Two Views of our Current Economic and Energy Crisis

As the US heads toward debt default and continues with government shutdown, the underlying reason for the predicament is generally not clear to the American people or the world. The story that the press has generally been feeding us places the problem as basically a temporary one, caused by conflicts between the Democrats and Republicans.

It seems to me that the problem is much deeper. In this post, I summarize the two views, and provide reasons why the Predominant View is very far off the mark. We may be headed for a financial collapse that the Predominant View misses completely.

Predominant View of our Current Economic and Energy Predicament

The world economy under “normal” circumstances grows. Economic growth can sometimes slow a little, and then a little Keynesian stimulus is needed. Such stimulus would typically include deficit spending and low-interest rates. Perhaps it would include “Quantitative Easing” as well, since it tends to stimulate interest in buying assets of all kinds.

With the Predominant View, economic growth can continue indefinitely, without slowing down or stopping. In fact, the pursuit of economic growth becomes almost a national religion, with Ben Bernanke (probably succeeded by Janet Yellen) as its high priest. With unlimited economic growth, it is easy to have our current monetary system, since debt, and the repayment of debt, “works” well indefinitely. In fact, we can have pension plans, Social Security, and the many wonders that our financial system can deliver. We also can have more and better technological innovations, because there is always an abundance or the resources needed to make these innovations.

The late economist John Attarian describes this secular religion under the name “Economism” (Attarian 2005). According to him, under Economism, one’s life purpose is to attain affluence, so as to maximize access to consumer goods. With this belief, affluence is the universal solution to problems and grievances. Give people enough money, jobs, goods and services, and they will be happy and peaceable.

With this view, the big problem in the future is pollution, and in particular climate change caused by carbon dioxide and other gasses affecting the climate. Coal is viewed as particularly bad in this regard, oil is somewhat less bad, and natural gas better yet. Nuclear is a concern for a variety of reasons, including lack of a place for spent fuel.

To prevent/mitigate climate change, the view is that we must take steps to reduce fossil fuel usage over the next forty years. The view is that improved technology is likely to be helpful in this regard, because new technology will allow us to become increasingly efficient in our use of fossil fuels. “Renewables” can perhaps be ramped up greatly.

Birth rates can likely be reduced, through increased education of women. If there is a problem with a declining amount of resources per person, this problem can be mitigated by sharing what we have more equally. Perhaps job sharing can become more common, with each worker having part of a job.

Sustainable solutions are viewed as ones that use less fossil fuels. The “plan” is to have ever-increasing GDP per unit of energy consumption. The economy will become ever more service-oriented. People will learn to be happy with more services and fewer goods. We can move forward to a sustainable future.

With this view of the future, the economy is fundamentally fine. It will return to stronger growth in the near future, perhaps using less energy. The huge amount of stimulus currently being put into the economy through ultra low-interest rates and Quantitative Easing can be dropped back, without adverse results. With the Federal Reserve in charge, and with similar groups in charge in other countries, there is nothing to worry about.

Problems with government debt in the US, many parts of Europe, and Japan will somehow take care of themselves, if the various political parties would learn to get along better, and perhaps wait a bit for economic growth to resume on its own.

An Alternate View of our Economic and Energy Predicament

This story is very different from the Predominant View. Energy is critical to the growth of human civilization, because all types of goods and services require energy for their production. Once built infrastructure has been added, energy needs to be of the specific type used by this infrastructure.

In the world today, oil is the single largest source of energy. It is also the most versatile, and because of this, it is the most highly valued energy source. Extraction of oil has become problematic in the last decade, for two reasons: the quantity is not growing very rapidly, and the cost of extraction keeps rising. This rise in cost occurs because we extracted the easy-to-extract oil first. Now we have to move on to the more difficult (and expensive) to extract oil.

I have referred to the rising cost of oil extraction as an Investment Sinkhole Problem. We invest more and more dollars (and quantities of resources of various types), but the amount extracted barely increases world-wide. Economists would call the problem declining marginal returns on investment. When oil could be extracted cheaply, there was a huge gap between the cost of extraction and the value provided to society by this oil. Now, as the cost of extraction has risen, the difference between these two amounts becomes much smaller. If we were depending on this difference to help fuel economic growth, we are losing this benefit.

Viewed in terms of feedback loops, the huge amount of value added to society by oil over and above its cost of extraction used to lead to a positive feedback loop, favorably affecting economic growth. For example, (a) taxes on oil extraction would provide significant revenue, and (b) with low oil prices, roads could be built very cheaply. Both situations benefitted the economy.

Now at a higher cost of extraction, the value added to economies around the world is lower, leading to lower economic growth. At some point, not far away, the cost of extraction will exceed the value that this oil provides to society. At such a point, it will no longer make economic sense to extract oil. Adding more high-priced oil will lead to economic contraction, and quite likely, ultimately, collapse. Joseph Tainter in the Collapse of Complex Societies (1990) tells of many civilizations that reached declining marginal returns of investment and ultimately collapsed.

Oil and the Production Function

Figure 1. Graph of total, average, and marginal product, based on a quadratic production function, from Wikipedia.

Figure 1. Graph of total, average, and marginal product, based on a quadratic production function, from Wikipedia.

Economists talk about production functions describing how the economy works. In general,  a “production function” for the economy is of the form

Q = f (X1, X2, X3, . . . Xn)

where Q = Quantity of Output

and X1, X2, X3, . . . Xn are quantities of factor inputs, such as labor, capital, and land or raw materials.

Using the production factor approach, oil needs to be one of the Xi variables, because it is critical to the function of the economy. Oil is important for transportation, agriculture, as a lubricant, and as a raw material used in making many products such as medicines, fabrics, and asphalt. Substitutes for oil are very limited–mostly ethanol, which acts as an oil extender.

Figure 1 represents the situation where only one the of the inputs, in this case, oil, is allowed to vary. We are rapidly reaching the point where the cost of extracting oil is so high that in total, society is worse off, in terms of the total amount of goods produced by society. On Figure 1, we are reaching Stage 3.

The fact that we are reaching diminishing returns with oil is a major reason why world economic growth is slowing. It is also a major reason that many of the heavy oil consuming nations have been struggling with recession-like symptoms. These symptoms are mostly being covered up with deficit spending, ultra low-interest rates and Quantitative Easing. If this stimulus ever stops, there are likely to be huge problems.

Debt’s First Tie to Economic Growth

Debt is very much tied in with this story. GDP is a measure of how much is produced, whether or not debt is involved. Thus, if a new house or a new car is built, the value of the car is included in economic growth calculations, whether or not the house or car is bought 100% on credit.  Not only are we reaching limits on oil production (because the cost of extraction is becoming higher), but we are also reaching limits on debt, because economic growth is slowing.

Figure 2. Author's image of an expanding economy.

Figure 2. Author’s image of an expanding economy.

The fact that adding debt is easier in a growing economy than in a shrinking economy is obvious, if a person thinks about it.

If the economy is expanding rapidly, it is easy to add debt, because borrowing from the future always looks like it provides a benefit. In fact, it is possible to pay fairly high interest rates, in a growing economy, without profits being badly depressed. Businesses get the advantage of economies of scale, helping their profits and their ability to pay back debt. Reinhart and Rogoff (2008) unexpectedly stumbled across this phenomenon in examining eight centuries of financial crises. They reported, “It is notable that the non-defaulters, by and large, are all hugely successful growth stories.”

Another situation where debt works well is if the economy is close to flat, but with debt, it is possible to add inexpensive fossil fuel energy. In this case, the value to society in terms of the work performed by the fossil fuels in far in excess of the cost of extracting the fossil fuel energy. This difference can feed back into the system, through cheap infrastructure, rising tax revenue, and even rising wages of workers, helping economic growth along. Thus, even though the economy was not growing at the time of the initial loans (these loans would be to potential consumers, to potential factory owners, and to potential extractors of the energy), the debt did in fact enable growth, by helping the huge difference between the cost of extraction and the value to society of the energy flow through to the economy.

Figure 3. Author's image of declining economy.

