Our Oil Problems are Not Over!

If a person reads US newspapers, it is easy to get the impression that all of the world’s oil problems are over. But this is not really the case.

An Overlooked Part of the Problem: High Oil Prices

A major piece of the world’s oil problem is high price. Prices continue to be far above historic levels, now in 2013.

Figure 1. World oil price (Brent equivalent) in 2011$,  based on BP 2013 Statistical Review of World Energy data.

Figure 1. World oil price (Brent equivalent) in 2011$, based on BP 2013 Statistical Review of World Energy data.

High oil prices disrupt economies around the world because when oil prices rise, the wages of the vast majority of workers do not rise to compensate. Workers find that they need to adjust their spending patterns because the higher price of oil leads to higher prices for many things, including the cost of commuting, the cost of food, and the cost of buying goods that have been shipped long distance.

When workers adjust their spending patterns, discretionary spending is cut. This leads to patterns we associate with recession, or perhaps just slow growth. Unemployment rises, and there is less demand for new homes and cars.

Governments are also affected, because many of their costs, such as building roads, are higher. They also have to pay benefits to workers who can’t find jobs, or who can only find only low-paying jobs. Governments find it increasingly difficult to collect enough taxes because of the low wages of workers. Problems with rising deficits and the debt ceiling become the order of the day. Does any of this sound familiar?

One of our biggest issues today is that we don’t have a way of getting oil prices back down again, without a drop in oil extraction. The “easy to extract” oil (and thus the  inexpensive-to-extract oil) was extracted first. There is still a huge amount of oil in the ground. The issue is that we can’t get it out, except at high prices—the same high prices that either (a) cause recession, or if governments can disguise the problem with deficit spending and low interest rates, (b) cause persistently low employment plus slow growth.

The Recent Rise in US Crude Oil Production

It is true that United States oil production is now higher than it has been in the recent past. The rise in production relates primarily to “tight oil”—the kind of oil production that is enabled by very extensive hydraulic fracturing (also called fracking). (Figure 2)

Figure 2. US crude oil production, divided into "tight oil", oil from Alaska, and all other, based on EIA data.

Figure 2. US crude oil production, divided into “tight oil”, oil from Alaska, and all other, based on EIA data.

We are often told that this rise in production is because of the invention of fracking. This is not really true; fracking has been used for decades, but not in the quantity it is used today. Oil production is up because oil prices continue to be high. High oil prices allow producers to use fracking in the quantity it is used today, on sites that without the technique would not be able to produce oil. Even with recent improvements in techniques, fracking remains expensive. Continued extraction of tight oil depends on oil prices remaining high.

There are other things besides high oil price that enable tight oil production. One of these things is plenty of credit, available at low interest rates. Tight oil by its nature requires considerable up front investment. Cash flow tends to be negative as production is ramped up. This means that there is a need for a lot of debt financing, so low rates are helpful. Ultra low interest rates, such as those provided by quantitative easing, also enable equity (stock) financing, because investors are so starved for reasonable returns that they will buy stocks of iffy companies, in the hope of capital gains.

Another thing that enables tight oil extraction in the United States is our law structure. In the United States, property laws permit landowners to share in the profits from oil drilling. In most other countries, profits are split between the company and the government, with nothing for local property owners. Because of the financial incentive, US property owners are often willing to put up with the hassles of hydraulic fracturing. This isn’t necessarily true elsewhere.

The United States also has other advantages that are not available in much of the world: lots of pipelines already in place, many drilling rigs available, a reasonable level of water supply, and population which is not terribly dense, so that fracking can often be done away from populated areas. The spread of technology for doing fracking around the world is far from a slam-dunk, because of the many obstacles to extraction elsewhere. These can at times be overcome with different techniques, but this adds another layer of costs, meaning oil prices need to be higher yet.

The amount by which tight oil production will continue to rise is open to a variety of interpretations. If oil prices drop because of recession, there may be very little additional production.  If credit availability dries up, tight oil production may drop. If everything goes well, US production may rise. If miracles happen, tight oil production may even rise in many areas around the world.

