The traditional understanding of supply and demand works in some limited cases–will a manufacturer make red dresses or blue dresses? The manufacturer’s choice doesn’t make much difference to the economic system as a whole, except perhaps in the amount of red and blue dye sold, so it is easy to accommodate.
A gradual switch in consumer preferences from beef to chicken is also fairly easy to accommodate within the system, as more chicken producers are added and the number of beef producers is reduced. The transition is generally helped by the fact that it takes fewer resources to produce a pound of chicken meat than a pound of beef, so that the spendable income of consumers tends to go farther. Thus, while supply and demand are not independent in this example, a rising percentage of chicken consumption tends to be helpful in increasing the “quantity demanded,” because chicken is more affordable than beef. The lack of independence between supply and demand is in the “helpful” direction. It would be different if chicken were a lot more expensive to produce than beef. Then the quantity demanded would tend to decrease as the shift was increasingly made, putting a fairly quick end to the transition to the higher-priced substitute.
A gradual switch to higher-cost energy products, in a sense, works in the opposite direction to a switch from beef to chicken. Instead of taking fewer resources, it takes more resources, because we extracted the cheapest-to-extract energy products first. It takes more and more humans working in these industries to produce a given number of barrels of oil equivalent, or Btus of energy. The workers are becoming less efficient, but not because of any fault of their own. It is really the processes that are being used that are becoming less efficient–deeper wells, locations in the Arctic and other inhospitable climates, use of new procedures like hydraulic fracturing, use of chemicals for extraction that wouldn’t have been used in the past. The workers may be becoming more efficient at drilling one foot of pipe used for extraction; the problem is that so many more feet need to be drilled for extraction to take place. In addition, so many other steps need to take place that the overall process is becoming less efficient. The return on any kind of investment (human labor, US dollars of investment, steel invested, energy invested) is falling.
For a time, these increasing inefficiencies can be hidden from the system, and the prices of commodities can rise. At some point, however, the price rise becomes too great, and the system can no longer accommodate it. This is the situation we have been running into, most severely since mid-2014 for oil, but also for other commodities, dating back to 2011.
The higher cost of producing oil and other energy products affects the economy more than a shift from chicken to beef.
The economy is in a sense more dependent on energy products than it is on our decision whether to eat chicken or beef. If the cost of producing oil rises, and that higher cost is carried through to prices, it affects the prices of many things. It affects the cost of food production because oil is used in the production and transport of food. The higher cost of oil also affects nearly all transported goods, since oil is our primary transportation fuel.
Some of the impacts of higher oil prices are clearly adverse for the economy.
If higher oil costs are passed on to consumers as higher prices, these higher prices make goods less affordable for consumers. As a result, they cut back on purchases, often leading to layoffs in discretionary sectors, and recession.
The higher cost of oil products (or of other energy products) also tends to reduce profits for businesses, unless they can find workarounds to keep costs down. Otherwise, businesses find themselves in a situation where customers cut back on purchasing their products. As we will discuss in a later section, this tends to lead to reduced wages.
Some of the impacts of higher oil prices are somewhat positive.
Rising oil prices clearly encourage rising oil production. With this, more jobs are added, both in the United States and elsewhere. More debt is added to extract this oil, and more equipment is purchased, thus stimulating industries that support oil production. The value of oil leases and oil properties tends to rise.
As noted previously, the cost of food supply depends on oil prices. The cost of producing metals also depends on oil prices, because oil is used in extracting metal ores. As the prices of metals and foods rise, these industries are stimulated as well. Values of mines rise, as do values of agricultural land. More debt is taken out, and more workers are hired. More equipment is purchased for producing these products, adding yet more stimulation to the economy.
The higher price of oil also favorably affects the many countries that extract oil. Part of this effect comes from the wages that the workers receive, and the impact these wages have, as they cycle through the economy. For example, workers will often want new homes, and the purchase of these new homes will add jobs as well. Part of the effect comes through taxes on oil production. Oil production tends to be very highly taxed, especially in parts of the world where oil extraction can be performed cheaply. This tax money can be put to work in public works programs, providing better schools and hospitals, and more jobs for citizens.
It is inevitable that the price of oil must stop rising at some point because of the adverse impact on spendable income of consumers.
The adverse impact of higher oil prices on the spendable income of consumers comes in many ways. Perhaps one of the biggest impacts, but the least obvious, is the “push” the higher cost of oil gives to moving manufacturing to locations with lower costs (cheaper fuel, such as coal, and lower wages), because without such a change, higher oil prices tend to lead to lower profits for many makers of goods and services, as mentioned previously.
The competition with lower-wage areas tends to reduce wages in the US and parts of Europe. This push is especially great for jobs that are easily transferred to other countries, such as jobs in manufacturing, “call-centers,” and computer tech support.
Another way businesses can maintain their profit levels, despite higher oil costs, is through greater automation. This automation reduces the number of jobs directly. Automation may use some oil, but because the cost of human labor is so high, it still reduces costs overall.
All of these effects lead to fewer jobs and lower wages, especially in the traditionally higher-wage countries. In a sense, what we are seeing is lower productivity of human labor feeding back as lower wages, if we think of the distribution of wages as being a worldwide wage distribution, including workers in places such as China and India.
Normally, greater productivity feeds back as higher wages, and higher wages help stimulate higher economic growth. Lower wages unfortunately seem to feed back in the reverse direction–less demand for goods that use energy in their production, such as new homes and cars. Ultimately, this seems to lead to economic contraction, and lower commodity prices. This is especially the case in the countries with the most wage loss.
The drop in oil prices doesn’t do very much to stop oil production.
Oil exporting countries typically have relatively low costs of production, but very high taxes. These taxes are necessary, because governments of oil exporters tend to be very dependent on oil companies for tax revenue. If the price of oil drops, the most adverse impact may be on tax revenue. As long as the price is high enough that it leads to the collection of some tax revenue, production will take place–in fact, production may even be increased. The government desperately needs the tax revenue.
Even oil companies in oil-importing countries have a need for revenue to pay back debt and to continue to pay their trained workers. Thus, these companies will continue to extract oil to the best of their ability. They will aim for the “sweet spots”–places that have better than average prospects for production. In some cases, companies will have derivative contracts that assure them of a high oil price for several months after the price drops, so there is no need to reduce production very quickly.
The drop in oil prices, and of commodity prices in general, makes debt harder to repay and discourages adding new debt.
