Why is it so difficult to make accurate long-term economic forecasts for the world economy? There are many separate countries involved, each with a self-organizing economy made up of businesses, consumers, governments, and laws. These individual economies together create a single world economy, which again is self-organizing.
Self-organizing economies don’t work in a convenient linear pattern–in other words, in a way that makes it possible to make valid straight line predictions from the past. Instead, they work in ways that don’t match up well with standard projection techniques.
How do we forecast what lies ahead? Today, some economists believe that the economy of the United States is in danger of overheating. Others believe that Italy and the United Kingdom are facing dire problems, and that these problems could adversely affect the world economy. The world economy should be our highest concern because each country is dependent on a combination of imported and exported goods. The forecasting question becomes, “How will divergent economic results affect the world’s economy?”
I am not an economist; I am a retired actuary. I have spent years making forecasts within the insurance industry. These forecasts were financial in nature, so I have had hands-on experience with how various parts of the financial system work. I was one of the people who correctly forecast the Great Recession. I also wrote the frequently cited academic article, Oil Supply Limits and the Continuing Financial Crisis, which points out the connection between the Great Recession and oil limits.
Today’s indications seem to suggest that an even more major recession than the Great Recession may strike in the not too distant future. Why should this be the case? Am I imagining problems where none exist?
The next ten sections provide an introduction to how the world’s self-organizing economy seems to operate.
[1] The economy is one of many self-organized systems that grow. All are governed by the laws of physics. All use energy in their operation.
There are many other self-organizing systems that grow. One such system is the sun. Some forecasts indicate that it will keep expanding in size and brightness for about the next five billion years. Eventually, it is expected to collapse under its own weight.
Hurricanes are a type of self-organizing system that grows. Hurricanes grow over warm ocean waters. If they travel over land for a short time, they can sometimes shrink back a bit and grow again once they have an adequate source of heat-energy from warm water. Eventually, they collapse.
Plants and animals also represent self-organizing systems that grow. Some plants grow throughout their lifetimes; others stabilize in size after reaching maturity. Animals continue to require food (a form of energy) even after they stabilize at their mature size.
We can’t use the typical patterns of these other growing self-organized systems to conclude much about the future path of the world’s economic growth because individual patterns are quite different. However, we notice that cutting off the energy supply used by any of these systems (for example, moving a hurricane permanently over land or starving a human) will lead to the demise of that system.
We also know that lack of food is not the only reason why humans die. Based on this observation, it is a reasonable conclusion that having enough energy available is not a sufficient condition to guarantee that the world economy will continue to operate as in the past. For example, a blocked shipping channel, such as at the Strait of Hormuz, could pose a significant problem for the world economy. This would be analogous to a blocked artery in a human.
[2] The use of energy products is hidden deeply within the economy. As a result, many people overlook their significance. They are also difficult for researchers to measure.
It is easy to see that gasoline provides the energy supply needed for our cars, and that electricity provides the power needed to clean our clothes. What is missing? The answer seems to be, “Everything that makes humans different from wild animals is something that was made possible by the use of supplemental energy in addition to the energy from food.”
All goods and services require the use of energy. While some of this energy use is easy to see, other portions are well hidden. Energy used in manufacturing and transport is most visible; energy used in services tends to be hidden.
Governments are major users of energy, both for their own programs and for directing energy use to others. Retirees get the benefit of goods and services made with energy products through pension checks issued by governments; researchers get the benefit of goods and services made with energy products through research grants they receive. Wars require energy.
Medical treatments are possible because of the availability of medicines and equipment made with energy products. Schools and books, as well as free time to study in schools (rather than working in the field), are possible because of energy consumption. Jobs of all kinds require the use of energy.
One thing we don’t often consider is that if energy supplies are growing sufficiently, they permit an expanding population. In fact, expanding population seems to be the single largest use of growth in energy consumption (Figure 1). Growing energy consumption also seems to be associated with prosperity.
Figure 1. World energy consumption growth for ten-year periods (ended at dates shown) divided between population growth (based on Angus Maddison estimates) and total energy consumption growth, based on the author’s review of BP Statistical Review of World Energy 2011 data and estimates from Energy Transitions: History, Requirements and Prospects by Vaclav Smil.
[3] Prices of energy services need to be low relative to overall costs of the economy. Falling energy costs relative to overall GDP tend to encourage economic growth.
Most economists expect energy prices to represent a large share of GDP costs, if energy is truly important. The statement above says the opposite. There are at least two reasons why low energy prices, and energy prices that are truly falling when inflation and productivity changes are considered, are helpful.
First, tools (broadly defined) used to leverage the labor of human workers often require considerable energy to manufacture and operate. Examples of such tools include computers, machines used in manufacturing, vehicles, and roads for these vehicles to drive on. The lower the cost to purchase and operate these tools, relative to the benefit of the tools, the more likely employers are to purchase them. If energy costs tend to fall over time, it becomes progressively easier to add more tools to leverage the labor of employees. Thus, employees become increasingly productive over time, raising the economy’s output of goods and services. For a similar reason, rising energy costs, if not offset by efficiency gains, present a barrier to economic growth.
Second, if the cost of energy production is low, it is easy to tax energy producers and thereby capture some of the benefit of their energy for the rest of the economy. If there is truly a “net energy” benefit to the economy, this is one way it gets transferred to the rest of the economy.
[4] There is indeed an energy problem, but it is not quite the same one that Peak Oilers have been concerned about.
The energy problem that Peak Oilers write about is the possibility that as easy-to-extract oil supplies deplete, oil production will reach a peak in production and begin to decline. Once decline sets in, they expect that oil prices will rise, partly because of the higher cost of production and partly because of scarcity. With these higher prices, they expect that producers will be able to extract at least a portion of the remaining oil resources. They also expect that higher prices will allow portions of the remaining natural gas and coal resources to be extracted. With higher prices, expanded use of renewable energy is expected to become feasible. All of these energy sources are expected to keep the economy operating at some level.
There are several problems with this story. First, it tends to encourage people to look for high oil prices as a sign of an oil shortage. This is not the correct indication to look for. Prior to 1970, oil prices averaged less than $20 per barrel. Comparing pre-1970 prices to today’s oil prices, current prices are already very high, at $75 per barrel. The idea that oil prices can keep rising indefinitely assumes that there is no affordability limit. Furthermore, a loss of energy consumption can be expected to reduce demand (because of its impact on jobs, productivity, and wages) at the same time that it reduces supply. If both supply and demand are affected, we don’t know which way prices will move.
Second, my analysis suggests that part of the story is that total energy consumption is very important, including oil, coal, natural gas, nuclear, and various forms of electricity. All of the attention given to oil has drawn attention away from the economy’s need for a range of energy types to keep devices of all types operating. Deciding to reduce coal usage because of pollution issues, or deciding to shut down nuclear because it is aging, has an equally adverse impact on the economy as reducing oil supply, unless the shortfall can be made up with other energy products of precisely the type needed by current devices.
Third, my analysis suggests that energy consumption per capita needs to rise for the economy to function in the way that we expect it to function. If world energy consumption per capita is too flat, we can expect to see many of the symptoms that the world has been experiencing recently: more radical leaders, less cooperation among leaders, slowing economic growth and increasing debt problems. In fact, wars are possible, as are collapses of governments (as with the Soviet Union central government in 1991). The current situation seems to be more parallel to the 1920 to 1940 flat period than it does to the 1980 to 2000 flat period.
Finally, with low energy prices rather than high quite possibly being much of the problem, there is a significant chance that oil and other production will decline because producers do not make enough profit for reinvestment and because oil exporting countries cannot collect enough taxes to fund the many subsidies that citizens expect. This makes for a steeper energy decline than forecast by Peak Oilers; it also reduces the possibility that high-priced renewables will be helpful.
[5] Part of the world’s energy problem is a distribution problem; the world becomes divided into haves and have-nots in many ways. It is this distribution problem that tends to push the world economy toward collapse.
There are many parts to this distribution problem. One is the distribution of goods and services (created using energy) by country. Over time, this tends to change, especially as commodity prices change. Oil exporters are favored when oil prices are high; oil importers are favored when oil prices are low. The relative values of currencies can change quickly, as commodity prices change.
Another part of this distribution problem is growing wage and wealth disparity, as more technology is added. If there is too much wage disparity, low-paid workers often cannot afford adequate food, homes, and transportation for their families. Their lack of demand for goods made with energy products (because of their low wages) tends to work through the system as low commodity prices. This happens because (a) there are so many of these workers and (b) these workers tend to purchase a disproportionate share of goods and services that are highly energy-dependent.
[6] Debt-like promises play a major role in making the economy operate.
Taking out a loan allows an individual or business to purchase goods without saving for the purchase in advance. To some extent, taking out a loan moves up the timing of purchases. At times, it even permits purchases that otherwise would not be possible. For example, if a young person tries to decide between (a) working at a low wage until he has saved up enough to afford to go to college and (b) taking out a loan and going to school now, so his wages would be higher in future years, his optimal choice will often be scenario (b). The time would likely never come when the low-paid individual could save up enough wages to afford to go to college. If the young person strongly desires high wages, his optimal strategy would be to take the loan and hope that his future wages will be high enough to repay it.
If the goal of the economy is to produce an ever-increasing amount of goods and services, growing debt can very much help this growth. This happens because with more debt, more individuals and businesses can afford* to buy the goods and services that they want now. In a sense, debt acts like a promise of the future energy needed to make future goods and services with which the loan can be repaid. Thus, adding debt acts somewhat like adding energy to the economy.
Because of the way debt works, the economy behaves much like a bicycle, with growing debt pulling the system forward. If the economy is growing too slowly, the tendency is to add more debt. This solution works if a rapidly growing supply of cheap-to-produce energy is available; the additional debt can be used to create a growing supply of affordable goods and services. If energy costs are high, the goods and services produced tend to be unaffordable.
Figure 2. The author’s view of the analogy of a speeding upright bicycle and a speeding economy.
A bicycle needs to operate at a fast enough speed (about 7.5 feet per second), or it will fall over. Similarly, the world economy needs to grow fast enough, or it will not be able to meet its obligations, including repayment of debt with interest. If the economy grows too slowly, debt defaults are likely to grow, pulling the economy down.
[7] It looks like it should be possible to work around energy problems with improved technology, but experience suggests that this approach represents only a temporary “fix.”
There are two issues that make improved technology less of a solution than it appears to be. The first is diminishing returns. For example, if a business faces a choice between (a) paying a worker to perform a process and (b) adding a machine that can perform the same process, the business will tend to make the changes that seem to provide the largest cost savings first. At some point, as more technology is added, capital costs can be expected to become excessive relative to the human labor that might be saved. The issue of the diminishing returns to added complexity (which includes growing technology) was pointed out by Joseph Tainter in The Collapse of Complex Societies.
The second reason why added technology tends to be only a temporary solution is because it tends to lead to wage disparity. Wage disparity has a tendency to grow because of the greater specialization and larger organizations needed to coordinate the ever-larger projects. The reduced purchasing power of those at the bottom of the hierarchy can eventually bring an economy down because it can lead to commodity prices that are below the level needed to maintain the extraction of fossil fuels. Fossil fuels are required to maintain today’s economy.
[8] Renewable energy has been vastly oversold as a solution. What is needed is an ever-increasing quantity of inexpensive energy in forms that match the energy needs of current devices.
The wind and solar story is far different from the story presented in the press. Essentially, wind and solar are extensions of today’s fossil fuel system. The evidence that they are truly beneficial to the economy is shaky at best. We know that if energy sources are truly transferring significant “net energy” to the system, they generally can afford to pay high taxes. The fact that wind and solar require subsidies raises questions regarding whether standard calculations are providing accurate guidance. The press rarely mentions the high tax revenue that high oil prices make possible, worldwide. Tax revenues largely support many oil exporting countries.
Furthermore, the share of the world’s energy supply that wind and solar provide is very low: 1.9% and 0.7%, respectively. They are shown in the almost invisible blue and orange lines at the very top of Figure 3. Fossil fuels contributed 85% of total energy supply in 2017.
Figure 3. World energy consumption divided between fossil fuels and non-fossil fuel energy sources, based on data from BP Statistical Review of World Energy 2018.
[9] The world economy becomes very fragile as energy limits approach.
Energy limits seem to be affordable energy limits. Oil prices need to be high enough for exporting countries to obtain adequate tax revenue. In addition, oil producers need prices that are high enough so that they can make the necessary reinvestment, as fields deplete. At the same time, energy prices need to be low enough for consumers to afford goods and services made with energy products.
Much of developed world’s infrastructure was built when oil prices were less than $20 per barrel, in inflation-adjusted terms. A rising price of oil will lead to a higher cost of replacing roads and pipelines. If these were built using $20 per barrel oil, even a current price of $40 per barrel would represent a significant cost increase. The world has experienced high oil prices for sufficiently long that we have collectively forgotten how low oil prices were between 1900 and 1970.
Most people know that the earth holds a huge quantity of energy resources. The problem is extracting these resources in a way that is both affordable to consumers and sufficiently high-priced for producers. Falling long-term interest rates between 1981 and 2002 allowed the world economy to tolerate somewhat higher oil and other energy prices than it otherwise could because these falling interest rates permitted ever-lower monthly payments for a given loan amount. For example, if interest rates on a $300,000 mortgage would fall from 5% to 4% on a 25-year mortgage, monthly payments would decrease from $1,753 to $1,584. The lower interest rates would allow more people to buy homes with a given size of mortgage. Indirectly, the lower mortgage rates would permit additional new homes to be built and would allow more inflation in home prices. These benefits would at least partially offset the adverse impact of high energy prices.
