What has gone wrong with oil prices, debt, and GDP growth?

Our economy is a mystery to almost everyone, including economists. Let me explain the way I see the situation:

(1) The big thing that pulls the economy forward is the time-shifting nature of debt and debt-like instruments.

If we want any kind of specialization, we need some sort of long-term obligation that will make that specialization worthwhile. If one hunter-gatherer specializes in finding flints that will start fires, that hunter-gatherer needs some sort of guarantee that others, who are finding food, will share some of their food with him, so that the group, as a whole, can prosper. Others, who specialize in gathering firewood, or in childcare, also need some kind of guarantee that their efforts will be rewarded.

At first, these obligations were enforced by social norms such as, “If you don’t follow the rules of the group, we will throw you out.” Gradually, reciprocal obligations became more formalized, and included more time shifting, “If you will work for me, I will pay you at the end of the month.” Or, “If you will pay my transportation costs to a land of more opportunity, I will repay you with 10% of my wages for the first five years.” Or, “I will sell you this piece of land, if you will pay me x amount per month for y years.”

In some cases, the loan (or loan-like agreements) takes the form of stock ownership of an enterprise. In this case, the promise is for future dividends, and the possibility of growth in the value of the stock, in return for the use of funds. Even though we generally refer to one type of loan-like agreement as “equity ownership” and the other as “debt,” they have a great deal of similarity. Funds are being provided to the enterprise, with the expectation of greater return in the future.

As another example, governments make promises for future benefits, such as Social Security, healthcare, and payments to the unemployed. These payments are not guaranteed, so are not considered debt. Even without a guarantee, they act in many ways like debt. Citizens plan their lives around these payments, even though they may be reduced or eliminated.

Surprisingly, even “cash” is debt. It is similar to a bond that pays zero interest and has no redemption date; this type of bond can also be easily transferred from person to person. Since cash can be hidden under mattresses, it too can be used as a device for time-shifting.

(2) The big thing that goes wrong in this time-shifting approach to operating the economy is the loss of what I would call an “opportunity gradient.”

As long as the future looks better than the past, it makes sense to make these debt-like obligations. But as soon as the future looks worse than in the present, the whole model falls apart. Even if the future looks exactly the same as the present, there is a problem, because taking on these long-term obligations has some overhead costs, such as administrative costs and a margin to cover the possibility of defaults on loans. These overhead costs need to be paid in some way. Because of this, there needs to be enough of an upward gradient to cover the necessary costs of the loans or the loan-like agreements. (This is part of what makes a Steady State Economy, advocated by many, an absurd idea.)

Once the opportunity gradient becomes negative, it becomes very difficult to get anyone to borrow money and to use the resulting debt to lead the economy forward. When the opportunity gradient becomes negative, young people are less inclined to get married, and tend to have fewer children. International organizations of countries (such as the European Union) have a harder time staying connected. The whole model of cooperation working better than “every country for itself” starts falling apart.

Just as human bodies often go downhill before dying, an economy that finds itself on a downward slope may very well be near collapse.

(3) The loss of an opportunity gradient comes from diminishing returns in many areas, including:

  • Rising energy extraction costs
  • Rising costs of mitigating pollution, as increasing resources are extracted and used; these pollution mitigation costs are really part of total extraction costs
  • Reduced quantity of arable land per person
  • Reduced fresh water per person, without high-cost treatment such as desalination
  • Fewer investment opportunities that allow for true growth, such as providing tractors to farmers who previously used draft animals, or adding a new road that permits fast transit across a country for the first time
  • Many more required “investments” that are simply for the purpose of offsetting deterioration in previously built infrastructure

Figure 1 illustrates the extent to which current business and government investment in the United States offsets either depreciation on old investments, or previous investment that was no longer needed for one reason or other–perhaps because manufacturing moved to China.

Figure 1. US Business and Government Capital Investment, based on Table 5.1 (Savings and Investment by Sector) of the US Bureau of Economic Analysis.

Figure 1. US Business and Government Capital Investment, based on Table 5.1 (Savings and Investment by Sector) of the US Bureau of Economic Analysis.

Between 2008 and 2015, only 17% of “Gross Capital Investment” actually became “Net Capital Investment.” With this small amount of true addition to capital investment, it shouldn’t be surprising that what seems to be “productive investment” doesn’t really raise productivity by much. It mostly raises the debt level, without necessarily providing a corresponding benefit to the economy.

(4) Increasing complexity is what acts to offset the many diminishing returns we face. Thus, the situation we face is an increasing battle between growing complexity and diminishing returns.

Many people would consider increasing complexity to be similar to improved technology, but increasing complexity really is broader than improved technology. Besides involving the development of new devices, it involves greater use of specialization, and more use of education. Businesses become larger and more international in scope, and governments offer more services. Organizations become more hierarchical as the economy becomes increasingly complex. With these types of approaches, it is sometimes possible to overcome problems associated with diminishing returns.

If an economy is already reaching limits because of the long-term battle between diminishing returns and rising complexity, the use of an increasingly hierarchical structure tends to lead to a society of “haves” and “have nots.” The people at the top of the hierarchy have more than enough. Those at the bottom of the hierarchy find it increasingly difficult to meet their basic needs for food, housing, and transportation. They find it difficult to afford the output of the economy. This is a problem we are increasingly facing today, because of the way our self-organized economy operates.

(5) Debt plays a greater role, as the economy becomes increasingly complex and uses more technology.

Debt, because of its time-shifting ability, acts almost like magic in allowing an economy with adequate resources to grow. In part, this is because improved technology allows more capital goods used by businesses and governments to be produced. Capital goods made in the year 2016 are designed to provide a long-term benefit into the future, over a future period of, say, 2016 to 2066. Paying workers making these goods becomes a problem unless the future benefit of these capital goods can somehow be brought forward to 2016, so that the workers making the capital goods can be paid. In fact, there is a whole supply chain of workers that needs to be paid. There is also a need to pay many other kinds of costs, including taxes for government services and dividends to shareholders. All of these costs can be paid, using the magic of debt to bring forward the hoped-for future income from the new technology.

