In Part 1 of this series, I talked about why cheap fuels act to create economic growth. In this post, we will look at some supporting data showing how this connection works. The data is over a very long time period–some of it going back to the Year 1 C. E.
We know that there is a close connection between energy use (and in fact oil use) and economic growth in recent years.
In this post, we will see how close the connection has been, going back to the Year 1 CE. We will also see that economies that can leverage their human energy with inexpensive supplemental energy gain an advantage over other economies. If this energy becomes high cost, we will see that countries lose their advantage over other countries, and their economic growth rate slows.
A brief summary of my view discussed in Part 1 regarding how inexpensive energy acts to create economic growth is as follows:
The economy is a networked system. With cheap fuels, it is possible to leverage the expensive energy that humans can create from eating foods (examples: ability to dig ditches, do math problems), so as to produce more goods and services with the same number of workers. Workers find that their wages go farther, allowing them to buy more goods, in addition to the ones that they otherwise would have purchased.
The growth in the economy comes from what I would call increasing affordability of goods. Economists would refer to this increasing affordability as increasing demand. The situation might also be considered increasing productivity of workers, because the normal abilities of workers are leveraged through the additional tools made possible by cheap energy products.
Thus, if we want to keep the economy functioning, we need an ever-rising supply of cheap energy products of the appropriate types for our built infrastructure. The problem we are encountering now is that this isn’t happening–more energy supply may be available, but it is expensive-to-produce supply. Our networked economy sends back strange signals–namely inadequate demand and low prices–when the cost of energy products is too high relative to wages. These low prices are also a signal that we are reaching other limits of a networked economy, such as too much debt and taxes that are too high for workers to pay.
Looking at very old data – Year 1 C. E. onward
Some very old data is available. The British Economist Angus Maddison made GDP and population estimates for a number of dates between 1 C. E. and 2008, for selected countries and the world in total. Canadian Energy Researcher Vaclav Smil gives historical energy consumption estimates back to 1800 in his book Energy Transitions – History, Requirements and Prospects.
If we look at the average annual increase in GDP going back to the Year 1 C. E., it appears that the annual growth rate in inflation-adjusted GDP peaked in the 1940 to 1970 period, and has been falling ever since. So the long-term downward trend in world GDP growth has lasted at least 44 years at this point.
A brief synopsis of what happened in the above periods is as follows:
- 1 to 1000 – Collapse of several major civilizations, including the Roman Empire. Metal was made using charcoal from wood, but this led to deforestation and soil erosion. Egypt and the Middle East had extensive irrigation of crops using river water. Some trade by ship. Most of the population were farmers.
- 1000 to 1500 – Early use of peat moss for heat energy for industrialization, particularly in Netherlands, leading to increased trade. Continued use of wood in cold countries, with deforestation issues.
- 1500 to 1820 – European empire expansion to the New World and to colonies in Africa, allowing world population to grow. Britain began using coal. Netherlands added wind turbines beside greater use of peat moss.
- 1820 to 1900 – Coal allowed metals to be made cheaply. Parts of farm work could be transferred to horses with greater use of metal tools. Coal allowed many types of new technology including hydroelectric dams, trains, and steam powered boats.
- 1900 to 1940 – Expanded use of coal, with beginning use of oil as a transportation fuel. Depression was during this period.
- 1940 to 1970 – Post war rebuilding of Europe and Japan and US baby boom led to hugely expanded use of fossil fuels. Antibiotic use began; birth control pills became available. Food production greatly expanded with fertilizer, irrigation, pesticides.
- 1970 to 2000 – 1970 was the beginning of the great “oops,” when US oil production started to decline, and oil prices spiked. This set off a major push toward efficiency (smaller cars, better mileage) and shifts to other fuels, including nuclear.
- 2000 to 2014 – Another big “oops,” as oil prices spiked upward, when North Sea and Mexican oil began to decline. Much outsourcing of manufacturing to countries where production was cheaper. Huge financial problems in 2008, never completely fixed.
Growth in GDP in Figure 2 generally follows the pattern we would expect, if fossil fuels and earlier predecessor fuels raised GDP and the great “oopses” during the 1970-2000 and 2000-2014 periods reduced economic growth.
Population Growth vs Growth in Standard of Living
GDP growth is composed of two different types of growth: (1) population growth and (2) rise in the standard of living (or per capita GDP growth). We can look at these two kinds of growth separately, using Maddison’s data. My discussion earlier about cheap energy having a favorable impact on the amount of goods an economy could create relates primarily to the second kind of growth (rise in the standard of living). There would be a carry-over to population growth as well, because parents who have more adequate resources can afford more children.
If we compare the population growth pattern in Figure 3 with the total GDP growth pattern shown in Figure 2, we notice some differences. One such difference is the lower population growth rate in the 2000-2014 period. Compared to the period before fossil fuels (generally before 1820), the population growth rate is still exceedingly high.
If we look at world per capita GDP growth by time-period (Figure 4), we see practically no growth until the time of fossil fuels–in other words, 1820 and succeeding periods.
In other words, in these early periods, civilizations were often able to build empires. Doing so seems to have allowed greater population and more building of cities, but it didn’t raise the standard of living of most of the population by very much. If we look at the earliest periods, (Years 1 to 1000; 1000 to 1500, and even most places in 1500 to 1820), the average per capita income seems to have been equivalent to about $1 or $2 per day, today.
I earlier showed how world per capita energy consumption has grown since 1820, based on the work of Vaclav Smil (Figure 5).
It is clear from Figure 5 that the largest increase in energy consumption came in the 1940 to 1970 period. One thing that is striking is that world population took a sharp upward turn at the same time more fossil fuel use was added (Figure 6).
While this increase in population holds for the world in total, analyzing population growth by country or country grouping yields very erratic results. This is true all the way back to the Year 1. If we look at percentages of world population at various points in time for selected countries and country groups, we get the distribution shown in Figure 7. (The list of country groups shown is not exhaustive.)
Part of what happens is that economic collapses (or famines or epidemics) set population back by very significant amounts in local areas. For example, Maddison shows the population of Italy as 8,000,000 in the Year 1, but only 5,000,ooo in the Year 1000, hundreds of years after the fall of the Roman Empire.
Per capita GDP for Italy dropped by half over this period, from about double that of most other countries to about equivalent to that of other countries. Thus, wages might have dropped from the equivalent of $3.oo a day to the equivalent to $1.50 a day. None of the economies were at a very high level, so most workers, if they survived a collapse, could find work at their same occupation (generally farming), if they could find another group that would provide protection from attacks by outsiders.
If we look at the trend in population shown on Figure 7, we see that the semi-arid, temperate areas seemed to predominate in population in the Year 1. As peat moss and fossil fuels were added, population of some of the colder areas of the world could grow. These colder areas soon “maxed out” in population, so population growth had to slow down greatly or stop. The alternative to population growth was emigration, with the “New World” growing in its share of the world’s population and the “Old World” contracting.
Each part of the world has its own challenges, from Africa’s problems with tropical diseases to the Middle East’s challenges with water. To the extent that work-arounds can be found, population can expand. If the work-around is cheap (immunization for a tropical disease, for example), population may be able to expand with only a small amount of additional energy consumption.
One point that many people miss is that Japan’s low growth in GDP in recent years is to a significant extent the result of low population growth. In the published GDP figures we see, no distinction is made between the portion that is due to population growth and the portion that is due to rise in the standard of living (that is, rise in GDP per capita).
Growth in Per Capita GDP in the “Advanced Economies”
As noted above, the big increase in per capita energy use shown in Figure 5 came in the 1940 to 1970 period. No breakdown by country is available, but this period includes rebuilding period after World War II for Europe and Japan, and the period with a huge increase in consumer debt in the United States. Thus, we would expect those three country/groups would benefit disproportionally. In fact, we see very large increases in per capita GDP for these countries, as fossil fuels were added, particularly oil.
These three economies (Western Europe, USA, and Japan) are all fairly high users of oil. If we look at long-term world oil production versus price (Figure 9), we see that growth in consumption was rising rapidly until about 1970.
In fact, if we calculate average annual increase in oil consumption for the periods of our analysis, we find that they are
- 1900 to 1940 – 6.9% per year
- 1940 to 1970 – 7.6% per year
- 1970 to 2000 – 1.5% per year
- 2000 to 2013 – 1.1% per year
Growth in oil production “hit a wall” in 1970, when US oil production unexpectedly stopped growing and started declining. (Actually, this pattern had been predicted by M. King Hubbert and others). Oil prices spiked shortly thereafter. The situation was more or less resolved by making a number of changes to the economy (switching electricity production from oil to other fuels wherever possible; building smaller, more fuel efficient vehicles), as well as ramping up oil production in places such as the North Sea, Alaska, and Mexico.
