Two Views of our Current Economic and Energy Crisis

As the US heads toward debt default and continues with government shutdown, the underlying reason for the predicament is generally not clear to the American people or the world. The story that the press has generally been feeding us places the problem as basically a temporary one, caused by conflicts between the Democrats and Republicans.

It seems to me that the problem is much deeper. In this post, I summarize the two views, and provide reasons why the Predominant View is very far off the mark. We may be headed for a financial collapse that the Predominant View misses completely.

Predominant View of our Current Economic and Energy Predicament

The world economy under “normal” circumstances grows. Economic growth can sometimes slow a little, and then a little Keynesian stimulus is needed. Such stimulus would typically include deficit spending and low-interest rates. Perhaps it would include “Quantitative Easing” as well, since it tends to stimulate interest in buying assets of all kinds.

With the Predominant View, economic growth can continue indefinitely, without slowing down or stopping. In fact, the pursuit of economic growth becomes almost a national religion, with Ben Bernanke (probably succeeded by Janet Yellen) as its high priest. With unlimited economic growth, it is easy to have our current monetary system, since debt, and the repayment of debt, “works” well indefinitely. In fact, we can have pension plans, Social Security, and the many wonders that our financial system can deliver. We also can have more and better technological innovations, because there is always an abundance or the resources needed to make these innovations.

The late economist John Attarian describes this secular religion under the name “Economism” (Attarian 2005). According to him, under Economism, one’s life purpose is to attain affluence, so as to maximize access to consumer goods. With this belief, affluence is the universal solution to problems and grievances. Give people enough money, jobs, goods and services, and they will be happy and peaceable.

With this view, the big problem in the future is pollution, and in particular climate change caused by carbon dioxide and other gasses affecting the climate. Coal is viewed as particularly bad in this regard, oil is somewhat less bad, and natural gas better yet. Nuclear is a concern for a variety of reasons, including lack of a place for spent fuel.

To prevent/mitigate climate change, the view is that we must take steps to reduce fossil fuel usage over the next forty years. The view is that improved technology is likely to be helpful in this regard, because new technology will allow us to become increasingly efficient in our use of fossil fuels. “Renewables” can perhaps be ramped up greatly.

Birth rates can likely be reduced, through increased education of women. If there is a problem with a declining amount of resources per person, this problem can be mitigated by sharing what we have more equally. Perhaps job sharing can become more common, with each worker having part of a job.

Sustainable solutions are viewed as ones that use less fossil fuels. The “plan” is to have ever-increasing GDP per unit of energy consumption. The economy will become ever more service-oriented. People will learn to be happy with more services and fewer goods. We can move forward to a sustainable future.

With this view of the future, the economy is fundamentally fine. It will return to stronger growth in the near future, perhaps using less energy. The huge amount of stimulus currently being put into the economy through ultra low-interest rates and Quantitative Easing can be dropped back, without adverse results. With the Federal Reserve in charge, and with similar groups in charge in other countries, there is nothing to worry about.

Problems with government debt in the US, many parts of Europe, and Japan will somehow take care of themselves, if the various political parties would learn to get along better, and perhaps wait a bit for economic growth to resume on its own.

An Alternate View of our Economic and Energy Predicament

This story is very different from the Predominant View. Energy is critical to the growth of human civilization, because all types of goods and services require energy for their production. Once built infrastructure has been added, energy needs to be of the specific type used by this infrastructure.

In the world today, oil is the single largest source of energy. It is also the most versatile, and because of this, it is the most highly valued energy source. Extraction of oil has become problematic in the last decade, for two reasons: the quantity is not growing very rapidly, and the cost of extraction keeps rising. This rise in cost occurs because we extracted the easy-to-extract oil first. Now we have to move on to the more difficult (and expensive) to extract oil.

I have referred to the rising cost of oil extraction as an Investment Sinkhole Problem. We invest more and more dollars (and quantities of resources of various types), but the amount extracted barely increases world-wide. Economists would call the problem declining marginal returns on investment. When oil could be extracted cheaply, there was a huge gap between the cost of extraction and the value provided to society by this oil. Now, as the cost of extraction has risen, the difference between these two amounts becomes much smaller. If we were depending on this difference to help fuel economic growth, we are losing this benefit.

Viewed in terms of feedback loops, the huge amount of value added to society by oil over and above its cost of extraction used to lead to a positive feedback loop, favorably affecting economic growth. For example, (a) taxes on oil extraction would provide significant revenue, and (b) with low oil prices, roads could be built very cheaply. Both situations benefitted the economy.

Now at a higher cost of extraction, the value added to economies around the world is lower, leading to lower economic growth. At some point, not far away, the cost of extraction will exceed the value that this oil provides to society. At such a point, it will no longer make economic sense to extract oil. Adding more high-priced oil will lead to economic contraction, and quite likely, ultimately, collapse. Joseph Tainter in the Collapse of Complex Societies (1990) tells of many civilizations that reached declining marginal returns of investment and ultimately collapsed.

Oil and the Production Function

Figure 1. Graph of total, average, and marginal product, based on a quadratic production function, from Wikipedia.

Figure 1. Graph of total, average, and marginal product, based on a quadratic production function, from Wikipedia.

Economists talk about production functions describing how the economy works. In general,  a “production function” for the economy is of the form

Q = f (X1, X2, X3, . . . Xn)

where Q = Quantity of Output

and X1, X2, X3, . . . Xn are quantities of factor inputs, such as labor, capital, and land or raw materials.

Using the production factor approach, oil needs to be one of the Xi variables, because it is critical to the function of the economy. Oil is important for transportation, agriculture, as a lubricant, and as a raw material used in making many products such as medicines, fabrics, and asphalt. Substitutes for oil are very limited–mostly ethanol, which acts as an oil extender.

Figure 1 represents the situation where only one the of the inputs, in this case, oil, is allowed to vary. We are rapidly reaching the point where the cost of extracting oil is so high that in total, society is worse off, in terms of the total amount of goods produced by society. On Figure 1, we are reaching Stage 3.

The fact that we are reaching diminishing returns with oil is a major reason why world economic growth is slowing. It is also a major reason that many of the heavy oil consuming nations have been struggling with recession-like symptoms. These symptoms are mostly being covered up with deficit spending, ultra low-interest rates and Quantitative Easing. If this stimulus ever stops, there are likely to be huge problems.

Debt’s First Tie to Economic Growth

Debt is very much tied in with this story. GDP is a measure of how much is produced, whether or not debt is involved. Thus, if a new house or a new car is built, the value of the car is included in economic growth calculations, whether or not the house or car is bought 100% on credit.  Not only are we reaching limits on oil production (because the cost of extraction is becoming higher), but we are also reaching limits on debt, because economic growth is slowing.

Figure 2. Author's image of an expanding economy.

Figure 2. Author’s image of an expanding economy.

The fact that adding debt is easier in a growing economy than in a shrinking economy is obvious, if a person thinks about it.

If the economy is expanding rapidly, it is easy to add debt, because borrowing from the future always looks like it provides a benefit. In fact, it is possible to pay fairly high interest rates, in a growing economy, without profits being badly depressed. Businesses get the advantage of economies of scale, helping their profits and their ability to pay back debt. Reinhart and Rogoff (2008) unexpectedly stumbled across this phenomenon in examining eight centuries of financial crises. They reported, “It is notable that the non-defaulters, by and large, are all hugely successful growth stories.”

Another situation where debt works well is if the economy is close to flat, but with debt, it is possible to add inexpensive fossil fuel energy. In this case, the value to society in terms of the work performed by the fossil fuels in far in excess of the cost of extracting the fossil fuel energy. This difference can feed back into the system, through cheap infrastructure, rising tax revenue, and even rising wages of workers, helping economic growth along. Thus, even though the economy was not growing at the time of the initial loans (these loans would be to potential consumers, to potential factory owners, and to potential extractors of the energy), the debt did in fact enable growth, by helping the huge difference between the cost of extraction and the value to society of the energy flow through to the economy.

Figure 3. Author's image of declining economy.

Figure 3. Author’s image of declining economy.

A shrinking economy can handle much less debt. Businesses, instead of seeing economies of scale, find that fixed costs are increasingly high compared to sales. Thus, their profits tend to shrink, even before debt service is added. Workers experience layoffs frequently, and often find that their new job pays less than their old job. This problem makes debt repayment difficult. If the economy is in fact reaching Stage 3 in Figure 1, because of diminishing returns with respect to oil, additional debt simply pushes the economy toward collapse more quickly.

Debt’s Further Tie to Economic Growth

There are two reasons why increasing debt is important for economic growth. First, increasing debt gives governments, businesses, and individuals increased spending power. For example, with a new auto loan or new home loan, a person is able to purchase an automobile or a home. This aspect or increasing debt is referred to as “increasing demand”–really the increased ability to afford goods.

If debt is declining, the situation is similar to the situation where few new loans are given–instead the old loans simply need to be paid off. If these are home and car loans, the number of cars and homes sold would likely drop back greatly.

A second aspect is just as important. The increased demand tends to lead to higher prices. For example, suppose mortgages for homes suddenly dried up. The amount a person could get for selling his house would likely drop. The same problem would happen if car loans disappeared–there would be many fewer buyers for cars (even used cars), and the value of cars would tend to drop. The value of commodities in general would likely drop as well, because there would be fewer cars made. The fact that fewer cars are made would feed back and affect steel prices, oil prices, and prices of other components of automobiles.

A related issue is that if the amount of debt starts to drop, the feedback loop is such that it tends to encourage more contraction, lower prices, and more debt default. (Like 2008!) Such debt defaults can cause banks and insurance companies to collapse, unless propped up by the government. Lower commodity prices can lead to a cutback of oil production. The expected feedbacks are especially bad if the economy is already reaching Stage 3, in Figure 1.

At this point, we have a great deal of oil extraction that is financed by debt. As we get to the more expensive oil, there will be more of this that can never be paid back. The tight oil extracted using fracking from shale formations is quite possibly of this type. The president of Shell Oil Company recently explained what a disappointment its investment in shale oil and gas had been (Financial Times).

Brazil is a step further toward bond defaults. It is trying to extract expensive oil from below a salt layer offshore. Brazil’s second largest oil company recently was not able to make its debt payment, and is now being liquidated (Bloomberg). The debt rating of its largest oil company, Petrobas, was recently downgraded (Financial Times).

A person cannot help but be concerned that if we start to see debt defaults, there will be  contagion as prices drop and banks and insurance companies fail. The government is already stimulating the economy using super-low interest rates, deficit spending, and Quantitative Easing. It would seem to be running out of ammunition to fix the situation, if another round of debt defaults start. Former Director of the US Office of Management and the Budget, David Stockman, has recently talked about this issue (King World News).

The Electricity Part of Our Predicament

Electricity can be produced in many different ways, at vastly different costs. When electricity costs are low, low electricity costs also contribute to economic growth, because the cost of generating the electricity is significantly lower than the benefit to the economy from the electricity. In this respect, electricity is very much like oil.

We can think of oil and electricity both as intermediate products, that are not exactly what we as consumers can use. What we want is transportation, or light from a light bulb, or our food cooked. Our salaries only go so far. Once the share of our salaries that must be spent on these intermediate products (electricity or oil) starts increasing, the share of our salaries that can go for the applications we really want must shrink. Similarly, if more of the world’s resources and manpower go to creating wind turbines and solar panels and nuclear plants, less is available to produce other things.

The shift toward renewables has several difficulties:

  1. Renewables  are an order of magnitude less efficient in producing electricity than the fossil fuels they replaced, when the energy cost of mitigating intermittency is included in the calculation  (Weissbach et al. 2013). EROI comparisons are distorted, because they do not reflect this cost.
  2. Renewables tend to use fossil fuels heavily at the beginning of their life cycle, so do not really reduce fossil fuel use unless at some point in the future, we greatly reduce the amount of renewables we produce (and perhaps not even then, if the intermittency cost is as high as indicated in Item 1).
  3. The shift toward renewables in electricity production acts very much like the push toward high-priced oil, in terms of pushing the economy toward Stage 3 of the production function (in Figure 1), only on a different axis than oil.
  4. The view that the economy is hurtling toward climate change is based on the view that the economy will in fact continue to grow and will continue to extract fossil fuels for the foreseeable future. If oil and debt are limits that we are hitting right now, we may very well encounter economic collapse in the near future. Such a collapse will likely cut fossil fuel use of all kinds very quickly, because of low prices and disruption to systems.
  5. If, in fact, we do hit collapse, renewables will not operate the electric grid without fossil fuels, because we need fossil fuels to keep transmission lines repaired, to create and transport replacement parts, and to allow customers to have jobs to pay for the electricity. Thus, without fossil fuels in the future, our investment in renewables is of  no long-term value. (And EROI estimates are vastly overstated.)

Government Tie to Collapse Issues

Governments are perhaps the most vulnerable part of the system, if collapse hits due to continuing high oil prices.

Governments are the ones charged with bailing out banks and providing benefits to unemployed workers, at the same time that their own tax revenue is down due to reduced employment. In fact, many of the governments of big oil consuming nations (US, most of Europe, and Japan) are in very vulnerable positions, because their debt levels are very high, and they keep adding more debt. At the same time, they are pulling out all of the stops to keep their economies from collapsing, including very low-interest rates and Quantitative Easing. Because they are already so stretched, it is doubtful that they could do another round of bailouts.

The US government shutdown and debt cap limit debate is indicative of very serious problems–more than a conflict between two political parties. With slowing economic growth, there is a huge gap between what has been promised and what the government can in fact afford. No government official wants to explain to voters how bad the situation really is. So we end up with gridlock. See my post from November 2012, Understanding Our Oil-Related Fiscal Cliff.

Conclusion

The Predominant View appears to fall very wide of the mark. Limits on oil and on other resources are a signal that Nature is really in charge, not humans. We can’t escape these limits. If we try to mitigate climate change by using more renewables, we hit a different kind of limit–high-priced electricity, and the problems it brings.

Potential collapse seems to be directly in front of us. The Republican solution of more oil drilling will lead us in the direction of collapse, just as will the Democratic solution of increased debt and more emphasis on low-carbon fuels, particularly for electricity. The limits are just on different axes of the production function.

Whether or not we humans would like to be in charge, Nature is, in fact, in charge. Nature determines timeframes. The timeframe could be very close. It is even possible that the current government shutdown/debt ceiling problems will ultimately lead to US collapse, and perhaps even world collapse.

The current Predominant View of our situation is one that puts humans, and in particular current governmental officials, in charge. Historically, governments have had close ties with religion, using religion to further their own purposes. Now, government and religion have almost been fused into one. Perhaps this close tie is the reason why it is so difficult to get a well-reasoned story about our current predicament from those in charge, and why so many people are willing to believe the story we are being told.

One thing that the Predominant View misses is the fact that we live in a finite world. This means that growth must at some point slow, and ultimately be reversed. The world operates in cycles; we can’t really change this. Nothing is permanent. The species that are dominant will change; humans may even lose their dominance. The climate changes, although perhaps not as fast as it is currently.

Another thing that the Predominant View misses is the fact that energy of the right kinds is absolutely essential for the functioning of the economy. The view that there will be a substitute is more “faith-based” than it is based on objective facts. The Predominant View also misses the point that the substitute needs to be cheap; high-priced energy is terribly bad for the economy–it can easily push the economy into Stage 3 of the production function. The fact that high-priced oil is likely to lead to a debt unwind is likely to make the situation worse than it otherwise would be.

A major debt unwind is likely to lead to low prices for oil and commodities of all types and significant job loss. This is analogous to the problem the 1930s Depression. The big difference is that in the 1930s Depression, job loss was associated with the falling price of food, as fossil fuels replaced human labor, bringing food production costs down, and leaving many unemployed. (Stiglitz 2010). In that scenario, there was still plenty more cheap fossil fuels in the ground. Therefore, more debt and stimulus programs could re-inflate the economy, because it could lead to more use of cheap fossil fuels in non-agricultural sectors of the economy.

We are now at the edge of a very different scenario. We are reaching debt default limits because we have extracted the easy to extract oil. Additional extraction can only be more expensive and thus push us further into Stage 3 of the production function, or more toward financial collapse.  As the economy naturally shrinks, there is no longer a way that more debt can re-inflate the system. Instead, the use of debt must reach a new, much lower equilibrium. Because of debt’s tie to banks, pension funds, insurance companies, and the rest of the financial system, this is a huge problem.

We can think that the growth of human systems, including the economy, will go on forever, but we are almost certainly kidding ourselves. At some point, when Nature decides, new species will dominate–perhaps plants that can use more CO2. The transition will be the transition Nature dictates.

We are kidding ourselves if we think that we can decide to slowly reduce oil and fossil fuel usage over the next 40 or more years. If oil prices drop to, say, $30 barrel because of debt defaults, oil production will drop very quickly–not based on some slow decline curve. Natural gas and coal prices will drop dramatically too, essentially putting an end to their production. Jobs will disappear with the lack of fossil fuels. Eighty or ninety percent of us will again need to work in manual food production without fossil fuels. Education, government, and services of all kinds will shrink rapidly.

Nature is deciding for us right now what is ahead. We likely will have little choice in the matter. If we do have a choice at all, it is likely to be in the direction of serious back-pedaling, in terms of population, and in terms of learning to live essentially without fossil fuels. The future is likely to be very different from the past.

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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388 Responses to Two Views of our Current Economic and Energy Crisis

  1. TheCarGuy says:

    For eight years (2001 to 2009) Republicans spent like drunken sailors when they where in control and tanked our economy with deregulation, wars, senior drug entitlements and tax cuts . Now they want to school the rest of us on how to manage the economy.

    “Reagan,” Vice President Dick Cheney famously declared in 2002, “proved deficits don’t matter.” Unless, that is, a Democrat is in the White House.

    http://crooksandliars.com/jon-perr/reagan-proved-deficits-dont-matter

    • I am convinced that politicians are very much tied in with what economists believe and write about.

      Any economist with common sense would know that saying, “We are going to hit limits not too far down the road,” would make certain that he would never get appointed to any position of any importance. There is a good chance that an academic paper would not even get published saying such a thing. In the scientific sphere, professors get research grants to study whatever the hot topic is–carbon capture and storage, no matter how expensive. This may happen in economics as well.

      • yt75 says:

        Yes …

        And the “irony” of the Reagan/Thatcher era, is that it is also more or less the “oil glut” period, for a big part due to Reagan adminsitration negociating increase prod with the Saudis, also “wrecking” the US domestic oil industry in the process :

        While Thatcher also “sold” most(or a lot) of UK oil during the same period :

        http://www.theoildrum.com/node/9936#comment-956275

        • The link you provide to a comment by Jon Callahan includes a comment at the end, from Wikipedia:

          “Throughout the 1980s revenue from the 90 per cent tax on North Sea oil extraction was used as a short-term funding source to balance the economy and pay the costs of reform.”

          Taxes on oil extraction have traditionally been very high. This is a big source of funding for governments. I think EROI studies miss this point. Not only do governments get the cheap oil to pave their roads and fuel their vehicles, but they also get a lot of taxes from the oil companies. Switching to renewables, and not noticing that the tax dollars are going the other direction, is a major problem.

          • Since 2008 when the UK switched from oil exporter to importer the loss of revenue has been matched with borrowing. As yet that loss in balance of payments and tax income has not been matched.

      • yt75 says:

        Also about academic papers on the subject, the results of the detail study launched by Tad Patzek, U of Texas and others are now available apparently :

        http://www.beg.utexas.edu/info/sloan_barnett.php

        (didn’t have time to read it yet)

        • All of these studies assume that debt availability will continue, interest rates will not be materially different, and that prices stay in a particular range. These sound like reasonable assumptions if you don’t realize that we are in a big debt bubble that holds up demand for a lot of kinds of things. Also, if you don’t realize that the unusually low interest rates we are experiencing are important in companies’ decisions to drill. If you take away these kinds of assumption, these estimates are just like other oil and gas reserves–they disappear, with new assumptions.

  2. Dr. Dunn says:

    Health Care is the largest growing expense of the American tax payer over the last 10 years, much more than the cost of oil. In 2010 America pasted the Affordable Care Act to control these costs. Republicans have spent the last 3 1/2 fighting the law to preserve large profits for insurance companies, doctors, drug companies and medical device manufacturers.

    Gail has readers looking in the wrong area of a troubled economy

    • I agree that health care is a big piece of the problem as well. The US healthcare system manages to produce higher costs for health care, with less good outcomes, than any of the other major developed countries. The high cost of health care is part of what makes us uncompetitive compared to other economies. But even if we were to fix healthcare, we would still have a major problem.

      Look at Europe and Japan: their health care costs are more like half of ours, and they still have problems.