Debt is also frequently used for convenience for large purchases, such as buying a house or car. Here, debt effectively promises that the buyer will have enough future income to make the planned payments. It thus brings forward the future income of the debtor, and, through the magic of debt securities, adds this future income to the balance sheet of some organization–a bank, an insurance company, a pension fund, or the purchaser of a bond related to this debt, as if the debtor had already earned the funds needed to pay for the large purchase.

Of course, the problem with using debt and other debt-like approaches to bring forward future revenue flows is the fact that we don’t really know what the benefit of a new capital device will be, and we don’t really know whether a particular individual will be able to continue paying his mortgage or other loan. Perhaps he will become ill; perhaps he will lose his job in a recession, and not be able to find another job that pays as well. With a mortgage, there is a backup possibility that the house can be sold, and its value be used to provide the necessary repayment, but we saw in the Great Recession that property values can drop, so this doesn’t necessarily work either.

The way today’s economy is structured assumes that these future payment streams can be counted on. The value of stocks and bonds are the “assets” of insurance companies and pension plans. Banks can only exist if the loans they make can really be repaid. Our whole financial system is dependent on the current system continuing as usual, with at most a small number of loan defaults, such as are priced into the system.

(6) Growing debt tends to raise commodity prices and encourage commodity production, while falling debt levels tend to lower commodity prices.

If an individual obtains a loan, he or she can buy a home, a car, or other high-priced object, such as a boat. If a business takes out a new loan, it can build a new factory or buy new equipment. Making these objects requires the use of a wide range of commodities, typically including many kinds of metals and energy products. Once these items are placed in service, they are likely to need to continue to consume energy products.

Adding more debt allows the economy to make more goods using commodities. The way the economy encourages more production of a commodity is by bidding up its price. With this higher price, ores of lower grade can be converted to metals, and higher cost energy products can be used to make the desired end products. Alternatively, the higher cost can be used to open new mines or new oil fields, to try to pull the cost of production back down again.

Of course, if debt levels start to shrink or even rise less quickly, the opposite effect tends to happen. Commodity prices tend to fall, because not as many mines and oil wells seem to be needed.

(7) Nurturing economic growth; the key to growth seems to be growing “Disposable Personal Income” 

With the magic of borrowing and promising to pay back the borrowed amount with interest (or through share appreciation and dividends), it is possible to start with very little, and gradually create a large economy. The situation is almost like planting an “economic seed,” and nurturing it with (a) additional debt as needed, (b) a growing supply of cheap energy, and (c) a growing population of workers. As long as the debt grows rapidly, the supply of cheap energy grows rapidly, the population of available workers grows rapidly (without becoming too hierarchical), and the other types of diminishing returns listed in Section (3) don’t become too great a problem, the economy can grow and prosper.

One of the keys to producing economic growth seems to be getting sufficient funds back to workers as “disposable personal income.” Disposable personal income (DPI) is after-tax income that gets back to individuals one way or another: as wages, dividends, interest, or rents, or as transfer payments, such as pensions for the elderly and payments to the unemployed, or as government employment of some kind, such as payment for being in an army.

There is a popular belief that GDP is the Goods and Services that an economy can make. As far as I can see, GDP is the Goods and Services that the people living in the economy can afford to buy. There is clearly a commonsense reason why this might be the case: an economy cannot grow, if the people living in the economy cannot afford to buy the goods and services that the economy produces. In the US economy, there is a .98 correlation between the growth in DPI (for all people in the economy combined) and the growth in the US GDP, as shown in Figure 2.

Figure 2. Comparison of 3-year average change in disposable personal income with 3-year change average in GDP, based on US BEA Tables 1.1.5 and 2.1.

Figure 2. Comparison of 3-year average change in disposable personal income with 3-year average change in GDP, based on US BEA Tables 1.1.5 and 2.1.

The GDP used to compute growth rates is not inflation adjusted, nor is the DPI inflation adjusted. These amounts are thus different from the more commonly shown inflation-adjusted amounts.

The way I see things, the amount of inflation in commodity prices is to a significant extent determined by the match between how much disposable personal income is rising, and the quantity of goods and services being produced. As I have discussed previously, energy is essential for producing goods and services. A suitable quantity of energy products must be purchased, no matter how inexpensive or expensive the price of energy may be. If the energy purchased is very cheap, it is likely that the goods and services can be produced very inexpensively. The benefit of this cheap production of goods and services can encourage growth in many parts of the economy at the same time:

  • Wages
  • Profits to the owner(s); stock dividends
  • Interest on debt
  • Taxes
  • The financial sector can flourish, with all kinds of new products
  • Commodity price inflation
  • Economic growth

The reason why this pattern happens is because the DPI of citizens (plus whatever amounts that governments and businesses can add to DPI) doesn’t necessarily match up with the cost of making those goods and services.

When energy prices are low, and when there are many opportunities for productive investments, the excess buying power can partly go into new productive capacity, leading to economic growth. Some of it can also go to provide higher wage growth. In fact, all of the items on the above list can be higher.

Figure 3. Average annual Brent equivalent oil price, in 2015 US$, from BP 2016 Statistical Review of World Energy.

Figure 3. Average annual Brent equivalent oil price, in 2015 US$, from BP 2016 Statistical Review of World Energy.

When energy costs are at a high level (see Figure 3), all other parts get squeezed. Instead of seeing inflation in commodity prices, we start seeing deflation in commodity prices. In fact, deflation can bring energy prices below the cost of production. This effect, together with the end of US Quantitative Easing, likely explains the sharp drop in oil prices starting in mid-2014.

Figure 2 shows that, in recent years, the overall annual growth in US DPI and in GDP has been only about 4%. Growth of 4% doesn’t go very far when it needs to cover growing population (about 0.7% per year in the US), plus inflation, plus “real” growth in wages. No wonder commodity prices get squeezed! Because of diminishing returns, the cost of their production rises far more than the modest growth in DPI can afford to cover. Something gets squeezed: energy prices remain far below the cost of extraction.

