Headed for a lower standard of living?

The amount of oil that is extracted from the ground each year has been close to flat since 2005, regardless of what has happened to price. Since world population has been growing, this means less and less is available for each person. We use oil in many important ways, including growing food, manufacturing and transporting goods, and in some parts of the world, heating homes. There is a clear tie of oil with standard of living. If we have less oil, the tendency is for people’s standard of living to drop.

Figure 1. OPEC and Non-OPEC Oil Production, Compared to Oil Price. (Production is Crude and Condensate from EIA.)

The “natural” approach for fixing this problem is recession and debt defaults. With limited oil supply, oil prices rise. As oil prices rise, the higher prices leave less funding for everything else, because oil is important for many necessities–food and commuting expenses particularly. A person who pays more for food and commuting expenses will cut back on discretionary spending. This leads to layoffs in market segments affected by cutbacks in discretionary spending–especially construction of new homes, building of cars, restaurant spending, and donations to charitable organizations. Those laid off tend to default on loans. Others default as well, especially those who were living “at the edge,” before oil prices rose.

The government tries to fix the problem by “stimulus,” and temporarily “fixes” the situation. This temporarily hides the situation in the governmental sector. What happens, though, is that the government finds itself with increasing debt levels because of its stimulus efforts, and inadequate taxes, because so many have been laid off work, and are not contributing to the tax base.

All of this leads to governmental debt problems, including the United States’ problems with debt limits, and the problems many European countries are having with debt.

How does all of this get fixed? Basically, what the natural system does is push us towards a lower standard of living. This is very uncomfortable. If we need to spend more on food and required energy supplies (as for commuting), we have less to spend on other things. People who are unemployed end up moving in with friends or relatives with jobs. Young adults live with their parents longer. Most of us cut back on discretionary spending.

There are a few ways we can theoretically solve our problem:

1. All of the world could cut back on their standard of living, and reduce their demand for oil products this way. It is hard to see this happening voluntarily. If oil supply should actually decline in the future, multiple cuts in standard of living will be needed.

2. Some parts of the world could cut back on their standard of living, and let the rest of the world live better. Government leaders may push for this, but it is hard to see the population of countries voluntarily accepting this result.

3. Cut back on some parts of the economy that are not critical, so as to try to save the standard of living with respect to the rest of the economy. One that comes to mind is military spending. Another that is often targeted is personal auto use, but if more efficient cars are sold, this change phases in slowly, so is not very effective in the short term. If only few countries cut back, the result is similar to (2) above, however, with the slightly lower oil prices because of the cutbacks benefitting those who choose not to cut back.

4. Ramp up alternative energy supplies to try to offset the shortfall. This approach has been most successful in China and India, where coal supplies have been ramped up greatly, but with negative environmental consequences. When alternative forms of energy are expensive (most energy sources that need subsidies), it is doubtful that the economy benefits at all–the result is just more recession and debt defaults.

Figure 2. World coal consumption by area, based on BP data.

5. Drill for more oil in the US. This doesn’t do very much, very quickly, unfortunately, because of long lead times, and because the most promising areas have already been drilled.

6. Start fighting with each other over the resources that are available, so that declining standard of living is less of an issue for the “winner.” Wars are likely to use up a lot of resources, and don’t really solve the underlying problem.

7. Encourage limited family sizes (one child per family (?)), so that resources will stretch better in the future. It is hard to get agreement on this, however, and the change is very slow to have an effect on total population.

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It is hard to see that any of these approaches will lead to very satisfactory outcomes, in short enough time frames. Ultimately, we are all likely to find ourselves with lower standards of living. This is something governments find it very difficult to talk about and plan for. Perhaps if we could start facing up to the real issues we are dealing with, it would be easier to find mitigations for our problems.

This entry was posted in Energy policy, Financial Implications by Gail Tverberg. Bookmark the permalink.

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 financial problems for oil producers and for oil exporting countries. We are really dealing with a physics problem that affects many parts of the economy at once, including wages and the financial system. I try to look at the overall problem.

66 thoughts on “Headed for a lower standard of living?

  1. I think’s it’s absurd to try to save everyone. It’s that kind of thinking that has the more religous folks labeling science as “another religion”. If we really want to promote rationality, why not let thosw who refuse to heed the warnings of the experts perish? Let nature weed them out. In biology, it’s called “evolutionary pressure.” It’s natural. If their kind of thinking will lead to doom, then let it lead to doom. Let nature do its work.

    I k thin Noah’s Ark solution or an enclave solution would be more plausible. Of course, that entails having a good idea what the world is going to look like in 200 years and the ability to start planning for that situation now, Wishful thinking, I know.

