A new theory of energy and the economy – Part 1 – Generating economic growth

How does the economy really work? In my view, there are many erroneous theories in published literature. I have been investigating this topic and have come to the conclusion that both energy and debt play an extremely important role in an economic system. Once energy supply and other aspects of the economy start hitting diminishing returns, there is a serious chance that a debt implosion will bring the whole system down.

In this post, I will look at the first piece of this story, relating to how the economy is tied to energy, and how the leveraging impact of cheap energy creates economic growth. In order for economic growth to occur, the wages of workers need to go farther and farther in buying goods and services. Low-priced energy products are far more effective in producing this situation than high-priced energy products. Substituting high-priced energy products for low-priced energy products can be expected to lead to lower economic growth.

Trying to tackle this topic is a daunting task. The subject crosses many fields of study, including anthropology, ecology, systems analysis, economics, and physics of a thermodynamically open system. It also involves reaching limits in a finite world. Most researchers have tackled the subject without understanding the many issues involved. I hope my analysis can shed some light on the subject.

I plan to add related posts later.

An Overview of a Networked Economy

The economy is a networked system of customers, businesses, and governments. It is tied together by a financial system and by many laws and customs that have grown up over the years. I represent the economic network as a child’s toy made of sticks that connect together, but that can, if disturbed in the wrong way, collapse.

Figure 1. Dome constructed using Leonardo Sticks

Figure 1. Dome constructed using Leonardo Sticks

The economy is a self-organized system. In other words, it grew up gradually over time, one piece at a time. New businesses were added and old ones disappeared. New customers were added and others left. The products sold gradually changed. Governments gradually added new laws and removed old ones. As changes were made, the system automatically re-optimized for the changes. For example, if one business raised its price on a product while others did not, some of the customers would move to the businesses selling the product at a lower price.

The economy is represented as hollow because, as products become obsolete, the economy gradually adapts to the replacement product and loses support for earlier products. An example is cars replacing horse and buggy in the United States. There are fewer horses today and many fewer buggy manufacturers. Cities generally don’t have places to leave horses while shopping. Instead, there are many gasoline stations and parking lots for cars.

Because of the way an economy adapts to a new technology, it becomes virtually impossible to “go backwards” to the old technology. Any change that is made must be small and incremental–adding a few horses at the edge of the city, for example. Trying to add very many horses would be disruptive. Horses would get in the way of cars and would leave messes on the city streets.

The Economy as a Complex Adaptive System and Dissipative Structure

Systems analysts would call a system such as the economy a complex adaptive system, because of its tendency to grow and evolve in a self-organizing manner. The fact that this system grows and self-organizes comes from the fact the economy operates in a thermodynamically open system–that is, the economy receives energy from outside sources, and because of this energy, can grow and become more complex. The name of such a system from a physics perspective is a dissipative structure. Human beings, and in fact all plants and animals, are dissipative structures. So are hurricanes, galaxies, and star formation regions. All of these dissipative systems start from small beginnings, grow, and eventually collapse and die. Often they are replaced by new similar structures that are better adapted to the changing environment.

The study of the kinds of systems that grow and self-organize is a new one. Ilya Prigogine was awarded the Nobel Prize in Chemistry in 1977 for his pioneering work on dissipative systems. One writer (in French) about the economy as a dissipative structure is François Roddier. His book, published in 2012, is called Thermodynamique de l’evolution.

Why Energy is Central to the Economy

If the economy is a dissipative system, it is clear that energy must be central to its operation. But suppose that we are coming from a step back, and trying to show that the economy is an energy-based system that grows as more external energy is added.

Let’s start even before humans came onto the scene. All plants and animals need energy of some kind so that the organism can grow, reproduce, move, and sense changes to the environment. For plants, this energy often comes from the sun and photosynthesis. For animals, it comes from food of various kinds.

All plants and animals are in competition with other species and with other members of their own species. The possible outcomes are

  1. Win and live, and have offspring who might live as well
  2. Lose out and die

Access to adequate food (a source of energy) is one key to winning this competition. Outside energy can be helpful as well. The use of tools is as approach that is used by some types of animals as well as by humans. Even if the approach is as simple as throwing a rock at a victim, the rock amplifies the effect of using the animal’s own energy. In many cases, energy is needed for making a tool. This can be human energy, as in chipping one rock with another rock, or it can be heat energy. By 70,000 years ago, humans had figured out that heat-treating rock made it easier to shape rocks into tools.

A bigger step forward for humans than learning to use tools–in fact, what seems to have set them apart from other animals–was learning to use fire. This began as early as 1 million years ago. Controlled use of fire had many benefits. With fire, food could be cooked, cutting the amount of time needed for chewing down drastically. Foods that could not be eaten previously could be cooked and eaten, and more nutrition could be obtained from the foods that were eaten. The teeth and guts of humans gradually got smaller, and brains got larger, as human bodies adapted to eating cooked food.

There were other benefits of being able to use fire. With time freed up from not needing to chew as long, there was more time available for making tools. Fire could be used to keep warm and thus expand the range where humans could live. Fire could also be used to gain an advantage over other animals, both in hunting them and in scaring them away.

Humans were incredibly successful in their competition with other species, killing off the top carnivore species in each continent as they settled it, using only simple tools and the burning of biomass. According to Paleontologist Niles Eldridge, the Sixth Mass Extinction began when humans were still hunter-gatherers, when humans first moved out of Africa 100,000 years ago. The adverse impact of humans on other species grew significantly greater, once humans became farmers and declared some plants to be “weeds,” and selected others for greater use.

