Deflationary Collapse Ahead?

Both the stock market and oil prices have been plunging. Is this “just another cycle,” or is it something much worse? I think it is something much worse.

Back in January, I wrote a post called Oil and the Economy: Where are We Headed in 2015-16? In it, I said that persistent very low prices could be a sign that we are reaching limits of a finite world. In fact, the scenario that is playing out matches up with what I expected to happen in my January post. In that post, I said

Needless to say, stagnating wages together with rapidly rising costs of oil production leads to a mismatch between:

  • The amount consumers can afford for oil
  • The cost of oil, if oil price matches the cost of production

This mismatch between rising costs of oil production and stagnating wages is what has been happening. The unaffordability problem can be hidden by a rising amount of debt for a while (since adding cheap debt helps make unaffordable big items seem affordable), but this scheme cannot go on forever.

Eventually, even at near zero interest rates, the amount of debt becomes too high, relative to income. Governments become afraid of adding more debt. Young people find student loans so burdensome that they put off buying homes and cars. The economic “pump” that used to result from rising wages and rising debt slows, slowing the growth of the world economy. With slow economic growth comes low demand for commodities that are used to make homes, cars, factories, and other goods. This slow economic growth is what brings the persistent trend toward low commodity prices experienced in recent years.

A chart I showed in my January post was this one:

Figure 1. World Oil Supply (production including biofuels, natural gas liquids) and Brent monthly average spot prices, based on EIA data.

Figure 1. World Oil Supply (production including biofuels, natural gas liquids) and Brent monthly average spot prices, based on EIA data.

The price of oil dropped dramatically in the latter half of 2008, partly because of the adverse impact high oil prices had on the economy, and partly because of a contraction in debt amounts at that time. It was only when banks were bailed out and the United States began its first round of Quantitative Easing (QE) to get longer term interest rates down even further that energy prices began to rise. Furthermore, China ramped up its debt in this time period, using its additional debt to build new homes, roads, and factories. This also helped pump energy prices back up again.

The price of oil was trending slightly downward between 2011 and 2014, suggesting that even then, prices were subject to an underlying downward trend. In mid-2014, there was a big downdraft in prices, which coincided with the end of US QE3 and with slower growth in debt in China. Prices rose for a time, but have recently dropped again, related to slowing Chinese, and thus world, economic growth. In part, China’s slowdown is occurring because it has reached limits regarding how many homes, roads and factories it needs.

I gave a list of likely changes to expect in my January post. These haven’t changed. I won’t repeat them all here. Instead, I will give an overview of what is going wrong and offer some thoughts regarding why others are not pointing out this same problem.

Overview of What is Going Wrong

  1. The big thing that is happening is that the world financial system is likely to collapse. Back in 2008, the world financial system almost collapsed. This time, our chances of avoiding collapse are very slim.
  2. Without the financial system, pretty much nothing else works: the oil extraction system, the electricity delivery system, the pension system, the ability of the stock market to hold its value. The change we are encountering is similar to losing the operating system on a computer, or unplugging a refrigerator from the wall.
  3. We don’t know how fast things will unravel, but things are likely to be quite different in as short a time as a year. World financial leaders are likely to “pull out the stops,” trying to keep things together. A big part of our problem is too much debt. This is hard to fix, because reducing debt reduces demand and makes commodity prices fall further. With low prices, production of commodities is likely to fall. For example, food production using fossil fuel inputs is likely to greatly decline over time, as is oil, gas, and coal production.
  4. The electricity system, as delivered by the grid, is likely to fail in approximately the same timeframe as our oil-based system. Nothing will fail overnight, but it seems highly unlikely that electricity will outlast oil by more than a year or two. All systems are dependent on the financial system. If the oil system cannot pay its workers and get replacement parts because of a collapse in the financial system, the same is likely to be true of the electrical grid system.
  5. Our economy is a self-organized networked system that continuously dissipates energy, known in physics as a dissipative structureOther examples of dissipative structures include all plants and animals (including humans) and hurricanes. All of these grow from small beginnings, gradually plateau in size, and eventually collapse and die. We know of a huge number of prior civilizations that have collapsed. This appears to have happened when the return on human labor has fallen too low. This is much like the after-tax wages of non-elite workers falling too low. Wages reflect not only the workers’ own energy (gained from eating food), but any supplemental energy used, such as from draft animals, wind-powered boats, or electricity. Falling median wages, especially of young people, are one of the indications that our economy is headed toward collapse, just like the other economies.
  6. The reason that collapse happens quickly has to do with debt and derivatives. Our networked economy requires debt in order to extract fossil fuels from the ground and to create renewable energy sources, for several reasons: (a) Producers don’t have to save up as much money in advance, (b) Middle-men making products that use energy products (such cars and refrigerators) can “finance” their factories, so they don’t have to save up as much, (c) Consumers can afford to buy “big-ticket” items like homes and cars, with the use of plans that allow monthly payments, so they don’t have to save up as much, and (d) Most importantly, debt helps raise the price of commodities of all sorts (including oil and electricity), because it allows more customers to afford products that use them. The problem as the economy slows, and as we add more and more debt, is that eventually debt collapses. This happens because the economy fails to grow enough to allow the economy to generate sufficient goods and services to keep the system going–that is, pay adequate wages, even to non-elite workers; pay growing government and corporate overhead; and repay debt with interest, all at the same time. Figure 2 is an illustration of the problem with the debt component.

    Figure 2. Repaying loans is easy in a growing economy, but much more difficult in a shrinking economy.

    Figure 2. Repaying loans is easy in a growing economy, but much more difficult in a shrinking economy.

Where Did Modeling of Energy and the Economy Go Wrong?

  1. Today’s general level of understanding about how the economy works, and energy’s relationship to the economy, is dismally low. Economics has generally denied that energy has more than a very indirect relationship to the economy. Since 1800, world population has grown from 1 billion to more than 7 billion, thanks to the use of fossil fuels for increased food production and medicines, among other things. Yet environmentalists often believe that the world economy can somehow continue as today, without fossil fuels. There is a possibility that with a financial crash, we will need to start over, with new local economies based on the use of local resources. In such a scenario, it is doubtful that we can maintain a world population of even 1 billion.
  2. Economics modeling is based on observations of how the economy worked when we were far from limits of a finite world. The indications from this modeling are not at all generalizable to the situation when we are reaching limits of a finite world. The expectation of economists, based on past situations, is that prices will rise when there is scarcity. This expectation is completely wrong when the basic problem is lack of adequate wages for non-elite workers. When the problem is a lack of wages, workers find it impossible to purchase high-priced goods like homes, cars, and refrigerators. All of these products are created using commodities, so a lack of adequate wages tends to “feed back” through the system as low commodity prices. This is exactly the opposite of what standard economic models predict.
  3. M. King Hubbert’s “peak oil” analysis provided a best-case scenario that was clearly unrealistic, but it was taken literally by his followers. One of Hubbert’s sources of optimism was to assume that another energy product, such as nuclear, would arise in huge quantity, prior to the time when a decline in fossil fuels would become a problem.
    Figure 2. Figure from Hubbert's 1956 paper, Nuclear Energy and the Fossil Fuels.

    Figure 3. Figure from Hubbert’s 1956 paper, Nuclear Energy and the Fossil Fuels.

    The way nuclear energy operates in Figure 2 seems to me to be pretty much equivalent to the output of a perpetual motion machine, adding an endless amount of cheap energy that can be substituted for fossil fuels. A related source of optimism has to do with the shape of a curve that is created by the sum of curves of a given type. There is no reason to expect that the “total” curve will be of the same shape as the underlying curves, unless a perfect substitute (that is, having low price, unlimited quantity, and the ability to work directly in current devices) is available for what is being modeled–here fossil fuels. When the amount of extraction is determined by price, and price can quickly swing from high to low, there is good reason to believe that the shape of the sum curve will be quite pointed, rather than rounded. For example we know that a square wave can be approximated using the sum of sine functions, using Fourier Series (Figure 4).

    Figure 3. Source: Wolfram Mathworld.

    Figure 4. Sum of sine waves converging to a square wave. Source: Wolfram Mathworld.

