Where do continued high oil prices lead us?

We know high oil prices have an adverse impact on the economy, often leading to recession. According to Economist James Hamilton, 10 out of 11 of US recessions since World War II have been associated with oil price spikes. But where do continuing high oil prices lead us? How will economic contraction “play out,” if tight oil supply and high oil prices continue?

Figure 1. Structure built with blocks. (Barkless tree blocks from http://www.childmode.com) Our economy is also built piece by piece, based on the rules and prices that are in effect when individual decisions are made.

Clearly there are many possible ways forward. Using Figure 1 as an analogy, there is the theoretical possibility of continuing to build our economy to ever-higher heights, as we are told by economists and politicians, despite the obstacle of high oil prices. There is the possibility of taking down parts of the economy, and rebuilding in a more fuel-efficient manner. There is also the theoretical possibility of eliminating unneeded parts of the economic structure we have built to date, so that the structure is more compact. And, unfortunately, there is also the possibility that a major portion of what we have built to date will inadvertently be knocked down, as constricted oil supply makes its effects known.

Before discussing what paths may lie ahead, I would like to talk about how contraction of an economy differs from continued expansion.

Economic Expansion vs. Economic Contraction

It is easy to assume that economic contraction is similar to economic expansion, just with the sign reversed, but anyone who has lived through the last few years knows that this is not the case.

For example, on the way up, it appears that the size of the current economic system easily “scales” upward, as the economy grows. The number of available workers gradually rises, as does the number of job openings, and the amount of goods and services produced. Everything rises together, and the system “works”.

On the way down, there is a good deal more “stickiness” to the system. There are now seven billion people on the planet, and they all would like to eat on a regular basis. There are perhaps two-thirds as many potential workers, and most of them would like to have jobs, even if the economy is contracting, and their particular job is disappearing.

Another issue is that we have built millions of miles of electrical transmission, oil and gas pipelines, water and sewer pipelines, and roads. It becomes difficult to abandon parts of these systems, even if total resources for maintaining the system are constricted. If we think of the situation in terms of tax dollars (or charges by utility companies), it becomes increasingly difficult to collect enough tax dollars (or utility charges) to pay for the inflated cost of replacing worn out roads, pipelines, and electrical transmission, as the rising price of oil makes these costs rise much more rapidly than salaries.

Figure 2. Repaying loans is easy in a growing economy, but much more difficult in a shrinking economy.

Another issue is debt repayment (Figure 2). We are used to an ever-expanding economy, where future goods and services produced will always be greater than those produced this year. As long as this growth pattern persists, our system of long-term financing of major expenditures, even if the expenditures are not really income producing, can continue. For example, we are able to buy homes with 20 or 30 year loans, and governments are able to continue borrowing, claiming that they will have more funds to repay loans (with interest) in the future. Once the situation changes to a shrinking economy, it becomes much more difficult to repay loans, and the financial system quickly reaches the risk of collapsing, due to multiple debt defaults.

A related issue is that of financing a new or expanding company. If the economy continues to grow, investment in a new company is likely to make sense because the value of the company can be expected to grow as the demand for products of the type it sells continues to grow. But if it becomes clear that the economy is on a path of long-term contraction, the possibility of failure within a few years rises, so new investment makes much less sense.

Where may continued high oil prices lead?

1. Widespread loan defaults, leading to far less international trade and the manufacture of fewer high-tech goods.

This is my personal view as to a likely outcome of continued high oil prices, unless some approach is developed that will somehow allow economic growth to continue, despite limited oil supply and high oil prices. Renewables at this point are higher priced, and not helpful in this regard.

In this situation, widespread loan defaults would lead to impaired credit availability and difficulty in arranging international trade. Individual countries would presumably continue to issue their own currency, so local trade would continue. In the new environment, countries with debt default problems, such as Greece, would likely have difficulty buying oil (and other scarce goods) without something (besides Drachma) to trade in return.

With limited international trade, there would likely be disruptions to oil and gas extraction, since workers and equipment are traded internationally today. At some point, it may be difficult to make high-tech goods like computers, because of the difficulty in assembling the many inputs from sources around the world.

Political disruptions would seem to be likely as well. Some countries may even see civil war. Some countries may even break into smaller units, similar to the way the Soviet Union did in 1991.

