2019: World Economy Is Reaching Growth Limits; Expect Low Oil Prices, Financial Turbulence

Financial markets have been behaving in a very turbulent manner in the last couple of months. The issue, as I see it, is that the world economy is gradually changing from a growth mode to a mode of shrinkage. This is something like a ship changing course, from going in one direction to going in reverse. The system acts as if the brakes are being very forcefully applied, and reaction of the economy is to almost shake.

What seems to be happening is that the world economy is reaching Limits to Growth, as predicted in the computer simulations modeled in the 1972 book, The Limits to Growth. In fact, the base model of that set of simulations indicated that peak industrial output per capita might be reached right about now. Peak food per capita might be reached about the same time. I have added a dotted line to the forecast from this model, indicating where the economy seems to be in 2019, relative to the base model.1

Figure 1. Base scenario from The Limits to Growth, printed using today’s graphics by Charles Hall and John Day in Revisiting Limits to Growth After Peak Oil with dotted line at 2019 added by author. The 2019 line is drawn based on where the world economy seems to be now, rather than on precisely where the base model would put the year 2019.

The economy is a self-organizing structure that operates under the laws of physics. Many people have thought that when the world economy reaches limits, the limits would be of the form of high prices and “running out” of oil. This represents an overly simple understanding of how the system works. What we should really expect, and in fact, what we are now beginning to see, is production cuts in finished goods made by the industrial system, such as cell phones and automobiles, because of affordability issues. Indirectly, these affordability issues lead to low commodity prices and low profitability for commodity producers. For example:

  • The sale of Chinese private passenger vehicles for the year of 2018 through November is down by 2.8%, with November sales off by 16.1%. Most analysts are forecasting this trend of contracting sales to continue into 2019. Lower sales seem to reflect affordability issues.
  • Saudi Arabia plans to cut oil production by 800,000 barrels per day from the November 2018 level, to try to raise oil prices. Profits are too low at current prices.
  • Coal is reported not to have an economic future in Australia, partly because of competition from subsidized renewables and partly because China and India want to prop up the prices of coal from their own coal mines.

The Significance of Trump’s Tariffs

If a person looks at history, it becomes clear that tariffs are a standard response to a problem of shrinking food or industrial output per capita. Tariffs were put in place in the 1920s in the time leading up to the Great Depression, and were investigated after the Panic of 1857, which seems to have indirectly led to the US Civil War.

Whenever an economy produces less industrial or food output per capita there is an allocation problem: who gets cut off from buying output similar to the amount that they previously purchased? Tariffs are a standard way that a relatively strong economy tries to gain an advantage over weaker economies. Tariffs are intended to help the citizens of the strong economy maintain their previous quantity of goods and services, even as other economies are forced to get along with less.

I see Trump’s trade policies primarily as evidence of an underlying problem, namely, the falling affordability of goods and services for a major segment of the population. Thus, Trump’s tariffs are one of the pieces of evidence that lead me to believe that the world economy is reaching Limits to Growth.

The Nature of World Economic Growth

Economic growth seems to require growth in three dimensions (a) Complexity, (b) Debt Bubble, and (c) Use of Resources. Today, the world economy seems to be reaching limits in all three of these dimensions (Figure 2).

Figure 2.

Complexity involves adding more technology, more international trade and more specialization. Its downside is that it indirectly tends to reduce affordability of finished end products because of growing wage disparity; many non-elite workers have wages that are too low to afford very much of the output of the economy. As more complexity is added, wage disparity tends to increase. International wage competition makes the situation worse.

A growing debt bubble can help keep commodity prices up because a rising amount of debt can indirectly provide more demand for goods and services. For example, if there is growing debt, it can be used to buy homes, cars, and vacation travel, all of which require oil and other energy consumption.

If debt levels become too high, or if regulators decide to raise short-term interest rates as a method of slowing the economy, the debt bubble is in danger of collapsing. A collapsing debt bubble tends to lead to recession and falling commodity prices. Commodity prices fell dramatically in the second half of 2008. Prices now seem to be headed downward again, starting in October 2018.

Figure 3. Brent oil prices with what appear to be debt bubble collapses marked.

Figure 4. Three-month treasury secondary market rates compared to 10-year treasuries from FRED, with points where short term interest rates exceed long term rates marked by author with arrows.

Even the relatively slow recent rise in short-term interest rates (Figure 4) seems to be producing a decrease in oil prices (Figure 3) in a way that a person might expect from a debt bubble collapse. The sale of US Quantitative Easing assets at the same time that interest rates have been rising no doubt adds to the problem of falling oil prices and volatile stock markets. The gray bars in Figure 4 indicate recessions.

Growing use of resources becomes increasingly problematic for two reasons. One is population growth. As population rises, the economy needs more food to feed the growing population. This leads to the need for more complexity (irrigation, better seed, fertilizer, world trade) to feed the growing world population.

