Why EIA, IEA, and Randers’ 2052 Energy Forecasts are Wrong

What is the correct way to model the future course of energy and the economy? There are clearly huge amounts of oil, coal, and natural gas in the ground.  With different approaches, researchers can obtain vastly different indications. I will show that the real issue is most researchers are modeling the wrong limit.

Most researchers assume that the limit that they should be concerned with is the amount of oil, coal, and natural gas in the ground. This is the wrong limit. While in theory we will eventually hit this limit, because of the way fossil fuels are integrated into the rest of the economy, we hit financial limits much earlier. These financial limits include lack of investment capital, inability of governments to collect enough taxes to fund their programs, and widespread debt defaults.

One of the things I show in this post is that Economic Growth is a positive feedback loop that is enabled by cheap energy sources. (Economists have postulated that Economic Growth is permanent, and has no connection to energy sources.) Economic Growth turns to economic contraction as the cost of energy extraction (broadly defined) rises. It is the change in this feedback loop that leads to the financial problems mentioned above.  These effects tend to lead to collapse over a period of years (perhaps 10 or 20, we really don’t know), rather than a slow decline which is easily mitigated.

If, indeed, most analysts are concerned about the wrong limit, this has huge implications for energy policy:

1. Climate change models include way too much CO2 from fossil fuels. Lack of investment capital will bring down production of all fossil fuels in only a few years. The amounts of fossil fuels included in climate change models are based on “Demand Model” and “Hubbert Peak Model” estimates of fossil fuel consumption (described in this post), both of which tend to be far too high. This is not to say that the climate isn’t changing, and won’t continue to change. It is just that excessive fossil fuel consumption needs to move much farther down our list of problems contributing to future climate change.

2. It becomes much less clear whether high-priced replacements for fossil fuels are worthwhile. In theory, they might allow a particular economy to have electricity for a while longer after collapse, if the whole system can be kept properly repaired. Offsetting this potential benefit are several drawbacks:  (a) they make the economy with the high-priced replacements less competitive in the world marketplace, (b) they tend to run up debt, increase government spending, and decrease discretionary income of citizens, all limits we are reaching, and (c) they tend to push the economic cycle more quickly toward contraction for the country purchasing the high-priced renewables.

3. A large share of academic writing is premised on a wrong understanding of the real limits we are reaching. Since writers base their analyses on the wrong analyses of previous writers, this leads to a nearly endless supply of misleading or wrong academic papers.

This post is related to a recent post I wrote, The Real Oil Extraction Limit, and How It Affects the Downslope.

Types of Forecasting Models

There are three basic ways of making forecasts regarding future energy supply and related economic growth:

1. “Demand Based” Approaches. In this method, the analyst first decides what future GDP will be, and uses that estimate, together with past relationships, to “work backwards” to figure out how much energy supply will be needed in the future. The expected needed future energy supply is then divided up among various types of fuels, giving more of the growth to types that are favored, and less to other types. Very often, estimates of growth in energy efficiency, growth in “renewables,” and growth in the amount of GDP that can be generated with a given amount of energy supply are included in the model as well.

This method is by far the most common approach for forecasting expected future energy supply, especially at high levels of aggregation. One advantage of this method is that can provide almost any answer the analyst wants. Governments are paying for reports such as the EIA and IEA forecasts, and oil companies are paying for forecasts such as those by BP, Shell, and Exxon-Mobil. Both governments and oil companies prefer reports that say that everything will be fine for the foreseeable future. Demand Based approaches are good for producing such reports.

Another advantage of this approach is that the analysts don’t have to think about pesky details like where all of the investment capital will come from, or how large an   improvement in the ratio of GDP to energy consumption can actually occur. They can simply make assumptions and point out that the forecast won’t come true if the assumptions don’t hold.

2. “Hubbert Peak Model”. This model is based on an interpretation of what M. King Hubbert wrote (for example, Nuclear Energy and the Fossil Fuels, 1956) . The basic premise of this model is that future supply of oil, coal, or gas will tend to drop slowly after 50% (or somewhat more) of the fuel supply potentially available with current technology has been extracted.

In fact, we don’t really know how much oil or coal or natural gas will be extracted in the future–we just know how much looks like it might be extracted, if everything goes well–if there is plenty of investment capital, if the credit system works as planned, and if the government is able to collect enough tax revenue to fund all of its promises, including maintaining roads and offering benefits to the unemployed.

What most people miss is the fact that the world economy is a Complex Adaptive System, and energy supply is part of this system. If there are diminishing returns with respect to energy supply–evidenced by the rising cost of extraction and distribution–then this will affect the economy in many ways simultaneously. The limit we are reaching is not that oil (or coal or natural gas) extraction will run out; it is that economic system will at some point seize up, and rapidly contract. The Hubbert Peak Method shows how much fuel might be extracted in each future year if the economy doesn’t seize up because of financial problems. The estimate produced by the Hubbert Peak Method removes some of the upward bias of the Demand Model approach, but it still tends to give forecasts that are higher than we can really expect. 

3. Modeling How the Economy Actually Works. This approach is much more labor-intensive than the other two approaches, but is the only one that can be expected to give an answer that is in the right ballpark of being correct with respect to future economic growth and energy consumption. Of course, observing signs of oncoming collapse can also give an indication that we are nearing collapse.

The only study to date modeling how long the economy can grow without seizing up is the one documented in the 1972 book The Limits to Growth, by D. Meadows et al. This analysis has proven to be surprisingly predictive. Several analyses, including this one by Charles Hall and John Day, have shown that the world economy is fairly close to “on track” with the base scenario shown in that book (Figure 1). If the world economy continues to follow this course shown, collapse would appear to be not more than 10 or 20 years away, as can be seen from Figure 1, below.

Figure 1. Base scenario from 1972 Limits to Growth, printed using today's graphics by Charles Hall and John Day in "Revisiting Limits to Growth After Peak Oil" http://www.esf.edu/efb/hall/2009-05Hall0327.pdf

Figure 1. Base scenario from 1972 Limits to Growth, printed using today’s graphics by Charles Hall and John Day in “Revisiting Limits to Growth After Peak Oil” http://www.esf.edu/efb/hall/2009-05Hall0327.pdf

One of the findings of the 1972  Limits to Growth analysis is that lack of investment capital is expected to be a significant part of what brings the system down. (There are other issues as well, including excessive pollution and ultimately lack of food.) According to the book (p. 125):

The industrial capital stock grows to a level that requires an enormous input of resources. In the very process of that growth it depletes a large fraction of the resource reserves available. As resource prices rise and mines are depleted, more and more capital must be used for obtaining resources, leaving less to be invested for future growth. Finally investment cannot keep up with depreciation, and the industrial base collapses, taking with it the service and agricultural systems, which have become dependent on industrial inputs (such as fertilizers, pesticides, hospital laboratories, computers, and especially energy for mechanization).

Jorgen Randers’ 2052: A Global Forecast for the Next Forty Years 

In 2012, the same organization that sponsored the original Limits to Growth study sponsored a new study, commemorating the 40th anniversary of the original report. A person might expect that the new study would follow similar or updated methodology to the 1972 report, but the approach is in fact quite different. (See my post, Why I Don’t Believe Randers’ Limits to Growth Forecast to 2052.)

The model in Jorgen Randers’ 2052: A Global Forecast for the Next Forty Years appears to be a Demand Based approach that perhaps uses a Hubbert Peak Model on the fossil fuel portion of the analysis. One telling detail is the fact that Randers mentions in the Acknowledgements Section only one person who worked on the model (apart from himself). There he thanks “My old friend Ulrich Goluke, for creating the quantitative foundation (statistical data, spreadsheets, and other models) for this forecast.” Ulrich Goluke’s biography suggests that he is able to prepare a Demand Model spreadsheet. It would be hard to believe that he that he could have substituted for the team of 17 researchers who put together the original Limits to Growth analysis.

The Need to Add to the Original Limits to Growth Analysis

The original Limits to Growth analysis was primarily concerned with quantities of items such as resources, pollution, population, and food. It did not get into financial aspects to any significant extent, except where flows of resources indicated a problem–namely in providing investment capital. One thing the model did not include at all was debt.

In the sections that follow, I show a model of how some parts of the economy that weren’t specifically modeled in the 1972 study work. If the economy works in the way described, it gives some insights as to why collapse may be ahead.

Economic Growth Arises from a Favorable Feedback Loop

Economic growth seems to arise from a favorable feedback loop. While it is beyond the scope of this post to show the detail of the feedback loops, I illustrate some causal relationships in Figure 2, below.

Figure 2. Author's representation of how economic growth occurs in today's economy.

Figure 2. Author’s representation of how economic growth occurs in today’s economy.

This model above is intended to reflect the situation from, say, 1800 to 2000. The situation was somewhat different before the use of fossil fuels, when far less economic growth took place. Furthermore,  as we will see later in this post, the model changes again to reflect the impact of diminishing returns as the cost of energy production increases in recent years and in the future.

The critical variables that allow economic growth to take place are (1) cheap energy available from the ground, such as coal, oil, or natural gas–if cheap renewables were available, these would work as well (2) technology that allows us to put this cheap energy to work to make goods and services, and (3) a way to pay for the new goods and services.

Debt. In this model, debt plays a significant role. This happens because fossil fuels allow a huge “step up” in the quality of goods and services, and debt provides a way to bridge this gap. For example, with fossil fuels, we have electric light bulbs, metal machines in factories, and farm machinery, all of which vastly improve efficiency. The ability to pay for the new fuel and the new devices using the fuel, is much greater after the new devices using the fuel are put in place.  The way around this problem is simple: debt.

The use of debt becomes important at many points in the economy. Increased debt can theoretically help (a) the companies doing the energy extraction, (b) the companies building factories to create the new goods and services, and (c) the end consumers, since all of these benefit greatly from the services that cheap fossil fuels provide, and can better pay afterward than before.

Government debt, such as debt used to finance World War II, can also be used to start and maintain the cycle. John Maynard Keynes noticed this phenomenon, and recommended using an increase in government debt to stimulate the economy, if it was not growing adequately. The detail he was unaware of is the fact that the debt only works in the context of cheap energy supplies being available to make use of this debt, enabling growth.

How the Causal Relationships Work.  The loop starts with the combination of a cheap-to-exploit energy resource, technology that would use this resource, and debt that allows those would like to gain access to the resources to have the benefit of them, before they are actually able to pay cash for them.

This combination allows goods to be produced which initially may not be very cheap. Over time, new methods are tried, allowing technology to improve. Consumers are able to buy increasing amounts of goods and services, both because of their own increased productivity (enabled by fossil fuels and new technology) tends to raise their wages, and because the improving technology lowers the cost of goods. Government services are expanded as tax revenue per capita increases. Infrastructure such as roads are expanded making the economy more efficient.

In this context, profits of companies grow, allowing reinvestment. Investment is also enabled by increasing debt. This allows the cycle to start over again, with better technology and more infrastructure in place. Each time fuels are extracted, the cost of extraction tends to ramp up a notch, making the needed selling price higher. But as long as the cost of extraction remains low, the economy tends to grow, and the standard of living tends to rise.

Overview. One way of explaining the tendency toward economic growth is that a cheap-to-extract fossil rule has an extremely high return on investment. This very high return enables benefits to all: workers receive higher wages; businesses receive higher profits; and governments receive both higher tax revenue and the ability to build new roads and other infrastructure cheaply.

Another way of describing the tendency toward economic growth is to say that the value to society of the (cheap) energy product is far greater than its cost of extraction.  This difference provides a benefit which flows through to many parts of the economy. Economists do not recognize that this situation can happen, but it seems to be a major source of economic growth. 

The Spoiler: Diminishing Returns 

The problem with energy extraction is that we extract the inexpensive-to-extract energy sources first. Eventually these sources get depleted, and we need to move on to more expensive-to-extract energy sources. I illustrate this situation with a triangle that has a dotted line at the bottom.

Figure 3. Resource triangle, with dotted line indicating uncertain financial cut-off.

Figure 3. Resource triangle, with dotted line indicating uncertain financial cut-off.

Businesses start by extracting the cheapest to extract resources, found at the top of the triangle. As these resources deplete, they move on to the more expensive to extract resources, further down in the triangle. Looking downward, it always looks like there are more resources available–it is just that they are more expensive to extract. This is why reported reserves tend to increase over time, even as supplies are depleted. The limit is a financial limit, illustrated by a dotted line, which is why virtually no one can figure out when the limit will actually arrive.

One somewhat minor point: When I say, “Cheapest to extract resources,” I am referring to broadly defined costs. What businesses want is resources that produce goods and services most cheaply for the consumer. Thus, they are really concerned about cheapest total cost, considering the entire chain that goes all the way to the consumer, including refining and transportation. The costs would include energy used in extraction, labor costs, transportation costs, taxes, and the cost of debt. It probably should include the cost of mitigating pollution effects as well.

A major problem is that as the cost of energy extraction grows, the favorable gap between the cost of extraction and the benefit to society (as mentioned in the previous section) shrinks. There are many ways that this problem manifests itself in the economy. Figure 4 shows a list of such problem with respect to higher oil prices:

Figure 4. Image by author listing some of the problems created by rising oil prices.

Figure 4. Image by author listing some of the problems created by rising oil prices.

One indirect impact of these issues is that there are more layoffs and fewer new job opportunities. If we calculate average wages by taking (total US wages) and dividing by (total US population), we see that during periods of high oil prices, wages tend not to grow, as they had in periods when oil prices were lower–just as we would expect (Figure 5, below).

Figure 5. Average US wages compared to oil price, both in 2012$. US Wages are from Bureau of Labor Statistics Table 2.1, adjusted to 2012 using CPI-Urban inflation. Oil prices are Brent equivalent in 2012$, from BP’s 2013 Statistical Review of World Energy.

Figure 5. Average US wages compared to oil price, both in 2012$. US Wages are from Bureau of Labor Statistics Table 2.1, adjusted to 2012 using CPI-Urban inflation. Oil prices are Brent equivalent in 2012$, from BP’s 2013 Statistical Review of World Energy.

Another issue is that it is not just the price of oil that rises. The price of natural gas rises as well. We have not felt this in the United States, because demand has kept the price down below the price of shale gas extraction. The cost of coal, delivered to its destination, has risen because transport uses oil, and transport costs are a significant share of total costs. The cost of base metals has also risen since 2002, because oil is used in metal extraction. Food prices in general have tended to rise as well, because oil is used in production and transport of food. When wages are close to flat, and the cost of many goods are rising, workers find that their paychecks are increasingly squeezed.

While costs of making goods in the US are rising, and paychecks are stagnating, an increasing amount of goods are imported from areas around the world where energy costs  and wage costs are lower. This helps keep the cost of consumer goods down, but it makes the problem of lack of jobs for US workers worse.

With all of these things happening, the government has more and more problems with its funding. Expenditures continue to rise, but taxes flatten, as the government tries to help the economy grow by not raising taxes to match expenditures (Figure 5, below).

Figure 6. Based on Table 2.1 and Table 3.1 of Bureau of Economic Analysis data. Government spending includes Federal, State, and Local programs.

Figure 6. Based on Table 2.1 and Table 3.1 of Bureau of Economic Analysis data. Government spending includes Federal, State, and Local programs.

Government expenditures can be thought of as expenditures out of the surpluses of the economy. As indicated previously, these are to a significant extent possible because of the favorable difference between the cost of extracting fossil fuels and the benefit those fossil fuels provide to the economy. As the use of fossil fuels has grown over the years, these government services have grown. In recent years, the presence of more unemployed workers has driven a need for more government services.

Since the early 2000s, government revenues have flattened. The lack of revenue, together with the ever-rising government spending, is what is driving continued big deficits. The danger is that this difference cannot be fixed, without huge cuts to programs that people are depending on, like unemployment insurance, Social Security and Medicare.

How the Economic Growth Loop Changes to Contraction

In my view, what causes a shift to contraction is a shift to higher energy costs. With higher energy costs, there is less surplus between the cost of extraction (broadly defined) and the benefit to society. Because of the smaller surplus, the parts of the economy that use this surplus, such as government spending, must shrink. Causal relationships gradually shift from the ones shown in Figure 2 above, to the ones shown in Figure 7 below.

Figure 7. Higher energy cost leads to unfavorable feedback loop. (Illustration by author.)

Figure 7. Higher energy cost leads to unfavorable feedback loop. (Illustration by author.)

We gradually find that all the great things we had learned to enjoy–inexpensive roads and other infrastructure, cheap goods, rising wages, and rising government serves–start going away. We increasingly find consumers maxed out on debt. We also find companies (especially energy companies) reporting lower profits, so they have more trouble investing in new energy extraction. The government cannot collect enough taxes for all of its services, so finds itself needing to keep raising its own debt levels.

The government can kind of “paper over” its difficulties with growing debt levels for a while, by using Quantitative Easing (QE). QE has the effect of making the interest the US must pay on its own debt lower. It makes the cost of business investment in new plants and equipment (including shale oil drilling) cheaper. It also helps stretch the incomes of increasingly impoverished workers by allowing monthly payments on homes and cars to be lower than they would otherwise would be.

The Party Ends With a Thud 

Most readers can deduce that a shift from a growing economy to a shrinking economy is not a pleasant situation. It has all of the makings of collapse.

One of the big problems is debt defaults, as it becomes increasingly impossible to repay debt with interest. This creates conflict between borrowers and lenders. Debt defaults are also likely to cause huge problems for banks, insurance companies, and pension plans, because of the impact on their balance sheets. Some institutions may close.

To the extent new credit is cut off, the lack of credit cuts off new investment in energy extraction, in buying new cars and trucks, and in almost everything else. Such a cut-off in credit is likely to increase job layoffs and to lead to yet more defaults. Lack of investment in new energy extraction causes oil supply to fall quickly–far more quickly than standard “decline” models  would suggest.

Businesses that in the past found that they could benefit from “economies of scale” as they grew find that fixed costs stay the same, even as sales shrink. This means that they either need to raise prices to cover their higher per-unit costs, or lose money.

Governments find that they need to cut government services to balance their budgets.  Discontent grows among citizens as those who lose their benefits become very unhappy. Discord grows among political parties, because no one can agree how to cut programs equitably.

We don’t know how this will end, but we do know that the Former Soviet Union collapsed into its constituent parts when fossil fuel surpluses were reduced, prior to 1991. Egypt and Syria both have had civil unrest as their oil exports ended. Clearly very large government changes are possible, as surpluses disappear.

This list of potential impacts could be expanded endlessly, but I will spare readers from a more comprehensive list.

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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455 Responses to Why EIA, IEA, and Randers’ 2052 Energy Forecasts are Wrong

  1. Phil. says:

    You used the “collapse” word – 10 or 20 years away – ouch! Glad you at least waited till Xmas was over. Superb analysis as usual, which is why it’s so scary.

    • Paul says:

      I don’t see how this continues for another 5 years let alone 10 or even 20.

      QE has toxic side-effects including destroying the incomes of those on pensions – obviously that is an offset against growth.

      But more perniciously, QE is creating ‘fake’ growth – it is creating bubbles. As we know now, the housing bubble was almost certainly created on purpose to offset stagnant growth due to higher energy costs. And we saw how that ended – after only about 6 years.

      And now we are purposely creating far larger, far more widely spread bubbles – fracking, housing, bonds – you name it, there is a bubble. At some point one of these bubbles will run into a pin and they all blow like so many bubble dominoes.

      Because money printing and zirp are the last lines of defense and they have been tried and as expected, will fail – I suspect CONfidence in the entire system will vaporize when this next crash occurs.

      And I think Tainter’s theory on complex societies then takes over – things bust and they cannot be put back together again. A market economy is not something that can be centrally planned – there are far too many moving parts for even the smartest most organized administrators to come even remotely close to being able to fix this when it busts.

      In the immortal words of Fred Sanford: http://www.youtube.com/watch?v=stdi-1tIUhM

      • Interguru says:

        “I don’t see how this continues for another 5 years let alone 10 or even 20.”