  4. The world economy operates on energy flows in a given year, even though most analysts today are accustomed to thinking on a discounted cash flow basis.  You and I eat food that was grown very recently. A model of food potentially available in the future is interesting, but it doesn’t satisfy our need for food when we are hungry. Similarly, our vehicles run on oil that has recently been extracted; our electrical system operates on electricity that has been produced, essentially simultaneously. The very close relationship in time between production and consumption of energy products is in sharp contrast to the way the financial system works. It makes promises, such as the availability of bank deposits, the amounts of pension payments, and the continuing value of corporate stocks, far out into the future. When these promises are made, there is no check made that goods and services will actually be available to repay these promises. We end up with a system that has promised very many more goods and services in the future than the real world will actually be able to produce. A break is inevitable; it looks like the break will be happening in the near future.
  5. Changes in the financial system have huge potential to disrupt the operation of the energy flow system. Demand in a given year comes from a combination of (wages and other income streams in a given year) plus the (change in debt in a given year). Historically, the (change in debt) has been positive. This has helped raise commodity prices. As soon as we start getting large defaults on debt, the (change in debt) component turns negative, and tends to bring down the price of commodities. (Note Point 6 in the previous section.) Once this happens, it is virtually impossible to keep prices up high enough to extract oil, coal and natural gas. This is a major reason why the system tends to crash.
  6. Researchers are expected to follow in the steps of researchers before them, rather than starting from a basic understudying of the whole problem. Trying to understand the whole problem, rather than simply trying to look at a small segment of a problem is difficult, especially if a researcher is expected to churn out a large number of peer reviewed academic articles each year. Unfortunately, there is a huge amount of research that might have seemed correct when it was written, but which is really wrong, if viewed through a broader lens. Churning out a high volume of articles based on past research tends to simply repeat past errors. This problem is hard to correct, because the field of energy and the economy cuts across many areas of study. It is hard for anyone to understand the full picture.
  7. In the area of energy and the economy, it is very tempting to tell people what they want to hear. If a researcher doesn’t understand how the system of energy and the economy works, and needs to guess, the guesses that are most likely to be favorably received when it comes time for publication are the ones that say, “All is well. Innovation will save the day.” Or, “Substitution will save the day.” This tends to bias research toward saying, “All is well.” The availability of financial grants on topics that appear hopeful adds to this effect.
  8. Energy Returned on Energy Investment (EROEI) analysis doesn’t really get to the point of today’s problems. Many people have high hopes for EROEI analysis, and indeed, it does make some progress in figuring out what is happening. But it misses many important points. One of them is that there are many different kinds of EROEI. The kind that matters, in terms of keeping the economy from collapsing, is the return on human labor. This type of EROEI is equivalent to after-tax wages of non-elite workers. This kind of return tends to drop too low if the total quantity of energy being used to leverage human labor is too low. We would expect a drop to occur in the quantity of energy used, if energy prices are too high, or if the quantity of energy products available is restricted.
  9. Instead of looking at wages of workers, most EROEI analyses consider returns on fossil fuel energy–something that is at least part of the puzzle, but is far from the whole picture. Returns on fossil fuel energy can be done either on a cash flow (energy flow) basis or on a “model” basis, similar to discounted cash flow. The two are not at all equivalent. What the economy needs is cash flow energy now, not modeled energy production in the future. Cash flow analyses probably need to be performed on an industry-wide basis; direct and indirect inputs in a given calendar year would be compared with energy outputs in the same calendar year. Man-made renewables will tend to do badly in such analyses, because considerable energy is used in making them, but the energy provided is primarily modeled future energy production, assuming that the current economy can continue to operate as today–something that seems increasingly unlikely.
  10. If we are headed for a near term sharp break in the economy, there is no point in trying to add man-made renewables to the electric grid. The whole point of adding man-made renewables is to try to keep what we have today longer. But if the system is collapsing, the whole plan is futile. We end up extracting more coal and oil today, in order to add wind or solar PV to what will soon become a useless grid electric system. The grid system will not last long, because we cannot pay workers and we cannot maintain the grid without a financial system. So if we add man-made renewables, most of what we get is their short-term disadvantages, with few of their hoped-for long-term advantages.

Conclusion

The analysis that comes closest to the situation we are reaching today is the 1972 analysis of limits of a finite world, published in the book “The Limits to Growth” by Donella Meadows and others. It models what can be expected to happen, if population and resource extraction grow as expected, gradually tapering off as diminishing returns are encountered. The base model seems to indicate that a collapse will happen about now.

Figure 5. Base scenario from 1972 Limits to Growth, printed using today's graphics by Charles Hall and John Day in "Revisiting Limits to Growth After Peak Oil" http://www.esf.edu/efb/hall/2009-05Hall0327.pdf

Figure 5. Base scenario from 1972 Limits to Growth, printed using today’s graphics by Charles Hall and John Day in “Revisiting Limits to Growth After Peak Oil” http://www.esf.edu/efb/hall/2009-05Hall0327.pdf

The shape of the downturn is not likely to be correct in Figure 5.  One reason is that the model was put together based on physical quantities of goods and people, without considering the role the financial system, particularly debt, plays. I expect that debt would tend to make collapse quicker. Also, the modelers had no experience with interactions in a contracting world economy, so had no idea regarding what adjustments to make. The authors have even said that the shapes of the curves, after the initial downturn, cannot be relied on. So we end up with something like Figure 6, as about all that we can rely on.

Figure 6. Figure 5, truncated shortly after production turns down, since modeled amounts are unreliable after that date.

Figure 6. Figure 5, truncated shortly after industrial output per capita (grey) and food per capita turns down, since modeled amounts are unreliable after that date.

If we are indeed facing the downturn forecast by Limits to Growth modeling, we are facing  a predicament that doesn’t have a real solution. We can make the best of what we have today, and we can try to strengthen bonds with family and friends. We can try to diversify our financial resources, so if one bank encounters problems early on, it won’t be a huge problem. We can perhaps keep a little food and water on hand, to tide us over a temporary shortage. We can study our religious beliefs for guidance.

Some people believe that it is possible for groups of survivalists to continue, given adequate preparation. This may or may not be true. The only kind of renewables that we can truly count on for the long term are those used by our forefathers, such as wood, draft animals, and wind-driven boats. Anyone who decides to use today’s technology, such as solar panels and a pump adapted for use with solar panels, needs to plan for the day when that technology fails. At that point, hard decisions will need to be made regarding how the group will live without the technology.

We can’t say that no one warned us about the predicament we are facing. Instead, we chose not to listen. Public officials gave a further push in this direction, by channeling research funds toward distant theoretically solvable problems, instead of understanding the true nature of what we are up against. Too many people took what Hubbert said literally, without understanding that what he offered was a best-case scenario, if we could find something equivalent to a perpetual motion machine to help us out of our predicament.

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About Gail Tverberg

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

1,514 thoughts on “Deflationary Collapse Ahead?

  1. Pingback: Agosto 24, Lunes Negro, otro empuje de la Gran Depresión 2 - Armando Bronca

  2. Gail: As I see it, the key to survival is to establish a new paradigm based, not on future, but current income, where income includes economically (and ecologically) viable fossil fuels, human and animal labor, and sustainable food production. In a word, “balance.” Just a financial budgets must balance, eventually so must ecological ones.

    The problem is that a sustainable, balanced budget is not quite so comfortable, and we have become lazy and, another good word, “jaded.” It is time to get past that.

    Of course, those who “have” things never want to give them up, or worse share them. And the danger now is that it will take a “French Revolution” to reorder society.

    Thank you for your very insightful (or is it inciteful?) commentary. Much appreciated.

    Craig

    • Our problem is that there is no way to balance the budget for 7.2 billion people, even if we were to get rid of all of our farm animals and pets. We seem to need a whole lot lower population to get along with what we really have. This is an unpleasant outcome.

  3. I am reminded of what Richard Duncan warns in his ‘Olduvai Theory’: once the grid collapses, we are back in the Dark Ages. Both literally and figuratively it would seem.

    • Very much so.

      I wonder how a primitive man would respond if told there were thousands of spent fuel ponds spread across the world — each one many hundreds of times more dangerous than Chernobyl —- all of which will explode unless they are kept cooled using high tech systems…. which require operational expertise … electricity … spare parts….

      • Fast, a well managed pool will not explode even if it runs dry. It may smolder and give off some particulates. Of course if some greedy bastard piles an almost critical amount of nuclear material together and lets it melt into a critical pile, well…, I guess we call that evolution in action. Ever read Herman Khan’s book On Thermonuclear War? Radiation — no worries.

    • There is indeed a close connection with Richard Duncan’s Olduvai Theory. What Ricahrd Duncan talks about (for example, here) is total energy consumption per capita. The after tax wages of non-elite workers that I talk about is very similar. It is the energy products that get back to workers, after energy products have been skimmed off for a host of other purposes, including more energy to make energy, plus more “overhead” for things ranging from birth control (or mandatory medical coverage in general), to vastly expanded advanced education, and to goods/services to care for the elderly.