Figure 3. Author’s image of declining economy.

A shrinking economy can handle much less debt. Businesses, instead of seeing economies of scale, find that fixed costs are increasingly high compared to sales. Thus, their profits tend to shrink, even before debt service is added. Workers experience layoffs frequently, and often find that their new job pays less than their old job. This problem makes debt repayment difficult. If the economy is in fact reaching Stage 3 in Figure 1, because of diminishing returns with respect to oil, additional debt simply pushes the economy toward collapse more quickly.

Debt’s Further Tie to Economic Growth

There are two reasons why increasing debt is important for economic growth. First, increasing debt gives governments, businesses, and individuals increased spending power. For example, with a new auto loan or new home loan, a person is able to purchase an automobile or a home. This aspect or increasing debt is referred to as “increasing demand”–really the increased ability to afford goods.

If debt is declining, the situation is similar to the situation where few new loans are given–instead the old loans simply need to be paid off. If these are home and car loans, the number of cars and homes sold would likely drop back greatly.

A second aspect is just as important. The increased demand tends to lead to higher prices. For example, suppose mortgages for homes suddenly dried up. The amount a person could get for selling his house would likely drop. The same problem would happen if car loans disappeared–there would be many fewer buyers for cars (even used cars), and the value of cars would tend to drop. The value of commodities in general would likely drop as well, because there would be fewer cars made. The fact that fewer cars are made would feed back and affect steel prices, oil prices, and prices of other components of automobiles.

A related issue is that if the amount of debt starts to drop, the feedback loop is such that it tends to encourage more contraction, lower prices, and more debt default. (Like 2008!) Such debt defaults can cause banks and insurance companies to collapse, unless propped up by the government. Lower commodity prices can lead to a cutback of oil production. The expected feedbacks are especially bad if the economy is already reaching Stage 3, in Figure 1.

At this point, we have a great deal of oil extraction that is financed by debt. As we get to the more expensive oil, there will be more of this that can never be paid back. The tight oil extracted using fracking from shale formations is quite possibly of this type. The president of Shell Oil Company recently explained what a disappointment its investment in shale oil and gas had been (Financial Times).

Brazil is a step further toward bond defaults. It is trying to extract expensive oil from below a salt layer offshore. Brazil’s second largest oil company recently was not able to make its debt payment, and is now being liquidated (Bloomberg). The debt rating of its largest oil company, Petrobas, was recently downgraded (Financial Times).

A person cannot help but be concerned that if we start to see debt defaults, there will be  contagion as prices drop and banks and insurance companies fail. The government is already stimulating the economy using super-low interest rates, deficit spending, and Quantitative Easing. It would seem to be running out of ammunition to fix the situation, if another round of debt defaults start. Former Director of the US Office of Management and the Budget, David Stockman, has recently talked about this issue (King World News).

The Electricity Part of Our Predicament

Electricity can be produced in many different ways, at vastly different costs. When electricity costs are low, low electricity costs also contribute to economic growth, because the cost of generating the electricity is significantly lower than the benefit to the economy from the electricity. In this respect, electricity is very much like oil.

We can think of oil and electricity both as intermediate products, that are not exactly what we as consumers can use. What we want is transportation, or light from a light bulb, or our food cooked. Our salaries only go so far. Once the share of our salaries that must be spent on these intermediate products (electricity or oil) starts increasing, the share of our salaries that can go for the applications we really want must shrink. Similarly, if more of the world’s resources and manpower go to creating wind turbines and solar panels and nuclear plants, less is available to produce other things.

The shift toward renewables has several difficulties:

  1. Renewables  are an order of magnitude less efficient in producing electricity than the fossil fuels they replaced, when the energy cost of mitigating intermittency is included in the calculation  (Weissbach et al. 2013). EROI comparisons are distorted, because they do not reflect this cost.
  2. Renewables tend to use fossil fuels heavily at the beginning of their life cycle, so do not really reduce fossil fuel use unless at some point in the future, we greatly reduce the amount of renewables we produce (and perhaps not even then, if the intermittency cost is as high as indicated in Item 1).
  3. The shift toward renewables in electricity production acts very much like the push toward high-priced oil, in terms of pushing the economy toward Stage 3 of the production function (in Figure 1), only on a different axis than oil.
  4. The view that the economy is hurtling toward climate change is based on the view that the economy will in fact continue to grow and will continue to extract fossil fuels for the foreseeable future. If oil and debt are limits that we are hitting right now, we may very well encounter economic collapse in the near future. Such a collapse will likely cut fossil fuel use of all kinds very quickly, because of low prices and disruption to systems.
  5. If, in fact, we do hit collapse, renewables will not operate the electric grid without fossil fuels, because we need fossil fuels to keep transmission lines repaired, to create and transport replacement parts, and to allow customers to have jobs to pay for the electricity. Thus, without fossil fuels in the future, our investment in renewables is of  no long-term value. (And EROI estimates are vastly overstated.)

Government Tie to Collapse Issues

Governments are perhaps the most vulnerable part of the system, if collapse hits due to continuing high oil prices.

Governments are the ones charged with bailing out banks and providing benefits to unemployed workers, at the same time that their own tax revenue is down due to reduced employment. In fact, many of the governments of big oil consuming nations (US, most of Europe, and Japan) are in very vulnerable positions, because their debt levels are very high, and they keep adding more debt. At the same time, they are pulling out all of the stops to keep their economies from collapsing, including very low-interest rates and Quantitative Easing. Because they are already so stretched, it is doubtful that they could do another round of bailouts.

The US government shutdown and debt cap limit debate is indicative of very serious problems–more than a conflict between two political parties. With slowing economic growth, there is a huge gap between what has been promised and what the government can in fact afford. No government official wants to explain to voters how bad the situation really is. So we end up with gridlock. See my post from November 2012, Understanding Our Oil-Related Fiscal Cliff.

Conclusion

The Predominant View appears to fall very wide of the mark. Limits on oil and on other resources are a signal that Nature is really in charge, not humans. We can’t escape these limits. If we try to mitigate climate change by using more renewables, we hit a different kind of limit–high-priced electricity, and the problems it brings.

Potential collapse seems to be directly in front of us. The Republican solution of more oil drilling will lead us in the direction of collapse, just as will the Democratic solution of increased debt and more emphasis on low-carbon fuels, particularly for electricity. The limits are just on different axes of the production function.

Whether or not we humans would like to be in charge, Nature is, in fact, in charge. Nature determines timeframes. The timeframe could be very close. It is even possible that the current government shutdown/debt ceiling problems will ultimately lead to US collapse, and perhaps even world collapse.

The current Predominant View of our situation is one that puts humans, and in particular current governmental officials, in charge. Historically, governments have had close ties with religion, using religion to further their own purposes. Now, government and religion have almost been fused into one. Perhaps this close tie is the reason why it is so difficult to get a well-reasoned story about our current predicament from those in charge, and why so many people are willing to believe the story we are being told.

One thing that the Predominant View misses is the fact that we live in a finite world. This means that growth must at some point slow, and ultimately be reversed. The world operates in cycles; we can’t really change this. Nothing is permanent. The species that are dominant will change; humans may even lose their dominance. The climate changes, although perhaps not as fast as it is currently.

Another thing that the Predominant View misses is the fact that energy of the right kinds is absolutely essential for the functioning of the economy. The view that there will be a substitute is more “faith-based” than it is based on objective facts. The Predominant View also misses the point that the substitute needs to be cheap; high-priced energy is terribly bad for the economy–it can easily push the economy into Stage 3 of the production function. The fact that high-priced oil is likely to lead to a debt unwind is likely to make the situation worse than it otherwise would be.

A major debt unwind is likely to lead to low prices for oil and commodities of all types and significant job loss. This is analogous to the problem the 1930s Depression. The big difference is that in the 1930s Depression, job loss was associated with the falling price of food, as fossil fuels replaced human labor, bringing food production costs down, and leaving many unemployed. (Stiglitz 2010). In that scenario, there was still plenty more cheap fossil fuels in the ground. Therefore, more debt and stimulus programs could re-inflate the economy, because it could lead to more use of cheap fossil fuels in non-agricultural sectors of the economy.

