2013: Beginning of Long-Term Recession?

We have been hearing a lot about escaping the fiscal cliff, but our problem isn’t solved. The fixes to date have been partial and temporary. There are many painful decisions ahead. Based on what I can see, the most likely outcome is that the US economy will enter a severe recession by the end of 2013.

My expectation is that credit markets are likely see increased defaults, as workers find their wages squeezed by higher Social Security taxes, and as government programs are cut back. Credit is likely to decrease in availability and become higher-priced. It is quite possible that credit problems will adversely affect the international trade system. Stock markets will tend to perform poorly. The Federal Reserve will try to intervene in credit markets, but if the US government is one of the defaulters (at least temporarily), it may not be able to completely fix the situation.

Less credit will tend to hold down prices of goods and services. Fewer people will be working, though, so even at reduced prices, many people will find discretionary items such as larger homes, new cars, and restaurant meals to be unaffordable. Thus, once the recession is in force, car sales are likely to drop, and prices of resale homes will again decline.

Oil prices may temporarily drop. This price decrease, together with a drop in credit availability, is likely to lead to a reduction in drilling in high-priced locations, such as US oil shale (tight oil) plays.

Other energy sources are also likely to be affected. Demand for electricity is likely to drop. Renewable energy investment is likely to decline because of less electricity demand and less credit availability. By 2014 and 2015, less government funding may also play a role.

This recession is likely be very long term. In fact, based on my view of the reasons for the recession, it may never be possible to exit from it completely.

I base the foregoing views on several observations:

1. High oil prices are a major cause of the United States Federal Government’s current financial problems. The financial difficulties occur because high oil prices tend to lead to unemployment, and high unemployment tends to lead to higher government expenditures and lower government revenue. This is especially true for oil importers.

Figure 1. US Government Income and Outlay, based on historical tables from the White House Office of Management and Budget (Table 1.1). *2012 is estimated. http://www.whitehouse.gov/omb/budget/Historicals

Figure 1. US Government Income and Outlay, based on historical tables from the White House Office of Management and Budget (Table 1.1). *2012 is estimated by OMB. http://www.whitehouse.gov/omb/budget/Historicals

2. The United States and world’s oil problems have not been solved. While there are new sources of oil, they tend to be sources of expensive oil, so they don’t solve the problem of high-priced oil. Furthermore, if our real economic problem is high-priced oil, and we have no way of permanently reducing oil prices, high oil prices can be expected to cause a long-term drag on economic growth.

3. A cutback in discretionary spending  is likely. US workers are already struggling with wages that are not rising as fast as GDP (Figure 2). Starting in January, 2013, US workers have the additional problem of rising Social Security taxes, and later this year, a likely cutback in government expenditures. The combination is likely to lead to a cutback in discretionary spending.

Figure 2. Wage Base (defined as sum of "Wage and Salary Disbursements" plus "Employer Contributions for Social Insurance" plus "Proprietors' Income" from Table 2.1. Personal Income and its Distribution)  as Percentage of GDP, based on US Bureau of Economic Analysis data. *2012 amounts estimated based on part-year data.

Figure 2. Wage Base (sum of “Wage and Salary Disbursements” plus “Employer Contributions for Social Insurance” plus “Proprietors’ Income” from Table 2.1. Personal Income and its Distribution) as Percentage of GDP, based on US Bureau of Economic Analysis data. *2012 amounts estimated based on part-year data.

4. The size of our current financial problems, both in terms of US government income/outgo imbalance and debt level, is extremely large.  If high oil prices present a permanent drag on the economy, we cannot expect economic growth to resume in a way that would fix these problems.

5. The financial symptoms that the US and many other oil importers are experiencing bear striking similarities to the problems that many civilizations experienced prior to collapse, based on my reading of Peter Turchin and Sergey Nefedov’s book Secular Cycles. According to this analysis of eight collapses over the last 2000 years, the collapses did not take place overnight. Instead, economies moved from an Expansion Phase, to a Stagflation Phase, to a Crisis Phase, to a Depression/Intercycle Phase. Timing varies, but typically totals around 300 years for the four phases combined.

It appears to me that the corresponding secular cycle for the US began in roughly 1800, with the ramp up of coal use. Later other modern fuels, including oil, were added. Since the 1970s, the US has mostly been experiencing the Stagflation Phase. The Crisis Phase appears to be not far away.

The Turkin analysis started with a model. This model was verified based on the experiences of  eight agricultural civilizations (beginning dates between 350 BCE and 1620 CE). While the situation is different today, there may be lessons that can be learned.

Below the fold, I discuss these observations further.

Issue 1. High oil prices tend to lead to government financial problems.

Food prices tend to rise at the same time as oil prices, partly because oil is used in the production of food (for example, plowing, irrigation, herbicides and insecticides, harvesting, transport to market). Also, because oil is in short supply, corn is now being grown for use as ethanol to be used as a gasoline-extender. Growing additional corn puts pressure on food prices, because it drives up the price of land and encourages farmers to put more land into corn production, and less into other crops.

The reason governments are affected by high oil and food prices is as follows. When oil and food prices rise, buyers cut back in discretionary spending, so as to have enough for “basics,” including food and commuting expenses. Workers are laid off in discretionary industries, such as vacation travel and restaurants. These laid off-workers pay less taxes, and sometimes default on loans. Governments are quickly drawn into these problems, for two reasons:

  1. Their tax revenue is lower, because of layoffs in discretionary sectors.
  2.  Their expenditures are higher, because of the need to pay more unemployment benefits, provide economic stimulus, and bail out banks.

Oil importers are especially affected, because they are also paying out funds to oil exporters. The countries with well-publicized financial problems (including several European countries, the United States, and Japan) tend to be major oil importers.

Oil exporters are not adversely affected to the same extent, because they have  additional revenue from higher prices on oil they are exporting. They may still be somewhat affected because of rising food prices, and the fact that higher oil revenues do not necessarily go to those buying food. A recent study shows that food shortages helped trigger the Arab Spring protests.

Part of the reason that the impact of high oil prices is as severe as it is, is because there are many follow-on effects. For example, if oil prices rise, the price of shipping goods of all types rises. If businesses are able to pass through these higher costs, discretionary income of buyers for other goods falls. If not, businesses find that their higher costs lead to lower profits. To bring profit margins back up to an acceptable level, businesses may lay off workers.

As another example, prices of homes are likely to be adversely affected by high oil prices, because a family with inadequate discretionary income will forgo moving to a larger home, and may even default on a mortgage.

It should be noted that the impact of high oil prices doesn’t completely go away unless oil prices go down and stay down. Businesses can partly mitigate the impact of high oil prices by laying off workers in discretionary segments. Some businesses will fail completely, however. Replacement may be by an overseas company, with a lower cost structure that uses less oil. See my post on energy leveraging.

Workers generally must permanently adjust their budgets to higher food and oil prices. This is often difficult to do. The lack of jobs is a particular problem–something that workers cannot fix by themselves. Government programs can mitigate the job shortfall, by paying benefits to unemployed workers and by reducing interest rates, so that businesses can more easily make investments that will lead to more employment. These programs are costly, though, and are a major  cause of the current mismatch between government income and expense.

Issue 2. World oil problems have not been solved.

There have been a number of reports this years, such as one by the International Energy Agency, seeming to suggest that the world oil problem has been solved. These analyses are incomplete. They do not recognize that our real problem is a financial problem. Our economy (everything from interstate highways to electric transmission to Social Security programs) was put in place using cheap ($10 or $20 barrel) oil. Shifting to today’s high cost of oil (up near $100 barrel) causes severe economic dislocations. There is no more cheap oil to be found, however, because oil companies extracted the cheapest to extract oil first and now the “easy oil” is gone.

The impression one gets from reading the papers is that US oil production is having a huge impact on world oil production. If a person looks at the numbers, world oil production is close to flat. Rising US production makes up for falling European production, but doesn’t do a whole lot more.

Figure 3. World crude oil production, based on EIA data. *2012 estimated based on partial year data.

Figure 3. World crude oil production, based on EIA data. *2012 estimated based on partial year data.

The rise in United States oil production is indeed somewhat helpful, but we are still many years away from being “energy independent” and even farther from becoming “oil independent.” The real issue is high oil prices, and these are not being fixed.

Figure 4. US crude oil prices  (based on average prices paid by US refiners for all grades of oil based on EIA data) converted to 2012$ using CPI-Urban data from the US Bureau of Labor Statistics.

Figure 4. US crude oil prices (based on average prices paid by US refiners for all grades of oil based on EIA data) converted to 2012$ using CPI-Urban data from the US Bureau of Labor Statistics.

Our financial problems are here and now, in 2013. Promises of hoped-for higher oil production in several years at a still very high price don’t fix today’s financial problems. In fact, they will likely continue to contribute to financial problems in the future.

Issue 3. Declining wages and increased taxes can be expected to lead to a decline in discretionary spending.  

As indicated at the beginning of the post, wages (including earnings of  businesses owners considered as “proprietors,” but not including “transfer payments” such as Social Security and unemployment insurance) have not been growing as fast as GDP since 2000. Below is a repeat of Figure 2 shown at top of post.

Figure 2. Wage Base (defined as sum of "Wage and Salary Disbursements" plus "Employer Contributions for Social Insurance" plus "Proprietors' Income" from Table 2.1. Personal Income and its Distribution)  as Percentage of GDP, based on US Bureau of Economic Analysis data. *2012 amounts estimated based on part-year data.

Figure 2. Wage Base (sum of “Wage and Salary Disbursements” plus “Employer Contributions for Social Insurance” plus “Proprietors’ Income” from Table 2.1. Personal Income and its Distribution) as Percentage of GDP, based on US Bureau of Economic Analysis data. *2012 amounts estimated based on part-year data.

There seem to be several reasons behind this decline. One reason, already mentioned, is high oil prices leading to US layoffs, because of decreased discretionary expenditures.

Another reason for the decline is increased automation. Electricity can often be substituted for human labor, reducing costs, but also reducing jobs. Economists seem to term this change higher labor productivity. They also seem to believe that new jobs will appear from somewhere, but in practice, this is not happening. Instead, lack of jobs is part of what is leading to recessionary influences.

Another reason for the decline is increased competition from countries with lower labor costs and lower fuel costs. China joined the World Trade Organization in December 2001, and its manufacturing (and thus use of fuels) increased dramatically shortly thereafter.

Figure 5. China's energy consumption by source, based on BP's Statistical Review of World Energy data.

Figure 5. China’s energy consumption by source, based on BP’s Statistical Review of World Energy data.

Another reason is demographic. Baby boomers are reaching retirement age. This has already begun affecting the number of individuals who retire each year. In the future, the number of retirees can be expected to increase further.

In total, we see a very large drop in the percentage of US citizens with jobs, starting about 2000 (Figure 6). This is very close to the time that China ramped up its growth (Figure 5).

Figure 6. 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.  2012 is partial year estimate.

Figure 6. 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. 2012 is partial year estimate.

In calendar years 2011 and 2012, workers’ contributions for Social Security funding were temporarily reduced by 2% of wages, as a way of stimulating the economy. As of January 1, 2013, this temporary reduction was removed. For a couple with combined wages of $100,000, take-home pay is thus being decreased by $2,000 per year. With less disposable income, workers can be expected to cut back somewhere–buying a larger home, buying a new car, or going out to eat.

So far, only a small amount of other tax increases have been put in place, and only a few cuts have been made. More tax increases or benefit cuts will be needed later this year to bring revenue and expense into better alignment. Any such change will tend to have a recessionary impact, because citizens’ discretionary incomes will be affected.

Issue 4. The spending gap and the amount of debt look too big to be fixable without excellent economic growth.

As noted above, wages have not been keeping up with GDP. The majority of federal taxes are based on wages, so in my comparisons,  I use wages, rather than GDP, as a base.

If we use the wage base from Figure 2, the amount of government outgo vs income (all levels, not just federal) is as follows:

Figure 7. US Government Spending (all levels) as percentage of Wage Base, as defined in Figure 2, above.

Figure 7. US Government Spending (all levels) as percentage of Wage Base, as defined in Figure 2, above, based on US Bureau of Economic Analysis data.

Based on Figure 7, the issue in recent years has been primarily rising expenditures. These higher expenditures would seem to be partly because of high-priced oil, but also because of other influences noted above that are leading to declining employment. The amount of the gap is close to 15% of wages–something that is very hard to fix. Even the current increase in Social Security taxes (“only” 2% of wages) will exert downward pressure on discretionary spending.

A related issue is that compared to wages (using the same wage base as in Figure 2), debt of all kinds is extremely high.

Figure 8. US Debt as a Percentage of the Wage Base, where the Wage Base is as defined in Figure 2, and Federal Debt is from Treasury Direct, and other types of debt are from the Federal Reserve Z.1 report.

Figure 8. US Debt as a Percentage of the Wage Base, where the Wage Base is as defined in Figure 2, and Federal Debt is from Treasury Direct, and other types of debt are from the Federal Reserve Z.1 report.

Government debt is in now more than household debt of all kinds, including mortgage, credit card, auto, and student loans. It is close to two times the wage base used in this analysis.

One issue with paying down debt is that during the pay-down period, the government (or individual) reducing the debt “feels poorer,” because funds available for spending on goods and services needed today is lower. This happens because some current tax revenue, or some current wages, must be used to pay down debt, and thus is not available for today’s spending. This is a turn-around from the increasing debt situation experienced many times in the past. For example, part of the reason times seemed good in the 2002-2006 period was because people were able to refinance their homes and use the funds to buy a new car or add on a family room. If we are forced to pay down debt, we have the reverse effect.

Issue 5. Similarity to “Secular Cycles” of Peter Turchin and Sergey Nefedov.

Throughout the ages, many economies that have experienced long-term expansion. Eventually, they reached limits of some sort and collapsed. The book Secular Cycles by Peter Turchin and Sergey Nefedov takes an analytical approach to looking such past cycles.  They developed a fairly complex model of what they would expect over time, in terms of trends in wages, prices, population, income inequality, and other variables. They then examine historical records (relating to eight civilizations in four countries, with “start dates” between 350 BCE and 1620 CE) to see whether this predicted pattern was born out in practice. In general, the authors found good agreement with the predicted model.

Typically, civilizations analyzed were reaching upper limits in population growth because of limits on food availability, but sometimes limits on water or fuel also were important.  The model predicted four phases (expansion, stagflation, crisis, and depression/ intercycle). The typical length of the entire cycle was 300 years. The length of the various segments was fairly variable. The stagflation stage often lasted 50 or 60 years. The crisis stage tended to be shorter, more often in the 20 to 50 year range. There often was overlap between phases, with a civilization seeming to cycle back and forth between, say, expansion and stagflation.

