Discontinuity Ahead – Oil Limits will Adversely Affect the Economy

What will the world economy be like ten years from now? Or fifty years from now? Is it something that we can forecast by looking at the past, assuming that past tends will continue?

GDP Assuming 3pct Annual Growth

Figure 1

Most economists today seem to think we can rely heavily on past patterns. If we can really assume that the economy will grow at 3% per year (over and above inflationary increases), then in 50 years, GDP (Gross Domestic Product) will be 4.38 times as high as it is today. Economists might assume a 3.0% growth rate in a developed country, like the US, and a higher annual growth rate in a country like China, India or Brazil.

It seems to me that this standard view is incorrect. There is a substantial chance of a sudden shift toward a less favorable growth pattern (which I refer to as a “discontinuity”). This possibility is not obvious though, if a person bases his models on the growth that took place between 1940 and 2000, as economists today often seem to. In this post, I describe an alternate view showing how such discontinuities can occur.   

The Current (or Recent Past) “Standard” View of the Economy

Most economists today seem to believe a whole collection of theories and models that basically support the view that humans (and in particular, politicians and Federal Reserve Officials) are in charge of the economy. With this view, natural resources are not very important. If there is a shortage, either (a) alternatives will take over quickly or (b) prices will rise for a short time, leading to more extraction, thereby eliminating the shortage.

Productivity is expected generally to trend upward. In other words, the expectation is that there will be increasing output per unit of input. Part of this increase in output comes from improvement in technology. This improvement in productivity is expected to lead to increased profits for companies and higher wages for workers.

If the economy is not performing optimally, demand (that is, the ability and willingness to buy more “stuff”) can be increased through deficit spending or by very low interest rates, or both. For example, deficit spending might be used to give a worker who has been laid off unemployment benefits, so he can buy food, clothing, and other goods and services. (Without money, the laid-off worker has no demand, according to the standard economic definition.) Very low interest rates tend to make a new car or new home more affordable, or might allow an oil and gas producer to drill more wells inexpensively.

Debt, or “leverage” as it is often called, seems to be seen as beneficial. Debt is seen to being able to increase indefinitely. The primary measure of how the economy is functioning, GDP, completely ignores debt. For example, if a person goes to college for a year, tuition will be part of GDP, whether or not the individual takes out a loan to pay tuition, room, and board. If the college builds a football stadium, the amount paid to the contractors for building the stadium is part of GDP, but the loan the college takes out to finance the stadium is not considered in the calculation.

Needless to say, if politicians want to increase GDP, the easiest way to do so is to encourage everyone to “max out all their credit cards,” or do the equivalent with other types of loans. Of course, doing this in the early 2000s helped lead to the subprime debt bubble–not exactly the effect one wants.

With the foregoing view of the economy, economists can talk about substituting one energy source for another over a very long time frame. The reason economists can think in these very long time frames is because the economy is seen to always be growing, thanks to productivity growth, more human laborers, technology growth, and occasional stimulus, if needed. In this model, there is nothing to challenge the growth of the economy, so no turning points are anticipated. Thus, we can undertake very long projects, such as trying to swap low-carbon energy sources for other energy sources.

Discontinuity: Why might economic growth “misbehave” going forward?

We are aware of many situations in the physical world where there is a sudden change of behavior. We pull on a rubber band for a while. At first it stretches; then it breaks. We skate on thin ice for a while. At first the skating goes fine; then we fall through the ice, into the water. We throw a ball up in the air. It rises for a while; then it stops and falls back to the ground.

Another example is a little closer to the economic growth model we are looking at here. Yeast transforms sugars in grape juice into alcohol. Alcohol is in fact a waste product, made by the yeast, as it metabolizes the sugar. At some point, the concentration of alcohol in the wine becomes too high for the yeast to survive, and the yeast die off. Growth of yeast population, instead of continuing to rise rapidly, suddenly turns negative and the population falls to zero.

In a model such as the wine and yeast model, it is not until the pollution level becomes too high that the adverse effects are seen. We can encounter somewhat of a similar problem with our economy, with pollution of various kinds.

A similar turning point can appear with resource extraction of various kinds, such as oil. When we begin extracting resources, the cost of extracting those resources is not very high. In fact, the cost of extracting the resource may even fall, with greater use of fossil fuels and improved technology. This growing productivity enables a rising standard of living.

At some point, however, the cost of extraction begins to rise, because the easy-to-extract resource (such as oil) has already been extracted. This higher cost of extraction may set up negative feedback loops, throughout the economy. This occurs partly because resources must be diverted toward oil extraction, rather than being used for other productive purposes. From the point of view of the worker, he finds it necessary to lower his standard of living, because he spends more of his total income on the same (or a lesser amount) of oil, leaving less income for other purchases.

The original factors of production were land, labor and capital. This simplified model did not consider natural resources, or pollution caused in extracting and using the natural resources, or the role of debt. It also did not consider the fact that we live in a finite world, so that even if growth can go on for a while, there are likely to be barriers at some point. If the economic model economists are using misses important variables, it is easy for the model to miss problems that haven’t come up to date, but can be expected to come up in the future. The model may have, in fact, worked well in the 1940 to 2000 period, because resource limits did not start raising resource prices significantly until after the year 2000.

A related issue is that if economists are overly convinced that their models are correct, they may miss seeing important trends that suggest their models are incomplete.

Figure 2. US Ten Year Average Real GDP growth, based on BEA data.

Figure 2. US Ten Year Average Real GDP growth, based on BEA data.

If we look at the trend line related to US GDP growth (Figure 2), we see that there is a decided downward trend to it. While an estimate of 3% per year going forward might have made sense based on the experience through 2000, this estimate seems increasingly  less likely, based on recent experience. In fact, if experience since 2010 were included, it would further emphasize the downward trend. The IMF projects that US economic growth in 2013 will amount to 1.7%, and for advanced economies together will amount to 1.2%.

Besides slower than expected economic growth, there are many other parts of the theory that are not holding up very well now, either. Wages of the common worker have not been rising as planned. Oil prices have not come down, even with considerable success in US oil production. The Federal Reserve has needed to keep interest rates very low, and even with that, the economy is limping along. The Federal Reserve keeps printing money. In fact, it announced today that it is continuing its Quantitative Easing at $85 billion a month, because the economy is not yet doing well enough to get along without it.

What is Missing in Economic Models

What is missing is a broader view of how the economy really works. The economy is far more than land, labor, and capital. The economy includes a huge number of players–governments, businesses, and individuals, each deciding what action to take based on how the system behaves at a given time–for example, what products and services are available at a given time, at what prices. Resources of many different types play a role in this system, as does pollution, and the cost of mitigating this pollution. This complex economy has been built up over the years, by the gradual addition of new layers of businesses, governments, government rules, and consumers. Unneeded older parts drop out, as new parts are added. A system such as this is sometimes referred to as a Complex Adaptive System.

There are two parts of this system that play a special role. One part is energy products that are needed to make anything “happen.” These energy products are of many different types, including oil, natural gas, coal, geothermal energy, captured wind energy, even food. For example, if goods are to be transported, some sort of energy product is needed. It might be oil used to fuel a car or truck. Or it might be food fed to a horse pulling a cart. It might even be food fed to a human being, who is then able to carry the goods as he walks.

As another example, if heat is to used for some process such as baking, some energy product is required. It might be heat from burning oil or coal, or it might be heat from the sun captured by a solar cooker. Energy for heat might even come from food. For example, a chicken, after eating appropriate food, is able to sit on an egg and provide heat to incubate it.

Another critical part of the system, besides energy resources, is the financial system. The financial system ties everything else together through its pricing mechanism. By knowing prices, we can tell how society values many very different types of resources and products (such as a bushel of wheat, a barrel of oil, and an hour of a common laborer’s time). Because of its tie to all of the other resources, the financial system is likely to be one of the systems that is stressed earliest, if there is a major change to the system.

Besides tying the system together, money produced by the financial system also acts a “pseudo resource”. It is not the money itself that has value–it is the fact that it can be exchanged for a resource of real value, such as a bushel of wheat, a barrel of oil, or an hour of a common laborer’s time. When the amount of resources is not expanding rapidly, printing money can temporarily inject pseudo resources into the system, making things temporarily look better than they are. Of course, when this money printing stops, the temporary improvement is likely to disappear.

Oil Has Caused Recent Stresses to the Financial System

When recession hits, the financial system gives a hint that this networked system of businesses, governments, consumers, and resources is being stressed. What causes this stress on the financial system? Recently, evidence seems to suggest that rising oil prices are a major contributor.  For one thing, economist James Hamilton has shown that 10 out of the last 11 US recessions were associated with oil price spikes. He has also directly shown that the oil price in the run-up in the 2005-2008 period was sufficient to explain the Great Recession. I have also written an academic article called, Oil Supply Limits and the Continuing Financial Crisis.

Oil is part of the constellation of energy resources that allows things to happen within this complex networked system. It is not easy to substitute away from oil in the short term, because the cost of the vehicles and other equipment that we have today is extremely high. If we were to transition to other types of vehicles (say natural gas operated or electric), the cost of building new fueling stations and vehicles would be very high, and take many years. Customers would also find the new vehicles unaffordable, unless the old ones could be phased out as they wore out.

What Can Go Wrong In This More Complex System?

The problem with this more complex system is that everything depends on everything else. Things that seem obvious, such as how much oil reserves a company can expect to extract in the future, no longer are obvious, because the prices of resources can go down as well as up.  This happens because prices of resources depend upon (a) the amount buyers can afford to pay for these resources, as well as (b) how much it costs to extract the resources. If the cost of extracting resources increases, the question is whether workers will really be able to afford the cost of higher-priced resources.

There can also be conflict between the amount of debt outstanding and the amount of products (made from resources) available to repay that debt. There is no limit on debt issued, but the amount of resources extracted in a given year eventually slows down, as the inexpensive to extract resources are depleted.

Interest rates on debt are important as well. If interest rates remain very low, interest payments do not “squeeze” prospective buyers of goods too much, so they can afford additional goods. But if interest rates rise, then the financial situation changes at many points in the system. The cost of buying homes and cars increases. The resale value of homes likely drops.

Another issue with the networked system that we are operating in is that shortages in one area tend to get transferred to other parts of the system, stressing the system as a whole. For example, when we discovered a few years ago that oil supply could not grow as rapidly as desired, we started using food crops (primarily corn and sugar) to produce ethanol, as a substitute for oil. When we did that, the additional demand for food tended to raise food prices. Thus the stresses from one part of the system were spread more broadly. This can be a temporary help to oil prices, but it can eventually lead to  widespread system failure.

Because of the interlinkages in the system, we should not be surprised if what looks like a problem in one part of the system–high oil prices–has an adverse impact on other parts of the system. The financial system, since it connects everything else together, would be especially likely to be  stressed. Governments, because they act as a safety system for unemployed workers, would also seem to be at risk.

We have many real-life examples of civilizations that grew for a time, then reached limits and collapsed. These civilizations were agricultural civilizations, so admittedly not exactly like ours. But the symptoms prior to collapse were disturbingly similar to the symptoms we are seeing today. As I have discussed previously, there was a growing disparity of wages between the common workers and the elite, and increasing use of debt. Food prices often spiked. Eventually, it was the inability of governments to collect enough taxes from increasingly impoverished workers that brought the system down. Workers also became more subject to disease, because low pay and high taxes did not allow for adequate nutrition. The collapse came over a period of years–typically 20 to 50 years.

We don’t know exactly what kind of discontinuity we are headed for, but we have some clues, based on the risks we are facing and on what happened in the past. The discontinuity will likely play out over a period of years. Financial systems and political systems are likely to be involved. Because of the networked nature of the system, it will not be just one type of energy that will be in short supply–more likely, there will be problems affecting nearly all types of energy.

I have been putting pieces of this story together over time. Some posts related to this story include the following:

Oil Prices Lead to Hard Financial Limits

Humans Seem to Need External Energy

The Long-Term Tie Between Energy Supply, Population, and the Economy

Energy and the Economy–Basic Principles and Feedback Loops

Reaching Limits in a Finite World

Oil Limits Reduce GDP Growth; Unwinding QE a Problem

Reaching Debt Limits

Inflation, Deflation, or Discontinuity?

