What is ahead for 2016? Most people don’t realize how tightly the following are linked:
- Growth in debt
- Growth in the economy
- Growth in cheap-to-extract energy supplies
- Inflation in the cost of producing commodities
- Growth in asset prices, such as the price of shares of stock and of farmland
- Growth in wages of non-elite workers
- Population growth
It looks to me as though this linkage is about to cause a very substantial disruption to the economy, as oil limits, as well as other energy limits, cause a rapid shift from the benevolent version of the economic supercycle to the portion of the economic supercycle reflecting contraction. Many people have talked about Peak Oil, the Limits to Growth, and the Debt Supercycle without realizing that the underlying problem is really the same–the fact the we are reaching the limits of a finite world.
There are actually a number of different kinds of limits to a finite world, all leading toward the rising cost of commodity production. I will discuss these in more detail later. In the past, the contraction phase of the supercycle seems to have been caused primarily by too high population relative to resources. This time, depleting fossil fuels–particularly oil–plays a major role. Other limits contributing to the end of the current debt supercycle include rising pollution and depletion of resources other than fossil fuels.
The problem of reaching limits in a finite world manifests itself in an unexpected way: slowing wage growth for non-elite workers. Lower wages mean that these workers become less able to afford the output of the system. These problems first lead to commodity oversupply and very low commodity prices. Eventually these problems lead to falling asset prices and widespread debt defaults. These problems are the opposite of what many expect, namely oil shortages and high prices. This strange situation exists because the economy is a networked system. Feedback loops in a networked system don’t necessarily work in the way people expect.
I expect that the particular problem we are likely to reach in 2016 is limits to oil storage. This may happen at different times for crude oil and the various types of refined products. As storage fills, prices can be expected to drop to a very low level–less than $10 per barrel for crude oil, and correspondingly low prices for the various types of oil products, such as gasoline, diesel, and asphalt. We can then expect to face a problem with debt defaults, failing banks, and failing governments (especially of oil exporters).
The idea of a bounce back to new higher oil prices seems exceedingly unlikely, in part because of the huge overhang of supply in storage, which owners will want to sell, keeping supply high for a long time. Furthermore, the underlying cause of the problem is the failure of wages of non-elite workers to rise rapidly enough to keep up with the rising cost of commodity production, particularly oil production. Because of falling inflation-adjusted wages, non-elite workers are becoming increasingly unable to afford the output of the economic system. As non-elite workers cut back on their purchases of goods, the economy tends to contract rather than expand. Efficiencies of scale are lost, and debt becomes increasingly difficult to repay with interest. The whole system tends to collapse.
How the Economic Growth Supercycle Works, in an Ideal Situation
In an ideal situation, growth in debt tends to stimulate the economy. The availability of debt makes the purchase of high-priced goods such as factories, homes, cars, and trucks more affordable. All of these high-priced goods require the use of commodities, including energy products and metals. Thus, growing debt tends to add to the demand for commodities, and helps keep their prices higher than the cost of production, making it profitable to produce these commodities. The availability of profits encourages the extraction of an ever-greater quantity of energy supplies and other commodities.
The growing quantity of energy supplies made possible by this profitability can be used to leverage human labor to an ever-greater extent, so that workers become increasingly productive. For example, energy supplies help build roads, trucks, and machines used in factories, making workers more productive. As a result, wages tend to rise, reflecting the greater productivity of workers in the context of these new investments. Businesses find that demand for their goods and services grows because of the growing wages of workers, and governments find that they can collect increasing tax revenue. The arrangement of repaying debt with interest tends to work well in this situation. GDP grows sufficiently rapidly that the ratio of debt to GDP stays relatively flat.
Over time, the cost of commodity production tends to rise for several reasons:
- Population tends to grow over time, so the quantity of agricultural land available per person tends to fall. Higher-priced techniques (such as irrigation, better seeds, fertilizer, pesticides, herbicides) are required to increase production per acre. Similarly, rising population gives rise to a need to produce fresh water using increasingly high-priced techniques, such as desalination.
- Businesses tend to extract the least expensive fuels such as oil, coal, natural gas, and uranium first. They later move on to more expensive to extract fuels, when the less-expensive fuels are depleted. For example, Figure 1 shows the sharp increase in the cost of oil extraction that took place about 1999.
Figure 1. Figure by Steve Kopits of Westwood Douglas showing the trend in per-barrel capital expenditures for oil exploration and production. CAGR is “Compound Annual Growth Rate.”
- Pollution tends to become an increasing problem because the least polluting commodity sources are used first. When mitigations such as substituting renewables for fossil fuels are used, they tend to be more expensive than the products they are replacing. The leads to the higher cost of final products.
- Overuse of resources other than fuels becomes a problem, leading to problems such as the higher cost of producing metals, deforestation, depleted fish stocks, and eroded topsoil. Some workarounds are available, but these tend to add costs as well.