As I have indicated previously, I am concerned about a financial discontinuity in the very near future–a few months to a year or two–a discontinuity that is ultimately related to high oil prices. This financial discontinuity could even be related to the current government shutdown, if it goes on for an extended period. If we are reaching a discontinuity, credit markets may be so disrupted and other changes may be so significant that past projections will be irrelevant.

A Second Overlooked Part of the Problem: Inadequate Rise in World Oil Production

The second major issue we are encountering now, besides high oil price, is an inadequate rise in world oil production. Many people are concerned about a possible unplanned decrease in world oil supply (so-called “peak oil”). While this may happen, worrying about this issue misses an important issue that comes earlier: for a growing world economy, we really need a reasonably large annual increase in oil supply.

Even if we include all kinds of liquids that aren’t quite oil, such as ethanol, natural gas liquids, and coal-to-liquid, the growth of oil supply has tapered off considerably in the last 50 years. (Figure 3).

Figure 3. Growth in world oil supply, with fitted trend lines, based on BP 2013 Statistical Review of World Energy.

Figure 3. Growth in world oil supply, with fitted trend lines, based on BP 2013 Statistical Review of World Energy.

If we fit trend lines to historical oil production, we see that the lines become progressively flatter. To make matters worse, the number of potential customers for this oil has been rising, thanks to globalization. The World Trade Organization was formed in 1995. Adding China to the World Trade Organization in December 2001 particularly ramped up demand for all types of energy products, including oil. As China’s use of oil products soared, it put huge pressure on world oil prices. The combination of flat production and rapidly rising demand led to rapidly rising oil prices between 2003 and 2008 (Figure 4, below.) Oil prices temporarily dropped during the Great Recession, but are now back up above $100 barrel.

Figure 4. World crude oil production and monthly average Brent spot oil price, both based on EIA data.

Figure 4. World crude oil production and monthly average Brent spot oil price, both based on EIA data.

Whether or not recent oil production really is sufficient for a growing world economy is debatable. Certainly in terms of supply equaling demand, there was enough. But in terms of how this supply was divided, it has been very unequal (Figure 5).

Figure 5. Oil consumption based on BP's 2013 Statistical Review of World Energy.

Figure 5. Oil consumption based on BP’s 2013 Statistical Review of World Energy.

The big historical users of oil, that is the United States, the European Union, and Japan, have seen their use of oil drop, while oil use has continued to rise in the rest of the world. The countries that have seen a drop in oil consumption also tend to be the countries that experienced the greatest downturn during the Great Recession. These same countries are now struggling with slow economic growth and little gain in the number of high-paying jobs available.

There is good reason to expect that oil use and economic growth would be highly correlated. This expected correlation comes in two different directions—from the demand side and from the supply side. From the demand side, if businesses are growing, and if workers have jobs that allow them to buy an increasing amount of goods that use oil (such as cars or motorcycles, or new houses), the demand for oil products is likely to be growing as well.

Availability of oil is also important from the supply side—that is making and transporting goods. As mentioned previously, oil is required to transport goods, and it is used in many other places in the economy—such as in growing food, in the construction of buildings, and as a chemical feedstock. Of course, if oil is cheap, it is much better on the supply side than if it is expensive, because if it is expensive, the high price of oil tends to send the required selling price of goods upward, and (oops!) lead to fewer sales, cutbacks in production and recession.

How Financial Limits Tie in With Oil Reserves

There is a common belief that we have plenty if oil, because companies and governments report high oil reserves. For example, using BP’s 2013 Statistical Review of World Energy, the amount of oil that companies seem to think is extractable is (1668.9 billion barrels of oil reserves/ 31.5 billion barrels of oil produced in 2012) = 53 years worth of oil at the 2012 rate of production. If we look at oil resources that are supposedly available, which include oil that may be available with further exploration and development, the amount seems to be higher yet. So it doesn’t look like there could possibly be a problem.

