Since about 2001, several sectors of the economy have become increasingly inefficient, in the sense that it takes more resources to produce a given output, such as 1000 barrels of oil. I believe that this growing inefficiency explains both slowing world economic growth and the sharp recent drop in prices of many commodities, including oil.
The mechanism at work is what I would call the crowding out effect. As more resources are required for the increasingly inefficient sectors of the economy, fewer resources are available to the rest of the economy. As a result, wages stagnate or decline. Central banks find it necessary lower interest rates, to keep the economy going.
Unfortunately, with stagnant or lower wages, consumers find that goods from the increasingly inefficiently sectors are increasingly unaffordable, especially if prices rise to cover the resource requirements of these inefficient sectors. For most periods in the past, commodities prices have stayed close to the cost of production (at least for the “marginal producer”). What we seem to be seeing recently is a drop in price to what consumers can afford for some of these increasingly unaffordable sectors. Unless this situation can be turned around quickly, the whole system risks collapse.
Increasingly Inefficient Sectors of the Economy
We can think of several increasingly inefficient sectors of the economy:
Oil. The problem with oil is that much of the easy (and thus, cheap) to extract oil is gone. There seems to be a great deal of expensive-to-extract oil available. Some of it is deep under the sea, even under salt layers. Some of it is very heavy and needs to be “steamed” out. Some of it requires “fracking.” The extra extraction steps require the use of more human labor and more physical resources (oil and gas, metal pipes, fresh water), but output rises by very little. Liquid extenders to oil, such as biofuels and coal-to-liquid operations, also tend to be heavy resource users, further exacerbating the problem of the rising cost of production for liquid fuels.
I have described the problem behind rising costs as increasing inefficiency of production. The technical name for our problem is diminishing returns. This situation occurs when increased investment offers ever-smaller returns. Diminishing returns tends to occur to some extent whenever resources of any kind are extracted from the ground. If the extent of diminishing returns is small enough, total costs can be kept flat with technological advances. Our problem now is that diminishing returns have grown to such an extent that technological advances are no longer keeping pace. As a result, the cost of producing many types of goods and services is growing faster than wages.
Fresh Water. This is another increasingly inefficient sector of the economy, in terms of the amount of fresh water that can be produced with a given amount of resource investment. In some places deeper wells are needed; in others, desalination plants. Water from deeper wells may need additional treatment to remove the harmful minerals and radiation found in water from deeper wells.
As a result of the extra investment required, the price of fresh water is rising in many parts of the world. The higher cost is often justified as necessary to encourage conservation of a scarce resource. But from the point of view of the buyer, what is happening is an increasing price for the same product, or diminishing returns.
Grid Electricity. The price of grid electricity has been rising faster than inflation in many parts of the world for a variety of reasons. If nuclear plants are planned, they are being made in ways that are hopefully safer, but are more expensive. Adding solar PV and offshore wind is expensive, especially when grid changes to accommodate them are considered as well. Functioning plants of various kinds (coal, nuclear) are being replaced with other generation because of pollution problems (CO2) or feared pollution problems (radiation). The cost of producing electricity then rises because the cost of electricity from a fully depreciated plant of any kind is extremely low. Building any kind of new facility, no matter how theoretically efficient over, say, the next 40 years, requires physical resources and people’s time, in the current time period.
As these changes are made, the amount of grid electricity output does not rise very much compared to the resources and human labor required in the current period. The user experiences a higher cost for the same product. From the perspective of the user’s pocketbook, the result looks like diminishing returns.
Metals and Other Minerals. In the same manner as oil, we extract the easiest (and cheapest) to extract minerals first. These minerals include metals and other substances such as uranium, lithium, and rare earth minerals. Part of the problem is that ores of lower concentration must be used, leading to a need to move larger amounts of extraneous material that later must be disposed of. These ores may be found deeper in the ground or in more remote locations, adding to extraction costs. Furthermore, oil is generally used in the extraction of these minerals. As the cost of oil cost rises, this adds to the cost of mineral extraction, making minerals increasingly unaffordable.
Advanced Education of Would-Be Workers. If 20% of the work force needs college educations, it makes sense to provide 20% of young people workers with college educations. If the percentage of workers requiring college educations rises to 30%, it makes sense to provide 30% of young people with college educations. Small percentages of more advanced degree recipients are needed as well.
Instead of following a common sense approach of educating only the number of workers who need a given amount of education with that amount of education, in the United States we have gotten onto a treadmill of encouraging increasing numbers of young people to pursue bachelors, masters, and Ph.D. degrees. To make matters worse, universities have established requirements that faculty do more research and less teaching, whether or not research in a particular field can be expected to benefit the economy to any significant extent. To accommodate this research-intensive approach, a layer of deans is added to work on obtaining funding for research. In addition, students are often provided more comfortable dorms with private rooms and private baths, adding costs to obtaining advanced education but not really enhancing future job prospects.
All of this produces an incredibly expensive higher education system, with costs way out of proportion to the increased wages a student can expect to earn from attending the university. Students are expected to pay for much of the cost of this system through debt to be paid back after graduation (or after dropping out). In some ways, the system might be viewed as an extremely expensive system of sorting out would-be job applicants, with widget makers with a college degree or master’s degree viewed more favorably than ones without, even if there is little use for an advanced degree in that particular job.
US Medical System. The US Medical system is particularly affected by the trend toward more advanced degrees. This approach results in a system where patients need to visit a variety of specialists to handle fairly common ailments, such as a broken arm or dementia in old age. To compensate for the high cost of their advanced education, specialists charge high fees. Hospitals have a large number of testing instruments at their disposal and use them whenever there is even slight justification.
Health outcomes in the US are remarkably bad compared to other developed countries, based on a study by the US Institute of Medicine called U.S. Health in International Perspective: Shorter Lives, Poorer Health.
According to this study, the US is falling farther and farther behind other developed countries in terms of health outcomes and life expectancy, despite healthcare spending that is more than twice as expensive as that of some other developed countries.
The higher cost is not entirely the fault of the healthcare system. The food production system provides food that is increasingly processed (so is convenient), but is not well adapted to our bodily needs. Food portions tend to be oversized, raising profits for fast food companies, but adversely affecting health of consumers. Transportation is set up in ways that deprive us of the exercise we need. Also, part of the reason for the adverse health outcomes is the fact that not all people are covered by health coverage, even with the recent addition of Obamacare.
Regardless of whose “fault” the problem is, the healthcare sector is becoming increasingly inefficient. In some sense, we are reaching diminishing returns here as well.
Effects of Inefficient Sectors on Business Operations
Businesses have a number of costs of operation. Unless wages are rising, they can’t easily raise prices without losing customers. So if costs rise in one area of their operations, they tend to try to cut costs in other areas of operations to offset this rise. This is the crowding out principle at work.
Among the sectors described above as having increasingly inefficient operations, the ones that directly affect businesses are
- Oil
- Fresh water
- Electricity
- Metals and other minerals
- Healthcare
Areas where costs can be cut to make up for rising costs in the above areas include:
Lower interest rates. If interest rates are low, this reduces expenses for businesses. It also makes customers more able to tolerate higher costs of say, automobiles and houses and education, because the “monthly payment” can still appear reasonable, even if total cost rises. Lower interest rates help reduce needed government taxes as well, further helping both businesses and consumers. Because of these multiple favorable effects, it is not surprising that central banks have been lowering interest rates in recent years.
Reduced wages for workers. Wages often constitute a major share of a business’s costs. If the cost of oil or electricity or health insurance rises, a common work-around seems to be to transfer jobs to parts of the world where wage costs are lower. If energy costs are also lower in the alternative part of the world, this increases the attractiveness of moving jobs. Another work-around is computerization of job functions, using computers to replace jobs formerly done by workers. In fact, simply the possibility of sending work elsewhere or of computerization tends to hold wages down.
I have shown that, in fact, US wages tend to stagnate when oil prices are above $40 or $50 per barrel. This result is as we would expect, if high oil prices tend to crowd out wages.
Figure 2. Average wages in 2012$ compared to Brent oil price, also in 2012$. Average wages are total wages based on BEA data adjusted by the CPI-Urban, divided total population. Thus, they reflect changes in the proportion of population employed as well as wage levels.
Transfer of more health care costs to workers. Businesses can cut their costs by moving part of healthcare costs to workers, either through higher deductibles or through higher monthly payments for coverage. This approach has a similar effect as a wage cut.
Lower taxes on businesses. Government provided services can be paid for either by taxes on businesses or by taxes on workers. Many of these services benefit both businesses and workers, so the split as to how these taxes should be collected is not obvious. Businesses, especially international businesses, have the option of moving to locations with more favorable tax laws. The trend in recent years has been toward lower taxes on business revenue, shifting a greater share of taxes to wage earners. Higher taxes on wage earners also acts very similarly to a reduction in wages.
More debt. This is different kind of work-around for higher costs. Instead of reduced expenses, it provides increased revenue for businesses. This revenue is borrowed from a future period, with the promise that it will be repaid with interest. The use of more debt is especially prevalent in the sectors of the economy that are increasingly inefficient. For example, adding new desalination plants is enabled by more debt. Adding more renewable energy and more nuclear plants is enabled by more debt. The increasing the cost of higher education is enabled by more debt. Adding such debt is enabled by the lower interest rates mentioned above.
Effect on Wage Earners of Economy’s Growing Inefficiency
Wage earners find themselves caught in a world with growing inefficiency in many sectors. Their wages are not rising very much, except in a few occupations requiring very high education.
Wage earners find themselves increasingly squeezed. They take out big student loans, only to discover that they really cannot pay them back without deferring buying a home and having a family. Thus the housing industry stagnates. The need for new home furnishing drops as well. Births drop below the “replacement rate.” Young people forego buying cars, because they don’t have good-paying jobs. In fact, many are trying to go to school and work at a low-paid part-time job to support themselves. These jobs do not pay high enough wages to afford a car, so oil use tends to decline.
With wage levels low, women find that it does not make financial sense to join the paid work force if they have children, because the cost of transportation and child care is too high, relative to the wages of, say, a teacher–a job that requires a college education. The situation is similar if an elderly relative or handicapped adult child needs care. As a result, work force participation levels drop. This change started to occur about 2001 in the US.
Figure 3. US Number Employed / Population, where US Number Employed is Total Non-Farm Workers from Current Employment Statistics of the Bureau of Labor Statistics and Population is US Resident Population from the US Census. (This includes children and others not usually in the labor force.) 2012 is a partial year estimate.
The Effect of Diminishing Returns (and Crowding Out) on Debt
As the economy becomes less efficient, there are clearly multiple impacts on debt:
- Both businesses and individuals need more debt, because they become less able to purchase the increasingly costly devices they are being asked to purchase (new cars, new factories, new oil extraction facilities requiring significant investment)
- For businesses, the returns on this debt are falling in terms of output measured in units such as barrels of oil or kilowatt hours of electricity; it is only if ever-higher prices for the output can be charged that the debt can be repaid.
- For citizens, wages are becoming less able to cover the cost of needed goods. This both increases the need for debt, and makes debt increasingly difficult to repay.
- Diminishing returns leads to lower economic growth. It is only if interest rates can be kept very low that debt can possibly be repaid. At some point, required interest rates turn negative.
As long as an economy is expanding, it makes financial sense to “borrow from the future”.
Figure 4. Author’s image of an expanding economy.
It even makes sense to pay back the debt with interest, because with the growth, there is a reasonable possibility that even with interest, the amount available in the future period will still be increasing, even net of a debt payment.
Figure 5. Repaying loans is easy in a growing economy, but much more difficult in a shrinking economy.
If we think of interest being paid to what is sometimes called the rentier class (that is banks, insurance companies, pension plans, and rich individuals), then it is the rentier class that is being squeezed by the increased inefficiency that is leading to slow economic growth. In some cases, interest rates are even turning negative, reflecting the poor prospects for the economy. Of course, with negative interest rates, we cannot expect a whole lot of investment–people would rather keep money under their beds than invest it at a negative rate of return.
Crowding Out of Oil Usage
World oil consumption has been essentially flat since 1983 on a per-capita basis. Most people have not noticed this change, because world per capita energy consumption has been rising for many years, helping to raise standards of living around the world.1
Figure 6. World per capita oil and total energy consumption, based on BP Statistical Review of World Energy 2014 data.
The issue we are concerned about in this post is the squeezing out phenomenon, as it relates to oil. As we noted above, there are a number of industries that are becoming less and less efficient, including oil, electricity, metal and minerals, fresh water, higher education, and the medical system. Because of this issue, these sectors are using an increasing share of the world’s oil supply, when direct and indirect usage are included.2
We don’t know exactly how much oil is being devoted to the six increasingly inefficient sectors described in this post, but we do know that the oil consumption per capita devoted to uses other than these six sectors must be falling, because the total is flat. Examples of sectors being crowded out are restaurants, hotels, news media, home building, computer manufacturing, vacation travel, lawn care, and most of the general economy.
The problem with increased inefficiency has been especially acute since 2001, as evidenced by falling employment ratios (Figure 3) and rising oil and commodity prices since that date. In Figure 7, we show two possible trajectories of oil available to the rest of society, net of use by these increasingly inefficient sectors.
Figure 7. World per capita oil consumption based on BP Statistical Review of World Energy oil data, and two possible trajectories of per capita oil supply available to the rest of the economy, selected by author.
It is very difficult for the sectors that are getting crowded out by the increasingly inefficient sectors to grow, despite growing energy usage other than oil. Oil has many specialized uses. Even if total energy use grows, it cannot make up for uses where oil is specifically needed, such as operating a diesel truck or operating road paving equipment. Thus costs to say, the newspaper industry, are higher if oil prices are higher, but the disposable income citizens have available to spend on newspapers is lower, resulting in the crowding out phenomenon.
Conclusion
We are dealing with a networked economy, which I have represented in the past as this child’s toy:
Figure 7. Dome constructed using Leonardo Sticks
All parts of our economy are interconnected. If parts of the economy is becoming increasingly inefficient, more than the cost of production in these parts of the economy are affected; other parts of the economy are affected as well, including wages, debt levels, and interest rates.
Wages are especially being crowded out, because the total amount of goods and services available for purchase in the world economy is growing more slowly. This is not intuitively obvious, unless a person stops to realize that if the world economy is growing more slowly, or actually shrinking, it is producing less. Each worker gets a share of this shrinking output, so it is reasonable to expect inflation-adjusted wages to be stagnating or declining, since a stagnating or declining collection of goods and services is all a person can expect.
At some point, something has to “give”. One thing we have seen recently is a sudden drop in oil prices that does not represent a sudden drop in the cost of extraction. Instead, it reflects the fact that current wages are not high enough to pay today’s high cost of oil extraction. There is getting to be a difference between
- The full cost of oil extraction, including governmental services needed to keep the country’s economy functioning well enough for this extraction to continue, and
- The amount the economy can afford, considering both wages and the increase (or decrease) in debt for the economy.
This situation is not simply affecting oil; it is also affecting other commodity prices as well. Clearly we cannot continue indefinitely on this trajectory. Something has to give. So far, what we have seen is a drop in oil prices and other commodity prices to levels that are likely to seriously disrupt production. How this will all play out is worrisome, if a person understands the dynamics behind what is happening.
Notes:
[1] The mix of fuels has been changing, however, with coal use rising in recent years (as we have shifted manufacturing to coal-producing countries) while oil use per capita has remained nearly flat since 1983 (Figure 6). The big decrease in oil consumption per capita in the late 1970s and early 1980s took place in response to the spike in oil prices in the 1970s and early 1980s. Electricity generation shifted from using oil to using coal or nuclear. Cars were made more efficient. Once the “low hanging fruit” were picked in this period, it has not been possible to reduce world per capita oil usage (including substitutes like biofuels and natural gas liquids).
[2] The oil usage I am counting is this analysis is both (a) direct usage by the industry and (b) usage by employees and contractors working in these industries. With a growing number of workers and high wages, these workers are able to afford nice homes, big cars, and vacations requiring air travel. Usage of oil by governments in oil exporting countries should probably also be included as (c) in this list of directly related types of usage, because this usage is necessary to maintain order in these countries.
A rather interesting article.
The Empire is Crumbling, That is Why it Needs War
http://www.counterpunch.org/2014/12/26/the-empire-is-crumbling-that-is-why-it-needs-war/
Ignore the fact that if any of the countries lashing out at America were to switch places, they would almost certainly commit the same acts as America.
The take-away is: “The world is in turmoil. Like in the early 1940’s, something tremendous is gaining shape, something irreversible.”
There seems to be an inchoate sense of impending doom. But no real understanding of the true nature of what is imminent.
The hot, foul breath of the grim ripper is gently blowing across the planet, the precursor to the End of Days maelstrom that is fast approaching.
Matthew – RE weck jars:
I’ve got 6 continuous years on my rubbers with no degradation (insert bad British joke here). Now, that does not account for the cat chew damage and loss but I’ll bet I can find something rubber like fairly easily compared to the rubber seal (and commensurate seal loss rate increase after year 1) and lining on your standard ball/kerr jars. Also, ball and kerr tell you to replace the lid every year also, with the same argument needing them to exist to manufacture new lids in the years to come. I find my rate of seal loss with weck is around 1%, 3% to 10% with older ball/kerr lids and somewhere around 20-50% with tattler lids ie the tattler lids have too thin of a rubber that degrades too easily or doesn’t seal well even when brand new.
Jars need cool and dark. Light and heat will damage vitamins. There are various debates about best storage methods for various nutrients in various foods. Limits to all methods existing food storage options. I’ve moved quite a bit to drying and fermenting in part for storage space limits and in part to up front cost being much lower. You can vacuum seal a ball/kerr jar with a simple lid with a manual brake bleeder (see local auto parts store). This is what you will want to do once you dry your food thoroughly. If kept in a dry place that metal ball/kerr lid will allow you to vacuum seal for many years. Again, nothing is perfect.
I grew up canning, drying, fermenting and cooking from home garden and locally traded meat. The store was a long way aways. Best of good eatings to you 😀
I was watching MSM news last night and after groaning through the lost puppies and what are the most popular baby names in 2014, they surprised me by reporting on something that could actually have some consequence. The Los Angeles Times published a story “What do you get if you map coming climate disasters? Hello Pacific Northwest” It seems if you draw a map of climate disasters in the US and plot super storms, drought, heat waves and rising oceans your left with a goldilocks zone called the Pacific Northwest. The story was we had better be ready for a huge influx of water hungry people as California is now trucking water to desperate communities and soon they will have to be abandoned . The examples used were a nursing home paying $800 a week for water and a family paying $200 a week. It would be an interesting topic for Gail to get a discussion going how a mass migration from south to north can effect BAU. I for one can’t see how a broke and abandon California whose population is the same size as all of Canada could not bring down the banking system. The writers advice for us Canadians is to move to Yellowknife !
Migration of displaced populations has been going on since the beginning of human populations. I imagine there will be conflict, as areas with resources will reject those without resources. I cannot imagine that Nevada will be doing any better than California, adding to the number of displaced persons.
Went to Portland for the first time last summer and just ogled the might Columbia river…all that water…wow. Just like the mighty Colorado river where it meets the ocean…oh wait maybe not.
One problem with Pacific Northwest – the prevailing wind will bring radiation from Japan…
It has been almost 4 years since Fukushima Daiichi melt down and so far no sign of radiation at where I live on Vancouver Island.
“It has been almost 4 years since Fukushima Daiichi melt down and so far no sign of radiation at where I live on Vancouver Island.”
It turns out, the solution for pollution, IS dilution! Good job Pacific Ocean, you diffused and diluted that radiation all over for us. Thanks!
The Pacific Ocean was radioactive prior to Fukushima. Note the amusing graph. http://www.hiroshimasyndrome.com/is-there-fukushima-radiation-on-north-america-s-coast.html
http://www.japantimes.co.jp/news/2014/12/24/national/science-health/four-fukushima-children-suspected-thyroid-cancer/#.VKlKmXurFuk
FUKUSHIMA – Four more children are suspected of suffering from thyroid cancer in the latest survey on the possible health impact of the 2011 triple meltdown at Tepco’s wrecked Fukushima No. 1 plant, sources said Tuesday.
The four, who were 6 to 17 years old at the time of the disaster, had been diagnosed as not having the cancer in the first survey that was conducted within three years of the meltdowns, they said
The Fukushima Prefectural Government said in August that 57 children in the first survey had been confirmed as suffering from thyroid cancer and 24 others were suspected of having it.
and
The Crushing Effects Of Radiation From The Fukushima Disaster On The Ecosystem Are Being Slowly Revealed
http://www.businessinsider.com.au/the-serious-biological-effects-of-fukushima-radiation-on-plants-insects-and-animals-is-slowly-being-revealed-2014-8
Suppose it is WHAT one LOOKS for is what matters.
Yes, and if you look randomly you will generate false positives. The scare monger terminology is amusing …four more children are “suspected”…http://www.oncologynurseadvisor.com/new-strategy-could-eliminate-most-unnecessary-thyroid-biopsies/article/312746/
Dee dee dee Robert
http://www.bbc.com/news/science-environment-19245818
‘Severe abnormalities’ found in Fukushima butterflies
Interesting old news report, apparently from one of the controversial “open access” online journals. http://www.evocellnet.com/2011/01/why-would-you-publish-in-scientific.html
Bet you also stress “suspect” between lung cancer and smoking too. LOL
Merchant of Doubt
VPK:
Is your comment to me?
The part in quotes is me quoting the previous poster. The second part is what I hope would be pretty obvious sarcasm, although it is only a half joke, since it does seem that the radiation is not concentrating at the dangerous levels previously feared.
No, Matthew, it was directed to Robert. Should have made that clear
VPK – If the comment on smoking and cancer was directed to me, I was a student at Baylor Medical College during the early 50’s. Baylor was a world leader in the epidemiology of lung cancer, primarily due to the presence of Michael DeBakey. At that tine there was ample evidence that smoking increased the incidence of squamous cell carcinoma but less certainty about pulmonary adenocarcinoma. Being a smoker I was particularly interested and memorized the classic fifty minute lecture from the work of DrBakey and Alton Ochsner, which I occasionally delivered to non-medical friends. I managed to quit smoking during the 60’s. Did not quit nuclear medicine.
I’m not sure if this website is accurate, but the diagram does seem to indicate that the prevailing winds from Japan could bring airborne radiation to Pacific Northwest. Despite that, I think the Pacific Northwest has a lot of post-collapse advantages! (Socal will return back to desert after the aqueducts fail – …do you have any rooms for rent?
Sorry here’s the link:
http://www.ki4u.com/illwind.htm
Are you worried about spent fuel ponds collapsing, causing a sudden burst of lethal radiation? I haven’t heard lately how the spent fuel rod extraction process has been going. Other than the danger of an acute irradiation, I wouldn’t worry too much as it seems the regular leakage from Fukushima is being sufficiently diluted.
We do still have the concerns about an over-due mega earthquake and a nearby super volcano, which are just matters of (geological) time.
In Fukushima a couple of new roofs are containing air spreading radiation, and even a seemingly stupid thing like this will become impossible one day, a not too distant one. Here we are doing something about it, you can do as you please, of course
It is important to consider that Fukushima is a controlled meltdown, massive amounts of sea water is being poured onto the melted cores on a continuous basis. Of course if that were to stop then this would suddenly become a much larger disaster.
And the spent fuel rod ponds remain intact and cooled.
Not an “enjoyable” movie to see on New Years Day, but Tommy Lee Jones stars and produced a stark depiction of what life was back in the days of “sod busters” in the Nebraska Territory and the hardships endured before “BAU”. Hillary Swank and other fine actors give a heart breaking performance to show we take a lot for granted.
We watched this film on new year’s eve. It is interesting to see that there was in 1944 a romantic yeaning in popular culture for an earlier, less urban, more family and community orientation culture. I doubt that we will “meet” after the collapse back at the great world/ trade/ empire Fairs of the Victorian period, St Louis or Crystal Palace, but hopefully we will “meet” back somewhere hopeful, charming and romantic. Happy new year!
Wished I watched your movie.
In Tommy Lee Jones picture, The Homesman, a few scenes stand out. One in which Swanks character marvels that peaches came from a can and cost a fortune! Tommy Lee Jones takes some bank notes to a gambling table only to be informed that the “Ludd Bank” went bust and they are worthless. Tommy Lee tells a young servant girl NOT to go out and marry any “farmer” out in the territories UNTIL the farm is up and running and productive!
He than asks her if she would marry him and her replay. “sure, maybe” after he gives her a new pair of shoes!
One couple is in their sod home and sadly reflect that the wind blew down the corn before it had kernals and is only good for burning, the wheat died of rust and the squash of bugs. They have no food and two children. Some other good moments if you wish to watch.
Enjoyable but draws argument due to lack of consensus about what our society’s goals are.
Happy New Year to you Gail and the OFW community! 2015 should be an interesting year indeed.
Yes indeed. A Happy New Year to Gail and company. 2015 should be a wild ride.
I am afraid you will be correct about the wild ride.
Yea, I’ve got a feeling, too.
I just sent out the email below, about the graph below:
The function in the graph below, at http://davecoop.net/seneca.htm, peaked last night (on New Year’s Eve).
Compare that with the graphs at http://crudeoilpeak.info/latest-graphs & http://crudeoilpeak.info/world-on-drip-of-unconventional-oil, & maybe deal with what they’re saying at http://ourfiniteworld.com/.
http://davecoop.net/senecagraph.gif
Wishing you all the best for this shaky year.
Thanks again to Gail for writing outstanding posts on a regular basis, and for keeping this forum open.
I just ran across 2 old (“old” in internet-time…) articles with interesting insights on well-known topics. Always good to have a booster-injection.
– the first is a mathematician’s view of Adam Smith’s “Invisible Hand” (and Game-theory, Prisoner’s dilemma, …) by Helen Joyce, March 2001:
http://plus.maths.org/content/os/issue14/features/smith/index
– the second is “The Tragedy of the Commons”, by Garrett Hardin, Dec.1968
“Recognition of Necessity:
Perhaps the simplest summary of this analysis of man’s population problems is this: the commons, if justifiable at all, is justifiable only under conditions of low-population density. As the human population has increased, the commons has had to be abandoned in one aspect after another.”
http://dieoff.org/page95.htm
Gail, thanks for your post, as usual. To all readers, have a happy new year
Happy New Year to everyone!
Yes, Happy New Year to you too, Gail, and thanks for all your insightful analysis. 2015 ought to bring many more interesting twists and turns.
Happy New Year!
Thanks, Christian, you too!
Happy New Year Folks!
May 2015 be a more interesting year!
US drillers are packing it in:
Chart shows how U.S. drillers respond to oil drop
http://www.marketwatch.com/story/chart-shows-how-us-drillers-respond-to-oil-drop-2014-12-30
“Chevron cancels Arctic project, chills Northwest business prospects.”
http://www.bizjournals.com/seattle/news/2014/12/30/chevron-cancels-arctic-project-chills-northwest.html
Can’t help employment prospects.
“Petrobras To Report Q3 Results Amid Debt Default Threat.”
http://www.valuewalk.com/2014/12/petrobras-debt-default/
Harry Gibbs
Because,
a) Never let your debts point outside of your legal systems.
b) And money should be state-owned, like in China, and not privately owned, like in the US.
Petrobrás is a productive channel. Petrobrás has waste through corruption that can be easily solved by placing the perpetrators in jail. Or even execute some of them. Of course the corruption uses the religion propaganda that was imposed on Brazilians to get away with.
Nations need to get out from under “Bank-Money” (Privately-Owned).
“Once a nation parts with the control of its currency and credit, it matters not who makes the nation’s laws. … Until the control of the issue of currency and credit is restored to government and recognized as its most sacred responsibility, all talk of the sovereignty of parliament and of democracy is idle and futile.” — Mackenzie King, Canadian Prime Minister 1935-1948.
If the American people ever allow private banks to control the issue of their currency, first by inflation, then by deflation, the banks…will deprive the people of all property until their children wake-up homeless on the continent their fathers conquered…. The issuing power should be taken from the banks and restored to the people, to whom it properly belongs. – Thomas Jefferson in the debate over the Re-charter of the Bank Bill (1809)
“I believe that banking institutions are more dangerous to our liberties than standing armies.” – Thomas Jefferson
… The modern theory of the perpetuation of debt has drenched the earth with blood, and crushed its inhabitants under burdens ever accumulating. -Thomas Jefferson
History records that the money changers have used every form of abuse, intrigue, deceit, and violent means possible to maintain their control over governments by controlling money and its issuance. -James Madison
If congress has the right under the Constitution to issue paper money, it was given them to use themselves, not to be delegated to individuals or corporations. -Andrew Jackson
The Government should create, issue, and circulate all the currency and credits needed to satisfy the spending power of the Government and the buying power of consumers. By the adoption of these principles, the taxpayers will be saved immense sums of interest. Money will cease to be master and become the servant of humanity. -Abraham Lincoln
Issue of currency should be lodged with the government and be protected from domination by Wall Street. We are opposed to…provisions [which] would place our currency and credit system in private hands. – Theodore Roosevelt
Despite these warnings, Woodrow Wilson signed the 1913 Federal Reserve Act. A few years later he wrote: I am a most unhappy man. I have unwittingly ruined my country. A great industrial nation is controlled by its system of credit. Our system of credit is concentrated. The growth of the nation, therefore, and all our activities are in the hands of a few men. We have come to be one of the worst ruled, one of the most completely controlled and dominated Governments in the civilized world no longer a Government by free opinion, no longer a Government by conviction and the vote of the majority, but a Government by the opinion and duress of a small group of dominant men. -Woodrow Wilson
Years later, reflecting on the major banks’ control in Washington, President Franklin Roosevelt paid this indirect praise to his distant predecessor President Andrew Jackson, who had “killed” the 2nd Bank of the US (an earlier type of the Federal Reserve System). After Jackson’s administration the bankers’ influence was gradually restored and increased, culminating in the passage of the Federal Reserve Act of 1913. Roosevelt knew this history.
The real truth of the matter is,as you and I know, that a financial element in the large centers has owned the government ever since the days of Andrew Jackson… -Franklin D. Roosevelt
(in a letter to Colonel House, dated November 21, 1933)
Thank you Willy, amazing perspective.
200 years ago Jefferson warns, one century later Wilson “acts”, then one more century and we’re definitely trapped.
I think the failure lies in the absence of any realistic alternative to the “ever-more” paradigm (call it real democracy or whatever), as well as any clear definition of the goals of our civilization as a whole. I don’t think this would have been possible because it requires cooperative links that are stronger than competitive forces; this can happen only with abundant resource in very stable environments.
As soon as we’ve been able to use fossil fuels, it was no longer an option because it’s (mainly) the energy use that modifies the environment. We then had to go for the r-strategy and start the big race between 5-year-old kids driving 400hp Ferraris on a small road.
It seems we believe that the fact that a private entity controls the world is somehow sinister.
But what if the owners of the Fed did not control the world. Some other powerful entity would.
And they would be doing the same things, because that is the way all life forms are hardwired.
Stuff 20 rats into a barn full of food on a small island in the middle of the ocean and they will tear through food breeding rapidly until they eat everything then die.
But we humans believe we are different. That somehow we can override our genetic code.
One way we believe that we can do that is through democracy, a system that would supposedly allow us to control our instincts (or Id).
Unfortunately that is not the case, because even with the very limited amount of democracy we have, we have demonstrated that we are unable to override our nature:
Politician A: I can guarantee you a higher standard of living, better jobs, lower taxes. I know how to do this. Vote for me.
Politician B: I cannot guarantee anything other than that I will run a fiscally responsible government that ensures that we do not jeopardize the future by living large today. My opponent can only deliver on his guarantee by borrowing money, which is a reckless, dangerous policy.
Of course Politician A will win the election and he will be hailed as a hero and genius (e.g. Ronald Reagan)
It does not matter who is ultimately in control, because our genetic code ultimately runs the show. And there is no way any entity can possibly change the nature of the beast.
We are no different than the rats in the barn on the island.
Agreed.
When we talk about baked-into-the-cake, I believe that we really talking about behavior that is derived from our genetic code. We execute behavior as an expression of our genes. Although our behavior can be modified from the raw and natural to fit societal structures, it seems that we only learn from past mistakes, repressions, or wrongs after the fact. So our social institutions are perhaps measures adapted after a previous spectacular failure.
