What’s Ahead? Lower Oil Prices, Despite Higher Extraction Costs

Nearly everyone believes that oil prices will trend higher and higher, allowing increasing amounts of oil to be extracted. This belief is based on the observation that the cost of extraction is trending higher and higher. If we are to continue to have oil, we will need to pay the ever-higher cost of extraction. Either that, or we will have to pay the high cost of some type of substitute, if one can be found. Perhaps such a substitute will be a bit less expensive than oil, but costs are still likely to be high, since substitutes to date are higher-priced than oil.

Even though this is conventional reasoning based on experience with many substances, it doesn’t work with oil. Part of the reasoning is right, though. It is indeed true that the cost of extracting oil is trending upward. We extracted the easy to extract oil, and thus “cheap” to extract oil, first and have been forced to move on to extracting oil that is much more expensive to extract. For example, extracting oil using fracking is expensive. So is extracting Brazil’s off-shore oil from under the salt layer.

There are also rising indirect costs of production. Middle Eastern oil exporting nations need high tax revenue in order to keep their populations pacified with programs that provide desalinated water, food, housing and other benefits. This can be done only through high taxes on oil exports. The need for these high taxes acts to increase the sales prices required by these countries–often over $100 barrel (Arab Petroleum Investment House 2013).

Even though the cost of extracting oil is increasing, the feedback loops that occur when oil prices actually do rise are such that oil prices tend to quickly fall back, if they actually do rise. We know this intuitively–in oil importing nations, deep recessions have been associated with big oil price spikes, such as occurred in the 1970s and in 2008. Economist James Hamilton has shown that 10 out of 11 US recessions since World War II were associated with oil price spikes (Hamilton 2011). Hamilton also showed that the effects of the oil price spike were sufficient to cause the recession of that began in late 2007 (Hamilton 2009).

In this post, I will explore the reasons for these adverse feedback loops. I have discussed many of these issues previously in an academic paper I wrote that was published in the journal Energy, called “Oil Supply Limits and the Continuing Financial Crisis” (available here or here).

If I am indeed right about the path of oil prices being down, rather than up, the long-term direction of the economy is quite different from what most are imagining. Oil companies will find new production increasingly unprofitable, and will distribute funds back to shareholders, rather than invest them in unprofitable operations. In fact, some oil companies are already reporting lower profits (Straus and Reed 2013).  Some oil companies will go bankrupt. As an example, the number two oil company in Brazil, OGX, recently filed for bankruptcy, because it could not profitably find and extract Brazil’s off-shore oil (Lorenzi and Blout 2013).

Oil companies will increasingly find that the huge amount of debt that they must amass in the hope of producing profits sometime in the future is not really sustainable. The Houston Chronicle reports that an E&Y survey of Oil and Gas Companies indicates that the percentage of companies that expect to decrease debt to capital ratios jumped to 48% in October 2013 from 31% a year ago (Eaton 2013). If companies with huge debt loads cut back production to the amount that their cash flow will sustain, oil extraction can be expected to fall–just as it can be expected to fall if oil and gas companies go bankrupt or give back investment funds to shareholders.

The downward path in oil production is likely to be steep, if oil prices do indeed drop. The economy depends on oil for many major functions, including most transportation, agriculture, and construction. Increasingly expensive to extract oil is a sign of diminishing returns. As we utilize more resources for extracting oil (oil, steel, water, human labor, capital, etc.), there will be fewer resources to invest in the rest of the economy, reducing its ability to grow. This lack of economic growth feeds back as low demand, bringing down the prices of commodities, including oil. It is because of this feedback loop that I believe that the path of oil prices is generally lower. This path is the opposite of what a naive reading of “supply and demand” curves from economics textbooks would suggest, and the opposite of what we need if the economy is to continue on its current path. 

Adverse Feedback 1: Wages stagnate as oil prices rise, tending to slow economic growth.

Suppose we calculate average US wages over time, by dividing “Total Wages” by “Total Population,” (everyone, not just those working) and bring this amount to the current cost level using the CPI-Urban inflation adjustment. On this basis, US wages flattened as oil prices rose, both in the 1970s and in the 2000s. The average inflation-adjusted wage is 2% lower in 2012 ($22,040) than it was in 2004 ($22,475), even though labor productivity rose by an average of 1.7% per year during 2005-2012, according to the US Bureau of Labor Statistics. Between 1973 and 1982, average inflation-adjusted wages decreased from $17,294 to $16,265 (or 6%), even though productivity reportedly grew by an average of 1.1% per year during this period.

Figure 1. Average US wages compared to oil price, both in 2012$. US Wages are from Bureau of Labor Statistics Table 2.1, adjusted to 2012 using CPI-Urban inflation. Oil prices are Brent equivalent in 2012$, from BP's 2013 Statistical Review of World Energy.

Figure 1. Average US wages compared to oil price, both in 2012$. US Wages are from Bureau of Labor Statistics Table 2.1, adjusted to 2012 using CPI-Urban inflation. Oil prices are Brent equivalent in 2012$, from BP’s 2013 Statistical Review of World Energy.

To see one reason why wages might flatten, consider the situation of a manufacturer or other company shipping goods. The cost of goods, with shipping, would rise simply because of the cost of oil used in transport. Companies using oil more extensively in producing their products would need to raise prices even more, if their profits are to remain unchanged. If these companies simply pass the higher cost of oil on to consumers, they likely will sell fewer of their products, since some consumers will not be able to afford the products at the new higher price. To “fix” the problem of selling fewer goods, companies would likely lay off workers, to reflect the smaller quantity of goods sold–one reason for the drop in wages paid to workers shown on Figure 1. (Note that Figure 1 will reflect reduced wages, whether it results from fewer people working or lower wages of those working.)

Another approach businesses might use to deal with the problem of rising costs due to higher oil prices would be to reduce costs other than oil, to try to keep the total cost of the product from rising. Wages are a big piece of a business’s total costs, so finding a way to keep wages down would be helpful. One such approach would be a wage freeze, or a cut in wages. Another would be to outsource production to a lower cost country. A third way would be to use increased automation. Any of these approaches would reduce wages paid in the United States. The latter two approaches would tend to have the greatest impact on the lowest paid workers. Thus, we would expect increasing wage disparity, together with the flattening or falling wages, as companies try to hold the cost of goods and services down, despite rising oil prices.

The revenue received by businesses and governments ultimately comes from consumers. If the wages of lower-paid consumers flattens, these lower wages can be expected to reduce economic growth, because with lower wages, these workers will have less income to buy discretionary goods and services. The higher-paid workers may have more income, but this won’t necessarily feed back into the economy well–it may inflate stock market prices, but not feed back as spending on goods and services, necessary for growth.

There is even a feedback with respect to debt. The portion of the population with falling inflation-adjusted wages will find it harder to borrow, making it more difficult to buy big-ticket items such as cars and houses.

Adverse Feedback 2: Consumers cut back on discretionary spending because of the higher cost of food and oil, leading to more layoffs and recession.

Clearly, based on Figure 1, consumers cannot expect wage increases to match oil price increases. Even workers who work in the oil industry cannot expect wage increases equal to the increase in the price of oil, because part of the increase in cost comes from the need for more workers per barrel of oil. For example, it is more labor-intensive to extract oil from a large number of small wells, each of which require fracking, than it is to extract oil from a few larger wells, none of which require fracking.

One cost that tends to increase with the cost of oil is the cost of food (Figure 2). The cost of food and the cost of commuting are necessities for most workers. They will cut down on discretionary expenditures, if necessary, to make certain these costs are covered.

Figure 2. FAO Food Price Index versus Brent spot oil price, based on US Energy Information Agency.

Figure 2. FAO Food Price Index versus Brent spot oil price, based on US Energy Information Agency. *2013 is partial year.

If wages are inadequate, workers will cut back in such area as restaurant meals, vacation travel, and charitable contributions, leading to even more problems with a lack of jobs in these and other discretionary sectors.

It might be noted that even countries that export oil can encounter difficulties as oil prices rise. These countries need a way to get the extra revenue from selling high-priced oil over to the many residents who must buy higher-priced food, but do not benefit from the wages paid to oil workers. It is not a coincidence that the Arab Spring uprisings took place in several oil exporting nations in early 2011, when food prices peaked on Figure 2.

Adverse Feedback 3: Higher oil and food prices together with stagnating wages lead to cutbacks in spending for new cars and new homes, falling prices for new homes, defaults on home and car loans, and banks in need of bailouts.

Purchasing more-expensive homes and new cars are types of discretionary spending. If consumers find their incomes are squeezed by high oil prices, they will cut back on  expenditures such as these as well, leading to layoffs in the home construction and auto manufacturing industries.  Such cutbacks can also result in bankruptcies of auto and home builders.

If people buy fewer move-up homes, the price of resale homes will tend to fall. This in turn makes defaults on mortgages more likely. Layoffs will also tend to make defaults on mortgages more likely, as well as missed payments on auto loans.

Figure 3. S&P Case-Shiller 20-City Home Price Index, using seasonally adjusted three month average data. April 2006 is the peak month.

Figure 3. S&P Case-Shiller 20-City Home Price Index, using seasonally adjusted three month average data. April 2006 is the peak month. Data is latest shown on website as of November 2013.

Most people do not associate the drop in US home prices with the rise in oil prices, but the latest rise in oil prices began as early as 2003 and 2004 (see Figure 2), and the drop in home prices began in 2006. Some of the earliest drops in home prices occurred in the most distant suburbs, where oil prices played the biggest role.

Banks increasingly found themselves in financial trouble, as defaults on mortgages and other loans grew. These defaults are often blamed on bad underwriting. While bad underwriting may have played a role (and may also have helped prevent the US from falling into recession even earlier, when oil prices began rising), the falling prices of homes created part of the default problem, as did job layoffs associated with higher oil prices.

All of these feedbacks led to a need for more government involvement–lower interest rates to try to hold the economy together, get spending back up, and raise home prices.

Adverse Feedback 4: Cutbacks in consumer debt combined with flat wages appear to have led to the decline in spending that precipitated the July 2008 drop in oil prices. Consumer debt still remains depressed.

Oil prices started falling in July 2008, and did not hit bottom until the winter of 2008 (Figure 4).

Figure 4. West Texas Intermediate Monthly Average Spot Price, based on us Energy Information Administration data.

Figure 4. West Texas Intermediate Monthly Average Spot Price, based on us Energy Information Administration data.

What could have precipitated such a fall? Many people consider the bankruptcy of Lehman Brothers on September 15, 2008 to be pivotal in the financial crisis of 2008, but the drop in oil prices started months earlier. What could have precipitated such a steep drop in oil prices?

It seems to me that the real underlying cause was a mismatch between what goods cost (such as high food and oil prices) and the amount consumers had available for spending. There are two basic sources of consumer spending–wages and increases in debt. If consumer debt suddenly starts decreasing, rather than increasing, consumer spending can be expected to fall (especially if wages are not rising).

In fact, consumer debt did start falling at precisely the time that oil prices crashed. Mortgage debt started falling in the third quarter of 2008, reflecting a combination of falling home prices and mortgage defaults. As noted previously, both of these were indirectly related to high oil prices.

Figure 5. Us Home Mortgage Debt, based on Federal Reserve Z.1 data.

Figure 5. US Home Mortgage Debt, based on Federal Reserve Z.1 data.

Other consumer debt fell at the same time. Revolving credit (primarily credit card debt) hit a peak in July 2008, and began to fall (Figure 6).

Figure 6. US Revolving Credit outstanding (primarily credit card debt), based on Federal Reserve G.19 Report.

Figure 6. US Revolving Credit outstanding (primarily credit card debt), based on Federal Reserve G.19 Report.

Adverse Feedback 5: Even after high oil prices have been in place for several years, many governments find themselves trapped by the need for deficit spending and ultra-low interest rates to cover up problems with stagnant wages and inadequate demand for homes and cars at “normal” interest rates. 

With the slack in consumer debt, US government debt soared (Figure 7). Governments in Europe and Japan found themselves in a similar bind.

Figure 7. US government publicly held debt, based on Federal Reserve Z.1 data.

Figure 7. US government publicly held debt, based on Federal Reserve Z.1 data.

Even as US Federal Government debt soared, it was not enough to fully make up for the cutback in debt elsewhere in the economy (Figure 8).

Figure 8. US Debt based on Federal Reserve Z.1 data.

Figure 8. US Debt based on Federal Reserve Z.1 data.

How do governments get themselves caught in such a bind? Businesses can to a significant extent overcome their problems with high oil prices by laying off workers and finding lower cost methods of production. Individuals, however, find that the wage problems persist as long as oil prices remain high and businesses have the option of replacing their services with lower cost workers elsewhere. Globalization definitely makes this problem worse.

When workers have job problems, governments find themselves in the unfortunate position of trying to fix the situation by providing more unemployment benefits, food stamps, and disability benefits. Governments also find themselves with lagging tax revenue, because businesses increasingly are located in offshore tax havens, and workers’ incomes are lagging.

Adverse Feedback 6: Rising prices of oil have contributed to long term inflation. If oil prices start falling, this tends to create the opposite problem–deflation. Once oil price deflation starts, it may lead to a self-reinforcing debt default cycle.

Not all inflation is related to higher energy prices, but some of it is. This is one reason the US government sometimes gives an inflation estimate “excluding volatile food and energy prices.” Inflation over the years appears to be one way that a small amount of diminishing returns has fed into the economy.

The concern a person has is that deflation will tend to lead to debt defaults. Clearly lower oil and gas prices mean that oil and gas businesses will become less profitable, and loans in this area will tend to default. But loans related to other types of commodities may tend to default as well. There will also tend to be layoffs in these industries, and in surrounding communities.

Also, with deflation, the low interest rate policies of governments no longer have the stimulating impact that they would have without deflation. So governments will have to concoct negative interest rate plans, and see if they can make these work, to take the place of current plans.

One question is how effective today’s Quantitative Easing and ultra-low interest rate programs have been. We know that they have tended to blow bubbles in asset prices, such as stock market prices. But are ultra-low interest rates part of what allowed oil prices to re-inflate after the July 2008 drop? Certainly, they have helped hold up auto and home sales, and have supported oil drilling operations that rely heavily on debt.

To some extent, the current system appears to be held together with duct tape. It looks like it could fall apart on its own, or it could fall apart as governments try to reduce their deficits by higher taxes and lower spending (See Figure 7). Adding deflation to the combination would seem to be another way of making the current approach for covering up our problems even more vulnerable to collapse.

The frightening thing is that there is already some evidence that oil prices (and commodity prices in general) are starting to trend downward. The chart I showed in Figure 4 showed West Texas Intermediate (WTI) oil prices–a price that is often quoted in the US. On Figure 9, I show WTI oil prices alongside Brent, another oil benchmark. Brent reflects world oil prices to a greater extent than WTI price does. It seems to be showing a recent downward trend in world oil prices. To the extent that this downward trend in prices feeds back into inflation rates and makes Quantitative Easing work less well, this downward trend becomes a potential problem. Its effect would tend to offset the stimulating effect on economies that lower oil prices would normally have.

Figure 9. Brent oil price compared to West Texas Intermediate oil price, based on EIA monthly average spot prices.

Figure 9. Brent oil price compared to West Texas Intermediate oil price, based on EIA monthly average spot prices.

Conclusion

Oil and other fossil fuels are unusual materials. Historically, their value to society has been far higher than their cost of extraction. It is the difference between the value to society and their cost of extraction that has helped economies around the world grow. Now, as the cost of oil extraction rises, we see this difference shrinking. As this difference shrinks, the ability of economies to grow is eroding, especially for those countries that depend most heavily on oil–Japan, Europe, and the United States. It should not be surprising if the growth of these countries slows as oil prices rise. The trend toward globalization can only make this trend worse, because it gives businesses an opportunity to lower wage costs by outsourcing part of their production to lower-cost countries (that use less oil!). When costs are reduced in this manner, businesses are also able get the “benefit” of more lax pollution laws overseas.

We saw in Figure 9 that global oil prices seem already to be trending downward, as growth in countries such as China, Brazil, and India is faltering. At the same time, oil from easy to extract locations is depleting, and oil companies have no choice but move on locations where more resources of all kinds are required, leading to diminishing returns and ever-higher cost of extraction. The way I view our predicament is shown in Figure 10.

Figure 10. Our Oil Price Predicament. Over time, the amount affordable by consumers at a given price falls, while the price required by producers to earn a profit rises.

Figure 10. Our Oil Price Predicament. Over time, if we want to maintain constant oil consumption, the price consumers can afford tends to fall, while the price required by oil producers in order to earn a profit tends to rise.

Over time, in order to maintain constant oil production, the price consumers can afford tends to fall, because governments need to “take back” the huge deficit spending they are using now to prop up the system. At the same time, prices required by producers tend to rise, as the mix of oil production moves to more difficult locations.

While in theory oil prices could spike again because of rising demand of the less developed countries, it is hard to see how this price spike could be sustained. We would likely run into the same problems we had before, with more layoffs and plus credit contraction leading to a cutback in demand in the US, the European Union, and Japan. These users represent a big enough share of the total that their drop in demand would tend to bring world prices back down.

The problem this time, though, is that governments seem to be getting close to being “out of ammunition,” in trying to fight what is really diminishing returns of one of the major drivers of our economy. I don’t know exactly how things might play out, but experience with prior civilizations suggests that “collapse” might be a reasonable description of the outcome.

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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428 Responses to What’s Ahead? Lower Oil Prices, Despite Higher Extraction Costs

  1. Don Stewart says:

    To Jody and Xabier, especially

    See Sharon Astyk’s entry on the foster children she takes in and the cycle of poverty. What she is describing is very similar to what the Scarcity guys are saying, it’s just first person rather than academic.

    http://scienceblogs.com/casaubonsbook/2013/11/18/why-i-wont-do-the-food-stamp-challenge/

    If you don’t know about Sharon. She used to be on the board of ASPO. She lives in an old farmhouse in the Mohawk valley in NY. Her husband teaches at SUNY- Albany. She has a PhD in something, but works at home with her farm and her natural children and, currently, a very large crop of foster children. She only got a refrigerator when the current crop of foster children arrived. I would guess that she has hosted at least 30 foster children over the years. Some for short stays, some for long. The family has been using electricity at about one fifth the average American family.

    She had to get rid of her goats when the current crop of children arrived. The Great State of New York was afraid she would give them some raw goat milk.

    Don Stewart

    • Don,
      I read the article and have new respect for people living on food stamps. I don’t know how people can live like that and not be inclined to act differently. We so often have no idea of that others lives are really like.
      Sharon Astyk is a remarkable woman!
      Jody

      • xabier says:

        And one can see that those who grow up in such conditions will have no idea how to cook – and so not need a frying pan or know how to use one.

        Rich politicians and businessmen who so eagerly lecture the poor need a good half-year of that kind of life: perhaps we could make it a condition of standing for office?

        I’ve noticed that people even of very humble backgrounds, once they get rich, quickly forget (even if they are not hard-hearted in any way) just what is is to live in that way.

  2. Don Stewart says:

    Dear Jody
    Here is an example of ‘thinking poor’, by a person who is actually lower middle class. Charles Hugh Smith recently returned from a trip to France to visit his brother. He came back influenced by the ‘decroissance’ movement in France. In his proprietary letter this weekend, he links these suggestions to decroissance. He also states that ‘cooking your own food is the most revolutionary act you can take’. (Joel Salatin and Shannon Hayes and many others have said similar things. As well as the Chuck Marsh quote earlier.) Here, he gives his advice about Christmas gifts:

    http://www.oftwominds.com/blognov13/kitchen-tools11-13.html

    Don Stewart
    PS Stark contrast to the current flood of Black Friday propaganda.

    • Don,
      Wow! That is a wonderful Christmas list. Thanks for sharing. My husband usually gives me a list of tools (with item numbers and prices) that he wants for Christmas. Now I can do the same. 🙂

      I totally agree that learning to cook slow food using whole food ingredients is one of the best skills one can learn and share. A few weeks ago I gave a presentation on Ethical Eating and that was one of my recommendations. I also pointed out the great pleasure of sharing a home cooked meal with friends and family. I invited an elderly couple at our church to share our Thanksgiving meal. They were unable to visit family and were excited to share ours. Their joy at simply being invited really touched my heart, and I am looking forward to spending the day with them. It is always wonderful to go back home to share Thanksgiving with my family, but it will be just as enjoyable sharing it here with my friends.

      I found this on Wikipedia:
      “Degrowth (in French: décroissance,[1] in Spanish: decrecimiento, in Italian: decrescita) is a political, economic, and social movement based on ecological economics and anti-consumerist and anti-capitalist ideas. It is also considered an essential economic strategy responding to the limits-to-growth dilemma (see The Path to Degrowth in Overdeveloped Countries and Post growth). Degrowth thinkers and activists advocate for the downscaling of production and consumption—the contraction of economies—arguing that overconsumption lies at the root of long term environmental issues and social inequalities. Key to the concept of degrowth is that reducing consumption does not require individual martyring and a decrease in well-being.[2] Rather, ‘degrowthists’ aim to maximize happiness and well-being through non-consumptive means—sharing work, consuming less, while devoting more time to art, music, family, culture and community.[3]”

      Very interesting. I agree with this philosophy (and probably practice it) but I also think it comes across as emphasizing contraction in a negative way. In order to degrow our fossil fuel dependent, modern economic system it is will require consuming less, but if we think about ‘economy’ as simply the exchange of goods and services rather than just the ‘exchange of goods and services for money’, the effect on the economy is very different.

      I have often thought about my choice to work at home producing and cooking more of the food we require. By doing so I am not exchanging money for food or labor for money. Yet I am producing still producing a significant amount of goods and services, and my family is still eating as much food as before. There are some interesting consequences for the ‘real’ economy. I buy and use different resources and overall use much less imported resources. I pay a smaller amount of sales and income taxes. GDP goes down. Fewer jobs are available in many different related systems, including health care (if the food keeps us healthier). So I am helping degrow the economy, yet my family may not actually be consuming less goods. Far more locally produced or direct produced by farmers for sure. When I buy whole beans and grains I am eliminating the food processors.

      Shopping for used clothing has a similar effect.

      I think we all recognize that our economy is likely to shrink (hopefully it will not collapse); there are fewer good paying jobs available; and we are paying higher costs for medical services, taxes, food, energy, etc. We certainly have to reduce our consumption of fossil fuel energy and all the goods and services dependent on that energy. We have to stop over-consuming renewable resources before we damage ecosystems ability to regenerate them. But it isn’t as obvious that this doesn’t necessarily mean less ‘consumption’; just a different form of consumption. If we define economy purely as the exchange of goods and services, we can still exchange goods and services we provide ourselves at a fairly high rate. And we step back from the monetary system that is going to collapse along with the economy it controls.

      cheers,
      Jody

  3. Scott says:

    Hello Chris mentioned about the markets not being really real. During these years ahead folks with money in these markets should be in fear of trickery.

    Scott

  4. Scott says:

    Hello All, Also on this group I have discussed much about the coming big rip off kind like what we saw in 2008 and in Cyprus.

    I understand that many of the folks on this site are not so called gold or silver bugs but you may want to be.

    It seems to me that “they” (Central bankers of the world) would very much like to devalue your currency by perhaps even more than half since they have basically run off with most of the money and have bought real assets with the cash, Those of you that are in stocks and bonds beware of perhaps nearly a 50 percent take away in value of your assets so the central bankers can pay their bills in devalued money. I do see this coming and for that matter I would buy that farm property now or tangible valuable things such as precious metals, solar products, high tech batteries for your homestead if you have one, buy now while the currency is still strong or buy gold and silver and supplies.

    Even while saying all of this I really think we have another generation or so if things stay calm before this ” financial storm” or whatever else happens perhaps wars – really gets bad, but the danger is there and each of us have to assess our own needs and judge it for what it is.

    Good Luck on your choices, These are personal choices that each family needs to make.

    Some of us have seen storms in our area, but so far not here in Oregon but the years ahead look stormy indeed.

    Scott.

  5. Don Stewart says:

    Dear All (Esp Xabier, Jody, Jan)
    Xabier gave a pithy rejoinder to my ‘trolley’ problem. I want to take that apart a little bit, so that we can perhaps gain some perspective on our problems.

    Most of us nowadays have little grasp of what life was like for simple tribes. I suggest three resources. The first, which I mentioned earlier in this series, is Diamond’s book The World Until Today. The second and third are two movies: Yeelen and Ten Canoes. Yeelen is about West Africa, while Ten Canoes is about Australia. In both movies you will find a trigger happy group of villagers who are quite suspicious of strangers and are ready to kill them at the slightest provocation or even just as a safety measure. Diamond notes the extreme level of intertribal violence in New Guinea and other cultures. Thomas Hobbes thought that submission to a Leviathan ruler was a good idea because, while it took some resources to support Leviathan, at least Leviathan suppressed the intertribal violence. Diamond agrees with that…the Dutch and Australian colonial power suppressed violence in New Guinea. So…the fact that Xabier can make comments about the bad behavior of most people nowadays is actually a luxury which has been given to us as we have advanced from tribal societies to modern societies.

    Now I suggest that we consider a passage from Joshua Greene’s book (page 133):
    ‘Human behavioral flexibility feeds on itself: When we invent something new, such as boats, we create opportunities for new inventions, such as outriggers to stabilize our boats and sails to propel them. The more flexibly we behave, the more our environments change; and the more our environments change, the more opportunities we have to succeed by behaving flexibly. Thus, we reign as the earth’s undisputed champions of flexible behavior. Give us a tree and we can climb it, burn it, sculpt it, sell it, hug it, or determine its age by counting rings. The choices we make depend on the specific opportunities and challenges we face, and our choices need not closely resemble the actions that we, or others, have chosen in the past….Put a jungle spider in the Arctic and you’ll have a cold, dead spider. But an Amazonian baby can, with the right guidance, survive in the frozen North.’

    I suggest that humanity is about to undergo the equivalent of taking an Amazonian baby to the Arctic. We will go from a wild abundance of resources to great scarcity of resources. Those who are pessimistic will conclude that ‘all the Amazonian babies are going to die’. Those who are optimistic will agree with Greene that human flexibility is a powerful capability which can rise to most any challenge. Is this just a ‘take your pick’ choice, or can we discern some general rules that might help us through the transition? I WON’T try to regurgitate Greene’s solution…you will have to read his book for that. Instead, I will offer a few thoughts.