We earlier noted that a rise in the price of commodities tends to make asset prices rise, making it easier to take out more debt, and thus stimulates the economy. A drop in the price of oil or other commodities does the opposite: it reduces asset prices, such as the price of the property containing the oil, or the farmland now producing less-expensive food. The amount of outstanding debt does not decline. Because of this mismatch, companies quickly find themselves with debt problems, especially if they need to take out additional loans for production to continue.
Another part of the problem is that on the way up, rising prices of oil and other commodities helped lift inflation rates, making debt easier to repay. On the way down, we get exactly the opposite effect–falling oil and other commodity prices lead to falling inflation rates, making debt more difficult to repay. Commodity prices in general have been falling since early 2011, leading to the situation where interest rates are now negative in some European countries.
The costs of producing commodities continue to rise, as a result of diminishing returns, so this fall in prices is clearly a problem. Low prices make future production unprofitable; it also leads to an increasing number of debt defaults. There are many examples of companies in financial difficulty; Chesapeake Energy is an example in the oil and gas industry.
Where oil supply and demand goes from here
The traditional view of the impact of low oil prices seems to be, “It is just another cycle.” Or, “The cure for low prices is low prices.”
I am doubtful that either of these views is right. Falling prices have been a problem for a wide range of commodities since 2011 (Figure 2, above). The Wall Street Journal reported that as early as 2013, when oil prices were still above $100 per barrel, none of the world’s “super major” oil companies covered its dividends with cash flow. Thus, if prices are to be sufficiently high that oil companies don’t need to keep going deeper into debt, a price of well over $100 per barrel is needed. We would need an oil price close to triple its current level. This would be a major challenge, especially if prices of other commodities also need to rise because production costs are higher than current prices.
We are familiar with illnesses: sometimes people bounce back; sometimes they don’t. Instead of expecting oil prices to bounce back, we should think of the current cycle as being different from past cycles because it relates to diminishing returns–in other words, the rising cost of production, because we extracted the cheapest-to-extract oil first. Trying to substitute oil that is high in cost to produce, for oil that is low in cost to produce, seems to bring on a fatal illness for the economy.
Because of the differing underlying cause compared to prior low-price cycles, we should expect oil prices to fall, perhaps to $20 per barrel or below, without much of a price recovery. We are now encountering the feared “Peak Oil,” because much of the cheap oil has already been extracted. Peak Oil doesn’t behave the way most people expected, though. The economy is a networked system, with high oil prices adversely affecting both wages and economic growth. Because of this, the symptoms of Peak Oil are the opposite of what most people have imagined: they are falling demand and prices below the cost of production.
If low prices don’t rise sufficiently, they can cut off oil production quite quickly–more quickly than high prices. The strategy of selling assets at depressed prices to new operators will have limited success, because much higher prices are needed to allow new operators to be successful.
Perhaps the most serious near-term problem from continued low prices is the likelihood of rising debt defaults. These debt defaults can be expected to have a very adverse impact on banks, pension plans, and insurance companies. Governments would likely have little ability to bail out these organizations because of the widespread nature of the problem and also because of their own high debt levels. As a result, the losses incurred by financial institutions seem likely be passed on to businesses and individual citizens, in one way or another.
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If you were an ET and you were hovering over Earth monitoring the ‘news’ and you came across this …. you surely would be bewildered…. you might even think it was funny…
Fear at the tap: Uranium contaminates water in the West
In a trailer park tucked among irrigated orchards that help make California’s San Joaquin Valley the richest farm region in the world, 16-year-old Giselle Alvarez, one of the few English-speakers in the community of farmworkers, puzzles over the notices posted on front doors: There’s a danger in their drinking water.
Uranium, the notices warn, tests at a level considered unsafe by federal and state standards. The law requires the park’s owners to post the warnings. But they are awkwardly worded and in English, a language few of the park’s dozens of Spanish-speaking families can read.
“It says you can drink the water — but if you drink the water over a period of time, you can get cancer,” said Alvarez, whose working-class family has no choice but keep drinking and cooking with the tainted tap water daily, as they have since Alvarez was just learning to walk. “They really don’t explain.”
Uranium, the stuff of nuclear fuel for power plants and atom bombs, increasingly is showing in drinking water systems in major farming regions of the U.S. West — a naturally occurring but unexpected byproduct of irrigation, of drought, and of the overpumping of natural underground water reserves.
An Associated Press investigation in California’s central farm valleys — along with the U.S. Central Plains, among the areas most affected — found authorities are doing little to inform the public at large of the growing risk.
That includes the one out of four families on private wells in this farm valley who, unknowingly, are drinking dangerous amounts of uranium, researchers determined this year and last. Government authorities say long-term exposure to uranium can damage kidneys and raise cancer risks, and scientists say it can have other harmful effects.
In this swath of farmland, roughly 250 miles long and encompassing major cities, up to one in 10 public water systems have raw drinking water with uranium levels that exceed federal and state safety standards, the U.S. Geological Survey has found.
More broadly, nearly 2 million people in California’s Central Valley and in the U.S. Midwest live within a half-mile of groundwater containing uranium over the safety standards, University of Nebraska researchers said in a study published in September.
Everything from state agencies to tiny rural schools are scrambling to deal with hundreds of tainted public wells — more regulated than private wells under safe-drinking-water laws.
That includes water wells at the Westport Elementary School, where 450 children from rural families study outside the Central California farm hub of Modesto.
Uranium fever has done and got me down
Uranium fever is spreadin’ all around
With a Geiger counter in my hand
I’m a-goin’ out to stake me some government land
Uranium fever has done and got me down
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Iron Ore in $30s Seen Near Tipping Point for Largest Miners
Iron ore’s tumble into the $30s threatens the world’s biggest miners as prices approach break-even costs, according to Capital Economics Ltd. BHP Billiton Ltd. shares slumped to the lowest in 10 years and Rio Tinto Group dropped to the lowest since 2009.
The most expensive operations at the four largest suppliers are on the verge of making losses at rates below $40 a metric ton, said John Kovacs, senior commodities economist at Capital Economics in London, who estimates their break-even levels at $28 to $39, taking into account freight and other costs. While these producers will keep output strong, they’ll be constrained by low prices, he said by e-mail on Monday.
