Gail Tverberg / Running Short of Cheap Oil
This is a link to an interview done by Justin and Seth of the Extraenvironmentist.com, while I attended the Degrowth Conference in Montreal. The interview relates to how running short of cheap-to-extract oil affects the economy.
The interview is 13 minutes long. The video shows only my answers, not the questions they asked, so it seems to transition quickly from one topic to another. This is a link to the vimeo version.
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.
I thought the point of chaos theory is that given a variety of outcomes, you can’t predict which will be result, based on your starting conditions. You can assign probabilities however…
ReverseEngineer, I think you’re right. We’re in a period of seeming stabilization. But even as the surface of the economy appears stable, we’re watching the foundations erode away and crumble.
When it crashes it’ll be back to chaos theory for a while… Until the next period of temporary stability…
“If it plays out over a long enough period, some mitigating strategies may help”-Gail
Yes, but actuarially speaking what are the odds it will take such a long period, given the accelerating velocity of collapse over in Eurotrashland?
I’m sure you watch the charts as closely as I do Gail, and it does appear to me that we are on the right shoulder and moving once again into a rapid price collapse on the markets. This appears evident both in the S&P chart and the Bond Yield charts. Announcements also by the PBoC and ECB don’t make it evident that near term price support will come from expansion of the Alphabet Soup of liquidity vehicles.
Hypothetically speaking, if we get another Oil Price collapse to around say the $50/bl level this time, how do you see that playing out across the economy overall, as well as the geopolitical consequences?
I am afraid that the collapse may be fast, as you say. But we always have to allow for the possibility that some things we don’t understand will help a bit.
Those I guess are the “unknown unknowns”.
Allowing for the slim possibility of a last minute rescue from Cold Fusion, Zero Point Energy or the arrival of interstellar starships of the Ferengi and Vulcans, I am still curious at how you would assess the risk here of Fast Collapse/Sudden Stop versus say the Long Emergency Kunstler describes. If I were to take out Insurance Policies on each of these possibilities and you were making the actuarial analysis, whch policy would carry the higher premium, and by how much? Also, what is a reasonable term to write the policy for? How do the risks change over time?
I think the chance of rescue is pretty slim. But most humans can’t accept that and need to believe that in their mind, they can set the chance of rescue higher. There are always going to be some unknowns, whether it is a formal miracle from God, or Cold Fusion, or a huge nuclear meltdown which instantly kills everyone with no suffering (so that the end is not from the current worries, but something else).
The length of time seems hard to predict. It would seem very likely that we will have a major meltdown within five years, and quite possibly within two. But it is possible that the meltdown will be mostly Europe, for now, and the US will be temporarily spared.
The big issue right now and for the next few months would seem to be the Euro meltdown, and whether bankruptcies in Europe are transmitted to the US, perhaps through derivates. After that, the US debt situation would seem to be the next big hurdle. But there could be other events coming up too–overthrown governments in oil producing nations, for example. If any country tries to raise taxes, raising taxes could spin that country into deep recession. The problems may in fact come when we try to do what is needed to fix the situation. We can’t really win with such a situation.
I do not think the skills of an actuary can help predict the next ten to twenty years. Why? See the famous book by Frank Knight, “Risk, Uncertainty, and Profit.” Knight makes a sharp distiction between “risk” that can be quantified and “uncertainty,” which (by definition) cannot be quantified.
In seeing hazards for the future, I think my education in sociology and history and cultural anthropology are of much more use than what I learned in finance and economics.
When in utter bafflement and doubt, I favor the Laplace criterion, which says that if there are two (and only two) possibilities, assume a 50% probability for each. But of course the future is not black or white. We face more possibilities than two. My own thinking resembles that of John Michael Greer and also that of Leanan on theoildrum.com
There is also something called chaos theory that says the outcome is essentially unpredictable.
With regard to economic forecasting, I believe that complexity rather than pure chaos theory applies. This is based on a hunch, no rigorous proof.
It’s getting less chaotic all the time, as in there are multiple crashing variables, so to me this indicates the probability of Fast Crash is rapidly increasing.
Also, new DD Comic Strip up on the Diner 🙂
Nice to see the famous Gail the actuary more than through a small avatar !
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I listened to your fine vimeo. I have no disagreements at all with what you said.
Superb. Keep telling them. They might even listen.