Oil prices were brought down, but not to the $20 per barrel level that had been available prior to 1970. Most of the infrastructure (roads, pipelines, electrical transmission lines, schools) in the USA, Europe, and Japan had been built with oil at a $20 per barrel level. Changing to a higher price level is very difficult, because repair costs are much higher and because an economy that uses very much high-priced oil in its energy mix is not competitive with countries using a cheaper fuel mix.
In the 2007-2008 period, oil prices spiked again, leading to a major recession, especially among the countries that used very much oil in their energy mix. With these higher prices, the leveraging impact of oil in bringing down the cost of human energy was disappearing. All of the “PIIGS” (countries with especially bad financial problems in the 2008 crisis) had very high oil concentrations, up near Greece on the chart above. Japan’s oil consumption was very high as well, as a percentage of its energy use. When we looked at the impact of the recession, the countries with the highest percentage of oil consumption in 2004 had the worst economic growth rates in the period 2005 to 2011.
Getting back to Figure 9, after the financial crisis in 2008, oil prices stayed low until the United States began its program of Quantitative Easing (QE), helping keep interest rates extra low and providing extra liquidity. Oil prices immediately began rising again, getting to the $100 per barrel level and remaining about at that level until 2014. The combination of low interest rates and high prices encouraged oil production from shale formations, helping to keep world oil production rising, despite a drop in oil production in the North Sea, Alaska and Mexico. Thus, for a while, the conflict between high prices and the ability of economies to pay for these high prices was resolved in favor of high prices.
The high oil prices–around $100 per barrel–continued until United States QE was tapered down and stopped in 2014. About the same time, China made changes that made debt more difficult to obtain. Both of these factors, as well as the long-term adverse impact of $100 per barrel oil prices on the economy, brought oil price down to its current level, which is around $50 per barrel (Figure 10). The $50 per barrel price is still very high relative to the cost of oil when our infrastructure was built, but low relative to the current cost of oil production.
If a person looks back at Figure 9, it is clear that high oil prices brought oil consumption down in the early 1980s, and again for a very brief period in late 2008-early 2009. But since 2009, oil consumption has continued to rise, thanks to high prices and the additional oil from US shale.
The low prices we are now encountering are a message from our networked economy, saying, “No, the economy cannot really afford oil at this high a price level. It looked like it could for a while, thanks to all of the financial manipulation, but this is not really the case.” Meanwhile, we see in Figure 8 that for the combination of the EU, USA, and Japan, growth in per capita GDP has been very low in the period since 2000, reflecting the influence of high oil prices on these economies.
Growth in Per Capita GDP for Selected Other Economies
In recent years, per capita GPD growth has shifted dramatically. Figure 13 below shows increases in GDP per capita for selected other areas of the world.
The “stand out” economy in recent growth in GDP per capita is China. China was added to the World Trade Organization in December 2001. Since then, its coal use, and energy use in general, has soared.
If we calculate the growth in China’s energy consumption for the periods we are looking at, we find the following growth rates:
- 1970 to 2000 – 5.4% per year
- 2000 to 2013 – 8.6% per year
A major concern now is that China’s growth rate is slowing, in part due to debt controls. Other factors in the slowdown include the impact pollution is having on the Chinese people, the slowdown in the European and Japanese economies, and the fact that the Chinese market for condominiums and factories is rapidly becoming “saturated”.
There have been recent reports that the factory portion of the Chinese economy may now be contracting. Also, there are reports that Chinese coal consumption decreased in 2014. This is a chart by one analyst showing the apparent recent decrease in coal consumption.
Where Does the World Economy Go From Here?
In Part 1, I described the world’s economy as one that is based on energy. The design of the system is such that the economy can only grow; shrinkage tends to cause collapse. If my view of the situation is correct, then we need an ever-rising amount of inexpensive energy to keep the system going. We have gone from trying to grow the world economy on oil, to trying to grow the world economy on coal. Both of these approaches have “hit walls”. There are other low-income countries that might increase industrial production, such as in Africa, but they are lacking coal or other cheap fuels to fuel their production.
Now we have practically nowhere to go. Natural gas cannot be scaled up quickly enough, or to large enough quantities. If such a large scale up were done, natural gas would be expensive as well. Part of the high cost is the cost of the change-over in infrastructure, including huge amounts of new natural gas pipeline and new natural gas powered vehicles.
New renewables, such as wind and solar photovoltaic panels, aren’t solutions either. They tend to be high cost when indirect costs, such as the cost of long distance transmission and the cost of mitigating intermittency, are considered. It is hard to create large enough quantities of new renewables: China has been rapidly adding wind capacity, but the impact of these additions can barely can be seen at the top of Figure 14. Without supporting systems, such as roads and electricity transmission lines (which depend on oil), we cannot operate the electric systems that these devices are part of for the long term, either.
We truly live in interesting times.
I will take a contrary view. I know of no time in recent history where the perfect storm of cheap energy, cheap money, and cheap commodities has not led to accelerated economic growth. It takes 6-12 months for cheaper resources to manifest in the greater economy, so I’ll say that 3Q-4Q 2015 will be the beginning of a marked upturn in global economic performance. As long as money, energy, and raw materials stay cheap, economic growth will (must?) continue to accelerate. I believe this is the main reason we’re seeing a resilient stock market today — smart money knows what’s coming.
Economic acceleration, over time, will again lead to higher interest rates, which by definition allows old debt to be paid down faster. Traditional economics. The real question is: which comes first? Global implosion due to debt default, or sustained economic acceleration leading to debt relief? My long bet is on the latter. The same powers that hold most of the world’s debt have NO interest in causing a global default, which would hurt THEM the most. This is why the EU was so quick to negotiate with Greece. Default would be far worse than a debt restructuring haircut.
Finally, I think much of what’s happening today was predicted by peak oil theory. Going forward, as the global economy again heats up, increasingly limited fossil supply will cause an accelerated run-up in energy prices, leading to price spikes we’ve not seen before (think $150-200/bbl oil, etc.), which will cause a slow-down in global economic activity. Rinse, repeat …. with each new boom-bust cycle coming faster and more devastating, ultimately ending in an unsustainable economic system. When I project the 12 (or so) key asymptotes over the next 40 years, it becomes pretty clear that the years 2040-2050 could be humanity’s most difficult ever.
But in the near-term (2016-2019), I think we’re going to see a sustained economic turn-around. For investors, I would suggest that oil stocks are a screaming bargain right now. And thanks, Gail, for your all your amazing work. Love you, JL
Phew! This is a plus and a minus for me, approaching 70.
Part of me is totally curious about how the collapse will play out and just as well that it happens in my lifespan. But if your prognosis is correct, Josh, I may not get that pleasure.
But I’ve made the mistake myself of declaring early breakdown and have learned that the global economic system may have a greater level of resilience than many of us have credited it. We could all lay bets on timing, just for fun, but I’m open to the system shakily holding together for another couple of decades.
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John Redwood opines that Germany needs to get out of the Euro (or get everyone else out) unless it wants to keep paying the bills of other people. That is also the view of Alternative for Deutschland, the partners of the Tory party in the European Conservatives and Reformists group in the EU parliament.
Germany needs to wake up to the shocking reality. All the time she stays in the Euro she will be forced one way or an other to pay more of its bills. She has but a minority share of the votes (18%) and decision making, in a zone now dominated by states who believe they should be able to spend more of Germany’s money for her. So it will be, unless Germany has decided to move from semi detached to outside the zone. If she stays in she will discover she is in a terrace with shared walls she needs to pay to repair.
* * *
Good insights from The Daily Express.
Germany will turn against European Union if currency suffers, says FREDERICK FORSYTH
HAVING spent years in Germany I have some understanding of their collective secret nightmare, hardly ever mentioned or understood this side of the Rhine.
It is hyperinflation. They had it once, back in the 1920s. There are few left alive who were around back then but the horror is dye-stamped into the mass psyche.
A German needed to take a suitcase full of big-denomination Reichsmark notes down to the bread shop to buy a loaf and on the way the price might have doubled.
One of the main reasons why the Germans followed Hitler with such enthusiasm (also never mentioned) is that he employed the brilliant economist Hjalmar Schacht to reform the currency and give the banknotes hard-currency value again. The people would have followed any Pied Piper who could do that.