Low Oil Prices Lead to Economic Peak Oil

Energy Products: Return on Investment is Already Too Low

Peak Oil Demand is Already a Huge Problem

How Oil Exporters Reach Financial Collapse

Networked Resources, Declining Quality and Peak Oil (Guest post by aeldric)

Human population overshoot–what went wrong?

Why Malthus Got His Forecast Wrong

Twelve Reasons Why Globalization is a Huge Problem

Reaching Oil Limits – New Paradigms are Needed

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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119 Responses to Discontinuity Ahead – Oil Limits will Adversely Affect the Economy

    • I see why the problems occur:

      Sudan lost billions of dollars in oil receipts when South Sudan gained independence two years ago, taking with it about 75 percent of the formerly united country’s crude production.

      Since then Sudan has been plagued by inflation, a weakened currency and a severe shortage of dollars to pay for imports

  1. Don Stewart says:

    Dear Gail and Others
    Here is a link to a January, 2013 farm conference in North Dakota. The first two videos are 30 minutes each. I think you will find them exceptionally informative:


    I suggest that you think about the following issues:
    1. If we greatly reduce the use of oil, will the primary production (i.e., in the field) necessarily decrease, based on Paul Brown’s results? What sorts of changes has Paul Brown made that other farmers would have to make?
    2. If Paul Brown is able to achieve 12 percent soil carbon content, what effect does that have on the climate change issue? What connection is there between the increased biological activity on Paul Brown’s farm and carbon sequestration and climate change?
    3. Paul Brown presents some evidence that he is making more money than the average farmer. What he is doing is also more labor intensive. Does this suggest to you that agriculture might be on the verge of reversing Rusty Butz’ mantra of ‘get big or get out’.
    4. Do you think that older farmers will be able to change, or will it require a new generation?
    5. Do you think that, if oil prices continue to increase, which increases the price of fossil fuel based inputs, then farmers who are doing chemical farming will simply go bankrupt?
    6. Do you think that the Multinationals, which currently control the Universities, (according to Paul Brown), will be able to stifle biological agriculture? I would add that they also absolutely control the US Government…the UN still retains some independence.
    7. Do you like the way that Jay Fuhrer deals with the climate change issue? (I don’t care whether you believe in it or not, we need the carbon in the soil, not in the air.)
    8. What would be the financial implications if farmers rapidly adopted biological farming? The Multinationals would be hurting, GDP would decline, farmers would make more money and could more easily pay off their debts.
    9. If you are an expert on the subject, feel free to tell us whether similar ideas are a good idea in the humid East or the desert Southwest or seasonally dry Cascadia.

    Don Stewart

    • Scott says:

      Hi Don, I have always wonder about that, whether we could change over to a more sustainable permaculture/organic type farming using less chemicals. The problem I had with our own little garden experiment was on the second year I did not add that much new fresh compost to our gardens and by the second year they needed fertilizer and even then not same crop we had the first year with the newly composted gardens. So we had to add fertilizer. Next year I am planning to haul in more good compost to make a better garden.

      So I learned that you really need to renew these every year which involves moving lots of materials which energy and equipment. Farmers these days seem to have bypassed that by spraying chemicals on their crops but we all know this stuff is slowly killing us all.

      I am not sure what the answer is to this as surely we need to move all this stuff around somehow and we surely also cannot feed 8-10 billion people with wheel barrows or can we? Perhaps we could if all the workers in the world left their offices and joined hands in the fields, that may be what it takes, but then again I do not see that happening either.

      I have never been a fan of current farming practices, they do not even leave a hedge row for the critters and birds these day partly out of fear of germs like E coli.

      And not to mention all of these companies making huge profits on chemicals mostly derived from oil. I also imagine these chemicals will get more expensive as oil/gas depletes which will keep food prices rising, perhaps someday people will make the change over out of necessity, but not likely before crises hits. I would like to see the change over now, but I do not see it any time soon.

      Kind Regards to all,

      • Don Stewart says:

        I don’t think he makes much compost at all. It’s all about cover crops and grazing animals and stubble and stuff. He may make a little compost for things like seed starting, but mostly he is a farm guy. These guys are growing the fertility right where they need it.

        He is in a relatively dry area. So he doesn’t have reliable moisture to help with decomposition. Which is where passing the forage through the animal and turning it into manure fits in. The manure will be quickly taken underground by dung beetles. So he’s getting the carbon and nitrogen underground quickly.

        Before you get more heavily into compost, I suggest you check carefully for anyone around you who is mostly using cover crops and rotationally grazed animals.

        Don Stewart

        • Scott says:

          Thanks Don, I get your point I have been trying to garden without farm animals so we have to bring everything in. The type of farming you discuss will help if the world embraces it. Hard for the average home owner to do much of it, but we can do a little on a small scale. I will look into these things you discuss.

          Our problem is we already have four pets and the thought of taking on livestock will be a commitment although I did buy a chicken coup which could supply some good stuff for the gardens if I got chickens. I still not have set it up yet, but have it ready just in case I need to as food is getting expensive. But you have to buy all the feed and keep that in stock when you have lots of animals. Butchering them is the tough part for many people, as most small plot country homeowners do not have that talent, we love to eat them, but hate to butcher them and having them for a few years they become like pets..

          When I was a kid I remember my dad would let our old chickens go by a spring and let the coyotes get them instead of butchering them. I guess eventually people will need to get a bit tougher as times get tougher and start killing our own farm animals for food.


        • Scott says:

          Hello Don, the cover crops you discuss I will look into. I guess what these do is take over space during the down time and squeeze out the weeds and provided nutrients to the soil. Here in Oregon, it gets cold and rainy and weeds just grow in our growing areas until we till the soils in the spring, so if we scattered some seeds of something to grow instead of weeds in the winter, it may help?


          • Don Stewart says:

            What works in North Dakota won’t necessarily work in Oregon. For one thing, you have a wet winter, while North Dakota is frozen; you have a distinct wet season and a distinct dry season, while North Dakota gets precip all year.

            That said, take a look at his talk again. About 3 minutes in you see an inverted pyramid. At the bottom is tillage, which everyone agrees destroys the land. Next up is no-till, which he describes as ‘a good idea 20 years ago, but we need to move on’. No-till is generally what you do with a heavy dose of Round-Up. The Round-Up kills most all of the soil biology. Maybe the slides showing the diversity of the soil biology that these guys are achieving in North Dakota compared to the absence of soil biology in a corn field in Iowa is in the first talk. It is a stark contrast. Next up the pyramid are no-till with a diverse rotation of cash crops and then no-till with cover crops. At the top of his pyramid is what he calls Holistic land regeneration achieved by focusing on soil health, utilizing integration of biological diversity. You will understand better what that means as you make your way through his slides.

            He relabels ‘cover crop’ to ‘biological primer’, because the crops are not only covering the soil, they are specifically chosen to feed the soil biology. Later on you will see a slide with a whole bunch of plants in the biological primer. So it begins to look more like a native prairie rather than a field of alfalfa.

            After the animals move through, you are left with a lot of litter on the soil. That litter has been compacted with the hooves of the heavy cows, and is in close contact with the soil. Much of the nutrients that the cows ate reappear as dung, which is taken into the soil by dung beetles. He seeds directly into the litter…there is no tillage and there aren’t any weeds.

            Look at the slide labeled Piss Test. This is a conventional soil test which indicates that there is not enough nitrogen to grow a crop. (I suspect the name he gives the test comes from a time-honored Midwestern expression called ‘not worth a piss’.) Then he shows you the healthy corn that grew in this field with no synthetic fertilizer. So where did the nitrogen come from? It came from the soil biology. There is actually plenty of capacity in the soil to supply nitrogen to the corn because of the biological life in the soil. He shows you the Ward test which indicates that the corn is adequate or high in every single nutrient.

            Look at the slide which shows the red and green bars indicating fertility by various factors. The rotationally grazed field is significantly more fertile than a simple crop rotation field.

            Finally, look at the slides which show the progress of his vegetable field. He plants it directly into the litter. 70 different kinds of plants, as I remember. Which turns on its head everything you thought you knew about rototillers and straight lines.

            If this sounds too good to be true, I advise caution. You are not nearly as experienced as he is, and you are farming in a different place. Try to find somebody near you who is similarly situated and who is pursuing biological farming.

            As to the need for large grazing animals. You will notice that he says that ‘unfortunately’ animals are necessary (or maybe somebody else said it and I am confused). Why would somebody from North Dakota think animals are ‘unfortunate’. Back in the good old days farmers did a rotation called corn, beans, and hogs. They grew corn and soybeans and fed it to hogs right on the farm and then sold the hogs. It was called C, B, & H. When the hogs went into Confined Animal Feeding Operations, the farmer didn’t need to be around except when the row crops were growing, so they started the C, B, and F rotation with the F standing for Florida. Once a farmers gets animals, they are tied to the land in pretty strict ways. You notice that he was in Hawaii. How did he manage that, if he has animals? Perhaps he resurrected an ancient rural custom called ‘work trades’. Each neighbor looked after the others animals when they went to town or were traveling. You can find written records from 150 years ago at the old farms around here. Either that or perhaps he has a hired hand.

            The large grazers co-evolved with the perennial grasslands on the Plains. The Plains are too dry for real forests, so the grasses would degrade slowly. By pushing the grass litter into the soil with their hooves, or at least into close contact with the soil, the animals speed up the decomposition of the litter by the soil food web. They are, in effect, making the compost you want. I suppose that your area wants to be a forest, not a prairie. So things may work differently. Again, some local person will be your best guide.

            Good luck with it…Don Stewart

      • xabier says:


        Age with you there. When I see a farmworker (usually a contract worker not living here) ‘trimming’ a hedge with a mechanical flail, I always feel they should be getting that treatment themselves. It’s heartbreaking to see. From that point of view, I can’t wait for the power to run out……

        Then again, as I’ve said before I am being persecuted here in my village for my beautiful hedges, full of birds, insects and fruit. The place was humming with life this Spring, and this Autumn looks good for berries and rose-hips. Well, I shall just plant some more, and they will have to deal with it!

    • xabier says:


      Big Agriculture = chemicals and minimum wage immigrant labour. No dignity left to man, and the destruction of the soil.

      There was a perfectly disgusting individual from one of the big industrial agriculture companies in Ireland and England on the radio the other day, and he said without any shame: ‘We need to get rid of all the small farms, they’re no good at all.’

      What a pity one can’t get at them. I’m sure he never so much as gets his boots muddy.

  2. Chris Johnson says:

    To End of More:
    Your Saudi scenario appears to be a bit precipitous. You are predicting that within a short period of time Saudi’s production will drop from 12mBB/day to what? 6mBB/day? Like the last of the water draining from a bathtub and they only have a few? I’m not sure that scenario fits. A slightly more gradual decline might well occur.

    • No Chris, what I am suggesting (and it is a suggestion based on the current scenario throughout the middle east) is that production will stop through internal violence when the ‘freebies’ stop and millions of young men realise their good life is over.
      Right now, priveleged Saudis ship their Lamborginis to the UK to drive them round the streets of London in displays of excess, that will stop sooner rather than later, as will the oil fuelled aircon that makes life in Saudi possible for their excess population (the key factor in all this)
      The oil will never run out, production will cease through fighting over what’s left by deluded individuals in denial of reality, convinced that geology and climate is subject to religion and politics.

  3. Don Stewart says:

    Dear Gail
    Did you see this on Zero Hedge?

    It seems that you have some company thinking that the financial world is going to crash first.

    Don Stewart
    PS Fisher is the head of the Dallas Federal Reserve Bank

  4. xabier says:

    Let’s lighten up Doomers! Maybe Collapse will look like farce, not tragedy? Venezuela might be worth a glance these days:

    The President, Maduro (who recently campaigned with a little toy bird on his shoulder, claiming that it embodied the spirit of the deceased Chavez, thereby competing with the Argentinian President who sells cute dolls of herself from the Presidential Palace), claims that all internal problems are due to American espionage and sabotage.

    In response he’s nationalized large farming estates and – a masterstroke propelling Venezuela into surrealist territory – has ordered his troops to occupy the national toilet-paper factory, in the wake of extreme shortages.

    The military will ensure that government policy is being followed in the production, marketing and distribution of toilet-paper. So, they do teach something useful at Staff College after all…….

