The Physics of Energy and the Economy

I approach the subject of the physics of energy and the economy with some trepidation. An economy seems to be a dissipative system, but what does this really mean? There are not many people who understand dissipative systems, and very few who understand how an economy operates. The combination leads to an awfully lot of false beliefs about the energy needs of an economy.

The primary issue at hand is that, as a dissipative system, every economy has its own energy needs, just as every forest has its own energy needs (in terms of sunlight) and every plant and animal has its own energy needs, in one form or another. A hurricane is another dissipative system. It needs the energy it gets from warm ocean water. If it moves across land, it will soon weaken and die.

There is a fairly narrow range of acceptable energy levels–an animal without enough food weakens and is more likely to be eaten by a predator or to succumb to a disease. A plant without enough sunlight is likely to weaken and die.

In fact, the effects of not having enough energy flows may spread more widely than the individual plant or animal that weakens and dies. If the reason a plant dies is because the plant is part of a forest that over time has grown so dense that the plants in the understory cannot get enough light, then there may be a bigger problem. The dying plant material may accumulate to the point of encouraging forest fires. Such a forest fire may burn a fairly wide area of the forest. Thus, the indirect result may be to put to an end a portion of the forest ecosystem itself.

How should we expect an economy to behave over time? The pattern of energy dissipated over the life cycle of a dissipative system will vary, depending on the particular system. In the examples I gave, the pattern seems to somewhat follow what Ugo Bardi calls a Seneca Cliff.

Figure 1. Seneca Cliff by Ugo Bardi

Figure 1. Seneca Cliff by Ugo Bardi

The Seneca Cliff pattern is so-named because long ago, Lucius Seneca wrote:

It would be some consolation for the feebleness of our selves and our works if all things should perish as slowly as they come into being; but as it is, increases are of sluggish growth, but the way to ruin is rapid.

The Standard Wrong Belief about the Physics of Energy and the Economy

There is a standard wrong belief about the physics of energy and the economy; it is the belief we can somehow train the economy to get along without much energy.

In this wrong view, the only physics that is truly relevant is the thermodynamics of oil fields and other types of energy deposits. All of these fields deplete if exploited over time. Furthermore, we know that there are a finite number of these fields. Thus, based on the Second Law of Thermodynamics, the amount of free energy we will have available in the future will tend to be less than today. This tendency will especially be true after the date when “peak oil” production is reached.

According to this wrong view of energy and the economy, all we need to do is design an economy that uses less energy. We can supposedly do this by increasing efficiency, and by changing the nature of the economy to use a greater proportion of services. If we also add renewables (even if they are expensive) the economy should be able to get along fine with very much less energy.

These wrong views are amazingly widespread. They seem to underlie the widespread hope that the world can reduce its fossil fuel use by 80% between now and 2050 without badly disturbing the economy. The book 2052: A Forecast for the Next 40 Years by Jorgen Randers seems to reflect these views. Even the “Stabilized World Model” presented in the 1972 book The Limits to Growth by Meadow et al. seems to be based on naive assumptions about how much reduction in energy consumption is possible without causing the economy to collapse.

The Economy as a Dissipative System

If an economy is a dissipative system, it needs sufficient energy flows. Otherwise, it will collapse in a way that is analogous to animals succumbing to a disease or forests succumbing to forest fires.

The primary source of energy flows to the economy seems to come through the leveraging of human labor with supplemental energy products of various types, such as animal labor, fossil fuels, and electricity. For example, a man with a machine (which is made using energy products and operates using energy products) can make more widgets than a man without a machine. A woman operating a computer in a lighted room can make more calculations than a woman who inscribes numbers with a stick on a clay tablet and adds them up in her head, working outside as weather permits.

As long as the quantity of supplemental energy supplies keeps rising rapidly enough, human labor can become increasingly productive. This increased productivity can feed through to higher wages. Because of these growing wages, tax payments can be higher. Consumers can also have ever more funds available to buy goods and services from businesses. Thus, an economy can continue to grow.

Besides inadequate supplemental energy, the other downside risk to continued economic growth is the possibility that diminishing returns will start making the economy less efficient. These are some examples of how this can happen:

  • Deeper wells or desalination are needed for water because aquifers deplete and population grows.
  • More productivity is needed from each acre of arable land because of growing population (and thus, falling arable land per person).
  • Larger mines are required as ores of high mineral concentration are exhausted and we are forced to exploit less productive mines.
  • More pollution control devices or higher-cost workarounds (such as “renewables”) are needed as pollution increases.
  • Fossil fuels from cheap-to-extract locations are exhausted, so extraction must come from more difficult-to-extract locations.

In theory, even these diminishing returns issues can be overcome, if the leveraging of human labor with supplemental energy is growing quickly enough.

Theoretically, technology might also increase economic growth. The catch with technology is that it is very closely related to energy consumption. Without energy consumption, it is not possible to have metals. Most of today’s technology depends (directly or indirectly) on the use of metals. If technology makes a particular type of product cheaper to make, there is also a good chance that more products of that type will be sold. Thus, in the end, growth in technology tends to allow more energy to be consumed.

