Prof. James Hamilton of University of California recently wrote a post called Thresholds in the economic effects of oil prices. In it, he concludes
As U.S. retail gasoline prices once again near $4.00 a gallon, does this pose a threat to the economy and President Obama’s prospects for re-election? My answer is no.
EDIT – I originally wrote this post thinking that Prof. Hamilton was looking at a broader question: Can an economy learn to live with increasingly high oil prices? After looking again at his article again, I realize that he is talking about a narrow question: Using the figures he was looking at (average gasoline prices across all grades), prices were for the week of September 17 near $4 a gallon, as they had been several times in the past, as they bounced up and down.
In that context, what he says is far closer to right than what my analysis of the broader question of whether an economy can learn to live with increasingly high oil prices, below, would suggest. There is a difference, because gasoline prices are not too closely tied to oil prices in short term fluctuations, and because the issue is likely to be as much one of consumer sentiment as anything else, as long as the issue is simply one of gasoline prices in a not-too-wide range. But I think there are some longer-term, more general issues we should be concerned about.
My Analysis of the More General Question: Can an Economy Learn to Live with Increasingly High Oil Prices?
As I see it, increasingly high oil prices weaken an economy because they reduce discretionary spending and indirectly cause people to be laid-off from work. They have many other adverse effects as well–they tend to raise food prices, with similar effect. The laid-off workers require unemployment compensation payments, and the same time they are contributing less tax revenue. All of this creates a huge imbalance between revenue collected by governments and expenditures paid out. If oil prices rise again, it will tend to make the imbalance worse.
An economy such as the United States can cover up the problems caused by high oil prices with variety of financial techniques. In my view, high consumer confidence measures the success of those cover-ups, more than it measures the actual underlying situation. One way the US government has managed to cover up how badly the economy is being hurt by high oil prices is by spending far more than the government takes in as revenue. This has happened continuously since late 2008, with outgo exceeding income by more than 50% each year, even though the country is supposedly not in recession.
Figure 1. US Government Income and Outlay, based on historical tables from the White House Office of Management and Budget (Table 1.1). Amounts include off-budget spending, such as Social Security and Medicare, in addition to on-budget spending. *2012 is estimated. http://www.whitehouse.gov/omb/budget/Historicals
The amount consumers have available to spend on cars and gasoline is very much affected by deficit spending. With deficit spending, government employment can remain high and transfer payments can continue, without anyone really “paying” for these costs, putting more money into the economy to spend on oil and cars.
There are other government programs as well. Interest rates on homes and new cars are being kept at record lows, leaving consumers with more money to spend on cars and gasoline. Low interest rates and low taxes also stimulate employers to hire more employees. Quantitative easing helps contribute to higher stock market prices, and makes it easier for the federal government to keep adding large amount of debt.
To me, the fact that the economy is not currently completely “in the tank” speaks more to the success of stimulus programs than having anything to do with adaptation to higher price levels. Countries such as Greece, Spain and Italy do not have the luxury of being able to hide the impacts of their high cost of oil. They are doing less well financially, but were not included in Hamilton’s analysis.
Easy to Overestimate Impact of Recent Changes in Vehicles
With vehicles, we are dealing with a mixture of vehicles of all ages. The average age of automobiles is now estimated to be 10.8 years. The average age of trucks is no doubt greater. The EIA provides a summary of average fuel economy by type of vehicle based on US Federal Highway Administration Data, summarized in Figure 2.
Figure 2. US Motor Vehicle Average Fuel Economy based on US Federal Highway Administration Data (Based on EIA Annual Energy Review, Table 2.8) SW = Short Wheelbase; LW = Long Wheelbase
This data is only through 2010. While it shows some improvement in efficiency of light duty short wheelbase vehicles, it shows little improvement in efficiency overall. The big increases in efficiency were in the period between 1973 and 1991.
The mix of cars by type is concerning.
Figure 3. Automobiles as percentage of total registered vehicles, based on data of the Federal Highway Administration.
The percentage of automobiles has been dropping, as the number of SUV and trucks has been rising. The change between 2008 and 2010 reflects the fact that the number of “automobile” registrations dropped by 4.5% in that time-period, while the number of other (larger) vehicles rose slightly. Thus, the long-term trend to relatively more of the larger vehicles continued. Obviously, this data doesn’t show carpooling and other adaptations, but it is difficult to see any recent big trend toward efficiency.
Can the Economy Weather another Rise to $4.00 Gasoline?
The question of whether the economy can weather $4.00 gasoline, to me, depends on the issue of whether the US government can keep coming up with more manipulations to hide its financial problems.
The US economy started to run into severe headwinds about the year 2001. This is when the percentage of Americans with jobs started falling.
Figure 4. US Number Employed / Population, where US Number Employed is Total Non-Farm Workers from Current Employment Statistics of the Bureau of Labor Statistics and Population is US Resident Population from the US Census. (This includes children and others not usually in the labor force.) 2012 is a partial year estimate.
While economists don’t seem to attribute past economic growth to increasing employment percentages, it seems logical to believe they played a role in the long-term growth in the 1960 to 2000 period. The economic growth came not just from the work these employees did themselves, but from the fossil fuels they used on the job. The wages the employees obtained for doing the work allowed the workers to buy products others had made. The long-term growth in non-farm employment between 1960 and 2000 was enabled by increased productivity in the agricultural sector, which was also fueled by increasing use of fossil fuels.
The percentage of the US population with jobs started falling starting in 2001. This is very close to the time when the US started importing far more goods from China, India, and the rest of Asia. If we look at energy consumption for China, we see a sharp increase in energy consumption about 2002:
Figure 5. China’s energy consumption by source, based on BP’s Statistical Review of World Energy data.
We can also look at broader groupings of energy consumption, and see a similar pattern:
Figure 6. Energy Consumption Divided among three parts of the world: (1) The combination of the European Union-27, USA, and Japan, (2) The Former Soviet Union, and (3) The Rest of the World, based on data from BP’s 2012 Statistical Review of World Energy.
The cost of goods produced in Asia is cheaper for two reasons:
(1) They tend to use a lot of coal in their energy mix, keeping energy costs down.
(2) Wages are far lower. One reason wages can be lower is because of the warmer climate.
It seems to be an article of faith of economists today that the US economy and the European economies will return to growth. Then the stimulus can be removed, and everyone can live happily ever after. But is this really something we should be expecting? We really have two kinds of headwinds: (1) higher oil prices, and (2) cheaper competition for jobs from Asia and other developing countries.
As far back as 2001, we read about Greenspan stimulating the economy by lowering interest rates. Various other approaches were used as well, including encouraging more home ownership through subprime loans in the 2002 to 2006 period. The greater demand for homes helped create jobs in the construction industry and helped raise home prices. By refinancing their homes, consumers were able to have funds for purchases they could not otherwise afford. In recent years, we have added a whole list of new stimulus approaches.
I would ask: Aren’t we kidding ourselves if we think a small increase in miles per gallons on new cars is going to fix the problem of another upward bounce in oil prices? Aren’t there some much more basic issues “out there” that need to be fixed as well? Aren’t we fighting two kinds of downside risks to the economy with increasing stimulus, and only marginal success? If oil prices rise some more, aren’t we likely to need “more stimulus”? Where would it possibly come from?
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Gail, your bravery continues to astonish me. I hope you don’t have to pay a price for continuing to spread truth and now presenting your political views logically and honestly. Unfortunately, the left wing “progressives” in the U.S. have taken to quiet a bit of nastiness towards anyone who won’t get in line with their views and desire to control everything. I should know, I am surrounded by the cult of “progressivism” in the Bay Area. They make Texas Good Ole’ Boy Republicans look down right open minded!
We will see. I certainly would support a lot of progressive causes, like free birth control, access to abortion, and gay marriage.
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Gail
Consider this a gratuitous attaboy or insult or simply stupid comment as you wish. I don’t like to travel and I don’t like to spend money (my Scotch ancestry?) so I haven’t bought any tickets for ASPO in Austin. Then, this morning, I see that SW Airlines is offering 40 percent off on tickets. So I take another look at the ASPO website. This year is supposed to be one day of serious work on the predicament, followed by a day of ‘what should we be doing?’.
I observe that more than half the people in the world who will have to be ‘doing’ are women, and also that women traditionally have a lot of the assets which will need to be deployed (because they outlive the men). Yet not a single speaker is a woman.
I can only conclude that:
1. Either women don’t have any good ideas about the predicament and what to do in response
2. Or ASPO doesn’t think women have the intelligence to spend their assets wisely
3. Or, just possibly, some of you women express yourselves so clearly that there is no need to go to expensive conferences to rehash it again.
Don Stewart
I may mention that issue to them.
If humankind is about to get itself into another fine mess, I would suggest that it will be women who will extract what’s left of civilisation after men have trashed it.
The reason for that? first, women tend not to argue and posture and compete, they compromise and find solutions to problems. Women dont start wars, but they have to clear up the mess after men who do. Our future will be no different
In prehistory, it was likely that it was women who developed tools–with less muscle power you need leverage, tools give you that. Men can chase after food that can run fast and might just turn round and kill you instead., women had to stay home and care for small children, but still needed to eat, so they had to access static food.
Static food includes roots, (digging sticks), and shellfish, (levers) both highly nutritious
Women being weaker, had to be smarter, with a sixth sense for danger. This has infuriated men ever since. “I really wouldn’t do that if I were you’ says your good lady, but you do it anyway.
She’s usually right. But you accept it as the way things are. (or burn her as a witch)
I agree, but I guess I am a bit biased.
Gail
You said:
As I see it, increasingly high oil prices weaken an economy because they reduce discretionary spending and indirectly cause people to be laid-off from work. They have many other adverse effects as well–they tend to raise food prices, with similar effect. The laid-off workers require unemployment compensation payments, and the same time they are contributing less tax revenue. All of this creates a huge imbalance between revenue collected by governments and expenditures paid out. If oil prices rise again, it will tend to make the imbalance worse.
If you are defining an ‘economy’ as one that looks very much like what we see around us in the US today, then I think much of what you say is true. On the other hand, if we use a broader definition of ‘economy’, then some of what you say may not be true. I want to list a few facts and thoughts and then I will pull them together.
1. Mark Hyman, MD, who comments pretty frequently on social policy and the Farm Bill has stated that the US currently devotes 3 percent of its cropland to fruits and vegetables when a health supportive diet would require 70 percent of the cropland growing fruits and vegetables.
2. Many people who look at the question of ‘sustainable farming’ come out with statements that we need 50 million more farmers. Sharon Astyk calls for a ‘nation of farmers’.