In many ways, the energy-based economy humans have built up over the years is simply an approach to compensate for our own feeble abilities:

  • Need for warm temperature–clothing, houses, heat when cold, air conditioning if hot
  • Need for food–metal tools, irrigation, refrigeration, fertilizer, herbicides, pesticides
  • Knowledge/thinking ability of humans–books, schools, Internet
  • Mobility–airplanes, cars, trucks, ships, roads
  • Vulnerability to germs–medicine, sanitation

A key component in any of these types of adaptations is energy of some appropriate kind. This energy can come in various forms:

  • Embodied energy stored up in tools and other capital goods that can be reused later. Some of the energy in making these tools is human energy (including human thinking capacity), and some of this is energy from other sources, such as heat from burning wood or another fuel.
  • Human energy–Humans have many abilities they can use, including moving their arms and legs, thinking, speaking, hearing, seeing, and tasting. All of these are made possible by the energy that humans get from food.
  • Energy from animals – Dogs can help with hunting and herding; oxen can help with plowing; horses can be ridden for transportation
  • Energy from burning wood and other forms of biomass, including peat moss
  • Energy from burning fossil fuels (coal, natural gas, or oil)
  • Electricity produced in any number of ways–hydroelectric, nuclear, burning coal or natural gas, and from devices that convert wind, solar, or geothermal energy
  • Wind energy – Used in sail boats and in wind powered devices, such as windmills to pump water. Wind turbines (with significant embodied energy) also generate electricity.
  • Solar energy – Most energy from the sun is “free”. It keeps us warm, grows food, and evaporates water, without additional “help.” There are also devices such as solar PV panels and solar hot water heaters that capture energy from the sun. These should perhaps be classified as tools with significant embodied energy.

One key use of supplemental energy is to reduce the amount of human labor needed in farming, freeing-up people to work at other types of jobs. The chart below shows how the percentage of the population working in agriculture tends to drop as the amount of supplementary energy rises.

Figure 2. Percent of Workforce in Agriculture based on CIA World Factbook Data, compared to Energy Consumption Per Capita based on 2012 EIA Data.

Figure 2. Percent of Workforce in Agriculture based on CIA World Factbook Data, compared to Energy Consumption Per Capita based on 2012 EIA Data.

The energy per capita shown on Figure 2 is includes only energy sources that are bought and sold in markets, and thus that can easily be counted. These would include fossil fuel energy and electricity made from a variety of sources (fossil fuels, hydroelectric, nuclear, wind, solar PV). It does not include other sources of energy, such as

  • Embodied energy in previously made devices
  • Human energy
  • Animal energy
  • Locally gathered dung, wood, and other biomass.
  • Free solar energy, keeping people warm and growing crops

Besides reducing the proportion of the population needed to work in agriculture, the other things that “modern” sources of energy do are

  1. Allow many more people to live on earth, and
  2. Allow those people to have much more “stuff”–large, well-heated homes; cars; lighting where desired; indoor bathrooms; grocery stores filled with food; refrigeration;  telephones; television; and the Internet.

Figure 3 below shows that human population has risen remarkably since the use of modern fuels began in quantity about 200 years ago.

Figure 3. World population from US Census Bureau, overlaid with fossil fuel use (red) by Vaclav Smil from Energy Transitions: History, Requirements, Prospects.

Figure 3. World population from US Census Bureau, overlaid with fossil fuel use (red) by Vaclav Smil from Energy Transitions: History, Requirements, Prospects.

Besides more and better food, sanitation, and medicine, part of what allowed population to rise so greatly was a reduction in fighting, especially among nearby population groups. This reduction in violence also seems to be the result of greater energy supplies. In the animal kingdom, animals similar to humans such as chimpanzees have territorial instincts. These territorial instincts tend to keep down total population, because individual males tend to mark off large areas as territories and fight with others of their own species entering their territory.

Humans seem to have overcome much of their tendency toward territoriality. This has happened as the widespread availability of fuels increased the use of international trade and made it more advantageous for countries to cooperate with neighbors than to fight with them. Having an international monetary system was important as well.

How the System of Energy and the Economy “Works”

We trade many products, but in fact, the “value” of each of these products is very much energy related. Some that don’t seem to be energy-related, but really are energy-related, include the following:

  • Land, without buildings – The value of this land depends on (a) its location relative to other locations, (b) the amount of built infrastructure available, such as roads, fresh water, sewer, and grid electricity, and (c) the suitability of the land for growing crops. All of these characteristics are energy related. Land with good proximity to other locations takes less fuel, or less time and less human energy, to travel from one location to another. Infrastructure is capital goods, built up of embodied energy, which is already available. The suitability of the land for growing crops has to do with the type of soil, depth of the topsoil, the fertility of the soil, and the availability of fresh water, either from the sky of from irrigation.
  • Education – Education is not available to any significant extent unless workers can be freed up from farming by the use of modern energy products. Students, teachers, and those writing books all need to have their time freed up from working in agriculture, through advanced energy products that allow fewer workers to be needed in fields. Howard T. Odum in the Prosperous Way Down wrote about education reflecting a type of embodied energy.
  • Human Energy – Before the advent of modern energy sources, the value of human energy came largely from the mechanical energy provided by muscles. Mechanical energy today can be provided much more cheaply by fossil fuel energy and other cheap modern energy, bringing down the value of so-called “unskilled labor.” In today’s world, the primary value humans bring is their intellectual ability and their communication skills, both of which are enhanced by education. As discussed above, education represents a type of embodied energy.
  • Metals – Metals in quantity are only possible with today’s energy sources that power modern mining equipment and allow the huge quantities of heat needed for refining. Before the use of coal, deforestation was a huge problem for those using charcoal from wood to provide the heat needed for smelting. This was especially the case when economies tried to use wood for heating as well.

Two closely related concepts are

  • Technology – Technology is a way of bringing together physical substances (today, often metals), education, and human energy, in a way that allows the production in quantity of devices that enhance the ability of the economy to produce goods and services cheaply. As I will discuss later, “cheapness” is an important characteristic of anything that is traded in the economy. As technology makes the use of metals and other energy products cheaper, extraction of these energy-related items increases greatly.
  • Specialization – Specialization is used widely, even among insects such as bees and ants. It is often possible for a group of individuals to obtain better use of the energy at their disposal, if the various individuals in the group perform specialized tasks. This can be as simple as at the hunter-gatherer level, when men often specialized in hunting and women in childcare and plant gathering. It can occur at advanced levels as well, as advanced education (using energy) can produce specialists who can perform services that few others are able to provide.

