The Link Between Peak Oil and Peak Debt – Part 1

The economy is closely linked with the physical resources that underly it. Most economists assume debt can rise endlessly, just as they assume GDP can rise endlessly. But if there really is a limit that prevents oil supply from rising endlessly, it seems to me that there is also a corresponding limit that prevents debt from rising endlessly.

As I analyze the situation, it seems to me that here is really a two-way link between peak oil and peak debt:

1. Peak oil tends to cause peak debt. Some will argue with me about this, because they believe it is possible to decouple economic growth from energy growth, and in particular oil growth. As far as I am concerned, though, this decoupling is simply an unproven hypothesis–the normal connection is that a flattening or decline in energy supply causes a slowdown or actual decline in economic growth, and this slowdown causes a shift from an increase in the amount of debt, to a decrease in the amount of debt, as it did for US non-governmental loans in 2009 and 2010 (Figure 1).

Figure 1. US Domestic Debt, split between government debt (excluding Social Security) and non-governmental debt. Based on Federal Reserve Z.1 data. Excludes Foreign Debt.

Governments try to step in and keep the growth rate in debt up, but the gap is too great for them to make up. This tendency of governments to take on new debt (together with problems related to the original slowdown in economic growth) are reasons many governments have been getting into financial difficulty recently, in my view.

 2. Once debt growth peaks (shifts from growth to decline), we can expect a feed-back loop that will tend to make the peak oil decline even worse than it would otherwise be. 

In the current post, called “Part 1,” I will cover the first of these two issues; I will cover the second issue in Part 2.

The Relationship Between Growth and Debt

I have talked many times about the need for economic growth, in order to make our current system of borrowing money, and paying back loans with interest, work on the extensive basis that it is used today.

Figure 2. Two views of future growth

As long as the economy is expanding, as in Scenario 1, businesses feel confident that their future prospects will be better than they are today. As a result, businesses will borrow funds for new equipment and will be fairly confident they can pay back the loans with interest in the future. Governments will also borrow, knowing that they will likely have higher tax collections in the future. Because of these higher tax collections, the governments can expect to pay back the debt plus the interest on the debt.

In Scenario 1, even common citizens feel that debt is a reasonable prospect. If the individual loses his/her job, there is a good chance of getting a new one. With prospects for better wages  in the future (or at least no worse wages in the future), it makes sense to take out an automobile loan, or a student loan, or even a loan on a new home.

If the economy is expanding, promising Social Security benefits to future retirees looks like a safe prospect, as does promising Medicare benefits. Just as a “rising tide lifts all boats,” an expanding economic circle leaves room for more and more types of payments (Figure 3).

Figure 3. A growing economy makes allows room for interest and other payments, without crimping budgets.

If the economy starts contracting as in Scenario 2 of Figure 2 (or even stays the same size) then it becomes much more difficult to repay debt with interest, and to fulfill promises of future benefits, as illustrated in Figure 4.

Figure 4. Paying promises becomes much more difficult after economic decline.

Of course, in a contracting economy, there may still be a few instances where debt “makes sense.” These might include very short-term business loans, for example, covering goods in transit. They would also include some business loans where the economic return is high enough so the loan would make “economic sense” even if the interest rate includes a fairly high charge for risk of default (because of the declining economy) as part of the interest rate.

This decline in the level of debt becomes a real problem for countries, because the availability of debt tends to add to reported GDP. For example, if a person takes out a car loan and buys a car, the cost of the car gets added to GDP, even though the car is not yet paid for. The availability of debt financing also makes it possible for businesses to obtain capital for expansion, so the business can, for example, build more cars, without waiting for sufficient profits to accrue to have enough revenue to finance the expansion. Both of these activities tend make it easier to increase reported GDP.

What has happened in recent years, at least for the US, is that it seems to be taking greater and greater increases in debt to create a given increase in GDP.

Figure 5. Relationship of change in debt (private and government combined) to change in GDP.

This changing relationship may reflect the greater headwinds the economy is encountering, now that oil supply is tighter and oil prices are higher.

Declining oil availability (manifested as high oil prices) tends to lead to economic contraction

Oil  use, and energy use in general, tends to be tied to economic growth in many ways. Clearly there is a need for oil (or another energy product) to manufacture and transport goods, and to grow and transport food. Given the cars, trucks, trains, and farm equipment currently in use, it is not easy to change the dependence on oil quickly, either.