        Stein’s Law: ” Things that can’t go on forever eventually stop”

        Two lemmas ( mine — Interguru’s Lemmas )

        1) They go on a lot longer than you think they can.
        2) They stop suddenly without warning. Even those who see it coming have no idea when.

        • xabier says:

          Interguru

          Interesting. A friend of mine who is very senior in finance in the City of London said to me that he’d crunched the numbers (he was a 1st Class Cambridge mathematician) and something big and awful was certain, ‘but I just can’t say when, it beats me.’

          Gail is, as ever, spot on in emphasising extreme financial fragility.

          Well, I’m making sure I have a well-stocked bar as well as the bags of beans and rice, as this is going to need a stiff drink if (when) it happens……

          • Paul says:

            I know a fair number of people in finance in Hong Kong and they all expect something very bad – but timing is impossible.

            I will relate a discussion with a good friend who runs a hedge fund – we went over the various problems with Japan, the EU, the US and China about a year ago and it was of course dire – but she still thought there could be a recovery – and I said but look at the numbers – there is no way out.

            Her response was – ya, but I have to have hope otherwise I won’t get up for work in the morning.

            More recently she was telling me about how many of her clients were putting big chunks of money into physical gold held in bullion banks in the region – each box holds USD6,000,000. They are also continuing to play in the markets because they cannot time the crash – but they are definitely hedging with gold.

            She herself had capitulated and felt a crash much bigger than 08 was certain.

            • Peter Marcham says:

              Paul,
              I am always puzzled why if the world descends into chaos gold would be of any use ? Unless the economy begins to normalises to a form as it is today. Surely housing, food and sources of warmth would be paramount and barter in one form or another would be of useful “stuff”?
              best Peter

            • Interesting! I am afraid we are going to see a lot of lay-offs in the first half of 2014, in advance of employer requirements for the Affordable Care Act (aka “Obamacare”). When you add that to the QE and interest rate problems it doesn’t look good.

        • timl2k11 says:

          Your lemmas match up very well with my intuition.

        • sponia says:

          Now as to the times and the epochs, brethren, you have no need of anything to be written to you.
          For you yourselves know full well that the day of the Lord will come just like a thief in the night.
          While they are saying, “Peace and safety!” then destruction will come upon them suddenly like labor pains upon a woman with child, and they will not escape.…
          – Thessalonians 5:2

        • You probably are right with your Lemmas.

    • Thanks!
      I wrote the post, partly to respond to a specific question. Sometimes posts are more pointed that way.

  2. SlowRider says:

    The most striking thing about all this: it is completely ignored by even the most intelligent people. They blame everything, but never expensive energy or overpopulation. If you start talking about it, they look as if you have said something obscene.

    • Absolutely, I spoke about this with commodities community, they look at me I am an idiot!

      • Paul says:

        I have the same issue. I try to condense it down to this:

        If your income was 1000 per month and you were paying 100 of that for gasoline and energy for your home.

        Let’s say that doubled but your income did not rise and you are now paying 200 for gasoline and energy for your home.

        (I don’t bother to get into how everything else would be more expensive too if oil prices doubled)

        You have less to spend on other things therefore you buy less. Factories lay people off – governments collect less taxes so they cut services and lay off – that further dampens demand meaning more layoffs – and you can an economic death spiral (Europe is case in point)

        Now I have used this explanation with bankers, lawyers and other educated intelligent people but they do not agree.

        It is not that they are incapable of grasping this because they are far brighter than I am.

        So I wonder what is happening here – is it that their minds shut off because they realize what this means – and it is too horrible to accept so a defense mechanism kicks in blocking it out?

        Or do they think that there will be some solution – some miracle – some new technology that will save the day?

        Then again, it could be the same dynamic at work as with smokers (for those who at least see what is happening) – maybe they think this is decades down the line – worry about it then.

        Frankly I sometimes question myself thinking ‘am over-reacting’ – but then I get a reality check by looking at various economic indicators (on the likes of Zero Hedge) to realize ‘no – I am under-reacting’

        Anyone who is uncertain of what is coming – ask yourself this – if someone had said 20 years ago that central banks were going to print literally tens of trillions of dollars – and reduce interest rates to zero – would you have thought that possible? Would you have thought that sane?

        Of course not! It is madness!!!!

        So why are smart people doing this? Do they want to blow up the economy? Certainly not.

        What do they know that is so horrible that printing money like this is the less horrible option?

        I have concluded that their Think Tanks are 100% aware of what those of us on this site are aware of – that cheap oil is over – the age of industry is over – and that there will be no soft landing nor will there be a recovery.

        I am sure they are fully aware of what is imminent – and anything they can do to delay the onset of what is coming – no matter how outrageous – no matter that it defies all rules of economics – is worth doing.

        Because collapse is coming one way or the other – printing money will not make it better or worse – but it has delayed it.

        And I see the delay as a time to prepare as best possible. Thank you Mr Bernanke!

        • Graeme says:

          People, in my experience, even intelligent and highly educated ones have a fantastic capacity for self delusion. I suppose it’s about protecting the ego or something.

          • Ag47 says:

            There is no doubt that people generally avoid disturbing information but I do not think the general public is delusional.
            There is nothing about these topics in the MSM, there are no political leaders talking about this, there is nothing about this in schools or state institutions. You have to actively seek out this information.
            Normal people including intelligent educated people care about basic things in life – they care about their children, pay the mortgage, vacation, sex and issues at their work, etc.
            People does not expect to regress to the amoeba in the near future…

            and by the way, I really do not hope “The Crash” is coming prior to August because I have booked a holiday at the Mediterranean sea with my wife and kids… :-)

          • Paul says:

            I think another factor is that we have been conditioned to believe that when faced with a problem humans can solve it. So we believe that we have everything under control and that the smart guys will sort this out – particularly if there is money to be made from a solution

            Unfortunately the reality is that there are infinite examples of problems that offer high monetary rewards for the person who can find a solution – curing baldness – turning lead into gold – etc….

          • Daniel Hood says:

            The Kübler-Ross model, commonly referred to as the five stages of grief, is a concept introduced by Elisabeth Kübler-Ross and says that someone faced with the reality of impending death or other extreme, awful fate experiences a series of emotional stages:

            1. Denial
            2. Anger
            3. Bargaining
            4. Depression
            5. Acceptance.

        • edpell says:

          People have been taught to memorize and repeat not to think. It may even be the case that few people have the ability for abstract reasoning. Either way whether it is an inability or a learned behavior people will not think out side the box, comfort zone, or existing order of things. Sorry, it is up to us and a few others.

          There is still 5000 gigatons of coal in Alaska. I know Gail think we will not be able to mobilize the capital and resources needed to tap this resource. She may be right, we have have to wait and see.

          • Pete says:

            Burning 5000 gigatons of Alaska coal would merely hasten the environmental collapse. No free lunch.

          • Paul says:

            Ever been to Shanghai? This is what it looks like quite a few days of the year:

            http://s.wsj.net/public/resources/images/BN-AR426_1206cp_M_20131205223408.jpg

            Coal ain’t the answer.

            I also think that people believe what the MSM tells them to believe.

            I actually find the MSM useful – when I read something there that means I can generally rule that version of the event out as being truthful – so it narrows things down as I go in search of the truth.

            Fracking comes to mind – most people believe we have 100 years oil because of that.

          • Transport is still pretty much oil driven. Building all of the infrastructure to extract and transport the coal will require a huge amount of oil and metals (which also require oil for extraction). I don’t think we have the oil available to extract the coal, before the whole system collapses.

            Before oil came along, there was a huge amount of “stranded coal.” I expect this to again be the case.

        • Yes, I too am happy that it has been delayed as long as it has. Not sure how much longer that can last.

        • beckyz says:

          I don’t understand why the problem is so invisible. It is happening. It’s been happening for 35 years. Anyone who came of age in the late 60s or early 70s can feel the shrinkage no matter all the compensations & the respite due to North Slope & North Sea oil. Wide vistas of opportunity are not in front of today’s high school grads. No one is making glowing predictions of all the leisure we’ll have due to automation. This ain’t the world I was promised in 1968.

    • Lindon says:

      It really is amazing, isn’t it? The ability of humans to believe what they want to believe, versus believing the facts as objectively observed, may have had a survival and adaptive benefit during our long history of evolution to the present day. But I don’t see any survival benefit in staying blind to the facts these days. I guess that not all intelligent people are perceptive — how else can we explain it?

    • richdesign says:

      It is incredible, isn’t it, that our complete and utter dependence on energy is so invisible in our society, and so completely taken for granted. Unbelievably, mainstream economics ignores both energy and debt in its models – and given that economics is our main form of oversight and foresight in our global systems, it’s not so surprising that we have been blind to crises in both.

      • Harry says:

        Add my name to the list of those puzzled by the inattentional blindness I see all around me. It often seems to me that the cleverer the individual the greater the self-delusion. When trying to convey Gail’s core arguments I’ve had responses such as, “If people want something enough they will make it happen,” and, “Africa is still incredibly resource rich,” and, “Oh, yes, there will be a collapse but not in our lifetimes…”

        It is a failure of imagination rather than a deficit in intellect, I suppose. We are most of us homo calidus and not homo sapiens, as George Mobus points out.

        • I figure I will do my best to try to do my best to explain the situation. Maybe a few will listen.

        • yt75 says:

          The way I see it, it also requires a kind of “perspective reversal” from :
          – the usual “progess” (social, technical, scientific) story line
          towards :
          – there is no “solutions”, this is only about mitigation strategies but that we are in a “cul de sac” or dead end street is simply a fact.

          And in a way, from the “whistle blowers” side, there is also the tendency quite often, to say “look at this, we must do something !”, but without really describing the something …

        • Paul says:

          I agree – I think that can be attributed to the fact that the smarter the person the more they believe in the ingenuity of man. They have this great confidence in our ability to solve almost any problem.

          Also they point to things like the green revolution and how we solved the food problem.

          Obviously we did not solve it – we made it worse – because it relies on cheap energy – oh but we will solve that problem with some other form of cheap energy they say.

          Well bring it on – I wait with baited breath. And while the messiah is at it maybe he can work out a way to fill the oceans with fish – make the reservoirs of water bottomless and free of toxins – scrub the air clean etc…..

          Where is our miracle man? Perhaps he prefers a grand entrance – wait till the very last minute – for the darkest moment – then he will magically appear and make everything better.

          Hmmmmmm…. wasn’t that a Hollywood movie script?

      • You are right–I hadn’t thought about it really being both debt and energy that they leave out.

        I suppose if economists put together their models in a different era, they might somehow come to the conclusion they were OK. But you would think that by know, they would have figured out what is going on.

    • xabier says:

      Slowrider

      Governments are damning ‘Babyboomers’ because they know radical changes are coming, and extreme ‘conservatives’ are damning ‘entitlement’ because they so hate paying for others, while the unimaginative Left just bang on about ‘global capitalism’ as usual.

      But allude to the real fundamentals, and you’re treated like a tin-hat wearer!

    • timl2k11 says:

      Cultural blind spot. I wonder how many people watching the film 2001 in 1968 thought technology would really advance that far? I wonder how many people still think it eventually will? I wonder how many people, then or today, realize we could put a man on the moon, a truly incredible achievement, because of ridiculously cheap energy?

      • Harry says:

        Most of humanity still seems to be operating under the assumption that we are yet headed for a Buck Rogers fantasy future.
        A case in point is this BBC article from yesterday, which assumes that mining asteroids for minerals is still a topic worthy of debate and academic investigation:
        http://www.bbc.co.uk/news/science-environment-25716103

        • Ive read various articles on ‘mining asteroids’
          Seems the great minds focussed on this nonsense gloss over the main problem, that all mined materials are useless without energy input of some kind.
          So if an asteroid was found to be made of solid iron for instance, it still has to be brought into a situation where the iron can be worked, as well as the heat-effort need to get there, mine it and ship it back. working iron means heat application here on Earth, and heat is the thing thats killing earth in the first place.
          Iron, like everything else, isn’t scarce (yet) the problem is getting hold of it and turning it into ‘stuff’ we need and use.
          OK so we find an asteroid of solid gold, a billion tons of it.–Whoopee–were all gonna be rich!!!
          well no……All the gold thats ever been mined is still sitting in vaults, about 130000 tons of the stuff. The illusion of It underpins the world economy, the very system that allows asteroid mining in the first place. So the world economy finances gold mining on an asteroid,, and the space miners bring back say–a million tons of it. (And they will—if they find a solid gold asteroid, theyre not going to chip little bits off it). That literally decimates the world economy that financed the expedition in the first place.
          You only have to bring back a ton of gold to start collapse, because if miners can bring back 1 ton—they can bring back 10000 tons. Its no good mounting expedietions to bring back a few pounds of anything, it costs too much.

        • Paul says:

          And what happened to Japan supposedly being able to recover energy from ice deep in the oceans – I had to laugh when I saw that.

          I wonder if that is scientifically possible – but I know that economically that is not feasible because guaranteed the amount of energy required to do that would far exceed the energy that would be recovered.

          Perhaps these stories serve a purpose – to keep people from getting to concerned over something there is nothing anybody can do anything about.

          I am surprised that given our quasi fascist world the solution is not instead to give everyone a government sponsored supply of Xanax each month – toss in a subsidy for now legal pot – and the last thing anyone would be concerned about would be the end of cheap energy

    • The press has not been giving the right story. Academics have not really understood the situation, so that they have been recycling all kinds of nonsense.

      In some ways, the story is so awful, no one wants to even look at it in detail.

      • SlowRider says:

        There is also a very common feeling among people that we can’t do anything about it, so why should we worry at all. In a way, they are right, but I prefer the view that we live in a most interesting time, and would like to understand it a little better.

        • Harry says:

          Indeed. And I can think of nothing worse than watching the world crashing down around my ears in a state of bovine ignorance.

          • Paul says:

            To a certain extent I agree – I want to know the truth.

            But I am increasingly moving to the position that there is no hedge – no way to prepare and survive (I almost never sleep poorly – but of recent the wheels are spinning well past bedtime….)

            So maybe we should envy these people and their cognitive dissonance?

            On the other hand knowing what is coming can work the other way – I am accelerating my bucket list heheh.

            • Jan Steinman says:

              “there is no hedge – no way to prepare and survive”

              I’m not so sure.

              There are certainly ways of doing better or worse.

              I think it comes down to probabilities, and those who are aware and who make even some preparations are more likely to get by that those who live paycheque to paycheque, no?

              Perhaps working on one’s “bucket list” is not the best way to prepare, though.

        • There are some people who need to know and understand, like actuaries and perhaps people in the financial arena and government.

          At the present time, we have a large number of people going around selling “Green Solutions” that aren’t solutions and aren’t very green. If nothing down, getting rid of the huge faith in the wrong salvation might be a step in reducing wasted investment. We should be thinking about what gives best long-term returns–perhaps making shovels, and teaching subsistence agriculture.

      • Paul says:

        I suppose it is a good thing that the MSM does not cover this. For many it would be as troubling as having an epiphany that there is no god.

  3. Pingback: Why EIA, IEA, and Randers’ 2052 Energy Forecasts are Wrong | Swiss Coaching Partners

  4. Lindon says:

    10 or 20 years away is a pretty safe prediction to make. But I’ve read articles that pretty convincingly make the case that the shale oil projects will play out in another two-or-so years. The “great hope” of transition to natural gas is currently being disseminated to the masses as a replacement to oil, but that is nothing but a fantasy and it will eventually be recognized as such. If indeed we do go another ten years before that ultimate “collapse”, it will be ten years of a world economy exponentially under stress, with the multi-trillion dollar deficits continuing to mushroom and unemployment running away — a proposition that a lot of smart people think is nearly impossible to endure without collapse. I try to be logical, to read constantly, to pay close attention to the facts — including those so skillfully presented by Gail in this and other articles. Logically, isn’t it true that a “big” major shock to the economy (related to energy availability and/or price especially) would send the private investors fleeing to safety, away from energy investment, and basically be the trigger that accelerates us toward that ultimate collapse? What other triggers are realistic to speculate on within the near-term future. With the economy on eggshells as it is, we’re like a herd of nervous cattle — a loud “noise” is all it would take to get the herd stampeding. A lot of people, me included, just don’t see how we can avoid a major game-changing shock to the world economy within the next couple of years, much less ten or twenty years. Monitoring the news constantly, being aware of developing trends, and being ready for anything is pretty good advice these days, I think.

    • Peter Strachan says:

      Lindon,
      You are correct. The USA will be importing as much LNG as it exports by about 2025 if I am correct.
      The energy industry is already operating under a virtual capital strike! The small to medium players find it increasingly difficult to attract risk capital and the larger players are increasingly selling assets to fund ongoing capital requirements. They look like they are making profits and report as such but take a look at successive cash flow statements and you will see that they are living on debt!

      • Lindon says:

        And it isn’t just a question of how much LNG is obtainable (at today’s or future prices). Compare EROI of LNG to conventional gas/diesel, and we end up with a large energy deficit in terms of how much LNG would be required to keep the over ONE BILLION passenger cars currently on the roads the world moving toward their destinations. That one billion was a 2010 number — with China coming to the game late, there are many more than one billion autos on the road today. What about the trillions needed to convert infrastructure to LNG, not to mention all those expensive LNG conversion kits that people will be forced to purchase and have installed. There are so many holes in the “LNG will save us” fantasy that it looks like swiss cheese — but that doesn’t stop the gullible masses from pinning their hopes on LNG. (sigh…)

        • edpell says:

          New York state released its state energy plan last week. It will use natural gas and nuclear. It predicts frack gas will double production between now and 2035. All I can do is shake my head and think how sad this all is. Maybe I will move to California they have at least some rational thought about energy planning.

        • I would compare delivered prices, including taxes, rather than EROIs. One common mistake is to assume that taxes will go away, as we switch from oil to another fuel. Roads will be even higher priced in the future. We need taxes somewhere in the system to pay for the roads. And as you say, all of the conversion expenses. If our real shortage is capital, where are all of the conversion, LNG equipment, and the like going to come from?

        • Pete says:

          Truly the only source of energy that is potentially our salvation is from the sun. The sun is the ultimate source of energy. IT created the photosynthesis that lead to all fossil fuels. If we can harness the sun in any scale-able way along with mass storage capacity, this may lead to a better outcome, albeit with far fewer human beings, well, far fewer everything.

          • Storage of solar energy is a real problem.

            Also, solar energy doesn’t replace liquid fuels. In a pinch, it is possible to make liquid fuels from coal or from natural gas (but I wouldn’t recommend doing so). Solar doesn’t get us there.

    • danny says:

      Yes 10 to 20 years would be nice! I wish we had that much time! Unfortunately through the actions of the FED we see that we don’t. They can’t stop their QE and they know it…we know it. There is no real economy today…..

    • WT de Vries says:

      Just 2 days ago (January 12th) Die Welt (German newspaper) reported on the demise of the shale gas boom in the USA: http://www.welt.de/wirtschaft/article123781286/Fracking-Boom-in-Amerika-flaut-ueberraschend-ab.html

      • It is hard to believe that shale gas will work very well anywhere. Outside the US, people don’t usually own the mineral rights, so they have no incentive to encourage production. There is a need for a lot of pipelines to rapidly declining wells. There are a lot of water needs, and heavy equipment, often in populated areas. So people often object to tracking for gas.

    • Regarding what is the trigger, in the natural gas arena, I expect that the failure of Chesapeake Energy or some of the other “big” players (none is very big) could send investors scurrying. I am not sure how far away such bankruptcies are–not too far.

      A rise in interest rates generally, would make shale oil unprofitable, and would send investors to other types of investments with better yields.