The reason why this belief is false is because the real cut-off is financial, and those making the estimates have no way of figuring out when the financial cut-off will occur. So they assume that we can extract oil that is very likely to stay in the ground indefinitely. One way of illustrating this problem is shown in Figure 6.

Figure 6. Resource triangle, with dotted line indicating uncertain financial cut-off.

Figure 6. Resource triangle, with dotted line indicating uncertain financial cut-off.

Oil resources in the ground can be thought of as being somewhat like the triangle of resources shown. There is a lot of oil that is expensive to extract near the bottom of the triangle, but relatively little that is inexpensive to extract at the top. Oil companies start with the inexpensive to extract oil at the top of the triangle, and gradually work their way down through the triangle.

The least expensive oil is the oil that can be extracted with minimal problems. It is typically located near the surface, onshore, and can be extracted with the simplest equipment. Most of the easy, and thus cheap, to extract oil is now gone.

Now, if we want oil, we are being force to extract the more expensive oil, found lower in the triangle. Such oil may be deep under the sea, or near the North Pole, or may require hydraulic fracturing to extract. Sometimes the higher oil cost relates to indirect expense. For example, governments of oil exporters usually charge high taxes on exported oil. These taxes are used to keep their populations pacified with food subsidies and other benefits, such as desalinated water, so they do not revolt.

At the bottom of the triangle is an invisible financial limit, which I have shown as a dotted line. One way the limit “works” is by inducing recession in countries that obtain a very large percentage of their energy consumption from high-priced oil. Another way the financial limit works is by inducing financial collapse in oil companies. This happens when companies have huge up-front expense before they can recover their costs by selling  oil they have extracted at high oil prices.

As an example of a company hitting such a financial limit, Brazil’s second largest oil company, OGX, is trying to extract oil offshore Brazil, including the presalt area (that is oil beneath a salt layer that is difficult to drill through). OGX recently missed a debt payment because of its inability to obtain sufficient financing to work its way around a long-term negative cash flow situation.  It reports that most of the oil fields it has explored are not economically viable–the cost of extraction would be higher than the price available in the world oil market.

Because the financial limit is invisible, companies and government agencies have no way of excluding the too-expensive-to-extract oil from their estimates. A reasonable case can be made that at $100 barrel, oil price is already adversely affecting the economy. Without quantitative easing and deficit spending, the economy would be in recession from high oil prices now. Thus we are already hitting the financial limit, even though companies can see a huge amount of more oil that is theoretically available to extract. The only minor catches are that (a) consumers need to be able to afford to purchase the high-priced oil, and (b) oil companies need to be able to obtain ever-more cheap financing to extract it.

How Oil Limits Tie in with Energy Returned on Energy Invested (EROI)

Dr. Charles Hall and others have calculated Energy Return on Energy Invested (EROI) for various fuels (Hall and Klitgaard 2012). The basic premise is that the more energy is needed to extract a fuel, the less efficient it is for providing needing desired energy for society. Hall’s research has shown that over time, the EROI for each fuel extracted tends to decline. This is very similar to the rising cost of extraction over time I am showing in Figure 6. The main difference is that I include all relevant costs, including wage costs, taxes, financing costs, and distribution costs, rather than just energy costs associated with extraction.

I have talked about required oil prices already being too high, and thus causing recession. In many ways, this is parallel to saying that the EROI of oil is already too low, and is leading to recessionary problems.