Why Economic Collapses Occur

Collapses of economies seem to come from a variety of causes. One of these is inadequate wages of low-ranking workers (those who are not highly educated or of managerial rank). This tends to happen because if there are not enough energy flows to go around, it tends to be the wages of the “bottom-ranking” employees that get squeezed. In some cases, not enough jobs are available; in others, wages are too low. This could be thought of as inadequate return on human labor–a different kind of low Energy Return on Energy Invested (EROEI) than is currently analyzed in most of today’s academic studies.

Another area vulnerable to inadequate energy flows is the price level of commodities. If energy flows are inadequate, prices of commodities will tend to fall below the cost of producing these commodities. This can lead to a cutoff of commodity production. If this happens, debt related to commodity production will also tend to default. Defaulting debt can be a huge problem, because of the adverse impact on financial institutions.

Another way that inadequate energy flows can manifest themselves is through the falling profitability of companies, such as the falling revenue that banks are now experiencing. Still another way that inadequate energy flows can manifest themselves is through falling tax revenue. Governments of commodity exporters are particularly vulnerable when commodity prices are low. Ultimately, these inadequate energy flows can lead to bankrupt companies and collapsing governments.

The closest situation that the US has experienced to collapse is the Depression of the 1930s. The Great Recession of 2007-2009 would represent a slight case of inadequate energy flows–one that could be corrected by a large dose of Quantitative Easing (QE)(leading to the lower cost of borrowing), plus debt stimulus by China. These helped bring oil prices back up again, after they fell in mid-2008.

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

Figure 2. World Oil Supply (production including biofuels, natural gas liquids) and Brent monthly average spot prices, based on EIA data.

Clearly, we are now again beginning to experience the effects of inadequate energy flows. This is worrying, because many economies have collapsed in the past when this situation occurred.

How Energy Flows of an Economy are Regulated

In an economy, the financial system is the regulator of the energy flows of the system. If the price of a product is low, it dictates that a small share of energy flows will be directed toward that product. If it is high, it indicates that a larger share of energy flows will be directed toward that product. Wages follow a similar pattern, with low wages indicating low flows of energy, and high wages indicating higher flows of energy. Energy flows in fact “pay for” all aspects of the system, including more advanced technology and the changes to the system (more education, less time in the workforce) that make advanced technology possible.

One confusing aspect to today’s economy is the use of a “pay you later” approach to paying for energy flows. If the energy flows are inadequate using what we would think of as the natural flows of the system, debt is often used to increase energy flows. Debt has the effect of directing future energy flows in a particular direction, such as paying for a factory, a house, or a car. These flows will be available when the product is already part of the system, and thus are easier to accommodate in the system.

The use of increasing debt allows total “demand” for products of many kinds to be higher, because it directs both future flows and current flows of energy toward a product. Since factories, houses and cars are made using commodities, the use of an increasing amount of debt tends to raise commodity prices. With higher commodity prices, more of the resources of the economy are directed toward producing energy products. This allows for increasing energy consumption. This increased energy consumption tends to help flows of energy to many areas of the economy at the same time: wages, taxes, business profitability, and funds for interest and dividend payments.

The need for debt greatly increases when an economy begins using fossil fuels, because the use of fossil fuels allows a step-up in lifestyle. There is no way that this step-up in lifestyle can be paid for in advance, because the benefits of the new system are so much better than what was available without fossil fuels. For example, a farmer raising crops using only a hoe for a tool will never be able to save up sufficient funds (energy flows) needed to pay for a tractor. While it may seem bizarre that banks loan money into existence, this approach is in fact essential, if adequate energy flows are to be available to compensate for the better lifestyle that the use of fossil fuels makes possible.

Debt needs are low when the cost (really energy cost) of producing energy products is low. Much more debt is needed when the cost of energy extraction is high. The reason more debt is needed is because fossil fuels and other types of energy products tend to leverage human labor, making human labor more productive, as mentioned previously. In order to maintain this leveraging, an adequate quantity of energy products (measured in British Thermal Units or Barrels of Oil Equivalent or some similar unit) is needed.

As the required price for energy-products rises, it takes ever-more debt to finance a similar amount of energy product, plus the higher cost of homes, cars, factories, and roads using the higher-cost energy. In fact, with higher energy costs, capital goods of all kinds will tend to be more expensive. This is a major reason why the ratio of debt to GDP tends to rise as the cost of producing energy products rises. At this point, in the United States it takes approximately $3 of additional debt to increase GDP by $1 (author’s calculation).

Figure 1. Inflation adjusted Brent oil prices (in 2014$, primarily from BP Statistical Review of World Energy) shown beside two measures of debt for the US economy. One measure of debt is all inclusive; the other excludes Financial Business debt. Both are based on data from FRED -Federal Reserve of St. Louis.