But even Schacht cheated. He passed off full employment creating motorways, infrastructure and weapons of war as prosperity whereas they just piled up debt.
But the plan was to use the weapons to invade all their neighbours, confiscate the central banks’ gold and currency reserves and thus firm up the Reichsmark.
And it worked – for a while. But when they lost the Nazis left not just Germany but all of Europe bankrupt. After 1946 when Adenauer morphed the Reichsmark into the Deutschmark he employed another brilliant economist, Ludwig Erhard.
His job: keep the Deutschmark hard, no matter how much discipline was required. And they did – trade unions included. That is why German unions never went on strike while ours struck this country into ruin. And it worked.
The whole economic miracle was based on a single and simple creed – never debauch the currency. Go through the hell of self-denial if you have to but keep the currency rock solid.
Now they are in the eurozone and what is happening? An Italian at the European Central Bank is debauching the currency. German Chancellor Angela Merkel – who was raised in an East Germany with a loo-paper currency – is against it but this time, for the first time, she has been overruled. She is between a rock and a very hard place.
She hates the europrinting spree but is also a fanatical supporter of the EU and all its works. But that may not be the mass verdict of the German people for much longer.
In the cause of Euro-unification they have shovelled their savings and reserves into bailing out the spendthrifts and sipcoffee-in-the-sun brigade of southern Europe but the polling popularity of the EU-sceptic Alternative for Germany party rises steadily.
* * *
My personal view is that the EU could work best were it limited to a pan-Germanic block of Norway, Sweden, Finland, Iceland, Denmark, Germany, Austria, England, Switzerland, Flanders and maybe northern Italy. The entire rules would require renegotiation. The Meds and Latins clearly need their own arrangements.
Good insights on WWII.
The big difference between then and now is that we no longer have sufficient inexpensive energy to rebuild after a crash. This time when the economy collapses it will never come to back to anything close to what exists today. Enjoy life while you can.
With regard to the hard working Germans versus the sipcoffee-in-the-sun brigade, I suspect the real difference between the two is that one was blessed with considerable coal and gas and the other olives.
The Japanese, after all, are hard working and thrifty but collapsing nevertheless because they have no fossil carbon resources.
I expect the EU will break up/disappear/lose power, and not be replaced. We are moving toward a less networked world, as oil supply diminishes.
Nice one Syriza!
Britain could be OUT of EU even sooner: David Cameron reveals plan for early referendum
DAVID Cameron has given his strongest indication yet of his desire to rush forward his planned EU referendum to as early as next year, the Daily Express has learned.
When you write on debt, please do discuss “interest” or “usury” on debt and its effect on economy. I understand that the interest or usury keeps the debt based ponzi scheme of things to sustain. People do talk about debt and debt based ponzi scheme, but reluctant to throw light on interest on debt. It is interesting.
I did mention the fact that when interest is on debt, there is a tendency to transfer money from the less wealthy to the more wealthy. Clearly, some of this interest is simply compensation for write-offs that are necessary on these loans. Thus, in a sense, they are not really transfer from the poor to the rich; instead, part of the funds are payment for the fact that poor people tend to default on loans frequently. I am sure that the amount of interest payments varies a lot for different people.
If I look at the FRED category Household Interest Paid, and compare it to Personal Consumption Expenditures, the ratio comes to 1.9% in 1949, the earliest year this information is available. It reached a peak of 9.4% of Personal Consumption Expenditures in 1986 (when mortgage rates were high). It dropped back to 7.3% in 2004, then rose to 8.7% in 2007. With current low interest rates, it is now down to 5.4% of PCE.
Total Interest Paid (including business and government) is a much bigger amount. If I am reading the amounts correctly, total interest paid reach a peak of 32.3% of GDP in 1989. It peaked again in 2007 at 31.0% of GDP in 2007. In 2013, total interest paid amounted to “only” 14.8% of GDP. These amount were produced by comparing Fred amounts. Interest paid was about $4.5 trillion dollars in 2007 and $2.5 trillion dollars in 2012 and in 2013. What is a trillion or two in interest payments, when you are with friends?
“In 2013, total interest paid amounted to “only” 14.8% of GDP”
That is pretty significant, if the United States Government is only able to collect about 18% of GDP in taxes each year. That means the creditors take an amount equal to Federal Taxes. Once you add in your State, municipal taxes, etc, it seems it is nearly 50 percent of GDP is being siphoned off in taxes and interest. I wonder where the breaking point is, where the system simply cannot operate with any more tax or interest.
I was being sarcastic. The percentage was over 30% a couple of years. These numbers are awfully high. I found that there is something called “imputed interest” that needs to be added to the numbers as well. This would, for example, represent the portion of annuity payments that correspond to interest. These wouldn’t be included in the cash payments I quoted earlier. I suppose that there is some double counting, in that for example, a bank pays interest on the deposits it holds using some of the interest it collects on the loans it makes. There is also a “net interest” amount available that might be in some ways be more representative.
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Initial reports suggest that big mouth (?) Syriza is already backing down at the Eurogroup meeting and have agreed to an extension of the bailout. A joint statement is in preparation. Details to follow. It will be interesting to see Syriza sell that to their constituency.
After Talks, Eurozone and Greece Fail to Settle Differences Over Debt
BRUSSELS — Eurozone finance ministers failed to narrow their deep differences with Greece on Wednesday over how to keep the country from running out of money as it tries to revise the terms of its bailout.
After holding more than five hours of talks here with Yanis Varoufakis, the combative finance minister from the newly elected anti-austerity government in Athens, the ministers said they would need to meet again on Monday.
I hope they hold out against the banksters.
I know Quitollis holds Syriza in low regard. But it’s gonna happen sooner or later. If not Greece, who will be next? Italy? Spain?
My partner’s daughter-in-law is Italian. She says the place is steadily falling apart at the seams there. They are trying to come back to the US, but the US won’t let her in with her husband and daughter — both American citizens. It used to be that a spouse got in pretty easily. I hear the borders snapping shut!
Most Italians now want to leave the Euro because they know that they cannot compete in a single currency with northern Europe and because of the open borders.
Whether Syriza gets to play king for the day or not it should hasten the end of what has become a socialist scrounge fund. Let Merkel embarrass herself one more time.
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Fitch: Energy most prevalent second-lien loan sector
Second-lien energy loans account for 23% of the total outstanding $40 billion, the highest percentage of any sector and well above the 8% overall market figure at the end of 2014, according to Fitch Ratings.
I presume second-lien loans come about when some private investment company buys up oil companies, and borrows money to finance the borrowing it uses to finance its investment. The investment company needs some sort of collateral for its loans, so a second lien is placed on the oil.
Very interesting. I did the exercise on oil vs gdp (growth rate) here http://www.locchiodiromolo.it/blog/petroliovs-pil.html
and in dynamic (Gapminder) mode here http://goo.gl/GB2cC0
I will have to take a look at this data.
Why We Don’t Have Battery Breakthroughs
A promising advance that came to nothing suggests what it will take to make cheap batteries for electric cars.
Rechargeable batteries don’t last nearly as long as fuel tanks, & cost much more to replace.
Last I heard, the main supply of lithium was in the Andes of Bolivia & Argentina (it is stored & transported in a liquid solution, not as solid ingots) — how is all this going to continue, without the fossil-fuel-based infrastrucrure?
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steve from virginia Post authorFebruary 10, 2015 at 11:03 am
Ultimately, Europe will be dollarized, like Panama and Ecuador … as will much of the rest of the world. Currency ‘wars’ have consequences. The precipitate drop in price of the euro speaks for itself.
Bernie is on the right track: look for implementation of euro-dollar swap lines via the Federal Reserve and ‘back channel’ financing for the Greeks … for now. (The Fed would buy euros on the currency markets w/ dollars and lend them by way of NY banks to the Greeks). This would give everyone a chance to save face, have their cake and eat it too (and kick that poor, dented can down the road).
I don’t understand it all but its still fascinating.
here’s a direct link to the Steeve’s comment you pasted (hope it works): http://www.economic-undertow.com/2015/02/09/fatal-ignorance/comment-page-1/#comment-37190
The article is the original version of the Peakoil’s “Oil prices will never recover”.
