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.

727 thoughts on “A new theory of energy and the economy – Part 1 – Generating economic growth

  1. Hello Gail, nice start, waiting for the sequel !
    A book that could interest you, from Georges Bataille :
    Also :
    It’s quite a curious one, written in 1945 I think (published in 49)
    Note : I’m not exactly sure the Amazon link is the one I’m thinking about (in French called “la part maudite”) but I think it is.
    The first lines, roughly translated :
    “Essentially wealth is energy : Energy is at the basis and end of production. Plants that we grow in fields and anaimals that we raise are energy sums that agricultural work has made available. We use, we consume these animals and plants in order to acquire the necessary energy for all our work. Even our inert products — a chair, a plate, a building — correspond to the necessities of a dynamic system. The use of my muscular energy implies some resting moments where I am eated on a chair : the chair helps me to save energy that I use right now to write these lines …”

    • Thanks! I will look into The Accursed Share. I seems at be available at a reasonable price.

      One thing that has struck me, in visiting homes of people from India, is that getting up from off the floor many times a day provides a lot of exercise. I imagine that getting along without a Western toilet would have a similar effect. A physical fitness test now for older people is how well they can get up off the floor. If people had been doing this many times, every day of their lives, they would be in a lot better physical shape, now.

  2. Nice exercise, in ivory tower academic style – too bad reality is too elusive or maybe politically incorrect to be included. Making this “analysis”, despite what your fanbois here say, about as useful as a finding that sand can be found in a desert. Back to The OIl Drum with you, where you can tell me again about Peak Oil by 2012.
    Reality detachment disorder can be treated with injections of real world events and real world history, and by not using useless academic analogies and worthless academic “models”. But never let the facts get in the way of some good philosophical greentarded propaganda. There aren’t enough hours in the day to rip this post to shreds, but I have to go burn some energy and release some airborne carbon, for the good of the economy.

    “Prices don’t respond as expected.”
    “Someone needs to figure out what is really going on.”

    ^I fully agree with the two quotes above.

      • Quantatative Easing, $2.5 trillion in excess reserves, $60 trillion in debt, more oil futures contracts being traded in a day than oil is consumed in a month, etc… and that’s just the US alone? Manipulated? Nawww, couldn’t be.

        But without the expensive and not-so-economical tight oil, oil production actually has peaked. If prices stay this low, not only is a lot of that shale oil going to go away, the producers are going to default on the junk bonds that they issued and we’re going to be in for fun times. If they charged what it actually cost to pull the stuff out of the ground, develop future production, pay shareholders, pay taxes, etc… very few people could afford to purchase their product. If prices go back up into some twilight zone region, they might be able to keep rolling their debt over for a time, but eventually the price will be paid, one way or another.

        • Quantitative easing is just market failure in the Large Economy Package.
          Great marketing from TPTB though.

          • I see quantitative easing as a blunt and inefficient tool with a reasonable expectation of unintended consequences. Among these is the misallocation of scarce resources leading to, over the medium term, say three to six years, of inefficiencies in the use of energy.
            Prior to the QE era, we managed a little over one percent improvement in output per unit of energy consumed in the developed world. It follows that if QE introduces enough inefficiency into energy related systems, then GDP produced per unit of energy consumed will, if the structure remains unchanged, decline.
            I note that Japan’s GDP in current US$ was 4.571Tn in 2005 and 4.919Tn in 2013,
            but figures for energy consumed are difficult to find, and also it is difficult to be sure they are equivalent given the shutdown of nuclear reactors. So it is a maybe at best.
            With all the attention drawn from QE to stock markets and to inequality, this seems to need a closer look.

    • Oh lookie here another troll. A useless eater who just mocks others and doesn’t have the credentials to create their own blog to tell others why they should listen to him/her.

      • Gail,
        Interesting article – look forward to Part 2.

        I’ve heard others argue that solar is a game changer, with the argument going something like this:
        1) Solar PV technology is increasingly cost competitive , and volume is increasing. This will lead to economies of scale, accelerating production, and increasing pace of technological advancement both in the PV and battery technology.
        2) Solar will drive down demand for fossil fuel, putting further cost pressures on oil and nat gas.
        3) The overall impact of (1) and (2) will be significantly reduced costs for all forms of energy, which (in line with this article) implies substantial economic growth over the next 10-20 years.
        4) Of course, there will be pain / debt issues in the fossil fuel industry, but this will pale in comparison to overall growth.