Unfortunately, whereas past failures were limited to re-arranging political or ideological allegiances, we have now consumed at least half of our allotment of fossil fuels in a short span of 100 years that took millions, if not hundreds of millions, of years to create. If you think about this situation logically, you must either come up with a substitute for oil (such as nuclear power per Hubbert), or realize that our decision-making process is seriously flawed.
And even if you were to solve our cheap energy with a substitute, you will soon be confronted by this-weeks-flavor-of-some-peak-resource. Our global predicament has not ever happened before and that is why we have no institutional memory of how to deal with it.
Yes Willy,
Politician A wins the election, because we want to have maximum power now, not tomorrow.
Of course it doesn’t work, then on following poll people decide to try politician B (as happened during last decade in the US, France, etc). But as B is not able to fulfill his promises either, people are getting very disappointed, fed-up with “standard democracy” and start looking towards far-right alternative (whose promises are even more irrealistic). Looks like only once in deep shit, that people are prone to go for real left-wing policy (Syriza in GR, Podemos in SP). And to integrist religious powers once all social structure has been destroyed (Middle-East).
Your example with rats reminds me of the story of the caribous on St Matthew Island: http://dieoff.org/page80.htm
As for rats, John B. Calhoun made further experiments in the early 1960s. I find his “Behavioral Sink” particularly disturbing; see http://en.m.wikipedia.org/wiki/Behavioral_sink
Would that mean that we’re genetically programmed for self-destruction once the expansion/growth is no longer possible?
And this, even in absence of any problem due to resource scarcity or pollution…?
I think yes,we are programmed to want more and if the opportunity is presented (i.e. the food is made available), humans, and all other animals, will react in the same way i.e. we will consume it and breed until the food is used up.
That usually results in a die-off of the population.
But what has happened this time is that we have artificially been able to extend our food supply so there has been on Malthusian die-off. We have continued to find ways to increase the food supply (the green revolution being the most ‘successful’ innovation) so that our species has been able to grow exponentially.
And now I am afraid we are going to pay the price.
When the artificial means of producing and distributing food are no longer available, most and possibly all of us are going to starve.
In the process of starving, what will 7 billion people do to each other and every other living thing on the planet from the wildlife to the forests.
it is difficult to be even the slightest bit optimistic about the outcome.
“Your example with rats reminds me of the story of the caribous on St Matthew Island:”
“Would that mean that we’re genetically programmed for self-destruction once the expansion/growth is no longer possible?”
The difference is that, regardless of population density, if infant mortality rates are kept very low – under 1 percent, and birth control is available, and women are educated about all of this, and their religion/culture allows it, people will choose to only have about two children, instead of maximizing reproduction like rats or caribou.
In “primitive” societies, women often spend up to four hours per day hauling water. If you set them up with electricity, indoor plumbing, and a TV, it seems they will tend to choose to spend at least a portion of their new-found free time to watch soap operas, and in the soap operas they have women who are single, childless business women, or who have a family with only one or two children, and who have material wealth, and so they become programmed to desire to have fewer children and more material wealth. Whether this is a good thing or not, I do not know, but humans can choose (if it is a choice if you are being programmed) to have fewer offspring, even if they are in a low population density rural area, they do not need to hit a certain level of crowding.
http://www.gapminder.org/ has a lot on this, and why even with abundance, population growth will not run away and destroy everything, people are continually having fewer children.
It you set women up with electricity, indoor plumbing, a TV, and birth control, you are setting them up with a lot of energy. With that energy, they can indeed control population. Health care is likely to be better as well, so more of those children will live to maturity, necessitating fewer children. Education also requires energy. I don’t see the possibility of giving people lots more energy, though.
I read, and now cannot find, some excellent analysis of statistics and controlled variable studies about women and childbirth rates. The takeaways I got were 1) women have less children the more education they are given 2) women have fewer children they more they are protected from rape, provided with health care, provided with old age stipend etc. etc. In other words, having children is an insurance policy for women who live, traditionally, more than just a few years beyond their husband’s typical life-span. In other words, any community that provides for the well-being, both legal and physical of it’s women in old age will see a reduction in birthrates. The studies that I read controlled for religion, economic disparities, etc. etc. The factors that stood out were education, elder care, legal rights. All of these could be said to require vast amounts of energy or they just require a cultural change where our elderly women will be cared for no matter what (and maybe that doesn’t mean expensive cancer treatments but respectful and kind care while dying) and then we might see a long-term stability of birth rates. (note: disease is irrelevant, a better fed child will survive most childhood diseases and fewer children will result in fewer mouths and so the mouths that are born will be better fed.)
“All of these could be said to require vast amounts of energy or they just require a cultural change where our elderly women will be cared for no matter what (and maybe that doesn’t mean expensive cancer treatments but respectful and kind care while dying) and then we might see a long-term stability of birth rates.”
Even if it does require a relatively massive amount of energy, is it better to:
1) increase energy consumption per capita, say ten-fold, and have two children per family and population stability
2) Keep energy per capita low, and have population double every 20 years
Keep in mind, the amount of energy being consumed in very poor countries is quite low, so even a ten-fold increase would probably leave them at a tiny fraction of the amount of energy we consume in the western world.
If the population is left to grow as fast as it can, eventually there will be scarcity and then conflict. War is a massive waste of energy, resources, human life, and causes a great deal of environmental damage.
It seems to me the possibilities are:
1) perpetual peace and prosperity through infinite exponential growth
2) population and consumption control
3) endless cycles of abundance and growth, followed by scarcity and conflict
It also seems to me that #1 is unlikely.
So let’s see. I give a potential lever to allow a community or a society a longer run or a better run and it seems to be a fairly clear lever and instead of hypothesizing upon how that might be integrated into the current system, a near-future system, or a far future system with different levels of energy use, instead the response is to shove it into a falsely binary choice?
I am beginning to find everyone’s reaction to the situation presented to us fairly telling.
We seem to have a few different groups
1. Either raised or living in BAU or the city, extremely fearful and going on and on about needing guns to survive and guns to protect themselves.
2. A group with either some skills in farming or living outside of BAU and fairly calm and not screaming in fear
3. People in between the two groups or those who have lived or live in both worlds as have I.
I mentioned earlier to WWW that there seemed to be a fairly short-sighted view of guns versus people with food because the longer-term is really not going to feed them if their only skill is using a gun. Note, not once did I dispute the need for some level of community or self-defense but that the focus upon one skill set and method of survival seems extremely limited and short-sighted.
I seem to be being told that “I just don’t understand how violent humans are” and I can only fathom that this is someone with an enormous fear of other humans or someone who has not yet come to terms with their own ability to commit violence and to learn to channel that into something useful – like learning to farm or hunt for food (please read some archaeological studies as to how many calories have historically been provided by meat versus plants, tubers, grain, etc.._
I should like to note that nowhere in any of my statements have I said that you do not need a gun, should not learn how to use it, should not learn how to hunt. What I have said, and I shall repeat is that focusing only upon the gun factor is an extremely limited and short-sighted method of survival. I grew up hunting, trapping, everyone I know has a gun, a fishing pole, a fillet knife, etc. etc. I guarantee you that not a single one of them would want to depend upon that alone for survival and defense and every single one of them would tell you it is more valuable to know how to farm, garden, preserve and prepare food than to hunt or to defend oneself. One can learn to use a shotgun for defense in 15 minutes flat. Load here, point there. One can learn to farm or garden to feed oneself in 3-5 years. Maybe it is because I take the guns are not for humans attitude around me fairly seriously. Maybe because I grew up in a very rural farming community that I take these things for granted and realize that our focus really needs to be in basic farming skills because a) they take longer to learn and b) we, as a community and culture have so many fewer people with these skills than people with gun skills.
I also have attempted to point out that you do not survive without community and mutual support and aid. It is extremely risky and difficult to be “self-sufficient” when farming and having a community to cover your losses is necessary to survival. The labels of communist for someone who points out the obvious of the current system is inappropriate. The labels of capitalist for someone who says trade is necessary for survival in any community is irrelevant. Putting people into boxes with labels is something someone who does not want to actually discuss relevant facts, policies, methods, options and potential trajectories does. Labeling someone or something only serves to gloss over any nuance, analysis or information contained in their communication and mostly makes your communication worthless.
“I give a potential lever to allow a community or a society a longer run or a better run and it seems to be a fairly clear lever and instead of hypothesizing upon how that might be integrated into the current system, a near-future system, or a far future system with different levels of energy use, instead the response is to shove it into a falsely binary choice?”
You make it sound like what you are proposing is not already happening in the real world. Outside of Africa, nearly everywhere else, population growth is slowing and people are having fewer and fewer children.
Using Bangladesh as an example, they only increased per-capita energy consumption just over 100%, and fertility rates were lowered from ~7 children per woman to ~2.
Energy per capita:
http://www.theglobaleconomy.com/Bangladesh/Energy_use_per_capita/
Fertility:
http://www.theglobaleconomy.com/Bangladesh/Fertility_rate/
As to how this can be provided in a low-energy future, I don’t know. I guess it depends on how much energy is available in the low energy future; Bangladesh was able to achieve it with around 200 Kg of oil equivalent per capita per annum.
You think it is a false binary choice between population control or endless boom-bust cycles? While there is an infinite number of possible outcomes, I think it is useful to frame it as a choice that society must make, and if you provide people with 20 different choices, rather than distilling it down to two, it does not work as well.
My post was actually in agreement with yours, you posited it as maybe lots of energy is needed, or maybe just cultural change is needed, and I simply said that if increased energy per person is needed, it is still preferable since it requires less energy in the long run than having lots of extremely poor people.
The rest of your post, about guns, labeling people as communists, etc does not seem to have anything to do with my post or any of my other posts?
An actuary will tell you that you need enough children in total, if you are going to pay for elder care, because it is the earnings of the children that pay for the elders. (In the aggregate, there is no way to “save up” enough for retirement. We all share the food that is produced in a given year, and other goods that are produced in a given year.) Once you push the eldercare onto the taxpayers, you have to make certain you have enough taxpayers to pay for both the elders and the people who administer the system. The low birth rates currently seen in Japan and Europe would likely be a very big problem, even without our oil related problems. This is one reason why we hear about proposed cutbacks in pension plans.
Japan is the poster child for what happens when a population fails to grow.
Gail, I wonder if you might have any theories on why population growth is slowing in many affluent countries, particularly amongst the more educated, affluent individuals in these societies.
That would run counter to the theory that when an abundance of food is available, species tend to increase their populations dramatically so long until the food source is depleted. And then there is a die-back.
Access to food for more affluent is unlimited in these societies so why are they not breeding prolifically?
Yes Willy, I agree,
but please have a look at the Behavioral Sink article.
It states that die-off happens even if the population has no problem with food supply or anything else, but because of overcrowding only.
This single factor seems to be sufficient to wipe off an entire population.
In our present case, we can also add resource scarcity, various pollutions, Damocles-style debt, global interdependance, etc…, all “peaking” at same time (because intertwined and exponential).
I know that Craig Dilworth in Too Smart for Our Own Good talks about the crowding issue. He talked about rat tests in this regard.
I am wondering if it is related to the fact that the density of cities in very poor countries (mostly in warm countries) can be much higher than the density of cities in rich countries (mostly in cold countries). There seems to be an energy density limit.
I am wondering if China will run into this issue, trying to going from poor to rich, and not reducing the density of cities. There is not room for everyone to have autos.
Thank you Gail!
I found it, looks really interesting: http://www.craigdilworth.com/description_too_smart_for_our_own_good.html
Also found this 😉 : https://s3-eu-west-1.amazonaws.com/hsd-sites/dilworth/reviews_too_smart/Tverberg_reviewart_Feb_2012.doc
Apparently he talks about human population and its density:
“In general, Dilworth makes it clear that throughout history, population control has been integral to functioning societies, and he goes to a lot of effort to document that. He shows how we have ignored that history in the past 200 years, to the point where population is hardly mentioned, despite its being the basic cause of everything going wrong…”-Harold Welch
..but I didn’t find anything on the website about the energy limit you’re talking about (may be detailed in the complete paper version).
I guess this energy-limit would be something similar to the “max carrying capacity”, which is very difficult to estimate (other than by long-term experiments of the ecosystem in real conditions, afaik).
I have read the book. He even invited me to have dinner in his home in Stockholm with his wife and daughter in February 2014 when I visited there. Interesting fellow!
I am not sure I can find the article about population densities of cities. It seems like it was a fairly recent article.
This rather poor article from 2008 http://amptoons.com/blog/2008/05/27/comparative-population-density-of-49-cities/ shows a graph that illustrates that the densely populated cities are in Asia and Africa; the less densely populated cities are in the US. I didn’t see the recent article I remembered though.
@Calista
I also have attempted to point out that you do not survive without community and mutual support and aid. It is extremely risky and difficult to be “self-sufficient” when farming and having a community to cover your losses is necessary to survival.
Great points!
I don’t recall anyone saying don’t try that.
I do recall people making comments that post-collapse life in one of these communes will be one of peaceful cooperation, of sharing, that humans are very much capable of co-existing without violence.
And I do recall, that whenever anyone pointed out that throughout history a community or nation that turned the other cheek ended up with a boot on their neck, followed by a chain, that person was labelled a heretic.
This is the ticket (although there is the problem of where to get the gasoline at some point)
http://4.bp.blogspot.com/-4To3yay0faU/UVYxfhvs5lI/AAAAAAAAPNQ/Qd-gzEoEqJE/s1600/machine-gun-truck-bed-4×4-wheel-drive.jpg
Hey tell me something. What you gonna do with Angra’s s..t
??? Was talking about this:
http://en.wikipedia.org/wiki/Angra_Nuclear_Power_Plant
Christian
I have a very bleak view of humanity and its future.
So, nuclear power plant fits on the bleak view ‘part’ of humanity’s future.
I favor Hydro; even that is causes many ecologic disturbances and high methane.
Itaipu Dam: Second largest operating hydroelectric facility in terms of annual energy generation, generating 98.3 terawatt-hours (TWh) in 2012 and 98.6 TWh in 2013, while the annual energy generation of the Three Gorges Dam was 83.7 TWh in 2013 and 98.8 TWh in 2014.
http://en.wikipedia.org/wiki/Itaipu_Dam
Yes, nukes go on the bleak side, sure, that’s precisely why I wonder about spent fuel ponds. Uranium rods assembly has stoped in Argentina, and almost all japanese facilities remain shut down since almost 4 years
“Struggling junior oilsands producer Southern Pacific Resources Corp. said Tuesday that it will miss an interest payment on its debts, which was due Wednesday.”
http://business.financialpost.com/2014/12/30/junior-oilsands-producer-southern-pacific-resources-corp-to-miss-debt-payment/?__lsa=18ed-4c44
This is the way to get interest rates to go up.
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Dear Rodster
Relative to Carbon Farming. See this link
http://www.savoryinstitute.com/events/international-conference/2014-london-conference/
I particularly recommend Darren Doherty’s talk and Elaine Ingham’s talk. Unfortunately, there are no simple ways that I can figure out to get you directly to links to their videos. What you will see are several panels of videos. Fool around with them a little and you will pretty quickly figure out how to hear Darren and Elaine talk. Darren talks about some really nice technologies, including portable wire fencing, plastic pipe, contour mapping, and using the internet to direct market. But he also talks about undoing the terrible destruction wrought by 19th and 20th century technologies which constitute what we now know as ‘agriculture’. He says that ‘the raindrop on bare soil is Public Enemy #1’. Elaine deconstructs almost everything that Big Ag tells you. Both point to the seminal importance of carbon farming.
Don Stewart
The major problem is and Gail has mentioned it repeatedly that our entire infrastructure has been built and operates around cheap oil. Sure there could be pockets of communities that exist for a little longer than those with oil but the result is the same in the end. Because when the system collapses those who have will be overwhelmed by those without. This is something that Paul makes mention of and I totally agree with.
While the system is functioning and there is some rule of law then yes small communities can operate to some degree outside of oil. When the rule of law doesn’t exist then all bets are off. The vast majority of human civilization has been domesticated and rely on some form of Govt infrastructure to live. When they see communities existing they will fall prey to those who are desperate.
As Mike Tyson once said, :”everybody has a plan until they get punched in the mouth”.
Rodster
Everyone has to make up their own mind on that. For example, Robert Sapolsky shows a slide of one of the baboons he studied in Africa. The tribe was relatively peaceful. A new, aggressive baboon came in and started bullying the others. One night, six baboons jumped him and by morning it looked like he had been dead for a week (I suppose the scavengers attack very quickly). The tribe went back to being peaceful.
Don Stewart
I don’t think that will apply to the post-collapse world.
I very much doubt that the threat to any peace-loving community is going to come from a single belligerent.
Rather it will come from heavily armed, vicious, desperate gangs of men who will shoot first, steal everything, and never ask questions.
Peace-loving communities will be seen as easy targets.
Unless a community is in a position to defend itself, and by that I mean that its members are prepared to kill and have lethal weapons on hand, I seriously doubt that community will last very long.
Dear Wee Willy Winky
As I said, everyone has to make up their own mind. Historically, social species have come to dominate Earth. Our particular social species thrives on reciprocity and the oxytocin that reciprocity generates. Oxytocin has, in the last decades especially, been replaced by a global financialized capitalist system. That system now seems close to collapse.
Oxytocin does NOT make people pacifists. In fact, it makes them somewhat more hostile to those outside the group. I speculated previously that the ‘outside the group hostility’ might help explain why religious groups tend to persecute others.
Don Stewart
Just take a look at what recently happened in Russia when the Ruble crashed. All bets were off and all the retail stores were emptied as people were cashing in their collapsing currency. Now imagine what it will be like when the ENTIRE system shuts down or goes into major cardiac arrest? People will be so disparate to stay alive and feed their families they will be willing to do ANYTHING for survival.
*p.s. – Where is Paul btw?
*p.s. – Where is Paul btw?
I think he is winking at us ;^)
Don, what species of baboon was Sapolsky talking about? Baboons are well studied and it would be interesting to evaluate and contextualise his claims.
This is Papio cynocephalus but we can look at the others too. They are not inherently “peaceful”, they are hierarchical based on fighting. Dominance provides the boss with priority resources and mating benefits, so it comes down to evolutionary competition for fitness. They do not have to keep fighting once dominance is established and the boss then continues to profit from dominance. They form violent coalitions based on kinship and rank when conflict arises. Rapid change can occur if another baboon violently takes over and that invariably leads back to dominance. What you recounted sounds simply like an outsider of some sort (perhaps a competitor already expelled) trying to muscle in on the action and getting slaughtered by the boss kin. That would seem to confirm Rodster’s intuition rather than refute it, “everyone has a plan until they get punched in the mouth”. That goes for baboons as well as humans.
…especially when the starving millions come flooding out of the cities and devour everything in their path like a plague of locust. It would be like the violent aftermath of the earthquake in Haiti or the hurricane at New Orleans, but spread everywhere and without the army ever moving in to quell disorder and to set up aid camps.
http://pin.primate.wisc.edu/factsheets/entry/yellow_baboon/behav
Quote:
Like many other cercopithecines, yellow baboons live in multi-male/multi-female groups […]
Females remain in their natal groups with their close female relatives. Dominance hierarchies exist among matrilines and young female baboons inherit the rank of their mothers (Bentley-Condit & Smith 1999). Dominant females assert their rank over submissive females by threats, mild aggression, biting, chasing, displacing at feeding sites, and fighting. Submissive animals respond by averting their head and body, avoiding the dominant animal, crouching, and screaming (Bentley-Condit & Smith 1999). Once dominance has been established between animals, though, the dominant individuals do not have to constantly behave aggressively to maintain their status as lower-ranking individuals respect the dominance hierarchy without being threatened (Altmann pers. comm.). When two females are involved in an agonistic dispute, another female will sometimes intervene and lend support to one of the females. These coalitions between female yellow baboons are primarily based on kinship and relative dominance rank (Silk et al. 2004). For example, young females are supported by their mothers and siblings while closely related adult females support one another during agonistic encounters. A female will not lend support to her relative during a dispute when both females involved are higher-ranking (Silk et al. 2004). Higher-ranking females accrue more benefits from maintaining their rank and mediating conflict between lower-ranking females than vice versa. Given priority access to scarce resources and enjoying higher reproductive success, high-ranking females protect their dominance status through the interactions of lower-ranking females (Samuels et al. 1987; Bentley-Condit & Smith 1999). Female rank remains stable for long periods but is very occasionally punctuated by rapid periods of change in which low-ranking females assume high-ranking positions. Some of the conditions under which this may occur includes the death or disappearance of a dominant female who can no longer can support her daughters or sisters in agonistic interactions and therefore the lower-ranking female wins, the increase in size of a subordinate matriline such that the lower-ranking females outnumber the higher-ranking females and can dominate in physical interactions, or when a large number of juvenile females reach adolescence and displace or outcompete older, higher-ranking adult females (Samuels et al. 1987).
Males disperse from their natal groups around 8.5 years of age (Alberts & Altmann 1995a). It is at this age that they have reached their full size and fighting ability even though they are capable of reproducing long before this age (Altmann et al. 1988). Male yellow baboons also exhibit a dominance hierarchy in which the largest, most capable fighters, usually the youngest immigrants, are the most dominant. Subordinate males flinch or move out of the way of a dominant male, jump back when approached, grimace, and scream (Noë & Sluijter 1995). Adult and subadult males are dominant over juvenile males and females and adult females, regardless of rank (Hausfater 1975; Bentley-Condit & Smith 1999). One benefit of high rank among males is higher levels of reproductive success, on average, than lower-ranking males (Alberts et al. 2003).
[…]
“They are not inherently “peaceful”, they are hierarchical based on fighting. Dominance provides the boss with priority resources and mating benefits, so it comes down to evolutionary competition for fitness. They do not have to keep fighting once dominance is established and the boss then continues to profit from dominance.”
A very good point which could be extended to the geo-political arena as follows:
“Countries are not inherently “peaceful”, they are hierarchical based on fighting. Dominance provides the world leader with priority resources and associated benefits, so it comes down to evolutionary competition for fitness. Countries do not have to keep fighting once dominance is established and the boss then continues to profit from dominance.”
Or in practical terms, the United States is currently the dominant country, Most other countries accept this and form hierarchies beneath the dominant country. For the most part, the United States does not need to go to war with the nearly 200 countries on the planet because the threat of force is enough to keep them in line.
But from time to time some countries, like very young male baboons, through inexperience or lack of understanding of what is behind the dominant one’s authority, make a challenge, and are beaten down violently.
There are also of course periodic challenges from up and coming countries who think they can beat the United States. These too must be beaten down with no mercy.
Does all of this not point to conclusion that suggest peaceful state is not possible on any level from the individual, to the community, to the state?
That the closest thing we can ever have to peace is a situation where the masses live in fear of the dominant entity?
Peace suggests weakness. And we all know what happens to the weak in the ageless struggle we refer to as survival of the fittest.
Might the conclusion not be for anyone setting up a survival community that they should either get some training in guerrilla tactics and stock the armory. Or, if you are not up to that, make sure to bring a few brutes in to run security.
But keep in mind, in the survival of the fittest, you would need to assume that the brutes will not likely be satisfied running only security (see Animal Farm)
W, I think that you are right.
We can take the argument all the way to the fundamental statement, that all that is really happening is the evolution of the species through the struggle for the survival of the fittest, everything else is an illusion, especially morality. Our sense of ‘importance’ and ‘significance’ is conditioned by our own largely instinctive will to survival. In itself it would not matter if the entire universe ceased to exist tomorrow.
The problem that we as a species have today, is that dominance no longer adequately confines resources and mating advantages to the dominant groups and individuals of the species. A baboon population will maintain its fitness when the dominant baboons take priority of scarce resources and of mating privileges. That way the best, most fittest baboons survive and breed more and the others less. Otherwise the species would gradually degenerate, lose its fitness and ultimately disappear.
Humans however have adopted universalistic morality and politics, driven by the global expansion and integration of capitalism and the worker-consumer society. We see it as a “good” to provide everyone with adequate resources and the opportunity to reproduce. But that mitigates the natural selective pressures to which all species are properly subject. It is fundamentally unsustainable. It degenerates the breed, it consumes finite resources and it leads to ruin.
The universalistic global society is fast approaching its end. I would suppose that society will inevitably be organised on more natural and sustainable principles after the collapse. We will see a return to scarcity, and competition will take on its old edge. The human population will collapse and society will return to principles of dominance, of competition and the formation of coalitions based on kinship and rank, just like our primate cousins the baboons.
Any future society will need the three essential castes discussed by Plato in the Republic; i) the wise philosopher rulers who can take on board the fundamental principles that we have discussed, scarcity, sustainability, fitness, dominance, hierarchy, coalition, competition, ii) the spirited warrior and police caste who will impose the will of the rulers for the good of the society, iii) the technical and worker masses. All societies have those three basic strata today even if they are somewhat mixed together and confused. A successful future society will disentangle their functions and adopt the proper principles, if they are to survive at all.
99.9% of species have gone extinct and our could too. We have made many mistakes that now come to a head. Ironically, much of what we tend to think of as “good” — equality, security, peace, global development — has been “evil” and has ruined us. We will need to be more realist and that will mean that we learn to look at “good” and “evil” in new ways, not as pie in the sky moral absolutes but as natural facts of our own continued existence. Much that once seemed “evil” will then appear as “good” and vice versa.
There will need to be a new balance between competition and cooperation, a new ordering of the two, toward the sustainable survival and prosperity of the human species, as just another primate group and subject to all the same natural principles of struggle and selection as the others. Scarcity will mean that security will be in the context of struggle, rather than struggle in the context of security as it is in the liberal democratic capitalist world order of today.
These radical and fundamental changes would be nye on impossible for us to make today. There is no way that the masses would willingly choose a world of scarcity, competition and domination. But the changes are necessary and Nature will force them upon us. Whether we as a species will survive will depend on how well we adapt to the new circumstances. Those groups that manifest the will to survive come what may, and to do whatever is required, will benefit and prosper. Others will not.
Perhaps we should be grateful that the species will avoid the Idiocracy scenario of gradual deterioration. Nature is a wise physician and itself will restore us to the upward path. No doubt it will be a shock to many to discover that the manner of Reality is not however we democratically choose it to be, it has its own rules and principles. The wise will not be surprised but may be even quietly satisfied.
QT
I agree that if we do survive, we will soon be on the upward path again, until we again hit limits.
I think you are right too about, “Reality is not however we democratically choose it to be, it has its own rules and principles.”
Well put.
Well said QT!
Competition vs Cooperation is a good starting point for describing human history.
Religion plays a big role in helping people to determine which path to follow. It’s okay to murder when I’m a soldier, but not so good when it is my neighbor. American’s have been brought up with the God of Peace(Cooperation), but they haven’t seen the God of War(Competition). Or maybe the God of Wrath. Or, *sigh*, “Where is the God of tits and wine?” ~Tyrion Lannister, Game of Thrones.
History is littered with episode after episode of genocide. Village against village, city against city, kingdom against kingdom, and now the final stage, national states. This viewpoint is difficult for most Christianized Americans to comprehend, as they believe that history is the story of the Christianity spreading its message of peace and reconciliation, until the full measure of converts has been achieved. Then Armageddon.
They (as I did at some point), believe that God has a purpose for each and every one of us. One attitude that results from this viewpoint: for those basterds born in poor slums – oh well, God has ordained!
We have been successful at our exploiting our lifestyle (based on energy consumption) and view ourselves as spiritually superior than other cultures. Every successful empire validates its conquests by saying that “If God was not with us, then how could we have not accomplished this?”
It will be as you said, No doubt it will be a shock to many to discover that the manner of Reality is not however we democratically choose it to be, it has its own rules and principles. The wise will not be surprised but may be even quietly satisfied.
Ironically, least we forget, our ‘superior’ and ‘more civilized’ lifestyle is a product extreme brutality that we have used to ensure we get the lion’s share of the planet’s resources.
Just because each of us does not actually pull the trigger when our side commits a barbaric act to ensure our great civilization continues to be receive an ever increasing supply of things that make civilization possible, does not mean we are any less culpable.
Or in other words, it is very easy to pat each other on the back and proclaim how civilized we are when we can fill 2 giant shopping carts at the grocery store on the backs of the barbarians who are fighting over the scraps that we so generously have made possible by tossing our spare change into the charity box at the check-out counter.
We will see how much different we are (or not) from Tutsis and Hutus when collapse hits and the grocery stores are empty.
All species are subject to natural selection, even humans. One of the big uses of energy has been to create an economic system so that we could use fossil fuels and thus provide enough energy that lots of people (as opposed to a few people) could live. This has provided a one-time population bubble. It has also allowed us to move beyond natural selection. Now we will save every handicapped child. We will keep people alive who are very weak, and encourage them to marry and have more children. We don’t fight with our neighbors.
Precisely how this will end when the population bubble is pricked is not clear, except that population on earth will have to go down pretty quickly. Perhaps something miraculous will happen, and we will be moved to another dimension. Or maybe population will die off in a mostly non-violent way from illness, lack of water, and lack of food. Or maybe some sort of nuclear explosions will put an end to us, or will disrupt the world environment enough, to put an end to most people. Or maybe there will be more fighting among nearby neighbors.
Animals use territoriality to prevent too high a population in total. Essentially, this prevents overuse of local resources by a group. Human fighting against neighboring populations seemed to play the same role, at least until we found fossil fuels and no longer needed to worry about too little resources for everyone.
“Animals use territoriality to prevent too high a population in total. Essentially, this prevents overuse of local resources by a group. Human fighting against neighboring populations seemed to play the same role, at least until we found fossil fuels and no longer needed to worry about too little resources for everyone.”
I understand that a cougar requires 10km square to survive. I wonder how many km square a human needs?
Of course when we have grocery stores stocked with food a small area can support tens of thousands of humans. Our territory is about the length of your arm i.e. what we refer to as personal space.
At some point the grocery stores will shut for good.
Image caging tens of thousands of cougars into a space the size of a few city blocks and taking away their food source
Dear Quitollis
See
https://www.ted.com/talks/robert_sapolsky_the_uniqueness_of_humans
The episode where the immigrant baboon is murdered is near the beginning of the talk. A different episode where a troop of baboons becomes far more peaceful is near the end of the talk. (28 minute point, I think…but not sure)
In one of his many lectures which you can find on YouTube, Sapolsky states that humans did not form rigid hierarchies until we abandoned hunting and gathering. However, we probably had the ‘social dominance’ effect, which he describes near the beginning of the referenced talk. Social dominance is related to our inherent propensity for either extraversion or introversion.
Sapolsky’s classroom lecture on Sexuality was recorded at Stanford. Similar to the above talk, he dissects ways in which humans are similar to other primates and different from other primates. He asks the question, ‘do other primates engage in fantasy’? He recounts his observation of a gorgeous female baboon in estrus closely followed by a dominant male. A subordinate male observes the female closely, then walks off a distance and masturbates. Did the baboon engage in fantasy? Is the behavior violent?
I don’t think there is any ‘morality based’ way to use the ‘violence’ epithet here. What we have is just the way Nature works with baboons and mating. The subordinate baboon might be found on physical examination to have suffered some endocrine disorder, such as stress. But there isn’t any overt physical damage, and the subordinate will live to, perhaps, love another day.
I also recommend that you take a look at his discussion of dopamine reward in the referenced talk. We do work IN ANTICIPATION OF dopamine. If you are convinced that there is no hope, and that destruction is certain, then you lapse into depression. But if you think that there is some probability of getting a reward, you get the dopamine whether you get the physical reward or not. I can think of scenarios where preparing for a future without global financial capitalism or fossil fuels might pay dividends. When those who believe that there is no hope try to force their ideas on others, they are, in effect, trying to spread depression. Leave me out of that project.
Don Stewart
Don,
Always appreciate your viewpoint! You’re right, hope is a necessary ingredient in living now and preparing for the tomorrow’s work.