    It’s not stated whether they fought a fierce battle with undercover US Navy Seals posing as factory workers while sabotaging this important national asset.

    Well, it made my Monday: at least I’m not a factory worker explaining at the point of a gun why the production line isn’t rolling…..

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  9. robindatta says:

    A steady-state economy is a constant RATE OF CONVERSION of resource into product through the application of harnessed and channelled energy. The “harnessing and channelling” is also known as “technology”. The continued conversion guarantees the depletion of those resources whose rate of conversion exceeds the rate of repletion. Manipulating symbols (“money”, “capital”, etc.) to camouflage this fact is the “science” of economics.

    Energy is also a resource, and to the extent that energy is used in production of product, the product carries the cost of that embodied energy (emergy).

    A growing economy is an CONTINUOUS INCREASE in the RATE OF CONVERSION resource into product. It is like the difference between moving at 32 feet per second (a little over 21 miles per hour) and falling at 32 feet per second per second (21 miles per hour only at the end of the FIRST SECOND).

    The “increasing output per unit of input” works only when there is a surfeit of resources and/or NET energy (the energy leftover from the total extracted energy after the energy needed to extract the next batch of energy is separated from the total). Technology can improve the “harnessing” and “channelling” of energy, but there are limits to such improvements.

    Money is the symbols that can be exchanged for resource and product. Deficit spending is the taking of a bite out of every dollar in existence to cobble together a fresh supply of dollars. It takes away buying power from many Peters and gives it to a few Pauls. It is the equivalent of going to the bank and legally stealing a bit of every dollar deposited there.

    Debt is a way of making more people look wealthier. The debtor who buys something on credit is seen as wealthier, as is the creditor.

    There are only two factors of production: resource and energy. All else are the means to manipulate these two factors to produce the product.

    All services are ultimately for products. The providers of services are remunerated in symbols exchangeable for products and services.

    Wastes and pollution act through degradation of the overall resource base: another form of resource depletion.

    The “new layers of businesses, governments, government rules, and consumers” are ploys and subterfuges in manipulating resource and energy to produce product; they are not the economy.

    “The financial system ties everything else together through its pricing mechanism.” A more accurate description would be : The financial system manipulates everything else through its pricing mechanism.

    Using food to produce a supplement to petroleum energy is only possible when a small fraction of individual income is spent on food: the increase in the price of food can easily be tolerated. With globalisation the costs are also placed on those to whom food takes up much of most of their income: they have to do with less or without.

    • “With globalisation the costs are also placed on those to whom food takes up much of most of their income: they have to do with less or without.”-RD

      Doing without FOOD is obviously impossible. You might do with less food or cheaper food if you are in a surplus situation such as most in the 1st world countries, but nobody anywhere can do without it entirely. It is inelastic at a certain point.

      So for 3rd world countries where the population was already at the economic breaking point, doing without food means CERTAIN DEATH. At such a point is when the country breaks into Civil War, as there is nothing left to lose anymore. In theory, when the Civil War knocks down the population low enough, they are back in surplus. However, that is only the case if the country is itself a food producer.

      If it is not, or it’s land is very poor in production, even the smaller population requires food import, and they still cannot afford it. Any revenue the country might have earned doing Value Added labor intensive work such as Clothing Manufacture gets decreased with the decreasing population available to work in such industry. So the population will continue to fall until it matches whatever the local ag can support, which in the case of Syria these days is not too much due to severe drought.

      One thing you can say about most people and societies is they do not walk willingly or peacefully into the Great Beyond. So as food escalates in price in these locations, they will increasingly become more violent in response to that. For now, this level of violent reaction to the ongoing collapse is mostly occurring in the 3rd world, but over time it is likely to migrate into the 1st world also.

      Coming Soon to a Theatre Near You.


      • my point exactly
        all this nonsense about a ‘gentle decline into a post industrial society’
        what a sick joke that is going to be.
        Professor James Lovelock summed it up better than anybody: “Man is a tribal carnivore, not a gentle gardener”
        It has reached the 1st world, but only in a mild form yet. Riots in Greece are fundamentally about declining living standards and by definition food costs rising pro rata. People are not actually starving yet. They will starve when the Greek government finally runs out of credit and the rest of the world can’t support them
        Greece is a foretaste of our future. The USA has 44 million on food aid, supported on government credit. As with Greece the US government will run out of (oil based) money, when they do, riots will shut down the country. The USA is fully armed, the result is certain: civil war will be just a magnified Syria, the rifts are already there along religious, ethnic, linguistic and geographic lines

        • xabier says:

          I think most contemporary ‘riots’ (Brazil, Spain, Sweden, Turkey, etc) are just self-indulgent displays by people who are, after all, still well-enough fed to run about and throw things, and foolish enough to be led by the nose into protests by those pulling the strings behind the scenes.

          It’s also been shown that the Spanish police used agents provocateurs to provoke rioting, quite amusing really (very bad disguises!) One gang of fools playing with another…….

          When real famine hits, surely people just struggle at first and then die, very young, old and sick first. For real famine riots to tear a country apart, the famine would have to be so extreme that security forces could not repress protest because they themselves are starving. It’s an interesting subject to speculate on, with a full stomach.

          However, food/inflation riots arising from a sudden economic shock might well topple governments in the near-term. Let’s all keep our eyes on Egypt…….

          • Just my speculation, but as our entire life support system depends on oil, the crisis will hit suddenly when the oilflow stops.
            I don’y mean decline
            I mean stop—there wont be a decline.
            Saudi produces a third of the world’s oil, yet is an unstable fundamentally corrupt economy run on pseudo – religious lines.
            Russia is another major producer run as a gangster economy
            Nigeria, barely holding itself together
            Iraq reverting back into anarchy
            The list goes on
            All it takes is one major producer (I’d go for Saudi) collapsing its economy and ceasing oil production, and the world economy goes down with it, practically overnight.because the other producers would : a.. tip over the edge into deeper anarchy themselves, or b try to grab the world economy by the throat by trebling the price of oil—which would have much the same effect.
            We eat oil, therefore with no oil, we have no food, or anything else for that matter.

            • Scott says:

              Hello, I guess that is what I meant by an uneven collapse, it starts in places like Egypt etc. I am not sure I agree with you that it is going to happen as suddenly as you may think. I am always amazed how long systems that are failing can be kept running or just kind of barely making it along.

              Gail’s Charts do tell the story, countries like Saudi may very well be non exporters in as little a 20 years and I think that is where the rubber meets the road.

              Obesity may no longer be a problem in the desert oil rich countries soon. And I agree with you, eventually it will spread into the Europe and the USA so called fist world countries too. The USA already does have some poverty here and food is getting more expensive year by year. My wife and I are retired now and just the two of us pay more for food now than when we had 3 kids at home eating with us say 10 years ago.

              The price of food has more than doubled in the USA in the last ten years it seems to me. We do have more options these days to buy organic and that will cost you even more, but yes surely we are spending a higher percentages of our income on food and that seems to be a worldwide phenomenon. We enjoyed spending so little on food for so many years and now it is suddenly taking a bigger bite out of our wallets. Another sign of world wide collapse.

              We will see if this just grinds on slowly or if we have an uprising, not seeing that anytime soon in the USA yet – as most are contently believing in the current system.

              Best Regards,


          • Maybe I didn’t make my ‘speculation’ clear (and it’s still no more than that), but right now Saudi is buying off millions of idle young men with freebies paid for by oil.
            That can’t last, it will get too expensive and will stop long before the oil runs out.
            When it does, those young men will revert to type and insist that their oil dripfeed is reconnected.
            it won’t be of course because all the oil has been sold to the infidel west, thus the ‘west’ will be seen as responsible for their problems.
            in the ensuing uprising, the saudi oilfields will cease production because you can’t produce oil in a warzone
            the rest of world production cant make up the saudi shortfall, so the world economy collapses.

    • You make a lot of excellent points. I like your characterization of technology as a way of “harvesting and channelling” energy. I like a lot of your other ideas as well.

      I think the only place we somewhat disagree is in a couple of your paragraphs near the end. With respect to,

      The “new layers of businesses, governments, government rules, and consumers” are ploys and subterfuges in manipulating resource and energy to produce product; they are not the economy.

      I am simply talking about the fact that governments keep making new laws, based on what they perceive to be happening. For example, governments make new laws to regulate fracking or securities trading. Businesses act based on watever laws, taxes, and subsidies that are in effect. In fact, new businesses are formed and others go out of business, based on what laws, taxes, and subsidies are in effect. Consumers decide what products to buy, based on the similar the same changing framework.

      I agree that if the government thinks things are not working out well financially, then it may manipulate the financial system, or make other law changes, to try to make things come out as hoped. But I think you are overstating the situation.

      With respect to

      “The financial system ties everything else together through its pricing mechanism.” A more accurate description would be : The financial system manipulates everything else through its pricing mechanism.

      I think both things can be true. The financial system acts in many ways, simultaneously. A networked system can be perceived in many ways, looked at from different directions.

  10. justnobody says:

    Few people are talking about supply chain. If Japan were to collapse completly we will be without car electonic sensors. We will not be able to keep the car fleet running. I believe a supply chain disruption could cause the collpase of the financial system.
    The global supply chain is highly depends upon trust that people put in monetary currencies. Politician and financial elite seems to be working very hard at killing the few credibility that are left with.

    • You are right that we really don’t know how dependent the economy is on a particular country, like Japan, or on other potential breaks in the system. I don’t know about the car electronic sensors–if these are something needed in every new vehicle. If we were missing an essential part of every new vehicle, it would be a problem. Things get buried in greater layers of technical knowledge, where not too many even understand the problem.

      • xabier says:

        Hyper-complexity is the problem for us now. It works wonders when there are no serious disruptions, but if they occur we are clearly in deep trouble. I often feel that the astonishing recovery from the destruction of WW1 and 2 has given a false impression of the strength and resilience of modern technological societies. We are now infinitely more integrated and complex than in, say, 1950.

        The hypothetical car sensor issue can be contrasted with the fact that as we know the Roman Empire fell quite rapidly to a very much less complex economic and technological structure, but some 1500 years later, Roman-style carts with solid wooden wheels were still being used regularly in Spain and other European countries, entirely unchanged. The trade would have passed from father to son all that time, like bookbinding my own craft (although more just man to man as the monasteries supported it!) and other skilled trades.

        Moreover, the knowledge and capacity to make many complex items has been eliminated in whole regions which used to be fully productive in manufacturing, by our old friend, thoughtless Globalization. In the last days of the Empire, there was probably always someone somewhere who knew how to make the carts, and probably the tools to make them, too. Or you could seize and enslave him, or entice him with a promise of wife and hut and a pig, as he would have been highly valued. Now, when outsourcing takes place, the most skilled person is cast aside without a thought, regardless of the training investment and possible future needs. It all makes sense to speculators and financiers, but not to those who would wish to plan a stable society.

        Our vulnerability is staggering when one takes it in fully…..

    • justnobody says:

      I could not sleep last night. So I watch some videos on youtube. I found this video that I thinks some people might like.

      For the few people curious about supply chain. The following is a nice video. Notice how the young man stock up the ship from a computer in a office. Notice to use of computers everwhere. Notice the few people working on the ship. Notice how computerized and integrated things are now.

  11. Don Stewart says:

    Dear Gail

    I was watching Ray Dalio’s primer on how debt drives the economy:


    I’m sorry, but it’s 30 minutes long. If you trust my summary, it says that the long term is governed by productivity, but that decadal swings are governed by debt accumulation and deleveraging cycles. Dalio says that, if government fiscal policy and central bank money printing get it in the Goldilocks Zone, we have a period of slow growth which then reverts to normal as debts are worked down.

    I am suspicious of ‘explanations’ which do not take into account the physical nature of resources. Which caused me to consider whether the evidence supports a simple debt cycle explanation or, alternatively, a debt cycle which has been undercut by resource limitations. If we look at Shadowstats:


    we find that the traditionally defined inflation rate has been running at around 6 percent per year–far above the 2 percent per year rate of the current ‘officially blessed’ statistics. That higher inflation rate would put the real economy decidedly into ‘contraction’ mode since 2008. If you look on the left side of his page, you will see that his calculation of real median household incomes have fallen around 8 percent since 2000.