  2. I think’s it’s absurd to try to save everyone. It’s that kind of thinking that has the more religous folks labeling science as “another religion”. If we really want to promote rationality, why not let thosw who refuse to heed the warnings of the experts perish? Let nature weed them out. In biology, it’s called “evolutionary pressure.” It’s natural. If their kind of thinking will lead to doom, then let it lead to doom. Let nature do its work.

    A Noah’s Ark solution or an enclave solution might be more plausible. Of course, that entails having a good idea what the world is going to look like in 200 years and the ability to start planning for that situation now, Wishful thinking, I know.

  3. Dave and others above,

    Whatever your reasons may be, we seem to agree that humans are unlikely, as a group of nearly seven billion of us, to change the numerous courses history has us on today in order to “save ourselves.” The vast majority don’t even think we need saving.

    Whatever your religious preferences, economic goals, etc., we remain an animal species on a planet dominated by physical laws that we cannot reshape to our own liking. H. sapiens has been around for about 200,000 years, but we’ve been in the era of cheap fossil fuels for only the last couple of centuries, and it has tainted our views of ourselves and shaped our hubris. However much people talk today about population growth, 2011 is on a path to add another 80 million or so people this year (140 million births, 60 million deaths). Little distortions like Somalia, however tragic, won’t change this.

    Any clear reading of the longer geological record shows one thing for sure: all species go extinct. There is no reason to believe that humans will be an exception.

    • Hi Gary,

      Overall, I suspect you are right. However, it seems that humans do actually have the capability to be an exception to the usual extinction process as we are more aware of the factors that influence our survival than other species. This doesn’t mean we will actually use that capability.

      I don’t think in terms of “saving ourselves”, rather a more modest goal of mitigating some of the worst possible consequences of our current path and perhaps avoiding extinction.

      I suspect that someday we will seriously consider the physical laws of living on this planet and attempt to avoid extinction. How soon and how effective is the real question. On one hand, I think it is technically possible to avoid massive, sudden, die-offs. On the other hand, I’m not very hopeful we will rise to the occasion. Also, I find it a bit callous to simply say “tough luck” and not make much effort to speak about the issues. Of course, the folks who comment here (from any POV) are actually speaking out about the issues – maybe we help in some tiny way.

  4. You are absolutely correct, but I also see little effort except on the efficiency side (recycling, CAFE standards, etc), and even those efforts are puny. Population control will be too slow unless we have a massive pandemic and I see insufficient effort to make much of a dent in the non-fossil energy supply. My back-of-the-envelope calculations suggest that we would need to spend $1-2 trillion per year for thirty years just to convert the US over to renewable energy. Theoretically possible, but not likely.

    What continues to astound me is that even though everyone has known that it will always take energy to get resources into peoples hands and mouths, we have allowed a finite source of energy to become the principle source of energy. Everyone in power, except perhaps Jimmy, has ignored the simple question – “What do we do when the fossil fuels we are using run out”? How silly we have been to work ourselves into a dead end.

    • The back of the envelope stuff is pretty scary. Projecting 50GW of PV manufacturing capability next year (a bit aggressive maybe), making some standard assumptions about
      the duty cycle and picking actually “sunny” countries, it takes many years to get them done.
      (Obviously i’m ignoring storage and the funding).

      What is an interesting question that Gail might consider someday is the kind of life you build with an intermittent grid, or intermittent household electrification. This seems increasingly true in a number of countries and they cope to some degree or another. Water is pumped during the day by PV or grid availability into elevated tanks, email is sent then, some batteries are charge for small lighting (especially to read or educate by), etc….

      • Writing about an intermittent grid sounds like a good idea. I don’t think I would like to have a baby when the grid is down, or drive when traffic signals are on part of the time and off part of the time. (Afternoon thunderstorm already give us a peak at what this looks like). Walking down from the 50th level of an office building would be interesting. (Walking up would be even more interesting.) Gas stations would only dispense gasoline when the electricity is on. It would take quite a bit of planning to work around.

        • Those are good points. An unscheduled intermittent grid would cause the abandonment of floors 6-60 undoubtedly. The Japanese certainly tried scheduling, and the British did this in the 70’s. Isn’t this what the smartgrid euphemism “demand management” is all about though?

          Drawing up that scenario might be that Hospitals in fact get 24×7, residences that stay under 1000kwh/month never get cut off, but those above 1000kwh/month get cutoff at sundown during the Summer.