      There have been three big explosions related to shipping shale oil by rail car, if I count correctly. It is pretty clear that a big market readjustment is needed–higher liability insurance limits and rates; an extra step of stripping off the propane and butane before putting the oil in tankers, then figuring out what to do with the stripped off portion; more sturdy containers, freshly built, to transfer all of the shale oil by rail. However this works out, it will add to costs for the industry, and mean that the industry needs a higher price to make shale oil profitable. (If the limit on sending crude overseas is removed, it might help raise the price of shale oil a bit, helping to offset this effect. It also might be a way to make use of pipelines to the gulf (shipping from there) circumventing the rail shipment issues. Of course, I don’t think I would want to ship the stuff with the propane and butane still in place in a ship either.)

      Some of the companies in this arena are reaching debt limits. This by itself will cut back production. I think we have pretty much run through the sucker list (Big Oil Companies, Overseas Oil Companies).

      There are many things going wrong around the world. A big problem in Europe or Japan could indirectly transfer here, for example through higher interest rates.

      • Lindon says:

        Picture in your mind an image of BAU as a man dressed in a suit and a top hat, tip-toeing through a densely packed mine field, shuddering with fear internally at every step but trying to look as if he knows exactly what he is doing to the “well-wishers” observing his plight. That mental image of BAU is not too far from reality, IMO. One misstep, and BOOM!

      • Jan Steinman says:

        “There have been three big explosions related to shipping shale oil by rail car, if I count correctly.”

        Four?

        1) Lac Megantic

        2) Alabama

        3) North Dakota

        4) New Brunswick

        This may be outdated by the time most people read it, the way those DOT-111 cars are going up in flames.

        The most recent, in New Brunswick, stands in sharp contrast to Lac Megantic, because it was rural and hard to get to. There is no way to get fire-fighting equipment there. There is no way to get a crane in there to clear the tracks. They are purposely blowing up LNG cars to hasten being able to repair the rails. In the meantime, a major railroad route is unusable.

        Also, a coal dust train just overturned in Burnaby, BC, dumping numerous carloads of coal dust directly into a major stream, perhaps killing all the life in it.

        Like David Holmgren, I think we need to purposely kill industrial civilization before this fossil sunlight stuff kill us all! (He claims as little as 10% of everyone de-consuming to a very low energy level would crash the entire system.)

        • Lindon says:

          Jan, it breaks my heart to see what humans are doing to planet earth all in the name of stringing BAU out for a little while longer. I’ve never been a tree hugger type, but I am a lover of nature, and have a deep respect for the little rock we inhabit. To see so much poison and waste and destruction, all just to keep us limping along in our current sad state of being, is just terrible. I suspect that we’ll see a lot more of this before that collapse which is surely coming — more oil spills perhaps (probably) very large spills, more of these train explosions, more chemical waste, more ocean destruction, more nuclear issues, more fresh water depletion, and of course a LOT more CO2 in the atmosphere. If I ever appear to be “ready” or “eager” for collapse, it is only because with every day until that final collapse, we are pumping out the poison and ruining the environment for whoever may end up surviving what lies ahead.

          • Stilgar Wilcox says:

            I’m right there with you on those thoughts Lindon. Our species is at a consciousness level in which we have the brains to decimate but lack the wisdom to live in balance. So far we have been an unstoppable freight train of destruction. My hope is to survive the coming bottle-neck only so I can observe that some of the wildlife lived on. That would be a pleasurable moment if the poachers no longer have an economic benefit to destroying rare species.

            I make cabinets and had this guy called me once to ask me to build him a display pedestal for a Rare Black Sable Cat he shot in the wild, then had stuffed. He was beaming with pride and joy. I told him I thought what he had done was very wrong and hung up. How can someone think that way? But this is the dilemma of our species, that many are only interested in their own self agrondisment to the detriment of the planet.

            • I am afraid that without fossil fuels, there will be more killing of wildlife, just as there is more cutting of trees. Humans will want to save themselves, any way they can.

          • xabier says:

            Jan

            The exportation of dirty industry to China from the advanced economies, where it can pollute without limit is the great moral crime of our lifetimes. It embodies a cynicism comparable to Hitler’s plan to have the Slavs labouring as slaves for a German over-lord class, a whole Eastern Zone working in misery for the benefit of a comfortable West. The Chinese seem to be protesting now, but I can’t see how that will change anything very much.

          • Lindon says:

            Gail, it may be that without fossil fuels, humans will have a difficult time cutting trees or getting out to the places where wildlife still thrives. No gas == no chainsaws and no mechanized forest removal, and also no driving the big 4-wheel vehicles out to the wilderness. I can’t imagine armies of Americans cycling out to the local forest with their trusty axes and saws in hand, ready to do maximum damage. Any wildlife worth getting within range of populated areas will quickly die or retreat to a safer place, inaccessible to humans except for the very few hardy individuals who can make it on their feet.

            • I expect we will see people fan out, trying to find less populated areas to live int. The people who live in these areas will cut trees own, or burn them down to help farming and drive wildlife out. It won’t be visitors on bikes.

        • You may be right. I didn’t want to overstate the case. I thought that one might not have been shale oil.

        • Paul says:

          I like this guy – he lives with a native tribe in the US – and he advocates taking down our industrial society http://www.youtube.com/watch?v=hOOuGb_E86Q

          I watched the first 15 mins of the interview then stopped – and ordered the books (didn’t the full interview to spoil my reading)

  5. richdesign says:

    It’s always challenging and interesting to consider the interface between the human economy and natural resources. The Limits to Growth ‘World Model’ had more of a resource focus and only modelled the economy fairly simply, mainly in terms of capital investment feedback loops. The non-linear feedback loops were alarming enough there, but when you add in much more volatile economic aspects such as debt, it can only make the system even more sensitive.

    What intrigues me is how do money and resources interact? What is it that actually gives the money its real and practical value? You suggest that the US government can go into more debt (in the short term) to (temporarily) get around these energy related issues, but that only increases the supply of money, which is only a human-made resource allocation mechanism. You can’t eat money or burn it, so if the US temporarily recovers by getting more money, if it creates real practical improvement in people’s lives, it must also correspond to more actual access to energy and natural resources that is doing the real work behind the improvement. Where is that extra or renewed energy and resource coming from? Is it just that the resources and the human will were there all along and it’s the improved coordinating aspect of the money that gets it flowing again? Or is it that the increased money means that the US can get the resources from elsewhere by outbidding someone else and is just getting resources from elsewhere at someone else’s expense? The increase in the money must trigger something in the physical world to make a practical difference.

    So often we conflate money with the physical stuff it represents and we confuse the two. If we could perfectly and fairly allocate all human and physical resources around the world (i.e. exclude economic issues) would we still be faced with a problem? i.e. Is it ‘just’ an allocation and coordination issue, or is it a fundamental physical constraint which, with the best will in the world, will just eventually beat us, due to the sheer increasing difficulty of it?

    Based on The Limits to Growth I suspect that it’s the latter, governed by energy in versus energy out and fundamental physical laws. As they tried to point out, that process could still be managed (at least it could then) but our current dominant global coordinating method – the current economic system – serves that end very poorly. There is hope in that they also said that their models were only really valid until the point of collapse. They acknowledged that their models could never predict what might happened once our systems move well outside their current bounds. So maybe before, or as, the current system falls, something more sensible can prevail to at least direct a controlled decrease in material consumption. The analogy I like to use is of a climbing aeroplane which starts to lose power. If the pilot decides that ascent is what flying is all about and stubbornly maintains the same angle of climb, eventually the plane will stall and fall out of the sky. If however the pilot levels out or even points the nose down, they retain control, if if not altitude (i.e. present levels of consumption). How we manage that critical ‘stall’ period will be critical.

    One person who has expanded ‘Limits’-style dynamic modelling to include economic factors, especially debt, is Steve Keen. As a more open-minded economist who actually models aspects such as debt and time-delays in markets, he became famous for being able to foresee the global financial crisis as obvious. Because the traditional systems modelling tools, such as Simulink, Vissim, Vensim, Stella, etc. don’t handle the double-entry bookkeeping requirements of modelling debt, he developed (or is still developing) his own modelling system called Minsky. The best overview I’ve seen, which is very rich in explanatory and background material, is the page for his Kickstarter campaign for Minsky: http://www.kickstarter.com/projects/2123355930/minsky-reforming-economics-with-visual-monetary-mo
    You can see that he actually models economic systems as complex dynamic systems, which is very refreshing.

    Hopefully, this kind of thinking can predominate in time, so that we can avoid (or recover from) collapse and at least achieve controlled decline to allow more time to adapt and/or develop alternatives.

    • Paul says:

      I believe it was Steve Keen who initially alerted me to the problem that we are facing – if I am correct he was the economist who said our economy is like a balloon inside a steel box – that the steel box was a metaphor for energy costs – as the balloon expands it hits the box walls and deflates.

      Indeed he is one of the few who predicted the 08 crash – but he is one of perhaps a handful who attributed the crash to the increasing costs of energy.

    • timl2k11 says:

      “You suggest that the US government can go into more debt (in the short term) to (temporarily) get around these energy related issues, but that only increases the supply of money, which is only a human-made resource allocation mechanism. You can’t eat money or burn it, so if the US temporarily recovers by getting more money, if it creates real practical improvement in people’s lives, it must also correspond to more actual access to energy and natural resources that is doing the real work behind the improvement. Where is that extra or renewed energy and resource coming from? ”
      This is an interesting problem to me and I think I know the answer. QE and other central bank policies create the illusion that things are better than they really are, that we are better off than we really are, so people act as if we are better off than we really are. If people knew the true state of things, they would cut back spending and economic activity to the point that our overall economic output and activity would be much less than it is now, which would actually help create a smoother ride down, instead of the cliff we herd of sheep seem to headed off of.

      • Lindon says:

        I doubt that there is any possibility — real or theoretical — of a “smooth” ride down in this global economy. The way I see it, the monster that is the global economy MUST consume and equal or greater amount with each passing day, or it dies. How? Once private investors and regular people (the “sheep”) realize that the global economy is shrinking, that we are on a downward slope to oblivion, that all the great hopes and predicted technological feats that have been promised to them are pure lies — then TSHTF. Fear and uncertainty and distrust kick in. The herd mentality takes over. Really bad stuff starts happening which reinforces the negative prevailing attitudes, and it becomes a self-reinforcing cycle spinning us rapidly downward toward that ultimate collapse. Without hope and trust in the economy, it is toast, and so are we.

    • Thanks for your comment. I think the problem is actual resources in the ground, rather than an allocation. We need to build up a fairly elaborate system, before we can get those resources out, including schools, healthcare, government, and roads. What we are reaching is the point where we cannot maintain the whole system.

      Debt was a say of facilitating getting cheap energy resources out of the ground, so the economy could grow. The existence of debt increased the price the market could bear for the energy resource, and in that way helped allocated more manpower and other resources to its extraction. Once those cheap resources are replaced by expensive to extract energy resources, there is no possibility of such a favorable loop developing, thanks to debt. In fact, attempts at extraction are likely to be sink holes-debt will be defaulted on, not too far down the line. I expect “renewables” to have a very high default rate. Perhaps it will be called something different–change in amount the government will pay or feed-in tariff. Or maybe the replacements parts just won’t be available, so it stops working.

      Thanks for your reference to Steve Keen and his Minsky program. I have seen references to it before, and not gotten too involved. Just looking what he has shown, I am doubtful that he has modeled energy to do enough in his model. I expect that there would be a fairly steep learning curve for me to get into it. I am also not sure I have time. It might be that if I could contact Steve, and show him my work, it would give him some ideas about things he could add to his model. I have an e-mail address for him. I could try that.

      • Ert says:

        @Gail

        I have followed Keen somewhat over the years since 2009. I think he is very good in modelling and understands all the issues about debt, cycles, etc.

        But from at least all what I have read or seen from him, I do not remember the explicit role of (cheap) energy as the core enabler for the debt-supercycle (or at least energy as a main contributing factor).

        It was even a hard time for me to combine energy and economics – and the cross-dependency between them I only fully realized after I came to your site here. But It took me still some month until I “grooked” it to its full extend.

        Currently I have the feeling that even the super-sustainable-super-renewable-super-community folks do get the issue of climate change and economic activity wrong. To many people still think that we can keep somehow the status-quo… and only have to become a bit more greener… or 5 times more efficient (see “Factor Five” from Weizaecker) and somehow tax away the efficiency gains to not end up in the rebound-dilemma.

        When I look at the ongoing of TTIP (the transatlantic free trade disaster) I only see that politicians and global corporates still try to foster their existing business models and BAU – but the time is running out. Considering what I read at http://arctic-news.blogspot.de/ the developments in the Arctic and the methane problematic there is speeding up rapidly – we may not have 10 years anymore to act before non-reversable climate change effects come to effect.

        • Everyone would like to paint the problem as an easy one that we can easily solve, with a little effort. Unfortunately, it is a difficult one, that we probably can’t solve. Even if people understand this, they can’t bring themselves to tell people the truth. This is the reason for all of the endless fairy tales we hear.

          By the way, I have been corresponding with Steve Keen a bit in the last 24 hours. He was kind enough to respond to my e-mail about Minsky.

          • Ert says:

            @Gail

            Keep up the contact with Keen – you may be able to tune up your models with his view on Minsky’s financial instability hypothesis.

          • Paul says:

            Speaking of simple solutions.

            There are people in Bali who think bamboo houses are the way forward — anyone who doesn’t build with bamboo is ‘a disgrace to their grandchildren’

            The people buying these houses and putting their kids into the Green School are the same people flying business class to California 3x per year (amusing…)

            Oh how wonderful – but meanwhile China and India are building hundreds of coal plants this year alone – half of the south end of the island is being paved over and mega hotels open every month

            I just read an article that indicated even the child of someone who is ‘green’ (recycles, drives a Prius etc)…. will use at least I think it was 5x the amount of resources of each parent (think of all the electronics gadgets)

            The cognitive dissonance kicks into overdrive when I mention such things…. they don’t want to hear it.

            (and heaven forbid if I were to mention that bamboo houses last at best 10 years – so the resources going into them are in the long term, more than would go into a conventional house)

            People will believe what they want to believe – even if the facts get in the way.

            Heck I guess if it gives one peace of mind to build a bamboo house that’s fantastic – but it’s not going to change the outcome. So probably best their bubble doesn’t get burst since we’ve already baked the cake.

    • edpell says:

      Thanks for the info on modeling. I do not see why a new simulation program is needed. But I am happy someone is working on simulations.

  6. Jan Steinman says:

    “I will spare readers from a more comprehensive list.”

    Oh, come on. Tell us how you really feel. :-)

    In particular, it looks like the tight oil business is dependent on a continuous supply of Quantitative Easing, but no one is willing to say, “The emperor has no clothes!”

    • Yes, it does seem like they need a continuous supply of QE. At least the EIA brought their forecast for the 2014 growth down to 750,000 bpd. It may take a big bankruptcy, or rising interest rates, or falling prices to set of a chain of events that brings the problems to light.

  7. Tom Reis says:

    Currently read a great Book written by Taleb, which helps to understand why People since the ancient greek make false assumption about the present and future. It is Full of funny Aphorismen about our blind spots written by another Risk researcher.

  8. Peter Strachan says:

    Thanks Gail, excellent simple summary.
    Can I offer that the average wages in the USA is likely to be the sum of total wages divided by the number of working people, not the total population.
    Re natural gas: the US is actually still a net importer but now supplies about half or 32 Bcf per day of its gas from fractured shales. You are correct that a price of over US$5.50 per mmBtu is needed for most of this gas to be profitable.
    The current surplus supply was created by the momentum from the following events:-
    1. high gas prices over the 6 years up until 2008, when gas traded between US$6 and US$10/mmBtu. This prompted more exploration and created the financial drive.
    2. The evolution of horizontal drilling and fraccing technology
    3. Availability of debt and equity from Wall St to fund expansion, which was rewarding companies for going out and leasing prospective tenements

    Low gas price has been a result of weaker economic conditions that reduced consumption, despite a switch from coal to gas for power generation.

    Also, I think your analysis would benefit from a brief mention of how price and demand elasticity works with for energy and the ability to substitute by other products (eg renewable or nuclear) and reduce demand via application of technology.

    I know these things don’t change the thrust of what you say, but it strengthens your thesis. Ultimately global population rising at 80 million pa will overwhelm any attempt to reduce usage or substitute and what we see is that when the cost of energy rises beyond a certain percentage of GDP, the economy stops wanting it and slows down. (Oil demand is very inelastic below a critical price and then it becomes very elastic beyond the pain threshold)

    • I purposely used the total population in the denominator, to capture all of the folks who can’t find jobs. This is a big part of our problem.

      I am afraid I can’t put everything in one article. I have to save some for another article.

      • Peter Strachan says:

        Re wages per person: they way you calculate that number also captures the impact of rising overpopulation. There is less to go around per person, just like GDP per person I guess so it serves a purpose.

        The other thing I forgot to say about natural gas is that a lot of the shale gas is associated with oil and so is subsidised. Effectively the producers could afford to give the gas away and still recover costs per well, based on oil revenue alone.

  9. Steve Boyles says:

    Gail, Great article as always!

    If I may, I’d like to second Jan’s request for the more ” specific ” scarier stuff here in the comments.
    I’m wondering not so much about when the plants inherit the earth but the nearer term when we might still perserve our species.

    First off don’t you feel that 10 to 20 months might be more likely than 10 to 20 years?

    Secondly do you feel that in the US ( & CA) decline will begin painfully but orderly like Greece? Or will we just paper over the problem until something pushes us off a steeper more dangerous cliff?

    Looking forward to reading your and everyone’s thoughts.
    Thanks, Steve

    • Bacteria have always been the dominant species, judged by the simple criteria of being able to kill off everything else, and to maintain what they need for their own use, then discarding

    • I do think that 10 or 20 months is more likely than 10 or 20 years to inception. But the collapse will go on for some time, extending it after that date.

      I expect that there will be a lot of turmoil in the financial markets. Interest rates may rise, and debt defaults rise. These would be big problems. These might happen fairly quickly, especially if there is an attempt to taper QE.

      I see that the senate failed to advance the bill extending long term unemployment insurance. We are likely to see more and more people falling through safety nets. I suppose this would be like Greece. It some point, it seems like there might get to be riots in the streets.

      We will almost certainly get to a point where there are even more financial problems than in 2008-2009. I expect to see big banks and insurance companies fail. I don’t know how governments will deal with the issue. A cut-off in debt availability would be a big problem. There was a big cut-off in debt, back when oil prices were at their lowest in late 2008.

      I expect at some point to see the US Federal Government to disappear. That may not happen for quite a while, though. That would be easier than cutting back all of the programs. Perhaps states will group together to form new alliances. Or the breakdown may be to an even lower level than states–say Northern and Southern California.

      I am concerned about the financial health of companies in the electricity sector. If they go bankrupt, and are not replaced, we may not have electricity.

      I think replacement parts for things will become a problem in not too many years. In some cases, it may be because the suppliers are out of business. In other cases, it is because of trade problems, or countries that have broken up, and don’t have relations with other countries. Or they may not trust easy other. There may be a lack of oil to operate ships, too.

      • DaShui says:

        The senator from my state told me the federal government is working on a contingency plan to spin its functions off to the states if the dollar collapses or there is some other problem .

      • Bill S. says:

        Few people alive in the USA will survive without a functioning electric grid. As a survivor of Hurricane Katrina in Slidell, Louisiana, in a home that didn’t flood, I can assure you that nothing works without electricity today. You can’t refine or pump fuel. I read of a study done for the US government that estimated that if a Carrington event type solar storm hit today, the grid would probably be down for months or even years. They estimated that roughly 80% of the US population would have starved to death within 2 months. Think about it, how would you do anything without electricity? For a few days around here after Katrina, the cops couldn’t even communicate. Help finally came in from surrounding States. Such would not be possible without an electric grid. That stays down, and we’re dead. People will do everything humanly possible to keep the grid up. There isn’t even enough paper money for the economy to function without electronic transactions and the Internet.

        • I agree with you that everything is dependent on the electric grid.

