to carry 10 kilos of shopping. I once worked out what it would cost (in energy) to deliver the shopping by employees on human-powered cargo tricycles instead of having everyone drive to the supermarket. About a factor of 20 cheaper.

      We could run a high civilkisation on 5% of our present energy consumption; the problem is we would first have to recreate the built environment from the ground up, and the energy to do that simply isn’t there. Which does indeed leave us facing collapse.

  4. Scott says:

    Thank you Gail for another excellent article. It surely looks like energy will become more expensive from here on after perhaps we brief deflation but that will just slow down the production which is the financial end of the problem. Now a days we have to expend a great amount of energy to get oil and gas. Hello Deep water and the arctic as our last oil frontier. These operations are extremely expensive and I wonder where the price will be in five years?

    • I am not convinced that energy will necessarily become more expensive. This is much more of a “peak oil,” geological type view. The cost of extraction may go up, but the amount people can afford to pay won’t go up. The problem becomes lack of jobs and companies and governments failing for financial reasons. What the result looks like, is not at all intuitive. A better description may be that oil (and energy prices in general) prices are likely to be volatile. Or perhaps that people’s incomes will be falling, so oil and food become a bigger percentage of total spending. Harder to afford, yes, so you are right from that point of view.

      • xabier says:

        Gail

        This was pretty much the Argentinian experience: there was always stuff available to buy, but because of devaluation, and suddenly falling incomes/ mass unemployment, people just couldn’t buy as much as before, leading to another round of business collapses and an ever-smaller range of goods for sale, with some more frivolous categories eventually more or less disappearing in general stores and the quality of goods also declining for the masses.

  5. ” Both a PDF of my presentation and a podcast of the talk are available on Our Finite World, on a new page called Presentations/Podcasts.”-Gail

    What a GREAT idea Gail! Brilliant! :D

    Speaking of Podcasts, the one we did with Gail is in the Can and ready to go as soon as she reviews them. It is broken into 2 parts.

    We also are scheduling up one with George Mobus of Question Everything in the near future. Check the Diner Podcast Page for the latest in Audio Doom. :)

    http://www.doomsteaddiner.org/blog/podcasts/

    RE

  6. Great post,

    there is a very important question asked between the lines that you never phrase.
    Is there any possibility that capitalism will survive the end of growth, can sustainability exist in a capitalist system at all? In Short, are capitalism and sustainability mutually exclusive?

    Ths system that is about to collapse is capitalism, it will be gone for good.
    When stalinism (called socialim by most) and growth capitalism will both have collapsed, we will need a new plan!

    If we do not have that plan, fascism will be the default fall back when desaster strikes and barbarism returns. This discussion is blocked even more than talk about peak oil or global warming.

    We will not be able to keep the system from collapsing, but we all need to work together to prevent fascism. this might not be an adequate comment t this post, but people reading this blog need to be mentally prepared that after the collapse of growth capitalism, this fight will be the most important.

    • My impression is that capitalism, especially in terms of big companies, won’t survive. It will be too hard to make investments, and get an adequate return on them. Individual families may try smaller scale investments, with the hope that they will at least provide for their families.

      I really don’t know what might happen. My impression is that the tendency will be for countries to fragment down to sizes that can be ruled by local “strong men” or kings. I am not convinced that individual property ownership will survive. An approach that actually seemed to work fairly well in the past was to have farmers assigned to individual plots, with a common area for grazing. This common area could be moved around, to help soil fertility. But of course, those in charge need to keep the number of animals and people down, so that the whole system doesn’t break down.

    • PatrickCN says:

      I don’t think that you will get a satisfying answer to your question, as I think that a prediction with reasonable accuracy is dependent on too many variables.

      E.g. Some people expect that our civilization will experience a sudden economic collapse with widespread breakdown of nation states, along with an abrupt implosion of population numbers. Others assume a long-winded decline over several decades or centuries.

      Obviously, a long-winded decline would be more much more conducive to the re-emergence fascist structures (there is an argument to be made that we are already experiencing fascist governments in the Western countries as the surveillance leaks indicate). If, on the other hand, there would be an extraordinary quick collapse to occur, we might see very different structures afterwards.

      The political systems we might see, be it tyranny, monarchy, or democracy, along with the economic systems of communism and capitalism, are very likely to be dependent on the relative amount of energy sources per capita available, along with their respective EROI.

      The less energy available at that moment, the less hierarchical layers we will likely see. If you then take cultural, historical, geological and other contextual factors for a particular population within a particular region into account, then you might feel more confident in predicting if and when a fully blown fascistic nation state might resurface.

    • There are developments now in the european countries that suffer under the yoke of austerity. In Greece the extreme right is instrumentalized by the powers that be to help quell the uprisings of the rising left.

      Greece own fascist history is not long in the past. Fascism was overcome in 1974. This instrumentalisation of the right can be seen all over. The Gladio Operation by western intelligence was supporting fascist and full fledged nazi network till well into the eighties. In fear of a socialist government in italy, nazi “stay behind” organisations have been organised and armed by the cia.

      As capitalism fails, the very rich have the tendeny to turn to the far right. I am german, and our history shows us that Hitler would not have been able to claim power if not suported by the capitalists. This is the main reason why we have to be concerned about fascism. from afar, the tea party movement in the USA has many similarities to early fascist developments in the history of europe.

      As I see it, the more the public has been sensitized to the dangers of facism, the less likely a fascist takeover will be. It may be possible for strong civil nations to survive the collapse of capitalism and adapt in a democratic way. Northern Europe countries, germany and others might have a good chance to do so.

      Self organized anarchist communities are on the rise everywhere the state power fails (i.e. greece). In Mexico, where the state has failed and lost control in wide parts, we have the rising rule of criminal cartels in some places but also anarchist zapatistas elsewhere.

      In the USA, as crazy as that may seem, the new anarchist organizations (occupy) seem to fall on fertile ground. The USA seems to be very adaptable to anarachy and self organisation, as the mistrust in Government is more widespread than in i.e. Europe.

      There is also a very large influence of the IT revolution that has no equal in history so we may only guess how it will influence the transition. The uprisings world wide have in common, that they are non hirarchical and helped or initiated by social comunication platforms. Politics, always a matter of structures and hirarchy, is taken over by something new. the possibility of the “internet democracy” may be something to look out for.

      • Thanks for your ideas. People who feel like they are losing what they have, or have already fallen to the ground, are fertile ground for movements of all sorts. I am afraid I have not followed political movements all that much, but the more extreme movements often seem like they have the possibility of hope to fix the problems of the day–and of course the problems of the day have been explained badly. The assumption is that the problems are from bad leadership, not energy resources that are rising in cost, leading to joblessness and lack of economic growth.

        The Internet, cell phones, and the Social Media all have the potential to speed these groups along.

      • xabier says:

        Alien

        A comment I’d make on that is that the extreme ‘democratic anti-capitalist’ Left in Spain, which I know well, is very hierarchical: you do what the Party bosses tell you to do, and never step out of line. With the hard Left, ‘equality’ is all baloney.

        Totalitarianism is what we should fear, whether ‘Left’ or ‘Right.’

        The most revealing thing Hitler ever said was that he admired Stalin , who had ‘got it right’! (Dear old Hitler, such an amateur at killing compared to Stalin…….)

        The developments in Greece are certainly very alarming. Golden Dawn seem to have significant financial backing from somewhere.

  7. davekimble2 says:

    If you know the Energy Returned over the productive lifespan of a plant, and the Energy Invested Up Front (infrastructure), Middle (fuel and maintenance, and At End (decommisioning), you can lay out the energy budget of the plant over its timeframe. From that you can calculate the cumulative energy profit to date – it starts off negative, of course, as does the financial budget, whatever the technology.

    For a completely front-ended technology, like solar PV, the cumulative energy profit only turns positive after twice the Energy Packback Time. If over that period you build more of those plants, to scale up its share of the energy mix, you can find yourself in a situation where the industry as a whole never makes a cumulative energy profit until decades after the build-out is complete. Meanwhile the industry is being subsidised by fossil fuels that haven’t been paid back yet.

    It follows that there must be a point where you can say with certainty ‘there are not enough fossil fuels left to complete a transition to an all renewable energy world.’

    • I know that Charlie Hall has made some calculations of such a ramp up with solar or something similar. His model seemed to say that as long as the ramp-up continued, we would always be in a negative position.

      It is hard to make comparisons with respect to fossil fuels. Oil supply is limited on an annual basis, so that to the extent solar PV or some other renewable uses oil supply, it is likely to leave less for other things. This could be a problem. Natural gas and coal can be ramped up, but we don’t know how much, how quickly. (One question: If we do ramp coal and natural gas production up for increasing the use of solar PV, will we ever bring production back down again? Or will we just use the larger coal mines as an energy source to heat homes better, or to manufacture something else?)

      I wonder if there are other limits as well. The particular rare earth minerals that are used? Or the level of pollution produced by making all of the solar PV? I expect that we would reach these before the coal limits.

      • davekimble2 says:

        In a 100% front-ended technology, the percentage of energy returned per year per unit of energy invested is ((ER/EI)*(100/Lifetime))%, and represents the maximum rate that the technology can grow per year using only its own output.

        If ERoEI is 5, and Lifetime is 25 years, the maximum breeding rate is 20% – that’s if ALL the energy output is used to make more infrastructure, that is, not sold into the energy market. Any rate of growth faster than that needs an energy subsidy from something else.

        This will double in the infrastructure in 3.5 years. BP(2012) has the share of electricity generation coming from solar, wind and biomass as 1.6%, so by 2050 it could reach 79%, assuming world electricity consumption is flat.

        Meanwhile the oil is going to become unavailable, and if we have to design, build and run electric bulldozers and trucks – well, it’s never going to happen.

        • Jörg Dürre says:

          http://www.ise.fraunhofer.de/de/downloads/pdf-files/aktuelles/photovoltaics-report.pdf

          Here you have the real current numbers from Germany – I am a little more optimistic than you.

          • Thanks!

            The issue I still see is the fact that these panels must still be integrated into the grid. This ads a layer of long distance transmission costs that Germany still has to pay. Also, homes and especially businesses value having power 24/7. The cost of maintaining the grid system, and all of the fossil fuel electrical power plants, and any hydro backup must still be paid. Giving German homeowners and businesses a big break on their electrical rates does not necessarily provide enough money to pay for all of the rest of the system.

            Because of these issues, the cost of electricity produced by the solar panels needs to be considered alongside the cost of the system needed to produce constant power.

            Suppose the cost of the system to produce constant power is 100%, and solar panels reach “grid parity” in cost, as it is usually counted. Then, we can expect that solar PV panels will produce electricity equal to 25% of grid electricity for 25% of the total system costs of 100%. The “catch” is that if one attempts to integrate the output of these panels into the original system, the cost of the original system doesn’t shrink by 25%. If shrinkage did happen, we would have (Revised base system =75%) + (Solar Panels =25%) = (Revised full system cost = 100%).

            Instead, what we have is more like — (I don’t know the real numbers)
            (Revised base system = 95%) + (Solar Paneels= 25%) = (Revised Full system cost = 120%)

            The study you linked to looks at the value of what the panels is producing on its own (which was only 3% of system electricity in 2011). The catch is that it doesn’t reduce the cost of providing 24/7 service by anything like 3%. It may even increase it. What a person really needs to do is look at is what happens to full system costs. Germany is only now finding out about the extra transmission lines needed. It is also finding out that if it subsidizes electricity rates for solar and wind, it probably needs to subsidize natural gas rates as well, to get enough natural gas balancing for the system. These additional items become part of the cost as well.

        • Yes, this is exactly the problem.

          • John Rainbird says:

            Thanks Gail, there will always be up front costs to make a transition, so the question becomes how will these costs change over time if we were to seriously shift to a new energy system. Even if there were sufficient fossil fuel reserves to make a transition to where there was a net energy profit, we’d blow the availabe carbon budget trying to get there. By all accounts it appears we’ve our left a run too late. I agree the finacial system will be the weak link through its multiple internal flaws combined with increasing costs of complexity and the focus on addressing symptoms over cause.

          • Jörg Dürre says:

            What PV already does is lowering the market price by the merit order effect. I put the German link as it has grafics. http://de.wikipedia.org/wiki/Merit-Order
            With the nex link you can follow the production curve of fossile, wind and solar power http://www.transparency.eex.com/en/ as you can see, photovoltaics almost perfectly shaved todays peak power during day time, formerly the most expensive times for electricity.

            There are some issues for long distance transmission. Mostly they are due to all the lignite and hard coal power we are trying to export to the rest of Europe. Official political wording of course is that we export the renewables. No congestion of conventional fuels power possible – they were there first ;-)
            At the moment it is realistic to produce PV power for about 6-7 Eurocents. SME regularly would pay at least 12 – 18 cents for electricity.

            Energy payback time of 1,5 years for CdTe is fair enough?!

            We are avoiding the variable cost for fossile stuff like hard coal which is imported from all around the world to Germany.
            What we need is a flexible network of fast reacting (smaller) power plants integrated to a bottom up grid management system. By constructing this kind of integration we save a lot of hot standby power as is is used today for grid safety reasons.
            And yes we are subsidizing but only the big companies as the shares in the cost for the renewables are mostly put on the shoulders of the private customers.
            It is an investment for the future though. The amortisation for photovoltaics is calculated on 20 years and after that we will have power for almost nothing. Batteries will become dirt cheap soon so I would not put my money in big transmission lines.

            Btw I operate small vegetable oil based CHP which only makes some sense as renewable peak power reserve.

            • Renewable power has serious seasonality (Summer/winter/spring /fall) issues, as does demand. So usually you need transmission wires, not batteries, to fix the situation. Batteries only do short time-shifts.

              Getting a network of fast-reacting smaller power plants is difficult, especially if natural gas is used, and is expensive. This is where subsidies are likely to be needed. The rates, with the merit order effect, are not great enough to pay for peaking natural gas plants by themselves.

  8. Edward Kerr says:

    Gail,
    As usual, great analysis. Assuming that the worst possible outcome of climate change (human extinction) does not occur then we seem to be headed for, at best, a pre-industrial life style. As we attempt, certainly in vain, to keep this system going we will only be squandering the resources that might have prevented collapse or at least mitigated it.

    For any hope at all, the more efficient “alternative” energies need to be fostered while those with a dismal return (corn ethanol most notably) need to be abandoned. Solar panels, charming as they are, pale in comparison to “Concentrated Solar Molten Salt” technology on an EROI basis. On the energy front I think that our biggest problems are vested interests drag and a severe lack of imagination. But if we continue (and we surely will) propping up this failed system, simply to maintain BAU, then we won’t have a snowballs chance of developing a sustainable future for our species. The sun provides all of our energy (even fossil fuels) and we simply need to develop efficient way to harness that unmetered bounty.

    I try to be hopeful but it’s difficult.

    Warm Regards,
    Edward

    • Whatever wins on an EROI basis, wins on a “cheap” basis. Governments can tax it significantly, and it can still make a profit. It will be so cheap, that people will voluntarily decide to change from a different method of creating electricity. I don’t think Concentrated Solar Power with Molten Salt storage is yet at that point.

      The sun provides nearly all our energy. I don’t believe it provides nuclear, though. Harnessing the energy provided by the sun is a major technical challenge, though.

    • “Pre – Industrial” lifestyle is not where we are heading, this is nonsense.
      I am pessimistic about our future, but we will not be bombed back into the middle ages.

      There are lots of hopefull developments. Technology that is innovative and sustainable can help us build a new kind of society. The best example is the progress of sustainable organic farming even against the “logic” of the markets.

      Organic farming can today compete with harvests of industrial farming. This is due to “high tech” used on a sustainable basis. Germany, where I come from, could produce enough organic food to feed its population easily, provided we would cut down meat production by 70%..