    We know from previously reading Scarcity that anyone suffering from scarcity of time, money, love, or social connections enters a tunnel where options contract and intelligence shrinks. So, in some sense, we may think of our prospects as a race between the constricting effects of increased Scarcity and the opportunities presented by our innate flexibility.

    On page 136, Greene notes that the emotion of Sadness (things aren’t going very well) makes us more open to change. The entire weight of The Powers That Be today is focused on keeping you from being sad. If you were sad that the world has changed irretrievably, then you might change things in ways that TPTB wouldn’t like at all.

    On page 137, having laid an extensive groundwork on the science of Thinking Fast and Thinking Slow, Greene states: ‘Reasoning frees us from the tyranny of our immediate impulses by allowing us to serve values that are not automatically activated by what’s in front of us.’ An example is an experiment where people were allowed to choose either a fruit cup or a piece of chocolate cake. The fruit cup serves long term values, while the cake is about here and now.

    On page 138, he reiterates a crucial distinction: ‘When the manual mode (reasoning) is occupied with other business (dealing with scarcity or bandwidth), the automatic response (the cake) gets its way more easily.’

    On page 143: ‘Getting smart requires three things. First, it requires the acquisition of adaptive instincts–from our biological ancestors, from the people around us, and from our own experiences. Second, getting smart requires a facility with the manual mode (reasoning), the ability to work through complex, novel problems. Third, it requires a kind of metacognitive skill, analogous to the skills of the photographer….to know when to point and shoot and when to be in manual mode.’

    On page 147: ‘Morality is nature’s solution to the Tragedy of the Commons, enabling us to put Us ahead of Me. But nature has no ready made solution … to the problem of enabling Us to get along with Them.’

    And then Greene proceeds to lay out his rationally based solution to enable Us to get along with Them. Robert Sapolsky, a very smart guy, endorses the book with this statement: ‘There are few more important issues to solve in our increasingly pluralistic world, and this beautifully written book is a step in that direction.’

    I come at the book from a little bit different direction. I imagine Scott or Jan after the Collapse, with a very small margin for error. A major theft of what they have managed to accumulate will cause them to starve. They are out patrolling their land when they stumble on the camp of three strangers, sitting at a campfire. What do they do? Do they wait until the strangers go to sleep and then kill all of them? Do they trust that the strangers will not rob them, or even kill them for what they have managed to save? If you think about Diamond and Yeelen and Ten Canoes, you will not be very confident in making a prediction.

    I have my own set of ideas about surviving the move to the Arctic. I won’t belabor those. I’ll just pose a question. Earlier you heard Jody Tishmack talk about her recent activities. Do you think that her activities are building the ‘adaptive instincts’ that would be extraordinarily helpful in reducing cognitive load and thus increasing flexibility and IQ in a world of Arctic like resource restriction?

    Don Stewart

    • xabier says:

      Don

      One of my favourite activities being also a painter and very idle, is observing, and one option is ‘spotting crooks’: if you keep an open mind and eye, they really stick out. I’ve often thought: ‘If only we could do away with these chaps here, right now, what crimes we could avert.’

      I once caught a gang of serious thieves, just by observing. Sitting on the top deck of a London bus, you can spot all the gangs of thieves very easily. No complex camera systems needed.

      I mention this because your three strangers at the camp fire example reminds me of the Old English law, that if you approached a village without blowing your horn , the villagers had the right to kill you on the spot, without interrogation.

      No room for such niceties as observation and judgement in 800 AD! Suggests how tough it was……..

    • Jan Steinman says:

      “I imagine Scott or Jan after the Collapse, with a very small margin for error. A major theft of what they have managed to accumulate will cause them to starve.”

      Don, I’m not nearly so pessimistic as you are. I live on an island. I’m leaving in eight minutes to help a friend move a greenhouse. This is a community, and it will continue to be so. We’re also a “low value target,” so pirates aren’t likely to be raiding us while there are softer targets that are easier to get to.

      “They are out patrolling their land when they stumble on the camp of three strangers, sitting at a campfire. What do they do?”

      “Hey, do you guys need some work in exchange for food? If not, then you’ll have to move on. Sorry!”

      “Earlier you heard Jody Tishmack talk about her recent activities. Do you think that her activities are building the ‘adaptive instincts’ that would be extraordinarily helpful in reducing cognitive load and thus increasing flexibility and IQ in a world of Arctic like resource restriction?”

      There’s a lot of assumptions there, Don. I think what Jody is doing is good. I think what I’m doing is good. I think there is a lot of room for various kinds of goodness, and don’t want to impose my model on others.

      • Don Stewart says:

        Dear Jan
        I got an explanation of how Salt Spring Island is heaven on earth about 35 years ago. But islands are not necessarily immune. The northwest Indians had a fine tradition of sea going raids. Paris was regularly raided by Vikings. I am not trying to be overly pessimistic. Lewis and Clark found trade goods from Patagonia at the mouth of the Columbia. And we know that gatherings of different tribes, which might be at war most of the time, were used to trade goods and brides. But we can’t ignore the facts about tribal conflict.

        Consider the commandment ‘Thou shalt not kill’. The straightforward interpretation is ‘thou shalt not kill one of Us’. But killing one of Them was a duty imposed by God.

        If you take a Realpolitik attitude, this is something politicians still do today. How do you unite the 12 tribes? You demonize the Palestinians and engage in genocide. What you wouldn’t want to do is let each of the 12 tribes individually negotiate with the Palestinians and adopt some sort of ‘live and let live’ philosophy.

        Don Stewart

        • Jan Steinman says:

          “islands are not necessarily immune.”

          True, but casual encounters with roaming hoards of starving zombies will be less likely than in most other places.

          I choose to put my energy into working toward something I want, rather than working against something I don’t want. Call it a personal philosophy that serves me. I don’t expect to convince you or anyone else that it’s the One True Way To Do Things, nor do I even believe that. The future’s going to need a diversity of approaches.

        • xabier says:

          Don

          The Vikings raided for slaves all though Europe: but, according to the Arab historians, they treated them very kindly. Always look on the bright side, even of slavery.

    • Don,
      Which activities are you referring to…hiding from tornadoes in my basement, suffering from strep throat, buying a goat, fencing my yard, or eating at a nice restaurant?

      Rereading your past several messages has given me a large “cognitive overload”! I am feeling a scarcity of brain cells!:)
      You are certainly looking at the world with a very wide lens. I looked at some of the books on Amazon and read a bit. A few comments….according to authors, “By scarcity we mean, having less than you feel you need.” So then scarcity is subject to our perceptions of what we need? I think once we reach a certain level of physical security we find our interpretation of what we “need”, our happiness if you will, is shaped by something other than material wealth. I think we all have different ‘set’ points that tell us we are or are not getting what we need. This may very well be genetic, but it certainly is shaped by past experience. When we have been successful in getting something we want, we believe more strongly the next time that we can get what we want. Or, we can suffer from learned helplessness if we encounter situations in which we can not control the outcome.

      Flexibility in the face of rapidly changing circumstances is certainly important. I believe that we can recondition our mental state by spending time in reflection, trying to see how our actions and thinking can take us in habitual patterns with repeated outcomes, and deciding if we want to go that route again. Having a positive mental state or belief in good things to come may help a person achieve better outcomes. The “look on the bright side”…philosophy may give us more flexibility in our mental state. It may make us more apt to be willing to try new things because we trust that new things are just as likely to turn out well as to turn out poorly.

      • Don Stewart says:

        Dear Jody
        I wouldn’t try to take apart your diary and pick out certain items which are important and others which aren’t. I just hope everyone will give that project a little thought in terms of their own lives.

        At the recent farm convention, Chuck Marsh was lamenting the sad state of preparedness of many American families. He said that ’30 percent of American families don’t have a frying pan’. To that 30 percent, I think getting a frying pan and learning to use it should be a high priority.

        Which brings me to a distinction. The Scarcity authors make the point, with data from experiments, that really poor people don’t think like middle-class Americans. The really poor are under the gun in terms of some financial crisis or not knowing where they are going to sleep or what they might eat. In the US, more and more families are slipping from ‘secure’ to ‘insecure’. When we are secure, we have enough of what the authors call this ‘slack’. Slack enables the middle class to buy something without figuring out what other thing they are going to do without. The very poor don’t have slack.

        Now consider Thomas Merton at Gethsemani monastery in Kentucky. By any government measure he would qualify as ‘destitute’. I imagine that, in many places in Indiana, he wouldn’t have been able to get an occupancy permit for the shack he was living in. Yet he was experiencing ‘abundance’ instead of ‘scarcity’. There were, I think, two enabling factors. The first was his attitude about possessions and social position. The second was the fact that he had no debt and was able to live off the fruits of his labors. The very poor that are studied in Scarcity are all trapped by the desperate need for money. In the book, you will learn a lot about the nature of the debts that very poor people get into, and perhaps think that you would be wiser if you were in their shoes.

        Perhaps those of us middle class people will turn out to be wiser if our turn comes. But I think we will have to cultivate our minds and our physical environment to be more like Thomas Merton…well before the money lenders have us in their teeth.

        Don Stewart

        • xabier says:

          Don

          That frying pan statistic is perhaps one of the most remarkable and surprising things I have ever read in my life.

          I cannot conceive of a home so totally destitute of one means of survival through lack of skill (not poverty I assume, as a pan can be had very cheaply courtesy of the Chinese slaves).

          In Britain – or Spain – I should say almost no-one is so destitute of skill as to choose to lack such a basic implement.

          American Exception, indeed!

          • 30% of amerikkkans don’t even have a FRYING PAN!!!!
            I not only have a frying pan, I have several and a steel wok! Woks are very efficient at cooking food with little fuel & just a little oil. I also do 99% of my cooking at home, no left overs.
            Everyone should have some camping equipment including a stove, fire starter, matches, crank flashlight, radio, knives, ax, hatchet, warm sleeping bag, small tent, tarps, trench shovel, ropes etc etc.
            I don’t like being cold in the dark when the power goes out so I also have a wood stove at home not a pellet stove that needs electricity, not a good idea when the powers out. Who want’s to shiver while looking at a cold, dark pellet stove when the powers out?

            As for those strangers you find near your property, why tell them you have food if they will work? You have just told them you have food & they out number you, not a good idea. A group of young males traveling alone could be a dangerous gang, best to stay away from them & be on guard.

            • Jan Steinman says:

              “As for those strangers you find near your property, why tell them you have food if they will work? You have just told them you have food & they out number you, not a good idea.”

              Think final scene of the movie Witness, when the bad guys are about to kill Harrison Ford’s character, and someone starts ringing a bell, and the entire Amish community arrives, not with arms, but with eyes. “Whaddya gonna do,” Harrison Ford’s character shouts, “Kill them all?”

              In an Orlov-5 collapse, perhaps you’re right, but anything short of that, and our community can hold its own against rag-tag wanderers, but it isn’t important nor rich enough to attract bigger attention.

    • Hello Don and all,

      I woke up this morning much refreshed; perhaps last night’s cognitive overload was simply due to the fact that I think better in the morning! I am still thinking about these issues you raised. I don’t think my approach, whatever that is, is any different from Scott or Jan’s. So I’m still trying to understand what you were getting at in your earlier statement “I imagine Scott or Jan after the Collapse, with a very small margin for error. A major theft of what they have managed to accumulate will cause them to starve.” I don’t see how I or anyone would be in any different a situation if there was a collapse. I think we all will be facing very small margins of error!

      The books you are reading are a very interesting selection. I too sometimes wonder how humanity will survive and be altered by the changes our civilization is going through as we go back down the energy curve. We can look back through history for signs of how humans have dealt with social conflict and resolution. We can look at biochemistry and genetics and consider the limits to our physical machinery. We can examine our own as well as society’s morals and values in order to develop strategies. But in the end, the multitudes of problems we are already facing, their complexity and variation from region to region, and the likelihood they will get much worse may make it impossible to arrive at any kind of coherent understanding.

      I feel that the current situation is so vastly different in scope and magnitude from anything humanity has previously experienced it will be impossible to predict with accuracy the myriad outcomes that we are likely to see; and therefore, the numerous strategies we are likely to need. Perhaps this is why flexibility is so important! All we can do is whatever we are able to do. I agree with the authors who said that obsessing about our next meal, or how to get the rent money, or buy the children shoes for school is very stressful and most likely does limit our ability to respond successfully. And if we make poor choices or can’t afford to do something personally to prepare for eventualities, we aren’t likely to survive. Thus the dilemma, what are good choices and poor choices? How do we know what direction to move?

      You said “The Scarcity authors say that having ‘slack’ is a key difference. The cane farmers don’t make enough money to have any slack to take them through the tough time of the year. A richer person simply draws down their savings a little, confident that the savings can be rebuilt after the tough times are over.” So how do we achieve ‘slack’? I have always taken the approach that saving money and living frugally made life easier. I wonder if the cane farmers perhaps weren’t spending a bit too high when times were flush. I lived near the official poverty much of my life, yet I never, ever have felt poor. And now that my life is currently more financially secure I still find myself comfortable living a frugal lifestyle; not out of necessity but out of preference. I think of differences between me and my siblings, and between my children when it comes to lifestyle, saving or spending. Some of us worked, earned money and saved it; others worked, earned money and spent it; and others didn’t work, borrowed money and spent it! Some people seem to adapt well to frugality and others can’t seem to see the value of work and ‘saving for a rainy day’. I can’t seem to pin point why some seemed to adapt one way over the other.

      I think of how my grandmother defined ‘rich’ as having a little extra to save at the end of the month. She obviously was talking about the “slack” you were referring to. For some, it doesn’t have to be much slack to make us feel ‘rich’, as most people who are frugal (or ‘cheap’ as Gail likes to call it ) can attest. Certainly we are all facing different financial situations and I won’t argue that people who are living in poverty think and act differently than people who have enough money to live comfortably. Having enough money makes life much easier, no doubt! Poverty seems to breed more poverty for many reasons, but poor choices is certainly a contributing factor. When we feel ‘rich’ we probably don’t feel as much desperation or fear. We don’t feel the need to compensate by buying stuff we don’t need (and charging it), eating addictive junk food, or going to a bar searching for love; all things that probably will result in poor returns on our investment!

      I have written before of how much I was very influenced by my maternal grandmother; her stories of the Great Depression, her lifestyle, her love and generosity for her children and grandchildren, our time spent together in her garden and kitchen. I can’t think of a person I’ve known whom I admire or respect more. She instilled in me a love of solitude, steady mindedness, and working quietly with my hands; all the things that give meaning to my life. As I have grown to maturity and enter my elder age I’m sure I have come into my own understanding of the value of simple pleasures. Perhaps this is what you were referring to by your comment, Don.

      I am quite sure that our attachment to possessions (all the things that are likely to go away when we no longer have oil to produce it), our expectations of what we need to be happy, and our appreciation of the things we value need to be carefully considered. If we find enjoyment in books; hobbies such as art, woodworking, cooking, fermenting, or gardening; conversations with friends (even on the internet); and learning skills that can make us better able to feed and shelter ourselves, these will be important influences in “building the ‘adaptive instincts’ that would be extraordinarily helpful in reducing cognitive load and thus increasing flexibility and IQ in a world of Arctic like resource”. Doing anything that promotes our sense of well-being and our ability to survive will help us. I think having fewer expectations for the future, and this includes both good and bad expectations, will be very helpful too.

      Perhaps it will be those who can accept the unpredictability of our situation who can achieve the most flexibility, and they will be the ones who survive our ‘trip to the artic’; which finally brings me to your comments about the Buddhist monk and Thomas Merton (whom I greatly admire and whose books I love to read). The monk renounces worldly possessions in order to find tranquility in simplicity, because he or she understands how difficult it is to be unattached when we have so many possessions (including marriage and child bonds). I think what Buddhist philosophy might offer to us during these times of extraordinary change and crisis is the idea that suffering is our choice; “Pain is unavoidable; suffering is optional!”

      We suffer because we do not understand or accept the impermanent nature of our existence. We either cling to our fixed ideas of what we want the world to be (including our ideas of what possessions we need to make us happy), or we have aversion to ideas or situations that threaten our beliefs. It is good to remember that the miserly person who doesn’t enjoy spending their wealth is still just as attached to them as is the hedonistic millionaire! So letting go of preconceived ideas or attachments to possessions is a way of accepting change. Non-attachment doesn’t mean living without. It means accepting what is here, when it is here, and letting go as life moves on. It means striving to find a balance with each changing day, doing what we can when we can, but most importantly trying to appreciate what comes.

      Kindest regards to all,
      Jody

      • Don Stewart says:

        Dear Jody
        I agree with everything. Well said.

        As for Scott and Jan, I only used them as examples of somebody who owns land. In Diamond’s book, he explains that, while much of New Guinea seems to be trackless mountains and forest, every square inch is claimed by some tribe. If you want to go there, you must first secure permission. Just wandering around in the woods is a good way to get killed. The porters that Diamond hired kept extraordinarily sharp lookout for signs of the ‘owners’.

        Suspicion of ‘strangers’ to the point of simply killing them is very common in societies with weak governments. In New Guinea, a typical war might start when a pig wanders across a tribal boundary line, the owner goes across the line to retrieve the pig, gets killed by the other tribe, which starts a long series of Hatfield and McCoy violence.

        I didn’t mean anything by Scott and Jan’s names.

        Don Stewart

      • Don Stewart says:

        Jody
        Little more on the scarcity effect.

        On page 107 the authors talk about all the ways people borrow. People borrow by putting off work that they know needs to be done. They borrow money at exorbitant interest rates. They borrow by failing to pay utility bills, which then carry hefty ‘reconnect’ charges. they borrow by manipulating their income tax deductions, etc., etc.

        Pg 108: ‘Why do we borrow when we face situations of scarcity? We borrow because we tunnel (intense focus on the problem at hand). And when we borrow, we dig ourselves deeper in the future. Scarcity today creates more scarcity tomorrow.’

        Pg 109 ‘The bill that is due now generates threatening notices, the bill in two months time is nowhere to be seen. Even if you were to think carefully about tomorrow’s scarcity, you’d really only ‘know’ it in the abstract….As it taxes our bandwidth, scarcity focuses us on the present, and leads us to borrow.’

        Pg 111: He gives an account of a clever experiment which demonstrates the power of scarcity to explain behavior. They recruit Princeton undergrads to play Family Fued. The game requires the contestants to guess very rapidly the answers to same questions about pop culture which the average citizen might give. The undergrads are divded randomly into two groups. One group has plenty of time, while the other group has less time. But the group with less time can borrow more time, with a steep interest penalty. The group short on time focuses much more than the group with plenty of time, and scores more points per minute played. However, they also borrow, which costs them in terms of total time played. Thus, they lose the game to the group which goofed off (relatively) but didn’t borrow.

        Note that the pool of subjects for the experiment are bright people predominately from the upper middle class. The poor decisions are a result of the felt scarcity of time putting one group in a tunnel so that they are not thinking clearly about the interest cost.

        Pg 123 At the Chenambedu market in Chennai, India. 2500 shops, mostly manned by women. Typical woman buys 1000 rupees (20 dollars) worth of merchandise from a wholesaler and sells it for 1100 rupees, for a net of 100 rupees or 2 dollars. Some women supply their own capital. But 65 percent borrow at 5 percent per day. So the daily interest rate is 50 rupees, or 1 dollar. Half the net of the women who borrow goes to interest.

        Most of the women have some slack. They may, for example, spend 5 rupees on some food or tea. If they cut out the small expenditure, the power of compound interest would let them save 1000 rupees in thirty days. Yet, as you see, few women are disciplined enough to do that.

        Pg 127 Study in Tamil Nadu, India. The bank will make a jewelry loan (essentially a pawn) at 13 percent interest. But most people go to a local guy in the village and pay 70 percent. Jewelry loans are deemed to be for emergencies, and the bank isn’t always open when you have an emergency and the local guy is always at home. But the authors follow up and ask exactly why the money was borrowed. Third most frequent is medical expenses. But many of these turn out to be things which were scheduled at least several days before. The two most given reasons for the loan were seed purchases and school fees…which roll around with the calendar. ‘When you are focused on making ends meet this week, you are not dealing with the details of what next week holds.’

        Lest we think that only ignorant villagers and clueless Princeton students fall into these traps…compare the behavior of the US government, the city of Chicago, etc.

        Don Stewart
        PS tons more evidence in the book

        • Don,
          “Lest we think that only ignorant villagers and clueless Princeton students fall into these traps…compare the behavior of the US government, the city of Chicago, etc.”

          I don’t know if this falls under the same category but I find it interesting. A box of corn flakes contains about $0.08 worth of corn, yet Americans routinely pay upwards of $3.50 a box. A five pound bag of corn meal costs $2 to $3 and makes many pans of corn bread. Certainly better value for our food dollars. Even better is to buy larger quantities of whole corn and make your own meal. Or grow the corn!

          We are just a likely to do things without calculating the true cost.
          Jody

      • Jan Steinman says:

        “So how do we achieve ‘slack’?”

        I’m seeing the end of the tunnel in drying about 50 kg of peppers. Then I’ll put them in soups, sprinkle them on casseroles, and maybe even sell some. We’ve pretty well got our Vitamin C needs taken care of for the next year.

        “We suffer because we do not understand or accept the impermanent nature of our existence.”

        Thus, the futility of hope. Do what seems right for your future, with no expectation of what tomorrow will bring. Then, get up tomorrow morning and do it again.

        Some days, just having to milk goats is what gets me out of bed.

        Before enlightenment, chop wood, carry water. After enlightenment, chop wood, carry water.

        • xabier says:

          Jan

          Getting out of bed: the funniest passage in a serious book of philosophy is in Marcus Aurelius, when he admits that some days he’d rather just stay under the blankets – Emperor of Rome. No goats to milk, one supposes…….

  6. sheilach2 says:

    I would like to toss in a new “card” in this discussion – thorium reactors .The claim is they are cheaper to run, far safer, the waste products are less & less radioactive with a shorter half life, it can consume the plutonium from Uranium reactors & it produces no plutonium itself for making bombs which is why the uranium reactors won out over Thorium.

    http://energyfromthorium.com/essay3rs/

    Norway is building a thorium reactor and China will also be building them but not the US because the regulations for storing the waste products is too restrictive, so they say.

    Of course all reactors just produce electricity & little else useful. There would still be the problems of declining raw materials, transportation, fertilizers etc. Electricity would be useful for transportation in the cities core but not in the suburbs.

    So what does the all-knowing web group think about thorium reactors & how could they change the outcome of declining fossil resources?

    • Stan says:

      The real question is: even with massive amounts of cheap electricity, can developed countries run without (or just a minimum of) oil? Gail has pointed out that many things (plastics, asphalt, lubrication, etc) won’t be available. How would we continue? Here’s a challenge: come up with the definitive, exhaustive list of all things oil-based.

      Stan.

      • sheilach2 says:

        I believed I mentioned that a thorium reactor only produces electricity not the raw materials we get from fossil resources. We will still be short of fertilizers, pesticides, herbicides, plastics & the millions of other products that wouldn’t exist without these fossil resources.
        At least electricity can keep the heat & lights on & power the robots that have replaced human workers but of course OIL is needed to build & maintain those robots.
        Another problem is it may be too late to build enough thorium reactors to provide the electrical energy we need before we don’t have enough oil left to build or maintain them.
        We have painted ourselves into a rather sticky corner haven’t we.

      • xabier says:

        Just look around the house and think of the oil-inputs in everything – it’s simply staggering! Making, transporting, and maintaining………

        • Chris Johnson says:

          @Xabier, Scott, Don, Gail, et al

          Imagine for a moment that all our vehicles, including ground, sea and air, were powered by electric super-capacitors and all these maintained approximately current performance levels in terms of range, speed, loads, etc. The only difference is that the cost of refueling is the equivalent of, say, $0.75 per gallon. Slightly higher in Europe due to bigger bureaucracies…
          Currently, about 65% of every barrel of oil refined is used for ‘personal transport’, and an additional 5% is used for ‘non-personal transportation’. That leaves 30% for everything else, from fertilizer and insecticides to bunker oil to asphalt to acrylics and plastics.
          Does someone want to make the case that all the oil will cease flowing within a one year or one month or even 10 year period? Okay, fine: as of (some date certain, say the 31st of February 2022) the world will no longer produce any — repeat none, nada, zip — oil products. Since the world has already transitioned to electric transportation systems, its task now is to replace all that other stuff with substitutes. Note that there’s already lots of R&D turning various vegetable sources and algae into lipids for fertilizer and fuel and other things. Granted, the fuel is still not competitively priced (4 to 6 times more expensive than oil, Gail??) But does that matter so much when it comes to fertilizer? How about Levi’s?
          Oh, and this just in from the American Petroleum Institute: the rumors about the complete cessation of oil pumping have turned out to be wrong. In fact, the experts now acknowledge that oil production will continue for the foreseeable future, albeit at gradually decreasing output, starting tomorrow at about 50% – 60% of previous volumes. But since 98% of transportation systems now are powered by electricity, y’all have nice day, yhear!

          Cheers, Chris

          • Don Stewart says:

            Chris
            I’m not here to argue about Gail’s basic scenario. Just suggesting some science to look at for those who think her scenario is at least possible.

            Don Stewart

            • sheilach2 says:

              Without cheap oil, coal & natural gas, just how will we recharge those electric vehicles? This is where the electric vehicle promoters bog down. It doesn’t matter how good the batteries/capacitors are at holding a charge, they still need to be recharged & wind & solar can’t do that reliably. How will those vehicles be built & maintained without access to cheap fossil resources? How can we just maintain the roads we need without cheap oil?

              We need to get rid of our tunnel vision and see the whole picture of our dilemma, declining resources & too many people & no combination of renewables will allow us to continue with BAU.
              Trying to jump from one frying pan to another will still get us cooked!

              We are mere yeast in a petri dish with the same messy fate.