  4. If finances are concerned about the future I believe the world was our past savings in terms of the sun and the planets core energy stored plus resources. The planet has a regenertive cyle that is too slow compared to our energy leveraged industrial economoy, with a more responsible financial system in the past we could have earned a couple of decades and more options to sort this out. Had we put more fossil energy and effort on developing techonlogies to harness other types of energy sources we could have overcome this problem.
    I still hope for a narrow window of opportunity…

  5. No one should doubt that there are limits to growth. However I think it is fair to say there are also limits to any analysis of our current predicament. The most important of these analytical boundaries, for those seeking a way to survive the coming paradigm shift, regard the analogies we use to get our respective points across. In other words, the dialectic of collapse must be considered part of the collapse. The validity of this feedback idea should be self-apparent to physicists, long time observers of human systems, and biologists generally.

    The bones of Gail’s argument in favor of rapid collapse is an economic one. While economic contradictions are evident at this time of instability, these contradictions are symptoms rather than causes. True, economics model resource dynamics. However the focus here, as at other academic gatherings, assumes the existence of objectivity in markets. Nothing could be further from the reality of markets. Markets are quickly corrupted into structures that maintain the distribution of political power and status.

    The scope of changes the world faces, the cause and effect, make for a beautiful fiddle score. I will not make you listen to those discordant strains or prompt the cacophony of call and response further than I must. But I will say, that if your concern is survival with the least amount of misery, then you should be able to see that the only theme in which we need invest emotional and physical energy is in the adoption of the new paradigm. Devil in the details, I know. But just as Gail points out that the existing economy self organized into the complex organism we watch struggling today, the next phase of human organization will also self organize.

    The new paradigm will reject the use of economics as a power structure benefitting an elite cadre of opportunists. In the sense that all power is political one might easily confuse a new trend restoring “economic power” to centralized government as a step back towards monarchy or oligarchy. But more powerful government is exactly where we are going. temporarily this will mean Global scale governance. But that will evolve as the new organizing principles evolve and feed off o the order maintained by this first phase of political reorganization away from economic fiefdoms.

    Devil in the details, again, I know. And education is key. But consider whether anyone here really believes that the generation that outlives us is really going to stand for the economic BS we survivors of the early industrial revolution and the financialization of resources stood for. The youth know the score. And I strongly suspect that the average age of us doomers here on OFW is much closer to 60 than 25.

      • Steven, the rentier Power Elite Rockefeller-Rothschild banking syndicate long ago envisaged a world gov’t, but they perceived such an institution run by themselves, the top 0.001% Power Elite and their bankster oligarchs, ministerial intellectuals, corporate manager caste, and a co-opted warrior caste; they did not include provisions for sustaining the mass of the human ape population.

        In fact, as part the implications of LTG, they concluded that mass human ape die-off was inevitable by the end of the 21st century.

        So, there likely will be a world gov’t, but it will be like “Elysium” and won’t include 90%+ of the planet’s human ape population.

        But that’s evolution, and human beings collectively on a finite, spherical planet are not unlike a pathogen or cancer. Nature/thermodynamics has a cure for us, and that’s an encouraging thought.

        • I was under the impression that there already was a world government

          The people in charge would be the owners of the Fed — they print the reserve currency and use that to control every country, bank, corporation and individual….

          “I care not what puppet is placed on the throne of England to rule the Empire, … The man that controls Britain’s money supply controls the British Empire. And I control the money supply.” Nathan Rothschild

          “Once a nation parts with the control of its currency and credit, it matters not who makes the nation’s laws. … Until the control of the issue of currency and credit is restored to government and recognized as its most sacred responsibility, all talk of the sovereignty of parliament and of democracy is idle and futile.” — Mackenzie King, Canadian Prime Minister 1935-1948.

          • Fast still two nation that are not controlled Iran and North Korea both do not have Rothschild owned central banks. I wonder if there was a banking clause in the settlement with Iran. If not, Iran gets bombed.

            The Rothschild bank and resource depletion two things no presidential candidate will talk about. But fear not they will make America great again. Oh pleeeease.

      • I agree with Nicole Foss on quite a few things. I certainly agree that it will be very difficult to have the large forms of government that we have today.

        She is probably more optimistic than I am that permaculture and similar agriculture practiced by small groups may represent a way out.

        • There is no reason that it (permaculture) shouldn’t be a viable way forward assuming it is done intelligently and the places it exists are able to stay out of the light, or defend themselves according. And assuming Fast Eddy’s predictions regarding global radiation poisoning do not come to fruition. But my money’s on Fast Eddy being right. Although I will continue to act (prep) as if it isn’t.

          It would appear that the wealthy elite (who could do something about the spent fuel rods) are not concerned about their progeny. Why am I not surprised.

            • No, just figured with enough money, something could be done. Throw it into the sun? Burry it on the moon?

            • Is there absolutely no immediate solution (If money were not an issue)? What is your take?

            • If there were a solution then we’d have already seen it — the central banks have printed trillions of dollars already — so I don’t see money as being an issue — given that this is a potential extinction event one would think the first thing that QE would be directed to would be these spent fuel ponds….

              Unfortunately I do not see any solution — all the information I have seen on this issue indicates the fuel must be maintained in high tech cooling facilities for up to 10 years before it can be dry casked…

              Was thinking about parasites earlier…. the goal is not to kill the host because the parasite often dies as well….

              We don’t even qualify as a smart parasite….

            • I’m not saying there is a solution money can buy, but given how QE has been done, I doubt if there was a viable solution, money would be spent to partake in an unprofitable endeavor such as securing waste. Our human priorities are no where near something as noble as that.

    • All pie in the sky — until one reads the fine print.

      Oh – there is no fine print? Just pie….

      I think there are a few certainties that we can operate off of here….

      1. The global economy and financial system will collapse soon
      2. When that happens there will be no energy available beyond trees (which we will likely cut down and burn in short order)
      3. There will be very little food (7B+ people will kill and eat everything that moves)
      4. Spent fuel ponds will explode http://belfercenter.hks.harvard.edu/publication/364/radiological_terrorism.html http://www.ucsusa.org/nuclear_power/making-nuclear-power-safer/handling-nuclear-waste/safer-storage-of-spent-fuel.html#.VUp3n5Om2J8 http://www.nytimes.com/2011/03/16/world/asia/16fuel.html

      Beyond that it is difficult to predict what comes next…

      My money is on extinction (pity I won’t be able to collect)

        • Perhaps … but if there is no way to contain the spent fuel ponds …. I am fairly certain this will be an extinction event….

          And I see no way of managing those ponds…. they require BAU to be operational.

          • How long do you expect it will take for the fuel ponds to start melting down? And then how long before the radiation has spread and killed off most of the world?

            • Reiki In the context of how much Degrowth is enough, with only 1 – 3% of energy sources available, most of this energy will be needed for physical maintenance, guarding, monitoring & continuing reconstruction of containment (due to ionization) of present nuclear wastes.
              The way forward is SYLVALIZATION (Latin ‘sylva’ = ‘tree’) or Polyculture Orchard food production, which is the path of all humanity’s worldwide ‘indigenous’ (L. ‘self-generating’) ancestors used for millions of years. Trees are the foundation bio-technology for life on earth. Height of traditional 150 year old indigenous polyculture orchard food trees is a direct correlate to earth’s distance from the sun. 150 year old indigenous polyculture Orchards photosynthesize 92 – 98% of solar energy into food, materials, energy & water-cycle. Tree roots descend into the earth’s substrate as deep as the canopy is high, pumping water, mining minerals & creating vast nutrient colonies. Regional Polyculture Orchards create cold spots on the face of continents which attract warm-moist-ocean-winds at low altitudes inland across continents where 60% of water-transfer is through condensation upon immense trillions of square kilometres of fractal leaf & bark surfaces. Only 40% of water falls as precipitation. Trees (living-carbon) are the prime energy equation for solar conversion & life on earth.

              Human ‘Agriculture’ (L. ‘ager’ = ‘field’) crops after Polyculture Orchards have been burned or cut-down, photosynthesizes only 2 – 8% of solar energy with over 90% of energy pushing dry continental winds towards the sea creating permanent deserts like the Sahara or Middle-east. Ager roots descend only short centimetres leaving the earth & substrate hard-packed & unproductive. Agriculture creates scarcity, fear & militarization, which gives empires violent control of scarce resources but is actually only 1% as productive as Polyculture Orchards for all returns. Unfortunately militarization & institutionalization also create subservient people who generally submit to authority willingly & aren’t concerned about truth. https://sites.google.com/site/indigenecommunity/design/1-indigenous-welcome-orchard-food-production-efficiencies

    • Don’t want to burst your bubble, S.R., but this might give you pause. I tend, also, to over-estimate the potential of the young — then I have a girl around 14 or 15 walk from behind parked cars right out in front of my barely rolling vehicle in a parking lot — so close that I have to hit the brakes hard enough to make a little screech on the pavement to stop a few inches from her. She looks up from her smartphone at the noise with an expression on her face that I can’t clearly interpret — it is either abject ignorance or abject arrogance — and she continues her casual walk across the front of my car, never in the least breaking the rhythm of her casual, unhurried stride. Meanwhile, my knees have begun to weaken and quiver, the followup to rapid adrenaline release. And then there’s this disturbing article from The Atlantic:

      http://www.theatlantic.com/magazine/archive/2015/09/the-coddling-of-the-american-mind/399356/

      I am not encouraged.