The timing is not clear, but disruption could come as soon as the next few months. The current problems with debt defaults in Europe would seem to have the possibility of spreading to banks and other financial institutions around the world.

We don’t know how much of the system such a contraction would pull down. It seems to me that in the analogy of Figure 1, some vulnerable sections (like Greece) could be pulled down first, with others falling later. Bailouts may help temporarily, but at some point, the bailouts are likely to fail as well, because the underlying problem of restricted oil supply has not been fixed.

2. Planned contraction, with certain parts of the economy left behind.

In this approach, particular unneeded segments of the economy would be discarded. For example, President Obama is planning military cuts. President Obama is also talking about merging agencies and eliminating the Commerce Department.

In a shrinking economy, changes of these types are certainly needed. The problem is that the amount of shrinkage that is being proposed is far too small to have much impact.

Another type of contraction that has been suggested relates to expenditures which seem unnecessary. For example, the US medical care system could be scaled back, because healthcare expenditures in the US accounted for 17.6% of GDP in 2009, far more than for other developed nations. Another area which might be scaled back is animal production on industrialized farms, since corn-fed animals are not good for health, and since the huge amount of meat we eat contributes to global warming. These are just two examples; each of us could name favorite boondoggles to eliminate.

The problem is trying to get agreement on any kind of contraction, such as these. Our current system is the only one most of us have ever known. Most people are not aware of our need for change, and would resist changing what appears to be working at least somewhat well. Employees in the current systems would certainly be unhappy, because they would stand a chance of losing their jobs.

If changes such as these could be made, it would be one way of contracting the current system, hopefully without crashing it.

3. Contraction away from the poles and other areas with bad climactic conditions.

This appears to be a natural approach to contraction.

It takes more fuel to heat homes near the poles. Homes also have to be built more substantially. If we look back at the historical record, populations have tended to be highest in warm climates–India, fairly warm areas in China, and the Middle East. According to scholar Angus Maddison, about 75% of the world’s population lived in these areas in the year 0 AD, and even in 2008, 68% of the world’s population lived in Asia. Northern countries of Europe and America have tended to have lower populations, but higher average real GDP (fueled by fossil fuels).

This past week, newspapers discussed Nome, Alaska’s fuel shortage. They reported that a Russian fuel tanker was being used to deliver additional oil. If oil prices stay high, we will have an increasingly difficult time supporting populations that disproportionately need oil, such as those in very cold areas.

High oil prices may also limit the amount of infrastructure repairs that can be done. If this happens, decisions will need to be made regarding which roads not to repave and which electric transmission lines not to maintain. I would expect that infrastructure that serves the fewest people would be most likely to be subject to cutbacks.  These areas are likely to be in areas that are unattractive for settlement because they are very cold or very dry.

4. A transition back to “old” renewables

In my view, there are two kinds of renewables:

(1) Old renewables, like wood, and small wind and water power that can be replenished with local materials. This category would probably also include draft animals. It would also include solar thermal water heaters, similar to hot water bottles that can be left out in the sun to heat water, since they can be made simply with recycled materials.

(2) New renewables, like electricity from large industrially produced wind turbines, solar electric, and large hydro-electric dams, that require modern technology for building and repairs. Electric cars might also be in this category.

In this section, I am discussing the first of these categories, Old Renewables. One concern is that at some point, perhaps many years from now, today’s whole economic structure will collapse (Figure 1). How this would play out is unknown. Perhaps we could continue to reuse parts of our current system. If not (for example, if difficulties with international trade greatly reduce access to fossil fuels), we may be faced with creating a new economy, based primarily on “old renewables”.

The problem with this outcome is that old renewables are quite limited in their quantity. The world could not possibly support seven billion people. McEvedy and Jones, in Atlas of World Population History, estimate that if human population followed the population patterns of similar animals (gorillas and chimpanzees), world human population would be somewhere in the range of 70,000 and 1,000,000. This was the approximate probable initial human population, about 200,000 years ago.