            • Chris Johnson says:

              @ Sheilach2: The basic point of my last posting was to lay the foundation for a transition period in which electric vehicles (and trucks and airplanes, etc.) will gradually replace internal combustion engine powered vehicles. It also implies increased electricity production, which is not that difficult if we do try to broaden the technologies to include more nuclear, probably including thorium, as well as geothermal — which has great potential as yet barely tapped. Part of the problem is that ‘market uncertainties’ and a somewhat untruthful Federal Government have been preventing real progress in nuclear.
              You may not know it, but the Obama administration has tentatively approved numerous nuclear construction plans. The only problem is that the Nuclear Regulator Commission has repeatedly issued the companies thick books of technical questions that take many man years to answer. The companies duly answered them — the first set in 2010. Then after several months they asked when they were going to get responses to their submissions. But the NRC replied that the technical people who were reviewing the responses have all been transferred and that a new set of questions will be forwarded soon.
              I know this because I know a person who worked to prepare those answers. What I’m driving at is that Team Obama has been screwing up the market, strongly favoring wind and solar and stopping nuclear in its tracks despite their verbal support.
              Now how do you respond if you’re a power company? Well, if you’re a coal plant company you adopt the newest technologies that have much lower emissions and are more profitable. But essentially there is no ‘revolution.’
              Solar and wind will continue to expand until further expansion is viewed as uneconomical. That won’t happen for a few more years, unfortunately, given the government’s penchant for providing subsidies to the appropriate ‘entrepreneurs.’
              But it’s a mistake to think that US industry cannot make the required transitions if the proper technologies and incentives are in play. But that requires political support and acceptance of truthful conclusions rather than the pablum this current bunch is spooning out. Just remember, they’re the same geniuses who want you to keep your doctor…

              Cheers, Chris Johnson

            • If you have been following Fukushima, Chernobyl etc, you would know that nuclear power is very dangerous & is now contaminating the entire Pacific ocean, besides, just where do you store all that dangerous expended HOT fuel? That’s another reason Fukushima is in such a mess, they stored their fuel onsite inside elevated tanks that are now in danger of collapse. Some of the rods are broken & it will be a very dangerous task to remove them. If any 2 touch during that process = BOOM!
              Most of it could be consumed by thorium reactors, but we as far as I know, don’t have any yet.

              We have maxed out on hydropower, hydrothermal is only available in a few areas like a few spots in N.E. CA, WA.Or. & near Yellowstone park. The steam coming back up to run the turbines is usually very contaminated with sulfurs that will clog the pipes in short order. Solar & wind are too intermittent & as oil goes, they too will disappear.
              I don’t think many people will be able to afford electric auto’s/trucks & with the collapse of the economy who will be making them for our market? The rich will of course have them but there aren’t very many of them so I expect most will be made in small numbers at a very high price.

              There will also be the problem of accessing enough raw materials to make those millions of batteries those vehicles would need.
              Peak oil = peak everything.

              I also hear some people pushing compressed air powered cars but just how much energy must be expended to pressurize the tank?

              Donkey carts anyone?
              Their small, strong, easy to control & feed.
              Already there is a city that has approved bicycle rickshaws. More jobs!
              Can donkey carts be far behind?

            • Jan Steinman says:

              “Most of it could be consumed by thorium reactors…”

              Whenever I see “thorium reactors,” I mentally replace it with “magic monkeys from Alpha Centauri,” and it makes the same amount of sense to me!

              “I also hear some people pushing compressed air powered cars but just how much energy must be expended to pressurize the tank?”

              These things are hugely inefficient. Ever feel the output of an air compressor? Compression dissipates heat. One back-of-envelope calculation indicates it takes as much energy to compress methane to a high enough pressure for a comfortable vehicle driving range as there is in the methane.

              Oh yea, the manufacturers say they’re working on heat recovery systems for compressed air. I think it’s just behind thorium reactors and cold fusion on their schedule.

            • So like cold fusion & fusion reactors, thorium reactors will always be in the future, then their not of much use to us are they. We shouldn’t be wasting resources on developing them.

              I could never see how anyone could get excited, let alone design & plan to build a compressed air car, it’s clearly not rational, same for those hydrogen powered cars.
              We are better off planning to bike, walk, skate board, or ride in a donkey cart then plan for hydrogen powered cars or even battery powered cars. There just not practicable.

              A battery car could work short term but that’s about it their still too dependent upon OIL for their production & maintenance.
              Even if we can solve the energy storage problems, there is still the problem of generating enough electricity to recharge those millions of batteries & then those millions of batteries will need to be replaced every few years.
              So far it seems every new renewable technology proves out to be intermittent, too expensive for the energy delivered or the raw material needed is too rare for it to be useful.

              How about using all that hot air being belched out in Washington DC to run generators? That’s in infinite supply. ;^)

            • Jan Steinman says:

              “A battery car could work short term but that’s about it their still too dependent upon OIL for their production & maintenance.”

              Lead-acid batteries are actually pretty simple to rebuild. I actually think they’re “appropriate technology” for the medium term.

              I think the key to survival is to stair-step down the tech tower we’ve built. Can’t work for everyone, but perhaps for some of us who are willing to work toward such a goal?

              I’m hoping to convert a Vanagon to electric this winter. Where I live, I would rarely exceed the driving range. It has a high gross weight rating, and and a huge engine compartment — you can stuff it full of batteries. I could then stuff it full of farm goods and get to the nearest village and back on about 1/4 charge.

              Is this “long term” sustainable? I guess that begs the question, “For how many.” Certainly not for seven billion. It might work for a billion or less. But it’s something I gotta try — I never got anything reasonable accomplished by listening to people telling me it couldn’t be done!

            • A big need for any kind of ground transportation is paved roads. This is one of the earliest things that is likely to fail–at least the way it is done now. (Electricity is not useful for paving roads, either.) The government becomes to replace roads/bridges that are washed out. Cannot repave roads.

              I hope that the new electric cars are All Terrain Vehicles.

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  8. Skye says:

    Scott, I found this article quite interesting: http://www.independentaustralia.net/environment/environment-display/dont-believe-thorium-nuclear-reactor-hype,4919
    I really don’t know anything about it, but at first look, it seems to me one more wonderful pipe-dream. Like Shale Oil, nuclear fusion and so on.
    Perhaps your question could be: Could we build them if we had the money?
    They look very expensive, and until we have military rule and/or slavery and state appropriation, I wonder if anything will ever happen?

    • Scott says:

      Hello, Thanks for the link it was interesting, maybe it is just a pipe dream, but I think we may have something here.. It looks like they have used it in Norway just recently using a conventional plant to burn Thorium, http://www.extremetech.com/extreme/160131-thorium-nuclear-reactor-trial-begins-could-provide-cleaner-safer-almost-waste-free-energy

      Cold Fusion may be better, but farther out there in the future, Maybe Thorium is not our savior, but there seem to be able to build such plants now. Whether we have the political will or money like you said, they do look expensive for sure but so does a conventional plant. I want to do some more research on this subject. The main thing I have been reading so far is that it has a good burn rate meaning little waste, the stuff almost entirely consumes itself and the waste is different as it can not be made into bombs or reprocessed. The other thing I have been reading is that it very abundant.

      It seems much easier to generate electricity – but the problem seems to be able to make it portable which is difficult. Like trying to make a tractor run on electric power, we do not have batteries that good yet. But we do have these fuel cells that run very well on Hydrogen which can be produced from electricity and water. But we were looking at money here once again and going against the strong oil/gas lobbyist.

      It looks like many of these things are possible to build, but will the world have the financial means to do so if our financial systems are in collapse? I understand that Gail sees that as our major impediment. Can we build a new sound financial system that will allow us the funds to build such things?

      Fuel Cell powered tractor links below…
      http://agriculture.newholland.com/PublishingImages/cnhimg/we/Hydrogen/NH2_90014_INB.pdf

      http://www.fuelcelldispatch.com/AutomotivePower/tabid/2704/articleType/ArticleView/articleId/351/Sustainable-Futuristic-Fuel-Cell-Powered-Tractor.aspx

      Scott

    • We are sufficiently short of funds and time that we really have difficulty doing any kind of alternative to fossil fuels. We really need cheaper alternatives to oil, and we are not finding them. Nearly all of the proposals are for some kind of electricity. Electricity is not really a substitute for oil, unless we can first make the electricity extremely cheaply (like 2 cents per kWh), and use that cheap electricity to make a liquid fuel–something that is also difficult to do. We would probably be stuck with something like ammonia as a liquid fuel. Vehicles could be made to use it. But I don’t really think we have time or money to even do that.

  9. Scott says:

    Hello, You would expect a country like Japan to be doing something innovative – but they are just running up huge national debt to import gas and oil. I would think that they could find a way to solve some of our problems with regards to energy like building hydrogen generation stations using molten salt reactors with Thorium – – – but sadly it seems they are also at their wits end on how to solve the problem along with the rest of the world right now.

    http://www.newsmaxworld.com/Markets/japan-trade-deficit-tokyo/2013/11/20/id/537617

    Scott

    • Chris Johnson says:

      Hi Scott:
      Good questions about Japan’s performance. I’m not sure about this, and I haven’t been paying close attention to Japan for awhile, but it seems that Japan lost its cockiness in the mid 90’s when their market crashed and ‘the aggregate price of all the real estate in Tokyo’ was no longer equal to the cost of all the real estate in the United States of America. Their economy has been pretty flat since then, their population is aging rapidly, and they are continually insulted by the Chinese.
      The new Abe leadership is having a good effect in reviving spirits, and they’re not taking any guff off the Chinese without responding.
      Note that on energy issues, Japan has mined some methane hydrate (frozen methane) from deep in the ocean last spring. It could be a superb fuel, but the technical challenges of mining, transporting, etc. will take serious investment and years of development.
      Note also that Japan has almost as much gas and oil as Germany does. None. The national economies of such countries have to work twice as hard, and that’s one reason that the Japanese and the Germans became such tremendous exporters: to finance their imports of oil.
      We can only trust the Japanese will keep struggling. They’re pretty tough.
      Cheers, Chris

      • Scott says:

        Hi Chris and all, Yes I believe that Japan has the ability to put some of these new technologies on line and I was kind of expecting to be seeing this by now, but instead they seem to have no plan to get out of the dwindling oil and gas driven economy themselves. They may have in fact come up with some things that could replace their nuclear plants with cleaner safer non fossil fuel type of plants like The Thorium Power Stations we have mentioned.

        I wonder if they are facing a cartel type of political boundaries as much of the world faces when we talk about taking away business from the oil peoples (i.e. Exxon etc). I really think they may be a country to lead the way out with something new they have been so innovative since I was a kid in the 1960’s. Well, time will tell.

        Best Regards,
        Scott

        • Chris Johnson says:

          Hi Scott:
          It will be interesting to watch. One point I overlooked: the Japanese expedition to mine methane hydrate out of the ocean bottom — something like 17,000 feet deep — is the first and only (I think) successful mining operation of its kind ever. It appears the Russians and others may try to do this in Arctic waters that are not as deep but equally cold.
          The Japanese people really dislike nuclear stuff now, and until a good Thorium solution is developed, there won’t be may takers. Like a lot of us, the Japanese feel that they’ve been lied to by the authorities — repeatedly.
          Chris

          • Scott says:

            Hi Chris and all reading this, I starting to wonder if these political barriers even if there is existing tech. to solve our woes, and that may be worse than the resource scarcity we face. We are fighting on two fronts now.

            Scott

        • dolph says:

          Scott:
          All things change in time. I visited Japan in 2002 and had a great time, and marvelled at the country.

          But the problems they face may be too large. They have little in the way of domestic energy. They don’t have much agricultural land, and they have vastly overbuilt cities which require huge inputs for maintenance.

          Because of the increased cost structure and lack of space, the people are no longer reproducing. They have one of the oldest and least fertile populations in the world.

          Will Japan survive? Yes, when push comes to shove they will do what it takes, everybody does. But survival is very different from having one of the most dynamic industrial societies on earth, which they will no longer have.

    • We don’t have thorium reactors yet.

      • Scott says:

        Hi Gail, wouldn’t you agree we have the science and ability to build these Thorium Reactor Power Stations if we had the will?

        Scott

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  11. Don Stewart says:

    Dear Gail and Others
    Here in the temperate Northern Hemisphere the cold weather is upon us, and many of us have more time and inclination to read some good books and think some deep thoughts. And the authors have been busy giving us some books to savor. Here is my list, and why I think they are appropriate for readers of this blog.

    1. The World Until Yesterday by Jared Diamond. Many stories about stone age people in New Guinea and elsewhere. The dangers of infectious disease and violence. But also the lack of chronic disease, even in those of advanced age.
    2. Hardwiring Happiness by Rick Hanson. The subtitle says it all: The New Brain Science of Contentment, Calm, and Confidence.
    3. The Story of the Human Body by Daniel E. Lieberman. Subtitle: Evolution, Health, and Disease.
    4. Scarcity by Sendhil Mullainathan and Eldar Shafir. Why Having Too Little Means So Much.
    5. Moral Tribes by Joshua Greene. Emotion, Reason, and the Gap Between Us and Them.

    I assume as a base case that the world is likely to devolve more in the direction of New Guinea than to Cornucopia. Diamond does a good job bringing that world to vivid life.

    We know that happiness is not a strict function of physical wealth. People living thousands of years ago managed to be happy with less physical wealth than many people today who are miserable. Hanson uses recent discoveries in brain science to help us tip our brains into a ‘positive bias’. You will want to compare Hanson’s ‘positive bias’ with Diamond’s discovery that ‘constructive paranoia’ serves one well in New Guinea. Are the two incompatible, or can both be part of a healthy response to collapse?

    A collapse will accentuate the importance of the human body. We will likely walk more and do more physical work. And we will need to take care of our own health, to a significant extent. Lieberman helps us understand that more walking, more physical work, and fewer chemicals and more reliance on biology aren’t necessarily going to be disastrous and may restore our natural health.

    Scarcity explores how our behavior responds when we perceive that we don’t have enough. The lack can be in terms of money, time, social contact, or a substance like sugar. Briefly, our attention focuses on the thing we are lacking, to the exclusion of other important things. Simultaneously, our intelligence shrinks…we may lose 10 points of IQ. Keep that thought while we explore the next book.

    Joshua Greene first notes that deaths from conflict have been trending down. Chicago is a lot less violent than stone age New Guinea. Tribal wars in New Guinea killed proportionately far more people than WWII. But we still have tribal conflict. Greene looks at the science and concludes with ‘Six Rules for Modern Herders’. Let’s just consider the first and third:
    *In the face of moral controversy, consult, but do not trust, your moral instincts, and
    *Focus on the facts, and make others do the same.
    Do you think that a society which is returning less and less in the way of material well-being, and thus probably experiencing more Scarcity with the consequent reduction in mental bandwidth, will be able to make Greene’s six rules actually work?

    Happy reading…Don Stewart
    PS None of these books are doomer books. The closest to a doomer book is perhaps Scarcity. It shows, for example, that poor people think quite differently than people who are comfortable. Yet the vast majority of psychological or sociological research today deals with comfortable people (including a vast overrepresentation of college students). Sendhil and Eldar both assume that we, as a society, could do something to alleviate Scarcity and achieve a better result. They do not consider the case where more and more people are sliding into Scarcity.

    • Don Stewart says:

      One thing I forgot to mention. Think about the dynamics of scarcity and the Seneca Cliff. As more people move from comfort to scarcity, their minds get into ‘tunnel mode’, strictly focused on their short term problems. Such thinking leads people to take out ‘pay day loans’ at exorbitant interest cost, for example. They also lose significant IQ. Many, many people in the US have moved from the ‘comfortable’ to the ‘stressed by scarcity’ categories since 2007. So we would predict that many, many more people in the US will be making poor decisions.

      I hypothesize that this could be a contributing factor which would lead to a Seneca Cliff response. When things start going badly, they tend to accelerate down the curve.

      Don Stewart

    • Good Morning Don (and all),
      Glad to hear from you and see that you are doing something constructive! Here in Indiana we survived the spate of tornadoes that roared through last Sunday. One unofficial one touched down half a mile from our house and took out two barns and a garage. Power went out for our neighbors but ours stayed on backed up by batteries. Glad I have a masonry house (saw many neighbors with siding blown off), a basement, and that my husband insists on anchoring things down well. We had wind gusts over 90 miles an hour yet nothing moved! I say lots of garden sheds that got moved around.

      Now the fall rains have arrived, good time to stay inside and curl up with a book! The fields are almost all harvested; a few stragglers still bringing in their corn. My first seed catalog arrived in the mail and you can tell I’m still recovering from this season because I didn’t even open it! Just got past a bout of severe strep throat. REALLY thankful for antibiotics!

      I find your description of the books interesting. It would seem that what you got out of the book Scarcity was the idea that when we are stressed by scarcity we become more focused and less intelligent. Hmm….I wonder how that fits with theories of evolution? Is the opposite theory then true, that the comfort we derive from abundance and security increases our IQ? I’m not convinced of that; I think that some stress is good for us as it forces us to develop our wits. But perhaps it is a matter of how we measure intelligence versus wits!

      Humanity has used the extra energy from fossil fuels to provide more luxury for the greatest number of humans ever (albeit rather unequally), yet we have also over-extended our population, become highly dependent on a diminishing resource, and because of this dependence we are now on the cusp of a population die back. Doesn’t seem to follow that our comfort made us more intelligent! Either that or nature abhors too much intelligence!

      I just bought my second dairy goat, a lovely lady named Fiona. Both my does are bred and should deliver in the spring. What fun it will be to see 2 to 4 new kids cavorting in the pasture. Fiona is a pure dairy goat but she was bred to a meat goat so her kids will likely be sold for consumption, as I don’t need that many dairy goats. I am continuing to fence areas of our lawn into small pastures where I can rotate my grazers (including three pot belly pigs). Each type of animal eats different things and so overall the pastures do much better. So much less mowing too! As I drive around the county I see far too many families severely over-grazing their pastures because they leave one type of large animal (usually horses) on one large area permanently. It makes eminent good sense to divide pastures into small areas, move animals frequently, and periodically let it rest and recover (as Joel Salatin describes so well).

      For those who think about livestock for home food production (and manure for fertilizer) but don’t have much room (I only have 2.5 acres), I highly recommend chickens and goats. Chickens can live free-ranging and do a great job converting inedible stuff (bugs, weed seeds, and grass) into highly nutritious eggs. Goats thrive on shrubs, weeds, and grass and are very easy to take care of compared to a full size cow. I also think they would make excellent cart “horses” for small carts, they are more intelligent than cows, and very affectionate! Of all the animals I have, goats are fast becoming my favorite. Well, the dogs laying at my feet and keeping me warm run a close tie perhaps!

      I recently visited the city of Bloomington, IN and discovered several excellent restaurants that cook “slow food” from seasonal, locally grown foods. This seems to be becoming a more popular trend now, as my husband also found several when he was in Texas recently on a business trip. These restaurants are usually chef owned, they have a much smaller menu that changes with the seasons, and usually have an excellent wine and beer list from regional sources. The food was excellent. I had roasted duck, braised kale, and squash stuffed with a rice pilaf blended with herbs and dried cherries. They also had a large brick oven and were rather popular with local college students who enjoyed hand-tossed pizza. This will provide a good steady market for local small farmers.

      I am also seeing more small farmers using the internet to market directly to their customers, another way of increasing sales after the farmer’s market closes, and giving consumers more choices for local food. It isn’t going to be easy for us to regrow all the small farmers we used to have, but I think this is a necessary step for our country to avoid food shortages when the industrial agriculture system and corporate food processors fail for lack of cheap oil. I agree with you, Don, that we need small farmers who can grow forage, beans, and small grains along with pastured animals. The rest of the fresh produce we can grow at home.

      All these changes are like dandelions in the pavement cracks. They are an indication that our current system is failing and a new one is slowly replacing it. If we can just limp along long enough we can give these new shoots a head start and maybe the future won’t be as bad as we think. I highly recommend that everyone look closely at your community for small food producers and support them. Find restaurants that buy local. And as always, grow what you can. Hope everyone has a wonderful Thanksgiving with all the trimmings!

      Cheers to all,
      Jody

      • Don Stewart says:

        Dear Jody
        The effect of ‘cognitive overload’ is pretty well established. I’ll give you a fairly detailed description from Moral Tribes, below. But first, consider a very poor Tibetan monk living a spartan life with practically nothing in the way of creature comforts. Since the monk doesn’t crave anything (presumably), his mind is free to focus on the business of living as a multi-faceted undertaking. The monk may find lots of ways to be happy, but craving a big screen TV is not one of them. This is the paradoxical essence of Buddhism. But now compare the monk with the ‘consumer’ that the TV ads and Ben Bernanke are obsessed with. In the latter case, the notion is that happiness comes from buying things (buying even more than using). The problem is the craving which takes up the bandwidth in the brain.

        Here is a longer description of the effect of mental clutter from Moral Tribes (around page 124 and following). Consider two situations. In the first, you are walking across a bridge and see a runaway trolley hurtling down the track toward five workmen, who will certainly be killed unless the trolley can be stopped. Fortunately, just ahead of you is a pedestrian with a large backpack. If you can manage to push him off the bridge and into the path of the trolley, the five workment will be saved. (Ignore the improbabilities in the setup). Most people do not agree that it is OK to sacrifice the one pedestrian to save five workmen.

        Now change the situation slightly. You are down on the track, near a switch. The trolley is hurtling toward the five workmen. On a side track is a single workman. You can throw the switch and kill the single worman and save five lives. Is it OK to throw the switch? Most people agree that it is OK to throw the switch.

        Joshua Greene details all the experimental evidence from many labs around the world which have studied this problem. Why do we react emotionally in the one case and as cool calculators in the other? Furthermore, we can find certain sub-populations of people with various brain conditions who do not react like the majority of people. And we can set up a situation where people agree to throw the pedestrian off the bridge. For example, if we first give them a problem to solve which seems to have an intutively obviously solution which turns out to be wrong. If people have been recently reminded of the limitations of intution, they are far more likely to engage in a rational calculation of one life versus five lives.

        This also relates to Daniel Kahneman’s distinction between Thinking Fast and Thinking Slow. The vast majority of our thinking is done fast and even subconsciously. Thinking ‘rationally’ is a much slower process and takes a lot of effort. It has also been shown that mental clutter makes it harder to think rationally. We have a ‘limited bandwidth’, as the Scarcity authors explain to us. So someone talking on a cell phone while driving is using his limited bandwidth in a way that is endangering his own life and the lives of others.

        If a person is obsessing about where the next meal is coming from, or how they can get the rent money, or how to buy the children shoes for school, then they are experiencing the same bandwith allocation problems that are addessed in the trolley problems, Kahneman’s experiments, cell phones and driving, and the Scarcity experiments.

        Meditators frequently try to hit the happy medium of ‘open awareness’ or some such name. That is, the body is not sleeping but is alert, but is not narrowly focused on anything.

        The IQ losses and gains have been demonstrated with Indian sugar cane farmers. Immediately after harvest, the farmers are (relatively) flush with money and they have no trouble buying the necessities of life. Their IQ will be, say, 100. But go forward 50 weeks and the cane is not yet sold and the money is gone and life is a struggle. It is not a physical struggle with the cane, they are just watching it accumulate sugar in the field. Life is a struggle because they need to buy food and pay for the children’s school and so forth and so on and they don’t have very much money at all. So their minds are very cluttered with various obsessions. If you test their IQ at week 50, it is more likely to be around 90 than 100.

        The Scarcity authors say that having ‘slack’ is a key difference. The cane farmers don’t make enough money to have any slack to take them through the tough time of the year. A richer person simply draws down their savings a little, confident that the savings can be rebuilt after the tough times are over. Oversimplified, if I don’t have to worry about where my next meal is coming from, I can consider issues such as changing my farming methods of combating global warming or perhaps trying to make peace with my brother-in-law. But if I am desperately trying to keep the financial wolf from the door and juggle a lot of obligations that I can’t meet, my thinking enters a tunnel and I lose IQ.

        Hope this helps…
        Don Stewart

        • xabier says:

          Don

          Fascinating posts. But….

          I rather think humans are like this: someone throws the poor backpacker of the bridge, missing the trolley, – after having called him or her a wicked sorcerer or devil, or just because they don’t like their face or they have last years colour pack, – and the trolley hits everyone all the same and the one who did the pushing gets a medal and dies happily in bed…….

          Or am I just a cynic?

          • Stan says:

            Xabier writes: “I rather think humans are like this: someone throws the poor backpacker off the bridge, missing the trolley…

            …the one who did the pushing gets a medal and dies happily in bed. Or am I just a cynic?”

            No…a cynic would have said that no one did anything to help – they just whipped out their phone-cameras and posted the video to YOU-TUBE.

            Stan.

      • Don Stewart says:

        Jody
        Another angle on the ‘cluttered mind’ problem. People suffering from time pressure, and unable to figure out how to do anything about it, suffer the same problems.

        There was a post by some British Transition person who talked about an urgent request from some group to get involved in an anti-fracking protest. The Transition person was reflecting on the ease with which anyone trying to make a change in the world can get drawn into and endless series of causes which impose impossible demands in terms of time. I just skimmed over it, but I think she concluded that ‘tending her garden’ was her highest priority–not stopping fracking with protests.

        So scarcity is a potential problem for all sorts of people for all sorts of reasons. But ‘tending your garden’ is ALWAYS a good idea.

        Don Stewart

        • xabier says:

          Don

          I read that there have been an average of five protests/strikes per day in Spain since 2008.

          They haven’t changed a thing. They cannot.

          So, digging one’s garden a la Voltaire is clearly the better option:

          Healthy mind, body and soil!

      • Jan Steinman says:

        Jody, thanks for your description of actually preparing for a simpler life!

      • Sherra says:

        Hi Jody,
        I really enjoy your posts here. I am learning so much from so many people who comment here but most of all from Gail, yourself and Don Stewart. You mentioned in your post that your are fencing your lawn into small pastures where you can rotate your grazers. I would be interested to know the approximate size of those small pastures, if you don’t mind sharing that information.
        Kind Regards,
        Sherra

        • Sherra,
          I currently have six ‘pastures’ and they all vary in size and shape depending on proximity to buildings, trees, use, etc. Each of my animal types have their ‘home’ pasture with housing connected to various other fenced areas. We started in our ‘backyard’, which is a fenced area attached to the house with a 6′ wood fence and is 75′ x 75′. The chickens had free range in this area for about three years until I got a new coop and was tired of chicken poop on my deck! Last spring I bought a new coop and we fenced an area for them outside but connected to our backyard. The new chicken’s pen is 25′ x 50′ with a coop but there are two gates allowing them to enter my ‘backyard’ or garden. And sometimes they just get to free range.