        Your thoughts on this?

        • “I’ve heard others argue that solar is a game changer”

          I dunno.

          There isn’t a single solar-powered solar panel factory on this planet. It’s gonna take petroleum to make solar panels for some time to come.

          • Jan, this only proves coal fire electric is cheaper than solar PV electric. It does not prove solar PV powered PV factories are impossible or have less than X EROEI.

            • The reason no one has a Solar Photovoltaic powered Solar Photovoltaic factory is that no one would invest in a massive factory that can only run six hours per day, when they could have a 24/7 factory with a different power source. Adding enough lithium batteries to store electricity to run it all night would likely require all the lithium in the world. It might work with Lead Acid deep cycles, but it would be pretty darn massive and expensive.

            • You could perhaps do it on a small scale, but then you would run short of some of the materials needs. So besides being expensive, it would not be big enough scale.

            • If solar PV really needs to be able to compete with coal (if it is to replace it), then it has to be cheaper than coal. Everyone would want to build solar panel factories using solar PV. It is a very long way away, in my book.

            • “If solar PV really needs to be able to compete with coal (if it is to replace it), then it has to be cheaper than coal.”

              Sounds like an infinite chase to me. If it costs $0.05 per KwH to make electricity with coal, and $0.15 per KwH with PV, it isn’t worth it, so no one does it. Then, when coal costs $0.15 per KwH, the PV will cost $0.45 per KwH, so no one will do it. Then when coal costs $0.30 per KwH, PV will cost $0.90, so no one will do it.

              Barring, of course, some massive breakthrough in storage and materials.

              Instead we have subsidized production of PV, which will in turn have its own problems. Oh well, maybe Google and Apple will save us all.

          • One of the cheapest electric supplies is hydro. You can put a PV plant next to a hydro dam. Yes, when all those coal and nat gas fired plants go, the cost of hydro and nuclear will be bid up.

            • “One of the cheapest electric supplies is hydro. You can put a PV plant next to a hydro dam.”

              How to build and maintain the hydro dam without coal and oil? Perhaps with a really huge new hydro dam, and then a plant to use electricity to synthesize hydrocarbon fuels, a huge arc furnace, and factories to make all of the stuff the dam needs. Maybe make the dam out of cut interlocking granite blocks instead of reinforced concrete.

            • If everyone is a lot poorer because of the lack of electric of coal and natural gas electricity, how are they possibly going to bid up the price of hydro and solar PV? In fact, how are they going to afford to keep the electric grid operating? Don’t you have a collapse situation instead?

            • “how are they [places with hydro power] going to afford to keep the electric grid operating?”

              I think we’ll see decentralization. The Pacific Northwest could throw a switch and cut off the rest of North America. (Well, it might be a little more complicated than that.) There’s the Pacific Intertie, a half-million-volt DC line that exports power to California. Because it is DC, it does not have to synchronize, and so could be brought up and down at a moment’s notice, whereas the big AC interties must be carefully synchronized.

              There’s a similar situation on the East Coast, where Quebec and Ontario could cut off the connections from the big Canadian Shield dams to the US North East.

          • Jay Kurtz,
            Best not come into this site and make such a woefully ignorant comment without doing a little backreading first. There has been a lot of water under the bridge here. Gail has done a monumental bit of work. Read. Just some advice.

            • Wow, did not realize an innocent question would lead to such a rebuke. I just found this site, and I enjoyed the article. Excuse me for not having a history here.

              If my comment is ignorant, please, enlighten me.

            • Jay Kurtz,
              My apologies. I did not intend to rebuke. Just my impatience showing through. Often we have to revisit ideas that have already been thoroughly hashed out and it gets repetitive. Welcome to the site.

            • I wouldn’t be too critical of a new reader. It is almost impossible to read all of the posts I have written. There are over 220 on this site, and more on The Oil Drum. Getting questions from new readers reminds me of where a lot of my audience is “coming from”. Most readers are fairly new, or have scanned some articles, but didn’t understand more than about 30% of them.

            • “Thanks, but nothing in the article you reference addresses the scenario I laid out.”