Some people (for example, Garcia 2009, which seems to be used in used in Randers 2012)  would like to use EROI comparisons to determine what might be a suitable substitute for oil. I do not consider this a suitable use for EROI for several reasons:

  • Substitutability away from oil is very poor in the short-term, especially if we are up against a financial limit that will make substitution even more difficult in the future. The use of EROI in this manner assumes that substitution is really possible.
  • EROI does not consider some important variables, including the timing of investment (and thus the need for long-term financing), and governments’ dependence on tax revenue from oil. Even in the US, governments obtain considerable revenue from oil extraction. According to Barry Rogers in the Oil & Gas Journal, in North Dakota, the total “government take” amounts to $33.29 on an average $80 barrel of tight oil.
  • If substitution were to take place, huge transition costs would be incurred, such as  early retirement of the current vehicle fleet, and higher capital costs (and thus more energy expenditure) related to the new vehicles. Simply considering EROI would miss these costs.


When we hit oil limits, we are really up against Liebig’s Law of the Minimum. Applied in this situation, this law would say that if a necessary fuel is missing, the economy will not operate properly. This law originally was used to describe a problem in raising agricultural crops. If a necessary nutrient (such as phosphorous) was not present, it didn’t matter whether excess amounts of other nutrients were added. The plants could not grow properly unless the missing nutrient was available.

With oil, the situation is pretty similar. The economy cannot operate as usual, without an adequate supply of cheap oil (or in EROI terms, high-EROI) oil. All of the talk about substitution for oil is irrelevant, if our problem is a financial problem we are hitting right now, or in the very near future.

In order to have prevented our financial problems, several years ago we would to have needed to put in place a substitute for oil with very little or no transition costs. Ideally, the substitute could have kept transportation costs very cheap—comparable to the cost before the run-up in oil prices starting about 2003.  Ideally, the substitute would also have worked for other oil uses, such as for powering irrigation pumps, for powering agricultural equipment, and as a chemical feedstock for asphalt, for medicines, for herbicides and pesticides. To be truly an oil substitute, the new product would need to be available sufficiently cheaply that it could be taxed heavily, to make up for lost revenue from oil royalties and other taxes.

Now we are faced with what looks like an unsolvable problem. We need a cheap oil substitute, yesterday. The stories we heard saying, “Substitutes will work when the oil price rises high enough,” were a bunch of nonsense. The folks who came up with this idea didn’t realize what a negative impact high oil prices have on the economy. A high-priced substitute for oil is not at all helpful. Neither is one with huge transition costs.

Without a substitute, we need to figure out how to live in a very changed world, one facing financial collapse–a very difficult problem indeed.

247 thoughts on “Our Oil Problems are Not Over!

  1. Dear Gail and Others
    There is so much disagreement about houses that I feel a brief exploration of the topic is in order. The first stop recommend is this video with Paul Wheaton talking earlier this year in San Diego. Click on the video. Go to the 10:45 minute point and then the 21 minute point and then to the 29 minute point for brief discussions of Annualized Thermal Inertia, really cheap houses, and solar drying of food. Then click on the second link for an explanation of what is going on in terms of using earth as a thermal inertia storage medium. For the sensitive, I will warn you now that Paul sometimes uses strong language…I don’t think these short clips are too bad.


    The Earthships also use thermal inertia, but incorporate some other ideas as well.

    An early Arctic explorer spent a winter on Greenland in a sort of tube. By the end of the winter, his breath had frozen around him so that he could barely get out of the tube. At the other end of the spectrum, Adam and Eve wandered around Eden and most likely never built a house. In effect, the garden was their house. So humans can survive in all sorts of places called ‘home’. Parisians are noted for sleeping in little cubbyholes and living in cafes. Citizen Kane built Xanadu, with countless rooms and so many treasures they could not be catalogued. California in the 1950s invented the notion of ‘bringing the outside inside’, and built patios that melted seamlessly into drawing rooms. I once ate dinner in a California winery where it was hard to tell what was on the inside and what was on the outside. Many Mediterranean cultures used houses as a place to hide the women from prying eyes. In San Francisco, women use their house as a place to decorate themselves in preparation for their forays into the cafes. Today, many people have home offices. I once saw a house in New Jersey which was built as a weekend corporate getaway for the company bigwigs in Manhattan–not a practical thing in it and very expensive. In short, there are a wide variety of different practical definitions of ‘home’ or ‘house’.

