Energy Products: Return on Investment is Already Too Low

My major point when I gave my talk at the Fifth Biophysical Economics Conference at the University of Vermont was that our economy’s overall energy return on investment is already too low to maintain the economic system we are accustomed to. That is why the US economy, and the economies of other developed nations, are showing signs of heading toward financial collapse. Both a PDF of my presentation and a podcast of the talk are available on Our Finite World, on a new page called Presentations/Podcasts.

My analysis is with respect to the feasibility of keeping our current economic system operating. It seems to me that the problems we are experiencing today–governments with inadequate funding, low economic growth, a financial system that cannot operate with “normal” interest rates, and stagnant to falling wages–are precisely the kinds of effects we might expect, if energy sources are providing an inadequate energy return for today’s economy.

Commenters frequently remark that such-and-such an energy source has an Energy Return on Energy Invested (EROI) ratio of greater than 5:1, so must be a helpful addition to our current energy supply. My finding that the overall energy return is already too low seems to run counter to this belief. In this post, I will try to explain why this difference occurs. Part of the difference is that I am looking at what our current economy requires, not some theoretical low-level economy. Also, I don’t think that it is really feasible to create a new economic system, based on lower EROI resources, because today’s renewables are fossil-fuel based, and initially tend to add to fossil fuel use.

Adequate Return for All Elements Required for Energy Investment

In order to extract oil or create biofuels, or to make any other type of energy investment, at least four distinct elements described in Figure 1: (1) adequate payback on energy invested,  (2) sufficient wages for humans, (3) sufficient credit availability and (4) sufficient funds for government services. If any of these is lacking, the whole system has a tendency to seize up.

Figure 1. One sheet from Biophysical Economics Conference Presentation

Figure 1. One sheet from Biophysical Economics Conference Presentation

EROI analyses tend to look primarily at the first item on the list, comparing “energy available to society” as the result of a given process to “energy required for extraction” (all in units of energy). While this comparison can be helpful for some purposes, it seems to me that we should also be looking at whether the dollars collected at the end-product level are sufficient to provide an adequate financial return to meet the financial needs of all four areas simultaneously.

My list of the four distinct elements necessary to enable energy extraction and to keep the economy functioning is really an abbreviated list. Clearly one needs other items, such as profits for businesses. In a sense, the whole world economy is an energy delivery system. This is why it is important to understand what the system needs to function properly.

What Happens as Oil Prices Rise

When oil prices rise, wages for humans seem to fall, or at least stagnate (Figure 2, below). The comparison shown uses US per capita wages, so takes into account changes in the proportion of people with jobs as well as the level of wages.

Figure 2. High oil prices are associated with depressed wages. Oil price through 2011 from BP’s 2012 Statistical Review of World Energy, updated to 2012 using EIA data and CPI-Urban from BLS. Average wages calculated by dividing Private Industry wages from US BEA Table 2.1 by US population, and bringing to 2012 cost level using CPI-Urban.

Figure 2. High oil prices are associated with depressed wages. Oil price through 2011 from BP’s 2012 Statistical Review of World Energy, updated to 2012 using EIA data and CPI-Urban from BLS. Average wages calculated by dividing Private Industry wages from US BEA Table 2.1 by US population, and bringing to 2012 cost level using CPI-Urban.

In fact, if we analyze Figure 2, we see that virtually all of the rise in US wages came in periods when oil prices were below $30 per barrel, in inflation-adjusted terms. The reason why the drop in wages happens at higher per-barrel levels is related to the drop in corporate profits that can be expected if oil prices rise, and businesses fail to respond. Let me explain this further with Figure 3, below.

Figure 3. Illustration by author of ways oil price rise could squeeze wages. Amounts illustrative, not based on averages.

Figure 3. Illustration by author of ways oil price rise could squeeze wages. Amounts illustrative, not based on averages.

Figure 3 is a bit complicated. What happens initially when oil prices rise, is illustrated in the black box at the left. What happens is that the business’ profits fall, because oil is used as one of the inputs used in manufacturing and transportation. If the cost of oil rises and the sales price of the product remains unchanged, the company’s profits are likely to fall. Additionally, there may be some reduction in demand for the product, because the discretionary income of consumers is reduced because of rising oil prices. Clearly, the business will want to fix its business model, so that it can again make an adequate profit.

There are three ways that a business can bring its profits back to a satisfactory level, illustrated in the last three columns of Figure 3. They are

  • Automation. Human energy is the most expensive type of energy a business can employ, because wages to paid to humans to do a given process (such as putting a label on a jar) are far higher than the cost of an electricity-based process to perform the same procedure. Thus, if a firm can substitute electrical or oil energy for human energy, its cost of production will be lower, and profits can be improved. Of course, workers will be laid off in the process, reducing total wages paid.
  • Outsourcing to a Country with Lower Costs. If part of the production cost can be moved to a country where wage costs are lower, this will reduce the cost of manufacturing the product, and allow the business to offset (partially or fully) the impact of rising oil prices. Of course, this will again lead to less US employment of workers.
  • Make a Smaller Batch. If neither of the above options work, another possibility is to cut back production across the board. Even if oil prices rise, there are still some consumers who can afford the higher prices. If a business can cut back in the size of its operations (for example, close unprofitable branches or fly fewer airplanes), it can cut back on outgo of many types: rent, energy products used, and wages. With reduced output, the company may be able to make an adequate profit by selling only to those who can afford the higher price.

In all three instances, an attempt to fix corporate profits leads to a squeeze on human wages–the highest cost source of energy services that there is. This seems to be Nature’s  attempt way of rebalancing the system, toward lower-cost energy sources.

If we look at the other elements shown in Figure 1, we see that they have been under pressure recently as well. The availability of  credit to fund new energy investment is enabled by profits that are sufficiently high that they can withstand interest charges incurred in the payback of debt. Debt use is also enabled by growth, since if profits will be higher in the future, it makes sense to delay funding until the future. In recent years, central governments have seen a need to put interest rates at artificially low levels, in order to encourage borrowing. To me, this is a sign that the credit portion of the system is also under pressure.

Government’s ability to fund its own needs has been under severe stress as well. Part of the problem comes from the inability of workers to pay adequate taxes, because their wages are lower. Part of the problem comes from a need for governments to pay out more in benefits, such as disability income, unemployment, and food stamps. The part that gets most stressed is the debt portion of government funding. This really represents the intersection of two different areas mentioned in Figure 1: (3) Adequacy of credit availability and (4) Funding for government services.

The constellation of energy problems we are now experiencing seems to me to be precisely what might be expected, if energy return is now, on average, already too low.

The Role of Energy Extraction in this Squeeze

When any energy producer decides to produce energy of a given type (say oil or uranium), the energy producer will look for the resource that can be extracted at lowest cost to the producer.

Figure 4. Resource triangle, with dotted line indicating uncertain financial cut-off.

Figure 4. Resource triangle, with dotted line indicating uncertain financial cut-off.

Initially, production starts where costs are most affordable–not much energy is required for extraction; governments involved do not require too high taxes; and the cost of human labor is not too high. The producer may need debt financing, and this must also be available, at an affordable cost.