      I couldn’t talk about all of the problems in this post. Healthcare is certainly one of the US problems.

      • BC says:

        US personal consumption expenditures (PCE) to the price of oil (all data at the links below are 2007 = 100):

        http://research.stlouisfed.org/fredgraph.png?g=nnm

        Wages and salaries to oil:

        http://research.stlouisfed.org/fredgraph.png?g=nnn

        PCE to household spending for “health (disease) care” (does not include what gov’t spends):

        http://research.stlouisfed.org/fredgraph.png?g=nno

        Wages to spending for “health care”:

        http://research.stlouisfed.org/fredgraph.png?g=nnp

        The pct. of PCE spent for “health care” (16.6%!!!):

        http://research.stlouisfed.org/fredgraph.png?g=nnq

        The pct. of wages for “health care” (26%!!!):

        http://research.stlouisfed.org/fredgraph.png?g=nns

        “Health care” spending per capita ($6,000!!!):

        http://research.stlouisfed.org/fredgraph.png?g=nnt

        “Health care” spending per household ($15,800!!!):

        http://research.stlouisfed.org/fredgraph.png?g=nnu

        What the US spends for a hyper-financialized, cartelized medical insurance system, a.ka. “health care”, is APPALLING AND UTTERLY UNSUSTAINABLE.

        Now the ACA is institutionalizing the hyper-financialization of “health care” and a MASSIVE transfer to medical insurers, hospital companies, pharma, and doctors via gov’t-mandated requirement for medical insurance for simply being alive. WE INSANE to put up with this!!!

        The US is spending more than three times as much as a share of wages and PCE for “health care” than we did in 1970. 50-65% of “health care” spending is on the sickest 5-10%, primarily from chronic conditions resulting from smoking, unhealthy diets and lifestyles, lack of exercise, chronic socioeconomic stressor, and aging with chronic conditions associated with the aforementioned factors. Are we three times more healthy? Three times sicker? Or are the medical insurance and “health care” industry’s revenues and profits healthier at everyone else’s expense?

        The US is spending 2 1/4 times more for oil as share of wages than we spent in 1970. It should be no surprise why the country has deindustrialized and financialized the economy and society. Now the hyper-financialization has resulted in unprecedented public and private debt to wages, production, and GDP.

        Moreover, agribusiness and processed food companies that produce the sugary, fatty, salty, and high-glycemic foods and beverages are similarly subsidized to produce the very substanaces that cause most of the chronic diseases that result in costly (and profitable) “health care” spending. We are subsidizing unhealthy diets and lifestyles, poor health, and then mandating insurance to subsidize the profitable costly spending for medical services virtually no one can afford.

        The “health care” system is quite literally bankrupting households, small businesses, and gov’t, and the few are benefitting at the expense of the rest of us.

        The gov’t of the US is literally subsidizing toxic “food” production, poor health, disease, and prohibitively costly “disease care” for its unsuspecting citizens. What a shameful disgrace.

        If there ever were industries in desperate need of DSIRUPTION by technological and process innovations to slash costs and increase quality and availability of services, the medical insurance and “health care” industries are at the top of the list.

        • I agree. I grew up with a father who was a doctor and a mother who was trained as a medical technologist (but she left work when I was born). I later did a lot of work as an actuary in medical malpractice and workers compensation, both of which have a lot to do with healthcare. My only brother is a doctor. I have also had a fair amount of experience taking elderly relatives to the doctor.

          The current medical system is integrated into the way people think right now. Elderly people plan their lives around their many doctor’s appointments and taking pills. If your loved one is in an assisted living center, the administrators will call you and tell you that the elderly person needs medical treatment for ________. Then it is up to you to take the elderly relative to an appropriate place, often an emergency room, for care. It gets to be an endless cycle of trips to doctors and emergency rooms. All of the care is “free” so no one pays any attention to costs. One emergency room doctor became familiar enough with an elderly aunt who lived with us that he would ask about the aunt’s cats when she came in.

      • Dr. Dunn says:

        Ms. Tverberg, your comment is the exact reason why we need health care reform and the Affordable Care Act. You should have never complained about it because it is a two thousand page law. You can’t fix one sixth of the American economy in a few blog pages.

        The same holds true for our energy industry. There isn’t a simple one blogger comment that going to replace what you call “cheap oil”. It’s going to take thousands of different small ideas to keep the American economic patient running. Oil is just a luxury transportation fuel. The world will turn without it and not collapse, just change.

        • timl2k11 says:

          That it is a 2000 page law, that we need so much bureaucracy, is part of the problem. Do you walk everywhere? Do you grow your own food with your own labor? If not oil is not a “luxury transportation fuel”. The world will turn without it, society on the other hand, not so much, not like today.

        • Jan Steinman says:

          Although I despise the theatrics that the Republican Party has turned it into, the ACA is not so much a health-care system solution as it is a subsidy to the health insurance industry, which in almost all other industrialized nations, simply doesn’t exist.

          A single-payer system appears to be at least twice as efficient, as those countries with single-payer systems spend about half as much on health care as the US does. (16% of GDP goes into health care in the US, compared with about 7% in Canada, Japan, Germany, etc.)

          We ignore this at our peril! Joseph Tainter warns about the overhead of a civilization becoming its downfall. Surely, that would include a grossly inefficient health-care system!

          It can be argued that all those insurance workers would be out of a job with a single-payer system. What’s wrong with getting rid of their jobs and simply continuing to pay them while they look for work? Fiscally, that wouldn’t be any worse than artificially keeping an unnecessary overhead function alive by decree! And imagine what all these talented and creative people could be doing otherwise!

          Finally, the perspective must change. Our health-care systems have simply become wealth-care systems. These systems must, in the long run, become illness-prevention systems.

          For example, in the US, cigarettes get taxed, and insurance company profits get taxed, and doctor’s salaries get taxed. So there is little incentive to reduce smoking. But Ontario, which directly pays for the additional health demands of smokers, tried to double the tax on cigarettes, seeing that in the best interest of citizens and government. Too bad cheap cigarettes flooded across the border, killing this attempt at cost-rationing behaviours with negative health impacts.

          • In a single payer system, it is also much easier to put together a single data-gathering system for all providers, and use it to gather data on what treatments do and do not work; what kinds of tests are necessary vs an unnecessary expense. (This also cuts out the need for many different computer systems for this purpose.) With a single computer system, one can also put cost controls on the system. No wonder doctors are not interested in such a system.

            • Jan Steinman says:

              “No wonder doctors are not interested in such a system.”

              I wasn’t here at the time, but my understanding from a CBC program is that the doctors fought it tooth and claw at the time it was being established.

              The got certain concessions (such as exclusion of dental, ugh) and managed to keep their private practices (instead of becoming government employees), but they almost killed Canada’s public health care in its infancy.

              As someone living close to the earth, I enjoy much better health care in Canada than I ever did in the US. I can call my doctor when his office opens and generally see him before noon. The horror stories you hear about “wait times” are all for elective procedures. Both routine medical care and life-threatening situations are dealt with promptly.

    • Ikonoclast says:

      In fact, Dr.Dunn, you and Gail are both right. Your positions are not mutually exclusive. It is true that affordable health care would reduce and control costs. It is also true that the world is finite and there are limits to growth.

      If a virus invades a human body and breeds out of control would you posit that the virus could breed to infinite numbers in a finite host body? Of course you would not. Either the immune system of the host will bring the virus numbers under control or the virus load will kill the host.

      Equally humans and the human economy cannot grow indefinitely on our host planet. There are many signs that we have indeed either reached the limits to growth or that we are very close to reaching it. The only question is how close are we to the limits? There is no question that there are limits. The truth of there being limits in a finite system is axiomatic.

    • jjhpor says:

      I think it is wrong to assume that the Rs are fighting the Affordable Care Act for reasons as simple as rewarding their friends or campaign contributors. To the far right government spending on social issues is wrong on a moral basis. They believe that helping the less fortunate is not a proper role of the government. They oppose social security, they oppose food aid, they oppose minimum wages. Helping their friends is secondary.

      • KingFish says:

        “To the far right government spending on social issues is wrong on a moral basis.”

        What kind of moral basis is leaving 50 million Americans without health care? That’s not moral. That’s selfish immoral behavior that Jesus would find disgusting.

    • dolph says:

      The Affordable Care Act does nothing to control costs. That this is true is based on a simple observation…if more people are insured, this means more demand, which must mean greater prices if there are no major increases in supply (and with energy limits real, it is doubtful if there will be increases in supply). So all you will get is more and more people chasing fewer and fewer available health care services. It should also be pointed out that the Affordable Care Act is not government insurance like Medicare, but a mandate to purchase private insurance. Again, this should result in higher costs, as private insurers will use every trick they can to pass on costs to the customer.

      While other developed nations have lower health care costs, they have been rising as well. The U.K.’s NHS is in disarray, for example. The only reason why the costs are better controlled is because government rations demand. Even then, they have not been able to control costs, as an expanding population of older and sicker people meets head on against a finite supply of drugs, health care workers, hospital beds, etc.

      It should also be pointed out that an emphasis on preventive care is sort of like efficiency: it is a temporary, not long term solution. Ultimately everybody will get some disease or another.

      There are two, and only two long term solutions to rising health care costs, both of which lie at opposite ends of the political spectrum. One is to allow a completely free market system in healthcare: for the government to get out completely, and allow market pricing at all levels for insurance, health care services etc. Costs would go down under such a scenario because there would be much less demand, but yes, illnesses would be more harmful for people.

      The other solution is a completely government controlled system of rationing, with hard limits on healthcare services delivered to the people who need them most (those with chronic illnesses, the elderly, etc.).

      It is instructive that in our politically dysfunctional age, neither option is on the table.

      • TheCarGuy says:

        “The Affordable Care Act deserves a solid “A” for including virtually every cost control idea anyone has come up with — limits on tax breaks for employer-sponsored health insurance, accountable care organizations, bundled payments, comparative effectiveness analysis, a commission to regulate payments, reforms in insurance design and much more. ”

        http://www.brookings.edu/research/opinions/2012/09/18-health-care-costs-aaron

      • MarkU says:

        The reason that the UK’s NHS is “in disarray” with rising costs is largely due to extensive privatisation. Large sections of formerly ‘in house’ services have been outsourced to private companies. It is the change towards the US model, where financial parasites have to have ‘a piece of the action’, which is mainly responsible for pushing up costs.

        Your argument that an emphasis on prevention is only a temporary solution as “ultimately everybody will get some disease or other” is absolute drivel. You might as well have said that taking any care of yoiur health is pointless because we all die eventually. Eating and drinking are also ‘temorary solutions’, this does not reduce their value.

        • HappyasLarry says:

          I am sorry to have to correct you Marku in your statement that the UK NHS is suffering from extensive privatisation. The fact is that is that this centrally controlled model of health care is unique in the world. The only country close tonthe UK model is North Korea. None of the ex-communist block has anything like it.
          It is the worst performing health service in western Europe. Even impoverished Spain does better. Life outcomes from cancer treatment are among the worst, as are infant deaths. This has been happening for decades and is nothing to do with recent changes. Anything has to be better than this mess.

        • Craig W. Crosby, Sr. says:

          The distortion I see in our (US) health care and apparently being copied in NHS is that it does give parasites the opportunity to feast on the ‘bounty.’ It creates a medical Mafia that has the ability to make an “offer you cannot refuse” in the form of health care. Buy it at our price or die / suffer!

          Craig

      • A rational approach (but probably not acceptable to most) would be to scale back services provided by health care greatly, and make those services available to only those who have a reasonable chance of productive life after the health care is provided. This may mean cutting off services (except palliative treatment) to the chronically ill, elderly, and disabled. Above some age, we may offer only palliative treatment.

        Part of our problem now is that we are (and can be expecting in the future) to be getting poor and poorer, so we are less and less able to take care of those who cannot take care of themselves. Our beliefs and customs have gradually migrated toward providing more and more care for those who cannot take care of themselves. (It has been the custom in many parts of the world to let children who are obviously disabled die. This is why there are so many foreign disabled children up for adoption in this country.) We somehow need to migrate back in the old direction, but this is not even an idea that most people can consider.

        • Jan Steinman says:

          That’s very brave, Gail, and will likely earn you personal attacks.

          It may well be the last luxury we want to give up, but compassion is looking more like a luxury of the past.

          • We can say that we are focusing our capacity for compassion where resource realities indicate greater overall benefit to social welfare. To the extent that resources are directed at extending life at a given stage of productivity and maturity, different factors and justifications will be considered. Yes, compassion as we currently recognize it must change. We can handle it, and we will become more thoughtful and arguably more compassionate for its confrontation.

        • Hickory says:

          We do need to realize that since we are broke, we can no longer afford to-
          1. Try to extend health care to all without heavy duty rationing of that care (highest benefit to cost equation). All other measures are really pissing in the wind.
          2. To be the worlds policeman, and throw Tomahawks around like they we a dime a dozen.
          3. To be frivolous with our personal purchasing power.
          4. To pretend that this golden age is some sort of God-given permanent scenario.

      • A rational approach (but probably not acceptable to most) would be to scale back services provided by health care greatly, and make those services available to only those who have a reasonable chance of productive life after the health care is provided. This may mean cutting off services (except palliative treatment) to the chronically ill, elderly, and disabled. Above some age, we may offer only palliative treatment.

        Part of our problem now is that we are (and can be expecting in the future) to be getting poor and poorer, so we are less and less able to take care of those who cannot take care of themselves. Our beliefs and customs have gradually migrated toward providing more and more care for those who cannot take care of themselves. (It has been the custom in many parts of the world to let children who are obviously disabled die. This is why there are so many foreign disabled children up for adoption in this country.) We somehow need to migrate back in the old direction, but this is not even an idea that most people can consider.

        • timl2k11 says:

          I am reminded of the pilot episode of Breaking Bad. If Walter’s chemotherapy and other treatments were covered he would have never “broke bad”. Instead he was forced to raise the money on his own (though at first he didn’t want to do anything about his cancer at all). Americans seem to want to have their cake and eat it to; coverage for everything and everyone but low premiums.
          BTW, has anyone seen a concise explanation of the “Affordable Care Act”? I have yet to run across one. People say it is either good or bad but only using the broadest generalities like “Everyone gets insurance” or on the other side “Get the government out of healthcare”.

          • Hi Tim,

            “Americans seem to want to have their cake and eat it to; coverage for everything and everyone but low premiums.”

            You called that correct. I sell health insurance for a living and I don’t even listen to them any more when they start complaining about cost or benefits. They almost all do it, don’t want to pay for it and expect it to pay for everything.

            “anyone seen a concise explanation of the “Affordable Care Act”?”

            Good luck, most of the people in the industry only know or understand the part they work with. The ACA changes and affects almost everyone in the industry(doctors, hospitals, insurance companies, drug companies, device manufacturers, insurance agents, etc.) There is so much going on behind the scenes. The public didn’t understand how the system worked in the past and aren’t going to understand most of what is going to change in the industry.

            I believe after a couple of years most people will be better off from the ACA. There will be some healthy higher income people who buy their own coverage that are going to have to pay more for coverage next year. Over time if the ACA contains costs (and it should)or they are no longer healthy and need to switch plans it will benefit them too. There are a lot of rules and laws to help contain costs in the ACA. A big one is that insurance companies are required to pay out a larger percentage of premiums in claims or return the money. This is going to help control costs. Also the plans that can be purchased are going to be standardized. Meaning it’s going to be easy to compare your benefit and cost between another insurance company. This is going to put a lot more pressure on them to lower premiums and costs. They will no longer be able to confuse people about what’s different in there plan compared to another company. Individuals who buy coverage will have an open enrollment each year and be able to switch plans no health questions asked. That was not true before. It’s going to be required by law to have coverage with a few exceptions. Low income individuals who aren’t offered coverage from their employer can get assistance from the federal government except those who are 133% below poverty and living in a state that their governor refused to except the expansion of Medicaid. There is no system for them or means for them get coverage they can afforded. That Medicaid program was going to be covered 100% by the feds for the first 3 years and 90% until 2020. People can still have their same doctors, hospital and insurance company if they wish. There will be no death panels like Gail suggested above.

            I truly believe 99% of Americans have no idea what the ACA is going to mean to them. They only know what side of the political fence they stand on and have made up their mind.

          • I have also heard that the reason why we have so many malpractice claims is because so many people cannot afford the cost of additional care if a doctor makes a mistake, unless they sue for it.

            Sorry, I haven’t been following the Affordable Care Act. I know that our local newspaper has pointed out that many of the major healthcare providers in town are not involved in the Exchanges at all. The Blue Cross/Blue Shield Exchange in Atlanta contains about half as many doctors as other local Blue Cross/Blue Shield plans.

        • dashui says:

          I think this is already happening. I saw that 90% of Down’s syndrome fetuses are being aborted in the US. China and Israel are also actively aborting handicapped fetuses.
          I have a coworker who kept his retarded girl. There is a photo on the company website of her getting middle school prom queen. Very lovely but I’m not sure what kind of future she will have as her parents age, best scenario is a ward of the state.

    • RT says:

      Dr. Dunn,

      Your analyzing Gail’s writing and moving the argument to US health costs is like arguing about what color to paint the deck chairs on the Titanic. You missed the point. The world economies are waging a battle against Mother Nature… and she always wins.

      We are currently engaged in a world energy crisis/war with other like minded nations using the mindset of last man standing wins.

      Regards,
      RT

  3. Jp says:

    Hi Gail,
    Great arguments which I find it difficult to fault. Love your blog.
    3 questions
    1)Generally agree with your deflationary thesis, but think you are using the wrong denominator. How can priceless scarce assets like food and oil can drop in value in a sustained manner against confetti currency which can and will be produced in unlimited quantities by desperate governments? How can deflation in fiat currency terms possibly be sustained?

    2)Any thoughts on time frames? Any cogent reasons why BAU cannot stumble on for another 5, 10, 15 years before the SHTF? It is impossible to time loss of confidence in BAU, but what about hard physical limits?

    3)Any thoughts on the relative viability of Australia in a post peak world? They have a continent worth of natural resources to share between 20 million people. Not sure about energy or food independence though.

    Would value your thoughts

    • 1. I don’t think I said the price of food would drop. I was talking about oil, coal, natural gas, uranium, and other fuels. These are intermediaries, that hopefully will produce energy of the desired type. The debt related demand for these would drop dramatically, putting the price way down. Many people would be out of jobs. This is pretty much what happened in late 2008. These companies would also need debt to finance their operations, and might not be able to get it. I wrote a post about the situation in November 2008 on The Oil Drum. Impact of Credit Crisis on the Energy Industry – Where Are We Now? I know I was surprised when I wrote it how widespread the effects were.

      One thing I wrote was:

      According to Merrill Lynch, the average junk bond yield is now greater than 20%. A recent Wall Street Journal article says, “The junk bond market has closed the door.” The article indicates that in November, no new junk bonds were issued. It also indicates that about half of US corporations have below-investment-grade credit, and thus are being locked out of the market. It seems likely that quite a number of these companies are in the energy field.

      I also noted that the price of uranium had dropped in half.

      If there is a financial crisis, the price of food could very well be high, especially if lack of oil interferes with growing food. There is also a possibility that there is some sort of disconnect in the financial system–banks limiting withdrawals, so it is hard to buy much, no matter what the price.

      2. I have been surprised at how long we have stumbled along so far. Government officials seems to have more rabbits in their hats than I expected. I suppose that it is possible that the US can get past this governmental debt crisis, and maybe even the new two or three governmental debt crises. Herbert Stein’s Law says, “If something can’t go on forever, it will stop.” It is on this basis that it seems like it has to stop in a fairly short time period. With stretching, maybe it could be five years.

      3. One thing I worry about is how interconnected the world is. If a person wants to make a computer, it takes highly purified minerals from many countries. It is not possible today for Australia or any other country to make a computer on its own. This is probably true for a lot of other high-tech goods, like LED light bulbs. If there are a lot of debt problems, or trade problems (perhaps related to debt defaults) this could mean that the crisis will spread pretty much everywhere. I think that there is also an issue with banks being interconnected by securities and lending. And of course, standard practices, like the use of pension plans will exist everywhere. This leads me to believe that it won’t take too long for the crisis to spread worldwide.

      • Joy says:

        “I have been surprised at how long we have stumbled along so far.”

        Yes Gail, you have been fear mongering now for a couple of years as the economy improves from the financial collapes of 2008. United States oil production is increasing at 20% annual rate for the last three years and employment increasing for the last 4 years. The stock market at record highs and the national debt rate decreasing. The housing market has pretty much recovered and foreclosers at a 5 year low.

        Soon or later Gail you will come out of your bunker and see the sun shine on everyones solar panels.