      Lizzie

      • Lizzie, I have had precisely the same experience numerous times in recent years. I’m considering wearing a diaper as a consequence.

      • I was amused by the term “microaggressions.” Micro indeed! I’ve noticed the PC lunacy among the young a lot lately too. I think I’ve become noticeably more aggressive because of it.

      • And then there were the three 20 something US kids and one aged Brit who tackled the Islamist gunman and saved a train load of people. My wife had uttered the same ideas as Lizzie the day before this incident. We were talking about the sacrifices of our parent’s generation. When this came on the news she said, “I stand corrected. Some of the young will act and do their best”.

        regards

        • That said, I never trust that any such incidents are false-flag setups anymore. This one seems a bit convenient for my tastes, although the American “heroes” might well have been none the wiser of what was actually going on.

          • I have not read beyond the headlines on this because I am assuming it was a false flag…

            • Indeed. I noticed it’s been the occasion to try and implement airport-style TSA security theatre around Amtrak stations. Though I live 5 minute’s walking distance from an Amtrak station, already I don’t take it because it cost 3-4x what it would to use a car, including overnight parking in NYC! If they need to strip-search me on top of it then I I believe I can just as well stay at home.

              I had the crazy idea that I might go to Montréal on the train. Driving, it would take 2.5 hours. Amtrak? 11-12 hours, and that’s AFTER I drive 45 minutes to another Amtrak station.

              Google tells me it would take 15 hours on a G*-d* bicycle.

              What’s fascinating is the “throwing good money after bad”.. in Iraq, say.. or in this Amtrak/TSA boondoggle…. Boondoggles increasingly suck resources away from coherent projects. Soon it will be “all boondoggles, all the time”.

      • Its not just kids, by the way….

        Point taken – but to some extent this behavior is a modern affectation. Overgenralizing affect and other facia is a mental trap, just like the preoccupation with external electronic organs (-so fashionalble these days like powdered wigs of yore?). The youth, to use the term somewhat broadly, are well aware of their environment. Perhaps the significance of the historical moment eludes may, maybe even a majority at this point. Many of us on OFW enjoy the conceit that we have better information than the rest. To be so smug blinds us. Passion is the better part of learning and the young have way more skin in the game than the rest of us, like Eddy, who are almost eager to jump on the knife. The young learn fast.

        • “And these children that you spit on as they try to change their world, are immune to your consultations, they’re quite aware what they’re going through.” David Bowie

    • I agree that this is a fairly old group. Young people are too busy with their lives to spend much time on such a gloomy topic.

      I don’t think, though, that we will ever see any world government. Instead, collapse will tend to make governments fall apart. We will see self-organized local governments instead. Often, this will consist of a single person–perhaps a “King” or some other self-appointed leader.

      Education only works if it is directed in the correct direction. I see a lot of education directed in useless ways, given what we are facing.

      • I’m curious to what education you think is useless. Is it just the result of over specialization and job evolution that has made many fields obsolete?

        • We think we know a lot of things that we don’t know. So most of economics right now is close to useless.

          The agriculture we are teaching is mostly a type of agriculture that cannot continue. The business courses we are teaching relate to a kind of business operation that cannot continue. Medicine is based on a system that cannot continue. There used to be different procedures used that did not require fossil fuels, but current schools don’t teach them.

          Math is useful, at least to a certain level. Reading and writing is useful. We can use clay tablets, if nothing else.

          Some of science is useful–but an awfully lot of it is irrelevant to a much simpler lifestyle. If we end up going back to using draft animals, then we need to know about how to raise them–something else that is not being taught in school.

          • “The agriculture we are teaching is mostly a type of agriculture that cannot continue. The business courses we are teaching relate to a kind of business operation that cannot continue. Medicine is based on a system that cannot continue. There used to be different procedures used that did not require fossil fuels, but current schools don’t teach them.”

            If you don’t have competition then there is no impetus for change. It results in stagnation.

          • This just about says it (as I have come to appreciate). It’s helpful to hear it said, as well.

    • Hi Steven,

      I always like your comments so please don’t be offended. 🙂

      “True, economics model resource dynamics.”
      I’m not sure that the dominant neo-classical model can be described as such. My opinion is that traditional economist have failed to model the economy as an energy flow.

      “the adoption of the new paradigm”
      Given the history of political events of the last 50 years, I don’t think that this has any chance in hell. Sorry! Gail’s previous article describing the effects of Kyoto Treaty and the resulting increase of CO2 due to China (since 1997) shows that we can’t manage a graceful degrowth.

      “the next phase of human organization will also self organize. “
      I think you might not quite understand the underlying dynamics of dissipative system. Self-organization requires an energy input and results in higher complexity. The opposite is about to happen. That is, chaos will be followed by entropy until the world reaches a level of equilibrium far below the carrying capacity that was exceeded. The “distance” between organizations, both political and economic, will also be shortened. The world will descend into localized or regional pockets of survival. This is part of the entropy following “dissipation”.

      “The new paradigm will reject the use of economics as a power structure benefitting an elite cadre of opportunists.” You are right about descent into more centralized government, but I suspect that we will have a neo-feudalist system after collapse. This makes sense to me because of economic impoverishment of people, the lack of mobility, and the concentration of local power into warlords. I would like to avoid this scenario, by the way, but I am not sure how this can be accomplished given the narrow bottleneck that humanity must now pass through.

      “And education is key”
      Regarding education, keep in mind that economics plays an important part in distributing the surplus energy for an agrarian society and may not support our high level of 16+ maturation. Our current system will not exist in the future but will instead return to levels such as those before the Industrial Revolution.

      • I think you might not quite understand the underlying dynamics of dissipative system. Self-organization requires an energy input and results in higher complexity. The opposite is about to happen. That is, chaos will be followed by entropy until the world reaches a level of equilibrium far below the carrying capacity that was exceeded. The “distance” between organizations, both political and economic, will also be shortened. The world will descend into localized or regional pockets of survival. This is part of the entropy following “dissipation”.

        +++++++++++ :):):):):):)

        • So I am guessing you contradict yourself just to argue and probably have no actual clue you are doing it from one argument to the next.

          Which is it? Everyone will be either eaten by thugs who will then die because there is no one to actually till the earth and tend the critters.

          Or

          localized and regional pockets of survival?

          I think it might be a good idea to make up your mind what your actual stance is before you go and argue with every comment on the article.

          • I’m not sure if you are addressing me or FE, but just in case…

            Violence is part of the Chaos and the Descent. How do we reach “a level of equilibrium far below the carrying capacity that was exceeded” is the scary part and I honestly don’t know. Or think about it too much.

      • Not offended in the least, (nice backhand though)…

        Energy flow is just one of the missing details – the most important.

        No problem with dissipative structures and heat death…

        My problem is with the dependence of conclusions expressed at OFW on limited information about social structure independent of energy relations. The current era is a blip even compared with the last 1000 years.

        Social structure has a life of its own. Interaction with MR. DNA would be interesting to explore, but beyond present scope.

        In a crisis situation people will cling to structure. All who post here are aware of this and their contempt for this “instinct” of the herd is oft cited.

        If they do not create their own structure, they will accept almost any replacement no matter how vicious (earning my contempt as well). But hey, we are social animals, right?

        Upshot is that this makes it hard to predict outcomes. Economics, at least trade and monetary based economics, are not necessary for social structure. Rather they are necessary for certain types of social structure (different flavors of vicious?).

        The predictions and opinions here are based upon economic arguments and an economic model. Models can identify data and run outputs that are inconsistent with boundary conditions and assumptions. But they depend upon empirical discoveries for forecasting.

        At OFW I have the impression that we are just running the same data and assumptions through the model to get the outcomes we expect (want?) to see. this is a common characteristic of societies under collapse, and all other societies as well. Massaging, sorting and filtering the data to fit the hypothesis.

        • Food and water seem to be basic necessities. I don’t see these as being terribly “hard to predict,” if current systems break in many ways. We can have social structures of various kinds, but without food and water, they are not very helpful.

          • I agree that the challenge we face over the next few decades will tax social structures. Some will act out in ways inimical to structural stability. Some structures will stand, others will fail. There will be feedback effects due to energy contraction. The outcomes will follow non-linear pathways. Hard to say or infer much else.