James Hamilton in his paper Historical Oil Shocks has shown that 10 out of 11 US recessions since World War II were preceded by oil price shocks. Charles Hall, Stephen Balogh, and David Murphy have shown that high oil prices tend to be correlated with recession. Robert Ayres and Benjamin Warr have analyzed the amount of work (in a physics sense) that is done by energy of various types. Using this data, they have developed a model explaining the vast majority of US real economic growth between 1900 and 2000, except for a residual of about 12% after 1975.

A comparison of annual increases in oil consumption with annual increases in world GDP in constant 2005 $ shows a close correlation.

Figure 6. Percent growth in world GDP vs percent growth in oil production. World GDP in constant 2005$ from World Bank; Oil consumption from BP.

In spite of all of this evidence, there are some who argue that it is not clear which direction the causation goes with respect to oil supply and economic growth–perhaps the only issue is that the world uses more oil when it is expanding, and less oil when it is contracting. With this belief, it is difficult to explain why oil price shocks would precede recessions, but some economists have learned this view in the past, and seem not to be open to looking at the evidence.

There is also a question as to whether we can move quickly away from this close relationship between oil and the economy. Vaclav Smil in Energy Transitions: History, Requirements and Prospects has shown that because of the very large amount of built infrastructure in place, in practice, energy transitions from one fuel to another take a very long time–30 to 50 years.

In spite of what Vaclav Smil has shown, there may be some possibilities for short-term decoupling. For example, if car-pooling suddenly becomes much more common, it could tend to change this relationship. It is not clear that such a change would be fast enough, or significant enough, to change the basic relationship, however.

Recent Debt Problems of Governments

Recent debt problems of governments seem to be related to a combination of (1) the tendency of high oil prices to cause recession and (2) the additional debt the governments have tried to take on, to stimulate the economy and to bail out failing banks and other businesses. Part of this debt may be taken on, to try to offset the decline in private debt.

In the United States, federal external debt started increasing more quickly immediately after oil prices hit their peak in July 2008 (Figure 7).

Figure 7. Average quarterly oil price and US Federal External Debt

Even with these huge increases in federal debt, the increase in governmental debt has not been able to offset the decline in debt held by businesses and private citizens, as shown in Figure 1 near the top of this post.

Governments around the world have been finding this additional debt burden increasingly difficult to handle. If nothing else, if interest cost of this debt becomes very burdensome, unless interest rates are very low. Furthermore, even when they do try to intervene, their debt doesn’t have quite the right effect–their new debt may buy a new road, but it doesn’t buy a new car for the consumer.

This combination of problems–recession caused by limited oil supply, increasing need for government debt because of shrinking private debt and need to stimulate the economy–is likely the cause of the debt problems that so many governments (including the US government) are experiencing today. Many European countries are experiencing problems as well–Greece, Portugal, and Spain, for example.

In Part 2, we will look at some of the feedbacks of peak debt that may have an impact on the shape of the peak oil downslope.

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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68 Responses to The Link Between Peak Oil and Peak Debt – Part 1

  1. Damia says:

    “There are some who argue that it is not clear which direction the causation goes with respect to oil supply and economic growth”. I guess it’s bidirectional, whatever it stops first, it drags the other one. If economic growth stops because of the intrinsic dynamics of the economy, then oil consumption will stop growing too. Otherwise, if oil supply stops growing, either due to a war or geological limitations, economic growth will not be possible. Until strong evidence of decoupling is provided, this seems the most plausible conclusion. As for the oil price, I guess both high economic growth (demand) or oil tight oil supply just before a crisis will drive the prices up.

  2. weaseldog says:

    Everything we do is bound by the available energy we have to work with. We can’t perform any sort of work using energy we don’t have.

    Even though it appears that our total liquids availability and other fossil fuels supplies seem to be growing at a modest pace, the energy per unit in these fuels is declining, as the energy we have to consume to produce them increases. It very probably that we are in a net energy decline.

    This means that the gross industry that our civilization is engaging in is in decline.

    I’ve been getting arguments for years that I ignore efficiency gains. That cars get better and better gas mileage. But cars don’t smelt steel. Cars don’t produce aluminum. Cars don’t fertilize crops or make cheap plastic crap.

    There are limits to efficiency gains, and when we reach those limits they’ll be no more give. The energy decline will continue to crush our economy.