      In the USA, take a look at the tools and lifestyle of the amish people. The tools they are using for farming, carpentry, etc. are very sophisticated and work without burning a drop of oil.

      We are producing lots of electricity without fossil fuels allready and will do so in the future. So for Machines and technololgy, sustainable ways to use high tech can emerge.

      I want to describe an example utopian development:
      Consider a sort of amish “high-tech” community as a template (and no, do not include the amish religion in that template).

      As the lack of fossil fuels prohibits costly transportation with diesel trucks, production of essential high tech goods (machines, tools, computers) will be done in workshops in small communities in a decentralized fashion.

      We will find ways to produce the things we need with the ressources we can grow or easily produce. Wood, organic fibers, aluminium or ceramics will be the building materials of the future.

      With help from computer aided design, CNC Tools, 3D Printing and roboting we will be able to build and repair the things we need right where we use them.

      As patents make sense only in a capitalist and globalized world with large manufacturers, patents will not survive the collapse. A free, world wide, open source directory of digitalized blue prints will be available where everbody can add new designs and use them for manufacturing.

      Our wastefull, short sighted society today does not value inherent energy stored in the things we use, this is our premium source of energy squandering.

      Thus Longevity of the things we produce will be mandatory in our future. Our machines and tools (even computers) will be designed and produced to last for much longer and to be easily repaired, not years, but decades and centuries.

      As in the times of our grandparents we will pass on many of the things we possess to our children and grandchildren. Just as the furniture manually made by a carpenter can survive a thousand years and more, so will the tools and machines we will produce in the future.

      Over time, our descendants can accumulate more inherent energy stored in the things we use, than we do today and be better off than even we are today, without wasting the ressources of our planet.

      • As I see it, organic high tech is as unsustainable as any other kind of farming. It is easy to kid ourselves.

        • Don Stewart says:

          Gail
          Regarding ‘high tech organic’. I guess it depends on how one defines ‘high tech’.

          For example, in the 1980s some Dutch researchers discovered that when plants are attacked, they emit volatile compounds which attract beneficials to eat the insects preying on the plant. The discovery didn’t attract much attention at the time.

          Since then we have had an explosion in our understanding of what a dense signaling network exists in the natural world, and particularly in the human body. It is now routine for smart doctors to say ‘the food you eat talks to your genes’ and the result is either health because helpful genes are expressed or disease because unhelpful genes are expressed. (Clueless doctors still don’t get it.) So we are now more comfortable with the idea of studying signaling networks and how they can be managed to benefit humans.

          For example, some hybrid plants have had the ability to emit the volatile compounds bred right out of them. And a plant which is a native to China may not be able to attract any beneficials in Iowa because it isn’t adapted to the particular ecosystem.

          Some farmers in Kenya have used the knowledge of volatiles to triple their corn yields. They found that legumes in a certain genus emitted the same volatile as the corn. So they interplanted the legume (which also harbors nitrogen fixing bacteria) with the corn. They also planted a ‘trap crop’ around the field consisting of grass which is very attractive to stem-borers.

          Is this high-tech? It is certainly applied science at its best. But it isn’t what Monsanto wants us to think of when we hear the words ‘high-tech’.

          Don Stewart
          PS for the home gardener, my suggestion is to use heirloom plants with interplanted plants which attract beneficials. No long straight rows of monocrop.

          • Yes, thanks for the comment.

            Hight Tech might have been the wrong phrase for what I wanted to express.

            Maybe this story about a farmer in India will explain what I was talking abiut better.

            http://www.guardian.co.uk/global-development/2013/feb/16/india-rice-farmers-revolution

            Modern methods in sustainable farming are the result of science. They need not to be implemented with machinery.

            Rather it is about figuring out how best to interact with nature in a way that is benefitial for the farmer and nature.
            I am convinced that the knowledge for feeing people without industrial farming would be there. we still need to face overpopulation and many will suffer from hunger. But if people will starve in the future, short sightet leadership and greed will be to blame.

            • I think what is important too, is long term impacts. SRI (planting fewer seedlings farther apart and doing a lot of weeding) is viewed as a revolution, if it increases erosion, it could be a problem in a few years. (I don’t know that it does, but that is one thought.

              When I visited a farm near Mumbai, they were definitely dependent of fossil fuel fertilizer. I went with a group of people who were researching more sustainable ways. They asked about using human waste to fertilize crops, and we were told that culturally that was not acceptable. They would use animal manure if it was available, but not enough was available.

          • xabier says:

            Don

            Very interesting.

            In effect, our advanced technologies simply enable us to make apparently sophisticated and expensive, but in reality very crude and often counter-productive, interventions in natural systems, whether our bodies or wider nature.

            There’s a big push here in the UK to get people to accept take-over by the Monsanto Empire. It will produce more food, we are told, and we have ‘a moral duty to feed the world.’ This despite the fact that the UK only produces 40% of its food needs. Money drives out reason.

      • Edwin Pell says:

        A new chip manufacturing plant cost 6 billion dollars and uses machines, materials and tools from around the planet. Including 50 million dollar lithography machines from the Dutch.

  9. dashui says:

    FYI, my father likes to wildcat in west Texas . Over the last 5 years the costs to drill an oil well have ballooned from 6 million dollars to 10 million, so he is getting out of the business. Also big hedge funds have moved in taking the place of smaller investors. In the small oil company he was investing in a hedge fund put down 250 million dollars for new wells.

    • Wildcatting is pretty scary if a well could come up dry, and you have 10 million invested. In fact, even if it produces, it needs to produce a lot, or prices have to be quite high, to make money, I would expect. And the payback may be over a long period.

  10. donsailorman says:

    Businesses do not make decisions based on EROI; they use dollars as their unit of measure, $Return on $Invested. Government cost/benefit analysis is also in terms of dollar amounts.

    You rightly emphasize the importance of profits to firms in the energy industry. Currently oil companies are making excellent profits (both accounting profit and economic profit) from their investments. Natural gas production is barely profitable (at best) at today’s low prices, and coal production is adequately profitable to keep up current production levels.

    I think it is much more realistic to make calculations strictly in terms of dollars–which is what companies actually do–rather than try to calculate EROI. In any case, EROI or EROEI are slippery concepts–much harder to measure or to estimate than measures such as payback period or net present value as criteria for making capital investments.

    • MrColdWaterOfRealityMan says:

      I hear this argument a lot. Yes, money is what drives human behavior, but this does not change the laws of physics or any other laws of economics. What we’re really drilling for is positive net energy at an affordable price. Net energy from hydrocarbons is getting scarcer, and therefore the price for it is increasing. Yes, short term profit will occur for oil companies. It changes nothing. At some point, you still fall below the level needed to sustain an interdependent web of “just-in-time” supply chains that are still hopelessly dependent on cheap transportation energy. When that happens, unpredictable and distinctly non-linear breaks occur (e.g. What happens when drilling pipe is too expensive to make and move from Houston to the Antarctic?).

      You are correct about the measurement of EROEI, however. Do you only count immediate dynamic inputs? How about the steel that went into derricks? How about the roads that go to the derricks? How about the maintenance of those roads? It all takes energy, but some of that has been spent, and exists in a stable low form requiring little additional input. The measurement is somewhat arbitrary.

    • I didn’t quite go as far as saying that, but I tried to made it clear in my description of Figure 4 that what oil companies are looking at is finances, which are only slightly related to EROI.

      Academics works separately from the “real world”. Having lots of metrics generates a need for lots of academic papers. Quite a bit of the EROI papers come back to $$ in the end.

  11. Pingback: Energy Products: Return on Investment is Already Too Low | Energy-Comparison.net

  12. OFW Reader says:

    The welfare state exists because of automation provided by energy. That’s why a large amount of the population can live well without working. Whether her or his hands were used in the manufacturing process of a product is completely useless to the economy and living standard: what matters is that the product was somehow produced, be it an electronic gadget, a car or your food. This is the sole reason we can afford to have huge numbers of unemployed people and still fare well.

    As long as automation exists and is provided by (cheap?) energy, the welfare state will thrive, and the Fed will print and distribute free money in forms of benefits and the like using the government as the medium, and money will circulate.

    Remember: it matters not whether someone’s hand was involved in the production of a good, as long as there is money in circulation, the businessmen get their large share and people live on, requiring perhaps 1/3 or less of the working-age population in a job to maintain this system (they are engineers, social workers, teachers, cientists, health professionals, construction workers, politicians, farmers).

    I have never seen the subject of unemployment explored through this angle.

    • Christopher Johnson says:

      It’s not just automation that results in displacement and unemployment; we can’t forget ‘out-sourcing’ and immigration. The results are the same, of course: more unemployed. Germany is the only ‘rich / developed’ country that has done a good job in this regard; the Germans have actually lowered their labor cost per unit of value, resulting in increased revenue and higher employment See the Economist of 21 June.

      • OFT Reader says:

        Do you have a link to the Economist article?

      • I thought the Germans had brought in a lot of cheap immigrant labor, to help keep costs down. I haven’t read the article yet, though.

      • xabier says:

        Christopher

        Austria, too. Very low unemployment, above all low youth unemployment, and a well-directed education system that prepares the young well. The Germanic world and Spain are at opposite poles in many ways.

        But then Austria is but a province of Germany these days, as my Viennese friends say!

      • As a german I must say that there is very much wrong with this.

        The wages and the unit labour costs have ben sinking in germany, because germany has had a policy of wage dumping since the 90s.

        European countries have committed themself to am “inflation goal” contract, that germany has broken. By not raising wages as aggreed upon with the european partners, german politics was the culprit for creating the euro crisis.

        So it has been anything but “a good job”, it was driving workers in germany and abroad into poverty.

        • This is the impression I got in the past–it was the suppression of wages of the common worker that got Germany where it is. Now the common people are being expected to pay a disproportionate share of the cost of changing the energy system to be heavily run by renewables. The combination looks likely to cause problems.

    • It creates a huge problem for the government to collect enough money to pay for a welfare state, however. Businesses have managed to offshore a lot of their operations, so it is hard to get much money from them. Taxes are mostly collected on wages, and they aren’t high enough to pay for everything else.

      Energy has provided a lot besides the welfare state. Education is a big piece. We didn’t even have public schools much before coal came into use–certainly not for girls. Medicine also was enabled by fuels. Homes that are heated by more than a fireplace in the corner are enabled by fossil fuels, as is electricity. Most people would like to keep these.

      We really need to get people working again, to make the system work, IMO. People get very unhappy, having to spend most of their paycheck supporting folks who aren’t working.

  13. Christopher Johnson says:

    Gail, the ‘guns and butter’ aspects of our economic history haven’t been part of your analyses (or at least I was unable to detect them). But there’s a correlation keeps emerging: 1969-71, when President Nixon dissolved the dollar link with gold that inspired the formation of OPEC to defend the producers’ profits. Was it you or another analyst who noted the beginning of our ‘economic decline / troubles’ as around 1970? Well, it also makes one wonder a) what might have been the proximate cause? and b) are there any comparable or contrasting periods?
    Dwight David Eisenhower has not been a terribly popular presidential figure except by an increasing number of historians who appreciate his courage and his foresight regarding the ‘Military Industrial Complex’. Certainly his successor criticized him for allowing the USSR to gain a lead in missiles, for Cuba to fall and for not opposing the ‘wars of national liberation’ in Southeast Asia and elsewhere that were beginning to blossom. So from about 1963 to 1970 the US poured more bucks into ‘defense’ than in the previous years, so that by 1969-70 the Bretton Woods system was straining, and the US had to withdraw the dollar’s link to gold. The OPEC oil embargo followed, jacking up the price of petroleum, and we global economics have been difficult ever since.
    What’s the saying: “18 of the last 19 economic downturns began with high oil prices?”
    One of the great applications of ‘altruistic’ foreign policy was embodied in the Marshall Plan investments in Europe and subsequently East Asia after World War II. Essentially those were exercises in capitalistic economic development, the same as we saw more recently in ‘communist’ China: pour money into facilities and equipment and labor, then reap the results. The feed-back loops then generate more economic activity: investment -> development -> profits.
    Wars and maintaining large military forces, as well as ‘the Security State’ with lots of ‘Homeland Defense and cops and intelligence and all the rest of it, however, cannot serve as investments in a macro sense, for they yield profits only to a very small number of beneficiaries. Quite often those beneficiaries have strong political ties and profit from the government contracts they sign to provide security or support for troops deployed halfway around the world (do you know how much it costs to ship a gallon of gasoline or a dozen eggs to Kabul? A couple of hundred bucks…)
    Given that our politico-economic ‘plutocrats’ have done so well by the wars, there is little wonder that ‘the security state’ is keeping a strong grip in Washington.
    The question that we might want to focus on, however, is whether reducing those ‘security’ costs could possibly reduce the overall economic burden and maybe buy us a few years before the decline transitions to collapse.

    • We have way too many unemployed people. I see our current military efforts as partly an attempt to put a bunch of folks to work who would otherwise not be employed–both the recent high school grads and people who work for contractors of various types. I am sure there are some other reasons– make sure others understand who is in charge. Our success with getting fuel for ourselves has been pretty dismal. though in all of this.

      Our economic decline after 1970 has a lot to do with US oil supply declining starting in 1970.

      With respect to investment in butter being better than guns, I haven’t really looked into this. THe thing that overlays all of the historical periods is very different price structures for oil. When oil was cheap, in the post World War II period, we could work magic with it. Investment=> Development=> Profits is a whole different game when oil is cheap than when it is expensive. Now when it is expensive, it becomes hard to even fund basic road repairs. People evaluating presidents didn’t stop to think about what oil prices were doing. I am not sure that there is anything that a current president can do to make things come out better.

      • Richard Steinberger says:

        My understanding is that for a given amount of money and the goal of creating jobs: investing in defense is the worst thing to do. Far fewer jobs/dollar because a) DoD jobs pay very well, and b) DoD projects typically spend a lot of money on very expensive hardware (which is sometimes blown up!)

        But we can’t just invest in “butter”. We can’t just pay 100,000 people to dig ditches and 100.000 to fill in holes with dirt. While we don’t want “Soviet” style 5-year plans, I think we do want to be as strategic as possible, given the energy predicaments we face. If strategy were actually allowed in the US civilian economy, then governments could evaluate how much energy of which types might be reasonably expected in the next 50 – 100 years, what it would cost to get it, what the environmental effects would be, what the net energy would be, how it would be distributed and at what costs, how much energy and dollars it would take to support, and whether we are really building sustainable energy (and food, and housing) supplies and societies. Ultimately, we could be forced to conclude that in the long run, if we’re not going to tolerate a massive population crash, we’re going to have to live much closer to a 19th century lifestyle, with perhaps a few 20th century “treats” thrown in (maybe antibiotics, bicycles, anesthesia, perhaps some steel, concrete and plastics – but probably not lasers or mobile phones without unexpected advances in sustainable PV).

        Right now the biggest problem is that only a tiny percentage of citizens in the industrial world even recognize the magnitude of the predicaments we face. Without that no strategy. And the rest of the citizens? They’re still waiting for “normal” growth to come back. Sigh….

        • You are probably right about DOD being a very inefficient way of creating jobs. It does cater to a certain group’s need to feel important, though. I think another reason they have been popular is because if a war is declared, it gives a reason to get debt financing, so these jobs can be paid for by debt.

          Yes, it might make sense to look at how much energy we have, and plan accordingly, but the question becomes, “Who is we?” With a globalized world, I would argue that it is probably really the world.

          How much energy we can extract depends mostly on the extent to which we can avoid financial collapse. There needs to be enough energy coming through the system so governments do not collapse either. We are already hitting the point where financial and government collapse seems not too far away. We could in fact base our analysis on the amount of oil and coal and natural gas in the ground, if it were easy to get these things out, without governments in place, and financial systems in place, and people paid adequate wages. Because of the financial/government collapse issue, I am not convinced that we have a chance at a 19th century lifestyle–certainly not for very much of the world’s population.