Technology and specialization are ways of building complexity into the system. Joseph Tainter in the Collapse of Complex Societies notes that complexity is a way of solving problems. Societies, as they have more energy at their disposal, use the additional energy both to increase their populations and to move in the direction of greater complexity. In my Figure 1 (showing my representation of an economy), more nodes are added to the system as complexity is added. In a physics sense, this is the result of more energy being available to flow through the economy, perhaps through the usage of a new technology, such as irrigation, or through using another technique to increase food supply, such as cutting down trees in an area, providing more farmland.

As more energy flows through the system, increasingly specialized businesses are added. More consumers are added. Governments often play an increasingly large role, as the economy has more resources to support the government and still leave enough resources for individual citizens. An economy in its early stages is largely based on agriculture, with few energy inputs other than free solar energy, human labor, animal labor, and free energy from the sun. Extraction of useful minerals may also be done.

As modern energy products are added, the quantity of energy (particularly heat energy) available to the economy ramps up quickly, and manufacturing can be added.

Figure 4. Annual energy consumption per head (megajoules) in England and Wales 1561-70 to 1850-9 and in Italy 1861-70. Figure by Wrigley

Figure 4. Annual energy consumption per head (megajoules) in England and Wales 1561-70 to 1850-9 and in Italy 1861-70. Figure by Wrigley

As these energy products become depleted, an economy tends to shift manufacturing to cheaper locations elsewhere, and instead specialize in services, which can be provided with less use of energy. When these changes are made, an economy becomes “hollowed out” inside–it can no longer produce the basic goods and services it could at one time provide for itself.

Instead, the economy becomes dependent on other countries for manufacturing and resource extraction. Economists rejoice at an economy’s apparently lesser dependence on fossil fuels, but this is an illusion created by the fact that energy embodied in imported goods is never measured or considered. The country at the same time becomes more dependent on suppliers from around the world.

The way the economy is bound together is by a financial system. In some sense, the selling price of any product is the market value of the energy embodied in that product. There is also a cost (which is really an energy cost) of creating the product. If the selling cost is below the cost of creating the product, the market will gradually rebalance, in a way that matches goods and services that can be created at a break-even cost or greater, considering all costs, even indirect ones, such as taxes and the need for capital for reinvestment. All of these costs are energy-related, with some of this energy being human energy.

Both (a) the amount of goods and services an economy produces and (b) the number of people in an economy tends to grow over time. If (a), that is, the amount of goods and services produced, is growing faster than (b), the population, then, on average, individuals find their standard of living is increasing. If the reverse is the case, individuals find that their standard of living is decreasing.

This latter situation, one of a falling standard of living, is the situation that many people in “developed” countries find themselves in now. Because of the networked way the economy works, the primary way that this lack of goods and services is transmitted back to workers is through falling inflation-adjusted wages. Other mechanisms are used as well: fewer job openings, government deficits, and eventually debt defaults.

If the situation is reversed–that is, the economy is producing more goods and services per capita–the way this information is “telegraphed” back to the people in the economy is through a combination of increasing job availability, rising inflation adjusted-wages, availability of new inexpensive products on the market place, and government surpluses. In such a situation, debt is likely to become increasingly available because of the apparently good prospects of the economy. The availability of this debt then further leverages the growth of the economy.

External Energy Products as a Way of Leveraging Human Energy

Economists tell us that value comes from the chain of transactions that are put in place whenever one of us buys some kind of good or service. For example, if I buy an apple from a grocery store, I set up a chain of payments. The grocer pays his employees, who then buy groceries for themselves. They also purchase other consumer goods, pay income taxes, and perhaps buy oil for their vehicles. The employees pay the stores they buy from, and these payments set up new chains of transactions indirectly related to my initial purchase of an apple.

The initial purchase of an apple may help also the grocer make a payment on debt (repayment + interest) the store has, perhaps on a mortgage. The owner of the store may also put part of the money from the apple toward paying dividends on stock of the owners of the grocery story. Presumably, all of the recipients of these amounts use the amounts that initially came from the purchase of the apple to pay additional people in their spending chains as well.

How does the use of oil or coal or even the use of draft animals differ from simply creating the transaction chain outlined above? Let’s take an example that can be made with either manual labor plus some embodied energy in tools or with the use of fossil fuels: shoes.

If a cobbler makes the shoes, it will likely take him quite a long time–several hours. Somewhere along the line, a tanner will need to tan the hide in the shoe, and a farmer will need to raise the animal whose hide was used in this process. Before modern fuels were added, all of these steps were labor intensive. Buying a pair of shoes was quite expensive–say the equivalent of wages for a day or two. Boots might be the equivalent of a week’s wages.

The advantage of adding fuels such as coal and oil is that it allows shoes to be made more cheaply. The work today is performed in a factory where electricity-powered machines do much of the work that formerly was done by humans, and oil-powered vehicles transport the goods to the buyer. Coal is important in making the electricity-powered machines used in this process and may also be used in electricity generation. The use of coal and oil brings the cost of a pair of shoes down to a much lower price–say the equivalent of two or three hours’ wages. Thus, the major advantage of using modern fuels is that it allows a person’s wages to go farther. Not only can a person buy a pair of shoes, he or she has money left over for other goods.

The fact that the wage-earner can now buy additional goods with his income sets up additional payment chains–ones that would have not been available, if the person had spent a large share of his wages on shoes. This increase in “demand” (really affordability) is what allows the rest of the economy to expand, because the customer has more of his wages left to spend on other goods. This sets up the growth situation described above, where the total amount of goods and services in the economy expands faster than the population increases.