In the model, there are various feedback loops. For example, as the number of workers rises relative to the amount of land, the price of land and food tends to rise. Jobs outside of agriculture do not rise proportionately, so wages of common workers tend to fall in inflation adjusted terms. With lower wages for common workers, nutrition declines. Eventually, the population becomes weakened, and population declines. There are also other players–the elite and the state itself.

Some characteristics of the four phases are as follows:

  1. Expansion phase (growth) – Increasing population, relatively low taxes, political stability, low grain prices, and high real (inflation-adjusted) wages.
  2. Stagflation phase (compression) – Slowing population growth, much heavier taxes needed to support a growing elite class, low but increasing political instability, rising grain prices, declining real wages for most workers, increasing indebtedness, and increasing urbanization.
  3. Crisis phase (state breakdown) – Population declining from the peak (typically by disease or by deaths from warfare), high income inequality, political instability increasing to a peak, high but very variable grain prices, high urbanization, tax system in a state of crisis, peasant uprisings.
  4. Depression/intercycle – Low population, attempts to restore state,  declining economic inequality, grain prices decreasing but variable.

It seems to me that the United States and much of the world are going through a cycle much as described by Turchin. The Growth Phase of our current cycle seems to have begun around 1800, with the rise of coal use. Stagflation in the United States seems to have started with the drop in US oil production in 1970. All of the government budget and debt problems now seem to suggest that we are reaching the Crisis Phase.

Obviously, there are differences from the civilizations modeled, because we now live in a much more integrated world. Furthermore, earlier societies did not depend on oil and other modern fuels the way we do today. We do not know how the current situation will play out, but the comparison is concerning.

About Gail Tverberg

My name is Gail Tverberg. I am an actuary interested in finite world issues - oil depletion, natural gas depletion, water shortages, and climate change. Oil limits look very different from what most expect, with high prices leading to recession, and low prices leading to financial problems for oil producers and for oil exporting countries. We are really dealing with a physics problem that affects many parts of the economy at once, including wages and the financial system. I try to look at the overall problem.
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158 Responses to 2013: Beginning of Long-Term Recession?

  1. Pingback: Long-Term Recession Ahead? « Transition Cornwall +

  2. Hi Gail:

    Thank you for another well researched and well thought out article.

    I’ve been reading your articles over the years. Enjoy your detailed approach to blog articles. The article comment discussion and your responses are just as interesting as the main article, which is rare in this day and age of blog comment trolling.

    I’m still learning about energy and the impact on the overall world economy. Your articles help me picture different scenarios for the long-term view and help me filter the day to day ups and downs of the financial markets and latest economic data point sound bites.

    I’ve learned one must take care of the near-term to be around for the long-term. But it’s important to understand the various possibilities and the probability of the various long-term scenarios and driving forces.

    High cost energy is just one driving force that long-term will change developed economy society as we know it today and probably already has (the general decline of average living standards in developed economies). It’s just impacted some of us (the invisible poor and working poor in developed countries) more than others so far. I also believe there are other very important driving forces (dumbing down of independent thought, attacking science, attacking those who questioning those in charge of large institutions/corporations, inequality in education depending on social status, institutional and business influence on government, etc.) that will contribute to the decay.

    Contrary to the “Everything in the world is going to be alright, trust us!” theme that Wall Street is pushing right now, every day I see the slow decay in the developed economies that has been visible in the economic numbers since around 2000 (developed country real wages stagnant and even declining, equity market prices flat since 2000, lack of good jobs that pay a livable wage, building up excessive debt just to get by, etc.).

    The underlying issues (whether they are directly energy cost related or not, I have no idea) probably existed well before 2000, but at least for myself I really started to notice a change in society (and individual people) around that time.

    Gail, you’ve probably touched on this in other articles (sorry, I have not read every article yet). I looked at the US Food Price Index for Urban Consumers (data from the St. Louis Fed) and the non-inflation adjusted price for WTI. Trying to determine using simple statistical analysis if there is a correlation between crude oil and food prices.

    I’ve found it depends on how you group the data by time period (given the short amount of history available on the St. Louis Fed site). If one runs the correlation from 1986 to the end of 1999, at best there is a weak correlation between WTI and food price inflation, (correlation of +0.125). Annual food price inflation has peaks and valleys, but on average food price inflation has been about 3.0% (yoy % chg. from 1986 to Dec 2012). Food price inflation rarely, goes below 1% yoy and has been as high as around 6.8% yoy. At least according to the government numbers, I know some disagree strongly with the government inflation numbers.

    But after 2000, something fundamentally changed and WTI price increases started to trend towards catching up with food price inflation, and since 2000 there is a strong correlation between food prices and WTI (correlation of +0.85 from beginning of 2000 to Dec. 2012). I’m not sure if is attributed to the “financialization” of commodities as I’ve read about or simply all the cheap $20/barrel oil ran out in 2000.

    My point is if energy prices (at least centered around crude oil) continue to rise anywhere near the recent average annual pace since 2000. And assuming the high correlation with food prices continues. I know, two “ifs” that may not happen. I just can’t see how the average person is going to be able to afford to feed themselves and their families, given the poor outlook for jobs and real wage growth (even if one has a job, no guarantee it pays a livable wage these days, even for a college grad).

    I know humans are generally very industrious and adaptable, but long-term, things do not look good unless a lot more cheap oil is found. Or alternative sources of cheaper energy are developed and the infrastructure build to distribute and consume them. Right now, everything in developed countries is based on crude oil, especially in the US.

    I won’t put a time frame on the continued decay in developed economies. These things can take much longer than we think possible to play out. But again, the future does not look good going forward based on crude oil as the dominant source of energy.

    I included some links to the graphs to put together.

    Food price index and WTI crude oil: http://valdaoresearch.com/?attachment_id=692

    Food price index and WTI crude oil, year over year % chg: http://valdaoresearch.com/?attachment_id=694

    Thanks for your time. Greatly appreciated.

    • One thing to keep in mind is that biofuels (especially corn ethanol) have become much more common in the last decade. They compete with food for land and fertilizer. So they are a factor in the recent trend, but not in the earlier trend. It would make more sense to look at the correlation since about 2003 or 2004, because that is when biofuels are also important. Also, the run up in oil prices is much higher since 2003 or 2004, and would have greater “weight” compared to other factors affecting food prices.

      Weather plays a role as well, so some variability is expected. Some food inputs are not from oil, so food prices theoretically should be less variable than oil prices.

      • Hi Gail:

        Thanks for the input.

        Interesting…the simple correlation is actually less starting from Jan 2003 to today at +0.753 (the measure of the linear relationship between food price inflation and crude oil price, not the “slope” of the linear regression which is something different). The big price drop in the crude oil price in 2008/early 2009 probably lowered the linear relationship (less data points than the longer time-frame data series that had higher correlations). Regardless, it’s a strong linear relationship.

        A simple linear regression on the two data sets starting from the beginning of 2003 to today produces a linear approximation equation for the food price index vs crude oil price/barrel as follows:

        Food price index = 0.5379 * (crude oil price/barrel) + 169.32

        The adjusted R square is 0.565, which indicates about 56.5% of the variability in the food price index using this simple one variable regression can be attributed to crude oil price. I’d need to do more research and introduce many more variables (maybe introduce ethanol prices, etc.) and see which set of equations yield a better linear approximation for the food price index.

        But the general idea is the same, crude oil has a big impact on food price inflation.

        Back to the big picture long-term dilemma, it’s imperative we find a long-term solution to the general trend of increasing crude oil prices(which will require a detail engineering/design plan that will take decades to put in place).

        Assuming higher crude oil prices is where we’re going, the future does not look good for any scenario based on crude as the dominant energy source. Many don’t agree with this projection for higher crude prices. For now at least, they have the upper hand in the argument given the range bound crude price the last year or so and the more or less stable supply and slightly decreasing demand from the peak(we should hope the decreasing global demand for crude won’t last too longer, otherwise we’ve got bigger problems near-term). WTI’s most recent price peak was around $110 back in April of 2011.

        Thanks again for the information and your excellent research.


        • Gail…above, I meant to indicate slightly decreasing crude oil demand at least in the US…

          Sorry, I was not clear in my phrasing.

          Take care…

        • I think there is a limit to what price governments of oil importers can handle. So while the cost of production keeps rising, it is hard for oil importing economies to incorporate those changes. This puts downward pressure on prices, and pushes toward a point where discontinuity of some sort (or perhaps only severe fluctuation in price) takes place.

          Even China is increasingly getting to be an oil importer. It uses less oil in its total fuel mix, but it is increasingly difficult to keep subsidizing oil prices. So it may see some slowdown related to higher oil prices too. If nothing else, it is getting fewer orders from buyers whose economies are shrinking.

          • Thanks, Gail:

            I’m with you on the theory that there is a “limit” to how high crude oil prices can go before the developed country (mostly oil importers) economies (the “system) begin to experience stress. Like any complex system, it operates within bounds, whether we know what those bounds are or not (e.g. these ultra-fast trading algorithms running stock markets these days where people really don’t have 100% certainty in the machines). The “global developed country system” as designed today can fail as we’ve seen.

            We got a glimpse of how “it starts” in mid 2007 through to the fall of 2008 when the financial part of the system almost collapsed (negatively impacting the entire system) and continued through around mid-2009. They (developed market governments and central banks) were able to stabilize (at least stop the decent) when they basically went to “extra-ordinary measures” many never thought possible. Just to name a few: broad private bank bailouts using public debt, banning short selling, changing accounting rules to hide what’s going on with distressed debts, astonishing amounts of credit and money created out of thin air, and increased influence of large corporations on government policy.

            Whether the “trigger” back then can be directly linked to high crude prices and/or the nutty state of real estate prices in the US and many other developed country nations, we’ll never know.

            My concern is that each time we get near a point in the cycle where crude prices reach the “trigger point” that the “system” can’t handle (or some other stressed part of the system could be the “trigger”, but let’s assume it’s crude prices for simplicity). The subsequent decline in economic activity, if it’s as bad as 2007/2008/2009 wipes out most of the collective and individual (per capita) upside gains of the current cycle. And maybe, like in 2007/2008/2009, it wipes out 10 years of economic gains. On a per capita basis, the average person is worse off as we go through each decline. We’ve been seeing it for years now (since 2000/2001 in my view) in the “lost generations” of young people across the developed world. They will continue to have very tough futures ahead of them.

            A long-term direction (or set of directions) needs to be engineered and built to “stabilize and then fix the system” in developed countries for the long-term, say 50 to 100 years. I don’t think Wall Street and the private capital markets are going to be able to solve this one. Their thinking is too short-term. The average “first past the post” voting system elected representative is probably not skilled enough. Most federal level politicians come from backgrounds where building or fixing things in a sustainable, long-term fashion is not a priority (many politicians today are career politicians and have never had a job in industry building anything of a complex nature). See the amount of lawyers in the US congress(sorry nothing against lawyers). And more of what we’re doing today to “kick the can” is not the solution.

            To your above point on China. The performance of Shanghai stock market (basically gone nowhere since 2006, down over 50% from the all-time high in 2007) should be an indicator that things are not as rosy as Wall Street is trying to make everyone believe (the thesis that as long as China GDP growth holds up above 7% or 8%, we’ll all be OK).

            That said, culturally the people of mainland China are not like people in the developed world (included Japan and Hong Kong). They have shown they can cope with hardship. This concept that we’re going to turn the people of mainland China into the average developed country consumer is far-fetched in my view.

            But the one thing the Chinese system of government has going for it (whether people agree or not with their system doesn’t matter). Their leaders do/will have a very long term plan with multiple branches. Observing Chinese government and business activities in African countries and other resource rich nations around the world, one can see they are going about securing access to the energy resources and land they will need in the future (they go about things quietly, which is generally their nature). They know they can’t depend on exporting low end goods to developed country consumers for real economic growth over the long-term.

            Take care…

            • I agree that we are going to have tougher and tougher futures ahead of us.

              I am not sure it is really possible to “stabilize the system”. I think a big part of the issue is depletion of resources and growing world population. If you haven’t read my post, 2013: Beginning of Long Term Recession? you might want to read it.

              The situation with China seems to involve a lot of things. I have written about China in several posts recently. You can find them by using the “search” button with the word “China”. One issue is China joining the World Trade Organization in December 2001. Another is their big ramp up of coal use, keeping costs low. Another issue is their one child family policy, which allows a larger than normal share of the population to work. They also do not have a pension program, so workers tend to save more (since their kids won’t be of much help). The money they save can be used for investment.

              One thing that I was not aware of until a reader sent some information is that the Chinese keep returns in invested capital artificially low. (Yet another reason we cannot compete with them!)

              I was trying to find the publication by Colonial First State by James White but didn’t find it. These are some links relating to his writing




  3. Don Stewart says:

    A little earlier in the discussion I mentioned that Wendell Berry identified the drivers of the modern economy as Greed and Gullibility. Luckily, Albert Bates current article gives us a very good example of how that is working for us:


    The Corporations provide the greed and the pop culture audience provides the gullibility. (The second part of Albert’s piece talks about stealing some of the corporate methods to promote the goals of Climate Change activists–I won’t say anything about that.)

    For the sake of argument, take a look at this video on health:

    Whether you agree with all of Dr. Fuhrman’s recommendations or not, the overwhelming evidence is that the modern lifestyle promotes chronic disease–which medical science does not cure. One of the reasons is that the modern lifestyle is constantly sending bad signals to our cells and genes. No matter how you drug someone, unless the bad signaling stops, you aren’t likely to cure them.

    So what is the prescription? I think it has to begin with disconnecting from Pop Culture. Pop Culture is financed by Corporations which (or do we have to call them ‘who’ now?) have mastered the arts of persuasion and ‘moving up Maslow’s hierarchy’ so that consuming a certain brand of soft drink brings meaning to an otherwise meaningless life. Humans are not designd, I think, to resist the constant barrage. So the first step in achieving health is to Kill Your Television.

    I began to seriously try to limit my exposure to advertisements about 30 years ago when I read Four Arguments For The Total Elimination of Television. I switched it off, and never turned it back on. Whatever small accomplishments I have achieved owes at least some credit to that book and my decision to eliminate pop culture advertisements from my life. I now view people who watch the Super Bowl with pity–think about the wasted time and the exposure to toxic advertisements!

    The Pop Culture and its deadly ways DO contribute mightily to GDP. But would we be better off if Pop Culture just disappeared? I sure think so. That is one of the reasons I find all the arguments that we must ‘restart economic growth’ so appalling.