3. Fruits and vegetables are high in water content. That means they are quick to spoil and expensive to transport. Which makes them expensive to the consumer. So 70 percent of the land is producing something expensive to transport.
4. Federal Government policies reinforce the current land allocation away from fruits and vegetables.
5. An agriculture which grew more fruits and vegetables would tend to be local to minimize transport costs.
6. The ultimate in local is a kitchen garden or a community garden.
7. Small farms in the nearby area are likely to supplement the gardens. Small farms are part of an economy which can be fairly complex in terms of specialization of labor. For example, it is likely that some particular farmer may specialize in seeds and sell these locally adapted seeds to the gardeners and other farmers.
8. Both gardeners and small farms are dependent on hand implements. Repairing hand implements may become a local market occupation.
9. In a much simpler economy, it is likely that a far higher percentage of dwellings will be made by hand. This will involve an economy–either cash or gift–as people will choose to specialize in certain aspects of dwelling construction.
10. In a much simpler economy, products like biochar will become very much more important. While some biochar will be produced as a by-product of living by the gardeners, it is also likely that some will specialize in biochar production.
11. In a hotter and more erratic climate, water conservation becomes crucial to survival. Designing dwellings, gardens, and farms for water conservation will likely be a specialized occupation.
12. Growing fruit trees and growing row crops are significantly different undertakings. It may be more economical for some people to specialize in one or the other. In which case an economy will facilitate the exchange of products between them.
13. Growing animals with rotational grazing is significantly diffrerent from either fruit trees or vegetable crops. Some may specialize in rotational grazing on land they themselves own or on land owned by garden farmers as part of restoring or maintaining fertility. Again, a market will facilitate the exchange of products.
14. Forestry is sufficiently different from other disciplines (particularly with a changing climate) that specialization may pay dividends, and thus a market for foresters will develop.
14.1 I should also note that any particular piece of land may be appropriate for vegetables, fruit and nut trees, and grazing in different parts of the property. And a vegetable garden may benefit from a rotation as pasture. So complex systems of job specialization and interaction between land owners and specialists will likely evolve. Some sort of economy will be involved.
15. People will make a lot of their own entertainment–but there will always be room for traveling minstrels. And once a year a preacher will come around to baptize, bury, and marry.
16. When done right, there is a lot of low intensity work to be done in what I have just sketched. Old people are needed to shell the peas and watch the children. Old people can do the perpetual job of putting food by. (Most people will be eating from the pantry on a daily basis–not from the garden). So there is plenty of room for a family economy where everyone earns their keep. (Or an affinity group–but it’s easier with blood ties). Children will grow up working steadily more sophisticated tasks.
17. The Lone Homesteader is not a good model. Pay particular attention to Albert Bates comments near the end of this interview:
http://www.energybulletin.net/media/2012-10-03/tough-transition-albert-bates
The Transition Town model, or something similar, is far more likely to succeed.
What would power this economy? The basic answer is the Soil Food Web which is powered by solar heating, photosynthesis, chemical energies, respiration, surface tension of water, and the like. The scientific understanding of the Soil Food Web is quite recent. An Englishman found that turning the soil increased production. He was completely mistaken in his explanations for the phenomenon. But his writings influenced Washington and Jefferson and through them American farmers by the millions. We now know that plowing gives a sudden increase in bacteria in the soil, while gradually destroying the basis for life in the soil. In the last few decades we have learned a tremendous amount with discoveries about bacteria, fungi, nitrogen cycling, carbon cycling, symbiotic relationships, and the like. We now know that plants control their environment to their own benefit by manufacturing exudates which create a microclimate around their roots which attracts the sort of soil life they need to thrive.
We also know that synthetic fertilizers and tillage and herbicides and pesticides destroy the Soil Food Web. Plants will grow so long as you stuff with with NP and K, but the long term effects may kill all of us. Even if we have the industrial economy to deliver NP and K. A plant is essentially a child. If we keep stuffing it with Junk Food, it will eat the Junk Food and nothing more. If the child is shown how to gather plants and small animals from the wild, and not stuffed with junk food, then the child will put forth the effort to live the way Mother Nature intended them to live. Same with plants.
The Soil Food Web is a beautiful system filled with Life and Death. The nutrients that the plants need are retained in the bodies of the billions of living creatures. When they die, the nutrients are mineralized and the plant can absorb them. Since the nutrients are in living bodies, they do not leach away in the water. So it is a story of Life Out of Death. It is a story where everything is recycled.
But the story requires human care if we want to sustain as many as a billion people on the planet–we must garden, not just gather. We must behave like the plants and control the environment for our own benefit. Not with the blunt instruments of NP and K and herbicides and pesticides and tractors and rototillers, but by managing the Soil Food Web to grow the kinds of plants we want. Our most effective tools are mulch and compost and rotational grazing and water conservation and creating environments full of biological activity and assiduous recycling of everything including human wastes. Rotational grazing requires regular human attention but not a lot of hard work. Work trading between neighbors who have animals will again become common so that absence from the farm is not catastrophic. Compost has historically been a labor intensive operation. Current research on working farms focuses on how to make and distribute compost more efficiently. The work of the soil scientists has shown us how to make compost to control nitrogen to suit our objectives. Mulch is a moderately labor intensive project. The mulch needs to be pulled back in the spring to let the Earth warm, then put back in place and transplants planted in the untilled soil through the mulch. (Details vary and innovation happens). We also now understand how different kinds of mulch tip nitrogen to either ammonium or nitrates. Creating a biologically rich environment requires rethinking and abandoning long straight rows of crops in barren soil–but work on practical farms is showing us how. Permaculture has taught us a great deal about water conservation which is organized by watersheds. Since individual properties won’t coincide with watersheds, there will be a need to develop a local water economy. New Mexico did it hundreds of years ago.
So what we see is an economy which takes care of many of the basic human needs: food, water, shelter, meaningful work, and trade between neighbors. Employing a lot more people. Would it employ everyone? I don’t know. Some people would rather die than grow potatoes. Maybe they will. I can tell you that I work on a small farm with many enthusiastic young people–most of whom have not had the education required to see the beauty, and on a farm which does not, in it’s practices, achieve the truly beautiful. It can get a lot better.
Will this economy generate enough surplus to support giant institutions such as the Federal Government and Monsanto and Cargill and Apple? Definitely no to the first three who only try to make the emergence of this kind of economy impossible. Apple…maybe. Cell phones are very useful. If there is enough surplus to make a cell phone, then the people in this economy would love to have one. But my guess is ‘No’. Could this economy feed 7 billion people. Again, I don’t know. Productivity is higher and life is easier when one gardens in partnership with the Soil Food Web. My guess is that the US and Canada could easily feed everyone who lives here now. But obviously everyone in LA needs to move to Iowa and Minnesota–which is where their parents came from and it may kill them to move back. We also have the wild card of climate change to consider.
Is it possible? Dave Pollard would look at it, sniff that it requires ‘complex change’, and tell me to think about something which might actually work or just go have a beer. Yesterday and again today, James Hugh Smith talks about the positive opportunities presented by collapse. People change when they have no choice. Gregor Macdonald, who writes for Chris Martenson, predicts New Deal type programs and then a Steve Keen debt jubilee in the next couple of years. Gregor does not predict collapse, just a long gray period during which we plunder what remains in terms of fossil fuels. I think Gail could be classified as on the side of collapse. So there might be a collapse and there might not be. At any rate, it seems likely that more people will be looking for change.
One factor which makes such a transition more attainable is that many people are already practicing the skills required. We do have good ‘Teaming With Microbes’ people (Duke Gardens is bringing Jeff Lowefels to do workshops in December); we have good ‘Holistic Orchard’ people (Michael Phillips is doing workshops here in October), we have an abundance of grass fed, rotationally grazed cattle people (Alan Savory was here a couple of years ago, and Greg Judy from Missouri was here last year). Permaculture classes have turned out a lot of students with experience building dwellings by hand. And uplifting examples of good Permaculture design can be seen in most regions of the country. The biggest institutional obstacle to change is probably government at all levels.
If I had a magic wand: I would have the Fed print money and buy up farmland. The farmland then made available to homesteaders who have completed a course in sustainable agriculture and sustainable hand made dwellings (such as are offered by my Community College). The farmland to be federal property and exempt from all the stupid land use regulations and ‘commercial kitchen’ requirements imposed by local governments. No taxes on the property. The homesteaders can either homeschool or pay tuition, as they choose. If they choose, they can be buried in the backyard and complete the compost cycle without drawing the wrath of the sheriff. And if they want to make beer, nobody will hassle them.
How would the world I have just described be different from the frontier people of 200 years ago? We know enough now to live lightly on the land. We don’t have to destroy it. And there is some chance that actually useful industrial products can still be produced and used–cell phones and solar PV panels not tied to a grid come to mind. Along with farm implements wielded by hand–because the scale of this agriculture is a human scale.
Don Stewart
You begin with a false premise that underscores your core argument.
Fruits and vegetables spoil quickly because they are sprayed with ethylene before shipment. This makes them ripen and spoil very fast giving the@store control over when they will ripen and insuring you’ll buy more to make up for increased wastage.
if the fruits and vegetables are not sprayed they can often be stored weeks or months without refrigeration.
two examples are tomatoes and squash. Both can be picked unripe and left on the counter to ripen over the winter, providing a steady winter supply, taken from a summer garden.
You can’t do this fruits and vegetables shipped 1500 miles to your store.
Of course there are exceptions such as winter squash. And sweet potatoes are pretty good keepers if you cure them. But the average leafy green which is harvested in a field under a hot sun and put into a harvest box will be pretty wilted by the time it gets to the refrigerator. Then into the customers car where it sits in the back seat under the sun while the shopper makes a stop somewhere. Then home and into the fridge again. Much of the nutritional value is gone. Best is a leaf cut in one’s own garden and taken inside and eaten promptly.
A few things like bananas benefit from an ocean voyage. Green coffee is indestructible, but gets the perishability of a ripe banana once it is roasted.
I was speaking generally. Getting coffee and bananas from the tropics is fine, but most things benefit from close to home and quick consumption or putting by.
Don Stewart
Fortunately there are varieties of greens for every climate and they aren’t as critical to sustaining life as food sources higher carbs and protiens.
This isn’t the place to debate dietary issues. I quoted Dr. Hyman because he is an advocate of the good things that happen when we eat foods rich in micronutrients which speak to our genes. Grains and meat do very little of that. If you take a reductionist view that calories are what count, or some magic mix of macronutrients, then this comment is not something you will relate to.