For example, easy-to-extract oil located in the US that could be extracted very simply in the early days of extraction (say before 1900), was very inexpensive to extract, and would be near the top of the triangle.  Tight oil from the Bakken and bitumen from Canada would be examples of higher cost types of oil, located lower in the triangle.

As the least expensive energy is extracted, later producers wishing to extract energy must often settle for higher cost extraction. In some cases, technology advancements can help bring costs back down again. In others, such as recent oil extraction, the higher costs are firmly in place. Higher sales prices available in the market place enable production “lower in the triangle.”  The catch is that these higher oil prices lead to stresses in other systems: human employment, government funding, and ability for credit markets to work normally.

What Is Happening on an Overall Basis

Man has used external energy for a very long time, to raise his standard of living. Man started over 1,000,000 years ago with the burning of biomass, to keep himself warm, to cook food, and for use in hunting.  Gradually, man added other sources of energy. All of these sources of energy allowed man to accomplish more in a given day. As a result of these greater accomplishments, man’s standard of living rose–he could have clothes, food which had been cooked, sharper tools, and heat when it was cold.

Over time, man added additional sources of energy, eventually including coal and oil. These additional sources of energy allowed man to leverage his own limited ability to do work, using his own energy.  Goods created using external energy tended to be less expensive than those made with only human energy, allowing prices to drop, and wages to go farther. Food became more available and cheaper, allowing population to rise. Money was also available for public health, allowing more babies to live to maturity.

What happened in the early 2000s was a sharp “bend” in the system.  Instead of goods becoming increasingly inexpensive, they started becoming relatively more expensive relative to the earnings of the common man. For example, the price of metals, used in many kinds of goods started becoming more expensive.

Figure 5. Commodity Metals Price Index from the International Monetary Fund, adjusted by CPI-Urban to 2012 price levels. Commodity Metals include Copper, Aluminum, Iron Ore, Tin, Nickel, Zinc, Lead, and Uranium.

Figure 5. Commodity Metals Price Index from the International Monetary Fund, adjusted by the US CPI-Urban to 2012 price levels. Commodity Metals include Copper, Aluminum, Iron Ore, Tin, Nickel, Zinc, Lead, and Uranium.

There seem to be two reasons for this: (1) In the early 2000s, oil prices started rising (Figure 2, above), and these higher prices started exerting an upward force on the price of goods. At the same time, (2) globalization took off, providing downward pressure on wages. The result was that suddenly, workers found it harder to keep a job, and even when they were working, wages were stagnant.

It seems to me that prior to the early 2000s, part of what buoyed up the system was the large difference between:

A. The cost of extracting a barrel of oil

B. The value of that barrel of oil to society as a whole, in terms of additional human productivity, and hence additional goods and services that barrel of oil could provide.

As oil prices rose, this difference started disappearing, and its benefit to the world economy started going away.  The government became increasingly stressed, trying to provide for the many people without jobs while tax revenue lagged.  Slower economic growth made the debt system increasingly fragile. The economy was gradually transformed from one which provided perpetual growth, to one where citizens were becoming poorer and poorer. This pushed the economy in the direction of collapse. Research documented in the book Secular Cycles by Turchin and Nefedov shows that in past collapses, the inability of governments to collect sufficient taxes from populations that were becoming increasingly poor (due to more population relative to resources) was a primary contributing factor in these collapses. The problems that the US and other developed countries are having in collecting enough taxes to balance their budgets, without continuing to add debt, are documentation that this issue is again a problem today. Greece and Spain are having particular problems in this regard.

A More Complete List of Inputs that Need Adequate Returns

My original list was

  1. Energy counted in EROI calculation–mostly fossil fuels, sometimes biomass used as a fuel
  2. Human labor
  3. Credit system
  4. Cost of government

To this we probably need to add:

  1. Profits for corporations involved in these processes
  2. Rent for land used in the process – this cost would be highest in biofuel operations.
  3. Costs to prevent pollution, and mitigate its effects – not charged currently, except as mandated by law
  4. Compensation for mineral depletion and degradation of soil. Degradation of soil would likely be an issue for biofuels.
  5. Energy not counted in EROI calculations. This is mostly “free energy” such as solar, wind, and wave energy, but can include energy which is of limited quantity, such as biomass energy.

Given the diversity of items in this list, it is not clear that simply keeping EROI above some specified target such as 5:1 is likely to provide enough “margin” to cover the financial return needed to properly fund all of these elements. Also, because the need for government services tends to increase over time as the system gets more stressed, if there is an EROI threshold, it needs to increase over time.

It might also be noted that the amounts paid for government services are surprisingly high for fossil fuels. Barry Rodgers gave some figures regarding “government take” (including lease fees as well as other taxes and fees) in the May 2013 Oil and Gas Journal. According to his figures, the average government take associated with an $80 barrel of US tight oil is $33.29 per barrel. This compares to capital expenditures of $22.60 a barrel, and operating expenditures of $7.50 a barrel. If we are to leave fossil fuels, we would need to get along without the government services funded by these fees, or we would need to find a different source of government funding.

Source of the EROI 5:1 Threshold

To my knowledge, no one has directly proven that a 5:1 threshold is sufficient for an energy source to be helpful to an economy. The study that is often referred to is the 2009 paper, What is the Minimum EROI that a Sustainable Society Must Have? (Free for download), by Charles A. S. Hall, Steven Balogh, and David Murphy. This paper analyzes how much energy needs to provided by oil and coal, if the energy provided by those fuels is to be sufficient to pay not just for the energy used in its own extraction, but also for the energy required for pipeline and truck or train transportation to its destination of use. The conclusion of that paper was that in order to include these energy transportation costs for oil or coal, an EROI of at least 3:1 was needed.

Clearly this figure is not high enough to cover all costs of using the fuels, including the energy costs to build devices that actually use the fuels, such as private passenger cars, electrical power plants and transmission lines, and devices to use electricity, such as refrigerators. The ratio required would probably need to be higher for harder-to-transport fuels, such as natural gas and ethanol. The ratio would also need to include the energy cost of schools, if there are to be engineers to design all of these devices, and factory workers who can read basic instructions. If the cost of government in general were added, the cost would be higher yet. One could theoretically add other systems as well, such as the cost of maintaining the financial system.

The way I understood the 5:1 ratio was that it was more or less a lower bound, below which even looking at an energy product did not make sense. Given the diversity of what is needed to support the current economy, the small increment between 3 and 5 is probably not enough–the minimum ratio probably needs to be much higher. The ratio also seems to need to change for different fuels, with many quite a bit higher.

The Add-On Problem for Fossil Fuel Based Renewables

With renewables made using fossil fuels, such as hydroelectric, wind turbines, solar PV, and ethanol, the only way anyone can calculate EROI factors is as add-ons to our current fossil fuel system. These renewables depend on the fossil fuel system for their initial manufacture, for their maintenance, and for the upkeep of all the systems that allow the economy to function. There is no way that these fuels can power the whole system, based on what we know today, within the next hundred years. Thus, any EROI factor is misleading if viewed as the possibility what might happen if these fuels were to attempt to operate on a stand-alone basis. The system simply wouldn’t work–it would collapse.