              “1) Solar PV technology is increasingly cost competitive , and volume is increasing. This will lead to economies of scale, accelerating production, and increasing pace of technological advancement both in the PV and battery technology.”

              Pitfall 2. Green solutions that use rare minerals are likely not very scalable because of quantity limits and low recycling rates.

              “2) Solar will drive down demand for fossil fuel, putting further cost pressures on oil and nat gas.”

              “Pitfall 4. Green technology (including renewables) can only be add-ons to the fossil fuel system.

              A major reason why green technology can only be add-ons to the fossil fuel system relates to Pitfalls 1 through 3. New devices, such as wind turbines, solar PV, and electric cars aren’t very scalable because of high required subsidies, depletion issues, pollution issues, and other limits that we don’t often think about.”

              So, unless you are talking about some revolution that allows solar panels and storage without rare earths, with extremely high EROEI, long life cycle, at a competitive price that does not require subsidies, the article addresses it in detail.

              If you are talking about a massive revolutionary breakthrough in technology, that would be a pleasant surprise. Like solar panels and storage made entirely out of silicon and carbon, printed out in your own garage with a 3D printer, and it generates energy equal to all of its inputs within six months. Heck, even if it did all that from an industrial factory.

            • Matthew Krajcik:

              “Pitfall 2. Green solutions that use rare minerals are likely not very scalable because of quantity limits and low recycling rates.”

              This is currently a non-issue: PV panels volume is increasing, and prices are decreasing, so clearly the market see’s no pitfall here. Perhaps rare minerals may be an issue in the future, but if so, like all commodities, the price mechanism will stimulate new sources / innovation. (See: Oil)

              The rest of your response is not worth my time, since the arguments are even more ridiculous that the one I have quoted.

              I will note that several big box retailers are investing heavily in solar, with Walmart leading the way. So there must be something to this solar thing.


            • “This is currently a non-issue: PV panels volume is increasing, and prices are decreasing, so clearly the market see’s no pitfall here. Perhaps rare minerals may be an issue in the future, but if so, like all commodities, the price mechanism will stimulate new sources / innovation. ”

              First, I would like to point out that you asked what Gail’s opinion on solar PV was, and I linked to the article about that very subject, which you then said was completely irrelevant; I was simply showing why the article was in fact relevant. The article and its arguments are not mine.

              It seems to me that you are saying that if rare earths become more expensive, and thus the cost of manufacturing solar PV and batteries goes up, they will come up with new materials to bring the price down. Maybe they will, or maybe they won’t; I don’t think blind faith that a new technology will come along and solve the problem is a good bet, but I am not saying it is impossible. If it happens, great.

              The more likely solution will be that if the government in power at the time is in support of / paid off by the industry, environmental regulations can be reduced / removed, probably with support from environmentalists, in order to allow large scale rare earth mining in the United States and elsewhere.

            • Various levels of governments giving credits goes a long way toward helping demand, as well as ridiculously high credits for the electricity fed into the electric grid. These things distort people’s view of the worth of the panels. In particular, “net metering” is very unfair to the electric utilities, because it gives far more credit than the value of this intermittent electricity to the grid.

              There is also a feeling that people can help themselves somewhat, if the electricity goes off. They can still recharge their phones and their portable computers. This is true–the electricity provided by solar panels is best for this type of application. You would need a big installation plus batteries if you wanted to run your electric frying pan on one in the evening, however.

            • Dear Gail
              Regarding electric frying pans used at night.

              If people get serious about being able to cook with PV panels, they will cook one meal every day, at noon, and will eat leftovers at other times. DC rice cookers are readily available from Asian sources. They typically draw 400 to 600 watts for about an hour.

              A rice cooker doesn’t fry very well, but it can be used for browning. And most people will be eating foods cooked in small amounts of water, which rice cookers do exceptionally well.

              Don Stewart

            • AAARRRGGGHHH!!!

              PV-powered electric cooking is like, well, putting dinosaurs into the ground for 250 million years and then digging them up to use for cooking!

              Better to use reflectors and fresnel lenses for cooking. You can get a LOT more energy that way than by turning it into a stream of electrons first!

              We need to focus very carefully on using “appropriate transformity,” as HT Odum would say. Electricity is extremely high-transformity energy — let’s not waste it on making things hot! (Heat is a very low-transformity form of energy.)