Don Stewart
Thank you for playing Don.
Thanks for your ideas. As long as farm-land is an investment used by farmers, and growing food we currently eat, it will be very hard for a government to buy up.
If a government does come in at some point and buy up property, a person wonders how this will be done. Will small farmers who set up what they thought were sustainable farms find the government appropriating their property, and giving it to others using some allocation formula?
I think there is a lot that would be involved in doing this right. Individual land-owners would not be able to have very much land. There would probably have to be some ownership by a larger group to have animals rotate through several different areas of a farm. No one farmer would have that much, most likely.
Somehow, a system needs to be set up for storing up for poor harvests as well.
Gail
I don envision government expropriation. I see the Fed buying land, just as they buy MBS, and making it available for small farmers. Small farms are more productive than large farms, so production will increase. Labor productivity declines as huge machines are replaced by human labor. Employment goes up. Many people become much less dependent on the money economy.
I would sidestep the issue of grain storage. Grain is promptly dried after harvest. It is easy to ship and doesn’t spoil. It does not protection from predators such as mice and rats. Grain can be grown on small local farms, and eventually probably will be. But the near term problem–in terms of health, transportation, and cost–is fruits and veggies. Along with the traditional forms of animal husbandry which integrate with such farms and gardens.
What I propose is somewhat similar to ‘enterprise zones’. Make land available and don’t pile a whole bunch of restrictions on how people go about using it. There could be metrics applied for keeping the land. For example, the farmers would have to achieve a certain level of carbon sequestration. The government doesn’t tell them how–it just measures the carbon. Likewise on soil erosion. Keep it very simple. Let the people work out their own markets and occupational specialties. In my experience, small farmers are the most helpful people in the world to those whom a Wall Streeter would call their ‘competitors’. They loan and borrow and trade work and help raise the barn or build the new dwelling and form crop mobs to help prepare new fields. All they need is to be left alone by the heavy hand of the law. But in return for the Fed’s generosity with newly printed money, they have to agree to meet certain end points in terms of carbon sequestration, water management, and perhaps a few other things.
What does society get out of it? We become a lot less dependent on industrial energy, we get smarter people, we get happier people, disease goes down, death rates decline rather than increase, if Social Security goes bankrupt then it will just be a hiccup, etc.
As for the land required for ruminants and rotation. I know a farmer with about 4 acres of crops and pasture who is using this method on his farm. So you don’t need hundreds of acres to make it work. But if you start with a landscape, you are usually dealing with a ridge line and slopes which form a watershed and then a permanent waterway in the valley. The total watershed likely won’t be under the same ownership (although it could be owned by a co-op). The ridges lend themselves to forestry, the steeper slopes to grazing, and the bottomland to crops with rotational grazing years interleaved with cropping years. The thing that may make sense is occupational specialties (forestry, animal husbandry, cropping) as opposed to a single family trying to do everything. The occupational specialty model is used by Farmland LLC–the managers rotate the specialists around the land the corporation owns. Such a model could function with a co-op structure, a village commons structure (as it did for centuries), or a fairly complex local economy. Best not to try to dictate too much and let things happen.)
Don Stewart
Don
When you show up at your doctor, having got blood poisoning or tetanus from a scratch from a rusty implement or something. promise not to get annoyed when his missis sends you round to the back of his house, where he’s busy tending his crop of medicinal herbs. Having downsized like everybody else, he will be happy to brew up a concoction for you for a share of your corn harvest or a few potatoes. If that fails, he might offer to bleed the infection out of you, or even pray if nothing else works
best of luck!!.
Dear Medieval
From Wikipedia:
In 1884, Arthur Nicolaier isolated the strychnine-like toxin of tetanus from free-living, anaerobic soil bacteria. The etiology of the disease was further elucidated in 1884 by Antonio Carle and Giorgio Rattone, who demonstrated the transmissibility of tetanus for the first time. They produced tetanus in rabbits by injecting pus from a patient with fatal tetanus into their sciatic nerves.[3]
In 1889, C. tetani was isolated from a human victim by Kitasato Shibasaburō, who later showed that the organism could produce disease when injected into animals, and that the toxin could be neutralized by specific antibodies. In 1897, Edmond Nocard showed that tetanus antitoxin induced passive immunity in humans, and could be used for prophylaxis and treatment.
I don’t see how you can interpret what I am saying as taking us backward so much that what was known in 1897 (when most Americans were farmers) would be forgotten.
As for doctors taking payment in food. If you believe Lester Brown that we are running out of food, maybe doctors will welcome food as payment rather than a debased dollar bill.
I should also add, as a general comment, that someone gardening or farming as I am describing is using knowledge about strengthening the immune system which is not even common at present in doctors. The use of compost teas is an exact parallel for state of the art recommendations for keeping one’s gut bacteria happy and healthy and thus the human immune system strong enough to resist viral infections. Both follow a ‘crowding out’ strategy–planting enough of the good guys leaves very slim pickings and slow or nonexistent growth of the bad guys which gives the immune system plenty of time to deal with the bad guys. And leafy greens and beans are key elements in promoting the good guys.
Don Stewart
Don Stewart
Don
I used tetanus as a simple example of what might happen within a non-industrial medical environment, the fact remains that people could and did die from cuts that we would just wash under a running tap and forget about. There are thousands of other medical problems that will affect us in that situation once the industrial/medical complex breaks down. I don’t doubt that doctors might welcome food, but in exchange for what? The stuff you get from your doctor, or more accurately your pharmacist, is prepackaged and factory produced. Doctors dispense advice, the days of kitchen table surgery are long gone. really complex medication is extremely expensive and difficult to produce, yet we still have an expectation that it will be produced for us, on demand, to keep us fit and well. Hospitalisation puts you in an altogether different league with regard to cost and complexity, where doctors and scientists, quite correctly, have furthered their knowledge of human frailty and come up with treatments for every conceivable illness. but it is entirely dependent on the availability of energy sources. Without that, we revert to the health of our pre-industrial forebears
Dear Medieval
Yes…but WHICH preindustrial forebears. The hunters and gatherers living in the Georgia Bight were healthier than the people living there now. They had, for example, no tooth decay because they didn’t have corn or other sources of sugar. Their diet and lifestyle kept their immune system in excellent shape. It is true that childbirth was difficult, and that accidents did happen. The advantages of modern medicine are mostly about childbirth and accidents. Which account for a pretty small percentage of medical costs. The rest of it is mostly pretty dubious, and quite a number of doctors have publicly debunked it.
I’m not a doctor. But as I look at the facts from both a plant health standpoint and an animal health standpoint, the perspective of AVOIDING disease is the thing that makes sense. I began paying attention to immune system health a decade ago. Since then, I have not had a cold. I may get a scratchy throat, but my immune system promptly clears it up. It is the same immune system that deals with things like cancer.
If you are wealthy, you can place your bets on hospitals and doctors and expensive medications. But as we get poorer, we just won’t have that choice. My proposal is aimed at making good food grown on ones own land the basis for diet–along with the great exercise of producing that food and the destressing that comes from being self-reliant and having a purpose in life. All the evidence we have says that someone living that way can expect great health.
Don Stewart
Part of the hunters and gatherers good health came from the fact that there were so few of them. Contagious diseases will less of a problem. Their wastes fertilized an area that they would not return to soon.
The number of hunter-gatherers was very small. If we want to have, say 1 billion of us, it seems like we will have to deal with all of the problems people in living when the age when that number of people lived. For example, I don’t think we can dispense of grains for feeding 1 billion people. Other foods are too hard to keep.
Gail
As I noted previously in this thread, if we want a billion or more humans living happily on the planet, we have to garden–not gather. The point, which many people seem to want to deny, is that we now have the knowledge to garden (and garden farm) intelligently. There is no necessity for rapacious agriculture.
Don Stewart
PS And you are exactly right about numbers. The hunter gatherers in the Georgia Bight were healthy until, over the centuries, they started to become overcrowded. They really went downhill when the Spaniards came with unhealthy food and forced them to live in mission settlements. Which is one of the reasons I conclude that we have to garden with modern knowledge.
Hi Don
I accept the archealogical evidence that our hunter-gatherer forbears were bigger, stronger and healthier than us. the reason for that was quite simple, they had no means by which weaker individuals could survive to any meaningful degree, certainly not to the point of reproduction. Also, the bigger you were, ie stronger, faster and more likely to bring home dinner, the better choice you had in breeding, hence your strength got passed on. Your strength could also sustain several females. Its also important to bear in mind that living to old age was a rarity. if you showed any sign of weakness, you would be unlikely to breed at all. crude maybe, but you and I are the result of such reality
Their health was also due to eating a little of everything. Meat when they could catch it, which probably wasn’t very often, plant food when they couldnt. But that meant infinite unprocessed variety.
Our current breeding arrangements have changed, which is why you see bimbos on the arm of 5′ tall billionaires. OK–thats extreme maybe, but you see my point. A woman breeds with a man who will give her offspring the best chance in life, (whether she admits to it or not) In our current climate, that means money. Wealth buys food, shelter security healthcare and above all energy. The billionaire might enjoy a hunting trip–but he wont have to carry it home, cook it, and use the fur to keep warm.
As to current lifestyle, I try to live and think positively, (despite being addicted to doom mongering on here) which I think helps good health enormously. Depression is a killer. I know I have a good immune system, but whatever the causes of, say, cancer, (I get a prostate check every other year for example) I wouldn’t bet my immune system on clearing that up if I found a problem. or the septacemia that might set in if I broke a leg in a hunting accident, or more likely being run over on the supermarket carpark.
Dear Medieval
I do not intend to engage you in debate about hunters and gatherers. Suffice it to say that the archeological evidence in the Georgia Bight indicates that a child reaching the age of 3 would likely die of old age at 70 and a male would be between 6 and 7 feet with excellent teeth.
Neither do I intend to promote Medieval medicine or plant and animal husbandry. With what we have learned (much of it in the last two decades), reverting back to the Middle Ages would be insane. But what we now know indicates that much of the ‘high tech’ approach was at best misguided and at worst deadly. Read three books, more or less at the same time:
Super Immunity by Joel Fuhrman, MD
Teaming With Microbes by Jeff Lowenfels and Wayne Lewis
The Holistic Orchard by Michael Phillips
These three books will show you the great advances in our understand of both animal (including human) and plant health. And its not much about technology. Technology generally makes things worse.