We are now at the edge of a very different scenario. We are reaching debt default limits because we have extracted the easy to extract oil. Additional extraction can only be more expensive and thus push us further into Stage 3 of the production function, or more toward financial collapse.  As the economy naturally shrinks, there is no longer a way that more debt can re-inflate the system. Instead, the use of debt must reach a new, much lower equilibrium. Because of debt’s tie to banks, pension funds, insurance companies, and the rest of the financial system, this is a huge problem.

We can think that the growth of human systems, including the economy, will go on forever, but we are almost certainly kidding ourselves. At some point, when Nature decides, new species will dominate–perhaps plants that can use more CO2. The transition will be the transition Nature dictates.

We are kidding ourselves if we think that we can decide to slowly reduce oil and fossil fuel usage over the next 40 or more years. If oil prices drop to, say, $30 barrel because of debt defaults, oil production will drop very quickly–not based on some slow decline curve. Natural gas and coal prices will drop dramatically too, essentially putting an end to their production. Jobs will disappear with the lack of fossil fuels. Eighty or ninety percent of us will again need to work in manual food production without fossil fuels. Education, government, and services of all kinds will shrink rapidly.

Nature is deciding for us right now what is ahead. We likely will have little choice in the matter. If we do have a choice at all, it is likely to be in the direction of serious back-pedaling, in terms of population, and in terms of learning to live essentially without fossil fuels. The future is likely to be very different from the past.

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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388 Responses to Two Views of our Current Economic and Energy Crisis

  1. dooomerdad says:

    Can you explain what currency and money have to do with finite supplies of energy? To me energy is real and currency is a construct we use to trade energy, however currencies are usually short-lived (relatively).

    • You stand 100 men in a circle, and give each man a shovel and an infinite supply of paper money.
      Each man is told to dig a hole, and shovel the dirt into the hole on his left, and buy dirt to fill his hole from the man on his right. The dirt can be bought and sold for any price, without limit. A Million dollars a shovelful?–no problem, print more money.
      Just one rule is enforced, anyone leaving the digging circle, or even stopping digging for any reason whatsoever loses all his money.
      Eventually everyone stops digging.
      Why should that be—are they not being paid millions to dig holes? they should all be billionaires.
      To bring that scenario into reality, the energy input side of our industrialised economy is disregarded completely
      No one in government, or economics, accepts that money has no value or use without energy input, the consensus of accepted belief is that spending money in ever increasing amounts makes everyone rich.
      Even Paul Krugman, a nobel prizewinner for economics, is on record as saying that: his spending pays his neighbours wages, his neighbours spending pays his wages.
      With economic thinking on that childish level, is it any surprise that the economy is tanking?
      It is more comforting to believe Krugman and many more like him, than to face reality

      • timl2k11 says:

        That is a great analogy. Money = A Claim on (future) Energy. However if there is no energy available then money is worthless.

        • Leo Smith says:

          Money = A Claim on (future) Energy.
          However if there is no energy available then money is worthless.

          I think you have hot on something beyind and better than you intended there

          • Oelsen says:

            A claim or a bet on the future workings of society. So a bet for the masses, a claim for those who can “organize” money. (Banking, Renters)
            The fundamental machine is the part the money claims. Or bets. If that is oil or wheat is not important.

      • timl2k11 says:

        I think the comment system is currently borked, my replies are not showing up where they are supposed to.

        • timl2k11 says:

          It’s fixed now.

        • I have the setting at allowing linking only 5 comments “deep,” because readers were complaining that allowing more made the indented comments too narrow to read. It is possible to raise the limit up to 10, but that creates readability issues. The work-around is to include more information in your response, so that loss of that connection is not a big problem.

          Let me know if you see other problems, so I can complain about them to WordPress.

      • Landbeyond says:

        And Krugman’s silly little articles litter liberal/progressive media, and he is fawned on as some kind of oracle.

  2. You appear to have moved into the Uber Doomer Extinction Level Event camp with Guy McPherson.

    “Nothing is permanent. The species that are dominant change, perhaps even humans. ”

    “We can think that the growth of human systems, including the economy, will go on forever, but we are almost certainly kidding ourselves. At some point, when Nature decides, new species will dominate–perhaps plants that can use more CO2. The transition will be the transition Nature dictates.”

    I still think this is unlikely in the near term, though a massive population knockdown is definitely coming down the pipe. Civilizations Collapse without it necessarily ending all Human Life on Earth. It is the Tower of Babel Moment we are at now.

    http://www.doomsteaddiner.net/blog/2013/10/13/tower-of-babel-moment/

    RE

    • Lindon says:

      RE, I love your Doomstead Diner blog and visit it daily, but have not commented yet. Love your bugout machine — you got me thinking… I agree that we are certainly at a Tower of Babel moment (love the terminology you mint also…). We are going DOWN, dude!! When, how soon, and how bad will it be. Whip out that Crystal Ball that I know you’ve got hidden in some compartment in your bugout machine, RE. What do you see?

      • Thanks Lindon, and drop on a Comment one of these days. The same old Diners arguing every day gets old after a while. LOL.

        I’ve been doing the Nostradamus thing now for 5 years on this topic starting on PeakOil.com, and for the most part I have got everything right in terms of Sequence. 🙂 I predicted Sovereign Debt Collapse back in 2008), but my timelines have not always been too good. I’ve made some good short term market predictions, but bad long term ones. I have consistently underestimated Can Kicking Power by Da Fed and the TBTF Banks.

        Overall I am with Steve from Economic Undertow and see a mathematical limit being hit here by the end of 2014. I also think we will have more of a Fast Crash than “Slow Catabolic Collapse” per John Michael Greer or “Long Emergency” per Jim Kunstler.

        I think the FSoA will dissolve as a single entity into Regional Units, maybe about 8 of them. I mapped this out a few years ago on Reverse Engineering. Prior to that though, you probably see a last gasp expansion of the Fascist/Military state we live under. IOW, we will see Martial Law for a while and a Civil War of sorts.

        Regional Wars for resource (Oil) in MENA may last through this period also, but I don’t think we will go full on Thermonuclear Battle for all the Marbles with the Chinese. Internal problems in both countries will make that impossible to run logistically, besides it behooves nobody to do it, not even the Illuminati.

        I doubt that FEMA will survive long enough to run Nazi Style Death Camps. Basically, I think the Big Shities are themselves the Death Camps. Starvation and Disease will take down MOST of the current population of Homo Sapiens living in these places. This I think occurs over a 20-50 year timeline, but again my timelines have not played out that well all the time.

        I don’t think we will denude the planet of Forests trying to heat homes or even smelt metal and make glass. I think once the system breaks we will have a period of Scavenging, and then finally revert to Stone Age tech.

        Total Final Population of Homo Sapiens on Earth in a Century? Maybe 100M. After that, who knows exactly how long we got left, but it is certain it is no more than 500M years on this planet, and I don’t think we will leave it either.

        So if we go Extinct in 200 years or 200M years, does that really MATTER to YOU? Nah. What matters to you is how the rest of your life goes, and basically you gotta make the best of a bad deal. Or a good one, looked at from another perspective.

        How many people ever born get to Witness a Civilization Collapse? They don’t come along that often you know. 🙂

        RE

        • Leo Smith says:

          How many people ever born get to Witness a Civilization Collapse? They don’t come along that often you know. 🙂

          by definition, more than live through any other period. 🙂 🙂

          True collapse on the scale Gail envisages will take out perhaps 90% of the worlds population.

          • I should have said “How many GENERATIONS get to Witness a Civilization Collapse?” 😛

            Collapse on the Scale Gail envisages now seems like it will take out 100% of the population, not 90%.

            I’m taking the middle ground with a 99.9% Knockdown. 🙂

            RE

        • Lindon says:

          RE, NOBODY could have predicted the can-kicking ability of the Fed, except for the financial gurus who run the Fed — that’s my guess. They may be able to kick that can right into the next century. Doesn’t seem possible to me, but you never know.