Figure 3. Inflation adjusted Brent oil prices (in $2014, primarily from BP Statistical Review of World Energy) shown beside two measures of debt for the US economy. One measure of debt is all-inclusive; the other excludes Financial Business debt. Both are based on data from FRED-Federal Reserve of St. Louis.

Clearly one of the risk factors to an economy using fossil fuels is that debt levels will become unacceptably high. A second risk is that debt will stop rising fast enough to keep commodity prices at an acceptably high level. The recent slowdown in the growth of debt (Figure 3) no doubt contributes to current low commodity prices.

A third risk to the system is that the rate of economic growth will slow over time because even with the large amount of debt added to the system, the leveraging of human labor with supplemental energy will not be sufficient to maintain economic growth in the face of diminishing returns. In fact, it is clearly evident that US economic growth has trended downward over time (Figure 4).

Figure 3. US annual growth rates (using "real" or inflation adjusted data from the Bureau of Economic Analysis).

Figure 4. US annual growth rates (using “real” or inflation adjusted data from the Bureau of Economic Analysis).

A fourth risk is that the whole system will become unsustainable. When new debt is issued, there is no real matching with future energy flow. For example, will the wages of those taking on debt to pay for college be sufficiently high that the debtors can afford to have families and buy homes? If not, their lack of adequate income will be one of the factors that make it difficult for the prices of commodities to stay high enough to encourage extraction.

One of the issues in today’s economy is that promises of future energy flows extend far beyond what is formally called debt. These promises include shareholder dividends and payments under government programs such as Social Security and Medicare. Reneging on promises such as these is likely to be unpopular with citizens. Stock prices are likely to drop, and private pensions will become unpayable. Governments may be overthrown by disappointed citizens.

Examples of Past Collapses of Economies

Example of the Partial Collapse of the Former Soviet Union

One recent example of a partial collapse was that of the Former Soviet Union (FSU) in December 1991. I call this a partial collapse, because it “only” involved the collapse of the central government that held together the various republics. The governments of the individual republics remained in place, and many of the services they provided, such as public transportation, continued. The amount of manufacturing performed by the FSU dropped precipitously, as did oil extraction. Prior to the collapse, the FSU had serious financial problems. Shortly before its collapse, the world’s leading industrial nations agreed to lend the Soviet Union $1 billion and defer repayment on $3.6 billion more in debt.

A major issue that underlay this collapse was a fall in oil prices to the $30 per barrel range in the 1986 to 2004 period. The Soviet Union was a major oil exporter. The low price had an adverse impact on the economy, a situation similar to that of today.

Figure 4. Oil production and price of the Former Soviet Union, based on BP Statistical Review of World Energy 2015.

Figure 5. Oil production and price of the Former Soviet Union, based on BP Statistical Review of World Energy 2015.

Russia continued to pump oil even after the price dropped in 1986. In fact, it raised oil production, to compensate for the low price (energy flow it received per barrel). This is similar to the situation today, and what we would expect if oil exporters are very dependent on these energy flows, no matter how small. Oil production didn’t fall below the 1986 level until 1989, most likely from inadequate funds for reinvestment. Oil production rose again, once prices rose.

Figure 6 shows that the FSU’s consumption of energy products started falling precipitously in 1991, the year of the collapse–very much a Seneca Cliff type of decline.

Figure 5. Former Soviet Union energy consumption by source, based on BP Statistical Review of World Energy Data 2015.

Figure 6. Former Soviet Union energy consumption by source, based on BP Statistical Review of World Energy Data 2015.

In fact, consumption of all fuels, even nuclear and hydroelectric, fell simultaneously. This is what we would expect if the FSU’s problems were caused by the low prices it was receiving as an oil exporter. With low oil prices, there could be few good-paying jobs. Lack of good-paying jobs–in other words, inadequate return on human labor–is what cuts demand for energy products of all kinds.

A drop in population took place as well, but it didn’t begin until 1996. The decrease in population continued until 2007. Between 1995 and 2007, population dropped by a total of 1.6%, or a little over 0.1% per year. Before the partial collapse, population was rising about 0.9% per year, so the collapse seems to have reduced the population growth rate by about 1.0% per year. Part of the drop in population was caused by excessive alcohol consumption by some men who had lost their jobs (their sources of energy flows) after the fall of the central government.

When commodity prices fall below the cost of oil production, it is as if the economy is cold because of low energy flows. Prof. Francois Roddier describes the point at which collapse sets in as the point of self-organized criticality. According to Roddier (personal correspondence):

Beyond the critical point, wealth condenses into two phases that can be compared to a gas phase and a liquid phase. A small number of rich people form the equivalent of a gas phase, whereas a large number of poor people form what corresponds to a liquid phase. Like gas molecules, rich people monopolize most of the energy and have the freedom to move. Embedded in their liquid phase, poor people have lost access to both energy and freedom. Between the two, the so-called middle class collapses.