(8) The 1980 Economic Turning Point

If we look back at Figure 2, we see that the recent peak in the growth of GDP and DPI occurred about 1980, at approximately 11% per year. At 11% there is room for many economic “goodies,” including funds for new investment, raising wages, and inflation.

When growth in GDP and DPI started falling shortly after 1980, many changes occurred in the economy. For one thing, wage disparity in the US started increasing (Figure 4).

Figure 3. Chart comparing income gains by the top 10% to income gains by the bottom 90% by economist Emmanuel Saez. Based on an analysis IRS data, published in Forbes.

Figure 4. Chart comparing income gains of the top 10% to income gains of the bottom 90% by economist Emmanuel Saez. Based on an analysis of IRS data, published in Forbes.

This was also about the time when US interest rates started to fall. Ten-year treasury rates hit a peak in 1981.

Figure 6. Ten year treasury interest rates, based on St. Louis Fed data.

Figure 5. Ten-year treasury interest rates, based on St. Louis Fed data.

It also seems to be the time when increases in debt no longer automatically triggered a corresponding increase in the wages of non-government workers (Figure 6).

Figure 6. Three-year average percent increase in debt compared to three year average percent increase in non-government wages, including pro proprietors' income, which I call my wage base.

Figure 6. Three-year average increase in debt compared to three-year average increase in Wage Base, defined as non-governmental wages plus proprietors’ income.

In Figure 6, “Wage Base” is wages of non-governmental workers, including wages of proprietors, such as farmers. I consider my wage base to be “regular” wages, before all the government manipulations that produce the much higher DPI, which includes transfer payments, and wages paid under government programs. Figure 7  shows a comparison of the relative amounts. On Figure 7, note that the upward “blip” in the Wage Base occurred in the 1998-2000 period, when the price of oil was unusually low (Figure 3), leaving more for wages.

Figure 7. Personal Income, Disposable Personal Income, and Wage Base, as Percentage of GDP, Based on BEA tables 1.1.5 and 2.1.

Figure 7. Personal Income, Disposable Personal Income, and Wage Base, as Percentage of GDP, Based on BEA tables 1.1.5 and 2.1.

(9) The Problem of Ever Rising Government Expenditures, and Government Receipts that Don’t Increase Enough

If we look at the historical pattern of governmental costs, we see that there has been a long-term upward trend in governmental costs. Figure 8 combines receipts and disbursements for all types of governments (federal, state, and local). The Wage Base, mentioned previously, is used as the denominator, because even taxes paid by businesses will indirectly affect prices paid by customers.

Figure 4. US government expenditures and receipts compared to wage base, based on BEA Table 3.1.

Figure 8. US government expenditures and receipts compared to wage base, based on BEA Table 3.1. Amounts include federal, state, and local taxes, and include funding for Social Security.

In Figure 8, Government expenditures peaked at over 90% of the wage base. Clearly these expenditures are only possible because they include a big increase in debt at the time of the bank bailouts and all of the stimulus activities.

The fact that government receipts have stalled at about 66% of the wage base since 1981 suggests that there is a problem in raising taxes above the current level. We may not even be able to maintain our current tax level, if required payments for health care coverage under the Affordable Care Act behave like another tax.

(10) The Recent Decline in US Debt Growth

If we compare the growth in total US debt (not just governmental debt) to the Wage Base (includes all non-government wages, including proprietors’ income), we see a rather surprising pattern (Figure 9):

Figure 9. US debt as compared to Wage Base, based on FRED and BIS data.

Figure 9. US debt as compared to Wage Base, based on FRED and BIS data.

The ratio of debt to wages remained pretty constant until about 1980, when it began to rise sharply. This was about the time when wages started to diverge, and interest rates began to decline. Once oil prices fell to lower levels in the late 1980s, the non-financial debt level settled back, compared to wages. When oil prices began to rise in the early 2000s, the total debt level skyrocketed. These patterns suggest that debt growth is strongly related to the price of oil. Less debt is needed to keep the economy going when oil prices are very low; much more debt is needed when the cost of oil production is high.

Since 2008, we see a different pattern. The debt level is falling, despite record low interest rates. We discussed in Section 2 the need for an “Opportunity Gradient” to encourage borrowing. At this point, there does not seem to be a sufficient Opportunity Gradient to keep borrowing at the very high 2008 level, and even grow from this point. The failure of US debt to grow relative to wages is thus part of the reason why oil prices cannot be raised to a high enough level to make oil production profitable.

The low growth in US debt is likely a problem for the rest of the world, too. Since oil is priced in dollars, I expect that the US really needs to be a leader in debt growth, if the world economy is to grow. The US no longer seems to be trying to be a leader in debt growth; it ended Quantitative Easing in 2014, has raised interest rates once, and is now planning to raise interest rates again. This creates a problem for other countries, because their currencies tend to fall relative to the dollar, when US interest rates rise. If these other countries do attempt to raise their debt levels, their currency levels tend to fall relative to the US dollar, mostly negating the benefit of the debt increase when it comes to buying oil and other energy products. This makes it very difficult to use debt to provide new programs, such as guaranteed income plans for citizens.

(11) Conclusion

This analysis is based on US data, but it gives some insight into what is happening on a world basis. I would expect that Europe and Japan are in many ways not too different from the US. The world economy has done better, because it includes countries with more opportunities for investments that might truly be associated with economic growth.

The situation everywhere may very well be that growth is a temporary phenomenon. Rapid growth occurs for a while, but then it fades away. When it fades away, inflation tends to shift to deflation. This presents a huge problem, because our financial institutions are built using debt and debt-like instruments. When deflation hits, the “Opportunity Gradient” changes from favorable to unfavorable for future investment. This creates a much greater likelihood of future debt defaults, and discourages citizens from wanting to take out loans to finance new investments. All of these things are concerns for the future functioning of the economy.

The situation we seem to be encountering is that economies, both of the world and of individual countries, are dissipative systems. As such, they require energy. Similar to other dissipative systems (hurricanes, ecosystems, stars, plants and animals), they grow for a while, and eventually collapse.