    Don Stewart

    • I totally agree with you. My wife and I have also deliberately taken action to limit our exposure to any kind of advertising. We have also done our best to keep our kids from any exposure as well. We hardly watch any television and when we do its the public one here in Norway (NRK) which is not ad-financed. We also don’t get advertisement in our postbox (fortunately you can put a sticker on your postbox here to say you don’t want ads). I only listen to NRK radio (public radio station), and mostly news channels (there is just too much crap on the other channels and basically indirect advertising for pop culture and whats “cool”). We don’t buy any newspapers either as a lot of them consist of 50% advertisement, although I do check news on the web now and then (or listen to it on the news radio station). Neither do we buy magazines of any kind except I have a retro hobby so I like to read Retro Gamer now and then. 🙂 – Most magazines contain 70% ads and 30% heavy edited “information”. You get more information by reading Wikipedia or some scientific paper on a subject than any newspaper and magazine can hope to convey (normally the story in those are published with a “twist” to sell you the story). A trip to the library to rent some books is also a good idea and we use the library as often as we can. Lately I have been buying some e-books though as I don’t really need to decorate my shelves with books to prove anything to anyone coming by (and neither do I have to show off a DVD or CD collection). I doubt my e-book collection would impress many though as its mostly about peak oil, a finite world, collapse and whatnot. Haha, not very happy reading, but still quite worthy of a healthy discussion with anyone who bothers to listen. 🙂

      It doesn’t take many years of this “isolation from pop culture” to peel away the skin of the world and get a real feeling of what our relation to the physical world is – and indeed its limits. The honest truth is really staring at us but so many are just too busy distracting themselves with pop culture so they don’t have to deal with it. Its the biggest disease in society today and the only pill I can suggest is a “reality check”. These normally come in the form of serious disaster or collapse, either on a personal level or indeed as a society which can be just as fragile on the basis of cheap fossil energy. The information doesn’t really depress me, but at least allows me to value life and how fragile it really is.

    • Jan Steinman says:

      I stopped watching TV years ago.

      And yet, here we all sit, in front of glowing screens.

      Yes, there are myriad ways in which computers are different than television — interactive versus passive, information seeking versus programmed consumption, democratic versus plutocratic — and yet, here I am in front of the screen when I should be out tending the farm…

      If I “go dark” on y’all, you’ll know I’ve pulled the plug on yet another glowing screen. 🙂

      • Don Stewart says:

        I took the chair away and elevated my notebook computer. So I stand–not sit. Which gives me an incentive to only pay attention to the cream of the crop.

        Don Stewart

    • There are enough other things to do besides watch television that it is hard to understand why so many are willing to listen to it all the time.

  4. David F Collins says:

    I am no fan of defeatism. According to the «Divina Comedia» by Dante Alighieri, over the portals of Hell are the words, “Lasciate ogne speranza, voi ch’intrate” (Abandon all hope, ye who enter herein). I do not suggest this passage for the portal of OUR FINITE WORLD, but it is not my view of an unavoidable, predestined future.

    One thing I appreciate about OUR FINITE WORLD is the sound analysis of a sense of progress as the normal state, where «progress» emanates from exploitation of facile fuels. Thus, as said facile fuels are depleted and only costlier-to-extract fossil fuels remain available is massive quantities, the progress is a ship headed for shoals.

    It reminds me of Peggy Lee’s song «Is That All?» (Let’s drink our booze and have a ball…) But one view of wealth used to be how many cows one had (still prevalent in a few contemporary pastoral societies). The incompleteness of this paradigm encourages the tragedy of the commons, among other problems. Today we (pretty much the whole world) have a problematic paradigm of growth. Can this be solved, or at least dealt with, while another (and probably worse) set of problems develops? I dunno. But it seems that although the Wolf is not at the Door quite yet, he’s still driving up and down the street looking for parking. Scary, yes, but not quite time for the Last Dance with Peggy Lee. Not quite.

  5. Rob says:

    Very interesting article. Do you mean the western world, or just America is headed for long-term recession? I live in Britain, do you think Europe will play out worse or better than America?

    • I think other big oil importing countries are going to be in very bad shape as well. The US dollar is the world’s reserve currency, so it has the risk it will lose that advantage, so it may have a little more downside risk than the others. On the other hand, the US has lower population relative to agricultural land than most of Europe, so it is better off in that way. In general, I think the situation will be pretty bad in Britain and Europe as well.

      • GermanStacker says:

        Your comment made me look up the population density of the US (32 people per square km) and Germany where I live (230 people per square km). I hadn’t been conscious of this huge difference. Even if you discount a big chunk for high mountains and deserts in the US, we are still like 5 times more people on the land. And we have a long winter during which you cannot farm (unlike, say, some densely populated African or even mediterranean countries).
        Now I can better understand why “Local farming” and similar approaches aren’t considered at all over here – there just isn’t any space for it, all arable land is already being used for intensive farming, of course involving fossil fuels. When you are riding across Germany, you get the impression of many “rural” areas, but this impression seems to be misleading. It is just very recently that rich people and hedge funds have started to buy up agricultural land in Germany as an investment, while for decades farming had been quite unpopular, nobody went into that business unless he was born into it.
        And the rest of Europe is not much better. If there is a food crisis connected to the limits of industrial farming (while at the same time our export machinery on which we completely depend could be downshifting), we might find ourselves in a very bad spot indeed.

  6. Don Stewart says:

    For those of you who enjoyed Toby Hemenway’s guest post about Agriculture, here is a new video of a talk he gave in Sonoma County a few months ago. He reviews how our development of agriculture turned us into slaves from our previous freedom. Then he discusses some ideas about how we can regain some of our humanity by re-designing civilization to be more friendly to human nature. Whether he will convince you that we are living in the midst of abundance, rather than scarcity, I don’t know.

    One of the things I am personally pretty well convinced of is that we should not approach the issue from the standpoint of the preservation of the status quo. Exactly why do I need our current governments and enormous armies and huge banks and excessive population densities and enormous debts and popular culture? So why make the preservation of those institutions our overriding goal? If we can think clearly, perhaps we can envision solutions–along the lines Toby suggests or perhaps on some other line entirely.

    Don Stewart


    • Jan Steinman says:

      “… we should not approach the issue from the standpoint of the preservation of the status quo.”

      Y’know what that means, don’t you? It means not making enough money to pay taxes.

      Very few are willing to go that far.

      • Don Stewart says:

        When I see what my tax dollars are being spent for, I think ‘what’s in this for me?’. And you are talking to a guy who draws Social Security.

        Don Stewart

        • Jan Steinman says:

          Social Security? Enjoy it while you can!

          I have absolutely no doubt it will be gone or vastly reduced in five years when I’m able to collect. Such is the fate of being at the tail-end of the baby boom.

      • Bicycle Dave says:

        Hi Jan,

        I’ve been poking around your wiki site and other links – including the posting for half investment in your property. Also Goggled a bit about Salt Island. First of all, I had no idea that Salt Island existed and what a beautiful place it is. Second, is my sincere admiration for what you have started with your ecovillage. And thirdly, my profound sadness regarding your comments about the state of things with your project. Your story seems to have some deep implications for our cultural in general – maybe you should write a book about this. I’ve circulated your info to some friends, but unfortunately we are all much too old for any kind of change – maybe one our grandchildren will find it appealing – but doubtful.

        You mentioned taxes. As I looked at promos for Salt Island, I got the impression that this might be a desirable place for folks with money to drive up land prices and taxes. Is this a factor in your financial situation? We have some very nice locations in Wisconsin that would be suitable for such an ecovillage, but the taxes would make any kind of self sustaining project like yours totally impossible due to the demand for land for summer homes for rich folks – and the kind of property taxes that go along with this. I sure hope someone with deep pockets comes to your rescue.

        • Jan Steinman says:

          Hi Bicycle Dave,

          (BTW: it’s “Salt Spring Island.”)

          Thanks for your sympathy and good thoughts. But I don’t understand how you can consider yourself “too old for any kind of change!” What are you doing on this blog if you believe that! I hope and pray there are more than “mouse potato” change agents and activists out there, or else humanity is truly doomed.

          The coming changes are not going to be handled so well by people on blogs as it will by people on the land. At least, that’s what I keep telling myself.

          Taxes are not too much of an issue for us. We are in a zone called “Agricultural Land Reserve” (ALR), and if you have even a fairly low amount of farm income, your taxes are slashed some 85%. Our property taxes were C$2,532.50 for 43 acres, two houses, and a few outbuildings. It would be closer to $20,000 if we didn’t have “farm tax status,” which we periodically have to defend with reports and such.

          Not all the land is ALR — it’s only supposed to be land suitable for agriculture. This means that the rich people congregate on the waterfront at on the high view property — heaven help them when the seas rise or the electricity for their 200 metre wells gets expensive! (We’re working on a gravity-fed irrigation system from a two acre reservoir.)

          The big difference between the this area and Wisconsin is we are in growing zone 9. We grow kale and chard and salad greens all winter, and a neighbour just put in a sizeable olive grove!

          • Bicycle Dave says:

            Hi Jan,

            You’re right about age and change – I really didn’t express that point very well. In my little circle of friends, our ages range from mid 70’s to low 80’s, but we are hardly coach potatoes! However, our activism is much different from the days before we learned how to spell arthritis and meniscus and have our orthopedic surgeon on our speed dial. For the most part, we’re both political/environmental activists and bicycle advocates. We support planet friendly causes and try to influence younger generations to behave better than we did. Although we live in the land of monster SUV’s we work with our local county to do everything possible to encourage more cycling and provide for more bike friendly roadways. I know that these kinds of things won’t save the planet, but perhaps we can help in some small way.

            The “change” (or lack thereof) that I was referring to came from reflecting upon your great island environment (sorry about dropping the “Spring”) and the reality of my current environment. We live in one of those wonderful bubbles of semi-rural greenery and lakes that ranks among one the nicest places on earth to live at this moment in history. I’ve been in lots of countries and I find very little to envy. We have our family, friends and roots here and moving is just not something that is in the cards. However, I have no illusion that if RE’s vision is halfway correct, we will be in a world of hurt because of our proximity to a large city. If it comes to that, we’ll die the good death and be thankful for the life we did enjoy.

            I think that us “elders” have a responsibility to keep our nose in the wind and smell the time to counsel the camp to move to better hunting grounds. This is a valid historical role and the best one for me.

            However, I’d like to believe that folks who are involved in your kind of project are attracting people and being successful – just kind of sad if this is not true. BTW, our land was once in the low tax agriculture category and overnight it went up 10 fold when the area was rezoned.

          • Jan Steinman says:

            Thanks for the cogent reply, BD. I understand completely — that what got me into this, the thought that I could end up in my 80s, wondering why I didn’t do more when I was a bit younger! (Not that my motivation describes you our your friends at all.)

            If you come across anyone who is thinking of doing “the sustainable thing” on their own, please send them to me, so I can convince them they need to do it with others! The time for the “rugged individualist” is quickly passing. Or as Ben Franklin put it at a very different historical nexus, “If we don’t hang together, surely we will hang separately.”

  7. Hello, Ms. Tverberg,
    I’m very impressed your article, because I noticed that almost all developed countries, include Japan, suffered from similar situation. That is, high price fuel, declining economic growth rate and high unemployment rate.

    I thought your article is very helpful for Japanse to understand real predicament of current world’s economic condition, so I translated this article into Japanese and published it on my website.


    Chihiro Watanabe.

    • Thanks for taking the time to translate my article into Japanese.

      I think Japan and much of Europe are in a similar condition to the United States. Back when oil and other fuel prices were low, it was easy to use imports to make higher-priced exports, and to fuel the economy. Now, with high priced oil, it is much more difficult.

  8. Don Stewart says:

    I would like to comment on some questions which have arisen relative to communism and capitalism and whether fossil fuels are really essential for the production of wealth. My answer fits better here close to my other comments building on the work of Wendell Berry.

    I would like to suggest the central role of information. I have previously referenced the role of cellular signaling in healthy bodies.

    It turns out that the signaling which is turning the genes on and off is far more likely to go wrong than for the body to make a faulty gene (although spontaneous abortions are used by Mother Nature to eliminate faulty constructions). As the speaker in the video says, very few people understand the role of cellular signaling and the mainstream media won’t touch it. What you eat, do, think, and feel controls the cellular signaling.

    Signaling plays a similar role in a classical capitalist system. IF all the players in the system are getting efficient signals, THEN they will do the most productive thing they can do and trade with everyone else in the system and so the system optimizes itself. Charles Hugh Smith is a lucid writer on the subject of efficient markets and how they are so broken in the current world economy. All the Central Banks are currently enforcing faulty signaling.

    The East German system was sending out signals that Olympic champions would be richly rewarded–and East Germany produced Olympic champions by the bushel. Many critics of US pop culture argue that the US system is currently sending out strong signals that anyone who can provide mindless distraction will be richly rewarded. The US is producing a lot of people who can provide mindless distraction.

    The core disconnect is between the concept of what is ‘good’ and what is ‘profitable’. Neoclassical Economics solves that problem by assuming it away–whatever the market wants is just assumed to be good. If the market wants plenty of gasoline, then gasoline is good. A Neoclassical Economist doesn’t spend much time worrying about things like Climate Change. A few vague words about ‘externalities’ and then on to some more esoteric math building ever more improbable models.

    Let’s take a look at this from a systems perspective, using the observation of Wendell Berry that the US economy is based on Greed and Gullibility. I will add to that the notion that Science and Technology are the handmaidens of Greed. We have a very few people in the world who really understand science. And we have a very few people with lots of money. The people with money can hire the people who know science to utilize technology to take advantage of the gullibility of the public. So money becomes more and more concentrated in the hands of the few, while the externalities (poor health, money wasted on consumables which do not provide lasting benefit, mindless distraction for a fee, etc.) become ever more concentrated in the many. As money becomes more concentrated, the Few can use their money for Regulatory Capture to ensure that the power of the State is used to further their goals. The Gullible, who theoretically control the political process, are easily swayed both by the display of raw money and also by the evidence that the Few are keeping the drug supply flowing–it isn’t really satisfying, but it is the best the Many can visualize.

    If there is any way out of this box canyon, it has to start with the recognition by Some, if not the Many, that we are in fact in a box canyon and that getting out of the canyon is the first order of business. Exactly what life outside the canyon would look like is yet to be discovered. My guess is that life outside the canyon can be good for humans and make much less use of fossil fuels (although some will most certainly be helpful.)

    Don Stewart

    • Jan Steinman says:

      That’s brilliant, Don!

      I’ve been trying to get out of the “box canyon” for seven long years. It has cost me my life savings and my marriage, because the twin zeitgeisten of “mindless distraction” and “return on investment” make it unlikely that real efforts will be appreciated nor aided.

      Potential partners come look at what I’ve been trying to do, get excited, act like they want to participate, but ultimately go home in their Prius to their recycling bins and spiral light bulbs, and sit in front of glowing screens, reading how things are coming to a nexus, and nodding their heads in agreement. The next morning they have a hot shower and go off to a job that makes things worse, or if of a certain age, they simply collect the “earnings” from their investments, and then spend it on more Priuses and light bulbs and cloth shopping bags with pictures of cute endangered animals or rainforests, and thus continue make things worse, albeit at a slower pace.