        May your negitive mindset RIP

        • Lindon says:

          Joy, Gail is NOT fear-mongering. She is laying out the facts. Your statement “The housing market has pretty much recovered…” is absurd. There is an article on CNBC titled “Housing Market: From Recovery to Bubble–Already?” — along with about a million others that directly contradict your fantasy statement. Before advising others to come out of their bunkers, you should first pull your head out of the sand, it seems to me.

          • KingFish says:

            Realtor’s across the nation are complaining of low inventories of homes to sell. Home prices are risings. New construction at 5 year highs.

            Open your eyes to the newspaper Real Estate section

            • It is not individual citizens buying the homes; it is commercial investors buying them up to rent, with the idea that perhaps home prices will rise as well. This is the latest bubble. When investors discover that interest rates rise, or that renters aren’t too steady in paying their rent, or that home prices are falling again, they will be “out the door.”

          • Lindon says:

            KingFish says: “Realtor’s across the nation are complaining of low inventories of homes to sell.”

            Really, KingFish? I’m in the process of buying a home in the Portland, Oregon area market, and there is a glut of still foreclosed and short-sold homes to choose from. Isn’t it true that a large percent of the home purchases since 2008 crash have been by investors scooping up foreclosures and short-sales at bargain-basement prices and putting them up for rent? The number of first-time home buyers are at a historic low, probably because the majority of young people don’t even have (full time) jobs. Of course, KingFish, if you get your “facts” from Fox News and the like, you’ll only see the rosy picture that they are painting for you and other low-info types. You know, they tell you just what you want to believe. Try independent thinking and research, you might learn the truth.

          • Craig W. Crosby, Sr. says:

            Most of what needs to be said has been. I would like to add, though, that the new construction is not single family homes but rather commercial apartments. Most folks no longer qualify for loans, absent a very large down payment. And, the market is being manipulated by withholding forclosed properties from the market in order to produce an artificial limit in supply.

            But, of course, my dear Pangloss (Joy), all is well in this, the best of all possible worlds.

            Craig

        • Quantitative Easing is indeed helping, boosting investment into all kinds of things that otherwise would likely not be economic (like US oil production). QE is pumping up the stock market, and is encouraging institutional investors to buy up homes to rent out, thus inflating the US housing prices. The employment percentage is increasing thanks to more part time jobs and fewer in the workforce.

          Open up your eyes, and see what is really going on!

        • Ikonoclast says:

          The economic recovery since 2008 is only a recovery for the rich in the USA. The middle class and the poor are not recovering. There is plenty of data which bears this out.

          The financialisation of the economy is the first stage of catabolism. Catabolism in this context means a system feeding on itself. Real production is slowing and will soon go in reverse. Financialisation allows “wealth” to be transferred from the weak and poor up to the rich. “Wealth” equals the right to consume. So as the pie shrinks the right to to eat more of it transfers up to the rich. This is just another example of an unsustainable trend.

          The priveleged few get an unrealistic view. Because they are getting more they think the whole system is healthy. They don’t realise the base of the system is collapsing slowly but surely beneath them. In a slow motion collapse, the top most towers fall last but their fall is still certain.

          • BC says:

            Ikonoclast, precisely correct. Well said.

            In the US, private “health care” spending, total debt service, and gov’t spending (including elder transfers) combines for an equivalent of over 50% of reported GDP and 75% of private GDP, i.e., total reported GDP less gov’t spending. Public and private “health care” spending alone is 17-18% of GDP and an equivalent of 26% of private GDP!!!

            Further, the annual increase in total debt service flowing to the banking system alone exceeds the annual growth of nominal GDP, i.e., the financial services sector is a net drag on value-added output. Growth of gov’t spending for a decade has been driven by imperial war spending, and food stamps since ’08.

            The US economy is in an appallingly perverse situation in which US GDP does not grow unless we are at war, increasingly ill, and households go deeper into debt at interest. Yet, most economists laud the growth of US “health care” spending as an indication of how affluent we are to be able to spend so much on “health care”.

          • Unfortunately, hierarchical behavior seems to be the way nature handles “Not enough to go around.” This happens in primates and in many other large animals. The alternative is that all would starve. It is admittedly a bad way to handle things, but if a person wants to have survivors, and wants them to be “above average” in some sense, then hierarchical behavior works.

  4. TheBookKeeper says:

    The cost of fuel is only about 25% of the cost of transportation(other expenses- insurance, repairs, license and lease or capital investment). Which means doubling the cost of gasoline only adds less than 2 % to the cost of living over the last 10 years.

    • ChangeCanBeGood says:

      Or you could buy an electric car and say “I don’t need oil for transportation”

      • Not if you are out of a job–the likely outcome of this kind of crisis.

        • Joy says:

          If your complaining about not having a job. Try buying an American car and bringing the jobs back home local. It’s not about how much you spend, it’s about where you spend. Americans are their own worst enemy.

    • Ikonoclast says:

      This kind of economic or bookkeeping thinking fails in empirical reality due to Liebig’s Law of the minimum. It is not just the cost of a commodity that matters. Scarcity matters too in the long run. First, there is the zone you mention, where price goes up but the commodity is still available in sufficient quantities for all serious commercial uses. Frivolous and wasteful use will be curtailed due to the higher prices but serious commercial uses will still obtain sufficient product albeit at the expense of slight increases to the overall cost of living.

      Then there is the zone of serious scarcity. This is where the commodity becomes so scarce and the price gets so high that critical parts of the wheels of commerce and industry start to grind to a halt. Indeed, at this point scarcity becomes a far more important feature of the situation than price. This is the zone where a commodity sometimes cannot be obtained at any price.

      We can imagine a situation where rich people might be willing to pay exhorbitant prices for gasoline. But if the government has declared a civil emergency and reserved supplies for essential services, national guard, homeland security and the armed forces then said rich people will have no chance of fuelling up their Maybach Landaulet. All delivery services will also be suspended due to lack of fuel. They will huddle in their gated community wondering how they are are going to restock their Sub-Zero PRO 48 refrigerator. Just then the gated community back up power generators will die. So now they have no heating, no air-con, no transport and no internet. Welcome to the future.

    • We use quite a bit more oil than just gasoline, and amounts “recycle” through the system several times. I think economists have missed the point that oil prices affect consumers and businesses in may different ways, all at once. I mention in the article the connection with debt. If debt is affected, there is also a connection with home prices. I am sure you have seen my comment on other posts, research by James Hamilton shows that 10 out of 11 recessions since World War II were associated with oil price spikes.

      • Dan Delara says:

        50% of all the oil used in America is for gasoline with 20 % more used for diesel and 10% of jet fuel. Oil is just a luxury of today’s fast transportation which you live in fear of losing. Oil has never been cheap when you include the cost of air pollution and climate change. Life after oil transportation will be better. Change will be good.

        • Life after oil will be the same as life after fossil fuels. 80% or 90% of us will work in manual agriculture. There probably will be a lot fewer of us. Whether this will be better will be subject to a range of opinions.

  5. Judy says:

    Thanks Gail, that was very clear and understandable. It sounds like you think that Thursday signals a big change in the US economy, whether or not an agreement is reached on the debt ceiling.

    I’m not an economist, but an engineer. I can’t quite shake the idea that this ‘money’ that we are talking about, this mountain of debt, is all just figures on a computer. It is fiat, it is imaginary, like a religion. It controls our lives because we have chosen to let it. It is a method of rich controlling poor, and of ensuring unfair distribution of resources. Intuitively it seems such a bad thing, yet the fear of losing it is so great. If all debt and savings were wiped out tomorrow, who would be the winners and losers? And without money we still have the shirt on our back, the factories still stand, people still breath and the sun still shines in the sky. There may not be alternatives to oil, but there must be alternatives or solutions to the money issue. It is a man created system. Can you see any options, even if they are a longshot?

    • StopTheLies says:

      Until the Doomers stop the fear mongering and causes people to hide their money in their mattress, the Fed will be able to print all the money it wants without the fear of inflation.

      “Americans Increasingly Turning Against GOP” http://www.huffingtonpost.com/2013/10/14/republicans-shutdown-poll_n_4098496.html

      • Printing money the current way inflates asset prices, like homes, farms, commercial property, and stocks.

        • Dan Delara says:

          Gail, you clearly didn’t understand the comment you are replying too. If the Fed prints and you have put the fear of god into the public. Then everyone puts the printed money in their mattress and it will not cause inflation of assets.

          What the Fed is counting on is after the pile of cash in your mattress keeps you up at night because there is so much of it. Then you lose your fears and start to spend it. The last one to spend their cash will pay an inflated value until the Fed tightens to control inflation. This is macro economics 1.0. Try it some time.

    • dooomerdad says:

      are you being sarcastic?

      • KingFish says:

        No, this is really Gail economic view. I know, I can’t believe it either. She has been calling for an financial economic collapse anytime soon for the last two of years. She says she doesn’t pay any attention politics. I’m guessing she will be surprised when she finds out it was a self infected political collapse by the TP

    • Ikonoclast says:

      Judy, I tend to agree with you on this point and to diverge from Gail’s views (but only partly). Money is notional, not real. Ultimately, only real quantities of matter and energy actually count. Eventually excess debt will be dealt with by default. Just as fiat money and debt money (there is an important technical difference) can be created ex nihilo, out of nothing, so can fiat money and debt money be instantly destroyed and annulled by default. Of course, matter and energy do not behave in that way in this universe. The Law of Conservation of Matter/Energy tells us that.

      Debt default means creditors don’t get their money. This means that they lose the opportunity of future consumption. Massive debt default will essentially be a re-balancing of the books that will reflect the reality that therewill be much less stuff available to consume in future.

      Where Gail is right, in an important sense, is that this debt default rebalancing process is messy and inefficient and creates many further disruptions and conflicts in addition to the problems created by the real material shortages. If humans were rational, logical creatures, we could manage the notional part of the crisis (money and debt) much better and thus squeeze the best possible remaining outcomes out of a very dire real (material and energetic) situation. However, we are not rational, logical creatures especially when faced with grave threats to our well-being and even existence.

      Hence, all sorts of irrational behaviours will occur worsening the situation. The current US government behaviour is case in point. Where people do not realise the real base or fundamental cause of our oncoming crisis (resource shortages and limits to growth) they operate with all sorts of false theories about cause and effect. When they act on these false theories they usually make a bad situation worse. Some of the approaches are like prescribing leeching or bleeding for a person with critically low blood pressure.

      • With debt defaults, part of the problem is that banks and insurance companies fail, unless somehow governments can somehow prop them up.

        If this doesn’t work, then there are real problems. Businesses can’t pay workers; individuals can’t get their money out.

        Very often, withdrawals are capped at some low level per day or week. This causes problems as well.

        Most businesses are financed by debt. Getting replacement debt can become a huge problem. Even if a business itself is not financed by debt, it is likely that some of its suppliers are financed by debt. The ability to produce goods is governed by Liebig’s Law of the Minimum, so pieces of the system start falling apart pretty quickly, without access to debt. You may have seen my comment I made elsewhere. Back in late 2008, I reported in a post on The Oil Drum,

        “According to Merrill Lynch, the average junk bond yield is now greater than 20%. A recent Wall Street Journal article says, “The junk bond market has closed the door.” The article indicates that in November, no new junk bonds were issued. It also indicates that about half of US corporations have below-investment-grade credit, and thus are being locked out of the market. It seems likely that quite a number of these companies are in the energy field.”

        A long time ago, I participated in conference calls with API CEO Red Cavaney. One of the things he emphasized was the dependence of producers on supply chains. Even if a particular producer could line up enough debt for himself, the fact that each producer relied on other service providers who could not obtain debt had the potential to bring down the whole chain.

        • Jan Steinman says:

          “With debt defaults, part of the problem is that banks and insurance companies fail…”

          But haven’t they been stealth-recapitalized by reclassifying depositors as investors, Cyprus-style?

          Isn’t such a plan already in place and legislated, that given another 2008 event, the depositors will be the ones sporting the new haircut?

          It seems to me that, lacking inflation, the mattress is the best place to keep one’s cash these days.

    • The losers would be all of us, because money is what holds the system together. We may have factories, but they take raw materials from around the world. High tech goods, like computers, especially need goods from around the world. It takes money–not barter–to get all those raw materials. If there were only occasional needs, perhaps US wheat could be swapped for Saudi oil. But it is a lot more than that. Every factory today needs computers. We don’t make computers in the US any more. Getting computers would likely be a problem.

      Another connection is the need for debt. A large share of businesses depend on debt to finance their operations. Even if a particular business doesn’t depend on debt, the suppliers to that business depend on debt. I made a comment to someone else that when I did some investigation about the credit situation in late 2008, I wrote the following in a post on The Oil Drum:

      According to Merrill Lynch, the average junk bond yield is now greater than 20%. A recent Wall Street Journal article says, “The junk bond market has closed the door.” The article indicates that in November, no new junk bonds were issued. It also indicates that about half of US corporations have below-investment-grade credit, and thus are being locked out of the market. It seems likely that quite a number of these companies are in the energy field.

      I might also mention that money is sort of helpful for paying people. How long would you work without pay?

      A big part of the debt problem now is that much more has been promised than can ever be paid. If Greece wanted to buy a huge quantity of a product from you, would you sell it to them? If they had just defaulted on other orders, and wanted to buy more, would you sell them more on credit? This is the problem. It is our inability to actually provide something of value in return to back up our promises.

      • Judy says:

        Thanks for your replies. Gail, I work every day without pay and will do for the rest of my life no doubt. Bringing up children, doing housework and cooking a meal for my family goes on all the time and I don’t receive a penny for it. In a financial collapse my business would fold anyway, my clients would be penniless and you can’t advise people on energy efficiency if there is no energy to be efficient with :-)

        Would I stop working? No, because I would be out foraging for food, making nettle soup for my elderly neighbours, and trying to cultivate every patch of green land within walking distance and teaching my community to do the same. People are not going to just sit there and die. If your town is at risk of flooding, everyone pitches in with the sandbags – who wouldn’t work to help?

        During the war in Britain, we had factories designed to make one thing, which had to be engineered to make something completely different, for instance a lipstick factory making ammunition shells perhaps. This took human ingenuity and a mentality of not letting anything go to waste. Our engineers used to be trained to engineer things, to make machines run without the correct parts and some of these old timers are still around and I am lucky to have trained with them. You will find all the materials required at your scrap yard, rubbish tip or else rob them from redundant factories and machines. Now nobody is going to go to that effort for a factory that makes hair-straighteners or bow ties, but maybe for one that makes wind turbines, or medicines or spare parts. This was something we excelled at during the war and it is emergency situations like that that bring out the best in people. So maybe some of the electrical equipment may get ripped out in favour of solid mechanical moving parts ( the analogy of going back to a clockwork watch rather than a digital one), but a lack of new computers will not be our downfall.

        30% of food is wasted at present, so we could definitely live on a lot less if resources are prioritised correctly and shared fairly. The US has enough land to feed itself, the UK has always relied on our neighbours to help feed us, so our problems may be different. In the UK most major cities are built on a river or at a port, with plenty of canals, trains and transport routes. Transport and water look like more of an issue in the US.

        Personally what is demoralising is the leadership or lack of it. I can’t see any solution coming out of your political system – any chance of a military coup in the US? In the UK our military leaders seem to have their heads screwed on. They are certainly aware of the implications of financial collapse and Peak Oil and are preparing for a different kind of military role. I would feel happier with strategists in charge rather than politicians. I’m not saying it would be rosy, but a military coup is a very real prospect where the government are making such a hash of things.

        I just don’t think that people stand by doing nothing while the world collapses around them. I’m not going to, and I doubt the military are going to.

        • Landbeyond says:

          Judy, during the war Britain still had an empire, and a lot of resources, including oil, coming into the country, especially from the US once they entered they war. All the re-engineering and human ingenuity in the world will not be enough without basic resources, especially with a much larger population and now an infrastructure much more dependent on oil for almost everything, including food.
          I know it’s hard to get one’s head round, but comparisons with WW2 are of limited validity.

          • Judy says:

            It is not comparisons I am interested in, but I definitely think we have a lot to learn from history. During WW2 our oil consumption was miniscule in comparison to now, so it is interesting to see how people lived and survived. Supplies were short because convoys were attacked and ships and men were diverted to the war. I find it interesting to see how the Uk government of the day prevented protests and how they taxed the wealthy to improve equality. There are good bits and bad with all history, but if it can give us tips and pointers to help our descent to a low energy lifestyle then why not? I don’t plan on looking back as far as Medieval times though ;-)

            I think we have a lot of resources laying around us at present and the US still produces enough oil to supply 60% of its needs, so it’s not like there will be nothing to work with for a while at least. I’m sure becoming a scrap merchant is going to be the most lucrative career after collapse. Food was a big worry during the war and is going to be even more of an issue this time round.

            • It all depends on what supply chains are in place, and what they depend upon. They are quite different now than in the 1940s.

              If the price of oil drops to $30 barrel, the US won’t be producing much oil at all, at least not for very long. Producing oil depends on keeping the price up high enough so that it makes sense to extract it.

        • Grey says:

          I think you will be very (negatively) surprised at the behavior of your neighbors when things fall apart – this isn’t the old America any more – the culture is rotten, the populace are helpless, selfish, clueless, morons who are going to be angry/terrified and will totally lose it. Cannibalism is almost a given. Pull your head out of … Well … You know, and brace for impact.

          • Judy says:

            Grey, I don’t live in America. I live in the UK and I am out talking to neighbours and people in my town every day, so I know them pretty well.

            I think we have several advantages in the UK. That is not to say things will be easier, but we are a lot less addicted to oil for a start. A whole year’s worth of oil consumption in the UK, would only last a month for the US. (The EIA states US petroleum consumption for 2012 as 18,554 thousand barrels a day, whereas the UK consumption is 1,502 thousand barrels a day) We still have bad debt problems and a financial collapse has global implications, so we are not immune.

            My study of how people respond in emergency situations didn’t look at people in the UK though, because we just don’t experience those sorts of events. (For instance the last power cut I experienced was 1987 with the Great Storm, with less than 20 casualties). But if you look at the example of Hurricane Katrina where government help didn’t arrive in time, people were helping each other. People who had boats were out rescuing their neighbours. This week Cyclone Phailin hit India and the people are out clearing the debris themselves, not for money, but for their communities.

            There are many examples of people working together in large groups to try to achieve something. The simplest and most common example is probably football supporters, who are all in harmony supporting their team. More dramatic was the civil rights movement, which got people who were often complete strangers and had little in common to work together for a cause and give their time for free. Then there are the group protests that topple leaders, they are not clueless or helpless.

            Then look at charity – aren’t the US the most generous at giving for diaster relief? This isn’t the act of selfish people. And if you think that people won’t give anything once they are poor then you are wrong, because India and Bangledesh were among some of the poorer countries offering aid for the Katrina victims.

            “…the populace are helpless, selfish, clueless, morons…” I’m sure the aristocrats said something similar shortly before the French revolution and it didn’t end well for them.

          • newyorker says:

            I’m inclined to agree with you. Things will not be pretty here in nyc when the wheels come off. All the ‘diversity’ that tptb are celebrating does have a downside in that it corrodes social cohesion and cooperation in the face of an emergency.

            So where you live is important. Loyalty and cooperation will go tribal quickly. I’m betting the best outcomes, which will still be dismal, will be worked out in rural, heavily white northern states.

        • Women definitely have more experience working without being paid. In fact, I am not being paid for what I write on this blog. I don’t have advertisements up and I don’t have a “contribute” button.

          Debt is the thing that is behind most factories today, or changes and expansions to factories. If the availability of new debt disappears, the ability to do the transformations you talk about significantly lessons. Even if a business has debt for itself, if its supplier do not have debt to keep up their operations, it becomes a problem.

          The complexity of the things we make is much greater today (lipstick and clothes are manufactured overseas today–we manufacture foods with all kinds of fancy additives). Simpler types of manufacturing may indeed go back to old-fashioned pre-computer controls, but no one will be making high-tech goods, like replacement parts for wind turbines and LED bulbs and new computers.

          In the 1940s, we were able to greatly ramp up fossil fuel use, at little cost of extraction. We lack this ability today.

          I agree that the US is in much better shape with respect to total agricultural land availability, compared to Eurasia. Central and South America are in pretty good shape as well. The challenges will be making a transition to any new system, including buying up land from existing owners, teaching new owners what to do, and providing security to new owners. Government is going to need to shrink back considerably, because we cannot afford our current level of government (and neither can the UK, or any of the other developed countries). If a country has depended on a free-market system, instituting a different method of planning and distribution will require major changes. We almost need to go to a totalitarian regime.