    And there is a problem with energy efficiency improvements. It cost energy to replace current systems with more efficient ones. As we’re in a declining energy bubble, If we allocate more energy consumption to one sector of the economy, say to boost the sales of more efficient autos, then this will drive prices up, to limit production is some other area of he economy.

    We’re in a negative sum game. If there are winners, then that means there will be big losers.

    • Weaseldog,

      I agree with you. Efficiency is something that is easy to get, when we have lots of new supply and keep adding new more-efficient units. As the world gets poorer, it becomes increasingly difficult to add new more efficient units, without reducing units of something else.

      • Jan Steinman says:

        Efficiency is a chimera. HT Odum taught us that complexity is a function of energy, and that obtaining efficiency requires complexity. Thus, there exists a “maximum power point” it in the efficiency curve, beyond which, you are actually using more gross energy in pursuing efficiency than you would have had you stayed at the maximum power point.

        For example, why is it, that after some billion years of evolution, photosynthesis is not more efficient than it is? Chemical photosynthesis is about 7% efficient, and further gains come about through layering, so a multi-level forest is more efficient than a wheat field.

        Chasing efficiency has huge consequences. Scratching out a few more percent efficiency by using hybrid vehicles, for example, requires immense complexity in electronics, materials, and mechanics. The days when the average suburban dad worked on the family car with a wrench are long gone — today, it requires a $10,000 computer fault-code analyzer, and the resulting repair will likely require a long-tail supply chain that includes the semiconductor and software industries, in addition to the metallurgy and machining industries needed to produce older vehicles.

        Such complexity makes for fragile systems. We need to be working toward resilient systems. Efficiency has a place, but if it’s elevated to a place of worship, it will become our master, and an unforgiving one, at that.

  3. Stravinsky7 says:

    Also, in addition to total liquids having less avg. BTUs per liter, energy invested into the production of future energy cannot be counted in the total amount of energy available for “everything else”. And these energy inputs are only increasing.

    Those pie charts are very helpful, but the proportions apply to a generally shrinking economy. In a resource constrained economy, the slices for any constraining resource (particularly energy, and its dependants) increase in both relative And absolute terms, – taking an even bigger piece of the pie and leaving even less for “everything else”.

    While I’m posting, I would like to thank you Gail.. Long time reader @ TOD, and I love the new(ish) format!

    • The idea of bigger pie charts going forward is something I ran across when reading about how Social Security actuaries used to look at funding, and to some extent still do today. (Or maybe that was my mental image of what they were saying).

      You are right about the energy proportions being applicable to a shrinking pie going forward. You can imagine what this means for benefits for folks who aren’t working. If there is barely enough to go around, those who aren’t working are the ones most likely to take the cuts.

      • Stravinsky7 says:

        As in that group is a part of the “everything else”?

        Yikes. I hadn’t thought of it like that.

        Basically the energy portion of the economy increases geometrically because it is (raising value)/(smaller economy) as opposed to 1/(smaller economy).

        Seriously considering dropping to supplemental at the hospital to get a job at a local organic farm. What a mess.

        • Yes, the everything else portion of the economy must shrink, if we are spending more on food and energy. Health care is going to need to change. I had someone call me today and ask if I would participate on a team to author an academic paper talking about the need for healthcare to shrink, saying why this is necessary and how it might be done.

  4. Ed Pell says:

    Gail, I agree. The medium for the message is debt and finance. The message is your figure 2 in the future there will be less of everything. From this fact we can conclude that most will have less in the future. Now the only question is who gets the decreases and how much of a decrease?

    The system is not structured to adjust by a gradual decline. It will try every trick to go BAU until it falls off a cliff. Of course war is a perennial favorite of failing governments.😦

    • I think one of our problems is that on the way “up,” as the economy grew, we allocated more and more to a few top earners, and to corporate profits. The common people got less and less of the total. Somehow, we need to get the balance back again if there is a lot less, but the elected officials are all representing the “moneyed” classes. Healthcare is a particular group that got way too much (high salaries; too much utilization, relative to benefit for those with insurance), and the health outcomes have been terrible, relative to other countries.

      • Tom Hickey says:

        The problem is that the top saves more than it spends so there is demand leakage disrupting the circular flow of expenditure and revenue. There are two ways to address this. The first is to run fiscal deficits that offset the leakage and allow funds to continue to collect at the top. I oppose this solution since money is power and this skews the political equation, allowing the top to effectively capture the apparatus of the state.