Dion Stewart
Misguided or otherwise, our present ‘prosperous’ environment kicked off in the mid 1700s with the large scale use of fossil fuel energy. Prior to that, living was unpleasant by any standard we now take as normal in the western world. It might equate with the worst parts of Lagos or Mumbai–but thats another story.
It follows then that if that energy source is removed, our living must revert to a pre-industrial situation. This is not advocating a ‘medieval lifestyle’, nobody wants that, it will happen because we will not have the means to make it otherwise. the forces of chaos are kept at bay through our converting energy into forms that help us to do that. (think of the energy that goes into building a house. there are no longer enough trees for everyone to build a log cabin or whatever)
As I pointed out, relying on ones immune systems to cure cancers or serious injury is I fear wishmedicine of the most misguided optimism,
Gail
Also, if you are particularly delusional today, you can envisage the US finally doing the right thing and putting a bullet in the brain of corn ethanol. Freeing up a gazillion acres of corn in the Midwest. Promote a plan which reclaims the soil, resettles people on the land, encourages them to be self-reliant, promotes health, sequesters carbon, minimizes debt, etc., etc.
Why can’t it work? Nobody will make any real money. No K Street Lobbyists will become wealthy. Nobody who is anybody will be in favor of it. But since we are having a delusional weekend, we can at least dream.
Don Stewart
Yes, the corn ethanol industry is particularly invidious for a number of reasons.
1. There is no or little gain in energy, Studies by Pimental and others show EROEI is about 1:1 or at best 1:1.2. In bad years (droughts etc.) the industry would be an energy sink.
2. Only large Federal subsides keep it going at all. Clearly, a process with no net energy gain, over good and bad years, can only be kept going by government subsidies. These subsidies mean government money is wasted. It would be better to either lower taxes and stop the subsidies or direct the tax dollars to better effect elsewhere in the economy.
3. Poor people starve (for lack of corn and other foods) so that rich people can put ethanol fuel in their over-large SUVs, Pick-ups and 4WDs. This is clearly immoral.
I figure corn ethanol is basically a natural gas to liquids conversion. Natural gas is used heavily in its production (in the fertilizer and often in the electricity used to drive the processing–the latter could also be coal). If ethanol is more highly valued than the natural gas and coal, the process will work in an economic sense, even if the EROEI is 1:1 or 1:2. But there are a lot of things that are not measured, like soil depletion.
I agree with you, though, we shouldn’t be using corn for ethanol.
Gail you might like to know that you’re site is being blocked on corporate FireWalls as pornography.
Clearly you’re doing something right, if you’re becoming a target, and getting put on blacklists.
It may be that they don’t want their employees reading this during the day.
There are other sites that run my posts too, so it probably takes a bit of effort to get all versions.
Individual corporations don’t decide on what sites get blacklisted. These lists come for a few companies that maintain them in automated systems.
All it takes is for a few registered users to report a site as porn, and that site goes on the list and is shared with the other lists.
I can get to lots of non-work related sites at my company.
I think you’re just becoming well known enough to become a threat.
Thanks for letting me know. It is not exactly good.
There has been some sniping at Gail relative to the way she chooses to display oil prices. I believe that her point is that oil is now high priced for a significant segment of the American (and European) population and that the high price fosters recessions. Here is some arithmetic.
The Social Security numbers for median net compensation for 1990 and 2010 are $14,499 and $26,364 respectively. I doubt that the compensation has changed very much to 2012, so assume that 2012 compensation is also $26,364.
Oil was $23.19 in 1990. Recently, it has hovered around $100. The per capita consumption of oil in the US is 61 barrels per year. If we simply multiply the 1990 price by 61 barrels, we get $1415 dollars, or about 10 percent of the median compensation. The same exercise for 2012 yields a cost of oil of $6100, or 23 percent of the median compensation. It is obvious that there is going to be stress present in the system with such an increase.
For a complete analysis, one would have to get deeply into family budgets (for example, medical costs are a lot higher than they were in 1990, and educational expenses are much higher). It’s probably also true that the price hasn’t really risen at all in terms of the percentage of earnings of the top hundred people in the country because the very rich have gotten very much richer.
These comparisons remind me of some work I did to try to educate a ‘gold standard’ advocate. He claimed that oil hasn’t gone up in price at all–in terms of gold. I pointed out that wage earners have to work many more hours to buy an ounce of gold than they did back in 1970. So if you consider the value of a human hour worked as the standard of measurement, then both gold and oil have increased in price. Such price increases–particularly for the oil–are going to cause a lot of problems.
Don Stewart
If you believe that everything is connected to everything else, look at this article on declining life expectancy in the US–particularly in some poor groups. The stress which median and below earners have been under since 1970 may well be manifesting in terms of risky activities and early death. Note the comparison to the collapse of the Soviet Union…Don Stewart
http://www.nytimes.com/2012/09/21/us/life-expectancy-for-less-educated-whites-in-us-is-shrinking.html?pagewanted=1&nl=todaysheadlines&emc=edit_th_20120921&_r=0
The five-year decline for white women rivals the catastrophic seven-year drop for Russian men in the years after the collapse of the Soviet Union, said Michael Marmot, director of the Institute of Health Equity in London.
Thanks very much. I am interested in this kind of thing. Unfortunately, the original article is behind a pay wall.
don, regard money as energy. It then becomes clear that expensive energy equals less energy. Money in terms of cost should be part of the calculation of EREOI. For this reason as energy prices have soared relative to average earnings so too has government borrowing and of late, the printing of money.
Also, if the only thing a person bought with their salary was energy, as the price goes up, the amount a person could buy would go down proportionately to the price increase. Salaries don’t rise, just because energy prices rise.
GDP has been rising a lot faster than median income. In recent years, fewer are employed, and this adds a stress, even above the lower median income. When I looked at these amounts earlier, I looked at them relative to “wages + proprietors income,” excluding government wages (since these have to be collected through taxes on others). This is the graph I put together in August 2011:
My conclusion at that point was that wages were down so much that the drop in tax revenue was largely a reflection of the lower wages and fewer employed. The big increase was in outgo relative to wages. Collecting this much in taxes, now that international businesses are largely able to dodge taxes through offshore tax havens, would be a huge challenge.
This chart is from Why the US Debt Limit is Only a Temporary Solution
It’s already clear that the economies of Greece, Portugal and Spain are imploding under the constant pressure of Oil in the $100/bl range. The Chinese Manufacturing Economy 9s collapsing as well, and the Germans won’t be far behind.
Our “economy” such as it is has its GDP juiced through Financialism and Goobermint deficit spending, but the real economy continues to shrink on a daily basis. Fewer people measured as in the workforce while the population at large continues to grow. 1/6th of the population on Food Stamps.
An Industrial Economy cannot “learn to live” on anything but dirt cheap energy. This economy is currently strangulating, its quite obvious. The greatest pain is being felt in the peripheral nations latest to the Industrial game, but you can see the inexorable progress inward, this actually has been obvious since Bear Stearns went belly up, then followed by Lehman. It is a classic example of Cascade Failure.
One thing is for certain, if anyone is going to “learn to live” with High Priced energy, its those people who simply don’t BUY that energy. You won’t find those people in any city or any suburb, because just living in such environments is energy intensive. You’ll need to head a bit further out to cut back enough to “learn to live” with high priced oil.
RE
http://doomsteaddiner.org
I agree with you. Also, the fact that so much energy is embedded in all of the goods and services we buy is something most people don’t figure out. We have to keep fixing roads and electric transmission lines and water and sewer systems, or they fall apart. We have been delaying investment in these for years. It may very well be the lack of investment in essential infrastructure that brings our current economy to a halt.
Pingback: QE = HIGHER OIL PRICES = RECESSION = MORE QE……… « The Burning Platform
I think this quotation may help crystallize certain thoughts:
Zygmunt Bauman: No one is in control. That is the major source of contemporary fear …the world is marked by a division between power and politics. While politics is defined by nations, power no longer recognises national boundaries
By and large, I agree with Bauman. For example, I saw an interview with a Chinese official who was questioned about the bad health effects in China of the burgeoning fast food culture imported from the US. He said that the government understood the problem, then shrugged, and said ‘the fast food companies are very powerful’. So if a supposed dictatorship can’t stand up to fast food, what chance has a democracy got?
On the other hand, I do believe that the German government CAN shut down the nuclear plants. Whether they can make solar and wind work as replacements, I don’t know. So the German government may have a negative power, but might lack the positive power.
There is still the illusion at large that the US peak of oil production 40 years ago was a highly significant event because it somehow means that, henceforth, the average American would have less oil to consume. But US oil is a globally traded product. It has always gone to the highest bidder. I wasn’t getting much in the way of subsidy from domestic oil in 1965–I paid about the same as everyone else in the world. For several decades after WWII for a variety of reasons, the average US citizen was in an excellent spot to purchase oil–whether it came from Texas or from Saudi Arabia. US citizens are simply no longer in such a favorable position. The reasons for the decline are multitude and not very well understood. And so we get the peculiar notion that the XL pipeline which will make midwestern and Canadian oil available to the world market is somehow good for the average American consumer. While in fact the ABSENCE of a pipeline has been a large subsidy for the last few years to the average American consumer since the consumer doesn’t have to pay the world price for some of the oil we consume. If oil were taxed heavily to provide subsidies to the citizens (as it is in some OPEC countries), then the situation would be different and the government WOULD be exercising power.
The Australian government may have a policy of making Australian citizens rich by producing a lot of coal–but if China doesn’t buy the coal, then nobody will get rich. Again, the nation-state has lost its power.
In my opinion, a socio-economic analysis is frequently more fruitful than a nation-state analysis. What is the relative bargaining position of the billionaires? (Whether the billionaire be a citizen of the US, France, or Mexico). What is the relative bargaining position of the professional class? What is the relative bargaining position of the middle class? What is the relative bargaining position of the lower class? I would expect that the bargaining position of the lower class in, say, Viet Nam is about the same as the bargaining position of the lower class in the US–with the exception that governments can make things immeasurably worse but usually can’t really make them very much better. At the moment, the socio-economic statistics for the US reveal a lot of stress for everyone except those over 65, women, and the billionaires. Jobs are being created, but they tend to be low-paying, part time jobs. The net worth of the poor is as dismal as ever, while that of the middle class has tanked along with house prices. Student debt is still rising and default rates are increasing. But the politicians, anxious to avoid the whole class issue, want to talk about total jobs. While they may be self-serving, they may also recognize that there isn’t much they can actually do about it.
My previous comments pertain to the average person behaving as we expect them to behave. We should also pay attention to those who are different in some way. For example, Amish people or people who deliberately live without money or people who retreat to monasteries or young people living a quasi-communal life because they can’t afford their own place. None of this ‘strangeness’ is a function of which nation-state they live in…it is a function of individual choices.