Thus, the big advantage of adding coal and oil to the economy was that it allowed goods to be made cheaply, relative to making goods with only human labor. In some sense, human labor is very expensive. If a person, using a machine operated with oil or with electricity made from coal can make the same type of goods more cheaply, he has leveraged his own capabilities with the capabilities of the fuel. We can call this technology, but without the fuel (to make the metal parts used in the machine, to operate the machinery, and to transport the product to the end user), it would not have been possible to make and transport the shoes so cheaply.

All areas of the economy benefit from this external energy based approach that essentially allows human labor to be delivered more efficiently. Wages rise, reflecting the apparent efficiency of the worker (really the worker + machine + fuel for the machine). Thus, if a worker has a job in the economy affected by this improvement, he may get a double benefit–higher wages and plus the benefit of the lower price of shoes. Governments will get higher tax revenue, both on wages (because of the new value chain and well as the higher wages from “efficiency”), and on taxes paid relating to the extraction of the oil, assuming the extraction is done locally. The additional government revenue can be used on roads. These roads provide a way for shoe manufacturers to deliver their goods to more distant markets, further enhancing the process.

What happens if the price of oil rises because the cost of extraction rises? Such a rise in the cost of extraction can be expected to eventually take place, because we extract the oil that is easiest and cheapest to extract first. When additional extraction is performed later, costs are higher for a variety of reasons: the wells need to be deeper, or in more difficult to access location, or require fracking, or are in countries that need high tax revenue to keep local populations pacified. The higher costs reflect that we are using are using more workers and more resources of all kinds, to produce a barrel of oil.

Some would look at these higher costs as a “good” impact, since these higher costs result in new payment chains, for example, related to fracking sand and other products that were not previously used. But the higher cost really represents a type of diminishing returns that have a very adverse impact on the economy.

The reason why the higher cost of oil has an adverse effect on the economy is that wages don’t go up to match this new set of oil production costs. If we look back at the previous example, it is somewhat like going part way back to making shoes by hand. Economists often remark that higher oil prices hurt oil importers. This is only half of the problem, though. Higher costs of oil production result in a situation where fewer goods and services are produced worldwide(relative to what would have otherwise been produced), because the concentrated use of resources by the oil sector to produce only a tiny amount more oil than was produced in the past. When this happens, fewer resources (including workers) are left for the rest of the world to produce other products. The growing use of resources by the oil sector is sort of like a growing cancer sapping the strength of a patient. Oil importing nations take a double “hit,” because they participate in the world drop in output of goods, and because as importers, they miss out on the benefits of extracting and selling oil.

Another way of seeing the impact of higher oil prices is to look at the situation from the point of view of consumers, businesses and governments. Consumers cut back on discretionary spending to accommodate the higher price of oil, as reflected in oil and food prices. This cutback triggers whole chains of cutbacks in other buying. Businesses find that a major cost of production (oil) is higher, but wages of buyers are not. They respond in whatever ways they can–trimming wages (since these are another cost of production), outsourcing production to a cheaper part of the world, or automating processes further, cutting more of the high human wages from the process. Governments find themselves saddled with more unemployment claims and lower tax revenue.

In fact, if we look at the data, we see precisely the expected effect. Wages tend to rise when oil prices are low, and lose the ability to rise when oil prices are high (Figure 5). The cut off price of oil where wages stop rising seems to be about $40 per barrel in the United States.

Figure 5. 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.

Figure 5. 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.

What if oil prices are artificially low, on a temporary basis? The catch is that not all costs of oil producing companies can be paid at such low prices. Perhaps the cost of operating oil fields still in existence will be fine, and the day-to-day expenses of extracting Middle Eastern oil can be covered. The parts of the chain that get squeezed first seem to be least essential on a day to day basis–taxes to governments, funds for new exploration, funds for debt repayments, and funds for dividends to policyholders.

Unfortunately, we cannot run the oil business on such a partial system. Businesses need to cover both their direct and indirect costs. Low oil prices create a system ready to crash, as oil production drops and the ability to leverage human labor with cheaper sources of energy decreases. Raising oil prices back to the full required level is likely to be a problem in the future, because oil companies require debt to finance new oil production. (This new production is required to offset declines in existing fields.) With low oil prices–or even with highly variable oil prices–the amount that can be borrowed drops and interest costs rise. This combination makes new investment impossible.

If the rising cost of energy products, due to diminishing returns, tends to eliminate economic growth, how do we work around the problem? In order to produce economic growth, it is necessary to produce goods in such a way that goods become cheaper and cheaper over time, relative to wages. Clearly this has not been happening recently.

The temptation businesses face in trying to produce this effect is to eliminate workers completely–just automate the process. This doesn’t work, because it is workers who need to be able to buy the products. Governments need to become huge, to manage transfer payments to all of the unemployed workers. And who will pay all of these taxes?

The popular answer to our diminishing returns problem is more efficiency, but efficiency rarely adds more than 1% to 2% to economic growth. We have been working hard on efficiency in recent years, but overall economic growth results have not been very good in the US, Europe, and Japan.

We know that dissipative systems operate by using more and more energy until they reach a point where diminishing returns finally pushes them into collapse. Thus, another solution might be to keep adding as much cheap energy as we can to the system. This approach doesn’t work very well either. Coal tends to be polluting, both from an air pollution point of view (in China) and from a carbon dioxide perspective. Nuclear has also been suggested, but it has different pollution issues and can be high-priced as well. Substituting a more expensive source of electricity production for an existing source of energy production works in the wrong direction–in the direction of higher cost of goods relative to wages, and thus more diminishing returns.

Getting along without economic growth doesn’t really work, either. This tends to bring down the debt system, which is an integral part of the whole system. But this is a topic for a different post.

A Note on Other Energy Measures

The reader will note that in my analysis, I am using the cost (in dollars or other currency unit) of energy production, including indirect costs that are hard to measure, such as needed government funding from taxes, the cost of interest and dividends, and the cost of new investment. The academic world uses other metrics that purport to measure energy requirements. These do not measure the same thing.