        A better solution in my view is to tax away economic rent, that is, unproductive gain — return on a factor of production like capital in excess of what is necessary to bring a product to market. Technically speaking, economic rent includes land rent, monopoly rent, and financial rent. The existing tax code and and the push for “tax reform” reduces the rate or even exempts economic rents while transferring the tax burden to income, which is paid disproportionately by the middle and bottom, especially in the payroll tax.

        If the economic rents accumulating as savings at the top tier were taxed away, and transfer payments were increased at the middle and bottom, then the circular flow would be restored without undue political influence accumulating at the top. Of course, that would not be simple to change, since the top has already captured government and also created a propaganda machine to fool a large segment of the public into voting against its economic interest.

        For a currency sovereign like the US, taxation does not fund government. Issuance does. Deficits inject non-government net financial assets and taxation reduces NFA. Taxes serve the purpose of regulating effective demand in order to manage inflation, and also to as a mean of negative reinforcement of undesirable behavior.

        The US can always “afford” whatever available real resources allow. Distribution between the public and private sectors is a political issue, as is transfer of spending power in the private sector through economic policy. But taxes don’t “pay for” anything.

        • Ed Pell says:

          The US has to bid for global resource against other countries. If it only offers hyperinflated money versus another country offering real goods and services it will not get available real resources. Money is arbitrary but value is not.

      • Ed Pell says:

        I agree on the over funding of health care. I think there are two other sectors that are over funded education and security (police, military, spying). All three need to be brought back to the percentage levels they were at in say 1950. The wonderful thing about education is with a library card and some time you can learn many things (not to mention getting together with like minded people for discussion, like here). If you needs hands on you can work for someone in the field. I live in a town with zero police. All I recall is one burglary in the past 20 years (which may have been an inside white collar theft).

        • Tom Hickey says:

          Ed, Jeremy Grantham and Societe Generale both published reports recently showing that the post-WWII trend in which supply exceeded demand is now reversing and demand is exceeding supply. This is going to result in increasing global competition for natural resources and agricultural products, and rising commodity prices. This will lead to supply side price increases that look like inflation but are not of monetary origin and cannot be addressed other than by addressing the supply issue directly, e.g., by increasing productivity, conservation, and rationing (rising prices are rationing through the market).

        • schoffschoff says:

          Ed – I agree with you. education and security are overfunded. in fact at times in education i scratch my head as to how little the impact has been of technology on educational delivery cost/price, but that is about to change. at the post secondary level moving the federal government out of all funding would probably help enormously, but it would mean a regression to the mean and seeing 5% of the population being “liberal arts” educated at the undergraduate level as it was before ww2.

  5. Tom Hickey says:

    Finance is based on accounting. Everyone’s liability (debt) is someone else’s asset, and everyone’s expenditure is someone else’s revenue. The accounting is a record of flows which increase or decrease stocks over a period. The accounting record is a record of actual transactions that shift financial and real resources from one owner/user to another iaw preferences and indifference levels.

    What counts in the end is real resources. The accounting is just scorekeeping in terms of a unit of account. The fundamental real resource of economic consequence is energy, which turns the wheels of industry and agriculture. Intelligent allocation of financial resources must therefore be toward ensuring a continued supply of this fundamental real resource in a forn that is accessible and sustainable.

    In the US, the federal government is the only economic entity with the financial resources to fund the necessary R&D and infrastructure, in that a currency sovereign like the US is not operationally constrained. The federal government does not need to tax or borrow to fund itself, since it funds itself with direct issuance. Since it is the currency issuer, its capital cost is zero.

    What about the interest on the national debt? The national debt is actually non-government savings of net financial assets. Deficits are flows that inject net financial assets into non-government and these flows accumulate as the stock of non-government savings of net financial assets. The interest paid on the savings is someone’s revenue that contributes to the economy. Interest is paid with issuance.

    “Loanable funds,” “crowding out,” and Barro’s Ricardian equivalence are all based on gold standard thinking that is not applicable to the current monetary regime. There is no “money multiplier.” it is an ex post accounting residual rather than an ex ante cause.

    The only constraint on currency issuance is real. The government balance must not to create effective demand in excess of the potential of the real economy to expand to meet it with supply (real resources), or inflation will result. One the other hand, if effective demand is deficient, the economy will underperform, like now.

    An obvious solution is a government infrastructure bank, as well as fiscal expenditure on R&D. There is no affordability problem. The problem the country and world faces is whether humanity can increase productivity through technology to provide the real resources necessary to meet future demand over time.