          After one of the big hurricanes, gasoline and other refined oil products were in short supply in Atlanta, because electricity was out that was used to operate the pumps that make the refined products move through the pipeline along the Gulf Coast. I talked to someone who was involved with getting the pipeline going again. He said that they took diesel and electric generators over to the pipeline, and used them to produce electricity to get the pipeline moving again. My contact said they had armed guards with them.

  10. If collapse is 10-20 years away, this is GREAT!  That is plenty of time for us to get SUN up and running!

    We got up our Beta Version of our PEN Education Software today for debugging and ideas for improvements from the Doom Community.  Feel free to drop in and make suggestions here for courses you would like to see offered in the future.

    RE

  11. John House says:

    Thank you Gail for excellent analysis, as usual.

    I will say that I don’t share your view with respect to climate change. I think it has potentially far greater ability to lead to collapse in the short term.

    We know that since the widespread use of fossil fuels human population has grown from less than 1 billion to now more than 7.2 billion. The energy, tools, and chemicals from oil made this possible. Obviously a disruption in oil supply will affect food production. But climate, too, can lead to food disruptions.

    The world is only one growing season away from starvation. Global food stockpiles are lower now than they’ve been in recent times and are never more than one year’s worth – usually only a few months worth. During the last major drought (2012), stockpiles dropped dangerously low. Drought isn’t the only thing that can disrupt food supply – too much rain, temperatures that are too erratic, winds that are too strong, etc. If just one growing season is disrupted in both the north and south hemispheres, then widespread famine will be the result. I’ve seen this even in my own garden.

    This scenario may seem unlikely, but just casual observation of weather trends over the last few years shows that climate is changing rapidly and can change abruptly. “Climate chaos” may be a better term.

    If history is any guide, if there is widespread famine, there will be widespread war. With so many countries with nuclear weapons, they are bound to be used eventually.

    Even a limited nuclear exchange could lead to widespread collapse in every sense.

    Think for a moment about the enormous energy and resources that have gone into containing the Fukushima disaster, or for that matter Chernobyl (still requiring energy and resources to keep it contained). In nuclear war, electromagnetic pulses knocked out electronics – the grid. When the grid goes down, so do more than 400 nuclear reactors across the planet. Where will the resources and energy come from to contain those when we are trying to figure out how to feed 7.2 billion people? (Actually, probably several billion less after a nuclear exchange.)

    We’ve never seen the effects of even one uncontrolled nuclear meltdown, but I suspect that it would be devastating. What will 400+ be like?

    That’s just one possible immediate effect of climate change. So, perhaps it will play a greater role than what we may think.

    • Paul says:

      Dimitry Orlov at one point thought that life could go on after the collapse – but in his blog he has posted your concerns exactly http://cluborlov.blogspot.com/2011/03/nuclear-meltdowns-101.html

      I assume that if we have 400 nuclear plants melting down because there is chaos all around and no structure in place to shut these down – then that will be a life extinguishing event.

      A sobering thought to say the least.

      There is the distinct possibility that preparing for what is coming is futile.

      • Harry says:

        Gail Zawacki, whose blog I follow, was interested to find out more about the possible consequences of multiple meltdowns in the event of global economic failure and wrote to Federation of American Scientists. The President, Charles Ferguson, responsed:

        Dear Ms. Zawacki,

        Interesting and somewhat scary sounding scenario. I think the closest examples are the Fukushima Daiichi reactor meltdowns. Although these were not totally uncontrolled, they came close to such because of the prolonged electrical blackout and the inability for the crew at the
        plant to open valves in time to let off steam buildup. So, there were three reactor meltdowns; the most ever at any plant. This was even worst than Chernobyl because of the number of meltdowns but not as bad as Chernobyl because the Fukushima reactors had some type of
        containment although there were ruptures in their containments.

        Because about 90 percent or so of the currently operating reactors have relatively strong containment buildings around the reactors, my estimate is that in the worst case you outline in which the reactors are left alone and meltdowns occur at all of them, the containments
        would prevent massive radioactive contamination from getting into the environment at most plants although some containments would likely rupture.

        Even Fukushima was not as bad as some may think it was in terms of contamination. I was there in early October last year and saw that the area of evacuation is relatively small, about 10 km away from the plant is the greatest area of concern and there is a restricted zone up to 20 km it some places outside the plant. The contamination has raised the level of radiation for sure but not to the level of posing
        an immediate threat to health; the contamination is still considered to be in the low dose radiation level. Over many years of time, the contamination should be able to be cleaned up. Yes, this is a disaster, but it is not an existential threat to Japan or the rest of the world.

        I hope this response puts the worst case in perspective for view.

        Sincerely,
        Charles Ferguson

        Charles D. Ferguson, Ph.D.
        President
        Federation of American Scientists

      • Leo Smith says:

        Er no.

        400 nuclear power plants that scram because they lose power and after 30 days run out of diesel to maintain pumps are just 400 great big mothballed nuclear plants doing nothing.

        If no money was spent on Fukushima at all, it would not make one jot of difference to anything. Even the total collapse of all the overstocked spent fuel ponds would be little more than a minor hot spot in the vicinity.

        There are real things to fear, but nuclear power plant meltdown is not one of them.
        What scares me most is a typical modern city deprived of energy.

        90%+ population dead within weeks, and only a few not too fat and unfit to walk their way out.

        Total deaths from Chernobyl: less than 100 people. Maybe increasing to 4-5000 if no actual medical facilities available.

        Total deaths from energy collapse in a typical city: > 5million.

        • Harry says:

          I’m not sure on what basis you’re disagreeing with CF. His comments seem very far removed from some of the Fukushima-related hysteria I have seen on the web.

        • Jan Steinman says:

          “Total deaths from Chernobyl: less than 100 people.”

          To be fair, you should mention that there is a broad range associated with Chernobyl, with your number at the very bottom end, meaning 100 people directly killed in the disaster with 100% certainty.

          The problem with nuclear contamination is that it is insidious and untraceable. My high-school garage bandmate’s father was an engineer at Fermi I when it melted down. He died ten years later of leukemia, in his early 50s. The official stance is “the public was never in any danger,” and of course his death is not attributed to the meltdown, which officially, had zero casualties. Tell that to his grieving family.

          Ernest Sternglass used statistical methods to show that 400 “excess” infant deaths occurred following the Three Mile Island melt-down. Of course, none of those were counted in the casualty count (officially, zero), and yet, there are 400 more grieving mothers than should have been, according to statistics.

          A meta-analysis published by the New York Academy of Science says that close to one million deaths can be expected due to Chernobyl.

          You can claim these studies are flawed. You can say my friend’s father is just anecdotal. But please at least note that there is a huge range associated with nuclear events, and that your figures are at the absolute bottom.

          The problem of hundreds of events similar to Fukushima is not in the immediate casualties. It is in significantly raising the background radiation floor, which according to the nearly-universally-accepted “linear, no-threshold” model (LNT)†, will kill and injure millions.

          †The stodgy US National Cancer Institute accepts the LNT model unequivocally, and will tell you your additional risk of thyroid cancer due to atmospheric nuclear testing. Those who do not accept LNT are on the fringe.

        • I fully agree. Nobody defines what is a economical collapse. I hear collapse everywhere but nobody seem to know what it means. Nobody seem to understand complexity even among the doomsters.

          If there is a inflation but international trade is still working, it means goods are available but expensive. Could be manageable but with more violence and social unrest.

          if there is deflation but international trade is still working, it means goods are available but few can afford it. Could be manageable but with more violence and social unrest.

          Currencies lose all legitimacy and cannot be used for international trade. Countries like China will do better because they are producing real goods and can access oil from the middle-east easier. China is closer to Russian where Russia is a still big oil producer.

          Who suffers the most, all countries dependent on China for the goods. Countries that will suffers the most will be North america and South America.

          As long as countries are willing to work together and use currencies as a way to do international trade there will be no economical collpase. A economical collpase suppose that people stopm using money as a way to do bussiness. I doubt people will give up that easily.

          As long as internation trade works, the system will stay alive.

          • Lindon says:

            Without credit, there is no international trade. Credit is based on trust and enforceable international banking/credit agreements. All credit is based on the assumption of future growth. Future growth is enabled only by cheap (enough) fossil fuel energy inputs. Ergo: No more cheap fossil fuel energy inputs = no more growth = no more credit = no more international trade. The governments and banks can of course produce data that misleads decision-makers into believing that there is plenty of (cheap enough) fossil fuel to keep it all going — but that little trick will only work short term.

          • `I think at some point the big problem will be failing governments, so that the current currency will go away. Then there will be a lot of little “countries” with no trade agreements. In that case, very little may be traded, so very little may be available to import. Lack of operating banks may play a role as well.

        • Ert says:

          @Leo

          There where at least 400.000 liquidators at the Chernobyl cleanup present – I didn’t wanna be one of them. The medium and long-term effects are disastrous – so speaking only of 100 or some 1000 deaths is more then a “little” downplay….

        • Paul says:

          Whooaaa there…. can you provide something to support those claims?

          Keep in mind that the Fukushima plant is to a great extent a controlled meltdown because TEPCO continues to pour massive amounts of water onto the roaring hot cores (tonnes of this water are of course pouring into the Pacific – and will continue to do so for perhaps centuries – we can’t stop it now – how do we stop it when our economy is collapsed?).

          I am no nuclear engineer but surely if they stopped pouring water onto those cores there would be a very, very bad result.

          Now multiply that by 400………

          Also you have not addressed the bigger problem which are the spent fuel rods that sit in pools that require cooling water

          The REAL Fukushima Danger: Failure of Fuel Pools Could Trigger Worldwide Nuclear Radiation http://www.globalresearch.ca/the-real-fukushima-danger-failure-of-fuel-pools-could-trigger-worldwide-radiation/5349850

          Certainly the collapses of governments, famine etc… are enormous issues — but they are not likely extermination events.

          I lean towards Orlov’s stance – that 400 out of control nuclear plants will not be local problems – those are potentially life exterminators.

    • I don’t doubt climate change will play a role–I just don’t think that there will be much we can do about it, in the little time before collapse.

      One approach to try to fix climate change is to build more Nuclear. But as you point out, that doesn’t work, of climate disrupts electricity transmission. I would add that financial collapse says that we almost certainly won’t have the resources available to decommission those reactors, so nuclear is not a solution.

      Wind turbines are another approach. I expect lack of replacement parts will put them out of commission pretty quickly. Lack of helicopters and fuel for helicopters are another limiting item for wind turbines. Offshore wind turbines are especially bad for poor cost benefit ratio.

      The investment required for solar is high, likely adding a lot more added debt. Making solar panels is polluting as well as expensive. Many of the solar panels are from China, encouraging them to extract their polluting coal more quickly. It becomes just as much as imported energy expense, as if it came from Saudi Arabia. Inverters may not last long, or be replaceable in collapse.

      • edpell says:

        In my town we are fighting a new overhead transmission line. We want it put underground so we do not have to look at it. But the customers (NYC) should want it underground because underground lines have three times fewer outages. If our concern is wind, rain, ice, solar mass ejection, etc. underground solves it. The technology has advanced from my point of view it is the cheapest way to build a new transmission line. But even if it costs more it is needed to deal with the weather.

        • Putting transmission lines underground is one way of using up our scarce fuel resources, especially oil. Whether or not this helps us in the long run depends on

          (1) How adverse the effects are from diverting energy use from other projects,
          (2) The length of time (if any) putting the transmission lines underground would increase the overall transmission system, and
          (3) The availability of fuel for fixing the lines later, and the relative amount of that fuel.

          I don’t know how the calculation would work out. My guess is that we are better off leaving the transmission lines above ground. We have gotten use to the idea that we can use oil in any way we want, but we really can’t.

  12. Don Stewart says:

    Dear Gail
    I would like to focus on one phrase:
    ‘the lack of credit cuts off new investment in energy extraction’

    One of the things that I think we have learned from QE is that governments can print money and send it in favored directions. In the US, that was initially global financial institutions and in the last couple of years has been asset prices and housing. I remember David Stockman ranting about ‘high grade heroin’ being injected into the system, but what seems to have happened is things such as giant corporations taking over the ownership of rental property, pushing out the ‘mom and pop’ ownership which traditionally owned a lot of rental property. A giant corporation is provided plenty of money by the Fed, while mom and pop are not so favored. The net result is a move from broad based ownership and functioning free markets to a sort of state/corporate capitalism, which would have been called fascism in the 1930s.

    Much has been made recently of the withdrawal of foreign money from US shale drilling. Who is to say that Janet Yellen won’t decide to invest in fracking? Fracking has more ‘public interest’ tags than housing ever did. If Fracking is necessary to prevent physical collapse, then the Fed will simply print some money and purchase some contracts which will send money into fracking operations which a rational investor (or even foreigners :-)) might not think were very good risks.

    I will leave the question of ‘will the Fed’s chickens ever come home to roost?’ to more capable people than I.

    Don Stewart

    • Don Stewart says:

      Dear Gail
      I call your attention to Ugo Bardi’s post today, particularly this phrase:
      ‘Then, the energy transition is also an economic problem, since the present financial system tends to look only toward immediate profit, discounting medium and long term advantages. So, we have a policy problem in the sense that we need to allocate economic resources for the transition ‘

      Janet Yellen and the Fed could also decide that, instead of subsidizing large corporations building and buying houses, they want to subsidize investment in wind and solar. They could buy contracts or equity or debt with printed money which would have the effect of greatly multiplying investments in wind and solar.

      One justification might be that the ‘immediate profit’ barrier needs to be eliminated for the long term good of society.

      In short, if the Fed is going to print trillions of dollars, then ‘worthy causes’ are likely to line up at the trough. The Fed is most comfortable dealing with giant corporations, so, again, I would expect the trend toward corporate/state fascism to accelerate. Guys in garages need not apply.

      Don Stewart

      • I am a lot less connived than you are that wind and solar are really beneficial for the economy. I think they have very short life spans, when connected to the grid–especially wind. Replacement parts are likely to be a problem early on. When it comes to using resources efficiently, they are not doing very well. You may have seen Wiessbach et al.’s analysis in Energy, Energy intensities, EROIs, and energy payback times of electricity generating power plants. According to the abstract,

        The results show that nuclear, hydro, coal, and natural gas power systems (in this order) are one order of magnitude more effective than photovoltaics and wind power.

        • Don Stewart says:

          Dear Gail
          Maybe I am not expressing myself very well. IF oil is a bottleneck resource, then it may make sense for the government to command that it be produced. Exactly how they command it would be open. They could nationalize it, they can partner with corporations (as in fascism), or they can direct money that way (as in QE). The banks weren’t a financial good deal in 2008, either…but the government poured money into them because, I suppose, the government thought that taking money from the citizens was preferable to letting the banks fail. Europe has poured money into countries like Greece, and it doesn’t have very much to do with the potential profitability of giving money to Greece.

          My point is that IF the government sees energy as a bottleneck resource, they are likely to do something with force rather than simply stand aside and let the market decide.

          I’m not arguing that wind and solar make any sense in terms of economics, or that fracking could pay its own way in a perfect capitalist market. We haven’t had a perfect capitalist market in years, as the Fed and the legislative bodies have poured money into the places they wanted it to go.

          I think that if someone thinks that the oil companies will collapse and bring down the entire economy, they should consider what the government did with the auto companies in 2009. In short, its not necessarily about marginal costs and marginal revenues and all that other Econ 101 stuff.

          Don Stewart

          • Thats a great point Don, thanks for bringing it up.
            The future is indeed very uncertain, and will most certainly not turn out like any of us think it will, no matter how solid our analyses are. Black swans will come. The only thing we can do is try to build resilience.

          • I am having trouble understanding your question, because I see the government as not having very many powers. It can bring a bunch of companies under its umbrella, but history says that those companies become a whole lot less efficient. That doesn’t get us anywhere. That is why other countries are working in the opposite direction. Mexico is getting other companies from other countries to come in to explore for oil, because its own national company can’t afford to. So is Brazil’s. So is Iraq’s. These other companies coming in are being asked to work for peanuts, so it is not clear that the approach will really work.

            I see government ownership of oil companies as a way of soaking up excess profits of the companies, without having to go through the taxation process. When the problem is losses of the companies, what is the point? The way to fix the losses is to reduce government tax rates. That is exactly what Russia has done recently, to keep its production up. The US uses fairly high rates, some of which are fixed regardless of profitability. I quoted a total of $33.29 per barrel on Bakken oil. It is easy to fix this problem–lower the tax rate.

            Right now, the shale gas industry is run by hundreds of “mom and pop” and somewhat bigger companies. They are running up huge debt. The government could take over the operation, and add to its own debt, instead of the companies’ having to float debt on their own. That would tend to raise the interest rate on US government debt. Or the government could increase taxes, and send the country into recession.

            I don’t see QE as really doing what you are saying. Perhaps you mean that the government would use QE to buy the bonds of these companies, so they could continue to borrow, even though they had exceeded all reasonable credit limits. If the government could somehow stay afloat during all of this, that might have some benefit.

            Part of my problem is that we are dealing with a physical resources question. The extraction process is taking more and more physical resources. The diversion of these resources away from the rest of the economy is keeping the rest of the economy from growing. The government (as long as it lasts) can increase the diversion of resources toward oil and gas, but that still reduces the physical resources used in the rest of the economy.

            I see the government as sitting on the edge of viability right now. It seems like getting into a badly money-losing oil and gas business would not help this situation.

            • Don Stewart says:

              Gail
              It isn’t clear to me whether you regard, for example, Bakken oil as inherently unprofitable or, alternatively, as only unprofitable because the taxes are exorbitant. Deborah Rogers has some data which indicates, that shale in Texas is not generating enough tax revenue to fix the damage the drilling causes to the infrastructure. So we might look at several logical possibilities:
              a. Shale is not profitable at any price
              b. Shale can be profitable if taxes are lowered, and the consequence will be improved performance in the economy at large
              c. Shale is marginally profitable for oil companies, but has a negative return to society if we count in the damage to infrastructure (ignoring things such as ecological damage).

              I’m not sure which of those you side with.

              As for governments and their powers. Let me tell a little story. I saw a Dutch movie set in the winter of 1944. It was about some people in the Resistance, the near starvation which afflicted the Dutch in that hard time, and the efforts of the Nazis to wipe out the Resistance. The Resistance people monitored the few motor vehicles moving on the street by listening to the sounds they were making. The Nazi vehicles still had real gasoline, and made a sound that we would recognize as ‘normal’. The civilian vehicles were running on coal derivatives and didn’t sound right.

              One conclusion is that a government which was near collapse (the Nazis) still had the power to command a very scarce resource (real gasoline) and direct it to what they considered an essential purpose. It wasn’t a question of ‘economic profit maximization’.

              I am not a helium expert, but I recently heard some discussion about the US government helium program. There is very little helium available except from the US government. It turns out that certain industrial processes need helium as an essential input. But the government has been providing helium quite inexpensively. If helium is privatized, then the corporation which takes it over will go for maximum profit. It turns out that the people who fill baloons will buy all the helium and the industrial processes may be frozen out.

              Another example is biofuels. Biofuels compete with food. But it turns out that the richest 2 billion people on Earth have the money to divert all the cropland to biofuels to provide the fuel to run their vehicles, thus starving the remaining 5 billion.

              The conclusion is that economic priorities do not ALWAYS line up with social priorities. Governments, until they finally collapse, can direct resources in ways more consistent with their social priorities. If governments see the transport of food or the powering of tanks as an essential social goal, then they will do something like the rationing of WWII. It would be a very messy proposition, but might avoid a catastrophic collapse.

              As for the money involved. I forget the numbers, but I think the losses on shale are somewhere in the 10 billion dollar range. That is about 3 days worth of money printing. Even as ‘conservative’ a commentator as Charles Hugh Smith, in his article today, notes that the US is not captive to China because China owns a trillion dollars worth of T bills. If China redeems their T bills, the US will just print the money.