          • Don Stewart says:

            Dear Gail
            I would like to suggest a few thoughts provoked by the ‘totalitarian regime’ comment.

            E.O. Wilson’s book The Social Conquest of Earth gives us, I think, lots of food for thought. I summarize a few points:
            1. Species which he labels ‘eusocial’ have come to dominate the Earth in the last couple of hundred million years. These species include the ants and termites and some insects and also humans. Eusocial species are able to cooperate for the common good, and across generations.
            2. The cooperation is tribal for humans and genetic for bees. For example, all the other castes in a beehive are genetically identical to the queeen, but epigenetic factors have made them workers or warriors or whatever. Humans tend to form tribes, which guard against inbreeding and so remain genetically diverse.
            3. Cooperation never completely stamps out individual competition. The great cultural stories we have inherited reflect the inescapable tension between individual interests and tribal interests.
            4. War between tribes has been the curse of humanity.

            Now a few comments from me as we look forward to resource shortages.
            A. Homo Economicus is a very poor model for thinking about using our Eusocial gifts to face the problems we will encounter. We need the more realistic model which Wilson describes.
            B. Efficiency is mostly about individual selection and group selection, not about saving the planet. If I am able to secure the necessities of life while expending less energy, then I probably have a selective advantage in the emerging environment. The same would be true for my tribe. Trying to get all the tribes in the world to pursue efficiency and simply not using the savings for some other endeavor is probably impossible. At least, there is little in human history to support such an endeavor.
            C. Tribes have had leadership. Toby Hemenway thinks, based on his researches, that hunter-gatherer and horticultural societies tended to have leaders who led informally, based on their evident gifts. It was the surplus created by agriculture that led to kings and nobles. As I listen to Toby talk, I think it is true that he sees a devolution toward horticulture as a good thing for us. By removing the surplus from backbreaking agriculture, we also eliminate the surplus which feeds a tribal hierarchy. (This sounds like the Tea Party, doesn’t it?)
            D. It is hard for me to visualize any global leader who could lead us back to horticulture. For one thing, his own generals would assasinate him. But E.O. Wilson concludes his book with this statement:

            ‘Scientific knowledge and technology double every one to two decades….So now I will confess my own blind faith. Earth, by the twenty-second century, can be turned, if we so wish, into a permanent paradise for human beings…’

            So people much wiser than I have widely varying views of what is possible with the raw material that Evolution has dealt us and what science and technology have added to extend our capabilities.
            E. My conclusion is that each individual and tribe needs to pursue energy (and resources in general) efficiency as a matter of individual and group selection. But everyday and in everyway we also need to seek out social opportunities. Our genetic inheritance gave us circuits which reward us strongly when we engage in socially productive enterprises. If we devolve into ‘every man for himself’, then we will become less than human.
            F. Take Anarchism pretty seriously.

            Don Stewart

            • Thanks! I have run across this idea before with ants.

              It seems that insect groups that are eusocial have much higher populations than other insects.

              There is another idea that another reader e-mailed me about that is related. John Michael Greer has a post up, called, The One Option Left. If the profit motive will no longer work to induce co-operation, perhaps religion needs to play a larger role. That is what held tribes together in the middle ages, during difficult times.

              I think Nature is behind all religions. The fact that different groups fight with each other is part of the plan to keep world population down–it is the opposite side of the cohesiveness that keeps groups together.

    • p01 says:

      There are no other monetary options. Emitting money as debt was the only way to keep the religion of industrialism alive. Hard currencies are incompatible with profit, while simply printing money and distributing them in order to create demand does not provide incentive to continue producing.
      Debt was the ONLY method for the yeast to force themselves to consume the last of the sugars in a furious froth, when they could not do it all by themselves with the old paradigm. The religious writings of proto-economists, then proto-futurists led to the formation of the high priesthood of economics and Sci-Fi-esque discourse, quite possibly the biggest popular delusion and madness of crowds ever, far surpassing any mass delusion that I’m aware of. The fact that scientists and engineers have completely ignored high school arithmetic and a few fundamental laws of nature (possibly only the most fundamental one, the causal relationship between food availability and the numbers of individuals in any one species), focusing instead on religious models of increasing complexity which only insured faster capital destruction (both natural and imaginary=money), also helped attaining the absolute peak in everything, and insured the consumption of absolutely everything that could have possibly be consumed. When it crashes, you can be sure that it could have not gone a single minute, a barrel burned, or a gram of ore refined longer. It will also be fast, and hard (because of finance). And completely irreversible, because of loss of complexity.
      I’m also an engineer, BTW. Schooled in the high temple of industrial religion, except I’ve had the “fortune” of seeing both religious denominations of the Church, and came to realize none holds an answer, because they are both incapable of seeing the problem, as all religions do.

  6. dashui says:

    It seems that many of these early comments are written by the same person under different names.

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  8. Student says:

    Of course we live in a finite world with real world resource constraints. However your underlying premise to all your dire economic predictions continues to be that the US government is in fact revenue constrained and about to run out of money.

    I would like to challenge you to explain to your readers the actual mechanism (or process) by which the US government or any other government who are sovereign issuers of their own currency (except Europe) “borrows” money and which organisations actually creates US currency.

    I am very much looking forward to hearing your explanation.

    • Where did you get the idea that I said that the US government is revenue constrained, and about to run out of money? A government can print money, but they can’t print cheap energy resources. It is the fact that energy resources are becoming increasingly difficult to extract that is the problem. We have to put more and more resources into extracting oil. One estimate is that the cost (in resources) of oil extraction is increasing by 7% per year. Metals (copper, silver, lead, etc.) are now in a more dilute form, so it takes more energy to separate them from the waste material that surrounds them.

      Our economy was built using debt–something that requires economic growth to work, at least on the scale we are doing it. When we have to pour more and more resources into extracting energy products and metals, this sets up feedback loops that lead to economic contraction, and these feedback loops tend to bring the debt-based system down.

      To save the system, the government needs to print cheap energy resources, not money. If there were a lot of cheap oil available, it would feed back through the system, in many ways. The government could tax it highly, to fix its deficit problems, for example.

      I am sorry this subject is so difficult.

      • KingFish says:

        “Our economy was built using debt–something that requires economic growth to work, at least on the scale we are doing it.”

        Here is your mistake in economic thinking Gail. Only people who make bad business decisions need economic growth to help make their borrowing successful. A wise borrowing business that invest in an adventure with profitable returns doesn’t need economic growth. Poorly planned adventures somethings get bailed out by growth and other just fail from just poor business planning.

        • Grey says:

          When it all falls apart, exactly what business ventures will be “successful”? Even bullet manufactures are going to be in trouble when the currency loses all value … I could go on, but am getting tired of explains the obvious to the Hopium-addicted. Don’t know how Gail does it. Good luck – if you don’t wise up, you will really need it!

          • p01 says:

            Actually, the currency will completely disappear, not lose value. If you think someone is going to put thousand of dollars on your checking account, and they’ll stay there when thousand of trillions are MIA, you’re dreaming. And with the incredible complexity of the new bills which just came out, it’s practically guaranteed there will be absolutely NO money, and NO way to print more and distribute, even if someone wanted to.
            The past 5 years of levitation have insured total annihilation, and the new hyper-complex bills have insured the loss of the ability to print currency. Maybe in 2008 there was still a chance, but it’s game over now.

          • p01 says:

            On second thought, maybe coins could still be furiously minted and distributed if their manufacturing supply chains are not completely broken, but this will make the initial deflation so devastating that it’s probably irrelevant whether they do it or not.

        • Debt is very much related to time-shifting. Time-shifting works very well in a growing economy–very badly in a shrinking economy. A lot of debt is not really for investment–it is for a private citizen to own a car or a home. If the individual loses his job and can only find a lower paying one, it will be much harder to pay back the loan. Government debt is somewhat similar. Paying back debt with a shrinking tax base is no fun.

          Businesses benefit from economies of scale in a growing economy; they suffer from dis-economies of shrinking markets in a shrinking economy.

      • I think you should find a softer wall to bang your head against Gail, people see oil as oil, copper as copper or whatever. It is impossible to put over the point that it’s the cost of getting hold of it that is the problem, and ‘technology’ isn’t going to solve our future difficulties, because energy creates technology, technology doesn’t create energy.
        As to debt, our society is built on it, because debt is taken on in the promise of future prosperity. That applies to you or me, or governments.
        Unfortunately future prosperity is entirely dependent on constantly increasing availability of energy in the form of coal oil or gas. We have to burn more of it at a faster and faster rate to stay ahead of our game.

        • Maybe I need some protective head gear. I am having a hard time keeping up with the comments.

          People seem to think that if our money system fails, we can just put together a different one. Our monetary system is based on growth, and it really did more or less match reality, for a while, at the time the economy was growing.

          Putting together a new system, based on shrinkage, will be very difficult. A business cannot count on having a market for its products for very long, regardless of how it structures the business. Instead of reaching economies of scale, the business will have a constant struggle against diseconomies of lack of scale. Money will be worth less, the longer it is held (taxed for the privilege of putting it in a bank, or not spending it). Perhaps it is just constant inflation that is a problem.

          Or perhaps the population drops down quickly to a supportable level without fossil fuels. Then and at least one doesn’t have to deal with long-term shrinkage.

  9. dooomerdad says:

    Hi Gail, long time, first time here. A topic I would like to hear more about if you have time is alternative energy “breeders”. I think you have basically said in the past that you can not sustainably build more solar panels using solar panels (e. g.). Can you expand?

    • The first problem with solar panels is that they make only intermittent electricity. You can do very little with intermittent electricity, unless you can connect it up with fossil fuel back-up or with batteries. Either of those takes fossil fuels. Even with this backup, all you have electricity. You can’t build roads with electricity (you need asphalt or concrete, and for those you need fossil fuels.) If you want to transport the solar panel anywhere, or if you want to transport the raw materials to the factory, you will need oil. (In occasional places, there are electric trains, but you would still need fossil fuels to build the trains and the rails for the trains.) You also need fossil fuels to build electricity transmission lines, and to keep them repaired.

      A second problem with solar panels is that there is such a tiny amount of them. They amount to only 0.17% of energy consumption worldwide. Scaling them up to a point where they would take over all of the functions provided by fossil fuels cannot possibly happen in any reasonable time.

      A third problem with solar panels is that “renewable” is really equivalent to “all of the resource investment is up front.” This may sound good, until you realize the practicality of the situation. The cost in resources of the solar panels is higher than for the equivalent generation from coal, but for the solar panels, all of the costs are up front, instead of being spread over the life of the generation. This means that somehow, the full cost of these panels and installation must be financed. This also means that the resources used to make these panels must be dug out of the ground, heated to very high temperatures, and transported using resources that could be used elsewhere. Thus, when they are made, they compete for coal and oil with other uses for these resources. We cannot scale them up, without conflict with other fossil fuel uses, today.

      In theory, by about the year 3000, perhaps we could figure out how to use electricity to perform all of the energy functions that fossil fuels now perform, and maybe we could get solar panels scaled up enough. But the prospects are so far away, and the financing so ridiculous, that it seems doubtful that it can happen.

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  11. dooomerdad says:

    Can you explain what currency and money have to do with finite supplies of energy? To me energy is real and currency is a construct we use to trade energy, however currencies are usually short-lived (relatively).

    • You stand 100 men in a circle, and give each man a shovel and an infinite supply of paper money.
      Each man is told to dig a hole, and shovel the dirt into the hole on his left, and buy dirt to fill his hole from the man on his right. The dirt can be bought and sold for any price, without limit. A Million dollars a shovelful?–no problem, print more money.
      Just one rule is enforced, anyone leaving the digging circle, or even stopping digging for any reason whatsoever loses all his money.
      Eventually everyone stops digging.
      Why should that be—are they not being paid millions to dig holes? they should all be billionaires.
      To bring that scenario into reality, the energy input side of our industrialised economy is disregarded completely
      No one in government, or economics, accepts that money has no value or use without energy input, the consensus of accepted belief is that spending money in ever increasing amounts makes everyone rich.
      Even Paul Krugman, a nobel prizewinner for economics, is on record as saying that: his spending pays his neighbours wages, his neighbours spending pays his wages.
      With economic thinking on that childish level, is it any surprise that the economy is tanking?
      It is more comforting to believe Krugman and many more like him, than to face reality

      • timl2k11 says:

        That is a great analogy. Money = A Claim on (future) Energy. However if there is no energy available then money is worthless.

        • Leo Smith says:

          Money = A Claim on (future) Energy.
          However if there is no energy available then money is worthless.

          I think you have hot on something beyind and better than you intended there

          • Oelsen says:

            A claim or a bet on the future workings of society. So a bet for the masses, a claim for those who can “organize” money. (Banking, Renters)
            The fundamental machine is the part the money claims. Or bets. If that is oil or wheat is not important.

      • timl2k11 says:

        I think the comment system is currently borked, my replies are not showing up where they are supposed to.

        • timl2k11 says:

          It’s fixed now.

        • I have the setting at allowing linking only 5 comments “deep,” because readers were complaining that allowing more made the indented comments too narrow to read. It is possible to raise the limit up to 10, but that creates readability issues. The work-around is to include more information in your response, so that loss of that connection is not a big problem.

          Let me know if you see other problems, so I can complain about them to WordPress.

      • Landbeyond says:

        And Krugman’s silly little articles litter liberal/progressive media, and he is fawned on as some kind of oracle.

  12. You appear to have moved into the Uber Doomer Extinction Level Event camp with Guy McPherson.

    “Nothing is permanent. The species that are dominant change, perhaps even humans. ”

    “We can think that the growth of human systems, including the economy, will go on forever, but we are almost certainly kidding ourselves. At some point, when Nature decides, new species will dominate–perhaps plants that can use more CO2. The transition will be the transition Nature dictates.”

    I still think this is unlikely in the near term, though a massive population knockdown is definitely coming down the pipe. Civilizations Collapse without it necessarily ending all Human Life on Earth. It is the Tower of Babel Moment we are at now.

    http://www.doomsteaddiner.net/blog/2013/10/13/tower-of-babel-moment/

    RE

    • Lindon says:

      RE, I love your Doomstead Diner blog and visit it daily, but have not commented yet. Love your bugout machine — you got me thinking… I agree that we are certainly at a Tower of Babel moment (love the terminology you mint also…). We are going DOWN, dude!! When, how soon, and how bad will it be. Whip out that Crystal Ball that I know you’ve got hidden in some compartment in your bugout machine, RE. What do you see?

      • Thanks Lindon, and drop on a Comment one of these days. The same old Diners arguing every day gets old after a while. LOL.

        I’ve been doing the Nostradamus thing now for 5 years on this topic starting on PeakOil.com, and for the most part I have got everything right in terms of Sequence. :) I predicted Sovereign Debt Collapse back in 2008), but my timelines have not always been too good. I’ve made some good short term market predictions, but bad long term ones. I have consistently underestimated Can Kicking Power by Da Fed and the TBTF Banks.

        Overall I am with Steve from Economic Undertow and see a mathematical limit being hit here by the end of 2014. I also think we will have more of a Fast Crash than “Slow Catabolic Collapse” per John Michael Greer or “Long Emergency” per Jim Kunstler.

        I think the FSoA will dissolve as a single entity into Regional Units, maybe about 8 of them. I mapped this out a few years ago on Reverse Engineering. Prior to that though, you probably see a last gasp expansion of the Fascist/Military state we live under. IOW, we will see Martial Law for a while and a Civil War of sorts.

        Regional Wars for resource (Oil) in MENA may last through this period also, but I don’t think we will go full on Thermonuclear Battle for all the Marbles with the Chinese. Internal problems in both countries will make that impossible to run logistically, besides it behooves nobody to do it, not even the Illuminati.

        I doubt that FEMA will survive long enough to run Nazi Style Death Camps. Basically, I think the Big Shities are themselves the Death Camps. Starvation and Disease will take down MOST of the current population of Homo Sapiens living in these places. This I think occurs over a 20-50 year timeline, but again my timelines have not played out that well all the time.

        I don’t think we will denude the planet of Forests trying to heat homes or even smelt metal and make glass. I think once the system breaks we will have a period of Scavenging, and then finally revert to Stone Age tech.

        Total Final Population of Homo Sapiens on Earth in a Century? Maybe 100M. After that, who knows exactly how long we got left, but it is certain it is no more than 500M years on this planet, and I don’t think we will leave it either.

        So if we go Extinct in 200 years or 200M years, does that really MATTER to YOU? Nah. What matters to you is how the rest of your life goes, and basically you gotta make the best of a bad deal. Or a good one, looked at from another perspective.

        How many people ever born get to Witness a Civilization Collapse? They don’t come along that often you know. :)

        RE

        • Leo Smith says:

          How many people ever born get to Witness a Civilization Collapse? They don’t come along that often you know. :)

          by definition, more than live through any other period. :-) :-)

          True collapse on the scale Gail envisages will take out perhaps 90% of the worlds population.

          • I should have said “How many GENERATIONS get to Witness a Civilization Collapse?” :P

            Collapse on the Scale Gail envisages now seems like it will take out 100% of the population, not 90%.

            I’m taking the middle ground with a 99.9% Knockdown. :)

            RE

        • Lindon says:

          RE, NOBODY could have predicted the can-kicking ability of the Fed, except for the financial gurus who run the Fed — that’s my guess. They may be able to kick that can right into the next century. Doesn’t seem possible to me, but you never know.

          End of 2014 is about right, based on what I’ve read and “feel”. That can-kicking is NOT a long term plan — it is a method to buy time, nothing more. During the time remaining before it all falls apart, we can be sure that TPTB are moving their chess pieces around the board, strategizing, building bunkers, stocking up — and so should we all be, as best we can. To use your terminology, the Titanic has cracked, the water is rushing in, and those of us who are able to put two and two together had better be scavenging hard and fast for what life preservers are left, to the best of our ability.

          I also see Martial Law and Civil War coming up soon enough. But I envision the U.S. Military, the NSA and the concerned citizens that are sick of a certain segment of old, white, racist, religious fruitcake citizens, all mobilizing together under a common cause to wipe that vermin off the face of the earth, once and for all, and work together to make what’s left of America a better place for all based on the new realities and commonly held values.

          Once we shut down all the widget factories, the rivers and oceans of cars driving back and forth endlessly, the constant air traffic pushing business people back and forth across the country for their face-to-face meetings and all the other extreme wastages of oil/gas, we’ll have enough energy left to carry civilization along nicely, to power the military and security, to keep a much reduced version of the Federal and State governments going, and to keep a much-needed space program progressing to the point where we can locate and neutralize that comet or asteroid that we know is headed our way at some time in the future. I doubt humans will ever make it to another solar system — we aren’t smart enough. But humans may yet evolve in the future to something even more intelligent. There may be scientific facts right in front of our eyes that we don’t yet have the intellect to grasp, the same as a dog can watch a door know getting turned to open the door a hundred times but never grasp the concept. Maybe we will evolve.

          Yeah, I’m an optimist. But if it turns out like you and others predict — total collapse and back to the stone age we go — then I’m ready for that too.

    • THe question is how well things stay together, or perhaps the reverse–how fast things fall apart. We are getting close to the point where it looks like there has to be a change–but perhaps it is not this debt crisis–it could be another one, a few months or even a year or two down the line.

      Our current situation is unprecedented, fortunately. So we don’t know how well everything will stick together. Liebig’s Law of the Minimum rules, though, and we have lots of long supply chains. Also, if debt is not available, that makes a huge difference.

      It may indeed be a number of years between the time collapse starts, and the way it actually plays out. I wasn’t trying to address that issue in this post.

      • “It may indeed be a number of years between the time collapse starts, and the way it actually plays out. I wasn’t trying to address that issue in this post.”GT

        Perhaps worthwhile to explore in Part II! LOL.

        Face it, just about everyone who reads our blogs now pretty much buys the idea the Titanic is Going Down.

        What they REALLY wanna know is how FAST it will happen and specifically how it will affect THEM. Also they want to know Mitigation Strategies.and ideas for Wealth Protection they have accumulated through the Age of Oil. The demographic reading these blogs is heavily skewed to Boomers and Silents either already retired or nearing it.

        The younger folks wanna know WTF they can DO here to make a living as Industrial Civilization spins down.

        I believe this is the NEXT PHASE for Doom Blogging, and I am building a new website to represent that phase, because really, the Predictions have now come TRUE, so it is time to figure out WTF you do about it, and how to deal with it.

        That is what I will focus on with the SUN Website, for Sustaining Universal Needs.

        RE

        • You seem to have a lot of energy!