    It is obvious that the requirements one asks of a house depend on how one plans to use it. Paul Wheaton thinks and acts like a homesteader. Most of the day will be spent out and about doing the work that needs to be done. The purpose of the house is, first, shelter and then practicality (including things like computers) and then comfort at the end of the day. If we think about the 1950s suburban house and then we think about how David Holmgren proposes to repurpose it for the Age of Energy Descent, we find quite different purposes and consequently different activities taking place and physical modifications.

    Earthships, which came along 30 or so years ago, were typically built on cheap land in the arid West by people who didn’t have the psychological need for close neighbors (and maybe had the opposite) and who wanted to be more self-reliant. The land was cheap because it didn’t have utilities. If you have ever tried to get utilities extended to a remote homesite, you know what an expensive proposition that is. So the houses were designed to be off-grid. And if you are going to be living in that glorious landscape, it seems a crime to live in a tube such as sheltered our Greenland explorer. The Earthships cleverly integrated the thermal mass of earth, the insulating power of used tires packed with dry dirt (dry dirt is important in the two links above), a clever water cycle, full use of gravity, and the greenhouse effect of a wall of glass. Somewhat reminiscent of the Biosphere effort in Arizona.

    One of the threads which unites all these houses is the desire for energy efficiency. There is little or no external energy used for heating and cooling. Unless you live on an island with trade winds, that means insulation with earth. What you will choose to build depends on your land, your neighbors reactions, your own proclivities, how you plan to use your house, and your budget. All these guys avoid mortgages.

    Finally, a great deal of energy in the home goes to the manipulation of food: refrigerators, stoves for canning, glasses for canning, etc. Solar drying cuts out a lot of that external energy requirement. (Fermentation cuts out the processing energy, but requires either glass or earthenware storage which does require energy to make).

    Don Stewart

    • Dear Gail and Others
      Two more pictures of unconventional houses in Paul’s talk. At 58:30 he shows a picture of a tiny house. At 1:01 he shows a picture of an insulated shipping container which has been turned into a house.

      Note Paul’s discussion of the plain front on the shipping container. The inside and back are nicely fixed up to be friendly to humans. The front is plain so that the owners are not drawing the attention of people driving by. This is probably illegal (as is the tiny house). Having a house which doesn’t draw attention helps if you are doing something illegal.

      Why are these illegal? Because humans are inherently drawn to dividing ‘us’ from ‘them’. In the Robber’s Cave experiments in Oklahoma in the 1950s, boys were selected who were as uniformly white and middle class as the scholars could manage. When taken to the camp, the boys nevertheless quickly divided into two groups and the scholars had to cut the experiment short to avoid violence.

      If you have a shipping container in your back yard to store all the surplus stuff you have, you are one of ‘us’. Possibly up to your eyeballs in debt, but ‘comfortable’. People who refuse to go into debt and live instead in shipping containers are definitely ‘them’. A shipping container in the yard storing stuff does not have a negative impact on property values (except in very ritzy zip codes), while very few people want anyone living next to them who is so ‘other’ that they live in a shipping container.

      Don Stewart

    • Don

      Great stuff.

      You missed out: home as a place to watch TV and absorb propaganda……

  2. Can anyone tell me how much of GDP is deficit spending and quantitative easing? And how much oil the US. consumes versus how much oil it produces. The numbers seem way off!

    • With respect to oil production vs oil consumption oil consumption. The US in 2012 produced 6.5 million barrels a day of crude oil. The US’s net imports was 7.4 million barrels a day. (The US actually imported 8.5 million barrels a day of crude, and exported enough products to bring the net imports down to 7.4 million barrels a day.)

      The US consumed 18.5 million barrels a day of oil products in 2012. The difference between the 18.5 million consumed and the (6.5 million bpd of US crude) plus (7.4 million bpd) is 4.6 million bpd of “other stuff” the US produces, that isn’t really oil, but is included in the total to hide the problems with crude oil. It includes ethanol, plus “natural gas liquids” (propane, butane, and ethane), plus “refinery expansion” that takes place when the US processes crude oil (including imported crude oil).