Since the natural decline in long term interest rates stopped in 2002, the world economy has become increasingly fragile; the Great Recession took place in 2007-2009, when oil prices spiked and long-term interest rates were already low by historical standards. It was only when the United States’ program of quantitative easing (QE) was put in place that long-term interest rates could fall to even lower levels, helping the economy hide the problem of high energy prices a little longer.
The artificially low interest rates made possible by QE have problems of their own. They tend to inflate asset prices, including both real estate prices and stock market prices. Thus, they tend to create bubbles, which are prone to collapse if interest rates rise. Artificially low interest rates also tend to encourage investment in schemes with very low profit potential. Artificially low interest rates also encourage cross-border investments to try to take advantage of interest rate differences. If interest rate relativities change, the money that quickly would enter a country can almost as quickly leave the country, causing major fluctuations in currency relativities.
Regulators do not understand the role that physics plays in making the economy operate as it does. They assume that they, alone, have the power to make the economy behave as it does. They do not understand how important falling interest rates are in creating growing demand for goods and services. The economy, since 1981, has spent most of its time with falling interest rates; the most recent part of this decline in long-term interest rates has been made possible by QE. These falling interest rates have played a major role in disguising the world’s long-term problem of rising energy costs. These rising energy costs are taking place primarily because the cheapest-to-extract resources were produced first; the resources that are left have higher costs associated with them, for a variety of reasons, such as being farther away from the user, deeper, or needing more advanced extraction techniques. These issues have not been sufficiently offset by improved technology to keep extraction costs low.
US regulators now want to raise interest rates by raising short term interest rates and by selling QE securities. They don’t understand that they are playing with fire. If they can raise interest rates now, they will have the flexibility to lower them later if the economy should later slow excessively. They think that the higher rates will give them more control over the economy. They don’t understand how much of the world’s economy may really be a bubble, created by the decline in interest rates since 1981.
[10] The adverse economic outcome we should be concerned about is collapse, as encountered by prior civilizations when their economies hit limits.
The stories in the press have been so focused on oil “running out” and finding alternatives to oil that few have stopped to ask whether this is really the correct story. Instead of creating a new story, it might have been better to look more closely at history. Based on the historical record, collapse seems to have been associated with situations where populations have outgrown their resource bases. In other words, collapse can be considered an energy consumption per capita problem. The oil problem (and other fuel problems) we are facing today can be viewed as an energy consumption per capita problem, as well.
We know from research that has been done by Peter Turchin, Joseph Tainter, and others how collapse has played out in the past. The situation is different this time, however, because the world economy is very interconnected. Oil consumption depends on electricity consumption, and vice versa. Our financial system is also extraordinarily important. For these reasons, a collapse may occur more quickly than in the past.
Differences Between My View and the Standard View
One of the big differences between the way I see the economy and the standard view of the economy is the answer to the question of “Who is in charge?” The standard view is that politicians and economists are in charge. They have all of the answers. The dire collapse outcomes that afflicted early civilizations could not possibly affect us. We are too smart. We know how to adjust interest rates correctly. We can even make QE available to lower long-term interest rates. We can also add more technology and other complexity than has ever been added in the past.
The answer I see to the question, “Who is in charge?” is, “The laws of physics are in charge.” Politicians play a fairly minor role in directing the fate of economies. If there is not enough energy available of the type needed (inexpensive and matching the current infrastructure), the economy may very well collapse. It is nature and the laws of physics that call most of the shots.
Another big difference between my view and the standard view is the observation that a decrease in oil supply (or total energy supply) affects both the supply and demand of energy. Because both supply and demand are affected, we don’t know which direction oil and other energy prices will move. They may move erratically, as interest rates are adjusted by regulators. A more complex model is needed.
Climate change becomes less of an issue in my view of the future, for several reasons. First, humans don’t really have very much control over the direction of the economy, so talking about anthropogenic climate change doesn’t make a whole lot of sense. The laws of physics that allowed human population to rise are also allowing climate change to happen. Second, we seem to be limited in our ability to use renewables to fix the situation. Furthermore, the possibility of collapse in the near future makes the various scenarios that hypothesize the use of large amounts of fossil fuels over many years in the future seem very unrealistic. Perhaps efforts to fix climate change should be focused in new directions, such as planting trees.
Help from Others
The subject matter of this post requires the knowledge of information from a wide range of academic areas. I could not have figured out all of this information on my own. I have been fortunate to have been able to learn from of a wide range of experts. Quite a number of academic groups have seen my articles, and invited me to speak at their conferences. In particular, I have had a long-term involvement with the BioPhysical Economics organization and have spoken at many of their conferences. I have learned much from Dr. Charles Hall, although at times I don’t 100% agree with him.
I have also learned from the many commenters on OurFiniteWorld.com. They form a self-organizing system of people from a wide range of backgrounds. Earlier, my involvement at TheOilDrum.com as “Gail the Actuary” allowed me to get acquainted with a range of researchers, looking at different aspect of the energy problem.
In future posts, I intend to expand further on the ideas presented in this post.
*Here I am using the term afford loosely. What borrowers can actually afford is the current required monthly payments.
Deficit Projected to Top $1 Trillion Starting Next Year
Most recent administration estimates show challenge of reducing red ink
WASHINGTON—The Trump administration expects annual budget deficits to rise nearly $100 billion more than previously forecast in each of the next three years, pushing the federal deficit above $1 trillion starting next year.
The revisions, which went largely unnoticed when the White House submitted its annual update to Congress last week, reflect the cost of federal spending increases agreed to earlier this year and higher interest payments.
The budget proposal released in February showed annual deficits totaling $7.1 trillion over 10 years. The latest revisions increase these cumulative deficits by $926 billion, to $8 trillion.
The report highlights the challenge the Trump administration faces in reducing deficits. Administration officials have said stronger economic growth would allow recent tax cuts to generate more revenue over the long run, offsetting initial declines in receipts from rate cuts.
But the latest projections show the deficit rising even though the administration projected an even stronger uptick in federal revenue.
While President Donald Trump “used to talk about creating such great economic growth to reduce the deficit, now you see a budget acknowledging a massive run-up due to policies he has supported,” said Maya MacGuineas, president of the Committee for a Responsible Federal Budget, which supports debt reduction.
“Their policies are not pared with a single recommendation to start making [the deficit] better,” said Ms. MacGuineas.
The White House budget office now estimates that the deficit will rise to nearly $1.1 trillion in the fiscal year that begins this October, or 5.1% of gross domestic product, up from $984 billion projected in February’s budget proposal. The U.S. ran a deficit of $666 billion for the fiscal year that ended Sept. 30, 2017, or 3.4% of GDP.
“Gigantic deficits are not good, and we’re going to run, as a share of GDP, 4%, 5%,” said Lawrence Kudlow, director of the White House National Economic Council, at a conference hosted by CNBC on Wednesday. “That’s not bad. I’ve seen worse.”
Since World War II, the U.S. has posted budget deficits that exceeded 5% of GDP in just two periods—in 1983 and from 2009 through 2012. Both of those episodes followed periods of significant economic stress, including the only recessions in which the unemployment rate rose to at least 10%. The White House expects the unemployment rate, currently at 4%, to reach 3.7% next year.
Mr. Kudlow said tax cuts would initially lead to declines in federal revenue but that the government could recoup those losses over time. “Yes, we will lose some revenues in the very short run. I believe we’ll get it back and more,” he said Wednesday.
More than half of the increase in the higher deficit forecast resulted from federal spending increases approved earlier this year. Both parties chafed against spending caps set in law as part of a 2011 deficit reduction agreement, and they reached a new deal in February to loosen those curbs.
The White House later submitted plans to rescind smaller amounts of spending previously authorized by Congress. The House of Representatives approved last month a bill to rescind $15 billion in spending, but the measure lacks sufficient support in the Senate.
The White House also revised up its projections of interest rates this year and next, which together with the funding boost increased projected interest payments on the public debt. The Trump administration estimates those will rise by $161 billion above prior forecasts over the coming decade.
The White House now expects yields on the 10-year Treasury note will average 3% this year, up from 2.6% in February, and 3.2% next year, up from 3%. Those estimate are still below projections by private forecasters or the Congressional Budget Office.
The deficit projections would have swelled even higher if not for estimates of increased receipts. The White House expects revenues will rise $95 billion over the coming decade above previous projections, in part from estimates that stronger economic growth will boost household incomes.
Write to Nick Timiraos at nick.timiraos@wsj.com
https://www.wsj.com/articles/deficit-projected-to-top-1-trillion-starting-next-year-1531950742?mod=e2tw&page=1&pos=1
I haven’t seen a penny of that money.
https://getyarn.io/yarn-clip/1e14e252-3639-43af-be7d-b74e592146ae
Trump’s Tax Cut Hasn’t Done Anything for Workers
https://www.bloomberg.com/view/articles/2018-07-18/trump-s-tax-cut-hasn-t-done-anything-for-workers
The solar power issue keeps changing. One cannot take data from say 1995 and think it applies now in 2018. Solar panel technology keeps advancing. Solar panels manufactured now are more efficient than those manufactured in 2018. There is good reason to think that modern panels contain less embedded energy these days and they definitely will produce more energy than the old ones in their effective and longer working life. Thus, it is not enough to research solar power EROEI once, you have to keep researching it to keep up with the science and technology.
From a very quick survey of the literature it seems to me that recent estimates of solar power EROEI vary from about 1:1 to about 10:1. The value of 1:1 clearly makes solar panels worthless in energy terms. The value 10:1 might (I say might) be enough for a solar panel powered civilization. To put this in basic terms, the efficacy of solar panels probably lies somewhere in the range from worthless to might run complex civilization if we are lucky. These are slim pickings of hope.
In addition, there is the energy transition. If an EROEI of 10:1 can just run a complex civilization from a position of full build-out, meaning fully scaled up globablly, then it can’t run the transition itself. The transition is a period, probably of 30 years at least, where large energy investments are made to get very delayed energy returns. At least 3 years has to elapse before a solar panel returns the energy embodied in its manufacture. To make the energy transition fast enough, it is quite possible that all the energy sunk into solar panels has to be, in effect, re-invested into solar panels for the 30 year build-out period. For that 30 years, the rest of the economy still runs on fossil fuels and nuclear power.
Of course, I haven’t done the sums and the above is a hypothetical scenario, albeit one with some apparent persuasiveness. Several things bother me about the solar power issue.
1. The disagreement in the literature about the EROEI of solar which is variously asserted to be from about 1:1 to 10:1.
2. Lack of attention to the energy demands of the build-out itself and the consequent lag (possibly up to 30 years for a 30 year build-out) in getting global net energy from solar panels even if they have an EROEI of 10:1.
3. Lack of construction (to my knowledge) of a solar “proving project” where an entire real solar panel manufacture chain is set up end to end and the full energy inputs are measured scientifically at every step in the chain. This should be followed by a long study of real outputs from the panels.
I feel forced to the conclusion that solar power is still a research, development and experimental project. There is nothing wrong that. Technology needs research, development and experimentation. But we also have to face the possibility that some research programs fail and indeed some research programs fail spectacularly.
Given that solar power is still a research, development and experimental project, it’s concerning that advocacy for it and against it generally falls into partisan camps maintaining pre-determined a priori positions. There are those who are certain it will never work. They often base their opposition on out-of-date research. There those who are certain it will work. They often base their advocacy on the assumption that further cost and efficiency progress will be as dramatic as in the past, thus failing to note the issue of declining improvements as physical and technical limits are reached. I am struggling to find those who are completely objectively researching the issue to determine scientifically if it will work.
Part of the problem is the dominance of conventional economics in this debate. In a nutshell, the problem with conventional economics is that it thinks money price is the fundamental determining factor in economics. (I will come back to this point.) Of course, it is wrong. Energy is the fundamental determining factor in economics. Energy is the master resource. The economy requires energy to utilize all other resources. The economy is a dissipative system, as we on this blog know. It’s a thermodynamically open system which is operating out of, and far from, thermodynamic equilibrium with the environment with which it exchanges energy and matter. Our economy takes high quality energy from various sources, extracts some useful work from it to create more complexity (products, services, linkages) and releases low quality waste energy creating more entropy (disorder) in the environment. To create a bit more civilizational order we unleash much more disorder into the environment.
Conventional economics is essentially physics-blind, thermodynamically blind. The best conventional economists do understand about physics and thermodynamics, they are scientifically literate, but they vastly underestimate the absolute centrality of thermodynamics to the economy. Their training leads them to put far too much importance on issues like markets, market prices, substitutability and so-called de-coupling. They exaggerate the importance and effects of these issues and underrate the centrality of thermodynamic limits.
First, to talk about prices, economists take the vast reduction in the prices of solar panels to in itself establish the case for the viability of solar power. This is a potential fallacy. Markets mis-price products all the time. If markets fail to take account of all factors, they mis-price. If markets fail to look far enough ahead, fail to take full account of future factors they mis-price. Even removing subsidies from solar power and from fossil fuels (don’t forget fossil fuels get massive subsidies too) will not remove the mis-pricing. For example, the low price of solar panels today is set by China. China is still in many ways a command economy (for economically strategic manufactures anyway) and it judges solar panels to be economically strategic. It might be right or wrong in this judgement.
Because of “strategic” subsidies and because of China’s poor wage structure, poor environmental protections, currency manipulations and so on, China can offer panels to the West at extremely low prices. These prices most assuredly are not an accurate reflection of the input energies and materials.
The techno-optimist argument for near infinite substitution of resources in economics is nonsense. Resources are not infinitely substitutable. Energy is not substitutable at all. Sources substitutable to a point but energy as energy is entirely non-substitutable. Water is also entirely non-substitutable, to name on material. Think about trying to live and run a civilization without adeqaute water. It would be impossible. The de-coupling thesis is also nonsense. A smallish proportion of the economy can be de-coupled from energy and certain materials but this is a very limited effect. Limits to de-coupling are soon reached.