          My pot belly pig(s) joined us three years ago. We weren’t told she was pregnant. Now we have three! We segregated her and her babies into a pen by fencing off a corner of our backyard into a pen that is 15′ x 20 with their house and mud hole. I let the pigs out to graze in the back yard depending on season and conditions. they also get to graze in the chicken and goat pen.

          My next animals was a dairy goat. Temporarily she and her temporary companion lived in our backyard, but in the spring we moved her house into a fenced area 70 x 50 through a gate into our backyard. This summer I stacked her out for grazing, which worked pretty well. Also, when I take the dogs for walk she goes with and follows me better than my dogs. The goats can be very hard on shrubbery so I have to be careful where I allow them to graze.

          So I have gates between all these different areas that allow me to control where the animals are grazing. Access to the garden depends on timing. In the spring or fall, I love it when the chickens and pigs clean up the garden and dig up the soil. In the summer this would be a disaster! Next summer I intend to fence the orchard 75′ 75′ and connect the chickens pen to this area. This will allow me to let the chickens and pigs graze the orchard.

          Confusing enough? This has all evolved over time. I wish I could say I had an original plan but I didn’t . It resembles a patchwork quilt. I saw a design that someone did who was thinking farther ahead than me. It contained a barn in the middle with access to four pasture of equal size in a square around it. I think this would work very well.

          Thanks,
          Jody

  12. edpell says:

    My two cents is that
    1) some of the “elite” do have some understanding of the issues
    2) they have no better idea what to do about it than you and I do
    3) they conclude all they can do it amass as large a pile of money (and assets like land and farms and farm hands) as possible to give them the maximum chance of staying well regardless of what happens.
    This simple planning makes sense to me.

    • Stan says:

      edpell writes “…some of the “elite” do have some understanding of the issues…all they can do it amass as large a pile of money (and assets like land and farms and farm hands)

      And razor wire for those farms and barns – maybe gun towers too. And guards to watch the guards.

      Hmmm…perhaps a return to serfdom and slavery?

      Stan.

      • Guns run out of ammunition pretty quickly. We are not likely to have factories to make new bullets.

        Also, the problems are likely to be mostly from outside–those who don’t have enough to eat. This is why civilizations has armies in the past.

        • Stan says:

          Gail wrote: “Guns run out of ammunition pretty quickly. We are not likely to have factories to make new bullets.”

          I know some survivalists who have been living “off-the-grid” in the (Oregon) Coast range. One of them calmly described how he has laid in a supply of 25,000 bullets (that’s right, thousand) waiting for civilization to collapse. A bit scary, but maybe he’s right for the wrong reasons. Perhaps it’s time for me to “buddy-up” with him.

          Stan.

          • Jan Steinman says:

            Having guns could make you a target. Having — and boasting about! — “25,000 bullets” could make you of interest to someone who only has 1,000 rounds, but has 1,000 weapons for them, and can feed 1,000 mercenaries.

            To me, weapons seems a bit like software copy-protection — a huge diversion of resources that is ultimately impotent to a determined attacker. If all the effort that goes into weapons were instead put into solving the world’s problems…

    • sheilach2 says:

      “Money”? what is “money”? Will pieces of paper have any value in the future after the collapse?
      I rather doubt it.
      What will be valuable is water, food, farmland & tools that don’t need fuel to work the land and produce food & useful goods.
      The money the rich are hording will be of little value WTSHTF, you can’t eat it, wear it or produce anything useful with it.
      The people they might want to hire for protection from the hungry hordes don’t need “money” they need food & just how much food can the rich hoard? I don’t think the rich will be better off than most of us WTSHTF, in fact they could be the primary target for looters.

      • Scott Walker says:

        Hello, Interesting what you said about the hordes of hungry folks has been much discussed here on Our Finite World.  So many zombie movies on TV one has to wonder why.

        Ones choices are personal if facing collapse, some may wish to walk into there back patio and simply watch the “Red Dawn”, others may want to take some precaugtionary measures.

        I think most of us agree food stores and even tobacco and wine etc. razor blades are all good things to have in excess.  But for most of us it is hard to buy so much extra to stow away like a chipmunk.

        For us we mostly – we have freeze dried foods and buckets of beans etc that we hope we do not have to eat because the fresh foods are healthier and better tasting but these will make great soups and stews etc supplemented by our gardens if needed.

        Some of us also believe that gold and silver will be a good tradable item for some time too.  Especially the old US or other easy to indentify silver or gold coins from the USA Canada or some other major mint from perhaps Asia etc.  For me, I like the old USA coins minted up to 1964 that were 90 percent silver or just buy some pure silver rounds and sell cheap now for just over $20 US.  Silver and gold should be an item that would trade for food if a currency collapse hits at least for a time as long as there is still food. 

        But good to have a plan to grow your own food, own seeds, we have a compost pile going, but I have found it is difficult to feed us year round with only a small plot, we still buy all sorts of foods and meats, but we do not raise our own meat, just the gardens here.  But my point is most of us would have a very hard time providing enough food on  from our own plots if we had to.

        But these things will only buy us a bit of time it is best to live in a community that will be strong against trouble coming too.  We chose to live in a small town next to the mountains in Oregon where we have made our home.  Good to know there are still some peaceful places in the world for now.  We chose to locate to a clean place with good water and open lands and mountains above if not just for our protection which is provided from natures bounty if needed,  but for the beauty and our love of the country side and mountains.

        Good to prepare for the changing times ahead depending on where you are – – – your needs will be different.

        But as I have been writing about I see a slow change with things getting scarcer and harder to come by and more expensive and I do thing gas will get really pricey in the years ahead.

        Scott

        • sheilach2 says:

          I think your correct, tobacco, razor blades, shovels, picks, organic seeds & of course food will be the currency of the future. I also think that all of us who can should be growing as much of our own food & support local farmers.
          I also have some old silver coins & some gold coins for just in case the $ crashes.

          I live on the coast so I’m rather limited on what I can grow. Potatoes do well here as do berries. A local farmer raises grass fed beef, lamb & free range chickens. Away from the coast, other crops can be grown but here there is little good farm land but just to the south of us are even more farms & the population is still low. There is a lot of timber nearby & plentiful good water.

          Because of low incomes here & a failing economy, people have again and again turned down increases in property taxes for local law enforcement, everyone, including me, has loaded guns.

          Of course we now have to worry about how the massive radiation leaks from Fukushima Diechi will affect our sea food. As you probably know, radiation concentrates as it moves up the food chain & the corporate media say’s nothing about what’s been happening in Japan & the rising deaths of sea life north of us. Seals with tumors, melting sea stars, fish sickening. Is this from Fukushima?
          Indeed, we have become death, the destroyer of life.

          • Scott says:

            Hello, you are right there are many things that concern me as well, especially the seas as it now takes more than 3 weeks to catch a days catch compared to a one day catch in the early 1900’s,

            Also, the upcoming severe shortage of oil and gas and the house of cards that we call our financial system.

            Here in Oregon things have been getting a bit better in recent years in the economy people in construction are working a bit more, college enrollments up, I guess it is mostly borrowed money. I have started to notice more credit card offers so some credit that was freezed up is now flowing, I have been reading about sub-prime car loans selling lots of new cars to people that mostly cannot afford them.

            But the same thing up here – most have guns and some know how to hunt and take care of themselves, I think they will have a notch up on some city dwellers that suddenly decide to go to the country to make a stand.

            Silver and gold are cheap now and are a good investment at this price in my humble opinion.

            I still think that things can kind of stumble along like they are right now for many years, that is unless something happens. Like I have said I am always surprised about how long a broken system can falter along.

            Yesterday, when I walked into a grocery store here in late November when nothing much really grows but to see all of these fresh veggies and fruits and tropical things. These things all come from very far away and in the future we likely may not be able to afford many of these things we are used to now. Oil and gas are still cheap and the system continues to run and may run for some time to come – longer than one may think. But I admit it would not take much to derail it again and the looming debts could be just that device.

            Seeing gas at about $3.15 here which again pretty cheap, so as long as this can go on this economy will grow and things keep going, but one has to wonder where point of inflection when it cannot keep multiplying, Gail’s show that well in the years ahead when other countries that send us oil now can no longer do so.

            I am hoping for another generation for us to have some time but would be like 20-30 years before things get ultra-tough…

            Scott

            • What you describe about fishing is diminishing returns for fishing as well. It is a lot easier to feed yourself if you can catch fish easily, that if you can’t.

          • Stan says:

            sheilach2 wrote: “…the corporate media say’s nothing about what’s been happening in Japan & the rising deaths of sea life north of us. Seals with tumors, melting sea stars, fish sickening. Is this from Fukushima?”

            Maybe…but maybe you need not look so far. I assume that the Pacific current brings water past your region from the north. The following is from the City of Astoria, describing their sewage treatment:
            “…the sewerage is then aerated, chlorinated, dechlorinated and discharged
            to the Columbia River in accordance to State regulations.”
            I doubt that treatment would remove heavy metals or other contaminants that could affect aquatic life.

            Stan.

            • sheilach2 says:

              Those sealife deaths are in Alaska & British Columbia so their up current from the Columbia river outflow but down stream from the radioactive contamination from Fukushima.
              The expectation is the larger radioactive flow from Fukushima is to arrive here in early 2014.

              http://www.trueactivist.com/something-is-killing-life-all-over-the-pacific-ocean/ & for contrast –
              http://tinyurl.com/kzcgs9y from Forbes & from Global Research this scary story –
              (There has also been a series of strange animal deaths recently, including masses of sea lions, sockeye salmon and other sea creatures washing up on the shore. Many of the polar bears, seals and walruses observed along the Alaska coastline have also been found to have major fur loss and open sores, both of which are indicative of radiation poisoning.) Read more about it here – http://tinyurl.com/krju57o Google also has a cache of that page.

      • timl2k11 says:

        “Will pieces of paper have any value in the future after the collapse?” For warmth. See Weimar Republic.

  13. In my opinion, to make organic farming sustainable, you need a rotation of animals & crops. The animals are used for work, hides, bone, fertilizers & meat. To feed those animals you will need land for them to graze on & crops to feed them. This will leave less land for feeding humans. As you know, a lot of hard work goes into making an organic farm productive & sustainable.

    Read “farmers of forty centuries” by F.H. King. Only after the introduction of “modern” farming could they reliably feed a growing population, at least for a while.

    It takes time, like years, to build up the soil up to the point where it can yield maximum production minus loss to insects & pests most of which could also be eaten.

    Much of the land now in production is only there because of fossil fuel, machines, herbicides & pesticides and imported water. Without enough fossil fuel, much land will no longer be productive, dry farming yields far less than irrigated farming. Critical phosphates are declining and it takes huge, fossil fuel powered machines to mine what’s left. We will also have a huge phosphate shortage as well as nitrogen.
    All our “waste” products will need to be collected & returned to the soil.

    So in the future, there will be less land available for farming & the yield will be lower for years if not decades.
    These are just some of the reasons I think that we will be unable to feed 7 billion humans or “merely” 308 million amerikkkans.

    • Jan Steinman says:

      No arguments that feeding 7 billion without fossil sunlight is not going to work!

      Regarding “feeding a growing population,” I don’t think we’ll have to worry about that. Food makes people, not the other way around! A lot of people will “go away.” It could happen by attrition, but it probably won’t, leaving it to happen by war, disease, and perhaps famine.

      I don’t think we’re smart enough, but if we were, I could see a graceful transition. Animals can feed on land that is not productive for crops, for example.

      • xabier says:

        Jan

        I agree, fretting about ‘feeding the world’ (I’m sure you’ve noticed that how that is the propaganda slogan used by Monsanto) is a red herring issue.

        Simply not smart enough, and trapped by the complexity of our own creations: Man, the clever monkey,indeed, but rarely the wise one…..

        But as the great explorer Sir Richard Burton said:

        ‘We dance along Death’s icy brink;
        But is the dance less full of fun?’

        So if the sun is shining or the snow magical,today, then enjoy it! And no day is so short that we can’t do a good deed, grow something beneficial, feed someone or cheer them up.

        • sheilach2 says:

          I have a living will & I told my doctor that I do not want to be kept “alive” when there is no reasonable expectation of recovery. I see no point in that. I have watched too many people die a slow lingering, painful death in hospitals & nursing “homes”.

          I think oil will rise again as we are just too dependent upon it, like water, people will pay whatever they are able to pay for enough OIL, natural gas or coal to survive, you can only cut back so much when it’s so cold your freezing.
          The real crash will come when even essential uses of fossil resources can no longer be afforded.
          People will then do what ever it takes to survive, cut down city trees, burn the furniture & anything else they can burn for heat & cooking & eat anything eatable including “long pig”.
          I would hate to be in any big shitty then!

          Even here, things are still changing for the worse. Our only grocery shop is closing or it might be bought by another grocery. If it closes, I will have a 5 M drive to Brookings to shop for food & that shop will likely be Freddie’s a large one stop store that has everything like Walmart. I won’t shop at any Walmart.
          That’s why small “mom & pop” stores are failing, people will not choose to drive all over town when they can go to one place and get everything they need.

          I think any “lady” that marries a doctor must understand that he will not have “normal hours” & she will need to be supportive when he is home not bitch about him being gone so often or missing the kids play, game etc.

          I agree too that we must enjoy every moment we have left, the sun still shines, trees are still green & life giving, the flowers will bloom again in spring.
          We have not yet entered the worse winters of our discontent.

        • I like your quote!

          • xabier says:

            Gail

            Thanks! It’s from Sir Richard’s long poem ‘The Kasidah’ in which he put his philosophy of life. He was a rather odd fish, but one or two lines of his have stuck in my memory. The basic philosophy is, as far as one can tell, ‘Learn to accept change as the only real constant in life, and get on and do something, and enjoy it!’ The emphasis being on doing something rather than giving up.

    • If we start using draft animals instead of tractors, I agree that there will be less land available for crops. We don’t really have very many draft animals though. Another possibility is to do the work by hand, with simple tools. If we plant mostly perennials, the work might be less, and the plan likely would be better for the soil, and from a sustainability point of view. It is not clear how many such a plan would feed–my guess is quite a bit less than 7 billion.

  14. Christian says:

    Hello Gail. Looking at US bank failures history, its peak have been in the late 80’s in a wave very much worse than in this century. What was it cause and why authorities reacted so diferently in both cases, generating QE in the later case but not in the former?

    • I think what you are talking about is what is commonly known as the Savings and Loan Crisis. At that time, we had “banks” and “savings and loans,” each with their own organization for bailing out failing institutions. The savings and loans were particularly in the business of making home loans. They made long term (20 or 30 year) mortgage loans at fixed interest rates. Their problems began when Paul Volker, Chairman of the Federal Reserve, jacked up interest rates. Savings and loans found themselves insolvent when interest rates rose, because the value of the mortgages in their portfolio dropped rose. They also had trouble attracting enough deposits, because they were locked into paying low interest rates by Regulation Q, when money market funds were able to pay much higher rates. There were other issues as well–some Savings and Loans made loans to risky businesses, in the hope of jacking up earnings. (If the risky loans didn’t work, depositors would be protected by federal deposit guarantees.) The government created the Resolution Trust Corporation, which was charged with liquidating assets of insolvent S&Ls. The government ultimately paid $394 billion in bailout funds, according to Wikipedia.

      World oil price history in 2012$

      One thing the government had on its side in the 1980s and 1990s bailouts is the fact that oil prices tended to fall during this period, helping the economy. As you recall, Figure 1 in my current post shows that wages started growing once oil prices came down. Another thing that was on the government’s side was the fact that these institutions tended to be smaller than the banks that failed in 2008, so there was less concern about systemic risk. Loans tended to stay with the S&L they originated from, in the earlier crisis, rather than being repackaged, in the later crisis.

      In the 2008 situation, a big part of the problem was rising oil and food prices leading to debt defaults, so it was more of an outside situation, rather than primarily caused by interest rates jacked up by the Federal Reserve, which would eventually go away by themselves. Those high oil prices did drop for a while in late 2008, but then rose again, putting more pressure on the economy. The big issue today is workers not earning enough, and it has not really corrected itself. Not only are high oil prices putting pressure on what workers can buy, but businesses have the option of moving production to a cheaper country through globalization or eliminating a job altogether, by using mechanization to substitute for the worker. These forces tend to hold wages down.

      Until per capita inflation adjusted wages can rise, the economy is in trouble. The government can try to cover up its problems with QE, but it is in big trouble. It can’t collect enough taxes to cover all its programs. The programs are now too expensive relative to what the economy can now afford, with low wages and high oil prices.

      • xabier says:

        Gail

        I think you touch on the two most significant and defining aspects of our time: rapid decline in wages available for non-discretionary, and even discretionary, consumption; and that, where ever one looks, – the US, Britain, Europe, – ‘job creation’ seems to be in the low-paying, insecure sectors.

        The tax base is eroding rapidly. Living standards of the mass of people are falling substantially, and the middle class of the post-war years is being eroded and its savings destroyed.

        In Spain, the Red Cross are now running ads: ‘Buy breakfast for a poor child today!’ This was unthinkable even a few years ago……

  15. Stan says:

    Gail wrote: Lack of analytical thinking and excessive optimism are behind most of these problems. 

    I think there may be two more important factors. First, most people look at problems like this as simultaneous linear equations that can be “solved” if all of the factors and variables can be found. Solutions to these sets of equations are most often “intuitively obvious”. The interactions between oil, debt, consumers and economics that Gail describes is better described as a choatic system (http://en.wikipedia.org/wiki/Chaotic_systems ). Such systems are usually counter-intuitive and difficult to grasp, much less understand. And those who understand them (but can not convince traditional thinkers) are marginalized, discounted or written off as a kook..

    Lindon wrote: But there is also a very strong argument to made that the “financial elite” are so detached from reality and so invested in the economic structure that they siphon all their power and wealth from, that they are incapable of seeing what is coming. 

    “Self-made” men love to embrace tis culture’s ideal of “rugged individualism”, especially in the area of acquiring wealth. So many successful people and businesses owe much part of their success to the existing infrastructure – and yet they deny that and don’t want to pay taxes to pay back that support that helped them achieve greatness. I think this same attitude separates them from the reality that a collapse will affect them in many ways – ways that their ego prevent them from recognizing.

    BTW, I found someone who was talking about these issues, back in 2000. See: http://wichm.home.xs4all.nl/21stcent.html Skip down to the section on Depletion of Resources.

    Gail wrote: We need a little humor on this site.

    In your previous piece I wrote that if no one wore clothes (as you suggested), it would solve the sky-jacking problem…and nobody laughed. 🙁
    Where will the economy lead us to? Who knows, but I’ve been reading some prophesiers recently, like the 15th century Mother Shipton. Don’t laugh – I’m reading stuff that sounds saner than what some economists are predicting nowadays. BTW, in the 15th century Mother Shipton wrote:

    Carriages without horses shall go,
    And accidents fill the world with woe.
    Around the world thoughts shall fly
    In the twinkling of an eye.

    (see http://www.sacred-texts.com/pro/msi/msi01.htm )

    Stan.

    • Thanks! I think you are right. The nature of the set of equations that we are facing today is quite different from what we have experienced in the past. Economists have put together models that make some sense in an infinite world, but are utterly invalid in a finite world, especially as we reach limits. The more impressed by and convinced of their models, the more that they cling to wrong solutions.

      As this current economic model collapses, we will need a whole new economic model. It could be a model of hunter gatherers with some adjustments to make human food grow more plentifully than otherwise. It could be a model of small local farming, using very simple tools. The model might incorporate some aspects of permaculture. Most are so focused on our current model, and finding ways to “tweak” it to prevent climate change (not to prevent collapse!), that they are not seeing the path we are headed down.

      • sheilach2 says:

        A hunter-gatherer system can only support very few people per KM. With the vast destruction of our environment we have caused, far fewer than in the past could be sustained.

        Even with organic farming & hard work, about 1 billion humans max could be sustained again given the destruction of our environment and loss of farmland formerly available because of irrigation, fossil fuels & machines.

        I cannot currently find any path that can avoid collapse given how overpopulated and dependent upon fossil resources we are.
        It will indeed be survival of the fittest & most of us don’t meet that criteria.
        We are yeast.

        • Stan says:

          “It will indeed be survival of the fittest & most of us don’t meet that criteria.” ‘Survival of the fittest’ applies to a species as a whole – that is, which species bet fits in a particular ecological niche (wiki the phrase). Humans have been “violating” this principle by manipulating whatever niche they are in. For the last 150 years we have been doing this with oil. It appears that this will be coming to an end sooner or later (maybe sooner THAN later). Whole societies have died off before – it looks like it will happen again on a scale that most people can’t (or won’t) imagine. Think of it as a roller coaster ride that doesn’t have a happy ending for most of humanity.

          Stan.

          • Jan Steinman says:

            “Survival of the fittest” should really be thought of as “non-survival of the unfit.”

            We’re all kvetching about all the sheeple who don’t understand. We should be thankful for those people — they are the “unfit!”

            I think anyone who keeps a clear mind and makes preparation stands a chance. It’s like the old joke about two guys out in the woods, faced with a charging bear. One starts running, and the other says, “You can’t outrun that bear?” The first replies, “No, I can’t, but I can outrun you!

            Does that mean it’s destined for an “Orlov-5” collapse, and there is no room for compassion? No, I don’t think so. But neither do I think we should be too concerned about saving everyone.

    • xabier says:

      Stan
      I take my humour black: with no sweeteners!

    • timl2k11 says:

      It was a very good joke Stan, but it went over my head. I couldn’t make a connection between nudity and hijacking (also, was unfamiliar with term sky-jacking, perhaps if you had said it would it would make TSA security irrelevant, now that would have made me lol). Now I get it. A joke that takes a good bit of thought to get is “high-brow” humor, the best kind IMO.
      Cheers,
      Tim

    • Craig W. Crosby, Sr says:

      Mother Shipton? Really? Puhleese!

      Next we will be having discourse on Planet Nibiru.

      Craig

  16. I had a notification that my user name was offensive [to someone on this blog]- just to clarify
    bollocks – despite common mis use- or for that matter proper use means- ‘the nonsense that priests spout’.
    There was a famous case featuring the punk band – the Sex Pistols taken to court for using the word on an album- a few minutes of research by the lawyer defused the issue.

    no offence meant- and no wish to go off-op

  17. Tom Ballentine says:

    The print media recently ran articles about the auto industry going to seven year financing for new cars and trucks. In the 50’s and 60’s, the longest time one could finance a car was 36 months. This is clearly an attempt to keep the system running, but when the turnover time for financing is twice as long, clearly they are stealing away future auto sales. When will they get to lifetime financing with the life insurance bill rolled in? One car is all you’ll get in a lifetime – if you can qualify for such. Is the industry aware that this will ultimately decrease annual auto sales? Is this the auto industry’s version of “A Prosperous Way Down”?

    • I am sure that high prices are a major reason behind the long financing periods.

      Another issue is that cars in the 1950’s and 1960’s did not last nearly as long, because of lack of rust-proofing, and because of the way the engines were built. So some increase in length of financing makes sense–I’m not sure it is until 7 years, though.

      If interest rates rise, I expect that the number of cars sold will drop.

  18. Jarle B says:

    Gail, in Norway there are 233 people with the surname Tverberg. Have you got Norwegian ancestors? If so, hello from the old country!

    In the national media there is plenty of talk about “lots of oil up north”, but this is not easy oil – it’s rough seas, especially during the winter with it’s combination of storms and low temperatures.
    I think it’s just hoping, what do you think? What is Norways future path in these times of limits?

    PS) Great blog, I have learnt a lot. Keep it up!

    • Yes, my ancestors were from Norway. I write under my maiden name, even though I am married.

      I hear a fair amount about Norwegian oil and gas from Rune Likvern. He wrote on The Oil Drum, while it was still in operation, and now he writes on the site Fractional Flow. He has a recent post on his site about some newly pumped Norwegian sites having production below what was planned. Thus, they are not very profitable. He has also mentioned to me that Noreco has taken a big write down because of its poor extraction results (press release).

      He says that there has been a management shakeup at Statoil, which seems to be related to the low profitability of recent fields. The person who was head of Statoil’s Production and Development and reporting to Statoil’s CEO was moved to a position two levels lower in a different business unit. He mentioned that the CEO has recently made statements that the company is not “married” to its production goal of 2.5 million barrels of oil equivalent by 2020, and will focus on profitability.

      He has also written about rising debt levels of companies.

      So it looks to me as though you should be watching for surprises on the downside with respect to Norway’s oil and gas announcements.

      By the way, as you probably know, Norway’s oil extraction has been falling, although its gas production has been rising. World oil prices for quite a while were rising. Thus, Norway’s financial results have looked very good, even with declining oil production. Eventually, this will turn around–I don’t know when though.

  19. Flute says:

    You write about Brent oil prices that you see a “recent downward trend in world oil prices”. I must disagree with you – to me it looks more like the Brent oil price has also gone more or less sideways since the beginning of 2011. No significant downward trend that I can see. My guess is that we might still see some spike upwards in oil prices (e.g. to 130-140 or so) before we get another precipitous drop. What the cause will be is of course unknown, but it might be a natural disaster, a war, or some other political event.
    To me it looks like the world economy is drudging along with Brent oil prices in the $ 95-125 range, but these relatively high prices have not yet been high enough to tip the world economy into a new global recession. However, they are gradually weakening the economy. Another up spike would likely be the proverbial nail in the coffin and after that we would see demand dropping off quickly and with dropping demand of course a steep drop in the world market price for oil.
    Apart from this nitpick, I find your analysis in this article very convincing.
    Keep up the good work!
    (I’m a Swedish peak oil and economy blogger)

    • Thanks for writing. Whether or not oil prices are trending down now or not, economies are not doing very well. I know the US headline today was, “US Military Eyes Cuts to Pay, Benefits.” Military aren’t paid very well now. They are a hiring source for young people who only have a high school education, though. Cutting their pay acts to cut oil demand further.

      • There has always been a tendency to regard armies as ‘producers’ Which of course was true as long as there were people and lands to loot. Romans, Spanish conquistadors, The British Empire in its early days, the US armies that pushed west to displace native peoples. It was all a form of looting which brought profit to the home states. This profit paid for the military machine to pursue further ‘looting’.
        Once the stage is reached where there is no more loot to be had, then the real cost of the military falls directly on the home nation budget. Which means of course that the ‘worker caste’ must support the ‘soldier caste’ as well as all the military infrastructure, the people who are convinced they have real jobs building planes and aircraft carriers.. The total US military+ancilliaries is about 3 million all told. They are dead weight on the economy. The same is true everywhere.
        Politicians rant on that the military is vital to the ‘economy’ as if they were producers, when in fact they are consumers.
        Weapons get fired off so that warfactories have to make more, and go on paying wages in constituencies dependent on those wages being kept in circulation.
        It is yet another aspect of our unsustainable future.

