Oops! The economy is like a self-driving car

Back in 1776, Adam Smith talked about the “invisible hand” of the economy. Investopedia explains how the invisible hand works as, “In a free market economy, self-interested individuals operate through a system of mutual interdependence to promote the general benefit of society at large.”

We talk and act today as if governments and economic policy are what make the economy behave as it does. Unfortunately, Adam Smith was right; there is an invisible hand guiding the economy. Today we know that there is a physics reason for why the economy acts as it does: the economy is a dissipative structure–something we will talk more about later.  First, let’s talk about how the economy really operates.

Our Economy Is Like a Self-Driving Car: Wages of Non-Elite Workers Are the Engine

Workers make goods and provide services. Non-elite workers–that is, workers without advanced education or supervisory responsibilities–play a special role, because there are so many of them. The economy can grow (just like a self-driving car can move forward) (1) if workers can make an increasing quantity of goods and services each year, and (2) if non-elite workers can afford to buy the goods that are being produced. If these workers find fewer jobs available, or if they don’t pay sufficiently well, it is as if the engine of the self-driving car is no longer working. The car could just as well fall apart into 1,000 pieces in the driveway.

If the wages of non-elite workers are too low, they cannot afford to pay very much in taxes, so governments are adversely affected. They also cannot afford to buy capital goods such as vehicles and homes. Thus, depressed wages of non-elite workers adversely affect both businesses and governments. If these non-elite workers are getting paid well, the “make/buy loop” is closed: the people whose labor creates fairly ordinary goods and services can also afford to buy those goods and services.

Recurring Needs of Car/Economy

The economy, like a car, has recurring needs, analogous to monthly lease payments, insurance payments, and maintenance costs. These would include payments for a variety of support services, including the following:

  • Government programs, including payments to the elderly and unemployed
  • Higher education programs
  • Healthcare

Needless to say, the above services tend to keep rising in cost, whether or not the wages of non-elite workers keep rising to keep up with these costs.

The economy also needs to purchase a portfolio of goods on a very regular basis (weekly or monthly), or it cannot operate. These include:

  • Fresh water
  • Food of many different types, including vegetables, fruits, and grains
  • Energy products of many types, such as oil, coal, natural gas, and uranium. These needs include many subtypes suited to particular refineries or electric power plants.
  • Minerals of many types, including copper, iron, lithium, and many others

Some of these goods are needed directly by the workers in the economy. Other goods are needed to make and operate the “tools” used by the workers. It is the growing use of tools that allows workers to keep becoming more productive–produce the rising quantity of goods and services that is needed to keep the economy growing. These tools are only possible through the use of energy products and other minerals of many kinds.

I have likened the necessary portfolio of goods the economy needs to ingredients in a recipe, or to chemicals needed for a particular experiment. If one of the “ingredients” is not available–probably because of prices that are too high for consumers or too low for producers–the economy needs to “make a smaller batch.” We saw this happen in the Great Recession of 2007 to 2009. Figure 1 shows that the use of several types of energy products, plus raw steel, shrank back at exactly the same time. In fact, the recent trend in coal and raw steel suggests another contraction may be ahead.

Figure 1. World Product Consumption, indexed to the year 2000, for selected products. Raw Steel based on World USGS data; other amounts based of BP Statistical Review of World Energy 2016 data.

Figure 1. World Product Consumption, indexed to the year 2000, for selected products. Raw Steel based on World USGS data; other amounts based of BP Statistical Review of World Energy 2016 data.

The Economy Re-Optimizes When Things Go Wrong 

If you have a Global Positioning System (GPS) in your car to give you driving directions, you know that whenever you make a wrong turn, it recalculates and gives you new directions to get you back on course. The economy works in much the same way. Let’s look at an example: 

Back in early 2014, I showed this graph from a presentation given by Steve Kopits. It shows that the cost of oil and gas extraction suddenly started on an upward trend, about the year 1999. Instead of costs rising at 0.9% per year, costs suddenly started to rise by an average of 10.9% per year.

Figure 1. Figure by Steve Kopits of Westwood Douglas showing trends in world oil exploration and production costs per barrel. CAGR is "Compound Annual Growth Rate."

Figure 2. Figure by Steve Kopits of Westwood Douglas showing trends in world oil exploration and production costs per barrel. CAGR is “Compound Annual Growth Rate.”

When costs were rising by only 0.9% per year, it was relatively easy for oil producers to offset the cost increases by efficiency gains. Once costs started rising much more quickly, it was a sign that we had in some sense “run out” of new fields of easy-to-extract oil and gas. Instead, oil companies were forced to start accessing fields with much more expensive-to-produce oil and gas, if they wanted to replace depleting fields with new fields. There would soon be a mismatch between wages (which generally don’t rise very much) and the cost of goods made with oil, such as food grown using oil products.

Did the invisible hand sit idly by and let business as usual continue, despite this big rise in the cost of extraction of oil from new fields? I would argue that it did not. It was clear to business people around the world that there was a large amount of coal in China and India that had been bypassed because these countries had not yet become industrialized. This coal would provide a much cheaper source of energy than the oil, especially if the cost of oil appeared likely to rise. Furthermore, wages in these countries were lower as well.

The economy took the opportunity to re-optimize. Part of this re-optimization can be seen in Figure 1, shown earlier in this post. It shows that world coal supply has grown rapidly since 2000, while oil supply has grown quite slowly.

Figure 3, below, shows a different kind of shift: a shift in the way oil supplies were distributed, after 2000. We see that China, Saudi Arabia, and India are all examples of countries with big increases in oil consumption. At the same time, many of the developed countries found their oil consumption shrinking, rather than growing.

Figure 2. Figure showing oil consumption growth since 2000 for selected countries, based on data from BP Statistical Review of World Energy 2016.

Figure 3. Figure showing oil consumption growth since 2000 for selected countries, based on data from BP Statistical Review of World Energy 2016.

A person might wonder why Saudi Arabia’s use of oil would grow rapidly after the year 2000. The answer is simple: Saudi Arabia’s oil costs are its costs as a producer. Saudi Arabia has a lot of very old wells from which oil extraction is inexpensive–perhaps $15 per barrel. When oil prices are high and the cost of production is low, the government of an  oil-exporting nation collects a huge amount of taxes. Saudi Arabia was in such a situation. As a result, it could afford to use oil for many purposes, including electricity production and increased building of highways. It was not an oil importer, so the high world oil prices did not affect the country negatively.

China’s rapid rise in oil production could take place because, even with added oil consumption, its overall cost of producing goods would remain low because of the large share of coal in its energy mix and its low wages. The huge share of coal in China’s energy mix can be seen in Figure 4, below. Figure 4 also shows the extremely rapid growth in China’s energy consumption that took place once China joined the World Trade Organization in late 2001.

Figure 3. China energy consumption by fuel, based on BP 2016 SRWE.

Figure 4. China energy consumption by fuel based on BP 2016 Statistical Review of World Energy.

India was in a similar situation to China, because it could also build its economy on cheap coal and cheap labor.

When the economy re-optimizes itself, job patterns are affected as well.  Figure 5 shows the trend in labor force participation rate in the US:

Figure 4. US Civilian labor force participation rate, based on US Bureau of Labor Statistics data, as graphed by fred.stlouisfed.org.

Figure 5. US Civilian labor force participation rate, based on US Bureau of Labor Statistics data, as graphed by fred.stlouisfed.org.