            • Jan
              I don’t disagree. I am just pointing out that IF one wants to use PV, then one has to reconfigure one’s day to use the energy from it when the sun is shining.

              However….I have recently been talking to a sturdy but finite lady homesteader. She was bemoaning the fact that it takes her an hour to cook her oat groats for lunch. She does have some PV panels. I pointed out that she can buy a rice cooker which will have her oats ready when she wants to eat, without having to hover over them, letting her do her work around the farm.

              Starting from the demand that ‘I want it when I want it’ is a sure prescription for failure.

              Don Stewart

        • Forget solar PV. Our financial problems are now, in 2015 or 2016. We don’t have time to get solar costs down.

          There is also a problem with solar PV being a “top of the mountain” application. Yes, perhaps we can have it if we can keep all of industrial society together. If we can’t, the electric grid doesn’t work, so any electricity we were planning to put on the electric grid is lost. People who have a few separate solar panels will be able to use them to charge their cell phones (assuming that there are cell towers working) and maybe even run an irrigation pump. (An old-fashioned water mill would do the same job, much more cheaply, though).

          I don’t know about scalability. If we stick strictly to silicon panels, and can get enough coal to process all of them, maybe they can be sustained. But when you start getting to fancy newer elements with limited availability, I doubt that we could scale them, even if we could keep the whole system together. Making storage batteries and transporting them around the world would be a problem as well.

          Of course, electricity is not oil. We need a cheap oil replacement yesterday, to fix our oil problem for all of the equipment that today uses oil.

          Electricity is an entirely different concern, of particular concern to those concerned about climate change. The electricity issue is finding a replacement for coal. The cost of solar PV needs to be compared to the price of coal, in that context. Coal is cheap.

    • Reading Spengler he says history happens once for real. Analysis or science is theory best used on dead objects. Westerners see the world functionally developing in time. They have to analyze but the analyzed is past, dead. The future is becoming. Grecoromans lived near and in present. History was mythic, future nonexistent. Middle ages was magical mindset, superstitious.

      I am still readi g but the gist seems to be that society is like any organism. Its destiny is preordained from birth, like a bird lives 3-5 years, etc. Cultural outlook may differ, i.e. all westerners see life in analytical terms, functionally but outcome is same.

      The galactic pictures posted above interesting. See individuals as cells, institutions as organs, etc. Health of organism depends on leadership, fitness training, diet noone controls this, has big picture and society is like a 70 year old waking up to the fact in panic that he is not immortal, like an old hippy biker suddenly diagnosed with cancer.

    • One of the issues I need to address to a greater extent is prices. In a complex world, prices don’t respond as expected. We know that banks colluded to distort interest rates. Even this kind of distortion can take place, when many things are hidden from view through the futures market, and the availability of virtually-free QE money. Also, both buyers and sellers of oil have debt that distorts their vision of what needed prices should be; they may hold futures contracts as well, further distorting how they respond to price changes.

      The underlying problem of course is that the amount of discretionary spending for most consumers keeps eroding, as wages lag behind the rising cost of goods and services, indirectly because of the rising cost of the extraction of oil and many other types of diminishing returns. All kinds of funny business must be kept in place to keep this problem from affecting commodity prices. We see breaks in the system, as in 2008. At some point, we won’t be able to fix breaks in the system, and prices will plunge, or the financial system will “break”.

      • According to Steve Ludlum and I think the Hillsgroup as well, a couple of years ago we switched from pricing oil at the ‘upper bound’, to pricing oil at the ‘lower bound’, or in other words the price switched from being priced by the big banks and money boys to being essentially priced by what the buyers of oil, at the gas pump, could afford to pay. The central banks are basically becoming irrelevant. The wall street journal said this morning that the ECB was going to print 60 billion euro a month for the next year and a half, if I have my numbers right. This shows that the central bankers do not have a realistic grasp of the problem. Many people are saying that this current year is going to see the world lose faith in the central bankers. I have lost faith in them already.

        • I am not sure about the central banks becoming irrelevant. The huge gap that is developing between the dollar and other currencies is becoming more and more of a problem. As the ECB prints money, the gap is likely to get worse. It makes the repayment of US dollar based debt increasingly impossible, among other things. Also makes it difficult to sell US goods to foreigners.