    As Bucky Fuller observed decades ago, this is an engineering problem involving doing more with less. He also noted that it is a knowledge problem, and knowledge is in infinite supply. The task is coordination. In terms of evolutionary science, the problem we face now is increasing the adaptive rate as challenges mount and multiply. What is daunting is the scale and therefore the need to scale up solutions quickly. This is going to require a combined effort of the private and public sector globally.

    • Ed Pell says:

      On the real physical side we need to stop human population growth. Or least stop until technologies exist that can support increased numbers. I wish we had a computer model of the things we talk about then factors beyond the one under discussion would not be left out.

      • Tom Hickey says:

        Bucky Fuller observed that population growth rate declines with development. He correlated declining population with rural electrification, for instance. The problem for developed countries is declining population excluding immigration.

        • weaseldog says:

          Right, population growth slows with development.

          But there’s never been enough resources to bring everyone in the world up to that high level of consumption.

        • Tom Hickey says:

          And Malthus turned out to be wrong in his day because he did not anticipate the effect of technology and the multiplier effect of increasing productivity. This allowed the world to get to the point it is now at, and technological gains are not keeping pace with current circumstances.

          We need to pursue technological breakthroughs ASAP. While there’s no guarantee we can do it in the timeframe necessary to elude huge stress on the system, let’s not go down because we think we can’t “afford” to develop and deploy a solution.

        • weaseldog says:

          Mathus noted that the population size is dependent on the food supply.

          That if the food supply does not increase then it becomes a limiting factor to population growth.

          You’re not the first person to say that he’s been proven wrong. That with technology, the food supply can be held constant and the population can grow to infinity. That the two are decoupled.

          Can you elaborate on the theory on how human populations don’t require food? Or at the least how you can keep the food supply constant and keep increasing the population without limits?

    • I have no problem with everyone’s liability is someone else’s asset. The problem is that we need real things, like food, and clothing, and shoes, healthcare, and gasoline for vehicles. Governments can’t print these. If governments are going to make good on their promises, just printing $$ is not enough. There have to be real hard wealth available with those dollars, in sufficient quantities to meet the needs of people.

      The problem is that if the amount of real resources goes down, there are going to be a lot of disappointed asset holders, because the bonds or stocks or whatever kind of paper asset they have is not going to purchase much real goods. Of the debt holder will default, and the result will be similar, but through a different route. Once there is a decline in resources in the future, relative to today, “borrowing from the future,” as we do on loans, no longer makes sense.

      • Tom Hickey says:

        We need to be focusing on the availability of real resources and realize that affordability is no problem for the federal government as currency issuer. Under the present system, Treasury issuance is not even required operationally. The interest on tsys is a subsidy for bondholders that should be eliminated. Why should anyone be paid for occupying a default-risk-free parking place?

        Looking to what bondholders might think for do in the future instead of what real resources are likely to be needed then is just suicidal. Moreover, it is completely unnecessary if one understands how the existing monetary system works. Notice that all the talk about default now centers on willingness to pay, not ability to pay.

        A nation that issues a non-convertible floating rate currency cannot be forced into insolvency, since it can always credit bank accounts with a key stroke. Again, there is never a problem with currency issuance as long as real resources exist to meet effective demand. The issue is making sure that the real resources are available in the present and will continue to be available in the future.

        • A country that cannot keep its promises to its citizens in terms of services that it provides (schools, roads, unemployment insurance, insurance of banks, Social Security, Medicare, law and order, etc) has a fairly short life expectancy, because citizens will revolt and “throw the bums out”. Whether or not they will replace the government with a similar new government, using the same constitution is an open question. With the slow turnover of the US government, I would find this questionable.

          You are right about the government being able to print dollars. The problem is that it can’t print resources. It needs real resources to make good on its promises (or the dollars it issues need to have enough value, that the people receiving them can purchase the goods and services they need). In a declining resource world, the government’s ability to obtain the resources it needs to make good on its promises goes way down. This might happen through a drop in the value of the dollar, or though unwillingness of those selling goods we need to take $$ in return. If we are dealing with less resources in total, and lots of countries printing money, it doesn’t make the amount of resources greater.