            One thing is sure, where semblance of equanimity prevails, structure will be most durable. Where structure endures, options are more numerous. These junctions switch between cause and effect and feedback as well. If the switching is favorable, response time then becomes key.

            Having an extensive background in cultivation and wildlife management, I think that many areas may still plan a way out that provides adequate food and water and prevents loss of biodiversity. For example, in my area there are literally thousands of tons of pork on the hoof in our coastal mountain ranges. These animals, even though invasive, have replaced functions of native species and processes long since extinct, but are not native. Hard to say with certainty what the negative effects of exterminating wild pigs to feed hungry humans would be. But one immediate effect would be the salvage of a surpassingly great quantity of acorns, the staple food of wild pigs, that humans and other species could also utilize.

            Also, technology and information will always come into play. Which tech and ag increase entropy is not always easy to say. Long term we are all goners. All sustainability is relative. If there was one measure for improving our chances it would be to stop issuing patents. Innovation and discovery, especially in the fields of medicine and materials is sorely needed now. Patents dampen the rate of discovery and needlessly create misery and inefficiency in healthcare, eg exhorbitant pricing for Hep C drug, insulin etc.

            As for getting through the population bottleneck, only cooperation among nations will work. That is not a local issue and will never be solved by local governments. Food and water, however must be locally managed, but trade (or some compassionate substitute) will be essential through the bottleneck period.

            • “As for getting through the population bottleneck, only cooperation among nations will work”

              I do not expect much in the way of cooperation …. rather I see a feeding frenzy with 7B+ ripping into anything that lives — including each other….

            • My point being that the feeding frenzy is what occurs if we fail to plan at larger scale. fast Eddy, I expected you would point out the difficulties of enforcement pregnancy. However you got the better of me, bypassing convention and jumping from the enforcement stage of the bidding directly to the feeding frenzy stage.

            • “One thing is sure, where semblance of equanimity prevails, structure will be most durable. Where structure endures, options are more numerous. ”

              Something that might aid structure is to MAP globally land ownership. Someone thought that mapping their land makes it easier for people to hold on to it.

  6. Gail, thanks for very interesting article.
    However, I’m afraid we have to differentiate in time and space.

    In case the [current version] of global financial system falls apart in relatively fast order, lets say the process will take aprox. 6month to 2yrs at maximum to fully reveal about all the adverse effects/dominos, do you really think that during this process and afterwards people will just sit it out and die, perhaps somewhere it’s expected reaction and very likely but certainly not guaranteed everywhere as performed act in some sort of global sync!

    Let me repeat my thesis that in such situation parts of the world will attempt some degree of autarky and or closer alliance of block of countries with obviously widely different results. Prime candidate being Russia, although people got a bit soft there by relying on western produced consumerables, the people in power are in not the same extent the clueless bunch of the 1980s, namely technology transfers (joint ventures) secured some sort of production in situ to go forward with domestic workforce and baseload energy/raw material sources whatever comes bad in pipe globaly to them.

    Moreover promising EROEI projects like commercial fast breeding reactors now under construction/near completion (~1GW electricity output) going online before 2020-30s won’t be scraped, when Russia is already aware of the fact going to be more dependent on harder to get expensive fossil fuels of arctic/far east regions into the future etc. In short, your scenario will likely play almost to the described full effect/havoc perhaps in increasingly ungovernable western Europe, parts of NAmerica and Asia, Africa, but not everywhere.

    Don’t get me wrong, in short I do expect unprecedented tremors, profound change of living arrangements and ideologies applied or pushed around, but certainly not extinction level hazard, at least before 2050-2100..

    PS Here is a nice graph which suggests we are indeed about to enter severe recession or worse shortly, but that’s not the end of the world either.

    (linked from discussion at http://euanmearns.com/opecs-gigantic-blunder/#comments)

    • But there will be no energy — without energy at best you get a very primitive ‘civilization’

      • ?No energy, seriously?

        A lot of steps in sequence must be taken in order to regions such as Russia or N.America to fold even their “own internal shop” and let die as dark cold energy starved star. Most likely won’t happen in next decades, perhaps few centuries, refer to M. Greer on that one..

        But very different “civilization” setup with quite different priorities in energy consumption on both personal and overall aggreagate level, yes we could be talking relatively soon..

        • The only way you can maintain the system is if the Govt’s use their military for the up keep of the system. Beyond that it will be mass pandemonium if there are no jobs and businesses are shutdown and people are not getting paid. I like Greer but he’s just a blogger and lately he’s been getting a little too wishy washy.

          • Once shortages begin to bite hard, I imagine that military service – even if it’s just for meager rations, minimalist shelter, and barely adequate medical care – will be an attractive option for the young again. Even a blatantly imperialistic force that engages is rampant, random slaughter of innocents will start to look good to those with no other options.

            • I think that going to jail has already become an option of choice for some folks who cannot support themselves. How else can they get a roof over their heads, adequate nutrition, and healthcare, and someone else to worry about satisfying their needs?

            • I believe that during the great irish famine many committed criminal acts just so they could get a meager meal in jail….

            • I was a juror in a trial where one of the policemen testified that every fall, in his area, there were people who would commit minor offenses so that they would be put in jail for the winter.

              The trial was a murder trial. The “plot” was that one man had killed his best friend, when they were both drunk, supposedly so that the killer could get the other man’s money ($150?) so that his family could install a suitable toilet so DFACS would not take the murderer’s two children away from him and his wife. They lived in a shack without running water or a toilet.

              The various people who testified were folks who listed their place of residence as, “A car parked in front of 123 First Street,” or something similar. It was an introduction to a different way of life.

          • You bring up a good point. No doubt national militias are already preparing how essential services and resources will be managed if not run by enlisted corps.

            Compare this preparation with the power vacuum in the middle east and the ensuing social crisis, refugees and slaughter. It is not as if the oil “economy” has no role. But more to the point, the lack of regional cooperation (=regional government?) among ME states has allowed crisis conditions to fester. The only preparations are thus military operations targeting other nations, tribes and factions. It is every trbe for itself. Small is not necessarily beautiful.

      • There will be some energy for some time in my area of the globe. There are many hydro electric sources plus millions of acres of peat bog and per my estimate 7 years worth of trees for heating through our brutal winters. Not a lot of energy but also not 0 energy.

        • An engineer in the hydro electricity industry was on this site some months ago explaining how complicated a hydro electric power plant is to operate and maintain….

          There are thousands of very specialized parts that are sourced from around the world — which require very sophisticated machinery to manufacture them ….

          There is also the massive grid which is made up of thousands of more parts…

          These parts break … if you can’t replace even a single key one the entire system goes down…

          As that engineer stated — most people have not the slightest clue what is involved — there will be no power coming out of hydro dams post collapse.

          • Most Hydro dams in the West keep spares on hand for the most critical components and have on-site fab shops for the mechanical parts (so short term they would be okay unless the engineers and crews take off), the biggest problem would be one of grid balancing. Every power system is a balance between source (the dam) and load (your TV, arc furnace….etc) if this is not in balance you either get brownouts or surges (exploding your TV), the challenge will be keeping the gird in balance so that people can have usable electricity, if the grid is falling apart due to work crews abandoning their posts and damage being done due to looting and rioting then keeping a grid up with be incredibly challenging. Also stepping down the power from transmission voltage 3ph >69KV down to distribution voltage (3ph 600 V) to ‘home voltage’ of 1ph 120/240 VAC would be a big challenge if the distribution infrastructure is being damaged and few people if anyone is around to repair it. Further complicating this is that in the utility space the large oil-filled and vacuum transformers are non-stock items as they are expensive and are actually frequently stolen and as of this morning (I quoted out a couple transformers for a client) the lead time on these is 14-18 weeks so there really aren’t storehouses of transformers anywhere that could be tapped to maintain an electric system, in the event of collapse, once a transformer goes it won’t be replaced meaning lights out.

          • An old water wheel mill still operates twenty miles up the road from my house. the historical society that maintains with state parks system puts on a great festival of old skills and crafts at the mill yearly. They grind grain used in local restaurants. I buy it myself for a “donation”. A bill in the state legislature allowing them to sell to the open market was whacked recently for health standards. Hard to keep rodents out of the works. Tsk tsk…

            • I am curious … where do they get the spare parts to repair the water wheel these days…

              It goes without saying… a hydro dam is slightly more complex than a water wheel…

            • Steven R

              Yes, wonderful – enduring – machines: at which I trot out my old favourite line, ‘that in 1940’s Britain, there were surviving mils with main working parts 500 years old.’