Economies, as dissipative systems, seem to need several kinds of systems. Energy provides sustenance for an economy, in a way similar to the way food provides sustenance for humans. The debt system acts somewhat similarly to the way a human’s circulation system works; the time-transfer mechanism provides a pumping action similar to that of the heart. The pricing system acts very much like a human’s sensory system; it allows the system to discern whether the current opportunity gradient is sufficient to justify adding more debt. Thus, this analysis suggests that one way the system may fail is through commodity prices that fall too low. Most people have never considered the possibility that this could happen.

Intermittent renewables, such as wind and solar, might be considered as similar to a type of food that causes the sensory system of the economy to malfunction (similar to deafness or blindness). This happens because, as I discussed in a previous post, intermittent renewables disrupt the pricing system for electricity by dumping electricity on the grid without regard to whether the price signals indicate that the additional electricity is actually needed. As a result, prices for other types of electricity (such as nuclear and natural gas) become depressed, necessitating subsidies. This shows why overly simple models cannot be relied upon when evaluating possible solutions to our energy problems.

It would be nice if we could figure out a way to make our economy last forever, but it is doubtful that we can. Ultimately, the battle between diminishing returns and increased complexity seems likely to be settled in a way that causes the economy to collapse.





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About Gail Tverberg

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

1,637 thoughts on “What has gone wrong with oil prices, debt, and GDP growth?

  1. with fast eddie gone zoolanders are posting more often on ofw what is to become of us realists who know that bau lite can never exist

    • i think Paul (aka Fast Eddy) is on vakay at his new beach shack somewhere on the coast of the North Island of New Zealand and is likely ‘on purpose’ without means to internet access. i expect him to resurface after he returns to “civilization”. he may also be lurking. a new post by Gail would likely help to flush him out.

  2. I posted my thoughts on FE but my comment was deleted. And you know that I have not cluttered this space with comments.
    I think FE is a misguided idealist. He has a version of collapse in his head that simply isn’t occurring. If you want to know what is occurring, you must become a student of human nature. History, sociology, psychology, these are all important areas to study. If you concentrate on present politics and economics alone, you miss out because these areas are too modern and rational. People are driven by instincts.

    • the philosophy of sudden and catastrophic collapse is a simple one

      the human race is on course to reach 9-10—maybe 12 biillion or more this century

      clearly this cannot happen, therefore something big is going to prevent it. I have my own ideas on what that might be.
      people are not going to stop having sex, and the mothers of the next 2 bn are alive now.
      they are going to breed if the means is there to do so. (basically food)
      The only unknown factor is when and what will cause our species to crash in spectacular fashion. There are wild and wacky speculations about that, which is understandable, but we make the mistake of predicting the future using the lessons of our past.

      it isn’t going to be like that.

      WW1 and 2 deleted 100m or so—but in order to survive as a species we have to delete maybe 6bn. An altogether different scale of things. (yet we even call up the energy-effort of WW2 to “fix” our current situation!)
      the question is—-can we stop at 6bn and leave a billion to carry on, or will we overshoot and kill everybody off? We can only hope, but I carry a degree of pessimism—bearing in mind that our entire civilisation has been created on the back of what is destroying us.

      If we have a billion people left, scattered across continents—they will still carry the infection of greed and denial and god-certainties that got us into this mess in the first place, and will strive to “rebuild” what was, and try to kill each other to grab resources and to gain some kind of ascendancy and ”righteousness” to reassert their certainties—at least for 2 or 3 generations. That will manifest itself in the breakup of nations into smaller and smaller tribal areas as the energy sources that created them go into depletion.
      The USA was built and held together on the out-thrust of hydrocarbon fuels. A regression is inevitable.

      We will not—repeat not—regress into some kind of bucolic peasantry and suck on straws and wish each other a pleasant good morning.
      This is the myth of “downsizing” and the “static economy” that one reads about. For what it’s worth I’ve tried to inject some reality into that notion here:
      Starving people look to survive, genetic forces give us no choice
      We cannot uninvent what we know and what we are, or divest ourselves of our current ”normality” and willingly return to an unpleasant dark age where our prime technology was the naked flame and the cartwheel.

      the fact that we will return there will be perhaps our ultimate denial—that somehow ”they” will fix things and recreate our cornucopian utopia. Look around now—and recognise that the vast majority are certain that prosperity can be voted into office.
      Those screaming masses are the future, for as long as they have sufficient energy to be like that

      This isn’t theory—this is, as you point out—human instinct.
      I would be happy to be proved wrong, feel free to point out any error.

      • I agree Norm. When the energy is gone we will be fighting again like cats in a sack. We get along when everyone has sufficient access to energy and resources. The opposite is true when energy and resources decline.

      • “point out any error”

        The biggest unknown is the human response to the problems you correctly point out. Can the problems be fixed at all? Definitely they can within what we know of physics.

        Will we fix the problems? Hard to say.

        But it is worth remembering that western culture is no longer the only game in town.

        • “error”—and ”unknown” are different things

          i forecast ”human response’—-i will expand that a little for clarity:
          1 denial
          2 conflict
          3 ultimate acceptance when there’s no further option/action possible—that might be 200 years from now, but it is certain to happen

          the above will of course overlap and meld into one another according to prevailing conditions in different areas and times.

          western ”culture” is the only game in town, unless you’re a Kalahari bushman or something—doesn’t matter which side of the Greenwich meridian you stand.
          every Indian peasant aspires to a car and colour TV, refugees from third world countries risk death to reach nations with “western” culture—why?
          Because that is their ultimate aspiration; telling them that in 50 years it will all be over would be a waste of breath—they want it now.

          the knowledge to prevent it happening?
          certainly—-just be prepared to persuade (or force) a billion women not to have any kids during this coming generation.
          because if they do have kids, they will starve to death. Nature is very efficient in that respect.

          but we can feed 10 billion, can’t we?
          yes we can, but then you’re faced with the next set of problems:
          1 shipping food from breadbasket nations to basketcase nations if theres no oil
          2 persuading breadbasket nations to grow food and give it away. Russia and the USA are broke already.
          3 feed a billion people, and they will reproduce several billion more people

          all of the above in the face of climate change (reducing food output) and rising conflict of desperation by those affected.