Was it simply a coincidence that the US labor force participation rate started falling about the year 2000? I don’t think so. The shift in energy consumption to countries such as China and India, as oil costs rose, could be expected to reduce job availability in the US. I know several people who were laid off from the company I worked for, as their jobs (in computer technical support) were shifted overseas. These folks were not alone in seeing their jobs shipped overseas.

The World Economy Is Like a Car that Cannot Make Sharp Turns 

The world economy cannot make very sharp turns, because there is a very long lead-time in making any change. New factories need to be built. For these factories to be used sufficiently to make economic sense, they need to be used over a long period.

At the same time, the products we desire to make more energy efficient, for example, automobiles, homes, and electricity generating plants, aren’t replaced very often. Because of the short life-time of incandescent light bulbs, it is possible to force a fairly rapid shift to more efficient types. But it is much more difficult to encourage a rapid change in high-cost items, which are typically used for many years. If a car owner has a big loan outstanding, the owner doesn’t want to hear that his car no longer has any value. How could he afford a new car, or pay back his loan?

A major limit on making any change is the amount of resources of a given type, available in a given year. These amounts tend to change relatively slowly, from year to year. (See Figure 1.) If more lithium, copper, oil, or any other type of resource is needed, new mines are needed. There needs to be an indication to producers that the price of these commodities will stay high enough, for a long enough period, to make this investment worthwhile. Low prices are a problem for many commodities today. In fact, production of many commodities may very well fall in the near future, because of continued low prices. This would collapse the economy.

The World Economy Can’t Go Very Far Backward, Without Collapsing

The 2007-2009 recession is an example of an attempt of the economy to shrink backward. (See Figure 1.) It didn’t go very far backward, and even the small amount of shrinkage that did occur was a huge problem. Many people lost their jobs, or were forced to take pay cuts. One of the big problems in going backward is the large amount of debt outstanding. This debt becomes impossible to repay, when the economy tries to shrink. Asset prices tend to fall as well.

Furthermore, while previous approaches, such as using horses instead of cars, may be appealing, they are extremely difficult to implement in practice. There are far fewer horses now, and there would not be places to “park” the horses in cities. Cleaning up after horses would be a problem, without businesses specializing in handling this problem.

What World Leaders Can Do to (Sort of) Fix the Economy

There are basically two things that governments can do, to try to make the economy (or car) go faster:

  1. They can encourage more debt. This is done in many ways, including lowering interest rates, reducing bank regulation, encouraging lower underwriting standards or longer term loans, taking out greater debt themselves, guaranteeing debt of non-creditworthy entities, and finding new markets for “recycled debt.”
  2. They can increase complexity levels. This means increasing output of goods and services through the use of more and better machines and through more training and specialization of workers. More complex businesses are likely to lead to more international businesses and longer supply chains.

Both of these actions work like turbocharging a car. They have the possibility of making the economy run faster, but they have the downside of extra cost. In the case of debt, the cost is the interest that needs to be paid; also the risk of “blow-up” if the economy slows. There is a limit on how low interest rates can go, as well. Ultimately, part of the output of the economy must go to debt holders, leaving less for workers.

In the case of complexity, the problem is that there gets to be increasing wage disparity, when some employees have wages based on special training, while others do not. Also, with capital goods, some individuals are owners of capital goods, while others are not. The arrangement creates wealth disparity, besides wage disparity.

In theory, both debt and increased complexity can help the economy grow faster. However, as I noted at the beginning, it is the wages of the non-elite workers that are especially important in allowing the economy to continue to move forward. The greater the proportion of the revenue that goes to high paid employees and to bond holders, the less that is available to non-elite workers. Also, there are diminishing returns to adding debt and complexity. At some point, the cost of each of these types of turbo-charging exceeds the benefit of the process.

Why the Economy Works Like a Self-Driving Car

The reason why the economy acts like a self-driving car is because the economy is, in physics terms, a dissipative structure. It grows and changes “on its own,” using energy sources available to it. The result is exactly the same effect that Adam Smith was observing. What makes the economy behave in this way is the fact that flows of energy are available to the economy. This happens because an economy is an open system, meaning its borders are permeable to energy flows.

When there is an abundance of energy available for use (from the sun, or from burning fossil fuels, or even from food), a variety of dissipative structures self-organize. One example is hurricanes, which self-organize over warm oceans. Another example is plants and animals, which self-organize and grow from small beginnings, if they have adequate food energy, plus other necessities of life. Another example is ecosystems, consisting of a number of different kinds of plants and animals, which interact together for the common good. Even stars, including our sun, are dissipative structures.

The economy is yet another type of a dissipative structure. This is why Adam Smith noticed the effect of the invisible hand of the economy. The energy that sustains the economy comes from a variety of sources. Humans have been able to obtain energy by burning biomass for over one million years. Other long-term energy sources include solar energy that provides heat and light for gardens, and wind energy that powers sail boats. More recently, other types of energy have been added, including fossil fuels energy.

When energy supplies are very cheap and easy to obtain, it is easy to ramp up their use. With growing supplies of energy, it is possible to keep adding more and better tools for people to work with. I use the term “tools” broadly. Besides machines to enable greater production, I include things like roads and advanced education, which also are helpful in making workers more effective. The use of growing energy supplies allows growing use of tools, and this growing use of tools increasingly leverages human labor. This is why we see growing productivity; we can expect to see falling human productivity if energy supplies should start to decline. Falling productivity will tend to push the economy toward collapse.

One problem for economies is diminishing returns of resource extraction. Diminishing returns cause the economy to become less and less efficient. Once energy extraction starts to have a significant problem with diminishing returns (such as in Figure 2), it is like losing energy resources into a sinkhole. More work is necessary, without greater output in terms of goods and services. Indirectly, economic growth must suffer. This seems to be the problem that the economy has been encountering in recent years. From the invisible hand’s point of view, $100 per barrel oil is very different from $20 per barrel oil.

One characteristic of dissipative structures is that they keep re-optimizing for the overall benefit of the dissipative structure. We saw in Figures 3 and 4 how fuel use and jobs rebalance around the world. Another example of rebalancing is the way the economy uses every part of a barrel of oil. If, for example, our only goal were to maximize the number of miles driven for automobiles, it would make sense to operate cars using diesel fuel, rather than gasoline. In fact, the energy mix available to the economy includes quite a bit of gasoline and natural gas liquids. If we need to use what is available, it makes sense to use gasoline in private passenger cars, and save diesel for commercial use.

Another characteristic of dissipative structures is that they are not permanent. They grow for a while, and then collapse. Later, new similar dissipative structures may develop and indirectly replace the ones that have collapsed. In this way, the overall system is able to evolve in a way that adapts to changing conditions.

What Are the Likely Events that Would Cause the Economy to Collapse?

I modeled the system as being like a self-driving car. The thing that keeps the system operating is the continued growth of inflation-adjusted wages of non-elite workers. This analogy was chosen because in ecosystems in general, the energy return on the labor of an animal is very important. The collapse of a population of fish, or of some other animal, tends to happen when the return on the labor of that animal falls too low.

In the case of the fish, the return on the labor of the fish falls too low when nearby supplies of food disappear, and the fish must swim too far to obtain new supplies of food. The return on human labor would seem to be the inflation-adjusted wages of non-elite workers. We know that wages for many workers have been falling in recent years, because of competition from globalization, and because of replacement of human labor by advanced machines, such as computers and robots.

Figure 6. Bottom 50% income share, from recent Piketty analysis.

Figure 6. Bottom 50% income share, from recent Piketty analysis.