A related issue is the front-ended nature of the fossil fuels used in creating most of today’s renewables. People today think of “financing” any new investment, with easy payments over a period of years. The catch (as Tom Murphy pointed out in his BPE talk) is that Nature Doesn’t Do Financing. Nature demands up-front payment in terms of any fossil fuels used. Thus, if we build a huge new hydroelectric dam, such as the Three Gorges Dam in China, the fossil fuels required to make the concrete and to move huge amounts of soil come at the beginning of the project. This is also true if we make a huge number of solar panels. The saving we get are all only theoretical, and will take place only if we are actually able reduce the use of  other fossil fuel energy sources in the future, because of the energy from the PV panels or other new renewable.

In nearly all cases, adding renewables requires increasing fossil fuel use for this reason. We could, in theory, reduce fossil fuel use elsewhere, to try to cover the greater fossil fuel use to add renewables, but this would mean cutting industries and jobs currently using the fuel, something that many find objectionable. Several readers have suggested that we could greatly ramp-up solar PV. Yes, we could, but we would have to greatly ramp up fossil fuel usage (mostly coal in China, if current manufacturing approaches are used) to create these panels. Any future savings would be theoretical, depending on how long we keep the new system operating, and how much fossil fuel energy consumption is actually reduced as a result of the new panels.


At this point, the foregoing analysis suggests that products created using today’s oil and other energy products are not producing an adequate financial return to cover wages, interest expense, and necessary taxes. If EROI plays a major role in determining financial returns, EROI on average is already too low for many developed economies.

It is convenient to think that an economy can keep adding lower and lower EROI resources, but at some point, a “stop” signal starts appearing. I would argue that the issues we are seeing in many sectors of the economy are clear indicators that such a threshold is already being reached. An economy in which the wages of the common worker are buying less and less is an economy in trouble. I talk in another post (Energy and the Economy–Basic Principles and Feedback Loops) about the fact that economic growth seems to be the result of one set of feedbacks. As the price of oil rises and related changes take place, these feedbacks change from economic growth to economic contraction. It is these feedbacks that we are already having problems with.

One can argue that EROI has nothing to do with these issues. But if this is the case, what is the point it analyzing it in the first place? We clearly need to understand when an economy is giving us “stop” signals with respect to increasingly low quality energy inputs. If EROI is not helpful in this regard, perhaps we need to be looking at other indicators.

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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242 Responses to Energy Products: Return on Investment is Already Too Low

  1. Pingback: Energy Products: Return on Investment is Already Too Low |

  2. OFW Reader says:

    The welfare state exists because of automation provided by energy. That’s why a large amount of the population can live well without working. Whether her or his hands were used in the manufacturing process of a product is completely useless to the economy and living standard: what matters is that the product was somehow produced, be it an electronic gadget, a car or your food. This is the sole reason we can afford to have huge numbers of unemployed people and still fare well.

    As long as automation exists and is provided by (cheap?) energy, the welfare state will thrive, and the Fed will print and distribute free money in forms of benefits and the like using the government as the medium, and money will circulate.

    Remember: it matters not whether someone’s hand was involved in the production of a good, as long as there is money in circulation, the businessmen get their large share and people live on, requiring perhaps 1/3 or less of the working-age population in a job to maintain this system (they are engineers, social workers, teachers, cientists, health professionals, construction workers, politicians, farmers).

    I have never seen the subject of unemployment explored through this angle.

    • Christopher Johnson says:

      It’s not just automation that results in displacement and unemployment; we can’t forget ‘out-sourcing’ and immigration. The results are the same, of course: more unemployed. Germany is the only ‘rich / developed’ country that has done a good job in this regard; the Germans have actually lowered their labor cost per unit of value, resulting in increased revenue and higher employment See the Economist of 21 June.

      • OFT Reader says:

        Do you have a link to the Economist article?

      • I thought the Germans had brought in a lot of cheap immigrant labor, to help keep costs down. I haven’t read the article yet, though.

      • xabier says:


        Austria, too. Very low unemployment, above all low youth unemployment, and a well-directed education system that prepares the young well. The Germanic world and Spain are at opposite poles in many ways.

        But then Austria is but a province of Germany these days, as my Viennese friends say!

      • As a german I must say that there is very much wrong with this.

        The wages and the unit labour costs have ben sinking in germany, because germany has had a policy of wage dumping since the 90s.

        European countries have committed themself to am “inflation goal” contract, that germany has broken. By not raising wages as aggreed upon with the european partners, german politics was the culprit for creating the euro crisis.

        So it has been anything but “a good job”, it was driving workers in germany and abroad into poverty.

        • This is the impression I got in the past–it was the suppression of wages of the common worker that got Germany where it is. Now the common people are being expected to pay a disproportionate share of the cost of changing the energy system to be heavily run by renewables. The combination looks likely to cause problems.

    • It creates a huge problem for the government to collect enough money to pay for a welfare state, however. Businesses have managed to offshore a lot of their operations, so it is hard to get much money from them. Taxes are mostly collected on wages, and they aren’t high enough to pay for everything else.

      Energy has provided a lot besides the welfare state. Education is a big piece. We didn’t even have public schools much before coal came into use–certainly not for girls. Medicine also was enabled by fuels. Homes that are heated by more than a fireplace in the corner are enabled by fossil fuels, as is electricity. Most people would like to keep these.

      We really need to get people working again, to make the system work, IMO. People get very unhappy, having to spend most of their paycheck supporting folks who aren’t working.

  3. Christopher Johnson says:

    Gail, the ‘guns and butter’ aspects of our economic history haven’t been part of your analyses (or at least I was unable to detect them). But there’s a correlation keeps emerging: 1969-71, when President Nixon dissolved the dollar link with gold that inspired the formation of OPEC to defend the producers’ profits. Was it you or another analyst who noted the beginning of our ‘economic decline / troubles’ as around 1970? Well, it also makes one wonder a) what might have been the proximate cause? and b) are there any comparable or contrasting periods?
    Dwight David Eisenhower has not been a terribly popular presidential figure except by an increasing number of historians who appreciate his courage and his foresight regarding the ‘Military Industrial Complex’. Certainly his successor criticized him for allowing the USSR to gain a lead in missiles, for Cuba to fall and for not opposing the ‘wars of national liberation’ in Southeast Asia and elsewhere that were beginning to blossom. So from about 1963 to 1970 the US poured more bucks into ‘defense’ than in the previous years, so that by 1969-70 the Bretton Woods system was straining, and the US had to withdraw the dollar’s link to gold. The OPEC oil embargo followed, jacking up the price of petroleum, and we global economics have been difficult ever since.
    What’s the saying: “18 of the last 19 economic downturns began with high oil prices?”
    One of the great applications of ‘altruistic’ foreign policy was embodied in the Marshall Plan investments in Europe and subsequently East Asia after World War II. Essentially those were exercises in capitalistic economic development, the same as we saw more recently in ‘communist’ China: pour money into facilities and equipment and labor, then reap the results. The feed-back loops then generate more economic activity: investment -> development -> profits.
    Wars and maintaining large military forces, as well as ‘the Security State’ with lots of ‘Homeland Defense and cops and intelligence and all the rest of it, however, cannot serve as investments in a macro sense, for they yield profits only to a very small number of beneficiaries. Quite often those beneficiaries have strong political ties and profit from the government contracts they sign to provide security or support for troops deployed halfway around the world (do you know how much it costs to ship a gallon of gasoline or a dozen eggs to Kabul? A couple of hundred bucks…)
    Given that our politico-economic ‘plutocrats’ have done so well by the wars, there is little wonder that ‘the security state’ is keeping a strong grip in Washington.
    The question that we might want to focus on, however, is whether reducing those ‘security’ costs could possibly reduce the overall economic burden and maybe buy us a few years before the decline transitions to collapse.