Don Stewart
Interesting thoughts.
We are dealing with self-organized systems. Trying to force them to do what we want them to do is very difficult (or impossible).
The gasoline prices in Colombia is $5.00 a gallon, even being a mayor producer of oil, so why are we not in recesion, we have a growing of 5% a year in PIB, I think this is relationed with the extensive use of public transportation that exist in Colombia.
Columbia is an oil exporter. The high prices received for oil help the economy in ways that offset the high price of oil. Also, the common people don’t use a lot of oil.
IMHO, there is a crying need for rethinking economics. We live in a world in which the all the money is created either by government fiat, or by fractional banking, and fractional banking can exist only within a government regulated banking system. Creating pure ‘private enterprise’ money is called counterfeiting and is illegal. If we admitted to the truth of situation, we might realize that we need to treat money as a thing that is socially created and start setting up practical rules.
my first cut at the rules:
1. People existed before the invention of money and will continue to exist no matter how good, or bad, the system for managing money is.
2. A Money system that does not provide for every living soul, runs the risk of being overthrown by People who have been left out.
Etc., etc., etc.
before money, people bartered. they exchanged one kind of good for another, almost certainly a quantity of food in return for a weapon or weapons. swords or spears. Thus the smith could ask for so much grain in return for the hours of muscle output spent at his forge. the farmer and the blacksmith exchanged their skills and energy through the medium of their product, Thus ‘value’ evolved. It is known that bronze axe heads were used as currency because they represented a known and accepted amount of work output. It was a simple transition after that to render accepted value into a certain weight of gold silver or copper (metals of varying scarcity). In this way ‘money’ held its value for 000s of years because it depended entirely on the output of human muscle.
money value skewed when we stated leveraging the energy from hydrocarbon fuels. we still worked a normal number of hours, but coal oil and gas delivered 100 times the output of previous eras. so our fixed notion of ‘value’ didn’t work any more.
so to sustain value we had to keep producing more energy at an ever faster rate, until we reached our present time, where we’re actually running out of fuel but still have to maintain ‘value’ by finding more cheap energy.
but there isn’t any, so our value system is beginning to collapse as we are forced to run faster and faster just to stand still.
this is why you cannot rethink economics. economics is based on ever increasing amounts of cheap power being available to drive our industrial machine. if it stops, the whole ponzi scheme of our economy collapses.
A small number of people existed before the invention of money systems–nothing like we have today.
The huge number of people we have today is all out of proportion to the animal and plant kingdoms. Part of what keeps our advantage is the financial system that links all of our other systems together.
I don’t really agree with your last two statements. We have no guarantee of continued existence, in our current very high numbers. The natural tendency with less energy is for governments to cover smaller and smaller areas. It is not clear that a monetary system for one area would work in another nearby area.
I took it as read, there being only a very small number of people engaged in the first barter economies. And yes our numbers are completely out of balance with what can be supported, but humanity still has the same brain of our forebears of 10000 years ago. We must constantly trade to increase our personal wealth. Thats why the billionaire strives to make his second billion. He doesnt need it, but primitive forces leave him no choice. It’s what we’ve come to know as economics, but we’ve confused money itself with wealth. The ‘economic system’ needs a constant energy input to keep going. ‘monetary systems’ are in themselves meaningless without raw power, no matter which ‘area’ it was functioning in.
a good analogy is to let your car run out of fuel, then try to restart it by shoving cash in the fuel filler nozzle. Money isn’t energy, one of the problems today is that our governments think they can create energy by spending money
Samuel Alexander, who promotes Simplicity, has an essay which makes many of the same points I have tried to make:
http://www.energybulletin.net/stories/2012-09-28/radical-simplicity-and-middle-class
‘What is it that makes life worth living?’ and answers that question by saying, ‘Something other than the limitless consumption of material things.’
It is also interesting that Dmitry Orlov concludes his current essay with the notion that we have two choices: Collapse or anarchy (with a small a). Anarchy being a concept allied with what Alexander is promoting.
Chris Nelder lays out the case for upping the ante in terms of renewables and a smarter and smarter grid.
http://www.energybulletin.net/stories/2012-10-03/renewables-oct-3
This is evidently the path that many in Europe are prepared to follow.
I look at the question from the standpoint of an American who surveys a mostly broken political and social and financial system. One almost has to believe in miracles to think that the US could implement Nelder’s program. Which leaves me with the anarchism of small groups that Orlov and Alexander are promoting and a forced reset of the consumerist world view by the overwhelming force of collapse.
Best choice for Americans, at least, is to begin trying to forge links with likeminded people in the neighborhood, maximize your own productivity in terms of a much simpler world, and begin the mental transformation which will be required. Instead of vacationing at a 5 Star resort in the tropics this winter, spend some time at Walden Pond.
Don Stewart
Great article. I think there is also a third reason that it is cheaper to manufacture in Asia and that is there are less environmental regulations and paying off officials is cheaper than actually having to fight to either put in the necessary equipment to mitigate pollution or lawyer up to not have to follow the regulations. Granted I would not give up the environmental regulations we have. It is better to have clean air to breathe and water to drink than a job.
I think you are right about that. Lack of pollution controls is no doubt considered when companies make decisions where to build.
Another effect of rising employment levels in the 1950’s, 60’s, and 70’s was to raise the standard of living and the expectations of the American people as well. This was the time when two income earners per household became the norm, not the exception. Everyone was busy climbing the ladder of prosperity. Those at the top began looking around for a ‘stairway to heaven’ to keep their ascent going. (i,e, JFK’s ‘New Frontier’ and LBJ’s ‘Great Society’ ideology)
Consumerism finally ruled in America. It has left behind a legacy of wasted resources, pollution, debt, and corruption. The systems we adopted then, never highly functional in any case, are clearly dysfunctional now; but the expectations raised by the profligate expenditure of our energy bonanza in those earlier few decades are still in place.
The Dream dies hard. No one in elected office dares tell the truth, at risk of being booted out of power. But reality has a way of intruding on dreams, eventually. The contrast between ours is going to be somewhat of a shock, I think.
I agree.
There are a lot of big houses that have been built, that aren’t really needed. Maybe what we need instead is the little homes built over domesticated animals that Don Stewart talked about.
in the 70s, the Gulf states oil producers quadrupled the price of oil and reduced output as a political tool, to try to destroy the economies of the infidel west. Unfortunately they found their own finances collapsing too, because producers and consumers are really just on opposing swings of the same deadly pendulum.
So they just pumped more oil because the more they pumped, the more they sold and the richer they got, effectively that maintained the status quo for everybody because increasing output cancelled out the quadrupled price. that meant everybody could carrying being employed in fuelburning. (that’s what employment is in an industrial economy)
Barring a few hiccups, that worked until 2005 when world crude production hit a plateau. there is effectively no spare capacity to allow production to climb to meet demand, so world economy has stalled. Oil has quadrupled in price again over the last decade, but unlike the 70s we cannot increase production to match that this time, so fuelburning jobs have gone.
You cannot have jobs without the necessary hydrocarbon energy to support them. as oil prices rise, jobs will decline. So yes, high oil prices do have a permanent and detrimental effect on employment, and the world economy will stay in recession
I know I’m going to get some flak for fixing employment specifically to energy use, but unless you’re a professional hermit, your employment needs someone somewhere burning oil coal or gas to support it, however remotely
“in the 70s, the Gulf states oil producers quadrupled the price of oil and reduced output as a political tool, to try to destroy the economies of the infidel west. ”
You are completely in the American (or anglo saxon, or western) “public relationships for the masses” Mythology here, sorry to tell you this…
You might want to read, chapter 8 and 9 of below :
http://books.google.fr/books/about/The_Age_of_Oil.html?id=JWmx5uKA6gIC&redir_esc=y
And more importantly :
http://www-personal.umich.edu/~twod/oil/NEW_SCHOOL_COURSE2005/articles/for_aff_aikins_oil_crisis_apr1973.pdf
What the first oil shock is about is :
– OPEC producing countries wanting a bigger share of each barrel extracted from their soil revenues (through contracts renegociations, nationalisations partial or not). Quite understandable considering the ripp off under the seven sister era.
– THE US 1971 PRODUCTION PEAK, then first producer of the world by far, let’s remember. The consequence of this peak being : need for a higher barrel price for the western majors in order to start more expensive plays : Alaska, GOM, North sea, and in the process keep a higher market share relatively to OPEC (and less dependency on foreign oil for the US in particular)
– Higher barrel price was a complete common interest in between western majors and OPEC.
– US diplomacy (Akins in particular but also Kissinger) **PUSHED FOR** a higher barrel price.
– The embargo was almost a complete non event in terms of oil industry and market
– But not in terms of Public relationship :
* for the US to “cover up” the US peak to its pubic opinion/put the blame on the Arabs
* for Arab producers (no embargo from Iran at that time at all) and Saudi Arabia in particular, to show “the arab street” that they were doing something “for the palestinians”
– the “embargo” was never effective from Saudi Arabia towards the US, tankers kept on going from KSA (through Bahrain to make it more discrete) to the US (US army in vietnam in particular). See for instance Akins interview in below part 2 (unfortunately dubbed) somewhere after 19:00 :
http://parolesdesjours.free.fr/petrole.htm
The first oil shock was primarily a consequence of geological constraints (the US production peak), and not primarily a “political shock”, as as been beaten over to no end.
The political aspect if you want to see one is related to “getting out of the seven sisters colonial era”, much more than anything else.
This myth : “first oil shock= arab embargo”, is for sure something we should get over if any way is to be found out of current mess.
The simple reality being “firs oil shock=US production peak”.
when the Yom Kippur war between Israel and Syria/Egypt broke out in 1973, the OPEC countries of the Middle East knew that the USA couldn’t counteract another embargo by increasing its output because it didn’t have the resources. Arab oil exporters immediately imposed restrictions on all countries that had supported Israel during the conflict, specifically the United States, Western Europe and Japan, and later extended to some South American and African countries. At the same time OPEC raised the oil price by 17% and two weeks later announced a cut back in oil production by 25%, with the clear intention of boosting revenues and damaging the economies of the west.
OPEC announced in September 1973 that they would reduce oil production by a minimum of 5% every month, and continue to do so until the objectives and territorial demands of the Arab states in conflict with Israel had been met. Although this threat was aimed principally at the USA, the effect on the rest of the world was equally severe. It was the grip on the industrial throat of the developed west. By October 1973, petrol reserves in the UK had been reduced to two months’ supply at most, and the British government prepared a fuel rationing plan with the intention of introducing it by 17 December.