          End of 2014 is about right, based on what I’ve read and “feel”. That can-kicking is NOT a long term plan — it is a method to buy time, nothing more. During the time remaining before it all falls apart, we can be sure that TPTB are moving their chess pieces around the board, strategizing, building bunkers, stocking up — and so should we all be, as best we can. To use your terminology, the Titanic has cracked, the water is rushing in, and those of us who are able to put two and two together had better be scavenging hard and fast for what life preservers are left, to the best of our ability.

          I also see Martial Law and Civil War coming up soon enough. But I envision the U.S. Military, the NSA and the concerned citizens that are sick of a certain segment of old, white, racist, religious fruitcake citizens, all mobilizing together under a common cause to wipe that vermin off the face of the earth, once and for all, and work together to make what’s left of America a better place for all based on the new realities and commonly held values.

          Once we shut down all the widget factories, the rivers and oceans of cars driving back and forth endlessly, the constant air traffic pushing business people back and forth across the country for their face-to-face meetings and all the other extreme wastages of oil/gas, we’ll have enough energy left to carry civilization along nicely, to power the military and security, to keep a much reduced version of the Federal and State governments going, and to keep a much-needed space program progressing to the point where we can locate and neutralize that comet or asteroid that we know is headed our way at some time in the future. I doubt humans will ever make it to another solar system — we aren’t smart enough. But humans may yet evolve in the future to something even more intelligent. There may be scientific facts right in front of our eyes that we don’t yet have the intellect to grasp, the same as a dog can watch a door know getting turned to open the door a hundred times but never grasp the concept. Maybe we will evolve.

          Yeah, I’m an optimist. But if it turns out like you and others predict — total collapse and back to the stone age we go — then I’m ready for that too.

    • THe question is how well things stay together, or perhaps the reverse–how fast things fall apart. We are getting close to the point where it looks like there has to be a change–but perhaps it is not this debt crisis–it could be another one, a few months or even a year or two down the line.

      Our current situation is unprecedented, fortunately. So we don’t know how well everything will stick together. Liebig’s Law of the Minimum rules, though, and we have lots of long supply chains. Also, if debt is not available, that makes a huge difference.

      It may indeed be a number of years between the time collapse starts, and the way it actually plays out. I wasn’t trying to address that issue in this post.

      • “It may indeed be a number of years between the time collapse starts, and the way it actually plays out. I wasn’t trying to address that issue in this post.”GT

        Perhaps worthwhile to explore in Part II! LOL.

        Face it, just about everyone who reads our blogs now pretty much buys the idea the Titanic is Going Down.

        What they REALLY wanna know is how FAST it will happen and specifically how it will affect THEM. Also they want to know Mitigation Strategies.and ideas for Wealth Protection they have accumulated through the Age of Oil. The demographic reading these blogs is heavily skewed to Boomers and Silents either already retired or nearing it.

        The younger folks wanna know WTF they can DO here to make a living as Industrial Civilization spins down.

        I believe this is the NEXT PHASE for Doom Blogging, and I am building a new website to represent that phase, because really, the Predictions have now come TRUE, so it is time to figure out WTF you do about it, and how to deal with it.

        That is what I will focus on with the SUN Website, for Sustaining Universal Needs.

        RE

        • You seem to have a lot of energy!

          Regarding future occupations, if we look at prior societies without fossil fuels, food gathering/growing/preparing and water gathering were the big activities. Also high on the list were obtaining fuel and making clothes. Unless you start burning down a lot of trees, there isn’t much possibility for metal working or glass making. Homes end up being pretty simple. Healthcare involves midwifery, pulling teeth, and treatment with herbs. Defense is probably pretty important–perhaps you need moat builders. Maybe some water well diggers as well. Or perhaps those are off-season occupations for farmers.

          • Unfortunately, currently there are no University training programs for the occupations you listed. 😦

            You didn’t address Wealth Preservation for Retired Boomers like yourself. Ideas there?

            RE

            • Gold or silver coins may be of some value, so it may make sense to have some of your wealth in coins of some sort. They also may attract thieves, so don’t go overboard. A few paper bills might work too, if banks are closed.

              Don’t expect much out of your paper investments. If you actually get something out of them, you can then be pleasantly surprised.

              Spend your wealth now, while it still has value.

              Take care of your own health, but not by going to the doctor. Get plenty of exercise. Eat lots of fruits, vegetables, and nuts–not much antibiotic-filled meat or things made with flour.

              Keep on good terms with your children. You may need their help in your old age.

      • Leo Smith says:

        I am not sure it IS unprecedented.
        Empires and civilizations always fall, eventually. The next one along always thinks ‘it’s different this time’ 🙂

        It seldom, is.

    • ravinathan says:

      The world has over 400 nuclear power plants that need to be kept running to prevent meltdown. This necessitates a high level of economic activity including functioning electric grids to be sustained. Some of these plants are in countries such as N.Korea, Pakistan and India that are highly susceptible to crisis and chaos. The belief that we can scale down to a medieval level of functioning is highly questionable. If industrial activity is significantly reduced, so will the effects of global dimming that is keeping a lid on atmospheric temperatures. The result will be a nearly 2 degree C increase in temperatures that will set off runaway climate change. Mankind’s and most other species survival under these conditions is doubtful. Simply put we are caught in a double bind. Stopping BAU and full steam ahead are both perilous. Under such choices, society will continue BAU as long as possible.

      • Leo Smith says:

        Er no.
        given a grid failure you can keep a nuke safe once its scrammed with minimal power, and if you leave it scrammed, after a few weeks that’s it. Its just a decay reaction in a containment chamber.

        And there are designs that will allow of passive cooling.

        • ravinathan says:

          That’s it? Scram is just the first step. The rods need to be kept cool for a long time and the nuclear waste contained for decades.

        • ravinathan says:

          And you envisage maintaining shut down nuclear plants and nuclear waste in places like N.Korea and Pakistan sans 90 percent of the human population that you in your own words expect? Are you serious?

      • xabier says:

        The British Guardian has an amusing article on the drunk, depressed and demoralised Japanese TEPCO workers trying to deal with that tsunami-struck plant.

        Amusing, that is, if you like your coffee and humour very black……

      • One hopes the collapse will not go SOOOO FAST that the spent fuel can’t be collected, vitrified and dropped into the Mariannas Trench prior to the electric grid going down for good.

        RE

        • Plastic shit Frank says:

          Sorry to enlighten you “reverseengineering” but the action to move the spend fuel is in itself a long and difficult maneuver prior to be processed as you say by vitrification and disposal on the sea, which by the way it is illegal under international treaties, all this maneuvering would take many decades, provably more than a hundred years.
          The electric grid, or more accurate to say some components of the grid could fail any time by forces out of our control, one option for optimism is to be ready to kiss your ass good by and enjoy the ride in the mean time.

          • Once the Global Control systems start breaking down, I doubt anyone will be adhering to International Treaties made by defunct Nation-States. Granted however, it’s a pretty big job to get rid of all that poison.

            Next best bets are Tasmania and Alaska. Some isolated Valleys may do OK without too much fallout. 🙂

            RE

      • There is another limit that the 400 nuclear power plants are meeting that has been discussed recently. There is something called Lithium-7 that is needed for cooling reactors. This is in short supply world wide. This is a September 2013 GAO report on the subject. The US and Europe don’t make any Lithium-7; we depend on exports from Russia and China. It is a by-product of enriching lithium-6 for their nuclear weapons programs.

  3. As a rather slow economics student [of yours!] I think you are beginning to hammer home the economic crisis that will proceed any decline in oil production. I am aware of the shale gas/tight oil bubble that is dependant on finance to continue the red queen race- and if money gets tight in another crash then financing drilling will halt. Given another debt related crash then I’m sure the US and Europe will be unable to finance a recovery – who could they borrow from?

    There is another scenario to the two you offer which is a war footing- a national conscription to get everyone back to work – to drill the tight oil – to man the factories and install new infrastructure. So instead of building runways and tanks it would be transition [or conventional] energy. but unlike the the 40s where the US had huge wealth to finance it it would be more Russian simply to survive.