    • Ikonoclast says:

      I think Tom Hickey sums it up well. The money theory he puts forward seems to be MMT (Modern Monetary Theory) or under its old name, Chartalism. MMT is correct in regarding the government, as issuer of fiat currency, as being able to finance itself without incurring debt. The old term for this is “printing money”. It is fine to print money (run a deficit) in a slump and/or when unemployment is high and infrastructure or other emergency expenditure is needed. The caveat is that the currency must not be dabased too far or it leads to hyperinflation. An infrastructure bank is an excellent idea. A Zero Carbon Emissions and Renewable Energy section would be a necessary part of this bank.

      We are entering an energy and material resources constrained era. The world economy has two choices. We can keep flying high and then crash from a great height with close to 100% global fatalities. Or we can seek to perform a controlled crash-landing of the economy into the new renewables era. Then maybe 50% of the passengers of planet earth can be saved.

      • Tom Hickey says:

        Right. This is the MMT approach.

        I would simply add here that the road to hyperinflation is not “over-printing” per se. Rather, it is over issuance wrt to availability of resources. The way that hyperinflation can occur is when supply side price increases begin to be matched with wage price pressure that government accommodates monetarily instead of addressing the supply issue directly. This can spiral out of control.

        The best way to avoid supply problems is not to get there in the first place by instituting policy that addresses potential shortages and bottlenecks early on — when there is time, for example, to develop and scale up a technological solution. MMT shows how the technology is always affordable for the currency issuer. We must recognize this and get to work ASAP on real problems that loom instead of grappling with financial pseudoproblems and ideological bogeymen.

  6. weaseldog says:

    Computer models of these things are easy to construct. The starting math is essentially the same as what you would use for an amortization schedule.

    I’ve been playing with various scenarios using tools as simple as Excel spreadsheets for years. All that’s done is make a pessimist out of me.

    Ending population growth is an easy thing to model. Just take current consumption rates and extend them out until all of the resources are gone. Of course, that isn’t very informative. What you could do is model flat population levels against resource decline and see when the pain kicks in again. You’ll find there is much breathing room.

    We’re in the crash now. Major food shortages should be on the near term horizon from a variety of factors. Ten years from now, we’ll be looking back on this as the good old days.

    Sometimes there are no solutions. There are simply mitigations.

    • There are a lot of people around the world that are already on the edge–with barely enough to eat, and not much for other necessities. These people don’t have anywhere to drop to. There are even a fair number of people on the edge here in the United States–many of our young people, for example, who can’t find reasonable jobs, and are just barely getting by.While it is possible to model what would happen to the average person, the reality is that there are big differences around that average.

      Also, the way the down slope comes doesn’t have to be the way we expect it. If we lose electrical service, for example, I expect our bank accounts will be pretty much gone. So will our ability to use our vehicles, because transporting gasoline by pipeline and pumping it both require electricity.

      Or lack of water supply in a major city might mean that pretty much everyone needs to move, immediately, but with no welcoming destination.

      • weaseldog says:

        Right Gail. We have criticalities in our future. Break downs that will ripple through our system causing other unexpected breakdowns.

        And with the food shortages will come mass starvation.

        Argentina has already been given a taste of this. Many families haven’t been able to to get enough food, and infant and elderly mortality is rapidly trending upwards. The crisis began soon after Cinta was sold the railroads for pennies on the dollar by Bank of America and Goldman Sachs. Cinta shipped all of the locomotives out of the country and thousands of factories were forced to close.

        This was a part of Argentina’s Austerity program, planned by the same folks that are working on Europe and currently hold top economic positions in the USA. Cinta-Zachry is now working on deals to buy major interstates in the USA.

        Other austerity plans in other countries include buying up city water supplies while increasing rates, and reducing maintenance. Normally the collecting of rain water and the use of water wells is made illegal. Disease outbreaks in South America have been attributed to this practice.

        Where there is misery, there is a buck to be made.WE

        • Ed Pell says:

          I am glad someone else noticed what they did to Argentina. They stole ownership of every thing that was public. They will do the same in the EU and US. I hope China is smart enough to ignore them.

          • I think people have an impression that however ownership is today, it will always be the case. But looking back through history, this certainly is not the case.

            You mentioned Argentina. I knew a woman who grew up in Argentina, and whose parents were still in Argentina, at the time that they told people that no matter how much they had in their bank accounts, they could one take out a certain amount ($200 ??) per week. They lost other assets at the same time.

            In China, there are some lovely public parks that are land/gardens/homes taken away from rich people, during one of the reform periods.