          Regarding future occupations, if we look at prior societies without fossil fuels, food gathering/growing/preparing and water gathering were the big activities. Also high on the list were obtaining fuel and making clothes. Unless you start burning down a lot of trees, there isn’t much possibility for metal working or glass making. Homes end up being pretty simple. Healthcare involves midwifery, pulling teeth, and treatment with herbs. Defense is probably pretty important–perhaps you need moat builders. Maybe some water well diggers as well. Or perhaps those are off-season occupations for farmers.

          • Unfortunately, currently there are no University training programs for the occupations you listed. :(

            You didn’t address Wealth Preservation for Retired Boomers like yourself. Ideas there?

            RE

            • Gold or silver coins may be of some value, so it may make sense to have some of your wealth in coins of some sort. They also may attract thieves, so don’t go overboard. A few paper bills might work too, if banks are closed.

              Don’t expect much out of your paper investments. If you actually get something out of them, you can then be pleasantly surprised.

              Spend your wealth now, while it still has value.

              Take care of your own health, but not by going to the doctor. Get plenty of exercise. Eat lots of fruits, vegetables, and nuts–not much antibiotic-filled meat or things made with flour.

              Keep on good terms with your children. You may need their help in your old age.

      • Leo Smith says:

        I am not sure it IS unprecedented.
        Empires and civilizations always fall, eventually. The next one along always thinks ‘it’s different this time’ :-)

        It seldom, is.

    • ravinathan says:

      The world has over 400 nuclear power plants that need to be kept running to prevent meltdown. This necessitates a high level of economic activity including functioning electric grids to be sustained. Some of these plants are in countries such as N.Korea, Pakistan and India that are highly susceptible to crisis and chaos. The belief that we can scale down to a medieval level of functioning is highly questionable. If industrial activity is significantly reduced, so will the effects of global dimming that is keeping a lid on atmospheric temperatures. The result will be a nearly 2 degree C increase in temperatures that will set off runaway climate change. Mankind’s and most other species survival under these conditions is doubtful. Simply put we are caught in a double bind. Stopping BAU and full steam ahead are both perilous. Under such choices, society will continue BAU as long as possible.

      • Leo Smith says:

        Er no.
        given a grid failure you can keep a nuke safe once its scrammed with minimal power, and if you leave it scrammed, after a few weeks that’s it. Its just a decay reaction in a containment chamber.

        And there are designs that will allow of passive cooling.

        • ravinathan says:

          That’s it? Scram is just the first step. The rods need to be kept cool for a long time and the nuclear waste contained for decades.

        • ravinathan says:

          And you envisage maintaining shut down nuclear plants and nuclear waste in places like N.Korea and Pakistan sans 90 percent of the human population that you in your own words expect? Are you serious?

      • xabier says:

        The British Guardian has an amusing article on the drunk, depressed and demoralised Japanese TEPCO workers trying to deal with that tsunami-struck plant.

        Amusing, that is, if you like your coffee and humour very black……

      • One hopes the collapse will not go SOOOO FAST that the spent fuel can’t be collected, vitrified and dropped into the Mariannas Trench prior to the electric grid going down for good.

        RE

        • Plastic shit Frank says:

          Sorry to enlighten you “reverseengineering” but the action to move the spend fuel is in itself a long and difficult maneuver prior to be processed as you say by vitrification and disposal on the sea, which by the way it is illegal under international treaties, all this maneuvering would take many decades, provably more than a hundred years.
          The electric grid, or more accurate to say some components of the grid could fail any time by forces out of our control, one option for optimism is to be ready to kiss your ass good by and enjoy the ride in the mean time.

          • Once the Global Control systems start breaking down, I doubt anyone will be adhering to International Treaties made by defunct Nation-States. Granted however, it’s a pretty big job to get rid of all that poison.

            Next best bets are Tasmania and Alaska. Some isolated Valleys may do OK without too much fallout. :)

            RE

      • There is another limit that the 400 nuclear power plants are meeting that has been discussed recently. There is something called Lithium-7 that is needed for cooling reactors. This is in short supply world wide. This is a September 2013 GAO report on the subject. The US and Europe don’t make any Lithium-7; we depend on exports from Russia and China. It is a by-product of enriching lithium-6 for their nuclear weapons programs.

  13. As a rather slow economics student [of yours!] I think you are beginning to hammer home the economic crisis that will proceed any decline in oil production. I am aware of the shale gas/tight oil bubble that is dependant on finance to continue the red queen race- and if money gets tight in another crash then financing drilling will halt. Given another debt related crash then I’m sure the US and Europe will be unable to finance a recovery – who could they borrow from?

    There is another scenario to the two you offer which is a war footing- a national conscription to get everyone back to work – to drill the tight oil – to man the factories and install new infrastructure. So instead of building runways and tanks it would be transition [or conventional] energy. but unlike the the 40s where the US had huge wealth to finance it it would be more Russian simply to survive.

    I have no idea how an emergency economy would function- in 1940s Britain it was not forced labour and remarkably civilised with young women volunteering to be Land Girls to work in agriculture and young men being Bevin Boys and working down the mines. Already the government is try to encourage ‘Big Community’ to be volunteer community workers to replace paid workers as cuts close libraries , day centres for the elderly, and other local amenities.

    I suppose the question from an economics view point is whether this system could function for a decade of transition.

    • Ikonoclast says:

      You touch on an important point. Every nation faces a looming national and global crisis. Logically, we should go onto an emergency footing equivalent to a total war footing. That is to say every resource human and material should be devoted to amelioration, transition and controlled collapse related to this limits to growth crisis. Even then, the crisis would have dire effects but some effects could be ameliorated or diverted. Also, some semblance of national and regional civilization could be saved in some parts of the world.

      What level this saved civilization would settle out at would be pure speculation. Equally, the new sustainable population level would be speculation. My guess would be about one billion people in 2100 living much more modest lives in a broadly renewable and sustainable manner. Small elites within that may retain some level of electrical and electronic civilization. But it would be no utopia. More like a painful, struggling, barely functioning but still continuing dystopia.

      • It is really hard to get support for a program that will only allow some unknown (but probably low) percentage of the population to survive. Who determines the winners? Will the ones who are educated enough and wealthy enough to qualify for government subsidies for solar panels and the like have an advantage? Should the poor be taxed to pay for a subsidy for the rich and educated?

        • edpell says:

          “Should the poor be taxed to pay for a subsidy for the rich and educated?” That is the way the federal and state governments have worked for the last 200 years. I expect it will continue to be the way they work.

          • We can think the smokers for providing a subsidy for the non-smokers in Social Security. Smokers tend to be poorer as well.

            Those with less education also get less benefit from Social Security than the better off (who live longer).

    • dolph says:

      Let me add my two cents to the question of volunteering, just so people suffer no illusion.

      Under no circumstance, whatsoever, will I volunteer my labor without pay (of some sort). Again, I will never work without compensation, for any reason, for any cause.

      I can already tell that under a collapse scenario, the line between volunteering and slavery will be blurred, and I simply refuse to participate.

      • KingFish says:

        Never say never, you will work for table scraps when you get hungry enough or Dick Cheney water boards you. Look what the Germans and Japanese did during world war II.

        It’s easy to talk tough from the comfort of your keyboard.

        • dolph says:

          Table scraps is still something, not nothing.

          OK but the situation you describe is if I’m a prisoner of war. That’s fairly extreme but even prisoners of war, though, work for basic clothing and food of some sort (this must be provided, otherwise the prisoners of war die and you have no workforce).

          Again, this is completely different from volunteering, in which you, without coercion, make the decision to be a slave, to literally work, perform labor, for nothing in return.

          In my opinion, this is a much easier route for societies and companies to take then go to war. Just try to convince the stupid rubes to “volunteer”! Then you get them to do real, meaningful work without compensation, just pump them full of the useless thought that they are “patriotic” or “contributing to a worthwhile cause” or BS like that.

          So my point remains the same…in the future they will try to convince you to volunteer, and if you line up to do it, you are agreeing to perform work for nothing.

          At the point of a gun, sure, the calculus changes.

          • p01 says:

            How about “voluntary” work (which is only voluntary by name, but required in reality, and the only pay is you get to continue your regular industrial slave program without big disturbances)? No guns required, I assure you. You are only taught that no matter how bad it is, it can always get worse.
            I’ve seen many trying to circumvent it, and they ended up disappearing, not necessarily in a secret service dungeon, but most likely dispatched in a coal or salt mine, or on a “Forward Progress” construction site where you usually did not return from.

          • Jan Steinman says:

            You paint a rather bleak definition of “volunteering,” perhaps based upon retired people with pension income ringing Salvation Army bells at shopping malls during the Christmas season.

            I see volunteering differently, having “employed” a couple hundred in the past decade.

            First off, a “volunteer” is, by definition, doing something of their own free will. They can leave at any time, although they may make formal or informal agreements to stay for a certain period.

            What you describe and decry sounds more like slavery or indentured servitude.

            Second, volunteers receive a value exchange of some sort. In our case, it’s food, shelter, and training. (You might not believe it, but some people need to be taught how to pull weeds!) That last item — skills training — may be a life-or-death benefit in the future.

            Finally, many volunteers “pay it forward” by starting their own concerns and by helping out another generation of volunteers.

            So please consider free will and non-monetary exchanges as two of the defining characteristics of volunteering before you decide it is evil.

          • Jan Steinman says:

            My last point about volunteers “paying it forward” is crucial, and necessary for understanding the possibilities of the so-called “gift economy.”

            The very most important part of the definition of “volunteer” is free will. Volunteers are doing this in order to get something tangible or intangible in exchange for their work, be it food and shelter, training, perks (I volunteer at a local charity book sale so I can glean the best books first!), or on a more abstract level, social status, appreciation or self-actualization.

            Beyond barter, the gifting economy offers hope for survival after the collapse of the current financial system. Gifting economies preceded even agriculture, and will surely survive agriculture, as well.

      • xabier says:

        Dolph

        OK, so you get a bullet. Or kicked to death. You may wish to study the history of forced labour in German- and Russian- run territories in WW2…….

      • i take it you will also refuse to eat

        • dolph says:

          Please do not comment unless you get your basic terms right.

          Volunteers, by definition, perform labor for nothing in return. Not even food.

          If you are work for anything in return, you are by definition no longer a volunteer.

          • timl2k11 says:

            “Volunteers, by definition, perform labor for nothing in return.”
            Nonsense.
            volunteer |ˌvälənˈtir| noun
            a person who freely offers to take part in an enterprise or undertake a task. (emphasis mine)

            That is neither slavery nor prison, and volunteering can be very rewarding, so you are getting something in return. Volunteering is an act and expression of freedom and free will.

        • dolph says:

          I happen to think of it in the following way. I may be right, I may be wrong.
          Volunteer: lowest rung of society, agree to work for nothing.
          Prisoner of war or slave: next rung. Work for basic food/clothing/protection, but have no rights and cannot
          Serf: next rung. Enter into a somewhat free agreement to perform labor for a landowner.

          My basic point is this: I would much rather be a serf, and would do everything in my power to be a serf, than to be a volunteer or slave. Having said that, obviously one can’t predict everything. However, suicide or fighting to the death remains an alternative to being a slave, and many throughout history have chosen this route. But you don’t read much about them; only the “heroes” who have survived and come back to tell their tale.

          • You have a very strange view of volunteer ethos. I volunteer to do everything from repairing community centres, running a arts charity, helping friends do insulation work and free advice on construction as well as doing film work for a medical charity -I did get lunch bought for me the other day, however.

            it is not slavery – it is a choice to make my local environment and community a better place. I have paid work but I don’t really need a lot of money- own my own holding and have no debt.

    • Lindon says:

      I have thought much along the lines that you are putting forth, Jules, and I agree. When that next devastating round of defaults that Gail predicts comes about and something like 90% of the working population loses their jobs, that is exactly when (I hope) the government will step in and put the unemployed back to work on massive new projects of all kinds. We DO have enough land and tech and even home-grown oil to feed ALL of our population. A lot of people can be put to work on the farms/ranches. Others can be put to work in clothing factories. Legions can be put to work remediating polluted areas of our landscape, replanting forests. Still others will be needed in security and armed forces, no doubt. Total economic collapse doesn’t have to end up being a wasteland, if only the government and the elite forces that actually control the government can get their planning done right. That’s what I hope, anyway.

      • Scott says:

        Hello, I am sure the Fed and others can do a bit if it all falls apart again like in 2008, but they really have spent their bullets already on the last crisis and have little ammo left unless they want to create inflation. Otherwise, we face deflation and cheaper commodity prices which is not desirable for exploration.

        I do not think they will be able to put us all back to work again, well maybe for a year or so – but not for long I think.

        Perhaps then we will see the inflation that we fear as they expand the monetary base into higher levels if they inflate again like they have been since 2008. So far they have been able to contain inflation but maybe not now if they have to react to the next crisis.

        Many of the articles that I have studied indicated that the Fed and World Central bankers really have already pulled most of their tricks to keep us out of the Depression.

        The biggest thing aside from this that got my attention last week was that may be down to 30 million barrels of oil and equivalents when we are already now using something like 90 million per day now.

        We have also discussed in the past how fuel cells powered by things like natural gas could perhaps help us conserve what is left.

        Unfortunately, the world was not really set up to support as many people that we have now and that will be our challenge no matter what we do it seems.

        Scott

        • Scott says:

          Small correction – I meant to say by 2050 we may be down to 30 million barrels per day…… “The biggest thing aside from this that got my attention last week was that may be down to 30 million barrels of oil and equivalents when we are already now using something like 90 million per day now.”
          Scott

      • Leo Smith says:

        The government cannot put people to work if the energy to run the tools which are all they know how to operate is not there.

        Like it or not, the population only stays alive because of a massive overconsumption of energy. Take that out and people are not unemployed, they are dead, and probably eaten.

      • p01 says:

        Well, then, I’m sure you’ll enjoy school and “patriotic work”:

        http://www.comunismulinromania.ro/Tineretea-noastra/Scoala-si-munca-patriotica-pionieri-la-Festivalul-National-Cantarea-Romaniei.html

        Having lived this, I can assure you it ain’t as pretty as the pictures suggest. At some point it becomes so bad, so hopeless and disconnected from reality, that you actually start hoping for an economic wasteland, or at least that the slavery ends one way or another. This is what a slow decline (without financial annihilation) on the oil slope looks like. I somehow doubt future generations will be this “lucky”, but maybe the boomers do know how to better flog their children and tell them exactly how to sow and what to reap in the fields (and when), how to work in the factories without inputs, how to better break the stone in the quarries and more efficiently clean the waste on the nuclear sites.
        Here’s more. Enjoy!:

        http://only-romania.com/2011/11/the-brigadiers/

        • Thanks for your pictures and views. Eastern Europe also suffered after (and probably some before) the Collapse of the Soviet Union in 1991. Energy supplies dropped off dramatically.

      • I think the government is likely to collapse at the same time, or even sooner. That is a big part of the problem. The government is supported by taxes. As these disappear, the ability of the government to support the people goes to zero pretty quickly.

        Our problem with oil is that it is increasingly a money losing proposition. The government will have a hard time supporting it as well, if it is a money losing proposition, and it doesn’t have tax revenue. Without oil, the natural gas and coal are more or less useless.

        If the government doesn’t collapse, resource wars seem likely.

      • Lindon says:

        I certainly can see the sense and the probability of what you all have posted in response to my “hope” that the government will remain functional after collapse and organized enough to keep a majority of the newly unemployed American people working at worthwhile projects — for food and shelter, not for money. And while it is true that the modern form of government depends on tax revenue to function, in a collapse situation, there will be no money, no earnings, no taxation. What then will keep the government and the American people together? How about common ideals, desparation to band together and rebuild, the need for food and shelter and association with a worthwhile cause. Don’t expect the U.S. Military to just fall apart at the seams — they will retain their command structure, and they will NOT let America disintegrate without a fight. During the American Revolution, George Washington kept his troops and the American people together not with money, but with hopes and dreams and a common cause. I’m predisposed to accept that everything will fall apart at the seams with nothing but mass chaos the result, but I hold out the HOPE that the powers that be will be able to unite us with a common cause, a hope for the future, a dream toward which most will be willing to strive as we rebuild based on the new realities. The old cheap-oil fueld world will fall. The widget factories and the three-cars-for-every family will disappear. The huge cargo ships will rust in the ports. But enormous quantities of previously allocated oil/fuel will be freed up, and if used wisely, can power a new civilization built on efficiency, localization and harmony with nature well into the future. Be ready for utter chaos, prepare, but don’t give up all hope for a better future to emerge from that chaos just yet. That is all I’m saying.

        • p01 says:

          Lindon, it seems to me that you have not figured it out yet, so I’m going to spell out the horrifying inescapable logical conclusion for you:
          Civilization IS the problem.
          There.

          • Dennis Brumm says:

            Hi, P01. There is an alternative view to civilization as the problem, and that is it is the SYMPTOM, the species we are (that means any or all of us) would likely have come to this point through any number of routes it took. The evidence for this (symptom model) is that farming and the ensuing civilization developed in several locations completely independent of one another.

            I feel a lot more of what and who we are is programmed in our genes than most of us care to look at (and more than many or most of us were ever taught). Evolutionary psychology is finding evidence to support this.

            In addition to economics being highly mythologized, some other conclusions of the so-called social sciences (and those disciplines) can be pretty suspect in how they function, as well.

          • Lindon says:

            po1, without civilization, humans are uneducated louts scratching out a short miserable existence scavenging for roots and berries and bugs, pretty much back to caveman days. Civilization is not as evil as you might think. If humans can learn to manage civilization better — do not allow tyrants, keep the resources more or less evenly spread, live in harmony with nature — that will be a far better result than living in small bands of hunter/gatherer clans. Based on our current and soon-to-be collapsing experience with civilization, those of us who survive can hopefully learn from the past and work together to build a better human civilization. That is an optimistic hope, but worth considering. IMO.

          • p01- civilisation seems to be the human response to crisis. New research suggest that climate change [Earth axis tilt] that caused the Sahara to dry out was over period of centuries [perhaps 200 years or less rather then a 1000 years or more as previously thought. The population of human collected in the Nile Valley and promptly turned from hunter gatherers to advanced civilised nation. Likewise cities appeared in S.America and these seemed associated with failing rains and the need to irrigate and get organised. The problem at the moment is not civilisation but the current growth driven economy of capitalism [or state run version:communism] which is inflexible. Some countries will fail and decline, some may buck that trend. The future is yet to be written.

      • xabier says:

        Lindon

        A giant statue of the ‘Great Saviour Leader’ would be a worthwhile project in such circumstances.

        • Lindon says:

          True, xabier, as it has been in every great (or mid-sized) civilization to rise throughout all human history. We treasure and love our great leaders — the ones who lead us into the promised land through perils and dangers and past certain disasters. When collapse comes, and it will come, we will be hoping and looking for that great leader. He or she will have to accomplish something — get us to a safe harbor — then a statue will be a very worthwhile and time-tested project. We can put it right next to the pyramids…(snark).

      • Jan Steinman says:

        “We DO have enough land and tech and even home-grown oil to feed ALL of our population.”

        I read somewhere that North Americans currently consume 50% more energy than is harvested by all the plants growing in North America.

        Before widespread exploitation of fossil sunlight, one unit of agricultural work energy yielded ten units of food energy. Today, it takes ten units of energy to produce one unit of food energy.

        Such facts make me doubt that we can feed ourselves, should Gail’s scenario (energy price crash resulting in investment stopping) take place.

        With tight oil, the increased production is coming from continuously drilling short-lived resources. You aren’t going to be able to do that if the price crashes.

        • I wonder about your statement, “Before widespread exploitation of fossil sunlight, one unit of agricultural work energy yielded ten units of food energy.” Do you have a reference?

          It seems like agriculture was very demanding from the beginning. Spenser Wells, in Pandora’s Seed: the Unforeseen Cost of Civilization, talks about the drop in life expectancies, and the drop in hight (about 6″) as humans transitioned to an agricultural lifestyle from a hunter-gatherer lifestyle. We also started having major problems with our teeth, with the starchy diet.

          As we moved to agriculture, we moved to a high grain diet, and needed to process the grain so we could eat it. This added a significant energy requirement, that we now consider in the 10: 1 ratio. I would contend that this energy requirement was there all along. If so, it affects the ratio in earliest times.

          Another aspect is that we needed to cook at least part of our food, besides grow it, because our body is now adapted to cooked food (bigger brain, smaller teeth and digestive system). Somehow, that needs to be considered in the energy needs associated with foods.

          I would contend that we have always been in an energy deficit position with respect to food, since we turned to agriculture, and possibly even as hunter-gatherers. As hunter-gatherers we cooked our food, so we were using more than our own energy. Chimpanzees and gorillas eat food raw, but they need to spend a lot more of their time chewing, so that their food gathering/eating takes up more of their time (47% of the time was spent chewing, in one study). By cooking our food, we were able to cut back chewing time greatly, so we had time to make clothing, tools, etc.