          I am wondering if there has been manipulation in some of oil prices we have had in the past, to keep prices as high as they have been. A big issue, though, is that the prices of all commodities have been drifting downward, indicating that consumers can no longer afford them–the benefit supplied is not great enough to justify their prices.

          • Perhaps we should no longer seek to sell our products to foreign markets and concentrate on developing, or re developing our domestic market. IF the USD makes our goods too expensive for other economies to purchase, it will start forcing all economies to look inward and start the process of de-globalization. It will hurt our “economic growth” in the short term but lead to a more resilient local economy in the long term.

            • Computers, phones, and other high-tech devices need many types of metals–virtually all elements of the periodic table. We don’t possible have all of those at home. We are therefore very dependent on imports. In order to afford imports, we have to have exports. We are trapped.

  3. Hi Gail,

    I did a little research a while back on the transition of the Japanese economy from the boom of the 1980’s to recession in the early 1990’s from the perspective of the nuclear industry. I found an interesting correlation in new plant development and the economy itself. I never drew any conclusions, as I was distracted by another topic, but plant development followed a logistic curve , which is usually associated with population growth, starting in the 1970’s and peaking around 1990.

    You’d think that cheaper energy would be great for the economy, but there seems to be something else at work aside from assumptions about shifting production to China, Vietnam, etc. Perhaps you are on to something with this article.

    I’m looking forward to your future posts.

    • Energy consumption throughout a population is correlated with not only declining death rates, but also declining birth rates. The former generally falls faster than the latter as energy use increases.

    • I have never understood why Japan has refused for 30 years to deal with energy of course so has the US and EU. But Japan has NOTHING in terms of indigenous energy.

      • “But Japan has NOTHING in terms of indigenous energy.”

        They probably have some pretty decent geothermal opportunities with all the active and dormant volcanoes, plus a massive subduction zone right off the coast.

        They are working on trying to extract methane from clathrates, and they could conceivably invest in using deep water ocean energy or even tidal; the energy costs about five times as much as coal or nuclear, but if they built it now at a cost of $0.25 per KwH, then when coal and nuclear get passed that point, it will turn out to be a viable investment in the long run.

        I wonder what they have for wind power potential.

            • Good grief, some history study will tell you that FDR knew exactly what he was doing when he cut Japan off from USA oil supplies. He needed to get the USA into the war, and halt Japanese expansion, in about that order of priorty. Pearl Harbor was no accident.

            • Martin Cruz Smith wrote an excellent novel “Tokyo Station” based heavily on this aspect of Japan’s entry into WWII. Strongly recommend it, because it also gives some insight into irrational behaviour and its effects on people when energy is an issue – makes it all very real.

    • That is an interesting point. I imagine the story goes somewhat like this:

      At some point, the building of nuclear power plants reached a saturation point–really diminishing returns. Adding more nuclear power plants would provide more energy than could be productively used at that point. (I think the building of new homes, roads, and factories in China is now reaching a saturation point as well.)

      In order to build the nuclear power plants, a great deal of new debt was no doubt added. Debt was also added to build factories and subway systems to use this new-found energy, and to help the Japanese people buy new high rise homes that used this energy. The combination of the debt and the cheap energy had a hugely stimulative effect on the economy. With more efficient farm and fishing equipment, fewer workers were needed in these fields, and in fishing, and processing food of all kinds. Instead, the debt provided funds so that these people could be brought to the city and could make goods for the world economy. The total amount of goods and services produced by the Japanese people skyrocketed. Instead of simply producing rice, fish, and a few things for themselves, they could produce goods for the world economy.

      Helping Japan along on this endeavor was the impact of skyrocketing oil prices about 1973-1974. When oil prices reached these high levels, one thing that was obvious to people around the world was that they could not continue to make the big, inefficient cars (with a new design every year!) that they had made in the past. Instead, they needed cars like the efficient ones the Japanese made. Suddenly Japan was a star. The nuclear power plants had been made fairly cheaply (no one worried too much about tsunamis), so the electricity was fairly cheap. The Japanese population was diligent and quickly became well-educated. They could soon churn out goods with nuclear energy, in fairly efficient factories.