    Recent years have seen very large increases in money creation by private institutions and by governments. Most of this flows to the top one percent. There is no evidence that the money created is actually helping the median household, much less lower income households. Instead, the nominal incomes of the top tiers have increased substantially, but the distorted measurements of inflation are creating the illusion of slow growth where there is actually decline. Consequently, when we calculate the percentage of income going to corporations and the top tiers of households, we find it increasing to record levels. While we are tempted to search for underlying fundamental reasons for such a development, perhaps it is just an illusion created by the understatement of inflation, the overstatement of real GDP, and the nature of money printing. Of course the big guys are getting the money…but it’s not coming from actual production.

    Now the hedonic potential of incomes can fall for three reasons:
    1. the income itself falls
    2. the household earning the income must deal with increasing levels of ‘externalities’, which we can label ‘pollution’
    3. an increasing percentage of the income is derived from activities which don’t yield anything with hedonic potential, such as the oil spent drilling for oil, which we might call ‘overhead’.

    It seems to me that the evidence supports the notions that:
    A. The economic limits to real growth are resulting in a declining level of economic activity per household
    B. If we examine other data not presented here, we can see that both pollution and overhead have been increasing.
    Therefore, the hedonic potential inherent in what households are actually earning has diminished substantially as we are hitting resource limitations and as pollution and overhead increase. So I conclude that we are not simply in a deleveraging phase, we are in a Limits to Growth predicament.

    Any thoughts?
    Thanks…Don Stewart

    • Don Stewart says:

      On second thought, perhaps I should relabel ‘pollution’ as ‘God’s Gift to Actuaries’…since it is the existence of bad things which might happen that give employment to actuaries. Floods, fires, droughts, hospitals, nursing homes, etc. are really good news if you are in the right business.

      Don Stewart

      • That is a good point, LOL. In fact, we could say that plumbers and electricians also get more work that way. In fact, doctors see patients mostly when they are sick. Grocery stores get customers because people are afraid they will be hungry. People go to stores to buy coats when the wether turns cold. I suppose television and video game sales are driven by fear of boredom (or having to think).

    • I haven’t listened to Ray Dialio’s primer, but productivity certainly includes a large component of fossil fuels acting as leverage for what humans are doing. When oil was cheap, it was easy to get productivity gains. When oil is expensive, it is much harder to do.

      Declining interest rates have been playing a big role in making profitability look better than normal (since about 1981). It is possible this is even making productivity gains better than they would otherwise be.

      I honestly don’t know about Shadow Stats. Somehow, super low interest rates need to be factored into what people are paying for houses and cars. I don’t think any of the inflation statistics consider this. It is Super Low Interest Rates and all of the government programs for the poor (run without collecting enough tax revenue) that have been keeping the system going.

      I agree with you that we are in a Limits to Growth situation.

  12. Danny says:

    Gail, what can you tell us about peak coal as we go into either deflation or inflation wont people use more coal because it is cheaper? Is there a chance of peak coal in the US? ..I too think that the financial collapse is closer than we think…I am amazed we made it this far. I am not sure about the current congress either are they playing chicken with each other or is there some other game they are playing? I think if we are going to have a financial crash we need to have it now; putting out all these small fires everywhere is just setting up a system for a really large fire to burn.

    • I don’t think people will use more coal. The system we are using is interconnected. Loss of one part of the system leads to loss of other parts of the system (maybe not at the same time, but in a short time frame).

      For one example, the financial system is needed to keep all kinds of businesses open. They use credit in many ways–from long term financing to assuring that payment will be made when goods are delivered. Just a cut-back in the credit system would lead to a problem for businesses of all types, including coal extraction. Also, with fewer people having jobs, they wouldn’t be able to buy goods and services using coal, such as electricity. So demand for coal would drop, and thus price, making it unprofitable to extract coal.

      As another example, oil is required for electricity production, because of the interconnectedness of the system. For example, oil is needed to power the vehicles used to repair electric transmission lines, and to transport solar PV cells, inverters, and batteries. Oil is used to lubricate parts of electrical generating plants, including coal-fired plants. If there are gaps in oil availability, demand for coal to run electric power plants will disappear.

      Most coal mines today are deep mines, that require high tech equipment to operate them. To keep these mines operating requires a constant flow of replacement parts. If these are lacking, the plants will close down. Workers also have to get to the plant. If key workers are absent, the mine may need to close. Admittedly, there are some landlocked parts of the world where there are low tech mines where someone with a shovel and a beast of burden can harvest coal by the bushel full. But extracting coal in this way can never amount to much. The fact that these places are landlocked (which is why they were never developed previously) means that transport away will still be very difficult. The little coal that is produced will be used very locally.

      • Gail,
        “For one example, the financial system is needed to keep all kinds of businesses open. They use credit in many ways–from long term financing to assuring that payment will be made when goods are delivered.”

        I agree this is true for big business, which depends on growth and leveraging of debt. But small businesses, such as the one I own, are less affected by disruptions in the financial system. My husband and I are the only shareholders and we have chosen to leave most of the profit in the business helping it to grow without external financing. This allowed us to rapidly pay off business loans in about 4 years. For the first 6 years of operation we used a line of credit to pay for goods when they were delivered, but for the last 4 years the business savings account has replaced this need. We will use savings when we eventually need to replace equipment, making financing less necessary. A large down payment reduces interest on loans.

        Whenever we make repairs on the equipment we buy extra parts to keep in stock. We buy lubricants in large quantities so we will have them on hand. Same for fuel. All of my raw materials for making my products are from local sources. All of my customers are local. Even during the Great Recession when sales dropped by 50% I did not have to increase prices or lay off employees.

        As more and more people were laid off after the Great Recession and unable to find work, some of them started up small businesses. Service providers such as electricians, plumbers, carpenters, landscapers, repair shops, used clothing stores, and used book stores, consignment stores, etc. are growing in our community. These are locally owned, locally operated businesses that don’t rely on a lot of debt. Restaurants offer meals made from locally grown food. Lafayette now has several micro breweries and a winery, and specialty stores that sell only locally made arts, crafts, and hand crafted foods such as cheese, popcorn, breads, jams, and yogurt, and hand soap.

        My point is that a small local business can be operated without excessive dependence on financing and debt. We don’t need to be at the mercy of today’s financial marketplace or follow the model of “just-in-time’ delivery of parts and materials. We don’t have to follow the mantra of ‘bigger is better’. Small can be very flexible and resilient. Market farmers follow a similar business path as mine, which means their food supplies won’t be disrupted by finance. The are more opportunities for farmer to market their products though local stores and restaurants or on websites. The more a business relies on local producers the less vulnerable they are to disruptions.

        I grant you, there are resources, parts and supplies we still buy from the wider market, energy being one of them, but from the things I am seeing locally I think our community is really trying to make itself less dependent on oil. For example, the city is building extensive biking paths connecting downtown with residential areas. The city is buying electric hybrid buses and they installed wind turbines to provide energy for their terminal and eventually to charge newer all-electric buses. There are more and more solar arrays being installed. Storm drains that are being directed through rain gardens to clean the water, require no energy for operation. Many new municipal buildings have passive solar lighting. Most large building projects include storm water detention ponds with native cat tail plantings to clean the water and then recharge ground water. There are more and more community gardens being established along with county extension classes on gardening.

        All these innovations take time, but as their numbers grow their impact grows and over time they are making us more resilient in the face of financial or economic disruptions. And many of these efforts are being done under the watch and cooperation of a Republican and a Democratic mayor. The Republican mayor spoke at our Unitarian church forum last Sunday and was given great applause by a mostly liberal audience. It’s almost a miracle!


        • Maybe you can are able to be more independent than most. There may very well be some parts of the economy that last longer than others.

          It is really Liebig’s Law of the Minimum that is the problem. If there is anything that is essential is missing, then there is a problem. Most businesses are dependent on banks–for access to their savings accounts, for examples. There has been a long history of banks in financial difficulty only giving customers very limited access to their funds, even if the banks supposedly still hold the full amount. Cyprus is the latest example.

          Customers need to have a way to get to your place of business, or there needs to be a way of transporting the goods to them. Wheelbarrows work only for small quantities for short distances. Bicycles work for small quantities, as long as we can keep them repaired. The last recession was only a small test of what is coming, I am afraid.

          It is good to try to be prepared, but it is not clear that you can ever do enough.

          • Scott says:

            Hi Gail, Now I know why you were mentioning buying a wheel barrow now sooner than later.
            I got new wheel on mine the kind that does not go flat. So I am ready. I just wish I was not in my fifties and the kids have not all moved out! But if they return home they will have to work the gardens!


  13. Pingback: Discontinuity Ahead – Oil Limits will Adversely Affect the Economy

  14. Don Stewart says:

    Dear Gail
    David Holmgren responded to an article which claimed that simple household tasks such as making compost for the garden were ‘meaningless’ and the world needed political action. I think my earlier response to the Australian articles is pretty much in line with David’s views…. Granted that there is going to be a train wreck, what do you do about it?…Don Stewart


    Without vibrant household and community economies providing the most basic needs of water, food and shelter, relatively independent of current centralised monetary structures, people will be powerless to develop localised systems of finance, healthcare, education, governance and security that are also necessary in some form. In the absence of any effective reformation of centralised systems, the ability to effectively salvage the wreckage of industrial modernity will depend on the relatively sophisticated evolution of localised systems.

  15. Ikonoclast says:

    After I mentioned early in this thread why hydrogen is not an energy source for us (little free hydrogen on earth to react chemically and the fusion reactor is still a dream), it might be worth going the next step up the periodic table.

    The world faces a looming helium shortage. It’s Liebig’s Law of the Minimum once again. This issue (Liebig’s Law) is cropping up everywhere now.


    • The helium shortage is a good point. Each problem of this type causes a cascading set of failures–businesses bought MRIs, thinking that they would be able to use them for many years; now find that they can’t. Manufacturers of MRIs go out of business. Other businesses, for example providing educational material about how to use MRIs need to find some new business as well. Many doctors have forgotten (or never learned) what other diagnostic techniques were used before MRIs, so end doing less well at diagnosing issues than they did, prior to adding MRIs. Former MRI technicians are laid off.

      And I am sure helium is vital for number of other technical purposes as well, each with their own set of issues.

  16. Chris Johnson says:

    Scott and Stilgar:
    It strikes me that Scott’s response may not assign sufficient onion juice to the entire affair. I believe a strong case can be made that this is merely BB’s method of marking his territory, like an old wolf dog, saying, “I can do anything I please. You can complain, but in complaining you’re hurting yourself…” Have you read the STRATFOR paper on the Fed’s impact on international affairs?

    • Scott says:

      Hi Chris, Which post were you referring to here, the one I just wrote about print or die?

    • Scott says:

      Hi Chris and everyone interested in this subject… I am still not sure which post you were talking about the Fed, I noticed on Wednesday when they announced QE would continue, all the world markets rose on expectations of inflation.

      The money lenders connected to the Fed it seems are in every country almost and they have become the bankers that are owed by many nations, they have gone into countries and bought roads, infrastructure that pledged for loans made to ailing nations and now it may be time to pay.

      My recent point was all of these nations that owe Goldman or some other bank like JP Morgan now may have to pay with higher interest leaving less money for its citizens and programs that support the poor.

      Since the world as a whole has used credit to the maximum in recent years this presents a problem and it seems to be almost everywhere.

      If the rates rise in the next few years, then we will see much Austerity and perhaps another Depression. But my case is that I believe that they will have to continue QE world wide and print otherwise face the deflationary depression, So I see hyperinflation first then perhaps our deflationary depression, the balloon blows up then deflates.

      During the hyper inflationary period it would be good to own assets that have inflated and sell them so they can be converted into needed things to weather the deflationary depression.
      Still not exactly sure on this but that is kind of how it is looking to me now. A rise in asset prices then a severe deflationary blow off….


      • The assets that inflate include a lot of paper assets, whose value is ultimately going to $0. I am not sure you want to get into the business of figuring out how to play this market.

        We can argue about how much a wheel barrow will cost now, versus how much it will cost later. The point is that if you need a wheel barrow, buy a wheel barrow. Don’t depend on accounts which may or may not be there to provide the funds to buy one later.

    • Stilgar Wilcox says:

      Have you read the STRATFOR paper on the Fed’s impact on international affairs?

      Not yet, but will do a google search and get back on here with something after reading it.