        • Good explanation–thanks!

          I will take your word that there are 3 million military + ancillaries in the US. If these people lost their jobs, these folks would need to be fed and housed, and would expect funding from the government for that purpose, if they can’t find other jobs. If the funding is at less then their current salaries + benefits, the cutback will have a second order ripple through the economy, as these folks buy fewer cars, and fewer move-up houses, and go out to restaurants less. Not to mention possible debt defaults.

          • Jan Steinman says:

            “… there are 3 million military + ancillaries in the US. If these people lost their jobs, these folks would need to be fed and housed, and would expect funding from the government for that purpose, if they can’t find other jobs.”

            It gets much worse.

            In an Orlov-3 collapse, the government won’t be able to pay them. Most of them have but one skill: killing people, or more diplomatically, asserting force.

            Want to hire a private army? It’s right there, unemployed! Fiefdoms will be able to impose their will on the surrounding countryside by employing ex-military, and as End_of_More says, small private armies will once again be “productive” assets.

          • strictly speaking, the 3 million included everyone dependent on money circulation via the military infrastructure. though that might be on the conservative side, because active military is 1.5 m, and it takes 2 people to support every soldier in the field, so the real figure is probably closer to 5m
            As to Jan’s point, unemployed armies tend to go ‘self employed’ unless there’s a reason not to. That reason can only be a secure job and home. If young men don’t have that, and have no prospect of it, then they will riot
            With societal collapse, this is bound to happen. Militias ally themselves to the ’cause’ that seems to offer the best options for ongoing survival, which means allying themselves to resource bases. We see that happening in Libya right now, where the country is splitting into factions and militia groups, each after an oil or gasfield to grab its revenue. So if you have sufficient resources available, you can command a private army. When those resources run out, the army will vanish and reform itself elsewhere.
            As i’ve pointed out before, the USA has it’s fiefdoms already in place along geographic, ethnic and religious lines. The nation is held together only by energy output. When that output breaks down, the nation is too big to hold itself together as a single entity

            • I know that the US military now uses a lot of contractors. It also buys a lot of equipment from companies like Lockheed. I expect the number of people hired by the contractors is very high, too, and not included in military counts. Certainly, there is a lot of impact, no matter how one counts things.

          • having done a bit more research on military personnel figures, theres 1.5 m active, 1.5m on reserve, and there must be another 1 million in support industry one way or another. Add to that everyone else dependent on military spending, plus all the families etc, and the total gets reall y scary
            Might be another feature article in there I think

  20. Gail,
    How do you see health care and insurance costs affecting disposable income and wages? We just got information on my husband’s employer provided health insurance rate changes for next year. Premiums went up 30%. Deductibles went up 50%. Out of pocket expenses are up significantly and will cap at $6,000 to $12,000 depending on in or out of network provider. Coverage went down. Now we pay 100% of bill until deductible is reached and then after than we pay 50% not 30%. I have heard that employee insurance plans went up significantly at the local university as well.
    It seems that when I have gone to see the doctor the waiting rooms are empty, even at urgent care. It seems to me that even people who do have health insurance no longer go to the doctor unless it is an emergency, because their co-pay is becoming unaffordable. But people who can get health insurance do because they are afraid of bankruptcy if they don’t have it. I have read that the most common reason for bankruptcy is medical costs and that many still go bankrupt even with insurance coverage.
    The doctors are charging higher and higher fees to cover their falling customer base. The insurance companies are rapidly inflating premiums and reducing coverage to maintain their profitability. The higher costs of insurance are forcing more people to take higher and higher deductibles, which makes them less likely to go to the doctor. And so the cycle keeps going.
    It seems to me that Americans have actually reached the point where we can no longer afford our health care system. Just like oil prices being too high to afford, we are seeing health care too high to afford. What is your opinion of this?
    Jody

    • edpell says:

      What you are describing is not insurance it is simple extortion. Lots of money in return for next to nothing.

    • I think you are right about health care costs now being higher than we as a nation can afford. It is not just a single problem that is easily fixed, though.

      Part of the problem has to do with the food we are eating. It is over-processed, and includes too much high fructose corn syrup among other things. Restaurant portions are way too large. Cheap meals at McDonalds and other places are not very healthful.

      Part of the problem has to do with the lack of exercise we are getting.

      Part of the problem has to do with the disparity of wages, and lack of worthwhile jobs for many of the population. Without hope for success, there are too many who have metal health issues.

      Part of the problem is that the healthcare system was put together with an idea of making a profit for many of the participants. This tempts doctors to over-use diagnostic machines they have purchased, and to prescribe pills that will need follow up, and to perform surgeries. Another part of the problem is very high fees for specialty physicians (that are justified by years and years of training and specialization).

      Part of the problem is that doctors have been trained to think in terms of pills or surgeries as solutions, and not better diet or lifestyle.

      • Jan Steinman says:

        Part of the problem is a parasite embedded in the system — the insurance industry. The US spends twice as much as other industrial nations to provide health care, 16%, versus about 7% in Canada, Germany, Japan, etc. A great deal of that overhead is due to the myriad complexities of the insurance industry.

        • Group health plans for reasonable size groups are actually fairly efficient in terms the percentage of the dollar spent on benefits. The percentage a person often sees is 80% of healthcare dollar goes for benefits, and less than 20% goes for other expenses. Many large employers more or less self-insure the costs for their employees, keeping their costs low. For individual health plans, expense ratios are higher. These would be a smaller percentage of the insured population, though.

          The big issue on the “twice as much to provide health care,” is the amount that goes to pay hospitals, doctors, nursing homes, and the many imaging centers and other medical type places. This is a link to a study about the situation. I talk about the issue a little in my post Understanding our Oil-Related Fiscal Cliff.

        • edpell says:

          A hundred years ago when Boss Tweed was mayor NYC built the reservoir up here (100 miles north of NYC). The rule was 50% for the project and 50% for graft. It seems Boss Tweed is alive and well and is CEO of an insurance company.

      • Gail and All,
        I agree with you about the many parts of the problem. The industrial agriculture and processed food industries make large profits selling us food that makes us sicker and we become addicted to the sugar, fat, oil, and salt in them. Most American families think cheaper food is all they can afford. Many American families are constantly on the run so fast food seems logical. Elderly patients are on 12 to 20 prescriptions. Doctors gladly put us on prescriptions for life and just keep adding to them when we develop side affects. Specialists want ever larger salaries, and most doctors want to be specialists. People don’t seem to understand the relationship between health, diet, and exercise. Mental health is declining.

        But if we can no longer afford physicians care or hospitalization the system is going to go bankrupt. Our government payments for medicare and medicaid seem to be propping up the system for now. Of all the problems we face it seems like this one should be fixable. We have plenty of people trained to provide these services. We have plenty of sick people. So we aren’t running out of supply or demand for medical services. What prevents the system from working like most businesses, when prices are too high and we have too much competition, we lose customers. The only choice we have is to lower prices and fight for customers. And competition eventually thins out those suppliers that can’t make it at lower prices. I don’t understand why the medical industry just keeps building more and more infrastructure and raising prices. As a business model it seems rather insane to me. It is like an out-of-control cancerous growth that is probably doing great harm to our economy. Healthcare and pharmaceutical costs are something like 24% of GDP.

        When our government tried to fix healthcare by mandating that everyone had health insurance, why didn’t anyone point out the real problem? That costs are too high and they are out of line with the benefits. I agree with Edpell, it seems to have become extortion. When we need medical service we have no alternative but pay the price they are demanding. When we look at the problems of peak oil and climate change we seem to be facing dilemmas that have no solution. But medical care costs seems to be something we should be able to fix. And the high cost is breaking the back of our country.
        Jody

        • Insurance has played an important role in the healthcare mess by separating patients from the cost of their treatment. Once this happened, competition stopped working. Insurers have tried to put in schedules of amounts they will pay for certain procedures, but this doesn’t necessarily stop doctors from performing more procedures.

          According to a talk I heard by John Michael Greer, years ago “guilds” and “lodges” provided healthcare to their members, by hiring doctors (and hospitals?) to provide the service for members. The guilds or lodges could compare cost of services provided, and also could get feedback from their members as to whether the services provided were satisfactory. This system reportedly kept down costs of doctors, so doctors didn’t like it. It was perhaps easy to do without a lot of specialists.

          I think Medicare has played an important role is cost escalation as well. The expectation is that health care system will keep a person alive indefinitely. For example, my father-in-law had brain surgery in his late 80s, because of tumors and the fact that my mother-in-law wanted the surgery for him. He spent many months afterward in a nursing home, but eventually recovered enough to go back to “assisted living” with her. Even after he recovered, he was confused mentally. For example, after my mother-in-law died, my father-in-law could not understand that fact–kept trying to look for her. In some sense, the surgery was a success, but the cost to society was high. It is hard to see that his quality of life was very good in his later years.

          There is also an issue of fanciness of treatment. If there are “good,” “better,” and “best” treatments, with the “better” treatment perhaps costing 10 times the “good” testament, and the “best” treatment costing 10 times the “better” treatment, there is a tendency for the “best” treatment to become the standard, regardless of the extra cost involved, and regardless of how much true benefit it provides. For example, with treating broken bones, I am sure there are a range of treatments. In some severe breaks, perhaps the “best” treatment is mandated, but in the case of small cracks, it is hard to see that this is needed. But it does keep specialists occupied.

          • xabier says:

            Physicians really earned comparatively little in the 19th century, except for the fashionable ones who dealt with the very rich and wealthy old ladies who just needed pills and comfort.

            In the novels of Trollope (mid-19th c) the general physician is a ‘poor catch’ in marriage terms, and resorted to only by desperate ladies.

            This is not the case today!

          • Don Stewart says:

            Dear Jody and Gail

            I was at a farm convention over the weekend. One day for lunch I sat at a table with a lot of public health people. As we sat eating our actual, real, food, the topic turned to Obamacare. The public health people were uniformly pessimistic and cynical. It’s all about money…nothing will be done which is actually useful. As to the question:

            ‘When our government tried to fix healthcare by mandating that everyone had health insurance, why didn’t anyone point out the real problem?’

            Actually, there were hearings in the Senate. Three doctors testified in favor of preventive medicine rather than ‘after the fact’ medicine. A Senator from South Dakota sponsored them. They were ignored. When they finished testifying, they said something like ‘why don’t they do something that makes sense?’ and the sponsoring Senator said something like ‘this is Washington, what do you expect?’.

            During the farm convention we heard a report from a diversified farm in Virginia. When the current managers took it over, it was in poor shape. The grazing lands had bare earth showing. They invested in keyline plowing. 18 months later their water infiltration had improved by a factor of 10X and their soil carbon had increased from 3.8 percent to 5.8 percent. Yet the current climate negotiators in Warsaw have decided that they don’t want to talk anymore to the ‘farm lobby’ which is there. If you can take carbon out of the air and put it in the soil in 18 months, why don’t the negotiators get excited? It all has to do with corporate profits. The farms are insignificant from a corporate standpoint. The technology used by the farms is very cheap. On the other hand, investing trillions in vaporware such as ‘clean coal’ is what governments do. Some corporations stand to make bales of money on something which doesn’t work, and the governments are geared to generate global agreements which will create a market for the vaporware.

            We desperately need a collapse of the current system….Don Stewart

            • My concern is that a collapse of the current system doesn’t lead anywhere good. We will have to build a new system, and building a new system usually starts from scratch. A new system from scratch may start without the elements we consider necessary, like electricity and a transportation system that works. We have never been in this situation before, so we don’t know exactly what happens.

      • sheilach2 says:

        My solution to those too big to eat restaurant meals is to bring a lidded container to put the extra portions in. That way I don’t stuff myself trying to avoid wasting food & I have something to eat later thanks to the microwave, at least for now. In the NW, we have hydropower & a smaller population. Because so many of us are loaded for bear, after the crash, folks trying to flee north will discover they are not welcome & might be met with a hail of lead/steel bullets/pellets.
        One of the reasons in my opinion of so much processed food is it’s a way to extend the availability of “food” even though it’s not very good for us but it does produce PROFITS and that’s all that matters to the big corporate food industry.
        That will all end with the end of cheap oil & transport.

        • xabier says:

          Quite right: the British pioneered adulterated food when the cities boomed in the early 19th century -it’s an extender and good for profits.

        • Scott says:

          Hello, What you mentioned earlier about getting started late to build things like the Thorium Power Stations, I agree these projects should have been started in the 1960’s or 1970’s at the latest, when we knew how… sadly political and special interests groups (i.e. Lobbyist) have stood in the way.

          We are really a bit late to get started now, but I cannot offer any better choice and I believe we have a bit of time if we can get going now! It is important that the bulk of the remaining oil be saved for fertilizers, plastics and such. But sadly once again it looks like we are on a fast burn to use these precious resources before the next several generations,

          I think we have one more generation at this speed, unless we embrace these new things which may save many of us.

          If you have followed us for awhile on this group, these subjects have been much discussed. It is time to get going on this now we need to build these while we still have enough fossil fuels, otherwise the gift will be truly wasted.

          Scott

  21. Hans Verbeek says:

    Gail, what is your view on the optimistic prognosis of the IEA (and EIA) on the future oilproduction of Brazil?
    In their new World Energy Outlook (WEO 2013) the IEA-experts expect Brazil to produce 4.1 million barrels/ day in 2020 and even 6 million barrels/day in 2035.
    http://cassandraclub.files.wordpress.com/2013/11/brazoil2013.jpg
    The last 3 years Brazilian production has been struggling to keep flat at 2.2 million barrels.day.

    Is the optimism real or is it aimed to lure investors to lend their capital to Petrobras? (blowing up the carbonbubble)
    And why does the IEA still have any credibility in the case of Brazil? The agency has been overestimating Brazilian production for years.

    • These agencies clearly are being very optimistic. They need to come up with some worldwide numbers to “sell” to the world that look like it would be a good idea to conserve now, saying that if we don’t we might have a problem later. I expect that even if there were a high probability that the situation is actually far worse than that, they cannot mention the problem, because political leaders would be very unhappy.

      I expect that they do not really understand that the oil problems and today’s financial problems are connected. Because of this, they may truly think that things have a way of bouncing back and getting better.

      • Harry Gibbs says:

        “I expect that they do not really understand that the oil problems and today’s financial problems are connected.”

        It is astounding to me but you are probably correct here, Gail. I have spoken to intelligent friends who work in the energy and banking sectors and they have little to no awareness of the correlation.

      • Scott says:

        Hello, I guess it all comes down to world overpopulation which the easy energy has afforded us. It is amazing that we have actually almost wiped out Pacific Ocean Fisheries and have actually changed the Weather Worldwide.

        It seems like this will continue for a time longer.

        It would be nice if a whole fleet of Star Trek Space Ships like the Enterprise would start picking us up and delivering us to garden planets with abundant resources and live in love and in peace.

        My point is we have few frontiers left like America was in the 1800’s when Europe was already getting crowded.

        People may move north as the planet warms. but no sign of it now in Oregon as we have a cold snap coming our way, a blast of Alaskan air. Going to burn some firewood in the next week but we also burn natural gas, which I will miss if we cannot get it to help heat part of our home, our water, dryer, stove and heater. Natural gas and propane seem to be the best fuel we have now and it is still cheap, it can even run your car but it looks to run scarce in perhaps 10 years and get more expensive along with oil, I see kind of a slow squeeze of scarcity higher prices ahead not a sudden crisis unless something major happens, a huge Black Swan like an attack.

        We do have lots of trees here and but they have cut many too, but enough for awhile to cheap firewood.

        Many countries currencies may fail and even the USA which we know is the world reserve currency. But a new one will replace it as this has happened many times in history. If our USA Currency did fail and and a new one had to replace it kind of like when they made the Euro, those holding dollars would likely be the biggest losers, perhaps better to own not paper denominated assets. Not stocks but you know everyone is in them because they have been making money while other things like gold and silver have not done well this year, But I was thinking more about quality land with water and good community. Or investments in Farm lands with good water sources, the ones that are not in areas of over pumped aquifers which is so common these days as fresh water will also be a problem in the future and very soon.

        Scott

        • Jan Steinman says:

          “It would be nice if a whole fleet of Star Trek Space Ships like the Enterprise would start picking us up and delivering us to garden planets with abundant resources and live in love and in peace.”

          Witness the final scene of Douglas Adam’s Hitchhiker’s Guide to the Galaxy.

          Seriously, if humanity is to survive, whatever form of civilization survives will necessarily be much simpler, without middle-managers, hairdressers, bureaucrats, and other complications of an energy-rich civilization.

        • Jan Steinman says:

          “Or investments in Farm lands with good water sources…”

          Y’mean, like this?

          I’ve been looking for investors for seven years. Times aren’t hard enough yet.

          When money is scared, it sits still. Although you wouldn’t guess it by the stock market these days.

          I guess the only money that is scared is money who understands what’s coming down the road.

          • Scott says:

            Hello Jan, That would be perfect! Unfortunately there are far to many of us now for everyone to be able to live in this way, if the Star Ships do not show up then those of us that are left alive after the Long Emergency will likely live in much this way. I think the Earth could support perhaps 300 million or so in this way — http://www.ecoreality.org/files/01,%20Fact%20Sheet.pdf

            I just met my first grandson born in November and I wonder what is ahead for him….

            Kind Regards to all,

            Scott

  22. Stilgar Wilcox says:

    Ok people, just skip over all my jawing about Hawaii. Keep the thread going. Sorry Gail. I’ll stick to the topic at hand next time.

    • Timothy says:

      We vacationed in Hawaii for our honeymoon last winter. Actually it was Kauai. Probably the last flight I will have ever taken.

      • Stilgar Wilcox says:

        My wife and I also honeymooned in Kauai. Our visit was to Poipu Beach Hotel back in 88. If you’re figuring that was your last flight due to economic problems on the horizon, I’d suggest simply living your life. The timing of major economic problems is difficult at best. It could be months, years or another decade or so. many factors are involved. Try the big island next time. Lot’s to see.

  23. Stilgar Wilcox says:

    ‘Lower Oil Prices, Despite Higher Extraction Costs’. The effect of diminishing returns. Something to watch will be the effect of lower oil prices on non-conventional extraction. The squeeze is on.

    As an aside, my wife and I just took a 10 day vacation on the big island of Hawaii. We did some research while there on price and availability of different vacation rentals from the low priced VRBO (vacation rental by owner) to higher priced resort type units. What we found is the price ranges from where we stayed, a VRBO at about 100 a day to about 500 a day all the way up to 4500 a day. What we found immediately by checking these different options online was the most expensive/exclusive rooms were all booked for months in advance. The next tier down (500 a day) was well booked but vacancies were available. The lowest priced options (100-200 a day) had the most availability. Conclusion: The ‘Have’s’ are riding high while the have something’s are doing good enough to still take that kind of vacation. The flights were all booked solid in coach and close to full in economy plus and full in first class.

    There were also two huge cruise liners that parked just outside of Kiluea-Kona with their patrons pouring into that side of Hawaii in shuttles to different venues. Whatever economic repercussions may be in the works via higher priced oil was not evident in Hawaii. Every parking lot and beach was full. Most restaurants were bustling.

    As a self described peak oiliest I was astounded as to the extent of money being tossed around. There certainly is no economic backwash from higher oil prices yet that I can see on such a vacation, and that was in Nov., not July the high time of the season. No way will we fight those crowds in July.

    If you get a VRBO in Hawaii, make sure they have AC. Ours didn’t and so we had to make sure to not be in the hotbox as I called it during the day from 11pm till sundown. Also make sure you bring your own mask and snorkel, and beach umbrella. Get a car rental and see the volcano Kilauea, Akaka falls, night swim with the Manta Rays and day kayak/swim with the wild dolphins in Capt. Cook’s cove. That was amazing to look down 50 feet or so and see them swimming along. An experience of a lifetime. One thing to see them above the water, but a whole different thing to see them underwater.

    • I enjoyed visiting the Big Island when I spoke there in 2008. I wrote about the Big Island in this Oil Drum post.

      Most inhabitants don’t have air conditioning. The cost of electricity is very high, and the bills for air conditioning would contribute quite a bit to the cost of your stay there. I am afraid we are going to have to learn to live with a range our outdoor temperatures, without much temperature adjustment.

      • Stilgar Wilcox says:

        Thanks for the link. Yes, true, most locals do not have AC and have accustomed themselves to sleeping in a warm climate. I’m naturally geared for cooler temps, especially at night, so AC is a must in Hawaii. Only use a heater if it gets cooler than 58F inside. Guess we’ll be moving farther north if the climate warms too much here in No. CA or if electricity rates rise too much.

      • edpell says:

        😉 I go into a panic every time you write this. Here in New York State where is gets to -10 degrees. Even the native Americans had to heat. From Thomas Morton, Description of the Indians in New England (1637) “The fire is alwayes made in the midst of the house, with winde falls commonly: yet some times they fell a tree that groweth near the house, and, by drawing in the end thereof, maintaine the fire on both sides, burning the tree by Degrees shorter and shorter, untill it be all consumed; for it burneth night and day. Their lodging is made in three places of the house about the fire; they Iie upon plankes, commonly about a foote or 18 inches above the ground, raised upon railes that are borne up upon forks; they lay mats under them, and Coats of Deares skinnes, otters, beavers, Racoons, and of Beares hides, all which they have dressed and converted into good leather, with the haire on, for their coverings: and in this manner they liee as warme as they desire”.

        • I have no idea how we satisfy the heating needs of today’s large population, without either fossil fuels or deforesting the land. There were few enough Indians that they could light fires regularly. The other big need is for metals, and for concrete. They also require fossil fuels, or will result in deforesting the land. This is part of today’s big “oops.”

          I think shortage of fuel for heating is part of the reason that population has to drop, so that those remaining can live reasonably comfortably. People have fought over scarce resources before, and will likely do so again.

          • edpell says:

            Happily I own 6 acres of woodlot and have access to another 14 acres and an eighteen year old son and an ax. So, as long as the folks from New York City choose to walk south rather than north I am all set.

          • Scott says:

            Hello, I came across this article about how they are planning to mass produce Hydrogen Powered SUV’s.

            The problem is if they are using coal, oil or gas to make the Hydrogen, it serves no purpose and better just to have the car burn the gas/oil. Using coal or any fossil fuel to make Hydrogen is of no use.

            If the Hydrogen was being generated with say A Thorium Power Station or Geothermal power plant, then that would be progress.

            You would most likely need to finance one of these new cars for like ten years since they will surely be pricey.

            http://www.ksbw.com/news/central-california/californians-ready-to-buy-hydrogenpowered-suvs/-/5737870/23037254/-/15rknux/-/index.html

            Scott

          • Scott says:

            Hi Gail, you mentioned where are they going to get the Hydrogen, the problem with that is that the current Natural Gas lines will eventually need to be replaced with a newer high tech probably some kind of carbon fiber or other tighter lines that can hold the smaller hydrogen particles, newer valves/tanks pipes and connectors and all of that will be needed, expensive – – but doable. Making Hydrogen with Coal or Oil/Gas is not the answer, I believe we can make it with thorium or cold fusion, Geothermal and and those subjects are something I plan to follow in the years ahead. If we fail in this, it could mean a massive calamity that many have predicted on this site.

            Just some thoughts on that. Also do not forget that hydrogen can be absorbed into Hydride metals which are like sand and can be stored in boxes and it stays safe unless when heated then hydrogen is released.

            The process of a car or other machine running could heat the box of the these metals containing hydrogen fuel more slowly and that could perhaps contain a bit of the volatility of this very hot and clean burning fuel.

            The problem is we need to make it in clean way from a new technology like cold fusion or thorium not coal or gas because that would serve no purpose to battle the CO2 problems and resource scarcity in fossil fuels. This is the future I see if we do survive this upcoming oil and gas shortage and financial crisis which seem to be looming like a large Elephant in the Room.

            Best Regards to all.

            Scott

      • xabier says:

        Gail

        British saying: ‘There’s no such thing as bad weather, just bad clothing.’

        Of course, that applies best to damp chilly island.

        For hot places one should say ‘bad architecture’: the concrete and glass boxes which have spawned across the world are a very bad idea.

  24. cbg1217 says:

    Gail, a couple thoughts, just for the sake of experiment, not reality:

    What if we dropped a lot of legacy things, progressively over time? What if we cancelled debts, all subsidies, all entitlements. Let’s say we emphasized full employment. Returning labor to farming. Emphasized non-GDP connected production: things like local economies of trade that don’t register in dollars, or national debits or credits.

    Negative-interest rate plans in a deflationary monetary system is pretty much slow-motion debt-forgiveness. Negative interest rate basically means paying people to take money on loan. Bank says, “we’ll pay you $20 to take this loan for $100.” Or in other words, “here’s $100, but you only have to pay back $80. But you still have to pay back $80.” What they want you to do is take out a loan *at all* – so they have some asset (your debt) on the books as a basis of making other loans. And they want the money to keep circulating. They count your loan, and then loan it out eight times again, or 12 times. Now the whole thing is shrinking, pretty much in line with the step-wise contraction of oil production, but the money is still flowing around.

    (this is effectively what was being done, IMO, after the financial crisis, when banks were paying people $100 just to open a bank account. The incentive for banks was partly PR, but in large part, keeping money in the bank so they can loan out eight times more, or whatever factor…)

    But you still have to pay back the $100 they loaned you- well, really the $80… and so you go to work. But you have less energy resources available… Maybe you do more things that don’t involve the normal energy economy: grow and sell produce out of your yard , for example. That is, more manual labor. You begin to replace energy resources with manual labor.

    The point being, negative interest rates are essentially debt-forgiveness in slow motion, that keeps money flowing while the economy de-industrializes and returns to manual labor.

    there are many, many tricky things here: 1) social unrest as funding for entitlements dries up, 2) de-stabilization of the US military hegemony and the world political balance of power. A big part of the need to keep money flowing is so we can service other nations’ sovereign debt with us. We need a strong military to keep our resources flowing so we can do so. that, or maybe they’ll forgive us our debts if we decommission our military? 3) serious problems with meeting needs without using the energy resources.