Iron ore’s plunge below $40 comes as producers including Vale SA in Brazil and Rio and BHP in Australia press on with expansions to cut costs and defend market share just as demand from the largest consumer China slows. They’re the world’s biggest suppliers along with Fortescue Metals Group Ltd. Prices of the raw material have lost 45 percent this year and have plunged 80 percent from their peak in 2011.
If this continues some of the biggest companies on the planet are going to go out of business.
Essentially the supply of all commodities is coming into question as prices continue to plunge….
If these companies cannot make money then the raw materials of BAU will not be produced.
We are edging closer to the abyss….
Where is that darn helicopter money — send me my monthly cheque now — I promise to blow it at Wally’s World on more ‘stuff’…
Glencore would seem like a zombie company with current prices and continuing China slowdown
It is interesting to look at the biggest companies in the world based on revenue, for example. https://en.wikipedia.org/wiki/List_of_largest_companies_by_revenue Many of them are not publicly traded–they are the national oil companies. Others make automobiles. China’s state grid is on the list; so is Walmart.
Gail, that’s an article on deflation from The Automatic Earth. Looks like you were on the same page as them.
Whenever Nicole and I are interviewed, there seems to be an awfully lot of overlap in what we say. She has no faith in renewables with respect to keeping the grid operating (although she does consider them for local use), and she does not think that there is any solution for climate change.
On Monday, the Bloomberg Commodity Index, which tracks everything from lean hogs and coffee futures to natural gas, fell 2.7 per cent — its biggest daily decline since July 6 — to 79.50, breaching the 80 level for the first time in more than 16 years.
China: Exports drop 6.8 percent, imports decline 8.7 percent
WTI – 2.28 to 37.69 !
Brent – 2.24 to 40.76
Oil prices started a move down on Friday, minus 1.11 for WTI and now continuing that trend. Gail, maybe your suggestion of oil dropping to $20 a barrel might happen.
If you include likely sprin 2016 lift on iranian sanctions there is 3(4)M bpd overcapacity in oil. Saudies and others are burning almost 20% of their financial reserves per year, perhaps more towards $20 levels. What a pickle, but it can go on for say at least 2-3yrs more before other developments emerge like bigger war in the gulf, cut in production, global financial meltdown, and many more options..
What is clear “early peakers” made fools of themselves on the sequencing order of events, he who “gambled” or rather played with the house on the tops and bottoms of past 40+ yrs on these markets and got out in ~2007 had up today enough time to get ready at least the basics (soil, plants, trees, herd, skills,..), from now on the overall instability and add hoc gov capture will be much different playground to allow circling wagons of little people for anything in meaningfull fashion.
That article blames OPEC’s unwillingness to reduce output for this most recent price decline. I suppose from a US standpoint it’s best to blame OPEC, because it’s hurting our frackers? Because surely in a free market it’s up to OPEC to do what they wantto do, right?
“Because surely in a free market it’s up to OPEC to do what they wantto do, right?”
A Cartel flooding the market to wipe out higher priced competition is not exactly a good example of a free market.
In Canada all we have is high priced production and we are getting hammered. The Saudis made it clear they want to put high priced producers out of business so in a sense they want to bankrupt a large part of our country. Does anyone ever see a possibility of our governments (USA & Canada) restricting OPEC oil imports?
“Does anyone ever see a possibility of our governments (USA & Canada) restricting OPEC oil imports?”
Forget that, let’s just print money and bail-out our producers down to $10 per barrel and let OPEC go broke. Heck, we should shut down our production and burn all their oil first.
If the Saudis were going to put high priced producers out of business, they would have done so by now. Its not going to work because the frackers will just find ways to become more efficient at producing.
That’s a link showing OPEC oil production up to current production. It was higher in 2012 and nobody blamed OPEC, so why now? Look at the Millions of barrels axis. Keeps undulating in a fairly small range, while Canadian tar sands and US fracking was going up quite a few MBD. That’s really what happened, and instead of OPEC reducing production in lockstep they just stood their ground and just like us are fighting a market share war.
Let’s say person A is selling apples for $1 dollar each and sells 200 a day. Then person B comes along and starts selling his apples for the same price, but because of the oversupply, the price drops to 50 cents an apple. But here’s the thing – the new guy B expects A to reduce his apple inventory so he can sell all of his apples at the original dollar price. That’s what’s going on. The US & Canada are person B.
“the new guy B expects A to reduce his apple inventory so he can sell all of his apples at the original dollar price. That’s what’s going on. The US & Canada are person B.”
They don’t expect less oil, they expect demand to increase and more oil be consumed. But gosh darn it, for some reason the consumers are just not doing what the models say they must do.
efficiency is subject to the laws of diminishing returns
Adding once again to my two cents (alright, more than two cents) on the slow vs. fast collapse debate:
What interests me is the human mind, psychology, and human social dynamics. Yes, all of these things point to collapse (and violence, and war), but they don’t point to an immediate cessation of all functions.
Alright, so we are staring at energy decline. At peak everything. At the collapse of the international financial system and order. So, the next question is: what do you do about it?
If you are a smart and forward thinking PTB (not all of them are) then you begin to make the transition to a post-industrial society which is more heavily dependent on propaganda, recycling, population decline, rationing, state security, wage/price controls. Yes, this is a change from the previous system which was dependent on debt fueled growth. But debt fueled growth is over, never to return again.
If you are not PTB, what choice do you have anyway? It was a born to lose situation (work and then die) during the best of times, and it will continue to be a born to lose situation. In other words, for the vast majority of us, same as it ever was. Except before we worked for cars and houses and retirement plans, and now we will be working for food stamps and a roof over our head in a slum.
Hunger and shelter are a powerful motivation. People will accept any work, no matter how grueling or demeaning, at any wage, as long as that wage gets them some food and shelter. I guarantee it.
And I guarantee that the collapse will be a slow collapse. The financial system has been about to collapse “in the next two years,” since 2009. The Saudis were supposed to collapse the non-conventional high cost frackers by now. What these two, among many, examples demonstrate is that the system is far more robust than it is commonly understood, people are more determined than given credit for, and that the PTB will go to great lengths to maintain the status quo. There will be no Hollywood ending for collapse. It will be slow fizzle, just like the end of the Roman Empire. Modern civilization will decline and decline and decline until one day it just won’t be there anymore.
I see no collapse — I have watched the global economy growing since 2008 – I have watched corporations book record profits since 2008.
If I were a sheeple – particularly one with a decent job — I’d think the new normal looks pretty darn good.
Just like the sheeple thought in the run up to to 2008.