      So one way of looking at the amounts would be to say that the US imported 7.4 million barrels a day out of 18.5 million barrels of consumption or 40% of the total. If you don’t give the US credit for all of the other stuff, the US imported 7.4 million barrels a day, out of (7.4 + 6.5 =) 13.9 million barrels of oil per day, or 53% of the total.

      With respect to the question about how much of GDP is deficit spending and quantitative easing? Quantitative easing does not directly go into the GDP calculation, so the answer in one sense for QE is $0. In another sense, both the deficit spending and quantitative easing (to keep interest rates low) were necessary to keep the economy from imploding, so a fairly large percentage of GDP is a result of these programs.

      In total the amount of US debt is over $16 trillion. The national debt increased from $14.8 trillion at 9/30/2011 to $16.1 trillion at 9/30/2012, an increase of $1.3 trillion. This compares to US GDP of $15.7 trillion for 2012, or about 8%. I don’t think it is very helpful to compare this deficit to GDP, because we don’t pay taxes on GDP–taxes are on a much smaller base, predominantly wages. Wages amounted to $6.9 trillion dollars. If the shortfall were to be collected as a tax on wages, it would need to amount to something like 19% of wages. (Social Security taxes were raised by 2% of wages, so part of the shortfall has already been made up.)

  3. The Economist urges “Let decaying British towns die”:

    And I always thought the Economist represented the cornucopian view that there’s enough for everybody.


    “Hasn’t America tried more-or-less letting cities grow and shrink naturally, and isn’t the result Detroit? Yes, but this is to focus on one side of the ledger. America has some shockingly ruined cities, but it also has shockingly successful, fast-growing ones, like Houston and Raleigh. And Detroit was brought down partly by the weight of pensions owed to its police and other public-sector workers. In British towns, pensions are either much better funded or are paid by the national treasury.”

    Is that so? Yet still the UK government has debt over a trillion pounds sterling.

    • I haven’t looked at European figures, but I cannot imagine that the governments will possibly be able to pay the pensions promised (or alternatively, that the money provided by the pensions will be worth very much, when it actually comes to buying goods and services).

      We are beginning to see a situation with a shrinking “economic pie” instead of a growing one, in the US, Europe, and Japan. Everything looked great, as long as the model showed growth forever, and citizens getting a reasonable percentage of a growing economy. But if the economy is flat or declining, it is very hard to make the numbers work out right.

      I suspect households in Japan have high ownership of Japanese government bonds because households are trying to fund their own retirements. I am afraid Japanese households will run into the same difficulty as everyone else.

  4. Dear Gail and Others
    Here is a link to Joel Salatin talking about several things we have discussed in this particular post and also in other recent posts.


    I suggest you go to the 55:30 mark for a discussion of a one acre homestead. You will get advice about how to configure the house as well as things to grow. The house recommendations cover many of the same features as an Earthship, but without the use of dry soil as an insulator or the generation of your own electricity or the use of gravity for the water system. He is assuming you already have a house, you just want to make it more efficient. Listen for about 4 minutes.

    Then skip to the 1:09:00 point where he talks about his distaste for farmer’s markets and expresses his opinion that distribution is the inefficient, weak link in the local food system, and the farmer’s market is the most inefficient link of all. He talks about the alternatives. He also drops the comment that Amazon Fresh may put Wal-Mart out of the food business. (My opinion is that the kitchen garden is the real answer to fresh produce, and he recommends a kitchen garden in his first answer.)

    The next question relates to his summation of his life experiences. He says that we mostly have no idea how productive land can be if we approach it with care and imagination and husbanding its inherent capacity for fertility. Treating a farm as something to which you add inputs is a fundamental error (Liebig’s Law is a Distraction?).