      • Christopher Johnson says:

        Thanks for your response, Gail. Good analysis.

        • Christopher Johnson says:

          And thanks to Richard for your good comments as well. It will be interesting to see how the ‘treat list’ is composed. Does it include airplanes? For whom? Will democratic principles be sacrificed to the exigencies? 1850 technology and work skills will be hard for many to learn.

          • Richard Steinberger says:

            Personally, I would think that unless some very surprising new high EROEI, safe (non-carbon polluting) energy sources are discovered and quickly deployed, we’ll see by mid century the widespread loss of these 21st century “treats”: commercial aviation, state and several interstates severely degraded with very limited official law enforcement (especially in the rural areas) [think militias, warlords and checkpoints in some regions], a fracturing of the US and several other [former] modern industrial nations into physically separated regions: smaller very well protected ones with a fair amount of modern technology, and chaotic ones based on scavenging and bits of 19th and 20th century technology; the near disappearance of medical specialists and expensive treatments and devices (e.g., bye bye MRI, CAT scans, maybe hip replacements); far fewer people (pandemics, poor sanitation, starvation, crop failures, droughts, regional wars, breakdown of law and order in many places); personal motor cars available only to the very wealthy and very limited supplies of fuel and spare parts; the cities become largely ghettos as desperate and starving people try to relocate to rural areas and fight for land they can grow food on – not at all clear the federal government will help them, or even be able to.

            One critical point ius that we can’t just “ride down” the back side of the Hubbert curve as a reverse of the way we “climbed up” the front side. We have far more people on the downside and thus far less energy per capita except for the 0.01% [which is why they're screaming so loudly to be protected now]. So even if we were forced to finally conclude that almost all renewables (except perhaps small scale hydro and wind [if we can maintain the wires and generators], and passive solar, maybe solar hot water and cookers) are all that’s really sustainable, then we still cannot easily “go back” to the mid-19th century. Too many people and not enough arable land… unless perhaps we can all live like the Amish, and I don’t know if there will be the arable land in a changed climate planet. Nor do I know who’s going to teach so many former city dwellers how to farm fo self sufficiency, how to deal with human and animal waste, how to take care of farm animals, how to deliver babies, how to treat diseases.

            If I had my choice, if the sustainable energy balance and world climate and geopolitics would allow it, I think we might be able to live in the energy world of the 1950s, or even 1920s, at the very dawn of the modern oil age. But there are so many more of us now, so population really needs to drop – and we may not have a choice.

            But the longer the great majority of the population has no clue of the energy and climate predicaments we face, the less likely we can have anything like a real national discussion, much less develop any strategy. Most likely: We are going blindly into a very chaotic future that almost no Americans are going to understand, but “everyone” is going to demand the restoration or order and growth. Politically, that means authoritarianism, at least until the central government can longer hold things together. “The center cannot hold” wrote WB Yeats. We’re going to see that if we live long enough.

            I don’t know precisely what the future holds, but it’s going to be very different form the last 3 – 5 decades. I’m afraid this will be the century that sees Malthus “vindicated”.

            Thanks, Gail (and readers), for helping shine a light even if we can’t see very far.

            One last thought, borrowed from JM Greer: The early Middle Age dwellers could no longer build Roman aqueducts, but they could maintain them. Mid 21st century people may not be able to build a lot of what was built earlier in the century, but if they can be good scavengers and find enough energy and related resources, they may be able to maintain some of the “treats”, at least for a while, so the future generations have time to grow into a new world of limits.

  14. Richard Steinberger says:

    Do you think any fossil fuel dependent renewable energy sources will ever be able to transition to becoming sustainable on their own? I’m not looking for some kind of “magic”, only wondering if, for example, the PV industry could ever sustain itself and provide positive net energy without the fossil fuel subsidy? Here’s a Scientific American article that mentions the PV Breeder concept:

    http://www.scientificamerican.com/article.cfm?id=solar-cells-prove-cleaner-way-to-produce-power

    • davekimble2 says:

      If the lifetime of a PV panel is 25 years and the energy packback time is “one to three years”, then the ERoEI is 8.5 – 25. This is ridiculously high, and can only mean they are not including the energy costs of many processes – a trick that is often done to sell an idea. For example, if you leave out the energy needed to manufacture the bulldozers and trucks (which are only required if silicon mining is needed) then the EI goes down, the ERoEI goes up, and the energy subsidy from fossil fuels goes down. But in the real world that energy has to be real too – you can’t just conjure up the energy out of thin air, like you can with fiat money.

      Even the widest definition of EI doesn’t include the energy in the form of food which is needed to “run” the workers, or the cafeteria where they can eat it. Or the chairs and desks and air-conditioning and computers that the managers, planners, lawyers and accountants need to run the business side of things. These are all real energy costs and should be included.

      The only energy budget I have seen that does include this levels of detail is Pedro Prieto’s analysis of a PV solar farm in Spain which he was involved in. https://www.springer.com/energy/renewable+and+green+energy/book/978-1-4419-9436-3 From memory he comes up with an ERoEI of about 2.7 . That implies an energy payback time of 9.3 years, and if the fossil fuels are not going to be available for the eventual replacement, and it is to be a true “breeder” system, the last 9.3 years will have to be spent making the replacement, leaving only 6.4 years of the 25 making an energy profit.

      The figures may be fuzzy, but you can see how this is never going to work. If we had started earlier, when Peak Fossils wasn’t a problem, we could have made the transition, but it is going to require massive reductions in fossil consumption to keep the PV infrastructure roll-out going,
      and people want more energy, not less, so its going to be politically impossible to achieve the transition.

      • Christopher Johnson says:

        Mr. Kimble:

        Do you have any feel for geothermal / hot rock energy? It’s just starting to gain a little traction, and appears to hold some promise. But deep drilling takes lots of energy.
        Thanks,

        CWJ

        • davekimble2 says:

          There are two kinds of geothermal – those using shallow volcanic heat, and those using the heat from the radioactive decay of Uranium in granite rocks overlain by an insulating layer, producing a hot spot. Volcanic heat is working in over 20 countries around the world, but is limited by geological opportunities.

          Hot rocks geothermal has been tried in various countries, but has run into difficulties because of the fracking needed to enhance the water-rock interface. Just this week, Geodynamics in Australia has completed stage 1 of commissioning a 1 MW pilot plant, but this is after 11 years, one well abandoned as undrillable and another blown out. They get a temperature of 200°C at the well-head, so the steam turbine efficiency is low compared to a fossil-fired boiler.
          The company raves about the possibilities, but the location in central Australia is over 600 km from the nearest point on the national grid, across salt lakes and unroaded deserts, and is effectively stranded without billions of dollars being spent on transmission. Naturally Geodynamics wants the government to pay for that, but they are not so keen. More at http://www.peakoil.org.au/news/index.php?geodynamics.htm

          • Christopher Johnson says:

            The Germans are setting up employment firms to search selectively. Spain is a primary target, and the Germans are offering language training and some resettlement help. The German ‘youth training’ system is also gaining popularity. The Germans appear to be somewhat more choosy after their bad experience with Turkish immigrants.

          • Christopher Johnson says:

            Thank you, sir. That’s very interesting. I caught a quick story earlier this week about somebody developing laser or plasma drilling, which they claim can be much faster. Curious, but the real question is how deep do they have to go to get really strong power?

            • davekimble2 says:

              Over 4,000 meters deep. Drilling in cracked granite is difficult – it’s very hard, and drill bits tend to jam at cracks. Lasers sound like a good idea, but experimental surely at this stage. After drilling, the boreholes have to be fitted with steel piping capable of withstanding the chemicals in the water, and cemented in place. Geodynamics’ #3 bore failed because of brittleness caused by the water, and spouted steam for 3 months before they got it under control. Repiping it wasn’t an option and it had to be abandoned.

        • Not only does building geothermal take energy, it takes having financial institutions in place and governments in place. It is like all other renewables–you can’t make any new ones, after collapse. Geothermal declines in heat energy over time, so it is like the other new renewable devices–a new one, if created, works for a while, but it is by no means a permanent solution. In some cases, geothermal can be fairly cost-effective, if they last their planned lives.

          • Christopher Johnson says:

            Thank you, Gail, for your analysis. I think we could put a lot of unemployed people to work installing geothermal heating and cooling for structures. At least they’d be receiving government checks for improving society’s energy conservation. Of course, they could also improve insulation in structures as well, and achieve equally good energy conservation results.

    • I really have a hard time seeing how the PV industry could sustain itself and provide positive net energy without fossil fuels. One of our problems is that so much is handled by oil now. We would first need a conversion to electrical usage for those uses, before we could make use of the PV output. Handling intermittency takes a huge cut out of PV productivity. The April journal of Energy has an article that attempts to adjust for intermittency, called Energy intensities, EROIs, and energy payback times of electricity generating power plants by D. Weissbach et al. The abstract says, “The results show that nuclear, hydro, coal, and natural gas power systems (in this order) are one order of magnitude more effective than photovoltaics and wind power.” With that low payback, it is hard to build up much of a system.

      • Ed Pell says:

        It depends who you are. If you are a capitalist trying to make money then I agree. If you are the military making sure you have energy to use even after the oil runs out then you can build out a solar based system because you can spend as much money as needed.

      • Keith Pickering says:

        Weißbach’s paper gives a minimum EROI of 7 for an economic threshold, based on the ratio of electricity price to GDP in both Germany and in the US. Solar PV and biomass are both well below this threshold, but CSP makes the cut.
        He also uses a different metric, EMROI, which is EROI weighted according to exergy (in which electrical inputs and outputs are weighted at 3x other energy types). Under this calculation, the economic threshold for EMROI is 16, and once again PV and biomass miss the cut.
        Wind makes the cut both ways, but only without any storage buffering costs. The big winners in Weißbach’s analysis are run-of-river hydro, and nuclear. Note that the EROI for nuclear has increased dramatically over the past 20 years, and will continue to increase, as the industry transitions from gas diffusion enrichment to centrifuge enrichment, which is 35 times more energy efficient.

        • Thanks for the additional information. It is hard to see how wind can be used as part of an electrical system without buffering, or without greatly overbuilding, and using the excess for some other purpose–perhaps making nitrogen fertilizer when the wind isn’t needed.

          Too many who think that somehow wind (or wind and solar) can replace the whole system, and this simply is not true. Whether it is EMROI or EROI, they don’t work.

  15. Jay Hanson says:

    Gail,
    Excellent! IMHO, our most important agenda is to change discussions about our future from “money” to “energy.” Central banks can print money but not energy. More and more energy is required to produce the same amount of energy. It’s the most-fundamental limit to growth.

    Besides net energy, two other systems need to be simultaneously integrated into your analysis of energy: evolutionary biology and realpolitik. All three systems must be analyzed at the same time to get an idea of how long 21st-century civilization might last.

    The biological questions: How have people evolved to behave in a world where all natural resources are declining (forever). What examples can we find in 20th-century history?

    The realpolitik questions: What will governments do to maintain law and order in a world where all natural resources are declining (forever). What examples can we find in 20th-century history?

    Keep up the good work,
    Jay

    • James says:

      The imposition of fear and stoking of nationalism should serve well in maintaining law and order. It’s already begun as evidenced by the 911 attacks, the resulting Homeland Security Agency, Patriot Act, wars in the Middle East and the overblown advertisement and reaction to assorted boogeymen like Osama Bin Laden and the Boston bombers. Expect much more manipulation of the citizenry’s limbic predispositions, as this is much less expensive and potentially successful than maintaining law and order through direct confrontation. The Homeland, the Fatherland, the Reichstag, the SS, the NSA, who is our Joseph Goebbels ? How many sheep can a single bearded Muslim sheep dog terrorize into accepting the protection of their shepard? In addition, we will never run out of natural resources, we will simply become the greatest exporter of crude oil in the world, it’s as simple as the average mind’s inability to understand reality.

      • xabier says:

        James

        It’s certainly interesting to observe the manipulation of US public opinion (if that is not too sophisticated a term – how many really try to inform themselves, rather than being informed by the MSM?) from the historical perspective of the propaganda methods of the old fascist states in Europe (and indeed from that given by the novel ‘1984’). The demonisation of ‘baby boomers’ as a group is a part of this, too, setting one group against another while obfuscating the real situation.

        The idea that only an ever-more powerful State can keep you safe in your bed is surely an anomaly in US history pre-Cold War. I’ve been reading about the Oregon Trail recently, and I suspect that the sort of Americans who did that would have said: ‘Terrorist? Just step out of the way, Mr President, and I’ll deal with him myself!’

        Eisenhower was pretty damn right about the Military-Industrial Complex. Dark times.

      • tmsr says:

        The Goebbels of the current day is ABC, CBS, NBC, CNN, Time, New York Times, L.A. Times, etc. All owned by a small small group.

        Ed

    • Hi Jay,

      Thanks! If you have any references to recommend, I would be interested.

      In my post, How Oil Exporters Reach Financial Collapse, I give a list of current and former oil exporters who reached collapse, related to declining supply or price. The list includes the Former Soviet Union, Syria, Egypt, Yemen and Argentina. This list gives a fairly disturbing look at what collapse might look like. Civil war and local fighting seem likely–also much crime. There are other countries with declining consumption for other reasons: Cuba, the PIIGS in Europe, Japan, and North Korea. This group is a little better, but perhaps because it hasn’t completely reached collapse.

      Of course, all of these represent just temporary declines in resources. We don’t know what the long term will look like, except probably not good. I haven’t looked at what governments do and what citizens do in response to the decline at this point. My impression is that citizens tend to revolt and government failure is common.

      Best,

      Gail

      • xabier says:

        Gail

        As for the PIIGS. my relations in Spain are all still at the stage of thinking: ‘When’s the recession going to be over, when are we going to get back to normal (ie pre-2008)?

        This is still the general expectation; that what is happening is just a temporary anomaly (which is of course what the MSM and the politicos are telling them). Getting the Right-wing out of power or a change of policy in Brussels will improve everything, or so they imagine. The Germans are increasingly hated, seen as the source of Austerity. People are disconcerted that the welfare state seems to be shrinking, but they think they can reverse that in an election.

        The glaring truth is that resource/oil price problem is not really recognised or discussed as having any part to play, and all thinking is political. This is also observable in the UK, and Italian friends say the same thing.

        In terms of society holding together, families do stick tightly together there, the black economy is huge, and pensions are still being paid, thus supporting many younger members of each family (as also in Greece and Italy from what I hear and read.) Also, the older, privileged, workers who are contractually expensive or impossible to sack, are still fairly OK while the burden of unemployment/poorly-paid, insecure, work has fallen on the young. Of my relations, the ones in the private sector have been hit most hard, rich and poor, those in the public sector not at all, except for the rise in food and heating costs.

        Given the awful demographics of Spain (as also the rest of Europe and a problem shared with Japan) the pensions issue is fundamental to social stability. Many people, even married and with professional jobs, are moving back to the family home if big enough. For those without such family support (ie too poor, tiny apartments not houses) life is getting very tough. Many Latinos have left Spain, as conditions are much worse for them now.

        The PIGS situation is fundamentally different to North Africa and the Middle East where the demographics are different and you have huge numbers of very young men out of work, feeling utterly hopeless, or with oil-base lifestyles and jobs, potentially much more dangerous and volatile. The PIIGS are old societies in terms of demographics, and therefore much less volatile – until the pensions are hit……

        This is why Spain has not exploded in riots.

        • Christopher Johnson says:

          Excellent, Javier. One additional item for your consideration: according to the good ‘center spread’ on Germany in last week’s Economist, Spain ranked much higher — top of the list — of European countries for ‘family assets’. Germany was much lower, especially since families in the East had virtually no assets until 10-15 years ago. It made me wonder if that could contribute to Spain’s relative passivity.