Many of our discussions are really grand sweeps of generalized ideas of how our current human society arrived at our present predicaments. We want to get to the essence of the Why we choose the belief of infinite economic growth, for example. Maybe we really are just knuckle-dragging primates that have a hairy finger on the Launch Nuclear ICBM button. I sincerely believe that future societies will benefit greatly from this discussions. 🙂
Dear Gail and All
Here is a talk that many of you may find interesting. An advertising man talks about carbon farming as a way to reverse climate change, and what we need to do to turn carbon farming into a mass movement. If you are absolutely convinced that it is Back To The Stone Age in 2015, you will not get very excited about this talk. If you still think that there may be some hope, you will find it intriguing and provocative.
Don Stewart
Here’s a good read and a counterpoint to the argument:
“Technological Superstitions” by JMG
http://thearchdruidreport.blogspot.com/2014/09/technological-superstitions.html
Dear Rodster
By ‘counterargument’, I suppose you mean that the advertising man is selling a technological solution which won’t work.
I don’t have any inside knowledge about how he would portray the future. When he talks about increased employment, I suppose he means something ’50 million farmers’, which several people were promoting about 5 or 10 years ago. ‘More boots on the land, with fewer tractors and pesticides and synthetic fertilizers’ is not exactly what most people have in mind when they speak of ‘high tech’. It is ‘economic development’ of a certain sort, but certainly not the kind that yields big profits for corporations and lots of tax revenue for governments.
IF that is what he means, I am dubious that he can sell it to a public which still believes in Saudi America and America the Exceptional, Chosen By God.
I suspect that the future that would result from Carbon Farming is indeed, the sequestration of lots of carbon dioxide from the air in the soil, greatly increased soil fertility, and increased crop yields. However, it would be a sort of Jeffersonian world with lots of independent farmers in pretty self-sufficient villages and surrounding countryside, none of whom has a great deal of money. Whether that qualifies as ‘optimism’ depends, I suppose, on what you think the alternative is.
I’m participating in a Carbon Farming discussion in about a month, and I found the ‘Ad Man’s View’ to be interesting. For example, his insistence that some sort of branding take place so that the public can understand it very quickly without having to sort out the subtle differences between Natural Farming and Organic Farming and Biodynamic Farming and Local Food and on and on. It’s a daunting task to get some agreement on branding among the believers, much less convey it to the heathens. Lot’s of other similar issues.
Don Stewart
“IF that is what he means, I am dubious that he can sell it to a public which still believes in Saudi America and America the Exceptional, Chosen By God.”
Yes, people right now still think that we’re somehow exceptional. They’re going to be in for a rude awakening indeed. The question is once we hit the point where even your most dedicated exceptional American cannot deny that something is very, very wrong, will there be enough time left before a total collapse that they actually get to thinking about how to deal with what the future has in store?
I’ve known that the system was quite unsustainable for a while now, and have been thinking about how to live when the wheels finally come off. I still see new ideas, and old forgotten ideas that used to work that I had never heard of. I’ve seen enough to start seeking them out, in fact. I think that knowing how people did things anywhere from the 19th century all the way back to the stone age is useful. I’ve come to that after years of knowing that the system was unsustainable.
So what about the exceptional crowd when global supply chains start to break? I have time to practice some of these things. I have had time to put some into practice. If when the real fireworks start, the exceptional crowd won’t.
Thanks Rodster! One of the best essays I have ever read.
I was rolling on the floor laughing when he described the marscape as Nevada;
“The images from the lander didn’t look like Barsoom, or the arid but gorgeous setting of Ray Bradbury’s The Martian Chronicles, or any of the other visions of Mars everyone in 1970s America had tucked away in their brains; they looked for all of either world like an unusually dull corner of Nevada that had somehow been denuded of air, water, and life.”
So true.
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i have a question that you would probably be best qualified to address: what is current global “net” petroleum production, that is the real production of oil net of production costs, global net EROEI in BOE equivalent… this would require a somewhat detailed study of production from different regions, technologies, etc. I suspect that this number has not actually increased much or at all in recent times….
Antonio Turiel did a “broad evaluation for this” based on the WEO (IEA) numbers.
It’s in Spanish but quite readable through google translate :
http://crashoil.blogspot.com/2014/12/el-ocaso-del-petroleo-edicion-de-2014.html
The hills group have done an extensive amount of math studying the net value of the oil we are taking from the ground. http://www.thehillsgroup.org/depletion2_022.htm
I think the net the Hills Group is using is less than what is calculated by using EROEI definitions. If I were coming up with my own formula, it would probably be closer to the Hills Group amount, though.
You need to talk to one of the EROEI folks about EROEI (Charlie Hall, Dave Murphy, Carey King, Graham Palmer, etc.) Alternatively, Antonio Turiel does an evaluation of this type in this post. http://crashoil.blogspot.com/2014/12/el-ocaso-del-petroleo-edicion-de-2014.html It is in Spanish, so you have to do a Google translation to figure out what he is talking about.
What I am describing is somewhat different from EROEI. That is why I don’t use that term.
@Gail and @yt75
About http://crashoil.blogspot.com/2014/12/el-ocaso-del-petroleo-edicion-de-2014.html …
Wow. Antonio Turiel’s chart:
http://2.bp.blogspot.com/-jW8TgFfMUao/VI6-S8j-xAI/AAAAAAAADJk/d5L06UdioVQ/s1600/weo2014-worst_energy-case.png
Looks very similar to Gail’s:
http://gailtheactuary.files.wordpress.com/2014/01/tverberg-estimate-of-future-energy-production.png
Wow.
Even if they look the same, my chart and that of Antonio Turiel are fairly different. What I am saying is that it will be a financial crash that brings down the production of all types of fuels at the same time. Its connection to net energy is very small. Basically, the net energy about now is too low to hold up the financial system–that is to repay debt with interest. The networked economy that I keep talking about is about is close to crashing. When this happens, the production of all fuels stop at the same time.
What Turiel is saying is fairly different. He is looking at oil alone, and is trying to calculate a net energy amount. I think his methodology is too aggressive–leads to too fast a cutback in net energy, relative to what EROEI calculations would say. EROEI is a prescribed calculation (at least sort of–different people make different adjustments). It calculates energy used in extraction at the well-head, not other related energy consumption such as energy used in refining or transport, or energy use by workers to build fancy new homes or necessary for them to commute to a more hospitable climate every two weeks. It also omits government needs for energy use, for example in making roads, and in keeping peace. It mixes very cheap kinds of energy (like coal) with very expensive kinds of energy (like oil). It doesn’t have any time period involved, so an investment today that pays off in 40 years based on a hypothetical model is equivalent to one that pays off tomorrow, and is very certain.
Turiel first makes the assumption:
This might be true of Natural gas liquids, but natural gas liquids are not part of unconventional oils. It might also be true for ethanol, but it doesn’t seem to be part of unconventional oil either. The only category of unconventional oil the IEA breaks out is “Tight oil.” It indeed would have lower energy content because it doesn’t have diesel and other heavier components, but I am doubtful that it would be lower by 30% relative to conventional oil. I would guess that much of the remaining unconventional oil is very heavy oil that is being steamed out. It would probably yield more energy per barrel than conventional oil, because it is mostly long chain hydrocarbons, with little of the short chains that tend to be of lower energy content. (Heavy oil contains a lot more diesel than gasoline, for example, and diesel is more energy dense than gasoline.) So overall, it seems to me that this adjustment to unconventional oil should disappear, and perhaps work in the opposite direction–more energy per barrel, rather than less.
On the other hand, I think Turiel should have made the 70% haircut adjustment to energy by volume to Natural Gas Liquids (which are part of conventional oil), but he doesn’t seem to have.
Turiel then makes another assumption, with respect to changing EROEI:
Conventional crude oil currently in production: 20
Conventional crude oil fields yet to be developed: 5
Conventional crude oil fields yet to be discovered: 3
Natural gas liquids: 5
LTO and other unconventional: 2
These adjustments for other than conventional in current production are huge. It is hard for me to see that they are based any kind of direct analysis.
For example, an EROEI of 2 assumed for light tight oil. This Wikipedia article says that Hall and Murphy are estimating that light tight oil has an EROEI of 5. There is a huge difference between 5 and 2, because we are dealing with reciprocals.
Energies has an article by Yaritani and Matsushima that says the mean EROEI of shale gas at the start of the pipeline (which is where EROEI is defined) is 17. It is hard to believe that the EROEI of natural gas liquids is as low as 5.
When I heard papers at the last Biophysical Economics conference in Vermont back in June 2013, it seems like the EROEI calculations were coming out quite high for new types of extraction. Some of this has to do with deficiencies of the EROEI calculation–it has no time element, and it looks at a specific narrow range of energy inputs.
I don’t think net energy is the limit, except to the extent that it brings down the financial system very early. The calculations going out in the future are based on far more extraction than is likely ever to happen, in my view. It produces nice graphs, but I don’t think the graphs have anything to do with what will happen in the future.
John Michael Greer talks about civilization’s decline lasting maybe a hundred years if not hundreds. Everything that I am seeing is that oil’s ability to support our current civilization will be pretty much over by the 2030 to 2035 time period and it is a little difficult to see just what type of civilization and world economy we will have in the 2020s. I absolutely agree with you that net energy is setting us up for an economic collapse. Just what triggers it, or is the collapse being planned, who knows. I more and more agree with you that net worked systems at some point must collapse together. After each stage of collapse there will have to be some reorganization going on.
I think it is the collapse of the financial system that triggers it. That is why it brings down practically everything at once.
Agree.
Thank you Gail,
I have to say “Oops!”. One similarity may be the peaking around 2015 🙂
I’ve noted your excellent points above and would like to point out a few ideas I liked from his article:
Regarding his comparison of the WEO 2012 to the WEO 2014:
1. Points out the concave vs convex shape (2012 vs 2014) of future estimate of existing crude oil production.
2. He suggests that they are adjusting TBD and TBF to maintain reaching 100 mb/d around 2035/2040.
I like your point about his assumption “I have assumed that the average energy content per volume of unconventional oils is only 70% of the conventional crude”. But I think it is his other adjustments (which I have no idea if they are right or wrong) that are interesting:
1. Higher decline rate (to 6%)
2. 1/2 for TBD (to be developed)
3. 1/4 for TBF (to be found)
4. 1/2 for LTO (light tight oil – note: the google translate called this “light compact rock”)
After applying those adjustments, the graph went from a gradual incline to the chart above (not quite a seneca cliff). Assuming no financial collapse (difficult, I know), and given the decline of existing crude oil production (and despite the 70% factor), his final chart looks, well, pretty good. (I am not an expert on these matters!)
I agree with you about:
I don’t think net energy is the limit, except to the extent that it brings down the financial system very early. The calculations going out in the future are based on far more extraction than is likely ever to happen, in my view. It produces nice graphs, but I don’t think the graphs have anything to do with what will happen in the future.
I am wondering if there is a way to express net energy to debt to show how debt has increased to compensate for moving to higher energy costs. I see the limitations of EROEI (thanks to you) and like your top-down (or maybe wholistic) view of the effects of diminishing returns. Intuitively, most economic models (such as the neoclassical model) do not accurately the impact of energy for a growing economy.
It does very definitely look like the IEA is “working backward” from the results it wants, though TBD and TBF.
I should have looked at the other adjustments you pointed out. If I am right about low prices continuing to be a problem, we are likely to see the adjustments Turiel makes, or even greater.
I haven’t put together graphs relating higher borrowing to higher energy costs, but it would make sense. I know I have seen some graphs by Matthieu Auzanneau http://petrole.blog.lemonde.fr but I don’t have the link close at hand. I think the higher debt really works two ways: (1) borrowers have to have higher debt on homes, cars, new factories, to hold oil prices up to the high levels, and (2) importers of oil have higher debt, because of the imported oil costs.
Interesting. Russia and Iraq are increasing production which is driving prices down even further:
The price of a barrel of Brent North Sea oil fell by about 6% to its lowest level in five and a half years amid evidence that Russia and Iraq are continuing to increase production despite signs that demand for energy has softened in recent months.
http://www.theguardian.com/business/2015/jan/05/asda-cuts-petrol-price-diesel
Thanks for the reply!
Dear Gail
I want to take a slightly contrarian detour with you. My main message will be that there are too many balls in the air to make confident predictions.
Mobus and Kalton, in Principles of Systems Science, make a distinction between high energy ‘actuation’ and low energy ‘messaging’ and ‘control’ and ‘computation’. Control is tightly connected to computation, as the only way you have a clue about control is by doing some computation. Biological systems are the shining stars of the low energy messaging and control and computation, high energy actuation paradigm, but human designed systems are getting pretty good at it also.
Think about getting a car out of a rut. A clueless person will gun the engine and spin the wheels…which is energy intensive. A skilled driver knows how to get the car to rocking and drive out of the rut…using a lot less energy. The skilled driver has knowledge, which permits the use of much less energy.
Cybernetics, which emerged during WWII for military applications and then after the war became the dominant way of thinking about the control of industrial processes, uses sensing devices and signaling circuits and computation to activate levers which control energy intensive physical processes. Cybernetic control is now very much cheaper than things like spilling excess energy or using humans to closely monitor and take action (such as a fireman shoveling coal into a locomotive). So, over the last 70 years or so humans have substituted low energy sensing, signaling, and computing along with knowledge for a lot of more energy intensive methods.
I went to see Into The Woods a few days ago, and saw a steady stream of Disneyland advertisements before the movie. The point of the ads is that you can feel good if you go to Disneyland and take your children. Going to Disneyland is an energy intensive way to feel good. In some sense, it is very 20th Century.
If we want to think about a 21st Century way to feel good, I suggest that one place to start is with Robert Sapolsky’s talk
https://www.youtube.com/watch?v=YWZAL64E0DI
It’s about 60 minutes, but I will focus on the section beginning at the 53 minute mark. He explains Kierkegaard’s ideas about religion, talks about Sister Prejean and her impossible task on Death Row, and then observes ‘humans can make abstractions, and turn metaphors into things as powerful as the most visceral sensory effects in the context of moral imperatives’. This from an Atheist.
We now know a great deal more about human well-being than science or economics thought about 40 years ago. Going to Disneyland to find purpose in one’s life is really a pretty stupid thing to do. And we have studies saying that purpose is a lot more important than some vapid notion of ‘happiness’. Although happiness indicators are a lot better than GDP.
So, at one level, we might say that human flourishing in the 21st Century has the potential to be about something much lower on the energy ladder than anything we might have thought about in the 20th Century, and also more fulfilling.
However, just as cybernetic control killed the factory as Henry Ford understood it, and as communications technology is killing libraries, and as computation is undermining white collar jobs, making Disneyland obsolete has repercussions. I think it undermines the monetary system in fatal ways that I do not believe we are smart enough to manage. So even if everyone sat under a tree until they became enlightened and turned their back on Disneyland, we would still have to solve the problem of what to do with all that debt which is premised on the continued pursuit of high energy experiences.
If money crashes, then the fall back position is a very localized economy which functions on oxytocin. (I don’t think gold or some other physical substance can replace paper money and bank deposits.) I have recently referenced the studies which show that reciprocal gift giving has powerful effects on the human endocrine system. Oxytocin can support a low-powered local economy, but it can’t support an industrial economy.
Studies have shown that people’s brains generate oxytocin when they Facebook and twitter. Facebooking and twittering cost very little, and generate large endocrine returns. Going to Disneyland is energetically expensive and does not, I think, generate very much in the way of endocrine returns. 50 years ago the CEO of Pan American Airlines went out to Kennedy Airport in NYC and watched people get off planes coming back from the Caribbean. He saw a lot of stressed people. He was aghast, because he thought he was selling rest and rejuvenation.
If you just do some simple math and figure out how much work people have to do to get endocrine rewards from social media, and compare how hard they have to work to get an equal endocrine reward from energy intensive pursuits, perhaps you get a new perspective on why oil consumption in the OECD countries is declining.
Finally, employment. Charles Hugh Smith has published a steady stream of articles by himself and others to the effect that the trio of communications, cybernetic control, and artificial intelligence and robotics are undermining all sorts of jobs. Are we all going to end up as unemployed layabouts doing social networking and feeling good because of the endocrine effects?
I think there are too many balls in the air to make any confident predictions. My advice to people remains to try to insure the necessities of life from a small group of people physically very close to you, using mostly sunshine and gravity. How the larger society evolves remains to be seen.
Don Stewart
One thing I am confident about is the fact that people will need food (in fact, cooked food) and water that has been purified in some way, probably boiling. We will also need to stay warm. So we cannot entirely get away from our energy needs, no matter how much of our feel good emotions we can transfer to oxytocin.
Gail
Oxytocin is the currency. You cannot drink or eat or even really burn paper money, either. If the fiat currency collapses, then oxytocin will likely be the fallback currency.
For example, families who eat communally will save fuel costs. A communal bath will save fuel costs. (Azby Brown covers both of those effects in his book on Edo.)
Communal water systems will make sense in many circumstances.
These communal undertakings make sense in terms of energy and tools, and the currency which keeps them going is likely to be the oxytocin sparked by reciprocity.
Don Stewart
For whatever it’s worth, filtration through sand is a low energy way of purifying water. These of you who are setting up survivalist camps should think of having one.
https://en.wikipedia.org/wiki/Sand_filter
interguru
Excellent advice to all…Don Stewart
Hi Don!
If you just do some simple math and figure out how much work people have to do to get endocrine rewards from social media, and compare how hard they have to work to get an equal endocrine reward from energy intensive pursuits, perhaps you get a new perspective on why oil consumption in the OECD countries is declining.
Good point! But I suspect that there are variables such as declining wages are contributing to the demand destruction.
Finally, employment. Charles Hugh Smith has published a steady stream of articles by himself and others to the effect that the trio of communications, cybernetic control, and artificial intelligence and robotics are undermining all sorts of jobs. Are we all going to end up as unemployed layabouts doing social networking and feeling good because of the endocrine effects?
I would like to point out that 200 years ago 95% people were employed in agriculture,compared to about 5% today. This transition occurred due to the industrial revolution and the people that resisted their jobs being replaced by automation were called Luddites. Luckily, more jobs were found otherwise we would have a society like the Spacers in Isaac Asimov’s scifi novels!
I don’t know where we are headed tomorrow in regards to a more automated society, but the past indicates that we have been able to adapt to such change by creating different types of jobs. To me, those types of jobs may be the outer shell of a multi-layered onion, which, at the center, is cheap energy extraction. Automation may provide yet another level of abstraction to an increasing complex society. I am suggesting that the transition from agriculture to industrialization/automation (and more jobs for everybody) was really due to utilization of cheap energy, and that the lost of current and future (potential) jobs is due to the loss of cheap energy, not increasing automation. Just my $0.02 🙂
This just in:
How LOW will Oil GO?
Surprising video on CNBC:
http://www.cnbc.com/id/102300452#.
Maybe $20 to $40 a barrel!?
Thanks!
How low can it go before this happens?
http://learnclubdance.com/blog/wp-content/uploads/2014/03/gif.gif
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Thanks, Gail, for another insightful post, and to others for their comments.
Although the oil futures markets can dictate short term fluctuations in the market prices for oil, my view is that traders do not set these prices other than by using the market mechanisms. Think of Mr Dragi or the FED members working on currency and interest rates as a constrasting example. Oil is different. People buy oil for its intrinsic value, it is not a metaphor for another commodity or future consumption.
The future oil price depends on the expections of supply and demand for oil, and on changes in the cost of money.
I noted that the word “worried” appeared in this post, and this seems to reflect the views of most contributors. Just sayin’. It seem to me that earlier crises have drawn inspiration for beneficial change: post 1929 brought the prolonged oil boom, the default in 1971 brought financial liberalisation, personal computers and the internet.
So, maybe these changes (the end of industry) can be beneficial too.
I would point to the risks in derivatives, particularly their standing in bankruptcy, and the possibility of wealth transfer from bank depositors and small investors to the uber-rich, as something entirely inefficient. And, with apologies for the lack of a link for the thought, the destruction has already happened, the crash merely wipes away the illusion and transfers the real wealth to different pockets.
As to what might happen next, this seems a worst case possibility:
https://bitcointalk.org/index.php?topic=381517.120
“For 2020
Oil production has not recovered, and oil prices are at US$30 per barrel. Production
has fallen five percent per year with global real GDP, with oil production declining
from a peak of 93 million bpd in 2015 to 72 mbpd. Air and road travel are restricted,
and cities with populations above one million begin to collapse, with the outer urban
areas suffering interruptions to electricity and water supplies. National infrastructures
begin to collapse. New currencies are introduced. War marks the end of the Minsky
moment. “
Re: http://www.oftwominds.com/blogdec14/income12-14.html
Thanks for that link. Charles is correct in saying that debt is substituted for income, but there is nothing new there. That has been going on for many years now.
What he fails to connect is that money printing is filling the role that debt previously filled. If income drops by 4 trillion, central banks print 5 trillion. Or 10 trillion.
Of course this can go on for only so long.
I can’t help but marvel at the sheer brilliance of the chess masters who are moving the pieces around. How in the heck do they keep track of what are literally thousands of matches being played simultaneously?
And all matches are intertwined, you move one piece in match 4 and it impacts what is happening in match 876 as well as match 349.
This has to qualify as the greatest intellectual exercise in the history of the planet. Rather fitting considering when the game ends, so too does civilization.
I read ‘falling oil prices’, but find no mention of ‘tragedy of the commons.’
My verdict; No one here knows what they are talking about.
The glut precedes extreme shortages. All you have to understand is the ownership structure (ie. The Saudis do not own the fields; they only own the current cashflow.)
Overlap a price chart of sperm whale oil with crude; you’ll get a good idea of what’s coming (1000$/barrel ++)
PS: Oil extraction, net-energy, and wages are the exact same thing. Get a clue.
Thanks for the brilliant insights!
“The glut precedes extreme shortages.” You are assuming that when these extreme shortages take place that the world economy will be strong enough to pay for 1000 dollars a barrel oil. Who says we will be able to pay for 80 dollar a barrel oil. Extreme job lose is coming between now and a reduced supply of oil. If the oil supply is greatly reduced but there is not enough people with jobs to pay for it than there is no real shortage of supply. There will be enough oil for the people that can pay for it, there will just be far fewer people that can pay for it.
Look up what oil is used for. If it were just used for driving you to work, we’d still have a long time left of our current society. There is a requirement that a minimum amount of oil be used to support our industrial society. If that minimum is breached, bad things happen, no matter how rich you are. Every time you purchase something, ask yourself, how was oil used in producing it and getting it to the store shelf?
“Overlap a price chart of sperm whale oil with crude”
Let’s see it please…
I like your examples of sperm oil and the currency it was priced in at that time Neither the oil or the currency exist anymore. Good examples, with the exception that the population is now 7 billion and fed only because of oil, not just lighting a lamp or two with sperm oil.
Hey let’s keep this blog clean! Too much talk about sperm oil going on here!
I’m spermwhaleaphobic!
No, oil of the sperm whale is quite different. Lack of the oil couldn’t bring down the economy. There were substitutes coming on line as well. And cost was very low relative to world economy.
“There is only one Oil Price Operator who possesses the inherent ability to set a price that becomes the world price. That is the swing producer. In today’s world, with its existing supply capabilities, that entity is Saudi Arabia.”
No longer the case:
THE TRUTH BEHIND SAUDI ARABIA’S SPARE CAPACITY
The Saudis have also made public plans to start injecting carbon dioxide into the world’s largest oil field, Ghawar, no later than 2013. CO2 injection is what you do when an oil field starts yielding progressively less oil. It gooses the output…for a little while.
The plans come as no surprise from the Saudis, given Ghawar was discovered in 1948.
Even if the Saudi princes are telling the truth about their spare capacity, it all goes bye-bye in two more years. The fact that they’re resorting to complex and costly new tactics to keep the world’s largest oil field creaking along doesn’t exactly inspire confidence.
Bottom line: “Saudi Arabia can’t make the shortfall from Libyan supplies,” says commodities investing legend and Vancouver veteran Jim Rogers. “They’ve said in the past that they can increase production, but they can’t.”
Worth reading the entire article: http://www.forbes.com/sites/greatspeculations/2011/03/04/the-truth-behind-saudi-arabias-spare-capacity/
As far as I can determine, the Saudis have never had to reject a tanker whose nomination they have accepted. I have seen no reliable data that say the Saudis are lying about their capacity.
Surely the fact that they are pumping steam into their biggest field would convince you that they are unlikely to have spare capacity.
But since you asked, here is more evidence that they have no spare capacity:
Why I think Saudi Oil Production is now at Capacity
http://www.forbes.com/sites/timothysiegel/2011/04/17/why-i-think-saudi-oil-production-is-now-at-capacity/
The only hope for meeting growing world demand for oil is to tap Saudi Arabia’s reserves. A Bush advisor on energy says those reserves don’t exist.
http://www.washingtonmonthly.com/features/2005/0506.drum.html
Washington Concerns about Saudi Oil
http://www.washingtoninstitute.org/policy-analysis/view/washington-concerns-about-saudi-oil
OPEC’s buffer against supply disruptions is at the lowest levels since 2008, when crude oil prices made their record run to $147.
http://www.hardassetsinvestor.com/weekly-commodity-reports/petroleum-report/3481-crude-oil-report-dwindling-opec-spare-capacity-fuels-oils-spike-brent-poised-to-test-127.html
Thanks for reminding us of the article. It was written more than two years ago, so the spare capacity is bye-bye now.
Did the U.S. and the Saudis Conspire to Push Down Oil Prices?
Irreversible Decline?
http://www.counterpunch.org/2014/12/29/irreversible-decline/
See the link to a Steve Kopits article I posted earlier: Understanding Saudi Oil Policy: The Lessons of ’79.http://www.prienga.com/blog/2014/11/11/understanding-saudi-oil-policy-the-lessons-of-79 In it, he talks about how badly Saudi Arabia fared when it actually did cut production to keep price up.
Thanks very much for that article.
It leads me to believe that we have entered a more dangerous phase of this crisis.
That the decision-makers have decided that the higher oil prices that have encouraged shale and other high cost extraction methods, combined with QE and ZIRP, are no longer viable policies.
The negatives now outweigh the positives, more specifically high priced oil is impacting growth (see the downward projections for global GDP) to such an extent, in spite of the off-setting stimuli, that something had to be done about the price of oil.
And we rather suddenly have drastically lower-priced oil. And we have the MSM propaganda machine telling us $20 oil possible.
Of course if oil stays where it is, never mind going to $20, that means we stop looking for more oil.
And that means that we become 100% reliant on the wells that are already in production.
Lower priced oil surely will have some impact on growth, particularly if oil drops to $20. But that will be short-lived because soon after the growth spurt kicks in we run into a supply bottleneck.
How long will that take? Months? A year?
If I am correct, we are all in now.
The last bullet has been chambered.
There is blood in the water.
The grim reaper is licking his chops.
The fat lady is in the green room working up and down the scales (la la la la – LA LA LA LA) in anticipation of her greatest performance.
It would be good to be incorrect.
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Gail, you make some good points about diminishing returns in higher education. The last Labour government under Tony Blair put 50% of youngsters into universities as a matter of principle, not because it would benefit the economy but because of their resentment against the “elitism” of university education. It was seen as a “right” and a vote winner. Future voters would supposedly thank Labour and vote for them.
Needless to say, it was as unrealistic as it was ‘idealistic’. The cost was astronomical, not that that ever bothered Labour, they could always let the Tories cut and then get in again on the back of resentment. We now have sociology students flipping burgers with little hope of ever owning their own home. It has raised false expectations and has bred resentment, never good for a society but possibly “good” for Labour.
The average student now owes £45,000 and it is estimated that 75% will never reach the income level upon which they would have to pay it back. They could have bought a few books and furthered their education in their own time for a hundred quid while holding down a productive job that would have given them a start in life.
Perhaps worst of all, university students tend to think that they know everything about everything just because they sat sleepy eyed through a few lectures a week before hitting the student bar. In fact they tend to know very little about anything, especially about life and how it works but they find out soon enough. : )
It gets to be frustrating for students, because now there are too many applicants for nearly every kind of job requiring a college degree. The few jobs that seem to be OK seem to be in healthcare, but the rest of society cannot afford to pay for ever-expanding healthcare costs.
Hi Quitollis,
I believe the US is heading that direction where we have an overabundance of over-qualified people. My daughter is currently in her 11th year of schooling and, frankly, burnt out. She is not ambitious for immediately attending a 4-year university, which would be about $25,000 a year, or about $100,000. On top of that, our student loans are not forgivable. They remain despite bankruptcy. if we are not able to find high-paying jobs for these people (and the number do not support it), we are in for a lot of social unrest.
The next logical step seems to me is products will become unavailable.
Oil will continue to be pumped, it is too vital its production will not be allowed to end.. Its production is ensured as long as money works. The vast majority of products do not have oils special status however. There is no sugar daddy to bail those products.
As energy that was previously available for non essentials gets diverted to energy production demand tanks for everything from I-phones to Dodge darts. Those products first become very cheap, sold at or below cost, as we are witnessing now. There is absolutely no motive for manufacturing more. After the fire sale no more are produced. This reduces the economy even more as jobs and sales are lost.
How long until we see product shortages? Probably a while as the supply lines are bloated and there is not much cash out there. What happens when product shortages occur.? Will people spend what they have in a desperate attempt to be able to buy something, anything with their money as we have just witnessed in Belarus? The event in Belarus was because of “hyperinflation” but it is only one way money loses value. Money also loses value if their are no products to be purchased with it.
I do not see money losing value immediately because the two most essential products, energy and its surrogate (food) will continue to be traded for money. I would guess money becomes increasingly scarce as the world economy shuts down hoarded for the basic needs provided by the two energy products that provide life to the human species, oil and food. How long can severe deceleration of the economy caused by the diversion of energy to energy production continue before something occurs or is caused to occur which is even more outside of events that we have experienced in our lifetimes?
We will have to wait and see what happens. I agree that there is more than one way money loses value, including hyperinflation and no products to be purchased.
We in the Atlanta area have had experience with a lack of oil products for purchase. When there have been hurricanes in the Gulf of Mexico, governments have mandated “no price gouging” on gasoline. That has meant, in practice, very little gasoline available for sale, because we are a long way from the Texas gulf, where our gasoline originates. Without high prices, the gasoline just wasn’t there. There were people who ended up staying home from work because they couldn’t get enough gasoline to drive.
“As energy that was previously available for non essentials gets diverted to energy production”
I keep reading that also in Gail’s articles. How is that??? I would like to see the numbers: how much ENERGY, as a % of total energy, is used to produce oil and food? I guess each is under 10%. Manpower even less. But OK, let’s double the energy and manpower use for that (unemployment solved) and pay for it with debt and printed money. If that is the alternative to crashing soon – let’s do it and get another 20 years.
“How is that??? I would like to see the numbers: how much ENERGY, as a % of total energy, is used to produce oil and food?”
I guess it depends on if you count storing and transporting the food, and driving to Wal-Mart to buy it.
“In the United States, 400 gallons of oil equivalents are expended annually to feed each American (as of data provided in 1994).7 Agricultural energy consumption is broken down as follows:
· 31% for the manufacture of inorganic fertilizer
· 19% for the operation of field machinery
· 16% for transportation
· 13% for irrigation
· 08% for raising livestock (not including livestock feed)
· 05% for crop drying
· 05% for pesticide production
· 08% miscellaneous8
Energy costs for packaging, refrigeration, transportation to retail outlets, and household cooking are not considered in these figures.” – excerpt from http://www.fromthewilderness.com/free/ww3/100303_eating_oil.html
An easier way to look at it is to consider EROEI: in the past, oil had an average EROEI of 100:1, so you used one barrel to make 100 barrels for the market to use. Now, it is about 20:1, so you must use 5 barrels to get the same 100 barrels for the rest of the market to use. Said otherwise, the oil industry uses 5% of all the energy it produces.
Petroleum makes up about 37% of all energy in America:
http://en.wikipedia.org/wiki/Energy_in_the_United_States
So oil production in America is roughly equal to 2 percent of all energy consumed.
If we round up and say 10 barrels of oil per person per year for food production, at 316 million people, that’s 3.16 billion barrels per year. United States consumes about 18 million barrels per day of oil, times 365 days is 6.57 billion barrels per year, making food production nearly half of oil consumption. So 18% of total energy used for food production, plus 2% for oil production, is 20 percent just for food and oil.
Wow, that’s terrible. The United States produces about 10 million barrels of oil per day, and requires nearly 10 million barrels of oil equivalent per day to feed itself.