    I have no idea how an emergency economy would function- in 1940s Britain it was not forced labour and remarkably civilised with young women volunteering to be Land Girls to work in agriculture and young men being Bevin Boys and working down the mines. Already the government is try to encourage ‘Big Community’ to be volunteer community workers to replace paid workers as cuts close libraries , day centres for the elderly, and other local amenities.

    I suppose the question from an economics view point is whether this system could function for a decade of transition.

    • Ikonoclast says:

      You touch on an important point. Every nation faces a looming national and global crisis. Logically, we should go onto an emergency footing equivalent to a total war footing. That is to say every resource human and material should be devoted to amelioration, transition and controlled collapse related to this limits to growth crisis. Even then, the crisis would have dire effects but some effects could be ameliorated or diverted. Also, some semblance of national and regional civilization could be saved in some parts of the world.

      What level this saved civilization would settle out at would be pure speculation. Equally, the new sustainable population level would be speculation. My guess would be about one billion people in 2100 living much more modest lives in a broadly renewable and sustainable manner. Small elites within that may retain some level of electrical and electronic civilization. But it would be no utopia. More like a painful, struggling, barely functioning but still continuing dystopia.

      • It is really hard to get support for a program that will only allow some unknown (but probably low) percentage of the population to survive. Who determines the winners? Will the ones who are educated enough and wealthy enough to qualify for government subsidies for solar panels and the like have an advantage? Should the poor be taxed to pay for a subsidy for the rich and educated?

        • edpell says:

          “Should the poor be taxed to pay for a subsidy for the rich and educated?” That is the way the federal and state governments have worked for the last 200 years. I expect it will continue to be the way they work.

          • We can think the smokers for providing a subsidy for the non-smokers in Social Security. Smokers tend to be poorer as well.

            Those with less education also get less benefit from Social Security than the better off (who live longer).

    • dolph says:

      Let me add my two cents to the question of volunteering, just so people suffer no illusion.

      Under no circumstance, whatsoever, will I volunteer my labor without pay (of some sort). Again, I will never work without compensation, for any reason, for any cause.

      I can already tell that under a collapse scenario, the line between volunteering and slavery will be blurred, and I simply refuse to participate.

      • KingFish says:

        Never say never, you will work for table scraps when you get hungry enough or Dick Cheney water boards you. Look what the Germans and Japanese did during world war II.

        It’s easy to talk tough from the comfort of your keyboard.

        • dolph says:

          Table scraps is still something, not nothing.

          OK but the situation you describe is if I’m a prisoner of war. That’s fairly extreme but even prisoners of war, though, work for basic clothing and food of some sort (this must be provided, otherwise the prisoners of war die and you have no workforce).

          Again, this is completely different from volunteering, in which you, without coercion, make the decision to be a slave, to literally work, perform labor, for nothing in return.

          In my opinion, this is a much easier route for societies and companies to take then go to war. Just try to convince the stupid rubes to “volunteer”! Then you get them to do real, meaningful work without compensation, just pump them full of the useless thought that they are “patriotic” or “contributing to a worthwhile cause” or BS like that.

          So my point remains the same…in the future they will try to convince you to volunteer, and if you line up to do it, you are agreeing to perform work for nothing.

          At the point of a gun, sure, the calculus changes.

          • p01 says:

            How about “voluntary” work (which is only voluntary by name, but required in reality, and the only pay is you get to continue your regular industrial slave program without big disturbances)? No guns required, I assure you. You are only taught that no matter how bad it is, it can always get worse.
            I’ve seen many trying to circumvent it, and they ended up disappearing, not necessarily in a secret service dungeon, but most likely dispatched in a coal or salt mine, or on a “Forward Progress” construction site where you usually did not return from.

          • Jan Steinman says:

            You paint a rather bleak definition of “volunteering,” perhaps based upon retired people with pension income ringing Salvation Army bells at shopping malls during the Christmas season.

            I see volunteering differently, having “employed” a couple hundred in the past decade.

            First off, a “volunteer” is, by definition, doing something of their own free will. They can leave at any time, although they may make formal or informal agreements to stay for a certain period.

            What you describe and decry sounds more like slavery or indentured servitude.

            Second, volunteers receive a value exchange of some sort. In our case, it’s food, shelter, and training. (You might not believe it, but some people need to be taught how to pull weeds!) That last item — skills training — may be a life-or-death benefit in the future.

            Finally, many volunteers “pay it forward” by starting their own concerns and by helping out another generation of volunteers.

            So please consider free will and non-monetary exchanges as two of the defining characteristics of volunteering before you decide it is evil.

          • Jan Steinman says:

            My last point about volunteers “paying it forward” is crucial, and necessary for understanding the possibilities of the so-called “gift economy.”

            The very most important part of the definition of “volunteer” is free will. Volunteers are doing this in order to get something tangible or intangible in exchange for their work, be it food and shelter, training, perks (I volunteer at a local charity book sale so I can glean the best books first!), or on a more abstract level, social status, appreciation or self-actualization.

            Beyond barter, the gifting economy offers hope for survival after the collapse of the current financial system. Gifting economies preceded even agriculture, and will surely survive agriculture, as well.

      • xabier says:

        Dolph

        OK, so you get a bullet. Or kicked to death. You may wish to study the history of forced labour in German- and Russian- run territories in WW2…….

      • i take it you will also refuse to eat

        • dolph says:

          Please do not comment unless you get your basic terms right.

          Volunteers, by definition, perform labor for nothing in return. Not even food.

          If you are work for anything in return, you are by definition no longer a volunteer.

          • timl2k11 says:

            “Volunteers, by definition, perform labor for nothing in return.”
            Nonsense.
            volunteer |ˌvälənˈtir| noun
            a person who freely offers to take part in an enterprise or undertake a task. (emphasis mine)

            That is neither slavery nor prison, and volunteering can be very rewarding, so you are getting something in return. Volunteering is an act and expression of freedom and free will.

        • dolph says:

          I happen to think of it in the following way. I may be right, I may be wrong.
          Volunteer: lowest rung of society, agree to work for nothing.
          Prisoner of war or slave: next rung. Work for basic food/clothing/protection, but have no rights and cannot
          Serf: next rung. Enter into a somewhat free agreement to perform labor for a landowner.

          My basic point is this: I would much rather be a serf, and would do everything in my power to be a serf, than to be a volunteer or slave. Having said that, obviously one can’t predict everything. However, suicide or fighting to the death remains an alternative to being a slave, and many throughout history have chosen this route. But you don’t read much about them; only the “heroes” who have survived and come back to tell their tale.

          • You have a very strange view of volunteer ethos. I volunteer to do everything from repairing community centres, running a arts charity, helping friends do insulation work and free advice on construction as well as doing film work for a medical charity -I did get lunch bought for me the other day, however.

            it is not slavery – it is a choice to make my local environment and community a better place. I have paid work but I don’t really need a lot of money- own my own holding and have no debt.

    • Lindon says:

      I have thought much along the lines that you are putting forth, Jules, and I agree. When that next devastating round of defaults that Gail predicts comes about and something like 90% of the working population loses their jobs, that is exactly when (I hope) the government will step in and put the unemployed back to work on massive new projects of all kinds. We DO have enough land and tech and even home-grown oil to feed ALL of our population. A lot of people can be put to work on the farms/ranches. Others can be put to work in clothing factories. Legions can be put to work remediating polluted areas of our landscape, replanting forests. Still others will be needed in security and armed forces, no doubt. Total economic collapse doesn’t have to end up being a wasteland, if only the government and the elite forces that actually control the government can get their planning done right. That’s what I hope, anyway.

      • Scott says:

        Hello, I am sure the Fed and others can do a bit if it all falls apart again like in 2008, but they really have spent their bullets already on the last crisis and have little ammo left unless they want to create inflation. Otherwise, we face deflation and cheaper commodity prices which is not desirable for exploration.

        I do not think they will be able to put us all back to work again, well maybe for a year or so – but not for long I think.