Human population gradually grew, reflecting mankind’s ability to appropriate resources for its use beyond what its normal role in the ecosystem would allow.  McEvedy and Jones estimate that human populations grew to 1.7 million by 100,000 BC and to 4.0 million by 10,000 BC. Over time, humans gradually increased their ability to operate outside ecosystem boundaries, killing off other species, domesticating animals, and using resources such as water power, wind power, and burning wood and peat. Total world population grew as follows, according to Angus Maddison:

1 AD – 225,820,000

1000 AD – 267,000,000

1500 AD – 438,428,000

1820 AD – 1,041,708,000

How far back population would fall in the case of collapse is not at all certain. As long as humans keep their ability to appropriate resources that might theoretically be shared by other species, their numbers will remain high. This propensity, however, is what leads to the tendency toward renewed growth, and new pressure on resource availability.

5. A transition to “new” renewables

Some people are hoping for a transition to new renewables–“unbuilding” the fossil fuel structure that we have, and trying to build a new one based on renewables instead. This approach may be appropriate for some wealthy individuals, but it is not clear that it has significant feasibility for society as a whole, because the cost of most new renewables is higher than that of the fuels they replace, making the high oil price problem worse, not better. If new renewables drop in price, this situation may change.

The extent of today’s new renewables is less than many people understand. In the United States, renewable energy (including hydroelectric, biofuels, wood burned as fuel, geothermal, wind, and solar) amounted to 5.4% of total energy consumed in 2010, according to BP energy statistics. If we lived on today’s renewables alone, our per capita energy consumption would be roughly equivalent to that of India. India generally does not need fuel for heating, while we in the United States do. Taking into account the differing fuel needs, the average US citizen living on renewables alone would be somewhat worse off than today’s citizen of India.

The other issue that people tend not to be aware of is that new renewables, as they are built and used today, are very much part of the fossil fuel system. They are built using fossil fuels, and they are maintained using fossil fuels. Except for biofuels, they depend on electric transmission lines, and these need to maintained with fossil fuels as well. Furthermore, if we are to maintain electric transmission lines, we need oil to maintain the roads that lead to the lines.

We probably also need international trade to maintain new renewables, because replacement parts use minerals from many parts of the world, and depend on the availability of computerized systems to support production. If financial problems disrupt international trade, we may find that our “renewable” systems degrade quite quickly, because we are not able to maintain them properly.

Nevertheless, there is a possibility that new renewables will soften the economic fall for those who have access to them, especially if issues of repairs can be kept at a minimum. Because of this, new renewables such as solar PV remain a popular choice among people who are concerned about continued economic contraction.

6. The “Just Use Less” approach

If oil prices remain high, this view suggests that finding ways to use less should be our primary response oil limits. For example, responses might include planting gardens near home, getting people to change their light bulbs for more energy-efficient models, and building more fuel-efficient cars.

While this approach has merit, it is not clear that this approach, in and of itself, is more than a small part of the solution, because of the bigger picture issues that are causing major strains on the system. Saving fuel in one place puts financial strains on other parts of the system. For example, a utility that fails because of bankruptcy could reduce electricity availability. What appear to be frivolous uses of our current systems (for example, game playing and downloading movies over the Internet), help to keep costs down for more serious users. Because of the complexity of our current system, savings in one area could cause problems in another section of our economic structure.

Thus, this approach would shrink some parts of Figure 1. While this may somewhat work, there is also the possibility that this shrinkage will by itself cause strains or actual breaks in other parts of the economic system.

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All in all, we do not have firm answers. Instead, we have a number of views of how the downturn due to high oil prices may proceed, and appropriate responses to it.

67 thoughts on “Where do continued high oil prices lead us?

  1. Thank you for an excellent post.

    I think that we frequently underrate the simple expedient of expanding our comfort zone. For example, I read recently that South Korea is suffering from an electricity shortage and that office workers are wearing warm slippers and that sales of long underwear are booming. We could all do that today–no inventions are needed.

    Joel Salatin, the Virginia farmer writing in Folks, This Ain’t Normal, recalls ‘I remember well during my teen years taking my morning pee in the upstairs bathroom and seeing the stream splatter onto ice in the toilet bowl.’

    If someone can become as smart as Joel obviously is while sleeping inside a farmhouse with the temperature below freezing, exactly what is the problem we are trying to solve with excessive reliance on thermostats and unlimited energy to keep them within a degree of what we call ‘comfortable’?

    If Sharon Astyk can achieve energy use 75 percent below ‘normal’, and become a member of the ASPO board, then why do we need to build nuclear power plants which we probably won’t be able to maintain safely in the pretty near future?