Caution is needed in using these metrics; studies using these metrics often seem to recommend using a source of energy that is expensive to produce and distribute when all costs are considered. My analysis indicates that high-cost energy products promote economic contraction regardless of what their EROEI or Life Cycle Assessment results would seem to suggest.

About Gail Tverberg

My name is Gail Tverberg. I am an actuary interested in finite world issues - oil depletion, natural gas depletion, water shortages, and climate change. Oil limits look very different from what most expect, with high prices leading to recession, and low prices leading to financial problems for oil producers and for oil exporting countries. We are really dealing with a physics problem that affects many parts of the economy at once, including wages and the financial system. I try to look at the overall problem.
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727 Responses to A new theory of energy and the economy – Part 1 – Generating economic growth

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  9. Don Stewart says:

    Dear edpell

    You commented recently about the cluelessness of people who showed up for a public hearing on energy.

    After yesterday’s actions by the European Central Bank, it occurred to me that Greece is about to go through a ‘Cuban Special Period’. Everything will disappear overnight.

    I don’t know enough about Greece to speak with any confidence. What do they have to trade? Can they make those things with minimal financial dealings with other countries? Will they end up exporting several million people to Europe and other far-flung places? Can a democracy survive such shrinkage? (I remember a comment some decades ago by Rupert Murdoch to the effect that China could not do what it needed to do if Bill Clinton were to succeed in forcing them into democracy).

    Kunstler has been predicting that Japan would be the first country to revert back to medievalism. I wonder if it won’t be Greece. Others will follow, so best to pay attention, I think.

    Don Stewart

    • Dirt: The Erosion of Civilizations talks about erosion being a serious problem in Greece. Such erosion, plus the hilly nature of its landscape, probably make it difficult to produce foodstuffs that can’t be planted permanently.

      Recently, I believe tourism has been Greece’s top industry. Getting out of the Eurozone would help tourism, because the currency value would drop.

    • InAlaska says:

      I’m going to go with Japan, too. Greece has over 2000 years of democratic tradition and also is physically attached to Europe. Japan has a very short tradition of democracy, is an island (insular) and surrounded by communist states that still practice medevalism.

    • edpell says:

      Don, I think it will be most places reverting to local economies. Sooner rather than later. It is far easier for countries that have warm climates and some fish like Cuba, Greece, Yemen, Mexico. Northern Japan and northern Europe will be a harder transition. Likewise northern China and US versus southern China and US.

  10. edpell says:

    It seems coal, gas, oil, and farmed fish have not peaked yet. Nor has renewable energy.


    Table 3. Lists of results for all resources and drivers: peak-rate year (50th percentile from the bootstrap distribution of year of the maximum of the first derivative of the spline smoothed bootstrap time series resample) of extraction of nonrenewable resources, harvest of renewable resources, and growth of drivers. When the 50th percentile is equal to the last year in the time series, it is concluded that no peak-rate year was detected, suggesting a still accelerating rate. The standardized growth rate at the peak-rate year with uncertainty is also provided.
    Peak-rate year Rate at peak Independence‡

    2.5th 50th 97.5th Peak? 2.5th 50th 97.5th
    Global nonrenewable resources
    Coal 2008 2011 2011 No peak 4.2 4.7 4.9 Yes
    Cropland 1920 1950 1960 Peak 0.5 0.6 0.9 Yes
    Gas 2007 2011 2011 No peak 4.1 4.5 4.6 Yes
    Irrigated area 1976 1978 2003 Peak 1.5 1.8 2.3 Yes
    Oil 2006 2011 2011 No peak 2.9 3.1 3.1 Yes
    Peat 1982 1983 1983 Peak 4.1 5.0 5.2 No
    Phosphate 1988 2011 2011 No peak 2.3 2.8 3.1 No
    Global renewable resources
    Cassava† 2004 2006 2011 Peak 3.8 6.4 7.7 Yes
    Cotton† 1983 2004 2011 Peak 9.6 14.8 19.2 No
    Dairy 1964 1989 2004 Peak 2.5 3.3 4.0 No
    Eggs 1992 1993 2006 Peak 3.2 4.4 5.5 Yes
    Fertilizer, N† 1978 1983 2010 Peak 4.7 6.2 7.0 Yes
    Fish, caught 1984 1988 1999 Peak 5.2 9.7 14.9 Yes
    Fish, farmed 1994 2010 2010 No peak 5.1 6.1 7.7 No
    Maize 1983 1985 2007 Peak 6.8 10.5 14.0 Yes
    Meat 1996 1996 2009 Peak 2.5 3.1 3.4 Yes
    Meat, indigenous 1996 1996 2009 Peak 2.6 3.1 3.3 No
    Meat, poultry 2005 2006 2009 Peak 3.6 4.8 5.5 Yes
    Milk 1982 2004 2009 Peak 2.4 2.7 2.8 Yes
    Oilpalm 2003 2005 2008 Peak 6.2 8.0 10.1 Yes
    Renew. energy 2004 2010 2010 No peak 3.8 5.7 8.3 Yes
    Rice 1973 1988 2008 Peak 3.6 4.4 5.0 Yes
    Soybeans† 1977 2009 2011 Peak 5.9 8.9 21.4 Yes
    Sugarcane† 1981 2007 2011 Peak 5.9 9.8 10.7 Yes
    Vegetables 1986 2000 2002 Peak 5.2 7.8 8.8 No
    Wheat† 1975 2004 2011 Peak 6.9 9.5 11.8 Yes
    Wood† 1976 2004 2011 Peak 2.2 3.1 5.1 Yes
    Global drivers
    GDP† 2004 2010 2012 Peak 6.8 10.2 13.9 NA
    Population 1988 1989 1989 Peak 1.3 1.3 1.3 NA
    National drivers and resources, biodiversity
    Hous. intensity Australia 1971 1976 1991 Peak 1.1 1.4 1.6 NA
    Hous. intensity Canada 1971 1976 1981 Peak 1.1 1.7 1.9 NA
    Hous. intensity China 1960 1960 1988 Peak 2.0 3.2 3.7 NA
    Hous. intensity England† 1931 1981 2001 Peak 0.6 0.7 0.7 NA
    Hous. intensity Ireland† 1981 1996 2002 Peak 0.6 1.1 1.2 NA
    Hous. intensity Japan 1960 1965 1995 Peak 1.3 2.1 2.4 NA
    Hous. intensity Luxembourg† 1930 1970 2001 Peak 0.6 0.7 0.9 NA
    Hous. intensity New Zealand 1976 1976 1986 Peak 0.8 1.0 1.2 NA
    Hous. intensity USA† 1940 1970 2000 Peak 0.6 0.9 1.2 NA
    Meat, USA 1909 1955 1999 Peak 2.4 3.6 8.8 NA
    No. spp. dom. -3500 -2600 -1500 Peak 0.0 0.1 0.1 NA
    Patents, USA† 1997 2010 2012 Peak 9.5 14.8 24.8 NA
    Water, USA† 1975 1975 2005 Peak 2.0 2.1 2.1 NA