      Ronald Reagan said, “At best, it [conservation] means we will run out of energy a little more slowly.” Even Ronny “got it!”

      I sometimes see what looks like a tiny change in the zeitgeist, but it has not been enough for people to take the radical action necessary to escape the “box canyon.”

    • Don,

      I think you are “on to” some of the big parts of our problem today. We have a big part of society brainwashed by the misleading signals of today. Whether or not one believes religious teachings (of whatever variety), they at least bring some awareness that there is a way of thinking that is different from what society is telling us today. (The religious teachings may not be the whole answer either, but if they offer the perspective that society’s signals are likely wrong, they at least provide a step in the right direction.)

      It always amazes me that people can sit with their television on for hours a day. (We don’t have a television.) Even earphones strike me as a problem. How does a person hear birds, and dogs, and oncoming traffic, outside with headphones on? Even in the house or car, I find it easier to think without even having music on in the background.

      • Bicycle Dave says:

        Hi Gail,

        We have a big part of society brainwashed by the misleading signals of today. Whether or not one believes religious teachings (of whatever variety), they at least bring some awareness that there is a way of thinking that is different from what society is telling us today. (The religious teachings may not be the whole answer either, but if they offer the perspective that society’s signals are likely wrong, they at least provide a step in the right direction.)

        I’ve tried to avoid this subject, but this is really hard to ignore. How can you assert that religion provides a “thinking that is different” and “a step in the right direction”?

        Regarding different thinking: according to the CIA database, 77% of US citizens identify as Christian. It’s very difficult to get elected to public office or hold a popular MSM job unless you are a Christian or at least pay lip service to having “Faith” in conventional deities and belief systems. Christian belief systems in the US don’t represent “different thinking” – this IS the thinking that drives our culture. This is why there is never any discussion of human population levels – it’s assumed that more humans are always a good thing. This is why environmental concerns are downplayed – salvation in the afterlife is often the real goal.

        Richard Dawkins, eminent evolutionary biologist, has made a very powerful case for why we “believe” in religious doctrines – much of it comes down to childhood indoctrination when our minds have no defenses (we need this openness to learn language). Once people are conditioned to accept extraordinary explanations of our existence “on faith”, then clever folks can manipulate that susceptibility to get what you call “what society is telling us today”. You mention “a big part of society brainwashed by the misleading signals of today “. How do you suppose this brainwashing is so easy to accomplish? FF companies, financial institutions, food vendors, auto manufactures, defense industries, etc have all figured out how to craft messages that resonate with our predisposed willingness to blindly accept ideas that are really not in our best interest – or the best interest of the rest of the planet. Why does every politician finish their speech with “God Bless America”? Just what is that message? Why not “May all the people of the world learn to cooperate to preserve and sustain all forms of life on the planet” or some catchy slogan to that effect?

        “a step in the right direction”? Representative Paul Ryan, a devote Christian, just introduced a “Personhood” bill. How does this lead us in the right direction? In my town, there are multiple religious sects (mostly Christian variations) that all believe the folks down the street are “wrong”. If you think, as I do, that human cooperation is critical for any kind of strategy for human welfare going forward, then how does all this divisiveness help? Our US congress is deadlocked over religious issues such as reproductive rights and sexual orientation – how does this move us in the right direction for cooperation in addressing the issues you raise here every day?

        I just don’t see how religious institutions and their dogma helps anything. I agree that a certain amount of pomp and ceremony (and some good music) can provide some moments of joy – as long as no one actually believes in the associated dogma. I always liked the saying in France: “95% of the French people are Catholic and 5% go to church.”

        I admire your hardnosed analysis of the physical realities of our planet – this is why I read your blog frequently. But, it puzzles me why you accept beliefs for which there is no supporting evidence – and you automatically do this every time you support the idea that religion is a positive force. I know you don’t advocate belief in any particular holy books, but you give support to the idea that it’s “OK” for others to do just that. I also know that you value the sense of community provided by local churches – does this really justify all the negative aspects of religion? And, just what is wrong with vibrant community centers that serve the identical function? I’ve never noticed you gloss over something so fundamental as this in any other area.

        • I know you have your mind made up.

          Even if various religions are classified as “Christian,” there are definitely differences among them. There are certainly non-Christian religions that are different. Many of them would find Paul Ryan’s Personhood bill offensive.

          Many religions get people to think–the constant indoctrination about more goods being what we need is NOT what life is all about. I am not sure people always accept this teaching, but it does get them to think. People who attend churches are more attuned to moral issues, and what is right. I know that in the Atlanta peak oil group I attend, quite a number are religious (some I don’t know one way or another).

          I have met many religious people who are interested in energy questions, and what is happening now. Just this morning, one of the pastors in the church I attend asked if I would give an updated talk, explaining some more about what the energy situation looks like now, and what other implications I see. (I have spoken on the topic previously.)

          The Age of Limits Conference that I spoke at last Memorial Day Weekend was put on by a religious organization (but not a Christian religious organization). The conference theme was “Conversations of Collapse of the Global Industrial Model.” I don’t think you will find ASPO groups that are willing to take such an outspoken view.

          Over the years, I have gotten quite a few requests from pastors asking whether it would be OK to hand out my blog posts to their parishioners, or to use my posts in their sermons. In all of these instances (including my own church) I would characterize the churches as being at the “liberal” end of the religious spectrum. I doubt any of these churches would think that the Bible is literally true, or that the earth was created in 7 days.

          By the way, in 2009, a seminary faculty member who specializes in interpretation of the Book of Revelation was speaking at my church. (Her interpretation is very different from the one a person reads in the “Left Behind” series.) Afterwards, I went up to speak to her. She immediately recognized me as “Gail the Actuary” and wanted her photo taken with me, so she could show her husband, who also reads my posts.

          Religion is here to stay. Whether or not the teachings are not entirely right, religious institutions provide a forum where people can discuss problems, and try to work together for solutions. If can provide comfort to those who are distressed by adverse changes about us. If you don’t like the teachings of some religions, just stay away from them.

          • Bicycle Dave says:

            Hi Gail,

            I agree that neither of us is going to change our basic position on this issue – this conversation is really for others to ponder. And, I hope everyone notes that we both have a very civil tone in this discussion. I appreciate your position that some churches provide a forum for discussion of important ideas. I’ve also seen communities that had good discussions in a non-sectarian community center setting without the “silo” effect of opposing belief systems. It seems to me that latter model is more encompassing and more likely to result in broader change – not that I’ve much hope for either model actually affecting meaningful change in a useful time frame. Although I’ve no doubt about your experiences in some churches, you might also appreciate that the mega churches and TV evangelism shows really don’t fit this model – and millions of people participate in them.

            However, it seems that our basic disagreement is around the broader issue of the term you put forth: “brainwashing”. It seems that you view churches as places for people to combat this effect and I believe that religious indoctrination is one of the basic causes for human susceptibility for this cultural malady. The problem from my POV is that religions teach people to “believe” as true all sorts of contradictory notions about our physical reality (nothing could be more “physical” than transforming into a different reality after death) when there is no evidence to support any of these extraordinary claims. There is a concept in science that says that the more extraordinary a claim the more rigorous the proof needs to be. In religion, all kinds of extraordinary claims go totally unchallenged by the faithful. I just find it very hard to understand how this blind acceptance of unproven claims helps humanity to deal with the serious problems we face. And, add to that, the inability of people to cooperate on the big issues due to the silo effect of religion.

            I think we can agree that community involvement in the “big questions” facing the planet is a good thing – however it happens. Just some food for thought.

  9. justnobody says:

    One thing that few people talk about is the social interaction between people. Kunstler is often saying that there is a crises among young men. Google MGTOW (men going their own way), MRA ( men right activist), MRM ( men right movement). It seems that people have giving up hope and waiting for something. People are so narcissists.

    There is a social phenomenon in Japan called the herbivore men. It seems that young men don’t want to be involve in the social structure. Are we going to be able to work together when the time come. I doubt about it. It seems there is some many problem: climate change, lack of social cohesion, peak oil, water scarcity, rampant narcissistic.
    Modeling the future from past model seems to me more a intellectual exercise than anything else. It provides general clues only.

    • I know that my three children (late 20s and early thirties) have not gotten married, nor have most of my nieces and nephews. It is hard for them to feel that they have a settled enough job, and are able to take care of a family, to get married. It is a difficult time for thinking young adults.

    • Jan Steinman says:

      I have noticed this “herbivore men” phenomenon.

      In our nascent land-sharing ecovillage co-op, when interpersonal things would get tough, many of the men would “run away” in some way. Oh, they all had good excuses — generally going away to earn money — but it did create a vacuum of male energy that began to erode the fabric of the community.

      It has cost me my marriage, and I’m still trying to recover. There seems to be an increased awareness that the “rugged individual” is a think of the past, but I don’t know if this will come in time to save this project.

  10. monsta666 says:

    Hard to disagree with much of what you said. One thing that has surprised me is how long the governments have managed to stretch things out. Are you surprised by this also Gail?

    • I have been surprised too. One thing that happens is that the rule-makers are active, and can change the rules, if they need to, to prevent companies from failing. They also seem to be able to “paper over” problems, better than I would have expected.

      This year frightens me, but I could be wrong on timing. In a three hundred year overall cycle, one year is not a big part of the total.

  11. PeteTheBee says:

    I think you’re just making numbers up at this point. Here is what an inflation adjusted oil price chart looks like.


    Of course, we use a lot more natural gas and a lot less oil than in the 70s.

    • Pete,

      I am showing annual averages. You are showing monthly averages. The monthly averages get higher spikes in them.

      I used the US refiners acquisition costs, so it would be US costs, and adjusted them by CPI-U inflation factors. This way, any savings we got this year from low priced WTI gets factored in. The graph looks very similar to the Brent chart that BP gives the data for (but only through 2011).

      • PeteTheBee says:

        Interesting. Perhaps this is an interesting area that is under-reported.

        Still seems fishy though. Why not just use retail gasoline prices?

        • Using retail gasoline prices would produce a somewhat similar picture. Businesses use more of the other parts of the barrel than gasoline, so the total barrel is more relevant in their case.

          Also, gasoline is usually diluted 10% with ethanol, so has some of that mixed in. Furthermore, the “gasoline” mix changes during the year. In the winter, it uses more short chain hydrocarbons that would evaporate during the summer. Refiners have to store these short-chain hydrocarbons during the summer months and add them in the winter. These short chain hydrocarbons are relatively cheap–part of NGLs, I believe. This means that in winter, gasoline supply is greater than in summer, and cheaper to manufacture as well. So its cost tends to rise more in summer, and fall more in winter, than oil does.

  12. Don Stewart says:

    Here is an example of what one might call a retrospective systems analysis of what happened to farming in the US. From Wendell’s book:

    ‘The story of Mary and Elton Penn was included in the story of Port William, which was included in the stories first of the Depression and then of the War, and then of the mechanization of farming and the disintegration of country life that began almost immediately at the end of the War. The old life of home farms and frugality and neighborhood and care-taking held together until the end of the War because it had to, there being until then no alternative. After the War, with the application of war machinery and chemicals and military-industrial thinking to agriculture, farming began to give way to an economy that was alien to it.

    Andy would come to think of the fifteen or so years immediately following the War, which were the crucial years of the Penns’ rising into prosperity, as a time unique in the stresses and contradictions that bore upon it. It was a temporary suspension or standoff between the last supports of the old agrarian economy and the forces, eventually dominant, of the economy of industrialism. It was a time when the farmers’ self-sustaining household and neighborhood economies were still in place, when prices were generally good, and when for those reasons, though only for a little while, industrial equipment could serve at a reasonable cost the effort of a young farmer such as Elton.

    The Penns’ story then, was a story of the gathering up of a small, brief coherence within a larger, longer story of disconnection and incoherence…Port William and its neighborhood were coming increasingly into the story of cheap fuel, speed, and the fire-driven machinery of disintegration…The land and the people who did the land’s work were to be used, and used up, by the measures of mechanical efficiency and corporate profit. Greed was replacing thrift as an economic virtue. All was to be taken, nothing given back.

    On the night of his conversation with Martha, Andy may have been more than usually vulnerable to such a thought…the great industrial empire to which he and his family perhaps helplessly belonged, was again at war, imposing its will by the deaths of helpless old people, women, and children, and by the torture of prisoners. The imperial economy based upon nothing but the overconfidence of the greedy and the gullibility of victimes, was disintegrating…’

    If I were to try to describe this in more formal system terms, I would point out that farming came to require vastly more fixed costs, that debt therefore became an ever larger concern, that the household economy shrank exposing the farm family more completely to the vagaries of the market, that the social life which revolved around shared work vanished, that the skills required to work animals vanished to be replaced by dependence on fossil fuels, and that farmland could be bought by financial speculators more easily than by farmers. If I had been a really smart person in 1946, perhaps I would have foreseen all these developments. And if I had been smart enough to understand systems and feedback loops, I would have been alarmed.

    The final sentence is perhaps the most chilling. Is our economy built on nothing but greed and gullibility? The conversation between Martenson and Greer moves along those fault lines–without using Wendell’s language.

    So…I would expect that removing any one of the supports which holds up industrial farming would result in a catastrophic collapse as the old resilience has been systematically destroyed. The Depression was a financial disaster, but farmers (except in the Dust Bowl) mostly survived because of the other supports they had. A 2013 Depression would have to be survived without those supports. I see no end of greed or gullibility…but I think that our society will become quite a lot poorer in everything except GDP– which does a superlative job of quantifying both greed and gullibility.

    Don Stewart

  13. Don Stewart says:

    Dear Gail

    Thinking about the various models which purport to explain cycles of growth and collapse. I think that the most productive method is likely to be dynamic systems. Look for something with feedback loops which may be quite destructive. Balance, as best you can, the efforts of 7 billion people to grow the system versus the destructive qualities of the feedback loops. Do you think the net result will be upward? or downward?

    Everyone is well aware of Peak Oil and Climate Change and Resource Depletion and Peak Finance. I won’t say anything about those. But as another example, consider the conversation between Chris Martenson and John Michael Greer yesterday on Martenson’s web site (pay wall). They talked about how the Corporations are now able to very precisely target potential consumers using technology first applied by Sesame Street involving things like the movement of the eyes. So Corporations are now able to make very much more effective commercials. Greer doesn’t own a TV and never watches it, while Martenson admits to watching TV in hotel rooms when he is traveling. Martenson is astonished at how persuasive the commercials have become.

    Let’s put the scientific methods for making commercials together with the notion that consumables should be bought on credit. If you read A Place In Time by Wendell Berry, you will look in vain for any hint that either trend had much impact on the lives of his subjects. Debt, incurred to buy a farm, most definitely played a huge role–but nobody was going into debt to buy Christmas presents–those may have been bought on lay-away where one paid a dollar a week or so until Christmas.