As long as the cost of commodity production is rising only slowly, its increasing cost is benevolent. This increase in cost adds to inflation in the price of goods and helps inflate away prior debt, so that debt is easier to pay. It also leads to asset inflation, making the use of debt seem to be a worthwhile approach to finance future economic growth, including the growth of energy supplies. The whole system seems to work as an economic growth pump, with the rising wages of non-elite workers pushing the growth pump along.
The Big “Oops” Comes when the Price of Commodities Starts Rising Faster than Wages of Non-Elite Workers
Clearly the wages of non-elite workers need to be rising faster than commodity prices in order to push the economic growth pump along. The economic pump effect is lost when the wages of non-elite workers start falling, relative to the price of commodities. This tends to happen when the cost of commodity production begins rising rapidly, as it did for oil after 1999 (Figure 1).
The loss of the economic pump effect occurs because the rising cost of oil (or electricity, or food, or other energy products) forces workers to cut back on discretionary expenditures. This is what happened in the 2003 to 2008 period as oil prices spiked and other energy prices rose sharply. (See my article Oil Supply Limits and the Continuing Financial Crisis.) Non-elite workers found it increasingly difficult to afford expensive products such as homes, cars, and washing machines. Housing prices dropped. Debt growth slowed, leading to a sharp drop in oil prices and other commodity prices.
Figure 2. World oil supply and prices based on EIA data.
It was somewhat possible to “fix” low oil prices through the use of Quantitative Easing (QE) and the growth of debt at very low interest rates, after 2008. In fact, these very low interest rates are what encouraged the very rapid growth in the production of US crude oil, natural gas liquids, and biofuels.
Now, debt is reaching limits. Both the US and China have (in a sense) “taken their foot off the economic debt accelerator.” It doesn’t seem to make sense to encourage more use of debt, because recent very low interest rates have encouraged unwise investments. In China, more factories and homes have been built than the market can absorb. In the US, oil “liquids” production rose faster than it could be absorbed by the world market when prices were over $100 per barrel. This led to the big price drop. If it were possible to produce the additional oil for a very low price, say $20 per barrel, the world economy could probably absorb it. Such a low selling price doesn’t really “work” because of the high cost of production.
Debt is important because it can help an economy grow, as long as the total amount of debt does not become unmanageable. Thus, for a time, growing debt can offset the adverse impact of the rising cost of energy products. We know that oil prices began to rise sharply in the 1970s, and in fact other energy prices rose as well.
Figure 3. Historical World Energy Price in 2014$, from BP Statistical Review of World History 2015.
Looking at debt growth, we find that it rose rapidly, starting about the time oil prices started spiking. Former Director of the Office of Management and Budget, David Stockman, talks about “The Distastrous 40-Year Debt Supercycle,” which he believes is now ending.
Figure 4. Worldwide average inflation-adjusted annual growth rates in debt and GDP, for selected time periods. See post on debt for explanation of methodology.
In recent years, we have been reaching a situation where commodity prices have been rising faster than the wages of non-elite workers. Jobs that are available tend to be low-paid service jobs. Young people find it necessary to stay in school longer. They also find it necessary to delay marriage and postpone buying a car and home. All of these issues contribute to the falling wages of non-elite workers. Some of these individuals are, in fact, getting zero wages, because they are in school longer. Individuals who retire or voluntarily leave the work force further add to the problem of wages no longer rising sufficiently to afford the output of the system.
The US government has recently decided to raise interest rates. This further reduces the buying power of non-elite workers. We have a situation where the “economic growth pump,” created through the use of a rising quantity of cheap energy products plus rising debt, is disappearing. While homes, cars, and vacation travel are available, an increasing share of the population cannot afford them. This tends to lead to a situation where commodity prices fall below the cost of production for a wide range of types of commodities, making the production of commodities unprofitable. In such a situation, a person expects companies to cut back on production. Many defaults may occur.
China has acted as a major growth pump for the world for the last 15 years, since it joined the World Trade Organization in 2001. China’s growth is now slowing, and can be expected to slow further. Its growth was financed by a huge increase in debt. Paying back this debt is likely to be a problem.
Figure 5. Author’s illustration of problem we are now encountering.
Thus, we seem to be coming to the contraction portion of the debt supercycle. This is frightening, because if debt is contracting, asset prices (such as stock prices and the price of land) are likely to fall. Banks are likely to fail, unless they can transfer their problems to others–owners of the bank or even those with bank deposits. Governments will be affected as well, because it will become more expensive to borrow money, and because it becomes more difficult to obtain revenue through taxation. Many governments may fail as well for that reason.
The U. S. Oil Storage Problem
Oil prices began falling in the middle of 2014, so we might expect oil storage problems to start about that time, but this is not exactly the case. Supplies of US crude oil in storage didn’t start rising until about the end of 2014.
Figure 6. US crude oil in storage, excluding Strategic Petroleum Reserve, based on EIA data.