      • Scott says:

        Hello, As much as we would like this – I do not think we will see anything like Glass Steagall reinstated as the bankers are now in charge of our governments more or less and this would prevent them from continuing to fleece us as much. It would hurt their game. People would really need to force this one through, not a chance right now from my view. Wall Street is in charge.


        • xabier says:

          I agree Scott. Voting is something of a farce these days, whoever you vote for you get the bankers’ party and the surveillance state as one package: however, if an open dictatorship without elections were to be put in place, the corruption would rise to levels hard to imagine now. A vestige of the rule of law still remains to us.

  17. Stilgar Wilcox says:

    Ok, so this is off topic, sort of, but are you shocked like many others are by Bernanke’s ‘hold em’ position on QE absent any tapering. Why leak Fed plans to taper, with markets making their adjustments to a predicted 10-15 billion reduction, if they don’t actually follow through? What happened between the time they leaked taper and rejected taper? Is the economic situation really that desperate?

    • Scott says:

      Hello, Not off topic at all, this is the heart of our problem. They are trying to hold down rates and especially with the all the trillions in debt they have to roll over, if the rates go even a point or two higher the interest will eat up all our national money. It seems once the printing press starts and we go down that path, they will be unable to stop it without a severe depression which we almost had in 2007-08.

      No politician wants to be responsible for starting another Great Depression so they will continue to print, they must or die. The question is whether the inflation will show sooner or later. New Bubbles forming already since 2008 especially in Bonds, stocks and Student loans and now just a bit in housing.

      • Stilgar Wilcox says:

        We’re on the same page on that one. Since Helicopter Ben has made his play, what’s now going to be a wild west show is the debt ceiling collision coming up here in the next few weeks/months. It sort of hits the same nerve, i.e. a form of stimulus the economy can apparently not do without. It’s down to 700 billion in the red vs. over a trillion last year, but still an enormous amount to try and sizably reduce, since all they ever agree on is a few measily hundreds of millions. Obamacare is being dangled as a carrot from a stick for Obama to nix to avoid a govt. shutdown. Should make for great political theatre and the effects it has, like a credit rating decrease or striking govt. workers or unrest.

        The pressure has been building for a while and the following six to 12 months should build to some kind of tempest in stocks or bonds, commodities or who knows what but I sure wouldn’t want to be Ben or O.

    • Perhaps Bernanke’s ‘hold em’ position relates to the news that the House wants to make drastic cuts to food stamp expenditures as well as eliminating all funding for Obama care, and thinks they can get their way on the budget by refusing to pass it thus shutting down the government, or taking us into default by refusing to extend the debt ceiling. We’ve been on this cliff before. I doubt Bernanke wants to add more stress to the situation so he will allow the QE to continue until he leaves in January.

      • Scott says:

        Hello, Jody I do not see QE ending in January, but they may taper to test the waters, markets will crash etc and then they will see disaster and will be right back at it again – Pedal full metal to the floor. They took a path of no return it seems to me with the QE, a few good years for a price to pay later.


        • Danny says:

          Well, I think they lost some credibility by not tapering last week…If they are following congress and making plans based on what congress will or will not do; It shows how fragile they and we all are in this system. It is no way to base your decision; but then again I don’t agree with what they have done. It has only helped the 1 percent…people don’t realize yet what is happening to their future; if they did they would be much more angry…

      • I agree with you about where Bernanke is now. If he is leaving in January, and the US is facing debt limits near term, there is no reason for him to reduce QE. Let his successor deal with the problem (unless some implosion happens before then).

  18. Economists assume that 3% is a “reasonable” annual growth rate, usually without even understanding what it means (e.g. an 2^3=8-fold increase in 70 years). Quantitative literacy urgently wanted. It is still a truism that most people don’t understand the basics of exponential growth.


  19. Edwin Pell says:

    Gail, we need a new limits to growth computer model that include financial considerations. Do you know of anybody who is doing this? Have you ever considered leading such an effort? I think you would be ideal.

    Ed Pell

    • Good question.

      An actuarial group in the UK set aside 50,000 pounds, to award to a group that would use the money to do improved modeling regrading Limits to Growth. I talked to the current Limits to Growth modelers, and tried to get them to apply for the money to use toward adding some financial considerations to the model, but I am not sure they really understood the exactly what was wrong, and how to fix it. (They did not have financial backgrounds.) I am also not sure that the people I talked to (which included the lead programmer) had the ability to go ahead without the approval of Jorgen Randers, whom I did not talk to.

      Eventually, the 50,000 pounds were awarded to some actuaries in the Uk, working without the Limits to Growth model. I have talked to them and sent them links to some of my work. My impression was that they were starting at a pretty basic level of understanding. I haven’t seen any of their output.

  20. Good morning all,
    Don, I found your last post very thought provoking. Your comment “It is clear to any careful observer that the real payoff is in paying attention to health—not in treating chronic disease.”

    Payoff for whom? It is clear to me that in paying attention to my health, my diet, I reap a payoff in avoiding the cost (and disability) of chronic disease. But to the companies that market highly processed, industrialized food, their payoff is when more people eat this food. Overall, it isn’t in the interest of the food processing industry, the large industrial agricultural industry, the drug companies, the medical service industry, or even the government tax revenues for us to be better informed. These companies get a payoff when we eat the food, get sick, go to the doctor, and get put on drugs for the rest of our lives and pay taxes on it. Health care industry has been steadily creating jobs thus reducing unemployment. Government only looks at employment numbers going up as important. If I find herbs to be beneficial in keeping me healthy, if I am an unemployed house wife that grows food and herbs to for her family, then there is no payoff for our economy. Growing food or medicinal herbs reduces GDP, unless I sell them.

    The higher the economic activity, the better it is for GDP, no matter how damaging that activity might be. So, for example, the obese, smoker who gets in a car accident on his way to see his divorce attorney and suffers a heart attack but doesn’t die, is good for GDP! A cigarette company that markets to teenagers and gets them addicted before the age of 19 often has a lifelong customer who will probably suffer from multiple chronic diseases and finally die from cancer. For the cigarette company such advertising is smart business. Such behavior also benefits the medical service industry and the drug companies, and generates tax revenue. So overall, it is good for GDP.

    In our “free market” capitalistic system there seems to be a belief that almost any business is good business, that government shouldn’t interfere, that there is a sucker born every minute, and it’s ok if we take advantage of them. We can’t seem to stop the financial industry from screwing us royally. We can’t seem to stop the damage being done by fracking or GMOs. We can’t seem to solve much of anything anymore, but we certainly do talk a lot about it on the internet.

    Although I agree with you about the reduced importance of a college education, I’m not sure that the internet is going to make us better informed, more knowledgeable, or wiser. Information isn’t knowledge, knowledge isn’t wisdom. Information properly organized can become knowledge. Experience can lead to wisdom that allows us to solve problems. Just gathering information but not making any coherence of it, won’t solve problems it will lead to mental indigestion and confusion. It will make it easier for MSM to manipulate us.

    It seems to me that our biggest problem is not so much oil or its price but our over-connectedness and over-dependance on a global system that is dependent on oil. As Gail has pointed out very well, it will fail eventually, and it’s already destabilizing many countries.

    Don, you concludes by saying, “In short, the world might be a pretty good place to live as net energy declines…provided we can eliminate the rigidities imposed by culture and Big Government and Gigantic Capital, and people accept that things are going to be different and maybe even better.” I agree.

    The solution I believe is to become less connected to the global system, more dependent on regional and local sources of goods and services, develop more capability of producing goods and services ourselves, and stop relying on debt. I realize that by disconnecting from the system it means the system will fail but what chose do we have? Should we try to hold onto it until it fails us?

    By purchasing insulation and energy efficient windows and doors I invested yesterday’s money in my home to save on tomorrows dollars spent on energy. By investing in solar panels and a geothermal system I am doing the same. By growing food I am taking my family out of the industrial food system, thereby perhaps shortening its lifespan, and improving our health. It is true that these activities remove profits from the electric utility company, and this might make the grid fail sooner. But I still think this is the best solution. Solar panels may not be energy efficient to manufacture, but they are being manufactured. We are putting oil into them. Why not buy them and remove our dependance on coal fired power plants?

    I am using our current economic system while it still exists to make my family less dependent on it tomorrow. As more and more people do this the current economic system will lose velocity. But at the same time something else will replace it. Hard to say exactly what that something else will look like. Perhaps more farmer’s markets, more small businesses, more small farmers and farm families, less money spent but more staying in the local economy, better health and wellness in families. Yes, our GDP is going to shrink and our corporations and government will try desperately to keep it going up. But there is really nothing we can do to prevent it from failing.

    The more robust our local economy the better able we will be to withstand perturbations in the global system. Too big to fail industries can be allowed to fail because we will no longer need them. When the oligarchs lose their money in the bubble of the stock market, best not to have your money there too. The oligarchy will lose their political power. The Federal government will no longer be able to afford to maintain its centralized control. We can take back government control through our local government. We won’t be able to police the world, no matter how atrocious or devastating the civil wars become in far away countries. And even in our own country our large cities will fail to take care of their population. Best not to live in a large city. Holding onto a dream that our system can be saved, or trying to keep it afloat as long as possible, will only increase the impact on us when it fails. The sooner we let go and move on to creating something else, the better for us in the long run.


    • Don Stewart says:

      Dear Jody
      I agree with just about everything you say. I do have one comment. You say:

      ‘Although I agree with you about the reduced importance of a college education, I’m not sure that the internet is going to make us better informed, more knowledgeable, or wiser. Information isn’t knowledge, knowledge isn’t wisdom. Information properly organized can become knowledge. Experience can lead to wisdom that allows us to solve problems. Just gathering information but not making any coherence of it, won’t solve problems it will lead to mental indigestion and confusion. It will make it easier for MSM to manipulate us.’

      Charles Smith says that the president of MIT remarked, after thinking about the issues, that the only real reason to go to a physical college is the laboratories–which are far more expensive than lecture halls. Which I think gets to your point that real learning happens in the real world as we get experiences There are studies teaching math to children with gardening problems…how many seeds will we need? when will the crop be ready to harvest, how much spacing between plants, etc. The studies I have seen (which I am sure are biased toward the gardeners) indicate that children can learn math quickly and relatively painlessly when they are working on a practical problem.

      How education will shake out I am not certain. It is very clear to me that the hockey stick in student debt can’t be the right answer.

      Thanks for the comments…Don Stewart

      • Don,
        Education is learning. We can learn from almost any format. “A mind is a terrible thing to waste!” Looking back on my formal education I would say that the most important thing I learned in college was how to teach myself. I agree that expensive laboratory equipment is important, but in my opinion few students use their mind enough to benefit from access to this equipment. Once we learn how to think for ourselves, how to educate ourselves, no much can limit us other than perhaps access to information (and maybe lab equipment), which is why I believe that the internet can be a powerful tool.

        Children first need to learn how to read, then to write, then to do computational mathematical skills. They also need parents that talk to them, to train their minds, to help them develop communication skills. These are the basics. After that, a college can be a good place to have access to other people who use their minds, think broadly, learn about history and culture, all these things are very important for personal development. We need people to learn moral values of what is right and wrong because this is important for civilization to flourish. I think learning is lifelong and introspection is profoundly underutilized in our society. We have become a society of browsers. What we need is more depth!

        best regards,
        PS I posted a late comment at the bottom of Gail’s last article. You might enjoy it.

        • Don Stewart says:

          Jody Tishmack

          Here is the way I think education might go. First, go to Darren Doherty’s lecture:

          Go to minute 23 and watch for 5 minutes to the 28 minute point.