Besides the problem of falling wages of non-elite workers, earlier in this post I mentioned a number of other issues that make the wages of these workers go less far. These include growing government spending, and the growing costs of education and healthcare. I also mentioned the problem of rising debt, and the increased concentration of wealth, as we try to add complexity to solve problems. All of these issues make it hard for “demand”–which might also be called “affordability”–to be sufficiently great to allow commodity prices to rise to the level producers need for profitability.

Prices Play a Very Important Role in the Economy

The pricing system is the communication system of the economy, as a dissipative structure. One use of energy is to create “information.” Prices are a high level form of information.

One big area where prices come up is with respect to the whole portfolio of products needed on a regular basis, which I mentioned earlier (water, food, energy products, and mineral products). In order for the system to continue working, the prices need to be both:

  • Affordable by consumers
  • High enough for producers to cover their costs, including a margin for taxes and reinvestment

Now, in 2017, prices are “sort of” affordable for consumers, but they are not high enough for producersOil companies will go out of business if these low prices persist.

Back in 2007 and 2008, we had the reverse problem. Prices were high enough for producers, but too high for consumers (especially non-elite workers). This is a big part of what pushed the economy into recession.

We noticed back in Figure 1 that quantities of energy products/goods tend to move up and down together. A similar phenomenon holds true for prices: commodity prices tend to rise and fall together (Figure 7).  The reason this happens is because when the world economy is moving swiftly forward (higher wages, more building activity, more debt), demand tends to be high for many different types of materials at the same time. When the economy slows, prices of all of these commodities tend to fall at the same time. Inflation tends to fall as well.

Figure 6. Prices of oil, call and natural gas tend to rise and fall together. Prices based on 2016 Statistical Review of World Energy data.

Figure 7. Prices of oil, coal and natural gas tend to rise and fall together. Prices based on 2016 Statistical Review of World Energy data.

If prices cannot rise high enough for producers, it is likely a sign that wages of non-elite workers are already too low. The affordability loop mentioned earlier is not being closed, so prices cannot stay up at a high enough level to maintain production.

Most Modelers Overlook the Fact that the Economy Is an Open System

Most energy models are based on one of two views of the world: (1) fossil fuel energy supply will eventually run short, so we must use it as sparingly as possible; or (2) we want to reduce the use of fossil fuels as quickly as possible, because of climate change. Because of these issues, we want to leverage the fossil fuel energy we have, to as great an extent as possible, with energy that we can somehow capture from renewable sources, such as the solar energy or wind. With this view of the situation, our major objective is to create “renewables” that use fossil fuel energy as efficiently as possible. The hope is that these renewables, together with the actions of governments, will allow the economy to gradually shrink back to a level that is somehow more sustainable.

Implicit is this model is the view that the economy, and the world in general, is a closed system. Our current government and business leaders are in charge; they can make the changes they would prefer, without the invisible hand causing an unforeseen problem. Very few have realized that the economy cannot really shrink back very much; past history, as well as the nature of dissipative structures, shows that economies tend to collapse. The only economies that have at least temporarily avoided that fate have shifted toward less complexity–for example, eliminating huge government programs, such as armies–rather than yielding to the temptation to add ever more complexity, such as wind turbines and solar panels.

The real situation is that we have a here-and-now problem of too low wages for non-elite workers. Commodity prices are also too low. Intermittent renewables such as wind and solar are thought to be solutions, but it is well-known that intermittent renewables cause too-low prices for other types of electricity generation, when added to the electric grid. Thus, they are likely part of the low-price problem, not part of the solution. Temporary solutions, if there are any, are likely in the direction of cutting back on government expenditures and reducing regulation of banks. In fact, with the election of Trump and the passage of Brexit, the economy seems to again be re-optimizing.

We also know that dissipative structures do not shrink back well, at all. They tend to collapse, instead. For example, you, as a human being, are a dissipative structure. If your food intake were cut back to, say, 500 calories per day, how well would you do? If you could not get along on a very low calorie diet, how would you expect the economy to shrink back to a renewables-only level? Renewables that can be used in a shrunken economy are scarce; we don’t have a huge number of trees to cut down. We cannot maintain the electric grid without fossil fuels.

The assumption that the economy is a closed system is pretty much standard when modeling our current energy situation. This occurs because, until recently, we did not understand that the self-organizing properties of inanimate systems were as important as they are. Also, modeling of the economy as a closed system, rather than an open system, makes modeling much easier. The problem is that closed system modeling doesn’t really tell the right story. For a discussion of some of the issues associated with this mis-modeling, see the recent academic paper, Is the increased use of biofuels the road to sustainability? Consequences of the methodological approach.

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.
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2,573 Responses to Oops! The economy is like a self-driving car

  1. Glenn Stehle says:

    Leaner, Fitter, Faster: US Shale 2.0 Challenges OPEC Again

    While more than 100 [shale companies] have gone bankrupt since the start of 2015, the companies that survived have reshaped themselves into fitter, leaner and faster versions that can thrive with oil at $50 a barrel. Now, it’s OPEC that’s seeking solutions, desperate to drive prices up even further in a push to repair the economies of the countries it serves.

    “The shale business is rejuvenated because of the difficulties it has been through,” Ben van Beurden, the chief executive officer of Royal Dutch Shell Plc., said in comments last month.

    After a two-year downturn spurred by oil’s plunge to $26 from $100, U.S. production is on the rise once again, opening the door for another showdown with the Organization of Petroleum Exporting Countries. The number of U.S. drilling rigs has grown 91 percent to 602 in just over nine months. Meanwhile, production has gained more than 550,000 barrels a day since the summer, rising above 9 million barrels a day for the first time since April.

    And as shale returns with a vengeance, it’s not just the pioneer cowboys that dominated the first phase of the revolution in the Bakken of North Dakota. This time, Exxon Mobil Corp. and other major oil groups are joining the rush. It’s a new reality that OPEC and Russia — the main forces behind the production cuts approved last year as a solution to re-balance the global market — are starting to acknowledge….

    Long a world leader in multi-billion dollar oil developments that take years to build and even longer to profit, Exxon is diverting about one-third of its drilling budget this year to shale fields that will deliver cash flow in as little as three years, Chief Executive Officer Darren Woods said this week. In January, Exxon agreed to pay as much as $6.6 billion in an acquisition designed to more than double the company’s footprint in the Permian basin of west Texas and New Mexico, the most fertile U.S. shale field.

    Add to the mix the election of President Donald Trump, carrying the promise of fewer regulations, added pipelines and energy independence, and you see why the mood at CERAWeek, the conference that every year gathers oil executives, bankers and investors in Houston, will be far brighter next week than in 2016….

    So far this year, U.S. energy companies have raised $10.5 billion in fresh equity, with shale and oil service groups drawing the most investment, the best start of the year since at least 1999 and equal to a third of what the sector raised in the whole of 2015….

    It’s not just more activity. The growth is also the result of far more efficient ways to drill than existed only two years earlier. With oil companies benefiting from lower service costs, Shell reckons it can drill a well today for about $5.5 million, down a whopping 56 percent from 2013. And the new wells, thanks to more powerful fracking techniques, are yielding more barrels than ever.

    The average Permian well now gushes 668 barrels per day, compared to just 98 barrels four years ago, according to government data.

    “The bottom line is we think they can produce as much oil out of the Permian as they want to,” Greg Armstrong, the boss of Plains All American Pipeline LP, told investors in February. “It’s a matter of rigs, just a manufacturing operation.”