    I do agree that living frugally creates problems for the spinmeisters on Wall Street. If any of us are dependent on the spinmeisters being successful, then we probably need to rethink our strategy.

    Don Stewart

    • It is easy to forget that the younger people today don’t have quite the same life experiences older people have had, or have heard about from their parents.

      My mother tells me she first had electricity in her home at age 8. I know she also used an out-house, but I don’t remember hearing until what age. My father tells about delivering babies in people’s homes around 1950.

    • My mother (born in 1906) told us that typical water drinking glasses were in the shape of truncated cones because this way the water in such a glass on the bedside table would not cause it to break when it froze, as would happen in the tulip-shaped glasses now so popular. In winter, her glass regularly froze. The kids got dressed under the covers. Modern kids? Mine got used to getting dressed in their sleeping bags while on family backpacking trips. My granddaughters, too, more recently.

      We used pencil extenders so we did not need so many new ones. Even we boys had to learn how to darn our socks, but Mom reversed frayed collars on our shirts. We traded ice skates and even shoes around the neighborhood. We kept our coats and mittens on in church (our pastor was not into fire-breathing sermons).

      Just as labor-saving technology (in a rising economy) did not result in inordinate job losses, a shrinking economy need not impoverish everybody more than the overall economic shrinkage. The way people adapt to extenuating circumstances can be amazing. Even in the Nazi extermination camps, Victor Frankl in «Man’s Search for Meaning» described how people adapted, sometimes in surprising ways.

      Adaptation won’t be pretty. But life, in general, seldom is. History itself is typically stretches of ugliness interspersed with brief and shining moments. As our brief and shining moment comes to a close (or comes crashing down), let us not make the future uglier than it need be.

      Option #6 is the way to go. Whether we like it or not. I doubt much that it will be as horrid as some would have us believe. And for sure, it won’t be pretty, either!

      • Hi David Collins,

        My mother (born in 1906)

        My dad was born in 1910 – sometime in July. When I got him his first passport (at age 90) we had some difficulty with getting his birth certificate. Long story, but the interesting part is that his parents did not get into town to register his birth until after the fall harvest – and then they tried to remember the exact day he was born. Different times.

  2. Hi Gail; Thanks for your carefully crafted and thoughtful articles. Since the entire global economy is in essence a single massive bubble floating on cheap energy and the expectation of continuing cheap energy, one would think that small cracks in that belief system would quickly result in panic responses such as hoarding, militarizing the resource, rationing, collapse of transparent markets and the beginning of black markets, etc.

    As oil becomes more of a strategic resource (to support war fighting and defense in general) and less of a commercial commodity (supporting consumer lifestyles), I would guess the descent would be rapid and chaotic.

    I really appreciate your articles!

    John D, Virginia Beach

      • Gail, please do not hold back because the evidence may be scary. I rely on you to tell it straight.

      • It was General Patton who said “They who sweat more in peace bleed less in war”. If one of the intentions of these posts is to prepare your readers to bleed less in the future, then they should be allowed to sweat now.

  3. Thank you for the excellent perspective you bring to the reality we inevitably will be forced to face. One of my recommendations for years has been that if people would simply “Do the Math!” they would quickly separate reality from fantasy, and that is something you do very well. I just found another blog that literally does that from a pure science and math perspective and would highly recommend it as another resource in the same general vein as this site. It’s http://physics.ucsd.edu/do-the-math/ which is written by UCSD Physics professor Tom Murphy. He really gets into detail concerning the energy and resource choices we face. And, I think his blog would be an excellent addition to your blogroll.

  4. Dear Gail
    See my previous comment and your response.

    My thoughts are based on working at a small farm with around 25 interns over the last 3 years, the interns 45 to 50 years my junior. I do not think it is the fact that young people cannot learn to do the mechanical and intellectual work required to survive in a low energy world. Certainly it would help if they had been raised as Joel Salatin describes the rearing of his children (no TV, work as the bond between generations, mechanical inventiveness as opposed to purchase, etc., etc.) But I see college graduates come to the farm who have never done mechanical work or labored in the cold or the hot and who have never had a garden. As one young woman who was finishing her tour told me recently, ‘I never thought I would be 24, unable to pay my college loans, and living in a house with wood heat and a composting toilet’. There were tears in her eyes. So the big disconnect, in my experience is the gap between expectations and reality.