          From the lecture, I think you get the following points:
          1. A smart man thinks that rain on bare soil is the most destructive force on the planet (not financial collapse or peak oil or climate change?) Yet most people don’t think anything at all about leaving the soil bare.
          2. He shows us the picture of the raindrop hitting the bare ground. A student isn’t likely to have this picture laying around, and it would take a lot of time and equipment to duplicate it, so seeing it in a lecture is an economical way to get the picture in our heads.
          3. Darren points out that the raindrop sorts the soil so that the clay is on the top. And he explains how this sorting lays the groundwork for desertification. He then talks, not very clearly, about the soil sampling method where you take a trowel of soil, put it in a glass jar, shake it thoroughly, and then let it sit and make sorted sediments. Visualize some homework where the student does exactly that. So now the student has done an experiment which confirms that, yes indeed, soil sorts itself out into its various components under the influence of water.
          4. Darren then shows a desert landscape with cracked clay. Then he shows it with lush grasses. He explains that using a Yeomans plow and then waiting for rain was the key to the regeneration. This land had been rained on for 60 years, but had remained desert. It took a pretty simple human intervention to restore it. So the learning lesson here starts to get interesting. What is a Yeomans plow? Has anyone in my neighborhood used one? And then broader questions such as ‘are there other approaches which might have worked?’
          5. Then I would introduce writing or videos of Alan Savory talking about the danger of bare ground, and his predictions that anywhere in the Western US where there is bare ground between the plants is on the road to desertification.
          6. Then I would show pictures of small plots of prairie where there are half a dozen species in a few square inches, and hundreds of species in a field, and how there is no bare ground visible anywhere.
          7. I would have the student read about the carbon, water, and nitrogen cycle and how hydrating the soil is a key element.

          Then comes the action part of the learning. I would ask the student to take a piece of waste land and restore its fertility. The method chosen depends on where the land is, how much rainfall, crop land or pasture, hard winter freezes or not, and a host of other factors. The student should have enough background to do their own research into the various methods which are available to them, select one, make a plan, observe results, modify plan, etc. until good results are achieved.

          As you can see, we start with something very small, raindrops, soil, and the idea of ‘no bare soil’. This 20 minute lecture by experts (which can be economically delivered over the internet), turns into a mammoth set of questions, speculations, further research, trial and error, invention, and so on and so forth. The way I have set it up, it would run for several years. The student would return to his plot frequently and record enough detail to be able to track and explain his results.

          This method is profoundly different than an hour’s lecture, or even an hour of lecture followed by a couple of hours in the lab. Can a 12 year old do it? I think so, with a little timely help from his elders. At the end, would he be smarter than 99 percent of Americans? Absolutely.

          Don Stewart

          • Don,
            You laid out an excellent lecture using material available on the internet and hands on work in the field. I bet you are an excellent teacher!

            I can remember when I learned this lesson about clay, water droplets, surface sealing, and runoff vs. infiltration. I was watering my garden. Part of my soil had a layer of composted mulch on it. Part of it was still bare. I was watering with a hose sprayer and as I sprayed on the bare ground the water quickly began ponding on the surface and then running off the soil. Soon I could add no more water that didn’t run off. When I watered the mulched soil the water just kept going down into the ground with almost no runoff. This is when I had an Ah Ha! moment. This occurred many years after I had completed a master’s degree in soil science. My first thought after Ah Ha! was “Why didn’t any of my professors tell me about this?” My second thought was “Maybe they didn’t know.” Most of what I’ve learned in my garden has greatly expanded my understanding of soil, organic matter, and plant health.

            I have encountered far too many faculty in the biggest most competitive research universities that have never actually worked in the fields that they teach. In the last decade or so there are more and more faculty that no longer even work in the lab. They no longer have their hands on their work.

            When I first entered the graduate program at Purdue there were still many semi-retired faculty that still worked in the lab. When they were young faculty they worked alongside their graduate students, and that is how graduate students learned to do research. I found it very important to have my hands on my research, and very difficult to depend on someone less experienced doing it for me. But I increasingly saw newer, younger faculty that were too busy chasing funding and publishing (in my opinion) worthless papers. Their research depended completely on graduate students. And labs are often taught be teacher’s assistants. This is one of the reasons why I agree with you that a college education is losing its value.


          • Scott says:

            Don that was a good video from Darren Doherty’s lecture, I hope it catches on worldwide.


  21. dashui says:

    My friends work at the heritage foundation, lately they are spending time gaming for the dollar losing its reserve currency status, maybe a move to sdr’s, which they believe is inevitable. Mostly they are concerned that the donations will dry up. Also they believe that loss of reserve status would happen quickly as holder of dollars rushed for the door.
    As for resourse depletion, heritage and the political system is still clueless.

    • Thanks for your observations. It is interesting that they are concerned about the dollar losing its reserve currency status. I think that it is the lack of any other substantial currency to go to that has kept the dollar as having reserve currency.

      You say that the Heritage Foundation is concerned that its donations would dry up. But wouldn’t the financial support for the IMF drop as well?

  22. Niels Colding says:

    Dear Gail,
    I think you have already read Nate Hagens last article in The Oil Drum:

    “Though societies require ‘energy’, individuals require money in order to transact in the things energy provides. What is money anyways? I certainly didn’t learn in business school (or any school for that matter). Quite simply, money is a claim on a certain amount of energy.”

    Niels Colding

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  24. Don Stewart says:

    Dear Gail
    I agree that there is currently a ‘disruption’ to the economy as a result of resource limitations. If we think of the economy as having three factors–resources, energy, and design knowledge–then most of us will agree that resources and energy are not what they were in, say, 1970. Design knowledge is arguably somewhat better than it was in 1970. That is, given the resources and energy we have available to us, we can make better use of them than people would have made in 1970. As an example, we are clearly able to make higher quality automobiles now than we made in 1970–mostly as a result of the spread of the Toyota production system and the use of electronics. Some think that the future of automobiles is currently very bright as further design improvements lie before us.

    The history of humanity is full of ‘disruptions’. Is there anything to be especially alarmed about now? Are we just going to experience the turmoil which Britain experienced with the Enclosure Movement and the Industrial Revolution and come out on the other side richer and better fed? Or is this the bitter end of a misbegotten adventure? We get a clue when your lead graph is GDP…which is fundamentally a measure of the financialization of the economy. The only reason such a graph has any meaning is if financialization is deemed a ‘good thing’. Charles Eisenstein might consider it as evidence that things are going very badly.

    Let’s consider two large question marks. The first is college education. Charles Hugh Smith argues, with some evidence, that the 4 year college that we have known and adored now for over 200 years is simply obsolete. To be replaced by YouTube lectures and online courses and independent certification of mastery of the material. The cost of college may shrink to 10 percent of its current level. The second is health. It is clear to any careful observer that the real payoff is in paying attention to health—not in treating chronic disease. IF Industrial Agriculture collapses, and we convert to a natural agriculture based on biological systems, then chronic disease may be a thing of the past. In short, we MAY be looking at the collapse of two stalwarts of the American economy. This dual collapse would certainly qualify as a ‘disruption’, but most economists would look with favor because more efficient ways to accomplish fundamental human goals have been found and implemented. Our ‘design intelligence’ has improved and the Constructal Law has operated and two important services are now cheaper.

    Now we come to a tricky question. I believe your assumption is that the economy cannot operate in reverse. That is, ‘degrowth’ or even a ‘steady state’ is not possible. So, with your assumption, there will be zero fossil fuels to enable the YouTube University or the Biological Agriculture. I agree that governments with powerful militaries with drone technology which can be turned against civilian populations can make it extraordinarily difficult for adjustments to occur. But let’s consider a hypothetical government ‘of the people, by the people, and for the people’. Such a government would simply recognize that things have changed and make and execute bankruptcy laws which facilitate the people getting on about their business. The investors would be wiped out, but…that’s life.

    Here is where I fall out of bed with statements such as ‘the people can’t afford the oil’. That is treating oil as a single market commodity rather than as diversely enabling driving to work and lubricating a farm implement and powering a combine and flying to the islands for a vacation. If we imagine a triage situation, some of these uses for oil will clearly survive and some will be sacrificed. The oil producing companies will be considered as Cash Cows and investors will give them money accordingly. If we had a Jeffersonian government, we would likely get a much more adaptable society. The emphasis would be on letting people grow their food, rather than giving them food stamps. And old people will be helping raise grandchildren for their keep rather than collect social security.

    I don’t pretend to know what will actually happen. I can see that a powerful government headed by delusional people who think they control the world will lead to disaster. If, somehow, we get a weak government which just eases the pain as best it can but gets out of the way of what needs to happen, then things may not be too bad.

    Consider, for example, your insistence that the electric grid needs to be preserved. I argue that, in a world of energy scarcity, people are better off in multiple ways if they are living on solar electricity very directly. I have lived in off-grid solar PV houses, and I will testify that one is very conscious of the value and limitations of the electricity. There is nothing wrong with going to bed when it gets dark. In fact. doctors will tell you that your health will improve if you do. The notion that people ‘need’ to be able to operate big screen TVs in the middle of the night is a pernicious falsehood. Neither do I accept the notion that factories need to operate 24 hours per day. It isn’t a human scale, and it costs us dearly.

    In short, the world might be a pretty good place to live as net energy declines…provided we can eliminate the rigidities imposed by culture and Big Government and Gigantic Capital, and people accept that things are going to be different and maybe even better.

    Don Stewart

    • We are living in an economy which is a networked system. Nearly everything depends on everything else. It was built up over the years, building on pieces that were put in place previously. Gradually, parts that are no longer needed, such as the all of the infrastructure to raise horses to plow fields and plant and harvest crops (fences, barns, stores providing the right equipment for draft horses, factories making the correct plows) disappear. The type of infrastructure we put together now depends on the energy sources available now, and how society is structured. We now are using factories for cars, trucks and tractors, so we don’t need plows. The networked system includes many different kinds of businesses, plus governments, plus individuals. It also includes laws, and societal customs, and systems like financial systems, and roads, In many ways, it is like a house of cards, except it should have a hollowed out center, for the parts that were able to be removed, because virtually nothing else depended on them.

      House of Cards

      In fact, things that don’t look like they depend on everything else, really do. Availability of oil depends on electricity, and availability of electricity depends on oil. The size of government we have today depends on having heavy use of fossil fuels. With little fossil fuel, there is a tendency to get the kind of government in Afghanistan and Somalia–local war lords. It may not be that bad–Kings and Queens ruled for years in parts of the world, but safety nets for citizens were basically lacking. Even having equipment that is made to fine tolerances is a function of other parts of the system–the fact that we can build computers, and use them to define precisely the size and shapes of pieces. If we were working with recycled metals from buildings, we would not be able to build much of anything to fine tolerances. We would not be able to create the kinds of alloys that we use today, for example. A large share of the “design knowledge” would still be known, but would no longer be useful, given the degraded state of system.

      There are many parts of the system that depend on having electricity available from a central source 24/7. For example, oil refineries, and oil and gas pipelines, gasoline stations, and many factories. We absolutely do not have the resources to recreate what we have now in terms of stable electricity supply supporting the electric grid, using a collection of solar panels, batteries, inverters, and other parts. The cost would be way too high; the amount of materials would be impossible to collect, and would certainly require today’s systems. The economics of the current electricity delivery system depends on having a broad base to spread its costs over–transmission lines especially, but other parts as well. If homeowners pull out, and “go it alone,” businesses and the government are left to shoulder the whole cost. This raises costs to the point that governments and businesses can no longer afford electricity (or perhaps, individuals can no longer afford the products or the necessary taxes).

      All of this is related to our economy being a Complex Adaptive System. If you want to read a few posts with respect to problems with such systems, the following are some posts by aeldric. (He works in Australia in the field of Complexity Theory):

      The Failure of Networked Systems

      The Networking of Resource Production: Do the Networks Give Us Warning When They Are About to Fail

      Networked Resources, Declining Quality and Peak Oil

      • Don Stewart says:

        Dear Gail
        Thanks for the references.

        I would like to excerpt this sentence from the final article:
        ‘because at that point the diminishing returns from energy will rapidly lead to a resource squeeze that will cause our society to go through some marked changes.’

        It is my belief and experience that we should currently be substituting biological solutions for fossil fuel dependent solutions wherever we can. I consider that as ‘going through a marked change’. Biological solutions do not operate at all like fossil fuel powered industrial systems. For example, a natural pasture may have several hundred species of plants. A typical human designed pasture may consist entirely of alfalfa. I think we are at, or nearly at, the point where a monocrop of alfalfa is a dangerous thing to depend upon. Upping the ante by depending entirely on genetically modified alfalfa is, in my opinion, insane. These sorts of issues are dealt with in the book Cows Save the Planet.