    • We have way too many unemployed people. I see our current military efforts as partly an attempt to put a bunch of folks to work who would otherwise not be employed–both the recent high school grads and people who work for contractors of various types. I am sure there are some other reasons– make sure others understand who is in charge. Our success with getting fuel for ourselves has been pretty dismal. though in all of this.

      Our economic decline after 1970 has a lot to do with US oil supply declining starting in 1970.

      With respect to investment in butter being better than guns, I haven’t really looked into this. THe thing that overlays all of the historical periods is very different price structures for oil. When oil was cheap, in the post World War II period, we could work magic with it. Investment=> Development=> Profits is a whole different game when oil is cheap than when it is expensive. Now when it is expensive, it becomes hard to even fund basic road repairs. People evaluating presidents didn’t stop to think about what oil prices were doing. I am not sure that there is anything that a current president can do to make things come out better.

      • Richard Steinberger says:

        My understanding is that for a given amount of money and the goal of creating jobs: investing in defense is the worst thing to do. Far fewer jobs/dollar because a) DoD jobs pay very well, and b) DoD projects typically spend a lot of money on very expensive hardware (which is sometimes blown up!)

        But we can’t just invest in “butter”. We can’t just pay 100,000 people to dig ditches and 100.000 to fill in holes with dirt. While we don’t want “Soviet” style 5-year plans, I think we do want to be as strategic as possible, given the energy predicaments we face. If strategy were actually allowed in the US civilian economy, then governments could evaluate how much energy of which types might be reasonably expected in the next 50 – 100 years, what it would cost to get it, what the environmental effects would be, what the net energy would be, how it would be distributed and at what costs, how much energy and dollars it would take to support, and whether we are really building sustainable energy (and food, and housing) supplies and societies. Ultimately, we could be forced to conclude that in the long run, if we’re not going to tolerate a massive population crash, we’re going to have to live much closer to a 19th century lifestyle, with perhaps a few 20th century “treats” thrown in (maybe antibiotics, bicycles, anesthesia, perhaps some steel, concrete and plastics – but probably not lasers or mobile phones without unexpected advances in sustainable PV).

        Right now the biggest problem is that only a tiny percentage of citizens in the industrial world even recognize the magnitude of the predicaments we face. Without that no strategy. And the rest of the citizens? They’re still waiting for “normal” growth to come back. Sigh….

        • You are probably right about DOD being a very inefficient way of creating jobs. It does cater to a certain group’s need to feel important, though. I think another reason they have been popular is because if a war is declared, it gives a reason to get debt financing, so these jobs can be paid for by debt.

          Yes, it might make sense to look at how much energy we have, and plan accordingly, but the question becomes, “Who is we?” With a globalized world, I would argue that it is probably really the world.

          How much energy we can extract depends mostly on the extent to which we can avoid financial collapse. There needs to be enough energy coming through the system so governments do not collapse either. We are already hitting the point where financial and government collapse seems not too far away. We could in fact base our analysis on the amount of oil and coal and natural gas in the ground, if it were easy to get these things out, without governments in place, and financial systems in place, and people paid adequate wages. Because of the financial/government collapse issue, I am not convinced that we have a chance at a 19th century lifestyle–certainly not for very much of the world’s population.

      • Christopher Johnson says:

        Thanks for your response, Gail. Good analysis.

        • Christopher Johnson says:

          And thanks to Richard for your good comments as well. It will be interesting to see how the ‘treat list’ is composed. Does it include airplanes? For whom? Will democratic principles be sacrificed to the exigencies? 1850 technology and work skills will be hard for many to learn.

          • Richard Steinberger says:

            Personally, I would think that unless some very surprising new high EROEI, safe (non-carbon polluting) energy sources are discovered and quickly deployed, we’ll see by mid century the widespread loss of these 21st century “treats”: commercial aviation, state and several interstates severely degraded with very limited official law enforcement (especially in the rural areas) [think militias, warlords and checkpoints in some regions], a fracturing of the US and several other [former] modern industrial nations into physically separated regions: smaller very well protected ones with a fair amount of modern technology, and chaotic ones based on scavenging and bits of 19th and 20th century technology; the near disappearance of medical specialists and expensive treatments and devices (e.g., bye bye MRI, CAT scans, maybe hip replacements); far fewer people (pandemics, poor sanitation, starvation, crop failures, droughts, regional wars, breakdown of law and order in many places); personal motor cars available only to the very wealthy and very limited supplies of fuel and spare parts; the cities become largely ghettos as desperate and starving people try to relocate to rural areas and fight for land they can grow food on – not at all clear the federal government will help them, or even be able to.

            One critical point ius that we can’t just “ride down” the back side of the Hubbert curve as a reverse of the way we “climbed up” the front side. We have far more people on the downside and thus far less energy per capita except for the 0.01% [which is why they’re screaming so loudly to be protected now]. So even if we were forced to finally conclude that almost all renewables (except perhaps small scale hydro and wind [if we can maintain the wires and generators], and passive solar, maybe solar hot water and cookers) are all that’s really sustainable, then we still cannot easily “go back” to the mid-19th century. Too many people and not enough arable land… unless perhaps we can all live like the Amish, and I don’t know if there will be the arable land in a changed climate planet. Nor do I know who’s going to teach so many former city dwellers how to farm fo self sufficiency, how to deal with human and animal waste, how to take care of farm animals, how to deliver babies, how to treat diseases.

            If I had my choice, if the sustainable energy balance and world climate and geopolitics would allow it, I think we might be able to live in the energy world of the 1950s, or even 1920s, at the very dawn of the modern oil age. But there are so many more of us now, so population really needs to drop – and we may not have a choice.

            But the longer the great majority of the population has no clue of the energy and climate predicaments we face, the less likely we can have anything like a real national discussion, much less develop any strategy. Most likely: We are going blindly into a very chaotic future that almost no Americans are going to understand, but “everyone” is going to demand the restoration or order and growth. Politically, that means authoritarianism, at least until the central government can longer hold things together. “The center cannot hold” wrote WB Yeats. We’re going to see that if we live long enough.

            I don’t know precisely what the future holds, but it’s going to be very different form the last 3 – 5 decades. I’m afraid this will be the century that sees Malthus “vindicated”.