Once crude oil supplies started rising rapidly, they increased by about 90 million barrels between December 2014 and April 2015. After April 2015, supplies dipped again, suggesting that there is some seasonality to the growing crude oil supply. The most “dangerous” time for rapidly rising amounts added to storage would seem to be between December 31 and April 30. According to the EIA, maximum crude oil storage is 551 million barrels of crude oil (considering all storage facilities). Adding another 90 million barrels of oil (similar to the run-up between Dec. 2014 and April 2015) would put the total over the 551 million barrel crude oil capacity.
Cushing, Oklahoma, is the largest storage area for crude oil. According to the EIA, maximum working storage for the facility is 73 million barrels. Oil storage at Cushing since oil prices started declining is shown in Figure 7.
Figure 7. Quantity of crude oil stored at Cushing between June 27, 2014, and June 1, 2016, based on EIA data.
Clearly the same kind of run up in oil storage that occurred between December and April one year ago cannot all be stored at Cushing, if maximum working capacity is only 73 million barrels, and the amount currently in storage is 64 million barrels.
Another way of storing oil is as finished products. Here, the run-up in storage began earlier (starting in mid-2014) and stabilized at about 65 million barrels per day above the prior year, by January 2015. Clearly, if companies can do some pre-planning, they would prefer not to refine products for which there is little market. They would rather store unneeded oil as crude, rather than as refined products.
Figure 8. Total Oil Products in Storage, based on EIA data.
EIA indicates that the total capacity for oil products is 1,549 million barrels. Thus, in theory, the amount of oil products stored can be increased by as much as 700 million barrels, assuming that the products needing to be stored and the locations where storage are available match up exactly. In practice, the amount of additional storage available is probably quite a bit less than 700 million barrels because of mismatch problems.
In theory, if companies can be persuaded to refine more products than they can sell, the amount of products that can be stored can rise significantly. Even in this case, the amount of storage is not unlimited. Even if the full 700 million barrels of storage for crude oil products is available, this corresponds to less than one million barrels a day for two years, or two million barrels a day for one year. Thus, products storage could easily be filled as well, if demand remains low.
At this point, we don’t have the mismatch between oil production and consumption fixed. In fact, both Iraq and Iran would like to increase their production, adding to the production/consumption mismatch. China’s economy seems to be stalling, keeping its oil consumption from rising as quickly as in the past, and further adding to the supply/demand mismatch problem. Figure 9 shows an approximation to our mismatch problem. As far as I can tell, the problem is still getting worse, not better.
Figure 9. Total liquids oil production and consumption, based on a combination of BP and EIA data.
There has been a lot of talk about the United States reducing its production, but the impact so far has been small, based on data from EIA’s International Energy Statistics and its December 2015 Monthly Energy Review.
Figure 10. US quarterly oil liquids production data, based on EIA’s International Energy Statistics and Monthly Energy Review.
Based on information through November from EIA’s Monthly Energy Review, total liquids production for the US for the year 2015 will be about 700,000 barrels per day higher than it was for 2014. This increase is likely greater than the increase in production by either Saudi Arabia or Iraq. Perhaps in 2016, oil production of the US will start decreasing, but so far, increases in biofuels and natural gas liquids are partly offsetting recent reductions in crude oil production. Also, even when companies are forced into bankruptcy, oil production does not necessarily stop because of the potential value of the oil to new owners.
Figure 11 shows that very high stocks of oil were a problem, way back in the 1920s. There were other similarities to today’s problems as well, including a deflating debt bubble and low commodity prices. Thus, we should not be too surprised by high oil stocks now, when oil prices are low.
Figure 11. US ending stock of crude oil, excluding the strategic petroleum reserve. Figure by EIA.
Many people overlook the problems today because the US economy tends to be doing better than that of the rest of the world. The oil storage problem is really a world problem, however, reflecting a combination of low demand growth (caused by low wage growth and lack of debt growth, as the world economy hits limits) continuing supply growth (related to very low interest rates making all kinds of investment appear profitable and new production from Iraq and, in the near future, Iran). Storage on ships is increasingly being filled up and storage in Western Europe is 97% filled. Thus, the US is quite likely to see a growing need for oil storage in the year ahead, partly because there are few other places to put the oil, and partly because the gap between supply and demand has not yet been fixed.
What is Ahead for 2016?
- Problems with a slowing world economy are likely to become more pronounced, as China’s growth problems continue, and as other commodity-producing countries such as Brazil, South Africa, and Australia experience recession. There may be rapid shifts in currencies, as countries attempt to devalue their currencies, to try to gain an advantage in world markets. Saudi Arabia may decide to devalue its currency, to get more benefit from the oil it sells.
- Oil storage seems likely to become a problem sometime in 2016. In fact, if the run-up in oil supply is heavily front-ended to the December to April period, similar to what happened a year ago, lack of crude oil storage space could become a problem within the next three months. Oil prices could fall to $10 or below. We know that for natural gas and electricity, prices often fall below zero when the ability of the system to absorb more supply disappears. It is not clear the oil prices can fall below zero, but they can certainly fall very low. Even if we can somehow manage to escape the problem of running out of crude oil storage capacity in 2016, we could encounter storage problems of some type in 2017 or 2018.