America was no longer able to control the price of oil by ramping up production, so OPEC restrictions immediately quadrupled the price from $3 to $12 a barrel, having a widespread and immediate effect. The sudden leap in oil prices caused a shock wave that resonated through world economies. It wiped almost $100 billion off the New York stock exchange in six weeks. The cost of consumer goods and foods rose in parallel with oil prices, reducing the average worker’s purchasing power and consequently industrial demand. This in turn resulted in a dramatic cut in industrial output and in employment, initiating a depression in the western world that lasted well into the 1980s.
Read the documents : price rose before, the embargo was only towards a few countries (US, Holland, Portugal), and from a few ones (not from Iran, not from Venezuela, etc), and it was NEVER EFFECTIVE from KSA to the US (look up Akins interview).
Again your view is the usual myth that many people already went over, but you can stick to it of course. Moreover it lasted only 3 months.
Saudi Arabia never cared much about the Palestinian (but was important for them to show that it did), a practical public relationship label on both side, really the only thing it is about.
And why would OPEC quotas be a bad thing ? Isn’t it “good husbandry or ressources” ? and “good capital management” ?.
The oil market has been a cartel during the seven sisters era (with the barrel price set up behind closed doors and contracts signed with finger prints).
With the first oil shock (that again started much before Yom Kippur war, basic FACTS), the spot market was also started.
If producers want to manage their production in a spot market, why calling this a cartel ?
(and anyway never acted as one)
The key point in this story, is really the cover up of the US peak, how many Americans know they went through their oil production peak in 1971 ?
1% 2% 0.5%
Isn’t it amazing that the titles some weeks or months ago could be “US oil exporter for first time since 80ies or whatever”(mixing up refined products and oil). ??
“The cost of consumer goods and foods rose in parallel with oil prices, reducing the average worker’s purchasing power and consequently industrial demand. This in turn resulted in a dramatic cut in industrial output and in employment, initiating a depression in the western world that lasted well into the 1980s.”
You seem to complain about the fact that the price of oil rose (and put the blame on OPEC or something), do you really think North sea would have been started with a barrel at $1 or $2 ? Do you know that for an oil major the higher the barrel price the better ? And this even in a distribution role ?
Again US Diplomacy **PUSHED FOR** a higher barrel price (Yamani talking about it in above doc as well, about king Faisal asking him to go see the Shah to have him stop pushing for price rise, he goes there, the Shah tells him it’s Kissinger that wants a higher barrel price).
Things are really much more complicated than the pr myth for the masses, and again, the result of this : The immense majority of US citizens (or even western world in general ) doesn’t even know that the US went through its production peak in 71 (not more than they know about North sea peak in 2000, or Mexico peak or 2005 for instance).
For sure a bit late now …
not complaining at all, merely stating facts
oil and wages can go on leapfrogging each other….until the final leap in oil is too high and leaves wages unable to make the next jump. that’s how the world industrial economy grew through the 2oth century, with the odd hiccup along the way.
to sustain the game you have to keep pumping more oil into the system. the fine points of political tuning can be argued over indefinetly, I don’t doubt the complexity of the system. Unless you’re sitting round the table with Yamani, Kissinger et al you can never know who said what. Facts are we are now at peak oil, arguing over it wont bring back $2 gas no matter how many promises are made. Employment is wholly dependent on fuelburning, When we stop burning fuel, our jobs disappear. The world economy really is that simple
I absolutely agree that almost nobody is aware that US oil peaked in 1970 though…scary or what?
I’m sorry but whatever the way it pans out, a bit of honesty regarding history would surely help, and again the first oil shock is primarily about :
1) US 1971 production peak, need to start more expensive plays out of OPEC
2) OPEC countries moving out of the seven sisters era
full stop.
And yes today even harder around pushing the dream of “industrial or high tech civilization for everybody” (nonetheless still the prime message of the west in public relationship).
you cant have industrial high tech for everybody, but politicians have to peddle that myth to get themselves elected.
folks are going to get annoyed when they find out theyve been subscribing to a global ponzi scheme
It is a matter of historical fact that there was an OPEC embargo. The reason for this embargo is a matter of dispute among people who fancy themselves to be experts. Was it a policy implemented by cranky rulers of ‘petty’ Arab states, or a clever ploy by an oil oligopoly, or the hidden hand of the marketplace, or whatever? The ‘underlying’ cause is were the argument lies, IMHO. But supply *was* disrupted. (embargoed is another word used.) And the embargo/disruption *did* have the classical supply/demand curves effect of raising price.
Read the document listed : the embargo was a complete non event with respect to the first oil schock (defined as price price spike, it was a public relationship event on both side for sure), but Americans like this myth obviously (easy exit ! lol 🙂 )
There was fuel shortages in the US before the embargo.
The result of this myth : the vast majority of the trepanated US citizens do not even know they went through their production peak in 71
You are siiimply wrong and have NEVER looked up the facts.
I was following the oil situation in 1971. My memory of events is that The Texas Railroad Commission had been price fixing since the discovery of the East Texas Field caused riots in Oklahoma during the early thirties. When Texas finally went to 100% allowable, The Railroad Commission lost the ability to control the price.
http://www.rrc.state.tx.us
Sorry for harsh tone (was late)
But really think the first oil shock is the major missed opportunity for having peak oil becoming common knowledge (and labeling it “arab embargo” has allowed avoiding laying out the bare facts)
Actually what is now called peak oil was discussed extensively during the 70’s. I recall arguing with various individuals who insisted that it was nonsense. It is true that the severe shortages of natural gas in California was largely due to price controls. I was involved with one installation of solar roof panels in a Ventura CA apartment. They have since been removed. Then there was the 1981 book by Julian Simon
http://en.wikipedia.org/wiki/Julian_Simon
The point is really very simple :
– More than 40 years later and production down half I think it’s safe to say that US oil production peak happened in 1971.
– The US were then the 1st producer by far and in a growing production (for the US and others) and consumption environment.
– The first producer in any market stopping its production growth and then decreasing quickly is for sure sufficient to create a serious disruption.
– It is exactly what happened
– Moreover the so called “embargo” was really a non event in terms of actual figures and number of barrels delivered to the market, check for instance below pages from Maugeri book :
[IMG]http://i245.photobucket.com/albums/gg69/jdl75/maugeri8.jpg[/IMG]
[IMG]http://i245.photobucket.com/albums/gg69/jdl75/maugeri-emb-end.jpg[/IMG]
link to his book (chapter 9) on gg books :
http://books.google.fr/books/about/The_Age_of_Oil.html?id=JWmx5uKA6gIC&redir_esc=y
And I don’t think Maugeri can be described as a “peak oil doomer”, in fact completely in line with the “technology will make more oil available” song.
And quite interesting how he is “fighting” the banality of resource contraints in his book, being able to write :
[IMG]http://i245.photobucket.com/albums/gg69/jdl75/maugeri1.jpg[/IMG]
And then :
[img]http://s245.photobucket.com/albums/gg69/jdl75/?action=view¤t=maugeri2.jpg[/img]
– Then end result of labelling the first oil shock “arab embargo”, or “a political event” is :
99% of US citizens do not even know that they went through their oil production peak in 1971.
And don’t you think it is really quite “funny” to call a period “embargo”, when this period corresponds to a tremendous spike in US imports level ? :
http://upload.wikimedia.org/wikipedia/commons/c/c5/US_Oil_Production_and_Imports_1920_to_2005.png
Add to that that US major “allie” in the region : Saudi Arabia, or “friend” or under a protection contract, whatever way you want to call it, and new emerging 1st or second producer, NEVER ceased to deliver crude to the US even if pretending otherwise for its own public opinion, and you truly have one of the most rehashed to no end myth of the XXth century that’s for sure.
It is always good to have a convenient excuse to blame your problems on!
If anything (to be verified), maybe you can call the little bump in the growing imports curve below the “embargo” … :
http://upload.wikimedia.org/wikipedia/commons/c/c5/US_Oil_Production_and_Imports_1920_to_2005.png
But from an overall market point of view the price transition cooresponds to the first oil shock, has been trigered by the US 1971 production peak.
(that is also synchronous with the dropping of Bretton Woods and ensuing $ devaluation, let’s not forget)
I looked up the proportion of non-trasnportation fuels that is for commercial/industrial use, and it is very high -70% or so, higher in older time periods. This would very much tie in with the jobs needing energy.
For transportation fuels, it is harder to make a split, but as nearly as I could tell, at least 50 % of the transportation fuels are commercial/industrial (trucks, boats, airplanes, and any private passenger auto vehicles are used for business purposes (police cars, sales, etc.)) And even with respect to privately-owned private passenger auto vehicles, there is a significant portion that relates to commuting to work.
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I think quantities of oil used have more to do with the size of the economy than price. Oil is used to do useful work. If quantities used go down without an increase in efficiency, I would expect lost jobs and a decrease in economic output. I think oil prices have more to do with cost share. High prices indicate a higher cost share of oil, indicating an economy which is less rich (stagflation). Sudden changes in cost share cause recessions because people are surprised. So in a sense I agree with Hamilton, if quantities don’t decrease and prices are at historical highs for some time, I would not expect a recession. People just get used to the high prices. They will however complain because they will not be able to buy as much as they used too. I do agree with Gail in the sense that the government is hiding the true extent of our economic crisis through non sustainable means. In particular, I believe that most assets (real estate, stock) are over valued. When people try to cash in their assets for real goods, there will not be enough goods to go around.
Ian
I think you are right about the part at the end–the $$ value of bank accounts and other financial assets is high, compared to the goods they can buy.
The price of oil makes more difference that you would think. One reason is that consumers are constrained by the total amount they earn, with respect to the amount of goods and services they can buy. It is pretty obvious that if the only product they were buying was oil, and the price went up, they would have to buy less.
The same principle ripples through the system in other ways as well. It makes certain that if the price of oil goes up, people have to cut back on buying some goods and services. THis leads to layoffs. It doesn’t matter how much people have learned. We are dealing with a system where salaries don’t go up when oil prices go up, so something has to shrink.