    • edpell says:

      On the negative interest rate loan. They would have to limit how much one person can take. Otherwise, I will take 1000 trillion please.

      • cbg1217 says:

        edpell – it’s a good point but the loan is naturally limited by the ability to repay it. I’m thinking of money as an equivalent of energy resources. As those contract over time, assuming a relatively slow and steady contraction, making good on a debt is limited by the resources available. So it will still be a lot of work to pay back $80 of the $100 loaned. But it keeps money in circulation, and could match the money supply to the energy resources available, avoiding inflation/deflation scenarios. Maybe. 🙂

    • Harry Gibbs says:

      First there needs to be some sort of widespread consensus that our economic models are no longer serving us. Our debt junkie society needs to put its hands up and admit it has a problem. Sadly even the simple logic that continuous economic growth is not desirable, let alone possible, on a finite planet still seems to elude the vast majority. It’s almost as if people are hardwired to discount this truth.

      • The economics profession has certainly put a lot of time and effort into developing models that assume infinite growth and no diminishing returns. As long as all economic papers rely on previous ones, the practice assures that they all use the same wrong assumptions. I am glad that geography departments don’t assume the earth is flat. In some ways, I find the situation rather similar though. Our politicians rely on the economists with their goofy models. So we are off in the land of silly economic models. The situation is truly bizarre.

    • I am not sure how we would emphasize full employment, unless we issue everyone a shovel as their main tool, and have them walk to locations where they might pick up seeds. Somehow, we would need to take the land away from the current owners to do this. (Shovels of course are made with fossil fuels, too, though.)

      Otherwise, the extent to which we can have full employment depends on the amount of energy available. If electricity and fossil fuels disappear, we lose the ability to make metals, and most of our ability to perform international trade. Perhaps eventually we could build some sailboats for this purpose, but until then, we would be stuck with what is locally available. If we don’t mind burning down our trees, we could recycle some of the metal we have now, and we could heat our homes. But unless population drops very quickly, burning wood would quickly deforest the land.

      Your real question was about the “borrow $100, pay back $80” scenario. You have to have a society that is functioning fairly well to make loans in the first place. Today’s governments could indeed make loans for $100, with the expectation of getting $80 back, but they have other citizens they can (in theory) tax to make up the difference. My expectation in today’s world is that doing this in today’s world would cause the value of a country’s currency to drop, which is perhaps what countries can do to sell more exports.

      In a world where countries operate on a stand alone basis, if a person lends a particular person $100 of resources, and asks that only 80% of those resources be returned, I am not sure how it works. Fossil fuels are gone forever, if they are used, so that leaves a big hole in the accounting. If economic activity consists of turning resources into garbage, maybe it would be possible to turn resources into garbage a bit longer using this approach, but it certainly isn’t sustainable.

      • cbg1217 says:

        Gail, yes, more likely “full employment” will be the result of you-better-get-to-work-if you-want-to-eat.

        The idea of the negative interest is basically to match the money supply to the resource supply so they both contract together at the same rate. There are other ways to do this too: loan defaults and debt nullifications such as the financial crash beginning in 2008 look like the most likely way of contracting the money supply to match the resource supply. This is the most likely because the system will keep trying to grow even though it can’t. Negative interest loans could be a way to do this more intentionally and systematically, less catastrophically. But the idea is to keep money flowing around in the economy so there is trade activity and to avoid inflation/deflation scenarios.

        Besides, a moderately inflationary policy achieves much the same result: if one holds cash, it will be stripped of value if the Central Banks keep pumping money in. Making new money is like a tax on holding money. In the Keynesian model, you just give people money in order to encourage demand and thus stimulate production.

        In the inflationary model, largely it depends on how the newly minted money is directed, intended and used. For example, the government says you have to use your new money for resource-development: jobs move to the energy extraction sector. And this is what oil and gas subsidies are basically. Or, you have to use the new money for solar or wind development, or for energy efficient homes, or subsidies for local farmers markets, or for growing food in your yard, or neighborhood gardens; or for buying cows, goats, chickens… or for building houses out of clay (which is done in many parts of the world still).

        Big problem is none of this really overcomes the diminishing returns on oil extraction. One way or the other, that means sacrificing much of the material largesse Westerners have become accustomed to.

        But I think chiefly, the various tools for matching money supply to resource supply, thus avoiding inflation/deflation, is about avoiding panic along the way down.

        • I am having a little trouble understanding how the government gets this newly minted money to people like workers. I can think of a few ways they can try, but they have disadvantages:

          1. Drop the tax rate way down — raises income net of taxes, but also raises government debt levels.

          2. Send a check out to each family — raises income net of taxes, but also raises government debt level.

          3. Give loans for homes and cars to people who really can’t afford them. This pumps up home prices and spending for a while, but tends to collapse, as it did in 2006.

          4. Print money via Quantitative Easing. This only pumps up stock market prices, land prices, home prices. It also encourages investment in very marginal types of investments, including some oil exploration. Eventually, these bubbles are likely to burst as well.

          Japan has not had very good long term success with actually getting inflation to take hold, when none was forthcoming. I understand they have done a bit better recently, but their track record is not very long.

          • Hartley Schultz says:

            Hello again,
            During the depression, I never saw a fat person, and when I look around these days, I never see a thin one. there were a lot of unhealthy people back then, but they didn’t last long when they got sick. Not many people lived past 55 and a lot of nursing mothers, infants and children under 5 died despite the fact that there was a pretty good hospital where I lived. It was really tough running a farm with no electricity or petrol. I know it was a lot better than living in tent town or being on the road and moving from town to town to get food handouts, but you had to be fit and healthy and highly skilled to get anything out of the soil.
            I know that you are worried about excessive debt and the power of ‘banksters’ I remember during the depression, that a number of banks failed here in NSW. A lot of people I knew lost all their savings while those who had loans still had to pay them back, to these banks. At the same time, I remember ‘an expert’ came out from the bank of England and told us all that we were living beyond our means, and had to work harder to pay off Australia’s excessive debt. Even after 80 years, I still bristle when I remembered how I used to get up at 3am to milk cows at our family farm while our politicians and dignitaries were bowing and scraping to this cove who was being wined and dined and driven around all over town in a limosene.
            Some things never change.

            • You have quite a bit longer experience than I have.

              I think quite a bit of the “fat person” phenomenon now has to do with the highly processed food we eat now days. Part of it has to do with overly large portions in restaurants and even supermarkets. Part of it has to do with lack of exercise, partly due to the nature of today’s jobs and partly due to the nature of today’s transportation.

              You are right though, things don’t change.

          • Earl Mardle says:

            You touch on something else I have been ranting about for years when I hear people talk about all this “money printing” leading to hyperinflation.

            1) There is no money printing, there is the creation of ever more debt, borrowed from an ever closer future. Debt is, in this phase, essentially negative money, each new $ extracts value from the economy rather than adding to it and

            2) there is NO pathway for that “money” to get into circulation so i can’t be a casue of inflation. The money is borrowed into existence, ,loaned to banks at 0%, loaned back to the state at 3% and used to finance wars (zero multipliers and huge real costs) and the most basic of services that barely stop people from dying today, ie, literally consumed immediately at the lowest economic level.

            As you keep warning, the only future is deflationary and its here now.

            • Those are good points. At one point, there was lots of coal and later oil available to be extracted cheaply, if demand could simply be ramped up. In those days, growth in debt was in a sense good–it led to greater fossil fuel extraction, and the ability of would-be purchasers to buy those goods.

              Now we have gotten to the point where it is no longer economical to extract oil. Natural gas is also reaching its limits. Coal is probably OK for a while longer. The only fuel extraction that can be ramped up is coal, in a profitable way for producers. (It helps bring average EROI down!)

              We really need oil in the mix, and but even with the rise in government debt, the countries that use a lot of oil not able to keep up the number of jobs, and thus the demand for oil. The use of debt to shift demand is no longer helpful.

      • sheilach2 says:

        People were “making metal” long before the industrial revolution. After the end of oil, we will still have people producing metal objects, their called “black smiths” & with a lot of already made metal available, they will recycle most of that metal into other tools & products people will need. Some metal like stainless steel needs too much heat for charcoal powered forges to work. Bog iron is still being produced but of course in small amounts, enough though for the tools we will need.

        In the future, the landfills will become valuable resource mines, millions of people will earn their living recycling material from those dumps just as people do now in 3rd world countries.

        Now is the time to acquire those hand tools that will be valued after the end of cheap fuel as well as raw material to take to the black smith to make more tools. Open pollinated non GMO seeds and old fashioned farming knowledge will also be of great value.

        • The problem with charcoal is that it is easy to use up too much of the forests with it. This was a problem many years ago. I expect it would be even a bigger problem now, with a population of 7 billion.

          • sheilach2 says:

            Hi Gail, I also expect there to be far fewer people after the collapse. Resource wars, disease, starvation will greatly reduce our numbers. We have virulent diseases now that didn’t exist in the past & they are becoming immune to our antibiotics. I would not be surprised if some desperate nations resorted to biological warfare to reduce their competition for resources.

            Yes, we will not be able to produce as much iron tools per person as in the past but once our numbers have crashed, there will be far fewer “consumers” of resources, fewer than in the 1400’s when europe went hunting for new lands to exploit.
            If the american continents didn’t exist, then our population would be much smaller as the vast american forests, coal & minerals wouldn’t have been there to build the ships & power the forges of the european colonizers & war makers.
            1400 europe was overpopulated, dirty & a dangerous environment for most people.
            Millions of europeans left the old world to forcibly occupy the new thus reducing the stress on the resources of the old world.
            Now there is no place left to escape to.

  25. John says:

    It does matter in anything short of a Mad Max scenario. An ardent deflationist will logically attempt to preserve their wealth in physical cash and Treasuries, in the expectation that the purely symbolic IOU’s of a bankrupt government will increase in purchasing power. This is precisely the worst possible thing you could do in a hyperinflationary environment.

  26. John says:

    Hi Ert,
    The old Hyperinflation vs Deflation vs Inflation debate is fascinating.
    I understand the seemingly powerful theoretical arguments for deflation, but you haven’t answered the question: “Are there any historical examples of sustained consumer price deflation under a pure fiat currency regime?”

    The excellent article below explains that this is a theoretical unicorn that does not have any historical precedent.

    http://www.gold-eagle.com/article/puncturing-deflation-myths-part-1-inflation-during-great-depression

    • p01 says:

      What happens now has no precedent.
      From a theoretical standpoint it will be deflation. From a practical standpoint it will not matter since there will be absolutely no money in circulation, so you might as well call it hyperinflation since money will not be used as a medium of exchange anymore.
      I hardly understand the fascination with hyperinflation and deflation at this point in the game, since it should be absolutely obvious for both sides that it does not matter anymore.

      • Ert says:

        @p01

        Can you explain – or lay out – what you mean or suggest with “there will be absolutely no money in circulation”?

      • I agree. I expect that what will happen is haircuts to amounts in bank accounts as well as job loss. I don’t know if you would define that as deflation. In fact, some governments may cease to exist all together. The guarantees they give to banks will be equally worthless. So we are really talking as much about a lack of money as anything else.

    • Ert says:

      @John

      The problem is the timing – there is no sustained deflation – as nothing is for ever – there must not be sustained deflation – long enough deflation ‘may be’ enough on the individual level.

      Debt has to be paid – and whatever the governments and central banks will decide – you have to be able to survive the phase of deflationary forces, keep your job or income, ‘survive’. Inflation, “the reset”, etc. may come later in whatever fashion.

      Since we have the same stuff (QE, low central bank interest rates) in addition to diminishing returns due to increasing energy cost worldwide – we enter new territory. There is no real ‘compass’ or ‘guidance’ this time – at least I didn’t find a convincing up to now.

      • I don’t think we know that debt has to be paid. Governments will likely fall and banks fail.

        The only real question will by is, “How will food which is grown and water which is available be divided up?” My guess is that it will go primarily to the workers who produced the food and water, leaving holders of bonds and other debt with virtually nothing.

        • Ert says:

          “I don’t think we know that debt has to be paid. Governments will likely fall and banks fail. “

          Oh – certainly you are 100% right here!

          What I meant was, that up to that point that debt can’t be paid – debt has to be paid. And until it can’t government will tax their people higher and higher, people have to sell some of their stuff – so that they do not loose all at once, etc. pp.

          Greece is a good example, as they are not really allowed to go bankrupt, since even their ‘haircut’ produced big problems for the banks in Cyprus. And even before that, the ECB took over a lot of the Greek bonds. Today, there are simply to much interconnections. So in addition to all the problem Greece has – their increased property, sales, energy and general taxes! They reduced health-care, entitlements and salaries. Unemployment support is only for 12 months – then zip, zero, nothing, no food stamps, absolute zero! They are a current prime example for deflationary collapse.

          When we are at the point where government like the US, Japan, Germany, France, Spain, etc. are failing – we have a big problem. But until that point we still have time. Failing is only then, when the tax revenue of the governments can’t pay anymore for the pure interest of the bonds. And this is still far out! And even before that there is still the option that the central banks monetize directly the government bonds – its only law that has to change 😉

        • Jan Steinman says:

          The only real question will by is, “How will food which is grown and water which is available be divided up?” My guess is that it will go primarily to the workers who produced the food and water…

          As a food producer, that sounds hopeful, but what is going to keep the moneyed and powerful from seizing productive farmland and hiring workers at starvation wages?

          There have been times when a farm worker could lose his hand for stealing food.

          • I am afraid we may still have the rich and the powerful running the show, and taking more than their share of the produce. But they will need workers, so they can’t treat the workers too badly.

            I just don’t think that all the folks who have stocks and bonds in their retirement accounts will be able to stand in line for food ahead of those actually producing the food. In that way you are ahead.

          • xabier says:

            Jan

            The answer to your question is…..nothing! I’m inclined to think of the great estates of Spain where the landowners stayed mostly in town, hired the workers when they needed them and left them to rot otherwise.

            Likewise, a totalitarian state could behave in the same way, not just private landowners.

            More cheerfully, in the Communist bloc small peasant landowners did stay under the radar of state control and keep their lands (and profits!)

            On this theme, I recently discovered and excellent documentary on YouTube ‘Christina, a Medieval Life’ by Michael Wood the historian, which is very illuminating on landowner-peasant relations in medieval England, and on the role of peasant capitalism in trying to break free from control. About an hour, but well worth the time I would suggest.

          • xabier says:

            Jan

            And under feudal law a peasant who struck a landowner lost that hand. How Merry Old England was!

          • Jan Steinman says:

            Keep in mind that, while one million starved, Ireland was a net exporter of food.

            I don’t have a lot of faith in being employed to grow food is any guarantee to access to food! I think that if you can’t control food-producing land, you’ll be a serf. We could use some help!

          • xabier says:

            Jan

            I believe there has been a lot of serious malnutrition in rural areas of Argentina, after the currency collapse and despite the big food export sector. Very much like Ireland. As I said, the Spanish landlords lived it up in town while their workers half-starved, being hired only at harvest etc. In the Christina film, it shows how the medieval landlords levied taxes even as the peasants starved – no pity!

    • In some sense, I am backing general inflation out of what I am looking at. I am looking at average wages, in inflation adjusted terms, and oil prices in inflation adjusted terms. I made an image showing 1929 to 1943 data by itself. (The article you linked to talks only about inflation rates, and not about real growth in the economy or in wages, so it is really talking about something different.

      Average inflation adjusted wages vs inflation adjusted oil price, 1929 to 1943

      In the figure above, the income amounts are Bureau of Economic Analysis numbers adjusted for inflation. The oil prices are “US average” adjusted for inflation by BP.

      Based on this chart, the inflation adjusted drop in wages stopped in 1933. By this point, inflation adjusted wages were 27% below the 1929 level. 1933 was the bottom of the recession in inflation adjusted terms.

      Wages started growing in 1934, increasing in inflation-adjusted terms. In fact, in 1934, they were already 12% higher, in inflation adjusted terms. (Wow!) By 1943, per-capita wages were 2.5 times the wages in 1933. (I can see why we went to war!)

      With all this tremendous growth in wages following 1933, the article you linked to indicates that there was inflation. This is hardly surprising, if the economy was being pumped up in this amazing way. In fact, oil prices got back to the 1929 level, so its inflation was less than general inflation.

      The situation we are facing is much more analogous to the period between 1929 and 1933, when there was a lot of debt defaulting, and wages were falling as well, than it is to the later period. During the 1929 to 1933 period, oil prices did drop–in fact, by more than wages. In 1931, oil prices were 42% below their level in 1929. By 1933, they had improved to only 30% below the 1929 level. Thus, they still dropped by slightly more than wages.

      The experience during the Depression thus seems to be consistent with what I am expecting.

  27. John says:

    Hi Gail,

    I think you are making a mistake in measuring the current and future price of wages, oil and other commodities in dollars, and in assuming that the dollar is a good and stable denominator.

    The dollar is a purely arbitrary government issued token which can be produced in great quantities at no cost. Fiat currencies have a long and illustrious history of long term debasement, overnight devaluation and bouts of terminal hyperinflation. There are no good examples of commodity and consumer price deflation under a pure fiat currency system (CPI was positive through much of the the lost decades of Japan, and the USD was tied to gold during the Great Depression). On the other hand, there are hundreds of examples of hyperinflation spanning thousands of years.

    I cannot see how scarce necessities such as food and fuel can depreciate in value in the medium to long term against arbitrary government issued tokens. There are no good historical examples of this, and plentiful examples of hyperinflation coinciding with economic and societal collapse.

    I look forward to hearing your thoughts..

    • Ert says:

      @John

      I think if you question your sentence: “The dollar is a purely arbitrary government issued token which can be produced in great quantities at no cost.” lots become clear.

      Its exactly that the Government can’t produce money at will! If it could do that – it would have no debt, no Government shutdown, etc. Debt creates money – nothing else! Not in the US, not in Europe, not in Japan, etc.

      In that ‘Money creation via debt’ play two parties are involved:
      a) a (mostly) private bank and
      b) a (private) person or entity (company, public sector at large)

      The debtor b) has to have an asset as a security for the bank. That may be a house, a prospective future income, shares, etc. pp. – something that the lender a) can get hold of when the debtor can’t repay the loan. To make sure that that works you need laws and an enforcing entity (court’s, police, etc.).

      Ones debt is the other ones riches, so the sum of all (monetary) debt is equal to the sum of all (monetary) riches. If someone goes bankrupt and can’t replay the load, some ‘riches’ have to be ‘nullified’.

      Because no one with ‘riches’ has interest that his riches are going to be nullified – and even want more riches someone new has to go into debt or ‘guarantee’ for all those bad loans. Currently the states and the central banks (in US, UK, Europe, Japan) fill that hole… they have taken on the bad debt of banks and provide liquidity in exchange for bad securities (i.e. assets) as under-water housing loans, bonds and the like.

      And as long everyone has to pay their debt and taxes back in $ or € – as long there is a market for those currencies. And as long it is harder and harder for the “90%” to obtain each single $ or a € – the value and the demand will keep up – as we move into a deflationary environment.

      In addition using dollars or euros as a measurement is quite fine – if you fix it for example to 2012 dollars or euros. Since most is priced in that two currencies and there is an exchange rate – you have a well known measurement. If you look at all the charts – you will not find “a stable denominator” – there isn’t such thing.

      I hope that these lines give some thought.

      • I agree. All that we have is the goods and services that society produces at a given time. Money is a way of distributing these goods and services among the various people. It doesn’t by itself create any more goods and services.

        The one exception is that to some extent, rising debt can be used to boosts demand (and thus the price and the supply) of commodities, because the growth of debt adds to the funds people earn from their jobs to buy the goods commodities are used to make. Unfortunately, with diminishing returns, at some point rising debt no longer works for this purpose, because the economy is shrinking not growing. Lenders won’t lend any more to people without jobs. The loss of debt cuts back on demand, and causes a huge problem–prices of commodities tend to fall rather than rise, leading to a cutback in supply.

        • Ert says:

          The loss of debt cuts back on demand, and causes a huge problem“.

          And here a scary chart for the “net” debt development in Europe: http://blog.markusgaertner.com/wp-content/uploads/2013/11/2013-09-26_0847.png

          The “net” debt in the Eurozone is shrinking since beginning of 2012 – and the falling accelerates!

          • Thanks! I haven’t been following the Eurozone situation too closely.

          • Ert says:

            @Gail

            It’s really hard to get a whole view on whats going on in Europe.

            There is nothing solved in the periphery – and even France gets more and more structural problems. Germany in contrast profits from their heavy leverage on the export sector – but this is a double edged sword, as someone has to make a trade deficit when Germany made an trade surplus. But now more and more in the other member states criticism the “German export model”.

            In addition the unbalanced trade surplus is kind of a natural thing that was the desirable outcome of the SPD led “Agenda 2010” which in consequence lowered/depressed the total income of German workers – so that all of the proceeds of the “export wonder” land in the coffers of the companies (and share holders – where ever they may sit in the world). For many it has become kind of that Wal***t modell – work full time and still get social benefits, so society subsidizes your employer.

            In addition the “Schuldenbremse” (i.e. “debt brake”) is the big thing on the agenda of Mrs. Merkel, which she (or the current people in power) want to apply to the whole Eurozone. Basically all the member states shall reduce their expenditures while in or going even deeper into the depression. So while having structural problems the member states have to increase taxes and cut (social) spending – which even increases the crisis (as even the IMF got in their heads in case of Greece).

            In acknowledgement of all the issues there are developments to do a overall “Haftungsunion” (general liability union) where everyone somehow guarantees for everyone. Concerning the state-debts thsi is basically already the case (ESFS, ESM), but now it shall even be extended to the Bank-Deposit insurance mechanisms and unemployment insurance/benefits. So the German workers – which mostly didn’t profit from the company gains of the last 10 years – shall now pay via taxes and added risk for the structural damage the export model and the “Agenda 2010” has produced….

            For me it’s a little bit of “Endgame” – everyone takes over the liability of everyone – because if something happens to someone – everyone goes down with everyone.

            • I suppose that what you describe is supposedly a way of keeping things going a bit longer. But of course, to get more demand, you need more credit, even if you can’t afford it. The way you describe the situation, everything goes down together at once.

    • I don’t think I am measuring things in dollars.

      I am looking at how much goods and services the economy can produce. In an era of diminishing returns, the amount of goods and services produced by each citizen falls, on average, partly because many citizens don’t have jobs.

      If wages reflect the amount produced (in inflation adjusted terms), they fall, because citizens are on average producing fewer goods and services. Perhaps this is because many are producing zero.

      It is true that food and energy products to cook the food and heat homes will tend to increase as a percentage of total spending. “Services” are likely to mostly disappear. Products that can’t be used any more, like cars, will have very little value, except as scrap metal.

      In order for inflation to occur, the money the government prints needs to get back to the wages of workers. At least recently, that hasn’t been working. Putting it in banks, and lending some of it out to speculators, only produces asset bubbles.

    • Also, see my reply to John. The situation during the depression is consistent with what I am saying.

    • Jan Steinman says:

      “I cannot see how scarce necessities such as food and fuel can depreciate in value in the medium to long term against arbitrary government issued tokens.”

      Unless, of course, population comes down significantly. Then supply-and-demand take over.

  28. I’m assuming this comment was made tongue in cheek, I hope so anyway.
    But just in case it isn’t, then it sums up our collective problem very neatly, in it’s assertion about ‘creating money’. The vast majority of people are convinced that bits of coloured paper and plastic have an actual value, and all we have to do is print the stuff to get wealthy.
    very few people accept that money, in the sense of it having value, cannot be created.
    Our present day money system was created by the ever-increasing volumes of oil coal and gas extracted from the ground to drive our economic infrastructure. Hydrocarbon fuels became our collateral for future debt, There was always more hydrocarbon, so we could always have more debt. Easy, and supposedly infinite
    Now people are convinced that we can do the same thing in reverse, by stuffing money into oilwells, convinced that it will deliver even more ‘wealth’.
    As to the simile of a ‘house’ being used as a reference point. The reason a house has had a rising value, is because it represents a package of embodied energy. (just as a car is embodied energy) As long as energy prices rise, and more oil becomes available then people can take on more debt to buy more energy-embodied products. The actual product is irrelevant. We have all been chasing energy intensive goods by borrowing money, and using energy itself as collateral.
    You can use energy to print money, you cannot use money to print energy

    • End of More, thank you for your considerations.
      It was not really tongue-in-cheek, but from your reply, I understand that it is not clear what I meant. If the hard-to-extract-oil becomes too expensive for our economy, it will be game over. A system collapse. A crash. Then the price of oil does not matter anymore. There will probably be a lot of battles for the remaining but slowly flowing easy reserves. No longer 80-100 Mb/d, but some 100kb/d for centuries. A stable situation, but not as glamourous as the situation a lot of the middle-class are living now in.
      That transition cannot be made in a couple of months. But it has to be made, or it will make itself.
      So, in order to make that transition, we will need some of the hard-to-extract oil, to give the economy enough time to adapt and to shrink. But, the economy must not “shrink”, so there has to be a trick to add some virtual, or non-material economy without needing much energy. Let’s say a virtual world, that can be powered with solar panels.
      But this world has to be built, and old habits like physical traveling, commuting, have to diminish.
      So, some kinds of Quantitative Easing, and some bankruptcy now and then, will be necessary, not to create growth with more energy and more consumption, but to do the non-profitable things that must be done to make the transition (and without people noticing it, for which purpose some puppet-theatre is organised).
      Some banks are putting a lot of money into fossil energy these days. I don’t believe this money all comes from our savings. That money might be lost. So it is not putting money into the ground, but some kind of creative use (cheating) of the money as debt/value system to keep the drillers and equipment manufactures motivated for the time needed.
      I remain confident in the people who really organise the world.

      • Ert says:

        @Koen

        I remain confident in the people who really organise the world.”

        I fully agree and hope that somebody does wake them up from their long sleep 😉

      • There are definite minimums that are required for oil production. We need to train engineers for example, and run refineries. These have a minimum scale of operation. We use pipelines to transport oil. These have minimum operating requirements for pumping oil, and also require electricity for pumping. I don’t think it is possible to pump 100,000 barrels a day, unless perhaps one self sustaining country manages to do this, and also operates its own small refinery. It would probably need to be oil that doesn’t need much refining–not the heavy stuff we are extracting in many places.