    Another gap is between those who come in with the attitude of doing a good job and those who are trying to slide by. Regardless of one’s background, if one can take pride in growing beautiful tomatoes or peppers, then one CAN learn, even at the advanced age of 22 (which would sound ridiculous in simpler cultures). But if one is just trying to slide by until ‘real jobs’ again become plentiful, then no learning takes place. And if those ‘real jobs’ never do become plentiful, then the future is likely to be pretty dismal.

    Our farm recently hosted a young woman who is mostly interested in animals and pastures, but who wanted a little experience with row crops. She has learned a tremendous amount about soil microorganisms and water management and mob grazing and carbon sequestration and continues to learn about this infinitely interesting world. My guess is that she will do well. Your scenarios would not alarm her. She WOULD have a lot of practical questions such as getting her product to market. If you said the US government would collapse, she would probably be relieved since most small farmers correctly see the government as either an outright enemy or else as a bumbling know-nothing.

    Don Stewart

    • Don bless you for taking on the role you have described. I have to say living in the very heart of suburbia and all of the suburban mindset with two kids on a 60 acre farmette has been an interesting experience. Going out in the dark in the sleet and snow cutting christmas trees with them, harvesting wheat, vegetables, cutting firewood, and heating with it using an outdoor furnace that you have to top off at 9pm in the dark is almost unexplainable to their peers or their parents. On occasion there has been light pushback, and light complaints, but through time they have discerned that there is a good life in all of that. In fact both of them have been to very poor places on their own in Africa, and found out that Zero Electronics, a bed, some food, and a deck of cards with friends, and a job to do, is a good life.

      I certainly agree with you about the gap. I’d like to believe we can teach the younger people that there are multiple good realities, and that the one they see on TV might not even be good if it is actually realized.

  5. Another great post, but I’m not sure I go along with “contraction away from the poles.”

    Have you considered global warming in such a scenario? It may well be that the only creatures who can survive in the future will be migratory, moving toward the poles in the summer and toward the equator in the winter. Consider that James Lovelock (originator of the Gaia hypothesis) envisions survival of only a few hundred thousand humans in a hundred years, clustered around the poles.

    At least that’s why I emigrated to Canada. 🙂

    • For most of the 200,000 years that humans have populated the earth, humans have been migratory. We have had an unusually good period with respect to climate, in the last 10,000 years, and I expect that this part of why we have been able to develop agriculture.

      If we go back to instability, we may very well need to go back to migratory patterns.

      I know Dmitry Orlov has written about the fact that being migratory can be helpful. He has his boat. He also has talked about Russian farmers doing hunting to supplement what they get from farming, because they can’t be very certain of crops.

      • I’m impressed with that map, although how can we know for sure? It could be both with climate change, what if it triggers another ice age? what if during that 20 or 30 year period you get more intensive winters and snow due to el niño, la niña or any other weird and unpredictable weather. During my Permaculture course, Penny Livingston our teacher was talking to us out of classroom, that climate change or global warming, could be an analogy of what happens when you get a fever, you also get chills, that could be the reason for some stronger winters already happening. Anyways I would choose a good place to thrive during the next two decades, and if we have to become nomads after that, I would worry then…. there are too many things to worry about right now on the very short term.

  6. One possibly minor insight into this high price of oil is to beware of the “one person’s debt, is another’s asset” for me personally. The CD or MoneyMarket that I as a person who stayed
    away from debt is related to a debt of another who may/will default. My desire for so-called liquidity doesn’t mean risklessness under some set of scenarios. I need to have some kind of assets that are not debt on the flip side, which could include: simple useful skills, land with good soil, tools, gold, silver, food, friends, cords of wood, a woodlot.