            Land in many countries was more or less held in common, before “modern” capitalistic approaches were brought in—eventually evolving to big companies owning large plots of land, and workers working for the mega-farms. These can’t continue in their current form long-term. Something needs to happen to change the situation.

        • schoffschoff says:

          I’d like to note that you don’t have to sell your water supply to a heartless capitalist to get this outcome. Washington DC did a fair job at this for 15 years as a public water entity by suspending infrastructure work and using the cash flow for good things like education, community activists, and entertainment complex investments. It worked for awhile.

  7. Ian says:

    Gail, there is a typo 8 paragraphs from the bottom. The words “relationship” and “between” need to be swapped.

  8. Doug W. says:

    Gail, I have a friend who is an energy industry insider and maintains that natural gas will be the fuel we transition to, and that it will be relatively easy to do. As you note, Smil would say that such a transition would take decades. What infrastructure challenges do you see in transitioning to natural gas as an alternative to oil?

  9. Ian says:

    Gail, your post is very interesting and thought provoking. I conclude from your essay that this country must make huge investments in potential alternative energy sources today. The political debate over the debt ceiling is a diversion from the real problems we face. This country has benefitted greatly over the years from its capitalistic nature, but we need long term invesments right now and the private sector is focused on short to medium term profits.

    • Alternative energy sources are very much part of the current oil based system. I don’t see them as having any long term value, so I don’t see much point in ramping them up.

      Biofuels are a way of increasing oil supply, by extracting natural gas and coal more quickly (and increasing CO2 in the process), and using the biofuel processes to convert them to a liquid fuel. (Sort of like gas-to-liquid and coal-to-liquid, but not so obvious.) Our ability to make them depends very much on our ability to power farm equipment with oil based fuels, and to transport the goods to market using diesel fuel. Also, most of them are not chemically equivalent to the fuels vehicles and other equipment were designed for, so they can be added only in small quantities to oil based fuels. So biofuels can be expected to decrease at about the same rate as oil based fuels.

      Wind and solar PV provide intermittent electricity to the grid. Electric cars take electricity from the grid, in an intermittent fashion. They make the grid less stable, rather than more stable. None of them last longer than we are able to maintain the electric grid, using oil based equipment, and traveling over roads that are also maintained with oil based equipment. Wind and solar PV are themselves made with fossil fuels, and transported using oil-based equipment.

      We make calculations on how much value wind and solar PV will add, based on optimistic estimates of how long they will be able to operate, as part of the grid (and also overlooking the grid upgrades that would be needed to make this happen).

  10. Ikonoclast says:

    A few comments in the last 2 posts need some follow up comment. Doug W. talks about transitioning to natural gas. There are a number of issues here, some good, some bad. First, it is still a fossil fuel so it will still stoke global warming. Second, it’s the least worst of the fossil fuels and produces more energy for less CO2 emitted than other fossil fuels (due to the CH4 structure of methane, the most common constituent of most natural gas). Third, internal combustion engines can be re-tuned to burn natural gas, so existing stock (and infrastruture) remains useful. Fourth, tundra releases of methane should be collected where it is feasible and even borderline economic, as burning it to CO2 is better than letting straight methae into the atmosphere. Fifth, attempts to exploit methane clathrates from the seabed should be totally discouraged due to the dangers of precicipitating climatically disastrous metahne releases.

    Lastly, and very importantly, it might be possible for very large scale solar to produce methane from CO2 and H2O (releasing oxygen in the process). The oxygen could be compressed and bottled as a side product. This methane is greenhouse neutral as it made and then burnt in a full chemical cycle using and then re-releasing the CO2. Such methane might be enough to run service and emergency vehicles, police, ambulance, fire etc. Mass transit would be electric (from solar) plus bicycle and foot.

    Ian said, “This country has benefitted greatly over the years from its capitalistic nature.” I wonder if this is wholly true. Surely, the current crisis proves that growth capitalism is maladaptive in the long run. There are also many other past skeletons in capitalism’s closet. However, best we look forward and admit growth capitalism is maladaptive in a finite world. We must produce a steady state renewable economy (no other reality is possible) even if this is as Gail says, an economy at a much lower level. However, I think there is some hope for a steady state renewable economy which might support about 3.5 billion at best and maybe 1 billion at worst. The worse case scenario perhaps could be even worse than that if we do too much damage to the earth’s biosphere and its carrying capicity for mid-size to large mammals.

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