              Totally irrelevant to our common fate, as that world has gone for good, but worth reflecting on what craftsmanship can do.

              Careful selection of original materials, skilled maintenance, all on a local basis.

          • I missed that Fast Eddie. TY for update. It seems machine shops should do quite well as things are loping downward. I recall my uncle who was a gunnery captain on a WWII destroyer amazed that the Japanese were able to provide a wide range of custom parts for the Navy after being bombed to smithereens.
            No matter, large rivers will provide power of one type or another as they have in the past.. The town I live in, Minneapolis had huge industries such as grain milling, lumber cutting, metal working long before electricity was used. Then the Mississippi River would turn large wheels to power all sorts of machines including saws, lathes.

            • Michael, argh.
              Have you not noticed a general decline in water levels due to increased evaporation and reduced snowpack and glaciers? The Mississippi, the powerful river you cite, had a period not that long ago in which they couldn’t even traffic it any longer:
              http://www.reuters.com/article/2012/08/02/us-usa-drought-barges-idUSBRE8711KC20120802

              I live in an area of the country that was once largely powered by hydro, and the rivers are a shadow of their former selves, except in times of super-storms which create flooding. A supposed year-round stream on my property dried up in July.

              When the trees are sick (as they are), they can’t execute their rôle in the hydrological cycle.
              “trees have placed themselves in the cycle that circulates water from the soil to clouds and back. They are able to maintain water in the liquid phase up to their total height by maintaining a column of water in small hollow tubes using root pressure, capillary action and the cohesive force of water. ”
              http://www.scientificamerican.com/article/how-do-large-trees-such-a/

              Fewer trees => less ground water => fewer trees => less ground water, in a diminishing cycle. Permaculturists like Geoff Lawton have done remarkable things (“Greening the Desert”), attempting to re-establish healthy cycles, but (and I say this as a graduate of one of his courses) I just think increasing heat and other adverse factors will ultimately defeat any efforts in this space. I also think there are chemical and atmospheric effects on soil micro-organisms which contribute to the infelicitous conditions trees and other plants are experiencing, and will continue to experience to ever-graver extents.

              Then there are questions like, what would the “saws and lathes” you mention actually do? Encourage the cutting-down of more trees, which is hardly any solution.

            • “Have you not noticed a general decline in water levels due to increased evaporation and reduced snowpack and glaciers?”

              Fossil fuels use a lot of water. The #2 use of freshwater behind agriculture. Making gas requires water, as does making electric. We are also seeing warming, which I personally think is keeping it too hot to rain as much.

              The groundwater issues are more because the bogs and marshes have been filled in with shopping malls, and we dredged and straightened out rivers to flow water out faster. Standing water fills the groundwater reservoirs, not trees.

            • “It seems machine shops should do quite well as things are loping downward. ”

              That is great, but we actually don’t have very many machine shops left in the states anymore. They have mostly been outsourced. So we don’t have very much equipment to work with anymore. So you don’t really have to worry about how to power them.

              Even the custom performance car machine shops have all but disappeared.

            • Lidia asked about a general reduction in water supply. There is not a reduction of water in the area of the planet where I live we have had plenty of rain over the last 10 years following a somewhat low snow winter last year, but the 2014 winter brought about 2 meters of snow. The northern part of the Mississippi appears normal as do other major northern tributaries that flow in this area such as the St. Croix and Minnesota rivers.
              Lake Superior ( touted as the larges body of fresh water on earth) on our Northern border is above normal levels as are the many rivers that flow into it from the State I live in (Minnesota).
              As for there being no solution, I agree if the expectation is that BAU continues as it is now forever, If we talk about rolling back the clock 125 – 150 years or so in terms of lifestyle over the next 100 years, a reduced planetary population of humans, I think both are reasonable probabilities.
              My Grandmother was born in Ireland in a stone house with a thatch roof, no running water and Peat for marginal heat.. She lived to be almost 100 years old. One of my Grandfathers homesteaded in Montana and lived two years in a Sod house he built with his cousin Pete, he did not live so long (84 yrs) but seemed to have weathered the experience well.
              As for machine shops being outsourced and the numbers low in the USA I agree as I know some machinists who have lamented this for years. Yet there are still some machine shops and if you have them you can build other ones.
              Humans are resourceful and though most living in the West today have never suffered any “privations ” for most of human history there was not a lot of creature comforts and a load of struggles…..well here we still are.

        • Hydroelectric is better than most resources, but it is still necessary to keep wires and transformers repaired or replaced. Also, dams fill up with sediment. Peat can be burned directly.

          • Keeping the wires going is expensive. The power company in my area has a huge division dedicated to “Vegitation Management” they burns through about 5-10% of the yearly income for this function alone. Of course if things get bad power wise they may have a lot of help with all those pesky trees.

            • To think that the grid can be maintained post collapse is absurd…. the ignorance involved in holding that position is colossal…

            • I operate outside the world of numbers and the kinds of analyses that Gail does so well. It’s all so complex that I find it just as effective to make intuitive guesses from what I “pick up” on blogs.. So I’d say MS society had best try to make do without a fossil fuel grid of any kind. While the lights are still on, preparing for this eventuality would be nice, even if unduly optimistic.

              But since nuclear plants not exploding depends on fossil fuel energy to manage them, a sub-system of civilization would need to be put in place to maintain nuclear plants indefinitely. So, somehow amassing and reserving all conventional fossil fuels for that purpose would seem necessary, even if also highly optimistic.

              If nuke plants are not maintained, everybody dies when the power goes down. If, against all odds, our species could survive all the OTHER catastrophes, it would require the sacrifice of allocating the available fossil fuels exclusively to the nuke management “civilization.” But there are any number of other lethal threats to us even then. Two very uninformed cents.

            • Yes, even keeping the wires up takes constant maintenance, using trucks with cherry pickers on top and at least two pickups to accompany the big truck.

              Two weeks ago, my neighbour, out for a jog in our rural area, came back by my garden while I was out weeding and yelled at me over the fence, “Ann! Ann! Call BC Hydro quick! The transformer up by {so-and-so’s} house is steaming and arcing to the pole. The pole is on fire!” I ran back to the house and she ran to her house and we both called. They showed up an hour later with said trucks and fixed it. But that pole is out in the middle of nowhere and if she hadn’t seen it, you would be reading about another fire in British Columbia.

    • Maybe governments will be able to do something. Let’s hope that they can come up with something creative. If they don’t, major governments are likely to disappear with the financial system. New local governments may spring up.

      I can’t know all of the things that will happen, but local fighting would seem to be more likely than a major new source of energy coming online and saving the day.

      • People have to learn to do more for themselves, while depending less on large industrial systems. And they have to learn to see that as positive. For instance, the way land-use is organized now is as counterproductive as it is possible to be in face of coming changes.

        • “People have to learn to do more for themselves, while depending less on large industrial systems. And they have to learn to see that as positive. ”

          I agree. Really in the 80s, we had a fundamental shift in the US, where the policy and laws favored the large corporations over everyone else. I think that is starting to change. It skipped almost a whole generation though.

          • Yes. Hadn’t really seen the 80s as the decisive turning point, but maybe you’re right.

            As I keep learning, there isn’t money or energy to do big government things. But government can set up structure and let communities figure out the details for themselves. Since government can’t do costly upkeep of anything, it’s inputs should be low-keyed and require minimal upkeep. Minimal paving, for instance. Letting nature do the heavy work. People need to use their bodies more and machines less. Live/work space, etc. People won’t generally be able to produce most of their food, so providing good and affordable food staples would be the role of (which level?) government.

  7. “The world economy operates on energy flows in a given year, even though most analysts today are accustomed to thinking on a discounted cash flow basis.”

    I think you are confused. The economy is money, money == work. work is related to energy, but to increase the value of something does not mean you have to spend money on energy to do the work. in 2006, the US imported 5B barrels of oil at 100/barrel that propped up the global economy 500B dollars. If oil at the time was 40 dollars, then it would have only been 200B dollars. The US pumped more oil over the last several years, and the imports dropped to 3B barrels, so 300B left the economy to support the worlds GDP. So if you just look at the global GDP, it shrank, it does not mean there was less work being done. Now that oil prices have plummeted the Global GDP will drop because the amount of money changes hands just in oil trade will have further decreased.

    To add the the further decrease in the global economy, the rest of the world is importing less oil, as renewables, efficiency and electric cars start to come into play. Over a million PHEV/BEV are on the road (or will be shortly) around the globe.

    “If we are headed for a near term sharp break in the economy, there is no point in trying to add man-made renewables to the electric grid. The whole point of adding man-made renewables is to try to keep what we have today longer. ”

    Technically over the long term it is intended to give us options to give us economic independence from the fossil fuels.