    At the same time, some of the industry’s most influential voices say they are keeping a tight hold on production budgets, vowing not to repeat the mistakes of the first phase of the shale revolution from 2010 to 2015, when companies spent well above the cash they generated.

    Marathon Oil Corp., for example, told investors last month it expects to boost output by about 20 percent a year from 2017 to 2021 even if oil prices stay at around $55. “We plan to achieve these impressive growth rates within cash flow, inclusive of the dividend,” Marathon CEO Lee Tillman said in February.

    For a U.S. industry that once seemed ever-dependent on $100 oil, the return to profit with lower prices was a big surprise….

    “Today, almost every single shale basin is economic in the $35-$50 a barrel price range,” said Regina Mayor, head of energy at KPMG LLP in Houston.

    • Glenn Stehle says:

      Meanwhile, the quasi-religious fanatics on Peak Oil Barrel are still desperately clinging to their obsolete peak oil NOW theology, peering through the rearview mirror, as if nothing in the shale industry has changed since 2010 to 2015. (Can we say Fast Eddy?)

      The Future of US Light Tight Oil (LTO)

      The models all use the same well profiles from 2006 to 2016….

      The Peak OIl Barrel analysis assumes the average shale well completed between 2012 and 2016 an EUR of 219,000 boe.

      However, shale wells completed in the sweeter spots of the Permian since 2015 using Fracking 2.0 will exceed 219,000 boe in the first year of production alone, with wells still producing almost 400 BOEPD after the first 12 months of production.

      And now Permian producers are experimenting with Fracking 3.0, with early signs that this newer technology will enhance well performance even more.

      Doctrine and dogma, the endless repetition of catechisms, that’s what seems to dominate human “reason.” Daniel Yankelovich hit the head squarley on the head when in Coming to Public Judgment he wrote:

      Many years ago I had ceased to be a stranger to the phenomenon of people’s resistance to facts. I had learned that the facts do not speak for themselves. If the facts happen to run counter to people’s deeply engrained prejudices or interests or emotional commitments, then so much worse for the facts….

      It takes both moral and emotional fortitude to confront the familiar defenses of procrastination, denial, and avoidance, as well as other forms of defense well known to psychologists such as projection, scapegoating, and rationalization.

      When people encounter demands to change their views of the world, they will sometimes go to great lengths to hold onto their outlook even if in the process, they distort reality.

      — DANIEL YANKELOVICH, Coming to Public Judgment

      • Duncan Idaho says:

        Look on the bright side Glenn.
        Trump is Turning EPA into Fossil Fuel Vending Machine.
        And if all those numbers still stay red, I just don’t know what to tell you.

        • Glenn Stehle says:

          Well at least Trump and Clinton aren’t eat up with the dumbass the way Bernie Sanders is, and realize that modern capitalist, consumerist economies need abundant energy to continue to function.

          Gail adds an second requirement, arguing that the energy must be both abundant and cheap.

      • Peak oil has to do with affordability and price. If the US dollar is high, the price of oil tends to fall. Raising the interest rate is a way to raise the level of the dollar, and make the price fall.

        The Peak Oil Barrel folks might be right (for the wrong reason), if the current round of interest rate increases has the same adverse impact as prior increases in interest rates have had.

        Bank of America history of Financial Events following Fed Tightening

        I talk about the role of the previous round of Fed increases in my article, Oil Supply Limits and the Continuing Financial Crisis.

        • Glenn Stehle says:


          I agree. But the folks at Peak Oil Barreil become quite hostile to any suggestion that peak oil might occur for that reason.

          If peak oil happens NOW, it will because we enter a global recession, more than likely because of the bursting of the most massive debt bubble ever known to humankind.

          If that happens, oil demand will of course plummet, just like it did in the 1980s when Paul Volcker caused a global recession with his insane monetary tightening.

          And with so much demand destruction, the Saudis couldn’t cut supply sufficiently to maintian the oil price, and when they stopped cutting oil supplies as a result oil prices cratered.

      • Kurt says:

        Oh no, now you’ve done it. FE incoming in 5…4…3…2…1.

      • xabier says:

        Truth generally bounces off people like water off a duck’s back. Or they shake it off, like a dog.

        I find this odd, as I always feel a strange kind of exaltation when even an unpleasant or uncomfortable truth has been stated – a kind of mental liberation.

        I have even seen a nationalist fanatic scornfully throw away a map – entirely accurate, but with some displeasing historical borders from the point of view of their ideology, marked on it.

        Objective truth abolished, just like that! A map! Now of course maps can lie, but this was not one of those.

        ‘Why do you believe in the Gods?’ ‘Well, I’ve long since lost any belief in Mankind…..’

      • Fast Eddy says:

        Glenn – why don’t you quote Daniel Yergin — he’s the go to guy with all the awards who when looking to add credibility to the lies and disinformation that is shale…

        Yes yes yes — shale is now cheaper to produce than conventional oil …. sure it is Glenn. Why wouldn’t it be?

        If so then why is the entire industry essentially insolvent?

        For several years, the U.S. Shale Revolution seemed like it was going to defy the laws of gravity (and finance) to provide the country with limitless oil production forever. However, something started to go seriously wrong as these shale oil companies reported their financial earnings. One by one, these oil companies financial losses and debts continued to pile up.


        • Glenn Stehle says:

          Fast Eddy,

          How many times are you going to keep posting that defactualized nonsense from SRSrocco?

          It’s become your catechism.

          Do you really believe that by repeating the distortions and partial truths ad nauseaum that that’s somehow goiing to make them come true?

          • Fast Eddy says:

            It won’t stop Glenn ….

            Until you acknowledge the facts are the facts — shale is sea of red ink propped up by MSM hype, more-ons who believe it and the invisible hand of the Fed.

            For several years, the U.S. Shale Revolution seemed like it was going to defy the laws of gravity (and finance) to provide the country with limitless oil production forever. However, something started to go seriously wrong as these shale oil companies reported their financial earnings. One by one, these oil companies financial losses and debts continued to pile up.

            Chesapeake loses $4.8 billion in 2016

            At the end of February, Chesapeake Energy announced it posted a net loss of $4.8 billion during 2016. The loss resulted from lower commodity prices, lower production values and a decrease in the value of the company’s oil and gas assets. Average daily production for the fourth quarter was around 574,500 barrels of oil equivalent per day, including 108,00 coming from the Utica shale play. http://businessjournaldaily.com/chesapeake-reports-net-loss-of-4-8-billion-in-2016/

      • Fast Eddy says:

        Chesapeake loses $4.8 billion in 2016

        At the end of February, Chesapeake Energy announced it posted a net loss of $4.8 billion during 2016. The loss resulted from lower commodity prices, lower production values and a decrease in the value of the company’s oil and gas assets. Average daily production for the fourth quarter was around 574,500 barrels of oil equivalent per day, including 108,00 coming from the Utica shale play.


        This is fascinating…. on one hand we have oil prices over $50 …. apparently new shale technologies have slashed the costs of extracting shale to much lower than conventional…

        And yet this major players loses nearly $5 billion dollars!

        So of a bitch — that is impressive stuff!!!

        And I see: ‘Chesapeake to pay new CEO a $22M package’ Wow! So if he loses 10 billion in 2017 does he get 44M?

        I know nothing about running an oil business — but seeing as this is a fake oil business — and that losing money is the benchmark for success….

        I guarantee that if I am hired as the CEO I can drive those loses to 20 billion by the end of 2017 — and the share price will at least double.