        If, as a society, we do seriously begin to substitute biological solutions for fossil fuel powered industrial solutions, then large chunks of the economy disappear or shrink drastically. (I have mentioned health care and education). The physical shrinkage reduces the stress on the physical systems, but increases the stress on the financial system and thus on humans and their psychological and sociological well-being. And so I speak of the necessity to reform things like bankruptcy law and our concept of Too Big to Fail in order to uncouple the real production system from the grossly inflated financial system. I also speak of the necessity for people to rediscover their simpler roots in the natural world and to learn to garden.

        It’s not so much that I hate the current system…I just don’t think it can survive. I do not disagree with the scenarios painted by aeldric. It’s just that those scenarios aren’t very applicable to biological systems. I won’t claim that the more extreme forms of climate change could not stress our current biological systems very severely…just that biological systems tend to follow the Permaculture rules that ‘every function is supported by more than one element, and every element supports more than one function.’

        So when I think about the supposed necessity to keep the electric grid operating as it operates today, I am visualizing a much different world in the future. I visualize a family going out to watch the sunset for amusement and then coming in and going to bed…not walking on The Strip in Las Vegas and gambling in casinos. IF families were to move in the direction I visualize (your can snort at this point), then there would be a requirement for much less industrial production. Physical stresses would be less…financial stresses on companies would increase…debts would not be repaid…governments would have to retrench…families would have to function as production units once again.

        I think these latter effects are inevitable. Moving deliberately in that direction is, I think, wisdom. Moving too fast in that direction is not a good strategy for anyone who depends on selling into the current economic system, because one has to stay competitive while the music is still playing and the scramble for the chairs hasn’t started yet.

        Don Stewart

        • I agree the grid really can’t survive long term. One of my concerns is that we really don’t understand what needs to be in place to have a new system that “works.” I agree that a biological system is more stable. I also know that history shows that civilizations found a need to put walls around cities and build moats to protect themselves from others who wanted what they had. Our system has in it today things that we take for granted, like police forces and safety nets for the poor. We have leash laws for pets. Once our civilization goes downhill, we are going to lose these and many other things. Working on something that might work in terms of gardening/ farming/ food forest is good, but it needs to be in the context of a whole system that works. We have a hard time even envisioning what the other missing pieces are. This is what makes the transition so difficult.

          • it’s as well to be aware that what we take for granted to support and protect our civilised infrastructure, the police, and military in particular, functions only so long as we can afford them.
            policemen and soldiers are ’employed’ just like the rest of us. we pay their wages with tokens that derive their value from surplus energy input.
            We call it money.
            When our energy surplus disappears, our money tokens will become valueless.
            When that happens, (and it will) our police and military will be out of a job.
            They will then go self employed.

            • Regrading police and the military becoming self-employed, I think Dmitry Orlov has made similar comments, based on his experience in the Former Soviet Union.

              Also, the book Secular Cycles mentions that quite often, after collapses, the areas that became inhabited first were areas that were easy to defend (on mountain tops, for example), rather than in the best crop growing areas.

            • Don Stewart says:

              Dear Gail
              I visited France about 20 years ago. Two things I remember. One was a memorial archway celebrating the Roman occupation of Gaul. The inscription on the arch said that the Romans brought peace to the warring tribes. Was the tribute exacted by Rome greater or less than the cost of the previous warfare?

              Second, I remember visiting the site of a medieval village. It was up on a steep hill with a cliff falling steeply behind it. Below was a broad, fertile river valley. There were three lines of trenches and fortifications. Standing behind the last fortifications with the cliff at one’s back was a memorable experience.

              Don Stewart

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  26. Don Stewart says:

    Dear Gail
    A good post! May I suggest one angle which is not covered.

    Since the invention of agriculture, we have steadily depleted carbon in the soil and moved that carbon into the atmosphere and oceans. Cheap fossil fuels have enabled us to not only burn carbon directly, but also to move it very rapidly on a global scale from the soil to the air and oceans. The sad history of the mismanagement of carbon and water in the soil, and some prescriptions for what we can do to reverse things, is described in the book Cows Save the Planet: And Other Improbable Ways of Restoring Soil to Heal the Earth, by Judith D. Schwartz.

    She describes a lecture: ‘Life doesn’t just sit there. It does work. Nature is a process, not a collection of things…day in and day out the work of photosynthesis exceeds the total of the world’s industry by a factor of nine….If carbon-rich soil organic matter is being oxidized by common bacteria in the presence of oxygen, the soil is losing carbon. This creates a negative feedback loop, with soils losing more carbon and water and plants struggling to grow. If, however, we’ve got more carbon in the soil, we’ve got fertile ground for plants, more photosynthesis, and a positive feedback loop that takes carbon dioxide out of the air, in our biological system, and functions as a hub, or intersection, for the carbon cycle.’

    The book is an exploration of the ways that some farmers are managing water and soil carbon, with a focus on grasslands. She points out that grasslands have some inherent advantages in terms of the ability to store carbon in the soil as compared to trees. Most of a tree’s carbon is above ground, for example, while most of a grassland’s carbon is deep in the soil. She explores both the intensive rotational grazing (Holistic Management) which is associated with Alan Savory and no-till cover cropping/ grain systems and pasture/ no till grain rotations. These are not simple formulas, but are general approaches which are tailored to specific soils and climates and human needs.

    She visits the North Dakota farm of the winner of the 2012 Growing Green Award, who tells her ‘I couldn’t afford to buy inputs anymore, and I had to do something, I had to figure out ways to provide nitrogen. I came to realize it’s all about the soil, and that you don’t need commercial inputs if you’ve got healthy soil. It’s about focusing on the resource with rotations, cover crops, and I really believe livestock need to be there, which is difficult because the management level need to be higher….If you ask me, ‘why do people need to use commercial fertility?’. That’s easy: the soil’s in poor health. Here we no longer use fungicide on our long-term-no till. We no longer need chemical fertilizer and we haven’t used pesticides in 12 years. We still use herbicide when we’re seeding, though we’ve brought it down 75 percent. When you’re switching a cropland field that’s been conventionally farmed to no-till, you can’t just cut it all out. You have to build it first….It takes an average of 21 gallons of diesel fuel to plant, grow, and harvest one acre of corn. Here, we’re doing it in 5.’

    Schwartz is a journalist–not a scientist. But I think she does a good job giving a layman insights into what is at stake, the potential for drastically reducing inputs, the potential for taking carbon out of the air and growing topsoil, and the potential for restoring ecologies. You will also quickly see why the chemical companies and their servants in the Agriculture Department don’t like this story at all.

    We have depleted a good percentage of the fossil fuels, and there is no clear way to provide substitutes. We have also depleted soils, but we can see ways to restore them. Restoration, however, depends on the continued availability of some fossil fuels in the real world of the OECD countries. But reducing diesel fuel consumption by 75 percent is a very good beginning.

    Don Stewart

    • Thanks for the suggestion. Our soils are part of our interconnected system as well. If they fail us, we are truly in trouble.

    • Dear Gail and Don,

      Gail said “The original factors of production were land, labor and capital.” And Don said “Since the invention of agriculture, we have steadily depleted carbon in the soil and moved that carbon into the atmosphere and oceans. Cheap fossil fuels have enabled us to not only burn carbon directly, but also to move it very rapidly on a global scale from the soil to the air and oceans.”

      The importance of land for production of basic necessities such as food cannot be overstated. The loss of soil carbon and the resulting depletion of our agricultural land is also a vital resource constraint, second only to fresh water.

      The magnitude of carbon in soil is much larger than most people realize. Each 1% of organic matter in each 6” of topsoil represents 10 tons of organic carbon. There are an estimated 2.8 billion acres of farmland in the world. The loss of 1% organic matter, therefore, contributed 28 billion tons of organic carbon to the atmosphere and oceans. If we increase soil organic matter by 1% we remove 28 billion tons of carbon from the atmosphere.

      Grasslands are the best natural system for increasing organic carbon in soil. Once cultivated though, as much as half of their carbon can be oxidized and lost to the environment. Research has shown there is an initial rapid loss of prairie carbon that was exhausted within 30 to 40 yr. of cultivation. The half-life, under cultivation, of the easily mineralizable carbon fraction was shown to be 10 to 15 yr. [“Soil Organic Matter Turnover in Long-term Field Experiments as Revealed by Carbon-13 Natural Abundance” (1988) by J. Balesdent, et al.; in Journal of Soil Science Society of America, Vol. 52 No. 1, p. 118-124].

      Here are two books that I recommend if others want to learn more about this issue.

      “Dirt: The Erosion of Civilizations” (2007) by David R. Montgomery; discusses the history of topsoil degradation due to poor agricultural practices around the world and makes the case that this was a major factor in the collapse of past civilizations.

      “Farmers of Forty Centuries: Organic Farming in China, Korea, and Japan” (originally published in 1911, reprinted in 2004) F. H. King discusses practices of Asian farmers to increase and preserve soil organic matter, and how this allowed them to continuously cultivate land for more than 4,000 years. He contrasted their practices with agriculture in the Eastern U.S. that had degraded American soils to the point of abandonment after little more than 150 years of cultivation.

      The importance of organic matter to soil fertility used to be better understood by farmers.
      Our current civilization depends on cheap oil to provide us with food. But modern agricultural practices have depleted the topsoil of organic matter leading to compaction and loss of fertility and tilth. As oil is depleted or becomes too expensive for agriculture, food production on this degraded land will become impossible until fertility is restored. And with all the farmers now planting corn every year, I’m not sure how long they will be able to even farm the land with chemical inputs. Only small, intensively managed farms that use simple, tried and true methods to replenish soil organic matter will be able to produce food.

      In Indiana where I live ‘good’ farmland has as little as 1% organic matter. I have found it to be true that we don’t need commercial chemical inputs if we have healthy soil. Putting organic carbon back into the soil will not only improve its fertility but will help to reduce natural carbon dioxide emissions. You are right to keep raising this issue Don.

      Best regards,

  27. Julian Bond says:

    A question about language. You talk about a “discontinuity”, but even in the World3 model the graphs are smooth, though they do hit peaks and change direction. eg:-
    So if there is a discontinuity, I’d think it would be social in terms of regime change rather than physical in terms of population or food production.

    • Ikonoclast says:

      I think hitting a peak and changing direction is a discontinuity especially when many are expecting and indeed utterly depending on endless exponential growth.

    • yt75 says:

      From a pure mathematical perspective maybe, but in a metaphoric sense, when you see the mess of limits to growth output curves around our time, I think discontinuity fits quite well :
      And indeed as you say this might translate in true discontinuity in the political/geopolitical/sociological “sphere”.
      Maybe one could talk of “catastrophe” as well, as conceptualized by René Thom :

      And thanks to gail for yet another great synthesis.

      • As I mentioned in my comment to Reverse Engineer, I don’t really agree with the Limits to Growth modeling that has been done. I think it misses key variables, and thus moves the collapse far into the future.

        I am also open to better descriptive terms that are more mathematically correct. Catastrophe has a lot of “baggage” with it, just as “collapse” does. In the insurance world, there are dozens of “Catastrophes” each year. Each one gets a number and name associated with it. Thus, flooding in Colorado probably is one of this year’s listed Catastrophes. These Catastrophes are used in determining which claims should be grouped together when determining reinsurance applicability.

    • My real concern is system failure. When that happens, there truly is discontinuity in some parts of the system–particularly with governments failing. I agree that if there is just a downturn in economic growth, the issue is not really discontinuity. It is more a change in the slope of the curve.

      With respect to the use of the word “discontinuity”, I was trying to figure out an attention-getting word that doesn’t sound as colloquial and as connected with doom groups as “collapse.” It seems like the more technically correct I get, the harder it is for the reader with no background on this issue to relate.

      • Jan Steinman says:

        My thesaurus says: “disconnectedness, disconnection, break, lack of unity, disruption, interruption, lack of coherence, disjointedness.”

        I like “disruption” best, but it seems none of them approach the level of chaos you imply.

      • yt75 says:

        Yes I think discontinuity fits quite well, especially as all the “transitions” approaches always imply some form of continuous changes (“bridge fuels” and the like).
        Note : also the term Yves Cochet is using below, saying he doesn’t see any continuous adpatation possible (but in French) :
        Note : Hollande made a speech yesterday about the “energy transition”, where although the main argument remained climate and CO2, the finite stock aspect of fossile fuels was also mentioned and with objectives such as less 50% energy consumption in 2050, or less 30% fossiles in 2030 (tbc), although of course still talking economic growth in parallel.