It is behind a paywall, but studies claim that 30-50% of total food energy ( seed to kitchen table ) is spent by the customer driving to the market. This is in Britain, where cars are smaller and driving distances are shorter,
Whoops. I found the article, which I had saved. I misstated the conclusion
Here is the relevant paragraph.
Those conclusions do not seem overly counter-intuitive to me.
The better solution would be seasonal foods, eating canned tomatoes in winter instead of using heated greenhouses or imports.
As for localized food production increasing fuel consumption, right now the whole farmer’s market thing is more of a “thing to do”, an outing, as opposed to a necessity. A more idealized version might include cities growing half of their own food, mostly their greens that would otherwise need refrigeration to transport, as well as bicycles or walking instead of using a 2 ton automobile to go pick up 10 pounds of groceries.
Perhaps the subscription delivery model, such as the milkman, makes a comeback and you get your bread, milk, cheese, meat delivered to your door as part of a delivery route, rather than each person driving farm to farm picking up a couple items.
Matthew
Joel Salatin in the US uses a delivery system. He is not a fan of farmer’s markets, for the reasons mentioned.
Don Stewart
Canned foods are energy intensive as well. Making glass containers with metal tops is not very sustainable either. Perhaps we need to be digging root cellars.
“Canned foods are energy intensive as well. Making glass containers with metal tops is not very sustainable either. Perhaps we need to be digging root cellars.”
If you don’t break them, the glass jars can be used every year for hundreds of years. All you need is sand and wood to make them. Root cellars alone are pretty limited; you have to control light, humidity and temperature, otherwise the potatoes start to grow eyes and the beets go all wrinkly, the food in general loses nutrients. By the time April rolls around, things could be pretty stark.
Perhaps going back to a seasonal habit of getting tanned and fat in fall, and coming out lean and pale in spring will be a part of the future in northern climates, as well.
The one problem I have with canning is that the metal tops seem to corrode fairly quickly; whether it is inevitable, or whether a superior alloy could be used to make longer lasting lids, I don’t know but would like to find out.
1. Weck jars. Worth every penny.
2. Learn to dehydrate in the summer. Better use of space and energy. In fact, pre-cooking and then drying things like grain, rice, beans means less energy needed in the winter. ie the easy solar cooker and dehydration in the summer means easy food in the winter.
3. Storing items in a root cellar versus canned food is surprisingly similar and both need climate controlled conditions for vitamin retention.
In short, each food actually lends itself best to one method of preservation. Beets, carrots, potatoes, onions, and some cabbage are all best root cellared. Tomatoes are best canned. Beans (green or dried) are best processed and ending up dried by the end of summer. Cabbage is excellent as kraut as well as cellared (different cooking uses) and also does well dehydrated.
And special thanks to the person who mentioned the slow-sand filter above. Many problems that I hear of that are “oh noes the sky is falling” are solved problems with relatively low technology. The money and trade, well, those are for luxury items, not the basics. And no, don’t go off on me as being unrealistic, I do realize we’re over populated without the excess energy to bring in supplies many would not survive. But saying that no one can or we ie humans cannot survive without our water treatment systems is patently ignorant of basic technologies.
Those Weck jars look nice, only concern is that the rubber rings need to be replaced every year, so the Weck company will need to continue existing, with a supply of natural or artificial rubber, and you will need to be able to continue purchasing their products in perpetuity.
Are you saying that pickled and other stored foods will still lose their value if stored at room temperature, rather than at low temperatures?
It is true that there is a lot of “obsolete” technology that will probably be very useful in the near future; a lot of the knowledge is lost or hard to find, but fortunately there are a growing number of online resources, so hopefully more of this knowledge will be retained and will not have to be re-discovered.
I looked up Weck jars. One write up said:
They would seem to be reusable.
This provides a glimpse into the future for the survivors of the collapse.
Consider that this woman was raised completely off grid with no connection to BAU whatsoever, whereas those preparing for collapse are only experiencing a small taste of what is to come.
And it is important to note that she is living in a very remote area with very few neighbours, all of whom are living a subsistence lifestyle. She does not have to deal with starving hordes raiding her garden and killing and eating everything that moves in the forest.
“And it is important to note that she is living in a very remote area with very few neighbours, all of whom are living a subsistence lifestyle. She does not have to deal with starving hordes raiding her garden and killing and eating everything that moves in the forest.”
I think that most city slickers will be flummoxed up in the mountains or out in the sticks, trying to hunt and fish their way to prosperity. I’ve done quite a bit of hunting in my life. I’ve done less killing. Oh, I’ve been on successful hunts many times, but having a rifle or shotgun and being in the mountains is no guarantee. My last hunt was 5 full days, and I only had one spike in my scope, and spikes are not legal here. Sure, I could have killed a doe or 10, but they would have become much more skittish once they were the ones getting shot at. Things like rabbits and squirrels would be easy, but if you’re trying to feed a family of 5 or 6, that’s a lot of rabbits and squirrels. (Which are sometimes transport devices for plague carrying fleas!) Then, even if you got a deer or an elk, during the summer, the meat would be good for a day, at best, if not preserved. Most people wouldn’t know to build a makeshift smokehouse and to cold smoke strips of meat until dry, and without nitrates and nitrites, the dryer, the better. They also wouldn’t know that they had better not use wood from conifers, because smoking meat with coniferous wood, cold or BBQ style, will make you sick, though you can grill meats with it. (You’re welcome for that little tidbit of knowledge – most people who don’t do true bbq don’t know that, and I wouldn’t have if I hadn’t had a bbqer tell me and point to an example, which has since been obscured by time.) And even then, you’re going to start having malnutrition problems if you live off of meat alone.
I personally don’t think that the great hoards are going to make it too far from the cities in most instances. Some people will make it great distances. Some people, for whom hunting is their main recreation/source of meat will head up to the mountains while they still can, and will be faced with the dilemma of hard to hunt game or seriously reduced game populations and a lack of food that is not meat. But I think that most people will sit and wait for the government to provide what cannot be provided until it is too late for them to make it a long distance.
And yes, if it does come down to great hoards, I do have a few locations in mind that no hoards would make it to.
I think that most people who are making plans for collapse are not living in extremely remote places with no neighbours.
I think most are living in or nearby communities where nobody else is doing anything at all, who would, if they read this blog, dismiss everyone here as negative doomsday crack pots.
Those would be the first people at your door demanding you share. ‘I told you so’ would not get you very far with them.
Yes one could download every episode of http://www.beargrylls.com/ and learn how to live like an animal (he even teaches you how you can drink your own piss) in the remote wilderness.
But in all seriousness, what sort of life would that be, and how long do you think you would last?
Wonder how people will react when the Mall (and the grocery store) is closed: https://www.youtube.com/watch?v=RmZlkGqBeNA
Thanks for these numbers!
Yes, the western food system is very oil-intensive. But if oil becomes either scarce or too expensive, we will easily adapt and cut out a lot of fancy food consumption. No problem for the system. Some GDP is lost, but people don’t have to suffer from that. We earn less, we spend less, we discover eating at home is nice, too.
Ah, so oil production uses 2% of total energy. So let that number go to 4%, or 6%!
This is the big “diverting energy from other sectors”?
We will happily do that, if it means BAU.
No problem for the system here, either.
Looks like a very slow decline to me.
How would you grow food if the oil and gas is not available to make the pesticides and fertilizers that are used to grow food?
We have destroyed the soil by applying these toxins.
Dear Wee Willy Winky
Take a look at
http://www.savoryinstitute.com/events/international-conference/2014-london-conference/
Pay attention to Darren Doherty and Elaine Ingham. Soil can be restored very quickly. If you want to see example of the restoration of truly devastated soil, listen to John Liu.
Not to say that soil erosion is not a problem. Alan Savory kicks off this meeting by stating that we are currently harvesting one half ton of food by spending 10 tons of topsoil. Such practices are idiotic beyond belief. But there is still hope for those who take action now.
Don Stewart
Don – my research indicates years to repair soils, but let’s say the period is much shorter.
When the markets expose the central magic tricks and the confidence game ends, the financial system will shatter.
And when that happens, that cool stick game that Gail has posted collapses inwards, supply chains stop, energy extraction and refining stops, the global economy grinds to a half.
Not in years, not in months, but literally over night. We might hang on for a few days in a state of disbelief like a a deer stunned by headlights.
Yes the collapse itself is gradual, we are actually collapsing right this minute, and we have been for some years now. But like piling additional sacks onto the camel’s back, when the burden becomes too much, the spine snaps, just as the economy will snap.
There are many dire outcomes when that moment arrives but let’s focus on the food supply situation.
How quickly do you think grocery stores would be emptied when realization sets in, and the panic starts? My guess would be within hours.
There will be no way to restock them. Once they empty they will remain empty. Because the supply chain will be shattered.
How many days food does the average household have on hand? A week? Maybe two?
Can soil destroyed by toxic inputs be repaired, and food crops planted and harvested and distributed in that very short window?
How many people are self-sufficient in food vs how many buy all of their food?
And what do you think will happen to those few who are growing their own food find themselves surrounded by billions of ravenous humans?
Dear Wee Willy Winky
As I have said before, I expect the unprepared will die quietly beside the road, as the Irish did during the potato famine. As people do today in third world slums.
As I have also said many times before, I think the urgent matter is to work on being able to get the necessities of life from like-minded people physically very close to you.
I do not buy the argument that the small group MUST have religious or family or clan ties. If friendly commercial relationships are established now, then I see no reason those cannot continue as the world collapses around them.
I think it is a mistake to say ‘we have to feed 7.2 billion’. We can’t and we won’t…in a collapse. The world could feed 9 billion today, if the governments wanted to do it. We produce enough food. Yet people go hungry. What makes you think that governments will change?
Don Stewart
Understood.
But how do you keep the starving hordes from raiding your vegetable patch?
As for governments, I don’t think there will be any sort of government when the camel’s back breaks. I expect that there will be complete chaos, a total breakdown in law and order.
Imagine a situation where the police stopped policing. And they will stop policing when they are no longer paid, and they no longer have petrol for their vehicles.
The worst elements in our society will be free to do as they please. And even normally law abiding people, when the pantry empties and their children are starving, will be capable of acts that would previously been considered unthinkable.
Do you not think that your neighbours, or anyone with enough gasoline in the tank to reach you, and a rifle, will not show up at your door step first asking that you share, and then attempting to take when you tell them there is not enough to go around?
How will you deal with that?
Dear Wee Willy
A long time ago on this blog I posted an account of a large group of Irish who walked from place to place looking for food. Along the way, many just laid down and died. There never was any violence…unless you consider the unconcern of the British authorities as violence.
The hungry hordes might get violent, but they may just lay down and die.
Don Stewart
Did you ever consider that they only laid down and died after they raided every last food source?
Or that the elites’ police and armies in Ireland shot and killed anyone on site if they attempted to steal food?
The elites were able to maintain law and order during this time. The would have easily been able to drive the hungry off and leave them to starve and die on the road side.
When collapse comes this time, who will drive off the hungry from your farm?
There are plenty of examples of people not laying down and dying.
In Africa, what commonly happens during famines is violent gangs seize food drops and sell the food to starving people.
America is an extremely violent place with hundreds of millions of weapons in circulation. Perhaps a great many will just lie down and give up, but I have no doubt that there will be plenty of people who will resort to violent measures to feed themselves and their families.
Recall this scene from Blackhawk Down: https://www.youtube.com/watch?v=a6wW2ahf-Js
And for a real-life look at what happens when hungry see food http://www.telegraph.co.uk/news/newsvideo/7099526/Haiti-earthquake-people-fight-over-food-aid.html
I fail to see how it would be any different with respect to this collapse. The hordes will, like those people in the videos, see a lush field of vegetables, some cows, chickens and they will surely not lay down at the gate and die of starvation.
Unless you have the means to drive them off, as did the elites in Ireland, then why would they not tear every last carrot out of your patch and leave you with nothing?
Dear Wee Willy
I am frankly tired of talking about this. I have zero interest in trying to convince you that there is any chance that taking prudent actions today might help you in the future. To each his own.
Don Stewart
Don – I don’t recall suggesting not taking any action.
What I am suggesting is that whatever action you are taking (or others in similar situations) is likely to be futile unless you have the means to defend your sanctuary.
I have exposed some gaping holes in the strategy. Rather than being offended and walking off in a huff, would the wiser response not be to figure out how to plug the gaps.
Hoping that the hordes lie down and die does not appear to me to be an ideal strategy. All the hard work wasted because there was no defense plan.
I assume you reside in America, a country that allows ownership of handguns and assault weapons. Would it not make sense to stockpile some of those along with plenty of ammunition? And learn how to use them?
I do think the key would be surviving the initial onslaught. The starving hordes will not survive for long, so if you can keep them out of the veg patch with a spray of automatic weapon fire, they will likely move on in search of undefended food opportunities.
I find this just slightly out of touch with what I know of most of the modern populace. These are people that cannot bring themselves to kill a chicken for dinner or put down an ill and ailing animal and you think they will kill for food?
Steal yes, take tribute by force, implied or otherwise, but outright kill. I seriously doubt that most can bring themselves to do so. And by most I mean 99% of people in the first world unless they were raised on a farm.
I invite you to review the violent crime statistics for America from 1960 to 2013:
http://www.disastercenter.com/crime/uscrime.htm
There were over 14,000 murders in America in 2013.
Keep in mind that in 2013, there was rule of law and fully functioning police forces, courts and prisons across the country. Fear of incarceration no doubt kept that number from being much, much higher.
Keep in mind that nobody was starving to death in 2013, and the majority of people had a job. Desperate, starving people do desperate things, including eating the bodies of other people, so who can say that they would not kill to survive?
What happens when policing stops and there are no consequences for blowing a farmer’s brains out to steal a cabbage, or a cow?
I suspect the average person will learn how to kill fairly quickly. Because if they don’t, they will not be around for long.
Every time the homicide rate goes up or down, we all cast about for causes. The usual suspects, the economy, policing, and number of prisoners, do not work out. The changes are usually national, while policing and prison policies differ over the country. Crime rates were low in the Depression, are low now, in our deep recession and were high during the prosperous 80’s.
The historian David Hackett Fischer, in his book “The Great Wave” (two reviews here ) using over 700 years of British records shows that the homicide rate and inflation are closely correlated. High inflation, high crime, low inflation low crime. It certainly holds for the examples above. Fisher himself concedes that correlation is not causation, but it rules out the usual explanations.
( re-posting of an earlier comment )
Further, almost every soldier in the United States military had never killed before entering the military.
We are all capable of this act.
We are animals, and like all animals, when our survival is at stake, we will revert to our animal instincts and we will kill if necessary.
If the farmer refuses to kill to protect his crops then he will watch as others strip his fields and he will perish.
Survival of the fittest. Law of the jungle. Call it what you want, but it is branded into our DNA.
I cannot even begin. You have so much of biology backwards and obviously fed to you by a non-biologist “adopting” biological theories to their own ends; likely fear based control.
Killing to eat or killing is not branded in our DNA. In fact, most mammals are more “fit” and survive better with co-operation under any scenario that can be tested. This is a large body of work you are ignoring and no, I’m not interested in arguing with someone so very fearful of their own nature.
If you were to say that human were hard-wired for much of anything it would be empathy, co-operation and sharing, which doesn’t make the top dawg much money. And yes, there are numerous psych tests, mirroring tests in a MRI and then fMRI etc. etc. that covers this information.
You should try taking some city boys hunting and see what really happens. It’s a laugh and will tell you more about what they will do in a bad situation than anything else. Most people will either migrate to where family is or where they hear there is food/water or they will manage to get themselves dead in fairly short order.
I would bet on the guys who had never killed before war and who has now killed to be even less likely to kill one of his own, I’m assuming in the US you are speaking, which is what he swore to serve and protect. Men like that are more likely to off themselves than anyone else ever again. You might want to talk to some of them and not in a formal medical setting but down at the VFW and buy them a few beers first and then see what they have to say.
This does not support your position:
This list of wars by death toll includes death toll estimates of all deaths that are either directly or indirectly caused by war. These numbers usually include both the deaths of military personnel which are the direct results of battle or other military wartime actions, as well as the wartime/war-related deaths of civilians, which are the results of war induced epidemics, diseases, famines, atrocities, genocide etc.
60,000,000–85,000,000 – World War II (1939–1945), (see World War II casualties)
40,000,000–70,000,000 – Mongol conquests (1206–1324)[1][2][3][4]
36,000,000–40,000,000 – Three Kingdoms War (184–280)[5][6]
30,000,000 – Eastern Front (1941–1945), (refer to Eastern Front (World War II) casualties)
25,000,000 – Qing dynasty conquest of Ming Dynasty (1616–1662)[7]
20,000,000 – Taiping Rebellion (1850–1864)[8] – may be underestimated
20,000,000 – Second Sino-Japanese War (1937–1945) [9] – Part of World War II
17,000,000 – World War I/Great War (1914–1918) (see World War I casualties)
13,000,000 – An Lushan Rebellion (755–763)[10] – may be underestimated
7,500,000 – Chinese Civil War (1927–1949)[11]
7,000,000–20,000,000 – Conquests of Tamerlane (1370–1405)[12][13]
5,000,000–9,000,000 – Russian Civil War and Foreign Intervention (1917–1922)[14]
8,000,000-10,000,000 – Dungan revolt (1862–77)
3,500,000–6,000,000 – Napoleonic Wars (1803–1815) (see Napoleonic Wars casualties)
3,000,000–11,500,000 – Thirty Years’ War (1618–1648)[15]
2,500,000–5,400,000 – Second Congo War/Great War of Africa (1998–2003)[16][17][18][19]
2,000,000–4,000,000 – French Wars of Religion (Huguenot Wars) (1562–1598)[20]
2,000,000 – Shaka’s conquests (1816–1828)[21]
1,200,000[22] – Korean War (1950–1953)
873,000[23] – Conquests of Mehmed II ‘the Conqueror’ (1451-1481) – may either be underestimated or overestimated
800,000–3,800,000[23] – Vietnam War/Second Indochina War (1955–1975)[24][25]
1,000,000–2,000,000 – Mexican Revolution (1910–1920)[26]
1,000,000 – Iran–Iraq War/First Persian Gulf War (1980–1988)[27]
1,000,000 – Japanese invasions of Korea (1592–1598)[28]
1,000,000 Biafra War (1967-1970)
957,865–1,622,865 – Soviet war in Afghanistan (1979–1989)[29][30][31]
868,000–1,400,000 – Seven Years’ War (1756–1763)[32][33]
618,000 – American Civil War (1861–1865)[34]
500,000 – Spanish Civil War (1936–1939) [35]
400,000+ – First Indochina War (1946–1954)
400,000 – Civil war in Afghanistan (1989–92), Civil war in Afghanistan (1992–96) and Civil war in Afghanistan (1996–2001) (1989–2001)[36]
350,000–1,500,000 – Algerian War of Independence (1954–1962)[37]
350,000 – Third Northern War (1700–1721)[38]
315,000–735,000 – Wars of the Three Kingdoms (1639–1651)[39]
300,000–3,000,000[40] – Bangladesh Liberation War (1971)
300,000 – Second Burundian Civil War (1993–2005)[41]
300,000 (TFG)–500,000+ (AFP) – Somali Civil War[42][43][44]
272,000–1,260,009 – War on Terror (2001–present)[45][46][47]
234,000 – Philippine–American War (1899–1912)[48]
202,354–282,354 – Syrian Civil War (2011–present), see Casualties of the Syrian civil war
200,000 – Colombian conflict (1964–present) (1964–present)[49]
200,000–1,000,000 – Albigensian Crusade (1208–1259)[50][51]
200,000–500,000 — Lord’s Resistance Army insurgency (1987–present)[52]
200,000 – Algerian Civil War (1991–2002)[53][54]
178,258–461,520 – War in Darfur (2003–present)[55]
176,913–1,120,000 – Iraq War/Third Persian Gulf War (2003–2011), see Casualties of the Iraq War, part of the War on Terror[56][46][47]
138,800–320,100 – Iraqi–Kurdish conflict (1918–2003)[57][58]
120,000–384,000 – Great Turkish War (1683–1699) (see Ottoman-Habsburg wars)
120,000 – Islamic insurgency in the Philippines (1969–present)[59]
115,311 – Arab–Israeli conflict (1920–present)[60]
106,800+ – Mexican Drug War (2006–present)[61][62]
100,000–400,000 – Western New Guinea (1984–) (see Genocide in West Papua)
100,000 – Insurgency in Laos (1975–2007)[63]
100,000 – German Peasants’ War (1524–1525)[64]
97,000-107,000 – Aceh War (1873–1914)[65]
90,969 – Mahdist War (1881–1889)
90,000+ – Third conflict in the Goryeo–Khitan War (1018–1019)[66]
85,000–235,000 – 1991 uprisings in Iraq (1991)[67][68][69]
80,000–100,000 – Sri Lankan Civil War (1983–2009)[70]
63,500–88,500 – Mozambican War of Independence (1964–1974)[71]
60,000 – Ituri conflict (1999–2007)[72]
47,246–61,603 – War in Afghanistan (2001–present) (2001–present), part of the War on Terror[56]
45,852 – 78,946 – War in North-West Pakistan (2004–present), part of the War on Terror[56]
45,000 – Kurdish–Turkish conflict (1979–2013)[73]
34,000 – Iranian-Kurdish conflict (1918–present)[74]
34,000 – Ethnic conflict in Nagaland (1954–present)[75]
25,000 – Insurgency in Northeast India (1964–present)[76]
25,000 – Shia insurgency in Yemen (2004–present)[77]
20,000 – Ragamuffin War (1835–1845)[78]
18,069–20,069 – First Opium War (1839–1842)[79]
17,200 – First Anglo-Afghan War (1839–1842)[80]
16,765–17,065 – Balochistan conflict (1948–present)[81][82][83]
15,000 – Nigerian Sharia conflict (1953–present)[84][85][86]
13,929 – Republic of the Congo Civil War (1997–1999)[87]
13,812 – Naxalite-Maoist insurgency (1967–present)[88][89]
8,136+ – Iraqi insurgency (post-U.S. withdrawal) (2011–present)[90]
6,000 – Insurgency in the Maghreb (2002–present)[91]
5,641 – Sudanese nomadic conflicts (2009–present)[92][93]
5,469 – South Thailand insurgency (2004–present)[94]
5,000 – Casamance conflict[95]
5,000 – Chilean Civil War of 1891 (1891)[96]
4,000–10,000 Conflict in the Niger Delta (2004–present)[97]
3,699 – Al-Qaeda insurgency in Yemen (1992–present)[98]
3,529 – The Northern Ireland Troubles (1969–1998)[99]
3,000–6,000 – Negro Rebellion (1912)[100][101]
3,000 – Second Ivorian Civil War (2010–2011)[102]
2,781 – Iranian Revolution (1978–1979)[103]
2,751 – Third Anglo-Afghan War (1919)[104]
2,557 – Sudan internal conflict (2011–present) (2011–present)[105][106][107]
2,198 – Insurgency in the North Caucasus (2009–present)[108][109][110][111][112]
2,000 – Six-Day War (2000) (2000)[113]
2,000 – 2010 South Kyrgyzstan ethnic clashes (2010)[114][115][116]
1,643–2,237 – War of Transnistria (1992)[117][118][119][120]
1,554 – South Yemen insurgency (2009–present)[121][122]
1300+ – Allied Democratic Forces insurgency (1996–present)[123]
1,229 – Basque conflict (1959-2011)[124]
1,227–5,600 – Kargil War (1999)[125][126][127][128]
1,119 – Political violence in Egypt, 2013 (2013–present)[129]
1,000–1,500 – Cabinda conflict (1994–present)[130]
1,000 – 1991–92 South Ossetia War (1991–1992)[131]
846 – 2011 Egyptian revolution (2011)[132]
659–2,496 – Russia–Georgia war (2008)[133][134][135][136][137]
391+ – M23 rebellion (2012–present)[138][139][140]
174–194 – United States occupation of Veracruz (1914)[141]
95 – 2013 Guinea clashes (2013)[142]
84–134 – Lahad Datu standoff (2013)[143][144]
Mass murder is almost always related to competition for scarce resources, or in other words, about survival.
What do you think is going to happen when resources (especially food) become virtually non-existent. And you have 7 billion people competing for virtually nothing trying to stay alive, to survive.
And many of those billions will be armed and dangerous.
There will no doubt be cooperation as in gangs or small armies of violent men will cooperate to pillage what little is available killing anyone who stands in their way.
And those who cooperate to grow food and attempt to develop a community, well they better be prepared to violently defend that community.
That is how cooperation has manifested itself throughout history.
Weak tribes that were unable to defend themselves were murdered often to the last individual. Often the defeated were enslaved.
Weak countries that are unable to stand against the strong find that the strong overwhelm them taking their resources and dumping them into the gutter otherwise known as the third world
This will be no different.
In places where this is a problem, there are work-arounds. One is high fences around gardens (requires human energy). Another is religious beliefs or superstitions that if a person steals food, sickness or other bad fortune will fall on them.
If food stealing is a problem, the magnitude of the problem is likely to drop off quickly, as population decreases and work-arounds are put in place. I would worry at least equally about loss of food in gardens to roaming wildlife and to insects.
Lack of water would seem to have a similar impact.
“I find this just slightly out of touch with what I know of most of the modern populace. These are people that cannot bring themselves to kill a chicken for dinner or put down an ill and ailing animal and you think they will kill for food?”
Most people will probably screw up their kills, but you aren’t talking about going a day or two without food. You are talking about a situation where people will be without food for days or weeks, and get genuinely scared for their lives. I’ve never killed a human, and I’ve never killed because of hunger, but I have killed animals with guns, bows, knives, etc…, and I wasn’t raised on a farm. I’ve seen people with big, wide fat asses balk at it, even though they ate the animals. The problem that you are having is that you are part of the modern populace. We are going to become un-modern, and it’s going to happen in historically rapid terms. You tell somebody with a big, wide, but suddenly shrinking ass that their meat comes from this clucking creature that eats scraps, they’re going to have a very changed outlook on that critter and the knife to its throat. The same will be said for those who cannot visualize the idea that they need to produce their own food, yet they see others producing their own food.
We can be very nasty creatures when we choose to be. Just look at the world wars.
Problems caused by exponential functions are a bitch like that. It’s not the 4% or the 8% that you worry about. It’s the idea that it goes from 4% to 8% just as fast as it went from 2% to 4%, and that it went from 8% to 16% just as fast as it went from 4% to 8%, and that it went from 16% to 32% just as fast as it went from 8% to 16%, and that it went from 32% to 64% just as fast as it went from 16% to 32%, and that it went from 64% to 128% just as fast…
Hold on a second… More than 100% of global energy production will be used to produce global energy in less than 8 iterations? Holy Sheepdip Batman! Not only does this problem sneak up on us, but it packs a whollup! Now, combine that with a system that was dependent 1% or less of its economic input being put towards oil extraction, oil being THE keystone commodity of our economy, all of the economic fraud that has occurred, and the growth at all costs paradigm that our economy runs on. You don’t need to kill oil. You don’t need to even stop its growth. You just need to slow it’s growth down to slower than is required by finance for finance to stay afloat.
We won’t make it anywhere near iteration 3 with our current complexity, and I doubt we’ll make it to iteration 2.
“Problems caused by exponential functions …”
If the doubling time is 100 years, you’re talking 300 years to get to 16% of energy being used to get energy.
“You just need to slow it’s growth down to slower than is required by finance for finance to stay afloat.”
You think there is 0% chance of a new system coming into order when modern finance goes bust? I see the situation being in large part a growing struggle between New York and San Francisco, as the tech industry seeks to “disrupt” the banking system. If New York finance fails spectacularly, I expect the golden boy billionaire CEOs of Silicon Valley to come forward and request people write their politicians to change the laws and let the tech sector replace the old big banks. Who knows, maybe we’ll all be “lucky” enough to find out soon.
This is a lot more difficult than it looks. The problem is that oil prices and in fact commodity prices are far higher than consumers can afford without artificially low interest rates. With artificially low interest rates, we end up with huge amounts of malinvestment, so these don’t really work either. We need to get the cost of extracting oil down to less than $40 or $50 per barrel to keep finance afloat. In fact, $20 per barrel would be better. We also need to solve our many other problems with diminishing returns. I doubt it can happen.
This article is a collection of looking at the symptom but not knowing the history. Let me pick an easy one, US medical care. In 1910 the Flexner report was commissioned. The idea behind the Flexner report was to curtail the supply of doctors and drive up prices. That was done with medical schools closing, restricting enrollment, and of course licensing. Since then each “reform”, the FDA, employer ‘health insurance’, medicare, obamacare, and much more has increased the medical cartel’s grip on the population and thus their ability to extract wealth from the population. That is they worked to preserve and increase high prices. Cartels do not have to be efficient, they simply use their political leverage which is why we have Obamacare, based on an old corporatist republican plan, it forces the uninsured who will have no claims into purchasing health insurance all while increasing costs of said insurance for everyone else while in many cases reducing benefits.
But you say education costs drove medical costs. Again, meddling to preserve high prices. Instead of leaving tuition to the marketplace people decided upon loans so students could afford the high prices with debt. Tuition remarkably rose to the limit of which people could borrow while schools bulked up on buildings and administrators. Imagine that. And with a lack of competition the schools could largely get away with it, until more recently with new alternative ways popping up.
Oil… The shale oil has been there for decades, what happened? Free money from the fed to gamble with drove up oil prices. This made shale oil profitable. So free money from the fed was invested in extracting shale oil. The saudis who have had the lowest extraction cost oil for about 50 years have this year, the year that US producers exceeded their market share, decided they want to be top dog so they are using the weapon they have, low extraction cost oil and a lot of it. They are driving the price down intentionally to put the high cost operators out of business. When gone, they’ll cut back and let the price go back up to a level where they retain the business. Don’t believe me? The Saudi Oil minister has said so publicly.
Meanwhile the monetary policies behind all these things are impoverishing people. Wages are falling in real terms. The employment rate of the population has gone down. There just isn’t the demand there used to be.
A gamed system is getting harder and harder to maintain and the cracks are showing.
Except that the Saudis didn’t increase their production… At least as far as I know. “The Saudi Oil minister has said so.” carries about the same weight as “Obama said he would close Guantanamo.”
Maybe the price will go back up, or maybe there will be breaks in the system.
Sort of reminds me of a …tsunami!
Before the tsunami hits, the water recedes revealing the bottom of the ocean floor and people stand around remarking “wow! look at that!”. Then the tsunami hits and all hell breaks loose.
Isn’t price volatility the danger zone? When businesses can’t plan for the future due to price volatility interfering with their ability to estimate future revenue, they will be unable to secure financing. And how do we measure businesses that never even took off?!
A splendid metaphor!
Yes, I think tsunami is another good analogy. “Wow! Look at that!” is not the right response at all. Only the press is so unaware of what is going on, and so dedicated to presenting a glowing story, that they miss the warning signal.
I don’t want to misquote you Gail, but I think you mentioned earlier that you expect the prices to sky rocket one more time and then it will be collapse time. Given the performance of earlier financial crises, and that the we flat-lined with ZIRP, that makes a lot of sense to me 🙂
I don’t really expect prices to sky rocket one more time. They may bounce up, or they may not. I don’t think that they will rise high enough, for long enough, that it will make any difference. With interest rates rising on shale subprime debt, prices will need to be higher next time around. This seems unlikely, especially for very long.
Dear Gail
Another possibility is that we have reached the end of our rope in terms of financial fraud:
http://www.oftwominds.com/blogdec14/income12-14.html
Don Stewart
Don, thank you for the link post and very thoughtful. One of your comments from Gail’s last article post referred to Helen and Scott Nearing. One of his favorite quotes was “pay as you go”. Here is a clip of a Bullfrog film of them at their home, Forest Farm, in Harborside, Maine back in the 80’s.
https://www.youtube.com/watch?v=Czr3iJBY4z0
For those inclined I went to the website of “The Good Life Center” applications are being accepted until January 15th for
Good Life Center seeks candidates for new Nearing Resident position.
http://goodlife.org/residency/
“Remarkable and unique opportunity on Maine coast for responsible couple. Live at Forest Farm, historic homestead of “Living the Good Life” authors Helen and Scott Nearing, on spectacular Cape Rosier peninsula overlooking Penobscot Bay and the Camden Hills. Located near Blue Hill and the Deer Isles, galleries, restaurants, beautiful public beaches, biking, kayaking, sailing, hiking and Acadia National Park.