- Falling oil prices are likely to cause numerous problems. One is debt defaults, both for oil companies and for companies making products used by the oil industry. Another is layoffs in the oil industry. Another problem is negative inflation rates, making debt harder to repay. Still another issue is falling asset prices, such as stock prices and prices of land used to produce commodities. Part of the reason for the fall in price has to do with the falling price of the commodities produced. Also, sovereign wealth funds will need to sell securities, to have money to keep their economies going. The sale of these securities will put downward pressure on stock and bond prices.
- Debt defaults are likely to cause major problems in 2016. As noted in the introduction, we seem to be approaching the unwinding of a debt supercycle. We can expect one company after another to fail because of low commodity prices. The problems of these failing companies can be expected to spread to the economy as a whole. Failing companies will lay off workers, reducing the quantity of wages available to buy goods made with commodities. Debt will not be fully repaid, causing problems for banks, insurance companies, and pension funds. Even electricity companies may be affected, if their suppliers go bankrupt and their customers become less able to pay their bills.
- Governments of some oil exporters may collapse or be overthrown, if prices fall to a low level. The resulting disruption of oil exports may be welcomed, if storage is becoming an increased problem.
- It is not clear that the complete unwind will take place in 2016, but a major piece of this unwind could take place in 2016, especially if crude oil storage fills up, pushing oil prices to less than $10 per barrel.
- Whether or not oil storage fills up, oil prices are likely to remain very low, as the result of rising supply, barely rising demand, and no one willing to take steps to try to fix the problem. Everyone seems to think that someone else (Saudi Arabia?) can or should fix the problem. In fact, the problem is too large for Saudi Arabia to fix. The United States could in theory fix the current oil supply problem by taxing its own oil production at a confiscatory tax rate, but this seems exceedingly unlikely. Closing existing oil production before it is forced to close would guarantee future dependency on oil imports. A more likely approach would be to tax imported oil, to keep the amount imported down to a manageable level. This approach would likely cause the ire of oil exporters.
- The many problems of 2016 (including rapid moves in currencies, falling commodity prices, and loan defaults) are likely to cause large payouts of derivatives, potentially leading to the bankruptcies of financial institutions, as they did in 2008. To prevent such bankruptcies, most governments plan to move as much of the losses related to derivatives and debt defaults to private parties as possible. It is possible that this approach will lead to depositors losing what appear to be insured bank deposits. At first, any such losses will likely be limited to amounts in excess of FDIC insurance limits. As the crisis spreads, losses could spread to other deposits. Deposits of employers may be affected as well, leading to difficulty in paying employees.
- All in all, 2016 looks likely to be a much worse year than 2008 from a financial perspective. The problems will look similar to those that might have happened in 2008, but didn’t thanks to government intervention. This time, governments appear to be mostly out of approaches to fix the problems.
- Two years ago, I put together the chart shown as Figure 12. It shows the production of all energy products declining rapidly after 2015. I see no reason why this forecast should be changed. Once the debt supercycle starts its contraction phase, we can expect a major reduction in both the demand and supply of all kinds of energy products.
Figure 12. Estimate of future energy production by author. Historical data based on BP adjusted to IEA groupings.
Conclusion
We are certainly entering a worrying period. We have not really understood how the economy works, so we have tended to assume we could fix one or another part of the problem. The underlying problem seems to be a problem of physics. The economy is a dissipative structure, a type of self-organizing system that forms in thermodynamically open systems. As such, it requires energy to grow. Ultimately, diminishing returns with respect to human labor–what some of us would call falling inflation-adjusted wages of non-elite workers–tends to bring economies down. Thus all economies have finite lifetimes, just as humans, animals, plants, and hurricanes do. We are in the unfortunate position of observing the end of our economy’s lifetime.
Most energy research to date has focused on the Second Law of Thermodynamics. While this is a contributing problem, this is really not the proximate cause of the impending collapse. The Second Law of Thermodynamics operates in thermodynamically closed systems, which is not precisely the issue here.
We know that historically collapses have tended to take many years. This collapse may take place more rapidly because today’s economy is dependent on international supply chains, electricity, and liquid fuels–things that previous economies were not dependent on.
I have written many articles on related subjects (unfortunately, no book). These are a few of them:
Oops! Low oil prices are related to a debt bubble
Why “supply and demand” doesn’t work for oil
Economic growth: How it works; how it fails; why wealth disparity occurs
We are at Peak Oil now; we need very low-cost energy to fix it
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It’s a fascinating problem, but one important flaw in the analysis is that the EIA inventory number includes crude contained in pipelines and well sites (not just tank farms and such), which is estimated to total around 120 million barrels. So that number should be subtracted from the total before calculating the actual percentage of storage space that is filled (meaning that while Cushing may indeed reach the “all-full” level this spring, total storage in the US likely won’t). But wait ’til next year, if production doesn’t slow measurably…
Cushing seems to be pretty flat, in terms of storage since year end. Let’s keep our fingers crossed. The numbers I looked at suggested that crude storage is more limited than products storage. If we keep adding enough each week, though, it is possible to get through that as well.