              Where I come out on this is that inability to make money on shale is not likely to result in catastrophic collapse. We have been unable to make money on biofuels, and that hasn’t resulted in catastrophic collapse. More likely, we will just see a continuation of the long downhill slide.

              But what I would really like to understand is more about how you come to the catastrophic collapse conclusion.

              Don Stewart

              Don Stewart

            • The catastrophic collapse comes from the need for rapid growth hitting a finite limit. Debt is one big piece of this. As long as debt is increasing, then this adds to wealth. Once availability of debt dries up, the lack of debt subtracts from wealth. If banks and insurance companies close, this could mean very big subtractions from wealth all at once, for a whole lot of people. If it leads to all of the grocery stores near you closing, and you don’t have a bank account any more ay how, it could be a big problem.

              I really don’t know what scenario happens, or over what particular time period, but I know that anything that can’t continue won’t. What will likely happen in different small pieces working together. A rise in interest rates, by itself, would be enough to cause a big problem. Add a few layoffs by employers who want to cut employees before they have to provide insurance through the Affordable Care Act, and that will add to it as well. Add some more layoffs related to government budget cuts. Or problems in Europe or Japan.

              We need oil for many things, from extraction oil, to repairing our current infrastructure, to building new infrastructure so the economy can grow. There really isn’t enough for all of this, and it is the shortfall that causes a collapse. One of the big things that has a tendency to collapse is government. We cannot afford our current level of government–something will eventually have to change. Without government, there is a big problem because of the lack of laws and the ability to enforce laws. This is a big reason collapse tends to be catastrophic.

              I expect wind turbines will be very short lived. They are hard to keep repaired, and need specialized parts. I don’t know about solar panels. I don’t think inverters have a long life, though. Neither produce liquid fuel.

              I really don’t have detailed information about the profitability of the Bakken. I am sure profitability varies from well to well. I am not sure that there really is any such thing as inherent profitability, because it depends on situations which change over time. In general, profitability depends on a combination of
              (a) Accurate forecasting of long term production from wells – I expect that most estimates are high. So companies are reporting more profit than actually will be the case over time.
              (b) Interest rates – current low rates are very helpful. Profitability drops as interest rates go up, when debt is used. Low interest rates also mean that some people will invest in stock, because nothing else gives a decent yield either.
              (c) Taxes – obviously make a difference. This is what countries normally reduce if they want more production. Of course, if they are desperate for revenue, they may raise them.
              (d) Other conditions being in place to operate–more credit if it is needed, available drilling rigs, water for fracking, and a whole lot of other things.
              (e) Regulations – If operators are required to collect natural gas, it may reduce profitability of oil wells, because it is expensive to put in pipelines and other infrastructure for gas when production drops quickly anyhow, and selling prices aren’t that good. Companies have been able to burn it off. If they are forced to collect it, it will make the overall profitability of the well worse.

            • Jan Steinman says:

              “I don’t know about solar panels. I don’t think inverters have a long life, though.”

              It’s the old complexity trade-off.

              The first photovoltaic cells created in Bell Labs in the 50s are still producing about 85% of full output. Newer amorphous silicon cells can decline that much in their first year.

              Now they have integrated Shottky diodes (to keep lit cells from discharging dark cells) and some even have integrated inverters. Those complications reduce service lifetime.

            • I remember a New York Times article about the high failure rate of recent PV panels. The search for ultra-cheap was leading to higher failure rates.

    • I think the direction of public investment is more in the opposite direction, as talked about in the cover article for Economist. The $9 trillion sale.

      The problem is that shale gas requires more resources in than it gets out. This has been covered up by optimistic accounting and low interest rates. The US could cut its taxes on shale gas, and make oil extraction more affordable, a step they could take before privatization. I doubt they will do that–the US government needs the money.

      • sheilach2 says:

        If the US government is so short of money, why isn’t it taxing where the money is?
        It needs to raise tariffs, raise taxes on the richest 5%, stop giving tax write offs for sending our jobs overseas, end all free trade agreements & stop fast track & the TPP. It needs to raise taxes on big, rich corporations who currently pay no taxes at all.

        But it won’t do any thing that rational.

        This government is far more interested in maintaining power & world dominance than taking care of this countries needs. It knows what’s coming & in preparing itself to do what ever it takes to remain in control including shooting us, jailing us or just cutting off our electricity in the middle of a heat wave or winter storm, that would get rid of a lot of humans it no longer needs. Robots will take over our war mongering.

        All this push for nuclear power forgets one little detail, electricity cannot power plows, cannot produce the raw material needed for most industrial production, it can power only a minor part of our transportation needs, it can’t make fertilizers, herbicides or pesticides.
        We could end up starving in our warm, lighted homes even if we have lot’s of electricity.

        • You are right. The US government listens to economists. They have all kinds of theories, at least 75% of which are wrong. But they have models which “prove” they are right, and they say things that the politicians want to hear.

    • Paul says:

      Don – I am wondering if one of the main purposes of QE/ZIRP is not to encourage fracking.

      Recall ‘Drill Baby Drill’ – at the time I was wondering what they meant by that. There was not more conventional oil to drill in the US – Alaska had been drilled for the most part.

      Now when I see the policy has shifted to the ponze (my made up word) of drilling hundreds of thousands of holes across America – that fracking was exempted from environmental laws – that there has been a concerted effort by the MSM to hype fracking…

      The only thing I see missing is the cash to finance this ponze (a ponze that collapses without cheap money).

      So was this all orchestrated by the Think Tanks?

      I wonder if those with their hands on the levers had a hand-wringing moment with one side screaming ‘this is NUTS – we are going to wreck the country to keep the machine running at best for 10 years?’ and the other side calmly warning ‘oil is 147 a barrel – and you see what is happening….. do you want to see what 200 means?’

      And the opponents of fracking huddled and discussed things in whispers — walked back to the meeting and in unison chanted ‘drill baby drill ….. drill baby DRILL …. drill BABY DRILL … DRILL BABY DRILL!!!!’

      Sadly – we are to the point where I suppose they are right – the train is running to fast for any of us to get off – or to stop it before it hits the wall – so we may as stay on for the short ride that remains

      I saw this recently : Greenland caves in to drilling, shrugging off oil spill dangers http://rt.com/news/greenland-oil-drilling-arctic-223/

      I am sure someone had a measured word with the people in command there and said it’s very nice that you’d like to have your pristine waters but unfortunately there will be nobody left to enjoy them. So it would be best if you jumped on the bandwagon and do your part – if you drill it might add a few more months to the global oil party.

      Oh – and if you don’t join – the NSA will google their files on you guys – and air a little dirty laundry. You are either with us – or you are against us.

      The global leadership knows that is at stake here – and they are doing everything they can to delay the collapse. War – theft – pollution – money printing – you name it….

      As the old saying goes – the ends justify the means.

  13. ladydog70 says:

    Gail,

    Thanks for another well argued post. Can you say a little more about what you mean by the word “collapse”? I know I could look it up but your understanding of what a collapse would look and feel like and mine or someone elses will be different.

    Thanks for your endulgence.

    • Lindon says:

      ladydog70 — While you’re waiting for Gail to respond, allow me to provide a preview of what “collapse” might “look” like. a) Just-in-time delivery of food and other products to retail outlets throughout America will stop on a dime — no more deliveries, b) Panicked people raid the supermarkets and the department stores, c) Electrical grids go down or flicker on and off, affecting water supply to millions, d) Lack of gas for automobiles means people can’t get to work, even if their place of employment is still operational, which it probably isn’t, e) Everybody everywhere realizes that they are in serious danger, panic, fear, desperation and desperate acts become the norm, f) Local law enforcement and fully armed military units fan out across America to enforce martial law. And that’s just a start.

      • I am afraid you may be right. I am less concerned about military than I am concerned about lack of any governmental security. Instead, bands of young people without jobs go around selling “protection”. Also, if you plant something in your garden, don’t expect that you will be the one to pick it. Some hungry person may come along and pick it ahead of you.

    • Leo Smith says:

      Technically Gail’s collapse is the acceleration of positive feedback towards rapidly decreasing standards of material living. ‘Exponential decay’ as it were.

      We are seeing this already: high prices and falling demand leads to excessive burdens on highly leveraged business models. How will you pay back the capital on a factory whose products no one can afford any more? who takes the hit?

      In the end we all do, We have all contributed, wittingly, willingly or not, to the construction of vast engines geared to growth, whose growth cannot bee sustained.

      THE VALUE IN THEM HAS ALREADY GONE. It just hasn’t been actualized by default.

      What collapse then looks like is I think best understood by reading Tainter: His depictions of the fall of empires make sense. Essentially the overburden of complexity that represents an efficient way to extract resource in a growth scenario simply retreats back to its core.

      Such elements of society that are not necessary for its (the central authorities) maintenance, are left to fend for themselves. The British and European de-colonialization of the post war era is typical. The cost of administering relatively unproductive assets exceeded the benefits so derived, especially in the light of rising nationalistic movements, ergo, they are left to their own devices.

      The same may be true of sectors within the industrialised countries. ‘unproductive poor;’ will simply be marginalised, if the cost of using armed security forces to control them is less than the cost of dealing with systemic poverty in sections of the populations who have, deservingly or not, nothing to contribute to the well being of the body politic and its associated cadre of production.

      Ring fence the gangs of Los Angeles, and let them fight each other to the death….

      This sort of scenario is already playing out in the Middle East. When you run out of ‘bread and circuses’ its cheaper to buy guns and ammo. weapons of mass destruction are handy because they destroy thousands of the innocent, (but needy) in one blast. In a world that cannot – for one reason or another – feed its populations, and if most of the population is not engaged in any meaningful way with assisting in maintaining the structures that do, they are truly surplus populations that will not be missed if they should happen to fall by the wayside, apart from theoretical losses in the gene pool.

      And those that are left – as in Germany post WWII – will benefit mightily from the removal of competition for resources. Hitler may have sought lebensraum for an expanding German population, but what he achieved was a reduction in population, and the ethnic cleansing that allowed a stable monoculture to develop and expand mightily to become the top nation of Western Europe. And the final wiping clean of the slate, of post WWI German debt.

      Ugly thoughts. Cynical thoughts. Heroic struggles in which young men die in large numbers, solve population problems. International struggles in which indebted countries beat their debtors and cancel their debts, work to stop exploitation of the indebted by the creditors.

      Wars which acquire resource assets but smash the populations who consider they own them, solve resource problems. Nuke China!

      Diseases which affect the poor and ill educated but are treatable for the affluent rich, reduce the head count of poor uneducated people. AIDS

      Chemical and biological weapons that kill people, but leave infrastructure undamaged, work wonders here, too.

      When the smooth processes of societal change cannot keep pace with the underlying forces that drive societies, especially when attention is deliberately diverted away from them into spurious issues, you get mathematical discontinuities instead. things fall off the edges of cliffs. In short a lot of people are going to die. One way, or another. Until human life and the skills inherent in it once more become a rare and precious thing, not just another mouth to feed. And lower complexity solutions become adequate to supply the needs of those who are left.

      The question really is, who those people are going to be, and where and when they are going to die. And who will be last man standing and what will they own, de facto, there being very little de jure beyond the assault rifle to adjudicate with.

      where it doesn’t really matter, it will be al Qaeda style brigandage. Or drug barons or yardies or mafia.

      feudal peasants and brutal overlords. Where it does matter, it will be different. IN Europe its teetering between a massive USSR style centralised undemocratic neo communism, and a rapid devolution to nation states and principalities, sometimes at the same time.

      Similar is happening to a lesser degree in the USA. The agricultural and mining states that supply the massive cities where the populations live, may declare unilateral independence. Detroit already is a ghost town. IF a federal government doesn’t seem to be any use, why have one at all? with state legislatures already in place, why not de federalise?

      Starved of tax income the federal bureaucracies that serve and expanding society, simply vanish into the general unemployment pools, leaving local agencies to maintain whatever sort of systems they can cobble together.

      That, according to Tainter, was the reality of the fall of the Roman Empire. Roman legions withdrew from regions that were uneconomic to tax, and the locals accepted that actually the barbarians represented less tax, more social order and shrugged their shoulders and carried on ‘ welcome to the new boss. Cheaper than the old boss’.

      And that the way it will I think play out in the West. government will retrench until it becomes a matter of ‘what have the Romans ever done for us?’ or rather ‘what are they currently doing for us?’ And when the answer is ‘less than we could do for ourselves’ then – as is increasingly the mood in Europe – the suggestion is’ so why are we paying them taxes then?’

      And I think that represents a binary choice in the West, between Big State oppressive neo communist style feudalism of the Left, and the natural outcome of market and other forces that is trending towards de-globalisation and de-centralisation on the grounds of overall efficiency.

      Neither will solve the problem of the gross imbalance between need to produce and ability to produce, but I suspect that the latter will win out eventually, after every other alternative has been tried. IN between its gong to be murder. Literally.

      • You are right that the value of much of our capital goods has already gone.

        I wonder whether some of the new things that are being built in the name of maintaining the status quo–offshore wind turbines for one–will have a very short life-span, and will quickly only represent more use of energy resource that have met a very quick end, because the system is too expensive and complex to maintain.

      • Paul says:

        Wow -that is pretty negative!

        Let me try to outdo you – at least in the short term I don’t think there will be any wealthy pockets that are able to survive – we will all be in an ‘LA gang’

        Larry Ellison has bought an island in Hawaii – I wonder if that’s meant to be his refuge from collapse. If so I assume he’s kitted it out pretty good – no canned food for him – he’d have herds of animals and fields of cropland. He probably would have a vault of gold as well – hoping that still had value.

        But who will protect Larry and the chose ones – perhaps he thinks he needs no protection because nobody can reach his island when fuel is not longer available – perhaps he thinks he can wait it out while the rest of the world succumbs to starvation.

        Or maybe he has a small army of SEALS on his island. Now if I am the head of that unit would I at some point come to the realization that I could snap ol Larry in two with my bare hands?

        I suspect might will rule the day. And I doubt the Jamie Dimons of this world will be any safer than the rest of us – their wealth will be worthless – they will have nothing to offer to those who would be able to protect them. The gangsters would likely rule.

        Hmmm…. that said — Jamie Dimon and Loyd Blankfein are mafia dons in $10,000 suits – so perhaps they would continue to run the show.

      • dolph says:

        I’m afraid you are right, Leo.

        It’s interesting because you seem to be the prototypical doomer, yet you hold out this hope that a nuclear renaissance can keep this thing going.

    • Harry says:

      We very nearly found out in 2008:

      Gordon Brown discussed deploying troops on Britain’s streets as news of the 2008 financial crisis became clear, an ex-Labour spin doctor has claimed.

      In extracts of a book published in the Daily Mail, Damian McBride said the former prime minister feared “anarchy” once the scale of the crisis was known.

      According to the book, Mr Brown said: “We’d have to think: do we have curfews, do we put the Army on the streets, how do we get order back?”

      Mr Brown has not yet commented.

      Mr McBride, who resigned in 2009 after he was caught planning to smear senior Conservatives, said he had a meeting with Mr Brown on the evening before he announced the part-nationalisation of UK banks in October 2008.

      Mr Brown is quoted as saying: “If the banks are shutting their doors, and the cash points aren’t working, and people go to Tesco and their cards aren’t being accepted, the whole thing will just explode.

      “If you can’t buy food or petrol or medicine for your kids, people will just start breaking the windows and helping themselves.

      “And as soon as people see that on TV, that’s the end, because everyone will think that’s OK now, that’s just what we all have to do. It’ll be anarchy. That’s what could happen tomorrow.”

      According to Mr McBride’s book, Power Trip, Mr Brown feared panic from other countries could spread to the UK.

      [From the BBC New website, 21st Sept. 2013]

      • Lindon says:

        Add to this a recent article where we learn that the British government is now ordering German-made water cannons for population control. One can only assume that TPTB are looking down the road a ways and can see what is coming. In Britain, water cannons ought to do the trick. In America, where a huge percent of the population is armed to the teeth with lethal firearms, water cannons won’t get it done, which is why we are seeing an unprecedented militarization of the local police forces. A big storm is brewing, that much is clear.

      • Armies and police forces are no different to other forms of employment except that they are legitimately armed
        They also expect wages just like the rest of us. Problem is, its the rest of us that pays those wages.
        If those wages stop, as they must when the tax base erodes to nothing, they will go self employed.
        Then you are faced with armed militias. This has happened, and is happening now in countries in a state of societal collapse

        • xabier says:

          End

          The conservative (ie Francoist) Spanish government has just introduced new legislation to enable private security firms to enjoy the same immunities and scope of action as state police – powers of pursuit and arrest, and huge fines and prison sentences if you don’t obey their directions.

          In effect, the possibility of privately-owned political militias has been created in Spain. A very ominous development.

          • hadn’t picked up on that one
            I seriously hate being right in that context

          • Robson says:

            Francoist Spanish government? Please, tell us more about the ethnic composition/demographics of the country’s population when Franco was in power as opposed to today, and what the Francoist, ‘nationalist’ government is doing to remedy the issue, and how self-rule is so important to your government as opposed to rule from the international/antinational body that the EU is.

            The truth is that it does not matter whether you have a ‘liberal/leftist’ or a ‘conservative/rightist’ government in power, they will obey the EU as other countries do, and they will try to keep themselves in power when the time comes, as other countries do.

            The “liberal” of today is not the liberal of yesterday (pre-50s). The liberal of today has absorbed Marxist criticism to the point that people use the terms interchangeably, something that was unthinkable during or before WWII. The fusion of the words is an American doing.

            The exportation of Americanism to Europe following WWII and the powerful lobby controlling American foreign policy and the political machinery, including its essential projection apparatus (movie industry and TV), together with the country’s hegemony in the West, make sure that Europe will toe the line in many of these matters. The EU must be abolished, America isolated and a Russian & German alliance born.

            Have you read Paul Craig Roberts’ “Washington Drives the World Toward War” article? http://www.paulcraigroberts.org/2013/12/14/washington-drives-world-toward-war-paul-craig-roberts/

          • Robson says:

            Correction: The liberal of today has absorbed Marxist criticism to the point that people use the terms “leftist” and “liberal” interchangeably.

            Americans fought Soviet communism, yes, but that’s just half the truth. Capitalism has triumphed over economic Marxism, but when you read the cultural writings of Trotsky and read your average “liberal” newspaper or listen to your humanities/social studies professor today, you can’t help but see the similarities.

            “Fascism is nothing but capitalist reaction” — Leon Trotsky
            (say that to the New York bankers who funded the communist revolutionaries in Russia)

            “The theory that the struggle between Bolshevism and Menshevism is a struggle for influence over an immature proletariat is not a new one. We have been encountering it since 1905 in innumerable books, pamphlets, and articles in the liberal press. Martov and Trotsky are putting before the German comrades liberal views with a Marxist coating…” — V.I. Lenin
            (exactly, Trotsky’s supporters in America, in his days, knew this all too well, and it still goes on today. His supporters, then and now, are not principled moral universalists adhering to an universal view for all, rather, they belong to a community engaged in ethnic networking and basically all that they do or say are rooted in moral particularism: what we do is good for us, and if you did what we do, it would be bad for us).

            “Leon Trotsky (Braunstein) was an East Sider [in New York City]. The forces which fostered what he stood for centered in the Kehillah and the American Jewish Committee. Both were interested in the work he set out to do – the overthrow of an established government, one of the allies of the United States in World War One. Russian Bolshevism was helped to its objective by Jewish gold from the United States – and by the ignorance and indolence of the Gentile citizens of the United States whose crimes of omission are almost as grave as those of bolshevik commission.” — Henry Ford
            (right! which brings me straight to the point: “The Israel Lobby: Nowhere to Hide” — http://www.theoccidentalobserver.net/2014/01/the-israel-lobby-nowhere-to-hide/ )

            • Jan Steinman says:

              “people use the terms “leftist” and “liberal” interchangeably.”