Responsibilities include caring for Nearings’ small organic vegetable garden, light maintenance, welcoming visitors, providing tours, introducing educational programs. Simply furnished wood heated resident apartment provided along with modest stipend, garden vegetables, and special access to the Nearing Library, and opportunity to meet like-minded people from around the world.”
When I was young, I was fortunate to have visited there on several occasions when Helen Nearing was alive. Needless to say, it would be an experience that would be “fruitful”. Your neighbor will be master organic gardeners and authors, Eliot Coleman and his wife, Barbara Damrosch!
Thanks! I especially liked the two images he showed:
The point of the second chart is that with OPEC earnings falling so rapidly in 2013 and 2014, how will OPEC possibly withstand low oil prices in 2015?
Especially with growing populations!
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Hi Gail, there are many that believe the reduction in oil prices is due to a deal between the US and the Saudis to negatively impact the economies of Russia and Iran. This isn’t something you’ll find in the MSM.
This scenario seems eminently possible to me. Many articles can be found online. I’ll provide a link to one from today on counterpunch.org: http://www.counterpunch.org/2014/12/29/irreversible-decline/
Thanks,
Chuck
@Chuck add Venezuela to your USA hitlist, but consider that the Saudis might wish to maintain production in order to bankrupt the USA shale industry… And i’ve come across at least 2 analysts linking tapering of QE to oil price collapse. (I’m sure y’all knew but no harm in repeating)
Thanks skintnick. I unintentionally left the frackers off my original posting. I just wanted to raise the idea (that I hadn’t seen here previously) that the current lower oil prices are more due to political manipulations than an imploding economy.
From any non-US perspective, shale is just a side story. Let’s talk in 5 years.
Thannks, but I really don’t think so. The US hasn’t done much for Saudi Arabia recently, and the growth in oil from shale formations has been a particular problem in flooding the market. Saudi Arabia has no reason to help us, given what we have done for it. Steve Kopits had an interesting post in November called, Understanding Saudi Oil Policy: The Lessons of ’79. In it, he talks about how badly Saudi Arabia fared when it actually did cut production to keep price up.
Hi Chuck,
Actually, this was a popular story line at the beginning of the oil price drop. However, the MSM has started to realize that US shale oil production might be affected…so it could really hurt the US in the long run.
I believe that al-Badri’s story is correct (see http://finance.yahoo.com/news/opecs-badri-says-oil-price-drop-beyond-market-080841987.html). Basically, maintaining market share takes precedence.
I continue read in the MSM that it is the fault of OPEC for not cutting oil supply to maintain price, as if they were responsible for the oil supply glut. As I understand it, OPEC’s production has been declining for the last 6 months, whereas the US has been increasing. Many expect OPEC, led by Saudi Arabia, to “maintain” the oil price stability. That is, they should cut production to maintain price levels, which is ironic twist, since we expected in the 70’s that they should not reduce production to keep prices up.
oops…” since we expected in the 70’s that they should not reduce production to keep prices up.” should be ” since we expected in the 70’s that they should not reduce production to keep prices low“
I found the part about college and the over education of too many peple of particular interest. I am a veterinarian by profession and in my last professional journal they had an article about the return on a DVM degree being negative now and expected to get worse. This was compared to a 4 yr degree. In order to make up lost state funding many schools are increasing class size and tuition. This has had the effect of flooding the market.
As a personel note I believe there is some kind of asset misallocation when I can make 3X as much working on a poodle as a cow. Which activity gives more benefit to society?
One thing to understand is that very few of us have ever faced real hunger, and for most who have, it was a one-off event. Steaks come from the store in most people’s minds. They never even consider that it was once a walking, mooing creature that was killed, gutted, skinned, butchered, shipped and packaged before appearing on the shelf. But the poodle is somebody’s beloved pet. There is a strong emotional attachment. People don’t want the emotional shock that comes from losing their dog. The cow? It’s a business asset to the rancher. The rancher is going to do whatever is economically best. If a cow gets sick, it can be killed and eaten in most instances. Saving it may provide a very poor ROI. The poodle? It’s not a business asset, and in many instances, it will be looked upon as a member of the family. ROI is not something that people factor in here, at least not in a dollars and cents return. In short, people will pay you more to save fluffy, even though fluffy isn’t going to feed them. If food were in short supply, attitudes might very well change.
Society has decided to let the poodle owner have 100 million dollars and the cow owner be broke and in debt. From societies point of view the poodle service is of more value. Are the values of society values you and I share most likely not.
edpell
Because we became a ‘Feminized’ society.
Right on escravaisaurabr. Especially with delicate sensibilities; which has me preferring my chicken breast frozen & crumbed. It sometimes occurs to me that I would be so femininely fussy if I was starving.
Damn feminine poodle owners mucking the whole thing up. All 7 billion of them.
Wealth affords one delicate sensibilities. The rest – not so much.
By feminized I mean:
We are very dependent on government and a desk jobs.
We are too good to do manual labor. It takes too much time and it is too frustrating fixing things.
We get bored pretty easily.
Our financial system (usury) is a great example of a feminized society: Constant dependency (greedy) and constant needy (selfishness).
An education of meaningless PhD’s instead of real men that carry their weight, plus some.
Good luck trying to talk these issues with anyone.
Men pay most of the tax and women do most of the spending (70-80%). There are huge transfers of wealth from men to women, both private and public funds. Getting men to “…carry their weight plus some” is a major reason for over-consumption and the troubles we find ourselves. Provision and protection of women is a major contributor to resource over-consumption, competition and conflict.
I agreed that talking about these issues in a ‘gender systems thinking’ way is important, but almost forbidden, lest it offends women. We are truly stuffed.
I think “Domesticated” fits better than “Feminized”.
alturium
Feminized: Endless emotional needs and endless intellectual optimism (fantasies). Due to fail.
Domesticated: Men’s way to cope (to adapt) with female manipulation.
lol, i am not going to touch this with a ten foot pole, but this discussion does remind me of Carl Jung’s concepts of animus/anima: From wikipedia:
Also, how much benefit to society is there in operating on an elderly dog? I am doubtful of the benefit of operating on an 85 or 90 year old human (except to the physician’s pocketbook) but the benefit to society of operating on an elderly dog would seem to be even less. On the other hand many people would be heartbroken if their elderly pets died. I suppose that wealthy individuals have to spend their income on something. And pet health insurance facilitates this silliness.
My wife had $500 of surgery done on our old dog. He and his slightly younger sister have healthy appetites but turn their up their noses at cheap dog food. They also have to have their chicken nugget treats every night followed by a bowl of sweetened oatmeal. Gota go, He’s woofing for lunch.
What about agriculture? I would think that the massive expansion in the production of animal protein is certainly very inefficient, we also have soil depletion etc. In the future, food production could become so “inefficient” that it consumes most of our time and energy.
Food production is energy inefficient today. For every calorie that the average person eats, 10 calories went into producing it, processing it and getting it to that person’s stomach. It is time efficient, but in terms of energy efficiency, a farmer getting out there with hand tools will beat the pants off our current system.
One catch is the fact that we humans need to cook a significant part of our food, because of the way we have evolved with small teeth and with digestive apparatus that is not designed to eat huge quantities of grass or other greens. Because of this, we humans have used more than one calorie of energy for every calorie of food, ever since hunter-gatherer days. There is no way we can get the ratio down to less than 1.0:1.0 and remain human. This is frustrating, and is one of the reasons that we continue to need external energy. We also need external energy to fight of microbes that might cause infection. This can be done by boiling water, but again this requires external energy.
How long would it take 7 billion starving and/or cold people to burn every last tree on the planet?
In Europe centuries ago, when there were a fraction of the people compared to now, they had already done a very comprehensive job of wiping out forests.
A knight in shining armor needed a lot of steel. Without coal to smelt the iron, charcoal was used. Lots and lots of charcoal. Brake supply chains and it won’t be 7 billion people for very long. The faster the break, the faster the decline. That’s another way of saying that the more people are relying on wood to cook their food, the fewer people there are going to be. At some point, we can choose to manage our resources like Edo Japan, where deforestation did not happen, or like medieval Europe, where every noble has to have a lot of steel for the purpose of warfare.
Animal production in itself is not necessarily inefficient. The way it is done today including transport is where the big inefficient energy inputs really come from and the fact that many lefty animal groups attempt to claim land use for stock production is as valuable as productive farm land and the feed counts the same as other crops.
In many cases stock production can make use of land unsuitable for other types of agriculture and it can be done with limited energy inputs and feed otherwise unsuitable for humans. In the right circumstances it can even be done with enough forage land to make smaller parcels more productive for other agriculture with manure etc. that is not used much today.
Also animal farming has become pretty much limited to only beef, pork or chicken. Switching to smaller stock with better grazing abilities increases efficiency by a huge margin.
You are probably right. One issue we can’t get around though, is the fact that the animals humans raise for foods now greatly outnumber wild animals. Our human ecological footprint is way too high. Reducing the eating of animals in some ways reduces our impact on the world ecosystem, especially if the alternative is more wild animals.
Managed differently, livestock may be able to increase humidity, soil quality, and help sequester carbon, while feeding people and reversing desertification:
Humans really don’t need the huge amount of animal protein we are getting, especially if it comes from corn-fed animals. Producing meat is much less efficient than producing grain–it seems like it takes about 10 times as much resources to make meat as to make grain.
I didn’t list agriculture, because the way we are doing it in the US, the cost of food products is very cheap, with or without meat. In the developing world, there is a push to use the additional earnings that citizens now have to increase the amount of meat in their diets. So their food costs are no doubt going up. If their incomes are rising, they then use their new higher income to buy meat–one form of energy consumption. I suppose if they didn’t buy meat, they would by motorcycles. One way or another, we use our money to buy energy products.
The amount of resources to raise meat, especially in the small ruminant arena, can be very low. In fact depending on your location and the type of stock it can be much more efficient than raising grains with very little energy input per animal. Highland sheep come to mind as a small ruminant able to forage on land that is completely unsuitable for growing anything really but even cattle can live on marginal land as we will find out when the Western US aquifers finally go dry and the irrigation pumps shut down.
I grant you supplying beef and pork to the world the way it is done today is totally non-efficient from a resource perspective even if it is very lucrative from a cash flow direction. Yet there are and always will be areas of the world were meat production can be more efficient than grain or other types of agriculture.
Meat protein also digests more efficiently than vegetable and grain proteins and traditionally those cultures that developed in areas that yielded more efficient animal husbandry than growing agriculture typically consumed meat in amounts greater than we do on average even today. Of course those cultures were always smaller populations per square mile or fishing communities and the like.
I live in a valley at latitude 54.78 degrees north. The grazing land on the slopes of the mountains both north and south of us are the dinner table of cow/ calf units from late spring to late fall. The young steers never get fed corn or grain before they’re butchered in the fall. Because they’re free to roam over miles of natural forest, bush and meadows, they eat exactly what they need. Most of the hayland that produces winter feed for the cows and the bulls is not much suited for anything else. If you can find a rancher whose willing to work around the regulations concerning direct sales to the public, you can fill your freezer with the best beef you ever ate for less than what the average blue collar worker earns up here in three days. I think those Laplanders with their herds of reindeer are on to something.
The one’s with problems are those of us buying from the local grocery store.
Gail, I would also include corruption as a source of inefficiency. It greases the wheels, so to speak, but it also keeps the status quo going, and we all know that we must change or bad things will happen. Corruption is wide ranging, and I would argue that the entire economy has been infected with it. From advertising useless plastic Chinese crap that we don’t need to TBTF banks writing the legislation that regulates them, we are corrupt. (The part of the Cromnibus bill the ensures that we, the Tax Donkeys are on the hook for the derivatives exposure that numbers in the hundreds of trillions by TBTF banks was authored by Citi, for example.) Every commodity is financialized, including oil. This means that more volume in WTI futures contracts alone are traded every trading day than oil is consumed world wide. Middle men are skimming off of this. This adds another layer of cost to the extraction, refinement and delivery to consumers that has little to do with supply and demand, and everything to do with some bankers and hedge funds gaining paper wealth. Just about every commodity is this way.
This is marketed as a way to keep things stable, and it does so in an economy that is actually growing, or in an economy that is, at worst, in temporary decline but will resume growth. In our current situation, it prevents those of us who see the cliff we are rapidly approaching from making adjustments to our lifestyle that might soften the landing. Want to start a local farm? You have to compete with megafarms who can purchase legislators, who can afford to follow the onerous regulations that do not scale down to small farmers in any rational sense, who can afford to supply large supermarket chains and who can afford to pay the fines when the onerous regulations are violated as opposed to going to jail. Or you have to find a niche market where you can afford higher prices. Sure, there are guerrilla farmers who simply do their thing, but they are at risk of men with guns raiding their farm for not following some regulation that only makes sense if you are supplying food to supermarkets across many states/nations in an industrial fashion.
For those areas that have the potential to support themselves in a post industrial world, the corruption is preventing the required adjustments from happening because there’s just too much money to be made off of our current system, which as you point out, is physically inefficient. Physical resources dictate that we must go local for necessities, but the uberwealthy would suffer if we started that trend. There is very little long term thinking going on. So things will break everywhere, not just in cities that require that their necessities be shipped in from all corners of the globe.
RE WATER:
An anecdote on this. I live in a desert, yet I have access to fresh, clean water, even without electricity. I was born here, understand that water is at a premium and have, for the past couple of decades been flabbergasted at local governments encouraging water conservation so that we could have more people move in so that we could conserve more water. It is more of the growth is good meme. Sure, conserve water. Don’t waste it, especially when it comes at a premium. But don’t conserve it so that you can put a bigger strain on what is a very important resource in the name of growth at all costs! Go into a room in the southern part of the state filled with farmers and ranchers, and it is a safe bet that every single person in the room is suing or being sued by another person in the room over water rights! We don’t need more people here.
The coup de gras on this stupidity (at least in my area) is an out of state developer who has purchased a large tract of land out west of me. Their water sources are the very deep and saline aquifer and the Rio Puerco. They want to build a new “community” out in the boondocks for 80,000 people. Well, the Rio Puerco doesn’t exactly run year round, so relying on it to provide water for 80,000 people is a non-starter. So they decided that the non-replenishable saline aquifer was the way to go. This requires 8,000 foot deep wells and desalinization plants. Energy requirements? Pffft. Even if we don’t hit the cliff in the next year or two, this developer is going to lose its ass on this, and I’m of the opinion that either oil prices go back up, or we hit the cliff by the middle to end of 2015 because that’s when our oil producers’ hedges against low prices run out.
Good times!
Thanks for your interesting thoughts!
I am not sure whether I would describe the problem as corruption, or an economy set up in a way to maximize energy consumption. In doing this, businesses are given the primary role; wage earners get the left over crumbs. In a way, businesses are middle men. We really don’t need them to run a purely local economy, using local resources. But if they are running the show, we get a growth oriented economy, set up to maximize the portion of the economy that businesses control.
I don’t know about biofuels being labeled as extenders, as once produced, they are immediately incorporated into the fuel stream. I would more like to see this description used to describe methods that extend the energy out decades.
I would like to see a system that runs off of biofuels be completely independent of the fossil fuel economy. I’ve read various EROEIs on corn ethanol, many of which are claiming 1.2. Aside from the fact that number is one of the higher ones that I’ve read, and aside from the fact that it really sucks in a all of your national resources are going to energy production and nothing else kind of way, even though theoretically it could produce a net surplus of energy, I don’t believe it. I want to see a system that manufactures its own biofuels to mine the materials used to make the mining equipment that is used to get the ore that is used to make the tractors that are used to farm not just the crop, but also to feed the people running the system. I don’t that such an industrial system could function not because of economics, but because of physics.
I don’t think there is any way that biofuels can be made with their own output. Their output is just too tiny to support much of anything.
I want to see a system that manufactures its own biofuels to mine the materials used to make the mining equipment that is used to get the ore…
Interestingly, Simon Michaux (see https://www.youtube.com/watch?v=IAjQ-Xkexqw&list=PLYD670eLhZ8u53w67oxmC05IvIqrEOt9o) discusses using nuclear reactors at mining sites! (note: after plying an associate with many beers).
Your question is related to what is a the minimum EROEI required for our/some level of civilization. Gail has stated that EROEI is limited in answering this question due to the boundary limits of most EROEI calculations. From what I understand, it is cheap fossil fuels that have provided our standard of living and all substitutions attempts (such as solar and wind) will not work.
There was a bit of facetiousness in my post. I don’t believe that any of those solutions are solutions either. That’s why I would like to see a complete and separated economy that (tries) to run on them. When it failed spectacularly, that would drive the point home. Ethanol from corn belongs in my glass, not my tank.
” I don’t believe that any of those solutions are solutions either. That’s why I would like to see a complete and separated economy that (tries) to run on them.”
Well, there are no separate economies so it could only happen in a simulation. There are biofuels that can currently work at reasonable ERoEI, such as Sugar Cane in the tropics, wood in temperate zones, possibly energy beets in temperate farmland.
The next generation of genetic modification in biofuels is supposed to make it easier to separate cellulose, so the food part of the crop still goes to food, and then the cellulose can much more efficiently be converted into fuel. Whether that can work, what the downsides are, and if it will come to fruition before collapse, who knows.
Another potential gamechanger, if the system can stay running long enough, is fuel cells from common elements using nanotechnology, rather than from rare elements currently. If an efficiency of 75% could be achieved, over the ~25% for an internal combustion engine, than sugar cane ethanol could conceivably get to 24:1 ERoEI. Maybe even 50:1 if the plants can be genetically engineered so the cellulose can be efficiently converted into biofuel as well. Of course, this would not be a global solution, but maybe Florida could get in on it, along with Brazil, Cuba, India.
I think you’ll find that 75% is beyond the theoretical efficiency of an internal combustion engine, and that’s at the flywheel, where you have yet to put that energy actual to use. Transmissions and whatnot are cause of further parasitic losses. A 1/2% gain in engine efficiency is a cause for huge celebration by the team that pulls it off. The bottom line is this: Photosynthesis is inefficient, especially in land based plants, and that is your bottleneck.
The solution would be nuclear plants with new fuel cycles that burn all of the fuel (we only burn a small portion of it, then when the fission products build up enough to poison the reaction, we put the rods into big cooling pools) plus reverse combustion. The problem is, we should have been building the infrastructure for that 20 years ago. Even if we magically could do this in the next few years, which we cannot, we have other problems that are going to put a massive strain on society.
I was not talking about 75% efficient internal combustion engines; I was talking about replacing ~25% efficient internal combustion engines with fuel cells. Fuel cells can get up to 85% efficiency, and then the electric motors they power up to 90% efficiency.
The efficiency of photosynthesis is not a great barrier; the solar energy does not cost us anything. Besides, often there are other limits a plant encounters prior to amount of sunlight. It is simply a matter of having a large enough amount of land. Again, this is not going to provide 7 billion people with 100 million barrels of oil equivalent every day, but some people may be able to advantage of it.
Matthew
As an outlier, you might want to check
http://resourceinsights.blogspot.com/2014/12/five-energy-surprises-for-2015-possible.html
Very high efficiency solar energy with cheap storage (e.g., hot sand).
Don Stewart
Rick if biofuels are not extenders what are they? Ethanol might be incorporated into the oil count but quite obviously it is not oil. If oil was cheap and plentiful, ethanol would not be considered. With cheap inputs to enable economically viable production, farmers grow corn or sugar cane that can be refined and converted to fuel, albeit at a much lower BTU for a competitive price.
They extended the burn of conventional oil by adding to the mix. Actually when biofuels are produced the oil is counted twice. It masked the true EROI which is probably negative. If the oil price continues to decline and remains low, biofuels will eventually be shown as to what they really are and that is a parasite that came along to feed on the declining fortunes of conventional oil production.
Ethanol is not the only parasite though. Unconventional expensive oil, renewables including electric vehicles are all parasites that had no chance of being viable in the heyday of cheap, plentiful fossil fuels.
“if biofuels are not extenders what are they?”
As I understand it, ethanol is used primarily as an octane booster, in place of lead or MTBE, to produce lower emissions.
Under certain circumstances, such as sugar cane in Brazil, ethanol can be used as replacement for gasoline, but this is not something that can be done for most of the world.
Funny Matthew that I go out of my way to AVOID ethanol blended gasoline.
Here is why:
http://www.hioctanefuel.com/faq.html
While ethanol helps reduce exhaust emissions and boost octane, the drawbacks outweigh those benefits. To name a few disadvantages of ethanol gasoline, it has lower BTU content than pure gasoline, which means less performance and lower fuel economy. Ethanol absorbs water and carries that water throughout the fuel system and engine; steel and iron gas tanks are prone to rust from water. Ethanol softens and cracks rubber, plastic, and fiberglass parts; engines used for marine applications are most vulnerable to deterioration. Ethanol causes petroleum gasoline to turn to varnish more quickly, meaning less shelf life. Old ethanol gasoline clogs carburetor jets, fuel injectors, fuel injection distributors, fuel pumps, and fuel filters; once varnished, it also sticks to intake valves and ruins the engine.
This is the website I sue to find ethanol free gas
http://pure-gas.org/
For boats and small engines, for sure, staying away from ethanol is a must. Car engines that are designed to take ethanol fare much better. What to do if you have an older car, I guess it is better to avoid ethanol or look into converting the existing engine than to replace a whole vehicle.
If the only thing that matters is engine life, lead is probably the best fuel additive. Have you compared the health and environmental impacts of other octane boosters besides ethanol? I’m fairly certain ethanol is being used because it creates the least toxic smog, not just because corn farmers benefit.
I don’t know of anything that extends energy use out decades. Grid electricity is likely to disappear quite quickly. Maybe someone with solar panels can keep an irrigation pump going longer than otherwise. Of course, an old fashioned wind mill could do the same thing, and the old fashioned wind mill might be repairable longer, as well as less expensive. We would seem to have better luck at extending energy use out for decades if we could figure out a way to go back to technology we had years ago (say, horse drawn carts) rather than trying to put together a new system which is not really sustainable.
Biofuel is nice but cannot be a major player. The obligatory Tom Murphy
http://physics.ucsd.edu/do-the-math/2011/11/the-biofuel-grind/
He than covers cellulosic and algae biofuels showing the lack of feasibility of getting a large proportion of our energy from them,
From https://www.bio.org/articles/large-volumes-cellulosic-biofuels-can-be-sustainably-produced-2030 .
This estimate assumes that everything will go right. It is cost competitive with $90/bbl oil.
The IEA (http://www.eia.gov/tools/faqs/faq.cfm?id=23&t=10) says that that the US used 134 billion gallons of gasoline in 2013. So if all the ducks line up by 2030 we could replace 2/3 of our 2013 gasoline consumption — and gasoline makes up less than half of our oil consumption.
“This estimate assumes that everything will go right. It is cost competitive with $90/bbl oil.”
However, the affordability ceiling of what consumers can afford is dropping, so $90 may be unaffordable very soon, especially if there is an economic downturn like Gail is suggesting will occur within about a year.
All this ‘theoretical’ stuff about what could possibly be done would require huge energy and financial input just to get it off the ground, so I doubt very much there is any chance of a major switch to biofuels. Also remember the energy it takes to make biofule is about equal to the energy it provides, so the process of making it produces no net energy for other societal costs, unlike cheap oil that not only provided cheap energy, but with so much net energy it fueled the development of modern civilization.
The question should be; where do we get a cheap liquid energy packed substitute for oil that will provide enough additional net energy to pay for everything else, like schools, paved roads, bridges, military, etcetera? The answer my friend is blowing in the wind. Big change coming and not for the better.
Dear Gail,
do I read you correctly, that you assume the low hanging fruit in terms of demand destruction is no longer there? I’d like to venture to claim, there is some space left, perhaps allowing for another decade or two of such frozen stagnation without catastrophic disruption.
Lets take a view from Europe, most or large chunk of the buildings within the winter heating zone have high grade insulation now (walls and windows), very few people stick with oldfashioned big 300-500watt PCs, instead 10-20W tablet and small notebooks are the norm, led lights. Moreover, many places allow for daily tram, light rail, bicycle commuting, cars run better mpg. The price for water-water (ground loop) heat pumps, domestic PV solar energy storage for “peak demand shaving” dropped. Some basic level of food security is there, in case of real emergency many people of the “service economy” could stay home on some caloric rationing and don’t waste fuel/energy of higher systemic importance.
Simply, while I agree very much with your narrative in the same vein I have to acknowledge the demand destruction has just started and will continue. What I fear is the sequencing of events, the time frame when critical part of the current JIT distribution system fails at last. But we are not there yet, who knows, perhaps you are right that some form of financial system chaos might front run the demand destruction slow motion process and make it appear sooner. So many questions, so little time.
Couldn’t have said it better.
WHEN the crash comes, it will be the BIG one, not some kind of recession. The accuracy in timing it shouldn’t be measured in years. I am glad if we get another decade of stagflation, I really am, because that would be our best shot. I want all the good little things to stay for a while, because life thereafter could become really hard.
And I want to get it over with. I know that I’m going to experience whatever chaos is coming, barring getting hit by a bus tomorrow or something of the sort, and I’d rather try to deal with the consequences sooner rather than later.
That’s at the hearth of it all. And that’s why it’s a nasty day nightmare trap like situation for most. The custodians and gate keepers of the system have it all for generations, it’s like god’s eternal power. Frankly, it’s in their best interest to drive it right to the latest millisecond edge of a Seneca cliff. History gives us some powerfull clues why it seems to be always that case, human nature.
Not me. If the consequences were easy to deal with, maybe, but it doesn’t look like this is the case.
I’m still young enough to build some kind of life in a post industrial society. I’d rather it happen while I am still capable of back breaking physical labor. It’s also a slow pain vs fast pain kind of thing for me.
garand555
Check Amish life… We will be lucky if you live like that 30/50 years down the road.
If you’re young (20’s) consider Paraguay or Iceland.
And if you’re a teenager definitely South America.
My concern is that we will start seeing a significant amount of debt defaults, both with respect to oil from shale formations and with respect to emerging market debt denominated in dollars. These debt defaults will send interest rates up. In fact, interest rates on junk bonds are already rising.
There are a number of ways that these rising interest rates could harm the economy:
1. Businesses, especially ones with low credit ratings will find it increasingly expensive to borrow. Some may drop out of supply chains, making it more difficult for businesses to make goods that require long supply chains. Business may fund themselves unable to make their usual products because supply lines are broken. This type of disruption could lead to a reduction in oil supply.
2. Consumers may find that higher interest rates make home buying more unaffordable. A cutback in homes sold will have a ripple effect on the economy, leading to fewer jobs in the construction work, and reducing prices on existing homes. Homeowners will have more difficulty selling their homes, because fewer people can afford the higher payments.
3. Student loans will become less affordable with higher interest rates.
4. Auto purchases will be cut back if interest rates rise, leading to less employment in making automobiles.
I don’t think we really have very long to get ready for a major economic decline. I would expect the economy to be fairly much affected as soon as a year from now.
http://www.reuters.com/article/2015/01/05/us-oil-hedging-analysis-idUSKBN0KE0BX20150105
“The net short position of oil producers and other non-financial companies in U.S. crude oil futures and options markets — used as a rough gauge of hedging activity — has grown from 15 million barrels in August to more than 77 million barrels last week. ”
Funded, indirectly, by the FED’s ZIRP policy. And if the FED via a FrontOffice TBTF bank purchases the junk bonds of shale oil companies, or intervenes in the futures markets via a proxy, interest rates can stay low. Think that the Central Banks are not getting their hands dirty?
http://rt.com/shows/keiser-report/218951-episode-max-keiser-701/
(about 13 minutes into the video)
“Central banks outside the United States are getting discounts for trading futures in the US markets”.
The problem is that we either grow our economy which means we must consume more energy every single year or we collapse.
So I do not think it matters that people are shifting to lower energy devices. In fact if everyone did that global energy consumption would drop and we’d have a deflationary nightmare on our hands (we possibly have the beginning of one now)
Fortunately we have another 75M nett new individuals on this planet this year alone, most of whom will be consuming far more energy than their parents. So we have little to worry about.
Strange, is it not, that conservation has a negative feedback on the growth of the economy? Energy, or really cheap energy, may be the primary input to creating an economy that produces wealth. Increasing energy use => more economic growth => more wealth.
“Strange, is it not, that conservation has a negative feedback on the growth of the economy?”
Normally, I would say it is a matter of whether you want lots of growth in a short time, or slow growth over a long time (conservation). At this point, however, it may be too late for conservation, the boom has gone on for a prolonged time, and slowing down will cause a massive hangover.
It is the economy that is messed up, normally saving is good.
Hi Matthew,
I suspect that conservation and technological innovation will have a different role when the economy is deflating vice inflating. That is, they will have a multiplier effect on maximizing the ethereal boundary of the economy.
Ummm…whatever boundary that may be after the collapse.
Unfortunately, if we don’t go on vacation, that means that the money we would have spent on vacation doesn’t go to pay someone’s wages.
If we turn down our thermostat, it will cut back on jobs relating to digging coal out of the ground and transporting it to where we live. These would-be workers will then cut back on the “stuff” they would normally buy, say from MacDonald’s, or a clothing store, adding a second order effect.
It is only if we use the money we saved on buying something else that we keep the economy humming (and energy use up).
“It is only if we use the money we saved on buying something else that we keep the economy humming (and energy use up).”
This is only if you take all your money out of the bank and stuff it into a mattress. Otherwise, your money sits in a bank account, and the bank lends out your money with interest to other people, who will put it to work. Someone else will use their credit card and take that vacation and employ that hotel clerk, while you collect your negative real returns on your deposit.
Actually, I think the banks have more money than they need to lend out right now, thanks to all the QE money. (Or has this situation stopped, with the end of the additional funds from of QE3?) I have used a similar argument myself before, though.
The drumbeat we get all the time is to “spend more and stimulate the economy”. This really encourages borrowing more and saving less.
I really don’t think we have ten or twenty years left. Our current system is being held together by financial manipulation. The fact that this has worked as long as it has is surprising. It is hard to see that it can continue to work. QE allowed massive investment in oil from shale formations and in emerging markets. These investments are really not paying off. Also, the massive Chinese housing bubble helped the world economy, but it is hard to see how this bubble can continue to grow. Also, the Chinese housing bubble is a user of goods; it does not itself produce goods. Economic growth is coming to an end in the very near term, so all of this talk about what we could do in the next 10 or 20 years is simply wishful thinking.
China has been the main driver of ‘growth’ for the past 6 years. But as we can see, when China stops building things like ghost cities, and stockpiling commodities that is does not need, the markets start to collapse.
And all those countries that have been riding the China story selling metals and palm oil and BMW cars will circle the drain shortly.
Commodity Prices Are Cliff-Diving Due To The Fracturing Monetary Supernova – The Case Of Iron Ore http://www.zerohedge.com/news/2014-12-30/commodity-prices-are-cliff-diving-due-fracturing-monetary-supernova-case-iron-ore
This only goes 10 or 20 more years only if Houdini is resurrected.
I think you need to remove a 0 after each number. We will be very fortunate to get 2 more years.
That is a good article you link to. A lot of China’s debt is for one-time spending. To keep up GDP, they will need to replace one-time spending for homes, roads, and factories with something else.
“Perhaps we can scare away the ghost of so many years ago with a little illumination, gentleman!” -Phantom of the Opera
That is great article! (IMHO Zerohedge has been slowly oscillating from the hysterical to the believable this last year. David Stockman is moving the right direction but still has not caught up with Gail. He is so close to understanding to the overall picture. I give him a few more months).
In that article, Mr Stockman makes a few observations:
1. “… today’s plunging commodity prices represent something new under the sun. That is, they are the product of a fracturing monetary supernova that was a unique and never before experienced aberration caused by the 1990s rise, and then the subsequent lunatic expansion after the 2008 crisis, of a cancerous regime of Keynesian central banking.”