To sum up, I have written about two concerns above. How solar power is not yet properly researched and proven as a good net energy provider and how conventional economic does not help us to analyse these problems. The issue must come back to science, thermodynamics, thermoeconomics and biophysical economics. I know I take a slightly different slant to Gail in that I regard solar power as still an open case. Maybe Gail can point me to more conclusive research than I have found so far. However, I have no confidence that conventional economics understands these problems and little confidence that renewable energy advocates are being entirely objective. The concern too is that full solar issue is not being analysed properly.
The EROEI debate should be solvable. The path to energy analysis must look at potential EROEI at the mine head (coal), well head (oil) and factory gate (solar panels). The EROEI at this point is meaningfully comparable (although solar panels need a count-ahead based on projected average life and average generation rate). What happens in the rest of the economy we need not count for this exercise. All that counts is coal tons to get coal tons, barrels to get barrels and power to get panels and lifetime power from a panel on average.
If you continue down this delusional path ….
The EROEI of solar panels depends very much upon whether a person uses battery backup on not. You can’t just add solar panels to the grid without causing significant problems for backup producers, because of the price distortions the solar panels causes tends to drive the backup producers out of business. It makes no sense to look at the EROEI of solar panels by themselves, without battery backup, as far as I am concerned.
This is a chart I made, showing one analysis of how much adding battery backup lowers the EROEI of solar panels.
https://gailtheactuary.files.wordpress.com/2014/11/solar-pv-eroei-graham-palmer.png
I know Graham Palmer well. He and I both attend and give talks at the Prof. Charles Hall’s Biophysical Economics Conferences. “Energy in Australia” is part of the series of books that Charles Hall oversees.
All of this discussion relates to my unhappiness with solar in this post.
https://ourfiniteworld.com/2018/04/04/why-the-standard-model-of-future-energy-supply-doesnt-work/
And Prof. Charles Hall’s response here.
https://ourfiniteworld.com/2018/04/12/energy-return-on-energy-invested-prof-charles-halls-comments/
In his response, he admits that intermittency isn’t considered in standard EROEI comparisons.
This is the big problem with both wind and solar published EROEIs.
Yes, I have read those posts and have I now read this paper, “EROI of different fuels and the implications for society” – Charles A.S.Hall, Jessica G.Lambert, Stephen B.Balogh.
In rounded numbers (my rounding), Hall et. al. give the following EROEIs for energy sources. Each number has considerable reservations or caveats attached to it.
Oil & Gas – 20:1
EROEI declining as quality of oil and gas fields declines.
Coal – 50 :1
EROEI flat and may decline again soon. I actually suspect this figure is too high, not including inferior coals, brown coal and peat. Coal also release the most CO2 per unit power.
Hydro – 100 : 1
EROEI excellent but most good sites world-wide already used. Doesn’t make much of a contribution to total energy use.
Wind – 20 : 1
Doesn’t include storage and redundancy for intermittency smoothing.
Contributes very little energy so far.
Solar PV – 10 : 1
Doesn’t include storage and redundancy for intermittency smoothing.
Contributes very little energy so far.
Key points made in the conclusion are;
“The decline in EROI among major fossil fuels suggests that in the race between technological advances and depletion, depletion is winning.”
“The energy costs pertaining to intermittency and factors such as the oil, natural gas and coal employed in the creation, transport and implementation of wind turbines and PV panels may not be adequately represented in some cost-benefit analyses.”
“Any transition to solar energies would require massive investments of fossil fuels. Despite many claims to the contrary—from oil and gas advocates on the one hand and solar advocates on the other—we see no easy solution to these issues when EROI is considered. If any resolution to these problems is possible it is probable that it would have to come at least as much from an adjustment of society’s aspirations for increased material affluence and an increase in willingness to share as from technology. Unfortunately recent political events do not leave us with great optimism that such changes in societal values will be forthcoming.”
If solving intermittency cost half the EROEI (which seems a good ballpark number to me) then Solar PV EROEI reduces to 5 and wind gen to 10. If wind gen made half the power (probably quite unlikely) then EROI sits at 7.5. A more likely EROEI number is 6 with wind making quite a bit less than solar. It is hard to see us running more than a much more reduced complexity system with that. A system which might struggle to keep going the necessary science and technology for its own replication. And that’s if we all react to declining living standards in a rational manner which also seems unlikely.
I tend to agree with Hall et.al. It looks likes the glass is half-full trending to empty. Renewables may be “extenders” but not much more than that. I’ll be honest, I don’t like having no hope. I am fearing collapse. Some seem to be cheering collapse. I am not sure why.
I think that wind and solar are worse than a glass half-full. They are a delusion. A little bit added to the grid is not too damaging; adding an increasing amount pushes the electrical system toward collapse.
The problem with EROEI is that it is an exceedingly simple technique. It isn’t designed to handle the many nuances wind and solar add. EROEI only measures “simple to measure” energy associated with the devices themselves, inverters, and perhaps a grid connection line.
The problem is that energy and its transfer takes many forms throughout the economy. Taxes (including royalties and local taxes) paid by fossil fuel companies are a way of transferring some of the net energy they produce to the system. Subsidies and “first priority” pricing schemes are a way of transferring net energy from the rest of the economy (and from electricity backup providers) to intermittent renewables.
Because of these subsidies, wind and solar act like parasites on the electrical system. They act to bring it down sooner. This is something that EROEI researchers never thought about. They just assumed that it was OK to add unneeded, subsidized, unbuffered intermittent electricity to the grid. The best estimate of the impact of adding buffering, in my opinion, is the one Graham Palmer did, which I referenced earlier. Using his estimate, it makes no sense at all to add solar.
These systems will never be able to stand on their own. They need to pay taxes, not always be recipients. Energy providers need to provide energy very cheaply and to be able to pay significant taxes. That is what high EROEI should mean. H. T. Odum talks about using “transformities” to try to measure more than what EROEI does. I don’t think that that approach really works, however. (H. T. Odum developed his transformities quite a few years after he was Ph.D. thesis advisor to Charles Hall.)
I have had many email and person-to-person conversations with the authors of the paper you quote. I think Charles Hall has gradually come around to my way of thinking on the subject. But once academic papers have been published, they make it look like a prior way of thinking is permanent.
(We hear much about “subsidies” for fossil fuels, but they are very different from those given to intermittent renewables. Fossil fuel subsides are subsidies to give particular customers a lower rate; they do not go to the fossil fuel providers. In the US, they might allow low-income people purchase oil or gas supplies are reduced prices for heating. Or oil exporters often charge local citizens an oil price that is below the world price to their local citizens. This practice leads to the huge “subsidy” problem that is often complained about. A person might think of the situation as an oil exporter putting a high tax rate on oil that they market for export, but a lower tax rate on oil products marketed to local citizens. OECD/IEA complains about this practice, because there would be more oil for export, if so much was not used locally thanks to the preferential tax treatment.)
Gail, if you know him well, please ask him for the complete paper and or specifically about what kind of batt technology he is basing that graph of 2013, thanks.
We have to derate solar (all renewables) for their day/night and seasonal performance per location and then again derate it for particular batt technology (when storage modus applied), ..
As mentioned before the numbers are abysmal, but in some enclaves good enough at least for temporary bridges (to nowhere). And I think about grid tied we should forget in the first place.
The calculation is shown in the book Energy From Australia by Graham Palmer.
Regarding the EROEI calculation, the calculation he does is with respect to EROEI associated with installations, as they are actually done, in parts of Australia that are too far from the grid for a grid hook-up to be done. In order to cover most of the electricity needs, they somewhat overbuild the systems (by a factor of 1.3), and then use a combination of lead-acid batteries, plus a generator operated by diesel to cover electricity needs during long outages. According to the book,
This is the calculation he shows:
https://gailtheactuary.files.wordpress.com/2018/07/palmer-calculation-of-eroi-of-off-grid-solar-system.png
He develops a model using half-hourly solar data for Melbourne, along with a half-hourly demand data from Deloitte. He notes
Graham Palmer also mentions the Weissbach et al article, “Energy intensities, EROIs (energy returned on invested), and energy payback times of electricity generating power plants,” published in Energy in 2013. (I should have thought to mention this study as well.) This study assumes that European wind and solar requires 10 days of pumped hydroelectric storage; solar in the Sahara desert only requires 2 days of pumped hydroelectric storage. The study also lengthens the lifetime of fossil fuel and nuclear plants to periods that they consider more reasonable. A summary exhibit of their findings is this one:
https://gailtheactuary.files.wordpress.com/2018/07/weissbach-erois-of-techniques-with-economic-threshold.png
The abstract of the article concludes:
(This study does not include the long distance transmission needed to get the solar from the Sahara to Europe. I expect that if Europe expects to put solar panels in the Sahara, it had better count on a whole lot more costs than just panels and transmission lines. They will need to pay high taxes to the government (energy cost) and station guards around the solar panels. There is also a cleaning problem for solar panels in the desert, which has not been considered. One analysis says that desert locations degrade the operation of solar panels more quickly. https://www.sciencedirect.com/science/article/pii/S2211379716301280)
Thank you very much.
That’s what I was asking since you referenced it first time, as these lead acid batteries are not “contemporary” technology used in off grid application anymore. Since the date of publishing the availability of lithium cells increased by many factors, people are building these system even in diy fashion, obviously in varied capacity and quality-performance specs.
Solar PV eff increased a bit since then as well, but in their table such combo of PV + storage would still likely score well bellow their 10 EROI mark.
They may not be contemporary, but they are cheap. And cheap generally means low EROEI cost, even if they have other deficiencies, such as having to be replaced more often.
But let’s suppose that a different kind of battery changes the result so that the buffered EROEI is 2:1 or 3.1. I cannot imagine how any economy can operate with this kind of EROEI. They certainly could not keep international trade going, and maintain roads and electric transmission lines. Wind and solar would be pretty useless in such an environment. As you say, buffered EROEI really needs to be at least 10:1, and this seems impossible for PV with storage.
The Weissbach analysis used pumped storage, and their result was not good either.
Lead acids are not cheap anymore, the paper above suggests 4x overhaul within 30yrs, while you need to change lithium batteries ~2-2.5x in that situation. Also the price for kWh has dropped.
Meanwhile, the problem of disposing of old solar panels is causing considerable teeth sucking in the Land of the Rising Sun:
About 770,000 tons worth of solar panels will end up in the garbage in Japan in fiscal 2040 after the end of their useful life, according to an Environment Ministry estimate.
Most old solar panels are now disposed of in landfill due to a lack of a framework for recycling or reusability, the ministry said, adding it plans to establish guidelines by next March on their disposal.
Some panels contain harmful materials such as lead and selenium and may pollute the environment, ministry officials said.
Since 2012, when utilities were obliged under the feed-in tariff system to buy all electricity generated from renewable sources at fixed rates, solar panels, whose average life is about 25 years, have been increasingly installed in houses and newly built power plants across Japan.
The amount of used solar panels is “expected to increase at an accelerated pace in line with the growing popularity” of solar power generation, the ministry warned.
The ministry estimates that around 2,400 tons of used solar panels will be generated as waste in the current fiscal year through next March, and the amount will surge to 28,000 tons in fiscal 2030. In fiscal 2040, such waste is expected to account for some 6 percent of all garbage dumped in Japan.
This is the crux of the problem. The waste disposal and lack of feasibility of recycling solar panels and batteries is a future toxic nightmare.
At least with oil and gas, the waste can be controlled to be relatively clean. Majority of it is CO2 which is a natural part of our atmosphere and it’s concentration is mainly regulated by the oceans.
”To make the energy transition fast enough, it is quite possible that all the energy sunk into solar panels has to be, in effect, re-invested into solar panels for the 30 year build-out period.”
How much of the energy used in producing a solar panel can be electricity collected from a panel?
As a minimum a solar panel should be created from only electricity and syntethic fuel created by electricity.
If solar panels are so useful you would think that China would keep all they make and install them to make all the electricity they can.
What about all the energy required, from birth until now, of all the scientist, engineers, and teachers that it took to come up with this technology? How does that fit into your EROEI equations? Doesn’t take much learning to get some wood and start a fire.
American’s are surprisingly pro-immigration
https://imgur.com/a/HPHOkjv
According to the pollsters, we were incredibly pro Hillary too.
Leaked Netanyahu Tape: We Made Trump Cancel The Iran Deal
https://www.zerohedge.com/news/2018-07-18/leaked-netanyahu-tape-we-made-trump-nix-iran-deal
Notice how the new DelusiSTANI (can’t even remember his name)….. has left the building.
https://ethicsalarms.files.wordpress.com/2015/01/smoking-gun.jpg
What was his name? Gregory? George?
I miss paulliver…
Iconoclast. he’s been around for awhile.
For those of you familiar with Secular Cycles by Turchin. I recently stumbled upon a criminology mechanism that links inequality, to competition and crime.
https://en.wikipedia.org/wiki/General_strain_theory
Just to make it easier and so as to block out a lot of wasteful study and musing, I just contend that globalized civilization (that was set up on such an unsustainable source of energy–like seeing how ingeniously high you can stack chairs, and bypassing scales at which human psychology can function) just cannot work. So, OK, nobody knows what to do about it, but it’s fairly clear that you can’t possibly fix it.
Stacking chairs—That’s a good analogy.
When I think of globalism, the Tower of Babel also comes to mind.
Our globalized society is equivalent to a tower tall enough to reach heaven.