          • xabier says:

            Christopher

            I’ve no doubt that’s part of it. And families are happier to share what they have with relations. Another factor is that, quite frankly, the police and security services definitely have the advantage in Spain – getting picked up for rioting means a cell and some quite nasty experiences inside that cell, and the judge won’t notice any bruises, so people are wary about crossing a line….

            Martha Gellhorn, I think, said that the Spaniards post-Franco are not at all the same as the Spaniards of the Civil War: the Dictatorship lasted a very long time, and that has an effect on everything: people fear it coming back. Certainly, an angry mass of hard-bitten agricultural or industrial workers brought up on Communist or Anarchist beliefs, s they were then, is no longer around: just a lot of cynical, rather lazy people, who hope the good times will roll again.

            Fundamentally though, people are still in suspension of disbelief over what is happening, think it must all come right, and the basic State structure is still functioning and paying, so we are a long way from the Red Danger Zone.

        • Thanks for your explanation of the PIIGS country situation. It fits very much with what I expect of collapse. Resources, and in particular oil prices, will not be seen as particularly a problem. There will be no real need for rationing of oil supplies. The issue will be financial. It will look a little different in countries with lots of young people, compared to ones with aging populations. Governments will have an impossible job paying pensions, with the meager taxes they are collecting. At some point, governments will cut back on what they pay to pensioners, or there will be some other break in the system — defaulting bonds where they are used for pensions, for example. Or bank accounts may be subject to weekly withdrawal limits.

      • Jay Hanson says:

        Gail,
        Thanks for the reference to your other paper. I will study it this afternoon.

        With respect to “realpolitik,” both Germany and Japan provide well-documented examples of natural-resource-motivated behavior that led to WW2. I recommend a video THE WORLD AT WAR, narrated by Laurence Olivier [ http://tinyurl.com/q5yod38 ].

        This documentary was made when many of the major decision-makers, from both sides, were still alive. Some of the interviews are really mind-boggling. IMHO, it’s the only way for us to get a sense of what WW2 was really like without being old enough to experience it ourselves. (Be sure to buy the “Full Screen Edition.”)

        With respect to “biology,” one text that does an excellent job of documenting human resource violence is SEX AND WAR, by Malcolm Potts [ http://tinyurl.com/qjfsrr2 ]. (See the reviews at Amazon for more.)

        One more recent text, that goes a long ways towards integrating biology and political science, is WAR AND HUMAN NATURE, by Stephen Peter Rosen [ http://tinyurl.com/po9g3le ]. Rosen explains how emotion-based decision-making leads one to make decisions that violate the rational man claimed by economists. More importantly, Rosen explains how the Axis leaders of WW2 could make the irrational decisions that led to their demise. It’s a strong reminder that we cannot depend upon human rationality to avoid an obviously-suicidal WW3.

        The bottom line is that natural resource availability will fall for hundreds — or thousands — of years, AND humans evolved to fight wars over natural resources. My hope is that someone, brighter than I, will discover a way to avoid the worst.

        All the best,
        Jay

        • Jay

          Thanks for the links. I will have to admit I have tended to stay away from the subject of war. It seems like more of a man’s subject. But there definitely is a lot of evidence that people have fought over natural resources for a long time.

          Gail

        • Christopher Johnson says:

          With Respect for Jay Hanson:

          A delightful read, sir, and on target. WWII was invariably about resource acquisition, as well as manufacturing. It was in the latter field that US expanding capabilities ultimately overwhelmed the enemy. In 1945 the Americans had 50,000 airplanes in Europe, and uknown quantities of trucks and armor. The artillery pieces we provided Stalin stretched wheel to wheel for miles.

          ‘The World At War’ is an excellent series. And of course there are too many good books. A couple that stand out are the ‘The Winds of War’ and ‘War and Remembrance’, both by Herman Wouk in the 70s. More than most ‘historical fiction’, they delve into the strategic dimension or resources and industrial assets, as well as the numerous ‘brainless’ decisions that leaders made — fortunately mostly on the other side.

          On the other hand, we came very close to losing. Had German Intelligence not been so thoroughly penetrated, and if the Wehrmacht had been able to debunk the Patton ‘fake divisions’, Eisenhower’s famous letter accepting blame for the defeat would necessarily have led to the Allies reconsidering whether they could continue, not just now. It’s too easy to say that ‘ultimately the Allies would have won.’ With characters like Hitler and Stalin, and an alliance that occasionally came close to fracturing, anything could have happened. And the impact of leaders’ egos should not be over-estimated.

          We’ve had 80 some years of alliance by now, and we’ve all gotten better at getting along.
          But would NATO be able to dominate and keep order in face of the threats that might arise in a post-collapse world? Tough question.

          Cordially, Chris

        • xabier says:

          Jay

          The irrational is everywhere in history,and all over the MSM now. It’s instructive to read comments from before 1914, which refer to the obvious redundancy and suicidal nature of armed national conflict given the spread of global trade and finance…….

          And we should never forget that the military life and war can be enjoyable in some of its aspects, which few will care to admit: in the Middle Ages for instance it was akin to a very rough sport and wars were fought for no very good reason at all. Just listening to some random martial music on the radio yesterday made me feel restless! These are deep human biases.

          Resource wars? we can be quite sure of it.

          • Scott says:

            Xabier and others: what is your opinion from your country and are we facing deflation or inflation? So far here in the US, we have been seeing needful things like food, medical going up and other, not so needed things falling. The price of houses here are rising fast again which also worries me. But mostly what worries me is the rising interest rates and what will happen when our governments need to refinance their trillions in debts. But rising mortgage rates may baffle down the housing recovery too. I am not sure what we are seeing here, I think it is a bit of both inflation and deflation depending on which market you are looking at.

          • Jay Hanson says:

            Thanks to you all for your informative comments. I have one last of my own: xabier mentioned the irrationality of WW1. Indeed! WW1 seems even more irrational than WW2.

            Our study of WW1 cannot be complete, unless we include THE GUNS OF AUGUST, by Barbara W. Tuchman [ http://tinyurl.com/pu9lbnp ]. Not only is THE GUNS OF AUGUST a great history, it’s also an exciting read. One can find other excellent WW1 research materials by following the amazon link above and then scrolling-down to “Customers Who Bought This Item Also Bought”.

            Excellent university DVD courses about biology and conflict are also available on the Internet.

            Our home planet is in trouble everywhere we look. It seems that to avoid that next world war, we must first understand the biological and systemic causes of the last.

            Can humanity learn from its past mistakes? It’s really the only hope we have.

            Keep up the good work,
            Jay

    • xabier says:

      Jay

      The answer to your question is: Police State and demonisation of out-groups, internal and external.

      But if you get the propaganda and brain-washing right, and people are apprehensive enough about the alternatives, everyone will be right behind it, so along as they get fed and have something to do. (Resource depletion, etc, now call that into question, of course.)

      We should remember that the insanities of Fascism and Communism were born of long years of desperation. But not always desperation; I recall an interesting summary of the response of Italians to the Fascist Idea:

      1/ Excitement and hope, attracting real believers. This is the Big Change!

      2/ Slight disappointment, but at least things did seem stable and improved in many ways, so no desire for change (it was also too dangerous to dissent.)

      3/Utter cynicism and disillusionment, but everyone concentrated on making the most they could out of the system before it collapsed.

      This was actually referring to the ruling classes in Italy, but I’m sure it held good lower generally. As for the people at the bottom, like the grandmother of a friend of mine who was sent as, effectively, a slave worker to Libya (no choice, just ordered by Mussolini), the actual system probably meant nothing – they always get kicked.

      The greatest mistake is perhaps not to realise that Totalitarian systems founded in times of crisis usually come in with a huge base of fairly enthusiastic support, across all classes, coupled with a ‘well, everything else has failed so maybe this will work’ frame of mind.

      Then, almost before you know it, your country has become a prison you live in.

      • Christopher Johnson says:

        Xabier:
        Thanks for your sharing your penetrating insights. Hemingway described the mind-sets of those groups. And I can’t imagine that you’d be wrong: there was no impetus for a ‘revolutionary’ psychology for 60 years.
        It also strikes me that Spain has been devolving, or at least beginning to — first the Basques, now the Catalans want some form or independence. Who’s next? And is this due primarily to the recent economic troubles or are broader problems
        One final comment: I saw an article somewhere that Spain as well as other European countries are exploring the German youth training and apprentice programs.

        • xabier says:

          Christopher

          One last thing on Spain, then:

          Frankly, most Spaniards really rather hate being away from Spain for long, and don’t like the northern climate, or even the Germans much – even to the point of how they smell (I’m not exaggerating, it is actually said by some that Germans and North Europeans ‘smell of death’ due to diet and cosmetic use! ( As an Anglo-Spaniard I’ve been told I smell OK, as my diet is still high in smoked paprika, garlic and red wine (might explain the divorce – joking!)). So travelling to Germany for work is a very desperate measure, and it’s not working out well for many, according to the Spanish press. Language is a real barrier. The common European job market is a bit of a joke really due to these cultural factors.

          The calls for independence in Catalonia and Pais Vasco/Navarre have as you know deep roots, with much deep fanaticism among the Basque nationalists but it is certainly being gravely exacerbated by the economic situation, and the utterly corrupt and retrogressive nature of the current Madrid government: people on the edge do not like to read about money in brown envelopes being passed among politicians. But sensible leaders like Mas in Catalonia know that Catalan independence has no friends in the EU, and the mainstream Basque nationalists also see that its a matter of negotiating within Spain, not leaving. The Basques argue among themselves, with bitter hatred, as much as with Madrid.

          It’s the same old bucket of eels squirming and wriggling, independent of economics, and can’t really see a break-up of Spain due to the Crisis.

      • dolph says:

        Fascism is very difficult in English speaking cultures, because there’s simply too much organized dissent and acceptance of opposing viewpoints.

        What I expect in the United States is the threat of civil war and a very harsh federal response, which will destroy the legitimacy of the system and result in actual civil war.

        It’s not going to be pleasant, even without fascism.

  16. Vineyard says:

    Great article, Gail.

    By the way, did you read the bullcrap the Bjorn Lomborg wrote recently?

    http://www.project-syndicate.org/commentary/economic-growth-and-its-critics-by-bj-rn-lomborg

    Just read a german translated version in a newspaper.

    This is the same guy, who says that Shale Gas and fracking might prevent Climate change.

    • According to this article, growth is the solution to everything. Growth and resourcefulness. It certainly is a bunch of nonsense. But a lot of places want to publish this kind of thing. People want good news, or so I am told.

      • Christopher Johnson says:

        Gail,
        Do you remember the last line of The Great Gatsby? Daisy: “Oh, I don’t want to talk about that, I want to talk about things that make me happy.”

      • Adam says:

        Here’s one of Lomborg’s statements:

        “Since 1946, supplies of copper, aluminum, iron, and zinc have outstripped consumption”.

        Now here is a recent statement from the UK Royal Mint:

        “In January 2013, the Royal Mint began a programme to recover cupro-nickel five pence and ten pence coins from circulation. All new five pence and ten pence coins have been made from nickel-plated steel since January 2012. This programme will recover the metal alloy contained in the old specification coins. The value of the metal in both the cupro-nickel and nickel-plated steel coins is still less than their face value.”

        Source:

        http://www.royalmint.com/discover/uk-coins/cupro-nickel-replacement

        This suggests that copper is becoming a precious metal, otherwise why would the Mint want to retrieve it? Up until 1946, many of our UK coins had a silver content, but this was replaced by copper-nickel. Now it looks like copper is the new silver.

        • Metals in general have two problems to contend with:

          1. The amount of oil used in extraction. If the cost of oil goes up, so does the cost of extraction.
          2. Depletion. The highest quality resources tend to get extracted first. It is only later that we get to the expensive to extract ores–usually lower percentage concentrations.

          Silver prices were affected before copper in this way.

          • ravinathan says:

            The recent collapse in gold prices is seriously threatening the future of gold miners since the price is falling below the marginal cost of production. Even well endowed firms like Barrick and Newmont with lower average cost of production need $1300 gold prices to be able to retire debt according to some observers. So here is a debt collapse in the making. Mining companies debt even if rated investment grade are trading closer to junk. I really wonder how gold is going to play out.

  17. Vineyard says:

    @Economist article:

    This also might interest you.

    http://translate.google.de/translate?sl=fr&tl=en&js=n&prev=_t&hl=de&ie=UTF-8&u=http%3A%2F%2Fwww.marianne.net%2FTodd-la-France-n-est-pas-l-Allemagne-ce-n-est-pas-germanophobe-de-le-dire_a213561.html

    Todds work is awesome.

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

    “After the Empire” and “A Convergence of Civilizations” were great reads. I currently lended his book “The Economic Illusion” to reread it again. His socialogic analysis of the origins of neoliberalism is very interesting.

    • Thanks! I am sure Google translate doesn’t quite do justice to the original article. One of the things the article mentions that is helping Germany is the Euro structure. While the PIIGS found that their goods were relatively expensive on the world market, Germany has managed to engineer the reverse–artificially cheap goods. The rigidity of the Euro exchange rate, together with the fact that Germany has kept wages down, has helped Germany a lot. If the Euro comes apart, Germany will suffer more than others, I expect.

    • Christopher Johnson says:

      Vineyard:
      Regarding Emmanuel Todd, one Roger Kaplan may disagree with you (and Todd). Just for the sake of argument, you might try: http://www.weeklystandard.com/Content/Public/Articles/000/000/003/908dwrgn.asp?page=1.
      Personally, I am generally amused at self-designated ‘experts’ criticisms of US endeavors, particularly when the alternatives proposed are so fundamentally preposterous. In this case, Todd’s proposed alliance of Europe with Russia and Japan in opposition to the USA and China has the aura of a debate among high school sophomores.
      I assure you that I have no “neo-con” tendencies or hidden affiliations, and routinely opposed them. Kaplan is more of a conventional analyst but does keep company that I usually avoid. However, what’s probably most important to remember that the fundamental US strategic interests are stability, development and trade.
      All the ‘isms’ that smart people (sometimes ‘too smart’) like Todd attach to US motivations are fundamentally irrelevant when compared to these primary strategic interests.

  18. ravinathan says:

    Gail, here is the case of an oil exporter, Venezuela in the brink of hyperinflation as discussed in this very interesting article. Clearly Venezuela is in the need of a much higher oil price to reduce its budget deficit. The pincer of energy price too low for exporters and too high for importers is closing. I wonder which party,mother terms of trade will favor?

    http://www.economonitor.com/dolanecon/2013/06/14/venezuela-on-the-brink-of-hyperinflation/

    • Thanks! That is a good article. You are right about the general issue of an energy price that is too high for oil importers is too low for oil exporters. In Venezuela’s case, I think its problem is that its oil exports are declining to zero, partly because supply is declining, but even more because use by Argentina is rising too much. No price would be high enough to fix the problem.

      Argentina oil supply and consumption

    • Scott says:

      Thanks for that article, in reading it we can see how complex the issue of deflation vs inflation is.

  19. The wide use of fossil fuels has been one of the most important stimuli of economic growth and prosperity since the industrial revolution , allowing humans to participate in takedown, or the consumption of energy at a greater rate than it is being replaced. Some believe that when oil production decreases, human culture, and modern technological society will be forced to change drastically. The impact of peak oil will depend heavily on the rate of decline and the development and adoption of effective alternatives . If alternatives are not forthcoming, the products produced with oil (including fertilizers, detergents, solvents, adhesives, and most plastics ) would become scarce and expensive.

    • You have given a peak-oil view of the story. I don’t really agree with it.

      My view is that when oil gets high priced (which is before it actually declines), we will reach financial /government collapse. It is this collapse that will cause oil production (and energy production of other sorts) to decline. Alternatives that require a high-tech economy are not likely to be of any help whatsoever, except to the extent that they allow those people who own individual PV panels or batteries or other devices to live better lives, for the years the devices continue to operate properly. Perhaps after population decline, a smaller number of us can create an economy with only local resources.