2. “…most of the world is at “peak debt”
His reference to supernova imagery has been used before, including here in Gail’s blog. We can do better. The collapse of an economy to the creation of a supernova has a lot of great symbolism! Perhaps a little inspiration from http://abyss.uoregon.edu/~js/ast122/lectures/lec18.html can help us out…
End of a Star’s Life
1. “Higher mass stars will switch from helium to carbon burning and extend their lifetimes. Even higher mass stars will burn neon after carbon is used up. However, once iron is reached, fusion is halted since iron is so tightly bound that no energy can be extracted by fusion. Iron can fuse, but it absorbs energy in the process and the core temperature drops.”
Once iron is produced, the collapse of the star will occur within milliseconds. Our economy depends on cheap energy. When cheap energy is used up, the growth of our economy will halt. Iron, the final product, absorbs energy and “the core temperature drops”. Our economy has reached the stage of producing iron and deflation is the result. The economy will cool down now that fusion via cheap energy cannot propel the economy.
2. “Stars greater than 25 solar masses undergo a more violent end to their lives…An inert iron core builds up at this time where successive layers above the core consume the remaining fuel of lighter nuclei in the core. The core is about the size of the Earth, compressed to extreme densities and near the Chandrasekhar limit. The outer regions of the star have expanded to fill a volume as large as Jupiter’s orbit from the Sun. Since iron does not act as a fuel, the burning stops… Once the silicon burning phase has produced an iron core the fate of the star is sealed. “
The inner core to our economy is the raw extraction of resources, such as mining and drilling. The next core would be the cultivation and harvest of resources, such as fishing and farming. Each core of the economy builds upon the lower cores. The outer layer expansion represents the boundary of the economy (see any Gail’s Leonardo’s stick diagram). Finance allows the transfer of energy between each layer.
We have passed the point of consuming cheap energy in the inner core. The boundary of the economy, expanded and driven by the last throes of financialization (since 1980), has expanded beyond any real meaning of substance. That is, equivalently, out to about Jupiter’s orbit.
This is what Mr Stockman referred to as “What really happened is that the central bank instigated global macro-economic bubble ripped commodity pricing cycles out of their historical moorings, resulting in a one time eruption of price levels that had no relationship to sustainable supply and demand factors in the mines and petroleum patch. What materialized, instead, was an unprecedented one-time mismatch of commodity production and use that caused pricing abnormalities of gargantuan proportions.”
Like I said, out to Jupiter’s orbit.
3. “The sudden stoppage of energy generation causes the core to collapse and the outer layers of the star to fall onto the core. The infalling layers collapse so fast that they `bounce’ off the iron core at close to the speed of light. The rebound causes the star to explode as a supernova… This entire process only takes 1/4 of a second.”
Once the star starts producing iron, the end is near. The collapse of the economy will generate an unparalleled amount of destruction. If this analogy holds, then the financial collapse will happen within a very short time period.
(future note ~ circa 2115: propose that the idea of a boundary limit of an economy based on cheap energy and other ecological factors, should be called the Tverberg Limit. It is unfortunate that we were not able to model or describe it before our time).
“transfer of energy” = money…still wrapping my head around that concept…
The above seems to me to be to be fairly close to correct. The one change I might suggest is that we need operating financial institutions for that transfer to happen, for the most part.
The big role of money is to keep supply chains operating. There needs to be an implicit financial guarantee that transcends time, in order for this to happen–similar to today’s Letters of Credit. A stack of gold coins is not really enough to keep the system going. It is necessary to have institutions making guarantees as well. So “transfer of energy” really requires a financial intermediary, not just money if we are going to do more than simply more goods from one owner to another, in the same location.
“The big role of money is to keep supply chains operating. There needs to be an implicit financial guarantee that transcends time, in order for this to happen–similar to today’s Letters of Credit. A stack of gold coins is not really enough to keep the system going. It is necessary to have institutions making guarantees as well.”
Perhaps Reggie Middleton is right, and disintermediation is the way of the future. The financial institutions will collapse, and we’ll all use bitcoins for purchasing goods, services, commodities, equities and loans all over the world. If the currency is held in escrow until delivery, then the only trusted parties needed are the escrow services; or perhaps even that can somehow be made open-source or integrated into the system, so that no trust is needed at all.
Somehow the electric system has to be kept operating. That is critical. If supply chains don’t work, the electric grid won’t last for long. There will be no bit coin.
“Somehow the electric system has to be kept operating. That is critical. If supply chains don’t work, the electric grid won’t last for long. There will be no bit coin.”
If the electric grid permanently fails, most of the habitable regions of the earth will probably have nuclear emergencies along with civil unrest and rapid depopulation, so I see no use in spending time or effort planning for that possibility. Just like if a meteor hits the planet and we all die, or Yellowstone super volcano causes a global ice age, if it happens, it happens and there is nothing to be done.
Thanks! I think the end of a star’s life probably is a better analogy for what we are approaching than a Hubbert Curve.
Our civilization dissipates energy for as long as it can. Once it starts collapsing, it probably doesn’t have very long to go. The financial system is critical in keeping the operation going. Once it collapses, it is hard to see that it can be replaced. What we are reaching is not just “peak debt”; it is “peak financial system”. Financial institutions cannot continue for long in a period of contraction. Their models were all set up assuming continuous growth.
Thank you Gail!
The supernova metaphor can only extend so far and is all for fun 🙂
You’re absolutely right about the system being setup for continuous growth.
Question: How do you measure “peak financial system”?
I am still not sure how to “metaphorize” debt as the the time temporal of money from the future for present value or present “work”. Sort of related to the concepts of potential and kinetic energy. Will let this one bounce around in my head for awhile 🙂
Oil is not a typical commodity. Much of the supply is controlled by authoritarian governments. Prices and amounts pumped are set by political expediences, not market forces. Here in the so called democracies things like education, medical care, and trade seem governed by ideologies to the detriment to the average citizen. Much to rail about but about all we can actually do is watch with dismay.
Daddio7
You wrote:
“amounts pumped are set by political expediences.”
So, how can you explain declining production in North Sea and Alaska? Both are privately operated.
“Democracies…. seem governed by ideologies to the detriment to the average citizen.”
Ideology, and its sister, indoctrination, being that religion, educational, or political are the essence of democracy.
Back 50 or 60 years ago when the world was not as complex, young people could expect to graduate with a high school diploma and do fairly well. Things have changed a lot in recent years. More of the burden has been moved to young people. It is hard to start a family now.
There is an incredibly interesting graph in this youtube presentation at about the 3 minute mark. It illustrates how various quintiles of the US population fared before 1980 and since;
Very interesting. I tried looking at GordonTLong’s website, but ran into difficulties–blurry images, a 404 report not found error, a warning from my virus checker that there seemed to be a problem with a virus.
Hello Gail,
Thanks for another very good article.
Reg GordonTLong’s website, I didn’t meet any difficulty (from France). The Macro-analytics interviews can be found on this page:
http://www.gordontlong.com/Macro_Analytics.htm
scrolling down, you’ll find another one with Charles Hugh Smith, dated Dec.08th, about the drop in oil-price (which was $68/bl at that time). They seem to think that low prices aren’t there to stay (my 2 cents: but then who will pay for higher prices? and with worthless printed money?):
http://youtu.be/qhyu_b3Wn3Q
Why is the price of oil going down?
The world is bankrupted!
Never let your energy needs point outside of your borders.
And shale (butane and ethane) is not oil.
Thanks! Maybe I just hit some bad spots in the site.
I am not sure that the authoritarian governments do any worse jobs than any others.
With oil, what governments are doing is getting use of 100% of the oil dollar, even if the oil extraction process does not take the entire amount. Thus, excess amounts can be spent on their own economies. If there are amounts left over, Petrodollar recycling can be used to purchase US debt, or the country where extraction took place can set up an investment fund, and use the excess money to buy securities of various kinds from various countries. As the total amount of oil dollars goes down, this becomes a problem, because the other dollars are really needed in those countries.
In the rest of the world, the view seems to be that a dollar spent for something (healthcare, education) will benefit the economy as a whole, because of the value added by these processes and the recycling of wages. The catch is that they really don’t add very much value–certainly not in proportion to the dollars spent.
I read an article last week where it was bluntly stated that twenty percent (20%) of global oil industry investment in 2013 went to American shale production, the result being a mere four percent (4%) of global oil production.
Clearly, we have entered a period of severe diminishing returns in the oil extraction industry. And yet “shale cheerleaders” on peakoil.com and other forums are enthusiastic about fracking in Spain, France, South America and other areas of the world that have “known” shale reserves but nowhere near the existing infrastructure that America has to facilitate shale oil extraction.
If 20% of investment is required to get 4% of oil production in even the best case scenario, then what will it take at some point in the future when the Ghawar and other legacy conventional oil wells go kaput? Four hundred and fifty percent of 2013’s investment to get 100% of 2013’s oil production? Except, even four hundred and fifty percent won’t do it, and even if it did that would be a very short-lived achievement given the rapid decline rate of shale wells combined with the fact that they go after the very best (sweet) spots first.
Ladies and gentlemen. It is time to face the music. Our economy, our world, is in a rapidly declining period of demand destruction and diminishing returns. Econ 101 and supply/demand concepts have very little to do with economic realities we will be facing in the near term and ongoing future. Going forward, finite limits and physical realities will rule the economic landscape. The sooner we all face up to that fact, and the more people that we can get to face up to it, the better off we’ll all be.
Good points. I had not seen the figures of twenty percent (20%) of global oil industry investment in 2013 going to American shale production, the result being a mere four percent (4%) of global oil production. If you find the link, let me know. It may be something I can calculate using investment figures in one of the reports I have.
Of course, this investment was also helped by the zero interest rate policy. It is hard to see where the investment would have come from otherwise.
Well said!
STAGFLATION.
Stagflation is the name for a stagnant economy that is still subject to inflation. There is no real way to fix it, because higher interest rates (which might bring down inflation) will also bring down the economy further.
I am not sure if that is exactly the problem here. Because of debt-related problems, we will likely have failing banks. Without banks, it is hard to keep businesses operating. The number of people with jobs will fall. Even without failing banks, falling oil prices are likely to lead to deflation, making debt harder to repay. This too will lead to failing banks.
Of course, central banks would like inflation. If they can engineer inflation, then we may have stagflation.
I believe you are over-thinking this Gail.
Most extractive industries are prone to the “bandwagon effect”, wherein a sharp rise in the price of a commodity results in an equally sharp jump in the number of new producers and also in the efforts of established producers of that commodity. The higher prices tempt more and more entities into production until production overshoot causes an oversupply and prices fall, sometimes quite quickly.
New players often lose their shirts, since they often borrowed money to get started. Production falls as more and more producers drop out and prices level off and then start rising again. One can see this in timber, metals, and fishing as well as oil. Boom-bust cycles happen constantly. This is simply Supply/Demand 101.
In the long run, your “crowding out” effect (due to reduced EROI from oil) can only mean generally higher relative prices for oil, since more and more effort will be needed to extract the energy we use. Higher prices will be needed to finance that greater effort. The long run trend for oil prices can only be up.
How will the global economy meet these upwardly trending prices?!
The global economy will stagnate, then shrink, and then collapse. I just don’t see the global capitalist market economy being able to tolerate continuous recession without a financial crisis, hence the collapse part. Through it all, the relative price of oil will go up and up. After collapse it will be priceless.
Actually Joe, you got the collapse part right, but the price of oil is coming down because of reduced capability of consumers to pay for the oil and the products and services provided by it. You can’t have rising oil prices while consumer affordability is declining. Remember there are 90+mbd all oil that must be sold every day – that’s a lot of merchandise to move. If at a given price demand can only satisfy 85mbd, then the price must drop to move all 90. As this situation continues to unwind, oil price must drop. The problem with that is it reduces the ultimate recoverable resources (URR). If the price is not high enough, then future supply dwindles.
The Russians just decided recently to stop exploration in the Arctic due to reduced oil price. The North Sea oil is now in peril for the same reason. Soon we will see the effect of lower oil price on LTO (light tight oil) in the Bakken and Texas. Venezuela heavy oil is too expensive now. Oil price may come up later some, but the long term prognosis is down, down until we just use the conventional that is already available.
Oil is a master resource. Without oil, there is nothing else to purchase. Oil must be purchased first in order to produce the other goods and services that people would like to acquire.
Note that I emphasized the relative price of oil. If there is a debt-deflation cycle, the nominal price of everything, including oil, may drop dramatically, but in comparison with all other goods and services, oil will continue to cost more and more.
Gail is right about higher oil prices crowding out demand for other things. As the real price of oil rises, fewer other things can be purchased, dampening growth in the economy. If oil prices rise too fast, they can overshoot their equilibrium value, causing demand destruction as the rest of the economy shrinks, since a shrinking economy needs less oil.
Declining EROI means that energy, including that from oil, will take a larger and larger proportion of all economic activity. This means more and more of the total money available to that economy must be spent on energy and oil, rather than other things. This is the very definition of increasing cost.
Occasionally, like our present situation, the supply of oil can temporarily exceed demand (at a given price). This forces a drop in the cost of oil. This is a temporary situation. The CPI for everything else has continued to rise slowly. Only if we saw dramatic deflation in all other areas of the economy could the nominal price of oil permanently decline.
For decades, as the price of oil has risen and fallen (as supply and demand vary around their equilibrium), we have seen higher highs and higher lows. Just a few years ago $60 oil would have seemed like a very high price. It is just an example of a higher low. As high cost producers quit producing oil, as you noted is likely to happen, supply will drop and the price of oil will come roaring back with a vengeance. We will then see another higher high as the supply/demand cycle repeats.
I think you may be right. We will hit a bottle neck as low prices kill capex and supply eventually drops. Oil prices spike massively resulting in the final collapse of the economy, and civilization.
Great post Joe. I believe both your ideas ,the relativity of the price of oil, and oil as the mother commodity to be a valid paradigms. I however do not think there will be a “roaring back” of oil price. Things a declining too rapidly. The gig is up, there is no future surplus to support the repayment of debt to support a another “roar”. The choice of a eternal decline has been chosen rather than one last burn of inflation/debt with bail outs to any financial institution deemed vital on the slide down. With the end of surpluses bail outs are in fact the only way debt can be re payed.
The whole cycle can only repeat if the system stays together and if somehow, the buyers of find enough funds to drive up the price of oil to raise the price of oil to where it again is economic to extract. The “catch” is that recent price for extracting oil from shale was kept low by artificially low interest rates. Already, interest rates are much higher for shale producers, meaning that they now need a much higher price for oil for it to be economic. The same is true for Russia–their interest rates are now much higher as well, also increasing their cost of oil extraction.
Thus, oil prices have to bounce much higher than they were in the past, to be able to resume production. I don’t see this as happening.
“Oil price may come up later some, but the long term prognosis is down, down until we just use the conventional that is already available.”
Actually, if the economic system that is enabling the extraction of the conventional oil collapses (for example, banks close, or electricity is not available to run refineries, or spare parts are not available for equipment), then the conventional oil will be left in the ground, no matter how cheap it seems to be to produce.
After collapse, what do you expect to use oil for? If we don’t have replacement parts for cars, oil won’t make any difference. If we don’t have roads in reasonably good repair, oil won’t really matter. If we don’t have a financial system to pay for oil, the ability to buy oil will disappear. We have to have an operating economic system for oil to be valuable. Once we lose that, I expect the value of oil products will disappear fairly quickly.
OF course, there may be some period when the economy is still somewhat functioning. In such a period, it may be that oil prices are higher.
After collapse, as long as any social order is maintained, oil will still be in demand for its highest value uses; operating farm tractors for example, or trucking produce to people starving in cities. Oil will probably be rationed and may not be available to the average consumer except at astronomical prices on the black market. Some oil may still be produced under a command economy or martial law.
If there is a total supply chain collapse, the only petroleum products available will be those left in storage tanks around the world. Equipment that can use fuel will then last far longer than the fuel available. The holders of any remaining fuel supplies will want a great deal of value before they part with any. The forces that will come into play during such a salvage and scavenge situation are likely to be dramatic and violent. There will always be demand for fuel for operating equipment for the projection of force, such at armored vehicles and helicopters.
I expect that as long as people want to stay warm, there will always be a demand for chain saw fuel. If desperate people want to change their location quickly, fuel for motorbikes and small vehicles will still be in demand. It may take trading something very valuable to get enough fuel to fill up a motorcycle. Equipment that can help produce food will still be worth fueling, even at very high prices.
The only limit on fuel prices will be in comparison to the value of human labor they could replace. Remember the old Oil Drum thread where Nate Hagens came up with $200,000 per barrel in human labor value?
And I disagree with this.
When we collapse farm tractors will not exist for very long because there will be no spare parts to operate them. And even if there were some demand for oil (not sure what exactly) there will be no way to extract it because the massive infrastructure (including the debt financing) required to make extraction and refining happen, will not exist.
Farm equipment is very stoutly built. I have a 45 year old John Deere that could be put to work tomorrow. Last week five brand new tractors were working up the field in front of my house. Farm work is time sensitive so farms are very over powered to get the work done quickly. Most tractors sit idle 90% of the time. As someone mentioned previously most service workers will stay home conserving calories (those who are not out rioting and looting) and not burning gas driving to useless jobs so the real economy will have fuel to produce and transport food.
People are willing to believe all kinds of conspiracy theories about the government. Hopefully there is a conspiracy to maintain the nations food supply system. Every Ag Extension agent knows every farmer and Ag supply dealer in his district. A coordinated response to any emergency could be easily arranged.
I think building a coordinated response is, in fact, quite difficult. I don’t really expect governments to be very helpful.
Evidence points to glyphosate toxicity from the overuse of Monsanto’s Roundup herbicide on our food.
For over three decades, Stephanie Seneff, PhD, has researched biology and technology, over the years publishing over 170 scholarly peer-reviewed articles. In recent years she has concentrated on the relationship between nutrition and health, tackling such topics as Alzheimer’s, autism, and cardiovascular diseases, as well as the impact of nutritional deficiencies and environmental toxins on human health.
At a conference last Thursday, in a special panel discussion about GMOs, she took the audience by surprise when she declared, “At today’s rate, by 2025, one in two children will be autistic.”She noted that the side effects of autism closely mimic those of glyphosate toxicity, and presented data showing a remarkably consistent correlation between the use of Roundup on crops (and the creation of Roundup-ready GMO crop seeds) with rising rates of autism. Children with autism have biomarkers indicative of excessive glyphosate, including zinc and iron deficiency, low serum sulfate, seizures, and mitochondrial disorder.
A fellow panelist reported that after Dr. Seneff’s presentation, “All of the 70 or so people in attendance were squirming, likely because they now had serious misgivings about serving their kids, or themselves, anything with corn or soy, which are nearly all genetically modified and thus tainted with Roundup and its glyphosate.”
http://www.globalresearch.ca/autism-and-the-health-impacts-of-monsanto-glyphosate-roundup-on-children-research-scientist-at-mit/5421901
That is one problem with the way we grow food today. But we won’t have that problem post-collapse because we will not have GMO food because we will not be able to make the pesticides and fertilizers that are required to grow those foods.
So we will starve.
Because there can be no plan to overcome that problem. Or if there is I have not the slightest clue what it could be. We cannot unwind and go back to the old ways of farming in a short period, and even if we could we could never feed 7 billion people using permaculture methods.
Glyphosate has been around for a very long time. According to this article, it was introduced to the public in 1974, and has been one of the best-selling herbicides since 1980. If the connection with autism is correct, even people who are now in their 30s who have autism might have glyphosate as a cause.
The only spare parts for farm tractors that aren’t easy to come by are tires. Everything else is scavenged or made to order at the local shop out of other spare parts. I’m not talking about combines that can cover a section or so but regular tractors that can pull any variety of equipment. Farm country that I am familiar with is poor and often could not afford those parts since the mid 80s anyways and yet those tractors get repaired and get used. [for some reason I could not append a reply below WWWs post below?]
There is a maximum “depth ” of replies, so the replies won’t get so narrow that they can’t be read. That is the usual reason the reply button disappears.
“Everything else is scavenged or made to order at the local shop out of other spare parts.”
You bet. Some of the most talented machinist I know come out of the farm belt. To some extent, this same ingenuity , understanding and talent can also be applied to oil extraction and refineries. Oil extraction largely does not use the grid ,t is using large diesel generators. Does that mean supply chain does not matter? No the question remains how much can continue post collapse but the farmers and the riggers know how to get bye. Anyone who thinks there wont be creative and ingenious solutions implemented post collapse is simply not familiar with the talent out there. This unfamiliarity is understandable if you have not been exposed to the talent in the patch and the farm belt.
Daddios comment on support provided by the government is crucial to allow ingenious and creative solutions not to fall prey to predators. If security is not provided by the government post collapse I do not see any other collection of individuals doing so. A organization would have to arise that had the same sort of deterrent power of the government. —————————————————————————
In regards, when we reach the limit depth of posts,
use the @ convention
For example
@Gail “There is a maximum “depth ” of replies, : my ipad can barely handle the current depth level!
Some oil may still be produced under a command economy or martial law.
In response to InAlaska a few weeks ago, I mentioned the creation of a command economy. I know that that is the unthinkable, especially for us Americans since we abhor bureaucracy in all forms, but I believe that some type of command economy would be the logical precursor to our current capitalism system. It may be a hybrid, such as Japan’s. I know it may be a shock to some, but Japan is not a real democracy. But then, maybe we, as Americans, have regressed to a lower level of democratic representation. I foresee a drop in GDP to 25% or 50% of our current GDP, but who knows!
We are at the beginning of the end game for oil. http://www.thehillsgroup.org/depletion2_022.htm
The problem with oil is that it is needed to run the economy. (I should probably have talked about this, but the post was getting too long.) We can talk about substitution by other energy sources, but this is a terribly slow process, and it is hard to see how it would work for some applications, such as flying airplanes and acting as a feedstock for products such as medicines. Nearly all of our current transportation vehicles run on oil. If there were an easy way of converting to electricity, this already would have been done, because electricity tends to be cheaper.
Gail, The interpretation of stats on jobs can be misleading, or needs further qualifying, in that many jobs are increasingly in governmental sectors where salaries are shielded from economic realities, and perks like pensions and early retirement and health care are something those employed in the commercial sector can only dream about. Thus as the government sector grows (in the UK it is more than 42%) it squeezes the rest, somewhat similar to the squeeze you mentioned.
The political impact of the bigger government sector leads to a set of non-productive voters that politicians have to appease. Thus cuts and austerity lead to strikes and individuals suffering reputation shredding as the vested interests win out. In the UK for instance David Cameron sacked his Education Secretary just to appease the vested interests. The minister was leading a much needed revolution in education and was actualy improving education all round . Cameron has done the same with his Farming Minister who upset the Green lobby. I guess Obama has done something like this in the US too.
Comment?
I was looking at number of jobs in all sectors, including governmental sectors. I think that the big distortion would be from the rising number of part time jobs, and well as the large number of jobs that are “contract” jobs. There are two data bases in the US Bureau of Labor Statistics. One is based on a survey of employers; the other is based on a survey of individuals, asking whether they consider themselves employed. The latter survey tends to come up with higher numbers, because many people work for themselves, so don’t get into the numbers generated by employer surveys. Shifts in the number of self-employed can have an impact as well.
A couple of comments on the high percentage of workers employed by the UK government.
1. It is hard to see how have 42% of workers work for the government is sustainable. Taxes on workers cannot be high enough to pay the wages of all of the government employees, plus the transfer payments to all of the disabled people and retirees. This is no doubt the reason for the austerity moves.
2. It really doesn’t matter whether the government sector is promised perks like pensions and early retirement. They aren’t going to be able to get these perks, because such perks cannot be supported by a declining economy. Of course, anyone trying to explain this to citizens will run into obstacles.
Obama did something with education, but other than helping increase the revenue of companies making tests to give to students, I don’t think it did anything very useful.
What does a country do when there are more people seeking work than there are jobs available? Plus people seek work they would like to do rather than just take any job, if possible. Service industries fill the bill today and governments are big users of services.
What happens when seismic shifts strip whole industries of jobs, such as happened with agriculture and now industry? Other work has to be found.
So saying 42% of workers is not sustainable is not the fault of governments. We the population have come to demand all these services and many are just not suitably filled by corporations. Governments are mostly taking up the slack. It’s certainly not efficient, but that’s symptomatic of societies that have moved on from building infrastructure etc to being mostly consumers. Governments generally pay better than industry as the competition faced by industry tends to keep wages in check. This is because in a globalised world pay rates in cheaper economies affect the economies everywhere. The distortion in a given country can be quite massive [Greece being one]
It’s going to worsen. We are in the end game of this civilization. Credit money is financing consumption as if there was no tomorrow and we see all around us signs of extreme leisure expenditure, such as hotels, stadiums, restaurants, entertainment complexes which are all destined quite soon to become white elephants.
We might get away with all this credit as it can ‘easily’ be wiped off the books. After all what else can we do with $800 trillion in derivatives? But what will cost us and dearly too is the destruction of our resources consumed in this mad decadent spree!
The really productive jobs are the ones that produce cheap-to-extract energy. The excess energy from they cheap to extract energy can go to power the world economy. Those that produce the technology to use this cheap energy are helpful as well. So are the workers who create the many support services to keep the cheap energy system going (like transportation systems, housing for workers, and grocery stores for workers).
If the system has a lot of energy surplus from cheap energy sources, it can afford to provide employment (or just plain transfer payments) to a lot of hangers-on. But once the cheap-to-extract energy is gone, then the number of hanger-ons who can be employed drops precipitously. This is the problem we are running into now. The problem with adding more service jobs is that the wages that the people doing those service jobs do go to buy energy products (food, gasoline, heat for their homes, and the embedded energy in homes and cars). Unless there is excess energy to offer to these folks, this doesn’t work well. The service jobs have to pay very little (like the $7.50 per hour, no benefits, part time jobs in the US).
Globalisation and all that has made 5% very rich and the rest not. The consumption of the 5% doesn’t create many jobs, but they have all the resources. That’s why we have contraction and debt problems. There are no financial limits, only physical limits really matter (which of course we would meet even sooner in a more equal world).
A car isn’t expensive to the normal worker because of embedded energy, but because the shareholders and the boss want their billions, using globalisation to pay low wages.
The view to consider our financial limits as a reflection of the physical limits, has developed here on this blog into something that is difficult to follow.
Part of what globalization does us make those of use in rich countries more equal with people in the poor parts of the world, by lowering our wages.
Unfortunately, those of us in rich, cold countries don’t like to be equal with workers in poor, warm countries. It doesn’t take very much housing or heat to be adequately cared for in a warm country. In a cold country, we need to be fairly wealthy in order to build fairly substantial houses and heat them. We can’t take care of ourselves on wages that would make people happy in warm parts of the world (India, Philippines, Bangladesh, coastal and southern China).
Western houses are superior in many other ways that make them expensive. They are made as a long-term investment. If it was only about heating, we could have the type of houses I saw in Patagonia, where the winters are really long and cold. These houses are cheap and not very fancy, but heating is fine.
Some other things that come to mind:
– Use of cheap building materials and methods
– Bad sound insulation
– Very basic sanitary installations (sometimes outside the main house)
– No central heating
– Often lack of telephone connection
– No gardens, no green, just the soil
– Repairs being delayed for years
“we could have the type of houses I saw in Patagonia, where the winters are really long and cold. ”
How were they constructed and of what materials?
If they are nice, like that. Many are more shabby.
http://www.euliartepropiedades.com.ar/rs/media/com_hotproperty/images/ori/10_54.jpg
I think that there are financial limits, but they are of a different type than what you are expecting. I think that instead of talking about peak oil, we should perhaps be talking about “peak financial institution.”
Financial institutions are built on the assumption of continued growth forever. They are also what tie our networked economy together. The difference between the underlying assumption and what is actually happening will bring down institutions sooner rather than later. This is the financial limit we are reaching.
Re. The government employment aector. One big problem is that these people have a vested interest in resisting change, and in fact have managed to do so. Thus they will stop the necessary changes for as long as possible while commercial sector employees and pensioners suffer. Even if the apocolyptic events you think may happen do indeed happen the social and political turmoil could be pretty nasty.
What does it take to make them see sense?
Yes, Ronald. Note that in the US, total gov’t spending, private medical and educational services, business and household debt service, and energy consumption to GDP is an equivalent of ~58% of GDP. Unless gov’t (war spending and food stamps in the US), illness, and indebtedness grows, the US economy cannot grow. But if these sectors grow, there is a drag on the remaining 42% of the private sector.
The EZ economy is ~50% gov’t spending (slightly more or less depending upon the country), but more per capita is spent on medical and educational services and public transport than in the US, whereas in the US we spend the differential on obscenely costly medical insurance and services, debt-induced higher education costs, and the costs of individual auto transport, including energy.
However, the net drag effect on the private sector is similar in the EZ as in the US. Where Europeans pay higher taxes and have higher gov’t spending per capita and per GDP, Americans pay an equivalent higher “rentier tax” as a share of incomes and GDP to the financial sector in the form of cumulative compounding interest costs rather than taxes to gov’t.
You make good points. I hadn’t looked up the percentages of the economy that each of these segments are.
This is also part of Tainter’s cost of complexity of large systems, i.e., total cost of maintaining indefinitely a gargantuan state bureaucracy, including the cost of sustaining a permanent global imperial military machine.
Ron, those figures are nonsense, The ONS has Public employment at 5.6 million vs Private employment at 24million in 2013. Thats about 18% !! As for Gove he was the worst Education minister since Thatcher, his free schools are turning into the disaster everyone predicted. Just shows you what happens when you put ex Public schoolboys with no experience of the ‘real world’ in charge. Cameron got rid of him as he was a liability with the election approaching, just like he did with Lansley as Health minister.
Thanks PaulB
Thanks for commenting on this. While I do not want to lead the debate away from what Gail intended it is worth commenting further on what you posted.
The statistics published by government do indeed reflect what you say. But these same stats miss out on all those who do quads-govenrmental or public works from the commercial sector. For instance BBC a government entity has its staffing included in the stats. But what is not included are the thousands of production staff in commercial companies doing work on behalf of BBC. The same goes for NHS where ‘Care Staff’ have increased by a factor of 3 outside the NHS – by the way the NHS is the third largest employer in the world after the Chinese Army and India Railways. For the government employment sector you can also add all the jobs ‘outsourced’ to the commercial sector that do not get into government stats. In my local authority for instance they claim the head count is down 30% and do not say that this was achieved by moving many people doing leisure centre management, and council housing management as well as maintenance, to other companies. That has been repeated across the UK.
Thus there is a hidden rump of government employees to be added to what is reported.
Regarding Gove and co, this was raised by me to show how The Blob, the education sector, has lobbied on its own behalf to remove a revolutionary, Mr Gove, who was upsetting their dumbed down state of our education system. It is a fact that Free Schools are out achieving old style state schools and that parents are clamouring for them. Where I live two such schools will open shortly due to parental demand. This proves they work. It is what the customiser wants..
Lansley I agree was a failure in NHS and is now better placed. Patterson was taken out by the Green Blob not the farmers he serves.
Final point; the state sector employees enjoy a shorter working life with higher pay and perks than the rest. These people enter employment later in life and leave it earlier than commercial employees. Thus not only are they expensive to keep , they take more resources from the country at large when not in employment due to their extended education and retirement. These are yet more reason why state sector employees like the status quo.
But back to the main point which is that a large state sector creates a vested interest lobby that stands in the way of innovation and improvements to the general well being of the population. It has been shown to be self serving putting its needs before the public’s. It will stand in the way of the changes put forward by Gail and co. slowing up a much needed turnaround in energy policy.
Thanks to Gail for allowing this post.
Money is nothing but a messure of energy. If you just for a moment will take that for a fact then you will see, that the global amount of energy (oil) extracted can grow but the net amount of energy in the world falls. This gives this negative feed back effect that you so often have mentioned.
The idea that money is nothing but a measure of energy is probably over the head of some readers. It also needs some refinement. Clearly banks don’t create energy when they loan money into existence. I don’t think that buying a plot of land would have a significant energy component, except that the land is often useful from the point of view of the energy services it can provide. Buying a loaf of bread, on the other hand, would have a significant energy component.
There is also the issue of current vs future. Today, it is possible to exchange money for goods and services made with energy. There are many promises in the form of money or debt that are to be satisfied in the future. But these promises will not be able to be satisfied, unless there are actual goods and services available in the future which can be bought with money.