              Unless you’re in British Columbia, where the ruling Liberal Party is somewhere to the right of Benito Mussolini. They’ve been busy chopping up government and selling it to the lowest bidder for twelve years now.

              They must have thought that as long as they cut public health care to the bone without actually doing away with it, no one would notice. But they may have tromped on their own pecker in the past few weeks, as they raised electricity by 28%, cut ferry routes while raising rates and eliminating free off-peak sailing for seniors, and announced that the Agricultural Land Reserve was going to be moved from an independent body to the Ministry of Mines and Industry, in order to fast-track turning agricultural land into fracked natgas wells.

              Personally, I think they know what’s coming down the pike, and they want to get the gas and oil out before the financial systems crash, after which, their main political campaign contributions will go away.

        • Paul says:

          I agree – initially there may be martial law – but when those enforcing it are not getting paid (or their pay can buy nothing) they will almost certainly use their weapons to keep themselves alive

          And that will mean taking from those who have food. I am not sure hoarding will be of much use – unless you are located somewhere very remote – I used to think a small community would offer some protection – but unless everyone else in your community has bought in and put some food supplies away – then your neighbours will be coming to you – possibly with loaded guns if you are unwilling to share your meager supplies.

      • Paul says:

        I see no reason to question the veracity of that. We all know we are 3 meals from anarchy.

        Look at the recent Philippines storm – when you are hungry and thirsty you loot. I know I would. Then of course a few people do more than take food and the stampede is on.

        Heck if anyone wonders what would happen just have a look at this Black Friday video – and these people have just come from eating Mega Meals at McDonalds so imagine what they’d do if they were actually hungry! http://www.youtube.com/watch?v=1ZyCj5HNAf0

    • That is a good question. I think the Former Soviet Union is one place that has undergone partial collapse, when their central government closed up shop. Dmitry Orlov has written quite a bit about the situation there. It wasn’t as bad as the situation that we are likely to encounter, because the rest of the world was still operating, and when oil price rose again, they could at least somewhat recover.

      Government collapse is eventually part of the situation, often into smaller pieces that fight with each other. The financial system is likely to have severe problems of one kind or another, hyperinflation or deflation, or closed banks, or limited bank withdrawals. Loss of jobs is a major aspect of collapse. The standard of living drops greatly. Basic services like water treatment and electricity may be lost. It may be hard to get credit.

      There seem to be some countries now at the edge of collapse: Egypt, Syria, and probably Libya, Somalia, Greece, Cyprus, and maybe Spain. At some point, bailouts by a central authority can’t work–the part that is collapsing is too big.

    • Paul says:

      This is a rather long research paper that supports the theory that the disease is the end of cheap oil – and that the financial crisis is the symptom.

      The entire paper is fascinating – but if you just want to get an idea of what collapse looks like the author examines this is detail with the assumption that things come to a boil in the EU

      From page 56 http://www.feasta.org/wp-content/uploads/2012/06/Trade-Off1.pdf

      • Thanks for reminding us of this paper. David Korowicz has some interesting things to say. He has thought through a lot of the details of why what looks like a little change could ripple around the world to cause huge problems everywhere.

    • thunder123 says:

      Garlic aside, there is always hope but circumstances will be a lot different this time.

      • thunder123 says:

        Germany suffered 98% destruction of its cities in aerial bombing. 10 million Germans died in WWII including six million civilians. History is about to catch up with the American World Order.

  14. Don Stewart says:

    Dear Gail
    Adding to my two previous comments, I see that Herman Daly is pursuing the same sort of logic:
    ‘Suppose for a moment that GDP growth, economic growth as we gratuitously call it, entails uneconomic growth by a more comprehensive measure of costs and benefits — that GDP growth has now begun to increase counted plus uncounted costs by more than counted plus uncounted benefits, making us inclusively and collectively poorer, not richer. If that is the case, and there are good reasons to believe that it is, would it not then be reasonable to expect, along with Summers, that the natural rate of interest is negative, and that maybe the monetary rate should be too? This is hard to imagine, but it means that savers would have to pay investors (and banks) to use the funds that they have saved, rather than investors and banks paying savers for the use of their money. To keep the GDP growing sufficiently to avoid unemployment we would need a growing monetary circular flow, which would require more investment, which, in turn, would only be forthcoming if the monetary interest rate were negative (i.e., if you lost less by investing your money than by holding it). A negative interest rate “makes sense” if the goal is to keep on increasing GDP even after it has begun to make us poorer at the margin — that is after growth has already pushed us beyond the optimal scale of the macro-economy relative to the containing ecosphere, and thereby become uneconomic.’

    Janet Yellen and the Fed may decide to print money to promote ‘uneconomic’ fracking or solar and wind. Essentially, they are imposing the costs on the remaining aspects of the economy…a negative interest rate, if you will. Those who can’t be part of that project will have their assets taxed to support the project. In Europe, the IMF continues to talk about taking 10 percent of financial assets to shore up the banks. In the US, the Fed can print money and give it to favored corporations who promise to pursue approved projects (some call that fascism). Those of us who don’t get any of the money find ourselves poorer.

    Now, let’s take a giant leap of faith and assume that Obama and Yellen and other government officials are actually trying to do the right thing. As they desperately search for answers which are not being supplied by PhD Economists, they stumble on your blog. You convince them pretty quickly that financial failure in the oil industry means catastrophic collapse for the broader economy. They recollect the Auto industry in 2009, and what they think has been a wonderful victory in terms of government intervention, and so the thought pops into their heads ‘we’ll just let the broad base of citizens subsidize the oil industry by taking a fraction of their assets’. (Same logic with wind and solar.). The result would, they hope, be a gradual decline…but not a catastrophic collapse. So Europe saves their banks and the US saves its oil business?

    Don Stewart

    • I think all that the government would have to do is reduce its tax rates, to save the US oil industry. I think that is what Russia has done recently, to increase production. Canada keeps its rates lower, to prop up the Oil Sands industry.

      According to Barry Rodgers, in an article called North American Tight Oil Cost Comparison, the average “Government Take” per North Dakota barrel of oil is $33.29. If that were cut in half, it would help a whole lot. That includes taxes of various kinds, some local or state.

      • Don Stewart says:

        Dear Gail
        I want to make sure I understand your position:
        1. Our current economic stagnation is a result of oil being higher priced than we can afford.
        2. Taxes specific to oil are a large share of that price.
        3. If those taxes were reduced, then oil would be affordable again.
        4. Our economy would begin to grow again.

        or perhaps, considering that we are an oil importer
        3. If US and state taxes were reduced, then shale oil will continue to be profitable for some years into the future
        4. The US will get an economic boost as imports continue to fall.

        or
        3. As Deborah Rogers has shown, shale costs exceed the local taxes collected. Therefore, shale is already a drag on the economy, as costs are forced onto other goods and services. Reducing taxes further just increases the drag on the rest of the economy.

        or ????

        Do you understand my confusion? Can you help?
        Don Stewart

        • If government taxes were reduced, oil companies would be profitable again, so they could continue to extract, even at a lower sales price for oil. This would move the problem of the low prices over to the government side–low taxes to fund its other programs, and to pay for the damage that the extraction does, and the need for new roads, schools, etc. The government would need to raise taxes to make up for the loss of tax revenue from oil and gas, so the problem would be moved to a different sector. It would help the government fail more quickly. Or higher taxes would send the economy into recession just as higher oil prices would.

    • SlowRider says:

      I liked your last comments, they helped me to get my head around some things. It’s all about keeping things together, while more and more holes are appearing everywhere. But nobody dares to admit we are on a downslope, because the whole model of “investment” into the future stops to make sense then.

  15. Paulo says:

    Good morning,

    My strategy for reading Gail’s post is to first quickly skim, read the comments, then go back and reread the entire article. Sometimes I compare the graphs and put words to the shapes/trends. Today was a sobering experience and I fear I will mull over the ideas off and on for days.

    We have self-selected to a forum of mostly like-minded folks, or we wouldn’t be here. I too, like most of you simply do not understand why this economy keeps soldiering on? For a few years I simply shrugged and concluded that a catabolic collapse is in the works and is the likliest scenario going forward. Today, I am not so sure. I am not so sure because so much is tied to this rampaging phony stock market. I won’t reiterate the causes for its unrealistic heights and values, or pretend to understand it beyond knowing it is a bubble and due for a pop. But I will say this. It is all that is left of a hollowed-out automated industrial society and when it does pop I think it will shake to the core of even the most accepting and uninformed of the population. Many have come to the realization that they don’t really need any more ‘stuff’…..products made through automated processes or by virtual slave labour. Sales are dropping at every holiday induced buying window, and then the headlines talk about something else for awhile. Many simply cannot afford to buy much more. And many are consciously limiting their purchases for personal reasons. Is there anyone left who actually believe a lexus will make you new again? Is there a reason to upgrade a phone? Regardless, the mantra is “but obviously the economy is improving….just look at the stock market” “Sure, unemployment is not rebounding in this ‘recovery’, but just look at the stock market” And my all time CNN favourite mouthed by Christine Romans, “Those of you with 401s are happy today, just look at the stock numbers”. What happens when it pops?

    When it pops we will still have 15-20% unemployment. We will still have a generation of indebted over-educated graduates. We will still have an industrial base shipped overseas by the Mitt Romney’s of the world. We will still have a criminal class running the banking system. We will still have a lying ineffective Government, (regardless of your country of residence). We will still have declining energy sources and the inherent restraints so well discussed in this post and others. We will still have too many minorities in a privatized jail system, incarcerated for petty drug crimes or for their inevitable self; considering where they were raised and by who?

    When this market tanks, at first they will talk about a ‘necessary correction’ and a logical ‘taking some profits off the table’. But if it turns into a rout and freefall, God help us all because there will be nothing left to talk about or pretend any longer. I can see things getting out of control in a matter of days under these circumstances. One thing will to lead to another and if gas lines form or even a few bank machines run out, the speed of social media might amplify and cascade simple inevitable stumbles into wide spread civil unrest. Hoarding?

    I will always remember the mixer truck driver turning down the wrong street in the Rodney King melee. Do you remember the news clip showing him dragged out of his truck and stomped to pieces? In that case the stresses were building for years, and I won’t go into the details. But are the current financial stresses that are building and bulging any less of a threat? If the ‘market’ is all that is left of this economy, and if watching it fail is watching the last myth unravel, what is left beyond anger and despair when there is no apparent future to work and live for? Will out of work students stop paying their student loan interest? Will taxes go unpaid? Will the underground economy increase? Or, will it be all of the above and then some?

    Fiat currency and ‘faith’ in the market/future is all about trust. I am 58 and have been watching the trust in all institutions fade from the Viet Nam war, onward. (Lies about this and that, alliances and invasions for corporate gain, the supporting of despotic rulers if it suits powerful insiders, the dysfunction of Govt, and you can keep your health care policy if you choose to do so.) I don’t know about you folks but I am left with trusting my family and friends, and that’s about all these days. Everything is in overreach these days…the market, program promises, education, climate stability, everything. When we cannot even count on the ‘seasons’ to unfold with regularity in a dependable fashion, it is debatable whether we can count on any stability, whatsoever.

    I think we are teetering and that we are at a pivot point in most things. Now, off to the shop and finish that new table!!

    Paulo

    • Paulo, You are right about the rising stock market helping cover up the real problem. Rising home prices are as well.

      The value really isn’t there, so at some point stock markets have to fall. Rising interest rates could also push stock prices down –at the same time they push bond prices down, and the cost of buying anything on credit up.

      I am afraid “interesting” times are ahead.

      • danny says:

        What about in an inflationary dilemma could that not push the price of everything up…even the stock market….Could the government inflate its way out of debt?

        • Paul says:

          That worked in the past of course – but that game is over – the debt is rising faster than they can inflate – also as outlined in the book ‘This Time is Different’ by Rogoff and Reinhardt, once a country hits a threshold of debt to GDP (I think it’s 90%) it is game over – the cost to service the debt is a growth killer (and of course their research demonstrates that it is of course never different)

          The Fed is like a man in a row boat in the middle of the ocean – the boat is holed and he is bailing as fast as he can – but the water is pouring in faster than he can bail it out.

          • Actually, the debt threshold seems to depend on the amount of economic growth, at least the way I see things. With growth slowing, the debt threshold should be much lower. Some young analysts found an error in Reinhart and Rogoffs work, so the 90% doesn’t really hold–I don’t have the link close at hand now.

        • I don’t think it could happen. Even if it did, it would still leave us in a situation of inadequate energy resources leading to more any more job layoffs. No debt would have a very good chance of being repaid, so the possibility of finding future debt would be very low. If it is available, it will be at a high interest rate, to reflect the high chance of debt default.

    • edpell says:

      Francis Fukuyama wrote a book “Trust”. In which he said nations with high levels of social trust between members of the nation become rich. Oh well. I agree with you. In the U.S. trust is now limited to people you know well and for a long time.

    • Paul says:

      Paulo – I have not been to the US for some years (I choose not to) so I by no means have my finger on the pulse.

      But I sense massive anger in that country – recall JP Morgan ran a Twitter feed when that ridiculous site when public – the vitriol that spewed forth towards the bank forced JPM to shut it down the feed.

      I think that is a symptom – people suddenly felt hey, here’s a way that I can scream and I know they are listening.

      At some point the dam will bust – Chris Hedges so eloquently discusses the situation in this excellent article http://www.truthdig.com/report/item/the_last_gasp_of_american_democracy_20140105

    • SlowRider says:

      The stock market isn’t ALL that is left of the real economy – there are some real companies underneath it. I agree that the hype around stocks like Facebook, Twitter, Amazon is ridiculous. But e.g. most of the top 30 german DAX are (still) strong and healthy, like Volkswagen, BMW, Lufthansa. The problem ist that to be profitable, they COMPLETELY depend on the old consumption model going global, and that is what Gail shows cannot go on much longer. In this sense, it is a bubble that will burst, but investors agreed that they all want to make a profit while it lasts. Just get out in time.

  16. cal48koho says:

    Thanks again for another of your succinct analysis of economic trendlines as you view them. It does seem odd that the original LTG study left out capital in their model since capital has been part of everyone’s model going back as far as Adam Smith and perhaps even Aristotle. I hate cluttered graphs and the LTG graph in Fig #1 is pretty cluttered but I think that you simply must attempt to put in your best guess on how capital and or debt based capital would fit in Figure #1. Of course to do that would require knowing at least on a relative scale the amount of capital allocation going back well into the early 20th century.Would that be notional capital or inflation adjusted?. I can visualize what the shape of the curve would look like but would the lens be an inflationary one of a deflationary one?
    The general theme of your discourse relates to the tacit importance of energy as the dominant variable in the economy. Not too far back you brought in Cliodyamic secular models and how they might relate to the lifespan of economies. I wonder if anyone has looked at the influence of energy in those economies and if the withdrawl of societal energy precipitated collapse? Of course energy in the past 5 millenia was pretty pricey. Slaves and animals don’t come cheap. It’s my guess that cheap fossil energy is such a new phenomenon that we will find it risky to guess the future of its impact on the trajectory of the world economy. I suspect that as cheap energy speeds up the ride on the upslope, withdrawl will speed up the descent. All the curves look Gaussian……I do have a final question. What do you make of the steep population contraction coinciding with a sharply rising birth rate. seems counter intuitive to me.

    • timl2k11 says:

      “What do you make of the steep population contraction coinciding with a sharply rising birth rate. seems counter intuitive to me.”
      Note the death rate still skyrockets far above the birth rate (how far cannot even be seen because they both shoot off the top of the graph), which implies a dramatic increase in infant mortality. People start having more children because the probability that any one of them will survive is much lower. Basically the reverse of what has slowed the birth rate in first world countries, very low infant mortality.

    • Jan Steinman says:

      “What do you make of the steep population contraction coinciding with a sharply rising birth rate.”

      Look at the black line — the death rate.

      As that line approaches vertical, an infinite number of births would make no difference!

    • Capital, as I understand it, was a portion of the resources in the LTG model. It would have been nice to have seen a line showing the trend of capital as well. These resources were in some units of weight, or perhaps volume, rather than currency values, I believe.

      Money is a strange thing–it mostly just transfers goods from one person to another. If the goods aren’t there, the money can’t perform its function. Economists tend to ignore money, and I don’t blame them. At the time of collapse, there would have been less and less to buy. If the amount of money stayed the same, I suppose that would imply inflation. If because of debt collapsing, buyers had less money, then it would be deflation. With all of our debt now, deflation may be the problem.

      In the Cliodynamic secular models, one of the big issues was rising population and stable amount of land. If, because of erosion or salivation, soil quality was going down, that would have added to the effect of not enough food-production area per person. Food is a very basic form of energy. I suppose one could include animals as well, but since they take land to feed, they max out when land per person maxes out. Below some level not all of the land was used, but stagflation hit when population = carrying capacity.

      The steeply rising birth rate has to do with lack of birth control and the high death rate–perhaps also to do with the lack of retirement programs, so parents would want a child to help care for them in their old age.

  17. witsendnj says:

    HiGail, I do agree with you that the underlying expectation in many (most?) climate models is over-optimistic about continued availability of fossil fuels. However, this will not mitigate abrupt climate change, since the initial forcing of the greenhouse gases already emitted has already triggered irreversible amplifying feedbacks.
    Further, my expectation is that when society becomes too poor to extract and buy oil, and economic collapse occurs, people will burn every tree that is still standing (those that haven’t perished from pollution and wildfires) until they are all gone (or we are all dead). That will eliminate a primary carbon sink which will add immensely to global heating.
    Another consequence of economic collapse and reduced fossil fuel burning will be the rapid loss of aerosols which are currently blocking a significant percentage of UV radiation (global dimming), which will lead to a rapid rise in temperatures.
    So on balance, I cannot see that catastrophic climate change will be slowed by the end of industrial civilization, which is one reason I am perplexed as to why the deliberate provocation of collapse is endorsed by radical groups such as Deep Green Resistence.

    • I certainly see no reason to endorse collapse. It is hard to see a way out of it.

      It is really hard to see any way to change the course of climate change, however much we would like to. Reducing world population through one-child families would seem to be as effective as anything.

    • Paul says:

      There were articles last winter on desperate Greeks cutting trees to burn to keep warm. I see no similar articles this year – and Greece is actually in worse shape than last.

      So I assume the MSM is ignoring this.

      But yes, when people are cold they will burn whatever they can get their hands on. Much of the world may soon resemble a gigantic version of Haiti.

      We really are so terribly screwed :(

  18. Interguru says:

    Do you want to see what collapse looks like now, right here in the US.

    Try a visit to Eastern Kentucky.

    “The first person I encounter is Jimmy — I think he’s called Jimmy; there is so much alcohol and Kentucky in his voice that I have a hard time understanding him — who is hanging out by the steps of the local municipal building waiting for something to happen, and what happens today is me. ”

    http://nationalreview.com/article/367903/white-ghetto-kevin-d-williamson

    This is an optimistic picture. Their cash economy is supported by government entitlements, and the infrastructure is supported from outside funding. Still it’s a sobering article.

    • Paul says:

      I was in Greece last year to have a look at what collapse looks like – half the shops in Athens were closed or bereft of customers – the youth are absolutely desperate to find work – most are living if they have skills

      As of now the EU continues to support Greece – when that stops (and it will stop at some point) then the situation there today will look prosperous by comparison.

  19. Ikonoclast says:

    Gail writes; “The limit we are reaching is not that oil (or coal or natural gas) extraction will run out; it is that economic system will at some point seize up, and rapidly contract.”

    I agree, but not for exactly the reasons Gail posits. The real limits are still ultimately physical. And oil or fossil fuel limits are not the only important limits. Fresh water availability limits are becoming very important.

    Financial limits impose “frictional” constraints but not absolute constraints. A collapsing finance system slows the rate we can use up resources (hence the friction analogy). The physical resource limit still imposes the hard constraint. Or more correctly, the limitation occurs after and progressively more past the Hubbert peak.