    The last two questions and answers total about 15 minutes. Of course, Joel is always informative, even when describing which pair of pants he chose to wear today…so feel free to listen to the whole thing.

    Don Stewart

  5. Hello, I will put these links up for anyone interested… Here are a couple of things I was looking at and listening to today.

    This first one is an interview of David Stockman about the coming financial crisis. A good interview outlining a big crisis coming that likely will be larger than 2008.


    This one is an article about the honey bees and how Diesel may be to blame. It would be good to electrify our tractors and all vehicles if we only could.



    • Thanks! I hadn’t seen the diesel and honey bee article. With the honey bees, the problem seems to be a bunch of factors working together.

      Stockman has been saying something similar for a while now, but another good interview doesn’t hurt.

      Edit: I listened to the Stockman interview. It was well worth listening to. He doesn’t understand the oil problems underlying our current problems, but he understands why the Fed is out of ammunition, in trying to fix financial market problems.

      • Dear Gail
        I’ll just observe about the honeybees that they are an example of David Korowicz’s thesis about the collapse of complex system. A bee or a human or the global industrial system are all complex. The bee can endure one or two or three insults (such as pesticides or being trucked to distant locations) but at some point the bees defenses cannot cope with the insults and the colony collapses. Korowicz says something very similar about the global industrial and financial system.

        And we have a very poor record trying to predict exactly when the insults will overwhelm the homeostatic systems.

        Don Stewart

  6. Dear Gail and Others
    One of my pet peeves is that analysts frequently fail to take into account behavior changes. They project trends which (predictably) hit brick walls, with the implicit assumption that human behavior won’t change as the wall approaches. The assumption about inflexible behavior may be a good assumption, or a poor assumption. But my complaint is that by ignorning the potential for changed behavior, the analyst mislabels the problem. The problem IS NOT the trend, the problem revolves around the human behavior change.

    Let me give you an example. Lester Brown, in an interview with Chris Martenson (which is probably behind a paywall) projects that food production is peaking and thus dire consequences await an increasing human population. Lester is assuming that everything will continue on trend and the trend will hit a brick wall and that will be that.

    Now I will show two examples of analysts who look at behavioral changes which can mitigate the projected disaster. First, look at Brian Kaller’s article:
    Brian asks the question, ‘Is it necessary to really waste 30 to 50 percent of the food we produce?’ And the answer, of course, is no.

    As a second example, see Toby Hemenway’s essay:

    Toby points out the work of Howard Odum showing that the primary production of food is low on the complexity chain. Would a sane government (which must exist somewhere in the galaxy) sacrifice food production to save Wall Street? Toby also mentions the fact that gardens are grossly underutilized, that more productive (but more labor intensive) farm methods can be used, and other factors which are subject to human volition.

    It MIGHT be true that a species with the very limited sapience identified by George Mobus will drive right into the brick wall at 90 miles per hour, but it is also possible that at least some people will avert the wall through changes in behavior. By failing to consider the potential for change, I think people like Lester Brown just foster an attitude of hopelessness. When we are hopeless, we shut down our problem solving apparatus. As stupid as the ‘equal time’ rule appears on TV news programs, I think that those programming interviews should make an effort to interview people who are doing something about the particular issue. It doesn’t have to be in the same program, but suppose Chris had ended with ‘and in the coming weeks we will be talking to people who are doing something about food supply’. I know that Chris and Adam Taggart are both personally doing something. You’d never get that from Lester’s comments.

    Don Stewart

    • Another example…
      It is common in the Peak Oil community to say that ‘food is oil’ or that ‘without genetically modified crops we would all starve’ with the background understanding that the high tech world of genetic engineering is fuel intensive.

      Take a look at these graphs:
      They’re small, and I don’t know how to enlarge them. So I will tell you what they say.
      1. Genetically engineered corn has exploded since the year 2000.
      2. Yields have not increased very much at all since 2000.
      3. Most of the increase in corn production is due to more acreage planted in corn.
      4. Corn prices have risen pretty dramatically.
      5. We are diverting a large share of the corn crop to ethanol.