I would wonder whether the ones who die would be equivalent to the solid state. They can no longer move at all.

Analysis of Earlier Collapses

A number of studies have been performed analyzing earlier collapses. Turchin and Nefedov in Secular Cycles analyze eight pre-fossil fuel collapses in detail. Figure 7 shows my interpretation of the pattern they found.

Figure 7. Shape of typical Secular Cycle, based on work of Peter Turkin and Sergey Nefedov in Secular Cycles.

Figure 7. Shape of typical Secular Cycle, based on work of Peter Turchin and Sergey Nefedov in Secular Cycles.

Again, the pattern is that of a Seneca Cliff. Some of the issues leading to collapse include the following:

  1. Rising population relative to farmland. Either farmland was divided up into smaller plots, so each farmer produced less, or new workers received “service” type jobs, at much reduced wages. The result was falling earnings of many non-elite workers.
  2. Spiking food and energy prices. Prices were high at times due to lack of supply, but held down by low wages of workers.
  3. Rising need for government to solve problems (for example, fight war to get more land; install irrigation system so get more food from existing land). Led to a need for increased taxes, which impoverished workers could not afford.
  4. Increased number of nobles and high-level administrators. Result was increased disparity of wages.
  5. Increased debt, as more people could not afford necessities.

Eventually, the workers who were weakened by low wages and high taxes tended to succumb to epidemics. Some died in wars. Again, we have a situation of low energy flows, and the lower wage workers not getting enough of these flows. Many died–in some cases as many as 95%. These situations were much more extreme than those of the FSU. On the favorable side, the fact that there were few occupations back in pre-industrial days meant that those who did survive could sometimes resettle with other nearby communities and continue to practice their occupations.

Joseph Tainter in The Collapse of Complex Societies talks about the need for increasing complexity, as diminishing returns set in. This would seem to correspond to the need for increased government services and an increased role for businesses. Also included in increased complexity would be increased hierarchical structure. All of these changes would leave a smaller share of the energy flows for the low-ranking workers–a problem mentioned previously.

Dr. Tainter also makes the point that to maintain complexity, “Sustainability may require greater consumption of resources, not less.”

A Few Insights as to the Nature of the Physics Problem

The Second Law of Thermodynamics seems to work in a single direction. It talks about the natural tendency of any “closed” system to degenerate into a more disordered system. With this view, the implication is that the universe will ultimately end in a heat-death, in which everything is at the same temperature.

Dissipative systems work in the other direction; they create order where no order previously existed. Economies get ever-more complex, as businesses grow larger and more hierarchical in form, governments provide more services, and the number of different jobs filled by members of the economy proliferate. How do we explain this additional order?

According to Ulanowicz, the traditional focus of thermodynamics has been on states, rather than on the process of getting from one state to another. What is needed is a theory that is more focused on processes, rather than states. He writes,

.  .  . the prevailing view of the second law is an oversimplified version of its true nature. Simply put, entropy is not entirely about disorder. Away from equilibrium, there is an obverse and largely unappreciated side to the second law that, in certain circumstances, mandates the creation of order.

We are observing the mandated creation of order. For example, the human body takes chemical energy and transforms it to mechanical energy. There is a dualism to the entropy system that many have not stopped to appreciate. Instead of a trend toward heat death always being the overarching goal, systems have a two-way nature to them. Dissipative systems are able to grow until they reach a point called self-organized criticality or the “critical point”; then they shrink from inadequate energy flows.

In forests, this point of self-organized criticality comes when the growth of the tall trees starts blocking out the light to the shorter plants. As mentioned earlier, at that point the forest starts becoming more susceptible to forest fires. Ulanowicz shows that for ecosystems with more than 12 elements, there is quite a narrow “window of viability.”

Figure 8. Illustration of close clustering of ecosystems with more than 12 elements, indicating the narrow "window of viability" of such ecosystems. From

Figure 8. Illustration of close clustering of ecosystems with more than 12 elements, indicating the narrow “window of viability” of such ecosystems. From Ulanowicz

If we look at world per capita energy consumption, it seems to indicate a very narrow “window of viability” as well.

Figure 9. World energy consumption per capita, based on BP Statistical Review of World Energy 2105 data. Year 2015 estimate and notes by G. Tverberg.

Figure 9. World energy consumption per capita, based on BP Statistical Review of World Energy 2105 data. Year 2015 estimate and notes by G. Tverberg.

When we look at what happened in the world economy alongside the history of world energy consumption, we can see a pattern. Back prior to 1973, when oil was less than $30 per barrel, oil consumption and the economy grew rapidly. A lot of infrastructure (interstate highways, electric transmission lines, and pipelines) was added in this timeframe. The 1973-1974 price shock and related recession briefly brought energy consumption down.

It wasn’t until the restructuring of the economy in the late 1970s and early 1980s that energy consumption really came down. There were many changes made: cars became smaller and more fuel efficient; electricity production was changed from oil to other approaches, often nuclear; regulation of utilities was changed toward greater competition, thus discouraging building infrastructure unless it was absolutely essential.