This begins at 15:30. Not about energy, but good sense. And if there weren’t a good sense (or improved) energy policy to correlate with it to some extent, it would be strange.
https://video.wttw.com/video/amanpour-richard-clarke-and-david-graeber-ye5yth/
A massive population reduction, combined by a massive enclosure/clearance/induced starvation by the landowners, will probably alleviate the population overshoot, resource overshoot, etc and solve today’s problem, whether people like or not.
Gail is too optimistic. I, being from a culture which has not given any kind of shit for failures who were simply allowed to die in the wayside, feel more successful humans will be able to ‘downsize’ everything.
The Georgia guidestones were not erected for nothing. Mitt Romney said 47% of US pop was receiving govt aides and implied they were the ‘unnecessariats’.
I am sorry, but human systems have a habit of finding an equilibrium. Order quickly returned to Hiroshima after the fall of the nukes. The railroad workers, working under radioactive rain, repaired the damaged rail line by the nightfall. And by then Japan had been in war for 3 1/2 years and had a shortage of everything including fossil fuels.
There will be an equlibrium. Where, no one knows. But there will be one.
quote………
A massive population reduction, combined by a massive enclosure/clearance/induced starvation
you are aware of what you just described?
…..”The Road”
i would say nazi concentration camps
didn’t Stalin used similar tactics? he supposedly eliminated more humans than the Nazis. maybe because the Russians won WWII, nobody got inside to document the camps?
I would tend to agree with you Kulm that life will go on for the survivors of the great downsizing. If things get tough, the unfortunates will be left to die or else killed off if that’s deemed necessary. I can easily imagine a devastating collapse followed by the dawn of a new Dark Age, as has happened to past civilizations on several occasions.
What might bring about extinction is the nuclear fuel pond issue. I wouldn’t brush that aside because I just don’t know. But if we survive that, humans will remain part of the biosphere and will find ways to live within their means. Any species that can colonize tropical deserts, Arctic tundra and high mountain regions must have “The Right Stuff”, DNA wise.
The Georgia Guidestones are a monument intended to offer advice to the people who come through the hard times. Whether they are an eccentric rich man’s folly or something more conspiratorial, I have no idea.
If anyone survives … it will be existing HG tribes… definitely not DPs.
The US economy has been in Decline since 1999. The middle class is dying. It is becoming a powerless, impoverished underclass. Too-big-to-fail has failed us all.
Preventing Another ‘Armageddon’: Bernanke, Paulson, Geithner Warn On Deficits, Regulation Rollback, Populism
What we were trying to do was to prevent Armageddon. We were looking at a situation where if we felt we had one more big institution go down, it would have taken the whole system down. We were focused on staving off disaster.
https://heisenbergreport.com/2018/07/18/preventing-another-armageddon-bernanke-paulson-geithner-warn-on-deficits-regulation-rollback-populism/
Yes… by all means… prevent any more Bruce Willis movies….
Pingback: The world’s weird self-organizing economy | Basic Rules of Life
Top Voting Machine Vendor Admits It Installed Remote-Access Software on Systems Sold to States
Remote-access software and modems on election equipment ‘is the worst decision for security short of leaving ballot boxes on a Moscow street corner.’
https://motherboard.vice.com/en_us/article/mb4ezy/top-voting-machine-vendor-admits-it-installed-remote-access-software-on-systems-sold-to-states
This is an excerpt, saying that PCAnywhere was installed on some machines.
My two sons had summer jobs installing and testing Diebold (a competitor to Election Systems and Software) machines in Georgia. The son I showed the article to assured me that the Diebold machines that they were testing did not have pcAnywhere on them.
Controlled by the El ders…. of course
Everybody should get a random number i.d. after voting, then when the election results are announced they can check the official count database and make sure their vote wasn’t changed. Possible solution.
Great idea!
It is fascinating how people like Mark Jacobson of Sanford University can go around and speak and write to promote his idea that we can get 100 percent renewable energy to prevent collapse, yet others like yourself say about the only thing we can do to prevent climate change is to plant trees because, I assume, the the renewable front will not get us out of this mess. I suspect Jacobson is in fantasy land but also that climate change is the defining moment for humans and cannot be waved off as a incidental event to put on our back burner of problems with the heat engine of civilization.
If we are dying off earlier of something else, then the discussion becomes of significantly less interest. The world has taken care of climate change problems before.
We need to be more concerned about major population changing issues, and they seem to be in the not-too-distant future. They are energy related, much less climate related.
I repectfully disagree with the answer of planting more trees will solve the climate crisis, unlike the economic one which will sort itself out. Peter Wadhams, arctic scientist
I didn’t say that planting trees will solve the climate crisis; nothing will. It might be one thing that we could do that would have a tiny mitigating impact.
Yes… kinda like the tiny impact that burning fossil fuels has on Kkkkkklimate….
I have posted data that shows the overall gl o bal kkkklimate has been cooooooling for two years now.
How can we reverse that Fred? Assuming you believe cooooling is a crisis.
I am hoping this accelerates to the point where I don’t have to drive half way up Coronet Peak to get to the snow….. think of how much longer the runs would be!!!
Help me out Fred…. what can I — as a concerned person — do to help the kkkkkklimate get colder?
CC CCChange is a ho ax.
Hey if you don’t believe 20,000 scientists..and the latest data…that’s ok, many will not wake up (in my opinion) and that is their choice. I chose and act differently and defend the planet from plunder, than over economic issues.
Have you stopped driving vehicles? Have you stopped flying anywhere? Even for vacation. Have you given up modern conveniences powered by electricity? If not, you are a fraud. You are not really committed to “doing anything about it”.
It is truly hilarious when these Green Groopies bleat on …. oh they blue box their left over stuff… and decline a straw at the Dairy Queen…. after driving to the Mall,,, shopping for stuff that they believe is absolutely necessary (whereas stuff other people buy is wasteful…) …. then they show up at work on Monday demanding a raise so they can buy… more stuff!!! (made with coal generated electricity in china and shipped across in diesel powered mega ships)
Oh and how dare anyone deny that man is worming the planet!!!!
That’s like owning a dozen automatic weapons…. heading to the cinema every day … opening fire on the audience… then going home and complaining about how it is so easy to purchase assault rifles in America
This sh it is priceless!
Fred D Gunter
LOL did you know that there is an author who believes that climate change is the work of God? Furthermore this author makes the claim that there is a solution to climate change. If one interested just go find the ebook on kindle named Climate Change the work of God by a Gerry Fox. The material is shocking with many incredible proofs. In fact this guy has probably done something that no one in thousands of years has ever done. Proved conclusively the existence of God. Get this too he has no formal education or degrees from any school of higher learning anywhere? That quote by Carl Sagan should be placed right on the front cover:
Extraordinary claims require extraordinary proofs!!!!!
I gather one can read it for free to.
I suppose if the laws of physics were made by God, and the laws of physics caused humans to exploit more and more energy consumption over time, then God, through the laws of physics caused the increase in the CO2 which seems to be causing climate change.
Humans have virtually no control over climate change. That leaves climate change to other factors, including God, I suppose.
Gail, the laws of physics say clearly H20 is what keeps our planet comfortable, changes in the earth’s orbital dynamics, surface topography, solar activity and cosmic rays help raise or lower the heat, and that CO2 levels after the first 100 ppm make NO significant difference.
I could explain this in more detail, only you say you don’t want the CC issue to dominate the conversation here. But in short, Eddy is correct. CC as pushed in the media and by the globalists is a ho-ax, a sc-am, and a racket.
Quite honestly, I believe that in another hundred years, scientists—if there are any “scientists” around in that epoch—will be laughing out loud that people used to make such a fuss about CO2.
Wages aren’t growing when adjusted for inflation, new data finds
https://www.marketwatch.com/story/wages-arent-growing-when-adjusted-for-inflation-new-data-finds-2018-07-17?mod=mw_share_twitter
But the unemployment rate is at all time lows the news keeps telling me…
When I looked, median wages are available on the BLS data site back to 1979, perhaps with not as much detail.
https://data.bls.gov/timeseries/LES1252881600
“Oil production by Brazilian state-led Petroleo Brasileiro SA in the Campos basin fell 1.4 percent in June over the previous month to 1.042 million barrels a day, its lowest level since 2001, as mature fields decline, according to company data. “
https://www.reuters.com/article/petrobras-output-campos/petrobras-output-in-campos-drops-to-lowest-level-in-17-years-idUSL1N1UD22V
“Brazil’s Ministry of Health reported on Monday that after 25 years of sustained decline, the rate of infant mortality started to rise in 2016, partly due to the Zika virus epidemic as well as the economic crisis that the South American country has been facing. “
http://aldianews.com/articles/culture/health/brazils-infant-mortality-rate-rises-first-time-1990/53333
“During Putin’s first two terms, when [oil] prices per barrel soared above $100, the country could simply spend its way out of trouble, but a rise is always followed by a fall. When prices crashed from $114 in June 2014 to $27 in 2016, Russia’s finances collapsed. Even today, oil prices remain way below their peak at around $80 per barrel.”
https://www.worldfinance.com/markets/russias-stagnating-economy
“[Iraq’s] economy is in dire straits. Iraq relies too heavily on its rich energy reserves as a source of revenue, and the government struggles to efficiently distribute services everywhere on its territory. In addition, the number of Iraqis living under the World Bank’s determined poverty line has grown over the past decade, while the rate of internal displacement has accelerated, largely because of the rise of the Islamic State and the fight against it.”
https://worldview.stratfor.com/article/iraqs-water-crisis-gives-public-one-more-reason-protest
“Iranian Foreign Minister Mohammad Javad Zarif says Iran has lodged a complaint with the International Court of Justice (ICJ) over the United States move to re-impose unilateral sanctions against Tehran.”
https://www.albawaba.com/news/iran-appeals-world-criminal-court-over-us-reinstating-sanctions-1160424
It is hard to see the reason for the sanctions against Iran. The world cannot get along without Iran’s oil. Sanctions against Iran mostly drive a wedge between the US and the big users of Iranian oil. According to a zero hedge article, Iran’s biggest customers are China, India, Korea, Turkey, Italy, Japan, UAE, Spain, France, and Greece. Their imports vary from 648,000 b/d for China to 77,000 barrels per day for Greece.
Iran has cut off electricity supplies to Iraq, which in turn has destabilized Iraq.
Iran claims that they can’t access payments for electricity from Iraq, due to U.S sanctions.
Iran is hitting back against U.S sanctions?
Iraq has a terribly high birth rate. The birth rate (based on World Bank) was over 7 back in 1970, and is still up at 4.5 today.
Russia’s problems don’t help the world economy!
Ouch! If I look at EIA’s Crude oil and lease condensate production on a quarterly basis for Brazil, its highest quarter of production seems to be the fourth quarter of 2016, at 2,655,000 million barrels per day. Every quarter thereafter seems to show falling production. Source
“China will take 28% of Venezuela’s 1.34 million barrel per day oil production. Venezuela will not get cash but would have to send oil for about three years to pay off the debt… If Venezuela oil production completely collapses then China would not be able to collect .”
https://www.nextbigfuture.com/2018/07/venezuela-cash-crunch-china-now-taking-28-of-oil-production-to-repay-debt.html
“A twelve-year-old boy was killed in the Venezuelan city of San Felix overnight in an incident in which demonstrators protesting chronic power outages partially burned a small police station, police said on Tuesday.”
http://uk.businessinsider.com/r-looting-in-southern-venezuela-leaves-12-year-old-boy-dead-police-2018-7
“In this once-thriving industrial city [Valencia] as in much of [Venezuela], public buses have gradually disappeared due to scarce or prohibitively expensive tires, motor oil, batteries and spare parts. Cargo trucks of all shapes and sizes have taken their place, but most lack even basic safety protections for human cargo and are increasingly associated with accidents and injuries to passengers – a further sign of the deteriorating quality of life in the crisis-stricken country.”
http://www.euronews.com/2018/07/17/weary-venezuelans-rely-on-dog-cart-transports-as-buses-succumb-to-crisis
the farmcart economy is inevitable everywhere eventually
They say 12 year olds make good eatin….
“The U.S.-driven trade war has become the biggest “confidence killer” for the global economy, China’s foreign ministry warned on Wednesday, saying the whole world would fight back if the United States continued to be “wilful”. “
https://www.reuters.com/article/us-usa-trade-china-formin/china-foreign-ministry-says-trade-war-has-become-biggest-confidence-killer-for-world-economy-idUSKBN1K80RD
“There’s no chance China will cut its trade surplus with the U.S. in response to President Donald Trump’s tariff threats. For starters, Washington has made no specific demand to which Beijing can respond. But its efforts may have an unexpected side effect: a debt crisis in China.”
https://www.bloomberg.com/view/articles/2018-07-17/trump-s-trade-war-may-spark-a-chinese-debt-crisis
“A majority of Chinese consumers would be prepared to boycott US goods in the event of a trade war with Washington, a survey has found, signalling the high stakes in the escalating trade conflict between the two countries.”
https://www.ft.com/content/18ced918-89c7-11e8-bf9e-8771d5404543
“A decade after the 2008 recession, the policymakers who countered it on its front lines are worried that the US may not be adequately armed for the next economic crisis.
“Speaking at a roundtable discussion on Tuesday, former Federal Rerserve Chairman Ben Bernanke and former Treasury Secretaries Timothy Geithner and Henry Paulson recounted the lessons they learned in the wake of the crisis, and where they fear Americans may have forgotten them.