    If we combine a public which is addicted to the eye candy of TV which is financed by very sophisticated commercials which encourage the consumption of consumer goods on credit, then the feedback loops in terms of of the health of the nation are pretty severe, in my opinion.

    We get the same sort of feedback loops between the marketing of junk food and the marketing of health care…it’s OK to eat the burger and fries and sugary soda because modern medicine can surely rescue you. And Medicare is ‘almost free’.

    There are lots of other examples, but these two illustrate my point, I think.

    Of course, these feedback loops also generate GDP–so a more sane measurement of national well-being is also required for us to get a balanced picture.

    I am suspicious of mechanistic models because these examples are not new. For example, in Wendell’s book, the females are acutely conscious if a young man looks at them for just a second or two longer than necessary at a country dance. So the scientists just took something that humans do and that females have understood since the Garden of Eden and made it scientific and adaptable to TV. Trying to apply a mechanistic cycle to it in terms of time is probably not very productive. And young women have always returned male interest by cooking delicious meals: ‘Can she bake a cherry pie, charming Billy’, and etc. So the fast food companies are, once again, copying female understandings (maybe the encounter between that snake and Eve is the source of all our problems?)

    Don Stewart

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  15. Don Stewart says:

    Suppose, for the sake of argument, that Gail and others are right that we face a long recession. Suppose we face a steadily declining standard of living for decades ahead. What is the primary problem we face? Lack of food? Lack of the internal maturity to deal with the facts of our existence? Social disorder? Debt? Crumbled expectations?

    I don’t know the answer to that question. However, I think that one key to living in the that sort of world may be to create in our own minds what the world was like before we really knew fossil fuels. And a very good selection of fictional stories about a world which was mostly made by hand has just been published. The book is A Place in Time by Wendell Berry. It was written when Berry was 78–a half decade older than I am. It covers the time period from the Civil War up to the post-WWII conversion of an agricultural society to an industrial society (including the agriculture).

    ‘resting upon the order of time and nature…a child could be happy in it…I had come along just in time to glimpse the old order when it was still somewhat intact. I had played or idled in blacksmith shops while the smiths shod horses or mules, and build from raw iron and wood many of the simple farming tools still in use. I had gone along with the crews of neighbors as they followed the binder in the grainfields, gathering the bound sheaves into shocks, stopping to catch the young rabbits that ran from the still-standing wheat or barley. I had watched as they fed load after load of sheaves into the threshing machine and sacked and hauled away the grain. And I had been on hand when the sweated crews washed on the back porch and sat down to harvest meals equal to Christmas dinners, even in wartime with no sugar in the iced tea.’

    ‘not to a proper harvest meal, but to hamburgers that I knew they associated with town life, with hamburger joints.’

    ‘The farm had been his life, his passion and his trial. The economy of the farm, depending as it did on markets and the money economy, had been during most of his life far less stable and secure than the household economy that depended almost entirely on the place itself.’

    ‘Small amusements lasted him a long time.’

    ‘It is perhaps impossible for someone living unhappily with a flush toilet to imagine someone living happily without one.’

    The collection of stories is as richly varied as life itself. Here you will not find idyllic stories of neighbors or families living in perfect harmony or lives untroubled by any adversities. What you will find are abundant examples of the raw materials from which a good life can be constructed. You won’t find ‘ the new Soviet Man’ or Ayn Rand’s selfish individualists or people who find some particular religion to be the answer to all problems. You will find people doing the best they can with the hand they are dealt (including their own foibles) and sometimes succeeding and sometimes failing. You will find young men cut down by war and old men who have lived a lot longer than they were useful.

    Berry’s world view is that it was a good world up until industrial agriculture destroyed everything, and that the industrial agriculture era will be fleeting. While what comes after won’t look exactly like what came before, perhaps it may be worthwhile to take a look back and see just how people were happy before people routinely farmed with tractors and combines and how couples managed (or didn’t) before birth control and the vagaries of love in a very small society and how a privy by the garden made perfect sense. One of my favorite stories is told from the perspective of a young preacher and his bride who both grew up in a small town and take a church in a very rural neighborhood. Thus, you get a view from people who grew up thinking that food came from grocery stores who learn that their food depends on the gifts from the farmers in the church who, in turn, know that food is a gift from nature.

    Berry touches on many of our modern concerns. He puts this speech into one character’s mouth: ‘You can’t plow your way out of debt.’

    In short, if you are trying to figure out the inner landscape of what may be coming, I cannot recommend this book of fiction highly enough.

    Don Stewart

    • Thanks for your suggestion. It is easy to forget how much things have changed in a very short time.

      People didn’t need to find time to exercise, because their work provided plenty of exercise. Most people had a guaranteed “job” as a farmer or homemaker, because of the need for these roles to provide the basic necessities. Grandparents could be helpful in a multi-generational household.

  16. Dear Gail, Teabaggers and Doomers out there who see the world as half empty, look again. This is not going to be rerun of Reagan supply side economics. America made that statement very clear on November 6.

    The year was 1981. Over the previous 10 years the United States had finished its longest and most wasteful war in it’s history. The price of gasoline had just finished quadrupling. Our new president was removing the solar panels on his new home and illegally selling weapons to the oil rich Middle East. The new CAFÉ standards set a few years earlier where starting to hit the market place. Prudhoe Bay was just coming online. A big 27’ color console TV cost a grand with only three channels to watch. Your phones only worked at home and connected by a short wire. The national speed limit was 55 mph. IBM was a major supplier of typewriters and America was entering the age of tax cuts, debt and military expansion. Yes folks, Reagan kicked the can 30 years into the future.

    By 2001 we were all feeling pretty good and hoping or being sold another round of supply side economics could make us all millionaires. There was plenty of cheap oil in Iraq and SUV’s made us feel like suburban warriors. All we had to do was go shopping and let the deregulated banks do all the hard work. We were all masters of our universe and the future Teabagger warriors were telling us Reagan proved deficits didn’t matter.

    It’s now pretty clear in 2013 the clock has been reset. We are going to get another chance to do it again starting out with a lot more wealth, debt, people and technology than in the past. The future is yours to take personal, national and world responsibly. The pity party here at The Finite World needs to move forward with positive ideas and help make them reality. The words can’t, failure and collapse shouldn’t be in your vocabulary because it wasn’t in your ancestors who gave you your current riches. There is no guarantee of growth. You have to make it happen. And those who talk but fail to plan for the future, you plan to fail. You wouldn’t raise your children with this much negativity I read here. Why do you let it run your lives now?

    Your lives are only half full. Go live the rest of it.

    • Tony Weddle says:

      You’re welcome to suggest remedies or coping strategies, ChiefEngineer. Just saying that all this talk of collapse is too negative doesn’t really help. Thinking positively doesn’t change reality. You’re right, though, that there is no guarantee of growth. In fact, on a finite planet (note the name of this blog), the opposite is true: growth is guaranteed to end. The only real questions are when will the end of growth be obvious and how will societies predicated on growth cope with that ending of growth?

      Being positive is not a coping strategy so please let us know what we should be doing.

      • Roger Arnold says:

        Well said. The prevailing social story is still that growth is / should be the norm, and that it can continue indefinitely. People may accept the abstract notion that there must be limits, but the limits are vague, and seem to keep being pushed back. So the notion of limits doesn’t resonate.

        A writer friend of mine, Don Kingsbury, used to illustrate the absurdity of unending exponential growth by detailing the consequences of what most people would consider a very moderate 1% growth rate in human population. It only takes 3,300 years of that — a blink of the eye in geological time — before the mass of human bodies exceeds the mass of the earth. Space colonies, you suggest? It’s less than another thousand years before the mass of human bodies exceeds the mass of the sun. Interstellar travel? It’s only a couple of thousand years later that mass of human bodies exceeds the mass of the galaxy. All in an instant of geological time shorter than the 15,000 years since the last glaciation ended.

        Once people get their heads wrapped around the notion that growth *must* stop somewhere, they can perhaps begin to consider the question of where we would like it to stop. One of the problems that the sustainable living movement has is that we frame the issue in terms of limits to growth. That implies that the limits are fixed, and that we simply grow until we hit them and then either find a way around them or stop. But as long as we’re not pressed by those limits, it’s not a problem.

        The reality is that it’s not hard limits that confront us, it’s tradeoffs and costs that we incur when we cross various lines. There are choices and lifestyles that are already lost to us, because the world has become far too crowded to allow them. If we fancy the life of a hunter-gatherer, sorry, forget about it. The land is fenced and all belongs to somebody else. Captivated by the romantic life of the solitary mountain man, working his trap lines and bringing a load of furs to the trading post in spring? Sorry, not possible. One can still find momentary solitude, but it won’t be in places like Yosemite or scenic mountain parks. They’re crawling with tourists.

        It’s time, IMO, to start talking less about limits to growth, and putting more focus on the negative consequences of growth.

        • I hadn’t really thought about it that way. Thanks!

        • When talking to people about limits I often refer to the youtube video of Al Bartlett who has been trying tell us this for quite a while now, that humans dont understand what exponential growth really means. His examples are simple to understand and gives the viewer an understanding of “the doubling time” – which obviously economists never bother to figure out the consequences of. Anyway, thought I’d link the video here:


          What is a bit frightening is that with exponential growth you never have any real feeling of when its “full”. It can look like there is plenty of resources or space or whatever you are growing in – and then in a blink of an eye its packed and the limits have been reached. It is clear to me that we are approaching this with most of the planets resources including our own population growth.

        • I always try to point this out to the ‘bug out’ brigade
          exactly where are these buggers-out supposed to bug out to?
          We have them in UK…which is even more ludicrous

    • Sure the simplest way to cope any crisis in life is simply to ignore it, just like any problem building in the horizon. And when its here you have to deal with it. I guess in some way that’s what Joe Average do when he works and lead a stressful life until he crashes into a wall of depression and then try to solve it with medication. I am not so sure that this is a good survival tactic though, and neither will you live a full life “on the edge of sanity”. So first I would have to ask you what you fill the rest of your life with?

      No doubt the majority of us fill it with pointless and wasteful things never understanding that we are feeding a “doomsday machine” – or at least one that will make the planet a terrible place to be for our children. But our children don’t matter now does it? I am myself and I live my own life, I want the best out of it! Who wants children anyway? Hmm… I cant help but think that this is an exceptionally egoistic thought about anything – never looking ahead a bit to check the landscape so you don’t lead your kids over a cliff. Its also a terrible evolutionary trait if we believe our brilliant minds have overcome force of nature in a finite world.

      Happy thinking doesn’t make our wasteful habits and reliance on fossil fuel any less of a problem. However if you are able to take this optimism into action of change away from the harmful ways of our society then please do so. I believe a major reason why so many of us here talk around this matter is that we care, and want people to understand that in the end its our responsibility to govern the resources wisely in this finite world.

      I don’t think anyone here “plans to fail”, but rather want to know something about what information is needed to build some sort of resilience against serious changes to our civilization. If you look around you, as the complexity grows we seem to invest less and less into resilience in case those systems should break down. This is not a very good survival strategy for the average people as only the rich people on the top of the pyramid has enough buffer to handle a crisis.

      But positive attitudes to adaption and resilience to change is needed for sure. Although I am not sure if the world needs 6 billion farmers once the advantages of our fossil fuel runs out. That is cause for some concern which is voiced ever so often here. To many people crowded for too little resources tend to result in chaos. Its really just a question of time when our safe western civilization will experience much of the same as we see in other poor countries. It all depends a bit on how well a government is able to hold up any sort of system of sharing resources or if they only answer to the few rich people who got them into power.

    • Michael E Andersen says:

      Dear ChiefEngineer … are you aware of the develloping problem in Japan ? … almost two years ago three nuclear reactors and their fuel pool contents were destroyed and have been releasing unimaginable amounts of radiation into our ecosphere … it can not be stopped … the condition is at a tipping point … when the radiation levels at the Fukushima NPP get too high to allow the ongoing efforts of limited cooling of the nuclear fuel at the facility , they will lose control of all the fuel at the facility and it will lead to the potential loss of more NPP not far from this current problem … if you need incite to this information you can begin your study at EneNews.com … best wishes regarding your ability to stay optomistic my friend … $$ProfitOfDoom$$ (my handle at EneNews.com LOL !)

      • markbahner says:

        “almost two years ago three nuclear reactors and their fuel pool contents were destroyed and have been releasing unimaginable amounts of radiation into our ecosphere …”

        It’s fairly easy to imagine the amount of radiation released by Fukushima.

        Per wonderful Wikipedia: “According to a June 2012 Standford(sic!) University study, the radiation released could cause 130 deaths from cancer (the lower bound for the estimater (sic!) being 15 and the upper bound 1100) and 180 cancer cases (the lower bound being 24 and the upper bound 1800), mostly in Japan.”

        In other words, the total number of deaths worldwide from Fukushima are expected to be less than or approximately equal to the number of deaths that occur from automobile accidents in the U.S. every single week.

        • Michael E Andersen says:

          Greetings markbahner … I strongly suggest that you research your sources more closely … all radiation exposure info that has been released for public consumption from Stanford has been related to external contact (exposure) … you might imagine that the danger of unstable radioactive isotopes occurs when they are ingested into an organism … the conditions are real and are evident if one will only dare to investigate what is going on right now … please take the time to gather info regarding the current situation with Nuclear … my response to your post is directed to others as I believe you may already know better … if you actually believed what you have posted here then you should respond by saying you will eat these isotopes that are being released right now and have been released in vast quantity … a good starting point for greater understanding is at Enenews.com … peace to you and your loved ones.

    • Good luck!

      One thought as I read through your post is that Reagan in 1981 had a lot of things going for him, that had nothing to do with changes in tax policies he put in place. The reason the economy did as well as it did in subsequent years mostly had to do with cheap oil and other fuel. This had been engineered by a lot of investment in the previous decade in new nuclear and coal electricity production and taking oil generation of electricity off line. Also, Americans were able to take advantage of cheap (and fuel efficient) cars that the Japanese had already engineered. There were no doubt some synergies from more world co-operation. Rising debt during his presidency no doubt played a big role as well.

  17. Roger Arnold says:

    Excellent work, Gail. This is probably the most cogent analysis of the current economic situation that I’ve seen. That’s important, given the desperate need for deeper popular understanding of the mess we’re in. Unless more people are able to understand what’s happening, there’s little or no chance of fixing anything.

    Toward that end, I’d make one point. You speak of high oil prices as a key driver for the recession. That’s true, except that it’s not the absolute price that’s the problem. Rather, it’s the rapid *increase* in price, and the corresponding decrease in productivity in what is a major economic sector. The issue is accommodation. We’ve accommodated to cheap energy, and unwinding that accommodation is very difficult.