        Perhaps then we will see the inflation that we fear as they expand the monetary base into higher levels if they inflate again like they have been since 2008. So far they have been able to contain inflation but maybe not now if they have to react to the next crisis.

        Many of the articles that I have studied indicated that the Fed and World Central bankers really have already pulled most of their tricks to keep us out of the Depression.

        The biggest thing aside from this that got my attention last week was that may be down to 30 million barrels of oil and equivalents when we are already now using something like 90 million per day now.

        We have also discussed in the past how fuel cells powered by things like natural gas could perhaps help us conserve what is left.

        Unfortunately, the world was not really set up to support as many people that we have now and that will be our challenge no matter what we do it seems.

        Scott

        • Scott says:

          Small correction – I meant to say by 2050 we may be down to 30 million barrels per day…… “The biggest thing aside from this that got my attention last week was that may be down to 30 million barrels of oil and equivalents when we are already now using something like 90 million per day now.”
          Scott

      • Leo Smith says:

        The government cannot put people to work if the energy to run the tools which are all they know how to operate is not there.

        Like it or not, the population only stays alive because of a massive overconsumption of energy. Take that out and people are not unemployed, they are dead, and probably eaten.

      • p01 says:

        Well, then, I’m sure you’ll enjoy school and “patriotic work”:
        http://www.comunismulinromania.ro/Tineretea-noastra/Scoala-si-munca-patriotica-pionieri-la-Festivalul-National-Cantarea-Romaniei.html
        Having lived this, I can assure you it ain’t as pretty as the pictures suggest. At some point it becomes so bad, so hopeless and disconnected from reality, that you actually start hoping for an economic wasteland, or at least that the slavery ends one way or another. This is what a slow decline (without financial annihilation) on the oil slope looks like. I somehow doubt future generations will be this “lucky”, but maybe the boomers do know how to better flog their children and tell them exactly how to sow and what to reap in the fields (and when), how to work in the factories without inputs, how to better break the stone in the quarries and more efficiently clean the waste on the nuclear sites.
        Here’s more. Enjoy!:
        http://only-romania.com/2011/11/the-brigadiers/

        • Thanks for your pictures and views. Eastern Europe also suffered after (and probably some before) the Collapse of the Soviet Union in 1991. Energy supplies dropped off dramatically.

      • I think the government is likely to collapse at the same time, or even sooner. That is a big part of the problem. The government is supported by taxes. As these disappear, the ability of the government to support the people goes to zero pretty quickly.

        Our problem with oil is that it is increasingly a money losing proposition. The government will have a hard time supporting it as well, if it is a money losing proposition, and it doesn’t have tax revenue. Without oil, the natural gas and coal are more or less useless.

        If the government doesn’t collapse, resource wars seem likely.

      • Lindon says:

        I certainly can see the sense and the probability of what you all have posted in response to my “hope” that the government will remain functional after collapse and organized enough to keep a majority of the newly unemployed American people working at worthwhile projects — for food and shelter, not for money. And while it is true that the modern form of government depends on tax revenue to function, in a collapse situation, there will be no money, no earnings, no taxation. What then will keep the government and the American people together? How about common ideals, desparation to band together and rebuild, the need for food and shelter and association with a worthwhile cause. Don’t expect the U.S. Military to just fall apart at the seams — they will retain their command structure, and they will NOT let America disintegrate without a fight. During the American Revolution, George Washington kept his troops and the American people together not with money, but with hopes and dreams and a common cause. I’m predisposed to accept that everything will fall apart at the seams with nothing but mass chaos the result, but I hold out the HOPE that the powers that be will be able to unite us with a common cause, a hope for the future, a dream toward which most will be willing to strive as we rebuild based on the new realities. The old cheap-oil fueld world will fall. The widget factories and the three-cars-for-every family will disappear. The huge cargo ships will rust in the ports. But enormous quantities of previously allocated oil/fuel will be freed up, and if used wisely, can power a new civilization built on efficiency, localization and harmony with nature well into the future. Be ready for utter chaos, prepare, but don’t give up all hope for a better future to emerge from that chaos just yet. That is all I’m saying.

        • p01 says:

          Lindon, it seems to me that you have not figured it out yet, so I’m going to spell out the horrifying inescapable logical conclusion for you:
          Civilization IS the problem.
          There.

          • Dennis Brumm says:

            Hi, P01. There is an alternative view to civilization as the problem, and that is it is the SYMPTOM, the species we are (that means any or all of us) would likely have come to this point through any number of routes it took. The evidence for this (symptom model) is that farming and the ensuing civilization developed in several locations completely independent of one another.

            I feel a lot more of what and who we are is programmed in our genes than most of us care to look at (and more than many or most of us were ever taught). Evolutionary psychology is finding evidence to support this.

            In addition to economics being highly mythologized, some other conclusions of the so-called social sciences (and those disciplines) can be pretty suspect in how they function, as well.

          • Lindon says:

            po1, without civilization, humans are uneducated louts scratching out a short miserable existence scavenging for roots and berries and bugs, pretty much back to caveman days. Civilization is not as evil as you might think. If humans can learn to manage civilization better — do not allow tyrants, keep the resources more or less evenly spread, live in harmony with nature — that will be a far better result than living in small bands of hunter/gatherer clans. Based on our current and soon-to-be collapsing experience with civilization, those of us who survive can hopefully learn from the past and work together to build a better human civilization. That is an optimistic hope, but worth considering. IMO.

          • p01- civilisation seems to be the human response to crisis. New research suggest that climate change [Earth axis tilt] that caused the Sahara to dry out was over period of centuries [perhaps 200 years or less rather then a 1000 years or more as previously thought. The population of human collected in the Nile Valley and promptly turned from hunter gatherers to advanced civilised nation. Likewise cities appeared in S.America and these seemed associated with failing rains and the need to irrigate and get organised. The problem at the moment is not civilisation but the current growth driven economy of capitalism [or state run version:communism] which is inflexible. Some countries will fail and decline, some may buck that trend. The future is yet to be written.

      • xabier says:

        Lindon

        A giant statue of the ‘Great Saviour Leader’ would be a worthwhile project in such circumstances.

        • Lindon says:

          True, xabier, as it has been in every great (or mid-sized) civilization to rise throughout all human history. We treasure and love our great leaders — the ones who lead us into the promised land through perils and dangers and past certain disasters. When collapse comes, and it will come, we will be hoping and looking for that great leader. He or she will have to accomplish something — get us to a safe harbor — then a statue will be a very worthwhile and time-tested project. We can put it right next to the pyramids…(snark).

      • Jan Steinman says:

        “We DO have enough land and tech and even home-grown oil to feed ALL of our population.”

        I read somewhere that North Americans currently consume 50% more energy than is harvested by all the plants growing in North America.

        Before widespread exploitation of fossil sunlight, one unit of agricultural work energy yielded ten units of food energy. Today, it takes ten units of energy to produce one unit of food energy.

        Such facts make me doubt that we can feed ourselves, should Gail’s scenario (energy price crash resulting in investment stopping) take place.

        With tight oil, the increased production is coming from continuously drilling short-lived resources. You aren’t going to be able to do that if the price crashes.

        • I wonder about your statement, “Before widespread exploitation of fossil sunlight, one unit of agricultural work energy yielded ten units of food energy.” Do you have a reference?

          It seems like agriculture was very demanding from the beginning. Spenser Wells, in Pandora’s Seed: the Unforeseen Cost of Civilization, talks about the drop in life expectancies, and the drop in hight (about 6″) as humans transitioned to an agricultural lifestyle from a hunter-gatherer lifestyle. We also started having major problems with our teeth, with the starchy diet.

          As we moved to agriculture, we moved to a high grain diet, and needed to process the grain so we could eat it. This added a significant energy requirement, that we now consider in the 10: 1 ratio. I would contend that this energy requirement was there all along. If so, it affects the ratio in earliest times.

          Another aspect is that we needed to cook at least part of our food, besides grow it, because our body is now adapted to cooked food (bigger brain, smaller teeth and digestive system). Somehow, that needs to be considered in the energy needs associated with foods.