““One of the most powerful lessons from this crisis should be that you want to work very hard to make sure that your defenses are robust,” Geithner was quoted by AP as telling the audience. “We let the financial system outgrow the protections we put in place in the Great Depressions and… made the system very fragile and vulnerable to panic.””
https://www.cnbc.com/2018/07/18/america-may-not-have-the-tools-to-counter-the-next-financial-crisis.html
“A horrifying graph highlighting skyrocketing levels of household debt shows how vulnerable residents in Australia’s largest cities have become to economic shocks. The Reserve Bank of Australia board was warned of the dangers of rising debt levels in its most recent board meeting.”
http://www.dailymail.co.uk/news/article-5965015/The-horrifying-graph-shows-Australian-household-debt-dramatically-rising.html
“[UK] …earnings growth slowed as the labour market continued to confound convention. The weakness in wage growth, which dipped from 2.6 per cent in April to a six-month low of 2.5 per cent, is unwelcome, but economists said that it was unlikely to deter the Bank of England from lifting interest rates next month.”
https://www.thetimes.co.uk/article/wages-fail-to-match-booming-job-market-in-puzzle-for-economists-t7c5373sm
Perhaps energy should have been thought about as well.
Trump Putin Summit
“Putin: If I may, I’d throw in my two cents. We talked to the president about this subject, as well. We are aware of the stance of President Trump, and I think that we, as a major oil and gas power, and the United States, as a major oil and gas power as well, we could work together on regulation of international markets.
Because neither of us is actually interested in the plummeting of prices. The consumers will suffer as well, and the consumers in the United States will suffer, and the shale gas production will suffer.
Because beyond a set price breakout, it’s no longer profitable to produce gas. Nor are we interested in driving prices up, because it will drain life juices from all other sectors of the economy — from machine building, et cetera.
So we do have space for co-operation here; that’s the first thing.
Then about the Nord Stream 2. Mr. President [Trump] voiced his concerns about the possibility of disappearance of transit through Ukraine, and I reassured Mr. President that Russia stands ready to maintain this transit.
Moreover, we stand ready to extend this transit contract that’s about to expire next year in case — if the dispute between the economic entities will be settled in the Stockholm arbitration court.”
Putin is suggesting: A centrally planed energy price? No more free market pricing of energy?
They both had left out energy in their statements…but, yes of course… they had talked about energy.
Yep, I wrote about it here few days ago, this Q&A is available on both TV feeds from the summit, if I recall it correctly NBC (~4:20min) and RT (~1:28min), ..
It might happen or not, but usually before the real storm (war, collapse, ..) upper oligarchies tend to form big tent alliances for a while.. Chances are good, since Russia cooperated with Gulfies during past years already, so they now only take the US on board to manage “a snake” price boundary for global energy.
Putin is at odds with a self organizing economy as well. They tried central planing once…
Interesting! And news stations didn’t really notice the comments and report about them.
One of the biggest problems we in the rest of the world have is the recent arrival of all these ‘experts’ from the US, UK etc etc telling us what we are doing wrong. They move here for the ‘lifestyle’ then promptly go about fracking it up!
Russia is exiting the world of the petrodollar is all. Its a den of thieves and liars, good cop bad cop BS.
The US is punch drunk and dangerous as it has exported its industries, is exhausting its energy, and poisoned its well. Having bombed, invaded, intimidated any and all comers, including first nations peoples, it now has the cancer of debt eating whats left. The petrodollar is all that remains. The pendulum of history is now swinging away. Will we in the rest of the world survive the ‘loss of face’ of the ivy league beltway? Hmm, maybe not.
“The US is punch drunk and dangerous…”
and our leaders won’t listen to me, so there isn’t anything I can do…
“… is exhausting its energy…”
slowly… we still have major resources…
but some countries seem to have wised up to the idea that it’s safer to unwind economic ties to the US and therefore not be susceptible to our schemes and manipulation…
is that treasonous?
who’s that knocking on my front door?
Haha… sometimes I wonder about that, but I ain’t no Nelson Mandela.
I am observing a very shrill tone re Russia among the DC crowd. Mistakes happen when people get unhinged like this.
This is with a backdrop of NATO piling up war supplies on the Russian border. Also aggressive NATO naval maneuvers in the Black Sea.
Shale oil reminds me of fat-free yogurt, which is not really tasty because there is no “there” there.
Chevron’s new chief vows to keep lid on spending
The slump in oil investment since prices collapsed in 2014 has prompted a swelling chorus of warnings from analysts and executives that world crude production growth could fail to keep pace with demand, leading to shortages and soaring prices in the next decade..
https://www.ft.com/content/e4e2f5ba-89aa-11e8-bf9e-8771d5404543
There has been an explosion in economic inequality. A few dozen individuals control the same amount of wealth as the poorest half of humanity. That’s not an exaggeration, that’s a statistic. Think about that..
-Barack Obama, 7/17/18
Since 2001, the presidential salary is $400,000 X 8y = $3,200,000
So where did the other $16,800,000 come from?
These guys are actors, book deals, speeches, consulting services.. after leaving the office the income gushing somehow always accelerates.. Is that what his net-worth is now estimated, sounds too small?
Obviously there were examples of pre-existing wealth for the office, e.g. FDR, W_jr.; even the gigolo Kerry (Heinz empire takeover) would be more sensible POTUS choice, his tribe European connections were not actively suppressed in contrast to silly pretending of US afro-american pedigree (UK Kenyan in actuality)..
The article said it came mostly from book sales. Fishy for sure.
… and then Obama goes back to enjoying his tens of millions… with his wealthy buddies….
http://i.dailymail.co.uk/i/pix/2017/02/07/12/3CEC606700000578-4199624-image-a-10_1486471290322.jpg
Craziness. Disturbing too.
Now we know why Obama ditched his rhetoric and threw his lot in with the “Blob” in Washington. All those cushy opportunities he could not resist, now coming home for him. A shame, really.
You either do what you are told … and reap the rewards… or:
Russia sells off almost all of its US treasury holdings:
https://www.zerohedge.com/news/2018-07-17/russia-liquidates-its-us-treasury-holdings
he wonders “… if this wasn’t a dress-rehearsal, carefully coordinated with Beijing to field test what would happen if/when China also starts to liquidate its own Treasury holdings.”
Russia is preparing something, after the World Cup is over. Maybe escalation of action in Ukraine? And they don’t want to hold US debt, because it could be cancelled in retaliation.
the explanation could be much simpler…
they just don’t want any economic ties to the USA…
they see a greater value in being independent, such as greatly reducing their imports as we have read about recently…
good strategy… they have so many resources: FF, food, fresh water, land…
why be tied to any other country that might cause Russia economic trouble?
Yes, however looking at the literature, statements and personalities forming the strategies, the US clearly focused on two or three major complementing strategies, lately working the game of denying “axial endpoints” in other worlds blocking any serious attempts to permanent (EU)(Chinese) collaboration. The very last example was stomping on the German necks be it via the car emission “scandals” or Deutsche Bank, paying the fines, and or kicking the ankles of already very vulnerable Merkel (centrist duopoly) regime. What they have in store on the China end point beyond sanctions and already ~dysfunctional anti Chinese league of nations in SE Asia is a good question. We might soon hear something new on that front for sure.
botched by spell checker, should be: EU-RU-China coop
It seems a perfectly reasonable and sensible reaction to getting so comprehensively sanctioned by the US recently. Would YOU keep lending your money to someone who was routinely mean and nasty to you?
It seems like a pretty clear move to push international trade off of the dollar standard, or rather one move in implementing such a plan. And of course such a plan is clearly reasonable and sensible for countries like China, Russia, and Iran.
This plan or option while discussed has been hampered by decades via occurrence and dominance of simple “natural law” by which most of the somewhat financially aspiring people think about themselves as only temporary inconvenienced rich, i.e. not yet fully rich. It definitively must be some very old and profoundly sick psychological link to growth impetus itself. This dynamics also tends to prolong rule and domination of any past reserve currency/financial arrangement.
So, in practical terms there is no rush among the elites across the world, they want to enjoy the spoils in somewhat calm situation. Although they may have set up self imposed quasi boundaries of readiness, e.g. in China’s case waiting for the full construction of their Spratley Islands airbases, so let’s say when they have got ~20x of them they figure US naval strike group trying a blockade is toast, hence they wait for such threshold. Similarly in achieving another goals, building up demand for their industrial output elsewhere in Euroasia and or globally.
My question: Why did Russia wait this long?
Why? Patience, pretending weakness, taking the time to improve..
They arrived in Helsinki in style again, in jet of their own making incl. engines, brand new gov limousines, .. This would be considered scifi tale ~20yrs ago.
Right!
A Russia-China alliance seems inevitable. I think Russia wanted to trade more and work with the US. I think they saw opportunity in Trump being he is a business man. However, Russia has probably come to the conclusion that the US political establishment is too unstable. And the Dollar is loosing its luster more with each passing year.
Interesting, if it were true, would like to see the source, though, for the high tech selfsufficiency of Russia.
What do you mean by source – it’s plain to see fact for all out there, landed in their own IL96 with Perm engines, motorcade based on new Aurus presidential-gov limousines / vans.. I guess the security guys with heavy suitcases for launching dooms day fireworks via sat link into command bunker were also home made stuff.
Is it all 100% purely domestic sourced down through all the JITs, including tools and software for every component, obviously not, that’s not the point.
Bernie Sanders: Trump’s economy is great for billionaires, not for working families
https://www.usatoday.com/story/opinion/2018/07/17/bernie-sanders-donald-trump-economy-jobs-income-employment-column/782404002/
I would say the American economy of the last 20 years has been much more favorable for billionaires than for working families. I love how politicians try to play the sleight of hand and deflect blame for things that have been going on for many years.
The Coming Collapse of the American Economic System
https://www.nasdaq.com/article/the-coming-collapse-of-the-american-economic-system-cm992132
A Tainter quote has been mentioned above: “… unilateral economic deceleration would be equivalent to, and as foolhardy as, unilateral disarmament… Peer polity competition drives increased complexity and resource consumption regardless of costs, human and ecological.”
This seems to follow John Mearsheimer’s theory of “Offensive Realism”. That theory is grounded on five central assumptions.
1. Great powers are the main actors in world politics and the international system is anarchical.
2. All states possess some offensive military capability.
3. States can never be certain of the intentions of other states.
4. States have survival as their primary goal.
5. States are rational actors, capable of coming up with sound strategies that maximize their prospects for survival.
In this definition “anarchical” means there is no power above the greatest states to regulate their behavior. They continually contend with each other in open wars, proxy wars, economic wars, cyber wars and so on.
I agree, in the main, that the tenets of Offensive Realism are realistic. They accord to the facts of realpolitik. The one caveat I would add is this. States are rational actors only in a bounded sense. Their rationality is bounded; limited and imperfect. Tainter makes a partial error, in my opinion, in asserting that “Peer polity competition drives increased complexity and resource consumption regardless of costs, human and ecological.” This is true in itself, but peer polity (nation-state) competition is not the only driver of increased complexity and resource consumption. The other great driver is economic competition itself. Here, I mean the form economic competition takes within a great nation.
If we take the case of the USA, the USA could compete much better with its peer competitors (Russia, China) if it wasted less of its resources on internal wasteful consumption driven by unregulated competition. For example, the USA could survive on its current endowment of oil, gas and coal without imports if it cut wasteful consumer spending. An enormous proportion of modern capitalist system production is wasteful and indulgent consumption rather than productive reinvestment. Much of it is actually unhealthy for the population.
Enormous amounts of resources are channeled into bigger houses, bigger cars, bigger people (obesity), bigger football stadiums, bigger entertainments and so on. Consumer goods from cars to refrigerators, televisions and mobile phones are built for planned obsolescence either via deliberately poor engineering or by the advertising and fashion industry which push that people need a new and bigger consumer everything nearly every year. While this continues, the USA’s infrastructure crumbles causing huge costs and drags on production. A search for “America’s crumbling infrastructure” gets some interesting results.
The citizens of the USA (I am not criticizing the USA solely but using it as the most important example) could live better lives and also be more secure in the great power struggle by using considerably less resources in wasteful consumption and channeling a portion of those into infrastructure renewal including making infrastructure (for example more public transport) which requires less energy to run in the long run.
In other words, the USA (and every other important nation) could achieve more well-being at home and more security abroad on considerably less energy use if that was used more wisely. In relation to international security, the USA’s hugely wasteful wars in the Middle East have actually run against the tenets of Offensive Realism if you look at Mearsheimer’s theory in detail. The cost in blood and treasure, to use the old fashioned term, has been much greater than the benefits, which have been close to non-existent.
Tainter is right when he says the world is full. There are no New Worlds, no new lands or frontiers to plunder. Therefore old-fashioned colonialism, imperialism and expeditionary wars for treasure (resources) are all loss-making propositions. The costs of stealing resources internationally are now greater than the rewards of those resources. Of course, that means we have moved on to swindling (Trump would call it deal-making), but that would take another post to explore.
Great powers now have ample nuclear weapons to obliterate the world. It would take only about 200 to 400 nuclear weapons to cause a decade-long nuclear winter and starve most of the world. Under these conditions, direct great-power war competition is at an end barring suicidal insanity. Of course proxy wars, cyber wars and trade wars are still very much on the agenda.
With an adequate nuclear deterrent, state funded R&D, reductions in wasteful consumer spending, reductions in wasteful conventional armies, reductions in nuclear stockpile overkill, reductions in overseas bases and wars, the USA could be both more secure and more long-lived as a functioning state. (As a rational hemisperic hegemon. See Mearsheimer.) The converse of all the options mentioned above merely accelerate the USA’s decline. Rather than making the USA safer and more long-lasting (nothing lasts forever anyway) these policies are greatly accelerating US decline and indeed world collapse. Widespread collapse is very probably inevitable. My question is why are we acting to greatly speed it up? There is a strategy, albeit a delaying strategy, to avoid the “Tainter Trap” as long as possible. Why wouldn’t we explore that strategy? The personal death of each person is also inevitable of course. Rational people however, act to prolong their life as long as possible, at least while they have quality of life. Truly rational state actors would also explore deeper possibilities to prolong systemic survival as long as possible.
