Can an Economy Learn to Live with Increasingly High Oil Prices?

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.

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?


111 thoughts on “Can an Economy Learn to Live with Increasingly High Oil Prices?

  1. 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

  2. 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.

  3. 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).

  4. Pingback: QE = HIGHER OIL PRICES = RECESSION = MORE QE……… « The Burning Platform

  5. 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.


    • 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.

  6. 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
      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.

    • 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

  7. 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.

  8. 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:
    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

    • 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.

  9. 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

    • 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)

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