The drop in energy consumption after 1991 reflects the fall of the Former Soviet Union. The huge ramp-up in energy consumption after 2001 represents the effect of adding China (with all of its jobs and coal consumption) to the World Trade Organization. With this change, energy needs became permanently higher, if China was to have enough jobs for its people. Each small dip seems to represent a recession. Recently energy consumption seems to be down again. If we consider low consumption along with low commodity prices, it makes for a worrying situation. Are we approaching a major recession, or worse?

If we think of the world economy relative to its critical point, the world economy has been near this point since 1981, but various things have pulled us out.

One thing that has helped the economy is the extremely high interest rate (18%) implemented in 1981. This high interest rate pushed down fossil fuel usage at that time. It also gave interest rates a very long way to fall. Falling interest rates have a very favorable impact on the economy. They encourage greater lending and tend to raise the selling prices of stocks. The economy has received a favorable boost from falling interest rates for almost the entire period between 1981 and the present.

Other factors were important as well. The fall of the Soviet Union in 1991 bought the rest of the world a little time (and saved oil extraction for later); the addition of China to the World Trade Organization in 2001 added a great deal of cheap coal to the energy mix, helping to bring down energy costs. These low energy costs, plus all of the debt China was able to add, allowed energy consumption and the world economy to grow again–temporarily pulling the world away from the critical point.

In 2008, oil prices dropped very low. It was only with QE that interest rates could be brought very low, and commodity prices bounced back up to adequate levels. Now we are again faced with low prices. It looks as if we are again at the critical point, and thus the edge of collapse.

Once a dissipative structure is past its critical point, Roddier says that what is likely to bring it down is an avalanche of bifurcations. In the case of an economy, these might be debt defaults.

In a dissipative structure, both communication and stored information are important. Stored information, which is very close to technology, becomes very important when food is hard to find or energy is high cost to extract. When energy is low-cost to extract, practically anyone can find and make use of energy, so technology is less important.

Communication in an economy is done in various ways, including through the use of money and debt. Few people understand the extent to which debt can give false signals about future availability of energy flows. Thus, it is possible for an economy to build up to a very large size, with few realizing that this approach to building an economy is very similar to a Ponzi Scheme. It can continue only as long as energy costs are extremely low, or debt is being rapidly added.

In theory, EROEI calculations (comparing energy produced by a device or energy product to fossil fuel energy consumed increasing this product) should communicate the “value” of a particular energy product. Unfortunately, this calculation is based the common misunderstanding of the nature of the physics problem that I mentioned at the beginning of the article. (This is also true for similar analyses, such as Lifecycle Analyses.) These calculations would communicate valuable information, if our problem were “running out” of fossil fuels, and if the way to mitigate this problem were to use fossil fuels as sparingly as possible. If our problem is rising debt levels, EROEI and similar calculations do nothing to show us how to mitigate the problem.

If the economy collapses, it will collapse down to a lower sustainable level. Much of the world’s infrastructure was built when oil could be extracted for $20 per barrel. That time is long gone. So, it looks like the world will need to collapse back to a level before fossil fuels–perhaps much before fossil fuels.

If it is any consolation, Prof. Roddier says that once new economies begin to form again, the survivors after collapse will tend to be more co-operative. In fact, he offers this graphic.

Figure 10. F. Roddier view of what happens on the two sides of the critical point. From upcoming translation of his book, "The Thermodynamics of Evolution."

Figure 10. F. Roddier view of what happens on the two sides of the critical point. From upcoming translation of his book, “The Thermodynamics of Evolution.”

We know that if there are survivors, new economies will be likely. We don’t know precisely what they will be like, except that they will be limited to using resources that are available at that time.

Some References to Francois Roddier’s Work (in French)

THERMODYNAMIQUE DE L’ÉVOLUTION “UN ESSAI DE THERMO-BIO-SOCIOLOGIE” -The Thermodynamics of Evolution – Book, soon to be translated to English. Will at some point be available from the same site in English.

Roddier writes:

This is a talk I gave at the CNAM (Paris) on December 2, 2013. The title is:Thermodynamique et économie ; des sciences exactes aux sciences humaines

In this talk, I show that Per Bak’s neural network model can be used to describe an economic system as a neural network of agents exchanging money. The paper gives a brief explanation on how economies collapse.

The other talk is one I gave in Paris on March 12, 2015, for Jancovici’s Shift Project. The title is:

La thermodynamique des transitions économiques

A video of this talk is available on the web at the following address:

In this talk, I describe economy in terms of Gibbs-Duhem potentials (akin to chemical potentials). Money flows measure entropy flows (with opposite sign). The cost of energy plays the role of an inverse temperature. I show that economic cycles are similar to those of a steam engine. They self organize around a critical point.

1,942 thoughts on “The Physics of Energy and the Economy

  1. “The question is, can the economy work in reverse? Can it contract?”