Let me quote an interesting part of it:
“The industrial regime has oversold ‘productivity’. What meets industry costs are loans, not returns: economists don’t understand this … economists don’t understand this … economists don’t understand this. Maturing loans are refinanced or repaid with new loans; ‘wages’, ‘earnings’, ‘profits’ are all borrowed. In the eurozone, anything that qualifies as ‘money’ is borrowed from commercial financiers in Frankfurt. Total credit expands exponentially. No matter how to to what extent loans are restructured, all repayments are borrowed, the new amounts added to the debt total. Debts can be repudiated, but industry cannot exist or function without a steady diet of loans. If such a thing were possible, industry would be loan-free already! There would not be a crisis, the ordinary operation of a single, remunerative industry would retire all debts, would make every human being rich.
Four-hundred-plus years of industrialization and factory efficiency has done exactly the opposite, the world is sunk up to its nostrils in a incalculable morass of non-payable debt and strangling pollution. The ‘efficiency’ of debt has declined sharply; that is, each marginal dollar (or euro, yen or whatever) lent into existence returns less in the way of real output. Part of this is the simple exponential function applied to money supply over time: new loans taken on to refinance existing loans increase at a (modest) fixed rate of interest adding to the immensely growing pile. Another component is increased financing for hedging purposes in derivatives’ markets (the costs of which must be borrowed), part of it is confluence of demographics and politics (fewer, older people in industrial nations buy- and borrow less which means governments must borrow more in their place). The basic premise of industrial West is to leverage itself beyond its means … the credulous fools at the base of the economic pyramid cannot afford to pick up the tab any longer.”
Gail I’m eager to read your words explaining the debt mechanisms (I also have hard time trying to grasp it all). Meanwhile, I’ll dig into the links “economists don’t understand this” of the undertow post.
Thanks! I tend to agree with the comments you quoted above. Debt is now so baked into the cake that it is constantly being rolled over and added to. Without this happening, everything comes to a screeching halt. Businesses and governments work on this model; individuals buy one car and let the debt balance run down a little, then buy another car. The new car tends to be a lot more expensive, with more energy saving features, but the net effect is that more debt is needed to finance the car, and over a longer period (so less of the loan is paid down when it is traded in). So the cycle goes on. As more money is tied up in all of this debt, it becomes hard to do anything else.
Regarding the Hill’s Group model, see
One of the exhibits states that 88 percent of the available energy which can be extracted from a field has been extracted by the time the peak production is reached.
The exhibit dates, I think, from 2007. What B.W. Hill was predicting is what Ugo Bardi calls a Seneca Cliff.
Assume that the peak of extraction is occurring right now. If B.W. is correct about the 88 percent, we have only 12 percent of the Available Energy left to extract from what has been discovered. Theoretically, new discoveries can happen, but we believe they will be high cost, and the 12 percent Available Energy left probably wouldn’t suffice to exploit them.
The 12 percent number is more suggestive to me than probably any other single statistic. It’s a little like being told you are going to be executed tomorrow.
First a “thank you” for all your contributions here.
If that statement is accurate than we do not have much time to prepare for the shock of energy deprivation.
Just imagine how the folks in the Northeast would handle this ongoing winter without the resource of available fossil fuels.
Certainly, different sections will be able to manage better than others.
Here in North Carolina, where you and I live, things look rosey.
My city,Charlotte, is undergoing a building boom. There is even plans to expand Douglas Airport by twice the size!
No one is even thinking about the age of “want” at this time.
It will be a big shock when it hits…hard.
Now, I am getting back in shape, losing weight, jogging for an hour non-stop , eating healthy, sect. Most people, even the young, are slugs and sickly.
Will run a30k, 18 mile, run this year. Something I haven,t done in 30 years!
Good Luck to all, we are going to need it!
Dear Gail and All
An interesting post:
Many thoughts in common with Gail and with the Hill’s Group….Don Stewart
The author is commenting on Steve from Virginia’s (Ludlum’s) views, and he sees things much as I do. The Hill Group doesn’t have the price estimate in their model correct–there is no correction in the price estimate for falling demand because of diminishing returns, as far as I am aware. There would be a feedback through both stagnating wages and falling debt. So the Hill Group estimate tends to be too optimistic.
Ted Wilson on Tue, 10th Feb 2015 6:42 am
Yes Saudis are afraid to cut supply because China is not only buying more Russian crude, but also rapidly increasing the sales of Electric Vehicles.
They don’t want over-reliance on Oil.
shortonoil on Tue, 10th Feb 2015 7:02 am
We posted this yesterday under “There Is No Peak Oil–But We Are Approaching Peak Low-Cost Oil” It seems pertinent to the present discussion.
Can you explain that? Because i’ve always that that the two are separate i.e. production/supply could be down but demand could be thru the roof.
At the present time it takes about half of the energy content of a unit of oil (barrel, gallon, etc) to extract, process, and distribute the product. It takes half of the energy from oil to produce it, therefore it takes half of the production. Producing petroleum, and its products creates a demand for petroleum!
Here is the 2012 energy breakdown for the “average” barrel:
The energy content (exergy) of 37.5 deg. crude is 5.88 million BTU/barrel:
That is 50%
As production goes down demand will go down by half.
That percentage is changing with time; for example in 1980 it took 931,500 BTU/barrel to extract, process, and distribute the average barrel. 16% of the energy content of a 35.7 deg. crude. A 1 mb/d drop in production in 1980 reduced demand by 160,000 b/d. In 2012 a 1 mb/d drop would have reduced demand by 500,000 b/d.
This commonly ignored fact makes predictions for the supply/demand balance inaccurate. It will take a production cut of at least 3.0 mb/d to bring the markets’ excess of 1.5 mb/d back in line.
Actually, we are estimating a 4 mb/d reduction will be necessary because of end user demand decline from a slowing global economy. The strong demand that has been seen in the last few years has been largely due to petroleum production itself. This is especially true of shale production which is at best a net zero energy product.
It seems likely that OPEC is aware of this phenomena, and that would explain their reluctance to cut production to raise prices. Production cuts could never be offset by sufficient enough price increases to compensate for their fall in revenue. For OPEC it would be like pushing on a string. For them cutting production would only mean a greater loss of revenue.
B.W. Hills states that the oil cost of producing a barrel of oil has increased from 16 percent in 1980 to 50 percent today. If we look at today’s cost, we have:
The lion’s share of the current cost is ‘processing’. Which must imply that processing is very much more expensive now than it was in 1980. I find that peculiar. I think of ‘processing’ as refining. I can’t imagine that the cost of refining has skyrocketed. When people talk about increasing costs, they tend to talk about drilling and fracking wells…not refineries.
Can you help me understand?
EROEI calculations have only to do with extraction, so you can see how limited these are.
I did not figure out where exactly the processing and distribution costs came from–except that I understand that they are from an EIA site.
The processing costs and distribution costs are mostly not oil, so it doesn’t make sense to match them up with oil, and proclaim that these go together to create “oil costs”. I would expect that with respect to processing, the costs are mostly natural gas–either used in cracking long molecules, or in creating the electricity that is used. If these numbers are EIA numbers, they likely have already been “grossed up” for the equivalent amount of natural gas that would have been required to make electricity, for example. I don’t think natural gas required for cracking requires grossing up. I think there may be some double grossing up by Hills Group, besides matching them up with oil when they shouldn’t be. If Hills Group is thinking in terms of cost, then the cost of natural gas is a whole lot cheaper than oil, and this needs to be considered.
With respect to oil pipelines, these are operated by electricity. The electricity could be coal, nuclear, natural gas, hydro, etc. If the amounts came from the EIA, they are already “grossed up” to reflect the amount of hydrocarbons (but not oil) that would need to be burned, but Hills Group grossed them up again, and considered them equivalent to oil, as I understand the situation.
There is a big difference, too, among types of oil as to how much these costs are. Cracking is only needed on very heavy oil. If the same cost level is used for all types of oil (as Hills Group seems to do), this leads to the conclusion that Light Tight Oil has very high processing costs, when I don’t think it really does.
The Oxford Club of Baltimore: “Oil Company Death List”
There are a bunch of companies that won’t make it.
Dear Gail and All
If you read my post, inspired by Mobus and Kalton, on the regulatory overhead which will tend to choke us on the way down, you will likely enjoy this current article by George Mobus….Don Stewart
‘Of course in the slightly longer run, society itself will collapse so this is all academic (pun intended). I still hold out hope for a nucleus of eusapient beings to sequester themselves somewhere a little more safe and hunker down for the coming dark ages and bottleneck event. I still think such a group could establish an education process that would really educate children and young adults.’