      But once the nuclear saturation point was reached, debt became a “downer.” Instead of new debt helping to move more workers out of farming and fishing into other jobs, the country was faced with old debt that needed to be paid off. This had precisely the opposite of a stimulatory impact on the economy. The government needed to issue increasing amounts of debt to give the illusion that the economy was OK.

      Eventually, competition came along from parts of the world where the standard of living was lower. The climate was often a little warmer, so people did not need as sturdily built homes, and often didn’t need to heat them. They could burn coal for electricity–which could be cheaper than nuclear electricity. Much of the population was not as educated, and they did not have as strong an ethic with respect to caring for the environment, so their costs were lower this way as well. The one-child policy of China meant that very often both husband and wife could simultaneously be members of the work force. This helped hold down needed wages as well, because they could have an adequate household income on fairly low wages if both worked.

      Of course, all good things can be expected to come to an end in China, just as in Japan. A person can see where the Chinese story is headed, by observing the difficulties Japan encountered. China also has the difficulty of raising enough taxes to take care of all of the elderly Chinese.

      Much of the debt in Japan is being purchased by the Japanese themselves as retirement funds. I am afraid I can see how that will turn out.

      The next great place is perhaps Africa, because its climate is warmer yet. The problem there is that they don’t have cheap energy supplies, so I don’t think our moveable “next great economy” has anywhere else to go.

      • As far as I know, China has little by way of a welfare state. That has two effects: the first is that the government does not need to include these costs in its budget, so taxes are unaffected. Secondly, families provide financial support to those in need of medical care. That means that personal savings rates need to be that much higher than in the West. It also means that the one child policy logically ends with one worker supporting six parents and grandparents.

        • Despite that gargantuan development, the chinese have not moved all into the city yet.
          In the country side, there is a particular model, where olderly people live together in communes/villages and those bit younger of the bunch provide more services for the oldest ones. They all draw some very basic ration from the gov. so not hard core starving, plus some incoming funds from family if available, and obviously substinance small scale farming usually takes place at that place as well. Not sure how widespread it still is, gather at least few dozen% of older people function like that. Impossible model to implement in the west as of now.

        • Intergenerational debt is a big issue, in my mind. Unless society decides that we just walk away from elders when they get sufficiently old that they are not supporting themselves, there is an intergenerational debt. In traditional societies, this was handled by grandparents living with the children, and helping with childcare and farming. If the extent of medical care was not too great, there was not a long period when the elder person was in terrible condition, and needed to be waited on hand and foot. If nothing else, lying in bed with bedsores and other untreated conditions would likely bring a fairly quick end to the older person.

          Once industrialization takes place, the elder is very often separated from the children in households. So there are more households to take care of.

          I won’t go into all the details, but one child supporting six parents and grandparents just doesn’t work, whether it is done at home; whether an attempt is made to invest money in the appreciating housing or the stock market; or whether the government volunteers to do it. Any actuary will tell you that there becomes a huge problem. If the amount of external energy added to the economy goes down, there is a huge problem.

          • Jared Diamond has a good chapter on the fate of the inactive elderly in pre-agricultural societies, and the sick in general.

            I have heard quite a bit of anecdotal evidence of Spanish peasants hastening the end of their elderly relations…..

            And it was not uncommon for old men to hang themselves from the fruit or olive trees, and the old crones to throw themselves in the well when old age became too much, and the young too cruel.

            The current pattern of elder-care in advanced economies is an unprecedented historical anomaly, and will not last much longer.

            Is this regrettable? I think most of us would be somewhat relieved not to have to face the prospect of a living death which medical science now imposes on us in extreme old age.

            • My wife’s 72 year old mother has been very ill for almost 9 years. She had insulin depended diabetes for many years but falling down a flight of stairs resulting in a broken hip, then falling into a two week long coma and having her kidneys fail has been rough. This poor woman ends up in intensive care every four or five months and is subjected to torturous treatment to keep her from dieing. Even with supplemental insurance and Medicare just her out of pocket drug cost is over $1000 a month.
              My wife will do almost anything to help her mother and spends three or four days a week helping her father with her care but she has told me please don’t subject her to the same heroic care her mother is getting.
              I have an old dog who can barely walk. I had to build a wheel chair ramp to my front door so he can hobble out to do his business. He has a good appetite and sleeps good but when he can’t go outside on his own we will have him put down. Now no one will put me down when I can no longer make to the bathroom by my self but they wont have to, I will save them the trouble.
              The US will completely bankrupt itself trying to give sixty million aging Boomers full medical care.