  20. Andy says:

    Great article Gail, the law of diminishing returns is hitting us from all sides, with the possible exception of some electronics. Lower EROEI combined with investment sinkholes etc, is dragging on the old economic model. But it’s what we do, and who we are, not much hope for any kind of meaningful change. Flogging a dead horse, and kicking the can is the standard response, it got us this far.

    • You are right. It is pretty unlikely people will change in their beliefs. The world will return to growth tomorrow. New government will fix the problem. All we need is a little more stimulus.

  21. ravinathan says:

    A cautionary reality for nuclear energy proponents. The conversion of the plutonium in nuclear warheads into reactor fuel, has become too expensive. The article also mentions the lack of technical capacity in the US to execute such projects.

    http://nyti.ms/14vPGAq

    • Thanks! I hadn’t heard about the abandonment of the half-built plant to make reactor fuel out of plutonium in South Carolina. It seems like nuclear costs of any type have a way of rapidly escalating.

  22. Christopher Johnson says:

    MIT’s Technology Review: ‘How Technology Is Destroying Jobs’ By David Rotman, June 12, 2013
    A good article well worth reading.

    http://www.technologyreview.com/featuredstory/515926/how-technology-is-destroying-jobs/.

    • Scott says:

      Hello Chris, On Robots etc… that reminds me of a story I posted here some time ago about a friend that his family had a modern almond orchard complete with trees shakers, collectors and very little workers needed. A group of Chinese businessmen came to the USA to check out the place after their tour was done they all looked at each other and shook their heads and all they said was, what our our people going to do?

      When I worked at the court house during my nearly 30 years of employment in a tax office, when I left job they had basically the same staff as they did when I started, but the number of accounts has more than tripled. Machines opening mail and scanning checks etc replaced the clerks we had listing down payments in ledgers and machines sending out bill stuffing them into envelopes replaced long lines of workers at desks stuffing envelopes. So it turned into a daily file transfer that did most of the work.

      Unless we can all sit at home on unemployment, it seems like a bad mix, since we face rising populations and less jobs due to these robotics. Will the robotics feed us all? Maybe for a time, but it will not be as good as those hand picked foods.

      • Christopher Johnson says:

        Hi Scott: Well said, sir. Secretaries and administrative clerics are pretty dead. Are there any ‘Secretary Schools’ left? The $30,000 that a working woman used to bring home from such jobs often made a significant difference in the family’s lifestyle, or saving for kids’ education, etc.

        • Scott says:

          Thank you Chris for your kind words, No, not really any schools like that for woman or men to get those jobs anymore because the jobs are gone. In my later years at the court house, I mostly saw representatives (or Reps as they call them) giving presentations to my bosses on these machines and how they can replace workers and save money.

          One thing I did notice working at the court house all of those years was the size inmate population and the courts grew at least five times as big. Those were hard budget times as we have today.

          That makes me wonder once again, What are our people going to do?

          • When I was a juror on a murder trial several years ago, I gained some insight into how the lowest class lives. One of the people testifying was asked where he lived, and he replied that he resided in the car parked in front of a home at such-and-such address. One of the policemen testifying talked about how, in the autumn, people with no place to live and no continuing source of income would try to get themselves arrested for some minor offense. That way they would have food and a warm place to stay for the winter. Perhaps medical care as well. I am not sure how widespread the practice was, but if people are essentially homeless, jail does not present much of a deterrent to crime.

    • Thanks for the link. It is a real issue.

  23. Don Stewart says:

    Dear Gail
    Is The Shape of Collapse Important?

    John Michael Greer’s current essay takes to task all those expecting a sudden and complete collapse of the Industrial Civilization. He challenges both those who expect near term human extinction due to climate change and also those expecting financial collapse followed by physical collapse (Gail, I suppose, is in the latter camp). Dmitry Orlov, in his current post, thinks that agriculture as we have known it is toast due to climate change and we are going to be governed by warlords. I ask the rhetorical question: Does it make any difference in terms of what I need to do today? My answer will be: Not very much.

    I think there are a handful of really important projects I need to be focused on today:
    1. Making a living in the here and now.
    2. Practicing discrimination in terms of the payback from the varied activities I MIGHT engage in.
    3. Securing an emergency supply of food and water.
    4. Rigging a system of rainwater catchment.
    5. Shortening and toughening the supply chain for food.
    6. Securing shelter
    7. Establishing my place in a local community
    8. Maintain good health and avoid chronic disease

    By far the most time consuming of these projects is the first one. The most underrated is the second–so I will elaborate a little on that. I think that my goal when I wake up in the morning should be to undertake activities which will promote the maximum experience of feel good hormones–without regrets.

    When we meet a neighbor and greet them warmly, our bodies release feel good hormones. But, just like a fracked oil well, depletion is rapid. In order to experience a pretty continuous experience of feel good hormones, we have to be continuously engaging in varied appropriate activities. And what about that ‘regret’ part? I can go out and buy a 50 thousand dollar car with debt, and feel good for a few minutes. But when the first payment rolls around, I will experience pain. I will regret having bought the car. Similarly, sex with your spouse is a wonderful hormonal experience and there are seldom any regrets. Sex with a stranger you met in a bar may give you a momentary hormonal experience, but is also quite likely to lead to regrets of various kinds. ‘Shopping’ at a big box store and buying things on impulse with credit is very likely to lead to regret.

    When I buy food at my co-op, I virtually always have a good hormonal experience talking with the people who work there. I might save a little by going to Wal-Mart, but I certainly would not have the good hormonal experience without regrets. In one sense, I am taking neo-classical economics and refocusing it from money to good hormonal experiences while minimizing regrets. When I do this, GDP and the growth thereof become largely irrelevant. GDP measures monetary costs and is thus highly correlated with things which lead to regret such as pollution, sickness, financial fraud, resource depletion, and the like. GDP isn’t something I want to maximize.

    Since Orlov brought up the subject of climate change and agriculture as we have known it, I will elaborate a little on that. I believe that perennials are going to be far more resilient in the face of erratic weather than annuals. Perennials have a large root system that sustains them in sub-optimal weather, while annuals must grow roots from scratch every year. So beginning to build a Food Forest or a Perennial Garden are very sensible uses of one’s time and resources. If you build a Food Forest or Perennial Garden, I don’t think you will regret it whatever may happen.

    George Mobus’ current post describes the necessity for a local community. It’s hard to build a local community in the midst of the atomization promoted by the current global financialized industrial system. So we need to get busy.

    The last item, good health, is foundational but it is also the result of doing all the other stuff on the list. If you are doing all those things, you are probably getting plenty of exercise. Which leaves food. I recommend Jo Robinson’s book Eating on the Wild Side. The key is to eat highly nutritious food which talks to your genes to promote health. If we lose refrigeration, the challenges associated with food will increase. But Jo will get you thinking more deeply about food and how you prepare it right now.

    Don Stewart

    • I really dont dig the whole warlord scenario you are talking about.

      This is taken directly from a dystopian hollywood picture like Mad Max II or Postman. In my opinion, anthropological science does not support that view. (See: fragments of an anarchist anthropology, by David Graeber)

      His thesis: We dont hear from failed states that did not develop warlordian structures in the media as much as from Kongo or Somalia. But there are many more failed states in this world than there are warlordian states. Most of them are too poor to support warlords. Many develop anarchism on a local level.

      The reason why countries like Somalia or Kongo (failed states) have fallen into warlordian control is not the lack of resources, but the abundance of ressources (or a specific ressource). For this thesis there is some very good evidence!

      In many cases the ressource is some illegal drug that can be sold globally in western societies by drug trafficers. Afghanistan, Mexico, Columbia etc. are good examples for countries where warlords and drug trafficking are closely related. (Good evidence for that thesis also).

      Civilisations that have fallen back to a warlord level of organisation often have been disfunctional (i.e. for above reasons) for a long time. if you look into these societies, many have been driven there by foreign (western) intervention during and after colonialism and by robbing people of their cultural identity.

      Generally, if looking into the history of mankind, societies tend to develop more egalitarian structures when living conditions worsen. After all, the whole reason for having a civilisation is to look out for each other.

      Using above rules will give us probable candidates for developing warlordian structures after the ruling state collapses.

      Centrla asian countries like Kasachstan or Tadjikistan. This is not a wild guess, there are lots of ressources there, warlords already exist in remote areas and some of the existing dictators are warlords in essence allready.

      Collaps of western capitalism will hardly be noticed by many poor african countries (i.e. Burkina Faso). The Situation simply cant get much worse as it allready is. Most countries will not change much.

      West African Oil states (Ivory Coast), Sudan, Nigeria and South Africa could be likely candidates, lots of ressources, crime and disfunction to be found there.

      In Russia a transition to a warlordian structure would hardly be noticable as its well established there allready by the oligarchy. In various degrees this is true for several ex-soviet countries in eastern europe that are ruled (essentially) by oligarchs.

      Asia and South eastern Asia I dont know enough about to make an educated guess.

      There will be no warlords in northern, central or southern europe. None of the above rules apply. The countries rated as “sustainable” in the “Failed States Index” today will be immune to this danger, even if capitalism collapses.

      I am not sure about the USA. There are many weapons about, and there are well organized criminal elements (see mexico, columbia) that could establish themselfs as warlords. There are quite a lot of disfunctional tendencies also and lots of crime.

      But as I know the people in the USA it is not very likely.
      I would guess that the USA would fall back to looking out for each otther far more than they do today.

      If a real tragedy happens in the USA, the instinct of the people is not to go plundering and shoot each other, but rather to get together look out for each other and get things done.

      • Christopher Johnson says:

        Good analysis, thanks Observer.

        Of all the history books referenced in this particular blog, one that hasn’t been mentioned is Arnold Toynbee’s ‘A Study of History’, (condensed). It’s a wonderful read but not easy, and Toynbee has detractors. Much of what his Oxford scholars wrote in the 40s and early 50s has been adopted and massaged into our core civilizational understanding. Among the virtues of this work are close tracking of civilizations’ growth and collapse, and deep analyses of why and how they collapsed, and what was required to reconstitute the society and begin again to climb to higher levels. Toynbee cites expansive education and leadership by ‘creative elites’ as essential qualities for any society that seeks to improve. And in that light he touts democratic foundations and processes as the best means of continually compelling social renewal.
        Which is not to ignore Mad Max stories. But sometimes we forget that 18th Century people lived decent lives and their thinkers accomplished much even without ipads or laptops.

        • xabier says:

          Christopher

          I once happened to read one of Toynbee’s earliest books as it touched on my field of study He was then an enthusiatic, even gushing, admirer of the British Empire, which he said had one of the most astute ruling elites which had ever existed (also Hitler’s opinion) : this early admiration shaped much of his thought I suspect. It is difficult to quarrel with it: elites do matter immensely. (His opinion of the British Empire is of course rather more open to question.) Not once in my formal undergraduate studies was Toynbee even mentioned to us, which, looking back, is rather shocking.

          • Christopher Johnson says:

            Xabier, perhaps you can query some of your colleagues in the UK. I know the work they did was monumental: analyzing ad describing the development, methods, processses, etc. of the 19 then identified civilizations in recorded history. The 2500 page two volume ‘abridged’ version stuck mostly to Greek and Rome and then Western Civilization. Will and Ariel Durant were also superior, and more recently we’ve had Francis Fukuyama, whose recent “The Origins of Political Order” is truly a good read.
            Toynbee said all societies consist of three essential groups: the elites, the middle class (bourgeois & what we would now consider the managerial and entrepreneurial class), and the proletariat. Of these, the elite is the most influential and significant. For a society to determine to ‘climb the wall’ and ascend to a higher level, ie, civilization, it was necessary that strong leaders who were creative and highly regarded were available to lead the effort. As long as the leadership and the elite from which it sprang maintained creative, innovative commitments to solving the problems that continually arise the elite and the society prospered. But inevitably the elite would lose its inspiration and transform from a ‘creative elite’ to a ‘ruling elite’ that was less interested in solving problems and more focused on maintaining control. At that point the society began to decline; its collapse was inevitable — if ruled by monarchs.
            Insufficient experience with stable democracies over any long period precluded any predictions. Of course, the ancient Greeks tried many times to make democracy work, and usually failed. Will and Ariel Durant’s descriptions bring smiles: the Greeks just could not resist the temptations to use political power for corrupt personal purposes. Even if they changed governments three times a week, immediately upon taking power the new team would begin draining the coffers. They just couldn’t contain themselves…

            Cheers, Chris

    • Thanks for your ideas and the mention of the other posts. It is sometimes hard to keep up with them all.

      I agree that what we can do today is pretty much the same, regardless of what kinds of collapse we are up against, and your list is a pretty good one.

      I think that a lot of people believe that we can keep adding technological innovations, and they will allow growth and BAU to continue indefinitely. This model doesn’t work at all.

    • Scott says:

      Don, good list and nice post. We really do need to shorten the supply lines but our spoiled population will be in trouble as we are used to everything at our fingertips now!

      I do not think that the shorter supply lines will happen voluntarily. It is going to be as a result of collapse. In the meantime we can all do the best we can with our back yard gardens and store away some food. What else can you do, this problem is too big and out of our hands to solve. The freight train is running down the tracks at full speed and their is no bridge ahead over the ravine.

  24. xabier says:

    Don

    A very good list may I say. Certainly, the positive effects of all those options would be worth seeking whatever the eventual outcome, (mass extinction, warlords and pirates, or long slow decline, etc) as you say. It’s pretty much my approach, too.

    You refer to Greer’s latest essay, which is quite a tour de force and a good read, as always. He strikes me as having a didactic and very positive personality, and for that reason I do think he tends to sweep some less comfortable thoughts regarding financial shocks/ collapse aside, whereas our kind host here would tend to emphasise them – rightly I feel.

    Sometimes I call him ‘Dr Pangloss’, only instead of saying ‘all is for the best in this best of all possible worlds’, his theme is ‘Nothing new under the sun on this most ancient of planets.’

    He’s right to condemn the NTE cult, which is what it is; but somehow, I don’t think he grasps the realities of suffering and human evil, of the terrible politics which can arise from economic stress and poverty, and some of his European readers have pointed this out to him. Here in Europe, jammed up against one another, with immense religious and racial enmities, and a history of senseless wars – and very nasty civil wars just yesterday – it’s rather hard to be optimistic even when naturally inclined that way!

    There’s no doubt that whatever does happen, someone who follows through on your list will be among the best prepared and have lived as good a life as possible. To which list I would add:

    ‘Sufficient unto the day is the evil thereof': don’t look too far ahead!

    • This is a direct link to John Michael Greer’s most recent post, called Imperfect Storms. I always enjoy reading JMG’s posts and talking to him in person. He comes with a wealth of knowledge, and often has a different perspective.

      JMG correctly points out the role of feedback loops that reduce impacts as well as increase impacts. He talks about climate change examples, that might help to mitigate changes from models. He also talks a lot about past experience. I think it is relying on past experience that can get a person into trouble. This time truly is different.

      David Korowicz has a new website, where it is easy to download copies of his papers for free. (You do have to leave your name and e-mail address.) He has some analyses that can be very helpful. His most recent one is called, “Catastrophic Shocks through Complex Socio-Economic Systems.” In it, he talks about the effect of increasing complexity, and how that makes failures different now than in the past. He gives an example of the impact of 20% or 40% absenteeism because of an epidemic, and its effects on an economy. If each employee is doing a very specialized task, it is possible for the loss of employees to cascade into a problem that shuts off production completely, much earlier than if there are large numbers doing similar tasks. He also talks about just in time delivery systems and low inventories, and their ability to make what might be temporary outages worse.