Be aware that this is also the catch cry of the denialist brigade – ‘don’t give in to doomerism’. The most optimistic view you can have is that there’s no problem to fix. The second most optimistic view is that we’ve only got a tiny problem and it’s so easy to fix. There’s not a lot of daylight between those two positions.
It’s best to nut out what’s real and work from there. If you think a neat technological fix will put society back on the rails that’s ok. If you think alternatively, that it’s time to hit the brakes, that’s ok too. The sheer momentum of industrial civilisation will make us try to keep it all going helter skelter for as long as possible, so that’s what we will do.
Nevertheless, I do think it’s good that a few people are prepared to say its it is.
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Feb. 3-5 I expect to have a chance to talk to some or all of these: Janet McCabe, Acting Assistant Administrator,U.S. Environmental Protection Agency’s Office of Air and Radiation; David Mohler, Deputy Assistant Secretary for Clean Coal and Carbon Management,U.S. Department of Energy’s Office of Fossil Energy; Pat Vincent-Collawn, Chairman, President and CEO, PNM Resources; Armond Cohen, Executive Director, Clean Air Task Force.
Besides power satellites, I am willing to talk about other subject. Do readers of this blog have suggestions? If you don’t want them public, hkeithhenson at gmail dot com.
Are you going to stand outside their offices with a placard saying ‘I can save the world – listen to me’ — and hope that they stop to have a chat about the solar space project?
If you have a beard and long hair be sure to shave it off beforehand…. otherwise Homeland Security might pick you up for acting dodgy and throw you in the gulag….
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China’s equities fell despite a drop in money-market rates as the People’s Bank of China injected the most cash via open-market operations since 2013.
http://www.bloomberg.com/news/articles/2016-01-20/stock-rout-to-deepen-in-asia-after-oil-breaks-27-yen-stronger
We need more plunge protection ….
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Deflation grabs NZ by the throat:
http://www.bloomberg.com/news/articles/2016-01-19/new-zealand-inflation-slowdown-adds-to-scope-for-rbnz-rate-cut
Low inflation makes the debt problem worse.
Seeking Alpha prediction: “…that (oil) market bottom will be in the vicinity of $15.”
From: http://seekingalpha.com/article/3817506-oil-price-crash-low-will-oil-price-go
OTOH: Warren Buffett’s Berkshire Hathaway is quickly adding to its holdings of one oil company, Phillips 66. Berkshire spent more than $450 million on the company, adding another 5.1 million shares to its portfolio, according to filings with the Securities and Exchange Commission. After seven straight days of trading, Buffett now owns 13% of outstanding Phillips 66 shares, valued at nearly $5.3 billion.
From: http://www.thestreet.com/story/13426823/1/is-warren-buffett-predicting-a-bottom-for-oil.html
Something’s Gotta Give. (Jack Nicholson)
Different people are going to have different view. Almost everyone thinks the price will bounce back up. I think something within the financial system is likely to “break,” instead. If there is a bounce, it won’t be a big enough one to get production moving again, once it has slowed down.
“a big enough one to get production moving again”
Gail, some aspects of the oil biz are ratchet like. The cost of getting oil out of tight shale has come down because of horizontal drilling and fracking. The knowledge of how to do these things isn’t going to be lost soon.
The other aspect is governments doing something. I don’t know if a government might pick power satellites like the US government picked big dams to help the economy recover in the previous depression, but one of them, particularly China, might.
If anyone can do it the Chinese would be the ones, but they aren’t stupid. On the other hand, they do have plenty of empty newly built skyscrapers, so they are prone to just doing things for the sole purpose off sustaining economic activity.
My local space enthusiast tells me that the Japanese government is the most advanced re solar space development. This quest is a bit like fusion power, the golden promise is there and has been touted for forty years but despite every dollar that gets sunk into it the reality is still as far away as ever.
Japan Aerospace Exploration Agency
The Tokyo-based Japan Aerospace Exploration Agency (JAXA) has “been the subject of many previous studies and the stuff of sci-fi for decades, but space-based solar power could at last become a reality—and within 25 years, according to a proposal from researchers” there which is noted in the May 2014 IEEE Spectrum magazine has a lengthy article “It’s Always Sunny in Space” by Dr. Susumu Sasaki.[30] JAXA announced on 12 March 2015 that they wirelessly beamed 1.8 kilowatts 50 meters to a small receiver by converting electricity to microwaves and then back to electricity. This is the standard plan for this type of power.[31][32] On 12 March 2015 Mitsubishi Heavy Industries demonstrated transmission of 10 kilowatts (kW) of power to a receiver unit located at a distance of 500 meters (m) away.[33]
Yup – the beer is always free — tomorrow — or in 25 years…
Many ‘experts’ expect oil prices to bounce back up — but they fail to explain how that can happen….
I guess when you recognize the implications of them not bouncing back up … you resort to wishful thinking….