      These graphs tell you a number of things, if you bother to connect the dots:
      1. Genetically engineered corn shows no signs of solving an real problem except that it does make bales of money for Monsanto and Bayer.
      2. If we want higher yields of corn, then we are likely going to have to use more labor intensive methods rather than more fuel intensive methods.
      3. All those government officials who actually work for Monsanto should be tried for treason. Government efforts to prevent us from knowing when a product has ‘Monsanto content’ are certainly not government ‘of, by, and for the people’.
      4. A loyal citizen wouldn’t buy a product with any ‘Monsanto content’.
      5. Bill Clinton talked about the idiocy of corn ethanol in his talk at Omega. Government programs which require the production of corn ethanol are similar exercises in stupidity and/ or treason.

      I submit that the great majority of Peak Oil pundits claim:
      ‘We are running out of oil and since food is nothing but oil, we will all starve’.
      A more nuanced claim would be that:
      ‘Some of the most emergy inefficient processes revolve around stupid programs. IF we can look at graphs and draw sensible conclusions from them, and IF we can regain control of the government from the lobbyists, THEN maybe we don’t have to starve even as oil production declines.’

      Don Stewart

    • George Mobus is one of the most perceptive observers around. Time spent reading him is always worth while. He’s more or less given up on Homo Sapiens, Current Model. But somehow one doesn’t despair having read him.

    • Mass food production via gardening could be a game-changer, I agree.

      Change of behaviour requires Leadership, the thing we always hear about from the so-called global leaders and never get.

      None of them tire of spouting the ‘recovery and growth is just around the corner’ lie, but not one takes a photo op with a spade in their hand…….

  7. Hi Gail.

    First of all excuse me for my poor English because I’m not a native speaker. I’m Spaniard. I have read in different fonts that the money the FED creates via the mechanism euphemistically called “quantitative easing” never ends in the real economy: it never gets out from the banks accounts. In their opinion, quantitative easing is done in order to prevent banks bankruptcies and never gets out from the financial system, a monster bigger than the real economy.

    If they are right, how oil companies can benefit from QE? I’m not living in the USA and I’m not an economist, so I’m not sure if the USA is living a moment of easy credit for consumers and companies.

    Thank you for your time.

    • Quantitative Easing is part of a “package” that includes low short term interest rates and deficit spending as well.

      One of the things quantitative easing does is keep long term interest rates artificially low. Investors looking for higher yield will then invest in a variety of kinds of things–speculative oil drilling, which will tend to help keep oil supply up; investors buying houses to rent out, which will help raise housing prices, so there isn’t so much of a problem with people having more debt than their house is worth; and perhaps even factories–but it is not at all clear that many factories are being built with the money. There are probably quite a few speculative bubbles in asset prices because of QE, in stock prices, farm prices, commercial real estate, and housing prices.

      With the low interest rates, new homes and new cars are more affordable. This helps keep up “demand” for houses and cars, and thus employment in these industries. Other types of building is also affordable–for example, government building and commercial building.

      Low interest rates also lead to a need for less high taxes, because the interest on the government’s own debt is lower. If the government doesn’t need to raise taxes, it leave the taxpayers with more dollars, that they can spend on other things (including gasoline and diesel for vehicles).

      As you say, the Quantitative Easing also helps out the banks, by moving iffy debt out of the system.

      QE also assists the US in continuing to issue large quantities of debt, because this way, the market does not get over-saturated with US debt.

      If the Federal Reserve were not doing all of these things, it seems like there is a good chance that interest rates would be much higher, taxes would need to be higher, and the US would be officially back in recession. In such a case, oil prices would likely drop too low, because of the lower demand for oil. If this were to happen, the output of oil would drop–perhaps not immediately, but there would be a drop in the drilling of new wells. Over time, this would lead to a drop of oil supply.

      So I think you are right. The US is living on a moment of easy credit for consumers and customers.

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