Then suddenly things did not look so good.
The relatively good times are about to end — corrupt profits are plunging — commodity prices are collapsing — that’s what happened right before the 2008 collapse.
I really do not understand this slow collapse thing…
The economy either grows — or it collapses… that is the way it works 1+1 = 2 … not 5….
It is impossible for the economy to contract for more than a very short period without completely collapsing … therefore there can be no slow collapse….. there is growth — then there is a crash — always.
If you don’t believe me google stock market crashes… they are always preceded by growth phases…. they are never gentle….
The only difference this time is that the crash will be permanent
Just because it is inconvenient to have a fast collapse (i.e because it means you die) … does not mean it’s not going to happen.
With tongue in cheek, I offer this explanation for why the global economy can’t afford oil. Stolen from a Spooky Action description of life in a Black Hole:
‘They suffer the fate of people who call their insurance companies and spend all night navigating a Kafkaesque phone menu’.
And, I would add, the government keeps figuring out ways to increase the imputed value of time spent on the phone menu by noting improvements to the quality of the Muzak, the increasing sultriness of the female voices, the sincere sounding apologies for the hundredth time you have punched 0 trying to find a human, etc.
Oh … did I mention that during the Irish Famine…. there was still a government … police… a functioning economy?
I guess I didn’t …
So comparing post BAU in America to that is absurd…. the police will not protect your Little House on the Prairie — they will be the first ones through the gate with the guns roaring and their riot clubs flailing…
They will be the ones doing the taking… they will be hungry — their families will be hungry…
And then there are the military men —- you might say ‘hey I can get them to protect me by sharing with them’
And what will happen is they will walk through the gate — take over your Little House — enslave you — and send you into the garden to grow food for them. They will almost certain commandeer any females in the house for their ‘needs’…..
Little House on the Prairie is beginning to look rather precarious — no?
Time for Mr Cognitive Dissonance to step in and convince you to toss all of Fast Eddy’s facts out the window and select from the Koombaya menu:
1. Fast Eddy is full of shit — this time is different — Ireland happened long ago…
2. People are not like that — they are mostly good — and wonderful – and cooperative — and not violent
3. It is impossible to predict what the future holds — the odds are it will be wonderful
4. Collapse cannot be fast. It will be slow and take decades
5. The electricity will not go off — somehow it will continue even though the economy no longer exists — we have always had electricity — we will always have electricity — perhaps it will just be available for a few hours a day — we can make do with that
6. The government will help me – protect me.
In the slow collapse vs. fast collapse debate I can not understand the ratonale behind decades of slow collapse in rural Africa, India, America. How is that suppose to happen?
What happens to rural environments when millions and billions of people start pouring out of the cities? There will not be petrol, no grid or a military. In rural Africe Wet-Bulb temperatures will spread. Those who venture outside during the hot hours, will die. Now try to farm something in a climate like that. Also there will be something lika a Rwanda Genocide going on around you. If you live in a rural envirnoment watch a movie “Hotel Rwanda” or “Shooting Dogs” to get a sense what will start very soon.
I simply don´t understand where the decades of slow collapse people are coming from. What is the remote location they are living at, so that they have insulation against SHTF, where are they living? On the Moon?
What if we’ve been slow collapsing for 15-25 years? Soon markets will crash, then recover, but the real economy won’t recover 100%, new crash … rinse and repeat.
“What if we’ve been slow collapsing for 15-25 years?”
Exactly. Most people don’t notice it because the whittling process is incremental like a frog not noticing the water temp. is rising. A pack of cheese gets smaller but just as expensive and your wage has not increased – you just got whittled down a bit. The utility rates change and even though you use less energy now it costs more. Whittled down. You go with some friends to an NFL football game but you realize while spending hundreds of dollars this is something you can only do every few years instead of when you were younger and it only cost a total of 60 dollars and you could go whenever it suited your passing fancy. Whittled down. Decent reception on your TV now costs $100 bucks a month whereas it was closer to 50 bucks just a few years ago and 5 dollars in 1970. whittled down. slow collapse. You use to be able to have friends over and have a party with some people getting really drunk, but then they made people giving the party responsible for what those people when they drove home, so you don’t do them anymore. Whittled down. Many people get their paychecks, pay the bills and barely have enough left over to buy some Walmart Chinese clothing instead of the really nice stuff you use to get at Macy’s. Housing and medical insurance take a huge chunk but didn’t take anywhere near as much years ago. Whittled down. Slow collapse which has been happening since 1970 for most people.
We get whittled down as diminishing returns slowly constrict its grip of higher costs against stagnant wages. We have been on the way down for decades now and when shtf and it turns into a much faster collapse is anyone’s guess.
“You go with some friends to an NFL football game but you realize while spending hundreds of dollars this is something you can only do every few years instead of when you were younger and it only cost a total of 60 dollars and you could go whenever it suited your passing fancy. Whittled down. Decent reception on your TV now costs $100 bucks a month whereas it was closer to 50 bucks just a few years ago and 5 dollars in 1970. whittled down.”
While for some people their actual earning compared to wages has dropped, a lot of what you are describing here is just inflation, which is an inevitable part of any system of paper money, compounding interest, and fractional reserve / credit origination.
Obviously, people are willing to pay for those NFL tickets, or they would be much less expensive. For NHL hockey games, it can be cheaper to fly from Canada to a southern State, pay for a hotel, and watch your home team play the local team there, then to watch a home game in Canada.
I’m not disagreeing with America being in decline from 1970 onwards, just that these particular examples are not good.
Even the old foods you were used to in the 1970s are packaged in smaller quantities but cost more. If you’re not paying attention over decades, you never realize that you are paying more for less.
“you never realize that you are paying more for less.”
Are you paying more for less in terms of hours worked? For housing, for sure, since housing has gone crazy. For cars, fuel mileage seems to be more miles per hour worked. Cars themselves, price versus wages, I haven’t really looked into.
I expect for some extent this is about lower living standards in the West, in exchange for higher living standards elsewhere – although the Chinese really squandered their gains with insane levels of pollution.
Mostly an increase in equality, and overall globally growth. Too bad so much went into growing population, instead of improving living standards for a smaller number of people. Also, so much into the rest of the world getting into automobiles.
Back in 1979 while living in Miami, I saw the Miami Dolphins play the Oakland Raiders with John Madden as coach. It was a big game and I had purchased a endzone seat and it cost me $11. Sports tickets today have gone thru the roof with the player’s salaries.