  4. In North Dakota, the number of rigs drilling new oil wells dropped from 187 this time last year to 161 this week — the lowest level in five years.
    “My prediction is we’re down to 50 rigs by June,” said Jim Arthaud, CEO of MBI Energy Services, based in nearby Belfield, N.D.
    I’d say we’ll lose 20,000 jobs by June,” said Arthaud.
    They said things aren’t good, that oil prices are low, and they aren’t going to be drilling as many wells,” said John Roberts, who was recently laid off as a crew van driver for Schlumberger. “They gave me 24 hours to leave my house.”
    Roberts, who was given housing by the company, is now staying on his friend’s couch. All his belongings are packed in his car.

    • No union equals no written contract equals you get tossed out on your ear whenever it suits the corporation. Here in New York all are at will employees meaning you can be fired at any time for no reason.

      • I think we are returning to the day workerers or the workerers hired for the particular project. This is caused by the need for higher efficiency. I would say that these highs and lows of the oil price indicate that the economic growth has stopped and that the extraction of the resources will continue in much smaller scale after the Seneca cliff and that such projects will be more and more funded by the state via subsidies, loans that will not be paid etc.

        Does it remind you something? Yes, the burst of the bubble in 2008 was just the example of one or two sectors (housing and cars) that started to implode. Now we have a bigger problem: imploding energy production, as the high priced oil bubble bursts. Maybe we are past the peak of the industrial world, as more and more industrial production needs to be subsidized in variuos forms. And we are just realizing it when looking back…

    • That is sad: losing your job and housing simultaneously. I have run into a different version of this–an employer going essentially bankrupt, and both the (a) the retirement funds people have in the company’s own stock going to virtually zero and (b) people getting laid off having their auto loan from the employee credit union becoming immediately due. I don’t know if this particular combination can come up now, but it got me to think carefully about putting all of my eggs in one basket.

      • That’s why you need family. Five years ago I became disabled. My daughter had recently got married so she and her husband moved in to help out and also save up for their own place. A few months later her father in law lost the fishing resort job where he was the onsite manager. He moved into the other spare bed room. We had gone to the same church as children and knew the same people so Jack and I became buddies. We would stay up watching football and on nights when we both couldn’t sleep we would sit at the kitchen table, drink coffee and talk.
        A year ago he finally got on disability and the the kids got a house so he moved in with them. It worked out great. He had the support he needed, I had someone to mow the grass and help build dog ramps, and he had more time with his son. And now for the first time in 43 years I live in a child free home with just my wife. Still have to keep quite because it disturbs the dogs if we make too much noise. It’s almost midnight and just had to let them out to bark at armadillos.

  5. Gail – Converting BTU’s into more manageable units, like kilocalories, allows even the sleepy breakfast eater to comprehend how much energy he/she is using while they munch on cereal and read the back of the Wheaties box. In Figure 2, 316.95 million BTU’s per person per year in the US converts to 218,822 kilocalories per person per day. As the IEA also pointed out; the average energy consumption in the US changed little from the 1970’s to 2010, at an average of 334 million BTU’s per person per year. This is 230,593 kilocalories per person per day. Earl Cook in his seminal article in Scientific American, “The Flow of Energy in an Industrial Society” (1971), pegged the number at 230,000 in 1970. Plus ça change, plus c’est la même chose. (The more things change, the more they stay the same.)

    I went through all this in my first book, The Laws of Physics Are On My Side (2013). The key here is to use a “metric that crosses all platforms.” Using kilocalories allows people to calculate their own energy use and compare it to horses, tractors, built roads and buildings (embedded/embodied energy), etc. It also allows people to calculate their “energy slave” equivalent. If we now use 218,822 kcal/day/person, it is like having 87 slaves at our disposal (88 minus you the energy user).

    Calculating your own energy use, using a metric that crosses all platforms, also allows people to develop alternatives that give a net return that is far superior to industrial agriculture. As I have said many times, I am 25-35 TIMES more efficient than industrial agriculture. The sticker is actually getting paid a fair price for what I grow.