          I would contend that we have always been in an energy deficit position with respect to food, since we turned to agriculture, and possibly even as hunter-gatherers. As hunter-gatherers we cooked our food, so we were using more than our own energy. Chimpanzees and gorillas eat food raw, but they need to spend a lot more of their time chewing, so that their food gathering/eating takes up more of their time (47% of the time was spent chewing, in one study). By cooking our food, we were able to cut back chewing time greatly, so we had time to make clothing, tools, etc.

          • Jan Steinman says:

            “Do you have a reference?”

            I read it somewhere on the Internet, so it must be true!

            Sorry — you put so much work into this blog that I can’t leave you hanging like that. It took me a half hour, but I found where I read “Anthropologists, among them Richard Lee and Marshall Sahlins… [found] that for every Calorie of labor energy these people invested in the procurement of food, their efforts yielded 5-10 Calories of food to sustain them.”

            It’s a good read. The author found his own efforts at growing and harvesting burdock root yielded about a 1:2 energy gain.

            • Thanks! Interesting!

              If we are really headed in to a much worse period in terms of food availability, we need to know what foods can be grown at an adequate energy gain. Clearly most vegetables will be grown at a net energy loss, because of their low calorie density. But we still need them in our food mix, and the overall food mix should provide a net energy gain.

              I looked at one of the references cited and figured out that the high end of the EROI range comes from swidden (slash and burn) agriculture, growing corn.

              One of the things that Garza mentions at the end of his post are the many things he left out of his calculation that bring the net energy gain down from 2:1, to 1.4 :1, according to his calculations. These things are things like the embedded energy in the trowel and the knife he used, and in the salt and the fresh water. As a practical matter, some of these things would be much more difficult to obtain without today’s energy systems. For example, salt can be got from evaporation of sea water, but then it needs to be transported to the new location. The energy cost in the system would likely be much higher without today’s transportation, so the energy return, would be lower yet.

              If burdock weren’t growing wild, and he had to grow it in his garden, there would have been a lot of other steps involved. The link I found talks about fertilizing burdock once a month. So it likely would not produce a net energy gain as a garden vegetable.

            • Jan Steinman says:

              As a practitioner, I’m much more optimistic about energy return of growing food, but not in a conventional manner.

              I would think annual vegetables are at the low end of the scale, and at least in the west, I’m guessing their main energy needs are pumped water, so gravity-fed water is one huge way to up the yields.

              We need more perennial food plants! I would guess that fruit and nut trees are at the high end of the scale. Before the American Chestnut blight, one could stand knee-deep in chestnuts in much of Appalachia — the energy demand was just what it took to bend over and pick them up! I’ve planted ten American Chestnuts here, but I won’t live to see them mature. Hopefully, someone will be around to appreciate them!

              Goats are highly efficient collectors and convertors of basic productivity. They do well in terrain and vegetation that is unsuitable for cows or sheep. (They do so well that one has to be careful not to let them strip the earth to the dirt!) The main human input is management and perhaps fencing. If more land is available, less fencing and more herding is needed — seems like a zero-sum trade-off to me. But I’d rather be out leading goats from pasture to pasture than doing something indoors for money.

              Obviously, these sorts of things are not going to be taken up by the preponderance of city dwellers overnight. I’ve seen figures that, prior to the widespread use of fossil fuel, it took fifteen people on the land to support one in the city, and a reversion to the mean seems inevitable. It also seems obvious to me that there isn’t enough land for all seven billion of us to take up a pastoral life style.

              I greatly encourage anyone reading Gail’s blog to take up some personal gardening and learn the skills — if even on an apartment balcony. You may lack land, but at some point, having practical skills may mean someone with land will “take you in.”

    • In the 1940s, we had lots of available labor, and with ramped up debt debt, there was the possibility of lots of cheap coal and oil and gas to be extracted, to operate the factories. War offered the excuse to borrow money, so this money could be used to finance the whole system.

      This time around, there is again a lot of available labor. We are already up to our ears in debt. Figuring out how to ramp the debt up further would be a problem. Just print more money??

      If we are in “Phase 3” of the production function, this means that we get less value from drilling the tight oil that we put in. So even though we put all of this effort into it, a great deal of it must go into the extraction itself. We would effectively need to import additional oil from the world market, if the workers on this project are to have goods to buy, and if the oil is to be here to run the trucks and do the other work involved. The companies that are doing the drilling now are running up a lot of debt (and crossing their fingers that in the oil wells declining years, they will provide enough oil to pay off the debt)–it would the government instead that would be doing the same thing.

      • Joy says:

        Gail,

        Oil extraction was an expensive adventure in the 1940’s just as it is today. All that cheap oil you like driving around and burning today is because the investments of the 40’s have been fully paid for & depreciated. But back in those days, no one thought it was cheap to drill for oil. Just like a new adventure today, once the well is drilled, the pipleline to the refinery is complete and the investment is paid for, it’s all free money coming out of the ground. To many doomer are just spoiled from investments of the 40’s that are drying up and to cheap to face the reality of new invesment costs of today. If one wants to be cheap. They should buy a bicycle.

        We have nothing to fear but fear itself.

        • I know this is difficult to grasp, but in the 30s and 40s, we used the energy value of 1 barrel of oil to extract/distribute 100 barrels..ie 100:1 EROEI
          That was our energy base of cities, roads, wars, air transport health care and so on.
          for conventional wells, that ratio is now 20:1 and falling. This explains why industrial cities are falling apart.
          for tight oil–tarsands etc, the ratio is around 5:1
          Our civilisation as it is currently constructed, will not be able to sustain itself when overall EROEI of our energy sources drops below 12:1
          On a personal note…’free money coming out of the ground’ makes me want to weep for humanity–because that is the general point of view

          • PatrickCN says:

            EoM, I don’t think that the concepts are difficult to grasp. I am assuming that Joy is either deliberately obtuse, or that he/she is shaken to such an extent by the materialising developments that angry denial appears to be the, perhaps, safest coping strategy available.

          • Oelsen says:

            And the energy flow density, urban sprawl and technological overdiversification has nothing to do with the brittle cities?
            If we only had Manchesters and Berlins, we could let the machine hum for 200 years. But we have Sydneys and Dubais. Too large, too high. I am earnest about those 200 years.
            The energy it takes to transport car commuters to and from my Swiss town today where its whole ecology 60 years ago. And then the sneak expansion of mortgages grew it suburban and horizontally. We could perfectly do Pharma and Banking with 1:10, but not with this lateral madness and foreign sourced consumption madness. Well, thanks for nothing, so called working population!

        • The way the government adjusts for inflation, prices are much higher now than they were in the 1940s. This is oil prices in current dollars.

          Historical oil prices in 2011$

  4. Lindon says:

    Gail, thanks again for a really well-thought and fact-based narrative of what is REALLY happening in the world today. It is difficult for me to interpret the three-ring circus going on in Washington these days as anything other than staged drama to distract the masses from the real problems that we are facing. It is almost as if we are being treated to a “good cop bad cop” regimen, with the lunatic Republicans playing the “bad cop” role, demanding that we cut services and entitlements, while the Democrats continue to play the “good cop” role, trying their hardest to keep all the federal programs in place despite the cost and ultimate unsustainability of those programs. The whole point of the “good cop bad cop” treatment is to both dramatically reduce government spending and to condition Americans to the reality of reduce government social program spending at the same time. And behind the curtain, where the puppet masters manipulate the strings and do ventriloquist acts through the mouths of elected “dummies”, they KNOW the REAL facts. And those facts, I believe, are just exactly as you have laid out. Energy costs are going to rise to a point where a whole new round of defaults will sweep across the financial landscape, and there will be nothing left to bail them out with. Oil and coal production will become unprofitable due to decreased demand (nobody will be able to afford it), and the bottom will drop out of our world economy. Once that Humpty Dumpty falls off the wall, and fall he will, then NO amount of the king’s men will be able to put him back together again. That is when TSHTF, and it is coming. From my point of view, I just don’t see how we can stretch out BAU more than a year or two, if even that long. I hope that people are preparing for that time, and I thank you for your valuable information spread through the blogosphere/internet that might help some people get wise to the situation before it is too late.