Of course, it is because the powers-that-be don’t believe collapse is possible that they won’t act in this more guided rational manner. Either that or the small super-rich, super-powerful elite believe they can survive the collapse. The rest of us can’t. Therefore policies which delay collapse and remove the privileges of the super-rich are most rational for us.
I am not convinced that the Mideast wars were not somewhat helpful. They were not on US soil; the kept some young men employed; the resulted in quite a few arms sales.The US has been able to keep its reserve currency status, so it can continue to borrow more than it otherwise has an right to borrow. So in some sense the US came out fairly well.
It is hard to say any spending is wasteful, although I could earmark a whole lot of medical and education sending as not worth the cost. All spending seems to provide jobs, so from that point of view, it is helpful.
“The US has been able to keep its reserve currency status, so it can continue to borrow more than it otherwise has an right to borrow.”
One third of US public debt is hold by foreign entities. It’s nothing special. 1/3 of Poland’s public debt is also held by foreign entities. Also US current account deficit as percentage of GDP isn’t very big. There are countries with bigger CA deficits. The belief that the US benefits greatly by having reserve currency is a myth.
The belief that “the US benefits greatly by having reserve currency is a myth” could also be a myth, or even a legend or a fairy tale, with the head of the Federal Reserve as the Fairy Godmother.
New book om education;)
https://www.amazon.com/Case-against-Education-System-Waste/dp/0691174652#productDescription_secondary_view_div_1531915520090
” Widespread collapse is very probably inevitable. My question is why are we acting to greatly speed it up?”
uh… human nature? yes, of course… why would we spend more on infrastructure and maintenance when we would have less to spend on entertainment and frivolous purchases of things that we want and enjoy?
this is the idea that humans discount the future… today and this week are much more important psychologically than next year and next decade…
“There is a strategy, albeit a delaying strategy, to avoid the “Tainter Trap” as long as possible. Why wouldn’t we explore that strategy?”
same answer… most humans can’t help but live for today, even if they are heading for a steep cliff in the near or farther future…
Regarding the “uniform economic declaration” of part of the world not making sense, I would argue that the Kyoto Protocol attempted precisely this: Uniform economic deceleration of the developed economies. This was more or less a “go ahead” for China and India to develop their coal resources. The parts of the world that were intent on reducing emissions would clear the way for them to expand their coal-based exports. While taxes on carbon of local production were planned, there would be no tax on imported goods made with coal. Thus, the result was sort of the opposite of import tariffs; it was more like a tax on locally produced goods, to help importers. Somehow, these leaders expected their economies to grow based on selling more services, and using more debt. The result has been just as a person might have expected. There has been a big shift in manufacturing to countries that are heavily coal dependent.
A very good point, Gail, you have framed the Kyoto Protocol in this way before, I think, but it’s worth repeatin.
So they didn’t just eat gourmet dinners and get down with $1000 ho okers at these rendevous… 🙂
“In other words, the USA (and every other important nation) could achieve more well-being at home and more security abroad on considerably less energy use if that was used more wisely.” – I used to think that way, now I don’t. If somehow the US uses less energy that just means that some industry, agency, company or combination thereof will pop up hire people grow their business and use that energy. Once you create jobs that use energy it is hard to scale back energy use without also scaling back those new jobs. Sure, everyone “could” start taking the bus. But, what about auto manufacturers? What about all those local auto mechanics? What about all those parts manufacturing jobs? You see It is all interconnected and you can’t just pull energy out of the system without loosing jobs or having some other unforeseen adverse effects on the global economy.
Jevon….
“Rational people however, act to prolong their life as long as possible, at least while they have quality of life. Truly rational state actors would also explore deeper possibilities to prolong systemic survival as long as possible.”
I’m starting to wonder if this analogy works. Scale is the missing element. Scale acts as a separate player all by itself. An individual in society operates at too limited a scale, and must be subsumed within a community that is just the right scale to be effective. A scale as big as a nation is too big to be well informed about its various elements, and so is not realistic either. Individualism is tantamount to helplessness, and states can often take advantage of that helplessness. So might there be a symbiosis between individuals (individualism) and states?
It almost seems that all you can try and do with a state (like those we have now) is to slow down and deflect its unreasonable tendencies. Hope others can help clarify the issue.
“With an adequate nuclear deterrent, state funded R&D, reductions in wasteful consumer spending, reductions in wasteful conventional armies, reductions in nuclear stockpile overkill, reductions in overseas bases and wars, the USA could be both more secure and more long-lived as a functioning state. (As a rational hemisperic hegemon. See Mearsheimer.) The converse of all the options ”
I’m starting to think it doesn’t work this way. Gail has the great advantage of analysis as to why. But one might get some way with other faculties–intuition is a major one.
Intuitively, I’ve never thought the military budget should be reduced; analytically Gail explains that the capacity to wage war has an economic benefit. I also don’t believe in reducing nuclear arsenals, and I wouldn’t be alarmed if most nations had them. We might as well have wasteful conventional armies as any other. What would be the alternative?
My tendency of late is to wait for “waves” and try to ride them. Waves are what global self organization produces, and it might be a poor use of energy to try and resist those.
Trade war danger: IMF warns of global recession
https://www.aljazeera.com/news/2018/07/trade-war-danger-imf-warns-global-recession-180717075410793.html
https://en.wikipedia.org/wiki/Smoot%E2%80%93Hawley_Tariff_Act
That was June 17, 1930 — déjà vu?
Right! I have mentioned that act more than once. It is part of the reason that today’s economy looks so much like that of the 1930s.
After Putin summit outrage, Trump says he accepts finding that Russia meddled
https://www.cbc.ca/news/world/congress-rebukes-trump-embrace-of-putin-1.4750125
https://www.youtube.com/watch?v=PUwmA3Q0_OE
https://www.youtube.com/watch?v=UY9P0QSxlnI
The volatility swing “must” return on day again..
In the next crash the US dollar will be crushed..
https://twitter.com/LukeGromen/status/1018920184437002241
Not necessarily as, selective debt jubilees, negative interest rate through ban on cash (e-gov money), .. , could kick the can into few more similar spikes, perhaps of lower bounce back potential though..
IEA warns of ‘worrying trend’ as global investment in renewables falls
https://www.theguardian.com/business/2018/jul/17/iea-warns-of-worrying-trend-as-global-investment-in-renewables-falls
Yes worrying… because the drop in the use of all those fossil fuels used to manufacture renewables … is going to push prices down….
Renewables? What is that? I hate that word (spell checker flags it too). Nevertheless,
I have to ask how are solar panels and wind turbines renewable? Renewable with fossil fuels maybe but not on their own accord.
https://twitter.com/aeberman12/status/1018977215676059648
Obama: These are ‘strange and uncertain’ times
https://www.washingtonexaminer.com/news/obama-these-are-strange-and-uncertain-times
Subtle hint at “collapse” ?
Lots of politics, but as Gail points out, a political solution won’t work when it comes to decreasing energy.
He would seem to have no clue about energy. As to Africa…
“Gail Tverberg says:
July 17, 2018 at 7:13 am
Strangely enough, a lot of our do-good policies to stamp out diseases and to provide better access to clean water and latrines have contributed to the population explosion. Also the ability to import food very cheaply has helped population explode. In fact, some of it has been given away free.
But the people in Africa do not have the huge fossil fuel investment that would be needed to allow them to have jobs that pay well. Education mostly provides jobs for teachers; there need to be jobs at the other end as well. It is the same problem with sending all of the young people in the US to college; without jobs at the other end, it is a dead end.
But with fossil fuel extraction costs rising, it is virtually impossible to make an economic system that provides the rising energy per capita that would be needed to give these people jobs and thus access to the things that they desire. This is an energy consumption per capita chart a made not too long ago, showing Africa’s energy consumption per capita compared to Italy’s.”
Good news is: if we collapse during Trump’s term – it’s Trump’s fault!
and if we collapse in the 2020s, it will be the new Democrat POTUS’s fault…
but we will know (wink wink) that the cause was merely shrinking surplus energy…
Global Growth Peaked With a Whimper, Not a Bang
https://www.bloomberg.com/view/articles/2018-07-15/global-economic-growth-peaked-with-a-whimper-not-a-bang
interesting…
“(The world economy expanded about 3.7 percent in 2017.) Nomura eyes 3.7 percent in 2019, down from 4 percent this year, and believes global growth has peaked.”
wow…
at that rate, growth will hit zero in about 12 years…
OMG!
My position on these matters is different from that of conventional economists (who believe in endless growth and business as usual) and also perhaps a little different in emphasis from many Seneca Cliff thinkers. If one accepts a serious collapse will occur then one is positing a Seneca Cliff event. I certainly do posit a Seneca Cliff event. However, the issue is how much time elapses from the peak to the new, much lower trough or flat-line. If the amount of time is 10 years we will all notice it. That would be a catastrophically immediate collapse in historical terms. If the amount of time is 50 years or 100 years, we will slowly adjust to the changes at first, at least in first world countries, and only very old people still surviving will remember how different and how much better things once were. But in the long run things will still fall apart even in first world countries.
I consider that the collapse started with the Great Recession of 2008 – 2010 or even perhaps with the peak of relatively easily obtainable high EROI oil in about 2005. Collapse is so gradual currently in first world countries that we don’t really notice it unless we were already unemployed or among the working poor at the start of these events. The economic stagnation since the Great Recession is more like a long plateau for the rich and the comfortable upper middle classes. This first period is one of long run stagnation. It is hard to tell when this period will tip over into undeniable decline for all classes (except perhaps the super rich).
But I can tell things are harder now when I look at my twin 24 year old offspring. One has found a good full-time professional job but the other struggles on with a part-time non-professional job. In better times, the second twin, also with tertiary qualifications would have easily found a full-time semi-professional job at least. The story is the same among their friends and contemporaries and very few are marrying and/or thinking about children. Whereas, my wife and I are comfortably retired and insulated from these difficulties which are hitting a new generation. Of course, we help our offspring in lots of little ways. We know things are economically harder now.
The lessons of the world wars and earlier ages are that “there is a lot of ruin in a nation”. I believe this phrase is attributed to Adam Smith. What Smith meant ironically was that there are always people saying something will be the ruination of the nation and then the nation seems to absorb the ruination, survive and thrive. However, as the Adam Smith Institute points out. “There is a lot of ruin in a nation but there is not an unlimited amount.” Of course, the Adam Smith Institute tends to point only to issues like monetary mismanagement and not to Limits to Growth.
Many endless growth boosters mock Malthusian and Limits to Growth predictions by saying that they have always been wrong so far. This is then used to predict, indeed to assert with certainty, that such predictions will also be always wrong in the future. This is a basic logical error. The principle of the predictions (endless growth is impossible) is absolutely unassailable. Only the timings of the predictions have been wrong. The event (hitting the hard limits to growth) will happen. It is just hard to predict exactly when. Like all such predictions it should be given an uncertainty range.
The issue we need to ask ourselves is do we face a slow collapse or a rapid collapse? Let us say a rapid collapse would take about 10 years to 15 years to happen from now. A slow collapse would take about 30 years to 50 years to happen. Could we run a slow and managed collapse if we employed enlightened economic, social and scientifically based policies? That’s a big question and I will try to address it in another post. Of course, it remains an issue of considerable speculation. It’s very hard to make rate and timing predictions. There are so many variables and possibilities.
The prosperity per capita among the major consumer pop bracket within OECD is collapsing at least from early 2000s and on bumpy plateau since mid 1970s.
So, in that light ~30-50yrs endowment of your scenario has been already dripping out.
I’m not advocating for either side, but sort of guesstimate probabilities, and the mid term slower collapse scenario is still among the top contenders.
I guess the Donaldo era would present major milestones in the respect of showing the gauge where we realistically stand on the collapse timetable. Some threshold and trends will be confirmed or not. For example among other “negative signs” what to look for,
-the EU consolidating, going apart or reinventing itself into less centralized project
-China revealing its servitude (extension) to global CB’s cartel or not
-any of these major global hubs suddenly forcing policies out of the fear of expected incoming hit from further deterioration in prosperity
-wars, revolutions and skirmishes in the energy exporting regions and or the so called “axial ends” of Euroasia, the most important global landmass etc.
-universal acceptance the US is no more and likely never will be energy self sufficient
– enviro/climate chaos, regional, global
..
I look forward to your next post. Try to adress how this «we» of collective reason could materialize in some form of organization, some sort of institutional arrangement, and how this «new ways of doing things» could substitute the real power politics between nations, where economic and military strength are two sides of the same coin. In the real world «unilateral economic deceleration would be equivalent to, and as foolhardy as, unilateral disarmament…. Peer polity competion drives increased complexity and resource consumption regardless of costs, human and ecological» (Joseph Tainter)
I do not agree that collapse began in 2008.
This was a major bump in the highway…(we have had many bumps in the highway for decades… just none quite this big) but since then the global economy has gotten back on track and we have had overall growth.
It does not matter how that growth was achieved… in fact growth has always been about debt….
Yes – for many — living has become much more of a struggle …. however for millions (see China) … the last ten years has been the Roaring Decade….. they are living large…..
At some point global growth —- despite the CB actions — will head south — and there will be nothing we can do about that…. that is when collapse will hit ….
In the meantime I can see cracks forming in the bridge…. but I see no collapse…. when the bridge falls …and the train crashes into the ravine killing all aboard…. that will be collapse
Sorry, prosperity per capita decreased that’s a fact, however I should have used another descriptive word, instead of collapse, since the decline counts less than ~10-20% so far..
collapse began 1969/70 when the usa went into oil deficit for the first time, using more oil than it produced
that was also the end of ww2 production momentum that kept everyome employed The two things were linked–both were supposed to go on forever.
jobs require constantly increasing fuel inputs. if that doesnt happen the job market starts to wobble–to keep thing on balance debt has been constantly increased so we can pretend borrowed money is real wages.
right now we are finding out that is a lie
That’s what I wrote at 2:14pm as well, prosperity on staircase since 1970s..