“Back in 1979 while living in Miami, I saw the Miami Dolphins play the Oakland Raiders with John Madden as coach. It was a big game and I had purchased a endzone seat and it cost me $11. Sports tickets today have gone thru the roof with the player’s salaries.”
A brand new Corvette at the time was $10,220. Now, its around $55,000 for the base model. So, those tickets would be around $60 today, just based off inflation. Again, keep in mind, if people were not willing to pay those ticket prices, they would not be so high.
1. To fall down or inward suddenly; cave in.
2. To break down suddenly in strength or health and thereby cease to function
1. The act of falling down or inward, as from loss of supports.
2. An abrupt failure of function, strength, or health; a breakdown.
3. An abrupt loss of perceived value or of effect: the collapse of popular respect for the integrity of world leaders.
Those calling for a slow collapse need to choose a new word.
Because collapse – by definition is fast.
The global economy has been growing rapidly since the start of the industrially revolution — there have been some recessions — even a major depression — but in general the economy has grown – it has EXPANDED….
It is growing now.
There is no collapse. You cannot point to 1960 or 70 or 80 or 2008 and say ‘collapse started then’
What you can say is the minute we started to use fossil fuels we sealed our fate — that eventually this was going to lead to a monumental collapse.
Every ounce of oil be have burned brought us closer to collapse.
What you can say is that based on the policies of the central banks at the moment that day is getting closer.
But by definition we are expanding — the global economy is growing.
When it stops — and when there are no policies remaining to drive further expansion …. then you have the right to use the word collapse.
Because that is what is going to happen at some point.
The policies will push on a string…. and the global economy will very quickly blow into a billion pieces.
1. To fall down or inward suddenly; cave in.
2. To break down suddenly in strength or health and thereby cease to function
1. The act of falling down or inward, as from loss of supports.
2. An abrupt failure of function, strength, or health; a breakdown.
3. An abrupt loss of perceived value or of effect: the collapse of popular respect for the integrity of world leaders.
FE you are presuming since the world economy has been expanding there is no slow collapse or the average person. But keep in mind some of the factors involved in that expansion that do not help the individual:
Jobs going overseas
Increasing world population
Higher prices for everything
increasing wages, but not in lockstep with increasing costs
Higher population densities increasing cost of real estate
to name a few
I would ask this of you – how can there be a sudden major collapse without a slow build towards that collapse? It’s like saying the building’s structure was perfectly sound until it suddenly collapsed. No, it was creaking and stressing long before it went down.
‘I would ask this of you – how can there be a sudden major collapse without a slow build towards that collapse?’
We are in total agreement.
I have utilized this metaphor in the past:
Where I assume we differ is in the timing of the bomb exploding.
The economy either grows — or it collapses.
Corporate profits indicate contraction. Baltic Dry indicates contraction. The Commodity Index indicates contraction. If we are not already contracting we are headed in that direction….
The economy can contract — but not for very long — otherwise we get a deflationary death spiral as layoffs beget layoffs – laid off people don’t spend …. so more layoffs occur etc…
The table is set….
The only way Dr Doom doesn’t dine in the very near future is if the Elders can figure out a way to stimulate the economy so that we return to growth.
But what can they do that they have no already done? We have record low interest rates — we’ve had trillions of dollars of stimulus…. they have pounded contraction with bunker busters for 7 years now….
But in spite of this here we are — facing contraction.
The reason I expect to die in 2016 is because I am doubtful that the Elders can turn this around.
There is absolutely no way corporate profits can continue to drop for an entire year without a massive blow out.
I eagerly await the Elders response to the data points that are coming out.
I sincerely hope that the tank is not empty….
“I would ask this of you – how can there be a sudden major collapse without a slow build towards that collapse? It’s like saying the building’s structure was perfectly sound until it suddenly collapsed. No, it was creaking and stressing long before it went down.”
The creaking and swaying has been happening since 1960, even as more floors were being added on top of the building. We’ve had ~45 years of warning signs, soon the building will freefall. Surely, there will be those who will claim the building was perfectly sound and someone “pulled it”.
The real economy has much slack. All that’s required is wealth redistribution and a reset. For that to happen without losing faith in the system takes something drastic, like an intergalactic octopus attack or at least world war.
“The real economy has much slack. All that’s required is wealth redistribution and a reset.”
Do you think this “real” economy can grow without consuming more energy? If not, how do you think the “real” economy actually works? If so, where do you see the abundant energy needed for more growth?
I don’t believe the real economy can grow much. Definitely not at all per capita.
The global financial markets are a shuttle take off. First everything is going fine, going fine, then a leak, small amount of smoke, a small deviation in the rockets course, and seconds later BOOM. This is our global economy: https://www.youtube.com/watch?v=fSTrmJtHLFU
Financial markets have a point of no return, the interwoven global financial markets will lose confidence at some particular point in time and then global financial transactions simply stop. On Monday BAU and on Tuesday SHTF.
Sorry I can´t see how the US could one day have a currency called a dollar and 18,8 trillion in debt, and a month after, no dollar, no debt, recover the economy, to be rinsed and repeated in any way.
For our global economy to be anything else, would require central bankers to have emergency contingency plans to be put in to motion immediately, on a one hour notice, globally. Something like shutting down all stock markets, globally, implementing government work parties and corporate emergency funding immediately, globally. Something that would require immediate end of free markets and capitalism, globally. Come to think of it, it would require a world government, ending democracy globally and people smart enough and competent enough to implement such a thing on a moments notice. Nope, sorry, just can’t see it. No rinse and repeat. I would be more than happy to be proved wrong though!
That is an absolutely brilliant video post.
It is the definitive metaphor for what is going to happen.
Actually FE, I think we are in agreement now. I started to think in terms of a long collapse, but then thought about it some more and realized things that do collapse always do the same thing – a slow build up followed by a sudden collapse. So then the only question is when will the big crack widen up and shake the world economy, i.e. crash, collapse? The debt bubble certainly has inflated quite a bit since Reagen teed off borrowing cashola and then we have gotten a lot of QE, with more on the way from Finland and others. Still building to that cracking point, but what may be left to play out is hard to know. But we’ll certainly know when shtf.
We are already well into the Twilight Zone …. if you had told an economist 30 years that the central banks would be printing trillions from 2008 onwards … they’s have said you are crazy — that can’t happen…
Well it has happened – and more…. and still we soldier on… nobody is too fussed… this is just the ‘new normal’ — the economy is based on money printing….