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Being the “best version of yourself.”
http://fortune.com/j-c-penney-appliance-business/
Dear End of More
Responding to:’ The fundamental basis of civilised living is not the ability to move around on wheels (the problem that obsesses everyone from Musk downwards), but the problem of having clean water delivered and our body wastes removed and sufficient food energy being made available. (there are other problems obviously, but those are the prime ones)
In a permanently downsized (and diminishing) society we will have to do that for ourselves—one of those messy subjects that no downsizers seem to want to discuss.’
I agree with your statement about clean water and waste removal (or waste recycling) being crucial. It CAN be done in pretty large cities…Edo Japan is an example. But I tend to agree that it cannot be done in Lagos or New York City without fossil fuels. I have heard that there is no well water left in Iowa which can be drunk right out of the well…the legacy of too much industrial agriculture. The settlers in Oklahoma received a quarter of a section…so transportation was important…they were far apart. Their cash crop was generally wheat, and they needed to get that bulk to market. Which is one reason railroads proliferated. On that much land, and with no industrial agriculture, a well plus a cistern and an outhouse were all you needed. My wife and my grandparents had outhouses even in pretty good sized towns. But they had city water.
Relative to your point about downsizing and everything getting better in the days of a hundred years ago. To someone living through the dustbowl and depression, the upward trajectory seemed pretty unstable. When I moved to Oklahoma in the late 1940s I found the people to be very conservative. The farmers wore bib overalls and drove their Model A to town on Saturday morning. One of the first jobs I had, at the age of 12 or 13, was sweeping the floor at a Savings and Loan. The manager told me to put a dime in the bank out of my pay, and the dime would be safe because…’we don’t gamble with your money, we only lend money on good farm land’. This is about as far as you can get from Gail’s narrative of debt driven modernity. Nobody bought cars on credit, and many houses were paid for in cash.
I know a lot of ‘downsizers’ who are living very frugal lives and are quite self reliant. Part of our problem is that we have a hard time looking under the covers at what is really going on. I happened on an old WPA document which listed some social events. One of them was a ‘rabbit drive’. Now it is a fact that rabbits breed like rabbits, and will outcompete the humans if left to their own devices and in the absence of predators. So organizing a rabbit drive as a social event allowed young people to get to know each other and old people to swap stories and renew acquaintances. Today, we tend to think that the boy needs to fly the girl to the Islands or something. The underlying goal is the same…boys and girls getting together. But the mechanism now is completely different and vastly more energy intensive. Also, today’s methods seldom accomplish anything useful, like a quilting bee accomplished something useful.
Don Stewart
Dear End of More
I find this response by BW Hill to something or other at Peak Oil to reflect exactly the kind of conservative thinking I found in northern Oklahoma in 1950:
‘Who exactly said that the chart was wrong? Of course it isn’t; its called the end of the oil age. It is the point where the average producer can no longer make money discovering, developing and pumping oil. That happens to be – right now!
Definition: “an oil glut”. Oil that was not worth taking out of the ground to begin with, but was taken out anyway! A synonym with Central Bank shenanigans, or how to finance economically nonviable alternatives with heaps of fake money to paper over a real dilemma.
Boy — is there a glut!’
‘heaps of money to paper over a real problem’…encapsulates exactly what I perceive to be our twin problems:
*we can no longer afford to keep doing what we have been doing
*rather than adapt, our society and political leaders prefer to paper things over
I don’t agree that we CANNOT adapt, although I will agree that a majority of people in the US WILL NOT adapt. I agree that we have made things harder with suicidal behavior in terms of industrial agriculture, cities which are too large, the neglect of basic skills such as plant husbandry, ridiculous amounts of debt, etc.
I wonder if Hill grew up in northern Oklahoma?
Don Stewart
“Definition: “an oil glut”. Oil that was not worth taking out of the ground to begin with, but was taken out anyway!”
That cannot be correct, because a lot of the oil in this current glut, oversupply, is from conventional sources that have been tapped for decades. When oil was over a hundred a barrel it was sufficient incentive to produce many sources including non-conventional. Guaranteed, when supply drops, price will rise. That does not mean the price of oil is not stuck in a triangle between what the consumer can afford and the cost of a marginal barrel of oil, but it also doesn’t mean the whole glut was not worth taking out of the ground.
If there suddenly thousands of tons of diamonds on world markets diamonds pricing would drop. The world has not stopped burning through about 90 mbd of all oils. But the growth possible has hit limits. Oil can still go up to about 80 a barrel and stay there for a long time. My prediction from before thanksgiving 2015 is price will rise in the 2nd half of 2016 to a range of 60-80 a barrel. Let’s not conclude this is the end so to speak until it proves itself as such, because appearances can be deceiving. Let’s give it time to play out.
I don’t see how you can get rid of human waste in large cities without energy input and purpose
Here in UK there used to be ‘night soil men’ horses and carts who took it away and sold it to market gardeners outside cities—a sort of waste-food-waste loop–no doubt the same in usa and elsewhere
but even that had its limitations.