However, FE/TM is probably right, talking about core/semi core countries we should not call it a collapse proper yet. The fact two working adults now barely sustain family forming function and or have fewer kids is not a collapse just a prelude.. The same of western efficiency gains which instantly evaporate in prosperity gains via burning that energy elsewhere (Asia). Collapse is not that UK’s trains run less reliably/on time than decades earlier.. and so on..
“… not a collapse just a prelude…”
yes…
I wonder what new readers of OFW think of the bizarre way that the word “collapse” is tossed about in this comment section…
In civilisational terms,’ collapse’ is falling from a level of greater complexity (ie cities at the apex) to a lesser (and perhaps earlier phase) – this might mean the end of cities and restabilisation on village/cave life, as in the Cretan Bronze Age collapse.
Or, more extreme, it might mean the complete destruction of human communities in a particular region, or even globally.
Degradation of average prosperity is not collapse itself, but may be a symptom
collapse began 1969/70 —
Bingo!
We have a winner.
My rent, on the beach in Huntington, was $30 a month.
When in doubt, consult the dictionary.
collapsed; collapsing
intransitive verb
1 : to fall or shrink together abruptly and completely : fall into a jumbled or flattened mass through the force of external pressure a blood vessel that collapsed
2 : to break down completely : disintegrate
… his case had collapsed in a mass of legal wreckage … —Erle Stanley Gardner
3 : to cave or fall in or give way The bridge collapsed.
4 : to suddenly lose force, significance, effectiveness, or worth fears that the currency may collapse
5 : to break down in vital energy, stamina, or self-control through exhaustion or disease She came home from work and collapsed on the sofa.; especially : to fall helpless or unconscious He collapsed on stage during the performance.
6 : to fold down into a more compact shape a chair that collapses
Has civilization collapsed yet, or are we just dividing in to those taking longer tea breaks and those taking no tea breaks at all?
not sure of the point you are making Tim
in universal terms, a star can be seen in a stage of collapse ‘from our point of view’—but that same point of view will register as xx million years–ie we know the star is in a collapsing stage—but we do not see collapse actually taking place because human timescale doesn’t allow it.
that the star is collapsing isn’t in doubt
similarly our industrial collapse began in 1969/70 when the USA went into oil deficit, and in so doing, began the tipping process that will end at some point in the future—say 2069/70–again a process too slow and complex for most people to see it for what it was/is/will be because the process lasts a century
again–our collapse isn’t in doubt
everyone has their own take on it—i could be wrong, but my approach is to strip away superfluous factors until i’m left with just the energy factor—and that was the point at which the USA ended its post ww2 production spree and their oil surplus ended—which happened at exactly the same time
those events were interlocked—you can only have productive employment–ie constantly rising wages in real terms—if you have constantly rising cheap fuel input
expensive fuel doesn’t allow wage rises in real terms
declining fuel input brings unemployment
I agree 1969/70 is when we started diverging from real vs imaginary wages. And this is where the coming collapse has its roots. Up to 2008 things it was possible to hide much of the carnage with financial trickery. We borrowed a fake facade of growth and prosperity. Since 2008, the warp drive, impulse drive and kitchen sink have been thrown at the economy too keep it propped up. Those measure are buckling. Meanwhile there is 40+ years of real abyss building below us for us to fall deep and deeper into. Its not a pretty picture.
1970
http://templetonguide.com/wp-content/uploads/2017/02/SF-gate-pic-highway-one-closed-600×400.jpg
2008
http://www.montrealracing.com/wp/wp-content/uploads/2015/07/0715-champlain-bridge-crack.jpg
Soon
https://theglittersonline.com.ng/wp-content/uploads/2017/03/COLLAPSE-BRIDGE.jpg
Regarding trying to allow the collapse to be slow, I think that the issue is keeping (1) international trade, (2) the financial system, and (3) electrical systems operating.
Regarding (1), international trade is already slowing, especially with tariffs being added.
Regarding (2), all of the interest rate activities is putting a huge strain on the financial system. Currency relativities are changing too quickly in some cases, putting a strain on derivatives.
Regarding (3) (electricity systems), in Europe, Japan, and India, electricity very often depends on imported fuels. An upset in international trade could affect this.
Intermittent renewables depend on on-going subsidies and a goofy pricing system, which is itself a subsidy. Governments and consumers need to be rich to provide these ongoing subsidies.
Wind and solar can only last as long as the grid can be maintained successfully. The overall system requires replacement parts from around the world. If nothing else, computers are not locally made. It doesn’t take very long for problems to occur in this system.
1, 2 and 3 all take fossil fuels.
Venezuela facing ‘economic collapse,’ IMF warns
http://www.france24.com/en/20180716-venezuela-facing-economic-collapse-imf-warns?ref=tw_i
Wow the IMF is quite the slow learner!
ha!
but “seriously”, what I didn’t read in that short article was anything at all that the IMF could offer as a solution, or even to help just a little bit…
the IMF may know that the periphery cannot be saved from Creeping Collapse…
That’s what I don’t get. When do they give up, and say ok, we’ll use the dollar or euro?
Wikipedia said “Zimbabwe’s peak month of inflation is estimated at 79.6 billion percent in mid-November 2008”
If they are at 4000%, I guess they have a way to go.
That has been happening for at least two years, if you will take note.
As I said before I did work in Venezuela and could of told them in 2000.
Just nothing more a high IQ corrupt bunch leading a crew of low IQ people…sad it will not end well.
I think the average IQ is less than 80.
Take 10 of the smartest most capable people on the planet — drop them into Venezuela — give them carte blanche —- and ask them to fix the country.
There is no fix for:
HIGH PRICED OIL DESTROYS GROWTH
According to the OECD Economics Department and the International Monetary Fund Research Department, a sustained $10 per barrel increase in oil prices from $25 to $35 would result in the OECD as a whole losing 0.4% of GDP in the first and second years of higher prices. http://www.iea.org/textbase/npsum/high_oil04sum.pdf
OIL PRODUCERS NEED $100+ OIL
Steven Kopits from Douglas-Westwood said the productivity of new capital spending has fallen by a factor of five since 2000. “The vast majority of public oil and gas companies require oil prices of over $100 to achieve positive free cash flow under current capex and dividend programmes. Nearly half of the industry needs more than $120,” he said http://www.telegraph.co.uk/finance/newsbysector/energy/oilandgas/11024845/Oil-and-gas-company-debt-soars-to-danger-levels-to-cover-shortfall-in-cash.html
https://twitter.com/bullshit_hero/status/1018454587424964608
People don’t know their history. When the media says Mueller said such-and-such, that to them is the official story. They question nothing. They research nothing. On an individual basis a human can be a genius; collectively we are dumb as dirt. When the common collective meets OFW shit hits the fan.
Ain’t that the truth; the only thing more impressive than the breadth of the solar system is the depth of stupidity of the human collective within it.
https://imgur.com/a/EHubOSj
War is about getting as much of the finite resources for your tribe as possible. Period.
If you fail to fight … you end up digging in the dirt with sticks like an Ethiopian farmer.
And some corporations make a lot of money out of it.
Fixed.
The whole point of this Russia collusion nonsense, is they want continued justification for the astronomical cash to continue to flow to the Military Industrial Complex, this is bread and butter of the hidden hand, the dark elite and the paymasters of MSM.
Peace is so dangerous it warrants a preemptive nuclear strike..
Agreed, I made this comment a few pages back but it’s a quote that bears repeating:
“The Government is the entertainment division for the Military Industrial Complex”
-Frank Zappa
I like how these officials are always reading from a script. If the “story” they are telling is true and they are giving expert testimony they should be able to speak clearly without the need for notes. But, all these officials follow a script to further an agenda. Then, the president reads the same BS off a teleprompter to the sheeple. It is such a circus.
I know hope this brings a smile
I think they have something called a trial where they present the evidence. Trumpkins can declare witch hunt etc. all he wants but we’ve had this system of courts to consider the evidence for a long time.
Shale might have peaked!
November 2017 was higher than march 2018. oops.
https://shaleprofile.com/index.php/2018/07/16/us-update-through-march-2018/
I am wondering how much of shale production shortfall is the pipeline problems that are expected to last until the end of the year. If that is the problem, I would expect it to bounce back. I know that there were stories earlier suggested that those buying futures contracts seemed to expect bigger oil supplies (lower prices) by December.
US weekly total oil production is flat in the past few weeks, too. This adds to the drama.
Does this ! mean you are happy/excited?
Peak shale would be a very bad thing….
It seems to be just one thing after another.
https://www.independent.co.uk/environment/sea-levels-rise-internet-cables-climate-change-underground-new-york-miami-a8449716.html
If electricity is off around the world in 15 years, I predict that there will be a lot more important issues than internet cables failing. Of what use will they be in such a situation?
Sea levels have always been ebbing and flowing … try some google searches for historical sea level rise….
Nothing new here
It is difficult to predict how things will turn out. If you drop a fragile jar vertically onto a tiled floor there are things you can predict and things you can’t predict. You can predict the jar will smash. You can’t predict precisely where all the pieces will end up. You can predict that all the pieces, or almost all the pieces, will end up on the floor. The floor is the lowest locally available potential energy state. You cannot predict where on the floor all the pieces will end up or what size distribution all the pieces and shards will have. And if you are like me, you will think you have swept up all the pieces only to step on a shard with your bare foot about two days later.
At the risk of taking the analogy too far, our complex global economic system as a dissapative system is held up and kept integral by continuing energy inputs. Without these inputs, or with much reduced inputs, it collapses to a lower energy and complexity state. Lots of links will be broken. What was previously a more integrated structure will become less integrated and more or less shatter into pieces. It is predictable that the system will “shatter”. It is not so predictable where all the fracture lines will be, what will be the big pieces, what will be the little pieces and what the trajectories of all the pieces will be. This is the mathematical chaos aspect of the collapse.
However, the “jar” of global civilization is not a smooth jar but a patterned jar. The patterns are outlined by join lines like a jar assembled from pieces originally “welded” or melted together. Imagine a tortoise shell with joined plates. Fractures are more likely at the joins. But big pieces and some small pieces can still shatter more than along clear join lines. We can see there would be some predictability in the break-up but still much mathematical chaos.
However, as well as civilization “free-falling” from lack of supporting energy, the “floor” is rushing up at it. The deterioration of the environment constitutes the floor rushing up at us. Even if we can do a Wiley Coyote act of temporarily defying gravity (defying energy collapse) this buys less time as environmental problems are rushing towards us at the same time.
It will be the rate and difficulty of problems coming at us which will progressively degrade the system and reduce its spare reaction and repair time until it fully collapses and shatters.
I agree. We have problems coming at us from two directions.
Perhaps fragmentation will be somewhat along country lines, but that seems likely to give the winners only a few years over the losers, at most. Things like computers require inputs from around the world. All kinds of things wear out, particularly parts of electricity transmission systems and of oil drilling equipment. Renewables will be of little use after a few years. Financial systems will be terribly stressed.
We can worry a lot about the deterioration of the environment, but there is not a whole lot we can do. Planting more trees and reducing meat consumption come to mind, but I can’t imagine that many will participate and that it will have a big impacts.
Nature seems to be handling the situation by either greatly reducing human population or ejecting humans completely. Perhaps that is all that is reasonable to do. If we are not here, little changes like rising sea levels won’t make a whole lot of difference to other creatures in the world. The earth with its self-organizing structure has handled issues like this fine in the past.
Many have probably seen the second half of this, but the entropy part i great too.
The planet isn’t going anywhere, we are!
There would be a lot of malformations from radiation, but that would just be life. Normal for whatever life existed. But I never understood why humans would care what happened to the planet if we weren’t here.
Now I can’t spend the time to try and find it. The comment of yours over the past couple of days that seemed to get the issues down to the essence. I enjoyed it just for the literary clarity. The hitch was the mention of the need to raise per capita energy consumption. Not because you haven’t explained it thousands of times. Just that the rest of the writing was understandable (I thought) to the average literate public otherwise.
Then I wondered today that, since you are able to hone the issues down like some sort of short story literary condensation–hugely minimalistic–if you could make your book very short–100 pages?–where you oversimplify, show only the very simplest charts, do it as much for the pleasure of the reading as for analytical thoroughness…
You are right. People are not willing to read very much, even if it would help them understand the problems better. Maybe less is better, in terms of explanation.
I doubt that they (we) need to understand the problems at detailed analytical scale. And although I might be in the minority, I don’t think human extinction is any more of an immediate issue than CC. Well underway essentially, but with lots of more immediate issue to encounter first. And the public need to know what things don’t make sense trying given the energy costs.
The things that are being tried are merely fantasy, reinforcing the most abysmal waste and neglect. it’s not hard to show the disconnect between government programs in the third (marginal) world, and the masses in poverty. Nobody talks about it…like the Emperor’s new clothes. it’s supposedly a mark of shame. Better to pretend to be first world.
I try to let air out of that balloon. And FW helps me in that pursuit. It is so level and modest. Commonsense. The more hard-headed bourgeoisie respect that. It balances my aesthetic emphasis. I have them cornered from the touchy feely end as well the businesslike one. The latter despite my being at the bottom of the list when it comes to understanding oil and economics. Just my little FW-derived sense of limits is beyond what the more privileged ever consider.
All this is to say there is a very practical need for your message at a level that can be widely dispersed.