  5. Scott says:

    I have been thinking about how to get by on less in the future, It seem to be where we are heading. If oil falls to $30 again it will shut down most production which may create shortages.

    I for one believe the monetary response will continue to be inflationary though, there are two sides to this coin, will we see cheap gas that no one has money to buy or will we see high prices and shortages? I will vote for higher prices the way we have the central bankers of the world acting right now, in fact just tonight they are already raising the USA Credit Limit again and they will continue, they (the Fed and others) have no choice as they are backed into a corner of there own device.

    Scott

    • Our experience in 2008 was that the prices of oil, gas, coal, uranium, and virtually every commodity dropped, because of debt defaults. The federal government had to pull out every stop, to get the system re-inflated. Now the government is still operating with all of the stops wide open. Do we really think that it is somehow going to have enough ammunition left to come up with yet more rounds of fixes to the system? David Stockman says that the government is out of ammunition. http://kingworldnews.com/kingworldnews/Broadcast/Entries/2013/10/5_David_A._Stockman.html

      I think you were the one who posted a link to his talk earlier.

      • Scott says:

        Hello, Yes I did post that link to David Stockman a good interview and I agree with what he said about the Fed not being able to prop things up again. That is going to be the interesting part to watch unfold. I am still amazed at how long this has gone on so far.

        They have been successful in reflating certain markets like stock and housing to some degree but these seem like new bubbles ready to burst again, especially the bond markets.

        I am sure they will attempt something, but I think each new round of stimulus becomes less effective than the prior stimulus round. I do not think they will be able to stop QE either without a major economic downturn resulting or perhaps a Deflationary Depression. For that reason, I think they will continue QE until such a time it all falls apart. We may eventually get some very bad inflation ahead.

        The problem is nothing has really changed since 2008, they are still using high leverage CDS’s, shorting markets to control prices, complex financial instruments are still out there that virtually no one really understands.

        We need a simpler honest system as things have gotten really strange in the last few years. We also need a government that has not been hijacked by Corporations and special interest groups and things will likely not change until after a great collapse.

        Scott

    • PatrickCN says:

      Hi Scott, I firmly believe that deflation will be the order of the day, with rampant hyperinflation running a very distant second.

      What people mostly do not take into account is that one person’s debt is somebody else’s surplus, roughly speaking. With all debt cancelled, nobody would have a dime, or the promise of a dime being paid somewhere in the future, in their bank accounts.

      Therefore, when debt defaults occur, someone else’s assets and a country’s GDP shrink. Ergo: deflation.

      However, there is still the possibility that the trust in the USD, or other major currencies, vanishes completely and the national central bank goes all out to honour all obligations and buying the IOUs issued by the country. This trust would lead to a collapse in that currency’s worth and thus to a hyper-inflationary scenario. Possible, but, in my mind, unlikely.

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  9. ask412 says:

    Very good overview, thank you much appreciated. From the comments it is very unpalatable, but then again, why would it be?
    One glaringly obvious factor missing is the common use of the spreadsheet. Since it has become a central part of all business particularly transnational corporations like the oil groups. Innovation has suffered less investment.

    That goes a long way to defending against any critic of your sound economic logic. How so?
    We have had broadly speaking, been increasing investment of profits before dispersant in increasing efficiency. This has led to more focus on efficiency and greater automation using machine code. The metrics of the doing business so revered this is now accepted as completely rational, globally. The process is compounded by financiers of the corporations, who are very risk averse and in turn want more investment in efficiencies. This has led to a whirlpool of efficacy driven decisions that seems to suck everything along with it, while shedding the need for human involvement in the profit cycle. Just where is this three decade focus on metics of efficiency post spreadsheet development going to end?

    Currently there is no motivation to take a risk at a time when energy innovation is really needed. So all our innovation is dying. The US and European economies are proof, just how many new and innovative products are being uncovered in the last decade? Whose still by my count it is over two decades since Japan came up with more than one. Their economy is now driven by more efficiency focus than ever.

    So together with your clear and concise line of logic around energy dilemma the focus taken of capital ROI in petrochemicals and our energy dilemma compounds. Any more ‘kicking the can down the road’ added to this fiscal efficiency drive is going to lead to a paradigm shift. How this unfolds is the tricky part. All we have left is a torch looking forward and the batteries are going flat.

    The neoliberal version of Milton Friedman’s now dead in the water theories, just leaving a US military/government hegemony as an international option. That is not healthy.

    • Efficiency makes it possible to use less oil (or coal or natural gas). If a company or individual uses less, the high price is more palatable. In fact, efficiency helps to hold up demand for high-priced fuel. With less efficiency, we couldn’t afford it.

      There is very little evidence that efficiency leads to less energy consumption. Usually, the lower cost makes a product affordable by a wider range of people, and adds to fuel use. (One exception might be energy efficient light bulbs.)

      • ask412 says:

        “There is very little evidence that efficiency leads to less energy consumption.” Agreed and your premise is followed. Adding to your thread of logic was my context in reply.

        My premise is the driver of ever increasing efficiencies has dried up innovation.

        The healthy ratio of investors willing to take their eye of the spreadsheet risking investment capital has plummeted.
        Taking a risk on failure and capital loss is seen as an anathema.

        Ergo; this is compounding both issues – ‘current state of the world’s economies’ and the ‘energy crisis’. Because there is no innovation in the area of technology to solve extreme energy problems or any serious response to climate change.

        There certainly has been no innovation in the values around economics, they still are failing to integrate with all known ecosystems.

        Maybe a paradigm shift brought on by the looming energy crisis will get innovation started again. Maybe not.

        The investment in more and efficiency is a whirlpool that keeps getting stronger and feeding on even more capital investment. All it produces in increasing profit.

        Profit that is then put back into more efficiency, to make more profit and the cycle starts all over again. Going nowhere but into a shrinking number of pockets.

      • Jan Steinman says:

        Efficiency is a fool’s paradise. Obtaining 100% efficiency would (in theory) require infinite resources!

        There exists a “sweet spot,” or maximum power point, in the efficiency curve. Exceed that point, and you begin embedding more energy than you can possibly gain from the additional efficiency.

        Note that the conventional measurement of embedded energy is insufficient. Complexity is also embedded energy, and it requires continuous energy to maintain. Technology is simply one form of complexity. Any form of efficiency that depends on improved technology is probably illusory in the long run. Consider that a simple incandescent light bulb can be produced regionally, with the resources of almost any region on Earth and the skills of a large town or small city. Now consider that an LED essentially requires the resources of the entire Earth, and the skills of our entire civilization — those are rather huge embedded costs!

        There must be some reason why 3,500,000,000 years of evolution has only resulted in a solar-energy capture efficiency of 8%, maximum. And yet, we hairless apes think we can do better in a few decades! We have done better, but it comes with the hidden cost of complexity, which Joseph Tainter assures us must be paid for in the long run.

        A reversion to the mean is inevitable. Enjoy the spike while you can!

        • That is a good point. We have to keep the whole system going, to be able to manufacture LEDs (and other high-tech devices).

        • ask412 says:

          “Efficiency is a fool’s paradise” Jan Steinman – The only logical conclusion.

          Yet that is the primary operating premise of all who are working as CFO in our whole economic system. How can the innovation needed to addresses our future survive? Even the LED is a fifty year old innovation!

          Where are investors and financiers prepared to risk to innovate?
          Mostly all we have left is highly efficient old concepts and a diminishing ratio of innovative new products to capital available to invest.

  10. Dennis Brumm says:

    Gail, thank you for considering the natural limits and for the statement: “Nature is, in fact, in charge.”

    It is not something that seems to be very popular nor even well-understood (since it goes against centuries of disbelief within the predominant cultural heritage we have today), but it concurs with the conclusion I reached a few years back, as well after coming onto “the predicament” via peak oil. Excellent post, thanks.

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