“Clearly banks don’t create energy when they loan money into existence.”
Any energy is actualized synergy. If we have a pool of “human nuclei” (yes, any human can be regarded as a single atomic nucleus), then any dollar is a unit of their synergetic interindebtedness. That is why loaning dollars into existence does create energy until the point of zero marginal productivity of new debt: http://2012wiki.com/index.php?title=Image:Diminishing_Returns_from_Each_Dollar_of_New_Debt_in_US_Economy.jpg
After reaching the point of zero marginal productivity of new debt, the released synergy, aka energy, becomes insufficient to offset the system’s self-gravitation, at which point the number of nuclei decreases while the organized complexity of a single nucleus increases (just like in a star, helium nuclei fuse into a smaller number of carbon nuclei).
Therefore, upon reaching the point of zero marginal productivity of new debt, humanity will collapse into a single couple of superhumans:
http://2012wiki.com/index.php?title=The_end_of_the_world
You have to go back in time where agriculture started. Agriculture was the energy system of that time and created goods based on this energy system: wheat, barley etc. and it was no longer necessary that every man and women had to be farmers. They began to specialize in different job. But they all got their payment from ‘Energy System Agriculture’. They were paid in goods which ALL came from ‘Energy System Agriculture’ – and there was a relation between the value of the different goods from this ‘Energy System Agriculture’: Maybe you should pay 4 kg of wheat to get a chicken, and 4 chickens for a goat and so on and so forth, and if you wanted to hire someone to do a job the payment could be 10 kg of wheat, 2 kg of cotton and 1 chicken. But also this payment (salary) could ONLY come from the ‘Energy System Agriculture’. At some point – (and this is an allegoric description) the King would say:
Hi folks – now we have had agriculture for many thousand years, and our agriculture (i.e. Energy System Agriculture) has given us so many different things that it has become very unpractical to carry them around. If you want to buy 50 kg of cotton from the neighboring village and you only have wheat to pay with the it will be a hard job for you to transport your 500 kg of wheat to this village. Therefore I have invented Money – this Money has no value in itself but it is only a measure of different goods which – as we all know – come from our ‘Energy System Agriculture’. And I ask you very much not to forget that: I is only a measure of the goods which ALL come from our ‘Energy System Agriculture’. In some thousands years from now, we will find a new energy system, because people will then understand to use the energy in fossils and will be able to make much more goods with this energy system, the ‘Energy System Fossils’ but it will still be the same: All produced articles owe their life to energy systems. As long as our energy system expand it will be quite ok to borrow/lend money (make credits) – because the energy system will eventually catch up in the next years – but if the energy system shrinks the amount of goods available on the market will also shrink.
To you Gail: You wrote: I don’t think that buying a plot of land would have a significant energy component –
No, no, no of course not! Modern agriculture is so totally dependent on fossils that it is actually an energetic zinc.
( you have to see my story as an allegoric Picture of a development which has lasted many thousands years.)
“Therefore I have invented Money – this Money has no value in itself but it is only a measure of different goods which – as we all know – come from our ‘Energy System Agriculture’”
Except the money was extracted, refined and minted coins of gold and silver, which did represent embedded energy and did have value and was desirable.
Dear Matthew – I am so glad that you responded – and here is my answer:
Gold and silver were desirable, yes, but the energy invested in extracting, refining and minting coins was only af tiny fraction of the value (energy) of all goods. Therefore the original way of exchanging goods (energy) was barter which almost ceased gradually when paper money was introduced – and it is this long way from barter to paper money I am trying to describe allegorically in the King’s speech. In the Medieval most taxes and tithe for instance were paid with goods from agriculture (i.e. geese, wheat, barley etc. all items from Energy System Agriculture.) Gold and silver were practical as means of payment because their extraction was so difficult that their volume grew approximately in the same speed as the general growth of the society. When Energy System Fossil started it quite soon became necessary to print paper money to reflect the much, much bigger volume of goods. If you accept that money is nothing but a measure of energy it is quite easy to explain why the world is suffering of lack of energy even if more oil is extracted: world oil extraction can grow 10 % but if the extraction costs (energy costs) rise with 15 % there is de facto an energy loss of 5 %. The money/energy is taken from the society (you and Gail and me). I see that as gross energy production versus net energy production.
Try to follow an amount of money related to a service, a tax, an article – you mention it – down to ist root – it all ends up in energy consumption.
Money can be bound (metallic coins) or free (electronic money). The transition from gold coins to paper money and ultimately to electronic money is inevitable and irreversible:
“Bound information is always connected with a definite material structure, free information is abstract/symbolic. Free information is to a high degree independent from the carrier. … Free information is connected with meaning and with goals (Zweck). … In course of evolution several “phase transitions” from bound to free information are observed.” —Ebeling, Werner ♦ Entropy, Information and Predictability of Evolutionary Systems in Hofkirchner, Wolfgang (ed.) ♦ The Quest for a Unified Theory of Information ♦ Gordon and Breach, 1999, p. 262
Read more: http://2012wiki.com/index.php?title=Novelty_theory
More terrific stuff, for which many thanks, Gail.
“So far, what we have seen is a drop in oil prices and other commodity prices to levels that are likely to seriously disrupt production.”
I am trying to imagine how a supply crunch would play out. The IEA has slashed its demand forecast four times in five months but at a certain point you would imagine that the production that is lost as the major oil firms accelerate their aggressive cost-cutting and so forth means that even reduced demand cannot be met.
So, what will actually happen then? Theoretically the price should shoot up but, as you’ve already demonstrated, the global economy can no longer afford inflated prices and it cannot run in piecemeal fashion whereby some can afford high priced oil and some cannot, due to the interconnectedness you discuss. Will we see physical shortages of oil or will the financial system ‘break’ before that can happen? Gail, do you have a feel for what this all might look like a year or two down the line?
I have agreed to write an article for an actuarial magazine related to this issue. I will no doubt write a similar article for Our Finite World.
Thank you, Gail. I shall look forward to it as much as anyone anticipating bad news can!
A lot of junk bonds were issued by the energy sector to finance their operations. Yields, and thus interest paid on the debt that those junk bonds, has gone up by quite a bit (from just under 4% to around 10%,) and thus the marginal energy producers are not going to be able to finance their debts. Chances are, if oil prices do not go back up, it is not only these marginal energy producers that are going to go out of business, but they’ll spark a larger bond crisis. This has the potential to create a system wide financial contagion where the options are a mega-depression that is somewhat permanent, or trying to print our way out of it. Neither option is sound, and the latter destroys currencies.
So to answer your question, nobody can predict the future, but we can say that it is likely that the financial system will implode before we hit the wall as dictated by geology and physics.
The financial system connects together our networked economy. Because of this, limits set by geology and physics are likely to show up as financial problems. Thus, geology and physics problems are likely to manifest themselves as financial crashes.
And yet there is more air travel going on to from the uk than ever before.
Why?
The financial industry is flourishing, thanks to the very low interest rates, and the effect of QE on stock prices, for one thing.
Not everything is cut back by diminishing returns. There tend to be fewer flights to smaller airports (with some closed), but major airports are unaffected. Air travel is still a big bargain relative to taking the time to travel by ship.
I should add that the airline industry has been getting squeezed by the high cost of oil. As a result, ticket prices have tended to rise faster than inflation rates–which is my criterion for diminishing returns.
However, for businesses, airlines represent a “very good deal” because the cost of a person’s time is so expensive. They are even a very good deal for individuals who are pressed for time. Thus, what may happen is a scaling back in growth in airline ticket sales, rather than an actual decline in ticket sales. Countries whose airline visits are mostly by tourists are likely to be more severely affected. Airlines will run their planes as close to full as possible.
Yes, Gail, and not only is the financial services industry flourishing, total annual net flows to the financial sector equals, or periodically exceeds, the annual growth of US nominal GDP. With the economy hyper-financialized, any deceleration or contraction in the net flows to the financial sector by definition implies the economy at “stall speed” or recession.
This is why the Fed cannot permit an equity bear market or risk a recession and unwinding of leverage at 50-80:1 global banking system capital from leveraged derivatives positions at offshore shadow banking’s dark pools using pass-through entities and exchange-sponsored high-frequency trading to “manage” equity index futures.
I suspect that were the system exposed for what has been happening since 2009-10, most people with assets in the financial markets would demand that the “management” continue to occur for equity index futures to keep the stock market rising and to avoid a bear market, including central banks buying directly bank and insurer stocks and equity index futures.
In effect, we are in a world in which central and TBTE banks cannot permit a bear market or the system implodes on a global scale larger than in 2008-10. Therefore, we now have TBTE banks–gov’t-sponsored hedge funds–“managing” the stock market offshore with little or no oversight or accountability except to themselves and those with similar interests.
It’s a perfect virtually/digitally hyper-financialized world for the top 0.01-0.1% to 1%.
In other words, don’t fight the Fed.
I refer the audience to this:
http://www.zerohedge.com/sites/default/files/images/user3303/imageroot/2014/12-overflow/20141229_GDP2015.jpg
Anyone with half a brain who manages money would understand what you are saying and would be long the market even though technically is makes no sense; they should be short.
But central banks won’t allow the market to drop for the reasons you have pointed out. So everyone joins the party because going short is suicide and sitting in cash means you miss all the record gains and clients pull their cash out of your fund.
There are of course a lot of people in finance with half brains who believe their returns are a product of their brilliant decisions. Unfortunately almost all fund managers are not beating the index (but don’t point that out to them unless you want a barrage of but, but buts)
Wee Willy, precisely.
https://www.chicagofed.org/publications/working-papers/2014/wp2014-27
Perhaps so, but anything that can’t go on forever, won’t. I don’t know how long all of these manipulations can continue.
My fear is that regulators will see how high the dollar has risen and how well the US economy seems to be doing, and raise interest rates. If the interest rate rise is at all significant (or if interest rates rise by themselves, perhaps as a result of shale and emerging market loan defaults), the US economy will contract. The dollar will drop. Equity markets will tank. Banks will have even more problems than they might otherwise have had, perhaps leading to bank closures and/or haircuts on bank deposits by the general public. Insurance companies and pension plans will have big problems. Perhaps the price of oil will rise because of the falling dollar, but this still will not reignite production, because of the high interest rates required on loans to shale developers, and the high interest rates on loans to emerging markets, such as Russia.
We will never see interest rates significantly higher than they are now because if they increased significantly it would create an economic towering inferno.
The people making the decisions are fully aware of that.
And they are the one’s making up the fake numbers that we see in the MSM so they are not fooled by the supposed 5% GDP print in the US.
Zero Hedge exposes the misleading GDP information in a few articles this week
Yes, I highly doubt rising interest rates will be the thing to watch. Interest rates may rise on the periphery (like Argentina, Greece, Russia). But not in the core. The $ will be the last man standing, because it is the reserve currency. But the Euro (maybe without the weak members) will survive and be the very last man standing.
If interest rates rise, we are in a heap of trouble. But maybe we are in a heap of trouble.
If interest rates don’t rise, banks fail from rising default rates.
If one examines the real household, business, and gov’t income side of the economy (and by proxy real final sales less the US gov’t’s fiscal deficit), the cyclical change rate of US real income and sales has been decelerating since late 2013 and early 2014 to stall speed that historically has occurred at the onset of recessions. By this metric, we are at the decelerating cyclical rate that occurred in summer 2001 and spring-summer 2008. Recall that the US economy was in recession 2-3 quarters before the stock market finally rolled over and crashed coincident with 9/11 and the Lehman take down.
If one aggregates the US real GDP per capita data with China, Japan, EZ, Russia, and Brazil, the world is already in recession as of Q2-Q3 2014, which is consistent with the plunge in the price of oil by over 40% YoY, which also occurred at the onset of every recession and bear market going back to the US Civil War, with the singular exception being 1986-87, which preceded the 1987 Crash.
Were the pattern since 2000-01 to repeat, the stock market is setting up a bear market, which suggests that the Fed will not raise rates in 2015 but resume QEternity to fund an increasing fiscal deficit to GDP to prevent contraction of money supply and nominal GDP.
Also, the flattening of the yield curve and falling banks’ net interest margin means slow, no, or contracting bank lending hereafter, money supply less bank cash growing in the 2% rate or slower, and no incentive for banks to grow lending, but rather lend to the US gov’t at 0-2% and sell the paper at a premium to the Fed.
With growth of wages after tax, debt service, and inflation near 0%, wages to GDP at a record low, and banks’ net margin trending towards the rate of nominal wages and money supply less bank cash, there is no impetus for accelerating prices and bank lending.
The Fed will not raise the bank reserve rate in 2015, and CPI is likely to decelerate further and Treasury yields decline.
P.S. During debt-deflationary regimes of the Long Wave, yield spreads do NOT invert. Japan’s yield curve has not inverted since 1992, despite several recessions and big bear markets. The US yield curve did not invert from 1931 to 1954. Proxies for the yield curve before 1913 show that the spread did not invert in 1893-1901 and 1839-45. By this precedent, the US is likely to follow Japan and the EZ with no yield curve inversion well into the early to mid-2020s.
Thanks for figuring this out. My impression has been that no one but the US has been doing very well, and the US’s good results are mostly limited to the most recent quarter.
About ship for passengers, one of the surprising info from David MacKay book is that it is less efficient (with respect to oil), than planes, forgot the exact chapter but easy to find :
http://www.withouthotair.com/
But this is true for passengers ship only , not for cargo.
Thanks! I didn’t remember reading that. If a person’s time is worth anything, slow travel is a problem. So is the cost of someone else providing food and lodging for a long period.
Yes the need to bring the food for a few days is one of the parameter, it’s on page 133 in the full pdf file :
”
For a time, I thought that the way to solve the long-distance-transport problem was to revert to the way it was done before planes: ocean liners. Then I looked at the numbers. The sad truth is that ocean liners use more energy per passenger-km than jumbo jets. The QE2 uses four times as much energy per passenger-km as a jumbo. OK, it’s a luxury vessel; can we do better with slower tourist-class liners? From 1952 to 1968, the eco- nomical way to cross the Atlantic was in two Dutch-built liners known as “The Economy Twins,” the Maasdam and the Rijnsdam. These travelled at 16.5 knots (30.5 km/h), so the crossing from Britain to New York took eight days. Their energy consumption, if they carried a full load of 893 passengers, was 103 kWh per 100 p-km. At a typical 85% occupancy, the energy consumption was 121 kWh per 100 pkm – more than twice that of the jumbo jet. To be fair to the boats, they are not only providing trans- portation: they also provide the passengers and crew with hot air, hot water, light, and entertainment for several days; but the energy saved back home from being cooped up on the boat is dwarfed by the boat’s energy consumption, which, in the case of the QE2, is about 3000 kWh per day per passenger.
So, sadly, I don’t think boats are going to beat planes in energy con- sumption. If eventually we want a way of travelling large distances with- out fossil fuels, perhaps nuclear-powered ships are an interesting option (figures 20.31 & 20.32).
“
Thanks! Good point! Without air transport, we will probably also use more auto/truck/ rail transport as well, if they are available.
Until you recognize that oil prices for the past thirty years have been directly adopted from oil futures trading and therefore move according to futures trading fundamentals, not oil fundamentals, you are going to drive yourself to distraction truing to make reality fit your ideas. You remind me of the astronomers who resorted to highly creative and complicated equations to explain the observed movement of the universe circling the earth. They were brilliant, but they were working with a flawed model. When you give up trying, you might call — if I am still alive.
The futures markets are driven by supply and demand. The oil fundamentals you refer to are a supply and demand issue.
My I correct your statement, Gary? Oil futures are driven by supply and demand of oil futures, not oil. When you realize the inherent difference between a barrel of oil and a promise of a barrel of oil, with an expiration date, that alone will tell you something. There is one other significant fact you might throw into the mix when you (incorrectly) think futures traders base their actions on supply and demand factors. That is that actual data (knowledge) on either supply or demand are not available for months, or years, after those trades are made.
Yes, the commodities sector has been “hyper-financialized” as has most of the rest of the economy and human existence, for that matter.
wredwards,
What are you trying to tell us?
Simply stated, daily oil prices are not fundamentally based. They are essentially random numbers. Therefore any attempt to justify a price based upon fundamental factors is fantasy.
The other side of the coin, that is, the impact of that random price upon the economic system, is real. What is needed is a stable price, administered by an intelligent operator who is capable of dictating that price. That potential exists, but, ever since OPEC displaced the pricing by the Seven Sisters, it is still unsatisfied.
wredwards,
“….oil prices are not fundamentally based.”
So, say I find myself in the position of “An Oil Price Operator” and I found out that the price of oil is $20 dollars a barrel, and I called you to advice me in how to achieve that price.
What would you tell me to do?
Or, say that the real price is supposed to be $200 dollars a barrel.
Then, what would you tell me to do?
Sorry, but I am in a bind here.
Thanks.
It is so refreshing to receive an insightful follow-up question. Usually my comments are so far off the common perception that they are ignored.
There is only one Oil Price Operator who possesses the inherent ability to set a price that becomes the world price. That is the swing producer. In today’s world, with its existing supply capabilities, that entity is Saudi Arabia. Currently they don’t overtly set the price, they adopt the price that the oil futures traders set. Thus the random distortion (that is rationalized by many elite commentators as a valid oil market phenomenon). If the Saudis ever catch on, they will realize their inherent bargaining capability and can end up with both a desired price AND a desired market share.
Well, I did call Saudi Arabia wondering why the price of oil was going down…., but they hang up on me; or maybe the US disconnected the call.
You wouldn’t know why, would you?
I think that oil prices are not simply random numbers.
Chris Cook tells me that the rapid increase in oil demand and thus oil prices in late 2008 came from inflation hedgers. They were essentially using QE money for this purpose. They were also using QE money for investments in emerging markets, many of whose economies are commodity driven. Now that US QE is gone, big shifts are taking place. Chris Cook posted this image of the historical QE. The big uptick in prices of course came immediately after the first QE was put in place.
Gail,
Now, if you compare the (free money) “Price of Oil” chart above against “Civilian Labor Participation”…. the picture of financialization of an economy becomes really striking.
Look at “Civilian Labor Participation” during 1950’s and 1960’s, compared to the 1980’s and 1990’s (beginning of financialization) at the link below:
http://1.bp.blogspot.com/-HfeMWqjq1w0/Ui191elw_VI/AAAAAAAAXME/pnWbmsjtY4c/s1600/Participation+Rate1.png
I think you are reading it backwards; the percentage is more people participating in the workforce right up until the dot com crash, as western society moved from single to double income families.
There is a lot more to it than financialization; for example, industrial output in America has gone up, as factories become more and more automated, requiring fewer and fewer human workers. Also globalization, as jobs were moved to Mexico, China, etc to move to lower wages and less regulations, and to create more middle class earners to buy more stuff.
Yes, and also as we sent jobs overseas to China and India, wages dropped and labor participation dropped. It didn’t make sense to pay for child care expenses, when wages were as low as they were.
Matthew Krajcik
“more people participating in the workforce”
Exactly!
How so?
By easy money. 1970’s Petrodollar recycling back into the US; 1980’s government spending/large deficits; and 1990’s globalization/financialization.
Keep in mind that, by 1950, US possesses half of the world’s wealth. However, still left almost half of the population 16 years and older working or seeking work, unemployed.
So, to clarify my post:
Easy money (QE) raised the price of oil
Easy money (Petrodollar and deficits) raised the employment
“Keep in mind that, by 1950, US possesses half of the world’s wealth. However, still left almost half of the population 16 years and older working or seeking work, unemployed.”
Labour participation Rate is not the same as unemployment rate. Most women got married and stayed at home, so since they were not trying to get jobs, they don’t count as unemployed. More of a culture thing than an energy or financial thing.
“So, to clarify my post:
Easy money (QE) raised the price of oil
Easy money (Petrodollar and deficits) raised the employment”
I think it is more that the price of oil climbed when the Saudis’ went with an expensive oil policy and cut production, fell when they decided to produce more, rose again as demand began to overtake supply, crashed when the GFC killed demand, and then rose again based on stimulus, only to collapse again now that stimulus is ending and demand is falling faster than supply.
I don’t see how the easy money helped with employment. Post-WW2, North America was pretty much the only industrial area not destroyed, plus America was exporting oil, so they had the wealth and capital to employ lots of people. The deficits is more, I think, about having treasuries for oil exporters to buy, so that America could continue consuming more oil than it produced, without losing purchasing power.
If anything, having the petrodollar probably made American workers more expensive relative to workers in countries with weaker currencies, and helped push more jobs overseas.
I don’t think that Post-WWII, America exported oil. America has been an importer since WWII. http://www.eia.gov/dnav/pet/hist/LeafHandler.ashx?n=PET&s=MCRIMUS1&f=A
I looks like you are right; 1945 appears to be the last year the USA exported more gasoline than it imported crude oil.
Matthew Krajcik
Unemployment Rate is irrelevant.
My point is: Financialization, rightly or wrongly, generated (still does) more than half of US jobs. How can you tell?
1953 US population = 160 Million
2003 US population = 290 Million
2013 US population = 316 Million
We had, in 2003, 130 million more people than 1953. US had to import about 10 million barrels of oil a day; but still had a higher rate of Labor Participation. How is that possible?
Key Point: If you live in the US, like I do, get ready. It will be horrifying when it (the empire) ends.
You wrote: now that stimulus is ending and (oil) demand (from Saudis) is falling faster.
So, let’s get a third opinion that contradicts ours (stimulus) and wredwards (oil futures), go figure:
Dubaibanker, at Zero Hedge:
Aside from US, even China has stopped buying from Saudi (that makes it 2 of the largest consumers on the planet).
This is not the deal between friends, Saudi has been squeezed to a point that they had to retaliate all by themselves and their OPEC friends in order to maintain their market share.
http://www.zerohedge.com/news/2014-12-31/crude-carnage-resumes-wti-52-handle-new-cycle-lows-heres-why#comment-5609056
There goes mine, perhaps yours, too, Petrodollar down the toilette….. And closer to the fan.
“My point is: Financialization, rightly or wrongly, generated (still does) more than half of US jobs.”
You think 100 million people work in finance?
I think it is more lower level service industry jobs. According to BLS, it looks like nearly 8 million in finance, out of 108.5 million service sector jobs: http://www.bls.gov/emp/ep_table_201.htm
Of course, you can add a good chunk of the professional services, etc to financialization as well. I suspect a lot of the jobs would still exist without Wall Street; I don’t think finance adds tremendous productivity to the economy as a whole.
As for this claim that the Saudis were losing market share and America and China were buying less of their oil, I would like to see some actual facts supporting this claim, some production and sales numbers from OPEC or even IEA or EIA to support. They may have had fears of possible future loss of market share from high oil prices, but I have not seen signs of an actual plunge.
Oil is fungible. The whole market counts. The details of who sells to whom is irrelevant. Even if the sale is done in local currencies, the price basis is set in fungible US$.
Thanks, I see the key link there is:
http://www.platts.com/latest-news/oil/singapore/chinas-nov-russian-crude-imports-hit-record-high-26967924
Looks like China was just diversifying its sources, and pushing its agendas of supporting Russia, and imperial aspirations in Africa.
I don’t understand why control is more important than maximum profit and long term planning. It seems in order with http://www.prienga.com/blog/2014/11/11/understanding-saudi-oil-policy-the-lessons-of-79
It seems to me having a production target rather than a price target, or some combination of the two, would be better. Maybe they believe that if oil price is too high, an alternative will be found, but I see no evidence this is a real threat. I would rather get $100 per barrel for 5 million barrels per day, than $40 for 10 mbpd. It seems more money for more years is a better strategy, I can’t wrap my head around intentionally driving down prices. Eventually, Saudi production will fall and the other more expensive oil will be online anyways, it is not like driving a competitor out of business and never having to worry about them ever again, the oil is still there.
I noticed your comment about Canadian Oil Sands running out when the natural gas does; there are several methods of extracting oil sands, so if natural gas becomes uneconomical or not available, I think the producers using that method will simply transition to other methods that rely on oil or electricity for extraction.
Thanks, I hadn’t seen that. In another comment http://www.zerohedge.com/news/2014-12-26/saudi-arabia-ready-20-30-40-oil#comment-5595387 the same author points out that the countries being hurt worst by the oil price drop are the Western countries–US, Canada, UK, Norway, etc. That stands to reason–they are the ones with the highest direct drilling costs. Counties where more of the oil revenue goes to taxes can perhaps wait out the problem for a while.
“A man grows rich by employing a multitude of manufacturers; he grows poor by maintaining a multitude of menial servants” — Adam Smith
Financialization: Ability to collect usury and fees (rent); such as in monetization of debt (TBTF), housing bubble, stock market bubble, create privately own debt (dollar, Euro), and the list is long. Financialization always leads to rapid growth. Then, because it is privately owned, it bankrupt people, business, and nations.
Matthew Krajcik,
First: The financialization that I am referring it is NOT for the amount of people working directly at their offices. But, the dominance of financialization on the rest of the economy.
Second: If you had checked Dubaibanker’s posts, all the links that you asked are there.
Third: I try to see facts for what they are. I never said Wall Street and financialization added productivity to the economy.
The point that I was highlighting had to do with the millions and millions of jobs created by “Easy Money”. So, when financialization collapses in the US, it would not surprise me that 80% of the population becomes unemployed because our banking, commerce, education, political, and society are heavily dependent on it.
Matthew Krajcik,
You are having difficulties in ‘Grasping’ it because you are looking at it wrongly.
The problem is that you want to convince yourself ‘BAU’ can be, somehow, sustain. IT CAN NOT.
The flaw in your interpretation is that “it will be more expensive”. NO, IT WON’T!
It will collapse because it will become impossible to continue.
Example A:
Dr. Joseph Tainter: No, and that is one of the recurrent theories about why societies collapse, that they depleted their resources. I don’t see that in looking at the historical record. What I see, instead, is that you have a situation where societies grow more complex and more costly. They reach a point of diminishing returns, and it becomes essentially impossible to solve future problems. They become weakened fiscally because the population is taxed beyond its limits, the population of subsistence farmers becomes taxed beyond what they are capable of supporting, and so the society becomes weakened fiscally and the population ultimately loses its loyalty because they pay, for example, very high taxes, and yet don’t see an adequate return to that cost.
http://mcalvanyweeklycommentary.com/october-1-2014-dr-joseph-tainter-the-collapse-of-complex-societies/
Example B:
Professor Ugo Bardi: In 1972, “The Limits to Growth” presented a set of scenarios for the future of humankind, which mostly involved decline and collapse of the world’s economy. These scenarios were the result of solving a set of coupled differential equations and, for most people, the reasons for the predicted behavior of the economy remained obscure and imperscrutable. As a result, the results of the study were neither understood nor believed.
As I argued in a previous post, we tend to understand the world in narrative terms. We think in words, not in equations. And we tend to use words to arrange concepts as if they were actors playing on a stage. In the end, it is not a less legitimate way of modeling the world than using equations. So, I found in the blog of John Michael Greer (the “Archdruid”) an exceeding lucid and compact description of the reasons why civilizations tend to collapse. And here it is: no equations, no graphs, but it couldn’t be clearer than this.
Excerpt from a post by John Michael Greer, from “The Archdruid Report”
….
The process that drives the collapse of civilizations has a surprisingly simple basis: the mismatch between the maintenance costs of capital and the resources that are available to meet those costs. Capital here is meant in the broadest sense of the word, and includes everything in which a civilization invests its wealth: buildings, roads, imperial expansion, urban infrastructure, information resources, trained personnel, or what have you. Capital of every kind has to be maintained, and as a civilization adds to its stock of capital, the costs of maintenance rise steadily, until the burden they place on the civilization’s available resources can’t be supported any longer.
The only way to resolve that conflict is to allow some of the capital to be converted to waste, so that its maintenance costs drop to zero and any useful resources locked up in the capital can be put to other uses. Human beings being what they are, the conversion of capital to waste generally isn’t carried out in a calm, rational manner; instead, kingdoms fall, cities get sacked, ruling elites are torn to pieces by howling mobs, and the like. If a civilization depends on renewable resources, each round of capital destruction is followed by a return to relative stability and the cycle begins all over again; the history of imperial China is a good example of how that works out in practice.
If a civilization depends on nonrenewable resources for essential functions, though, destroying some of its capital yields only a brief reprieve from the crisis of maintenance costs. Once the nonrenewable resource base tips over into depletion, there’s less and less available each year thereafter to meet the remaining maintenance costs, and the result is the stairstep pattern of decline and fall so familiar from history: each crisis leads to a round of capital destruction, which leads to renewed stability, which gives way to crisis as the resource base drops further. Here again, human beings being what they are, this process isn’t carried out in a calm, rational manner; the difference here is simply that kingdoms keep falling, cities keep getting sacked, ruling elites are slaughtered one after another in ever more inventive and colorful ways, until finally contraction has proceeded far enough that the remaining capital can be supported on the available stock of renewable resources.
http://cassandralegacy.blogspot.it/2014/09/the-limits-to-growth-described-in.html
You are stating that absolutely, The End Of The World As We Know It is at hand. What if you are wrong? What if BAU lasts beyond our lifetimes? Are you 100 percent certain the world will end within two years?
If it is TEOTAWKI within the next couple years, what is there to do about it? I see a few choices:
1. Survivalism
2. Hedonism
3. Spirituality
4. Escapism
I don’t have the will to run off and be an anarcho-primitivist hermit in the mountains, the desire to join a doomsday cult in a fortified settlement, the constitution for excessive partying, I fear I may lack the neurological capacity for spirituality, so it pretty much leaves me with escapism and hoping for the best in the future.
As for your sources, I think Dr. Joseph Tainter is wrong, civilizations need continually growing energy or they die. The complexity of society is enabled and created through abundant energy, and it is when the energy supply stops growing that collapse occurs. They don’t “run out” of energy, they stop growing within a system that must grow or die. In effect, they do run out of resources, it is energy resources, not commodities that matter.
As for Professor Ugo Bardi, he’s basically saying once society reaches limits of nonrenewable resources, it will collapse until it is back on renewable resources. That is not (as far as I know) contradictory to anything I’ve said.
Matthew Krajcik,
So, let’s ignore diminishing oil and energy.
Then, let’s imagine that we can service all the current debt, so forget about economic collapse; it won’t happen
Once at it, let’s also forget the additional 1 billion people every 15 years.
However, tell us with the right words, because these are not trivial matters, what do you think will happen when there are no more jobs?
When the dispossessed working poor, along with unemployed college graduates and students, unemployed journalists, artists, lawyers and teachers, service workers with the alienated college-educated sons and daughters of the old middle class conclude that they will not be able, as they once expected, to rise economically and socially.
All while there’s a tiny minority of oligarchs, corporate, health care, and education channeling 40/50% in usury (rent) and subsidies (public debt).
“It is well enough that people of the nation do not understand our banking and monetary system, for if they did, I believe there would be a revolution before tomorrow morning” – Henry Ford – “New York World” newspaper, 1920
“So, let’s ignore diminishing oil and energy.”
Well, energy has not even begun to go down yet, and may not, but even if it does, if we could have 10 percent of the energy we have now, we could survive, I think.
“Then, let’s imagine that we can service all the current debt, so forget about economic collapse; it won’t happen”
Well, there will need to be bankruptcies or a debt jubilee or something eventually; perhaps hyperinflation and then currency reform like Wiemar Germany or Hungary or many other places in the past.
“Once at it, let’s also forget the additional 1 billion people every 15 years.”
That’s not happening. Under best (worst?) case scenario, population tops out at 11 billion and then declines. Most of that population growth is going to be in Africa anyways, and Africa has tons of virgin land and resources to exploit.
“However, tell us with the right words, because these are not trivial matters, what do you think will happen when there are no more jobs?”
One of two things. If it is a low-energy future, the vast majority of people – 90 to 99% perhaps – will become subsistence farmers. Maybe they spend 20 hours per week just to feed themselves, maybe 60 hours per week, depending on many factors. Some will be serfs, or tenant farmers, or sharecroppers, or slaves, depending on the local customs that arise.