What I mean is the following: let Y(t) be economic production. Imagine Y(t_1) = Y(t_2) where t_1 and t_2 are two different times. But imagine the cost share of energy at time t_1 to be say 5% and the cost share at time t_2 to be 10%, while energy consumption is the same at both times (so energy prices are higher at time t_2). Government figures will say the economies are the same, but in order to get from t_1 to t_2, the non energy sector will have to shrink 5% to make room for the higher cost share of energy. Consumers will have less purchasing power at time t_2 because they are paying more for the same quantity of energy, so they can afford fewer other goods. How does the economy get from t_1 to t_2? It seems to me that there are two extremes with reality somewhere in between. In one extreme, everyone anticipates the higher cost of energy and makes investments accordingly, the transition is smooth, but some businesses must shrink as the energy sector grows. In the other extreme, no one anticipates the “invisible hand” of the market, and the transition is made through bankruptcies and failed businesses. In the second case, it is quite possible that the transition will be made via a recession. For this reason I think that unprecedented price hikes have a greater impact than when prices recover to previously known levels.
Since energy production is linked to economic production, if higher prices for energy are accompanied by lower consumption (as in the US since 2008), economic production is reduced. So in fact we agree about government covering up lower economic production with smoke and mirrors, but I link this lower economic production to lower energy consumption rather than higher prices. Worldwide, energy consumption has not decreased, the cost share of energy has simply increased along with it’s cost share. So I think consumers do not feel better off, but economic production has not started to fall worldwide, only in places not able to follow the higher price of oil.
I still don’t agree. For one thing, I don’t see that “everyone anticipates the higher cost of energy and makes investments accordingly, the transition is smooth” is possible. There is a smallish piece of the economy that can make a transition, but this doesn’t fix the bigger picture. Roads continue to degrade, and need to be fixed with high priced oil. Same for pipelines. Construction equipment is not changed to be more energy intensive. A lot of deficits build up, especially in the governmental sector, because higher costs -> lower energy consumption -> lower real output. Greater efficiency can do a little bit, but not very much.
The situation of the US with respect to oil is indeed very peculiar :
– First Army and defense budget in the world by far, almost entirely dedicated to securing oil routes and “extraction environment”, with the resulting “benefit” of oil traded in $, $ as reserve currency, ability to sell its bonds or even buy them itself.
– Above can be “more or less” considered as OECD
– Was the first world producer by far up to the sixties/seventies and didn’t really got the message of production peak concept at the time of its own production peak (at least in the broad public).
– Has a taboo reaction to the only policy making sense with respect to favoring the economy adpatation to higher oil price : setting up volume based taxes
Regarding the volume based taxes on oil, as long as oil production is constrained (that is, inelastic supply) for the world as a whole, and is freely traded, the main thing these taxes do is send oil to countries without the taxes, helping them to grow and increase their long-term demand for oil. Admittedly, the taxes may result in more efficiencies being added to the taxing country’s system earlier on, but if there is a disruption in supply later, the slack will have already been taken out of the system, and the system may be more prone to breaking, rather than less. And as mentioned previously, there will be more demand in the world system. We have been seeing this play out with the rise in China and India’s rising demand for oil, following the Kyoto protocol. Europe is still in a heap of trouble, with its volume-based taxes.
All of our non-fossil fuel solutions have serious deficiencies. As a practical matter, substitutes for oil tend to be coal based electricity most places; natural gas in the US. Thus, switching away from oil in practice means using our coal and natural gas more quickly than we would otherwise.
“but if there is a disruption in supply later, the slack will have already been taken out of the system, and the system may be more prone to breaking, rather than less.”
I disagree with that completely, and think it is factually wrong (a country with taxes still pays the same on the market, but will need less oil per GDP unit), and the “other country aspect” is also questionable.
But doesn’t matter much at this point in time for sure.
Living in the UK, I tend to agree with Gail. We have very high taxes on road fuels and therefore relatively efficient cars and trucks. However, the economy remains highly dependent on oil energy. What happened was that, when oil was cheap, the large amount of tax revenue delivered by highly-taxed oil consumption helped to fund the growth of a large public sector within the UK’s consumer-led (or what Steve from Virginia would call waste-based) economy.
Thus the public sector was/is the beneficiary of and the driver for a virtuous circle of oil-powered growth. Virtuous, of course, as long as oil remained relatively cheap and its supply kept pace with the demands of the economy.
Now that oil is no longer cheap, the UK government faces a dilemma. High fuel costs reduce consumer spending on other items, which lows or reverses GDP growth. The Government can reduce tax on fuel to encourage drivers to use more, but that makes it harder for it to reduce the deficit. And to the extent that the public sector functions as a device for churning fossil energy into ‘useful’ economic activity, reducing the flow of tax from fuel use only compounds the recessionary drag.
That’s why I agree with Gail’s assertion that a high tax system may be more prone to breaking. Of course, the UK is in the unique position of having built a high-oil-tax system a net oil importer before becoming, briefly, an exporter – during which time it signally failed to avoid the temptation to try to get the best of both worlds by going wild on public spending-fueled growth.
In 2001, 75% of the retail price of UK went in tax. Now it’s 58%. Road fuel now costs around 20% more in real terms than it it did 10 years ago and consumption has fallen back to 1995 levels (10% below the peak year of 2007). UK consumers (the people formerly known as citizens) can look forward to buying less junk in future, it would appear.
But that’s mixing many different thing together.
The size of the government budget is one thing.
Where the revenues are coming from is another.
The level of redistribution amongst citizens the government operates is yet another.
The size of common public infrastructures is yet another.
To me clearly the volume based taxes set up in the seventies in Europe were a good thing (I’m from France), even if it doesn’t of course remove the dependency on oil but clearly favors more efficient products and lower the trade deficit regarding oil.
And today I still see it (increasing them) as the best policy regarding oil, but not to increase the government budget of course, in particular taxes on work should be removed or lowered in parallel.
Note : for sure the fact that the UK sold most of its oil during the oil glut or counter oil shock (also Thatcher years) was in retrospect perhaps not the best strategy …
The problem being that it is now not so much in the sense “improving the situation”, but more “making the situation less severe in the future than it would be without putting them now”.
Agreed, economies are many things mixed together!
In fossil-fuelled industrial societies, ‘work’ and fuel consumption are to a great extent one and the same thing, since the BTUs in fossil fuels have replaced much of the work formerly done by human and animal labour. Automobiles, fuel taxes, flying, shops full of disposable junk, the welfare state – all these are tools for extracting bigger economy than you’d get solely from manufacturing out of substances that (apart from making many useful petrochemical products) merely make heat (with a pretty flame to be sure).
For the UK trying to raise taxes on fuel while reducing taxes on work is just another way of trying to lift oneself off the ground by pulling on your boot laces (result: you lean at a different angle but stay where you are). The Government is currently fighting a rear-guard action: easing fuel taxes slowly in order to keep revenues as high as possible without accelerating the decline in fuel consumption (which is as much due to falling car and truck use as to more efficient vehicles).
You are right, of course, to point out that the high level of tax gives the UK a bit of a buffer against shocks from sudden rises in raw crude oil prices. But the future distribution of fewer BTUs throughout the economy will still very much a question of robbing Peter to allow Paul to keep driving his car (petrol or electric, makes no difference).
Agree that work and energy can be considered the same thing (and work is in fact a definition of energy in the physical sense). And the fact that energy from fossile has been so cheap has resulted in us having a huge number of “private slaves” resulting in the “modern comfort” without even knowing or realizing it, a liter of petrol being equivalent to one month of I forgot the exact amount of physical work for a fit person. (the number given in last Heinberg’s conference published on EB :
http://www.energybulletin.net/media/2012-10-06/end-economic-growth-richard-heinberg-australia
However we still can make a difference between work as in job (not necessarily physical) or pay check, and work as in physical energy and the fuel or primary energy associated to it.
And there is a something than can be modified : efficiency, that is the amount of energy required to provide the same or about the same thing.
You can have two houses or appartment of the same size both at 20°C so providing the same “functionality”, one consuming a lot (badly insulated), one consuming much less (well insulated). And in fact efficiency is often related to spending on capex (here insulation) to reduce opex (here spent fuel to heat the house). It is really that basic, with the added fact that we know fossile fuel will get scarcer anyway.
And I really think moving taxes from work (as in pay check) to raw materials in general is really a key direction, independently of growth or not.
Thanks for your insights! If oil consumption does go down, a country with a high tax on oil consumption is particularly hit with a loss of tax revenue.
Gail will grasp anything to avoid considering volume based taxes as a sound poilicy ! 😉
But I thought oil consumption was “inelastic” ?
World oil consumption will equal supply, which is inelastic. If your country chooses to use less, some other country will use more. Taxes can reduce your own consumption, but not the world’s.
The goal is to have a higher GDP in 5 or 10 years than would be the case without them, not to replenish the oil fields, for sure.
Certainly oil is a factor, but not necessarily the dominant factor. This graph shows the emergence of a growing wage-productivity wedge which has not always followed the price of oil and which I believe is the primary cause of growing federal deficits..
http://krugman.blogs.nytimes.com/2012/07/18/compensation-too/
This is my analysis of what caused this and how and why the government and Federal Reserve responded:
This growing wage productivity gap is the result of:
The opening of trade with international markets by lowering our tariffs well below 10%.
The emasculation of unions starting with right-to-work laws.
The reformation of monopolies
These three factors clamped wages while IT-based automation rapidly increased productivity.
This is not new, but has been going on for four decades as the graph illustrates. Middle Class families adjusted to this early on by reducing savings, belt tightening and sending the spouse to work. As the wage-productivity gap widened, it was filled with rapid growth of private credit to keep our economy afloat. Advertising created the “need” for enough goods and services to keep our economy growing while credit cards and wages were the means.
The Federal Reserve, sensing weakening demand due to the growing gap, encouraged rapid credit growth with low interest, subprime, negative amortization and undocumented loans. Alan Greenspan even encouraged families to tap into their home equity.
Now that we have fallen back to earth, our economy is being kept barely alive with 10% of our goods and services purchased with federal deficits.
The first step to growing our economic pie again is to put into place the 30% tariffs that have been the hallmark of every Middle Class economic growth period (except after WWII when most of the world’s industrial capacity was destroyed).
Hello Dr. Excellent arguments you presented. Yet, I think you didn’t grasped the real cause of the situation you described: reduced energy use per capita. All the adjustmensts you mentioned above are a correct cause but the underlying cause is that since the 70’s US moved its economy out of energy intensive activities (like manufacturing) and into a ”service information (iPhone) economy”. That happened because the elites realized that the % of imported oil would have to grow dramatically (after the 70’s) to maintain the heavy industrial park of the US growing, which defined that what you described would happen inevitably. So, the difficulty to oil (energy) use is the real root to this, not the debt or financial structure.