    It can and it will. It is happening in front of our eyes.

    • that’s my point—employment requires constantly increasing consumption of cheap fuel to make ‘stuff’. We give ourselves further employment in the buying selling shifting of it in a kind of endless economic circle.. (a purpose to our lives if you like)
      This enables us to move money from hand to hand so that we can call it ‘infinite economic growth’, when in fact we are creating infinite and unredeemable debt, on ourselves and on future generations
      there is no economic growth now, just economic circulation.—we ‘re just confused about which is which that’s all.

    • no ‘forward moving’ economy can work in reverse
      reversing means returning to what we had before—and ‘before’ means pre-oil.
      and that means a life that existed pre-1800 or thereabouts if we’re lucky

        • It might work if we do a reset every so often. A debt jubilee would set off a reset back to a lower level in asset values and then growth could start again. It doesn’t mean it could be repeted endlessly though

          • The not-so-minor detail is that the debt reset would wipe out banks, insurance companies and pension plans. The other issue of importance is that in order for it make economic sense to produce commodities, their prices need to be “kept up” at a high enough level to make commercial production feasible. The way a high price is maintained is through a combination of rising wages and rising debt levels. Neither of these is currently working, and the debt jubilee would seem to make the situation worse.

            We have been having a major problem with wages falling too low, in part from competition with globalization (and low wages elsewhere) and in part from competition from mechanization. Human labor (as labor) is no longer with much, when fossil fuels can statute for human labor.

            With wages not keeping up, the only option is increased debt. But has stopped working as well–debt levels have gotten too high. Also, with low wages, people cannot afford more debt.

            Once we do a debt jubilee, it seems like it will be much harder to add debt in the future. For one thing, banks will be gone.

            Commodity prices will stay in the basement, leading to the end of all commercial production of commodities. That leaves us in a pretty bad place: no food, soon no water from our current sources, no electricity, no oil and gas, etc.

          • Here I disagree. We can’t go to lower level of integration without hurting supply chains globally. We are interdependant. If you brrak one link in food production more and more regions will be falling down with revolts, wars and revolutions. We can keep the system until the critical links are maintained. Like Middle East. If we start regionalization we are toast. Yhere is no way back. Domino effect.

    • Can contraction lead to a functioning economy? I don’t think so. If nothing else, economies of scale are terribly important. Once there is shrinkage, businesses become much less profitable. Repaying debt with interest becomes a big problem. It is hard to raise capital for a new business, because it will have to function in a steadily declining situation.

  2. Do what I SAY, not as I DO…
    Hank Paulson: China needs to let ‘failing companies fail
    rmer U.S. Treasury Secretary Henry Paulson, who oversaw bank bailouts during the global financial crisis, has different advice for China: Let companies fail.

    “They can show right now they’re very serious about dealing with inefficient state-owned enterprises as they take capacity out of the steel industry, coal industry and others by letting some failing companies fail,” Paulson, who was Treasury secretary from 2006-2009, told CNBC’s Squawk Box on the sidelines of an Institute of International Finance event organized in conjunction with the G20 meeting in Shanghai.

    As Treasury secretary, Paulson oversaw a $700 billion government-funded bailout of U.S. financial institutions that were seen as “too big to fail” in the global financial crisis.

    Paulson, who is also a former chairman and CEO of Goldman Sachs, added that China needed to move faster to promote competition

    Seems Fast Eddy’s “Elders” are looking to buy discarded assets pennies on the dollar.

    Wonder how to times Hank stuttered when he told that to the Chinese and how he stopped grinning?

    • Actually, he’s right. In 2008 US had reserve currency, IMF, World Bank and USD denominated oil backed by military bases all over the world.

      And what China has? Finally they were invited to first financial league with 11% of SDRs and Asian Bank of Development. With their exposure to global debt scheme they are in big trouble right now.

      The problem is how big deflation wave this implosion will trigger globally. Every central banker fears the game of devaluation. At G-20 meeting all these smart guys were warning about this threat.

        • No one is talking falling here. Just 30% devaluation, massive bankruptcies and deleveraging. Civil unrest will follow, but they handled Tienanmen, they will handle this as well. West needs China and their production capacity. To keep BAU working we need global supply chains and China demand. Without it we have 5-7 years at best, I guess.

            • Oh, yes they do. They need resources – oil, gas, many other minerals and most importantly food. They are not self-sufficient in agriculture. With 1.3 billion citizens?… you see the problem.

              Until they team up with Russia.

  3. Dear Finite Worlders
    Someone asked me about insects as human food. I said I would have little to say. However, I have been reading The Carbon Farming Solution, and ran across some interesting information.

    ‘Mopane worms…are wild harvested and sun-dried for later consumption. Their nutritional value is astounding; they are 48 to 61 percent protein, 16 to 20 percent fat, and high in iron. Over 9 billion mopane worms are consumed annually.’