I didn’t say this well. Not sure I can. There are different parts to the message: the expressive, aesthetic part (generally termed right brain), and there is the opposite side that deals with reason and analysis. My sense of it is that “saying less” is not entirely saying less; it is melding together the left and right brain aspects of the message more. It could be energy/economics version of the Strumk and White tiny, influential classic: The Elements of Style:
The Elements of Style: William Strunk Jr.: 9781945644016 …
http://www.amazon.com/Elements-Style-William-Strunk-Jr/dp/194564401X
The Elements of Style is the definitive text and classic manual on the principles of English language read by millions of readers.
https://www.amazon.com/Elements-Style-William-Strunk-Jr/dp/194564401X
Never read my copy, and now can’t find it. Phew!
Oil is like the blood that runs through your veins…. if you drained all blood from your body… what would happen?
That’s really all you need to know about what will happen when oil stops flowing.
Life is ours, we live it our way.
https://m.youtube.com/watch?v=P0iOz9xf0zY
sure, as long as “we” get our disproportionate amount of the surplus energy…
then there can be such things as Shakira concerts…
https://www.nytimes.com/2018/07/15/opinion/trump-tariffs-economy-risk.html
https://i.imgur.com/Zin2HtV.jpg
It is consistent with the behaviour of all who front for the ho ax…
Musk flies in a private jet… as does DiCaprio, Gore and every delegate who attends kkkkklimate konferences… (who have nice dinners — no doubt shag expensive escorts – then return home… and do nothing….)
That is because they know this is a ho ax…. a charade….. or at the very least they understand that doing something … would mean collapsing BAU….
2 years of g lo bal co oling….. If the MSM would report this …. that would be the end of the conferences (and no more 1000 buck h oo kers for the boys)
How people cannot see that this is a grand illusion …. is beyond me.
What’s that tee vee show where the guy exposed all the magic tricks? Well we have exposed … you there are many here who still believe the 747 actually disappeared.
WTF
“When things get hard, you have to lie”. Cognac Junker
No wonder why he got elected.
New here. Love the site and all the comments. Do people here think that the price of oil will go down given the collapse of some of the developing countries?
Yes. I agree with Gail … this is how it ends.
Although I could see a brief sharp spike in oil just prior to that… similar to what happened in 2007.
world oil supply will go down through fighting over it
https://oilprice.com/Energy/Oil-Prices/The-Critical-Chokepoint-That-Could-Send-Oil-To-250.html
if Iran is being threatened with economic annihilation—why wouldnt they take the world economic system down with them?
I doubt it, they can smuggle their oil to other counties..They do it all the time in the middle east..Go to Tankertracker.com
not nearly enough
takes a lot of trucks to keep up with a 300k tanker
Iran holds many trump cards.
One just has to figure it out—–
i think one has to be a little less vague than that
if a shooting match starts at hormuz, we’ll need more than figuring out
i think one has to be a little less vague than that
OK– not much of SA’s infrastructure will be left after 15 minutes.
So long global economy, it was good to know you (sort of)
yup
OF Doomsters will be sadly missed—keep in touch
I agree Norm. The route oil takes to reach the pumps is a perilous journey. The battle of Hormuz would be a disaster for global oil supply. Just don’t tell the Iranians how important Hormuz is.
I would imagine that the US has a massive contingency plan ready to roll if Iran was to try to block the strait…. they war game everything….
They’d likely bomb Iran back to the stone age…. while clearing whatever was used to block the strait….
I don’t see this as the way BAU ends.
it wouldnt need to stop the oil permanently
a short war there would upset the oil market, and likely send world commerce so far off balance it might not fully recover
hard to be precise on that
“if Iran is being threatened with economic annihilation—why wouldnt they take the world economic system down with them?”
hmmm… let’s see…
the Iranian leadership is probably “living large”… as I’m sure most all “leadership” does everywhere in the world…
so they are going to risk their luxurious lifestyles just because the vast majority of their common citizens are threatened with economic hardship?
I don’t think so…
“So they are going to risk their luxurious lifestyles just because the vast majority of their common citizens are threatened with economic hardship?” – If they can see they will soon loose their luxury lifestyle then, sure they will. It is in our genes. Delusions of grandeur, retaliation, pride, and other human emotions will overrule any other risks. Everyone has a breaking point. Wars have been fought over the assassination of one person. Yes it is irrational but humans are irrational creatures.
oil, as a life essential commodity, is not over priced at $100/bbl. as evidence of this i offer coca-cola, whiskey, wine, perfume, cosmetics, etc.: all are vastly more expensive than oil, and yet none are life essential.
in 1900, the global population totaled approximately 1.6 billion persons with a nascent oil industry. 100 years later the global population totaled 6.8 billion persons (despite two world wars, and incessant military campaigns, and police actions) with a fully matured oil industry. the sum total of the 5.8 billion person population increase is directly attributable to the oil industry (food production, fertilizers, medicines, petro-chemicals, transportation, aviation, etc.)
the shale “revolution” has resulted in the production of energy resources of marginal value (especially in the u.s. market where the majority of operating refineries are designed for heavy, sulfur laden oils.) the resultant oil price suppression has dislocated 100k(+) houston engineers, 400k-500k global engineers, engaged in conventional oil production. as shale matures and begins its inevitable decline, some predicting as early as 2020, the dearth of engineering talent will become exceedingly problematic. the vast majority of recoverable oil lies offshore, and those engineers possessing the knowledge, and skill sets, necessary to develop, and produce, offshore energy have been scattered to the winds; said knowledge, and skill-sets, are not easily obtainable, or transferable.
additionally, the drilling infrastructure has been severely affected by the termination of drilling contracts, and the cold stacking of drill ships in the caribbean (an industry first.) so too for fabrication yards which produce platforms necessary for offshore production.
it is not clear, at least to me, whether the oil industry can survive this period of lower-for-longer. the lack of capital investment coupled with the drain in engineering talent may prove too daunting a proposition when/if oil prices return to profitable levels to support the real (conventional) oil industry.
art berman has delivered several interesting discourses on shale which provide informative insight into what precipitated the development of this unfeasible energy resource, and the probable financial implications of said development.
It may not be overpriced, but the goods and services made with it become unaffordable.
Contracts entered into when prices were lower may skyrocket in cost of production. Hopefully, cost escalation clauses are included in the contracts. The higher costs may also discourage would-be buyers from purchasing them. The net result is that businesses tend to see their orders cut back, if oil prices rise. They have to cut costs somewhere, so laying off workers tends to have high priority. Overhead tends to rise a share of total costs, making the cutbacks even worse. Adding robots may be attempted, to try to cut back the cost of human labor further. Of course, this will cut back employment further.
The net effect is that prices go right back down again, because so many workers have been laid off because of the high oil prices. I expect that the end of oil will come for oil prices that do not rise sufficiently high. With Brent at $72.63 and WTI at $68.52, prices are already far higher than the long term historical oil price of less than $20 per barrel.
“oil, as a life essential commodity, is not over priced at $100/bbl.”
I always agree with this general idea…
it could go to $200 and I would still buy gasoline at more or less $10 a gallon because it would still be worth it to drive to work and back home again…
I would even drive at $20 a gallon…
problem is, at those high oil prices, the economy will have spiraled down into a Mega Depression, because as I’m sure you know, “oil” is used in almost every facet of the economy…
“it is not clear, at least to me, whether the oil industry can survive this period of lower-for-longer.”
lower prices MUST stay…
so government intervention will have to keep the industry going, whether by the stealth operations today where they are loaned the money they need to keep running even though it may never be paid back…
or by direct control of the US government (speaking here about my country)…
Is The Oil Industry Repeating A Critical Error
https://oilprice.com/Energy/Crude-Oil/Is-The-Oil-Industry-Repeating-A-Critical-Error.html
Gail you are mentioned in this..
Kurt Cobb says,
I would observe that self-organization works in strange ways. People everywhere are strong believers that oil prices have to rise higher because of higher costs and scarcity. They see huge growth opportunities in buying newly issued shares of stock. It doesn’t matter to them that shale drillers are (in their minds) temporarily cash flow negative. It would appear to them that higher prices will solve all problems, and they will be rewarded in the end. There is also the issue that banks would much rather issue new debt to replace old debt than cause a crisis by pointing out that the new debt is not likely to be repaid. In this way, they move their repayment problem to the future.
I’m waiting, and haven’t made a commitment.
We shall see shortly.
WTI drops below $68…
price is unpredictable… because:
affordability likely will be decreasing, but when?… and:
supply must decrease eventually someday, but in the near future could go either way…
those two factors make prices unpredictable in the near future…
At the Helsinki summit they clearly indicated interest in managing oil prices, not too high, not too low, so we are likely going into US+RU+OPEC. And I called this trend before the event..
I just do not see how oil prices can keep “obeying” the “law” of supply and demand. That is to say as oil becomes scarcer – oil prices rise. If a person accepts that it is the energy in oil products that power the economy then, as more economic resources are devoted to energy extraction – less energy is left for economic expansion. If the economy does not expand how can prices rise? It just doesn’t make any logical sense. Do we expect everyone to start moving into the energy production sector? To what end? If all our energies are put into extracting oil, where will the other things come from: medicine, food, water, building materials etc?
The way I see it, oil prices were never destined to follow supply and demand. Oil (and energy in general) has always been a given. Taken for granted. Assumed it would always be there no matter how precious it is. So, it would be cheap and easy and not a factor to worry about. Like burning a Picasso for heat. Who cares it isn’t the Picasso we care about, it is the growth and dollars of wealth that that represents that people want.
We are married to growth. The bottom line is we have to somehow keep the real price of oil low and keep this chart going up at the same time:
http://peakoilbarrel.com/wp-content/uploads/2015/05/A-World1.jpg
if a dog gets so hungry it eats its own tail—that’s us in energy depletion terms
The supply and demand model of economists doesn’t really reflect the actual situation. Affordability is the issue. Energy supply per capita affects the buying power of non-elite workers.
Until it doesn’t. Then different systems arise. Quite likely much smaller systems.
”much smaller systems” means mass unemployment–and i do mean mass–not 10 % or so
when that happens you’ll have mass civil disorder because food supplies will break down
Not necessarily, as selective debt jubilees, food vouchers, and likely in the latest stage even food dropped from mil convoys would kick the can several more years..
Again sequencing and timing is of the essence, and if some relative trimming of weight is still possible at the expense of Europe and global periphery, it will be done.
If things get so bad that food needs to be dropped from mil convoys that begs the question – why? What would be the benefit of dropping food? Why would the military not just take care of its own and shoot the people?
100% agree. When BAU goes down …. there will be no they to help.
They will understand that there is not going to be a reset…. why bail out the masses when those in control understand that BAU is finished.
So they try to feed the masses for a few more weeks using scarce fuel and food reserves – then what?
So why bother.
The familiar supply-demand curve and dynamic are emergent properties of a growing dissipative system. When the system is no longer growing, everything will operate in reverse. High prices will destroy demand instead of increasing supply, and low prices will destroy supply instead of increasing demand.
Well stated djerek.
Someone should pass that comment to Kurt the knob Cobb…
That’s very interesting idea, perhaps it could be tested for the three stages (OECD):
– post WWII – early 1970s as initial hockey stick
– mid 1970s – present in bumpy plateau regime
(or parcel the latter stage into even more detailed sub stages ~2006 OECD reaching peak and the following period till now)
So, when do you think the system started operate in reverse, even before 2006-9 ?
it’s easy to see how the idea took root that commodities of every kind obey the law of supply and demand—that is perfectly correct, they do
but with one exception
the energy that allows those commodities to be obtained
energy is not a ‘commodity’ that can be lumped in with all the rest.
Energy stands apart, a seperate entity—it does not obey the rules we have laid down
unfortunately economists were paid to say that oil coal and gas were just another ‘commodity’.
In the 1890s John Jacob Astor wrote of his disapproval of the Rockefeller oil scheme because it will run out. Folks, this is not new news.
Prices of other commodities cannot rise too high either. Metals ores are very dependent on oil. If their prices become too high, homes and cars (built with some copper) start rising too high. Same with other metals. Even food prices cannot rise too high. People will cut back on other purchases, in order to have food. This will cause a general recession, and the recession will bring down the price of oil used to grow the food.
“Energy is not a ‘commodity’ that can be lumped in with all the rest.
Energy stands apart, a separate entity—it does not obey the rules we have laid down” – I agree! Energy is the one thing that has to be essentially free in the system we created. Working in the background without a though.
That oil/energy price is not following demand and supply at all, has been demonstrated at OFW/PO and related blogs for years already. Actually, be glad this continues to fly under the radar, be it actively suppressed (or not taken seriously) at the msm level, otherwise the charade collapsed way faster.
“That oil/energy price is not following demand and supply at all, has been demonstrated at OFW/PO and related blogs for years already. ” – That is true. But, it is an essential thing to understand how oil fits into our economy (and at the right price) makes it expand and grow. It also helps a person understand how solar panels, batteries and wind turbines depend on the high energy density of oil and coal to be produced. It just cannot be stated strongly enough how much energy is in a gallon of diesel or a barrel of crude oil The amount of work that can be done with a barrel of crude is just mind boggling. Yet, it is treated by economist as if it is free.
The interest rate is one of the main levers of control of the global economy … it influences EVERYTHING.
Therefore the economy dances to a tune…. played by those who control the interest rates (and reserve currency)…. it looks as if it is free … but ultimately it is directed.
We know who controls the rate of interest.
There are interesting parallels here…. the Fed does not micro manage US politics or the US economy…. just as the board of a major corporation does not micro manage…
But the managers at all levels.. are not completely free to do as they please…. they understand who ultimately guides … as are the politicians and bureaucrats.
For those who say — how can a few men control BAU — I say — see the above… and I say — how many men did it take to control all of the colony of India for hundreds of years?
It is actually not that complicated…