  11. edpell says:

    I went to a community outreach by the public service commission on their Reforming the Energy Vision (REV). I got to hear 4 minute speeches by about 80 people. My reaction is

    OMG OMG OMG OMG!!!!!!!!

    Forget about resource depletion it seemed not one person had the idea that things cost money. It is not free just because we want it. Afterwords I asked one young lady who would be getting up early in the morning to go mine the aluminum ore for the solar panels? I was told there are other materials. I asked what? I was told organic materials. At that point I just let the conversation end. Maybe she means trees.

  12. Don Stewart says:

    Dear Gail and All

    Here is my addendum to JMGs article about the late William Catton, author of Overshoot.

    Read John’s article:

    Try to figure out why I keep talking about all this boring gardening and farming and photosynthesis stuff. Then take a look at this nerdy farmer-type video. I know that looking at all of it will be painful for many. But I think there is a payoff.


    At 34.51, note that microbial activity is a better indicator of nitrogen availability than is the size of the nitrogen pool.

    Does that change your attitude toward the ‘green revolution’? Is it really more important to nurture the life in the soil than it is to pour on synthetic nitrogen? If so, what does that say about all the messages about the crisis brought on by our future inability to produce synthetic nitrogen?

    I probably disagree with JMG a little bit on the knowledge thing. We didn’t understand all these things about nitrogen even 10 or 20 years ago. While the originators of Natural Farming and Organic Farming and Permaculture and Holistic Management had inklings, they didn’t have the hard scientific data in the detail that we have it now. They could not measure gene expression in the soil, as we can do today. A post-fossil fuel society cannot exceed the boundaries set by photosynthesis, but it CAN get the maximum benefit for the least expenditure from photosynthesis. And the knowledge that we have been able to accumulate during the fossil fuel era may serve us well….provided we are willing to do what we need to do in order to use it.

    Don Stewart

    • Very nice article by JMG. Fixing problems at this late stage becomes a problem. We don’t have much time or money. It costs money to buy land, for example. It costs money, even to leave it fallow.

  13. Don Stewart says:

    Dear Gail and All

    OPEC bigwig predicts 200 dollar oil. Conversation ensues. The usual provocative statements from shortonoil (2 of his responses as I post this)

    Don Stewart

    The entropic destruction of petroleum is as assured as an iron bolt will rust in the weather. Both must eventually succumb to nature’s laws. The al-Bardri’s of the world will continue to spread falsehoods, CNN will swear to it, and the world will continue on its downward spiral. The masses will await the rebound that they have been told is just around the corner, while the world’s petroleum pumps slowly go silent.

  14. michael jones says:

    Peak oil, peak food, peak everything.
    by Gwynne Dyer

    Production of the food in question stops rising, then may even fall – and extra investment often doesn’t help.

    The “peak” in this context is an early warning that there will eventually be a complete cessation of growth, possibly followed by an absolute decline. Peak maize happened in 1985, peak rice and wild fish in 1988, peak dairy in 1989, peak eggs in 1993, and peak meat in 1996. (The numbers come from a recent report by scientists at Yale, Michigan State University and the Helmholtz Centre in Germany in the journal “Ecology and Society”)

    More recent peaks were vegetables in 2000, milk and wheat in 2004, poultry in 2006, and soya bean in 2009. Indeed, sixteen of the 21 foods examined in the “Ecology and Society” report have already peaked, and production levels have actually flattened out for key regions amounting to 33 percent of global rice and 27 percent of global wheat production.

    So we are already in trouble, and it will get worse even before climate change gets bad. There are still some quick fixes available, notably by cutting down on waste: more than a third of the food that is grown for human consumption never gets eaten. But unless we come up with some new “magic bullets”, things will be getting fairly grim on the food front by the 2030s.

    Gwynne Dyer is an independent journalist whose articles are published in 45 countries

    • edpell says:

      What are the five that have not peaked. Tried to back track the article but got nowhere.

      • michael jones says:

        Perhaps you need to read the actual paper “Ecology and Society”
        The numbers come from a recent report by scientists at Yale, Michigan State University and the Helmholtz Centre in Germany in the journal “Ecology and Society”)
        Good Luck
        Another link that will terrify you all is yesterdays program concerning
        Environmental Outlook: The Race Against Pests And Weeds
        The cycle is ongoing: We develop ways to control pests and weeds, they adapt accordingly. Resistance to pesticides is an urgent concern for agriculture, and experts are divided on the way forward. Some say chemicals are still the best solution. The EPA this fall approved “Enlist Duo,” a new combination of herbicides meant to fight chemical-resistant “super weeds.” But the NRDC and other groups filed suit to block it, citing risks to the environment and human health and concerns that we are on a dangerous path toward increased chemical use. For this month’s Environmental Outlook, what’s at stake and what’s ahead in the race against pests and weeds.
        Listen to the discussion on Diane Rehm Show
        Have a nice day

        • Stefeun says:

          2 months ago Motherboard published this article about an unexpected new pest:

          “Pesticide-Fueled Toxic Slugs Are a Nightmare for Farmers

          It’s long been known that neonicotinoids, the most widely used insecticides in the world, contribute to a host of environmental problems, including honey bee colony collapse disorder. But according to a study published Thursday in the Journal of Applied Ecology, neonicotinoids are harmful for another reason: they reduce crop yields by creating toxic slugs.