        • yt75 says:

          See below on Hollande speech for instance :

        • There does seem to be a belief in slow continuous changes that won’t affect the economy. No one dares talk about oil, or energy, as an issue.

          • Normalcy Bias.

            It is for instance extremely difficult to get anyone who has grown up inside a major industrial country to even IMAGINE that eventually we will not have Electricity anymore. It runs completely counter to the experience of perpetual Technological Advance with ever cooler devices all the time. Just the idea that Tech will stop getting more complex much less reverse in direction “does not compute”.

            There also are the Historical Models John Michael Greer of The Archdruid Report refers to all the time with his Slow Catabolic Collapse concept. It just ignores the absolute level of complexity that became possible to manage with copious supplies of energy available, and ignores problems of Irreversibility in a smooth fashion that David Korowicz describes. For instance, once transitioned UP the ladder from Sailboats and Longshoremen to unload them by hand to Container Ships unloaded by Cranes and Forklifts and the concomitant Population Increase, you can’t revert to Sail & Longshoremen at that population level. You can’t load and unload the ships fast enough that way.

            Discontinuity is a good word to use if you wish to avoid the “baggage” that a term like “Collapse” has as bandied about the blogosphere these days. However, it is not really such a bad term even on the Academic level, since you have well respected Academics like Joseph Tainter and Jared Diamond who use it, not just Gonzo Kollapsniks like yours truly.

            MSM outlets of course avoid the word because the idea there is not to “Panic” the population. Don’t Rock the Boat, keep the population calm and accepting of the Status Quo. Which works well, until it doesn’t.


  28. Discontinuities are the toughest part of any mathematical treatment in terms of making predictions. I think Ugo Bardi’s thermodynamics based models are better than looking at financial models though. He put up a nice synthesis today on Cassandra’s Legacy, Mineral Resources and the Limits to Growth.


    Also, for those who have not seen it yet, we got up the discussion of the Syria Limits problem with Gail and Brian Davey from FEASTA on the Collapse Cafe. Worth a watch for those following the Political Discontinuities already emergent in MENA.



    • Thanks! The original Limits to Growth model as well as Ugo’s write up of it bothers me because they miss a few key points. One is that capital, the way the world uses it today, also includes borrowed capital. This debt, and the interest on this debt, adds whole new dynamics to the system.

      A second issue that these models miss is the fact that consumers need to have the ability to purchase the goods and services produced. Part of this ability to purchase goods and services comes from added debt. At some point, the debt, and the interest on the debt, has a tendency to pull the system down. (The models assume that there will always be sufficient “demand” to purchase whatever goods are produced–something that is basically not true.)

      A third issue is that because of networking, it is not Energy Returned on Energy Invested that is important. Instead, it is Resources Returned on Resources Invested. Part of these resource will be invested on systems very far removed from the energy extraction itself–operating the political system, for example. In fact, it is really “Liebig’s Law of the Minimum” as applied to the overall system that brings about collapse. If only one necessary resource is missing, at least part of the system is likely to fail.

      It is very easy to get misleading indications from just looking at EROEI. The real question, when one adds a new resource to the system, is what the new resource does to the overall system dynamics. In many cases, the effect will be counterproductive–the system really needs to be adding resources that have at least as good Resources Returned on Resource Invested as in the past. In fact, they cannot lead to unfilled shortages anywhere. If, through subsidies, we add energy sources that are poorer in these respects, it tends to make the system less resilient, and more prone to collapse.

      I believe that the current Limits to Growth model (on which Jorgen Rander’s book 2052: A Global Forecast for the Next 40 Years is based) is very misleading. The modeling approach tends to put collapse very far into the future, and thus emphasize climate change issues. In fact, we seem to be headed for near-term collapse, through the financial system.

      • The original Limits to Growth model as well as Ugo’s write up of it bothers me because they miss a few key points. One is that capital, the way the world uses it today, also includes borrowed capital. This debt, and the interest on this debt, adds whole new dynamics to the system.-Gail

        I don’t think thermodynamics based models necessarily miss the capital questions, since in reality money serves as a proxy for energy.  Interest is what is lost to the system and why it has to perpetually grow and extract more resources.  In the case of Fossil Fuels, the Capital is all destroyed and in the end is just CO2 molecules in the atmosphere which can’t be repoed.  The hard goods produced like Carz and McMansions are rendered useless and become Waste.
        The problem with anlyzing from the monetary end is so many shenanigans can be played in terms of accounting fraud, repackaging debt instruments, shadow banking, quantitative easing and plain old Jawbone Lieing it’s very difficult if not impossible to get any real measures.  On the other hand, you can’t hide it when an Oil field stops producing or a Refinery shuts down.
        In any event, this could make for a good discussion with you and Ugo at the Collapse Cafe!

        • A major issue I see is that the computer model currently in use does not recognize the fact that people cannot necessarily pay for the energy that is extracted at high price, if their wages are not high enough. This has to do with the sales price of oil not rising to the cost of extracting oil, and ultimately bringing the system down. The fact that the model does not recognize this (and related issues) means that it estimates that collapse will come many years later than it really will. This difference was not a “big deal” back in the 1970s, when the model was first put together, but it is a major problem with it now. At this point, the model is misleading because of this omission, in my view.

          I have talked with the lead programmer of the current Limits to Growth model about how things are done, and this is what led me to be concerned about the situation. All models are simplifications, but this one is too simplified.

        • Jan Steinman says:

          “money serves as a proxy for energy. Interest is what is lost to the system…”

          I don’t claim to fully comprehend Bardi’s model, but it appears to me that interest is not accounted for in energy-only models.

          If money is a proxy for energy, then interest represents future energy use, no? Perhaps that is not accounted for in the Limits To Growth models that lead them to a drawn-out, slow collapse.

          I agree with Gail that the notion of interest seems to make a sudden collapse more likely, starting with crumbling financial systems. We could be looking at a Level-2 Orlov collapse, based only on the secondary effects of expensive energy on the financial system. If expensive energy — even if steady-state — causes growth to stop, interest cannot be paid and the house of cards come tumbling down.

          That’s where we appear to be at this moment, on what IEA calls an “undulating plateau.” I’ll bet a financial system predicated on growth cannot tolerate a flat energy supply, and that it will be financial collapse that will make further advances in energy extraction impossible.

          It may be possible to carry on in a flat- or declining-energy world if there were periodic “debt jubilees,” as there have been prior to the age of fossil sunlight.

        • I agree that the model Ugo has posted up is too simplistic and misses some feedback loops derived from the way the financial system is structured. That doesn’t make the model wrong, just incomplete. The timelines generated do seem too long to me, from a “gut feeling” perspective, but you do have to be careful about jacking in additional parameters just to make the model work to “verify’ a conclusion you have already reached.

          In the near term, the financial system does seem to be the “weak link” in the chain which could cause Feedback Loops that accelerate the other processes at work. A good idea would be for David Korowicz to contribute some of the Financial Contagion loops he has identified into the model. This likely would accelerate the timeline substantially.


  29. Scott says:

    Hello, Gail it looks like the world is in a giant holding pattern with shortages looming from food to oil and gas but not yet apparent. It seems we are facing uneven collapse with some places getting hit first. I wanted to ask you about fuel cells perhaps powered by natural gas or hydrogen, they seem powerful and may be able to power things like cars and small manufacturing plants? Is anyone selling home fuel cell power systems? My earlier research showed they had promise.


    • Ikonoclast says:

      Hydrogen is a power “carrier” not a power source (except in the sun where fusion turns hydrogen into helium and other products of nuclear reaction). Hydrogen is chemically highly reactive so on earth little free hydrogen is found. Thus we have to make free hydrogen for fuel cells. Making it and reacting it again is an energy loss proposition.

      Hydrogen is notoriously hard to store. The tiny atoms leak out of almost anything. Hydrogen has a low energy return per unit unit volume (energy density) and volume is the limiting issue with hydrogen. It just aint that good as a fuel except for specialist applications.

      Natural gas will run low and get too hard to extract just like oil. Burning it will also cause climate change just like burning oil and its products.

      • Scott says:

        Hello, Gail sent us that link to Bloom Energy and it looks like the natural gas powered fuel cells are the most efficient and lowest CO2 output to make power from natural gas using fuel cells.
        This may be a way to extend our precious gas supply. Interesting, I guess these are big in Japan after their crisis.



        • In a networked system, it is not at all clear that extending our gas supply is in fact our first limit. Our first limit is likely financial. So running out and adding fuel cells may in fact, move up collapse. It is not entirely clear how this works. A lot of people assume all types of energy are our first limit.

          In Japan, the fuel cells are being used to help individual Japanese households. The system is so short of electricity capacity, because of taking nuclear off line, that this may make sense. But even there it is not clear. Is there enough natural gas available to do this for more than a few households, or will it disrupt electricity now being produced from natural gas? It looks like the current situation reflects a particular set of incentives in place.

    • I saw an article about Japanese homeowners using fuel cells for making electricity. With the high feed-in tariff for electricity (35 cents per kWh), there seems to be a way to use natural gas to create energy to split water into hydrogen and oxygen, and then to use the hydrogen to power a fuel cell. I don’t understand the process–for example, why would this be a more efficient (and thus cheaper) way of making electricity from natural gas than some other ways, at a person’s home. According to the article:

      Bloom’s units generate electricity from gas without burning the fuel, a more efficient process that produces fewer carbon emissions, according to its website.

      It is not at all clear to me that adding fuel cells for creating electricity in people’s homes is a better than adding more natural gas generation on a centralized basis–I would have to see the numbers on this. It seems instead to be a way that individual consumers can be assured of electricity supply, if they have natural gas supply. So wealthy consumers buy their own fuel cells to make their own electricity.

      Thus, this use of hydrogen fuel cells is in conjunction with other fuels. As I commented earlier, I don’t think making hydrogen, pumping hydrogen through pipelines, and storing it in vehicles as a future. But I suppose there is a possibility that there is some fuel cell technology that will allow fossil fuels to be used more efficiently.

      • timl2k11 says:

        “Bloom’s units generate electricity from gas without burning the fuel, a more efficient process that produces fewer carbon emissions, according to its website.”

        That is an absolute fallacy on Bloom’s part. You cannot generate electricity from a fuel without burning it. I think their argument, though they don’t state it directly, is that their fuel cells are a more efficient and convenient way to turn natural gas into electricity than steam turbines.
        It looks like what Bloom has allowed is for customers to burn natural gas to produce electricity without a steam turbine, nor without relying on the power company to burn it and and distribute it to them. It’s a distributed form of producing electricity from CH4 (natural gas). I don’t have the data to prove if using a fuel cell is more efficient than using a steam turbine to produce electricity from natural gas, but it does look like it is more convenient, certainly for homeowners and businesses for which a steam turbines would not be practical.
        It does allow a customer to choose natural gas as an electricity source, but at what up-front cost?

        • I think there are a lot of questions involved. How is the grid system as a whole affected, for one thing? It seems to me that keeping it going is a priority. If it just reflects the distortions of a marketing system that allows too high a credit for distributed generation, then this is a problem.

          I would be interested in how the natural gas used for home electricity generation affects the amount of natural gas available to utilities for generation. Is there really enough for everyone? I know in the Northeast in the US, there can be a problem if people want to heat their homes in cold weather at the same time utilities want to generate electricity. This has to do with number and size of pipelines, as well as amount of natural gas imported.

          And of course the efficiency questions. Does it make sense for a large number of homeowners to all generate their own electricity from natural gas, using fuel cells?

          • Scott says:

            Hello Gail, I am not sure about cost and the finance on fuel cells, they must be expensive, but they look like they do good job of making power with low CO2 and the CO2 can be captured. From the link a quote.

            “Clean Electricity – Fuel cells provide the cleanest method of producing electricity from fossil fuels. While a pure hydrogen, pure oxygen fuel cell produces only water, electricity, and heat, fuel cells in practice emit trace amounts of sulfur compounds and very low levels of carbon dioxide. However, the carbon dioxide produced by fuel cell use is concentrated and can be readily recaptured, as opposed to being emitted into the atmosphere.”


            They do look expensive right now, but if they could make them in mass, they could be cheaper…
            Anyone got a better idea to reduce CO2?



      • Edwin Pell says:

        You reduce distribution losses.

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