        • Gail, thank you for this feedback.
          The usage of the remaining “black stuff” might indeed be very different. I cannot imagine the unefficient usage that we know nowadays as the heating of a bad isolated house, or driving a car that uses only 10 to 20% of the energy of the fuel.

      • SlowRider says:

        If I understand correctly, you say that national governments would subsidize oil production. I think this is an ineresting idea, too easily dismissed in the “everything will crash” line of thinking.
        Why should they do it? It can only be
        a) for direct use in their domestic economy (or allied countries)
        b) for export in exchange for goods and services they don’t have in their own place.

        In the US/Canada, this really makes a lot of sense: a good amount of oil in the ground, high domestic demand, and a big enough economy that can handle the oil production infrastructure on it’s own in the long run (maintain refineries, educate engineers etc.). And I don’t think the dollar would crash because of oil production subsidies.
        China and Russia could do it.
        Europe is a basket case – no domestic oil industry, no resources, too many people (except Norway).
        For smaller oil countries like Venezuela and Nigeria, it would be more difficult to get a payback on subsidizing oil, they lack scale and complexity to make it work. But I imagine they could find some regional trading partners who take their oil in exchange for other resources like food, so subsidizing oil production can make sense at least for a while.

        Right now, the global price of oil is the only distribution mechanism, because it is still a buyer’s market. If a small private oil company can’t deliver at a low world price, the buyer doesn’t care, someone else will sell. But in a different world, oil would only leave producer countries in exchange for real goods and services.

        • I am not convinced that a government subsidizing oil really works–oil in fact traditionally has been what subsidizes governments everywhere. This happens partly through taxes, and partly through the services that cheap oil provides.

          Perhaps if a country has huge coal resources, and can use those to subsidize oil resources, that would work. Ultimately, it is energy that makes society operate. We cannot fake having energy, no matter how much we would like to do so.

          • SlowRider says:

            But you DO remember that most of global oil production is already completely nationalized? I think you are dismissing this point very quickly here. It is not THAT expensive to produce oil, you need very little manpower, the know-how and technology is there. Most oil countries will be fine, including North America, and they represent a big enough chunk of global commerce to continue trade amongst themselves. The military, police, elites and governments in all countries will be fine. This is not forever of course, but for the next few decades, and that’s what matters to me. The Saudis and Russians are special – they export most of their oil today, because it works fine for them, but they would have no problem to leave it in the ground for the future and just produce for themselves. Perhaps they would have to stop flying around in private boeing jets and deer hunts in Scotland, but well, they had their fun. And it is a myth that they “need” the oil revenues to keep their population in check. That’s just the way they do it today.

            When you write things like “I’m not sure there will be any governments”, I wonder about what kind of timeframe you are thinking. 100 years? Today, even countries with the worst economies have strong governments. Most people would say that some of your statements are not very specific. I know, the big picture, but still…

            • There is a difference between oil that is cheap to extract and oil that is expensive to extract. Governments want to nationalize oil that is cheap to extract to get all of the profits from it. In fact, that is what has happened around the world. Other countries just put high taxes on oil output. Oil is a big source of revenue for the governments of most countries that produce it. This is where a lot of oil dollars go. This is also a reason why Saudi Arabia and Russia are not likely to leave their oil in the ground–the governments need their cut of the oil money, to keep the benefits flowing to their citizens.

              When we move on from the cheap to extract oil to the expensive to extract oil, then there is much less margin for profit. In fact, huge front-end investment may be required, with the idea that a profit might be earned sometime in the future. This is the point we are reaching now. A nationalized company is not particularly at an advantage in that case. Mexico and Brazil are working on getting oil companies from elsewhere to help pay for the extraction of the oil for them–only it is not really clear how long this will work, because the new companies will likely not be able to do it at a profit either. Venezuela and Ecuador have gotten long-term loans from China that can be paid back in oil, to try to facilitate extraction. If China (or someone else) is rich enough to pay for they oil, they can make extraction possible (and take a disproportionate share of the oil for themselves). Having a government take over oil extraction doesn’t magically make the oil economic to extract and allow the country itself can benefit. If extraction is economic, the oil may still go to some other country that can afford the huge up-front investment cost, or the oil may be left in the ground, if extraction becomes too non-economic.

              The kind of government a country can afford changes as energy availability declines because programs for education, healthcare, retirement benefits require a country with a lot of energy usage, and thus wealth. Historically, there have been a lot of governments by dictators or by kings and queens. As the amount of energy availability changes, we should not be surprised if governments start changing. Changes can be in the direction of simpler governments (kings, dictators, etc.) or in terms of governments covering smaller areas (like the Former Soviet Union). The fall of the government of the Former Soviet Union happened very quickly. Its fall seems to be at least partly related to the fall in oil price (because the Soviet Union was an oil exporter). We should not be too shocked if other government changes come in the years ahead.

        • I did not think about governments. More some kind of world energy bank, that receives its money directly from the sources of the different moneys, and that keeps the powers balanced. With more secrecy than nuclear weapons programmes. I wonder if this could be done.

          • SlowRider says:

            (no more reply button) Gail, thanks for this long answer, good information, I will think about it. The part I’m not sure about – government doesn’t need any profit, if something is really important. Venezuela and Mexico could still cut many other types of spending if necessary; asking foreign oil companies for help might just be a first and easy step.

            Kings and Queens didn’t have our technology. It is very easy to keep a population in check with some tanks and guns, the former Soviet Union you mention was a good example. And they still have a nice empire – maybe they were a bit overextended before.

            On the other hand – who knows, perhaps we are past a certain tipping point of global democracy. The Arab Spring movement seemed forceful. Perhaps governments will really be weaker in a crisis. Time will tell.

  29. Maybe there is a way out of this trap, by the creation of new money by the central banks at zero interest and investing this money directly in the oil and gas business. If it is not profitable, nobody really cares. The money that was created, is just used to pay the engineers and contractors and manufacturers of equipment, who can then buy more expensive homes, which fixates the capital in a sort of virtual wealth (a house is an assembly of construction materials and working hours originally intended to provide shelter, but its market value is mostly imaginary), and so preventing hyper-inflation. Rich people do not buy a thousand breads every day, nor do they eat a tonne of meat. Worst case, their swimming pools are too hot, airco’s too cold, or they travel too much with big cars or private airplanes. That can be forbidden or a quota-system can be imposed if necessary.

    • Ert says:

      @Koen

      Money is the core issue. Our debt based money system that must expand by design can not cope with what is before us. If is effective in the way of expansion, extraction and growth + all the dirty tricks that are helpful to reach those ‘goals’.

      Now we need collaboration on long-term societal goals – and I haven’t a clue of how to transition the system on the down-slope. The prospect of a stable ‘less’ is hard to sell if 99% do not understand the problem and loot for optimization of their individual prospects. It is even hard for me.

    • I think that we have come very close to this situation right now.

      A huge amount of money is being invested into shale operations, because money is being lent out at close to 0% interest. The operators are putting together very optimistic balance sheets, and earnings reports assume that front-end costs can be amortized over a very long period, using money that has been borrowed with these low interest rates. (Or would-be investors borrow money, and invest it in stock of these companies.)

      The steep difference in wages acts precisely the way you describe. The rich spend more than the poor, but far from proportionately more. So by increasing wage disparity, Nature cuts down resource use. This is really sad, but it seems like the way things really work out.

  30. timl2k11 says:

    It looks like TPTN are setting up the narrative for us already. See http://www.bloomberg.com/news/2013-11-12/brazil-to-boost-oil-exports-as-output-triples-iea-says.html
    Some quotes:
    “Brazil will triple oil production by 2035 and become a major exporter as it develops the Americas’ largest discoveries in almost four decades, the International Energy Agency said.”
    “The new production will come mostly from deposits trapped under a layer of salt more than two miles beneath the Atlantic Ocean’s floor, the so-called pre-salt fields.”
    ” “The increase in oil and gas production is dependent on highly complex and capital-intensive deepwater developments, requiring levels of upstream development beyond those of either the Middle East or Russia,” the IEA said.”
    ” “[Tapping these resources] requires substantial and timely investment throughout the energy system,” the IEA said, estimating the amount at $90 billion a year on average.
    The above quote actually starts with “meeting this demand” which I replaced because it us entirely misleading.

    So, in other words, if the expensive oil off of Brazil is never developed it will have been because we failed to provide “substantial and timely investment”, not because the oil is so expensive to get out. The narrative will never be “we ran out of cheap oil”, it will be something like “We failed to invest enough money in oil production.” Regulations and politics will be blamed, never our outrageous demand for finite external and cheap energy (and other resources).

    • timl2k11 says:

      typo TPTN -> TPTB

    • I agree. It is likely that most of the population will never understand the real dynamics behind what is happening now. It will look like bad regulation, or misguided policies, or not investing enough funds–it will never look like exhausting cheap finite resources–which are all we can afford.

  31. dolph says:

    Let’s not complicate things too much. There is no secret cabal of elites planning this or that or the other. And I frankly consider myself a conspiracy theorist, and have huge doubts about the official narrative of 9/11.

    The money supply is controlled by central banks. Because we use unbacked fiat currencies worldwide, money is infinite and elastic. It’s just a question of who gets what, and when. The central banks did what they could in 2008 and began to liquify the banking system and transfer toxic debt onto their balance sheets. Was it the correct move? Probably not, but back then people believed we didn’t have any time.

    Ok, so when the next crisis hits, what do you think the response will be? It will be more liquidity…more currency. That will be the only thing that can prevent a general deflation. But going back to the question of who gets what, and when. You see next time around there’s not as much space on the balance sheets. So the central banks won’t be able to bailout the entire system.

    Expect bankruptcies in major banks, and major industries including energy production, auto, airline, tourism, healthcare, etc. This will be another step down, and a major one, in the “catabolic collapse” model. Once this happens, the oil price will once again try to stabilize at a goldilocks level which is just enough for the remaining producers, and just low enough for people to consume what they need for basic living.

    But quite frankly I think it will be a healthy correction. We’ll buy ourselves more time. Ultimately, industrial civilization is doomed, but the end to boom and bust will, in the short run, place things on a somewhat more stable path.

    • But don’t you think that if the step down goes to a new lower level, it will only last there a few years? It seems like all of the forces are still in motion to try to push the system down further.

      Also, it is not clear that the economy can really function at a step down. Major parts of the system, such as international trade and international finance, may need to be started all over again on a new basis. Also, we will likely need to get along without computers and other high tech equipment.

      • SlowRider says:

        Right now, oil demand from China, India, etc. is keeping the price up (certainly not demand from Greece, Portugal or Detroit). Their hunger for oil is immense, their middle class still small, their economies becoming less dependent on exports. Someone said half jokingly: “Chinese coal and cheap labor is exchanged for Saudi oil, German cars, French wines and Dutch paintings”. It’s all global, so our view tends to be too narrow. There can never be a low price of oil in one region only, as happens with natural gas. Emerging markets might be willing to bid the price of oil up again and again. Maybe there are 1 billion young people right now, waiting for their purchasing power to increase just a little bit more, in order to buy that first burger, phone, computer, vacation, car. Or – for that price to come down just that little bit. That’s where global corporations play their game, and it’s not just silly old BAU-thinking that makes them continue.

      • Harry Gibbs says:

        I absolutely agree. We are facing a Seneca cliff, as described by Ugo Bardi. The current system functions in all of its bewildering complexity and interdependence or it barely functions at all.

  32. p01 says:

    One star something out of 5 for a perfectly logical explanation?!
    Quite a tough commentariat you got here, Gail…. LOL. Most well-read people observably live in cloud-cuckoo-tra-la-land.

  33. kiwichick says:

    @ jan s

    from ltg the 30 year update page234
    “once the population andeconomy have overshot the physical limits of the earth, there are only two ways back: involuntary collapse caused by escalating shotages and crisis, or controlled reduction of the ecological footprint by deliberate social choice”

    “ecological footprint” = total number of humans x average consumption / person

    therefore we must stabilize or reduce population and reduce average consumption

  34. Hi Gail!

    Great article as usual, full of excellent analysis. It looks like we are all hanging on the Bakken and Eagle Ford plays until we are hanged by them. Maybe this year?

    By the way, it’s good to see ‘The Triangle of Doom’ appearing in other places …

    That is going to be hard for Americans to get around …

    • You are right. What I am showing is really very closely related to your Triangle of Doom. Thanks for pointing that out. I suppose it was lurking in my subconscious along with other things.

      Do you get as much negative reaction to the idea as I am getting–or perhaps just lack of understanding? There are some absurd number of people giving the post one-star ratings (or perhaps the same person, with a some sort of program allowing multiple ratings).

      • Delivering a Full Doom message generally does not lead to High Popularity Ratings. This is one of the reasons you rarely see Full Doom articles on major websites. The Cassandra Effect of course.

        So you have to decide whether you want to deliver the Truth or deliver the Hopium people want to hear, at least on an Analysis Blog like OFW or the Diner.

        The other alternative is to develop a Positive Action alternative and develop means by which the feelings of Helplessness you get being inundated with Doom can be acted on and addressed.

        This is our latest Project on the Diner, called Sustaining Universal Needs, and we are just about ready to open up our new website. I’ll inform here when we do the Grand Opening.

        RE

        • Ert says:

          @RE

          I – for my part – liked your “full doom” Interviews on the Diner very much – and hope you will continue them!

          These Interviews – the same as Gails thoughts here – give new insights and challenge one’s thinking. And without challenge no (fast) progress.

          • Monsta has had some health issues so no new podcasts right now, though there are some in the can.

            Meanwhile, I am doing some vidcasts, another on Evolution should be upcoming if everybody shows up tomorrow.

            Getting Collapse Pundits together for chat is no easy task.

            RE

      • WT de Vries says:

        As a regular reader of your weblog, I too immediately noticed the unusual mismatch between the number and value of *-votes, and the generally positive discussions.
        Is the “incumbency” (in Jeremy Leggett’s meaning) hiring straw men to vote this posting down?

        As Leggett describes aptly in his newest book, thing are getting more unhinged by the week…

      • sponia says:

        I believe your troll is back….

      • Gail,

        First of all, I think you are doing a wonderful job. One of the hardest things to do in the USA in 2013 is to simply tell the truth. There is endless push-back, it wears on a person, it requires a certain kind of personality to persist.

        Is TOD/diminished available resources unpopular? It certainly is, the idea is hard to explain to folks who have no interest in grasping it.

  35. oelsen says:

    Well, that is a twist, the cross roads at the end look just like the export land model…

    • Scott says:

      Hello, It seems we need a new frontier, a new promised land like America was in the 1700’s, room to grow. But it is not out there except in the cold north which is warming – but few things still grow.

      Scott

    • I’m not really taking about the same thing though. The export land model just takes current patterns and assumes that they will continue into the future.

  36. Hi Gail- a few points.

    for the last 5 or more years the global economy has coped with oil at 3x times the historic price and globally increased coal and gas prices. The global economy has also coped with stagnate oil supply- with OECD countries economising on consumption. Coping is a matter of perceptive, of course and could be simply stalling.

    there are some odd behaviour patterns- in spending eating out in the UK has increased and recovered to pre 2008, it appear with limited funds certain activities are preserved as luxuries. The very low interest rates are also driving house prices particularly around london up [and land prices across the entire country] The amount of money in the economy in 2008 for the UK compared to today is down in real terms a few %, and up a few % in the US without much population growth.

    People are taking out less debt to buy imported Chinese made electronic goods- as an instance, as well as reducing oil /energy consumption through energy efficiency and reducing pointless expense.

    So is this stagnant growth- or slight decline a holding pattern that could last decades. After all the OECD countries grew a few % each year- increasing consumption and GDP – therefore if we are forced to buy a little less and upgrade items less we could eventually end up at 1990s levels of wealth – which by any standards was pretty wealthy. A slow motion collapse taking decades.

    The more immediate issue though is capitalism and the markets- the availability of cheap loans encouraged workers to get mortgages which was taken to extremes prior to the crash. Workers paying mortgages don’t tend to go on strike and are prepared to work harder for less.

    globalisation broke the power of working populations in rich countries through out sourcing- however the loss of well paid jobs meant less money to buy consumer goods that in turn required more cheap loans and personal debt.

    Socialist countries in Europe have adopted the US debt model for education leaving 20 year olds having £30k debts for fees and living costs. A growth industry in the UK is quick loan companies that offer interest rates at 1700%

    The bail out of the banks and the fact they now lend 10 times as much money as they borrow [or what ever accounting trick they use] is funding shale oil and gas, as well as dotcom businesses like twitter, facebook. And it is in the interest of almost everyone to believe these investments will pay big returns- including ordinary workers whose pensions depend on imaginary wealth. BP is a major donor to UK pension funds, it is in no-ones interest to presume that their operations will not yield the returns either because of tricky geology, diminishing field discoveries and CO2 regulation.

    Yet the market is not going to stop trying to make the next buck. I understand the Bank of England is already setting aside funds for the next bail out. Property markets in reduced number of areas [compared to pre 2007] are overheating again. And the Euro [and US debt] are both being kicked down the road with both potentially offering market opportunities in currency speculation.

    So is it more likely capitalism will collapse before the real economy [I don’t mean Western freedom but the market of debt and speculation]? The collapse of US shale oil companies would be my first uneducated bet with mass bankruptcies and more importantly destruction in the belief of endless oil. Of course there are plenty of other commodities that I am sure are being speculated on. And capitalism has a habit of reinventing itself after every failure or regulation.

    Sorry for such a long post but such stimulating post tend to stir more questions than can ever be answered.

    Best Jules

  37. Scott says:

    Hi Gail, Thanks for another good post. Those charts were interesting, housing does not yet look like another bubble yet.

    I would argue that the price of oil and gas will rise in the future due to scarcity, it may first go down but when production shortages lead to real shortages, the price will increase. So I see a more inflationary future for us in our costs of oil and things you buy every day.

    Not to mention all of the QE and new money currently hiding in places like stock and bonds, if these markets collapse and loose value that could be deflationary a way of destroying some of the newly printed dollars but as oil and gas get more finite and expensive to dig out of the ground one would think that supply and demand equations would lead to higher prices and hence inflation at some point. But I do agree we could have a brief period of deflation first.

    Kind Regards to you and the group,

    Scott

    • BC says:

      Scott, housing is indeed again in another bubble.

      US real median house price and real wages per capita (2007 = 100):

      http://research.stlouisfed.org/fredgraph.png?g=oxG

      Annual change:

      http://research.stlouisfed.org/fredgraph.png?g=oxH

      The real price and change rate of the median house price is again above real wages as occurred at the past bubble peaks.

      https://app.box.com/s/40tqs7akguuda3bzozp1
      https://app.box.com/s/xtb3537wm05e71jcajjz
      https://app.box.com/s/63apk9x7g83ls01m2kb9
      https://app.box.com/s/tgflwndqp3v6kzgrm24s

      Demographics and the collapse in household formation (Millennials coming of age are financially incapable of driving a suburban housing growth cycle) implies that further growth of housing and real final sales per capita is unlikely hereafter. An incipient recession might already be underway as a result of the yoy contraction in the peak demographic cohort age 25-54.

      A consumer economy does not grow when the labor force and employment for age 25-54 is contracting yoy, needless to say.

      • Thanks for the charts. It seems like we see real life examples of people up against these issue day after day.

        • BC says:

          Those who are bullish on the US housing market, and generally the auto- and oil-based suburban mass-consumer economic model, are likely to be Boomers who are projecting their own life experience while coming of age in their 20s on Millennials and extrapolating forward, assuming that Millennials have the same opportunities, employment conditions, after-tax purchasing power, expectations, and values as Boomers. However, it is demonstrably clear from the growing evidence that Millennials are wholly incapable of replicating the post-WW II growth regime.

          Specifically, ~36% of Millennials remain at home with parents. Only 43% have full-time jobs. Millennials’ labor force participation rate is 10% below that of those over age 34. 10-15% are unemployed. 50% of college grads (30% of the cohort) are unemployed or underemployed.

          Aggregating the aforementioned factors, including persons per household and immigration as a share of population and households, and one arrives at an estimate of new household formations of no more than 170,000 (0.14% growth) for Millennials (fewer during recessions) vs. the historical average of 1.3 million during the post-WW II period through 2007 (624,000 since 2007).

          However, accounting for Boomers leaving the full-time labor force, the implication is that US labor force and household formations could actually contract in the years ahead (as is currently happening), particularly during cyclical contractions and the persistence of no growth of real GDP per capita, as has been the case since 2007-08.

          Putting all of this together, the US economy is much weaker and subject to significant risk of an annualized q-q contraction for real final sales and GDP per capita than any economist or financial media pundit realizes or is paid to say (or not say).

          http://www.businesscycle.com/ecri-news-events/news-details/economic-cycle-research-becoming-japan-inflation-us-eurozone-japan
          https://app.box.com/s/b7atr90b08xulflw7yhw

          But none of this should be surprising, as the US, EU, and soon China are following Japan’s demographic drag effects, exacerbated this time around by global population overshoot, Peak Oil, increasing costs of complexity, energy density, and sustaining a mature modern infrastructure, and the cumulative global effects of Limits to Growth.

          Most establishment economists are so far beyond this emerging curve and its implied effects as to be utterly irrelevant, if not worse.

          http://www.nakedcapitalism.com/2013/11/krugman-following-summers-endorses-asset-bubbles.html

          And now the alleged best and brightest of the economic intelligentsia are coming around to the obvious that real GDP per capita growth is no longer possible via neo-Keynesian deficit spending at unprecedented levels of public and private debt to GDP; therefore, the policy of last resort hereafter is central banks (TBTE banks) encouraging, enabling, and defending MASSIVE asset and credit bubbles to GDP and wages in a vain, misguided attempt to produce a dubious “wealth effect” for which there is no empirical support. Asset prices follow growth in private investment and the “wage effect”.

          In fact, credit and asset bubbles (ALWAYS driven by excessive bank lending or leveraging of existing financial assets) result in GROSS mispricing of risk assets, misallocation of savings, and hoarding of overvalued assets by the top 0.01-0.1% to 1% at no velocity, reducing thereafter growth of real GDP per capita.

          Finally, credit/debt and asset bubbles are by definition the consequence of increasing wealth and income concentration to the rentier/non-productive caste from rent seeking of 7-10% returns from financial assets at the expense of productive investment and returns to labor of ~3%. Asset bubbles are a guarantee of onerous, unserviceable rentier claims against wages, production, profits, and gov’t receipts in perpetuity, ensuring no growth of real GDP per capita indefinitely until the onerous debt service claims are cleared as a share of wages and GDP.

          Tragic.

          • The more I think about it, the housing bubble in the early 2000s was very likely what hid the 2003-2005 run-up in oil prices. We have been going from bubble to bubble, trying to avoid a complete crash. Meanwhile, economists don’t think of oil prices as having anything at all to do with the mess we are in today. Globalization didn’t help either–we cannot compete head to head with much lower wage countries, with few pollution controls–something economists didn’t figure out either.

            • sheilach2 says:

              Anyone with just half a brain would realize that globalization would only benefit a few, rich people. I was opposed to NAFTA, SHAFTA, CAFTA, WTO & now TPP from the beginning, I knew what would happen, that our manufactures could not compete against slave workers & the result would be our jobs would go to the cheapest labor & dirtiest manufactures.
              It seems that the politicians that approved those agreements were blind to the inevitable end result, more unemployment, lower wages, fewer taxes paid and more $ needed for social services.

              Those bribed politicians may be better off now but the country is going down the toilet.

              What will happen when all those troops finally come home? No jobs, cut benefits, more poverty & the realization that their service only benefited the military industrial complex & had nothing to do with defending us or our former freedoms.
              They will be pissed! You don’t want millions of former service people who know how to kill & are armed, pissed off at their corrupt government.

          • Ralph says:

            I agree with sheilach2, the troops will be/are” pissed , that is why discharged troops are on the watch lists. It is not only troops from the US either.

          • xabier says:

            Same in Spain: household formation is dauntingly difficult, and the demographics are awful.

            Many people are just not going to get rid of their kids.

            In the UK it is now very common for people to take money from their parents to help get a mortgage on a house or apartment.

            Not so long ago, they would have been able to save.

      • Scott says:

        Hello, Thanks for those charts, I was talking about housing today as compared to about 2007-2008 prices. This is is a house in CA I have followed and then a house was worth about $900K in about 2007-2008 would be worth about $350K today, but it went as low as 225K at the bottom after the 2008 blow out. So my point is that housing may be re-inflated thanks to the Fed and Central Bankers today but not as much as it was before the 2008 collapse.

        https://www.google.com/search?q=us+housing+prices+historical+chart&client=firefox-a&hs=YO4&rls=org.mozilla:en-US:official&tbm=isch&tbo=u&source=univ&sa=X&ei=eRCQUvefKtHtoATu1oGIDg&ved=0CD8QsAQ&biw=960&bih=475#facrc=_&imgdii=_&imgrc=pXWss6wmAD2k3M%3A%3Bd87WYFsvlKxvLM%3Bhttp%253A%252F%252Fmymoneycounselor.com%252Fwp-content%252Fuploads%252F2012%252F06%252FUS-Housing-Price-History.png%3Bhttp%253A%252F%252Fmymoneycounselor.com%252Ftime-to-buy-a-house%3B700%3B525

        Scott

  38. Ert says:

    Interesting article – reminds me of the POD (Peak Oil Demand) idea of Rockman. The increasing price of oil will reduce the demand for it until a point is reached where it may be possible to increase the global flow-rate (production) but no one likes (or can) to pay for it anymore.

    The ever optimistic IEA recently published its World Energy Outlook 2013 (http://www.iea.org/newsroomandevents/pressreleases/2013/november/name,44368,en.html) and forecasts a price (in 2012 dollars) of 128$ per barrel in 2035, but based upon a global production that is higher than today!

    At the same time trumpets announce “The largest new oil fields in the North Sea” (http://www.enquest.com/media-centre/press-releases/2013/15-11-13-kraken.aspx) with a total of 140 million barrel! That’s not even 2 days global demand – and they require approx. 4,5€ to develop it. Thats approx 44$/Barrel only for developing the field – not including the cost of pumping the stuff out – over a period of 25 years! So the cost of silly North Sea Oil may be 80$/Barrel for the producer alone!

    To make all even more strange, even the IEA say that the miss the 2°C climate goal and get 3,6°C when we consume the fossil stuff (Oil, Coal, Gas) as forecast by the IEA until 2035. Guy Mc Pherson anyone?