            Thanks, Gail (and readers), for helping shine a light even if we can’t see very far.

            One last thought, borrowed from JM Greer: The early Middle Age dwellers could no longer build Roman aqueducts, but they could maintain them. Mid 21st century people may not be able to build a lot of what was built earlier in the century, but if they can be good scavengers and find enough energy and related resources, they may be able to maintain some of the “treats”, at least for a while, so the future generations have time to grow into a new world of limits.

  4. Richard Steinberger says:

    Do you think any fossil fuel dependent renewable energy sources will ever be able to transition to becoming sustainable on their own? I’m not looking for some kind of “magic”, only wondering if, for example, the PV industry could ever sustain itself and provide positive net energy without the fossil fuel subsidy? Here’s a Scientific American article that mentions the PV Breeder concept:

    • davekimble2 says:

      If the lifetime of a PV panel is 25 years and the energy packback time is “one to three years”, then the ERoEI is 8.5 – 25. This is ridiculously high, and can only mean they are not including the energy costs of many processes – a trick that is often done to sell an idea. For example, if you leave out the energy needed to manufacture the bulldozers and trucks (which are only required if silicon mining is needed) then the EI goes down, the ERoEI goes up, and the energy subsidy from fossil fuels goes down. But in the real world that energy has to be real too – you can’t just conjure up the energy out of thin air, like you can with fiat money.

      Even the widest definition of EI doesn’t include the energy in the form of food which is needed to “run” the workers, or the cafeteria where they can eat it. Or the chairs and desks and air-conditioning and computers that the managers, planners, lawyers and accountants need to run the business side of things. These are all real energy costs and should be included.

      The only energy budget I have seen that does include this levels of detail is Pedro Prieto’s analysis of a PV solar farm in Spain which he was involved in. From memory he comes up with an ERoEI of about 2.7 . That implies an energy payback time of 9.3 years, and if the fossil fuels are not going to be available for the eventual replacement, and it is to be a true “breeder” system, the last 9.3 years will have to be spent making the replacement, leaving only 6.4 years of the 25 making an energy profit.

      The figures may be fuzzy, but you can see how this is never going to work. If we had started earlier, when Peak Fossils wasn’t a problem, we could have made the transition, but it is going to require massive reductions in fossil consumption to keep the PV infrastructure roll-out going,
      and people want more energy, not less, so its going to be politically impossible to achieve the transition.

      • Christopher Johnson says:

        Mr. Kimble:

        Do you have any feel for geothermal / hot rock energy? It’s just starting to gain a little traction, and appears to hold some promise. But deep drilling takes lots of energy.


        • davekimble2 says:

          There are two kinds of geothermal – those using shallow volcanic heat, and those using the heat from the radioactive decay of Uranium in granite rocks overlain by an insulating layer, producing a hot spot. Volcanic heat is working in over 20 countries around the world, but is limited by geological opportunities.

          Hot rocks geothermal has been tried in various countries, but has run into difficulties because of the fracking needed to enhance the water-rock interface. Just this week, Geodynamics in Australia has completed stage 1 of commissioning a 1 MW pilot plant, but this is after 11 years, one well abandoned as undrillable and another blown out. They get a temperature of 200°C at the well-head, so the steam turbine efficiency is low compared to a fossil-fired boiler.
          The company raves about the possibilities, but the location in central Australia is over 600 km from the nearest point on the national grid, across salt lakes and unroaded deserts, and is effectively stranded without billions of dollars being spent on transmission. Naturally Geodynamics wants the government to pay for that, but they are not so keen. More at

          • Christopher Johnson says:

            The Germans are setting up employment firms to search selectively. Spain is a primary target, and the Germans are offering language training and some resettlement help. The German ‘youth training’ system is also gaining popularity. The Germans appear to be somewhat more choosy after their bad experience with Turkish immigrants.

          • Christopher Johnson says:

            Thank you, sir. That’s very interesting. I caught a quick story earlier this week about somebody developing laser or plasma drilling, which they claim can be much faster. Curious, but the real question is how deep do they have to go to get really strong power?

            • davekimble2 says:

              Over 4,000 meters deep. Drilling in cracked granite is difficult – it’s very hard, and drill bits tend to jam at cracks. Lasers sound like a good idea, but experimental surely at this stage. After drilling, the boreholes have to be fitted with steel piping capable of withstanding the chemicals in the water, and cemented in place. Geodynamics’ #3 bore failed because of brittleness caused by the water, and spouted steam for 3 months before they got it under control. Repiping it wasn’t an option and it had to be abandoned.

        • Not only does building geothermal take energy, it takes having financial institutions in place and governments in place. It is like all other renewables–you can’t make any new ones, after collapse. Geothermal declines in heat energy over time, so it is like the other new renewable devices–a new one, if created, works for a while, but it is by no means a permanent solution. In some cases, geothermal can be fairly cost-effective, if they last their planned lives.

          • Christopher Johnson says:

            Thank you, Gail, for your analysis. I think we could put a lot of unemployed people to work installing geothermal heating and cooling for structures. At least they’d be receiving government checks for improving society’s energy conservation. Of course, they could also improve insulation in structures as well, and achieve equally good energy conservation results.

    • I really have a hard time seeing how the PV industry could sustain itself and provide positive net energy without fossil fuels. One of our problems is that so much is handled by oil now. We would first need a conversion to electrical usage for those uses, before we could make use of the PV output. Handling intermittency takes a huge cut out of PV productivity. The April journal of Energy has an article that attempts to adjust for intermittency, called Energy intensities, EROIs, and energy payback times of electricity generating power plants by D. Weissbach et al. The abstract says, “The results show that nuclear, hydro, coal, and natural gas power systems (in this order) are one order of magnitude more effective than photovoltaics and wind power.” With that low payback, it is hard to build up much of a system.

      • Ed Pell says:

        It depends who you are. If you are a capitalist trying to make money then I agree. If you are the military making sure you have energy to use even after the oil runs out then you can build out a solar based system because you can spend as much money as needed.

      • Keith Pickering says:

        Weißbach’s paper gives a minimum EROI of 7 for an economic threshold, based on the ratio of electricity price to GDP in both Germany and in the US. Solar PV and biomass are both well below this threshold, but CSP makes the cut.
        He also uses a different metric, EMROI, which is EROI weighted according to exergy (in which electrical inputs and outputs are weighted at 3x other energy types). Under this calculation, the economic threshold for EMROI is 16, and once again PV and biomass miss the cut.
        Wind makes the cut both ways, but only without any storage buffering costs. The big winners in Weißbach’s analysis are run-of-river hydro, and nuclear. Note that the EROI for nuclear has increased dramatically over the past 20 years, and will continue to increase, as the industry transitions from gas diffusion enrichment to centrifuge enrichment, which is 35 times more energy efficient.

        • Thanks for the additional information. It is hard to see how wind can be used as part of an electrical system without buffering, or without greatly overbuilding, and using the excess for some other purpose–perhaps making nitrogen fertilizer when the wind isn’t needed.