          • Jan Steinman says:

            “Do you have a reference?”

            I read it somewhere on the Internet, so it must be true!

            Sorry — you put so much work into this blog that I can’t leave you hanging like that. It took me a half hour, but I found where I read “Anthropologists, among them Richard Lee and Marshall Sahlins… [found] that for every Calorie of labor energy these people invested in the procurement of food, their efforts yielded 5-10 Calories of food to sustain them.”

            It’s a good read. The author found his own efforts at growing and harvesting burdock root yielded about a 1:2 energy gain.

            • Thanks! Interesting!

              If we are really headed in to a much worse period in terms of food availability, we need to know what foods can be grown at an adequate energy gain. Clearly most vegetables will be grown at a net energy loss, because of their low calorie density. But we still need them in our food mix, and the overall food mix should provide a net energy gain.

              I looked at one of the references cited and figured out that the high end of the EROI range comes from swidden (slash and burn) agriculture, growing corn.

              One of the things that Garza mentions at the end of his post are the many things he left out of his calculation that bring the net energy gain down from 2:1, to 1.4 :1, according to his calculations. These things are things like the embedded energy in the trowel and the knife he used, and in the salt and the fresh water. As a practical matter, some of these things would be much more difficult to obtain without today’s energy systems. For example, salt can be got from evaporation of sea water, but then it needs to be transported to the new location. The energy cost in the system would likely be much higher without today’s transportation, so the energy return, would be lower yet.

              If burdock weren’t growing wild, and he had to grow it in his garden, there would have been a lot of other steps involved. The link I found talks about fertilizing burdock once a month. So it likely would not produce a net energy gain as a garden vegetable.

            • Jan Steinman says:

              As a practitioner, I’m much more optimistic about energy return of growing food, but not in a conventional manner.

              I would think annual vegetables are at the low end of the scale, and at least in the west, I’m guessing their main energy needs are pumped water, so gravity-fed water is one huge way to up the yields.

              We need more perennial food plants! I would guess that fruit and nut trees are at the high end of the scale. Before the American Chestnut blight, one could stand knee-deep in chestnuts in much of Appalachia — the energy demand was just what it took to bend over and pick them up! I’ve planted ten American Chestnuts here, but I won’t live to see them mature. Hopefully, someone will be around to appreciate them!

              Goats are highly efficient collectors and convertors of basic productivity. They do well in terrain and vegetation that is unsuitable for cows or sheep. (They do so well that one has to be careful not to let them strip the earth to the dirt!) The main human input is management and perhaps fencing. If more land is available, less fencing and more herding is needed — seems like a zero-sum trade-off to me. But I’d rather be out leading goats from pasture to pasture than doing something indoors for money.

              Obviously, these sorts of things are not going to be taken up by the preponderance of city dwellers overnight. I’ve seen figures that, prior to the widespread use of fossil fuel, it took fifteen people on the land to support one in the city, and a reversion to the mean seems inevitable. It also seems obvious to me that there isn’t enough land for all seven billion of us to take up a pastoral life style.

              I greatly encourage anyone reading Gail’s blog to take up some personal gardening and learn the skills — if even on an apartment balcony. You may lack land, but at some point, having practical skills may mean someone with land will “take you in.”

    • In the 1940s, we had lots of available labor, and with ramped up debt debt, there was the possibility of lots of cheap coal and oil and gas to be extracted, to operate the factories. War offered the excuse to borrow money, so this money could be used to finance the whole system.

      This time around, there is again a lot of available labor. We are already up to our ears in debt. Figuring out how to ramp the debt up further would be a problem. Just print more money??

      If we are in “Phase 3″ of the production function, this means that we get less value from drilling the tight oil that we put in. So even though we put all of this effort into it, a great deal of it must go into the extraction itself. We would effectively need to import additional oil from the world market, if the workers on this project are to have goods to buy, and if the oil is to be here to run the trucks and do the other work involved. The companies that are doing the drilling now are running up a lot of debt (and crossing their fingers that in the oil wells declining years, they will provide enough oil to pay off the debt)–it would the government instead that would be doing the same thing.

      • Joy says:

        Gail,

        Oil extraction was an expensive adventure in the 1940’s just as it is today. All that cheap oil you like driving around and burning today is because the investments of the 40’s have been fully paid for & depreciated. But back in those days, no one thought it was cheap to drill for oil. Just like a new adventure today, once the well is drilled, the pipleline to the refinery is complete and the investment is paid for, it’s all free money coming out of the ground. To many doomer are just spoiled from investments of the 40’s that are drying up and to cheap to face the reality of new invesment costs of today. If one wants to be cheap. They should buy a bicycle.

        We have nothing to fear but fear itself.

        • I know this is difficult to grasp, but in the 30s and 40s, we used the energy value of 1 barrel of oil to extract/distribute 100 barrels..ie 100:1 EROEI
          That was our energy base of cities, roads, wars, air transport health care and so on.
          for conventional wells, that ratio is now 20:1 and falling. This explains why industrial cities are falling apart.
          for tight oil–tarsands etc, the ratio is around 5:1
          Our civilisation as it is currently constructed, will not be able to sustain itself when overall EROEI of our energy sources drops below 12:1
          On a personal note…’free money coming out of the ground’ makes me want to weep for humanity–because that is the general point of view

          • PatrickCN says:

            EoM, I don’t think that the concepts are difficult to grasp. I am assuming that Joy is either deliberately obtuse, or that he/she is shaken to such an extent by the materialising developments that angry denial appears to be the, perhaps, safest coping strategy available.

          • Oelsen says:

            And the energy flow density, urban sprawl and technological overdiversification has nothing to do with the brittle cities?
            If we only had Manchesters and Berlins, we could let the machine hum for 200 years. But we have Sydneys and Dubais. Too large, too high. I am earnest about those 200 years.
            The energy it takes to transport car commuters to and from my Swiss town today where its whole ecology 60 years ago. And then the sneak expansion of mortgages grew it suburban and horizontally. We could perfectly do Pharma and Banking with 1:10, but not with this lateral madness and foreign sourced consumption madness. Well, thanks for nothing, so called working population!

        • The way the government adjusts for inflation, prices are much higher now than they were in the 1940s. This is oil prices in current dollars.

          Historical oil prices in 2011$

  14. Lindon says:

    Gail, thanks again for a really well-thought and fact-based narrative of what is REALLY happening in the world today. It is difficult for me to interpret the three-ring circus going on in Washington these days as anything other than staged drama to distract the masses from the real problems that we are facing. It is almost as if we are being treated to a “good cop bad cop” regimen, with the lunatic Republicans playing the “bad cop” role, demanding that we cut services and entitlements, while the Democrats continue to play the “good cop” role, trying their hardest to keep all the federal programs in place despite the cost and ultimate unsustainability of those programs. The whole point of the “good cop bad cop” treatment is to both dramatically reduce government spending and to condition Americans to the reality of reduce government social program spending at the same time. And behind the curtain, where the puppet masters manipulate the strings and do ventriloquist acts through the mouths of elected “dummies”, they KNOW the REAL facts. And those facts, I believe, are just exactly as you have laid out. Energy costs are going to rise to a point where a whole new round of defaults will sweep across the financial landscape, and there will be nothing left to bail them out with. Oil and coal production will become unprofitable due to decreased demand (nobody will be able to afford it), and the bottom will drop out of our world economy. Once that Humpty Dumpty falls off the wall, and fall he will, then NO amount of the king’s men will be able to put him back together again. That is when TSHTF, and it is coming. From my point of view, I just don’t see how we can stretch out BAU more than a year or two, if even that long. I hope that people are preparing for that time, and I thank you for your valuable information spread through the blogosphere/internet that might help some people get wise to the situation before it is too late.

  15. Scott says:

    I have been thinking about how to get by on less in the future, It seem to be where we are heading. If oil falls to $30 again it will shut down most production which may create shortages.

    I for one believe the monetary response will continue to be inflationary though, there are two sides to this coin, will we see cheap gas that no one has money to buy or will we see high prices and shortages? I will vote for higher prices the way we have the central bankers of the world acting right now, in fact just tonight they are already raising the USA Credit Limit again and they will continue, they (the Fed and others) have no choice as they are backed into a corner of there own device.

    Scott

    • Our experience in 2008 was that the prices of oil, gas, coal, uranium, and virtually every commodity dropped, because of debt defaults. The federal government had to pull out every stop, to get the system re-inflated. Now the government is still operating with all of the stops wide open. Do we really think that it is somehow going to have enough ammunition left to come up with yet more rounds of fixes to the system? David Stockman says that the government is out of ammunition. http://kingworldnews.com/kingworldnews/Broadcast/Entries/2013/10/5_David_A._Stockman.html

      I think you were the one who posted a link to his talk earlier.

      • Scott says:

        Hello, Yes I did post that link to David Stockman a good interview and I agree with what he said about the Fed not being able to prop things up again. That is going to be the interesting part to watch unfold. I am still amazed at how long this has gone on so far.

        They have been successful in reflating certain markets like stock and housing to some degree but these seem like new bubbles ready to burst again, especially the bond markets.

        I am sure they will attempt something, but I think each new round of stimulus becomes less effective than the prior stimulus round. I do not think they will be able to stop QE either without a major economic downturn resulting or perhaps a Deflationary Depression. For that reason, I think they will continue QE until such a time it all falls apart. We may eventually get some very bad inflation ahead.

        The problem is nothing has really changed since 2008, they are still using high leverage CDS’s, shorting markets to control prices, complex financial instruments are still out there that virtually no one really understands.

        We need a simpler honest system as things have gotten really strange in the last few years. We also need a government that has not been hijacked by Corporations and special interest groups and things will likely not change until after a great collapse.

        Scott

    • PatrickCN says:

      Hi Scott, I firmly believe that deflation will be the order of the day, with rampant hyperinflation running a very distant second.

      What people mostly do not take into account is that one person’s debt is somebody else’s surplus, roughly speaking. With all debt cancelled, nobody would have a dime, or the promise of a dime being paid somewhere in the future, in their bank accounts.

      Therefore, when debt defaults occur, someone else’s assets and a country’s GDP shrink. Ergo: deflation.

      However, there is still the possibility that the trust in the USD, or other major currencies, vanishes completely and the national central bank goes all out to honour all obligations and buying the IOUs issued by the country. This trust would lead to a collapse in that currency’s worth and thus to a hyper-inflationary scenario. Possible, but, in my mind, unlikely.

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  19. ask412 says:

    Very good overview, thank you much appreciated. From the comments it is very unpalatable, but then again, why would it be?
    One glaringly obvious factor missing is the common use of the spreadsheet. Since it has become a central part of all business particularly transnational corporations like the oil groups. Innovation has suffered less investment.

    That goes a long way to defending against any critic of your sound economic logic. How so?
    We have had broadly speaking, been increasing investment of profits before dispersant in increasing efficiency. This has led to more focus on efficiency and greater automation using machine code. The metrics of the doing business so revered this is now accepted as completely rational, globally. The process is compounded by financiers of the corporations, who are very risk averse and in turn want more investment in efficiencies. This has led to a whirlpool of efficacy driven decisions that seems to suck everything along with it, while shedding the need for human involvement in the profit cycle. Just where is this three decade focus on metics of efficiency post spreadsheet development going to end?

    Currently there is no motivation to take a risk at a time when energy innovation is really needed. So all our innovation is dying. The US and European economies are proof, just how many new and innovative products are being uncovered in the last decade? Whose still by my count it is over two decades since Japan came up with more than one. Their economy is now driven by more efficiency focus than ever.

    So together with your clear and concise line of logic around energy dilemma the focus taken of capital ROI in petrochemicals and our energy dilemma compounds. Any more ‘kicking the can down the road’ added to this fiscal efficiency drive is going to lead to a paradigm shift. How this unfolds is the tricky part. All we have left is a torch looking forward and the batteries are going flat.

    The neoliberal version of Milton Friedman’s now dead in the water theories, just leaving a US military/government hegemony as an international option. That is not healthy.

    • Efficiency makes it possible to use less oil (or coal or natural gas). If a company or individual uses less, the high price is more palatable. In fact, efficiency helps to hold up demand for high-priced fuel. With less efficiency, we couldn’t afford it.

      There is very little evidence that efficiency leads to less energy consumption. Usually, the lower cost makes a product affordable by a wider range of people, and adds to fuel use. (One exception might be energy efficient light bulbs.)

      • ask412 says:

        “There is very little evidence that efficiency leads to less energy consumption.” Agreed and your premise is followed. Adding to your thread of logic was my context in reply.

        My premise is the driver of ever increasing efficiencies has dried up innovation.

        The healthy ratio of investors willing to take their eye of the spreadsheet risking investment capital has plummeted.
        Taking a risk on failure and capital loss is seen as an anathema.

        Ergo; this is compounding both issues – ‘current state of the world’s economies’ and the ‘energy crisis’. Because there is no innovation in the area of technology to solve extreme energy problems or any serious response to climate change.

        There certainly has been no innovation in the values around economics, they still are failing to integrate with all known ecosystems.

        Maybe a paradigm shift brought on by the looming energy crisis will get innovation started again. Maybe not.

        The investment in more and efficiency is a whirlpool that keeps getting stronger and feeding on even more capital investment. All it produces in increasing profit.

        Profit that is then put back into more efficiency, to make more profit and the cycle starts all over again. Going nowhere but into a shrinking number of pockets.

      • Jan Steinman says:

        Efficiency is a fool’s paradise. Obtaining 100% efficiency would (in theory) require infinite resources!

        There exists a “sweet spot,” or maximum power point, in the efficiency curve. Exceed that point, and you begin embedding more energy than you can possibly gain from the additional efficiency.

        Note that the conventional measurement of embedded energy is insufficient. Complexity is also embedded energy, and it requires continuous energy to maintain. Technology is simply one form of complexity. Any form of efficiency that depends on improved technology is probably illusory in the long run. Consider that a simple incandescent light bulb can be produced regionally, with the resources of almost any region on Earth and the skills of a large town or small city. Now consider that an LED essentially requires the resources of the entire Earth, and the skills of our entire civilization — those are rather huge embedded costs!

        There must be some reason why 3,500,000,000 years of evolution has only resulted in a solar-energy capture efficiency of 8%, maximum. And yet, we hairless apes think we can do better in a few decades! We have done better, but it comes with the hidden cost of complexity, which Joseph Tainter assures us must be paid for in the long run.

        A reversion to the mean is inevitable. Enjoy the spike while you can!

        • That is a good point. We have to keep the whole system going, to be able to manufacture LEDs (and other high-tech devices).

        • ask412 says:

          “Efficiency is a fool’s paradise” Jan Steinman – The only logical conclusion.

          Yet that is the primary operating premise of all who are working as CFO in our whole economic system. How can the innovation needed to addresses our future survive? Even the LED is a fifty year old innovation!

          Where are investors and financiers prepared to risk to innovate?
          Mostly all we have left is highly efficient old concepts and a diminishing ratio of innovative new products to capital available to invest.

  20. Dennis Brumm says:

    Gail, thank you for considering the natural limits and for the statement: “Nature is, in fact, in charge.”

    It is not something that seems to be very popular nor even well-understood (since it goes against centuries of disbelief within the predominant cultural heritage we have today), but it concurs with the conclusion I reached a few years back, as well after coming onto “the predicament” via peak oil. Excellent post, thanks.

  21. Gail, if your economics is true, The most effective way to cut pollution, CO2 emissions, and energy consumption is an economic collapse. However economic collapse could well lead to facism and tyranny. If we are headed for financial disaster, our political systems are in danger. People who are expecting things to get better, or at least not get worse, are going to be disappointed. People are more likely to blame foreigners and immigrants. Fascism, in all its ugly forms, will not be far behind.

    It’s true that the tax base is shrinking, but the single most important step we could do to keep things stable is to reduce inequality. Public goods such as education, public health, a fair legal system, a safety net, and scientific research in the public interest could all be bolstered and improved with little extra cost, and would help mitigate the worst effects of inequality.

    Several posters have raised the issue of debased currencies. And you raised the issue of defaults. Both of these issues would lead to the widespread destruction of public trust and confidence. The United States already has a real problem with people losing respect for and misunderstanding the role of government. I blame Ronald Reagan for the false idea that government is somehow the cause of our problems. Without a strong central government all the problems that we have will be magnified a hundred fold. That’s why the Middle Ages were also called The Dark Ages, because central governments were weak or non-existent.

    • Quite- the best defence in an uncertain future is cooperation not heading to the hills as a survivalist, alone.

      • I think them thar hills is going to be crowded with lone survivalists

      • HappyasLarry says:

        Bring back Stalin summarises the above two comments.

      • Leo Smith says:

        You might think that. I couldnt possibly comment.

      • Jan Steinman says:

        Indeed, in ecology, high-energy environments are characterized by competition, while low-energy environments are characterized by cooperation.

        I don’t think a low-energy world will suddenly result in rampant egalitarianism, but it will be a path with less resistance than today.

        • Doesn’t population enter into the equation as well? Low energy + high population doesn’t sound like a good combination to me. Low energy + low population is different.

          • Jan Steinman says:

            “Doesn’t population enter into the equation as well?”

            Yea, you could be right. I’ve only studied comparative biome ecology in stasis, such as comparing the tropics with alpine or arctic biomes. Neither of those cases have an “energy bump” to contend with.

            Surely, we are blessed to be living in such interesting times!

    • I agree that government is likely to change in the direction of a totalitarian ruler, or worse–essentially no central government at all.

      Fossil fuels allow us to have very diverse employment. Without fossil fuels, 80% or 90% of us will need to work in manual agriculture. Government will almost be an afterthought. It is pretty clear that we cannot afford the kind of government we currently have for very long. This is not a good situation.

      • Jan Steinman says:

        Am I the only one who sees less government in a low energy future to be A Good Thing?

        It’s not like we’ll have a lot of resources to spare on warfare. But I don’t see a Schumakerian future as problematic at all. We may see a wide diversity of forms of small governance, from feudalism to consensus-based gift economies.

  22. Whos Really to Blame For Our Current Economic Crisis?
    I personally believe that the US government’s entire strategy now – as during the S&L crisis – is to cover up how bad things are.

    But it is not only a matter of covering up fraud that has already happened. I am afraid our government also created an environment which greatly encouraged fraud….and the mortgage fraud is a lot like the fraud which occurred during the Great Depression.

    Facts?

    It is clear to everybody by now that our government knew about mortgage fraud a long time ago. The FBI warned indeed of an “epidemic” of mortgage fraud back in 2004. However, the FBI, DOJ and other government agencies then stood down and did nothing. The Federal Reserve turned its cheek and allowed massive fraud and the SEC has repeatedly ignored accounting fraud…..while Alan Greenspan took the position that fraud could never happen.

    • I know that the US government knew quite a bit more during the S&L crisis than we saw in the papers–I was part of a group of actuaries who met with government officials, to see if we could figure out a way around the “Heads I win, tails you lose,” nature of deposit insurance on S&Ls. With deposit insurance, depositors don’t have any reason to check on the credit worthiness of the S&L. If they make a big gamble (I remember windmills was mentioned as an example back then–I suppose they are what we call wind turbines now) and the result is very profitable, the bank wins. If the bank officials do something really stupid, the FDIC (or back then, the FSLIC) picks up the mess.

      Now, deposit insurance still encourages banks to make risky investments. I suppose there are a few requirements on what a bank can invest in, to keep things somewhat in line–but it clearly didn’t do much to stop the sub-prime mortgage problem.

    • I know that the US government knew quite a bit more during the S&L crisis than we saw in the papers–I was part of a group of actuaries who met with government officials, to see if we could figure out a way around the “Heads I win, tails you lose,” nature of deposit insurance on S&Ls. With deposit insurance, depositors don’t have any reason to check on the credit worthiness of the S&L. If they make a big gamble (I remember windmills was mentioned as an example back then–I suppose they are what we call wind turbines now) and the result is very profitable, the bank wins. If the bank officials do something really stupid, the FDIC (or back then, the FSLIC) picks up the mess.

      Now, deposit insurance still encourages banks to make risky investments. I suppose there are a few requirements on what a bank can invest in, to keep things somewhat in line–but it clearly didn’t do much to stop the sub-prime mortgage problem.

  23. Thank you for painting a rosy picture and reviving my hopes of a better tomorrow (not for most people living now, but for future generations and other species). But you didn´t deliver on the promises that the setup of the post induced in the reader. In the first section you wrote:

    “Birth rates can likely be reduced, through increased education of women. If there is a problem with a declining amount of resources per person, this problem can be mitigated by sharing what we have more equally. Perhaps job sharing can become more common, with each worker having part of a job.”