ARGH! Can’t get past the CAPTCHA, after a dozen tries or so. There doesn’t seem to be a “contact” link, either, so I can’t tell him his CAPTCHA is broken.
Try george dot mobus at gmail dot com.
If students can’t get jobs that pay enough to justify the debt, colleges and universities have to shrink a lot.
Don, there is a science fiction book in which education can be downloaded into people. Earth makes a business out of this by providing trained people to the outer colonies. The main character tests into a special school. He expects a download so he can make money in the outer colonies. Instead there are books and a dorm. His roommate eventually explains it to him. Someone has to come up with the new ideas that are downloaded.
Universities will always existing for those who have a real interest. I would guess about 1% of the present college population numbers.
Greece will have to emit national credit using its own currency. They can do business with the BRICS. They can continue to make money off of German tourists.
Peace and prosperity for Greece, war and death for the EU (Libya, Syria, Iraq, Ukraine, Yemen).
LOL Even the far leftist The Guardian has to admit that Syriza are idiots headed for a fall. The Guardian lives in the same economic la la land as Syriza. (The BBC is totally dominated by Guardianistas, the corporation advertises its jobs only in The Guardian. The BBC literally played communist marches, waved communist flags and talked about a Marxist revival in Britain on Newsnight on the day that Syriza was elected. It is about time that the Tories shut down the BBC.)
Yanis Varoufakis, Greece’s new finance minister, is a professor of mathematical economics who specialises in game theory. But his negotiating technique – unpredictable oscillations between aggressiveness and weakness – is the opposite of what game theory would dictate. Varoufakis’s idea of strategy is to hold a gun to his own head, then demand a ransom for not pulling the trigger.
German and European Union policymakers are calling his bluff. As a result, the two sides have become stuck in a passive-aggressive standoff that has made serious negotiation impossible.
Greece started the negotiation by insisting on debt reduction as its red line. But, instead of sticking to this position and turning a debate over debt forgiveness into a Draghi-style diversionary tactic, Greece abandoned this demand within days. Then came the pointless provocation of refusing talks with the troika, despite the fact that the three institutions are all much more sympathetic to Greek demands than the German government.
Finally, Varoufakis rejected any extension of the troika programme. This created an unnecessary new deadline of 28 February for the withdrawal of ECB funding and consequent collapse of the Greek banking system.
The upshot is that Greece is back where it started in the poker contest with Germany and Europe. The new government has shown its best cards too early and has no credibility left if it wants to try bluffing.
So what will happen next? The most likely outcome is that Syriza will soon admit defeat, like every other eurozone government supposedly elected on a reform mandate, and revert to a troika-style programme, sweetened only by dropping the name “troika”. Another possibility, while Greek banks are still open for business, might be for the government to unilaterally implement some of its radical plans on wages and public spending, defying protests from Brussels, Frankfurt, and Berlin. [LOL]
If Greece tries such unilateral defiance, the ECB will almost certainly vote to stop its emergency funding to the Greek banking system after the troika programme expires on 28 February. As this self-inflicted deadline approaches, the Greek government will probably back down, just as Ireland and Cyprus capitulated when faced with similar threats.
Such last-minute capitulation could mean resignation for the new Greek government and its replacement by EU-approved technocrats, as in the constitutional putsch against Italy’s Silvio Berlusconi in 2012. In a less extreme scenario, Varoufakis might be replaced as finance minister, while the rest of the government survives. The only other possibility, if and when Greek banks start collapsing, would be an exit from the euro.
Whatever form the surrender takes, Greece will not be the only loser. Proponents of democracy and economic expansion have missed their best chance to outmanoeuvre Germany and end the self-destructive austerity that Germany has imposed on Europe. [LOL]
A BIG thank you, “Q” on your report. Beginning to sound more and more like the miscues that lead to the Great Depression from so-called “Statesman”!
If they had any balls the Greeks, would tell the EEC bye. That would mean Syriza admits there are no unicorns so its not going to happen.
Dear Gail and All
This will be a follow up to my note on the South Carolina dairy farmer who simplified his farm, by relying more on photosynthesis and less on industrial methods, and increased his profit. We can take the increase in profit as evidence that his farm had previously been operating in the region of diminishing returns where complexity no longer pays.
Looking today in Mobus and Kalton’s Principles of Systems Science, I noticed on page 27 the statement that:
Systems Have Regulatory Subsystems to Achieve Stability
I have rearranged a few of the sentences, which, in my version, read as follows:
‘At a low level of complexity, cooperation between subsystems may emerge as a matter of chance synergies.
As systems evolve toward greater complexity, the interactions between different levels of subsystems require coordination. More complex systems need more reliable mechanisms of control to coordinate the activities of multiple components.’
Now consider a system which is forced back toward a simpler system by the contraction of energy flows. It is clear that ‘regulatory systems’ will have to shrink, and more will have to be accomplished through direct subsystem cooperation to achieve synergies. For example, consider two hunters who meet in the woods. One hunter has some venison, while the other has some fish. They arrange a swap so that both have some venison and some fish.
It’s not true that there are no regulatory systems involved. Humans have evolved sophisticated abilities to determine when things are ‘fair’ and ‘reasonable’. But, in terms of human designed systems such as laws and courts and police, the exchange of fish and deer meat is free of much in the way of regulation. Humans have all the capacities we need to revert back to direct swaps relying on our primitive abilities. People who practice biological farming in civilization frequently run into laws and neighborhood customs which prevent them from doing things which make perfect sense in terms of our innate senses of fairness and reasonableness and usefulness and necessity. If the laws and customs disappear, then most of us biological gardeners and farmers would cheer.
By happenstance, today’s blog at The Automatic Earth opines that many of the regulatory institutions which purport to help us are now hindering us: the IMF, the Eurozone, the United Nations, the TBTF banks.
Since the flow of useful fossil energy through our systems has been declining, we can see a symptom that we might predict from M&K: we need to jettison much of the regulatory overhead because we simply cannot afford it any longer.
There are many other human made regulatory systems that are now less than productive. For example, it is doubtful that the immense amounts of money we spend on education and health care are something we can still afford. If we consider ‘social status’ as a regulatory system, and I think we should, then ‘keeping up with the Joneses’ is no longer a productive way to think, either.
My reading of M&K is that the decline in fossil fuel flow will necessitate that these regulatory systems either disappear or become simpler. As they disappear, they will be replaced by biological systems which are powered by sunlight and gravity and chemical energy and the like, or by the more informal synergies that M&K refer to. As an example of the latter, asking one’s neighbor for help in killing the hog…as opposed to a complex industrial system for feeding, raising, killing, butchering, packaging, and selling pork, all subject to thousands of pages of laws and regulations enforced by a bureaucracy.
Whether we call the simplification ‘collapse’ or ‘rewilding’ or ‘degrowth’ or ‘finding our sanity again’ depends more on our attitude than anything else.
It is important to understand that Nature builds extraordinarily complex systems…such as human cells. These systems have exquisitely tuned regulatory controls. When we talk about collapse, we are talking about systems that humans have constructed, especially during the period since agriculture was invented.
So, as the dairy farmer reverts to a sunlight powered system from a fossil fueled system, the controls actually get more sophisticated because the Natural systems begin to predominate over the relatively crude systems constructed by Humans. However, a human constructed system simple-mindedly looks only to the short term interests of the humans, while Nature’s systems tend to look at the well-being of the whole over the long term. So humans may perceive a ‘decline’, while a God on Olympus might see a return to ‘balance’.
What about money and debt? Let’s consider a simple case. I need to grow some food, but I have no hoe and no seed potatoes. So I approach my neighbor and arrange to borrow a hoe and to get some seed potatoes, promising to share some of my potato harvest with the lender. I plant the potatoes. Unfortunately, the blight gets the potatoes and some thief gets the hoe. What happens? I am bankrupt. In a tribal community, the promise is likely just written off, but I acquire a heavy obligation to help others in the tribe in their moment of need. Again, this is an example of the very direct regulatory function that M&K refer to. In my opinion, the current global efforts to pretend that the hoe was not stolen and that the potato crop is fine and that we can manipulate promises to pay to make it so everyone has millions of potatoes…aren’t going to work.
“People who practice biological farming in civilization frequently run into laws and neighborhood customs which prevent them from doing things which make perfect sense in terms of our innate senses of fairness and reasonableness and usefulness and necessity.”
Our regional landfill will no longer take “organics,” meaning food waste. Being people who know a thing or two about composting, and sitting next door to community farmland, this sounded like an opportunity. So we made some phone calls.