  7. Gail
    That wooden model Figure 1 is an effective image. It, or a derived form, entered a dream I had overnight!
    The big-picture numbers are interesting because most of us have been educated and have worked within and for that growing system. Few of us wanted a ‘command economy’ (that supposedly rational model of industrialization & growth as in the USSR) but what we have built is already a good deal more deformed than your model might suggest. The continuing vast incoming flow of resources needed to sustain advanced economies, speaks, er ,,, volumes!
    We in UK were doing globalization very big-time in my great-grandfather’s day, and using a lot of fossil fuel per person to do it – the numbers of ‘joules per capita’ were very substantial. There has been a further substantial rise in energy per person here only since 1950. Despite the vast recent spread and increased complexity of ‘your and mine’ type of advanced economy, and this ‘globalized’ outreach continuing to rapidly involve ever more people, a substantial number of the world’s present 7 billions, perhaps as many as 40 or 50%, are still not fully reliant on the big fossil energy based system. Although the position of that 40% is very precarious, they mostly rely on growing their own food supply with very little help from fossil fuel, even indirectly in the form of fertiliser and tools. By our standards their critical reliance on fossil fuel is tiny.
    The parts of the world ‘that filled-up first’ with people were, and are, those places where potential sustainable agricultural yields are high. Historically, these areas have demonstrated large people ‘carrying capacities’. With some inputs from fossil fuel (running at perhaps 2-5% of the fossil fuel inputs per person that are ‘needed’ in the USA), such areas might just sustain in some places relatively high populations. That is not to say that these geographical areas are not at serious risk of failing to feed future populations, and will not suffer major climate disasters. And, the same logic cannot apply to places like Egypt (subject of an earlier essay of yours) where food supplies from the ancient Nile-based system are a small fraction of what is that country’s modest enough per person intake of wheat and beans! Similarly, the ‘old’ carrying capacities of Northern Europe were a very small fraction of the modern population numbers. Seasons are short, good light is brief, trees and grass grow slowly and grain yields were lower than the lower-latitude deltas and flood plains. Liebig Minimum applied severe constraints. Even comparatively well-favored England never got to more than 6M inhabitants until 1750. However, while we have fuel enough for some semblance of a modern system, and while there are still a few very large grain surplus producing countries, e.g. USA, Canada, parts of Europe and South America, and if we can ‘pay’ for it, and there are still financial ‘mechanisms’ for payment, we can continue importing enough food for the next while.
    Thanks again for your thoughtful tour of the limits to growth.
    What happens to dashed aspirations though is food for much thought.
    best

    phil

    • Thanks for your insights on the food situation.

      We don’t often see comparisons between Europe and South Asia. Two growing seasons a year is no doubt helpful for South Asia.

      Europe had trouble with cutting down to many trees a long time ago–then went to colonialism, to import more food from around the world. They have been short on food for a long time. My ancestors came from Norway–a horrible place to grow food. Emigration to the United States helped solve population problems in Norway and the rest of Europe.

      • A great segue for a systems engineer…. in a transition it is going to be the little things that get your civilization. Sweden during WW2 had material issues with vitamin deficiencies, especially with vitamin C, they eventually identified a plant that had incredibly bitter berries (at that time), they then organized a national effort to process them and get them into the schools.

        I certainly pray for a slow downwards transition and not a big down step function, i can’t imagine trying to substitute for certain things (like PVC junctions), trace minerals, sanitary napkins, or amino acids for my vegetarian friends who all depend on nuts from California.

        But borrowing from Don Stewart, the psychological issues would be enormous even for those who are currently not taking medication. How does one cope when what you expected didn’t pan out for 95% of the population?

      • Thanks Gail
        Not all Europe. And then there is Ukraine. There are and will be large enough surplus grain producing areas using modern inputs. At the moment though the EU imports most (about 80%) of the primary protein (e.g. Soy) that is needed for EU livestock production.
        phil

  8. These are just my personal thoughts…

    Although energy is the ultimate nemesis of our economy, it is not the immediate problem. In 2006 all was (relatively) well with the world and energy availability has not declined too much since then.

    The immediate issue is our financial system that is used to allocate limited resources. If you have “money” you can trade it for resources; if you don’t, you can’t. The problem is that we have adopted a “Wimpy” financial system. We have used promises to pay money next Tuesday (with additional interest) as money for a hamburger today. This allows production of a massive number of hamburgers because no one actually needs to have money today. But when noone gets paid next Tuesday, these promises are shown to be empty and no more hamburgers are produced, even though the production capability still exists.

    So what happens immediately?

    1. Right now we are simply borrowing more (using sovereign credit lines) to keep the hamburger joints humming. This course cannot last very long.