    But then you never got back to the birthrate-issue later on. What is you view on this matter? Do you expect birthrates to get back to pre-industrial levels a few years from now when people realize that there will be no state pensions? Do you think that the healthcare systems will deteriorate quickly enough for that part of the reason for lower birthrates to be obliterated?

    Thank you again for giving me hope, at least once a week. I mean it. Really. No sarcasm.

    • I expect that birth control will become less available, and death rates of children will go up, so women will have more children, in the hope that one or two will make it to adulthood.

      So I do expect that state healthcare systems will fall apart (perhaps because of government collapses) fairly early on. It will become clear fairly early that pensions will be tiny or unavailable, so that will be one motivation in having children. But if times are really hard, I expect families will still limit their family sizes to some extent.

      I don’t think that population will rise, regardless of birth rate. It will fall because of the limits we are reaching.

      • Jan Steinman says:

        I agree that population levels will drop, but it will have nothing to do with educating women.

        As government and social systems crumble, people will again resort to breeding their own labour force and old-age care systems.

  24. Hi Gail, I’m very curious to know more why you say renewables depend so heavliy on fossile fuels? Can’t wind turbines be constructed using electricity from for example hydropower? I understand that the shift from fossils to renewables can’t be made at the same time as we maintain or grow current GDP levels. But why can’t we see a rise of renewables after an economic adjustment (crash)?

    • wind turbines have several thousand parts in them. plus the concrete of foundations, cables and whatnot. All those parts have to be got from somewhere
      you cannot ‘build’ anything with electricity alone

      • Birmingham University [UK] is running cars on hydrogen which comes from it’s spare solar pv and in an interview the cost was comparable to, and cheaper than diesel [pump price].

        http://www.birmingham.ac.uk/research/activity/chemical-engineering/energy-chemical/fuel-cells/index.aspx

        With debate in the UK concerning a deal about the first [just one] new nuclear I read up on French nuclear power: as nuclear makes up so much production and as nuclear is not flexible they run well below efficient levels with plenty of spare power at the weekend – it would be an ideal source for a hydrogen economy. Germany is seriously researching Hydrogen as a storage medium for renewables.

        Electricity and hydrogen compliment each other and although there are storage problems [it leaks through fuel tanks] trucks, cars and planes can run on the stuff. As for shipping – small nuclear is feasible [although I am no fan] and modern ‘sails’ to supplement fuel oil have been around for decades but have never been taken up because fuel has been cheap. Metals including iron don’t consume a huge amount of coal compared to electricity production which can also be used to smelt.

        the 90s and 00s should have been the time when we developed transition technologies, when we were energy rich – instead housing became over inflated and more personal borrowing – and I think there is an issue here.

        Energy has been very cheap – 300 personal slaves worth [more for the US] – yet huge inflation has been in housing with a large amount of personal income paying rent or mortgages. If the shift where housing was cheaper to accommodate high energy and food prices, occurred then I wonder if an economic status quo could be achieved in a transition period.

        • erm—I think I said you cannot BUILD anything with electricity.
          You kinda ignored how cars get made.

          • How are cars made – each process from smelting the alloy of the engine, to welding [now glue and rivets], to plastics [oil is far more useful for materials than burning it] is manufactured with electricity as the source of power.

            Our local car parts plant made casting for gearboxes to heater matrixs – all electric foundry. The alloy cam from an electric foundry run on hydro.

            BUILD – what do you mean- am I missing an obvious?

          • Ert says:

            Considering the oil required for tires and tar for Roads alone. Roads could be build from concrete, but I do not know of how Tires could be made out of fossils (coal or oil).

            Hemp products could substitute for a lot of plastics (as Mr. Ford already has shown in the 40ties) – but I think that the level of car luxury would have to shrink. To continue 2 tonns SUVs and 30-70 microcomputers in the car (Embedded control units) does consume to much ressources – at least I think so.

            Unfortunatly I do not think that society is open for new things doing less than old things – but cost more.

          • Build buildings. Put together cars.

        • unclear wording—
          oh well
          I meant the digging up all the various materials that go into manufacturing ‘stuff’, cars or any other kind of hardware we seem to need for our life support systems.
          I made the classic mistake of thinking that was obvious

          • please indulge me -what part of manufacturing process cannot be replaced with alternatives to oil?

            Diesel machinery- the stuff that digs mines could be run on hydrogen, vegetable oil and yes, even electricity – the world’s largest mining excavator is plugged right into a [coal] power station, and having visited Big Pit, most of the machinery is electric because it for underground mining.

            Roads – sand and bacteria, tyres from rubber but even in a low carbon world oil [gas, coal] still has the more important use as a chemical feedstock.

            And in a world less dependant on oil what is left would be used for those hard to reach places like running chainsaws, and shipping.

            So please point out any process that requires oil and cannot be replaced with an alternative.

            However- as much as hydrogen is being pursued by German industry with the technology being pretty basic and the cost currently being equivalent to pump price I share the pessimism or rather your pragmatism.

            The technical issues don’t seem to be a great problem- and I disagree with Gail that it would take centuries of innovation to overcome. In the 1940s the investment of resources and brains put a nuclear bomb together within a few years -in the 60s it was a decade to land a man on the moon, in the 70s oil companies invested more than the entire Apollo program into North Sea Oil recovery. Now we have to wait 20 years just to get a highspeed railway built from London to the North.

            The biggest problem is a capitalist [and I'm not advocating communism] system that is completely inflexible in dealing with today’s issues as well a politics it was designed to serve.
            Your pessimism is possibly well founded but it comes with an acceptance of a huge amount of human suffering and environmental degradation. That to me is a disturbing head space to be in. If there is a way out of this mess it will be the techno dreamers and optimists who are going to come up with answer.

        • I think that there is zero change of an economic status quo being achieved during a transition period. These are basically pie in the sky ideas that are not in any way scalable to taking care of the masses at inexpensive costs without using oil. It is easy to imagine them on small scale, but they cannot scale up cheaply. They also need a full network of services.

    • Leo Smith says:

      What Gail is saying is that if you treble the price of energy, then the cost of renewables will go up 2.5 times..and that will make the cost of energy 7.5 times higher…its a vicious circle.

      EROI of the combined renewable/co-operation technology (required to store or balance renewable energy) is so close to unity as to make it not worth deploying at all.

      see http://www.templar.co.uk/downloads/Renewable%20Energy%20Limitations.pdf

      and http://www.templar.co.uk/downloads/Beyond_Fossil_Fuels.pdf

      The situations is not hopeless yet. the USA has coal and frackable gas and uranium. The problem is to:-

      – reverse the mindset that says they should not be deployed
      – reverse the mindset that says that growth in everything is the holy grail
      – reverse the mindset that says that expanding populations and debt are the only way to run an economy.

      We are about half a generation into these reversals. history suggests it takes one generation to reverse a trend and three to firmly establish new norms.

      In a declining population everything gets easier except economics of debt.
      – pollution falls to levels that natural processes can take care of it.
      – real estate prices fall bringing housing into the level where its affordable by everyone
      – infrastructure can collapse partially, and smaller and better replacements scaled to meet lower levels replace it.
      – inefficient (labour and land area wise) but efficient energy wise food production can replace intensive framing. Less wheat per hectare, no fertiliser at all…
      – unemployment falls along with the population.

      What happens to the debt ? well that’s an interesting thought. Who do we owe all this money to, if not ourselves? In fact what will happen is the governments collapse, default on all their welfare socials security pension and other obligations, and we are left with a lot of useless people whose employer has just gone bust..

      Answer is simple. employ the ones that aren’t utterly useless and let the rest go on the welfare that isn’t there! Or let them kill each other.

      Decline of Empire is never overnight: it takes a few hundred years, during which the influence and wealth of the citizens decline, the wolves outside get bolder, and eventually all that is left is a rotting carcase and a few institutions that stand the test of time, and with luck a legacy of a ‘golden age’.

      In the case of Europe, I expect it will be Asian controlled within two generations. And all the wishy washy liberalism will simply be swept away in some new and brutal – but effective – order.

    • Today’s hydropower is fossil fuel dependent. We couldn’t make today’s hydropower dams until coal was available to make concrete and metals; coal or other fossil fuel is also used in making transmission lines. Oil is helpful in grading and clearing the site for hydropower, and for later dredging. Maintaining hydropower requires fossil fuels, to keep up transmission lines and to make replacement parts.

      Another reason why hydropower is not an adequate substitute is the fact that it only supplies electricity. In many applications, it is oil or another fossil fuel that is needed. For example, most transportation is oil-powered. Lubrication usually uses oil. Building roads to transport renewables requires oil, because the road building equipment requires oil to run. Intense heat is required in making Solar PV panels–I expect that much of this is directly or indirectly from coal, especially in China.

      “Renewables” don’t necessarily use less fossil fuels than other approaches–they just use the fossil fuels in the initial construction of the devices, rather than burning them later on. But since it is hard to compare “fossil fuel burned in construction and in making replacement parts” with “fossil fuels burned in fossil fuel plants,” “renewables” look better to those who don’t think about too many details. The pollution from making renewables is conveniently off in China as well, rather than coming from a coal-fired power plant down the road, making “renewables” look better.

      One problem with scaling up renewables is that with the front-eneded fossil fuel use, it tends to add to CO2 emissions as they are constructed. The savings in CO2 is only theoretical, with long enough use, if fewer are added in the future, and if balancing costs aren’t too high.

      With the front-ended cost of renewables, these devices require significant financing. This also prevents scaling them up.

      • My view- in contrast- is the optimistic one [given I have offspring and expect to be around a few decades myself]- the currant system does rely on fossil fuels, of course, for one they are still cheap.

        Even in a very low carbon economy fossil fuels would still be used – to smelt steel, make concrete etc although charcoal is still a major component in manufacture. Machinery can be converted to run on hydrogen – even aircraft- and hydrogen [which has issues] makes a good carrier for spare peak electricity from nuclear and renewables. Diesel was originally designed to run on vegetable oil [although we could not grow the amount of oil we currently use]

        Roads can be made with bacteria and sand [tarsands I presume can be rolled out!].
        There is still plenty of oil for useful stuff and essential manufacturing, and gas for fertiliser, coke for smelting and enough carbon credits to avoid the 2c climate change.

        What is not available is spare fuel to overheat our homes [I'm currently designing a passive house- due to be constructed in the next 18 months with very low material requirements and running costs] there is not the spare fuel to live miles away from work, or heat an outside pool. I agree that buying home renewables is putting both money and fossil fuel use up front- but with 5% above inflation/wage-rises on fuel there is a huge amount of money to be saved. Currently UK gas/electric bills are £1400 per household p.a., spending £1000s now on passive and solar will save 10s of 1000 over 25 year period.

        Switching from fossil to alternatives is a technical problem but most things can be made from electricity even petrol. The biggest issue is people changing their attitudes

          • Ert says:

            Only to a certain degree. There is much room fir optimization, especially if we put more people in a house/home. If a person would have only 10m² (i.e. 100 square feet) – it would shrink energy requirements a lot. Unfornatly the size of housing space per person has incresed to such a degree, that the energy saving in heating per square inch was compensated.

        • Ert
          so it’s not a dream to expect everyone to downsize to a 10 x 10 box.
          I’ll mention it to our dear Queen. I really have no idea where she’s going to put her picture collection., whether that would 10ft x 1oft, 0r 10m x 10m, she’d still have a problem
          good for cardboard city dwellers tho

          • I generally welcome your comments -but the last two say diddly. So the queen [I'm a republican] has half dozen huge houses: so what. Rich people like big stuff and in a pessimistic world it will be taken off them- but that is not the point. Ert’s comment is valid- although heating a large passive house is much the same as a smaller one, it about how much material is needed for a home. You don’t actually need a 125mm concrete pad to build a house on, or brick façade, or skirting boards. The priorities should be about being close to work, not spending half your income on a mortgage, having a tiny fuel bill and eliminating the fake scarcity [planning permission restrictions] that drives land up in price the moment planning is granted.

            housing is a major expense- reduce that and even high energy bills start looking affordable, and most of that expense is speculative not inherent.

            • Jan Steinman says:

              “You don’t actually need a 125mm concrete pad to build a house on, or brick façade, or skirting boards.”

              Well, it depends on your local building inspector, no?

              Building codes are written around the status quo, and are the greatest impediment to creating affordable, low-cost, low-energy housing.

              We got a “red tag” (cease and desist order) on a WOODSHED we were building! Except for nails, it was made completely from salvaged materials or materials from on-site. We hand-charred cedar posts, and set them in holes on foundation blocks made of “urbanite,” or broken-up sidewalk. The holes were filled with river rock from a nearby stream. We were told we’d have to take the whole thing apart and pour cement foundations!

              We eventually reached a truce by cutting the 32’x8′ structure into two 8’x8′ structures, connected by poly. It looks ugly, and is arguably LESS study and safe, but passed muster. I thought building codes were supposed to be about public safety?

            • What you high light is the inflexibility of our current system- I’m in a agreement with Gail in that the economy has only one gear- can’t slow down or reverse or change direction. Planners are locked into the old system- some of which is good as it prevents slums being thrown up- however in my little corner of the world there is some acceptance that things can be done differently.

            • You are right. Building codes are a problem.

              We could probably have a lot cheaper cars too, if there weren’t so many vehicle regulations.

            • Don Stewart says:

              Dear Gail and Jan
              I happened to be reading Sepp Holzer’s Permaculture. He says that cutting grass to make hay is simply stupid and that ‘society values neatness far too much’. (The hay issue is contentious. Joel Salatin has his ‘hay feeding season’ down to 40 days or so.) But I think the basic point is that in a collapse from a high fossil-fuel consumption society to a low fossil-fuel consumption society, we are simply going to have to sacrifice a lot of middle-class morality in terms of neatness. I suspect that, in a slow decline, people will desperately hold on to their ideas about neatness as some sort of false refuge against the truth. It will be like Blanche in Streetcar Named Desire. In a collapse, it might turn out that the place to be is a hard-scrabble neighborhood with few pretensions. Stamford, Connecticut, may be a lot tougher in terms of survival.

              Don Stewart

        • Keeping the system together and operating with much less is the problem you overlook. Broken supply chains will affect what can be produced. The debt system doesn’t work with less–even a few percent shortfall makes the system stop working. It is hard to even pay workers without operating banks.

      • Thanks a lot for answering even though you get many comments!
        Just two follow-up questions.

        Do you have any further information (links, papers etc) on how much emissions construction of renewables add? When would they reach return on emissions so to say?

        And can’t we manufacture things, like making concrete, metals, trains, cars etc without fossil fuels? Can’t the heat needed be produced through electricity (from renewables) or burning biomass? And the labour of transporting materials be done by trucks on biogas, hydrogen, synthetic diesel, ethanol etc?

        Thank you!

        • fighting your way through the claims and counter claims of solar pv is arduous. My local tech centre is reasonable and cites papers is worth a visit.

          http://info.cat.org.uk/questions/pv/what-energy-and-carbon-payback-time-pv-panels-uk

          “Different studies draw different “boundaries” of what should be included in the analysis (just the manufacturing of the panels, or also the structures the panels will be mounted on, or even a share of the total personal energy consumption of every labourer involved in the process?) and make different assumptions about the operating conditions (will the PV system be installed in sunny California or in the UK?) and hence produce different results.

          In a study published by the US Department of Energy, the payback time for PV panels was estimated to be 3.5 years under Californian sunshine conditions (1,700kWh per m2 per year). As the UK receives only 700-900kWh of solar energy per m2 per year, this would indicate that it takes around 7 years for PV panels in the UK to pay back their energy cost. However, this study is based on PV modules produced before 2004. The volume of PV modules produced globally increases year after year, and increasing volumes lead to greater energy efficiency in production.

          A more recent study by researchers from the Netherlands and the USA (Fthenakis, Kim and Alsema, 2008), which analyses PV module production processes based on data from 2004-2006. They find that it takes 250kWh of electricity to produce 1m2 of crystalline silicon PV panel. Under typical UK conditions, 1m2 of PV panel will produce around 100kWh electricity per year, so it will take around 2.5 years to “pay back” the energy cost of the panel.””

          Pretty well anything can be made from electricity including petrol although hydrogen is preferred having so much energy [hence it's use in rocketry]. The issue is cost, or rather oil has been very cheap. The modern era has grown on [2011 adjusted] $30 a barrel oil which has suddenly jumped 4 fold in the last decade.

          My current question is -considering oil production has plateaued and demand outstrips supply is the global economy bumping along in the black because of debt?

          • One issue with the so-called pay-back period is that it doesn’t address the cost of intermittency.

            The savings that your electric utility gains because of your use of solar panels is only approximately equal to its fuel savings (cost of natural gas or coal), because of the intermittency issue. Its fuel savings is not very much. In the US it is about 3.0 to 3.5 cents per kWh, which is 30 to 35 dollars per mWh on the basis of the other exhibit I put up. If the utility gives you and others a break for the full retail cost of the electricity (which doesn’t make sense, because it is providing you with electrical service to your house, and access to backup power when the sun isn’t shining), then the electric company will eventually go broke–not exactly the effect you are looking for.

            Another issue with these comparisons is the fact that you have no idea as to what is “good.” Your investment is not just the solar panels, but the solar panels, the inverter (which must be replaced every few years), and the installation. You need to pay back not just the energy cost, but the entire cost of everything, within the life of the panels. If all you are really replacing is the fuel cost of the electric utility, it is hard to come anywhere close. (It may be closer in high cost electricity areas like Hawaii, though.)

            A person might think that paying back the energy cost of the panel in 2.5 years is good, but it still may equate to an EROI of 2.5 or 3.0 (which is very bad), because of all of the factors involved that are left out. Even the 2.5 years energy payback period is very understated, because it only includes the directly measurable energy costs, not those related to people’s salaries or financing.

            People tend to look at their own out of pocket costs on solar panels, after all kinds of government subsidies. On this basis, solar looks great. It needs to look great without government subsidies or fees passed on to other customers.

            • I entirely agree [and the link does recognise] issues of measuring delivers different payback periods and EROI.

              As for intermittentcy the US has the luxury of occupying lots of time zones allow hours of peak production. This is utilised a little in Europe but the potential is huge in the US.

              As for subsidies they vary from very good in Germany to good in the UK to reasonable in the US but this is compared to fossil fuels which don’t have the full cost of their exploitation built in. Assuming we do survive into a post climate change era there will be mitigation/adaptation costs.

              And the point you make about utilities providing a service [supplying back up] yet losing out to microgeneration is the most important in my view. They have had pretty well there own way [including the ability to pollute]- but just like the internet has upset the media businesses who refused to adapt, this disruptive innovation has also been an opportunity. it is a big area to discuss so I will leave the potential and problems.

              I, like most people, tend to look at pocket costs. I am lucky to have my own off grid home which is seasonal now, and now with my partner land to plan a new build.

              The off grid home has had solar [and micro hydro for winter] which has cost about £2,200, including batteries that last 10 years. It does not run heavy consumers like washing machine- but light, tv, music, pc, internet, led lights. About £200 a year for reasonable living- not luxury.

              The new build is another matter- gas has just gone up 9%, duel fuel is 8%. compared to general inflation of 3% and wages are 1-2%.

              With average households paying £1200-1400 a year for household fuel the £100 price hike has only £3 for renewables tax.

              I tried to do a compound exercise to see how much would be spent over a solar life time of 20 years with 5% inflating above the cost of living. It was an extraordinary large sum and I wondered if I got the figures right.

              What pays now is building/converting to passivehouse standards leading to around £200 lighting/heating cost and thermal solar which is £1500-£3000 upfront cost. We are planning to spend £25-30k on solar/wind/insulation/led etc as part of the up front cost on our £100k new house.

              Better to invest the money now than it sit in a bank.

        • For the economy in general, energy consumption required for a given product is roughly proportional to its unsubsidized cost of production. Admittedly some products use a relatively higher proportion of energy products than others, but this is offset to a significant extent by hidden energy consumption. Even if costs are “only” wages or interest payments, these wages and interest payments are used by the recipients of the payments to buy energy products as well. Thus, the fact that some types of renewable energy are very expensive sends up a red flag to me. If electricity costs five times as much to produce in one approach as another, it would seem likely that it takes close to five times as much fossil fuel inputs. Arguably, energy intensity can bring this down a bit–if more of the input is wages and interest payments, perhaps the ratio can come down. But it is hard to see how it can drop by more than half–5:1 becomes 2.5 to one in this example. A person can argue that the sun or wind is part of the energy inputs in the solar PV and wind turbines, but we aren’t paying for these costs. The costs we are paying for are just the concrete and steel and rare earth minerals and other inputs, and their transportation, so these are all that are included in the costs we see.