          Too many who think that somehow wind (or wind and solar) can replace the whole system, and this simply is not true. Whether it is EMROI or EROI, they don’t work.

  5. Jay Hanson says:

    Excellent! IMHO, our most important agenda is to change discussions about our future from “money” to “energy.” Central banks can print money but not energy. More and more energy is required to produce the same amount of energy. It’s the most-fundamental limit to growth.

    Besides net energy, two other systems need to be simultaneously integrated into your analysis of energy: evolutionary biology and realpolitik. All three systems must be analyzed at the same time to get an idea of how long 21st-century civilization might last.

    The biological questions: How have people evolved to behave in a world where all natural resources are declining (forever). What examples can we find in 20th-century history?

    The realpolitik questions: What will governments do to maintain law and order in a world where all natural resources are declining (forever). What examples can we find in 20th-century history?

    Keep up the good work,

    • James says:

      The imposition of fear and stoking of nationalism should serve well in maintaining law and order. It’s already begun as evidenced by the 911 attacks, the resulting Homeland Security Agency, Patriot Act, wars in the Middle East and the overblown advertisement and reaction to assorted boogeymen like Osama Bin Laden and the Boston bombers. Expect much more manipulation of the citizenry’s limbic predispositions, as this is much less expensive and potentially successful than maintaining law and order through direct confrontation. The Homeland, the Fatherland, the Reichstag, the SS, the NSA, who is our Joseph Goebbels ? How many sheep can a single bearded Muslim sheep dog terrorize into accepting the protection of their shepard? In addition, we will never run out of natural resources, we will simply become the greatest exporter of crude oil in the world, it’s as simple as the average mind’s inability to understand reality.

      • xabier says:


        It’s certainly interesting to observe the manipulation of US public opinion (if that is not too sophisticated a term – how many really try to inform themselves, rather than being informed by the MSM?) from the historical perspective of the propaganda methods of the old fascist states in Europe (and indeed from that given by the novel ‘1984’). The demonisation of ‘baby boomers’ as a group is a part of this, too, setting one group against another while obfuscating the real situation.

        The idea that only an ever-more powerful State can keep you safe in your bed is surely an anomaly in US history pre-Cold War. I’ve been reading about the Oregon Trail recently, and I suspect that the sort of Americans who did that would have said: ‘Terrorist? Just step out of the way, Mr President, and I’ll deal with him myself!’

        Eisenhower was pretty damn right about the Military-Industrial Complex. Dark times.

      • tmsr says:

        The Goebbels of the current day is ABC, CBS, NBC, CNN, Time, New York Times, L.A. Times, etc. All owned by a small small group.


    • Hi Jay,

      Thanks! If you have any references to recommend, I would be interested.

      In my post, How Oil Exporters Reach Financial Collapse, I give a list of current and former oil exporters who reached collapse, related to declining supply or price. The list includes the Former Soviet Union, Syria, Egypt, Yemen and Argentina. This list gives a fairly disturbing look at what collapse might look like. Civil war and local fighting seem likely–also much crime. There are other countries with declining consumption for other reasons: Cuba, the PIIGS in Europe, Japan, and North Korea. This group is a little better, but perhaps because it hasn’t completely reached collapse.

      Of course, all of these represent just temporary declines in resources. We don’t know what the long term will look like, except probably not good. I haven’t looked at what governments do and what citizens do in response to the decline at this point. My impression is that citizens tend to revolt and government failure is common.



      • xabier says:


        As for the PIIGS. my relations in Spain are all still at the stage of thinking: ‘When’s the recession going to be over, when are we going to get back to normal (ie pre-2008)?

        This is still the general expectation; that what is happening is just a temporary anomaly (which is of course what the MSM and the politicos are telling them). Getting the Right-wing out of power or a change of policy in Brussels will improve everything, or so they imagine. The Germans are increasingly hated, seen as the source of Austerity. People are disconcerted that the welfare state seems to be shrinking, but they think they can reverse that in an election.

        The glaring truth is that resource/oil price problem is not really recognised or discussed as having any part to play, and all thinking is political. This is also observable in the UK, and Italian friends say the same thing.

        In terms of society holding together, families do stick tightly together there, the black economy is huge, and pensions are still being paid, thus supporting many younger members of each family (as also in Greece and Italy from what I hear and read.) Also, the older, privileged, workers who are contractually expensive or impossible to sack, are still fairly OK while the burden of unemployment/poorly-paid, insecure, work has fallen on the young. Of my relations, the ones in the private sector have been hit most hard, rich and poor, those in the public sector not at all, except for the rise in food and heating costs.

        Given the awful demographics of Spain (as also the rest of Europe and a problem shared with Japan) the pensions issue is fundamental to social stability. Many people, even married and with professional jobs, are moving back to the family home if big enough. For those without such family support (ie too poor, tiny apartments not houses) life is getting very tough. Many Latinos have left Spain, as conditions are much worse for them now.

        The PIGS situation is fundamentally different to North Africa and the Middle East where the demographics are different and you have huge numbers of very young men out of work, feeling utterly hopeless, or with oil-base lifestyles and jobs, potentially much more dangerous and volatile. The PIIGS are old societies in terms of demographics, and therefore much less volatile – until the pensions are hit……

        This is why Spain has not exploded in riots.

        • Christopher Johnson says:

          Excellent, Javier. One additional item for your consideration: according to the good ‘center spread’ on Germany in last week’s Economist, Spain ranked much higher — top of the list — of European countries for ‘family assets’. Germany was much lower, especially since families in the East had virtually no assets until 10-15 years ago. It made me wonder if that could contribute to Spain’s relative passivity.

          • xabier says:


            I’ve no doubt that’s part of it. And families are happier to share what they have with relations. Another factor is that, quite frankly, the police and security services definitely have the advantage in Spain – getting picked up for rioting means a cell and some quite nasty experiences inside that cell, and the judge won’t notice any bruises, so people are wary about crossing a line….

            Martha Gellhorn, I think, said that the Spaniards post-Franco are not at all the same as the Spaniards of the Civil War: the Dictatorship lasted a very long time, and that has an effect on everything: people fear it coming back. Certainly, an angry mass of hard-bitten agricultural or industrial workers brought up on Communist or Anarchist beliefs, s they were then, is no longer around: just a lot of cynical, rather lazy people, who hope the good times will roll again.

            Fundamentally though, people are still in suspension of disbelief over what is happening, think it must all come right, and the basic State structure is still functioning and paying, so we are a long way from the Red Danger Zone.

        • Thanks for your explanation of the PIIGS country situation. It fits very much with what I expect of collapse. Resources, and in particular oil prices, will not be seen as particularly a problem. There will be no real need for rationing of oil supplies. The issue will be financial. It will look a little different in countries with lots of young people, compared to ones with aging populations. Governments will have an impossible job paying pensions, with the meager taxes they are collecting. At some point, governments will cut back on what they pay to pensioners, or there will be some other break in the system — defaulting bonds where they are used for pensions, for example. Or bank accounts may be subject to weekly withdrawal limits.

      • Jay Hanson says:

        Thanks for the reference to your other paper. I will study it this afternoon.