    BTW, “External Energy Products as a Way of Leveraging Human Energy” is spot on. I go through similar ideas in my first book (mentioned above) but in an energy context.

    • If the timeline 1970s-present means more or less a peak, stagnation plateau, then what about the actual decline from 87slaves way lower in the “near futur”? Apparently this must take tall on many fronts for both the master classs and the sheeple, like health, longevity, security, distance travelled..

      The reversal of affordability will smack even the systemic support of upper middle classes, when the JIT system can no longer or not as dependably service their hitec toys and overall apparatus incl. the healthcare system, not only cars and e-gadgets.

      What a pickle and chaos.

    • Thanks. I like kilocalories, because it is something every reader can relate to. They know about how many kilocalories of food they consume in a day.

      I take it that your “25 to 35 times more efficient than industrial agriculture” compares the energy you spend growing food to what industrial agriculture would spend. We still have to store it, prepare it, and cook it, so on a garden to table basis, the comparison is still quite a bit more than one calorie expended to one calorie eaten, I would imagine. A lot of folks assume we can get the total energy requirement down to less than 1:1, but I really doubt we can.

      • As I wrote about this at length in my first book and have posted this number on the Web for several years (including comments on your articles), I just gave you the short version. When discussing industrial agriculture versus my small-scale sustainable model, I use 7-10 kilocalories fossil fuel to produce 1 kilocalorie food in industrial agriculture. Of course there is variation, but the 7-10 measure has achieved a significant consensus over the years. This would be an EROI for industrial ag of 1:7-1:10, or .14-.10 if you dismiss the ratio sign. Since my actual measurements are 3.5:1, that is 25-35 times more efficient (3.5:1 / 1:7 = 3.5 / .14 = 25 or 3.5:1 / 1:10 = 3.5 / .10 = 35). Source for the 7-10 number below.

        As for your main point of energy to store it, prepare it, cook it, etc.; these are the same for either industrial ag or sustainable ag. There is certainly room for improvement by doing the processing ourselves, doing our own cooking, etc. (Example: making sauerkraut at home is far more energy efficient than buying it in a store.) I go into this in detail in my second book.

        In a nutshell, if you start from a base of fossil fuels, there is precious little you can do to counter the energy waste by the time you get the food. If you start from a base of human energy, you have a large latitude in what you can do to keep your energy footprint low.

        Heller, Martin C., and Gregory A. Keoleian (2000:42) Life Cycle-Based Sustainability Indicators for Assessment of the U.S. Food System, Ann Arbor, MI:Center for Sustainable Systems, University of Michigan

  6. Gail, I was recently reading David Leonhardt’s piece in the Times about wage/income stagnation in capitalist democracies (http://www.nytimes.com/2015/01/15/upshot/trying-to-solve-the-great-wage-slowdown.html), and he cites Canada and Australia as exceptions to the trend. Many reasons are given for this, but the word energy never appears. Could there be an energy connection? Canada and Australia are among the very few capitalist economies (I think Denmark and Norway are the only others?) that are net energy exporters.

    • Canada and Australia as energy exporters help, plus due to high taxation on fuels we did not experience the Land Export Model problem of increasing our own consumption of our energy faster than we brought new production online.

      The real secret though, is debt. We’ll see how different Canada and Australia are once the housing bubbles pop.

    • I strongly suspect that energy is behind Canada’s and Australia’s ability to keep wages growing. In Australia’s case, the extraction of other minerals may play a role as well. I think this year, and in 2015, the situation is turning around. In fact, it seems like with falling commodity prices, both of those countries would start being affected pretty quickly.

  7. Gail, I think corporations are becoming energy dissipators in their own. I am thinking of a company that does design only, no manufacturing at all. It runs large rooms full of computer and communications equipment. It uses corporate jets and stretch limos to send its biological communications devices to the right places. The few humans involved are a minor aside.

    • I agree. The higher level technical you get, the more equipment is needed, using parts from around the world. The folks are frequently off at conferences, delivering papers to their peers from around the world.

      Other companies have a lot of employees, but they tend to get packed in tightly, to use as little heat/floorspace as possible. The public areas of the company are fancy, in any expensive office building, with big conference rooms. And as you say, all of the fanciest computer and communications equipment.

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