    But thats not all – the ever optimistic IEA says we have to spend approx. 660 Billion $ (in 2012 Dollars) a year until 2035 to keep the oil and gas flowing. So please no financial, economic or other crisis the next 22 years, please! If we do not do that, the current 75 MB/d would decrease to approx. 14 MB/d due to decline rates.

    So, in addition to Gail I do see a myriad of problems! If we get the stuff out – which we may technically can – then the climate goes bust. Currently I see it not realistically that we can actually increase the production in 2035 do that for 128$/Barrel (in 2012 Dollars) when new Shale plays are reaching 80-100$/Barrel now. In addition it is my opinion, that it is preposterous that we do not have a major financial crisis within the next 22 years that may be disastrous for the forward financing of new oil-plays and the require infrastructure.

    We may actually have a multitude of interrelated crisis, that destroy demand, let prices fall, cap exploration and produce later on exploding prices that cap demand and growth, cause crisis, cap demand….. you get the picture.

    This all goes in line with what Christine Lagarde (IMF) said in Davos last January: ”Increasing vulnerability from resource scarcity and climate change, with the potential for major social and economic disruption” (Source: ASPO Comment to IEA WEO 2012: http://www.peakoil.net/headline-news/the-iea-raises-a-little-warning-flag-on-future-oil-production-world-energy-outlook-201)

    • IEA has a job of making it look like we can expect business as usual. They have known about oil supply problems for a long time, and even included peak oil estimates in one report (I would need to look up the date.) But they would scare everyone if they told the real story. They really don’t understand how low prices might keep the oil in the ground, either. It is not an easy story to tell or understand.

      The IEA has focused on the climate change problems for years. In a way, it comes across as an excuse to tell the population to “do something,” without really explaining what the real problem is. If we hit collapse, I expect that production of all three fossil fuels will collapse simultaneously. We will also pretty much stop using our expensive renewables at the same time–except perhaps a few that are not grid connected. Those devices may last until they fail, or the device they are connected to fails.

      Perhaps climate change will hit, but the scenarios modeled won’t be right, partly because of the much reduced fossil fuel use. There also will be many fewer of us to worry about climate change.

      • Scott says:

        Hello Gail, something strange is going on in the sea with star fish. This is just one story.

        http://www.kval.com/outdoors/Whats-causing-sea-stars-to-waste-away–232121291.html

      • Ert says:

        @Gail

        Still, I find the IEA report – and also the latest Shell study always very interesting. It is the stuff between the lines and the changes between reports that is important to look at.

        I understand that the IEA, as official part of the OECD, is limited in what they can say publicly. If they or others would – tomorrow would be the begin of the collapse. So their stuff is more like the best that can happen.

        And correct – if collapse comes we fast a drastic fall in the consumption of all fossils. But I see, that we will burn through all available wood very fast short after the collapse of fossils and their distribution network.

        • I agree–loss of wood is going to be a huge problem, if we lose fossil fuels. Even having more out of work will tend to cause that problem.

          • Earl Mardle says:

            Sort of disagree. The people with the biggest fuel needs will be those in the cities, where there is very little access to wood. And they wont have the fuels they need to collect from the forests which are both far away and sparsely populated. Those who live among trees will have plenty of fuel for a while, although I am planning to reduce the height of all my trees in the next couple of years – nothing over about 3-4 metres because of the increasingly fierce winds they will need to withstand.

  39. Jan Steinman says:

    I read it, and I re-read it, and I still don’t understand how oil prices can fall over the long term, unless the economy somehow becomes fully de-coupled from fossil sunlight.

    Unless, of course, there is massive de-population, scarcity in any essential substance can only result in increased price pressure, no? I can understand that it may whip-saw back and forth, but the trendline can only be up — as long as there is a consumer base that is decreasing more slowly than the supply.

    Is the hidden subtext in this article that population is going to necessarily begin decreasing, causing massive deflationary pressure? (In other words, more “stuff” per person becomes available.)

    • More stuff per person is only theoretically available
      Our sophisticated economy sustains itself by virtue of its sheer numbers. Taking an extreme case to a ridiculous example, If there were only 1000 people with most of the wealth, and a few million paupers, our society would still collapse further because all the ‘stuff’ we use to create our wealth delusion is created by billions of workers. It wouldn’t function with just a few workers.
      There wouldnt be enough of us to sustain our ‘oil system’ for instance. Oil would still be in the ground, but useless without the means to extract it
      This is why we cant downsize, our working system would collapse if it fell much below what we have already. Our economy is interdependent with all its component parts.

      • xabier says:

        Exactly: ‘Don’t buy crap’ in vast quantities = collapse of the system.

        Austerity is self-defeating But then, BAU is also self-defeating.

        I’m having a beer, or two…….

        • Find us a solution!

        • xabier says:

          Beer is the ‘Stage 1 Response’ for late 2013.

          ‘Stage 2 Response’ is my ever-growing cache of the home-made Basque Wonder Brew: Xabier’s Patxaran. Recommended since the 14th century as the Elixir of Life and cure for all bodily and mental evils…..

          Made with sloes (great, heavy crops this year!) and anis, (plus non-medieval vanilla and coffee beans) it takes at least 6 months to mature. My version is so potent that if Banking Collapse does happen in late 2014/15, I’ll have more than a few stiffening drinks on hand, and indeed may not notice it at all…….

          In the meantime, the sight of the 2-litre Kilner jars full of ruby liquid is very heartening.

          Also planting almond, hazel and apple trees as a gesture of faith in the future.

          • Scott says:

            Hello Xabier, I am sure you have a trad-able item there with the Beer. We will all need something to help ease the pain if it hits. I still do not think it will hit that soon as I am always amazed long things that are dysfunctional can operate. Lately I have been thinking we have perhaps 10-30 years before it really gets tough. The stock market and bonds can collapse and it will hurt but life will go on. And, I do not believe oil will get cheaper as it gets scarcer, we will be paying perhaps $10 for gas but once again life will go on and we will be driving smaller cars scooters etc. along with more cheaper electric cars that will arrive then, so I do not see the collapse coming that soon, As for me a am a red wine lover and would like to have some stocked away just in case I am wrong. $10 gas would mean a more simple life which is what we should be doing to conserve resources. Perhaps then only the rich people will fly on planes.

            Send us an update on Spain when you have time, I know you do not live there but have family there.

            Kind regards,

            Scott

    • No. The problem has nothing to do with population loss. It has to do with diminishing returns bringing down wages (as oil costs rise), making fewer jobs available.

      The problem is that common workers are becoming poorer and poorer (because of diminishing returns), so the government needs to subsidize more of their costs. The government eventually finds it impossible to collect enough taxes from those who are still working to pay the costs of those who are not working. This is exactly what happened in the collapses that Turchin and Nefedov examined in Secular Cycles. Joseph Tainter, in The Collapse of Complex Societies, also came to the conclusion that it was diminishing returns that brought down the societies he looked at (including some of the same ones in Secular Cycles).

      The role of diminishing returns is obvious in the case of adding farmers to the same plot of land. It is clear that you cannot add very many workers because very quickly, the new workers just get in the way of the existing workers. It doesn’t make any sense to pay the new workers very much, if that don’t add any real value.

      It is not as obvious why salaries would go down when oil prices rise, but if you think about the situation you can see what happens. Suppose the young people today all had good jobs, and were driving cars, and buying homes, as they did years ago. The total amount of oil required to operate such an economy would be far higher than what we can in fact pull out of the ground today. Diminishing returns solves our problem of limited oil supply by giving us fewer jobs, and generally lower-paying ones. Thus, there is less demand for new cars and new homes, keeping demand in line with the limited oil supply really available. Sort of like magic, but that is the way systems work together.

    • p01 says:

      I still don’t understand how oil prices can fall over the long term
      It’s an excessively complicated market mechanism that takes pages to explain and cannot usually be grasped by those who did not witness the phenomenon first hand but only observed it happening to others, far away.
      In layman terms, the process is called not being able to afford, or not having money to buy.

      • edpell says:

        Let me take a crack. Hard (expensive) to extract oil leads to fewer jobs that are profitable. Leads to few jobs. That is the jobs that are no longer profitable stop existing. Smaller demand less need for extreme oil leads to some moderation in price for oil. I do not think it leads to cheap oil.

  40. edpell says:

    Some consumers can afford more than other consumers. So as the cost to produce goes up an ever increasing fraction of the population slides from self supporting to government aided. What will the US look like when we get to 80% on government aid of one sort or another. Will oil producers still accept treasury bills for oil?

    • The government will stop functioning before the US goes to 80% on government aid of one sort or another. In fact, it is hard to see that the current percentage on government aid can really work for very long. We really need a big subsidy from cheap fossil fuels to subsidize it.

      The Social Security system is funded assuming that those working are paying for those who don’t (with a bit of pre funding, that is quickly spent and replaced with government debt that is not included in Figure 7, because it is not publicly held). When we get to 80% working, the remaining 20% must support them. In fact, the percentage of wage-earners will likely be even lower than 20%, because some workers will have spouses and children that are not working.

      Of course, this doesn’t reflect all of the other government expenditures either–buying jets, providing foreign aid, guaranteeing loans and pensions. The debt problem becomes so bad that there is no way possible to pass a budget, or the population revolts from high taxes.

  41. Wim Weber says:

    Dear Ms Tverberg, your analysis is quite convincing, although one could argue that the oil price movements are epiphenomena of “regular” financial bubble dynamics, where all commodity prices decrease through deflation.

    In my view your hypothesis is supported by taking into account copper prices, which are widely viewed as an indicator of economic actvity. Oil prices were increasing quite some time before copper prices in 2007-2008, and much faster too. In fact the copper/oil price ratio chart does illustrate quite nicely your view that oil problems are driving the present economic crisis.

    One does wonder how long the QE duct tape will last.

  42. newyorker says:

    I can’t find the discussion i once read in comments about the active bringing about of a mass die-off of the human population of about 90%. Seems monstrous, of course, but if it the notion that we have way outgrown our petrie dish once oil is out of the picture has occurred to the goodhearted likes of yourself and the commentors here, it has occurred to machiavellian elites as well.

    I’m going to go out on a limb and predict that certain countries with abundant nuclear weapons are wargaming scenarios that will wipe out much of the human population, friends and rivals alike, before the victims can retaliate. (Maybe countries with nuclear reactors will be spared- somebody must survive to decommission these plants.) I understand neutron bombs leave no fallout so there would be no blowback. Fewer people to consume what’s left, and the carbon problem takes care of itself. The US is the most likely, but i wouldn’t rule out Israel.

    • Jan Steinman says:

      “I understand neutron bombs leave no fallout so there would be no blowback.”

      I don’t think it works this way.

      First off, so-called “neutron bombs” are still atomic bombs, albeit optimized to produce more fast neutrons and fewer “thermal” neutrons. They appear to still produce about half the explosive force, while enhancing neutron radiation by perhaps a factor of ten. There’s still a lot of destruction and fallout.

      The down side of this is that irradiation by neutrons causes that which is irradiated to itself become radioactive. This means those cities that have been “cleansed” of people via neutron bombs will remain as uninhabitable as if they had been reduced to rubble — perhaps more so.

    • Lindon says:

      “if it the notion that we have way outgrown our petrie dish once oil is out of the picture has occurred to the goodhearted likes of yourself and the commentors here, it has occurred to machiavellian elites as well.”

      NewYorker, I came to this blog thinking the same thing (more or less). If we assign some sort of rational thought and planning capability to the financial elite that RULE this world, then we would have to assume that logically, they see the reality of approaching doom and have a plan to deal with it. But there is also a very strong argument to made that the “financial elite” are so detached from reality and so invested in the economic structure that they siphon all their power and wealth from, that they are incapable of seeing what is coming — they tend instead to believe in technology or free market rescues — or, more likely, they believe that once all the riff-raff have died off, they’ll still be standing and with about 6.5 billion fewer people there will be plenty of oil/gas to go around for a long long time.

      I wouldn’t think they would need a neutron or any other kind of bomb. Just stop the oil deliveries — the starvation, riots, and mass chaos will to as much or more damage than the bombs, without the radiation.

      • I don’t think the 0.01% – the super consumers, don’t even connect to any other kind of reality. Seriously would you buy shares in a company that experts ‘valued’ at $25 billion for $50 billion- that became a $25 billion company 6 months later and doesn’t actually make any money- or things- or own any real physical assets?

        Or buy twitter shares, or believe oil companies that say they have rights to billions of barrels of oil just waiting to make them rich?

        I play poker for fun and any spare money I can afford to LOSE- I win quite a lot mainly because the gambling addicts think they know the system, are optimists, over confidant, but are very unaware of the rest of the world.

        do the 0.01% have some super plan? No. They are working out the next best deal- the next strategy and reading IEA reports on future discoveries of oil.

        • Jarle B says:

          Absolutely. Remember, being smart at one thing, f ex finances, seldom mean that you are smart at all other things…

      • newyorker says:

        Well, the four horsemen have all sorts of unintended consequences such as blowback on the first world and its unpleasant sequelae. Better the unnexpected first strike to remove competitors for natural resources, irradiated as that lost world would be. The remaining 10% ,probably less than that ultimately once the ‘takers’ are sterilized ( it will be that brutal a world) , would organize to make a world less luxurious but sustainable for the long haul.

    • I am not convinced that the military are thinking in such terms, although I suppose such thinking is possible.

      I expect as a practical that there are not very many of these bombs around. The Wikipedia article says,

      The pulse of neutron radiation would cause immediate and permanent incapacitation to unprotected humans out to 900 meters,[5] with death occurring in one or two days. The lethal dose would extend out past 1400 meters, where approximately half of those exposed would die of radiation sickness after several weeks.

      900 meters and 1400 meters are not very big distances. It would take an awfully lot of these bombs to make any material difference to world population. They might take out a military base, but not a large city.

      • I would not be surprised if TPTB would spread some nasty militarized microbe over the big shitties to wipe out all those superfluous people & let any survivors bury the dead.

        There aren’t too many other options when you have 7 + billion humans who will not survive the end of affordable oil, they must go & they won’t go without a fight.

        Because of all the damage we have done to our environment, we will not be able to even sustain the several million that once were sustainable in this country before oil.
        I see no easy way out of our predicament other than mass deaths & any road to sustainability will be very rough.
        If the rich expect to weather the storm in their gated communities, they won’t,They will be over run by the desperate masses even if they have to climb over the bodies of their friends to get to the goods the rich are hording.
        Fleeing to the country won’t help either because more people will not be welcomed there.
        There is no place left to hide in, prepare for the worse.

        • I am afraid I don’t know. I expect most of TPTB have not figured out what is really going on, so have not made any plots.

          • sheilach2 says:

            They can’t be as dumb & clueless as most amerikkkans are, Surly they know the end is near & are preparing for it. Why else are they hording so much wealth? I don’t think it will do them much good however, the people who have prepared to be independent have a better chance as long as they aren’t too close to some big shitty.
            It’s clear to me that humans won’t go extinct simply because there are too many of us in too many varied environments. The more dependent you are upon modern conveniences, the more venerable you are.
            What I fear the most is how the governments will handle this problem of too many people & declining resources. To them we are just cannon fodder for their resource wars or faceless “consumers”.

        • xabier says:

          Sheilach2

          The super-rich horde wealth because….they just can’t stop. Remember, for the successful it’s an absorbing game. A game…

          Those with children are now aggressively acquiring farmland, forestry and real estate, etc, which they think will survive the hyper-inflation which they believe is inevitable fairly soon. Some are stocking food, too, of course. The more pessimistic ones that is.

          Also, they generally only think in the very short-term: as one said to me recently – ‘I’m getting 10% on that last real estate aquisition so I’m feeling pretty pleased about it and looking for more. ‘ This particular individual does not like to think too far ahead, and is fairly typical I have found.

  43. Dana Visalli says:

    Thanks Gail for your excellent efforts at educating. It is a bit of a curiousity that the real issue (well, among several) is the declining energy return of our energy sources, but the problem is almost always expressed in our surrogate for energy return, which is monetary value. Energy return is definite physical quantity while monetary value is a psychological phenomenon. It’s strange that we have some understand of money (which is a abstraction) but almost none when it comes to energy–which is the real currency of life.

    • I have looked at both Energy Return On Energy Invested (EROEI) and financial cost, and have come to the conclusion that financial cost is a much better indicator than EROEI.

      For one thing, EROEI is simply a measure of how, using current systems and measurement conventions, the amount of energy out compares to the amount of energy in, at the “well-head,” with no adjustment for timing or intermittency. I find this measurement to be of little value in deciding which sources of energy to emphasize in the future. It tends to give the false sense of belief that a person can change one kind of energy to another–something that is not true. The timing aspect turns out to be very important, as are distribution costs and intermittency. None of these are considered in EROEI.

      There also seems to be a built-in belief that somehow, one can operate an economy on a chosen mix of energy resources. This is not at all true. Wind and solar only work in a system that has a large amount of fossil fuels. Nuclear also requires fossil fuels.

      We need to figure out what to do going forward, but I see EROEI as having little value in that decision. (It might help a person choosing between Wind turbine A and Wind turbine B, but that is not the decision we are making here. It is also helpful as a teaching too-to explain why energy supply can’t grow endlessly, and to illustrate the fact that, over time, the amount of energy inputs required for a given energy source tends to grow.)

      Financial cost at least more representative of the true situation–an energy source needs to return all costs, not just energy costs. Different types of energy have very different value–intermittent electricity is of much less value than oil. Timing is important. So are indirect costs–the taxes that governments of oil exporters require in order to keep order in their countries for example. I think a lot of bad decisions have been made based on EROEI estimates.

      • Timothy says:

        Gail,

        I just finished Richard Heinberg’s book on the Fracking situation and he mentions someone who uses EROI rather than EROEI (Forget the guys name and don’t have the book with me) But EROI is Energy Return on Energy INVESTMENT. So instead of looking at the enrgetics involved it looks strictly at the monetary requirements/investments.

        I think this is what you are explaining above.

        • Timothy says:

          Sorry, EROI is Energy Return on Investment

        • I don’t think there is a practical difference between EROI and EROEI, at least as used by Heinberg, Hall, Murphy, and others in the peak oil community. They have to do with energy investment. As a practical matter, this is often calculated using dollars.

          It bothers me that the calculation explains such a small fraction of the total energy investment required for a product–in other words, we have to have roads, and schools, and many things that are not included, as well as a financial system. Debt is also not considered, even though there is a cost of interest involved, and that interest is eventually used to pay someone’s energy bills.

      • Jarle B says:

        Computing ERO(E)I on a macro level is to complicated, yes. But understanding that micro entities like energy businesses need a certain EROI to keep going is important, because if a lot/most of the companies getting the energy to market stop doing so the macro consequences are formidable.

        • These same companies with low EROIs are also ones that are prone to financial failure, without government subsidies and super low interest rates. There are really two kinds of failure (1) system failure that we are reaching now. It relates to young people not having jobs, and governments not being able to collect enough taxes, and (2) failure of individual companies, that can be hid with subsidies and super low interest rates.

          We don’t have good thresholds for EROI being too low, except that it is now clear that overall EROI is too low, because of the system problems we are reaching (low jobs, government funding problems). Because of the way EROIs are computed, I am not a fan of comparing the EROI of one type of energy with another. I do not consider the EROI of intermittent electricity to be equivalent to those of steady electricity. I also do not consider additional electricity to solve our oil problem, so in many ways the EROI comparison is irrelevant.

          We know diminishing returns have been what has caused societies to collapse before. This is equivalent saying that falling EROIs caused civilizations to fail in the past. We need energy sources with EROIs of 50 or 100 to pull us out of the mess we are in today. None of the renewables that are currently being considered are near this level. They also must work with today’s vehicles, so we don’t have to rebuild the whole fleet, because there is a huge amount of energy invested in the vehicles and batteries. Much of our energy goes into infrastructure that is harder to economize on, such as roads and bridges. Cars without roads and bridges don’t work well.

          • Jarle B says:

            I absolutely agree. EROI = important to understand, but hard to compute and not useful in comparing energy types.

  44. Harry Gibbs says:

    Thank you for that rather sobering assessment of our predicament, Gail. I really can’t see BAU continuing much longer on the basis of what you say. Only a universal debt jubilee coupled with a radical re-evaluation of the global economy – which, let’s face it, are not going to happen – might pull us back from the brink.

    • Perhaps there are other ways of looking at the situation.–I very often learn things from my commenters and from those who write to me.

      I am not certain that a debt jubilee and radical re-evlaution of the global economy would really fix the situation, either. We need to move to a model which is very much downscaled from where we are today. Perhaps local economies using local resources, without electricity or fossil fuels.

      • Ralph says:

        I agree that a debt jubilee for the masses may not work, the one given to the banker set has already failed. The biggest problem is that the masses are paying for the banker giveaway and will get nothing for the money.
        Nothing will be resolved till the banking system is nationalised and bought under control. The banks claim they are too big to fail, and that we need to assist them.

        But they are still getting bailout cash after 5 years, which means they have failed already and no one wants to admit it.

  45. Ryan says:

    Reblogged this on Energy and Society.

  46. I have a (theoretical) paper that presents a mechanism for this (higher input costs and, at least relatively, lower output prices, leading eventually to collapse).

    https://www.dropbox.com/s/j6jyxb071udwqm3/The%20interaction%20of%20scale%20economies%20and%20energy%20quality.pdf

    • Thanks for the link.

      I only got a little way through your paper. I thought Hotelling’s work had be shown not to be valid in real life because it misses diminishing returns. The first part of the resource is removed at little cost, and extraction cost increases as the site moves to secondary and tertiary extraction techniques, that are slower and use more energy. But I don’t remember if that was a paper, or an e-mail discussion.

      You talk about the extent of economies of scale. The area that seems to me to be a big issue is the diseconomies that come with lack of scale. For example, the cost of distributing electricity over transmission lines is close to the same, regardless of how little fossil fuel is electricity is so transmitted. Current pricing schemes give intermittent electricity generators (wind, solar PV, waves) far too much credit for the electricity they generate, relative to the value they provide to the electric utility. The value of the electricity generated by the intermittent renewable is roughly equal to the fossil fuel saved, while the credit is typically many times higher. As a result, the likely path intermittent renewables lead us on is one toward bankrupt electric utilities–either that, or consumers with high surcharges. You probably have heard about all of the problems in Germany–the huge financial losses of the electric utilities, and now the big layoffs that are occurring. http://www.euronews.com/2013/11/14/rwe-is-latest-european-energy-firm-to-cutback/

      • Ert says:

        The feed-in tariffs and the issues that they have caused are a big topic in German politics and public discussion. The guaranteed feed-in tariffs are payable by the electricity consumers – and huge ‘Industrial’ consumers are exempt. Many of those who can afford it invested in PV or other renewable installations – either at their home of via funds. So especially the “have-nots” have to pay the bill, since they do not have PV installations or money in ‘funds’.

        While Germany still may have a minimum net on social welfare, that pays some amount for accommodation and the heating bill – the electricity bill has to be payed from the 382€/Month (approx. 500$) that one person become for “all the rest of the living expenditures including food”. And even if you become that – you can be forced to accept ‘societal beneficial’ work for 1€ the hour or ‘real’ low-wage jobs that even make US low-wage earners high-income ones (this all depresses the German consumer and is part of the causation of the German ‘export strength’).

  47. James says:

    “As we utilize more resources for extracting oil (oil, steel, water, human labor, capital, etc.), there will be less resources to invest in the rest of the economy, reducing its ability to grow. This lack of economic growth feeds back as low demand, bringing down the prices of commodities,”

    I have a different understanding of this. As more resources are diverted to energy production, supply of resources for other commodities decreases. This results is a shift of the supply curve to the left, which will raise prices for other commodities. Resource scarcity is not affecting demand. Resource scarcity affects the availability of resources for others products, driving the cost of those products higher.

    Higher prices may result in a demand shift to the left as well; that is a decrease in demand, lowering prices but also lowering the quantity consumed. This would be a ping pong reaction causing contraction.

    • The problem comes on the payment side of the equation. Workers whose wages are falling and who have less access to debt have a hard time paying more for much of anything. Businesses depend on workers to buy their products, so their sales tend to be weak as well.

      Economic models are not set up considering diminishing returns, so they don’t handle the current situation. The model is only right in the imaginary economic world with unlimited resources.

      Let’s take the imaginary situation where oil production takes 99% of the resources, and 99% of the workers. The 1% of the workers aren’t going to produce very much, with the remaining 1% of the resources. The total output of society will be equal to (the oil produced) + (1% of regularly produced other goods and services). Society as a whole will be a great deal poorer, since the output that society must share is much smaller than previously. Maybe your model makes wages go up — wages really should drop with the huge drop in oil “productivity”.

      • oelsen says:

        Sorry for the triple flag here, the other doomer post was a liiiittle bit too dark in my eyes.

        Theoretically, in an industrial only society, one without the service and suburbia economy shenanigans, the 1% could produce just the same amount with robots and all. The problem is that we didn’t shift away from labor at all and this bites everyone now. If the economy decentralized for essential goods four decades ago, more would just fall out of the demand side by being more resourceful with what there is locally. Some call it euphemistically transition (towns). The remaining, highly efficient part in the double sense would take over the distribution and production of the industrial goods like washing machines, stoves, pumps and grid/Internet devices, etc. Theoretically, I wrote. Because planned obsolescence is exactly one of those so called innovations that block a sane development.

      • James says:

        I think that we get to the same place. But resource scarcity will result in higher prices. Prices will creep up until they bump up against the constraints imposed by the lack of purchasing power on the demand side. People won’t have the money to purchase goods that are so expensive. The rising prices of commodities, due to scarcity, causes a shift in the demand curve to the left, to lower consumption. This will simultaneously lower prices and consumption. As the demand curve continues to shift left and prices drop along with consumption, a new equilibrium will be reached with supply. Eventually this equilibrium will begin to break because of continued resource scarcity, which will result in new supply shifts to the left, towards less production. This shift will bring about a new rise in prices that will eventually be brought in check by contraction represented by another leftward shift in the demand curve. The process continues, bringing about a prolonged contraction.

        Absent a catastrophic financial crisis, which could easily be triggered by the periods of recession caused by escalating price increases from resource scarcity, I foresee a bumpy road of continued contraction. I cannot predict the timeframe of this contraction, but the recessions and eventual decrease in consumption will come from price increases induced by competition for ever more scarce and valuable resources.