    There have been efforts to domesticate the worms, but ‘intensive monoculture leaves the worms vulnerable to viruses’.

    Just a few general comments from me:
    *Baby birds cannot survive on seeds from bird feeders. Baby birds must be fed an astounding number of caterpillars by their parents. Baby worms are growing extremely rapidly, because they are quite vulnerable to predation, and only a minority of them survive in the wild. In a rain forest, snakes are a prime predator. The high protein in caterpillars makes them ideal for rapidly growing baby birds.
    *High protein foods are problematic for adult humans. We don’t need to grow rapidly, but if we consume a lot of protein, we may very well grow tumors. A little bit of protein goes a long way for an adult human.
    *The most efficient use of photosynthesis is by green leaves. Everything else is at a higher trophic level, and generally drops in efficiency by an order of magnitude. If a gorilla eats a green leaf, that is still pretty efficient. But green leaves contain a lot of fiber, which is good for our microbes, but does not give us calories that we can use. Consequently, gorillas need to eat around 20 pounds of green leaves every day.
    *The opposite of efficient is our current industrial food system.
    *Human digestive tracts have evolved to be different from those of gorillas. We have lost a considerable amount of the length of the gorilla tract. Thus, we need ‘processed’ green leaves. We can process the green leaves by cooking them, by eating cows which eat green leaves, by eating fruiting plants (apples instead of the leaves of apple trees), and a variety of other ways of processing. In general, moving downward in the processing chain gives us more of what we need.
    *Eating worms instead of birds which eat worms is thus considerably more efficient. Rather than raise mopane worms to feed chickens which we then eat, it is more efficient to eat the worms directly.
    *Masonobu Fukuoka, the Japanese farmer who developed a highly efficient form of agriculture, was assigned by the Japanese government in WWII to study insects as a source of food for the protein deficient civilian population.
    *The way to promote birds in your yard is to grow plants which host caterpillars. (Many exotics do not host useful caterpillars for your native birds.)
    *In a very tough place, humans may also expand our direct eating of caterpillars. I believe that Japanese soldiers stranded on islands by the retreat of the Imperial forces ate quite a bit of insects.

    Don Stewart

  4. I read that the EROI on shale gas is on average 1:85 and that is the shale gas revolution that will transform the future and not the shale oil which has an EROI of 1:5 on average.

    • What we need is people who can afford to buy the output of the system. The prices are way too low for pretty much all commodities now, including oil from shale, gas from shale, and LNG being shipped around the world. Coal is encountering a lot of bankruptcies as well.

      I presume the EROI numbers you are giving are written in the reverse order of the standard way–normally they end with one, not start with one.

    • Dear Stilgar (and Everyone)

      Of course they are out of strategies. They never really had one except:

      Get Rich As Quick As Possible.

      Keep What I Have.

      Keep ‘the Scum’ At Bay.

      Find Something With Yield.

      I know these people, I was educated with them (but NOT one of them.) I still socialise with some of them (who are -one to one – OK, decent, people, until you touch on…!)

      I get to hear their pathetic little anxieties when they get drunk. and spill the beans to an old friend.

      They are people of NO vision, NO sensibility, NO imagination, and little knowledge outside their narrow sphere (I wish I knew how to do italics in this, so apologies for capitals.)

      And, boy, do they love MONEY. An insatiable desire for it.

      All they are thinking in their little meeting rooms is this:

      ‘Shit! Is my pension OK? Are my investments OK? Am I going to continue to be special? Will there be a revolution? (One asked me this ‘Hey, Xabier, you’re a historian, do you think revolution is likely? Is this like….Rome or France? Whats the time-scale? ‘ This was one of the intellectuals among them……)

      It’s as simple as that.


      People here speculate about ‘The Elders.’

      They are nothing, mortal men and women like us, who are profoundly limited in their vision and emotions. Spiritual cripples. Money does indeed do terrible things to the soul.

      The message is this:

      The ‘Centre’ is more empty than you can imagine. They do not care for us.

      But we knew that didn’t we?

      We live with the consequences of centuries of error, as well as the stupidity of our contemporaries.

      Let’s dig our gardens, make art, love, live.

      We will die like them, but we will be better.

      They can’t touch our souls, even if they have lost their own.

      • Thank you for this Xabier.
        I’ve never seen the attraction of money beyond the immediate needs. I’d far rather live a life listening to birds & watching sunrises than chasing after illusions of grandeur. I’ve been in positions to earn way better money than what I get but I don’t see the point of it all especially when the whole thing is tied to the apron strings of a death culture.
        It’s bad enough having to live in the shit of industrial civilization without wallowing in its sick depravity……………………….

        • “I’ve never seen the attraction of money beyond the immediate needs.”

          Neither have I. You don’t get to keep it or can’t use it when you die that’s unless you are Whitney Houston. 🙂

          For many of the so-called RICH, it’s all about power and control which appears to be the case for George Soros.