        With respect to “realpolitik,” both Germany and Japan provide well-documented examples of natural-resource-motivated behavior that led to WW2. I recommend a video THE WORLD AT WAR, narrated by Laurence Olivier [ ].

        This documentary was made when many of the major decision-makers, from both sides, were still alive. Some of the interviews are really mind-boggling. IMHO, it’s the only way for us to get a sense of what WW2 was really like without being old enough to experience it ourselves. (Be sure to buy the “Full Screen Edition.”)

        With respect to “biology,” one text that does an excellent job of documenting human resource violence is SEX AND WAR, by Malcolm Potts [ ]. (See the reviews at Amazon for more.)

        One more recent text, that goes a long ways towards integrating biology and political science, is WAR AND HUMAN NATURE, by Stephen Peter Rosen [ ]. Rosen explains how emotion-based decision-making leads one to make decisions that violate the rational man claimed by economists. More importantly, Rosen explains how the Axis leaders of WW2 could make the irrational decisions that led to their demise. It’s a strong reminder that we cannot depend upon human rationality to avoid an obviously-suicidal WW3.

        The bottom line is that natural resource availability will fall for hundreds — or thousands — of years, AND humans evolved to fight wars over natural resources. My hope is that someone, brighter than I, will discover a way to avoid the worst.

        All the best,

        • Jay

          Thanks for the links. I will have to admit I have tended to stay away from the subject of war. It seems like more of a man’s subject. But there definitely is a lot of evidence that people have fought over natural resources for a long time.


        • Christopher Johnson says:

          With Respect for Jay Hanson:

          A delightful read, sir, and on target. WWII was invariably about resource acquisition, as well as manufacturing. It was in the latter field that US expanding capabilities ultimately overwhelmed the enemy. In 1945 the Americans had 50,000 airplanes in Europe, and uknown quantities of trucks and armor. The artillery pieces we provided Stalin stretched wheel to wheel for miles.

          ‘The World At War’ is an excellent series. And of course there are too many good books. A couple that stand out are the ‘The Winds of War’ and ‘War and Remembrance’, both by Herman Wouk in the 70s. More than most ‘historical fiction’, they delve into the strategic dimension or resources and industrial assets, as well as the numerous ‘brainless’ decisions that leaders made — fortunately mostly on the other side.

          On the other hand, we came very close to losing. Had German Intelligence not been so thoroughly penetrated, and if the Wehrmacht had been able to debunk the Patton ‘fake divisions’, Eisenhower’s famous letter accepting blame for the defeat would necessarily have led to the Allies reconsidering whether they could continue, not just now. It’s too easy to say that ‘ultimately the Allies would have won.’ With characters like Hitler and Stalin, and an alliance that occasionally came close to fracturing, anything could have happened. And the impact of leaders’ egos should not be over-estimated.

          We’ve had 80 some years of alliance by now, and we’ve all gotten better at getting along.
          But would NATO be able to dominate and keep order in face of the threats that might arise in a post-collapse world? Tough question.

          Cordially, Chris

        • xabier says:


          The irrational is everywhere in history,and all over the MSM now. It’s instructive to read comments from before 1914, which refer to the obvious redundancy and suicidal nature of armed national conflict given the spread of global trade and finance…….

          And we should never forget that the military life and war can be enjoyable in some of its aspects, which few will care to admit: in the Middle Ages for instance it was akin to a very rough sport and wars were fought for no very good reason at all. Just listening to some random martial music on the radio yesterday made me feel restless! These are deep human biases.

          Resource wars? we can be quite sure of it.

          • Scott says:

            Xabier and others: what is your opinion from your country and are we facing deflation or inflation? So far here in the US, we have been seeing needful things like food, medical going up and other, not so needed things falling. The price of houses here are rising fast again which also worries me. But mostly what worries me is the rising interest rates and what will happen when our governments need to refinance their trillions in debts. But rising mortgage rates may baffle down the housing recovery too. I am not sure what we are seeing here, I think it is a bit of both inflation and deflation depending on which market you are looking at.

          • Jay Hanson says:

            Thanks to you all for your informative comments. I have one last of my own: xabier mentioned the irrationality of WW1. Indeed! WW1 seems even more irrational than WW2.

            Our study of WW1 cannot be complete, unless we include THE GUNS OF AUGUST, by Barbara W. Tuchman [ ]. Not only is THE GUNS OF AUGUST a great history, it’s also an exciting read. One can find other excellent WW1 research materials by following the amazon link above and then scrolling-down to “Customers Who Bought This Item Also Bought”.

            Excellent university DVD courses about biology and conflict are also available on the Internet.

            Our home planet is in trouble everywhere we look. It seems that to avoid that next world war, we must first understand the biological and systemic causes of the last.

            Can humanity learn from its past mistakes? It’s really the only hope we have.

            Keep up the good work,

    • xabier says:


      The answer to your question is: Police State and demonisation of out-groups, internal and external.

      But if you get the propaganda and brain-washing right, and people are apprehensive enough about the alternatives, everyone will be right behind it, so along as they get fed and have something to do. (Resource depletion, etc, now call that into question, of course.)

      We should remember that the insanities of Fascism and Communism were born of long years of desperation. But not always desperation; I recall an interesting summary of the response of Italians to the Fascist Idea:

      1/ Excitement and hope, attracting real believers. This is the Big Change!

      2/ Slight disappointment, but at least things did seem stable and improved in many ways, so no desire for change (it was also too dangerous to dissent.)

      3/Utter cynicism and disillusionment, but everyone concentrated on making the most they could out of the system before it collapsed.

      This was actually referring to the ruling classes in Italy, but I’m sure it held good lower generally. As for the people at the bottom, like the grandmother of a friend of mine who was sent as, effectively, a slave worker to Libya (no choice, just ordered by Mussolini), the actual system probably meant nothing – they always get kicked.

      The greatest mistake is perhaps not to realise that Totalitarian systems founded in times of crisis usually come in with a huge base of fairly enthusiastic support, across all classes, coupled with a ‘well, everything else has failed so maybe this will work’ frame of mind.

      Then, almost before you know it, your country has become a prison you live in.

      • Christopher Johnson says:

        Thanks for your sharing your penetrating insights. Hemingway described the mind-sets of those groups. And I can’t imagine that you’d be wrong: there was no impetus for a ‘revolutionary’ psychology for 60 years.
        It also strikes me that Spain has been devolving, or at least beginning to — first the Basques, now the Catalans want some form or independence. Who’s next? And is this due primarily to the recent economic troubles or are broader problems
        One final comment: I saw an article somewhere that Spain as well as other European countries are exploring the German youth training and apprentice programs.

        • xabier says:


          One last thing on Spain, then:

          Frankly, most Spaniards really rather hate being away from Spain for long, and don’t like the northern climate, or even the Germans much – even to the point of how they smell (I’m not exaggerating, it is actually said by some that Germans and North Europeans ‘smell of death’ due to diet and cosmetic use! ( As an Anglo-Spaniard I’ve been told I smell OK, as my diet is still high in smoked paprika, garlic and red wine (might explain the divorce – joking!)). So travelling to Germany for work is a very desperate measure, and it’s not working out well for many, according to the Spanish press. Language is a real barrier. The common European job market is a bit of a joke really due to these cultural factors.