          And if we dont have a couple of billion kids?
          Then our generation will be be left to fend for itself as ageing starts to bite.

          And a happy christmas to all my readers—sanity claus or no sanity clause (to the unbelievers out ther)

          • You obviously agree with Jay Hanson’s assessment. For those who haven’t read it Jay’s views after over 20 years of studying the problem are summarized here:

            Coincidentally just as FE has thrown in the towel Jay has just shut down his America2Point0 list “until further notice”. He also has gotten fed up with saying the same things over and over to people who won’t listen.

            Enjoy the dieoff!

          • The Dreamers always have an answer. They dream in terms of a fanatical team supporter, claiming their team is “mathematically” capable of making the playoffs with a percentage of .0001. No amount of your “buts” can defeat their dreams of unlimited free energy, resources and stairways to the stars. To them overshoot, resource depletion, environmental and ecological destruction and financial collapse are issues best ignored because in their “dreams” they are solved in the course of implementing their ridiculous ideas.

          • Hmm.. yup, it’s been well established by Norman and Gail that as the affordable energy resources start to collapse, so will our global civilization. Keith still can’t explain where he is going to get mineral resources that doesn’t exist. So Keiths plans can’t much work. The only thing we don’t know is, do we have 1 month or 60 months left of grid up, food in the groceries BAU. And the order of the magnitude of this collapse is not 3% culling of the global population (WW2). Or even 10%. Or even 30%-50% (Black Death) But in the magnitude of 90% for the first year or two, and then.. who knows.. maybe 90% again.. etc. The tsunami headed our way is two or three Black Deaths combined with two or three WW2, in the first year or so. And then again..

            It’s almost impossible to survive this.. odds are certainly not in our favor.. if there is going to an bottleneck, nobody knows where the survivors will be.. maybe iceland.. maybe John Galt in Southern NZ.. maybe south africa.. maybe antarctica.. who knows..

            If its almost impossible to survive this. Then its strange we don’t discuss other strategies of prepairing for the inevitable in this blog. When odds of survival are zero.. why not try something truly interesting?? Why not be free to try truly different strategies?

            Kunstler talks about a world made by hand. That is the future we’re headed towards. That’s a lot of skills to be learned.. There will be some time in the first few months, while canned foods are still available.. to try something different, from the ordinary hide in a shelter and wait it out scenario. Or start an organic farm and homestead the h-ell out of the collapse scenario.. so.. why not try to do something different.. what have we got to loose.. we are free.. survival is not an option..

            Take canned foods as tokens of payment, and teach the people who paid the fee:
            Day 1. How to build a 4 brick rocket stove.. 12 brick stove.. 250 brick stove.. 2500 brick stove with oil drums and air ducts taken from office buildings. To cook food and boil water..
            Day 2. Biochar production in an oil drum, for making of water filters
            Day 3. Liquids from solids separating composting toilet, from ordinary wastebins with wheels.. combine biochar with urine, for odor control and to produce fertilizers
            Day 4. Local wild herbs, wild vegetables, berries and mushrooms, that really do grow everywhere
            Day 5. How to use ash as fertilizers for trees, bushes, mushrooms and berries
            Day 6. Traps for rabbits and squirrels, not for eating, but for breeding and trade
            Day 7. Rabbit, chicken, squirrel coops construction, to have live animals for trading..
            Day 8. Rabbit, chicken and squirrel feed and how to build and maintain a 1 rabbit a week for slaughter -rabbit farm
            Day 9. Fermenting, making of canned foods
            Day 10. Drip irrigation, water tank construction, gravity fed water tanks and/or planters from 2L soda bottles
            Day 11. Activated charcoal production from biochar by grinding and pressure steam. Different uses of Activated charcoal
            Day 12. Different Rain water collection systems
            Day 13. Different Water filter systems
            Day 14. Root cellar design and construction
            Day 15. Deer traps, man traps, pit traps and polycarbonate shields for protection
            Day 16. Bicycle, tricycle, milkcarts, use of wheel, water wheel, well wheel and wind mill
            Day 17. Ethanol production unit
            Day 18. Biogas production unit
            Day 19. Refurbishing petrol-ethanol engines
            Day 20. Refurbishing diesel-biogas engines
            Day 21. Greenhouse constructions and structures
            Day 22. Water pumping, water moving, water transporting and gravity drip irrigation systems
            Day 23. Fruit trees and berry bush seedlings, planting, weeding, fertilizing
            Day 24. Fish traps, fish ponds, fish nets, crab traps, grocery store fridges as fish tanks/ aquaponics
            Day 25. Soap, vinegar, apple cider vinegar, baking soda, potash and sodium
            Day 26. Harvesting batteries from cars and buildings, and how to reload them efficiently
            Day 27. Explosives, dynamite and gunpowder production
            and restart when finished

            • ” mineral resources that doesn’t exist.”

              I don’t know where you get that. It certainly does take mineral resources, but the amount is modest. A ground based solar system has a mass of around 500 kg/kW, a space based system runs 6-7 kg/kW. The reason it is so much lighter is that you don’t need to support the collector surface against wind or gravity.

              The energy requirements for lifting the parts to GEO are more of a problem, but the payback time is so short (3 months) that it’s an awful good investment.

              This is all subject to further analysis, what we have done so far only somewhat beyond back-of-the-envelope.

            • Van Kent-
              I wish there was more discussion of these things too as I could not agree with you more when you say, what have we to lose? Sure we are most likely to die but in the meantime I think trying some of the things you mention helps lift the spirits. If by some miracle it takes some time before the radiation gets us and we make it past the stage of mass mayhem, these things will make what is left of life much better.

            • where did the following pop up from??? (though hard to tell if your response was meant in irony—if it was, sorry)
              Day 17. Ethanol production unit
              Day 18. Biogas production unit
              Day 19. Refurbishing petrol-ethanol engines
              Day 20. Refurbishing diesel-biogas engines
              Day 22. Water pumping,
              Day 26. Harvesting batteries from cars and buildings, and how to reload them efficiently
              Day 27. Explosives, dynamite and gunpowder production

              ethanol biogas requires mechanical equipment of some kind to produce it
              Even with my primitive knowledge of vehicle engine mechanics, i know that “refurbing” of engines requires mechanical input from fairly complex machinery (assume you meant reboring etc etc? new sparkplugs?)
              Explosives seems to suggest starting a war somewhere.