          Yes, you read that right: toxic slugs are marauding around farms across the world, immune to neonicotinoids, but capable of paying the poison forward to their insect predators. When the predators die from eating these pesticide-laced mollusks, the result is even more crop-devouring toxic slugs—and thus, lower crop yields. (…)”

          • michael jones says:

            Nature bats last and I’m cheering on the toxic slugs!

          • The scientists working on pesticides (and the companies employing them) never think about phase 2 of the problem.

            • Stefeun says:

              I think the companies like creating secondary problems, as it helps them develop their business further.

              Same principle as for Big Pharma: you take medicine to cure your illness, but you have to take another one to counter the side effects of the main drug, and then in the long term you get chronic disease for which you need a treatment for the rest of your life (which also has side effects, etc…) Bingo!

              These folks aren’t trying to solve our problems, they’re maximizing profits, hence the more problems, the more money for them!

  15. Pingback: Austrian School of Economics Explained: Capital, Interest, Business Cycle - Ron Paul (1988)

  16. – Saudi Oil Is Seen as Lever to Pry Russian Support From Syria’s Assad: http://www.nytimes.com/2015/02/04/world/middleeast/saudi-arabia-is-said-to-use-oil-to-lure-russia-away-from-syrias-assad.html?_r=1

    It still might be that Saudi-Arabia plays an important role in the decline of oil prices.

    • InAlaska says:

      No doubt about that. Its just not the world’s swing producer anymore. The U.S. is.

      • garand555 says:

        I don’t think that anybody is really a swing producer anymore. I think that it boils down to who can afford to produce and who cannot.

        • edpell says:

          I half agree. At high enough levels business is not about features, cost, performance it is about relationships. Are you friends with a government, a military, etc.. If China sees it as a national security issue they can exchange Russian oil for Chinese cars, industrial products and food at rates that keep Russia alive completely regardless of the “market” price.

          I agree zero cost capital made it possible in the US to mobilize massive industrial products and workers for a project that will never produce cheap oil/gas. They gave no consideration to the risk of lower prices. It seems to be the new mode of operation ignore all risk and when it crashes have the government pass the loss to the tax payers. No problem the fed will hit the “0” button on the laptop a few times and make the fools whole again.

          • InAlaska says:

            It still goes back to whose got the cheapest oil. Saudi Arabia can keep pumping it out of the ground at something like $20/barrel and profit. The US can’t frack for less than $100. In the end, that is what decides whose the world’s swing producer or producing any oil at all. After the middle east, probably, Russia is the next cheapest producer, but they have distance-to-market and other infrastructure and stability issues. Until oil does its bumpy plateau dance and spikes back up to $150, it won’t be produced at the profit or in the right quantities to ensure a viable global market. I was at a gas pump last week and chatted casually with a redneck looking guy in a big truck. We bantered about how great it was that the price of gas was so cheap now. I said to him, “yeah hopefully it’ll go even lower.” He very astutely lectured me that if it goes much lower there will be problems with the whole oil industry. I was pretty surprised to see that level of PO understanding from Joe Sixpack. Goes to show you that you can’t be too smug about what you think other people know.

  17. Greg says:

    There is no solution with 7 Billion people. Maybe 1 Billion at a push in a much simpler far more streamlined non globalised world. How we actually address the population issue is another matter entirely. Calculations based on CIA data for births and deaths in the US, if every woman in the US stopped having kids for the next 10 years it would barely make a dent in the population. More sobering though. We don’t have 10 years! I suspect there is no plan so we are heading for mass die off and a system reset back to the stone age. I don’t say stone age lightly . Our technology has evolved so far forward with electricity we have forgotten everything non electrical. The most important person to civilisation 200 years ago no longer exists. The Blacksmith. Easy to evolve up the totem pole. It’s a different matter sliding down the pole.

    • “Our technology has evolved so far forward with electricity we have forgotten everything non electrical. The most important person to civilisation 200 years ago no longer exists. The Blacksmith. Easy to evolve up the totem pole. It’s a different matter sliding down the pole.”

      Nonsense, there are thousands of hobbyists and people who work for Hollywood, etc that have all sorts of archaic skills. Hopefully, some of them make it through the collapse and mentor a bunch of apprentices.

      • garand555 says:

        That, and you can learn some archaic skills if you wish. Take advantage of youtube while it is up and running. Just about any archaic skill that you want to learn can be found there. Take some time to watch some videos, go out and try what is demonstrated, fail a few times, go back and watch some more videos to see where you went wrong, then go out and try it again.

  18. http://crudeoilpeak.info/wp-content/uploads/2014/12/Incremental_crude_world_US_shale_oil_Canada_tar_sands_on_top_2001_Aug2014.jpg
    I just don’t get it — last week, a corporate financial manager told me that Saudi Arabia had manipulated world oil prices down, to bankrupt North American “tight oil” — how could this be, in view of the chart above?

    • “I just don’t get it — last week, a corporate financial manager told me that Saudi Arabia had manipulated world oil prices down, to bankrupt North American “tight oil” —”

      The only thing the Saudis did was they did not cut production to match the increased output from America. The corporate manager is probably looking for someone to blame.

      • InAlaska says:

        Yes you are right and that is the most perceptive comment made on this blog site in a while. All of these theories of this and that plot to over turn oil markets is just blather. S++t happens. Saudi Arabia didn’t increase production, the US increased production. Why should it be up to the Saudis to decrease their own production. What upside is there for them in such a decision? Saudi A isn’t trying to destroy production in Russia or Iran or the US. They are trying to survive in a harsh world. Get over it, people.