          The calls for independence in Catalonia and Pais Vasco/Navarre have as you know deep roots, with much deep fanaticism among the Basque nationalists but it is certainly being gravely exacerbated by the economic situation, and the utterly corrupt and retrogressive nature of the current Madrid government: people on the edge do not like to read about money in brown envelopes being passed among politicians. But sensible leaders like Mas in Catalonia know that Catalan independence has no friends in the EU, and the mainstream Basque nationalists also see that its a matter of negotiating within Spain, not leaving. The Basques argue among themselves, with bitter hatred, as much as with Madrid.

          It’s the same old bucket of eels squirming and wriggling, independent of economics, and can’t really see a break-up of Spain due to the Crisis.

      • dolph says:

        Fascism is very difficult in English speaking cultures, because there’s simply too much organized dissent and acceptance of opposing viewpoints.

        What I expect in the United States is the threat of civil war and a very harsh federal response, which will destroy the legitimacy of the system and result in actual civil war.

        It’s not going to be pleasant, even without fascism.

  6. Vineyard says:

    Great article, Gail.

    By the way, did you read the bullcrap the Bjorn Lomborg wrote recently?

    Just read a german translated version in a newspaper.

    This is the same guy, who says that Shale Gas and fracking might prevent Climate change.

    • According to this article, growth is the solution to everything. Growth and resourcefulness. It certainly is a bunch of nonsense. But a lot of places want to publish this kind of thing. People want good news, or so I am told.

      • Christopher Johnson says:

        Do you remember the last line of The Great Gatsby? Daisy: “Oh, I don’t want to talk about that, I want to talk about things that make me happy.”

      • Adam says:

        Here’s one of Lomborg’s statements:

        “Since 1946, supplies of copper, aluminum, iron, and zinc have outstripped consumption”.

        Now here is a recent statement from the UK Royal Mint:

        “In January 2013, the Royal Mint began a programme to recover cupro-nickel five pence and ten pence coins from circulation. All new five pence and ten pence coins have been made from nickel-plated steel since January 2012. This programme will recover the metal alloy contained in the old specification coins. The value of the metal in both the cupro-nickel and nickel-plated steel coins is still less than their face value.”


        This suggests that copper is becoming a precious metal, otherwise why would the Mint want to retrieve it? Up until 1946, many of our UK coins had a silver content, but this was replaced by copper-nickel. Now it looks like copper is the new silver.

        • Metals in general have two problems to contend with:

          1. The amount of oil used in extraction. If the cost of oil goes up, so does the cost of extraction.
          2. Depletion. The highest quality resources tend to get extracted first. It is only later that we get to the expensive to extract ores–usually lower percentage concentrations.

          Silver prices were affected before copper in this way.

          • ravinathan says:

            The recent collapse in gold prices is seriously threatening the future of gold miners since the price is falling below the marginal cost of production. Even well endowed firms like Barrick and Newmont with lower average cost of production need $1300 gold prices to be able to retire debt according to some observers. So here is a debt collapse in the making. Mining companies debt even if rated investment grade are trading closer to junk. I really wonder how gold is going to play out.

  7. Vineyard says:

    @Economist article:

    This also might interest you.

    Todds work is awesome.

    “After the Empire” and “A Convergence of Civilizations” were great reads. I currently lended his book “The Economic Illusion” to reread it again. His socialogic analysis of the origins of neoliberalism is very interesting.

    • Thanks! I am sure Google translate doesn’t quite do justice to the original article. One of the things the article mentions that is helping Germany is the Euro structure. While the PIIGS found that their goods were relatively expensive on the world market, Germany has managed to engineer the reverse–artificially cheap goods. The rigidity of the Euro exchange rate, together with the fact that Germany has kept wages down, has helped Germany a lot. If the Euro comes apart, Germany will suffer more than others, I expect.

    • Christopher Johnson says:

      Regarding Emmanuel Todd, one Roger Kaplan may disagree with you (and Todd). Just for the sake of argument, you might try:
      Personally, I am generally amused at self-designated ‘experts’ criticisms of US endeavors, particularly when the alternatives proposed are so fundamentally preposterous. In this case, Todd’s proposed alliance of Europe with Russia and Japan in opposition to the USA and China has the aura of a debate among high school sophomores.
      I assure you that I have no “neo-con” tendencies or hidden affiliations, and routinely opposed them. Kaplan is more of a conventional analyst but does keep company that I usually avoid. However, what’s probably most important to remember that the fundamental US strategic interests are stability, development and trade.
      All the ‘isms’ that smart people (sometimes ‘too smart’) like Todd attach to US motivations are fundamentally irrelevant when compared to these primary strategic interests.

  8. ravinathan says:

    Gail, here is the case of an oil exporter, Venezuela in the brink of hyperinflation as discussed in this very interesting article. Clearly Venezuela is in the need of a much higher oil price to reduce its budget deficit. The pincer of energy price too low for exporters and too high for importers is closing. I wonder which party,mother terms of trade will favor?

    • Thanks! That is a good article. You are right about the general issue of an energy price that is too high for oil importers is too low for oil exporters. In Venezuela’s case, I think its problem is that its oil exports are declining to zero, partly because supply is declining, but even more because use by Argentina is rising too much. No price would be high enough to fix the problem.

      Argentina oil supply and consumption

    • Scott says:

      Thanks for that article, in reading it we can see how complex the issue of deflation vs inflation is.

  9. The wide use of fossil fuels has been one of the most important stimuli of economic growth and prosperity since the industrial revolution , allowing humans to participate in takedown, or the consumption of energy at a greater rate than it is being replaced. Some believe that when oil production decreases, human culture, and modern technological society will be forced to change drastically. The impact of peak oil will depend heavily on the rate of decline and the development and adoption of effective alternatives . If alternatives are not forthcoming, the products produced with oil (including fertilizers, detergents, solvents, adhesives, and most plastics ) would become scarce and expensive.

    • You have given a peak-oil view of the story. I don’t really agree with it.

      My view is that when oil gets high priced (which is before it actually declines), we will reach financial /government collapse. It is this collapse that will cause oil production (and energy production of other sorts) to decline. Alternatives that require a high-tech economy are not likely to be of any help whatsoever, except to the extent that they allow those people who own individual PV panels or batteries or other devices to live better lives, for the years the devices continue to operate properly. Perhaps after population decline, a smaller number of us can create an economy with only local resources.

  10. Andy says:

    Great article Gail, the law of diminishing returns is hitting us from all sides, with the possible exception of some electronics. Lower EROEI combined with investment sinkholes etc, is dragging on the old economic model. But it’s what we do, and who we are, not much hope for any kind of meaningful change. Flogging a dead horse, and kicking the can is the standard response, it got us this far.

    • You are right. It is pretty unlikely people will change in their beliefs. The world will return to growth tomorrow. New government will fix the problem. All we need is a little more stimulus.

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