“First,” the Capital Regional District bureaucrat I talked to after six attempts to find the right person, “You’ll need to pour a 100’x40′ slab; that’s…” he paused and I heard keys on a calculator, “about 75 yards of concrete. Then, you’ll need 4,000 sqft of GoreTex(TM) for the windrow covers, which will come to about $40,000. And I assume you have a Bobcat already.”
“But we have clay soil,” I retorted, “And we were going to use free lumber tarps.”
“No, that will never do,” he replied, “The new agricultural land use law requires an impermeable surface and a breathable windrow cover.”
Sheesh. We were just going to make compost as a service to the neighbouring community farm.
I know Gail fears governmental crash. But I say, “Bring it on!“
“I know Gail fears governmental crash. But I say, “Bring it on!“”
Did I mention that it looks like a bunch of the people in here seem like they are anarchists at heart?
I’m not a fan of government policies either, and that is understating my beliefs like using a hand grenade to demonstrate the effects of an atomic bomb. But I will say this, a governmental crash is something to be feared. The government has insinuated itself into far too many critical parts of the economy for it to crash and not have severe consequences. The further we try to maintain the current system, the worse the crash is going to be. We should have let the dot com crash change the way we view things, but we didn’t. We sure as hell should have let the Lehman event bring all of us to our knees, but we didn’t. Now, we’re staring several crises in the face with Greece and the EU, oil falling below the costs that many producers need, Ukraine, the West and Russia all squaring off, China aligning itself with Russia, sort of, but still holding its cards to its chest, etc…
Why is all of that scary? Because our fancy and convenient JIT supply chains depend on oil, stability, and all of the things that make Apple Pie as American as Apple Pie. (Unless it is Dutch Apple Pie, which totally kicks ass, but I digress in the name of Dutch Apple Pie.) We live in an age where, due to rapid communication and transport, things can change far, far more rapidly than people can adapt to changes in physical resource distribution can change. Government, having placed itself at the center of what we call our modern economy becomes a keystone, IMO, not as important as crude, but close enough that it doesn’t matter. If government goes down, a lot of people who think that you pour dirt in childrens’ ears to produce potatoes will not be left with time to adapt. That is the rapid collapse scenario, and it means that a lot of people will die in a state of desperation and things will be very unpredictable. The slower collapse scenario makes it possible for more people like Hitler, Stalin, Pol Pot and similar monsters to come to power.
So why are where we are? Because we are short sighted. We saw a resource that could be exploited and became hooked on it like we were meth addicts. The future was bright, until it wasn’t. But it still was, according those trying to preserve the status quo. It probably will be until they’ve been subjected to the anger of the mobs, at least according to them. Who will the masses consider the culprits? I’m sure you’ve seen Jay Lenno’s gig about asking people questions on the street? (Street walking is what it is called?) They won’t know how to do what they need to survive if the current system breaks down, and government has made sure it is an integral part of that system. If government breaks down, so does the system, and we all get to find out, not only if our skills are good enough to survive the inevitable shitstorm, which is scary enough, but also, we will be faced with what are those who depended on a system that they did not even really realize existed going to do?
We could get Mad Max, we could get the Irish Potato famine, we could get some slow, grinding monster, but the point is, we know that the consequences of our future, and the consequences of a government collapse mean instability. It is inevitable, and I would rather get it over with, but it isn’t something to be faced as though it were a fluffy kitten. It is a tiger that we are facing.
BTW, as my memory serves (which it may not be serving here,) it was either you, or it was Don who was talking about key line plowing. My memory says it was you, but I’m not confident in that. If so, I may have some questions on that.
The small farm I worked on did not use key line. My garden is not large enough to key line, and does not need it because I don’t have a plow pan. I have heard a number of people talk about their experience with key line, and can refer you to them. But I suspect Jan is a better person to give advice, because he works a farm rather than a garden.
My guess is that a primary concern is whether you have stratified soil. If you have layers of compaction, they interfere with the way roots grow, and key line breaks up the layers and lets the roots grow deeper. If you do have stratified soil, then my amateurish advice would be to have some serious discussion with someone who used key line in situations like yours.
If your soil is not stratified, then simply messing around with cover crops may give you what you want. For example, forage radishes.
Let me modify my previous response on key line plowing. It’s still true that I have no first hand experience, so what I am saying is pieced together from listening to the experiences of other people.
I think it makes a difference what climate you are trying to deal with. The tropics are not like the temperate zone, and a semi-arid region is not like the southeastern US. That said, key line can be used as one tool to solve a variety of problems. If you sit down and make a list of objectives for your land, it might look something like this:
*Deep soils not stratified by compaction layers
*Lots of carbon in the soil, especially recalcitrant carbon (humus, the very dead)
*High rainfall infiltration capacity
*Sometimes a place to put bio-char
*Sometimes a place with trickle irrigation from ponds high up in the landscape
So I think a reasonable first step is to look at which of those goals (and others that I am failing to think about) are already true on your property, and which ones you need to work more vigorously on. Once you decide exactly what it is you want to strive for, you can look at the alternatives available to you, including key line design and plowing, and figure out the best use of your resources.
For example, take the ‘trickle irrigation’ idea. That comes from the famously unreliable rainfall areas in Australia. The idea is to build a bunch of small ponds at high elevation with some key lines leading away from them, slightly off contour, so that water slowly moves from wet areas to dry areas. Few people where I live would be willing to go to the expense of building all those ponds…because our rainfall is pretty reliable.
We do have a lot of abused land (think abandoned tobacco land), and some people with woodlots are interested in combining the plowing in of a key line with some homemade biochar in the bottom of the trench.
We have lots of plow pans (layers of compacted soil just below the plow depth). The plow pan is an impermeable layer. When plant roots hit the plow pan, they tend to go sideways, with lots of bad effects. Key line can definitely break up plow pans, but you may also want to talk to someone who has used forage radishes and other cover crops that make really deep, tough roots. When you break up these compaction layers, you will notice that rainfall infiltration rates improve dramatically. The rainfall is going into the soil, not running off with the consequent sheet erosion. (Assuming that the rainfall is not hitting bare soil…which makes a compaction layer right on the surface).
It seems to me that a reasonable approach is:
*Figure out where my soil is, what I want it to become, and where I need to focus remedial work
*Find somebody who has roughly the same soil and climate you have, who has some actual experience. Sometimes, extension agents are good, in other cases not so good. Talk to as many of these people as you can, and decide what you want to do.
Not to confuse things further on the subject of key line design….but you are dealing with someone who is easily confused!
If you have plenty of cash right now, have a piece of property that you want to make as resilient as possible, while regenerating its productive potential, then don’t dismiss ideas such as the trickle irrigation thing.
Most of the farmers around here have an irrigation pond at the lowest point on their property. They use diesel to pump the water uphill into a drip irrigation system. Obviously, in a complete collapse, they won’t be able to irrigate except perhaps by carrying buckets of water on a yoke on their shoulders.
If diesel and drip tape were to disappear in 2016, then those with a trickle irrigation laid out with key line principles would be in good shape. The rest of us, in bad shape. There is always a trade off between what you have to spend, how bad you think things might get, whether you think Mad Max is our inevitable fate, whether you have laid up ‘treasures in heaven’ and so are sure that God is on your side, what your wife wants done, and all the other imponderables. Rainfall and gravity aren’t likely to change very much in a short period of time.
Gravity fed irrigation systems have survived for thousands of years…but they require an up-front investment.
Excellent. That tells me that I don’t need to worry about key lines. My property is very flat and very close to level. I also happen to live very close to a river and some ditches with a water table that is about 6′ down. I had read enough about key lines to figure out what they were, and some people seem to think that they are the greatest thing since the wheel. I look at such claims as though maybe that is true in some cases, maybe not. Because I live in a desert with access to water year round, I’m making all of the places where I plant food crops depressions. Looking at how water flows here, I’m convinced that is the best option for me. When I do irrigate, less water seems to be wasted and when it does rain, the water seems to stay where the crops are rather than spreading out. A lot of people talk about the virtues of raised beds. I think that in the desert, lowered beds make more sense, at least when your property is very flat and level.
I used to work in a very arid part of Texas. I worked with a guy named Matt Butzcek, whose father came from eastern Europe. The father lived in eastern Texas. Matt went to work in the desert. His father came for a visit. He saw cotton planted in the bottom of the furrow rather than up on the top. He shook his head and said, ‘Matthew, Matthew, Where have they sent you?’