    There have been prosperous societies in which the cost of energy, in relation to GDP, was vastly higher than what we currently pay. For a long time, the declining cost of energy created a surplus in disposable income and available capital. That drove economic expansion as well as productivity gains in other fields. A “virtuous cycle”. Higher productivity, by definition, means less labor required to produce the same goods and services. The labor pool that was “freed up” (or “displaced”, depending on one’s point of view) had to find other occupations. For the most part, that meant producing new goods and services that were not previously known, or not previously affordable. In the early stages of growth, that was easily done and led to better lives for most people. As productivity continued to rise, however, there has been an increasing shift into non-productive services, artificial demand stimulated by an expanding ad industry, fashion-driven consumption, planned obsolescence, etc.

    Today, the bulk of GDP goes for services that are either non-productive or marginally productive, and that arguably detract from overall quality of life. It’s never black and white, but the fraction of GDP that is paid to sectors that we once did without or that functioned perfectly well at much lower levels is huge. At least 90% of spending in the military, financial, advertising, and prison sectors is overhead we could do quite well without. A good fraction of what we spend on health care and the legal system is unnecessary overhead. Conservatives rail about government spending on welfare and social service programs like unemployment, but the cost of government entitlement programs is still much less that the hidden costs we pay for things we don’t need but that have worked their way into the system. Ridiculous levels of executive compensation, for one example.

    All that is hidden and of little consequence while productivity is rising and the economy growing. We can afford it, and don’t notice the drag. It’s just the cost of maintaining full employment. Everybody has to do something, even if it’s robbing homes, dealing drugs, or chasing drug dealers. But once productivity in a major sector — like energy — takes a dive, the ripple effects are devastating. The machine grinds to a halt. It’s not that it couldn’t function at the higher cost level for that sector, but to do so, some of the fat grown into the system when productivity was rising has to be eliminated. That’s at best a painful process, and when so much of the serious fat is connected with the rich an powerful, it can be nearly impossible.

    • Roger, those are all good points.

      As Charlie Hall frequently points out, the society you can have with low EROEI energy is fairly different from the one you can have with high EROEI energy. High cost and low EROEI are in some ways equivalent. I think price is in some sense a better measure. It is certainly more readily available, and includes all inputs, especially if price is somewhat in line with cost of production. In some sense, if cost rises for reasons other than cost of production (need for more programs to keep population from rioting), that is just as important.

      We experienced a run-up in oil costs between about 2004 and 2008. The big oil importers have never readjusted to the higher costs. Instead, we have papered them over with deficit spending. Thus, at this point in time, we still have a big piece of the higher cost/ lower EROEI story not being moved into the real economy. Furthermore, everything we can see shows that costs of oil production are going to continue to increase, if we try to ramp up production to keep up with the growing demand of the Chinese, Indians, and others.

      I agree that a lot of the services we have today could “go away”, with little loss to the economy. Unfortunately, these services are what allowed the US and Europe’s GDP to grow without increasing its fossil fuel use very much. I think the common estimate is that we got three times leverage, in terms of adding three times as much GDP as fossil fuel use, with adding new services. Unfortunately, taking away these services is likely to have the reverse leverage–taking away three times as much GDP as it provides reduction in fossil fuel use.

      We are going to end up with an awfully lot of displaced workers. These workers have been trained to work in a fossil fuel world, and are totally unprepared for a new world with much less fossil fuels. Farmland is owned by farmers who are used to using the latest in technology. In general, they have little knowledge of alternative methods. I have no I idea of how such a transition might take place.

      • Jan Steinman says:

        “Farmland is owned by farmers who are used to using the latest in technology. In general, they have little knowledge of alternative methods. I have no I idea of how such a transition might take place.”

        Permaculture is a good start.

        The farm we bought as a co-op had high-pressure spray irrigation, requiring 100 gallons per minute at 125 pounds per square inch.

        We switched to dripline, which puts the water where you need it.

        But even that is not sustainable, as the plastic tubing degrades in the sun and needs to be replaced every 3-5 years or so.

        So we’re in the process of changing to gravity-fed ponds and swales, with garden beds beside the swales, to get subterranean irrigation. It’s not as efficient a use of water as dripline, but perhaps your readers recall my expounding on the evils of chasing efficiency. It’s probably closer to the “maximum power point” on the efficiency curve than plastic dripline is.

        I hope we can finish the system and see how it works and fine-tune it. But we won’t be here in another year if we can’t get some financial partners. We’re caught with one leg in the financial-industrial age, and one leg in a return-to-stone-age future!

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  19. Saket Kale says:

    The post is quite detailed, after reading it seems only two things can solve this issue.

    One is a dynamic and immediate fall in population, which is not possible at the best impractical.

    Second, finding of a cheaper energy seems to be the other required thing, however that too seems far fetched since we have not been able to find anything as such till now with so many years of research.

    As for the comparisons that you have made, can we really compare problems faced in 1800’s with what we are facing now? Seems to not match somewhere somehow.

    On the brighter side, I am sure someone will surely find a way to get out of this!!

    • Jb says:

      @Saket Kale

      Finding another cheap (and probably needs to be liquid) fuel source of comparable EROEI would not solve any of our problems. It would in fact make our problems worse. As Jan noted above, the more we consume, the more waste we produce. The more efficient our technology becomes, the more quickly we put people out of work and deplete natural resources beyond their ability to recover.

      Which leaves us with your second option.

    • Jan Steinman says:

      “… it seems only two things can solve this issue.”

      Regarding this issue, I invite you to banish “solve” from your vocabulary.

      As John Michael Greer points out, this is not a “problem” with “solutions.” Rather, it is a “predicament” with “coping strategies.”

      The western world, notably America, is used to looking at everything as a problem with a solution. This generally leads to greater difficulties if, as the case seems now, there are no solutions. It causes you to waste time and energy looking for solutions, rather than looking for the best ways to simply muddle through with less.

      And yet, there are coping strategies to explore! Life will get shorter for almost everyone — but that might mean chopping off ten years of hospitalization hooked up to tubes. We will do more physical labour — but that might mean fewer heart attacks, gout, and other diseases of sedentary life.

      I think the #1 coping strategy is to start providing more of your own food, as best as you can. Start with an apartment balcony while looking for a community garden or a land share.

      During economic disruption, those who can’t afford to eat will suffer the most, while those who can provide for themselves may well have the best “quality of life,” despite not having much money.

      • jbstiesJb says:

        “I think the #1 coping strategy is to start providing more of your own food, as best as you can.”

        I agree, Jan.

        During the Depression, my great grandfather was forced to send his two daughters to live on his friend’s farms because he couldn’t afford to feed them. He sold apples and brooms on the street corners of Richmond, VA and did other odd jobs (sounds like Greece and Spain, doesn’t it?). They also took in a foster child but it wasn’t enough.

        There is no way of knowing if the public safety nets currently in place will survive or what you’ll have to do to comply with rule changes, or what amount of supplemental food they will provide. There is also no way of knowing what farms, transport trucking companies, packing plants, etc. will survive a loss of functioning credit markets.

        • public safety nets are financed from ‘public excess’.
          If there is no excess, then I think everything might revert to relying on charity.
          If we unwind that, we might be back to the original and only source of succour, which was the church door.
          Churches always demanded 10% as a tithe, most of which went on building more churches, but a little was left over to feed and medicate the destitute

    • You have a lot of faith with respect to the solution. Politicians and companies are not going to tell us how badly things are really going.

      In some sense, finding a low price energy solution is equivalent to finding a new high EROEI energy solution, when a full cycle of costs are included. Unfortunately, the highest EROEI fuel we have today is coal.

      We don’t have any cheap renewable competitors. The one that comes closest is wind, but its costs aren’t cheap when viewed on a total system basis, including the cost of new electric grid upgrades. It is also not liquid, an important point. I think the EROEI for wind as calculated (about 18) is misleadingly high. I don’t think the calculation is really on an “apples to apples” basis with fossil fuel EROEI calculations, because of wind’s intermittency, high upfront costs, lack of real long-term operating experience in the calculation (what operators hope for, not what actually takes place), different balance between direct energy, labor and financing costs associated with wind, and all of the grid upgrades that wind necessitates if added in large quantities, which are not included in today’s calculation.

      • Jan Steinman says:

        “We don’t have any cheap renewable competitors.”

        You forgot about little green men from Alpha Centauri, who will come and give us the secret of zero-point energy.

        That’s no more implausible than all the other “deus ex machina” solutions being floated, including nuclear.

    • Fred Magyar says:

      @Saket Kale,
      “On the brighter side, I am sure someone will surely find a way to get out of this!!”

      I’ve never been quite able to understand how people come to hold this particular point of view. I can only conclude that anyone holding it must be what is colloquially known as a ‘Cockeyed Optimist’
      I sure wish I could share your optimism!

      • Jan Steinman says:

        Nice performance! My Mom used to sing that incessantly.

        There is a lot to be said for optimism, as long as it doesn’t depend on particular outcomes. A true optimist looks for and implements the best coping strategy, instead of just being morose and maudlin. The optimists may be the only survivors. That would be by the “Liebnitz” definition: that this world is the best of all possible worlds. That’s a healthy attitude.

        But I wouldn’t call someone who is “sure someone will surely find a way to get out of this” an optimist. That’s just yielding control of your future to some unknown “someone.” Not my cup of tea.

  20. barath says:

    Gail — fascinating post. I wonder how you’d compare your projection with that from the Bonddad Blog, which is a very sober and go-to source for (somewhat conventional, though still energy-aware) economic analysis. Their forecast is that we’ll see mild contraction at the beginning of this year, and then recovery in the second half, and I’ve never seen them get it wrong (either on the downside or the upside).

    • I think the kicker is their last sentence. “But the resurgeance of the housing market, and the continuing accomodation in interest rates and moentary policy, look like they will come to the rescue again later in the year, provided Washington can avoid burdening the consumer with further austerity measures taking effect this year.”

      They are assuming that congress can avoid burdening the consumer with further austerity measures. I am looking at the situation and seeing nothing but a huge batch of austerity measures coming “down the pike.” They are assuming that things will naturally get better. I am assuming that the huge deficit I talked about in Our Oil-Related Fiscal Cliff will pose a large enough burden that it can’t be avoided any more.

      I suppose I could be wrong by a year or two. Maybe the government will somehow be able to kick the can down the road a while longer. By the way, I got the 2008 forecast right. Peak Oil and the Financial Markets: A Forecast for 2008.

  21. BillT says:

    I would be more inclined to call it a permanent depression, temporarily papered over by the Fed.

  22. Attica Blue says:

    Interesting analysis, but it seems to me that a key piece is missing. I don’t see anything about how what wealth and income there is, and which is being created, is being distributed and how that distribution itself contributes to the crisis you describe. For example, in the US (I suspect the situation is little different elsewhere) most of the income growth in the wake of the 2008 crash has for a variety of structural reasons gone to a tiny sliver of the wealthy population. If the middle and working classes don’t have that income–as a result of variables you mention such as automation, taxes and declining government (social) spending–then they can’t very well spend it. But if income gains were more equitably distributed wouldn’t people then be much more able to survive the impact of these variables coming into play and thus keep the economy running more smoothly?

    • Yes, more equitable distribution of resources would be slightly helpful, at least in the short run, from the point of view of the people at the bottom of the wealth distribution.

      But in fact, there is a shortfall in availability of food and petroleum products, which is part of the reason their price is high in the first place. Distributing wages more toward the bottom of the group is a way of using food and petroleum products that are available faster. To understand this, think of the person who earns $200 million dollars a year, compared to the one who earns $100 million dollars a year. Cutting the income of the one who earns $200 million a year in half likely won’t change his spending much. Certainly it won’t change his spending on food and commuting costs. He may do a small amount more vacation travel, but mostly he will “invest” his income, or spend it on high-priced services, that don’t require much energy. If the money is distributed to poor people, they will be much more likely to buy food and petroleum with them, pushing demand up, and raising prices further. With the higher income, some may be more likely to have children as well, increasing the future number of people to be fed, and making the resource scarcity problem worse, not better.

      One of the rather unpleasant things I discovered a while ago was that hierarchical behavior (which is what leads to the income inequalities) is an instinctual behavior of all K-selected species, when there is “crowding”–too many people for the resource base. With other K-selected species in the animal kingdom, the hierarchical behavior reduces population by not letting those at the bottom of the pyramid share in the scarce resources. Needless to say, this is not a situation humans find appealing. Read my post, Human Population Overshoot- What Went Wrong?

  23. Thanks for this excellent and level headed analysis Gail, I really appreciate your work. Really interesting comments as well. Have been reading the Oil Drum for the past few years but only recently found your blog. As a permaculture design teacher and community out reach worker I really value none-hysterical or partisan perspectives on the massive challenges, changes and new opportunities facing us all. Clear, thoughful and insightful, I will be refering to this in my teaching and referencing it for my students. A very happy New Year to you and yours.
    Steven Jones, Wales, UK

  24. Jan Steinman says:

    I think food-producing land is going to be one of the few things that holds value in the future.

    Now if we can just hold on to ours… we could use some help!

    • You are probably right. I am not sure whether pension funds can invest in food-producing land, though.

      One think I worry about is how tax rates will trend. If they are too high, even owning land will be a problem. Another issue is whether a new government will simply redistribute land in a new way. This has happened a lot in the past.

      • Which brings up the question again of what long term investment has the most value with the prospects of the future? I have been pondering a lot about this. Some say that gold and silver will be the new currency or at least valuable as a resource although with dying industry due to energy shortages I cant see what they need all that silver and gold for in manufacturing? And what stops a government from confiscating all gold in the case of it becoming currency again? I guess its the same with land as you mention here.

        I know someone said that real and good hand tools will be the gold of the future. I guess power tools will have less of a future though. 🙂

        • Jan Steinman says:

          “what long term investment has the most value with the prospects of the future?”

          Something that will feed, clothe, and/or heat you — or provide you with employment in a low-energy future.

          I’d say productive farmland — not just hayfields! Or, perhaps if you’re not too interested in farming and would prefer a passive investment, firewood land near cold cities. Or perhaps a site for a business that does low-energy value-added food or energy.

          I just wish I could convince others of this. Most people are too wrapped up in “business as usual,” or they want to know the “rate of return” for an investment in farmland. Last I checked, being able to eat was rather priceless!

          Lots of unknowns makes life interesting, no? I do think life is going to get simpler, meaning more people are going to be more concerned with needs that are lower on Maslow’s Hierarchy — food, shelter, heat.

          • Since the beginning of agriculture, grinding grain has been an important need. Unfortunately, to feed everyone, we are going to have to keep this up.