      • Xavier, that was refreshing, sensible and clean expression of what it is really all about.
        Remember after the steep meltdown of the Stock market circa 2008, heard that vested folks still expected 20% return annually. Even Bill McKibben stated his push to divest of fossil fuels by Universities and dedicated activists in his organization had a strong resistence to doing such because of YIELD. The best is about Bernie Madoff and folks begging him to take their savings to invest, after repeated warnings that his returns were impossible and too good to be true. People believe what appears best and I find myself doing the same regarding the above. Yet there is no security, but the mind/brain reminds it for our Psyche to function. Should be amusing when the great unraveling happens. In a way, I hope I’m not around to see it. I tend to agree with Fast Eddy on that point.
        Yes, gardening helps, but there is always a dark shadow in the background.

      • Good rant, xabier.

        “Get Rich As Quick As Possible.
        Keep What I Have.
        Keep ‘the Scum’ At Bay.
        Find Something With Yield.”

        It’s a greed game for sure.

        “They can’t touch our souls, even if they have lost their own.”

        I like that.

  5. Some interesting facts re: rolling toxic waste dumps…. or EV’s and solar panels…..

    Imagine if we were to convert all passenger cars to electric…..

    Don’t look so smug: Your Tesla might be worse for the environment than a gas car

    Most alarming, EVs that depend on coal for their electricity are actually 17 percent to 27 percent worse than diesel or gas engines. That is especially bad for the United States, because we derive close to 45 percent of our electricity from coal.

    With cars that supposedly generate “zero tailpipe emissions,” how are these pollution numbers even possible? The simple answer is that as well as being messy to produce; battery production requires a tremendous amount of electricity. The initial production of the vehicle and the batteries together make up something like 40 percent of the total carbon footprint of an EV – nearly double that of an equivalent gasoline-powered vehicle.

    Read more:

    Alkaline batteries – contain potassium hydroxide, and mercury

    Zinc-Carbon batteries (ordinary D cell flash-light battery) Contain varying amounts of mercury and potassium hydroxide and Lead

    Silver Oxide batteries- contain potassium hydroxide concentration, silver oxide and mercury

    Mercuric Oxide batteries –contain mercury, mercuric oxide, potassium hydroxide and/or sodium hydroxide

    Silver Oxide batteries- contain potassium hydroxide concentration, silver oxide and mercury

    Mercuric Oxide batteries –contain mercury, mercuric oxide, potassium hydroxide and/or sodium hydroxide

    Lithium batteries – contain lithium. Lithium reacts with air or water to produce fire and/or an explosion

    Nickel-Cadmium batteries – contain large amounts of cadmium and cadmium salts. They also contain large amounts of potassium hydroxide and/or sodium hydroxide nickel, cobalt and lithium salts. Ni-Cad cells represent a solid waste problem because cadmium is a highly toxic heavy metal.

    How Green Are Those Solar Panels, Really?

    Solar Panels: Tomorrow’s Toxic Waste?


    9 U.S. pregnant women infected with Zika being tracked by CDC

    Wow, that was fast! From South America into 9 pregnant women in the US. just since that most recent, original rash of Zika articles. If any of the offspring suffer from microencephly then that’s when it hits the news big. If more than 1 gets it, look out! People will start to get paranoid and panicky.

    The news of this virus has remained under the radar, but I can guarantee TPTB are expecting a much stronger public reaction sometime, anytime. It’s not going to cause collapse, but it adds to the increasing complications that arise from higher levels of complexity. But this time that added complication was home-colossus tweaking the DNA of a 210 million year evolved insect with a syringe. It was intended to stop reproduction and because they would never reproduce, we would never have played God because those human changed mosquito genetics would never have multiplied, just died out. But a little stupid thing happened and instead they did spring forth rising up from the larvae to stand up on the water, then fly off as a much improved set of genes to transmit Zika Virus.

    On the surface it seems we inadvertently reduced the mosquitos immune response to Zika. So now this little flying syringe with a blood bag is spreading Zika virus on a massive scale. Also transmissible from saliva and sex. Welcome to 2016.


    Ok, this is kind of hilarious. At the link, there is a photo of the G20 officials that met to decide to do nothing I guess because there are no more radical fiscal follies to attempt that they can conjure up. So the name of the article is ‘caption contest yellen g20 edition’

    So look at the photo and you’ll notice Yellen with a 1,000 yard dazed look. I’ll name it, ‘Trepidation’

  8. Vale posts record loss, to sell core assets

    Brazil’s mining giant Vale (NYSE:VALE) reported Thursday its deepest quarterly net loss ever, becoming at the same time the first of the three largest iron ore producers to put some of its core assets up for sale.

    The Rio de Janeiro-based company posted a fourth-quarter net loss of $8.57 billion, its fifth drop in the past six quarters, driven by a dramatic and sustained rout of its main profit driver, iron ore.

    Over the full year, the company slid to a net loss of $12.13 billion from a net profit of $657 million in the previous 12 months.

    Something…. is going to give…..

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