“it looks like a bunch of the people in here seem like they are anarchists at heart”
It depends on what you mean by “anarchy.”
Anarchy does not necessarily mean disorder, chaos, looting, rape, pillage, etc. It simply means “without rulers.” A bunch of Quakers practicing consensus is anarchy. A bunch of scientists testing their theories with each other is anarchy.
Humans desire order. If current governments fall, something else will take their place. Vestiges of the old way will remain.
The Former Soviet Union is somewhat of an example. It collapsed. And yes, some people suffered and died during that collapse. Most of them drank themselves to death. As many talk around, but seem afraid to come out and say, humanity needs a good dose of attrition. What better a selection criteria than the ability to get along well with others during hard times, rather than hit the bottle!
On the Orlov scale, governmental collapse is just a 3 out of 5. There are social systems and cultural systems to pick up the slack before we hit “Mad Max.”
So yes, bring it on! The sooner Big Government collapses, the sooner individuals can figure out how to re-create local autarky, whether by simple democracy (two wolves and a sheep, voting on what to have for dinner), socialism, lord-and-serf, or heaven forbid, anarchy among peers.
I meant anarchy in terms that you describe, i.e. lacking leaders. Yes, that can include chaos, and no, it doesn’t require chaos. People just equate leadership with order, so in their minds, anarchy means disorder or chaos. People are scared of a weak state or a stateless society. They think that roving gangs would take everything over. That can happen, but in societies where it has happened, we don’t call them gangs, we call their leaders warlords, and they don’t really have anarchy. If supply chains were to break, we’d likely get warlords even in the US. If the government were to crash, we’d probably get all of the stages of Orlov’s collapse in at least parts of the US. In the event that we suddenly stopped importing so much oil, I would not want to be anywhere near NYC. As the government goes, so goes the dollar, or vise versa. As the dollar goes, so goes our ability to import oil. As the oil goes, so goes supply chains. The question is, will it be a rapid process when it finally hits, or will it be a gradual process, and by that, I mean will our ability to import oil decline over a period of months or years, or will it happen in days or weeks?
While the disorder that would result from supply chains breaking would likely result in a de facto leaderless state, i.e. any leaders are ineffective and not actually leading anything, any chaos would be ultimately be because people are desperate, not because they are leaderless. Most people, at least in the modern world, don’t want to go around killing and pillaging if given a better option, and should that change, then I should be allowed to hunt them just as they would hunt me. That’s a road that none of us really want to go down. I think that we will get government, whether we want it or not, and I think what kind of government we gets depends on the people who are on the ground at the time when the inevitable power vacuum opens up. I’d rather that government be formed by people who are anarchists at heart, but who view the world realistically.
“As the dollar goes, so goes our ability to import oil. As the oil goes, so goes supply chains.”
America plus Canadian imports could still supply 12 million barrels per day, American consumption is down to something like 16 million barrels per day, so it would only be about a 25% drop in total oil. As domestic prices rose, consumption would fall and shale oil and oil sands would resume. I think it would be a slow decline from there, with potential production of maybe 6 million barrels per day lasting decades.
I think it would be a lot of developing countries that would suffer the most in a USD collapse. The big issue would be mass migration from Latin America to the United States in the event of a dramatic collapse.
garand was closer than Matthew to the consumption number for the US. The latest from the EIA is about 19 million barrels per day. Add in Canada’s consumption and it’s well over 20 million barrels per day. If the US had to rely just on its own production and the excess of Canada, it would be a precipitous fall, closer to 50%, not 25%.
So much for “Saudi America” and energy independence!
What numbers are you guys using? Unless I’m missing something, crude oil has to be refined before it is used, and there are other inputs (natural gas, I think?) so going with Gross Refinery inputs daily amount averaged out by the week, I see a 15 to 16 million barrel per day average:
I’m looking at consumption figures. This is one place that shows daily product supplied. Other reports show similar volumes, though this is very up to date and even went over 20 mbpd a couple of weeks ago. Remember that everything now is slopped into the current supply figures, so we have to include everything when looking at consumption. Now, it may be that some of these products are exported, but that would affect your figures, too, and the importers of that will include countries which provide some of the US’s consumables today.
Overall, I think they’d be looking at a much higher level of contraction of supply than 25% but even that would be catastrophic for the lifestyles and businesses that exist today.
If you take into account exports, particularly of finished product, it looks like that makes up the difference from the 18.6 to about 16 million. From something I read previously, I’m pretty sure that is mostly cross-border flows with Canada, not product being shipped overseas.
It looks like Canada and US together use around 19 million barrels per day, and until the recent price collapse, produced about 14 million barrels per day.
Another way to look at it is oil production plus net imports and net change in inventories.
For November 2014, US Averaged 9 million barrels per day production:
Imported around 5 million barrels per day net:
While total inventory from November to December increased by 23 million barrels:
So, unless I’m missing something really significant, it seems in November 2014 the United States of America ran on just over 13 million barrels of oil per day?
I always assume that the monthly report is quite a bit more accurate than the weekly report, because the weekly report doesn’t get exports in correctly. I see that one month was as high as 19.6 mvd, but that 19.2 has been more typical. Still, the higher numbers are interesting. I expect that a disproportionate amount of the consumption is in the “shale states”.
2013 consumption was closer to 19 million, and a lot of the shale oil is light on its diesel component, which is what is used to ship goods. Furthermore, a lot of industries rely on oil as a feedstock for various chemicals. Getting rid of even 25% of oil consumption would kill those industries outright. People cannot afford to pay the prices that it takes to produce tight oil. Remember, those companies that extract tight oil were going into debt to stay in business with oil at $100/bbl. Jump oil up to $150/bbl and nobody will be able to afford to use it.
“Jump oil up to $150/bbl and nobody will be able to afford to use it.”
Not as they currently do, anyways. If gas at the pumps is twice as high, maybe car occupancy doubles. Plastic bags cost twice as much, not a huge deal. shipping and freight rates, that would probably start to really reshape distribution chains.
I think having stable high prices would be better in the long run than having prices bobbing up and down with every zig zag in the global economy. When prices drop, people make decisions based on temporary cheap gasoline, like buying a new SUV instead of a small car.
A lot more than just plastic bags would go away. The clothes that you are wearing depended upon oil to be produced. The keyboard you are typing on depended on oil. The food you eat depends on oil. The soap you wash with depends on oil. The desk that a person’s computer is sitting on depended on oil. The flooring and roofing in houses and offices depends on oil. Go into any store and just about everything depended on oil one way or another. Transport is the obvious way, but petrochemicals are in more household items than most people realize. Look at everything in the room that you’re sitting in, and it would be surprising if something in there that wasn’t an antique didn’t depend on oil. Oil is the single most important commodity in our economy, hands down. You do not take an economy where everything depends on oil, knock it down from 19mbpd to 12mbpd in a short period and expect there to be anything of an economy left. You’ve just knocked out every single job that depended on that 7mbpd, which is to say that you have caused catastrophic economic failure. There simply would not be enough oil for people to drive to work, use as a feedstock for petrochemicals, run the government, ship good and produce food. You’d have to make some choices about what the remaining oil gets used for, and everybody would be clamoring for a piece of that pie, while in the mean time, all of those jobless people who depended on that 7mbpd that is now not coming in are unable to pay their debts and thus the financial system would freeze up.
Great discussion, again refer back to Tainter’s talk.
The simplification/loss of complexity must happen so it will happen at certain point.
As he put the example of Eastern Roman Empire cirka 700AD severly weakend after waves of plagues and Persian invasions, their backs pushed to the wall and only then it happened, rebirth followed for couple of centuries.
Unfortunately, most of the western/northen societies are not there yet, but getting closer.
We will likely get some shock (financial) soon, but the required core systemic-structural change including abolishment of 2/3 of the crippling laws and institutions is few decades into the future I’m afraid.
Jan, It sounds like you and I live in the same province. Remember we have the Right To Farm Act so take all the compost you and your neighbours need and if any officials intervene just quote the afore mentioned act – I’ve done with building, trucks bring in fill etc. go for it!
“Remember we have the Right To Farm Act so take all the compost you and your neighbours need”
Yes, but we were seeking government assistance — not so much with funding, but with being an “official” drop-off site. But it looks like our Milf-In-Chief has set up PPP composting sites with some key fundraisers, then set the bar so high no one else can do it.