    2. We could shutter the hamburger joints and let people go hungry, even though we actually have the physical ability to operate them. This could happen at least temporarily. (Think of burning-off crops during the depression because farmers could find no buyers, even though there was starvation in portions of the population.) This is called “deflation”.

    3. We could replace the promises with cash printed out of thin air, extinguishing the promises and keeping the hamburger joints humming. While this works in the short term, it winds up creating “inflation” and allocates the repayment burden disproportionately to the hamburger producers rather than the hamburger consumers. This course shuts down the hamburger joints just as surely as outright shuttering. Right now we are printing cash on a limited basis and have yet to see any penalty. We are likely to see significantly more of this course before we are through.

    To summarize, things are sort of OK right now. But expect to see gyrations of both deflation and inflation before we are through. It is very difficult to preserve wealth through this kind of upheaval. One might make investing today in “self-reliance” a priority rather than solely thinking of accumulating wealth into the future.

    Another issue is that some people have access to the “Wimpy” system, while others are forced to pay cash or real goods (e.g. barrels of oil) to get what they want. This divided system is perceived as fundamentally unfair. This fairness dichotomy presents a problem, because there are likely not enough energy resources to raise the entire world to a Western standard of living. So who gets more and who gets less? And as Gail points out, this problem will quickly become more pronounced as population grows and energy availability declines.

    • You are right about the financial system, but I think the oil component is larger and more hidden than most people realize.

      It is easy to lose sight of how much effect oil limits are having on a world-wide basis. We are basically working in a “fixed-sum” situation. Whatever is available, has to be shared.

      One effect is higher oil prices. These are being masked in the US, first by shifting value of the dollar, and second by the cheaper oil we are getting from Canada. The Midwest oil glut is also holding down WTI prices and Bakken prices, so we are getting better oil prices than the rest of the world. Another issue is that we have extraordinarily cheap natural gas. Coal is also cheap. So our energy costs are significantly cheaper than the rest of the world.

      Another issue is recession, and where it is hitting. The high oil /NG prices are to a significant extent behind the Euro problems, in my view. (If oil and natural gas were cheap and plentiful, Southern European growth would have continued, and the inherent problems with the Euro would have been masked a while longer. China is not growing as fast as in the past. I expect that a number of other “developing countries” are also slowing down on growth.

      A third issue is a mild winter. That is helping to hold down oil demand, around the world. If the situation returns to normal, it will make things much worse.

      A fourth issue is where the oil is being pumped and refined. US supply has been up, at least a little. With the cheap oil prices that the US has been getting, it is able to sell refined products more cheaply, helping its balance of payments problems and also helping the profits of those refining the oil.

      So in the US, the oil situation doesn’t look to bad, but it is still bad in Europe. China is lagging behind in growth now, and I expect that other developing countries are not forging ahead as quickly.

      I should probably look into these issues some more, and write a post on the subject.

  9. Gail, thank you for the excellent post.
    I think there is one more reason why the “old” renewables could have more “share”. This is the human psycho – the “consumer mind”. You know this site can be considered as an “alternative” approach, but most of the people want to consume more! I’m writing from Hungary, EU. Before the “consumer sociaty”, before 1990, more people unterstood what you are wrinting, but today just a small segment. 99% think that this is a “temporary” crisis. I think this human – consumer mind – is one of the biggest obstacle.

    • It seems like a lot of people don’t spend very much time thinking, except perhaps during their work hours. Every hour of the day is spent with the TV blaring, or a video playing. It is hard to go anyplace–doctor’s office, restaurant, airport waiting area–without some sort of background TV for distraction.

      The messages from TV and from news media tends to be that everything is fine, so people don’t bother to even consider looking for more information.

      • Good point, Gail, that one about thinking. A quibble point: TV and the smothering infotainment tend to numb our brains into not thinking. Information is everywhere, hard to ignore: the trouble is that without “digesting it” or “ruminating” the information is useless. A big advantage of the day is that information tends to be more digestible now than in times past.

        But thinking can also be disturbing. As Satchel Paige warned, “Don’t look back. Something might be gaining on you.” Wile E. Coyote was always heeding the advice. But we can benefit from having eaten of the fruit of the tree of knowledge and look into the abyss without staring and being disoriented.

      • Gail,

        I’ve long thought that if Karl Marx were to return today he would see TV rather than religion as “the opium of the people.”