              Without mechanical backup–the above will be difficult no matter how many tins of corned beef you hand over.

              My 200 years figure was plucked out of the air, laced with a bit of logic., We’ve had 8 generations since the industrial revolution gained traction (about 4 per century) 1820s/1920s/2020s So I thought another 8 generations until all vestiges of it have disappeared beyond retrieval.
              Could be more
              Could be far less
              But bear in mind that if “collapse” comes in the next 25 years or so (likely) it will take a very long time for our “industrialised thinking” to be expunged from our consciousness and we as a species, resign ourselves to the cruel fact that the party’s over, and no Messiah is going to return to clean up the mess we’ve made.
              Our biological clocks are likely to take that long to reset, and those left have learned living/survival skills in any real sense.
              Those having failed to learn will be long dead, and their genes will not have passed on.
              There will not be many of us—maybe even none.
              My thinking on reduced population fits the concept of disparate ministates instead of large nations.

              Unfortunately it also raises the spectre of warlords….. a distinct possibility.

              In 200 years, conflict will be determined by the material that can be carried and sustained for a day’s battle. So it will be brief, if bloody. Neither side will be able to afford the energy expenditure. Even the key battle of Waterloo in 1815, which turned Europe’s history, only lasted a day. 100 years later, battles in the same place lasted months because of industrial input.
              In modern war, soldiers represent the business end of a production line—that will no longer be possible.
              We may have finally figured out that conflict is pointless—though nature seems to force us into it.

              That 200 years will also put bacteria back in their position of dominant species. Those of us immune to unpleasant diseases will pass on their immunity, those who are not, will die. Think how the First Nations people were decimated by European diseases.
              Maybe our immune systems have become so weakened by over-cleanliness that none of us will survive—a distinct risk. Our personal bodily bacteria help us to live, constantly washing them off might not be a good idea.


              I hope this reply covers several interesting responses in this thread—I don’t want to clog the netwaves on this subject by individually responding to all

            • “it will take a very long time for our “industrialised thinking” to be expunged from our consciousness and we as a species, resign ourselves to the cruel fact that the party’s over, and no Messiah is going to return to clean up the mess we’ve made.”

              I think you overestimate the power of indoctrination. A month without power and international commerce would probably do it. I bet Venezuelans are already pretty close.

            • i could be way out in my timing obviously

              but as long as there are people alive with the knowledge to make machines work, (and books of course) the faith will remain that they will work—if we vote/pray/fight hard enough.
              we know no other way.

              Eventually that will change as resignation sets in

              Even el Trumpo has pronounced that there is enough oil to last 300 years—and it is in peoples interest to believe that.
              The opposite admits the end of civilisation—so vote Trump!!

          • Besides denial and conflict, we could make adjustments. For example, it would not be that hard to develop a refrigerator that worked fine on intermittent energy, locally storing enough cold to get through the times where power is expensive.

            “200 years from now,”

            I don’t know if you are more optimistic or more pessimistic than I am. I can’t imagine biological humans existing in more than token numbers for longer than another 40-50 years if we continue technological advances. The prospect also makes me very uneasy. It’s possible we have already seen what happened to another species that went this way.

            “persuade (or force) a billion women”

            The Chinese did it. But even without coercion, Mexico and Iran are down to 2 children per woman.

            ” as ageing starts to bite.”


            These guys are about half an hour away from me, up I 805 toward Los Angeles.

            It’s hard enough to cope with unknowns. It’s really difficult to cope with a dozen interacting exponential developments. Biology is advancing very rapidly. AI of the Watson variety is likely to speed it up.

            • a refrigerator is a large double skinned metal box

              you cannot make one out of reeds or bamboo—trust me

              sheet metal requires a massive factory backup—blacksmiths in days of yore knocked out suits of armour for kings and knights and very beautiful they were too—but the poor bloody infantry had to suffer the slings and arrows of outrageous fortune. Unaffordable armour you see.
              Blacksmiths will not make refrigerators.

              The Chinese birth control thing has been a disaster—they now have 120 males for every 100 females

              The problem is not the birthrate per nation—it’s the “bulge” of people passing through this century and wanting to breed because they see children as an asset rather than a liability.

            • “a refrigerator is a large double skinned metal box”

              That’s not even accurate. Take a magnet to the inside of one. They have been plastic on the inside for decades.

              “you cannot make one out of reeds or bamboo—trust me”

              Actually you can, at least a box to keep food cold.

              “Commonly iceboxes were made of wood, most probably for ease of construction, insulation, and aesthetics; many were handsome pieces of furniture.” https://en.wikipedia.org/wiki/Icebox

              When I was a kid, one of the places we stayed for a few weeks on a trip had an ice box which dated to the early part of the 20th century. It was built out of wood. Before mechanical refrigeration, people cut ice on lakes and stored it in ice houses for the summer.

              Sheet metal is not required to keep food cold. But that was not what I had in mind, I was responding to Gail’s concerns about intermittent energy. It would not be hard to make refrigerators that effectively used intermittent energy, via local storage of “cold” to keep food from spoiling. I would have to research it a bit, but a modest sized tank of water loaded with glycerol or some other low temperature phase change substance would keep food cold on a few hours of power a day.

              It might be possible to build an entirely passive cold box for food, no energy needed at all. What it would take is a thermal diode and a shielded radiator on the roof. Thermal diodes are well understood.

            • I’lll keep trying—why I don’t know.