        If anyone at Chesapeake is listening here is my strategy:

        – buy more shale plays and make up for the losses on each barrel by increasing the total number of barrels that we pump out of the ground

        – I will deploy the Swiss Cheese strategy — in order to get as many barrels out of the ground by the end of the year I will triple the number of rigs in play — we’ll get it so those plays are more crowded than a whorehouse offering free trial runs….

        – I will purchase a company yacht and a bigger better company jet

        – I will increase the CEO expense account to ‘unlimited’

        – I will ring up the Fed and let them know we will need 500 billion to buy back shares

        – I will bring Don Draper out of retirement and get him to take the hype and spin to new levels — we’ll be paying him the big bucks to outdo the ‘Saudi America’ tag line….. he will be tasked with turning a circle into a square … with convincing the cattle that 1- 7 = +10

        I am waiting by the phone for the call…. I look forward to this new challenge — I am beyond confident that I can meet the loss targets and make contribute to making Chesapeake a market leader and that I can drive shareholder value.

        • Dave says:

          It is Red as far as anyone can see.
          The majors are going into debt to pay dividends, and the independents can’t stop drilling, or the debt game is up.
          They had better get the G5 before the ponzi crashes, and the rubes catch on.

          • Fast Eddy says:

            Shale was feeding us a stream of lies in 2009 — and it is feeding us a stream of lies now.

            It is an industry based 100% on lies —- right up there with solar and Tesla.

            Different only in that at least the lies keep the oil flowing — and BAU alive a little longer

            • Fast Eddy says:

              You know you are being fed lies when….

              Bloomberg: ‘The second coming of shale could be even more powerful than the first’

              Damn — looks like Don Draper has already been hired by a competitor…. I am impressed…. Saudi America was bloody good…

              But ‘Second Coming’ — that is sheer genius….

        • Fast Eddy says:

          The evidence provided in this article showing the continued financial disintegration at these top three oil companies suggests that the U.S. energy sector is in serious trouble.

          We must remember, the top oil companies are supposed to be the most profitable.

          However, if we take a look at what is taking place in the top shale oil and gas producers, the situation is even more dire.

          I have republished this chart from a previous article showing that the shale oil and gas industry hasn’t really made a profit since 2009:

          While some of the companies made free cash flow profits in various years, as an industry, these oil and gas producers have been in the RED since the U.S. Shale Energy Industry really took off in 2009.

          So, the notion that rising oil production from increased drilling rig activity is going to change the SEA OF RED taking place in the entire U.S. energy sector, suggests individuals or the market has gone completely insane.


        • Glenn Stehle says:

          Fast Eddy,

          Well once again you put your ignorance of the oil and gas business, which borders on the colossal, on display for the whole world to see.

          As I have tried to explain before, Chesapeak is predominately a natural gas producer, not an oil producer.

          For instance, in 2015 only 17% of Chesapeak’s boe was from oil production (6 MCF of natural gas = 1 BOE). The remainder was from natural gas and NGLs.

          This is not rocket science. The reason that Chesapeake’s bottom line is suffering, and those of predominatley oil producing companies not so much, is because the price of natural gas remains in the basement, only a fraction of what it was in 2000. Even with the aid of Fracking 2.0, the low price burden is just too much to overcome for the natural gas producers.

          • Fast Eddy says:

            The thing is….

            The biggest oil producers are also the biggest gas producers…. so that pretty much defeats your argument explaining why Chesapeake is such a piece of shit…. all these plays are pieces of shit.

            What are the largest shale-focused companies?

            EOG Resources (NYSE:EOG) has quickly become one of the nation’s leading oil producers thanks to its prime positions in the Bakken, Eagle Ford, and Permian formations. In fact, according to the Railroad Commission of Texas (which, by a quirk of political history, regulates natural resources and the environment), EOG Resources was the state’s largest oil producer in 2015, averaging 255,101 barrels of oil per day — 9.3% of Texas’ output. EOG Resources also ranked as Texas’ fifth-largest gas producer, accounting for 3.8% of the gas extracted.

            Shale-focused peer Devon Energy (NYSE:DVN) ranked as Texas’ second-largest oil producer in 2015, pulling 148,688 barrels per day from the Eagle Ford and Permian formations — 5.4% of Texas’ production. It was also the second-largest natural gas producer in the state, accounting for 8.8% of gas output.

            ExxonMobil (NYSE:XOM) subsidiary XTO Energy was Texas’ largest natural gas producer last year, accounting for 10% of production. It also ranks as the nation’s largest natural gas producer, thanks to its prime position in not only Texas’ shale plays but also the Marcellus and Utica formations. That said, according to the Pittsburgh Business Times, XTO was only the eighth-largest producer in Pennsylvania’s sections of the Marcellus/Utica plays in 2015. Instead, the paper reported, the top producer in the Keystone State’s shale gas plays was EQT (NYSE:EQT). Meanwhile, Chesapeake Energy (NYSE:CHK) was the top producer in Ohio, where it has been a leader in developing the Utica shale.

            Let’s see if EOG and Devon make The List —– aha — there they are — two of the biggest shale oil producers are on The Red Sea List.

            Alas Exxon is about to right this disaster by diving into the shale patch https://srsroccoreport.com/end-of-the-u-s-major-oil-industry-era-big-trouble-at-exxonmobil/

            • Glenn Stehle says:

              Fast Eddy,

              Well once agian, what you cite are just more partial truths, carefully selected of course, tin order to distort reality.

              You have this uncanny ability to cherry pick those companies that bolster your case, while omitting those that do not. The tactics you use to disinform actually has a name. It is called “lying by omission.”

              And your chant repeated ad nauseaum about “a sea of red ink” is meaningless. In every horse race there is, after all, only one winner, and a sea of losers.

              If we go take a look at Devon’s and EOG’s 2016 Annual Reports, which detail their investment portfolios, what we find is that they are both heavily weighted to natural gas production, and that their holdings in the Permian Basin are almost nil. Previously, there was a great deal of competition and one-upmanship between EOG and Pioneer as to whether the Eagle Ford or the Permian was the better basin. EOG bet heavily on the Eagle Ford. It lost.

              Here’s what it looks like. These companies have almost nothing to do with what is going on in the Permian Basin.

            • Fast Eddy says:

              All the big players are bleeding out Glenn…. I am cherry picking nothing.

              I showed you two of the biggest shale OIL players — they are on this list:

              Feel free to make up bogus excuses. The numbers do not lie.

            • Glenn Stehle says:

              Fast Eddy,

              Wrong again.

              All the big players are not “bleeding out.”

              Only those whose portfolios are heavily weighted in high-cost conventional, deep water, Canadian oil sands, tertiary recovery, natural gas, and the less prolific shale basins are “bleeding out.”

              Those who are operating almost exclusively in the Perman Basin, like Pioneer Natural Resources, Concho Resources and Diamondback Energy, are doing just fine.

              I could just as easily make a chart showing the financial results of shale companies who operate almost exclusively in the Permian Basin, with actual fiancial results for 2015 and 2016 instead of predictions made back in 2015 as SRRocco does, and it would paint an entirely different picture than SRRocco’s cherry picked (and outdated) data does.

              Heck, even Continental Resources, an exclusive shale player who operates predominately in what is undoubtely the least prolific of the shale basins, the Williston (or Bakken), was in the black last year.