If by some miracle we have a future that involves high energy – say, anywhere from a quarter of current energy per person on up to equal or even more energy per person – who knows. Maybe we get Jacques Fresco’s Resource Economy, maybe we expand into space, maybe we get the Jetsons with people sitting around pushing buttons all day and spending the rest of their life at the mall buying disposable crap, or maybe we end up with most people spending most of their life on the Internet or in The Matrix. Maybe by some rare chance we get a future where the majority of the people devote some portion of their time to self-improvement, art, culture or spirituality.
Good luck! We have a networked economy that has been built up over the years. What we would need is a new networked economy that works on a whole lot less energy. This transformation would be amazingly huge. We wouldn’t be able to extract fossil fuels with the much simpler economy, so our new energy use would likely be less than 10% of existing energy within a few years.
So it’s obvious it will not dawn on you our predicament until very late. Oil shortages, rampant famine, social disintegration that, most likely, will lead to nuke each other.
As soon as the public realizes what is about to happen, it will bleed them dry. And fast.
As their will be facing our final downward spiral….. Totally unprepared.
Astounding, but not surprising.
“Brace yourself! The American Empire is over. The descent is going to be horrifying!” — Chris Hedges
Wredwards – I agree with you completely regarding the near total disconnect between futures and the price of oil. However, the disconnect may be part market driven (i.e. manipulation and greed) and part ignorance driven. The end result is probably the same which ever part you assign the responsibility.
A couple of years ago I started researching oil well production costs as it relates to a the market price of a barrel of crude. After a number of interviews with oil well engineers and other hands on well production experts, it appeared that current oil actually cost on avg. about $40/b to produce – even though the market price was well over a $100/b at the time. I believe it’s the actual cost that sets the bottom of the market for the crude markets. The oil companies know very well what it cost them to produce the crude they are currently pumping – and will indeed stop pumping it when the market goes below that. Newer and more expensive wells stop production first, but that is a relatively minor portion of the current extent wells that are pumping.
Most people including Gail, don’t seem to understand that the production cost of oil is based on not today’s or the future production costs, but rather production costs of 15 years ago on avg. because the avg. oil well has a production life of about 30 years. Consequently, it’s extremely complicated to determine what the actual production costs of barrel of oil production of oil is today unless you know when the well was produced and its respective costs. Additionally, you would have to know what part of the current supply was coming from new oil production.
Most people including Gail look at anticipated costs of future oil production, but not accounting for the fact that those costs aren’t applicable in oil production on average for another 15 years. Most of the talking heads simply start telling us about what it cost to produce a well being drilled today – which of course feeds the futures market assumptions of what a barrel of oil might be worth someday, but ignoring the actual costs and its appropriate cost provenance.
All things considered – I don’t see this changing as long as oil wells are being drill and oil is being consumed. Like many other “inefficient” systems – Gail discusses (some quit correct and some very incompletely) our oil futures markets is part of the inefficiency of our incompetent national and international energy plan – such as it minimally exists.
“After a number of interviews with oil well engineers and other hands on well production experts, it appeared that current oil actually cost on avg. about $40/b to produce – even though the market price was well over a $100/b at the time. I believe it’s the actual cost that sets the bottom of the market for the crude markets.”
We could be under $40 in a couple days. Also, as someone else mentioned earlier, the price at the wellhead is at least $10 less than the price at the refinery, depending on how far it has to travel.
There is, of course, a good deal of lag time; takes time to start wells, futures contracts and hedges keep production going for quite some time at higher than spot price, etc.
It seems price will decline as long as there is more supply than demand, and once it settles it could stay down for a long time, since any uptick in price could bring more supply online pretty quick. The rational thing to do would be for America and Russia to cooperate with OPEC on setting production limits.
Here’s what matters:
If the cost to find and extract new sources of oil is $80 a barrel, and the price of a barrel of oil is $50, and you own an oil business, will you invest in finding new oil?
Of course not. Well if you wanted to bankrupt your company you would.
As we can see capex was being cut even with oil in the $100 range:
OIL BECOMING TOO EXPENSIVE TO EXTRACT
It emerged this week that the drilling of wells in the North Sea has crashed by around 50% this year, compared to the year-ago period. The reason for this is simple: the cost of extracting oil in North Sea has quintupled over the last decade, discouraging companies from investing within the region. http://www.fool.co.uk/investing/2014/07/18/surging-north-sea-project-costs-are-putting-the-regions-future-at-risk-tullow-oil-plc-premier-oil-plc-xcite-energy-limited/
We can jangle on about futures and whatever else, but the fact of the matter is that if oil stays at these prices, capex will vapourize, which will cause a massive bottleneck if growth ever comes back.
But not to worry, I do not expect a bottleneck, because I do not think oil at $50, or $40, or even $20 is going to reignite growth. When there are no jobs being created it does not matter what the price of oil is, it is always too high.
The nag has been shot through with heroin, crack, speed, and steroids, to keep him standing. He’s now lying collapsed on the ground in front of the saloon. He’s got no fight left in him. You can give him the lash, you can kick him in the gut, he’s not moving.
I am with Gail on this. I do not think we are likely to see much of a burst upwards in price of oil due to renewed growth. Because growth is over, no matter what we do. We are starting the phase of pushing on a string.
It would be good to be wrong on this.
I like the new article, as I always do.
But I would also think that the conclusions MIGHT be early.
The price drop CAN mean something, but it doesn’t HAVE to. The supply and demand for oil (futures) has a big speculative element.
Of course, if the general consensus among traders is a coming crash of the world economy (perhaps the signs are obvious for anyone to see), the real world would enter the game. But the only consensus I can see for this crash is that most traders have been thinking oil could drop further, and so it does.
With gold (futures), it was very similar. The “price” started rising in 2002 because everyone was betting on the inflation story, and safe/hard assets were en vogue. In 2011 it reversed because the deflation story became the new hype, and it never stopped falling, because most traders thought it could come down further, and so it did. The demand for physical gold was more or less unchanged all the time, no change in “fundamentals”. And everybody (even the mainstream media) could explain the moves up and down perfectly, but all that really happened was that many traders went long and then short. Oil is a different commodity, but the mechanism is not so different.
In oil, unlike gold, the physical demand and the production roughly match. No one keeps oil under their mattress as a hedge against catastrophe.
I would put it a little different:
Oil, unlike gold, is being used up.
But the demand for physical gold is almost like being used up. Most holders don’t plan to return it back to the market until “after the crash”. No big inventories with producers and traders. So where is the basic difference? A big drop in price, without actual change of supply and demand.
Gold is not a great example. Because the price of gold is 100% controlled by the Fed. This has been done to death by Grant Williams in his financial research letters; the FT has also run articles on how the price of gold is manipulated (they only did this after Williams and Zero Hedge and a little common sense meant that everyone already knew this was a rigged market)
That said, if they can rig gold, if they can rig stocks, if they can rig bonds, then why not oil?
The only question would then be is why crash the oil price?
Just because they rig the price of gold, doesn’t mean the price of oil is rigged. I think that we can get carried away with our belief that they rig everything. Ultimately they can not control how much oil is in the ground and how much it costs to take it out. I think that we are currently on a collision course between the economy and oil production. The oil producers are not slowing down because they are getting the investment money they need to produce the oil and the economy is not speeding up enough to use up the excess oil. This process is likely to continue until some wall is hit that we don’t currently see, massive defaults, as Gail says, the wall street herd stampeding away from investment in oil. When that happens we will be in interesting times.
Of course they can rig the price of oil. OPEC has been rigging it for years (with full approval of the US)
If they wanted the price of oil to move over $100 they could easily do it. John Kerry would just make a call to the Saudi’s and tell them to shut a spigot or two.
And if Saudi’s said no, then whichever bearded whore-master was behind that ‘no’ would be advised to download the movie Syriana and watch that movie in his gilded screening room. He would specifically be asked to watch the scene near the very end, the part where the drone kills the would be Emir who signed the deal with the Chinese instead of the Americans.
Remember what happened to Mossadegh, and Gaddafi, and Saddam when they decided not to listen to their CIA minders.
Look at what is happening to Mr Assad right now. And lest we forget, Putin is arch enemy number one all of the sudden because he refuses to kowtow to the will of the US.
This is what empire is all about. Carrot and stick.
If you go along you get the carrot. But if you rock the boat you get the assassin’s bullet in the head, and someone who will go along replaces you.
There can be no leniency, because if the emperor is like the mafia don. If he fails to punish someone who screws him, the message goes out that he is weak, and that is the beginning of the end.
If the US wants the oil price higher it will go higher.
It is surely much more difficult to increase share prices across global stock markets to record highs, when growth is falling, than it would be to increase the price of oil.
It really would be as simple as firing some drone missiles into the refineries of a major oil producer cutting the flow of oil and creating a panic, and blaming the whole thing on “the terrorists”
You’d have $100 oil in the time it would take for an energy trader to read that information coming across his Bloomberg screen, and hitting a few key strokes on his terminal.
I think that higher priced oil would benefit wall street right now. Share prices in oil stocks would go up with higher priced oil and they have to be a little bit worried about what low priced oil will do to investment in shale oil. Let’s see what happens.
While the US government has no hesitation in creating coups in places like Libya, and Ukraine, there won’t be any Hellfire missiles raining down on any Saudi emirs, or even people inside the country. Yes, there is a legacy of US-sponsored Machiaveliian-intervention that have been on a perpetual basis since the end of WW II. Droning a Saudi would cause a fierce blowback, and would certainly open Pandora’s Box.
All this rigging talk. Anyone with money could participate in the latest bubbles – and everybody did. ZIRP = guarantee for bull market in stocks and real estate – nowhere else to go. Then you can place your stops and go to the beach. It’s all betting on what the others will do, never about fundamentals. And get out before it’s too late. That’s bubble knowledge 101. No rigging needed.
Hugh Hendry stopped ‘fighting the Fed’ He understands that logic has no place in making investment decisions, and has not for some years now.
Hugh Hendry’s Eclectica Fund has had a great Q4 (up 3.3%, 4.0%, and 5.0% in the last 3 months) despite portfolio risk being quadruple his ‘old normal’. How did he achieve this? He begins… “There are times when an investor has no choice but to behave as though he believes in things that don’t necessarily exist. For us, that means being willing to be long risk assets in the full knowledge of two things: that those assets may have no qualitative support; and second, that this is all going to end painfully. The good news is that mankind clearly has the ability to suspend rational judgment long and often… He who hangs on to truth has lost. The economic truth of today no longer offers me much solace; I am taking the blue pills now.”
The truth? You have to reject it
This sounds good. Really good. I have long thought of myself as one of the enlightened. My much thumbed copy of Kindelberger’s Manias, Panics and Crashes aided and abetted my thinking as I correctly anticipated and monetised profits from the crisis of 2008 for example. But it isn’t always good. Kindelberger has been absolutely detrimental to my investment performance for the last six years and as a result I have changed. I still believe that the attempt by central bankers to prevent the private sector from deleveraging via a non-stop parade of asset price bubbles will end in tears. But I no longer think that anyone can say when. Look back on the last five years and I think that it is indisputable that mass injections of loose monetary policy have both fuelled asset prices and staved off further crisis. I am also absolutely persuaded that the global economy remains so fragile that modern monetary interventions are likely to persist, if not accelerate. They will therefore continue to overwhelm all qualitative factors in determining the course for stock prices in the year ahead.
So I have come to embrace the French philosopher Baudrillard’s insight. “Truth is what we should rid ourselves of as fast as possible and pass it on to somebody else,” he wrote. “As with illness, it’s the only way to be cured of it. He who hangs on to truth has lost.” The economic truth of today no longer offers me much solace; I am taking the blue pills now. In the long run we will come to rue the central bank actions of today. But today there is no serious stimulus programme that our Disney markets will not consider to be successful. Markets can be no more long term than politics and we have no recourse but to put up with the environment that gives us; the modern market is effectively Keynesian with an Austrian tail.
My suspension of disbelief on all this has won me many detractors. These investors reject my notion of imagined realities and prefer to speculate instead on movements in capital markets in a manner similar to making propositions about chemistry, biology, or physics: they describe a cold, rational, mind-independent reality and focus on the inevitable outcomes; they have no interest in fanciful flight paths. I think they are missing the key to success: the fact that markets are vulnerable to forces far more variable and subjective than the tenets of stock valuation. In this new imagined reality there is every chance that risk markets grind higher for much longer. The Fund, you will be pleased to hear was up another 5% in November. Year to date returns are now almost 8%.
The Phantom Menace
To conclude I thought that I would expand upon our present Platonic thinking on the Chinese equity market. China is set to record its weakest growth in GDP in 25 years. Yet it seems to have entered a bull market and may be where we deploy much more of our risk capital next year. That’s because the recent exuberant run up in onshore Chinese equities seems to me to amply demonstrate the power of imagined realities.
Earlier this year, the shocking reality of falling property prices across China began to emerge such that even the official Chinese government economic data series had no choice but to admit it was happening. On the assumption that insolvency was all but inevitable international investors (Eclectica amongst them) began to fear a surge in bad debts at the major Chinese banks and sold. Financial stocks took a beating and the major banks started to trade at a steep discount to their reported book value.
At this point, the situation in Chinese capital markets began to resemble that of Europe back in the summer of 2012 when Spanish and Italian government bond yields came to exceed 6%. The capital markets were effectively betting on the ECB failing to contain the crisis. With Spanish and Italian government bonds now trading below 2%, this has proven a bad bet. The interesting question to ask today, however, is not who lost money on the bet, but who made money? Institutional fixed income managers that had little or no discretion but to own such assets did, but the returns on offer evaded the majority of discretionary global macro managers. Why? They were looking at qualitative truth factors such as enduringly weak economic growth, political backsliding on structural improvements and a systematic failure to control the size of fiscal deficits. They shouldn’t have been: despite all this the market has relentlessly ground higher on the basis of the imagined reality that the ECB will overcome all institutional objections to the contrary and will buy sovereign European bonds en masse.
The easy money has been made here.
There is more here http://www.zerohedge.com/news/2014-12-31/hugh-hendry-embraces-central-planning-matrix-i-am-taking-blue-pills-now
Thanks! The outcomes of the last six years have indeed been far different than we would have expected without the market interventions.
The Nasdaq and S&P have both returned an average of over 20% over the last 3 years.
How many thousands of hedge funds are there? Only a handful are returning more than the index.
Why?
Because there is no longer any logic to markets because they are 100% addicted to the QE that is surging through the global economy. If a companies stock price drops they tap ZIRP money and buy back stocks driving the price to record highs.
It is impossible for a fund manager to pick winners when that is happening, hence the index funds are destroying the hedge funds. You can buy into an ETF with virtually no fees while a hedge fund will usually take a small front end fee and 25% of the profit.
What amazes me is that punters continue to hand their cash to hedge funds almost all of which have for years now underperformed the market.
http://www.zerohedge.com/sites/default/files/images/user5/imageroot/2014/12/HFs%20Dec%202014.jpg
I am not even sure if those are the nett returns. If they are not, then subtract at least 25% and that leaves you with almost no funds outperforming the indices.
It seems to me that we have been pumping any awfully lot of money into shale and into emerging markets. This money is now disappearing, thanks to the end of QE3. So while the view of where prices will go plays a role in deciding where this extra investment money will be channeled, once the extra money is taken away, that by itself leads to a likely drop in oil prices and the drop in other commodity prices. Emerging markets (which tend to be closely tied to commodities) see the value of their currencies plummet, making it hard to repay US dollar denominated debt.
Once we start seeing debt defaults, interest rates for these sectors will rise. They will no longer be the “hot new thing” for investment. Thus, even if QE is reinstated, the additional funds will not pump up these sectors–they will go somewhere else. Thus, I am afraid that low commodity prices are here to stay, representing the popping of an unsustainable bubble.
In my opinion, many people are simplifying how QE money “goes into” oil / shale / commodities etc.
As a result from decades of growth, we have a huge overhang of global savings. One number is enough: there are over 300 chinese $-BILLIONAIRES, and almost 3.000.000 $-MILLIONAIRES. And the rest of the world is not much different.
This is too much ignored on this blog. There are NO financial limits, just staggering inequality. Of course, we can’t change that, and physical limits are still there.
So THIS is what has been driving prices in everything. QE was a nice topping. So they stop adding MORE of it – that’s not so big.
Maybe stopping more QE is not so big, but we also had a big ramp up in debt in China, as they built out their infrastructure. Now the infrastructure is mostly built out, so that by itself is greatly slowing the ramp-up of debt. Changes have been made to lending and to home ownership rules so that home prices have been dropping since May. Also, the large parts of the shadow banking system are being shut down, since June. I think the Chinese growth/debt problem is part of the story too.
IMO, this is the beginning of what happens when real world supply and demand meet speculative finance. We get instability, and eventually things will break. Supply and demand of both the physical commodity and the paper promise are both in play here, but they are not in sync.
There are probably multiple ways that physical commodities and paper promises are out of sync. I agree that it seems likely that eventually the system will break.
I agree that commodity futures add a layer of intrigue to the story. I don’t think that there is a general pattern of distortion, though, because each month, futures contracts get settled out, so they cannot deviate too far from the real world. Also, futures markets operate for many other commodities, and the prices of those commodities do not seem to get vastly distorted.
I think the real dangers of futures markets are
(1) They will lead to distorted supply and demand markets, because, for example, shale oil drillers who have guaranteed high oil prices for themselves for the next two years will keep drilling, regardless of how low prices go. As a result, a drop in oil demand will be slow to feed through as a drop in supply, increasing losses on derivative contracts.
(2) The contracts have the potential to lead to huge losses for the institutions selling them. Central bankers have said that they don’t want to bail out the “too big to fail institutions” again this time. Unfortunately, if governments don’t bail out these banks, the choices available aren’t good. Bank capital is not likely to be sufficient to protect depositors. There is a significant possibility that depositors will lose some or all of their deposits, in an attempt to save the banks. If this happens, local every day business like shoe stores may find it impossible to pay their employees because of lack of deposits. What will be saved is the derivative buying and selling business, in the hope that faith in the financial system will continue.
If the real world adopts those futures numbers, regardless of the basis for their formation, then there will be no deviation. But then we can agree that the numbers were derived from the futures trading, not oil trading, can’t we?
So you are claiming that the futures trading actually has a marked impact on the rise and fall of the cash market for oil? Why I can see an abstract correlation there the trouble is you are also claiming that the producers, who should be hedging, are in fact being basically brow beaten into losing on futures margins for whatever the length of time they are setting on their futures. In the case of this recent price drop any margin call would basically be wiping out the cash holdings in the account of any oil producer I would think. Unless and only if the original futures prices are completely and totally over blown to begin with and the actual cost of production is still way below the current cash market price in which case the producers are actually still making out at the end of the futures agreement with profits on the cash market to offset the losses of the daily futures drop. OR they originally agreed to the price drop on the futures long before the cash market price dropped?
That’s an interesting theory and one I just haven’t looked up. I am assuming you keep up with the daily futures prices so therefore should know what the actual futures agreement prices are being settled for as of say today (December 29th) that will tell us if the producers agreed to this price drop say 6 months or a year ago.
You seem to presume a participation by producers to a much greater extent than the open interest numbers could ever support. Major producers do not hedge more than a minuscule amount. That myth is perpetuated by the entities that run the options exchanges. For working purposes, think of a trading floor populated by people who know NOTHING about real oil. Oil is just the name on that particular roulette wheel. The real question is why the oil industry adopts those numbers and labels them “The Market price for oil”.
The oil market on the futures exchanges is only a part of global oil trade. I don’t have the numbers, but I think much is done outside. Of course the exchange sets the spot price, but there are other long term contracts. That’s why it is so important if the price stays down here. If so, producers are in big difficulty. If not – BAU.
Interesting that the big multies aren’t hurt much until now.
The big multis were cutting back on new Exploration and Production, even before oil prices crashed. See my post http://ourfiniteworld.com/2014/02/25/beginning-of-the-end-oil-companies-cut-back-on-spending/ from February 2014.
I do not think this is a direct issue of the efficiencies or lack thereof in the current Industrial Economy. Rather is is a question of basic Thermodynamics, and how Money serves as a proxy for Energy.
The system as a whole is bound to get less efficient, because the gradient you are working with diminishes all the time. I just published on this topic on the Diner, a followup to the Money Valve series.
Of Heat Sinks & Debt Sinks: A Thermodynamic View of Money
RE
I fixed your link. In order to borrow money, you have to have a reasonable chance of paying it back with interest. The problem now is that the reasonable chance of paying the money back with interest is going away. I just scanned the article, but didn’t notice that point.
Interest and Taxation are the means by which banks and government sieve off some of the energy as it travels downhill. I have that right in the diagram. Also from the article:
Why does the money stop flowing? Well, it doesn’t in it’s entirety at first, but the backflow of bankruptcies matches or equals the rate at which new credit/money is issued out. This is the stage we are at now. You can keep issuing out credit, but you don’t get any return from it because the backflow matches any amount of new credit you pitch out. There are not more resources the money can access without accumulating debt at an equal or greater rate. The money at this point has to be issued out at a ZIRP, because there is nothing to be sieved of the flow from Interest & Taxation.
In a ZIRP environment, you don’t have interest, but your inability to repay loans stems from the fact there is too much backflow no matter how much money you issue at ZIRP.
RE
Thanks!
reverseengineerre,
Great web you have. Love the layout and guess post.
Job well done.
Congratulations.
“Until you recognize that oil prices for the past thirty years have been directly adopted from oil futures trading and therefore move according to futures trading fundamentals, not oil fundamentals, you are going to drive yourself to distraction truing to make reality fit your ideas….” may be true, may not be true.
I think it was Richard Feynman that once said scientific theory can never be proved absolutely but it can be disproved, usually when better scientific theory comes along that conclusively disproves an original theory that once stood the test of time.
So if I’m correct, you’re trying to explain that “oil fundamentals”, (I presume physical fundamentals) have had nothing to do with movements in oil prices over the last 30 years but rather are directly related to oil futures trading. Please clarify this?
Let’s remind ourselves, oil is a physical commodity, that in the real world, makes modern life possible, gets used for many important things whilst at the same time is also seen as a tradable financial asset, Right thus far?
I think it’s also vital we define ‘fundamentals’. The purpose of using one’s mind is to gain understanding and clarity about reality. Francis Bacon knew that in order to command nature, one must act according to its rules and identity. If you want to change the world, you must act according to reality. Nothing else will affect reality. If you evade this fact, your actions will most likely not have their desired effects. Your failure will be ‘metaphysical justice.’
Therefore the term ‘fundamentals’ is based on the idea that some details are more important than others by their ability to convey understanding. For instance, the fundamental difference between man and other animals is our conceptual nature. Although there are myriad differences in shape, size and abilities, this one difference specifies the most important difference. It is fundamental because this one difference has the largest impact on our lives. It is the cause of why we treat the two groups in very different ways.
The term ‘fundamental’ is also highly contextual. The above examples of ‘humans being different from other animals’ is based on an ethical context. When choosing how one is to act in relation to humans or animals, the conceptual nature is the difference that is most important. However, if the discussion was about biology, and the specific topic was disease tolerance, the conceptual nature of man is not important. The difference then may be the specific workings of the immune system.
Discussing ideas in terms of fundamentals is important for clarity. One cannot integrate ideas that have nothing in common. Similarly, a non-fundamental differentiation will form a concept that is unusable. Without dealing in fundamentals, it is difficult or ‘impossible’ to reach useful conclusions. The effectiveness of one’s thinking is dependent on thinking clearly in ‘fundamentals’.
So let’s test your theory “that oil prices for the past thirty years have been directly adopted from oil futures trading and therefore move according to futures trading fundamentals, not oil fundamentals” and assume that tomorrow “all physical oil extraction stops flowing”. then I’m willing to place a wager that those “Oil futures driven by supply and demand of oil futures” may be effected somehow, which in turn may impact price?
Now I may be wrong, but I’m certain a barrel of oil is a physical reality and given the economy is a ‘surplus energy equation’ not a monetary one and the fact that the financial system merely masks the physical finite nature of the world we live in, I’m confident that oil prices the past 30 years have been impacted “indirectly” by physical “oil fundamentals” and that this is what matters and will matter even more so over the next 30 years?
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This temporary fall in oil prices was actually predicted in November 2013 by Christophe McGlade. Precisely as you say, this does not mean that we have “enough” cheap oil to meet the demand that is about to hit us in the next decade. It is truly a question of global demand and is not just about American inefficiency. I will be writing a post about this, most likely for Peak Oil Barrel.
I wasn’t particularly trying to focus on the American situation. For example, I at one point included a section talking about the fact that building all of the new homes for Chinese people did not directly increase the quantity of goods the Chinese economy could build. Instead, it leads to higher wage demands going forward, so as to be able to afford the mortgages needed to buy all of the new homes. So, to some extent, this is a form of inefficient use of investment as well.
I ended up taking out some sections because the post was getting too long, though.
So if we also consider that these new homes are taking away natural habitat that also contributes to health and wellbeing, then that adds to the need to consider wiser land use alternatives.
I’m way out of my depth on the strictly BAU economics featured here (and elsewhere), but it strikes me how cultural reevaluation–deciding that small is beautiful, that aesthetics matter, that complex (altruistic) thinking trumps simple minded avarice, etc., can be a factor tending toward economic stability.
If the aim is to keep industrial civilization going as long as possible, then what sense does it make to conduct business in the least sophisticated and thoughtful manner possible? Isn’t that diminishing the chances for continuation? Why is it assumed that people’s preferences can’t be (programmatically) changed so as to enhance more sustainable outcomes?
In other words, do culture or philosophy have any bearing on economics?
“do culture or philosophy have any bearing on economics?”
Yes, absolutely.
“Why is it assumed that people’s preferences can’t be (programmatically) changed so as to enhance more sustainable outcomes?”
Well, mind control, propaganda, indoctrination are generally considered immoral or unethical. It is done, but it is equally available to everyone, so you have for-profit corporations indoctrinating people to consume more, while environmental movements try to indoctrinate people to harm the environment less, while social movements try to alter people’s treatment of one another.
Also, the programmers themselves are susceptible to the indoctrination from other schools of thought, so you end up with mixed messaging, like “sustainable growth” and the “Green” movement, doing things based on emotions rather than reason, like rushing into using mercury filled fluorescent light bulbs because “We MUST do something NOW!” instead of using the scientific method to determine an optimal solution and mature the technologies prior to mass adoption.
Yes. I saw the danger in that conditioning remark, but couldn’t think of another way to say what I meant. Yes, something in line with science (as clear as we can be about the constraints on science itself), but also based on the assumption, a priori, that preserving life is of primary importance. The assumption that life wants to continue living. To act on this assumption requires common sense, ethics, and clear vision. How is that achieved?
Meanwhile, here’s a most interesting approach:
http://www.ecologyandsociety.org/vol19/iss4/art6/ES-2014-6931.pdf
“ABSTRACT. The problem of institutional fit in social-ecological systems has been empirically documented and conceptually discussed for decades, yet there is a shortage of approaches to systematically and quantitatively examine the level of fit. We address this gap, focusing on spatial fit in an urban and peri-urban regional landscape. Such landscapes typically exhibit significant fragmentation of remnant habitats, which can limit critical species dispersal. This may have detrimental effects on species persistence and ecosystem functioning if land use is planned without consideration of the spatial patterns of fragmentation. Managing habitat fragmentation is particularly challenging when the scale of fragmentation reaches beyond the control of single managers, thereby requiring different actors to coordinate their activities to address the problem at the appropriate scale. We present a research approach that maps patterns of collaborations between actors who manage different parts of a landscape, and then relates these patterns to structures of ecological connectivity. We applied our approach to evaluate the fit between a collaborative wetland management network comprising all 26 municipalities in the Stockholm County in Sweden and an ecologically defined network of dispersed but ecologically interconnected wetlands. Many wetlands in this landscape are either intersected by the boundary between two or more municipalities, or are located close to such boundaries, which implies a degree of ecological interconnectedness and a need for intermunicipal coordination related to wetland management across boundaries. We first estimated the level of ecological connectivity between wetlands in neighboring municipalities, and then used this estimate to elaborate the level of social-ecological fit vis-à-vis intermunicipal collaboration. We found that the level of fit was generally weak. Also, we identified critical misalignments of ecological connectivity and intermunicipal collaboration, respectively, as well as collaborations that represented an adequate alignment. These findings inform on where to most effectively allocate limited resources of collaborative capacity to enhance the level of social-ecological fit. Our approach and results are illustrated using maps, which facilitates the potential application of this method in land use planning practice.”
That abstract of “a most interesting approach” has a Gunning Fog Index between 21 and 23, implying that the reader is expected to be educated to the post-doctoral level. Anything above 12 is considered too hard for the average person to read, and this passage is actually one of the most unreadable I have ever encountered outside of legal documents deliberately designed to obfuscate rather than enlighten.
The high value is caused by excessive numbers of “difficult” words, rather than by long sentences. The “difficult” words are mainly jargon terms such as “interconnectedness”, “intermunicipal”, and “collaborative”, combined into phrases such as “critical misalignments of ecological connectivity”.
The obvious conclusion is that the author is far more interested in impressing peers than in making a real contribution to the problems facing the planet.
I agree that it is too obscure by half. Why we’re in the fix we’re in. What I find interesting is its interest in putting the need to connect areas of lands together for optimal ecological benefits. And how this need is countermanded on the part of jurisdictions by the lack of vision, coordination and will to make this succeed. At least, this is the best I can come up with. 🙂 IMO, nothing in the world is more important than connecting those areas of land.
Perhaps culture and philosophy have a bearing on economics if we are a ways from peak. In other words, if were China or the US 100 years ago, and decided to go on a slow growth path. I don’t think capitalism and debt would really provide a slow-growth path though–perhaps a civilization that valued families that were small enough that a single child could inherit the family farm, and any other child would be married off. No interest in debt, or mines, or fossil fuels. Following this lower path, and only much later starting with a smaller amount of fossil fuels use would have kept things going longer. If we didn’t add fossil fuels, we still would have collapsed, but at a lower level.
If we are already at the end of the line, and don’t have other cheap energy sources we can add, changing how we act now won’t do much, I expect.
I have a hard time following the thread of reasoning here. If we are already at the end of the line, it behooves us to learn to do with much, much less, while learning to love it. But I understand that social, not just physical, constrictions prevent a large number of people from doing the teaching and learning needed for that to happen. Not making these cultural adjustments (as would be the temptation were there ample energy sources) would only hasten the destruction of the environment that is our only sustainable life support. So while I see no way out either, it is for different reasons than the oil determinism that is expressed here routinely.
If doing with less meant fewer jobs serving greater consumption, I suppose that the great machine of the economy would break down. Maybe it needs to operate at a certain scale and velocity to work and not collapse. I don’t know.
The author of the following quote points out that technology to do mighty things need not be machine-based, and that the people who built the pyramids were a technology.
“Granted, there are people who take that position—on both ends of the political spectrum. As an anthropologist and anarchist, I encounter anticivilizational types who insist not only that current industrial technology leads only to capitalist-style oppression, but that this must necessarily be true of any future technology as well, and therefore that human liberation can be achieved only by returning to the Stone Age. Most of us are not technological determinists.”
Most people do nothing productive. If they quit the world would move on without them. The rich can do four things with their money, invest it, buy something they want with it, have it taken away by taxation, or simply give it away. Non productive people are kept from starving by one of these means. If the rich do not want what you can do, or can avoid taxation, or simply do not care if you starve, well, the economy can break down.
As a middle class American I have no idea how the poor in overcrowded third world cities survive. There are prepper books on how to live off the land. Are there urban survival books?
Hi Gail,
We began informing clients in May, 2014 of the coming price drop. We posted this page at our site in September:
http://www.thehillsgroup.org/depletion2_022.htm
We weren’t surprised by the decline, but we were completely caught off guard by the magnitude of the drop. We expected about 25%; we got 50%. We have done some recalculation, and have determined that it will require that 4 m/d of high cost production will have to be taken off line to bring the price back to the curve above. We don’t expect that to occur until late 2016 when prices will settle in the lower $60 range. They will then continue to decline over the next few years. This process will continue until all the high cost production crude has been taken off the market. That includes: bitumen, shale, ultra deep water, and high sulfur extra heavy.
I’ll try to get over to Reverse Engineer’s pod cast sometime in the near future. Hope to see you there.
BW Hill
http://www.thehillsgroup.org/