          • Timothy says:

            If we continue with agriculture as we have in the past, all we will do is leave a desert in our wake. Permaculture is the ONLY viable form of obtaining substance from the land.

          • Timothy says:

            Sorry, that was supposed to be sustenance not substance.

          • Jan Steinman says:

            Timothy, I think we are in heated agreement!

            But I was addressing John’s question about investment, rather than sustainability.

            I think productive farmland will be in demand no matter the methods used to make it productive. But of course, productive land that is managed using Permaculture should be even more valuable than land that is managed in conventional ways.

          • Timothy says:

            Jan, I have never been in a heated agreement with someone before 😉

            Actually, I was responding to Gail’s comment about grain. I just like to use every opportunity I can to throw Permaculture out there.

          • Jan Steinman says:

            Timothy, I’ve been investigating perennial grain. Lower yield, but much less labour and more importantly, much less energy!

            I would like to try polycropping C4 perennial wheat in our hayfields. There was a great article about it in Acres recently. The wheat comes up first, you harvest the seed heads, then the C3 grasses come up, and you process them for hay. Lather, rinse, repeat. 🙂

          • Timothy says:

            I have barely any understanding of what you are talking about, but it sounds lovely.

            My wife and I have a 5th of an acre lot and are practicing permaculture techniques. It is a long process as we have just gotten the fruit trees in and have a couple more to plant this spring. The ground cover is the next project. So far I am working with Borage and Comfrey.

            We have strawberries, blueberries, raspberries, blackberries, cherries, cherry plumbs, plumbs, apples, peaches, pears, almond and this spring we are putting in hazelnuts. We jar all of our surplus vegetables as well as drying fruits. I am most interested now in discovering and acquiring as many perennial vegetables as possible to make the project as self-sustaining as possible.

            I got some Chuffa seeds for this spring that I am excited to try out. It is a perennial ground nut.


        • I think silver will be more practical than gold as a currency in the future. If we retain the possibility of making paper currency, I suppose that gold could work as well. Or maybe we make a new paper currency, expressed as equivalents to barrels of oil. Of course, these certificates would have to decline in number as oil availability goes down.

          If you can hold onto land, and have all of the things needed to work it (especially sufficient water), land is probably the best long-term investment.

    • In all previous eras, food producing land was the ONLY source of wealth, along with the serfs who worked it under their lord.
      Russia ran the serf system until the 1860s, America ran the slave system till the 1860s. Basically the same thing. In historical timescale, a blink of an eye ago.
      that was how things were. If you wanted more energy output, choices were limited. you could breed more serfs, buy more animals or buy more slaves. As long as they converted minimal food energy input into the maximum muscle energy output, the result was more profit for the landowner, who could then use that profit to build a bigger castle and pay for a bigger army to defend it—and eventually–go out and steal someone else’s land/serfs/castle/city etc.
      That’s how cities and nations and empires grew, by resource wars. The Romans expanded outwards by fighting resource wars, looting Europe and Africa to feed the grandeur of Rome. Rome’s energy source was the grain of north Africa (thus Romans could have their bread and circuses) We Brits looted Africa and India for the same reason. Americans just looted the ’empty’ lands of the continent as the nation expanded westward, but the result was the same, colossal wealth for a few, poverty for the rest. WW2 was a resource war, Oilwars now are resource wars. Oil skewed the resource picture for 2 centuries, after it’s gone, we will revert to land wars again. Man fights over resources in order to stay alive, land is the ultimate resource from which all wealth is drawn, so it follows that we will fight over land as we have always done

      • Our history books don’t give this kind of bird’s eye view, but I am afraid it is close to right.

        Some outside energy got used all along in this process, first by burning trees and other biomass, with some energy from wind, water and peat moss before fossil fuels. To the extent that the combination of the outside energy added, plus the human and animal energy used, produced a surplus beyond food, goods and services of other types could be added, for those able to afford them. Jobs outside agriculture were also enabled by this process.

        • It has been suggested that civilisation cannot hold together with energy sources that give a return of under 10:1
          What that means is that below 10:1 we just kill animals and harvest grains, but there isn’t enough surplus energy in the system to build the infrastructure necessary for cities.
          Coal gave us a return of 50:1, Oil 100:1. Those energy sources are dropping back towards 20: 1 or below. Tight oils are well below 10:1, or 5:1
          Our crunch will come when all energy sources drop below 10;1. After that, civilisation is over.

          • You are right sort of–but I think the situation might be worse than what you say. Our civilization is adapted to whatever EROEI underlies an oil cost in the $20 barrel range. The recent run-up to the $100 barrel range has not been incorporated into the current way of adaptation, because it was so large and occurred so quickly. Instead, the high oil prices are leading to government financial distress. The economy is telling us, in effect, “The current adaptation doesn’t work. You need a different one.” It is not clear to me how an economy moves backward to a lower EROEI balance. An economy can adapt, as more energy sources are added, it is a whole lot harder to try to cut back. At one point, for example,we knew how to transport goods by horses and by street car. The street cars are long gone, and there are not enough horses now. So we cannot go back by that route. It is not clear that there are any techno-solutions that will fix our problem. So it is a matter of getting over a huge discontinuity.

            To make matters worse, what we are running into is higher and nigher price of extraction, which is equivalent in some sense to lower and lower EROEI. So we are not guaranteed that once we get adapted, the situation will stabilize at the new level.

        • And our dependence on wood for energy in the past was a pretty damaging one even in the short time when we using it seriously in a growing population as you will see in this video by Richard Alley:


          I cant imagine what our planet will look like after 50 years of wood as primary energy source again with 6 billion people on the planet.

          The whole “How to talk to an Ostrich” series of videos are very good imo.

  25. robindatta says:

    The decline was locked in with the uS Hubbert’s petroleum peak in 1970. Its manifesting was delayed by the final oil hurrahs, Alaskan North Slope and Cantarrel, and of crucial importance, abandonment of the gold standard that permitted making and exchanging unlimited amounts of world reserve currency (green pieces of paper with pictures of dead presidents, and more recently magnetised particles on rusty discs). These items could be exchanged freely for barrels of black gold, debt be damned. Growth was bought.

    • It seems like we have been working very hard at getting growth for a very long time. Countries that are newer to the “energy game” have been getting the recent growth.

  26. “This is not the End. It is not even the Beginning of the End. It is the End of the Beginning.”-Winston Churchill.

    “Permanent Recession”. Your mastery of uderstatement remains unmatched. 🙂 You are like 95% certain homo sapiens is heading for a massive Die Off event if not extinction, and you refer to this as a “permanent recession”? lol.
    Anyhow, you and the other Finite Worlders should check out Monsta’s latest Energy article, Peak Coal. Charts and graphs galore to warm the hearts of actuaries and physicists alike.



    • Thanks! People have a hard enough time with this subject, so I figure that some toning down is necessary. A person who understands it can see how bad things really are.

      I figure that other sites that copy the post will change the title, anyhow.

      • I think the “GTFO of Dodge NOW, or you are gonna DIE” approach is more apropos right now. JMHO. 🙂

        • ravinathan says:

          And go where?

          • Joe Clarkson says:

            To decent agricultural land far away from large cities, preferably in the sub-tropics or mild temperate region where climate change is not expected to dramatically change rainfall patterns. I’m in Hawaii, but the coastal Pacific Northwest of the USA would also be a good choice. Some locations in Argentina and New Zealand would be worth exploring also.

          • Jan Steinman says:

            I sorta agree with Joe Clarkson, but “far away from large cities” sorta limits your options in a slow-crash scenario.

            “Away from cities” can be accomplished by means other than distance. We chose a moat, so we can still interact with cities without excessive transportation costs, and yet will be isolated from those on foot if the excrement gets applied to the ventilator.

            While a moat is great to avoid roving hoards of hungry zombies, it has advantages in a slow crash scenario, as well. Island residents are typically mutually-dependent, much more willing to buy your organic farm goods than to pay to take a ferry to Mall*Wart and its ilk.

            In a near-term fast-crash scenario, isolation may be good. But what if it takes 20 years? What if, as seems to be happening now, each year is just barely perceptibly worse than the year before? I’m not sure isolation and boiling frogs make great bed fellows.

            • I agree on the isolation having its down-side. As far as I can see, people in the past were quite interdependent. Clothing fibre wasn’t necessarily provided by the same one as food, and replacement parts for wells were’t necessarily made by well-owners. States stood by with reserves of grain in years of bad weather, or perhaps it would be possible to buy from someone at a distance.

              I know I visited one potential group sustainability site that was about 12 miles from the nearest town. That struck me as a long ways to walk, to get the most basic of needs. I read about one that was over 20 miles from the nearest town. That one seemed to be producing only a small part of its own food, and was supporting itself with people who had income from other sources, such as writing for publication. It didn’t seem like a good model to me.

      • “I figure that other sites that copy the post will change the title, anyhow”-Gail

        In this case, I elected to make the change, and retitled your article, “The End of the Beginning” and added a Punchy Graphic for the slider and Synopsis.. 🙂

        Wakes up the readers. LOL.



    • BTW Gail, are you familiar with the work of C.S. “Buzz” Holling & Lance Gunderson and Panarchy Theory? You might want to read up on this if you are not familiar with it. I did one article on this theory


      and you can find out a lot more if you visit the Resilience Science website at



      • Thanks for reminding me of Panarchy theory. I remember reading about it a few years ago, but had kind of forgotten about it. It does seem to have very significant similarities to Turchin and Nefedof’s Secular Cycles. Panarchy theory is much more general, and doesn’t seem to have a particular time line attached. Secular Cycles doesn’t really have a timeline attached, except by observation. The authors observe that population increase tends to be much faster in Muslim countries, because of the ability (of the rich) to have multiple wives. This shortens the length of cycles. I’m not sure the shorter cycle bodes well for oil-producing Muslim countries.

      • The 4 Stage Cycle theme appears to be quite universal and fractal in its occurrence. The Strauss & Howe “4th Turning” material demonstrates a similar cycle over the generational lifespan for people, and the monetary systems they use as well, around 80 years there.

        I like Holling and Gunderson’s descriptions most because they are more universal and time independent.

        IMHO here, we are looking at a much longer cycle, probably running on the order of around 5000-10,000 years, beginning with the transition to Ag.


  27. BC says:

    Excellent work, Gail.

    See David Hackett Fischer’s “The Great Wave”, if you have not read it. His “Price Revolution” is transitioning into a so-called “Revolutionary Crisis” era in the decades ahead that will likely be global in scale.

    US real GDP per capita is where it was in ’05-’06, whereas the trend rate since ’00 is at just 32% of the long-term average of 2.1%. The US has lost 16% growth from real GDP per capita since ’00, with the trend since ’07-’08 being negative.

    If one examines the trajectory of US real GDP per capita since the founding of the US, real GDP per capita accelerated to a super-exponential rate following the peak of US domestic crude oil production and the onset of deindustrialization and financialization of the economy and society at that time. The associated log-limit bound from the unsustainable super-exponential growth rate of the past 40-45 years implies an eventual collapse of real GDP per capita of 50% (at what price inflation one cannot know), if not more were undershoot to occur; a similar collapse per capita of gov’t spending, private investment, asset prices, pension payouts, and incomes are to be expected.

    Regressing the trend rates of real GDP per capita, one can infer that the trend rate of real GDP will decelerate to 0% hereafter, and real GDP per capita will contract further basis ’08.

    Wages adjusted for reported CPI for the bottom 50-80% of workers are back to the levels of the late 1950s to mid-to late 1960s. Were the trend deceleration to continue, real wages for the bottom 50-80% will fall to the level of the 1930s-50s by ’25-’30, i.e., no growth in real wages for 75-100 years; now that’s “stagnation”.

    The trend of accelerating automation by the Fortune 25-300 firms in the years ahead will exacerbate falling real wages and loss of purchasing power by the bottom 80-90%, as tens of millions of workers will lose purchasing power from paid employment and suffer further from “austerity” and lack of gov’t income support.

    One simply cannot closely examine the math and emerging trends and be justifiably optimistic.

  28. Mike says:

    I can think of another reason why the wage base hasn’t “grown” as quickly as GDP and I’m surprised it didn’t occur to you, since the subject has been raised many times here. The US GDP figure is grossly manipulated and is almost certainly not a true reflection of the real situation. It could be (and may likely be) that wages have done better (relative to GDP) than the graph suggests. This may be why the decline isn’t quite so obvious as some think it should be (though, of course, it is obvious to many).

    • Isn’t the general though that the GDP is manipulated to make it look better than it really is, including the measurement of peoples wealth or purchasing power? I have read some things about low inflation calculation tricks like “substitution” where if you cant afford beef – you buy chicken – and since chicken is half the price per energy you get out of it your income has actually risen! I seem to recall silly things like a 40″ TV a year after with the same price as the 40″ model the year before is actually worth more because the new model has more features – hence buying the latest model actually makes you “richer”?!?!?

    • I know that there is funniness in the inflation adjustment. Here I am not using inflation-adjusted numbers. I am comparing (wages not adjusted for inflation) to (GDP not adjusted for inflation).

      There are no doubt other funny things, like continually pumping up debt to get more “growth”.

      • Tony says:

        John, those are two tricks used in the US calculation. Some are used in other nations too, but not all.

        Gail, inflation adjustment is one side of the coin, certainly, and figures not adjusted for inflation is a good way of trying to get some comparable figures. But there are adjustments within the gross GDP calculation, too, so the wages base to GDP ratio is still likely not an accurate reflection of reality.

      • Bill Simpson says:

        Debt creation made a lot of people very rich, without doing much good in some cases. Now that the election is over, you might find the article by Matt Taibbi in Rolling Stone entitled, ‘Greed and Debt: the True Story of Mitt Romney and Bain Capital’ of some interest. As I was reading it, suddenly it occurred to me that these guys could destroy capitalism by creating non-productive debt for the sole purpose of enriching themselves. It made me wonder how much of the huge increase in business debt created during the last 25 years, was created for that reason, instead of to build productive investments? Wouldn’t that be something. The capitalists destroy capitalism with the help of the tax code they helped write.

  29. In many ways our situation is unprecedented, the scale of collapse from a one-time-only lack of fossil fuels is quantitatively and qualitatively different from past downturns. In the past when forests were decimated for fuel, homes, ceramics, and warships, or soils degraded so much crops failed, etc., there were literally “greener pastures” elsewhere. I still can’t imagine how fast or how long the last phase will take, when we go from 7.2 billion down to a wood-based energy carrying capacity of 1/2 to 3 billion people. Too many factors I guess for anyone to know, too many local and regional variations. Yet impossible to not wonder about and try to calculate…thanks Gail for your excellent analysis.

    • Jan Steinman says:

      “I still can’t imagine how fast or how long the last phase will take, when we go from 7.2 billion down to a wood-based energy carrying capacity of 1/2 to 3 billion people.”