    In the short term it buys us time, but it also reduces our costs. If I put in a solar panel system, and get it to pay for itself after that I have more money to spend. I have increased my overall wealth.
    I technically have free energy after that period, and can spend my money on other things like maybe an electric car, which since I am not paying for energy, it doesn’t cost me anything.
    It doesn’t add to the GDP through energy costs. But I am realizing a financial gain.

    What we are seeing right now is confusion in the markets. Because renewables are gaining traction, which does mean a contraction in the global GDP related to energy. It is a period of correction in the markets. Do you invest in coal, or do you invest in solar? Given the markets are forward facing, the smart money is going to start draining out of fossil fuels because there is no long term security in investing in them.

    What is going on in the markets is a correction and some confusion. Renewables just threw the market and most economists a curveball. Most of them still can’t figure it out.

    • PHEV/BEV is less than one percent of global car fleet, plus the clear trend is young people NOT buying cars anymore (ever?), however PHEV/BEV bicycles and various “short range” ultra light transport gadgets usage will likely explode in almost any scenario into the near/midterm future..

      Agree with your point on renewables to some extent, however you did not take into account that most/large part of renewable rocket rising usage regions are usally post industrial service oriented economies, think north/western EU etc. If global commerce collapses hard say for a decade or two, before new economic system takes solid roots, those services oriented economies will have to at least partly retool back to some basic manufacturing baseload hence needed fossil energy production of some sort back in the business (coal namely)..

      I’d argue there will be hodge podge future of various semi-autarky regions (Russia’s sphere of influence), zones of utter chaos near affluent centers (think Greece/Southern Italy vs Germany), possibly north america splitting apart etc.

      • “PHEV/BEV is less than one percent of global car fleet, plus the clear trend is young people NOT buying cars anymore (ever?), however PHEV/BEV bicycles and various “short range” ultra light transport gadgets usage will likely explode in almost any scenario into the near/midterm future..”

        The younger generation is also vastly more interested in electric vehicles and renewables. In the US it was like 60/40 but in china it was like 90/10. They are a generation that knows at some point they will have EVs and renewables, and not ICE enginecars and oil. They also seem to be a lot more interested in electronics then previous generations.

        “Agree with your point on renewables to some extent, however you did not take into account that most/large part of renewable rocket rising usage regions are usally post industrial service oriented economies, think north/western EU etc. ”

        That is because they typically have more money so in essence they are funding technology development to help drive down prices, and make money doing it. 🙂

        The manufacturing they currently have doesn’t really use rely on coal, because of the crackdown on emissions, and in part because of the 1973 oil crisis. Most industry in the states is using NG and electric. Coal IS used to generate the electric for manufacturing, but changing that isn’t nearly as hard as switching from NG to electric. I am sure some industries still use coal, but they are limited, and having special needs that require it.

    • madflower, et al., exergy:

      http://questioneverything.typepad.com/question_everything/2010/10/work-exergy-the-economy-money-and-wealth.html

      Click to access exergetics.pdf

      Click to access 1.3-Hermann.pdf

      https://gcep.stanford.edu/research/exergy/resourcechart.html

      We reached the planetary exergetic log-linear limit bound in 2005-08. Real growth per capita is no longer possible in net energy terms and after imputed debt service costs in perpetuity.

      This means we cannot grow the economy in real terms per capita AND afford to build out “renewables” to necessary scale AND maintain simultaneously the fossil fuel infrastructure indefinitely to support GDP growth and build out of “renewables”.

      Growth is over.

      LTG.

      Click to access Contractionary_Revolution_1st_Edition.pdf

      Click to access mcculloch.pdf

      http://www.resilience.org/stories/2004-12-29/hubberts-prescription-survival-steady-state-economy

      We need a r-evolutionary new world view, set of assumptions, policies, and a universalist, eco-humanist (-humachine?) metanarrative in order to adapt to no growth per capita and eventual de-growth.

      Probability: infinitesimally small.

      • You say

        “We reached the planetary exergetic log-linear limit bound in 2005-08. Real growth per capita is no longer possible in net energy terms and after imputed debt service costs in perpetuity.

        This means we cannot grow the economy in real terms per capita AND afford to build out “renewables” to necessary scale AND maintain simultaneously the fossil fuel infrastructure indefinitely to support GDP growth and build out of “renewables”.

        Do you have a calculation backing up your first statement?

      • “We reached the planetary exergetic log-linear limit bound in 2005-08.”
        Any source for that affirmation ? It would be very interesting to look at the calculations.

      • Without having the chops for this kind of analysis, I can only say I welcome it greatly. For what it’s worth, and for soft headed among us, Terrence McKenna comes at this (your last paragraph, especially) in a completely different way. Almost any of his series of long videos touches interestingly on the subject.

    • The economy not only has $$ attached to it, it also has energy flows attached to it. The energy flows are in some other units–say barrels of oil equivalent. The amount of “work” a barrel of oil equivalent can do stays the same, regardless of whether the price is $40 dollars or $80 dollars or $300 dollars per barrel of oil equivalent.

      We have lived in a world where the price of a barrel of oil has risen rapidly, from $20 barrel to $40 per barrel to $80 per barrel, to $100 per barrel, and now back down to $40 barrel. What has changed is how much effort needs to go into extraction of that barrel of oil–we are in effect becoming more inefficient. We need to dig deeper wells, and we need to use fracking, and many other things. The higher cost is paying for essentially useless items, except these are the things we need to fight diminishing returns. There no longer is cheap to extract oil available in most parts of the world.

      The quantity (that is Barrels of oil equivalent) of oil and other energy products determines how much goods and services that can be produced. Some of these goods and services are the essentially useless items needed to fight growing inefficiency. This leaves us with fewer barrels of oil equivalent for other “regular” uses, like operating cars. The economy becomes a poorer place, because more energy is going into fighting inefficiency.

      When solar panels are made, they take another big up-front amount of energy, in barrels of oil equivalent. (Actually, the fuel is likely to be mostly coal.) But this fuel cannot be used for other purposes.

      Both of these tend to act the same way on the economy–they tend to be big absorbers of energy in barrels of oil equivalent. The hoped for pay-back from the solar panels comes almost entirely in the future.

      What happens is a real mismatch with wages. If, when oil prices went from $20 to $40 to $100 barrel, wages of individual workers went up correspondingly, there would be no problem. It actually tends to go the opposite way–wages of individual workers tend to drop, as oil prices rise. Workers can’t pay the high cost of extraction, os the prices come back down. I try to explain some of what happens in this post: How Economic Growth Fails

      • Ha I finally found this post again!
        “The amount of “work” a barrel of oil equivalent can do stays the same, regardless of whether the price is $40 dollars or $80 dollars or $300 dollars per barrel of oil equivalent.”

        The value of the work that can be performed by the unit of energy is a reflection of its price. If it is too expensive, either the work will not be performed or there will be some other source of energy used in its place that can provide the work, at a value that is deemed more profitable.

        That is pretty fundamental free market economics. And you pretty much said that here:
        “The quantity (that is Barrels of oil equivalent) of oil and other energy products determines how much goods and services that can be produced. Some of these goods and services are the essentially useless items needed to fight growing inefficiency. This leaves us with fewer barrels of oil equivalent for other “regular” uses, like operating cars. The economy becomes a poorer place, because more energy is going into fighting inefficiency.”

        The key difference where we disagree is the fact that cost of extraction for wind/solar/biofuels is dropping to a price that is competitive or less than traditional FF energy extraction and processing techniques.

        http://solar-power-now.com/cost-of-solar/
        The cost of turnkey residential solar has dropped from 8 dollars to 3 dollars a watt over the last 10 years. (utility solar is like 1.55/watt) The cost of oil extraction has risen over the last 10 years because of diminishing returns. The two lines on the graph are starting to cross. Then the fundamental law starts to kick in as the market changes with a market correction.

        The same thing for electric cars. If the cars were both the same initial price. the electric car costs less to operate. There will be a fundamental shift in the market.

        Whether or not we can get that all from renewables is rather a mute point since the market is driven by price.

        The current artificial low prices for oil, will eventually subside as the companies go out of business. As prices rise, people will re-evaluate their options.

    • Hi Madflower69,

      Regarding GDP and your statement ” The US pumped more oil over the last several years, and the imports dropped to 3B barrels, so 300B left the economy to support the worlds GDP. So if you just look at the global GDP, it shrank, it does not mean there was less work being done.”

      The GDP is not just a sales figure. From wikipedia: “…GDP is a measure of ‘value added’ rather than sales”. To be honest, I can only relate the following problems with GDP estimation:

      Points from this website: https://wiki.mises.org/wiki/Gross_domestic_product (which I’ve heard from other sources):
      1. It includes hedonistic elements. “or instance, computers are hedonically adjusted to account for the idea that, because they are faster and more feature-rich than in past years, they must be more additive to our economic output. ” This is ridiculous.