        • You are right Gary.
          TV is indeed, likely, the new opiate of the people. But worse than this, it is an opiate feed that can be turned on and off at the flick of a switch.
          Here in the UK, (yesterday), our regulatory body on broadcasting, Ofcom, have revoked the licence of Press TV which up until a few days ago had the right to broadcast across the UK. Why? Press TV is an Iranian channel which gives an alternative view on the middle east.

          Make your own mind up as to the reasoning or politics behind this action.

          • I don’t think people realize either that TV is giving them a set of values to live by. They just notice that religion is not as relevant any more. TV is telling them, “He who dies with the most toys wins.” In a way, TV is providing repetition of the values that economists believe people live their lives by — more and more goods and services, at the cheapest price possible. Hopefully, religion would be telling them something else.

            • Hi Gail,

              Hopefully, religion would be telling them something else.

              The predominate religions in the western world “tell” people that they have a bargain to offer: you support my agenda and I will promise you a good deal in the “afterlife”. I realize that you feel many aspects of that agenda are meritorious – I can point to the overriding aspects of that agenda (like encouraging breeding and their role in wars) that have no redeeming value for humans or the planet. That argument aside, the fundamental danger of these religions is the obfuscation of truth, the promotion of delusions, and the derision of critical thinking (trying talking about atheism at a republican convention). The fundamental proposition of these religions is based upon the presumed existence of a supernatural realm, a deity with whom you have a personal relationship, and a personal-spiritual existence after your physical death. This proposition is steadfastly proclaimed to be a “truth” – even an “eternal truth” or a “revealed truth”. As a scientific hypothesis, these beliefs fail miserably to meet any rational test for being “true” – indeed they are usually labeled “false”. Of course, with that said, comes the chorus “science is just another religion” or “you can’t mix faith and reason”.

              I really don’t see much hope for either people or the planet as long as humanity is inclined to put faith and reason on the same footing for determining what is true or false. I don’t see TV as an inferior replacement for religion; I see it as a natural progression for a population whose dominant culture is based upon the tools of religion: delusion and manipulation.

            • I see more of a purpose of religion than you do.

              A major purpose of religion is to pass on to people within the religious group views on the right way to live in today’s world. Different religious groups (even following the same book) have quite different views on this. Another purpose is to get people to sit down and think about what is important, and how their lives might be improved. A number of different religions have come up with variations on the “Golden Rule” (Do unto others as you would have them do unto you.) There are many other precepts that can be important as well, such as “Love your neighbor as yourself,” and “Honor your father and your mother.” Another thing that can be important is forgiving others who have wronged you in some way, and going on with life.

              One thing some religions do is encourage giving thanks for things that are going well, or that are positive. Focusing on the positive side of life can be helpful for anyone. Keeping a journal of what positive things happened each day might serve the same purpose.

              Even if a person does not believe in God (or god), I think there is a good reason to join a religious group and study their understanding of what is important. I would choose wisely–probably a more liberal group that does not believe in the literal interpretation of the Bible, Koran, or other religious document.

            • “There is no God, and Bicycle Dave is his Prophet.”

              P.A.M. Dirac was once carrying on along this line at an otherwise festive gathering of S.T.E.M. intellectuals. I paraphrase what Wolfgang Pauli said in humor.

              Please, Dave, chill. I appreciate your observations in general, and look forward to what you have to say.

            • Hi David Collins,

              I do get a bit cranked on this topic. And, I really like that saying you quoted -thanks!

              “There is no God, and Bicycle Dave is his Prophet.”

              You can be assured that some variant of it will be put to good use to confound my friends in these types of discussions.

            • Hi Gail,

              Awhile back I promised not to get too far into the religious weeds on your forum – so, I’ll forgo digging into each point you make but there is one idea I can’t resist expressing. You mentioned:

              I would choose wisely–probably a more liberal group that does not believe in the literal interpretation of the Bible, Koran, or other religious document.

              I think you are one small step away from what I’d like to see replace religion/churches and that is a nonsectarian community center concept that deals with the points you raise along with a variety of other things. Long discussion, so I’ll leave it at that.

              BTW, as I’m sure you know, I really appreciate your work . However, we can’t expect to agree on everything just because we both experienced formative years in Minnesota 🙂

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