Finland is toying with dumping cash into the bank accounts of all adults…. it sounds ludicrous … but the human mind can rationalize the absurd…
So perhaps the free money can be rolled out on a global scale and keep the hamster running on the wheel for longer than we think…
One thing is for certain — nothing is too absurd — no stone will remain unturned — everything is at stake — anything that can buy us another month or year will be tried….
The question of when?
JPMorgan economists Michael Feroli, Daniel Silver, Jesse Edgerton, and Robert Mellman have a chart of when recession starts. I think they have it about right. Except that its not mere recession they are mapping, its actually SHTF.
Figure 8 shows that probabilities of recession within 1, 2, and 3 years predicted by models moved up to 23%, 48%, and 76%, respectively. Within 4-5 years 95%. http://uk.businessinsider.com/jp-morgan-76-chance-recession-probability-2015-12?r=US&IR=T
“The particularly sharp moves in predicted recession probabilities since mid-2014 have been driven most prominently by our measure of the decline in margins,”
As we know the margins have been tanking during recent months.
It is striking how much the probabilities of recession went up in 2015. Another bad year like this, and we would be up to the 100% level, it would seems like.
Global capitalism is a firework display leaving us alone, dying in the dark, after the big show!
“What if we’ve been slow collapsing for 15-25 years?”
From some perspectives, America has been slow collapsing since 1969. It really depends on how you define collapse. The world probably has been collapsing as a whole since 2005. China was late to the party, since they started their mega fossil fuel binge in the 1980s and have been making up for lost time; it appears they may have started collapsing a few years ago.
I strongly agree with the idea that the apex of western civilization was around 1969. Since that high water mark, when we reached the surface of the moon, we have been in a steady, inexorable decline. Our oil production peaked. Nothing truly new has been invented. It just reiterations of things gone before. Peak Everything, including ideas.
Ah 1969, I was 17 and driving around in my 1968 Impala with an 8 track tape deck and FM radio. It was the apex of Western civilization and rock music. Before long I was married, starting a family, drafted and plowing ahead with my life (that’s a pun, I was a farmer). The future today looks bleak but I will deal with that too.
Just to stay still, the world needs to innovate at exponentially faster rates. That is impossible in the long run, and maybe even in the short run. The outcome is already obvious – including the hysterical reaction to the slight wobble to the economy in 2008.
To put some numbers onto this, my old prof talking about the areospace industry said that the 80% rule seemed to apply. IF output could be scaled up by a factor or two, the end prices could be reduced to 80% of present. Said differently, if output falls by 50%, prices will rise by 25%.
The next step in the logic is that unless money supply shrinks by 25% (and that will not happen) there will be hyperinflation.
As I said, it will all seem obvious with the benefit of hindsight. As to how quickly these things happen, how much time do you have?
DJ, yes, that’s it. We will have a stair step collapse, with people, communities, governments both local and national, fighting it every step of the way, but with just a little less force with each iteration. It will not be the Hollywood, whiz-bang ending, that many uber-doomers are so fond of imagining.
In these fast vs. slow debates it has been pointed out ad nauseam, that it won’t be single event with the same speed at the same place. It will be all very relative. You are correct in your point though about the guaranteed ‘horror spike’ for the most overpopulated places dependant on imported food, fuel, medicine like many inside Africa and Asia. However, northernly regions would probably go through several cycles of chaos/civil unrest and will stabilize at some unknow/able fraction level of population, perhaps some regions with local coal mining operation will manage to have even the grid through cannibalizing the former abundant grid scale. Are they going to succeed in moving up in the ladder again or after this short time plateau continue slide further down, who knows. History be you guide, human/civilization bottle necks are nasty, unpredictable in timing and detail, yet surprising in their twists and turns..
Here’s the PHD level explanation of why it is not
It’s rather long — but you can get the punchline from I think p 56 or 58….
Funny how nobody tries to pick this paper apart… could it be that Mr Cognitive Dissonance is ordering them not to read it…..
Sorry, again that article has been discussed here numerous times, and linked liked ~100x so far! So todays globalized world ends, so what. And on the timeline I mentioned it only precedes the events which I wrote about. i.e. after crash of global networked ecnomy the possibility of semi-industrial regional pockets of way smaller kind of “civilization” utilizing various leftovers, mainly in the coal regions, especially those based on the open pit surface mining.. From our todays perspective it would be dirty, cruel, inefficient, but certainly better than other hell hole remaining pockets of humanity.
” after crash of global networked ecnomy the possibility of semi-industrial regional pockets of way smaller kind of “civilization” utilizing various leftovers, mainly in the coal regions, especially those based on the open pit surface mining.. ”
What, in your view, happens with all the nuclear reactors and spent fuel ponds, and how does that affect the lives of the people living in your pockets of civilization?
FE, the link has no site ? moved ?
“In rural Africe Wet-Bulb temperatures will spread. Those who venture outside during the hot hours, will die.”
Not everyone believes completely in Guy MacPherson’s work. In fact, most people who are strong believers in AGW and fervent environmentalists who believe we must reduce carbon emissions, do not subscribe to the clathrate gun hypothesis.
My understanding of the situation is this. As soon as the power plants, factories, cars and airplanes shut down, the world will probably warm up two celsius within a few days. This effect will be stronger at the poles and weaker at the equator – so maybe 1 degree at the equator and 4 degrees north of 60. If there is a lag time, and no clathrate gun, the world will maybe heat up another 2 degrees over 30 years, before the lack of added carbon dioxide and the intense algae blooms, etc will start reabsorbing the access carbon dioxide.
The big issue is how many reactors are safely shutdown and cooled, and how much of the spent fuel ponds are kept cool for the first 10 years. After that, it is simply a matter of time before the ones that do not burst, leak. Then it is a matter of how bad the radiation is. Adults who have decent nutrition are much less affected, whereas infants and children are severely affected since they absorb so much new minerals into their bodies as they grow.
Of course, it depends on your definition of collapse. Are you talking about the stock market crashing, the grid failing permanently, or mass extinction?