By the 17thc London had figured out a way to mechanically pump water up out of the Thames, and later how to steam pump fresh water into houses—but that was way before they worked out how to get rid of all the body waste.
Thus it accumulated in cesspits and seeped into cellars
getting water in and out of cities has always fascinated me—even now where i live, you can still see the old iron standpipes which replaced public wells around 1910. now they just sit there lost in an old hedge maybe–with only oltimers like me knowing what they were put there for
as to transport—to me it is the purpose of transport that generates commerce, not transport itself. the Model A’s and the railways served a purpose, to facilitate energy transfer between places of consumption.
We have transformed the utilitarian into an object of high fashion and status, furthering the delusion that it is the vehicle itself that is the creator of wealth, not its purpose. It is as if every farm labourer in the 18th c had a liveried coach and four at his constant disposal instead of the occasional use of a wheelbarrow.
Thus in a downsized future, transport will have little purpose other than to provide load leverage over very short distances, you won’t be commuting to a job 50 miles away—this is why Musk’s cars are driving into a cul de sac
Dear End of More
‘it is the purpose of transport that generates commerce, not transport itself’
Exactly! However, the ‘purpose’ is sometimes not particularly what we might think of as utilitarian. If you read the Braman obituaries, you will find that Ponca City was ‘sin city’. People traveled there not to produce much of anything, unless you count kicking over the traces as production. I think it is the difficulty of separating the necessary and useful from the frivolous and the wasteful that caused economists to just make the assumption that the market had perfect foresight and established perfect values. The balance between Vegas and a kitchen garden is all revealed by the Magic Market. But, if we face a rather sudden need to re-evaluate our options, then I think there is no substitute for some soul-searching about what really matters in life.
Don Stewart
as i understand it—vegas was orginally a watering stop for steam trains, then Nevada made gambling legal to entice the big spenders from the hoover dam, so you had water and power in the same place.
But wealth could only be created if enough fuel was burned
Unfortunately a lot of people have got the idea that burning money creates endless energy and fresh fuel supplies
End of More
‘Taking the train (or trolley) to the big, sinful city’ was a popular topic when I was a child. Our deal was to take the train to Kansas City to see a baseball game. Several hundred people from our town went. Rule was that what happened in Kansas City stayed in Kansas City.
If you haven’t seen Sunrise, the 1928 movie, here is a description:
https://en.wikipedia.org/wiki/Sunrise:_A_Song_of_Two_Humans
The man walks through the woods and catches the trolley. There is jazz music and bright lights in the city, and loose women. At home, the wife opens the kitchen door and throws scraps to the chickens.
I think it was Bob LaFollette who made the ‘cross of gold’ speech in the 1890s about sacrificing farmers on ‘a cross of (the) gold (standard)’. He said that if you destroyed the cities but saved the farms, the cities would regrow. But if you destroyed the farms, the cities would wither and die.
I tend to think that both farms and cities have their place, and can be synergistic. But I do think that the willingness to question basic principles which was exhibited by the Midwestern Progressives is something we will have to do.
Don Stewart
Dear Don
didn’t Firestone, Ford and GM etc buy up all the trolleys and destroy them so that folks would have to buy and use cars? I think I read somewhere that in the 30s/40s you could almost cross the country by trolley.
Don’t know a lot about the function of US railways, but I understand they’ve been allowed to deteriorate. Maybe its too late to pull them back–I don’t know
‘Beware loose women in tight skirts; and tight women in loose skirts.’
Dear Don, “The Cross of Gold speech was delivered by William Jennings Bryan, a former United States Representative from Nebraska, at the Democratic National Convention in Chicago on July 9, 1896” from wikipedia
from the speech
“There are two ideas of government. There are those who believe that, if you will only legislate to make the well-to-do prosperous, their prosperity will leak through on those below. The Democratic idea, however, has been that if you legislate to make the masses prosperous, their prosperity will find its way up through every class which rests upon them.”
In the context of the east coast bankers holding the gold and the rest of the nation holding silver being mined from the rockys, addressing the question must debts be settled in gold or silver he said the following.
“Having behind us the producing masses of this nation and the world, supported by the commercial interests, the laboring interests, and the toilers everywhere, we will answer their demand for a gold standard by saying to them: “You shall not press down upon the brow of labor this crown of thorns; you shall not crucify mankind upon a cross of gold.””
End
The water pump in this village still stands by what was the old village pond.
Which was right next to the 1,500 year-old village cemetery.
I must look up mortality rates……
Nice. I also believe that civilization itself needs to be redefined. It shouldn’t mean things that each person can do for themself. Like waste recycling. Food production is more challenging.
There is also a lot of emphasis put on the abstract notion of “land to grow food.” But food production could be done within a 20 mile radius, and in the city as well. Traditional ind ag soil is so poisoned and depleted that we might as well be considering land to grow food in other ways. More hydroponic ways. And here I draw a blank–more soil creation. (Can those microbes be engineered to build growing medium quickly?) I read and posted something about urine as a growing medium. All small scale, everybody or every community doing most of it for themselves. Not some abstract “civilization” doing it for them. I think this is the dawning of the age of relatively self-sufficient hubs.