  19. MG says:

    New invention by the Greeks:

    “Greece’s new government has proposed ending a standoff with its international creditors by swapping its outstanding debt for new growth-linked bonds.”


    As if renaming from “energy sinkhole” to “growth potenital” changed anything…

  20. Quitollis says:


    Charlie Hebdo magazine spearheaded a national campaign to try to get the Front National banned in 1996. It is ironic that the mass murder of Charlie Hebdo writers by Jihadists has made the Front National more popular than ever.


  21. John Steinbach says:

    Sorry Here is the Arun Gupta link. http://www.counterpunch.org/2015/02/02/why-the-crash-in-oil-prices-should-bury-peak-oil-once-and-for-all/

    He’s a nominal “leftist” widely read & published by Znet & other “left” blogs.

  22. edpell says:


    Zerohedge says only 8% of the $284 billion bailout went to the people of Greece. Seems fair that they pay back the $23 billion. Go after the thieving politicians Swiss bank accounts and the accounts of the private banks that got bailed out with public money.

  23. Quitollis says:

    Nigel predicts Grexit within the year.


  24. Rodster says:

    Great article entitled “Forget Peak Oil, We’ve Reached Peak Everything”


    • An interesting article, but with some serious problems:

      1) Bees dying off is not a peak production issue, and bees are only one of many pollinators. The consequences could be pretty dire, for sure.

      2) phosphorus does not get destroyed the way that hydrocarbons do when burnt. All that phosphorus is going to stay in the soil, leach into silts, or get eaten and pooped out. At some point, river deltas and seaweed can be harvested to recover the phosphorous.

      That does bring up a lot of questions, since mining fertilizers should increase the total amount of arable land, and improve output; it should not have to be constantly replaced.

      3. Worrying about agriculture output dropping 30 percent by 2050 is kind of irrelevant, since petro-agriculture will almost certainly start declining well before then.

      • The phosphorous issue is more the same as the oil limits issue than you realize. We start with limited quantities of high quality ores of every kind. Ugo Bardi in his book Extracted calls those resources one-time gifts. I consider these gifts parallel to fossil fuels. The reason they are gifts is because we can extract them with reasonable quantities of energy products. Once those one time gifts are disbursed, the quantity of energy products required to extract them becomes so high that they become pretty much unreachable. The idea that we can recycle doesn’t work well either–it just takes too much energy, and gets only a portion of the material being recycled. In a few times through, we are pretty well out of the material.

        • Don Stewart says:

          Dear Gail
          ‘The phosphorous issue is more the same as the oil limits issue than you realize. We start with limited quantities of high quality ores of every kind. ‘

          ‘The idea that we can recycle doesn’t work well either–it just takes too much energy, and gets only a portion of the material being recycled. In a few times through, we are pretty well out of the material.’

          To my knowledge, the principal use of phosphorus is for agriculture. The principal source of phosphorus in agriculture was once the weathering of rock, which was accelerated by fungi. Plants devote energy and materials to make exudates which they trade to the fungi in return for nutrients such as phosphorus.

          Wes Jackson at The Land Institute talks about a hay field near him which has been cropped for a hundred years, with no fertilization (including no manure). He also notes a field in Britain which has been continuously hayed for more than a hundred years. Both these fields are exporting far more phosphorus than would be predicted from studies of rock weathering. The solution appears to be the fungi, which secrete acids to break the phosphorus out of rocky soils.

          A 2014 scholarly paper by Thorley et al.

          For silicate rocks, it is increasingly well established that root- associated mycorrhizal fungi are the main biotic drivers of rock weathering in soil. These fungi utilize energy from plant photosynthates to grow, proliferate and evidence suggests that although little is known about effects of mycorrhizal fungi in relation to carbonate rock weathering rates, they are likely to be important players in this process.
          © 2014 The Authors. Plant, Cell & Environment published by John Wiley & Sons Ltd. 1 This is an open access article under the terms of the Creative Commons Attribution License, which permits use, distribution and reproduction in any medium, provided the original work is properly cited.

          The soil scientist Elaine Ingham teaches that fungi are responsible for freeing and delivering phosphorus:


          The phosphorus cycle, when understood in this fashion, is not at all like pumping out all the economic oil.

          In terms of recycling, Nature recycles phosphorus 46 times before it is lost. A healthy soil food web and good grazing, farming, and gardening practices can approach 46 (possibly exceed it). We know that human intervention can speed the growth of topsoil beyond what unaided Nature can do. Although I have never seen a study, I would not be surprised that good practices can achieve recycling rates of 100.

          In short, your statements may be true in an industrial sense, but they are not true for the biological future which lies in store for those of us who survive the bottleneck.

          Don Stewart

        • “The idea that we can recycle doesn’t work well either”

          If you recycle the phosphorus by capturing the human waste, processing it and putting it back on the fields, how does any of it escape? We don’t need to reprocess it back into pure phosphorus, the microbes in the soil can make it plant-available. Mining these rich deposits should be resulting in a net increase in the total amount of phosphorus in the soil, it shouldn’t all be flowing out and disappearing down into subduction zones.

          If you are referring to making sea soil from sea weeds that flourish in the ocean, I suppose the big energy cost is transport, if you are trying to move the nutrients all the way back to Kansas, but even then river barges are fairly efficient.

        • I just read that 70% of computers end up in Africa, only 30% are recycled in a sustainable manner: http://ewaste-trail.com/

    • edpell says:

      Yes Rodster, LTG is still right on track. Peak everything including humans. Followed by depletion of everything including humans.

    • Thanks! The major thing Dyer misses is “Peak Financial System”. Of course, talking about that is a no-no.

  25. edpell says:

    Don, your point about banking being a support function is right on. That is why we had the Glass-Stegall law forbidding banks to speculate. Unfortunately it was repealed under the Clinton administration. It needs to be re-instated. See Lyndon LaRouche for details.

    The F.I.R.E sector should not be 40% of the econoomy it should be 4% of the economy.

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