Actually Wet-Bulb temperatures are not Guy McPherson or even Paul Beckwith, its UN and World Bank 1-2 degrees change. And its happening already http://www.aljazeera.com/news/2015/08/summer-heatwave-engulfs-middle-east-150817092432196.html
The main point in Guy McPherson, Paul Beckwith and AMEG (Arctic Emergency Group) thinking is four decades of lag between the emissions and the temperature rise. I don´t know enough about making any comments on the lag or feedback loops, either way, so I just stick to World Bank assessments untill I learn more. Dmitry Orlov had a whopping 17°C prediction, don´t know about such things, too many uncertainties in the northern hemisphere for me. Generally I find Paul Beckwith more informative than the clinically depressed Guy McPherson.
Collapse; no more global financial markets, no more currency, no international trade, no grid.
Let’s not also forget the hypothesis that we are supposed to be entering the next ice age cycle (in fact, are overdue for one) and that AGW may be the only thing between us and our civilization being devoured by glaciers. Here is one of many charts showing how we’ve reached the end of the recent solar maximum and how we have reached the end of the interglacial cycle: http://climatechange.medill.northwestern.edu/2015/01/29/climate-change-may-be-stalling-overdue-ice-age/
“Let’s not also forget the hypothesis that we are supposed to be entering the next ice age cycle ”
My understanding is that it is just a low sun spot cycle that will start around 2035 and last maybe 50 to 100 years. Not ice age, but a few degrees cooler and much lower fertility, maybe more radiation from space.
It does seem crazy that considering the Sun as the primary factor in climate cycles is radical, even fringe.
“Not everyone believes completely in Guy MacPherson’s work. In fact, most people who are strong believers in AGW and fervent environmentalists who believe we must reduce carbon emissions, do not subscribe to the clathrate gun hypothesis.”
Yeah, I agree Matt. I’ve closely followed news on AGW and although trouble lies ahead MacPherson is at the far end of the most dystopian scenario. It would take a whole lot longer for the methane caltrates at the continental margins to release than his very close range prediction of 2030. Usually extremes at both ends of the spectrum of predictive possibilities are inaccurate, and that includes MacPherson. He actually does the AGW education of the masses a disfavor by creating a false alarmism which makes it easy for denialists to counter argue.
“What happens to rural environments when millions and billions of people start pouring out of the cities?”
That’s just the point, there won’t be millions and billions of people pouring out of the cities. It’ll be a slow degradation of the environment with just enough food and other basic necessities to maintain an urban existence. The frog will never know its being boiled.
Sorry Alaska, I can´t see a slow degradation of the environment, even without wild west rules of anything goes, its already fast today http://mahb.stanford.edu/wp-content/uploads/2015/07/2015_Ceballos-Ehrlich-Barnosky-Accelerated-Mass-Extinction.pdf
China has large portions of water supplies above and below ground that can not be used for anything https://www.rt.com/news/265186-china-water-air-pollution/
They are sucking ground water dry…. there is no collapse … everything appears normal….
But one day — if the rains don’t return — what is going to happen is no matter how deep the farmers drill — they will no longer find water.
When that happens collapse happens.
That is how all collapses happen – they are sudden events. Not always unexpected (Black Swans) … but always sudden… and impossible to predict timing
I think it’s pretty much understood among adults here that in deeper crash most of the new rulers would not be of former “desk jockey” pedigree. As always in such a case it will be an uholly mixture of former security forces, local mob rulers, plus some doze of cult-religious fanatics. History be your teacher how long does it take to cultivate such a bunch again, it takes centuries/millennia..
Now, because very few (if any) of us might fit that description, lets think about “workable” ideas how to make yourself usefull in these times not on the slave level arrangement but rather in co-sharing the space and resources.
What I would like to have in SHTF would not be a organic farm, I would rather take a radio station, and Fast Eddy as my disk jockey.
I like the idea the Archdruid had about: “If the Four Horsemen Arrive, Offer Beer”, to become so useful that people start protecting you. Then just start informing, educating and recruiting people. So what to do in the interim period, before SHTF, probably would be wise to first educate yourself.
Unfortunately, I think I can’t afford Fast Eddy 😉
Dmitry Orlov once advised me to become friends with bikers.
The Richard Heinberg comment a while back of helping out in some way Pre-Collapse, had me thinking about Green Bonds. http://www-wds.worldbank.org/external/default/WDSContentServer/WDSP/IB/2015/10/29/090224b08317c4fd/3_0/Rendered/PDF/What0are0green0bonds0.pdf
Why isn´t there any financial tools something like Collapse Bonds? For every xxxx$ invested, get one share of lifetime of off-grid food and shelter.
Private Bankers are selling gold, silver and land, anything, except something one could actually use.
If I were under 30 what I would be doing right now is signing up for the military …. special forces — combat….
Screw this organic farming bullshit… screw the weeds… screw the watering … screw it all….
When the SHTF I’d gather my team together — with as many weapons and as much ammo as we could get our hands on …. and I’d set myself up as the warlord of a remote farming community complete with peasants.
And because absolute power corrupts absolutely — like any good warlord I’d without a doubt abuse my position absolutely.
Sounds like a plan!
“And because absolute power corrupts absolutely — like any good warlord I’d without a doubt abuse my position absolutely.”
Sounds good. Better to rule in hell than serve in heaven. Get yourself a nice veranda in the shade with a stocked frig where you can watch and verbally abuse the labor with a megaphone. “Production needs to go up you lazy bums or you’ll find yourself on to the streets and remember this is post collapse! You won’t last a week.”
you just described a Medieval society—excercising “Droit de Seigneur”
I hate myself for having to agree with you.
It has been an unfortunate fact of history that unemployed militias tend to become self employed.
I would have thought there would be turmoil in the junk bonds and a raft of oilco bankruptcies by now. After all asset values had to take a hit when they were revalued at this lower crude price and hedges expired.
A comment on Ron Patterson’s site got me thinking…I believe it was Watcher who brought up the idea that creditors may be now valuing assets at “mark to fantasy” like they did in the subprime mortgage crisis.
The oilcos could then extend lines of credit to keep operating as long as they had enough cash flow to pay the interest on the debt. It would be both beneficial for the oilco and the bank to avoid bankruptcy and write downs.
There were a number of hedge fund managers who saw what was coming in 2008 two to three years before it happened — and they positioned their funds to ultimately make billions off of the crash – here’s one guy: https://en.wikipedia.org/wiki/Michael_Burry
He was featured in The Big Short — an excellent book ….