          This is one reason I have difficulty with subsidizing “renewable” energy production. If renewable energy really uses less fossil fuel energy, it will be “cheap” in terms of its total cost. (For example, a Prius is fairly cheap to drive, when all costs are included, so it does make sense.) The fact that most renewables are expensive is a red flag. This same point can be made with recycling. If recycling requires a subsidy, it likely has energy costs higher than what it is replacing. This is all related to the point that I have made that energy costs need to be cheap, if they are to keep the economy from collapsing.

          I think of renewables as being akin to acorns that a squirrel hides for winter. Both acorns and solar panels are a form of stored energy. Since the squirrel has to hide them, it likely takes more of them. That is sort of the same effect with most renewables. By subsidizing renewables, we are making certain that our country gets a disproportionate share of the acorns hidden away for a time when energy supplies are less plentiful.

          The catch with renewables added to the electric grid is that they really don’t make the electric grid last longer, as far as I can see. In fact, they can make the grid fail more quickly. One critical aspect of electricity is that it needs to be affordable, and it definitely can fail in this regard, when customers become too poor to pay for electricity, and too poor to pay government taxes. Another issue is that the electric grid needs constant repairs, and also backup fuels for when the sun isn’t shining and the wind isn’t blowing, and these generally require fossil fuels. (Solar panels can function in some other capacities for longer–for example pumping water, if they are connected to a functioning water pump.)

          When you talk about manufacturing things, you are basically talking about storing other types of (mostly expensive) acorns. Manufacturing concrete, metals, trains, and cars all take a lot of fossil fuels. So does creating, storing and transporting biogas, hydrogen, synthetic diesel, and ethanol. Biomass is in short supply. When we tried to use it for making metal in 4000 BC, we ran into deforestation problems. We have run into deforestation problems ever since when we tried to use it for very much–coal was hailed as a solution to the deforestation problems.

          For an estimate of relative costs, this schedule gives the US Energy Information Administration’s estimate of total costs, broken down by type, for different types of electricity generation for new generation in 2018. This EIA schedule shows actual costs for operation & maintenance and fuel in the recent past. To make these amount comparable to the 2018 schedule, one would have to add a depreciation component and a transmission component. Based on the 2018 forecast costs for new installations (which assumes that renewables keep getting more and more efficient), the cost for onshore wind (without taking into account intermittency issues) is 86.6. So its costs, most of which are up front, are fairly similar to electricity generation from coal (100.1) and from natural gas (65.6). For a fully depreciated coal electric plant, similar costs in 2011 were about 37.0. The figure given for offshore wind is 221.5, most of which is up front. The cost given for solar PV is 144.3. Again, this cost is mostly up front, assuming continued reduction in PV costs. (It does not reflect costs associated with mitigating intermittency.) The schedule does not indicate how long life expectancy is reflected–this is important in figuring out how the levelized capital cost translates into a lump-sum capital cost–something which is quite fossil fuel intensive.

          The paper by Weissbach et al. I mentioned in my post does try to take into account the cost of mitigating intermittency as well. It is in EROI terms, so it is harder to translate this into real costs. An energy source needs at least an EROI of 8 to “pull its own weight”–not need a subsidy, essentially from fossil fuel sources, to cover its costs. Wind and solar PV do not pull their own weighs, when intermittency costs are included. CCGT is natural gas. In this schedule, high is “good,” low is bad. This is a chart from the paper.

          Weissbach EROI comparison

          • Thanks again for the reply, both Jules and Gail.

            I’m an amateur but I really had to try and get my head around this and spent the night researching. I found this paper “Towards real energy economics: Energy policy driven by life-cycle carbon emission” http://qspace.library.queensu.ca/bitstream/1974/5436/1/EPpaperV%20preprint.pdf

            According to that paper there is, as you point out Gail, a large issue with the up-front emissions from renewables. And there is a problem with fast growth of renewables because of energy cannibalism (or emission cannibalism in this case).. However, they show how its possible to make a change to renewables AND decrease emissions with 50% until 2050. According to the authors it’s about growing the right technology at the right time and at the right pace to avoid energy and emission cannibalism. .

            I’m not sure how to judge this report.
            Would your response to that be that they haven’t included the hidden energy costs (and hidden missions) for renewables in their calculactions, such as intermittency problems?
            Or would you say they are not seeing the importance in fossile fuels to build renewables? I suppose that in their calculations they assume that for exemple new wind power plants can be made with energy from wind power.

            • There are a lot of things that the paper doesn’t quite get right.

              Tom Murphy of Do the Math (physics professor at Univ. of California, San Diego) explains the problem of replacing high EROI resources (and thus cheap in $$), with renewables with lower EROI (thus expensive) and mostly up front costs, in his post The Energy Trap. As he points out, if we use a huge amount of energy for renewables, it reduces the amount of energy we have for investment in other energy sources with a higher energy profit. We come out farther and farther behind over time. Thus, the scenario modeled in the paper isn’t really possible–it takes way too much real world resources (energy and other) to make the solar panels and wind turbines that the authors are proposing. The total energy supplies ends up going down very quickly, as in Murphy’s model.

              There are many details in the paper that are optimistic. Solar capacity factor is listed as 20%, but US solar capacity factor is more like 9%, world about 12%. Wind capacity factor is listed as 40%, but world average capacity factor in 2012 is about 23%. The information for solar PV omits installation and inverters, both of which are important in the total package. And of course they omit the problem of intermittency. The paper never considers the upfront cost of making the transition, in terms of energy or dollars.

          • And don’t you think the oil with a very high EROI will be extracted regardeless the economic situation,thus giving us resources to (theoretically) maintain the grid and construct more renewables for at least a few more decades?

            • THere is perhaps some oil left with very EROI in countries of the Middle East (although this too is disappearing). The problem is that the economies of these countries depend on very high taxes on the oil they sell. If the price goes way down, they theoretically will have enough money to extract the oil, but they won’t have enough money from taxes to adequately provide services like subsidized food and water for their people. The result may very well be political revolt, and the cut off of production. The situation will be more like Egypt and Syria, both of which are suffering from financial problems of this type.

  25. timl2k11 says:

    Dear Gail,
    I think one thing that had gone relatively unnoticed is the depressed price of natural gas. I have noticed a disconnect lately between gasoline prices and the price of crude oil. See https://www.dropbox.com/s/nyxkuldxnb225ve/Photo%20Oct%2015%2C%206%2001%2052%20AM.gif
    The price of gasoline right now seems to be quite a bit lower relative to the price of crude than it has been in the past. Because natural gas is an “input” or feedstock for oil refining and gasoline production, it would make sense for depressed natural gas prices to help bring down the price of gasoline somewhat.
    This may well provide a short term “bump” to our economy. It is the “shale gas” revolution after all. The shale oil, while increasing our oil production numbers is just too expensive.

    • timl2k11 says:

      Here is a better link to the chart that shows gasoline prices falling relative to crude:

      Maybe I can embed it:

    • These are a few things I am aware of with respect to current low natural gas and gasoline prices:

      1. Natural gas prices are depressed because of a “small” North American oversupply problem–not more than a few percent. If a company ramps up natural gas production, it doesn’t necessarily mean that customers will turn up their heat, and there is no place to put the oversupply, so prices “tank” badly. The US is still an importer of natural gas from Canada. For a while, US electricity producers were using more natural gas, but this trend has mostly shifted back to coal, because coal is again cheaper than natural gas (because natural gas prices rose a bit, but are still below the cost of production for many natural gas producers, especially shale gas producers). US natural gas production has been close to flat since the beginning of 2012.

      2. What natural gas producers have been trying to produce is “natural gas liquids,” because there is at least some chance that they can make money off of these, to offset the loss on gas prices. Some of these NGLs can be used as gasoline “extenders,” especially in the cold months of the year (because they evaporate in the warm months of the year). Natural gas liquids are cheaper than gasoline but more expensive than natural “gas”. Blenders normally add some of these NGL extenders during the cold months of the year, bringing down the cost of gasoline in the fall/winter. It may be that more of these are being blended in now in the fall than previously, helping to bring fall gasoline prices down further relative to summer prices.

      3. There are a lot of companies losing their shirts on producing shale gas/oil. To some extent, this can be covered up with creative accounting–the problem is “just” negative cash flow now and for the foreseeable future, but in the great by-and-by, there will be profits to offset this negative cash flow. Deborah Rogers has said that some large companies expect to make money by selling higher priced natural gas exports, so are willing to tolerate the loss. Other producers seem quite unhappy. This is a link to a statement by the Shell CEO, talking about its $2.1 billion impairment from shale assets, and the fact that it plans to divest these assets. Peter Vosser says he regrets Shell’s huge bet on US Shale.

      4. The profits refiners are making on producing gasoline are now depressed. (Referred to as gasoline “crack spread”. See this article.) This is likely related to low US gasoline “demand”–fewer new drivers, less vacation travel, and now layoffs of government workers, leading to build-up of gasoline inventories. Diesel has more of a world market than gasoline, so is less affected by US demand fluctuations than gasoline.

      • timl2k11 says:

        “The profits refiners are making on producing gasoline are now depressed.”
        I was wondering about that. That seemed like a likely piece of the puzzle. Thanks for the fuelfix link. That is a very informative article and seems to cover most of the myriad factors that affect gasoline prices. Interestingly there has been a 6 cent spike in average gasoline prices localized to the Tampa area over the past 2 days. It’d be nice to know what that’s all about. It may be in anticipation of the “snowbirds”. Every winter prices rise from below the national average to at or above it. South Florida sees a large influx of population in the winter as people from all over the country seek refuge from the cold. Even my grandparents who lived only as far north as Tucker, GA used to do make that yearly migration.

  26. timl2k11 says:

    Here’s a link to a blog post with a couple of ridiculous videos based on pure fantasy. The “Green revolutionaries” are in their own fantasy bubble and have no clue about reality (nor economies of scale). http://climatecrocks.com/2013/10/14/california-utilities-face-rooftop-revolution/

  27. Don Stewart says:

    Dear Gail
    I have a question relative to government debt. Some countries, including the US, have ‘recapitalized’ their banks by pushing the private debt onto the public books. Then the IMF came up with the concept of ‘bail-in’ and the depositors in banks are required to supply the money needed to keep the bank operating. I believe bail-ins are now a standard part of the repertoire in every country.

    Most recently, the IMF has floated the notion of seizing private savings to reduce government debt:
    The IMF Proposes A 10% Supertax On All Eurozone Household Savings

    http://theautomaticearth.com/index.php?option=com_content&view=article&id=451

    Poland seized some private retirement assets, I believe. And we periodically hear rumors in the US that retirement savings will be forced into government bonds.

    It has been clear for several years that there are way more promises to pay than can be paid with real assets, unless the promises are devalued through inflation.

    Do you think that the various schemes for taking private wealth and giving it to governments will work (in the sense of postponing painful physical adjustments)?

    Thanks…Don Stewart

    • Leo Smith says:

      No. It will just result in a neo-feudal neo-communist state that will collapse once that source of funding has dried up.

      You cannot live beyond your means indefinitely.

      Such measures merely ensure that when collapse comes, no one is left with the capital to restart civilisation at all.

    • Let start with the basics:

      1. Nature operates on a “cash” basis, rather than an “accrual” basis. What it is possible to pull out of the year in energy supplies basically determines the amount of goods and services that can be produced in that year. The main thing that governs how much can be pulled out is how high the price of energy products are. If they are not high enough, production will drop. If they are too high, consumers can’t afford the product, and thanks to a feed-back loop, the price of the energy products will drop as well. So it is not possible to fix the system very much through the price mechanism.

      2. When it comes to funding future expenditures, we have a large number of “investment products” (pieces of paper) that supposedly give us claims on future energy. The government’s plan in each of these cases is to take over some of these pieces of papers, so as to somehow be able to raise demand now (perhaps by issuing more of their own debt, with this as collateral). Because of the cap on what people can pay for high priced oil products before recession sets in, this aspect can’t really do very much good.

      3. The one thing that these approaches can perhaps do is prevent these countries, on paper, from exceeding ratios of debt to GDP that other countries consider acceptable. This should help keep interest rates for these countries from spiking, the way they would if debt ratios became unacceptably high. If interest rates spiked, there would be a whole series of bad effects–governments would need to raise taxes, to pay for their own higher interest rates; home and automobile purchasers would have to pay higher interest rates, cutting back demand for these products; and stock and bond prices would likely fall. These approaches can perhaps kick the can down the road a bit for a particular country. Of course, if the US defaults, that could raise interest rates world-wide, having a similar effect that the countries are trying to prevent.

      So perhaps these approaches are a bit helpful from the point of view of a particular country. I am doubtful that they do much for the world situation.

  28. ravinathan says:

    This article on Russia in the NY Times is particularly significant to this discussion because it describes the hard choices that even a surplus energy state has to make. In this case Russia has chosen to focus its infrastructure investments in the cities while letting the rural infrastructure deteriorate. Such hard choices are upon us in the US as well which explains the congressional dead lock. It is quite clear that we cannot afford the entitlement programs while reducing them risks social unrest. If we cut defense, then the energy supply lines become vulnerable and if we don’t, the budget deficits and resulting debt continue. http://www.nytimes.com/newsgraphics/2013/10/13/russia/#/?nytapp=true

    • edpell says:

      Funny how that aligns with agenda 21, pack all the people in small concrete boxes in cities. New York State has an interesting twist on this. They want to built energy super highways so they can shutdown electrical plants near NYC and instead run the 25% utilized nuclear, coal and frack-gas electrical plants in upstate New York at 100%. This allows transporting the pollution out of the city and creates a customer for the frack-gas in upstate/western New York.

      Anybody care to bet if they will complete the transmission lines before the frack-gas runs out? Truth s stranger than fiction.

    • Thanks for the link. I went to Russia in the summer of 2012, and traveled a similar path with a commercial tour. I didn’t see as much, but what I saw was consistent with what this reporter talks about. The drinking water was not safe anywhere on the trip. Prior to the fall of the Former Soviet Union in 1991, it was far better. Things like immunizations are way down.

      We visited some people’s homes. The standard of living for well-educated couples was very low compared to what we are used to in the United States. We mostly traveled by boat, but what we saw of the smaller roads outside of main cities, they were in very poor repair. We were told that people had moved from the countryside to the city to get jobs, leaving areas in the country to decay. We saw quite a few women selling small handfuls of flowers, as a way of begging.

      A big complaint we heard was that the government, “Didn’t do anything.” No matter how much a person complained, nothing happened. (This seemed even to relate to crime.) In the big cities, there didn’t seem to be much of a plan for parking. People parked on the sidewalks. There didn’t seem to be any enforcement (or perhaps any rules).

      Edit: I might add that Russia gets a big share of its tax revenue from oil and gas exports. What it really needs is higher oil and gas prices, so it can get more tax revenue–it takes pretty much the difference between what the market price is and the cost of extraction as its tax. The amount is changed each month, as the market price changes. It is one of the countries for whom market prices are already too low.

  29. edpell says:

    Gal, I enjoy your writing style and your thinking style. I had to smile on figure 2 and 3. That it the way I think about it but I image many would object to the simplicity. My friends and I have been expecting a crash since 2000. We are amazed how far the can can be kicked down the road.

    I have been mostly unemployed since 2008 (masters degree in physics from Columbia University and 25 years industrial experience). On some level I will be happy to see the system crash. On the other hand I have to remember I use electricity and food (my wife still has a job and there is still some money in the bank). I really do not want to be a farmer, 1) it is hard work, 2) New York is rocky, cold and gets little sun, 3) it would be nice if my kids had a better future than farming.

    I can see your point about the system crashing but I think we need to consider pieces and parts not just one monolithic whole. Ninety percent my indeed be at mortal risk but I think there are way above simple farming for maybe ten percent (in low population countries like the U.S.). I can image small towns growing up around easy to dig coal areas in Alaska. They use the coal locally only for themselves. They heat with it, they run small local industry production of cooking implements, house parts, bearing for horse or steam pulled rail cars, distillation of something to birn in lamps for light at night, parts for green houses, etc…

    There is also the long transition. Places with lots of solar panels will be much nicer places to life for the 40 to 80 years it takes the panels to fail. Yes, it is a form of saved up fossil fuel wealth that is used out slowly over decades. All of Germany may be one of these places.

    Yes, the system is in trouble but what happens after will be complex and unique on a place by place basis. Georgia might be a nice place after the transition. The growing season is long, not sure about rain. The winters mild, you may not think so but comparatively it is nothing. Solar panels (while they last) could be used to power limited communications (text only internet and community PC at the library).

    Any place with abundant fish has a future. Fishing is as good as farming may be better. Yes, boats made with fossil fuel will become unrepairable in 80 years then fishing will be done in smaller simpler boats. All short term and long term can be sail powered. Hydro dams will provide local communities. The distribution system may fail quickly but local communities can last 80 years or more with careful maintenance if they choose.

    Unfortunately, I expect many of these choice areas will be taken by military and or political folks looking to continue an easy life as overloads. Alas, the future may be more like the present than we want.

    • I did get complaints from one of the other Oil Drum editors that my disks were too simplistic–I should not need to illustrate anything so obvious.

      I think with respect to small pieces being able to operate on their own, I think that the problem is the interdependence that is currently built into the system. In theory, a person can go back to a system that does not require replacements parts from elsewhere to repair the electric grid, and asphalt or concrete from elsewhere to keep the roads repaired, and oil refineries from California to refine the oil. It is possible to build factories from scratch, but here again, local supplies would likely be a problem.

      In the past, the network that we are used to was built up over a long period of time, with each part dependent on prior parts. Without an intact working network, it becomes much harder to build up new industries.

      I am not convinced that hydro will last 80 years, or solar panels 40 to 80 years. For one thing, the devices that they operate will be gone before then. For anther, there will be too much repair needed. Certainly, solar panels will not be much help on the grid. They may be of some help off grid, for such uses as pumping water, if the pump still works. Backup batteries will likely be gone very early on.

      • edpell says:

        Gail, good point about the things being powered failing first. On batteries we agree they have very short life times.

      • Ert says:

        Another problem is that concrete becomes brittle – it ages from day one and at some place those concrete structures have to be replaced. This is true for bridges – and hydro-dams as the Three Gorges Dam in China. There are immense energetic investments in those dams and a lot of sand!

        And even the sand for concrete is running low in some parts of the world – it is basically not recoverable and not all types of snad can be used. So Dubai for example has to import sand, as the desert sand is to round/frictionless for concrete (the French/German TV canal “Arte” had a report on this: http://www.arte.tv/guide/de/046598-000/sand-die-neue-umweltzeitbombe – sorry, I have only a German link to source my statements)

        The deconstruction of concrete structures is highly energy-intensive. A lot of additional tooling and work-force has to be used. As our Infrastructure becomes older, a lot of there “new age” concrete infrastructure building must be replaced or simply abandoned. Lots of the stuff in the OECD is post-war and soon to be “end-of-life”. China currently does 50% of the world concrete production… and all what they build has to be replaced at some time in the future. There is no additional economic benefit in replacement… it’s not expansion… mostly only costly.

        It’s not all happening tomorrow… but the effects build up – therefore I agree with Gails thoughs. Only prediction of the exact timing is an issue ;-)

  30. tmsr says:

    So much of the current economy we can live without. Education K-college can be replace by parents/grand parents teaching their kids to read and add with little lose. All of medical except for basic stitches and broken bone setting, simple anti-biotic drugs. All prepared foods, all fashion clothes, all vacations, most jet travel, all military except may be some coast guard.

    We need water, food, electric, housing, and limited transportation. Most of the economy is not needed. Of course a 90% reduced economy would leave much less for the parasites to leech. Peak parasites?

    • sponia says:

      Peak complexity. Peak specialization. Peak diversity.
      Parasite is a loaded term; it has emotional and judgmental overtones when applied to human beings. I expect the actual maxima of things like lice, worms, and ticks is still ahead of us as we move down the slope of personal hygiene. But I am speculating, again, so take it ‘with a grain of salt’.

      • Jan Steinman says:

        “I expect the actual maxima of things like lice, worms, and ticks is still ahead of us as we move down the slope of personal hygiene.”

        On the other hand, I expect skin affliction to decline, as we stop removing our protective oils every day!

        The things you mention are readily controlled by herbal and natural remedies. But for most, that knowledge is gone. I’m growing Pyrethrum for use as a topical pesticide, and varieties of wormwood for internal parasites. Squash and pumpkin rinds also do the job — quit peeling your squash!

        Humans used to deal with these things! We’ve forgotten how. Well, most of us.

    • Security has always been a problem. It may be that you need more local security, instead of international armies.

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