      David Korowicz also has available a copy of his essay, “On the cusp of collapse: Complexity, Energy, and the Globalized Economy.” This essay first appeared in the book Fleeing Vesuvius, published by New Society Publishers. In this essay, he talks about additional issues, such as the fact that economic growth has constantly received a positive feedback loop from economies of scale, as the world economy grows. As we attempt to induce shrinkage, or shrinkage naturally occurs, there is a very different feed back loop. Instead of production getting cheaper with each additional widget produced, we have the reverse: production gets more expensive with progressively smaller production. I have run into this before with attempts to get cities to reduce water consumption. Water consumption does indeed go down, but since costs are largely fixed, the cost per unit of water goes up. If we get people to swap out light bulbs with more energy efficient ones, use of electricity may go down, but many of the costs will remain largely fixed (such as transmission and debt repayment), causing the cost per kWh to rise.

      Apart from the points Korowicz raises, there is also the point that we are getting to a situation where financial systems are truly stressed by something the financial system has never run into before–economic growth that is rapidly decreasing, and looks to go below zero. This economic growth has been pumped up by increased debt over the last 30+ years, and in recent years, increased federal debt and Quantitative Easing. At some point, all of the things that are being done are certain to fail, because of the nature of the problem. In fact, rising interest rates recently are a real concern, because they are one of the kinds of things that could lead to failure. While it is possible that the financial wizards in Washington will pull another rabbit out of a hat, the fact that the economy no longer can grow the way that it did in the past makes the situation truly different. It means that at some point, something will have to “give”. When it “gives” it will be a whole new experience. There will not be enough goods and services to go around, relative to what we had before. There may very well be discontinuities of the type Korowicz discusses.

      • xabier says:

        Gail

        That’s a spot-on analysis, as it seems to me. And that by Korowicz (the paradoxical reality of conserving power and water usage but paying ever more is well known here in Europe, may I add! Although this is distorted by a political decision to make people pay more in order to ‘encourage’ conservation – quite nice for the owners of the private water companies, too. This is the basic experience in Europe now: you get less, but pay much more. )

        The principal flaw in Greer’s position, as I have observed, is that he always dismisses, very roundly, the argument that ‘it’s different now.’

        I’m not suggesting for one moment that he is in any way narrow-minded, far from it. His erudition is admirable, and he allows a wide variety of views on his site. But sometimes in history it really is different.

        I suspect that problem is that once one gets into the habit of looking at things over a perspective of millenia, as he does when he discusses the similarities of the collapse process in many different societies, that the particular features of our own predicament, our own time, become smoothed out somewhat. ‘There’s nothing new under the sun’ really is his motto. It’s very true of course, but not in all instances.

        It’s possible to generalize too much: death is death, but by murder, disease, accident or in your sleep are very different fates. Details do matter. I feel this is the error he has fallen into. It’s also possible that his Druid beliefs are interfering in his analysis somewhat.

        The nearest analogy we can find to our immediate predicament (setting aside questions of resource depletion and over-population) is late imperial Rome, and its huge imperial burden, and we are certainly – to state the obvious – a very much more complex society, technologically and financially, than Rome ever was, with a large number of immense cities which would have staggered their imagination, and a degree of specialization which has never before existed.

        Moreover, we have now next to no viable rural base which is independent of heavy fossil fuel use, and abundant game for hunting has been hugely depleted compared to the 3rd century AD. At the end of Rome, most people were living that basic rural life: the civilization simply collapsed back into it. Our civilization, and massive populations, cannot collapse back into a handful of people with backyard homesteads….

        These are indeed very important factors which make the case for ‘this time being different': advanced civilizations have simply never been at this point before.

        • Scott says:

          Hello Xabier, What you said ” Our civilization, and massive populations, cannot collapse back into a handful of people with backyard homesteads….” Well that is a significant statement to me in looking at today’s sprawling cities”.

          I think we are kind in trouble here. It may be that some survivors will re-establish homesteads. I know I have mentioned this before, but I fear the some bad people may survive this thing and you know we read stories about the wealthy elites with their underground bunkers. Honestly, I hope some good old fashioned people survive this and not the elites that brought us here.

          Scott

          • xabier says:

            Scott

            I cheer myself up by reminding myself that we are biologically hard-wired to co-operation and kindness as much as we are to domination and killing, otherwise we wouldn’t be here. I’ve met so many kind and decent people even when the elites are so rotten and corrupt and given up to the madness of money-making,and when people have been rotted by generations of living on welfare, bad food and worse TV.

            Wealth itself can make people much less kind that they would be otherwise: people who are poor but not totally destitute have nearly always been kind to those suffering and in need of help, thinking ‘There but for the Grace of God go I.’ So I don’t worry about the bad apples in the barrel, who undoubtedly exist. (If I find one of those elite bunkers, I’m sealing the exit!)

            I do think that, with severe economic shocks very likely in the near future, the small homestead is the way for average people like you and me to cushion ourselves against harder times. It’s not the solution for our whole society, but we can each only do what comes to our hands to do. I wouldn’t have the most luxurious apartment in London or New York for anything as my base for the times we live in. I’d love to get my hands on just a little more good land……

        • Glad you agree. It is hard for people to understand the fundamental difference this time around.

          • xabier says:

            Gail

            It’s very noticeable that Greer, whom I greatly respect as a writer and thinker, never really addresses the theories of Tainter, who you could say is in the ‘this time it will probably be different’ school of thought. Greer seems to have a mental block here: hard to say why, as otherwise he’s a very clear thinker.

            It’s self-evident that the very complexity of our globalised economy, and its reliance on a now very expensive energy resource, combined with simply astonishing over-population, which is utterly unprecedented in history, materially affects any possible outcome. To say that is not being a doom-monger.

            Greer is quite dismissive of ‘Peak Oilers’, whom he unfairly lumps together with NTE people as doom-mongers, and I feel not too comfortable with finance. He’s probably slipped into a professorial attitude, and is keener on expounding his theories rather than exploring possibilities: it’s evident that he really only gets tetchy with people who imply that it may be different (and worse) this time…..

            In his last post, he indicates that he thinks any financial crisis will be overcome, as has always happened before, something will be fudged and cobbled together by central banks and governments, and society will go on much as before. It doesn’t quite convince me, I’m afraid.

            • People (Greer included) don’t really understand that financial crises represent an underlying reality–something really isn’t working right in the economy. It is not just that a different kind of money needs to be printed, or more of it, it is that the amount of goods to be distributed is inadequate given all of the different uses it needs to service. A big part of the problem is that over time, the economy has found more uses for the goods–maintaining armies, paving roads, and a lot of other things paid for by government. There aren’t enough goods to go around, unless society is completely restructured. If there are farming communities that are essentially self-sustaining that are widespread, these can be used as a basis for restructuring. But if essentially everyone is dependent on a complex web of services, including oil, electricity, roads, Internet, replacement parts for automobiles, plus education, medical care, and a system of taking care of the elderly, then it becomes almost impossibly difficult to restructure. This is the situation we are in now.

        • Christopher Johnson says:

          Xabier:

          So, you see Rome as the nearest / closest model, and that’s probably a good start point. I think I’m going to rummage through Fukuyama’s latest, ‘The Origins of Political Order’, as he touched on some less noteworthy political collapses in Europe during 1200-1700s when wannabe potentates started stitching patches together. He might be interested in the entire endeavor, but I should ask Gail before going out and making a ass of myself (more than usual, anyway, and potentially with a person of note).

          A few things we can learn from the Roman collapse are:
          1) The collapse took place over centuries. Transitioning from from a highly developed multi-ethnic empire to independent political states, many the size of counties, required numerous repeat performances by gothic invaders.
          2) Literacy was emphasized / found (almost exclusively) in the church.
          3) Military skill emerged as essential; others ended up with too many holes.
          4) The population declined, though it’s not clear by how much.

          The differences with current conditions are enormous, to the point that 4th and 5th Century Rome have no readily apparent lessons for us to learn.

          • xabier says:

            Christopher

            I fully agree with you that the difference between our advanced society and that of Rome is immense – we are so simply much more complex. So no direct lessons to be drawn, above all in time-scales I suspect.

            The most persuasive parallel is the economic one: in its last centuries, the populace -apart from the old elites with vast estates – were crushed by an enormous tax burden (and obligation to serve in the army or as forced labourers) as the Roman State struggled to maintain its existence in the face of external aggression, internal rebellion, civil war and diminishing returns.

            Every crisis brought a new burden: more bureaucrats to enforce tax-gathering, more expensively-equipped soldiers to be supported. Formerly independent farmers fell into debt and bonded labour for the great landowners. It’s very clear that, just as when the Arabs invaded Spain, the attitude of many people at the bottom was most probably ‘This lot can’t be as bad as the current ones, who cares who rules?’ (Which, incidentally, was the attitude of many people when the Nazis came to power in Germany, after all the travails of the Weimar Republic. )

            This in large part seems to be where we are today: demoralised, rapidly diminishing returns, infrastructure acquired in the years of expansion that’s decaying and very expensive to maintain, a large % of the people falling into a dependent state, huge state expenditures which crush economic vigour, and aggressive tax-gathering to maintain the expanding, unproductive, bureaucracy and military called into being by the continuing Crisis. Ring any bells? !

            But the suffering peoples of the Roman Empire (if they didn’t get their throats cut) had one thing to fall back on that we do not: a fully functioning rural economy. The great villas disappeared and were forgotten (like the small town just dug up near me, forgotten for 1,500 years) or became villages, but on the whole, the farming never stopped in most places. We simply do not have that.

            There was a lot of continuity, and it did all take many centuries, and a great deal of Rome did survive: for instance, when my direct ancestors in Northern Spain emerged from the dark years, c 1000 AD, although they were landowners and not priests, they spoke a form of Low Latin, and had names derived from Latin, such as Lope (ie ‘lupus’ = wolf), and Maleo (from ‘evil lion’ in Latin). Despite centuries of fighting, and slaughter by Goths, Arabs, Berbers, and so on. So as I say to my Basque nationalist family, our native tongue is a form of Latin as much as it Basque……

            But well, Christopher, aren’t these just fascinating times to live in?!

          • I’d suggest reading books that analyze collapses in general, like Secular Cycles by Peter Turchin and Sergey Nefedov. There are dozens of folks who have looked at past collapses. The striking thing to me is that they are financial in nature. I think we are kidding ourselves if we can extrapolate someone’s view that the Roman collapse went on for centuries to today.

      • Scott says:

        A good article from JMG, I wish I could write like that, a talented writer and he covered many pertinent topics that discussing here.

        Looks like there will be crisis’s and responses. Like waves of trouble hitting us.

        What I fear is the government responses to the problems that will arise after collapse and of course our huge military needing something to take on like – Iran. You know when things get tough they usually bring us to war and there is a long history of that. War has been used as the answer, but in the future, we will find that not so, as we do no longer have the excess resources. They act like they think they have it but it will come at a cost to others, we may be sitting without lights and gas so the military can run soon.

  25. Don Stewart says:

    Dear Gail and Others
    Here is a note I sent to someone about potatoes and bitterness. You have to understand that the ‘Irish potato’ is high in calories but very low in nutritional value and also has a high glycemic index which promotes insulin resistance and thus a host of chronic disease problems. But potatoes are easily grown just about anywhere, including patios in burlap bags. If we combine a little bit of scientific knowledge and a little bit of work, then perhaps the situation is not as hopeless as it might otherwise appear.

    Leafy greens are without doubt the most nutrient dense foods we can eat. Their health promoting properties give them a bitter taste. Iceberg lettuce has been specifically bred to be very bland, and is thus of little value in promoting health. (The same can be said of the Golden Delicious apple.) I speculate that the boom in microbreweries which are re-exploring the taste of bitterness may be a hopeful sign.

    The quotes about the varieties are from Jo Robinson’s book Eating on the Wild Side.

    Don Stewart

    First, here are some seed potatoes being sold by the local farm store. The ‘pounds’ is what she has left. If you buy less than 50 pounds, the price is 1.50 per pound. A pound of seed potatoes can make several pounds of harvested potatoes. So the cost per harvested pound for a gardener is probably 25 to 50 cents. That’s why the Irish ate potatoes…they are high in calories and really cheap and grow in cold, damp climates.

    All Blue 1238lb.
    Canela 146lb.
    German Butterball 706lb.
    Kennebec 48lb.
    Kerrs Pink 1636lb.
    Mountain Rose 656lb.
    Nicola 1083lb.
    Purple Majesty 1811lb.
    Red Thumb 254lb.
    Rose Finn 973lb.
    Russian Banana 6lb.
    Sangre 1359lb.
    Yukon Gold 2887 lb

    Now lets look at the Nicolas and the Purple Majestys. Here is Robinson’s description:
    Nicola…Yellow skin and flesh. Good for mashing, roasting, and salads. Waxy, with a nutty potato taste. Low glycemic index. Uncommon. 95 days, a midseason variety.

    Purple Majesty…Uniform oblong purple inside and out. Good for frying. baking, and potato salad. Stores well. Very high in anthocyanins. 85 days, an early to midseason variety.

    The opportunity presented here is to grow inexpensive calories which are also low in glycemic index and also have decent phytonutrient profiles. They won’t replace kale, but then kale will never provide the calories to feed the Irish. One can think about growing nut trees to provide calorie dense crops, but they take time to mature. These heirloom potatoes are available right now for planting and harvest next spring and summer. And by eating more potato salad and less freshly cooked potatoes, one can let the starch convert more to resistant starch.

    Switching gears to the issue of bitterness. Bitterness is frequently a sign of a very favorable nutrient profile. But Americans are famously allergic to bitterness. Robinson quotes the statistics on beer, which is rated with a bitterness scale.

    German pilsners approach 100
    Guiness is 45 to 60
    Budweiser is 8
    Bud Light is 6.4

    She notes that the plethora of new microbreweries which are opening are bringing back taste, including bitterness. But that Bud Light is still the best selling beer in America.

    So, trying to convince Americans that eating bitter greens is really a good idea has to be seen as an uphill battle. Perhaps the most optimistic sign is the success of the microbreweries, which are daring to brew beer more like the Germans and the Irish.

    Our local community college is offering no less than 6 courses this fall on brewing beer. It seems that we have a new microbrewery every month of so. And scads of people are doing homebrew. Perhaps the acceptance of bitter in beer will spill over (no pun intended) into greens. Perhaps there is a silver lining in what you might perceive as just another black cloud?

    • I ran into a very overweight woman in the grocery store riding on one of the motorized carts you see in stores today, drinking a soda. She was looking at oranges, and asked me if I knew anything about a particular kind of orange. I said I was sorry I hadn’t tried them. She said she had problems finding oranges that were sweet enough. I think drinking sodas all the time can distort a person’s sense of taste. Eating bland food all the time can probably distort one’s taste in a different way.

      I am growing sweet potatoes. They grow well in the South.

      • Don Stewart says:

        Gail
        You can harvest and eat 30 percent of the leaves on a sweet potato without unduly affecting the yield of the tubers. The greens are quite nutritious. And they grow in the summer when winter greens are mostly just unavailable in the South. Steam them or stir fry them, along with other goodies.

        I discovered sweet potato greens thanks to the book 21st Century Greens a couple of years ago, and they have become a staple of our summer CSA offerings.

        Don Stewart

      • Scott says:

        Hello, You know Gail, the food supply especially if you eat all the frozen and stuff Walmart sells is sure to kill. There are many disabled people in Oregon too, and that worries me, many blue handicap sings and way too many fast food places like McDonald’s. People these days seem having trouble just pulling an item out of the freezer to cook it – let alone produce, grow it and harvest it and cook it. Lots of problems with peoples diets and I have read it is worse in the larger cities where it is hard to get good clean food organic etc. In many areas people do eat very unhealthy food – if you consider most fast food unhealthy.

        • Scott says:

          Gail, These days it is really important to exercise and eat well to maintain our health.