              I KNOW a fridge is sheathed in plastic on the inside—plastic is an oil product which is why i ignored it here
              it is double skinned for insulation purposes

              I KNOW people cut ice from lakes in winter and stored it in ice houses—they are still quite common in UK
              They were built in the 16/1700s, when UK climate was much colder. (the Thames used to freeze over) they we 10/15ft deep, brick lined with a beehive roof. Building one was an energy intensive “investment”
              We don’t have that much ice now.
              They were built to supply the aristocrats with ice, ie 1 family.—they couldn’t store enough to keep the riff raff cool.
              Try building/using an ice house in the tropics at sea level

              ‘ice boxes” had a metal box to keep the ice block in the bottom
              The ice block itself had to be manufactured elsewhere and transported to the customer.
              At one period in the 19th c I believe they had ice ships to bring ice north to south to sell ice commercially
              Whatever line you take, cooling requires energy input

            • “they couldn’t store enough to keep the riff raff cool.”

              US experience was different. ” In 1907 survey of expenditures of New York City inhabitants, 81% of the families surveyed were found to possess “refrigerators” either in the form of ice stored in a tub or iceboxes.[1] The widespread use of iceboxes was partially credited with reduction of US infant mortality in summer months.[2]” (from Wikipedia).

              ” ice block in the bottom”

              Top actually. Cold air circulates down. But as you say, the holder for the ice and the drip pan were usually metal.

              “cooling requires energy input”

              That’s mostly true. But properly designed, a mechanical refrigerator would work just fine on a few hour of intermittent electrical power per day. Like from a few solar panels.

              There is also this,

              “Nocturnal ice making

              “In India before the invention of artificial refrigeration technology, ice making by nocturnal cooling was common. The apparatus consisted of a shallow ceramic tray with a thin layer of water, placed outdoors with a clear exposure to the night sky. The bottom and sides were insulated with a thick layer of hay. On a clear night the water would lose heat by radiation upwards. Provided the air was calm and not too far above freezing, heat gain from the surrounding air by convection would be low enough to allow the water to freeze by dawn.[1]”


              If I was a prepper, or wanted to sell to them, it might be worth building a no energy refrigerator based on this cooling method. But as FE would point out, “what’s the point of keeping food you don’t have cold?”

            • “The Chinese birth control thing has been a disaster—they now have 120 males for every 100 females”

              That is a cultural problem with having a preference for one sex over the other and choosing to infanticide babies of the “wrong” sex, not a problem with the idea itself.

            • If you want to hold down population, you reduce the number of females. India until fairly recently killed some baby girls to keep population down. Men don’t have babies, women do. Brothers can share a wife, or extra men can join the army or serve in celebate church positions.

            • In refrigeration applications, thermoelectric junctions have about 1/4th the efficiency compared to conventional means (they offer around 10–15% efficiency of the ideal Carnot cycle refrigerator, compared with 40–60% achieved by conventional compression cycle systems (reverse Rankine systems using compression/expansion).[6]) Due to this lower efficiency, thermoelectric cooling is generally only used in environments where the solid state nature (no moving parts, low maintenance, compact size, and orientation insensitivity) outweighs pure efficiency.

            • https://en.wikipedia.org/wiki/Thermoelectric_cooling

              However, a thermal diode is a different beast from Peltier heat pump. They take no power at all to operate. They are similar to a heat pipe, but use gravity to get the liquid back to the bottom.

              When the top end is colder than the condensing temperature of the working fluid (typically ammonia or propane/butane) the fluid condenses and runs down the tube to the bottom, where it boils into vapor and goes to the top taking heat where it condenses again.

              Human could, in theory, use these things to refreeze the arctic ocean and stick the bottom of glaciers to bedrock. It would take an awful lot of them, but they are simple and cheap to build, if kind of expensive to install.

            • “can’t imagine biological humans existing in more than token numbers for longer than another 40-50 years if we continue technological advances”

              Where will the other 10B people go?

            • “Where will the other 10B people go?”

              Uploaded into a much more attractive simulated world. Reversibly uploaded, but it’s so much nicer than the base reality that very few people want to live elsewhere. I developed this idea somewhat in “The Clinic Seed.” It’s why “the sea is boiling hot” in the future from the waste heat of the simulation computers. I suppose the simulation could have “pigs with wings.”

              There is a chance that we have seen an alien species that uploaded the whole population into a simulation. If so, the blinks we see may be heat sinks a substantial fraction of the size of the star.

              Of course this assumes we live in the base reality and are not already living in a simulation. Musk thinks we are, so does Nick Bostrom.

            • Seems expensive. Best start with the poorest who currently can’t afford vaccines or clean water. If the producers and owners are gone, who will pay for the poorest 7-8B?

              But maybe the meek will inherit the world after all.

            • @hkeithhenson

              “Of course this assumes we live in the base reality and are not already living in a simulation. Musk thinks we are, so does Nick Bostrom.”

              “Uploaded into a much more attractive simulated world.”

              If this is a much more attractive world, I sure am glad I’m not living in the original anymore.

            • “But even without coercion, Mexico and Iran are down to 2 children per woman.”

              Age they give birth also matters. Having 2 children at ~20 and living to 80 still leads to massive population growth.

              I wonder how popular “apotheosis” would be amongst the masses, or if we end up with a Butlerian Jihad.

        • ” Can the problems be fixed at all? Definitely they can within what we know of physics.” I do not think what we face is a problem. It is a predicament. And predicaments do not have solutions.

      • Hm, the issue Dolph is repeatedly addressing, and correctly so, is that these larger cycle gyrations of such complex systems are way beyond the capacity of single human life. Apparently, not disputed, large segments of the “industrialized world” society are no longer growing up in terms of income/prosperity/even often in terms of happiness and health, that’s a process of past ~40yrs. Yes, the previous version of the financial and redistribution system derailed after in 2008/9, new even crazier version has been put to work.

        So, taken the above and other pressing issues, should we just freak out and loudly claim instadoom is here around the corner, the very next day.. ? No it’s a process, it will be likely punctuated with acute spikes of instability and JIT malfunctions. But to assume it’s going all down in sync and on flash without correcting measures (attempted) is not very rational..

        Look at the articles and comments of the people at Greer’s site, it’s increasing in quality as the extreme positions are well balanced by level headed conversations and analysis.

    • ” History, sociology, psychology, these are all important areas to study.”