I show a different way of looking at this in my post The Close Tie Between Energy Consumption, Employment, and Recession. Basically, we are saying the same thing–since oil started being in short supply, first women were added to the labor force at lower wages, and then we started competing overseas for workers. The “energy consumption per worker” which is equivalent to “real wages” has not been rising in recent years. This is certainly part of our problem. And I agree, taking off tariffs and competing with low-wage countries was a big part of our problem.
But even beyond this, we have the problem in recent years of the jobs actually leaving, so people are unemployed, rather than low paid.
In retrospect, all of the free trade certainly played a role in this. I am suspicious that the Kyoto protocol and carbon taxes did as well (even though the US wasn’t involved). This encouraged Asian countries to ramp up their industries, knowing that there would be little competition from the countries with carbon taxes. In fact, their reduced competition in the coal market would keep coal prices lower for Asian markets. The US couldn’t compete well with Asian markets, either, because of high wages.
I am inclined to agree with you that 30% tariffs would probably be a good idea, to get production back closer to where goods are used, and more people employed. I expect such a change would be hard to get through, and very disruptive.
I also think that international businesses should be taxed more heavily than they are now. Private citizens pay too much of the total tax burden, now that international companies can escape to tax havens. I’m not sure how to institute such a change.
All civilizations begin money printing programs when their resource base begins shrinking. They also begin creating more jobs from this money printing in sectors that don’t actually produce material things.
Everything you describe is predictable, from an energy perspective. From this perspective, the rise and fall of oil availability drove these changes.
For anyone who wants a more accurate view of Figure 1, please refer to this chart from Wikipedia.
http://en.wikipedia.org/wiki/File:CBO_-_Revenues_and_Outlays_as_percent_GDP.png
While government debt is a very serious thing, it appears Gail is failing to normalize the debt by GDP. Generally, such a naive presentation is actually a “trick” to make the debt problems look worse than they really are. Perhaps she will comment here on why her graph differs so radically from the more commonly accepted one on wikipedia. Perhaps she can even go on the wiki page and argue with those guys (who are quite serious and not to be trifled with).
“it appears Gail is failing”
“such a naive presentation is actually a “trick” (sic) ”
“Perhaps she can even go on the wiki page and argue with those guys (who are quite serious and not to be trifled with).”
PTB, sometimes I wonder if you are not trying to live beyond your intellectual means??
Government debt is typically measured relative to GDP. This is the standard metric.
People who present government debt in absolute dollars are generally tricksters, or financially naive. I know Gail isn’t the latter, so I sadly conclude she is the former.
Who bee paying you, Pete? Fracking companies? You bee good little shill.
PTB
I’m curious as to where is your support for the following two points:
“This is the standard metric.” Standard according to whom? I didn’t see it listed in the International System of Units. And why would a ratio be far superior to absolute amounts?
“People who present government debt in absolute dollars are generally tricksters, or financially naive.” Again, where is your evidence for this accusation? It seems just a little too like “ad hominen” rhetoric, rather than logical or factual argument. Funnily enough, I find most people can relate to actual dollar amounts, especially given that our income, spending house value etc. can be measure in dollars. No-one earns or spends money in units that are fractions of GDP, so why on earth would it be trickery to speak in such “real” terms? Surely the tricksters are the ones who play games with ratios?
Over and over again (on the Wikipedia pages, and many others) people measure debt relative to GDP. It is analogous for an individual to measure debt relative to income.
It is difficult to argue with people that don’t accept basic accounting practices. I suspect Gail is fully aware of such practices, but recognizes that her graph is less compelling if done the correct way, and thus she does some other way.
The ability to print huge quantities of money from nothing, and use it to keep growing the GDP, while resource consumption remains flat, is a topic we have covered.
Rome did the same thing during it’s decline. It kept printing lower and lower quality coinage in increasing quantity to raise it’s GDP, while industrial production declined. I would think that in those times, there were people making your argument to counter those seeing evidence of decline all around them.
The power of economics to create and measure virtual wealth as real wealth, is not under estimated on this forum. We are all aware that a good deal of economics works according to the rules of voodoo and magic. We are familiar with imaginary numbers such as the GDP, CPI, Inflation Index, and other magic numbers that are created to promoted political agendas. We don’t ignore them. But we do recognize that they do not actually represent the physical world.
And as to these numbers being officially recognized by the economic voodoo priests. We are aware of that. But we’re more concerned with the physical world here. In in that vein, numbers that are magically created to promote agendas, have little use to us.
You’re welcome to keep using the numbers created by the high priests of economics, in their endeavors to promote specific political agendas. I for one won’t stop you. But they are useless in understanding how the physical world and events are playing out. So I won’t be using them.
Here’s a nice illustration of how the USA keeps the GDP rising.
http://demonocracy.info/infographics/usa/federal_reserve-qe3/money_printing-2012-2013.html
Interesting link. Thanks. Has a lot of interesting links within it as well, such as this one:
The Fed has another $3.9 trillion in Quantitative Easing to go (at least).
These are the actual numbers. Graphing them as they are gives you a better feel for where they are.
Also, I think the numbers you are looking at are budgeted numbers only, not including all of the games-playing in the off-budget amounts. I made sure I got total amounts, so they are not the prettied up numbers presented to the world, while those working of the project quietly “short” Social Security, Medicare, and various other off-budget programs.
THe idea that future GDP is going to grow as in the past is something others would like us to believe is true, but there certainly is no proof of it. The purpose of the “normalization” is to show that somehow, we can outgrow our problem in the future. But what if we are shrinking, and not growing, so the problem gets worse?
With re: to actual versus off-budget — perhaps the Wikipedia team could benefit from your enlightment in this area.
With re: to dividing by GDP. US GDP has grown, significantly, over the time span you graph. By failing to divide by GDP, the shortfalls 20 years ago look much smaller than they really are, relative to current deficits.
Re: less of GDP growth in the future, GDP growth in the past is accepted, and thus failing to normalize over past data gives a false impression of the data.
The idea that debt should be measured against GDP is basic economics. To measure debt as you do, with raw numbers, is akin to assuming that a 300K mortgage has the same effect on a McDonalds’ employee as it does on a corporate lawyer.
PTB Do you or the Wikipedia team discuss “Social Security, Medicare, and various other off-budget programs.”?
Social Security ran a surplus in 2011, although it’s possible Gail has some odd accounting practice that denies this surplus.
This is what happens when you violate top-level analysis of accounting practices – you discredit yourself and people lose faith with the rest of your analysis. Why Gail would do this mystifies me a bit.
This is just a “reality check” – you wonder why the rest of the world ignores blogs like this? It’s because financially sophisticated people who look at a debt chart that doesn’t normalize relative to GDP just think “oh this person is clueless, or a charlatan, etc”.
The numbers I am showing are directly from the White House Office of Management and Budget reports. Table 1.1 from here. http://www.whitehouse.gov/omb/budget/Historicals
Thus, it includes whatever the White House uses for Social Security, with interest put where it is put.
Going back to what the Social Security Administration reports,
Net Payrolls Taxes Collected in 2011 Fiscal Year were $564 billion.
Total Expenditures were $736 billion.
Comparing these two items, there is a gap of $172 billion. This gets actuaries very concerned, since the system is supposed to be “pay as you go”.
To bridge this gap there are several items:
An unusual one time payment of $103 billion called “General Funds Reimbursement”. I don’t know what it is, but it appears to be something to get Social Security through its funding shortfall. Probably a reason the reduced tax rate for employers can’t go on another year.
Net interest on borrowings–$114 billion. These are interest payments from the Federal Government, since it took excess payroll taxes from early years and spent them on other programs (like wars). So each year it pays interest on the notes it left to replace the money it took. With interest rates declining, these are declining as well.
Income from taxation of benefits $24 billion. Probably should be included in the comparison.
If you include all of these items there is a surplus, but the funding level is really shaky. Clearly the one-time payment was needed to keep things to be looking to be above water.
“Social Security ran a surplus in 2011, although it’s possible Gail has some odd accounting practice that denies this surplus.” For example, the SS fund earns interest on it’s Treasuries. This is an example of Peter paying Paul – one branch of government paying another. I suspect Gail is including these interest payments as part of government expenses, but excluding them from government income. Viola! Bigger gap for your chart – (just like presenting non-normalized data).
I wonder – if a McDonald’s worker and a coprorate attorney each had a 200K mortgage, would Gail put them in comproable categories? Perhaps.
Likewise, to assume that the growth in the GDP has the same effect on McDonald’s employee as a Lloyd Blankfein, is an idiotic notion. And it’s the argument you seem to think that we should be making.
Since 2000, Lloyd’s income has be increasing exponentially, while the McDonald’s employee has seen little increase over the same period.
Thank you for playing the pot and kettle game.
Yeah, they are serious….
And they also believe that energy and matter can be magically created from market forces. If you wave enough money, infinite supplies of money will appear, from finite supplies. Then the universe will be destroyed in a second big bang.
They aren’t to be trifled with, because these Flat Earthers are dangerously ignorant.
Good post. And of course the incremental (paper) money went somewhere else, from Mexico to Venezuela to the House of Saud. There is a reason why everything looks new in the oil exporting middle east, as California did in the 50’s and 60’s compared to the Northeast. Your economic questions are right on, one wonders (1) what is the maximum QE/month is, and (2) how big the FED’s balance sheet can get before there is some catastrophic impact. Right now the impact appears to be the retired/retiring middle-class to upper-middle class rentiers (with CD’s and such) no longer able to retire in the manner that they thought they would have and the poor suffering inflation in energy and food (and other energy indirects). The governmental worker/retiree has mostly dodged this bullet, but it is about to have a huge impact upon them, with maybe North Dakota government workers/retirees and the federal government worker/retirees as continued exceptions.
My pessimistic geopolitical mind wants to know when the petro dollar recirculation ends, which would be a mortal blow to pricing of oil. Does it end when Iran is gone, and they no longer need American/European vastly superior weaponry and can do just find using YUAN & Chinese weaponry given that IRAN is rubble?
I haven’t tried to follow exactly where the petro dollar recirculation is going, but it seems like it would be very hard to get back to the people who actually had to pay more for goods and services because of the higher oil prices. At one point, there was talk about petro recirculation helping keep interest rates low, because oil producers were buying US bonds. Now we have found a way to do this ourselves.
There is clearly some recirculation through buying weapons from the US, but this isn’t enough. My guess is that recirculation is already down. Some may be used to buy food and housing for people in oil exporting nations, and the US might benefit there. The wealth funds may buy some stocks and bonds, too, helping keep prices of these up.