    A government has access to more strategies than QE or money creation. There is also conscription and requisition. Labour can be conscripted, very forcibly if necessary, and materials can be requestioned, with or without adequate compensation. I would not discount conscription and requisition even in the USA once the crisis occurs. This degree of conscription and requisition will likely see resources still being used up faster than Gail’s financial collapse hypothesis suggests (but not as fast as a full BAU scenario would suggest).

    Central government is more necessary than ever in an existential crisis. I’ve yet to meet a person who would suggest that the democracies (or Russia for that matter) could have won WW2 by disbanding government and government run organisations like the national army. Equally, it is absurd to suggest this looming existential crisis could be met by disbanding national government and permitting anarchy.

    • The way I explain the situation is that we are facing many limits at once. All need more resources to solve their problems. Money is what ties everything together. So the problems show up in the financial system. Also, the return on investment drops so low, that it becomes impossible to pay back debt with interest. I agree that the shortfalls are in the real resource area, but it seems to me that they show up in the financial area, also the collapse of governments. Lack of debt availability also becomes a real problem, very quickly.

      I am not sure how conscription of resources would work. Perhaps taking over a coal mine without compensating the owners? Things are so complex today, that it would be hard for the government to run any kind of energy facility on their own.

      • Ikonoclast says:

        Conscription of men and requisition of resources worked in WW2. The bottom line is that it does work. Albeit the financial “fig-leaf” was maintained in the USA to keep capitalist corporations producing war materials. Bond issues were made to raise the funds. Clint Eastwood’s excellent film “Flags of Our Fathers” covers this issue.

        If private enterprise fails to produce enough oil (where it is still physically available) and if large US Oil companies collapse then the US government will step in and take them over as it did with GM and its Chapter 11 bankruptcy. If the civilian workforce fails to meet drilling needs etc., the US Army Corps of engineers will be expanded and co-opted to maintain drilling and extraction effort and strategic stockpiles of the US strategic oil reserve.

        I can practically guarantee you that this will happen from my general knowledge of the US military imperative and the US military-industrial complex. This might not be as efficient as private enterprise where the market is working but it will still be much more efficient and effective than private enterprise in depression and market failure mode. Of course, many real material and energetic shortages will still be a drag on this effort.

        I think you are over-emphasising financial failure. It is important but not all important. If strategic industries are in trouble because of financial and market failure the US Federal government and military-industrial complex will not just simply roll over and die. Many statist and central command stratagems will come into play. Realpolitik tells us that with a great degree of certainty.

        • Paul says:

          I do not think there will be a federal government in the US for long once the SHTF and the economy unravels.

          Who pays the salaries of the officials? Of the soldiers required to maintain order (martial law)? How do you communicate when the grid goes down? How do you organize troops when the strategic oil reserves are used up?

          I think at best – we will see very localized government – at worst we will see armed gangs fight it out for control of areas.

          Afghanistan is a prime example of what happens in the event of collapse. After the Russians were defeated the US pulled all support and the country collapsed.

          The situation on the ground was this – gangsterism was rampant – there was no government – if you wanted to get down your street you had to pay the goons to drive past. Regional warloads ran their districts and they parceled off control to smaller areas to loyal mafias. Life for the average person was utter hell.

          That was why the Taliban was welcomed – they were of course brutal – but they were less brutal than the gangsters who had control – so they were embraced by the people – because they brought organization to chaos.

          As for conscription – that’s what built the pyramids – so sure – perhaps that could happen – the local gangsters force people to pick up shovels and dig coal – but beyond that I do not see how conscription would help run a fracking operation – the technology required to extract oil would simply cease to exist.

          Let’s be frank – we are talking about a return to a pre-industrial era —- compounded by literally billions of people starving across the world. Hardly conducive to being able to maintain any of the technologies we take for granted today.

          The only reason we have the society and the economy that we have today is because we have had an ocean of cheap oil – once that is gone there is no way any of this will be possible

          • xabier says:

            Paul

            There are goons, and goons, as you rightly point out. In Argentina, when violence rose dramatically and retail spaces shut, the mafia stepped in to provide secure trading environments in old warehouses: the traders had a cheap and secure rental space, and no one got robbed or assaulted, either in the buildings or just outside in the car lots. Any misbehaviour was dealt with, shall we say, very firmly….such as to preclude any repetition of the offence!

            Criminals do have a code of honour: a cousin of mine in Spain was very kind to the old mother of the local Arab drug gangsters. This has proved useful in certain situations -they considered they had a debt of honour to him and they do keep their word. As he has told me, the Arab criminals have proved kinder, more loyal and more honourable than some ‘upstanding citizens’…

            Better dealing with such people than a totally corrupt and badly-paid policeman, soldier or local politician.

        • In World War II, we had a lot of cheap energy we could pull out of the ground (given an excuse to run up government debt)! We also had a lot of unemployed people we could put to work–both men who were still unemployed or underemployed, thanks to the depression, and women who no longer needed to work so many hours at home, thanks to labor saving devices. We had quite a few factories that we could put to work for somewhat different purposes–not most of the factories are offshore. This time truly is different.

  20. Gail,
    In your growth/Decline model you denote ‘debt’ as an economic driver/indicator, as indeed it is. What is interesting and also confounding is that debt is really a placeholder for a whole slew of implicit and explicit social agreements that distribute risk and benefits as well as defining participation of labor and rates of labor etc. There is a whole universe of social and political complexity bound up just within in the idea of ‘debt’.

    More important, perhaps, is the fact that any salvage (salvation?) to come in the face of collapse will come out of the socio-political realm. In fact, collective ingenuity must order a new technology and a new energy model respecting post collapse resource realities. To call this future driver of technology and energetics ‘debt’ seems a gross oversimplification, though it works for the time being!

    Great Article, by the way!

    • I think debt will play a very different role post-collapse. It certainly cannot be a primary financing mechanism. You are right that there are many other things tied in with debt. Debt enables our current financial system to channel interest payments from the poor to the rich, increasing the disparity between the poor and rich.

  21. John Drake says:

    The timing and methodology by which system collapse might unfold is very likely closely linked to the rate at which available net energy to feed that system will decline.

    Hence a detailed EROEI study on a country-by-country or even region-by-region basis would provide most useful information about how and when certain system limits might be reached and how that might translate into visible economic and social consequences.

    • The issue is really not net EROEI. The issue is really more rising investment needs than falling net energy availability.

      The issue is that the amount of energy for investment needs to rise very rapidly (exponentially, hyperbolically ??), at the same time that it is taking more and more energy to make energy. So while EROEI is part of this problem, it is really not the major part of this problem. We need energy investment in several areas simultaneously:

      1. To extract energy resources. The fact that EROEI is falling generally means that the investment needs to be made farther in advance, tying up even more resources for this purpose.
      2. To build structures that enable energy extraction, but are not part of the EROEI calculation. For example, to keep up energy extraction in the Middle East, we need to build and operate more and more desalination plants. We need to upgrade our railroads, so that they can carry Bakken oil without it exploding. We need to add pipelines.
      3. To maintain all of the roads, pipelines, schools, hospitals, electrical transmission lines, and other parts of our infrastructure that tend to degrade over time, but are necessary for the continuation of today’s system.
      4. To actually grow the economy as a whole.
      5. To clean up pollution issues.

      It is the combination of these investment needs that tends to grow very rapidly. Focusing on EROEI doesn’t really get to the right solution. That is why I have avoided talking about EROEI. There is a lot of misunderstanding about this issue.

  22. Lorenz H says:

    Dear Gail,
    i read many of your analysis with great interest, and i learned a lot so far.
    There is one point in which i think different. In this text as well as in others you say
    “1. Climate change models include way too much CO2 from fossil fuels.”
    What worries me most of an pobable collapse of current industries is a clinging of people and societies to deeply learned habits.
    We/they just need energy as the most essential resource for modern living.
    So if collapse brings production of oil/gas down, people will switch to what is available in their environment.
    This can be lignite in the case of germany, coal in china, trees and biomass in almost any place of the world.
    In germany, there is currently a revival of electricity production from lignite. i don’t think there will be no gas at all even in a case of collpse, so governments will distribute it away from consumer to e.g. trucks and maintenance of power plants. (the big diggers even work with electricity produced by the plant).
    china in my opinion will also centralize as much resources as it can to extract as much cheap energy (coal) from its resources as it can.
    from unburnable carbon we know that there is far more in the ground than we can afford to burn, so even if we will not be able to extract the expensive resources, there will still be a lot of not so much expensive ones. mankind will try as hard as they can to get these resources, because they will mean power (for a short time) over societies who posses less of those resources.
    the other worrying thing will be people burning all biomass in their surroundings they can get a grip on. to have a warm house, a warm meal, a hot bath.. will be the primary goal for every individual, and not a collective plan to avoid something as so complex as global warming.
    there is a very eye opening example happening in greece right now, where many people cannot afford to heat their homes with the oil heater anymore, and therefore start burning contaminated wood and the like, producing a health threatening bell of smog over athens in the cold winter days. (report in german: http://www.spiegel.de/wirtschaft/griechenland-giftiger-smog-ueber-athen-und-thessaloniki-a-940959.html)
    i think this will be the scenario to expect, and this will ultimatively add to GHG emissions worldwide, together with continued coal burning pushing emissions into ranges of catastrophic climate change.
    sadly, i don’t see a way how to avoid this natural behaviour of man. but after all, it is still nature, and we know that nature sometimes fails..

  23. Hi Gail,
    Very interesting analysis, but I see 3 problems:
    This comment from your text “Government expenditures can be thought of as expenditures out of the surpluses of the economy.” just isn’t right for a sovereign currency economy, as the USA has been since going off the gold standard in 1971. See Modern Money Theory. The only factor that limits the federal gov’t’s expenditure is avoiding inflation.
    You have not considered energy efficiency. I can’t go into all of the analysis, but the present USA GDP could be sustained on about 1/4 of the energy currently expended, and most of the energy saving investments needed will have attractive paybacks as fossil fuel prices rise. Over a 30 or so year horizon we could double GDP while halving energy use, and renewables could easily meet the resulting energy needs.
    Renewables don’t get considered in the right context either. The key factor overlooked is that they are renewed, rather than exhausted as is the case for fossil fuels. Consider the case of using fossil fuel to manufacturing enough PV capacity to build and operate a new large scale PV factory. the new factory can then build additional PV capacity (multiple factories) with no fuel expenditure, and that sequence can be cascaded. Renewables then become very economic.
    Combining these 3 factors, your foreseen collapse becomes avoidable and unlikely.
    Cheers, Murray

    • Jan Steinman says:

      “You have not considered energy efficiency.”

      Energy efficiency is a chimera — looks good on paper, until you consider all the externalities.

      Achieving 100% efficiency would, in theory, require infinite resources. There is a “sweet spot” on the efficiency curve at which the needed embedded energy makes the most use of current energy.

      Why do we insist that we can do better than several billion years of evolution? And yet, the best efficiency nature has come up with is about 8% conversion of sunlight to chemical energy — but most plants come in at less than half that.

      Efficiency is a form of complexity, no? That Prius that gets 50+ mpg is tremendously complex! It requires the entire sum of civilization to produce and maintain! The semiconductors have a huge “tail” of energy that stretches through a functioning University system, global financial system, global transport systems, and of course, mining and refining of rare earth materials

      A 40+ mpg diesel engine from the mid-80’s has no essential semiconductors. You maintain them with a machine shop, which uses mining and metallurgy, but avoids many of the other global systems necessary.

      A 1,000 mile per acre horse has no semiconductors, no mining, no machine shop — and it reproduces itself.

      Many technophiles assume efficiency arrives and poof! It is there to stay! All that is required is the initial investment! But I’m fairly certain Joe Tainter would include super-efficient engines and such are some of the “complications” that cause civilizations to fail when they find they can no longer maintain them.

      “Consider the case of using fossil fuel to manufacturing enough PV capacity to build and operate a new large scale PV factory.”

      Know of any?

      I’ve issued this challenge before: show me a PV factory that produces new PV panels using only PV-supplied energy. There aren’t any! Unlike horses, who achieve this wondrous result without any help from us.

      • xabier says:

        Jan

        They shot nearly all the plough horses in Britain in the late 1940’s as part of the brave new Socialist petrol-driven Utopia and the advent of scientific industrial farming.

        The product of hundreds of years of careful breeding.

        When they were no good for the job anymore, they were fed to dogs. There’s not much use for an unrepairable Prius…….

        Well, we all know what the punishment inflicted by the Gods for Hubris is.

        • Lizzy says:

          Xabier, good point. My friend’s father, though, used to drive a team of 4 horses on his farm in the 1960’s. Not shire horses, just ordinary farm hacks.

          • Horses drawing ploughs might look like an ideal state of rural bliss, but the economics don’t stand up
            If you work a horse for a day (depending on the heaviness of that work) it needs a corresponding time to rest, it also needs 2 acres of land to supply its fuel. A horse drawn plough simply cannot produce sufficient human food as its end product….and that is what we are talking about here.
            Human beings have pulled off the neat trick of converting petroleum into food, and bred accordingly. This is why horse drawn ploughs will not replace tractors until the human population has reverted to pre-industrial levels.
            Of course, if we’ve eaten all the horses, things might get even more unpleasant than that.

            • Jan Steinman says:

              With Permaculture, there need be no ploughs.

              I was talking about horses for basic transportation needs: bringing food into villages, bringing basic supplies to farms, etc.

          • xabier says:

            Lizzy

            I understand that there are still some good working breeds left in the West, and of course the stock of labouring animals of all kinds is still considerable in the countries we patronise as ‘undeveloped’.

    • edpell says:

      Charlie Hall gives us a EROEI for PV of 8. Let’s assume this is using a 24 year life time for the panel. So every three years a PV panel makes enough energy to make one PV panel. Not bad a 3 year doubling time. But wait…. now we want energy after the sun set and on cloudy days. So we build ourselves a big battery, or a big molten salt thermal storage unit. If the latter we also build ourselves an electric turbine powered by steam from the thermal storage. Now the EROEI for PV is ??? I do not know may be 4. So the doubling time is now 6 years. Now we want to have and maintain a electrical power distribution grid and road to get to the grid for installation and repair. So we are at EROEI of 2. Now every 12 years we get a new panel and have 12 years left on the old panel. After 24 years we have a new panel and 12 years left on the old panel. Zero growth we are just treading water just replacing the PV that makes PV.

      We can still make this work if we get rid of the overhead of electrical distribution and roads. So if we can make everything needed on site with local materials we are OK. Most places have sand. That covers silicon and glass cover plates. The aluminum frame well maybe we can keep recycling it but the new aluminum for build out is an issue.

      PV may work but it is so close to the edge that it is hard to do the calculation with enough accuracy to know for sure.

      • edpell says:

        On the other hand there is no reason to use electric from PV to make PV. What is needed to make PV is heat. Simple sunlight concentrated by mirrors may do. Then the ERORI is free light light in plus energy to make mirrors and some amount of electric out over a period of 24 years.

      • I think that the calculation is even worse than you describe, because EROI is too narrowly defined. In particular, it does not do a good job of reflecting true solar PV costs. I know that a study that Pedro Prieto and Charles Hall did with respect to Spain’s EROI for solar PV (documented in the book, Spain’s Photovoltaic Revolution: The Energy Return on Energy Investment) comes out with an EROI of 2.5. So I think you need to start with something closer to 2.5, not 8. And it goes down from there.

        • Ert says:

          @Gail

          Thanks for that link! I’ve been searching for such a reference a long time – and even the first 5 pages which can be read at Amazons’s “look inside” are a well done introduction into the concept of EROEI.

    • Your money argument misses me. I am talking about the wealth that we gain from our coal and natural gas and oil that allows us to make goods and provide services. If you and I had to do our “farming” by digging with a stick among the tall weeds, we wouldn’t get much farming done. It takes energy to make any metal object. How would we go about building a house, or traveling to a doctor’s appointment, without energy? If you ride a train, it takes a huge amount of energy to make the metal for the train and to make the metal for the train tracks. There may be some saving on day-to-day fuel, but you have to look at total fuel consumption.

      I am confused at why you think that the present USA GDP could be sustained on about 1/4 of the energy currently expended. Will you walk to work 3 days out of 4, and stop buying new cars and houses? Will you vote to have your state stop road construction? Will you stop taking medicine? Will you turn down your thermostat to the point your pipes freeze? Will you stop eating meat–to get the energy in your food down? We don’t have the option of changing the scattered nature of our population or our climate. Building new homes that are different takes a lot of energy.

      We don’t have 30 years–we are at a crisis stage today–now.

      Am important point about renewables is that wind and solar PV are just for electricity. Our big fuel shortage is oil. Wind and solar do essentially nothing for oil. Biofuels help oil a bit, as “oil extenders.” We can dilute our gasoline by up to 10% with ethanol. But biofuels use huge amounts of land, so we are close to maxed out now.

      Renewables don’t really save much fossil fuel energy at all. It is easy to get the idea that they save energy by the fact that you don’t have to input an energy product on a regular basis. Renewables make up for this lack of energy need in many other ways (1) high energy is needed to make the devices, (2) need to change the electric grid to accommodate them, and (3) need to store electricity (or overbuild capacity) so as to not have huge fluctuations by time of day, and from season to season, (4) lots of replacement parts especially for wind turbines, but also inverters for solar panels. When studies are done that take into account the real-world issues, renewables come out behind. For example, Weissbach et al did an analysis Weissbach et al did an analysis that was published in Energy in early 2013 that indicated that renewables were an order of magnitude less efficient than fossil fuels in generating electricity (in other words, 1/10 as efficient) when all costs were included.

      If we were to have an oil shortage, we would have a hard time keeping our electricity system repaired. Because of this, “renewables” aren’t even necessarily very long-lived

    • Paul says:

      Even if this was possible (and Jan does a great job explaining why it is not), then it would have to happen now. Because we are collapsing now.

      To add to Jan’s comments on why this is not possible – when we realize new efficiencies we generally do not cut back rather we quickly use that energy for some other purpose (ie. we do not reduce consumption)

      An engineer friend here in Bali was telling me that even though cars are far more efficient these days they still use the same amount of energy – because they have more gadgets that use energy – and they have more bells and whistles that require energy to manufacture and maintain.

      I think the only way we realize a nett gain from efficiencies is if the price of energy increases – but as has been demonstrated – high energy costs are an economic death spiral because when people pay more for stuff they buy less of it – and that means layoffs – recession – and eventually collapse.

      • I keep saying that people spend the money they earn. So if reducing energy use makes a product cheaper, they will buy more of something else. In recent years, interest rates have been kept very low. This helps keep spending up further.

        It seems strange to me that there are not more cars available that are less expensive than current cars–it seems like everyone includes a whole lot of bells and whistles.

  24. Pingback: Why EIA, IEA, and Randers’ 2052 Energy Forecasts are Wrong | Our Finite World « Olduvaiblog: Musings on the coming collapse

  25. Bill S. says:

    We might be able to delay the financial collapse by implementing a steeply progressive income tax on those with significant income above what they currently use to meet their basic needs. Obviously, if you tried to increase taxes on the poor and large middle class, you might actually accelerate the date of the collapse. But taxing the sports, hedge fund, Hollywood, and oil well billionaires might raise a significant amount of money to delay the government collapse for a few years. It is better to run out of food next year, than to run out of food next week.
    Of course, as we all know, that will never happen, due to the influence of the wealthy in Washington, and their control of the mass media. And the richest few percent in the US have been capturing a greater and greater share of all the income, for about the last 30 years. That is a huge amount of money and wealth. It is in the trillions of dollars.
    I’m guessing that the top 0.3% plan on flying off to somewhere like New Zealand. I hear that many Hollywood stars already own homes and farms down there. They only let people with substantial assets move there.
    I think you will know that the end is near when the government resorts to creating money out of thin air like crazy, leading to hyperinflation and a worthless dollar. Call it QE squared. When they see that the downward spiral has begun, they will do anything trying to stop it. That would be bad, because even having a bunch of cash won’t do you much good. Gold or silver coins might have some value, the smaller the better, to change for the paper being used at the time to conduct transactions.