Artleads, if you are not a member of an self-sufficient hub within a decade, you´re dead. So, yup, this is the dawning of self-sufficient hubs.
200 years ago (pre industrial revolution) London was self limiting because its food supply had to be carted in.
This meant a 10 mile radius—-10 miles into market, then 10 miles home to the farm with a horse and cart.
more than that and the old EROEIs didn’t work out
i have old maps of London showing those thousands of acres of gardens—one of the most poignant perhaps, is a map showing a row of a dozen or so cottages on a heath about 10 miles outside London
Its name?? Heathrow.
https://en.wikipedia.org/wiki/Johann_Heinrich_von_Th%C3%BCnen
Von Thünens ideas might be of interest!
“Timber and firewood would be produced for fuel and building materials in the second ring. Wood was a very important fuel for heating and cooking and is very heavy and difficult to transport so it is located as close to the city.”
This is consistent with my recommendation to “grow” building materials in the cities themselves. With no need for wide roads, there is limitless space in cities for growing lumber.
As to hay bale construction; I’ve never likes it much. Hay should be used to feed large animals, and not to build houses. Hay bales can be functionally and economically replaced by insulated cardboard boxes. The question is how you manufacture cardboad boxes post collapse.
“This is consistent with my recommendation to “grow” building materials in the cities themselves. With no need for wide roads, there is limitless space in cities for growing lumber.”
Historically, most large successful cities are on a major river, or a sheltered bay along a lake or sea. This 10-mile limit is easily overcome with boats. All the way back to ancient Babylon and Egypt.
How many boats do we have today that could traverse local rivers? Anywhere near enough that are human powered or powered by sail?
“How many boats do we have today that could traverse local rivers? Anywhere near enough that are human powered or powered by sail?”
You can use the existing barges, if you have enough men with oars or walking along on shore with ropes.
Depends on how you define “enough”. Obviously, even with the same boats as we have now, if you are moving them at one-tenth the speed, they can only move one-tenth as much goods and materials as at present. Plus, it probably takes ten times as long to load and unload by hand without cranes and forklifts. Plus, you would lose 1/4 or more of the deck space to have oarsmen.
I think you would want to make new tugboats that are purpose-built for rowing men, and then use the normal river barges to carry the cargo itself.
Manufacture cardboard boxes post collapse? Really? First you take an ax and cut down a tree. Then what do you do, with only local materials?
Further to End’s point about the 10 mile limit, Geoffrey Parker notes in his large history, “Global Crisis: War, climate Changes and Catastrophe in Seventeenth Century,” possibly the best historical work out there that gives us some clues about how we can expect people to act in light of what’s coming (hint: it’s not going to go well), that the average distance from villages to market towns in 17th Century Europe was 8 miles. Anyone thinking of returning to growing food to support the local populace should take note of the range. 15 minutes by car or truck isn’t going to cut it.
Thanks! So a 10 mile radius is better to aim for!
Some here have been expecting something like this:
http://www.reuters.com/article/us-usa-oil-kemp-idUSKCN0UX015
“In the United States, businesses engaged in oil and gas extraction and refining spent almost $200 billion on new equipment and structures in 2013, the most recent year for which data are available. Oil and gas extraction and refining accounted for more than 14 percent of all new capital expenditures in the United States in 2013, according to the U.S. Census Bureau.”
“The impact is not confined to the United States. Oil and gas projects around the world worth $380 billion have been postponed or canceled since 2014 according to Wood Mackenzie, an energy consultancy.”
“The first simple input-output model was the Tableau Economique compiled by the eighteenth century French economist Francois Quesnay (1694-1774). Quesnay used his input-output model to study how changes in the structure of demand, such as an increase in demand for luxuries, would influence net production and its distribution between social classes. Quesnay’s work was taken up by the American economist Wassily Leontief (1906-1999) who produced a series of increasingly detailed input-output matrices for the U.S. economy between 1919 and 1939.”
“The U.S. Bureau of Economic Analysis prepares detailed input-output matrices for around 400 industries and commodities (“Concepts and Methods of the U.S. Input-Output Accounts,” Bureau of Economic Analysis, 2006). I-O tables list coefficients or multipliers showing how much input of each commodity or industry output is required to produce $1 of output from another industry.”
http://fingfx.thomsonreuters.com/gfx/ce/1/327/327/US%20OIL%20AND%20GAS%20PRODUCERS%20ANNUAL%20CAPITAL%20EXPENDITURE.png
http://fingfx.thomsonreuters.com/gfx/ce/1/326/326/OIL%20AND%20GAS%20INPUT%20COEFFICIENTS%202007%20%283%29.png
“In an highly interconnected system, it is hardly surprising that such an enormous shock is rippling out to the rest of the economy (“Falling oil investment will hit U.S. economy” Jan. 21, 2015).”