          To be honest with you, country folks often have not many choices. Walmart is about it for some towns and it is good for some things, if you pick and choose items especially things like all the stuff you do not eat. I do buy a bit of food there, but I am choosy. In the winter time we are sometimes happy to see some greens that are shipped in from far away when nothing else grows here. That is going to be the tough part, we all used to those winter time foods that grow no where near where we live that are brought in from far away. Talking about long supply lines, most of our veggies come from Mexico here for a good part of the year.

          As gardeners, about all we can do is dry our summer harvest or preserve it to make soups and things with it through winter. I dry corn, onions, zucchini etc any thing I can and put them in mason jars for the winters here. So far I have not had to eat much of it but hoping not to need it but I do us it to make soups. Those types of soups in pot are going be perhaps our mainstay if things get too expensive for imported food during the winter. Meats on sale can also be preserved and dried and jarred up.

          A handful of dried beans, dried veggies and some kind of dried meat thrown into a pot maybe our meals. Without this supply line, that is if we are lucky.

          Good to store some corn or grains that you can eat and you can also make some homemade tortillas with it or some corn bread etc. For me it is corn because I do not do well eating wheat.

          I know many of us can make these things, but are most city dwellers cooking homemade foods these days? Well some, cook, but many do not – as they are too busy with their jobs,

          it is really a big task to work a full time job and cook your meals from scratch at the same time but it can be done, but I think most do not. When I was really busy working, I ate too much outside and my health suffered I noticed.

          It just takes effort to shop buy basic foods instead of pre-made processed foods which seem to be the problem – although I eat some I try to make most of my stuff fresh. Use your freezer you can make something and portion it up and freeze part of it for later.

          But learning to dry foods as the Indians did is the way to go as we do not have to worry about the refrigerator and if it goes out. Dried foods can be stored for many years and freeze dried foods in the cans for as long as 30 years.

          • xabier says:

            Scott

            You’ve just described the Middle Ages: everyone round the fire eating some kind of bean stew out of the same pot,with a hunk of hard black bread, and maybe some fresh meat from hunting to supplement the dried and salted stuff – which was why salt was so precious then. It’s why the aristocracy did better than others (all that hunting forest was theirs) and many peasants just died in April after a hard winter.

            One of the traditional peasant dishes in Northern Spain was breadcrumbs fried in olive oil, with a bit of garlic and maybe a tiny pinch of salt, that’s it! Traditionally eaten with spoons out of a common bowl. I’ve tried it: OK for once in a while, but I’d not fancy a winter of eating it! You certainly need some good wine to wash it down.

            Food drying looks like a good idea, but it won’t be sun-dried here in England! Even now we hardly see the sun. I’m starting with apples, as my old tree has about 400 fruit buds on it now, which will make around 200 good apples in the Fall, far too much to eat in just a few weeks. That old tree was the best bargain I had in buying this place, and a Danish farmer kindly renovated it for me with expert pruning while I watched him, as it was a bit neglected and tired.

          • I have found dried peas and dried lentils are both good to store and quick to cook. But I haven’t figured out how to grow either one myself. Peas are a cool weather crop, and I would need to get the timing right. My understanding is that lentils take a long season, but like it cool and dry. We have a long growing season in the Atlanta area, but it is warm and wet.

  26. Scott says:

    I wanted to share this article with other readers on the site that may not have read this.
    Gail published this in June of 2007 and it was ahead of its time then. Great PDF Gail.

    http://www.contingencies.org/mayjun07/finite.pdf

    • Thanks! The article you reference was for actuaries, in the magazine that is sent to all actuaries. I wrote a similar article for lay audiences, called Our World is Finite: Is this a Problem?, published April 22, 2007 on Our Finite World, and later copied over on The Oil Drum. My final section from the post comes to the following conclusions.

      What if we don’t find technological solutions?

      1. Initially, higher prices for energy and food items and a major recession.
      2. Longer term, a decline in economic activity.
      3. Transportation difficulties and electrical outages.
      4. Possible collapse of the monetary system.
      5. Failure of economic assumptions to hold.
      6. Changed emphasis to more local production.
      7. Reduced emphasis on debt.
      8. Reduced emphasis on insurance and pensions.
      9. More people will perform manual labor.
      10. Resource wars and migration conflicts.

      I wasn’t saying what others were saying back then, and what I was saying then, doesn’t differ very much from what I am saying now.

      • Scott says:

        Thank you Gail, it was indeed an excellent article and you did write in 2007 about how the government may guarantee investments, well they did, the money markets, the bank bailouts. Right on Gail, you were ahead of your time in your predictions.

        If you the readers look closely at the article and the other articles linked they there is really not much else to say. You said it all Gail.

        It looks to me that you completed your message in about 2007. What you have said since then, you have been only fine tuning things.

        Best Regards,

        Scott

      • Scott says:

        Hello Gail, Your predictions were ahead of the time times in those papers you wrote in 2007, before, the financial collapse. You saw it coming.

        We must take heed to these “New” warnings of the future that you have been giving us notice of in your recent writings.

        I do hope things will go one okay for a bit longer. These bubbles can last longer than one thinks. In our home town things are calm now and hopefully it go on that way for a long time. But something could shake things up fast a black swan.

        What you are predicting now is even more serious and I guess that is because the world itself has gotten more crowded and fighting over fewer resources. And that has been clear for many years now. From here it looks like higher prices ahead at the grocery store. Deflation or inflation looks like what?

        This thing is like a dry forest awaiting a spark of fire and could be ignited when you look at the financial system.

        • By the way, I also wrote an article at the beginning of 2008, forecasting the melt-down that happened.

          Peak Oil and the Financial Markets: A Forecast for 2008.”

          • Scott says:

            Thanks Gail, I had not read that article from Oil Drum post. Amazing!

            http://www.theoildrum.com/node/3382

            Wow, that was posted in January 2008 and by the end of the summer and fall most everything happened we had a financial collapse.

            What an impressive post. I will tell you that you have my attention now and I take your predictions very serious.

            You have been hinting that another financial collapse is near, do you expect by 2014 we will have another 2008 type of event or worse? What will be the main drivers of our next grand recession? Perhaps the bond market, student loan bubble, CDS’s or sovereign debt default? A giant war with Iran? Perhaps all of the above?

            The only thing you missed that I can see was price of oil actually fell for a time during that deflationary event, I think the prices even fell below production costs. And, as a result of that, companies slowed development a time. We were headed for shortages and during that time I heard predictions of that not so much because of peak oil then, but because of finance and prices being below production cost.

            These are some pieces that stood out to me pasted in below from Gail’s article below.

            Many monoline bond insurers will be downgraded in 2008, and some may fail.

            The Fed may attempt to lower interest rates,

            There is likely to be a serious recession in 2008, deepening as the year goes on.

            The amount of debt available to consumers is likely to decline.

            Fannie Mae and Freddie Mac may need government assistance

            In 2008, the pool of buyers for homes is likely to become smaller, in part because of the shift away from the lax lending standards

            The stock market probably will decline during 2008.

            Prices are likely to rise in 2008 for food and energy products. Prices may decline for homes and non-essential goods and services.

      • ravinathan says:

        That was indeed a very prescient article in 2007 Gail. I noted with interest that you anticipated strong inflation and recommended that actuaries consider how to navigate this scenario in reserving for losses and in managing their portfolio of investments. Do you continue to hold an inflationary view? Your most recent writings appear to be more about financial collapse implying deflation primarily maybe followed by inflation as governments print their way out of a debt collapse. Have I understood you correctly? It would take very different portfolios to navigate deflation (mostly cash or treasury bonds) versus inflation (low cash and overweighted commodities and resource stocks). I would be interested in understanding how you would structure a portfolio in these times and what precisely do you mean when you talk about a balanced portfolio?

        • I have changed my mind on the inflationary view. I think the issue will eventually be discontinuities, rather than inflation or deflation. For right now, I think deflation is the issue. I need to write a post on this.

          The issue isn’t lack of oil, gas, and coal in the ground, and lack of sunlight that with the right “renewable,” we might capture. The issue is increasing loss of jobs, and an increasing situation where the jobs that are available, pay very little. The loss of jobs pushes up needed government revenue, to pay all of the out-of work people, putting further stress on the system. At the same time, government is collecting less revenue, since people without jobs don’t pay taxes.

          Without jobs, would-be workers can’t buy goods of all kinds. Businesses are put under financial stress, and many will default on their bonds. Stock prices will suffer. Housing prices will drop again. The government cannot collect enough money to pay all of the would-be recipients, and ends up cutting back Social Security, Medicare, and a number of other programs, leaving the common people with even less to buy goods with. Increasing numbers of businesses fail, because fixed costs become higher relative to sales (and pretty much the opposite of “economies of scale”– now “diseconomies from lack of scale”). Among the companies that fail are electric companies. Oil and gas prices drop too low, to keep up production.

          I am doubtful that anyone will be successful in planning around these problems by “structuring their portfolios right.” In terms of what a person should buy, land that a person can garden/farm ranks up fairly high. One catch is that a single family can’t produce everything they need for themselves well, especially when the weather happens to be bad one year, or insect problems happen, or squirrels eat a lot of the would-be harvest. Another catch is that, as a practical matter, one family cannot feed itself, while others around them starve. Those seeing the individual’s good fortune are likely to resort to theft or murder. A third catch is that in old age, a person with land may still not be able to feed himself–he will need the help of younger family members. A fourth catch is that there is an awfully lot to learn about gardening, and current resources (organic sprays, soil amendments shipped from afar, refrigeration, drying equipment, etc.) may not be available in the future. A fifth catch is that new governments often forget about who owned land previously, and reassign it as they see fit.

          Other than land, some coins to trade might (or might not) be helpful. My guess is that silver will be more the right denomination for trading than gold. If there is little to buy, the coins still may not be very helpful.

          It is anyone’s guess as to which paper investments will hold up best. If governments hold together, then their debt would in theory, have value. Of course, the government will do whatever it can to make this value be as little as possible, by issuing more debt and printing more money. TIPS are in theory protected both directions–inflation and dropping below par at maturity–so in theory could be better investments. Resource stocks don’t necessarily do well, because prices drop too low to support extraction. Look at the problems gold is having now.

          • Scott says:

            Thank you Gail, I think you see a deflationary outcome even though the federal and world bankers will print away. Maybe at first we will see prices go down including oil — then they will print and prices will rise again.

            I wanted to mention to readers on this site that silver and gold have basically fallen below production cost (much like oil did in 2008) and now a good buy. I do believe that silver and small pieces of gold along with food will be the best bet from here. Also store needed things that can be traded.

            Most gold companies need at least $1200 USD to make a profit. What else can one do?

            Silver and gold coins are cheap right now. What I am looking at is the reaction of the central bankers to the next crisis—- they will create lots of new money,

          • Scott says:

            Gail what you said about jobs and how little they pay these days that is sure true. The middle class has shrunk and so many work in service sector jobs that pay poorly. When I was a kid in the 1960’s Dad could work and mom could stay home with the kids and you could own a nice home and a car and a station wagon, take a great vacation every year and life was fairly simple. Very common that that just a dad would work and be able to support a family in suburbia. Now it at least two working to that and having above average jobs.

            Some have good jobs these days, like my dentist but so many more do not. The service industry really grew up since the 1960’s into a massive blue print across the country of strip malls giant corporate owners, gone days of individual owners for most restaurants. The corporations have changed our world in a way that has not been very good at all.
            Even here in my small town there was locally owed hardware store and a locally owned auto parts store and they were not connected to a corporation franchise. But they are gone now they have been bought up by corporate chains and they have changed their store fronts to the new corporate names.

            When I was teenager I worked at a restaurant and it was owned by a man and his wife that both worked there and I worked for them for three years and they became like family and cared about me. When you are working for a corporate chain that is lost and they do not care about you very much at all.

            Gail, I do look forward to reading your next post and especially if you help us understand this issue of inflation vs. deflation which I have discovered can very complex especially when I see countries like Japan and the US that have been printing money and the money does peoples hands so deflation is being battled when it appears that we should be having inflation and if this money will eventually make its way to peoples hands instead of the bankers hands will we then have inflation? It is hard for me to understand how Japan has been doing QE for more than ten years and inflation rates have close to zero or even negative some months on a chart I saw. But I have heard they pay big money for food.

            I think if we look at the recent fall in gold and silver prices I think it is because the inflation that was expected from QE did not materialize. I do not think the prices can fall much lower because the costs of production is higher with the higher fuel cost. Just like in most commodity markets their is a physical market and a paper market, sometimes paper markets can drive prices to a point where the prices of the physical is different than the paper price. You will pay a premium to own the physical silver which is more than the posted paper price. Right now silver is at about $18 USD and you will pay about $23 to own physical ounce. But you could purchase a “paper ounce” for $18 but you will not receive the metal. Interesting.

            Oil seems to be holding its own and is not falling in price – even though we have not seen the expected inflation.

            Here is an article I found that has some charts you may like to look and a long narrative on the subject.

            http://www.creditwritedowns.com/2013/05/on-qe-inflation-and-deflation.html

          • xabier says:

            Gail

            Yes, we are in the new Wonderland of ‘Jobless Recovery': or one in which the new jobs are very badly paid indeed.

            Regarding gold or silver in a collapse, it seems that in Argentina gold was never actually used in transactions, and always had to be changed into pesos/dollars. Theft of jewellery off women in the street exploded as the thieves could easily change that up into cash.

            I read recently that people with supplies of candles did very well in the Balkans when the electricity supply went off, but eventually that market declined as people just went to bed when the sun set. Batteries and medicines were better for bartering. But you could be killed for them if people thought you had a big stash.

            • Interesting. Hoarding became much less attractive to me, once I figured out that one of the biggest side-effects is that it would make me a target for crime.

          • xabier says:

            Gail

            What you say about land is very interesting: we tend to assume that current property rights will be observed, but they depend on the status quo: many historical crises have been accompanied by profound changes in property rights and distribution, even abolition ( as per the Russian Revolution.)

            I’ve mentioned it before, but it bears repeating that my Polish friend’s family who were peasants had some land given to them by a nobleman, and they escaped confiscation under Communism because it was to small to be seized (but productive enough to help them survive. It is in the mountains, not the plain, where the tracts of land are much larger and more fertile. Keep below the radar!

          • Scott says:

            Hello Gail I sold all my last stocks and bought a rental house with the money.

            Not many good choices out there now.

          • ravinathan says:

            “I have changed my mind on the inflationary view. I think the issue will eventually be discontinuities, rather than inflation or deflation. For right now, I think deflation is the issue. I need to write a post on this.”

            Thank you for the explanation Gail. I for one would love to read a post explaining your current thinking on inflation versus deflation and how these ‘discontinuities’ would result from current dynamics.

        • Scott says:

          I think Gail may have something to say soon on this question I sent her recently. We are kind of at a cross roads, we prices rising on our homes again and credit again a bit. But I do not trust these markets. The question I asked the other day is pasted in below to Gail. We will have to be patient on this as this may be the subject of her next publication.

          “Gail – You have been hinting that another financial collapse is near, do you expect by 2014 we will have another 2008 type of event or worse? What will be the main drivers of our next grand recession? Perhaps the bond market, student loan bubble, CDS’s or sovereign debt default? A giant war with Iran? Perhaps all of the above?”

  27. Dear Gail, i am learning a lot by reading your article and like to thank you ! Your viewpoint while highly contradictory to the common view of the average corporate seat clinger is a welcomed argument in the discussion with the aforementioned.

  28. xabier says:

    Christopher

    I just saw what you wrote about elites and democracy, that all does make sense. I’m afraid the ancient Greek experience seems to describe Europe very well, and above all Spain – getting into office is a way to get the power to persecute your opponents and drain the public coffers. Which is why I tell my relations there that Spain is living history, still somewhere between 300BC and the 17th century……..if people are free to practice politics, it’s probably how it always tends to end up.