  26. Trying to find a reason why governments worldwide employed an obviously fatal stragegy has boggeld my mind for some time now. I think, I might have come up with an explanation that goes a little further than just “greed and stupidity”.

    When pursuing geopolitical objectives, the most successfull strategy since industrial revolution has been realism (today followed by neorealism).
    http://en.wikipedia.org/wiki/Neorealism_%28international_relations%29

    In short, this strategy rests on the conviction that any other nation is a potential enemy. All wars, indeed all conflicts between nations, since the beginning of industrialization, have been decided by one side being able to outproduce the other. Neorealism therefore commands you to prepare your country to win any potential armed conflict with any other country by building up economical muscle, GNP growth.

    As in all wars industrial output has been the deciding factor, and anybody else knew that also, it was only logical to abandon armed conflict between equally developed nations with comparable GNP and replace it with economic competition. (cold war).

    In this mindset it is impossible to find an amicable solution to global problems like global warming or diminishing ressources. As Robert Axelrod showed (Axelrod, Robert (1984), The Evolution of Cooperation), two parties with the “realism/neorealism” mindest, that are engaged in a prisoner dilemma, are locked into mutual distrust and are unable to change into a productive cooperative strategy.

    This kind of reasoning also suggests, that the “mitlitary-industrial-complex” is nothing else, than the implementation of the most successfull strategy for acchieving geopolitical dominance in the past. Also neoliberalism and neorealism (neo-neo-strategie) go very well together.

    As ressources diminish, abandoning the neorealistic/neoliberal strategy will mean, that you will probably loose any competition with other nations over ressources your people and your country demand. For any democratic system abandoning this strategy is therefore impossible!

    Even if you know, as a democratic leader, that this strategy will mean collapse for everybody, you will not be the one to change from egoistic to cooperative strategy first, because possibly there is no way back to egoism and your country stands in danger to loosing its “freedom?” to other nations.

    Basically, in this mindset, “caring for your people” demands of you as a leader, that you hold course towards self-destruction, because you believe destruction by other parties is the alternative.

    This is the only “logical” reasoning I came up with for the collective stupidity of humankind. Note that I do not share that believe, I just wanted to put myself in the mindset of believers in neo-neo strategies to find why we are not ble to change course.

    • edpell says:

      This goes along with the idea there are only two choices war now or war later. If you are currently weaker but growing wait. If you are stronger war now.

    • Thanks for your thoughts. I hadn’t thought about those things.

      I agree that the recent strategy uses up resources quicker than otherwise, but I think the human strategy, no matter what it is, uses up finite resources. Even a steady-state situation simply depletes resources somewhat more slowly. When we are already reaching limits, a steady state doesn’t really help.

      If we could get our resource usage below what could be integrated with renewable resources, that theoretically would work. The catch is the even back in hunter-gatherer days, we didn’t do that. Our need to use heat for cooking our food, and our willingness to kill off whole species, led to deforestation and extinction of major species long before we learned to farm. We certain were not living within what renewable resources permitted as early farmers either–we were depleting the soil, and killing off more species. Having fossil fuels helped us to ramp up usage, and delay the day of reckoning.

  27. Peter Marcham says:

    Hi,Gail, Are you aware of the work done by Tim Morgan and his book “Life after Growth” he works with concept of surplus energy which echos much of what you are saying and have said!!
    So do read his blog http://surplusenergyeconomics.wordpress.com/ .

    • I have seen a little of his work. I can’t say that I have gone out of my way to read it.

      He takes a fair about of Charles Hall’s EROEI stuff, and tries to go off from there. I don’t really see that that is the right approach to take.

  28. Ian Page says:

    Gail, I love your analysis ( as usual)

    Two additional issues figure 7 doesnt address.

    1. Substitution- as energy laden products and services become increasingly expensive. lower energy input substitutes tend to appear. ( Please excuse me using an economists argument- but apart from the fact that they ignore the issues of whether appropriate substitutes can exist, and that they don’t appear instantly, IMHO they are right on this one)

    On the energy front, wind and solar now appear to have better EROEI than new oil wells ( but not yet for coal although the curves are expected to cross soon) and the EROIEI’s are iaccording to

    On the materials side petrochemical based products and systems are getting very expensive, while the lower cost 19th century coal based chemicals would be expected to reappear, and the newer “green chemistry” intermediates start to substitute petrochemical intermediates. The recent experience in Scotland at grangemouth refinery and intermediates plants fits in to your projections

    2. Structural substitution. You point out that one aspect of low energy availability or high energy cost in a country is that production moves to higher energy access countries or lower wages are enforced as you pointed out in a previous post. Either way there is less income to buy products and services and keep the system going.

    However there is a problem ( not with your analysis but with the existing system). Production centralizes in the lowest cost location . In the limit with one factory per product set. All inputs then have to be moved long distances to the factory and all products have to be moved long distances to their customers.. Also the workers have to be moved from significant distances to the factories, central offices etc. ( its been pointed out that every day the London transport system moves many more people than were involved in D-Day , twice). This required a lot of infrastructure , good freeways, trucks, ports , etc that as you point out is inevitably going to become much more expensive. Thus countries and systems that minimise this centralization should have competitive advantage, in the limit then most people would walk to work , and most materials are recycled very locally to a very high degree.Which has very fundamental implications ( try recycling all mobile phones locally!)

    Both directions seem inevitable, but there is much friction preventing such change, and many jobs and companies will need to change or fail at huge investment cost.

    As you point out, investment is a derivative of spare cheap energy and thus getting very short, Having entered the energy desert, we have only a few years of high ( old) EROI energy left to get us to whatever is on the other side.

    Professer Hall provides a figure for your model : He states that an average EROEI of 14:1 is required for an economy to sustain itself and Invest-( I’m not sure whether that allows anything for consumption and thus for the economy to actually provide gainful employment and purchasing power).

    Tim Morgan’s SEED database puts both the US and the UK ( and many other countries) below this currently and thus having no chance of repaying the debts taken on as a whole. Survival in both cases thus nvolves robbing peter to invest in energy sources greater than 14:1 EROEI . Arguably the financially disastrous ( for investors) US shale gas experience yielding shale gas at an EROEI of about 50:1( ignoring environmental, disposal , and clean up costs) , is an example of this in action.

    I suspect as a result that we don’t have enough time or investment left and will perish on the journey.

    Ian
    Requiam for the High Energy CIviliation

    “Look on my works, ye mighty, and despair!’
    Nothing beside remains. Round the decay
    Of that colossal wreck, boundless and bare,
    The lone and level sands stretch far away”.

    Shelly :Ozymandius.

    • Paul says:

      Although at some point (perhaps now?) replacements will be cheaper but I reckon that does not matter – we are many times beyond in terms of the price of oil – of what the economy can handle.

      From Bloomberg: each $10 increase in the price of oil lops 0.5% off a developed economies growth. Oil at 100 bucks is many times over what is needed to maintain growth.

      So even if solar were cheaper with oil at 100 bucks – it would not be cheap enough to allow us to maintain an industrial society.

      Add to that the fact that solar cannot replace oil – oil is in everything from your gas tank to plastics and most importantly – in fertilizers and pesticides. No cheap oil = expensive food. Expensive food = famine.

      I do not see substitution as offsetting the issue of expensive oil. The industrial revolution occurred solely because we have a large amount of cheap energy – particularly oil – to drive it.

      The age of industry is for all intents and purposes – coming to an end.

    • I somewhat agree with you–only somewhat.

      Substitution goes along all the time, as oil prices get higher. I am not convinced that EROEI tells you very much. I look at total cost of energy production. EROEI is too narrowly defined, in my view. Wind Turbines and solar panels, because they need subsidies, are giving a strong clue that they are not more efficient. Energy sources should be able to withstand high tax rates, to support the government.

      Another clue that solar and wind turbines are not more efficient is this type of study, which looks at costs from a wider range than EROEI. For example, this study by Weissbach http://www.sciencedirect.com/science/article/pii/S0360544213000492 (which I have seen Charles Hall reference). The abstract of this article says, “The results show that nuclear, hydro, coal, and natural gas power systems (in this order) are one order of magnitude more effective than photovoltaics and wind power.”

      As I see it, we are already at too low an average EROEI. In fact, I said exactly that at the last Biophysical Economics Conference, which is where people talk about EROEI issues. http://ourfiniteworld.com/2013/06/24/energy-products-return-on-investment-is-already-too-low/

      While too low EROEI contributes to our problem, our real issue is lack of investment capital and other related financial issues–inability of governments to collect enough taxes and inability to pay back debt with interest. EROEI is a limit, but it is not really the right one because it doesn’t consider needed investment capital for the economy as a whole (among other things).

      Charles Hall is trying to draw a big box around our problem. That can be helpful for some purposes. But I don’t think his methodology gets us to the right end point, which is why I use different methodology.

  29. ravinathan says:

    An interesting analysis by Albert Bates showing where the various collapse writers fall in the grid of violent versus peaceful change and collapse versus ecotopia. He has not positioned our Gail on this map. My sense is that Gail would fall on the Collapse line, biased more to the violent end since she appears pessimistic about soceitys ability to cope. Although the collapse axis refers more to ecological collapse and Gail speaks to economic collapse there is enough evidence that one would lead to the other as people burn biomass to survive as seen in Greece and the extreme pollution in China from coal burning.
    http://peakoil.com/enviroment/albert-bates-charting-collapseniks

    • Jan Steinman says:

      Nice! Thanks for providing that link.

      I think where Bates falls down is in not allowing for geographic diversity. As energy declines, I expect almost all of those models indicate that globalism will go away, with populations becoming more isolated, meaning one could have violent collapse on one continent, and yet have pockets of peaceful ecotopia on another continent.

      In particular, I’m hopeful that islands can provide the bit of additional isolation needed to foster other paradigms. Could New Zealand (for example) have a peaceful transition to ecotopia, while the Far East simultaneously sees violent collapse?

      But perhaps it is not Bates’s failing so much as it is those he plots on his graph. He shows Holmgren as “moving” between two points — but really, who has a perfect crystal ball? Is that “motion,” or is it Holmgren’s understanding that a range of situations are possible at the same time?

      I think there is lots of room for different simultaneous scenarios. A principle of evolution is separation of populations. Thus, peaceful bonobos evolve on one side of the Congo River, while warlike chimpanzees evolve on the other side.

      Humans have been mashed up into a single population, due to cheap energy. Expensive energy necessarily changes that. Human differential evolution has been halted for a few hundred years, and may soon continue. That may include different outlooks and coping strategies that will plot different populations in different locations on Bates’s graph.

      • ravinathan says:

        Jan, Holmgren has changed his perspective radically and the two points represent the former Holmgren and the current one. The new Holmgren article can be found on Holmgren.com and it is well worth a read.
        I do see your point on diverse geographic outcomes and would point to the fragility of global supply chains and financial systems as well as the global ramifications of climate catastrophe which is unlikely to spare any location. I also think that Holmgren has realized that permaculture presupposes a functional ecosystem to allow a transition away from agricultural monoculture. Can we assume that to be the case in the face of self reinforcing climate feedback loops?

        • Jan Steinman says:

          “Holmgren has realized that permaculture presupposes a functional ecosystem to allow a transition away from agricultural monoculture. Can we assume that to be the case in the face of self reinforcing climate feedback loops?”

          Don’t know. Can’t let that keep one from trying, no?

          I do think there will be “functional ecosystems,” perhaps consisting entirely of adaptable, generalist “trash” species: cockroaches, rats, canada geese, scotch broom, perhaps even humans… :-)

          If anything, Permaculture is all about adaptation to change. If it doesn’t provide us with coping strategies, I don’t know what will.

          • Don Stewart says:

            Dear Jan and Others
            Does anyone know what Albert is referring to when he says ‘remineralizing the soil’? When I originally saw those words, I did a google search and didn’t end up with much, other than that it is a term of art for the Biodynamics crowd.

            Thanks…Don Stewart

            • Jan Steinman says:

              “Does anyone know what Albert is referring to when he says ‘remineralizing the soil’?”

              I think he’s referring to using various sorts of rock dust. I’m not sure how to do that without using lots of energy, unless you’re at the toe of a glacier.

              There is a thriving industry around supplying organic and biodynamic farms with rock dust. I use greensand (glauconite) in relatively small amounts in potting soil mix for potassium, but I can’t imagine using it in broadacre agriculture. (Perhaps I simply lack imagination…)

            • Don Stewart says:

              Jan
              I had the same question about rockdust. It is a byproduct, so relatively cheap for the gardener. But the results I have seen in formal trials haven’t been that impressive. Some say that it will still take decades for the rock dust to weather down to something useful. I couldn’t imagine trying to do broadacre.

              Thanks…Don Stewart
              PS Albert will be here in about 3 weeks. I will ask him, if I can corner him.

            • I don’t really know. But we know that minerals come from soil building up from the bedrock. We have had a huge problem with erosion. Also with minerals being extracted from the soil through farming. Even when manure is used to fertilize the soil, I am not sure those minerals get back into the soil, especially if the diets of the animals were deficient in those minerals.

          • xabier says:

            Jan

            If we don’t try things, we might as well lie down and die. If everyone c 900 had just said -‘Can we be sure about doing this, the Vikings might come………’

            Everything is so volatile now, we have to go with it.

      • messtime says:

        Uh, i am far from being an expert on NZ, but it seems to me that NZ pretty much follows the American model of agriculture, there are a few exceptions and i do not know if this is connected, but NZ has what seems to me a big possible problem in the future with the very huge “native” population (maori & pacific islanders) living here. Everybody in NZ pretty much lives “business as usual” and it is a heavy car culture. Truth probably is that NZ needs to start right now implementing the agricultural practices of the few here who seem to be successful in organic or more natural types of farming practices. If possible NZ needs to stop trying to supply the huge China market, and produce for the local market only. In my opinion NZ is a mess with huge populations of Chinese and people from India and other third world countries and lots of them probably unemployed. It is my impression that a lot of the dairy operations have had big financial problems and i think maybe some or a lot of the dairies might now be owned by the Chinese business people or firms in China. I don’t know. Don’t look good to me, but i am not that knowledgable really.

        • I haven’t been following the New Zealand situation. I know Nicole Foss is planning on moving to the South Island (temporarily?). She told me she liked the location because “it has a big moat around it.” But maybe the location isn’t quite ideal, or the South Island is truly different.

          • Ert says:

            How many options are there?

            1. The country of destiny must offer an economic existence now.
            2. You have to speak the native/core language.
            3. You should be able to integrate into the society – mentally and physically.
            4. The north halve has a to high climate and atomic risk factor
            5. The equatorial region will be to hot and stormy if climate change hits
            6. It should be not to cold now (heating energy)
            7. You need rich soil and a medium climate – there is no time to wast to get started.
            8. Groundwater shall be available.
            9. Not to highly populated
            10. But still manageable without a car.

            This doesn’t leave much options…..

            • I agree with your list. I also agree that the list doesn’t leave many options.

              Historically it is the warm countries that were the population centers without fossil fuels. Fossil fuels enabled much higher population in cold countries, and allowed them to industrialize. Competition on industrialization from warm countries with coal brings down the economies of cold countries. I expect warm countries will be the “place to be” if they are not too overpopulated.

            • Jan Steinman says:

              “Historically it is the warm countries that were the population centers without fossil fuels.”

              I agree in the context of “population centres,” but it is certainly possible for cold climates to support human life, or else the Americas would be unpopulated, since it was pretty cold crossing the Bering Sea causeway!

              So conversely, if one thinks “population centres” are to be avoided, perhaps it would be best to head North?

            • There were certainly people everywhere, but the population densities were much lower in cold areas. The population that can be supported in cold parts of the world generally should be expected to be lower per square mile or square kilometer.

            • interguru says:

              When we humans left Africa, they left many diseases and parasites behind. The animals in Africa co-evolved with us, and know how to evade our spears.

              Up North we had fewer diseases and parasites. The large mammals had no idea how to evade us. Like any invasive species, without biological controls we flourished.

          • messtime says:

            I started in Auckland 2 months, then moved up to Whangarei north of Auckland. I wanted warmer weather. I have not visited the South Island yet. The South Island has snow and cold in the winter time, my current income does not allow for high winter heating bills. Some people like the South Island better. There seems to
            be a fair amount of Americans living here, i mean average income types, not particularly wealthy (I heard a figure somewhere, may not be true: Approx. 15,000 from the US. I meet them sometimes working like maybe for the NZ post office or meet some working for some retail stores, like maybe a book store or kitchen supply store, etc. Speaking for myself, i do not know where else to go. I think maybe this is better than Australia. Australia is burning up now as per the information shown on the NZ television & desdemonadespair.net. I mean heavy-duty heat waves in Australia nowadays. NZ has been having bad drought, and maybe the drought situation is arriving again, i don’t know. Where else can an American go if you want to leave the US and have some sense of familiarity? Even some caucasians are leaving South Africa for NZ because of serious problems developing there. A lot of people come here from the UK, it seems to me. I don’t know who Nicole Foss is, but she may like the weather and social conditions better in the South Island than the North Island where i live. Some Americans like it here a lot – i don’t like it here that much. I wished the US was not such a mess, i would stay in the US if i was comfortable there. In my opinion it’s a mess everywhere in the world, you can only pick the lesser mess you want to move to.

            • I think the issue is, “The grass always looks greener on the other side of the fence.” People think conditions are better elsewhere. Nicole Foss writes on The Automatic Earth, about possible financial collapse and also about energy issues. Her views are somewhat different from mine, but some readers follow her.

    • Thanks. I saw this article earlier. I was just a glad they left my name off. I agree that economic and ecological collapse are related, and that I am probably on the violent side.

      I will be speaking at the Age of Limits Conference again in southern Pennsylvania again this year. I understand Dennis Meadows will be one of the speakers too this year.

      • Ert says:

        @Gail

        You are already on the “to-do” list: “After co-teaching a permaculture course in Belize with Nicole Foss next month, we will be vetting this analysis with Dmitry Orlov, Dennis Meadows, John Michael Greer, Gail Tverberg, KMO and others at the Age of Limits conference in Pennsylvania in May. “ ;-)

        Source: http://peaksurfer.blogspot.de/2014/01/charting-collapseniks.html

        • Jimmy says:

          Hi, as New Zealander, I would like to point out some salient facts. Before European settlement began around 1840, the Maori population had peaked at less than 150,000, and was in some ecological strife. They were an advanced Stone Age culture; NO metals – as is consistent with a post oil crash world.
          Their agriculture wasn’t very successful, and they had wiped out a number of indigenous species. They operated as tribal groups, often at war with each other, with cannibalism an accepted practice.
          There are now 4.5 million people living unsustainably in NZ; 30 times the peak population pre fossil fuel driven expansion.
          NZ is no utopia, and the pre-European Maori way of life may well be a portent of things to come.

          • Paul says:

            I moved to Bali 6 years ago partly because it is extremely fertile and warm. As the saying goes ‘the balinese don’t work hard because they could pick all they needed from the trees around them year round’

            Well guess what – Bali now has over 4 million people – and it has been importing rice for years – farmland is being converted to hotels and villas at an alarming rate so even less rice is being harvested each year

            And to top it off – like most places bali uses oil and gas based pesticides and fertilizers – so when those are no longer available/affordable – guess what’s going to happen here.

            I can imagine foreigners will be under the gun because many locals sold their land and wasted the proceeds on living large – and are now broke.

            Given the opportunity (i.e. chaos) they will likely be knocking on the door saying I’m taking this back.

            I have now concluded that this place will not offer any sort of sanctuary – it will be no different than any other place that is over-populated — and it may be worse for those of us who are not local.

            Our fallback is 20 acres in the mountains of BC Canada – but not sure if that will be any different – hungry people do desperate things regardless of their race – so even if one prepares that may not be enough

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