      And evolutionary psychology ties all of these together. Our mental mechanisms that give rise to what we know as psychology evolved, no less than hands, eyes and ears.

      “In the view of evolutionary psychology “the mind is a set of information-processing machines that were designed by natural selection to solve adaptive problems faced by our hunter-gatherer ancestors.””

      Some of those behaviors such as capture-bonding are activated by a specific situation. I make a case here https://www.academia.edu/777381/Evolutionary_psychology_memes_and_the_origin_of_war
      that perception of a bleak future turns on mechanisms that lead to population reducing wars (or rather, did in the stone age). How this will play out in our future is really hard to say since any number of wild cards, like smallpox, cheap fusion, a major nuclear war, AI, nanotechnology and/or power satellites could happen.

  3. Another crack opening

    The value of Canada’s natural resource assets stood at $287 billion in 2015, down 73% from 2014, largely due to lower energy prices. This decrease followed a 28% increase in 2014.

    Timber resources accounted for 55% of the value of all natural resource assets in 2015, followed by minerals (26%) and energy resources (19%).

    The value of energy resource assets, which consist of reserves of coal, crude bitumen, crude oil and natural gas, decreased by 93% in 2015 to $56 billion, following a 49% increase in 2014. The large decline in 2015 came primarily from lower crude bitumen prices. As a result, this also increased the shares of mineral and timber resources of total natural resource wealth.

    The value of mineral assets fell 38% to $74 billion in 2015 following a 24% decline in 2014. In general, lower commodity prices, combined with stable labour and energy costs compared with the previous year, contributed to the decline. The decrease in iron ore values made the largest contribution to the decline, although decreases in potash, copper-zinc and nickel-copper values were also major contributors.

    The value of timber assets declined by 1% in 2015, following a 9% increase in 2014.


  4. I know what happened to Fast Eddy … finally. He had an epiphany of sorts and finally moved from anger to acceptance. He now realizes – as Carolyn Baker expresses it in a recent article – that it is time for him to:

    “We stop shining of the false light. As our heart breaks, as our veneer cracks, we open to more integrity, more truth, more tenderness. We stop trying to be all things for all people. We become this one small thing, feigning nothing.”

    Yup, FE has moved on to that world where he sees that his predictions for the future mean nothing since the future will come regardless of who believes him, regardless of whether anyone believes him. The attorney in him has died, and now the tenderness that we all know was there all along will find voice soon.

    FE will be back! But it will be Fast (tender, loving, and inclusive) Eddy.

    Yes, FE has gone dark, but that darkness will bring a new age of FEness. First though he needs time to (again from his favorite person):

    “The mystics tell us that we need spiritual crisis. That we must enter the Cloud of Unknowing, the deepest despair, the most profound darkness within, without hope, in order to grow spiritually. They call such a time of deep crisis, of great uncertainty, the Dark Night of the Soul. There, in our radical desperation, in our absolute abandonment, it is said, the Divine Doctor awaits. Holy Darkness was Her medicine all along.”

    When FE returns, you will see him in all his glory! He will be a force to create: “… a culture of love beyond measure.”


  5. how will bau continue for the next decade first we are gonna have an increase in the feds interest rate which will shortly result in global financial crisis part 2 which will result in a world-wide bail-in of part of everybody’s money to save the banks. from their we will be convinced by our governments to take part in to a cashless world where all money would no longer be physical but electronic we will all then be subjected to a drastic cut in all central bank interest rates sending them all negative which would result in everybody’s money being taxed if it stays in their account for too long. this will then lead to money not sitting in a savings account but being spent asap .the growth we will get will be quite high leading to higher asset prices higher oil prices and higher inflation but with permanent negative interest rates, that means that no loans will ever have to be paid back as the negative interest rates will just pay off all debts without anyone paying out any of their money. it all sounds too good to be true but i believe that this may be one way bau continues for a whole lot longer.

    • It agree this may be the future. However, how do we reconcile existing debts? And what about the current pension/retirement plans? Insurance plans? These type of things depend on positive interest rates. This may work for a few months. But, in this scenario money is essentially worthless since you can no longer use money to make money anymore. What I fear would happen in just a few months (assuming all this money is spent on real goods and services) is that the resource base would collapse.

      • unfortunateley greg i dont have any answers on any of these questions because if the world does go on this path its simply experimental its never been done before ,desperate times call for desperate measures and the powers that be are obviously clutching for straws to keep bau alive

  6. This is only slightly relevant but quite funny. A green energy scheme may threaten the future of the power-sharing institutions in NI.


    Sinn Fein has warned a collapse of the powersharing institutions at Stormont is an option if First Minister Arlene Foster refuses to stand down to allow a probe into her handling of a botched green energy scheme…

    It was supposed to offer a proportion of the cost businesses had to pay to run eco-friendly boilers, but it ended up paying significantly more than the price of fuel, enabling applicants to “burn to earn” – getting free heat and making a profit as they did it.

    Claims of widespread abuse include a farmer allegedly set to pocket around £1 million in the next two decades for heating an empty shed. [LOL] Mrs Foster was the minister in charge of the scheme at its inception.

    Now First Minister, she has the party strength in the Assembly to defeat any bid to censure her.

    However, the structure of the DUP/Sinn Fein-led governing executive is predicated on the participation of both partners – so if Sinn Fein walks away the institutions would fall, with an election likely to follow six weeks later…

  7. Great post Gail, one of your very best, thank you for all the thought and effort that went into it.

    Thinking our situation through is an evolutionary process as well as a bit like playing chess: the number of potential future moves at any given point is so great it’s not until some watershed move that clarity and a singular line of thought is able to be better pursued.

    Your article today to me represents just such a point, where your concepts are really well developed and are a very good fit to the worlds situation and help me to organise my own thoughts around your clearly articulated understanding.

    Keep it up please and thank you again 🙂


    • You are welcome. This is a topic I have been talking and thinking about for a long time, including back in Oil Drum days. It hasn’t come out in very many posts. I have hesitated to say much, partly because so many professors and graduate students whom I personally know tie their research to this subject. It is also sort of a difficult subject for people who are not involved in the subject to understand.

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