    (But guess what: they still get the masses to vote for them, however corrupt they are, on the basis of the deep hatreds between groups! Oh, yes, all very Greek!)

    Mass welfare and the vast number of state employees is now another corrupting factor in democratic politics throughout the West, which shackles all decision-making.

    Our elites are certainly not creative, as is clear to all, just struggling to maintain business as usual, or the illusion of it. They have very few options before them, it’s all too complex.

    Maybe they also haven’t quite grasped what is happening, or the long-term implications, this wouldn’t surprise me. It’s interesting to see how long it took for the British elite to absorb the simple and obvious fact that their Empire was effectively over by 1945: the ruling class even said things like ‘We may not be so powerful, but we will still lead the world with our prestige’! I have rubbed my eyes reading this sort of stuff.

    The ‘creative elite’ idea is a a sound one: there are examples from the Middle Ages of rulers who did their very best for their kingdoms, and seemed to have some idea of taking things forward for the benefit of all, without being in the least ‘democratic’ in any sense. 12th century Aquitaine is a good example, under the rule of Henry and Eleanor. I’d certainly have been happy living then. Some of the nobles were remarkable, men and women: they could be Crusader, pirate, poet and musician, patrons of learning, horticulturalists and good administrators, all at once.

    In higher civilization, undoubtedly some few people have to give the lead to the many and awake the spark within. Fascism based on charismatic leaders is perhaps a distortion of this fact…..

    • “creative elite”, what a terrible word. I must totally disagree, but actually this discussion is not important. It is the economic system that is collapsing, not neccessarily the political.

      I am thinking and hoping that many different and new approaches about how responsibility and power will be shared, will and can develop in the future.

      Though i am very much hoping, that it will not be any form of “elite” that is ruling us in the future. I would rather rule myself whenever possible. Elites have gotten it wrong long enough.

      • xabier says:

        Alien

        The existence of an elite does not necessarily imply slavery.

        Just one observation from British history, to illustrate: the ‘Glorious revolution’ of 1688 finally destroyed royal absolutism and the Divine Right of Kings in Britain: it had popular support, but was entirely the work of the aristocratic, ecclesiastical and commercial elites, as was the Habeus Corpus Act. The British had cause to be very grateful to those elites!

        Or perhaps consider Henry and Eleanor of Aquitaine imposing justice and peace in their inherited lands, putting the unruly nobles in their place and fostering the arts: again, the work of an elite, not the people.

        So creative elite is a very valid concept, historically.

        • Again I say, this discussion is moot. The evolution of society in the future can not be foreseen. Too many factors that have not existed in the past, exist in our future.

          It is obvious that the driving factor of this evolution, the evolutionary pressure, will be the lack of energy. Energy (see Marvin Harris) has always been the driving factor when mankind fundamentally changed the way it organized itself.

          When mankind overextended the populations of animals it could hunt, they could not have foreseen the rise of agriculture, it just happened over time.

          Maybe mankind will with the help of gentic engeneering will change itself to survive in a depleted world?

          On very restricted ecosystems nature tends to miniaturize all wildlife and there really has been a “hobbit” human on the island of flores in the past (aong with pygmy elephants).
          (http://fsu.edu/news/2007/01/29/brain.analysis/)

          Maybe we adapt in changing ourselfs genetically to be hobbits to save energy?
          Crazy, but possible.

          This is not to be taken utterly seriously, but I would not venture any guess how mankind will change in the face of ressource depletion. There are too many possibilities and the history of our western societies will not help us at all when making assumptions about the future..

          • Scott says:

            Alien, How did you come up with your name? If you have been on this blog for awhile you will know that I was the one that posted an alien story which was an experience when I was 16 years old and I posed the question to the group, is there something out there that is better than we know about now?

            We could use some alien help right now.

          • @scott
            It might have become obvious that I am into anthropology. My Blogs title “They view from afar” is also the name of famous anthropologist Claude Levis Straus’s book. This perspective is what fascinates me. For understanding the principles of human society the distance observation point of an alien is needed, thus the name.

      • Christopher Johnson says:

        With Respect for Alien Observer:

        The term ‘creative elite’ was used by Arnold Toynbee in ‘A Study of History’. Its purpose is to distinguish between an elite that solves the problems that a society faces and one that doesn’t, but in fact, causes more problems. This latter Toynbee called a ‘controlling elite.’ He also noted that the periods when ‘controlling elites’ ruled were generally much longer than the (early) periods when the bright Julius or Octavius, or Qin Shi Huangdi led revolutionary movements.
        I can think of no group of social animals that does not include elites, from reef fish to elephants to humans. If I am wrong, it’ll be the first time in several years. But just because we may not like being ruled, that certainly hasn’t lightened the burden.

        Cheers, Chris

        • xabier says:

          Christopher

          Well said! And we might add an elite could consist of craftsmen, artists, musicians and poets who form and make an intellectual and material culture, as well as those who have the reins of power (they can have them!) The Toynbee coinage really is very useful.

        • Scott says:

          Hello Chris, I am just happy to get the fist right now and farmed fish and shrimp does not taste as good as the real thing. I noticed if we spend a bit more to get the wild fish it is better, that is something new we have to deal with in this brave new world.

  29. Vineyard says:

    @Elites: Once again, I can only recommend to read Emmanuel Todd’s “After the Empire”. His earlier book “L’Illusion economique” (The Economic Illusion) is sadly not available in english, but was also very interesting. Yesterday, I found a quote by the historian Robert Skidelsky, with a major message of Todds book.:

    “The third aspect of the weakening of democracy is the increasing educational stratification of the population. If mass literacy made possible democracy, higher education is a breeding ground for oligarchy. As the French writer Emmanuel Todd has argued, it reintroduces inequality into the mental and ideological organization of developed societies. Large inequalities come to be viewed not as contingent facts, which might be corrected by policy, but as genetically inescapable. A new super-class of the rich, talented, and knowledgeable is emerging which controls most of the wealth and manages the political system to prevent any challenge to its position. Todd writes: ‘although universal suffrage persists in theory, in practice the elites of the right and the left close ranks to block any reorientation of economic policies that would lead to greater equality. It is an increasingly bizarre universe when after gargantuan, media-saturated campaigns the voting game ends up merely extending the status quo’.”

    This is not to fasly understand, that Todd is against higher education, as a Hegelian he is a major advocate of education. But his study showed that for some reason in every Western Democracy the number of students between 20-24 peeked about at 20%. (The only country that managed to break this “cultural limit” is Sweden)

    • Again iI must disagree.
      It is not helpfull to look at the development of societies that have only existed because of the exploit of fossil fuels and the growth this energy input stimulated.

      Only in these societies the “capitalist”, persons that make money with money, could emerge and rule. Only with the help of oil the surplusses of production were high enogh to sustain a capitalist elite. The capitalist elite will not survive the end of growth.

      In all major religions in the past the usrer has been shunned. Sustainable societies in the human history always found a way to prevent the rise of a “capitalist elite”.

      We will need to look closely into the findings of anthropologists studying these societies if we want to understand how to acchieve sustainability.

      A good example are the famous studies of Malinowsky about the kula ring economy in the Milne Bay Province of Papua New Guinea. (http://en.wikipedia.org/wiki/Kula_ring).

      Anthropological studies clearly show that our way is not “how humans behave”. We, as humans, have found a multitude of ways to organize our societies. Only very recently and for a short time in the era of oil the rise of the capitalist could be seen.

      • xabier says:

        Alien

        Good points.

        But ‘capitalist elites’ have existed before the advent of fossil fuels – for instance in medieval Italy and all the great medieval towns based on trade.

        They were restrained in their pursuit of profit and power, however, by religious and social pressure that ensured they provided for the poor – building hospitals, giving to charity, and behaved decently to those whom they saw everyday, face to face. etc.

        What we experience is a form of capitalism, which is fast turning into corporate fascism, that can be anti-human, (quite as much as Communism) but it need not be so.

        No higher civilization is sustainable, ultimately: but should we for that reason wish to live like the most primitive peoples? Maybe: it certainly seems preferable in some very important respects.

        • Pre Industrial capitalism?
          Some capitalist individuals existed in medieval times, but they did not exist as a class. Today in the USA there are 10 Million HNIs (High networth indivdual) on a population of 300 Million peopl. So one in thirty has accumulated more wealth than even a king would have in medieval times.

          Primitive societies?
          In anthropology the phrase “primitive people” has long been erased from vocabulary.
          In time it became clear, that there are no primitive societies, just different societies.
          This principle is called cultural relativism, and is adopted in all social sciences with the single exception of economics.

          Of course societies can be more or less complex in their organisation. But complexity is a factor that make societies more vulnerable (as pointed out by somone else here already).

          It is therefore logical, that post industrial societies may be less complex and more resilient.
          But as pointed out above, post industrial need not be pre industrial, in fact it will be very unlikely. I also did not want to argue that we adapt the lifestyle of the Papuan indigen people. But we can learn from them just the same.

          It would but utterly false and unfair (and cultural chauvinistic) towards other cultures to argue that they dont have a market driven economy because they are “less developed” and did not “invent market driven society yet”.

          In fact, anthropologists have shown numerous times that many of those people know exactly what a market would be and that it is/was a conscious decision not to implement it because they feel it would endanger their society to allow it (and rightly so).

          The fact that we could develop all the fancy technology we have today should not be falsely contributed to our brilliance or the superiority of our culture. The science we use has a base where a mutitude of different cultures have contributed over thousands of years. I.e. would not have it without persian scientists of the middle ages. (Who had invented batteries and usage of electricity then allready).

          Industrialisation on the other hand was the result of the explot of fossile fuels and the exploit of other cultures (also called colonialism).

          In pre colonial times, cultures of similar complexity levels and sizes existed on all continents. Only by forcefully suppressing other cultures or extinguishing them, the western cultures domination came to pass.

          Today, the diminishing diversification of cultures world wide, makes Humans as a whole much more vulnerable to extinction. Just like the diminishing biodiversity of an ecosystem diminishes its chances to survive an ecological desaster.

          • Sorry wrong number, 10 Million HNI in the world, 3 Million in USA, so oner King in 1000.
            Still a small kingdom to support a king.

          • Typo now, 1 HNI in 100 US Citicens.

          • xabier says:

            Alien

            I think you should look at the mercantile City States of Europe to see that the capitalists actually did constitute a ruling political class: else, why did the poor riot against them and the nobles try to crush them? (It is of course a very different society to that of capitalism allied to large-scale industrial production. )

            I do think it’s quite legitimate to talk about ‘primitive’ peoples (with all due respect to them may I add): to exclude perfectly accurate descriptive words from debate is exercising an undue censorship. It’s also a bit creepy and totalitarian, isn’t it? Non-words, non-people…..all very Stalinist. Use a non-word and you soon become a non-person! That’s how the game ends.

            Academics will only end up effectively playing games with one another if they indulge in such in-group thinking. If the use of a simple word is shocking, then you know that people aren’t thinking, but engaged in a kind of social or political ritual…….

            Back to Primitive versus Civilized: I like to remember the story from Herodotus, about the chief of a primitive tribe who got to learn Greek through trading with Greek merchants, and had little holidays in a Greek trading town, listening to music and poetry, drinking wine instead of fermented mare’s milk, and wearing Greek clothes, and washing himself, unlike his subjects. His tribal subjects found out about this….and murdered him for betraying their Ancient Ways. There’s a lot to think about in that story….

            The rejection of the civilized and the achievements of civilization, and constant denigration of the West that we see today is both ridiculous and very dangerous – ‘it all went wrong when we started farming’, ‘the West has only ever crushed and destroyed’, etc. But when people hate themselves, perhaps it is time to go?

          • You make some good points. Thanks!

        • Scott says:

          Xabier, in my books I have bee reading about the old forts that they had and how fire was such a threat with fire arrows from the Indians. then, Can not blame them for being mad we were the invaders. But things got very fierce in those days, and we thing today that things are fierce again with the gangs, well they are but I wonder in collapse what it will be?

          • Scott says:

            Xabier, I hope you got that, sorry for the typos, writing late at night. but just trying to look at our issues. I think in some areas people will help thy neighbor. So we have been talking much about folks relocating to more friendly small towns or country locations.

          • xabier says:

            Scott

            I look at it like this: we are all the descendants of the people who survived the horrors of the past, so we can probably face anything that comes up with confidence. In all likelihood, we won’t be facing extreme scenarios, (or so I hope) but just a slow grind down.

            A friend of a cousin spends a lot of time in Bolivia: there the poor people have been abandoned by the Police and the rich, so you could call it a ‘collapsed society’, but they have their own justice system – they find criminals and bury them alive (he’s actually sent us photos of this, all the people standing around the filled-in hole). No-one is going to walk over them if they can help it. The lack of a trial is of course a big problem, but even the poorest can fight back and keep their lives decent if they get together.

            Our systems are fragile, but we are resilient.

      • I think gift giving remains as a way of organizing behavior in some families (not as elaborate as the Lula Ring, however). When I grew up, I never heard arguments about anyone doing too little–it was always people doing too much. If a meal was given, everyone wanted to contribute more than their share. There was almost an argument about which one would take care of washing the dishes. Even now, my mother owns a townhouse that she does not live in. (She is in a retirement home nearby.) The siblings take care of meals when we visit. If something breaks, like a TV or microwave, someone quickly says, “Oh, we will take care of going to get a new one.” No one has ever thought of saying, “We need some help financially paying for this,” or “Your share of the cost is _____.” Not all family members are equally wealthy, but this is taken into consideration as well. They give in time, even if they have nothing financially to offer.

        This blog is in some ways a gift. I do not have a “Donate” button, and don’t show ads.

    • xabier says:

      Vineyard

      I think in Europe (and the US) we have quite the contrary problem: too many young people being pushed into university without the intellectual calibre to justify it, and regardless of the real needs of the economy, rather than being kept out by the oligarchy.

      This is actually sponsored by all the vested interests, – politicians, developers, education professionals, – in order to keep the young out of the unemployment statistics, and to build their professional empires(and justify their salaries and pensions – above all, pensions.)

      As the money runs out, and economies worsen, a lot of these colleges will disappear as students realise that an inferior quality university education is a poor investment. This will be no bad thing, but a big headache for politicians.

      • Christopher Johnson says:

        Another reason that Germany has been more successful: the apprentice system. While most other societies provide ‘general education’ through secondary and tertiary levels, only the Germans have a well-developed system of teaching work skills and ensuring that the new graduates actually find work.
        The other innovations mentioned in the recent ‘Economist’ spread on Germany include providing incentives to businesses to hire ‘part time’ workers that don’t receive all the standard full-tie benefits, but provide some income. This has had the effect of gradually weaning many unemployed off the dole, according to the German authorities. But
        But youth employment is the biggest problem, especially in southern Europe, and increasingly elsewhere. Only the Germans have a good solution, and according to the Economist article, the other European countries are finally beginning to ask questions about it.
        I can also address how China fits into this jigsaw puzzle: not well. But we’ll save that for a future post.

        • xabier says:

          Christopher

          I’d add little old Austria to that too – very low youth unemployment in consequence.

          Since 1945, the Germans have got it all about right, in stark contrast to Britain.

          Spanish migrants desperate for opportunities are finding that the Germans want them, but only if they can satisfy very specific requirements – and the Germans take care to educate their own people with those in mind. It seems to be an excellent system.

          The days of mass provision of sub-standard, liberal arts courses are over, one suspects: we haven’t the luxury of affording them. This will not go down well with Europe’s youth, who have been taught that a university education is by way of a political right, whatever their level of attainment. Unfortunately, the poor and gifted may well suffer in consequence as well.

    • That is an interesting quote. Higher education tends to persist in family lines, as well, partly because those are wealthy enough can afford to pay for education. I know my family has many with masters degrees and Ph. D.s, even back a long time ago. My mother’s aunt who is 91 has a MS, as did my husband’s aunt who would be 100 now.

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