            • Fast Eddy says:

              OKLAHOMA CITY, May 4, 2016 /PRNewswire/ — Continental Resources, Inc. (NYSE: CLR) (the “Company”) today reported a net loss of $198.3 million, or $0.54 per diluted share, for the quarter ended March 31, 2016. Adjusted net loss for first quarter 2016 was $150.5 million, or $0.41 per diluted share.


              OKLAHOMA CITY, Aug. 3, 2016 /PRNewswire/ — Continental Resources, Inc. (NYSE: CLR) (the “Company”) today reported a net loss of $119.4 million, or $0.32 per diluted share, for the quarter ended June 30, 2016.


              Continental Resources Reports Third Quarter 2016 Results

              Continental Resources, Inc. (NYSE: CLR) (the “Company”) today reported a net loss of $109.6 million, or $0.30 per diluted share, for the quarter ended September 30, 2016.


              For full-year 2016, the Company reported a net loss of $399.7 million, or $1.08 per diluted share.


            • Glenn Stehle says:

              Fast Eddy,

              That’s right. i should have said:

              Heck, even Continental Resources, an exclusive shale player who operates predominately in what is undoubtely the least prolific of the shale basins, the Williston (or Bakken), was in the black the last quarter of 2016.

              That Continental was in the black the last quarter makes perfect sense, considering what the price of oil did last year.

            • Fast Eddy says:

              Quarterly results can be massaged to create hype as in ‘yes we lost hundreds of millions BUT we made money in the 4th quarter — things are looking up — just wait till next year! (suckers)’

              What matters is the number — at the bottom – at the end — of the year.

              ‘For full-year 2016, the Company reported a net loss of $399.7 million.’

              ‘For full-year 2016, the Company reported a net loss of $399.7 million.’

              ‘For full-year 2016, the Company reported a net loss of $399.7 million.’

              ‘For full-year 2016, the Company reported a net loss of $399.7 million.’

              (just like the loss the year before – and the year before — and the year before — and just like the loss we are going to see again at the end of 207.

              In your world that is apparently – SUCCESS!

              Now I don’t want you to say you don’t remember this beating — let’s make it memorable:

              I’ve paid my dues
              Time after time.
              I’ve done my sentence
              But committed no crime.
              And bad mistakes ‒
              I’ve made a few.
              I’ve had my share of sand kicked in my face
              But I’ve come through.

              (And I need just go on and on, and on, and on)

              I am the champion, Glenn,
              And I’ll keep on fighting ’til the end.
              I am the champion
              I am the champion
              No time for Glenn
              ‘Cause I am the champion of the world.

              I’ve taken my bows
              And my curtain calls.
              You brought me fame and fortune, and everything that goes with it.
              I thank you all.
              But it’s been no bed of roses,
              No pleasure cruise.
              I consider it a challenge before the whole human race,
              And I ain’t gonna lose.

              (And I need just go on and on, and on, and on)

              I am the champion, Glenn,
              And I’ll keep on fighting ’til the end.
              I am the champion
              I am the champion
              No time for Glenn
              ‘Cause I am the champion of the world.

              I am the champion, Glenn,
              And I’ll keep on fighting ’til the end.
              I am the champion
              I am the champion
              No time for Glenn
              ‘Cause I am the champion of the world.

            • Glenn Stehle says:

              Fast Eddy,

              So you do not believe that a company being able to sell the product it produces at a price 71% higher at the end of the year than it did at the first of the year translates into more cash flow and greater profits?

              You believe that Continental Resources’ positive earnings for the fourth quarter are a result of the fact hat “Quarterly results can be massaged to create hype,” and not the 71% higher oil prices?

              Lordy, Lordy! Who can argue with “logic” like that?

            • It’s like you guys are arguing about how many pieces of the Titanic hit the bottom of the ocean.

              The economy died a long time ago. The only game in town is redistribution–to the Dominant Class–until Collapse. Just enjoy the kabuki.

            • Fast Eddy says:

              I could see them losing money in a single quarter — if we assumed they have a 40 buck break even…. not 3 quarters.

              What happened in 2015? Surely that should have been a reasonable year for them — oh right — the new ‘technology’ was not available

              How companies massage their profits to beat market forecasts

              I have been involved in running businesses for 20+ years….. I know how to put lip stick on a pig if I want the last quarter to look good…. it is not rocket science.

              Here’s the thing Glenn – as has been explained to you — shale does not matter — even if shale could make money at $10 it does not matter.

              There is not enough of it to make a difference. We burn over 90m barrels of oil per day — shale produces less than 5.

              What part of that do you not understand?

          • Fast Eddy says:

            Oh look – another chart! An upside down sea of red….

            Bust In The US Shale Patch—–$36 Billion Of Negative Free Cash Flow In The Bakken

            The Death of the Great Bakken Oil Field has begun and very few Americans understand the significance. Just a few years ago, the U.S. Energy Industry and Mainstream media were gloating that the United States was on its way to “Energy Independence.”

            The Great Bakken Oil Field is now down a stunning 25% from its peak in just a little more than a year and half ago:


            None of these plays has ever made sense — ever. They were created and sold based on a lie.

            And as we can see with the Bakken – the lie is completely exposed now…. as it will be with the other plays.

            Shale is a retirement party Glenn —- conventional oil is done — and we are sticking a billion pins into the shale plays in a desperate attempt to keep the party going…. the music is playing … the world is dancing …. for now…

            We are down to tipping the dregs of the wine bottles into dirty glasses…

            The hard core partiers are hunting through the empty beer bottles for ones that have a mouthful of stale warm beer in them… along with cigarette butts and back wash ….and downing them to keep the buzz going….

    • But we need a higher price, if the world is to do enough investment to maintain adequate investment in many parts of the world, to keep production up.

      Rising Permian production isn’t necessarily helpful.

      • edwinlloyd says:

        The sweet spot for the oil price seems to also be tied tightly to the net energy available after not only the raw oil itself is brought to the surface, but also what is left over in real wealth to invest in the future. If the net energy available were growing then debt would decline and the P/E ratio of stocks would come down to historical norms (as in 20th century history). The cost of oil production is not the only cost that affects all this. The other raw materials of industrial society’s needs are also in the mix.

      • Dave says:

        We can’t seem to reach a economic agreement among oil and the rest of the economy.
        The “Invisible Fist” is failing us.

      • Fast Eddy says:

        ‘Leaner, Fitter, Faster’

        ‘Second Coming’

        ‘Shale Revolution 2.0’

    • Fast Eddy says:

      I operate off of ‘if it sounds to good to be true — and the MSM is telling you it is so good it must be true (Second Coming…) …

      And the charts show oceans of red ink — then —- I conclude — it’s fake:

      For several years, the U.S. Shale Revolution seemed like it was going to defy the laws of gravity (and finance) to provide the country with limitless oil production forever. However, something started to go seriously wrong as these shale oil companies reported their financial earnings. One by one, these oil companies financial losses and debts continued to pile up.

      Chesapeake loses $4.8 billion in 2016
      At the end of February, Chesapeake Energy announced it posted a net loss of $4.8 billion during 2016. The loss resulted from lower commodity prices, lower production values and a decrease in the value of the company’s oil and gas assets. Average daily production for the fourth quarter was around 574,500 barrels of oil equivalent per day, including 108,00 coming from the Utica shale play. http://businessjournaldaily.com/chesapeake-reports-net-loss-of-4-8-billion-in-2016/

    • Dave says:

      Net income (loss) attributable to owners of Pioneer Corporation latest quarter:
      (4.1%) Thats a loss.

      And Pioneer is the best of the best at Wolfcamp B.
      The best of the Permian.