          Interestingly I was looking at airconditioning systems that freeze water, but they all want to do it at night (midnight to 6am) due to assumption of lower electric rates (off peak) and cooler outside temps for the cycle. I of course have excess electricity during the day from my PV……

      • In the mid-1990’s my wife & I lived with what I would call an «unreliable» grid; it was not as far gone as «intermittent». We had a nice apartment in Mexico City (the Polanco neighborhood), on what in the US is called the 6th floor (in Mexico, the 1st floor is the 1st one up from the ground floor, so to get off the elevator on our floor we pushed the 5-button). Carrying groceries upstairs when the power was off was a workout, but we were peppy youngsters in our 50’s then. What was bad was being in the elevator, between floors, when the electricity went out.

        Upscale hospitals, banks (& ATM’s), the Metro, etc. had backup power. Upscale stores, too; downscale stores never had cash registers, just cash boxes and calculators; midscale stores made do thanks to the great Mexican work ethic. And almost all the restaurants served great food, regardless of the state of the grid. (It is said that you could not find a bad restaurant in Mexico City; we found one, on the ground floor of the building where my wife had her office.)

        In the office (we also worked at home), we quickly got to appreciate laptops for the battery; I never did learn to regularly enough.

        Of course we had candles. We envied neighbors with an Alladin lamp. But the outages were never long enough or frequent enough to inspire us to shell out for one. And we loved our French-press coffee makers. (Mexicans drink instant coffee. Heathen barbarians! The French occupation, for naught.)

        I could go on, but I think the point is clear: an unreliable electric grid was certainly an annoyance, but it had little effect on our quality of life.

  5. Dave,

    The geological record provides no hope for the long-term survival of our species. In the meantime we are rapidly altering Earth’s environment, mostly for the worst, because we so love our current economic system, which, like cancer, depends on sustained growth to keep it alive. Economists and other humans are free to deny the laws of thermodynamics; Earth cannot.

    Shelley caught for us a moment of human hubris that should make everyone think, but thinking has become unAmerican.

    I met a traveller from an antique land
    Who said: “Two vast and trunkless legs of stone
    Stand in the desert. Near them on the sand,
    Half sunk, a shattered visage lies, whose frown
    And wrinkled lip and sneer of cold command
    Tell that its sculptor well those passions read
    Which yet survive, stamped on these lifeless things,
    The hand that mocked them and the heart that fed.
    And on the pedestal these words appear:
    `My name is Ozymandias, King of Kings:
    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”.

    Dave, I have spent decades trying to focus attention on population growth as one of the most obvious and controllable factors in our struggle with the planet. Since I started my career the world’s population has nearly doubled, so my impact has been infinitesimally small or nonexistent. Human hubris will lead us to the brink, if not to extinction. Though as you suggest, we are smart and may be able to escape that fate, you also suggest, and history supports, the notion that we probably won’t.

    Long ago our behavior gradually shifted from cooperation (illustrated for example by the Potlatch communities of the Pacific northwest) to competition (illustrated by the U.S. and most market economies today). Shakespeare was probably right or close when he described a human life as “a tale full of sound and fury, signifying nothing.”

  6. Every day I think about it, I get more pessimistic. I am always looking for pointers that say that it’s going to be better but the amount of debt in the world just keeps increasing (visit the economists world debt clock).
    Effectively every dollar that we take in debt is a draw on our future money and resources, things which we don’t have now, the world is banking on an unstoppable growth in GDP for years to come by the looks of it, and when this illusion of unending growth stops it will take down all debt with it and all current and future investments by definition.

  7. BTW I am a heavy skeptic and this is from Michael Moores movie Sicko one which some of you might disagree with. And if it does then what will this new order be and what affect will it have on the living standards of Americans? Just what can we do to stop this equalization with the rest of the world where we are dragged down to their level?

  8. Gail – Have been thinking about the next essay for my blog. It was going to be called “On The Way Down: Hope is Doing”. I think I will write one on living with intermittent grid since I lived 30 years without outside power, the first ten without electricity in my home, the next 20 with electricity from the wind and sun which was stored in batteries but which required judicious use when neither the sun or wind was giving me juice.
    The “Hope is Doing” concept comes from a speech I gave at a cancer RelayForLife about my experience during and right after treatment.

    • sounds like a great article. it would be great if you could find a co-author who did an appendix to it on intermittent grid in the 3rd world. the DR comes to mind, if you are interested i might be able to scare someone up, if you don’t have someone from Paksitan, Bangladesh, Liberia, DR,…………………

      love “hope is doing”

  9. would be interested in connecting with someone later. I have several essays in the pipeline meaning my head but am way to busy and exhausted to be writing too much. After growing and building season – October plus. Am preparing to build a greenhouse of my design for a northern climate. Laying the base before winter so I can build first thing in the spring.

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