      2. It includes imputations. Talking about the 2003 GDP estimate …”First, that 11 trillion included $1.6 trillion of imputations, where it was assumed that economic value had been created but no actual transactions took place. The largest of these imputations was the “value” that the owner of a house receives by not having to pay themselves rent. If you own your house free and clear, the government adds how much they think you should be paying yourself rent to live there and adds that amount to the GDP. ” This is ridiculous.

      3. It depends on calculating the inflation rate (AKA GDP Deflator). The inflation is in the denominator so…you can guess that they probably manipulate inflation to inflate the GDP. Also ridiculous.

      And, lets not forget the illegal drug sales they now include (and prostitution in the UK).

  8. Thank you Gail for your hard work for another valuable essay. Hope the time frame you project is off sometime in a decade or two. Perhaps the PTB will string us along with more tricks, if that’s possible.

      • One idea…

        http://www.planetizen.com/node/80812/comparing-worlds-transit-systems

        Not sure why it’s important to compare transit scores among major industrial cities. We may need to think of transit in very different terms than is conceived in these centers. For one thing, Bus Rapid Transit (BRT) seems to be gaining surprising support, seen as more flexible and cheap than rail.

        There are billions of cars on the road today. If gas went away tomorrow, how could they be used? Could they be retrofitted with “synapses” which allow them to link together like train cars? At certain stations, they could be released from the “train,” allowing occupants to travel to destinations away from transit’s reach. All kinds of questions though. How do you get each car to take on the general passenger? Gas would still be needed for those off-transit routes. How would it be procured? Would the public use the system? I think this “idea” is a little fanciful. Maybe the future in the west will be much more like the third world–minibuses, walking, etc.,–than this.

        One way to ensure the latter would be to radically restrict car travel by narrowing their routes while expanding routes for buses and bikes…
        Modify message

        • From comments to this article:

          http://usa.streetsblog.org/2015/09/08/how-to-make-big-box-stores-less-terrible-for-walking-8-expert-tips/

          “The big box stores all need to be exploded.”

          7 billion people and a corrupt economic system can’t change suddenly. If big box stores were exploded, hundreds of millions would lose work, including those employed in the production and delivery system. .

          I had never thought much about such issues till I began to read (OFW). But there tends to be zero sum thinking there as well. Since deadly chaos would ensue were the economic order to quickly collapse–cause and/or effect of big box explosion–the thinking is that global industrial capitalism must continue unabated else its collapse doom us all sooner rather than later. It must therefore grow by any means possible (since it is a Ponzi scheme based on infinite growth).

          So those concerned about the “environment,” as we are, are stumped for an answer. Whether or not it’s an approach that can make sense, I tend toward thinking we need to engage with the big box store as well. Without jettisoning jobs, compensating new ones for lost ones, etc., might the economic order be stabilized in some way? But how can that help the environment, which must continue to be mined and polluted at ever increasing rates so as to keep the Ponzi scheme afloat?

          OFW believes the economic system will crumble due to its own contradictions, and crumble surprisingly soon. I’m agnostic as to the timing, but am pretty sure a Ponzi scheme can’t go on forever… So, can there be a softer landing if we engage the big box stores and try to make them part of a “solution?” I don’t know. Money is utterly corrupting, and stores run on money. Meanwhile, Scandinavian countries manage the economic system far more thoughtfully than does the US. There is much lack of clarity in the status quo.

          • “The big box stores all need to be exploded.”

            It is orders of efficiency.

            The local retailers got replaced by the big box stores. Because the big box stores, can handle more items at a smaller profit margin, and can manage to get wholesale prices and sell direct.

            The big box stores have fierce competition from internet retailers. Who can get the same wholesale prices, but their cost of doing business is less.

            Walmart took it to a new level, by essentially bullying local governments into giving them tax breaks, road work and other incentives they didn’t offer to local retailers. So even if a local retailer got the product for the same price as walmart, they have to charge more money, because they have higher costs.

            some of the internet model existed previously through mail order. You got the sears catalogue, ordered your stuff then it arrived 6 weeks later. With amazon, you can get next day, or two day shipping usually.

            • In a knee jerk moment, I contracted to put PV solar on my roof. Just going on intuition and osmosis (what I glean through Gail and others) I see “renewables” as highly limited in utility. They can’t run BAU. They require FFs to make, transport, install, on and on. The mining for materials is a factor in huge, ongoing genocide. And more. But can what I have on my roof be helpful in the context of a broad mix of other things–material and behavioral? I say yes. It’s the thinking that any one thing solves the “problem” that I find so problematic.

            • “In a knee jerk moment, I contracted to put PV solar on my roof.”

              Congrats!

              “But can what I have on my roof be helpful in the context of a broad mix of other things–material and behavioral? I say yes. It’s the thinking that any one thing solves the “problem” that I find so problematic”

              Behavioral is a huge issue in the States. There is a whole generations of people that were taught to look down on people because they weren’t using FFs.

              I also agree, that trying to say there is one solution is wrong. People who are against renewable energy, try to peg it to a single source, since it makes it much easier to attack.

          • The person I quoted was making the environmental case for internet buying–you buy only what you want and don’t get hypnotized into buying all the tempting items in the store that you can do without. So, referring to the article, there would be no need to make the big box store shopping a more walkable experience. Just get rid of the whole thing and consume a lot less.

            I may be representative of lots of people who are not comfortable shopping online, and like the familiarity and sense of security store shopping brings. Walmart has displaced the corner store, but it doesn’t seem that Amazon is displacing Walmart. It seems also that Walmart provides more jobs than internet vendors do. So I’m not personally pushed to reject the big box by switching to the internet. At the same time, I’m appalled by the waste and destruction the big boxes cause. I’m curious as to whether the big boxes could keep going post a softish collapse. That would require them to change in many ways. Also, I’m averse to the creative destruction model of business. I think this is a place where you stop, tie the knot, and try to make what is here now work many times better than it does currently. But I’m mostly trying to get clear in my own mind what it is I believe (right or wrong). I’m not betting on outcomes of any sort.

            • “Walmart has displaced the corner store, but it doesn’t seem that Amazon is displacing Walmart. ”

              They fight over certain sectors of the marketplace. The market is so huge, that they both can exist and really serve different customer bases. It is the same for FFs and Renewable energy right now. Renewable energy is picking up steam since it pays for itself. But it is a major investment, with a long term commitment as well. I don’t see Solar and Wind completely replacing fossil fuels right now, but there is a long way to go before saturation of the market or the grid in the US.

          • WithheldName Artleads • 8 hours ago
            Great points. We can hope the “big box economy” slowly continues to decline as people wake up. But even if there are a series of sharp contractions, our society has so much breathing room that the pains would almost be trivial…or COULD almost be trivial (if our society was more enlightened and had its priorities straight). We are the richest society that has ever existed and our lives are overflowing with abundance: excess housing space, excess vehicles, excess clothing, excess food, excess tools, excess consumer goods. If we even began to better share our excess resources and eliminate the waste and absurdity, we could all be twice as happy and healthy with half the resources we have now. Examples?

            – Billions of dollars for stadiums that sit empty 300+ days a year.
            – Billions of dollars for new churćhes that sit empty 6 days a week.
            – Average home square footage doubled in the last couple generations…as family size has shrunk.
            – A third to half of all food in America is discarded before ever being eaten.
            – Average trip in a car is 4 miles – a distance that could be bicycled by most.
            – 90% of people commuting to work alone in cars that can hold 5 people.
            – Billions of dollars spent on gym memberships each year when most people use motorized means to get around and do other basic things like clean.
            – And so on and so on

            • “We can hope the “big box economy” slowly continues to decline as people wake up.”

              Oddly enough I think people are waking up. They realize the excess of the 80s credit fiasco could kill them. Namely because most of their parents got sucked into the trap.

              I think you are seeing more “can do” types of attitudes, and not waiting for corporations to come out with the solution. It is a regression of sorts, in part because it became cool again, and in part because of necessity and living within your means.

              The tiny house movement is almost exactly what you are talking about though. I keep seeing stuff on that in the media.

        • The article says 5% of the CO2 from a steel plant could be captured and turned into a useful fuel. That leaves 95% of the CO2 still emitted. Does not seem the world is saved yet.

          • Agreed. But funding and scaling are limitations too. Rich countries could certainly afford to buy a couple (machines) for each of their nuclear plants so they have a bit more protection post FF collapse. And these devices can only be built while there are FFs.. They are not THE solution to anything. Nothing is. 🙂

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