      The question is, will there be any wood left?

      I expect long before population crashes, the earth around cities will be stripped bare.

      • It is already happening in Greece- “During the year 2012, the authorities seized a total of 13,088 tonnes of wood cut illegally, 425 vehicles which transported them and 426 tools used for this purpose,”
        I see Dr Zhivago pulling down fence boards.
        I hate to say this but living here in the Heart of the Redwoods maybe the place to be.

        • Jan Steinman says:

          “living here in the Heart of the Redwoods maybe the place to be.”

          Yes, I think the Pacific Northwest from Juneau to Arcata may be one of the best places on the planet in coming years — if you can stay away from the population centres, and if the fuel runs out quickly enough to significantly reduce the ability of those population centres to rape the surrounding terrain.

          I wrote a prize-winning prediction short story that said that not a tree remained within 50 miles of New York City.

    • Jb says:


      “the scale of collapse from a one-time-only lack of fossil fuels is quantitatively and qualitatively different from past downturns”

      My thoughts exactly. There is no comparison. Never in all of human history have we been able to create the kinds of surpluses that we have as a result of replacing muscle labor with fossil fuels.

      • Jan Steinman says:

        “There is no comparison. Never in all of human history…”

        And yet, it is trivial to simulate our situation. Put a packet of yeast in a jug of sugar water. Soon, there’s lots of CO2 produced, then you start noticing a sludge at the bottom. The sludge are the dead bodies.

        If you can keep adding small amounts of sugar before they eat it all, some of the yeast cells will survive. But if they all die during the “energy pulse,” it won’t matter if you add sugar later — except that opportunistic moulds and bacteria will come upon it.

        And even if you keep adding sugar, at some point, the alcohol level goes beyond what the yeast can tolerate — they are poisoned by their own waste products. Sound familiar?

        Garrett Hardin put it this way: “Given an infinite source of energy, population growth still produces an inescapable problem. The problem of the acquisition of energy is replaced by the problem of its dissipation.”

        That’s why I laugh at all the proponents of this or that energy “fix,” like nuclear, or whatever. At some point, if our energy source is rich enough, we end up being poisoned by our waste products.

        The more humans I get to know, the more they seem just exactly like yeast.

      • I am afraid both of you are right. But I didn’t want to scare new readers to death.

  30. John Dunn says:

    “For a couple with combined wages of $100,000, take-home pay is thus being decreased by $2,000 per year.”
    Interestingly, today here in the UK, certain Child Benefit changes, are beginning to affect similar middle income families, to the tune of similar decreases in income.
    I’ve been pondering something of late that, I would appreciate further ‘brain crunching’ on. I’ve been wondering about something called the Pareto Principle, or its more simple cousin, the 80 /20 rule. Stated very briefly, the 80/20 rule suggests that 80% of the consequences, are derived from 20% of the root causes.
    It’s very evident, that reduced income equates to less disposable income. This is a given. However, reducing the income of the lower paid by (say), 4%, might result in them attempting to reduce their various outgoings, food, heating etc, by a similar 4%. However, some items of expenditure, that might be considered discretionary, and often ‘middle income’ expenditures, will, (possibly due to the 80/20 rule), be affected far more severely?
    (Just a couple of examples) : If someone (middle income), loses 4% of their income, they don’t go 4% less to the gym, or watch 4% less Sky TV, they will probably cancel their subscription totally (a 100% cut). Similarly, do they take the family to Sunday Lunch at their local pub/restaurant 4% less, or change to a different (less spending), weekend habit with the family?
    Thus, if sufficient numbers of median to high earners kill off 100%, of some of their higher end consumer purchases and services, in response to a (say), 4% decrease in their income, that might have a bigger (accelerating), economic effect.?
    Whatever, 2013 is going to be a very bumpy ride. Watch out below!

    • Leo Smith says:

      Hi fellow UK er!
      Yes, and in fact the UK is LEADING the way in various fields. The interview with John Lewis (upmarket quality supermarket and purveyor of quality consumer goods) on Sky News today featured some interesting facts
      – 25% of purchases now made online.
      – a flight to quality for people with lower disposable incomes. Stuff has to be better, last longer.

      The rise of the Internet balances the death of the shopping mall.

      Overall this represents a far lower energy solution for a similar lifestyle for those still employed.

      In the 90’s I’d think nothing of using the car to drive ten miles there and ten miles back if I had run out of coffee. Today we at best shop once a week. Its cheaper to buy the coffee at twice the price from the local shop, than fill up the car again. we do less than a quarter of the road miles we used to. I spend more on heating oil than on car diesel.
      There is a lot of unnecessary fat in the UK economy. WE can it seems drop GDP and energy use by maybe a factor of 2 and still be reasonably civilised.

      That won’t stave off the problems indefinitely, but it does delay things. As do local solutions to local problems – as transport costs go up some does expensive out of season or imported food. Another cost saving.

      Rapid change that gives little time to adapt is always more destructive than reasonably gradual change. A generation that grows up in a low energy lifestyle is better adapted than its parents. Many kids today are not even bothering to learn to drive. If politics and misguided enthusiasms can be replaced by rational objective analysis, the market itself will self optimise its way to whatever solutions work.

      However at the moment governments are the problem, not the solution. They tend to be funded by and lobbied by the status quo and that means imposing barriers in the way of genuine innovation and tilting the playing field in favour of fashionable but less viable innovation.

      Governments didn’t fund the rollout of the Internet. It works. It saves trees, its saves fuel and it saves money overall. Government is meddling in energy though, and that’s stifling the real solutions.

      • John Dunn says:

        Hi Leo : You are right on many fronts.
        What I find interesting is that the US and the UK are different animals, but their approach to economic survival, has many parallels. On a broader note, we here, all observe current events, looking for the turning point, the indicators of collapse, the trigger to a change in thinking. But we are accustomed to expect ‘instant’, when many planetary changes occur at a more ‘glacial’ pace. It can be a little unnerving, considering we each, only have the ringside seat booked for about 70 years.
        Many years ago, I found the simple statement, “as above so below”, to be a very valuable thinking tool, when trying to understand certain ‘big’, hard to grasp, events.
        e.g. ~ If you take a large pan of boiling water off the heat, it often continues to boil for a few seconds as it gets residual heat from the base of the aluminium pan.
        In just the same way, global growth will continue to bubble for a few more years from the residual heat of cheap oil, and the remnants of lingering credit. It will give some folk, the illusion of continued growth for a while, but it would be foolish to ignore the fact that major changes are ahead. The 250 years of growth that humanity has enjoyed, (gorged on?), is now looking for its reverse gear. It’s just a matter of time.
        Take Care.

        • The big question is how quickly this reversing will unfold, and will we be prepared enough to make serious changes in how we relate to things we have come to take for granted? Some people say that in 50 years we are down to pre-industrial times. I doubt it will go that fast – although in some parts of the population it will (more poor people). Furthermore its always a question of when the poor population becomes so big that a tipping point into chaos happens – or whether we are able to adapt people in a way to not expect more. Some like to play with these scenarios and I often feel many take the chaos route too easily (probably because it has more “special effects”). John Greer seems to think it will be a slow trawl down of “small” crisis after another but people adapts to the new rules of the game as we go that way. What do you think?

      • This is a very good and important point that a lot of people realise eventually. In general I have always tried to group my trips into one a week instead of driving to the post office to pick up a package every day I get a note in the post (here in Norway we dont get packaged delivered to the door like in USA). Recently my wife bought some pants for half the price of new (it was rather cheap), but since my belly has obviously grown a bit these past years, we need to swap them. So she took another trip to the shop to swap them as I was at work – they didnt have the pants in my size – but they did have them at another store in the centre of town pretty close to where I work. Hm, ok its a 20 minute walk there, and 20 minutes back – or I could drive – pay toll road tax + parking… you see where this is going. It just cost too much to “save half the price” that I said to my wife on the phone – “just get your money back”. I think a lot of people simply dont think about these things in the midst of it, energy has been so cheap that we dont count it into the price of things – or indeed the time you spend doing silly things like this.

        In general, whenever I need to do something I think about the time and energy involved in travelling as an extra cost. In many cases that cost alone makes the whole point of the trip pointless if you do something to e.g. “save money” – I save more by simply not doing it at all. 🙂 – I guess it makes you more lazy, although I have always enjoyed staying at home tinkering with my hobbies. I mean people drive miles to get to the gym to work out when they could just run around a couple of blocks where they live to get the same effect.

        In the extreme example I often say: “You can learn more about Egypt in a single google search session than you do travelling down there and sitting on the pyramids.” 🙂 – And once you get past the “been there done that – facebook mentality”, you are really down to the core of it – “why on earth are you on the top of a pyramid in egypt?”

  31. JD in VaBeach says:

    Gail: Your lucid analyses are really the backbone of my ongoing education in this extraordinary experience we are living through now.

    As Ravinathan infers above, pension obligations, especially for States and cities, are really a timebomb. Default is inevitable. What happens when the first responder segment of our society decides not to respond because their union contracts are being voided. It is certainly not out of the question, even in the short term. Chaos.

    But the probability lies (I’m just guessing) with hyper-inflation as the government strategy to keep the game going for another generation or so. Fix benefits and debt and hyper-inflate currency and let the federal government take all of the state/local obligations.

    When I worked in Turkey in the nineties the Lira was 50,000/1 USD. The Turkish lira then inflated to 2 million lira per dollar by 2005. Then they knocked off the last six zeros and came out with “new” lira. No reason we can’t/won’t do the same. I guess I should get those dollars out of my mattress.

    All beside the point in the long term, though, eh?

    • Difficult to know what to do. If TIPs are truly inflation (and deflation) protected, they would seem to be a solution. Of course, if the government hits a debt limit, that is a problem too.

    • I am not sure the government can keep the game going for another generation or two. Our current system is built on international trade–it is hard to make anything that is at all high tech, without international trade. If international trade goes downhill, there is a definite problem. Also, there is a question of central governments disappearing, and only local governments taking over. Think of the Former Soviet Union and the Former Yugoslavia. Will these new small countries be able to set up international trading agreements? Will it become very cumbersome to ship goods across many tiny countries?

    • “What happens when the first responder segment of our society decides not to respond because their union contracts are being voided. It is certainly not out of the question, even in the short term. Chaos.”

      You misunderstand those in the healthcare profession. The ones that succeed mostly do so because they have the will to heal to begin with.

      In a collapse the health care workers will be responding whether they’re paid or not.

  32. ravinathan says:

    Terrific analysis Gail. As an actuary, how would you advise pension funds to invest during this period of stagflation and early crisis? If I understand you correctly, the forecast is for volatility in commodity prices – inflation followed by falling demand with resulting price collapse. It appears that a pension crisis is already baked in.

    • I am not sure I have a good answer on investing for pension funds. You are right–a crisis for pensions is baked into the cake. The question is what will least lose value over time. Unless a person really knows, I suppose diversification is as good a choice as any.

  33. Leo Smith says:

    Nothing to argue with there at all.

    You remain a tireless researcher and purveyor of an acute, and well thought out view.

    Inly two things will preserve any sort of ‘civilsatuon’

    – access to a different source of cheap energy
    – dramatic fall in population.

    Both are politically unacceptable right now.

    • Thanks! A commenter on Our Finite World introduced me to Secular Cycles. My general impression was that collapse cycles were tending to get shorter over time. Some early ones were as long as 100 years. The last one was 17 years.

      When I wrote about how long I thought it would take for the decline a couple of years ago, my guess was that it would take about 20 years. My reasoning was that most of the stuff we have accumulated today (clothing, cars, hoses, and “stuff” of all sorts that would help a transition) will be non-workable by the end of 20 years. Without the prop of accumulated stuff from the fossil fuel age, it would be difficult to have much of a civilization.

      • Great Article Gail! I wonder if the speed in which a civilization goes into overshoot as well as how far into overshoot (out stripping resource base) the civilization goes effects the length of the collapse cycle? I feel the unprecedented nature of industrial civilization may intensify the feedback loops of collapse leading to much faster collapse than previously seen in history. I guess we will find sooner or later.

        • My impression in looking at the eight collapse cycles discussed in Secular Cycles is that they were getting shorter and shorter. The last one was 17 years. The collapse of the Soviet Union was not included in the book. It seems like it took place over a much shorter time–less than 10 years.

          Now, everything is dependent on electricity, the Internet, GPS, electronic bank transactions, just-in-time inventory, and many other modern inventions. If we lose any of them, we don’t have a fallback. Even something as simple as bad hurricane damage could be a problem, if we don’t have the resources to repair the damage. These things will tend to shorten the time to collapse. The fact that eventually the economy of the whole world will collapse may stretch out the total time somewhat.

      • I have also thought along these lines of “how long will it take?”..we have so much “stuff”, how long will it take to wear it out, use it up?

        I like this article, clear, concise and easy to read.

    • Mark Bahner says:

      “Nothing to argue with there at all.”

      I predict that, within 1-3 decades, world GDP will consistently be growing at more than 7 percent per year.

      Needless to say, there’s plenty here I can argue with. 😉


      • Jan Steinman says:

        Yet another future prediction based on past performance. Yawn. Nothing to see here, folks. Move along.

        Based on my growth rate from 0 to 16, I should be nearly 22 feet tall by now. What went wrong with that linear regression prediction?

      • Interesting link! The graphs we see usually show such a short time span that people don’t realize how low growth was prior to fossil fuels, how much it ramped up with fossil fuels, and how much growth has recently backed off, relative to what we would have expected, if the rate of growth in fossil fuel use had contined.

        • Mark Bahner says:

          If fossil fuels are what create wealth, how do you explain East Germany versus West Germany, or North Korea versus South Korea?

          Why is Japan wealthier than Russia? Why does Israel have a higher per-capita GDP than Iraq, Iran, or Libya?

          Why do Luxembourg, Singapore and Hong Kong have such high per-capita GDPs?

          • You need the whole system. That is why in my article Why Malthus Got his Forecast Wrong, I talk about it taking the combination of fossil fuels and non governmental debt to ramp up the US economy after World War II. A system that includes fossil fuel is necessary to get the energy needed for manufacturing or services of any kind, but it is not sufficient on its own. In the case of West Germany, they are mostly hanging on the shirt tales of others. That is why they have been so interested in wind and solar. West Germany has benefited by the way the Euro is constructed–keeps German products cheaper than they rightfully should be, thanks to Greece, Portugal, Spain, etc. pulling the Euro down. Long term, its prospects are less good.

            Obviously, the fuel by itself isn’t enough, just like farmland isn’t enough for crops. You need seed for crops. You need the investment in infrastructure for fuel. It really helps to have debt to ramp up consumers’ ability to buy as well. It also helps to have Western capitalist laws–land ownership etc. Not that capitalism is ideal. It does help with converting fossil fuels to finished products, though.

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