Funny, I was under the impression that the dirt under where a compost pile once was tends to have an advantage when it comes to being healthy soil. So, why the impermeable layer and gortex?
” Humans have all the capacities we need to revert back to direct swaps relying on our primitive abilities. People who practice biological farming in civilization frequently run into laws and neighborhood customs which prevent them from doing things which make perfect sense in terms of our innate senses of fairness and reasonableness and usefulness and necessity. If the laws and customs disappear, then most of us biological gardeners and farmers would cheer.”
LOL, there are a bunch of anarchists at heart in here;) But yeah, growing food on your own property is something that should be a fundamental right.
(Don’t worry, I’m not a fan of overbearing government either.)
“we need to jettison much of the regulatory overhead because we simply cannot afford it any longer.”
This is absolutely correct. Congressional Research Services was asked to count how many federal crimes there are several years ago, and they counted as many as they could in the USC, and then started looking at all of the cross references between the USC and the Code of Federal Regulations (CFR – rules passed by non elected bureaucrats,) and determined that it was so complex that they could not figure out how many federal crimes there were. They stopped counting at about 10,000. Later, they were asked to do it again, and they told Congress to go pound sand because they were incapable of counting how many crimes there were in federal law and regulations. That doesn’t even get into the civil aspect of federal regulations, nor state and local regulations. The complexity and size is beyond stupid.
” If we consider ‘social status’ as a regulatory system, and I think we should, then ‘keeping up with the Joneses’ is no longer a productive way to think, either.”
Good luck with that. I think that a lot of people are going to be hardwired to not just keep up with the Joneses, but to try to surpass them. Remember those studies about whether people would pick a 3,000 ft^2 house in a neighborhood where all of the other houses were 2000 ft^2 over a 4000 ft^2 house in a neighborhood where all of the other houses were 5000 ft^2? I think that, at least for some people, this goes back to being able to attract a mate by showing that they’re more able to acquire resources than their competitors.
“As an example of the latter, asking one’s neighbor for help in killing the hog…as opposed to a complex industrial system for feeding, raising, killing, butchering, packaging, and selling pork, all subject to thousands of pages of laws and regulations enforced by a bureaucracy.”
And it should be pointed out that, in general, those regulations don’t scale down to the small farmers very well.
“So, as the dairy farmer reverts to a sunlight powered system from a fossil fueled system, the controls actually get more sophisticated because the Natural systems begin to predominate over the relatively crude systems constructed by Humans.”
Nature has had hundreds of millions, if not billions of years to discard poor solutions. It still gets it wrong sometimes, but it has mechanisms for dealing with its mistakes. It’s why I say learn from nature, work with nature and nudge it rather than trying to control it outright.
” In my opinion, the current global efforts to pretend that the hoe was not stolen and that the potato crop is fine and that we can manipulate promises to pay to make it so everyone has millions of potatoes…aren’t going to work.”
In my very personal experience, you could have given the hoe back after having borrowing it, and they would then come in and sue you, claiming that you borrowed a shovel and an axe, and they would expect you to pay them back in the watermelons that they allege that you grew. Then, after you have shown them to be idiots and settle the matter, they get Grok, from the village over to come and try to collect from you what the village elders stated that you did not owe.
(Yes, I’ve been through something kind of like that, and yes, I @#$% hate bankers. I’ve seen the dark underbelly of that business as it relates to us little people, and it ain’t pretty.)
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Thanks for the analysis. I came across this interview with a former exec. of Shell.
He is proposing a switch to Natural Gas and He mentions that we should build the “Ark of LNG and CNG” as fast as possible. He predicts that oil price may go back up to $5 per gallon around June 2016, right before the next election. (Interesting times ahead of us indeed!).
Do you think that’s the Ark of LNG and CNG can save us from the Deluge, at least on the Oil side of issues. Debt and Financial issues will probably require a crossing of the sea kind of solution!
I was also wondering if we can attenuate the situation by proposing to Uncle Sam to buy the current surplus of Oil and send it to the SPR (Strategic Petroleum Reserve). It will avoid the shutdown of so many rigs and at least keep the rebound of the price to a reasonable level, then we can work on building the Ark of CNG and LNG. We should work on this to avoid some riots before the elections of 2016!
We need to work on an attenuator system so we can at least hit a crash cushion. I am sure all the brilliant minds out there can come up with a good #Attenuator_Proposal to #Save_US.
Considering that the US was a net natural gas importer in 2013, I don’t think that natural gas is going to save us.
These proposals are very “pie in the sky.” Part of what Hofmeister was after was higher natural gas prices. If he could figure out a way to get people to use natural gas as a transportation fuel, that would pump up demand, and hence prices, and allow more nature gas to be extracted from the ground.
The big issue I see is that we have big problems right now–can’t keep the oil price up high enough–and these problems don’t look like they will go away soon (or at all, I am afraid). It would be a very long slow process to add all of the infrastructure needed for such a natural gas arc, including a lot of pipeline, storage for winter, refueling stations and transformed vehicles. Trucks would lose shipping capacity; cars would lose trunk space. I also don’t know who would pay for all of these front-end costs. There would be after the fact costs as well, because trucks and cars couldn’t go as far between refueling, so there would be lost work time when this is done.
Dear Gail and All
I recommend watching and reading these two articles as a pair. First, Richard Douthwaite gives us about 15 minutes on Peak Oil and Climate Change. Many statements saying things which will be very familiar to readers of this blog. I particularly call your attention to his statements that the economy MUST grow, or else it collapses.
The second article is a description of dairy farmer Tom Trantham’s reversal of the trend that Douthwaite describes early in his talk. Trantham is substituting sunshine for fossil fuels, and is now making money rather than losing money. Clearly, Douthwaite has not thought through the implications for agriculture. Peak Oil might very well result in modestly less milk production, profitable enterprise rather than money losing dairies, more farm work, and a better quality of life.
(Disclaimer. I have milked a cow, but that is the extent of my experience with dairies. I am just looking at the facts from a Peak Debt/ Peak Oil/ Peak Environmental Degradation perspective to see what I can see.)
South Carolina dairy farmer
Production is down from 22,000 pounds to 15,000 pounds, but profit is up. His quality of work life is up. Environmental degradation has decreased, and environmental benefits are accruing. Labor is up (e.g., moving fences).
The ‘less milk production’ on Trantham’s farm also frees up the agricultural land which was growing feed for his animals, and the fossil fuels used to harvest and process and transport that feed. The net result is likely to be a complex array of pluses and minuses—possibly an increase in total food produced. Because his supply chain is simpler, Trantham also needs less in the way of banking services.
Trantham is making incremental changes. The world that he is selling milk to is still heavily dependent on fossil fuels. Trantham himself still uses fossil fuels…he is just substituting sunshine for fossil fuels in a number of different places in his production process. For example, PV panels manufactured and transported with fossil fuels, but then making electricity to power his paddock defining fences from sunshine. And grass instead of industrial grains for feed. The people who buy milk and milk products in his creamery are driving to the creamery in cars. The people take the milk home and put it in a refrigerator which was manufactured and is powered by fossil fuels.
Last week I was in a conference with a lot of farmers, and listened to an official of one farm organization speak about the dire financial situation many farmers are in. I see quite a few examples of farmers making incremental changes, such as Trantham has made. I do not see how very many farmers could continue to be financially viable, and also adopt stone age techniques exclusively. What CAN be pretty close to stone age is a kitchen garden. Trantham’s farm is building up natural capital, so it would be pretty well positioned for a fossil fuel collapse, accompanied by radical relocalization, but the collapse and relocalization have to happen more or less simultaneously. A Black Friday could be catastrophic to everyone.
So I continue to think that a triple strategy is most likely to succeed:
*Farms incrementally substituting sunshine for fossil fuels
*A built environment moving in the direction of ‘green’.
Over time, I think that our larger society will be forced to decentralize and simplify and use more biological Complex Adaptive Systems to satisfy our needs. I don’t think Financial Capitalism would be a very good description of that world. A big impediment is the unwillingness of many people to do what is needed. I suspect a lot of those people won’t make it through the bottleneck.
“Over time, I think that our larger society will be forced to decentralize and simplify and use more biological Complex Adaptive Systems to satisfy our needs.”
Correct me if I am wrong, but that seems to me to be another way of saying “we’re going to work with nature and nudge it one way or the other to suit our purposes.” If so, that seems to be a much more sane path than the one that we’re on right now where we tend to try to outright control nature when we’re not subjecting it to a metaphorical rape and pillage.
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