      • Fast Eddy says:

        Facts don’t matter to Glenn….

        As Gail pointed out … this is all moot:

        80% of the world’s oil has peaked, and the resulting oil crunch will flatten the economy

        Shale is not profitable — but then a lot of companies are not profitable — we keep them alive because we have no choice….

        We keep shale alive because we have a huge hole to fill in conventional reserves…

        We keep shale alive because it the least dirty shirt in a filthy laundry basket of unconventional oil…

        We keep shale alive because ‘The Second Coming’ gives people like Glenn hope.

        And no matter how many facts we throw at Glenn — he needs hope or he crashes into despair — he will never get it.

        • Whether or not shale is profitable, most of the rest of the world’s oil is not profitable, or doesn’t produce the amount of tax revenue that exporting countries need. That is a problem, completely apart from shale.

    • timl2k11 says:

      Shale oil extraction has been and always will be an act of desperation. The vastly increasing rig count betrays the dire situation.

      • Fast Eddy says:


        We know that no significant new oil reserves were found in 2016

        We know from the HSBC report and other sources – that 80% of the conventional oil fields are in decline.

        Every single day those wells are losing steam — just look at the north sea

        Collapse in crude brings North Sea fields near end of production

        We know that shale plays are drilling like mad to get that oil out of the ground.

        What is the trigger?

        A financial calamity?

        A physical oil calamity — one where there is simply not enough oil available to maintain BAU?

        We seem to be able to continue to control the financial side — I doubt you will find a banker on the planet who does not understand that the global economy is completely dependent on the central banks — but so long as the central banks reiterate their willingness to support the house of cards — nobody panics…. rather everyone just continues to dance (even though the sound track is Air Supply)… if anyone does panic they are quickly smashed (look at what happened in China last year — look at what happens when people start piling into gold driving the price up…)

        The supply of oil is much more difficult to control — the price can only rise so much without crashing the very fragile global economy…. so there is little room to maneuver…. perhaps the focus is on US shale — because deep sea and tar sands are just far too expensive to be even remotely feasible…. so the central banks do whatever it takes to keep shale alive…

        Shale depletes rapidly — with the new technologies depletion rates are accelerate….

        John Key stepped down as NZ PM a few months ago — ‘to be with his family’ — I cannot recall a head of state ever doing this …. it is not as if Key was not popular and was looking for a face-saving exit before an election…..

        Now why would he do that? What does he know?

        • timl2k11 says:

          I found this from the HSBC report very interesting:

          “Crucially, the Uppsala study argues that many giant oilfields have managed to extend their plateau phases through technology (secondary and tertiary recovery), only to experience faster declines once they actually start declining. In other words, these technologies help to bring production forward by raising the rate of depletion, rather than materially increase recovery rates and the amount of recoverable oil.”

          In other words we are able to sustain global production, but the tradeoff is that production decline, even if there were high demand, would be sudden.

        • “What does he know?”

          He knows what I know. The most likely outcome remains war. One of the generally unstated benefits of a First Strike against Russia’s Nuclear Defenses was that 3-4 billion would have died from crop failure.

          World War Three started a long time ago, just no one told the sheep. The war is presently being fought in the financial systems. And that war could trigger the collapse at an time. So this plays into your other point, the market is too vast to be controlled, thus the oil price can’t be inflated to match outstanding debts in that sector.

          Aha!! Now you get it! 😉

          All you can do is protect yourself. I was hoping we’d get into 2018 but I’m not so sure anymore.


    • Volvo740 says:

      Glenn. Here is a suggestion. Go read Steve from Virginia’s latest blog on Denialism. Then come back and let us know what you think. Right? Wrong?

  2. Question: Brilliant Light Inc ? says:

    Hi, I was chatting with someone about peak oil and they talked about Brilliant Light Inc. They reckon that they can make energy from water by converting hydrogen atoms into a structure they call a hydrino. It would mean essentially free energy. Some serious people from the energy sector are investing in it ready for the commercial launch.

    Does anyone know anything about the feasibility of this project?

    • edwinlloyd says:

      Like the provebial ‘refrigerator stare’, you don’t see what you’re not looking for. It is my expectation the after the collapse the professional econimists will suddenly see the invisible hand (now withered) that has been at work all this time. They will also be surprised to see that it’s attached to the arm of this finite world. Theories and calculations will then be forthcoming

    • Fast Eddy says:

      I woke up this morning and holy cow — I shit a 4 ounce gold nugget!

    • Bergen Johnson says:

      “They reckon that they can make energy from water by converting hydrogen atoms into a structure they call a hydrino. It would mean essentially free energy.”

      Beware of the snake oil salespeople exploiting a dire energy situation by offering up easy solutions, beckoning would be salivating investors, then when the jig is up, skedaddle to the tropics to sip pina colada’s at night and rent ski jets during the day. Remember your physics, there is no free energy as it would take energy to break the water into it’s components. The net energy result would likely be negative.

      • Fast Eddy says:

        I expect to have more gold nuggets on a daily basis — but I prefer to hedge… just in case the goose dies…. maybe those guys ‘investing’ into that scheme would like to purchase my future production?

      • Question: Brilliant Light Inc ? says:

        The bottom line would seem to be that the scientific establishment would have to be wrong about quantum physics that particles are not subject to the same laws as all other bodies. That is allegedly possible, given the struggle of particle hunters over the last decade.

        Oil seems a safer bet, all else is likely to go when that does.

    • Volvo740 says:

      That sounds amazing! How can I get in on this? I made a ton of money on cold fusion way back when, and this sounds like the next big thing.

  3. Dr. Robert Goldschmidt says:

    See FRED graph of worker compensation as a percentage of GDP:
    As much as economists would prefer to ignore it, the purchasing power of workers is the fuel that drives all democratic economic systems. Another way of viewing this is to consider it a measure of the extractive–integrative economic continuum described in extensive historical detail in the book “Why Nations Fail” by Doran Acemoglu and James Robinson.
    Workers do not care about inequality, they care about their family purchasing power and how it relates to providing housing, food, healthcare and a college education for their children. Today’s compensation represents a redistribution upwards of between $1,000 and $2,000 per month for every full-time worker in the U.S. compared to 1948-1972. The forces which continue to increasingly depress workers’ share include automation, globalization, breaching of natural limits and the reformation of monopolies. Any solution should harness the best features of Capitalism to motivate workers, executives and owners. An enlightened oligarch should understand by this point that their high return on investment is not sustainable. The evidence is two-fold — our current administration (including the “deconstruction of the administrative state) and the imminent economic downturn indicated by this graph. Far better to have a sustainable half a loaf than the crumbs of collapse. That is why I recommend a federal cap on a corporation’s profit to wage ratio based upon their W2 and earnings history. Any excess earnings above the cap would be fined 100%. Let’s take a look at the motivations. An executive committee foresees an overrun of $1 million which the government will take if they do nothing. However, given a earnings to wage cap of 0.25, they would increase payroll by $800,000 and give $200,000 to the owners. They would then apply that payroll increase in the areas that would provide the biggest payback for the company. Employees would receive wage increases, job security or a new job thereby increasing their self esteem. Finally if employees work to increase corporate profits, they will share in 80 cents on every dollar. All of this is highly motivating and builds employee-employer unity to profit and grow.

    • I very much agree that federal wages are what drives all economic system. Behind those growing wages are a combination of a growing supply of “tools” to leverage human labor. These tools are made and operated using energy, so generally energy per capita must rise. Debt must rise, to finance the building of all of these tools.