All of the men featured in that book could not believe the markets did not collapse sooner — no different than now — it was totally obvious to those who were not controlled by cognitive dissonance that the markets absolutely MUST correct…
Yet it took far longer than they expected…
And keep in mind — there was not mantra of ‘whatever it takes’ from the central bankers — the market remained up primarily driven by the will of the players who had too much to lose if it crashed (a few of the big boys such as Goldman ultimately abandoned the market at the last minute and came out smelling like roses)…
But this time is different — there must be a thousand Michael Burry’s out there — but going short the market when the central banks have publicly stated – we will do whatever it takes… is a dangerous game
Take China for instance — they have gone as far as threatening short sellers with jail time …. and when you have the central banks buying up the market printing unlimited cash — only a fool would try to fight them and short the market…
If you want to make money you disregard the facts — and you stay long the market…. yes it will collapse at some point … but when that happens if you are short you won’t be collecting…. because when it collapses – that will signal the end of BAU…
I think he is trying to say that economists want our GDP and energy use curves to be concave up. Unfortunately, the petroleum production is concave down. While both can be increasing, eventually the disparity will get you.
One more thought. Can we afford the economy which wants to burn the oil in internal combustion engines?
Compare that question to a mere calculation that gasoline prices are lower than they were 2 years ago, so obviously oil products are more ‘affordable’. Which is the standard Supply and Demand Curves that Gail covers in this post.
The other way to look at it is ‘What sort of surplus is the society generating?’. What we see is that American society has, for some time, been producing more debt than real assets. Wages for the 90 percent, reflecting the decay of the society at large, have been falling. Thus, a deeply in debt family struggling to pay the rent and buy food may not necessarily see petroleum products as ‘more affordable’. The family may be seeing ‘the end of the debt road’ or ‘job insecurity’ which leads them to cut back on consumption which slows the economy which reduces the demand for oil.
The model is either schizophrenic, or wise, or merely unintelligible because it asks us to look at both sides simultaneously.
It feels like this is time to relax–kick back, use what’s here now, do as little as possible…
Powering down and kicking back still requires primary reliance on industrial society (IC). I hear that the IC economy works by the numbers–that it has to grow (any which way) or collapse. But this is hard to understand. I live along a scenic highway. Maybe it would employ a lot of people and run up debt to put a stadium in it. But that would destroy not only the tourism which scenic values support; it would no doubt cause harmful psychological effects which most people don’t want.
I hear that a certain level of wages is what makes people do a given job. But as long as I have food, shelter and freedom from pressing pain, I can do work for no money at all. True, I’ve had more opportunities for reflection than most people, but it seems that those people’s capacity to reflect, given some guidance, is underestimated.
This leads to wondering why IC can’t happen with less cost, effort and destructiveness–strategically aimed at self perpetuation to maintain some kind of orderly, interesting and survivable system going.. I know, it’s been explained to me, but I still don’t get it.
Pertinent to your previous comment about BW Hill’s model. Here is a current quote from him on Peak Oil:
‘As a result of the inevitable depletion cycle that occurs to all finite natural resources the capacity of petroleum to power the economy is declining. There comes a point where petroleum is no longer a value adding commodity. The economy is not going to spend $2 for petroleum to produce a $1’s worth of goods, and services. Its called affordability and it is a calculable quantity:
As the process cost of producing petroleum, and its products increases its affordability for the remaining sectors of the economy declines. Presently the return on petroleum products is 1:1.03; the economy as a whole is getting less out of petroleum than it is putting into it. Consequently, the highest petroleum cost products will be phased out, and as they do demand will fall. Supply must also disappear with that fall in demand. This will be seen as a slowing of the economy; punctuated with periodic monetary, and financial crises.
The world has a gigantic resource base of liquid hydrocarbons remaining. Perhaps as much as 4,200 Gb, or several centuries worth at present consumption rates. The possibility of shortages is obviously an oxymoron. The world will not be producing less petroleum in the future because it is unavailable. It will be producing less because what is being produced at present is not giving an adequate return for its costs to the economy. The industry is not investing too little into the future, it has invested too much into the present. Like Shale, money was spent on production that had insufficient market to justify the expenditures.
The future of any producer today depends on reducing investments, cutting cost, and preparing for the further decline in prices that is coming.’
Note particularly the 1 to 1.03 ratio statement. How can that be if the EROEI he quotes is around 10 to 1?
As I understand it, it’s because the rest of the economy can’t produce enough to justify the cost of extraction of the oil IF the rest of the economy suddenly became much more efficient, then I would think the ratio would improve radically. Which would permit higher cost extraction to proceed.
As you can see, he’s not in Kansas anymore….Don Stewart
Thanks Don. I certainly agree with his point (and Gail’s) if it is not useful it will not be extracted.
I too find it hard to deal with both 1 to 1.03 and 10 to 1. I wonder if it is 10 to 1 at the well head and 1 to 1.03 to the final customer you or me after layers of refining, taxing, and distribution?
As I understand it, 10 to 1 is a delivered product, such as gasoline or diesel at the pump. The 1 to 1.03 relates to his measurement of how many BTU’s a dollar buys. The latter ratio reflects whether the society is generating enough dollars to pay for the oil. But ‘generating dollars’ is a tricky concept. The ‘dollars’ during the historical period over which he developed his model came from loans made by banks at a real interest rate which were supposed to finance real production capacity…mines, factories, machinery, etc. Most loans now are for things like stock buy-backs, subsidized housing and auto loans, stock market speculation loans, etc. Do you think that the economy of the United States is producing enough surplus to finance 17 million cars a year which will burn the gasoline produced? If we really can’t afford the cars and highways and other requirements of the auto age, then there will not be demand for the crude oil to produce the gasoline.
I suspect that the current situation where the central banks are printing money and the oil companies are losing money are probably not accommodated in his model. That is, his model covers a period (excluding the Arab Oil Embargo period) when oil companies were profitable and central banks were behaving ‘normally’.
One of his metrics is whether the oil companies are able to replace the reserves that they turn into end user products. At the present time, they are not.
In short, we must not only be able to afford the oil field and refining and distribution system, we must also be able to afford the society which will burn the oil in internal combustion engines. As the society becomes more dysfunctional (medical care at 20 percent of GDP, rising military expenditures, skyrocketing costs for education, etc.), then the increasingly inefficient economy coupled with the rising costs of the petroleum system itself results in a death spiral.
I just replied to someone’s comment on another website where they said, hey these $38 p/b oil is great for the consumer and i’m saying no, no, no. You need to rethink that because it’s terrible for the energy producers and future oil production if prices stay this low.