      Without this leveraging impact, it is hard to get very much growth at all.

      Business profits have been flat for the last several years, in large part because of low commodity prices. Low wages drive these low commodity prices.

    • Fast Eddy says:

      “Why Nations Fail” – this is an excellent book

    • Dr. The world’s greatest advancement occurred when workers were paid a pittance and most of the wealth was held by those in the top before the Great War.

      It is better to get everything accumulated to the top so the amount could be reinvested, instead of these amounts used for ‘living expenses’.

  4. Fast Eddy says:

    The hidden hand of the Elders…. one of many ways in which they are keeping the oil industry alive…. keep funneling cash to them even though they are already in a sea of red ink…. give them a free hand in booking reserves aka put lipstick on pigs…. instruct their MSM running dogs to publish ‘Second Coming’ spin ……and so on … and on … and on….

    The Interior Department informed coal, oil and gas companies this week they do not need to comply with a new federal accounting system that would have compelled them to pay millions of dollars in additional royalties.


  5. Fast Eddy says:

    And now for some positive news:

    Coal is the dirtiest fuel source for electricity generation. But it’s cheap and Vietnam plans to expand its coal-fired electricity generation capacity at one of the highest rates in the world. In 2016 Vietnam had more than 12 gigawatts of coal-fired power plants under construction (equivalent to about 12 nuclear power reactors).

    Another 60 gigawatts of coal-fired power capacity is planned by 2030, compared to its current electricity-generating capacity base of 39 gigawatts.


    In other news… Germany industries are threatening to move their operations to Vietnam to take advantage of cheaper electricity costs….

    The CEO of ThyssenKrupp Heinrich ‘Humpty Dumpty’ Hiesinger commented on this development stating ‘the More-On Greenies hav made za too many zolar panels and now veee hav to run za coal and za solar and za priz izzz too high for za electrizity … vee move to Vee-tnam if zay don’t fix za problem… ‘

  6. Fast Eddy says:

    And more positive news:

    Germany, Greece, Poland, other EU nations, and the United Kingdom have either committed to extending the life of existing coal plants or are planning to build new ones.

    Europe is increasingly choosing to keep the lights on with coal. A stark reversal of EU nation’s previous position.


    • Kenny Starfighter says:

      Now, now Eddie, not so… erhhh… fast! Denmark’s biggest energy producer will not be producing electricity by burning coal by 2023!


      Instead they will be using biomass!

      I’m not really sure where all the biomass will be coming from, but who cares, right? For all I know, they might have a guy named Glenn bring it in with his van on a daily basis. Sure, it would take a huge van, but I still think it is doable.

      • It is the total quantity of energy that is important. We have already been seeing a drop in world coal consumption. I expect that this is what is leading to peak energy, and with it, peak economy. Trying to substitute biomass instead is absurd!

  7. Duncan Idaho says:

    B of A says a H2 hike is going to crash the economy.
    They are very rarely dealing with reality.

  8. Fast Eddy says:

    I hope you feel better soon Glenn. Do come back when the swelling goes down.

  9. Kurt says:

    What can I say? I’m loving it. Cheap entertainment – actually it’s free!!! In this corner we have Fast Eddy, the tin foil hat wearing defender of OFW and annihilator of all things Delusistan. And, in the other corner we have Glenn, relentless advocate of shale oil and annihilator of aberrant facts. Who will prevail? Who will come out on top? Who cares?

    • Fast Eddy says:

      Do you smell that? Do you smell that?

      Smells like… victory

      • Kurt says:

        Glenn don’t surf. Glenn don’t surf.

        • Fast Eddy says:

          There is a sliver of me that actually feels sorry for Glenn…. he’s trying to argue that 1 – 8 = 10.

          He is trying very hard…. but when you start off with a fallacy (and you don’t know it) — you are destined for failure and disappointment.

    • Glenn Stehle says:

      Kurt says:

      Who cares?

      A great many people care, and they care very deeply.

      The success or failure of the shale revolution will determine if President Trump can make good on his promise to “make America energy independent.”

      It will determine whether Trump has any possiblity at all of re-industrializing the United States.

      It will determine whether we can continue to justify the endless resource wars in the Middle East, something that has cost us untold treasure ($6 trillion according to Trump) and untold amounts of blood, not just ours but the many we have killed and destroyed their lives just so we can keep the oil flowing.

      • Fast Eddy says:

        You are completely out to lunch in so many ways.

        But let’s just address one delusion:

        ‘Reindustrialize America’

        Chinese Workers Making iPhones Work 11-Hour Shifts, 6 Days A Week, For $1.50 Per Hour

        The average assembly worker in Shenzhen now makes 2000 RMB ($328) per month.

        Have you noticed that some businesses are moving operations to places like Vietnam and Cambodia — because China salaries are too high?

        Have you noticed that there is a push in China to move to robots – because humans are too expensive?

        How much do you think you’d be paying for a t-shirt … or a plastic rubbish can — if they were made by American workers?

        And you think Trump would bring these jobs back — because of shale oil?

        You do not understand the problem. Trump cannot fix it. Nobody can fix it. We have run out of cheap to produce oil – the global economy needs cheap oil to operate.

        Yes yes — we have heard that shale oil is making money at $50 — it isn’t — but let’s assume it is.

        Roughly 5 million barrels of shale oil is produced per day – total global production is 81M barrels per day https://ycharts.com/indicators/world_crude_oil_production

        That means 76 million of the barrels are losing money at $50.. Surely you have noticed that Oil Majors are collapsing — surely you have noticed that the KSA is going to pieces — what about Venezuela – Alberta — Mexico and on and on and on —- oil producers are dying with prices at $50.

        It is to the point where nobody is bothering to look for new oil — can you show me where the shale revolution is on this chart? Where are the new discoveries?

        There are none. Nadda.

        This is the end of the line for oil.

        Shale is not going to save the day.

        Trump is not going to save the day

        So take a walk with this delusional nonsense. You are wasting everyone’s time with your hopium-based rubbish

        • Actually, I think our problem may be just as much that we have run out of cheap-to-produce coal. The fact that coal production is falling is a huge problem. It is no longer economic. A lot of natural gas is not economic. A lot of oil is not economic. Even if shale were abundant and close to free, it would not save the day. We have many applications that use many different energy products. We also have applications that use a whole portfolio of other products. If any of them is lacking, we have a problem. We can gradually change our mix a bit one way or another, but that is about all.

          • Glenn Stehle says:

            If there ends up being sufficient shale oil that can be extracted at a cost of $30 to $70 a barrel, so that that becomes the marginal barrel of oil, that’s going to mean that a lot of the investments that were made in high-cost oil will end up being big money losers. These projects required $100+ barrel oil to make them profitable.

            It also means that all the sunk investment in these projects, as well as all the money that was borrowed to complete them, will have to be written down.

            The countries that need the income from $100+ dollar oil from their oil exports in order to meet their fiscal responsibilities will also be in big-time trouble.

  10. Fast Eddy says:


    How about the banks offer loans with a a ‘you decide how much to repay and when’

    So each month as long as you pay something … (let’s put a 1$ minimum on this shall we) … then you are not in default.

    And since the banks get the money at 0 or -0 interest rates — they can still make money if you pay them that dollar (if they use the shale accounting method where you just discount all other opex and claim you are profitable)

    I’ve got a mortgage renewing in April — I’ll have to forward this to the Westpac people and ask if they are offering the 100 yr option —- I am all over that MOF……

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