The other problem with growing use of resources is diminishing returns, leading to the rising cost of extracting commodities over time. Diminishing returns occur because producers tend to extract the cheapest to extract commodities first, leaving in place the commodities requiring deeper wells or more processing. Even water has this difficulty. At times, desalination, at very high cost, is needed to obtain sufficient fresh water for a growing population.

Why Inadequate Energy Supplies Lead to Low Oil Prices Rather than High

In the last section, I discussed the cost of producing commodities of many kinds rising because of diminishing returns. Higher costs should lead to higher prices, shouldn’t they?

Strangely enough, higher costs translate to higher prices only sometimes. When energy consumption per capita is rising rapidly (peaks of red areas on Figure 5), rising costs do seem to translate to rising prices. Spiking oil prices were experienced several times: 1917 to 1920; 1974 to 1982; 2004 to mid 2008; and 2011 to 2014. All of these high oil prices occurred toward the end of the red peaks on Figure 5. In fact, these high oil prices (as well as other high commodity prices that tend to rise at the same time as oil prices) are likely what brought growth in energy consumption down. The prices of goods and services made with these commodities became unaffordable for lower-wage workers, indirectly decreasing the growth rate in energy products consumed.

Figure 5.

The red peaks represented periods of very rapid growth, fed by growing supplies of very cheap energy: coal and hydroelectricity in the Electrification and Early Mechanization period, oil in the Postwar Boom, and coal in the China period. With low energy prices,  many countries were able to expand their economies simultaneously, keeping demand high. The Postwar Boom also reflected the addition of many women to the labor force, increasing the ability of families to afford second cars and nicer homes.

Rapidly growing energy consumption allowed per capita output of both food (with meat protein given a higher count than carbohydrates) and industrial products to grow rapidly during these peaks. The reason that output of these products could grow is because the laws of physics require energy consumption for heat, transportation, refrigeration and other processes required by industrialization and farming. In these boom periods, higher energy costs were easy to pass on. Eventually the higher energy costs “caught up with” the economy, and pushed growth in energy consumption per capita down, putting an end to the peaks.

Figure 6 shows Figure 5 with the valleys labeled, instead of the peaks.

Figure 6.

When I say that the world economy is reaching “peak industrial output per capita” and “peak food per capita,” this represents the opposite of a rapidly growing economy. In fact, if the world is reaching Limits to Growth, the situation is even worse than all of the labeled valleys on Figure 6. In such a case, energy consumption growth is likely to shrink so low that even the blue area (population growth) turns negative.

In such a situation, the big problem is “not enough to go around.” While cost increases due to diminishing returns could easily be passed along when growth in industrial and food output per capita were rapidly rising (the Figure 5 situation), this ability seems to disappear when the economy is near limits. Part of the problem is that the lower growth in per capita energy affects the kinds of jobs that are available. With low energy consumption growth, many of the jobs that are available are service jobs that do not pay well. Wage disparity becomes an increasing problem.

When wage disparity grows, the share of low wage workers rises. If businesses try to pass along their higher costs of production, they encounter market resistance because lower wage workers cannot afford the finished goods made with high cost energy products. For example, auto and iPhone sales in China decline. The lack of Chinese demand tends to lead to a drop in demand for the many commodities used in manufacturing these goods, including both energy products and metals. Because there is very little storage capacity for commodities, a small decline in demand tends to lead to quite a large decline in prices. Even a small decline in China’s demand for energy products can lead to a big decline in oil prices.

Strange as it may seem, the economy ends up with low oil prices, rather than high oil prices, being the problem. Other commodity prices tend to be low as well.

What Is Ahead, If We Are Reaching Economic Growth Limits?

1. Figure 1 at the top of this post seems to give an indication of what is ahead after 2019, but this forecast cannot be relied on. A major issue is that the limited model used at that time did not include the financial system or debt. Even if the model seems to provide a reasonably accurate estimate of when limits will hit, it won’t necessarily give a correct view of what the impact of limits will be on the rest of the economy, after limits hit. The authors, in fact, have said that the model should not be expected to provide reliable indications regarding how the economy will behave after limits have started to have an impact on economic output.

2. As indicated in the title of this post, considerable financial volatility can be expected in 2019 if the economy is trying to slow itself. Stock prices will be erratic; interest rates will be erratic; currency relativities will tend to bounce around. The likelihood that derivatives will cause major problems for banks will rise because derivatives tend to assume more stability in values than now seems to be the case. Increasing problems with derivatives raises the risk of bank failure.

3. The world economy doesn’t necessarily fail all at once. Instead, pieces that are, in some sense, “less efficient” users of energy may shrink back. During the Great Recession of 2008-2009, the countries that seemed to be most affected were countries such as Greece, Spain, and Italy that depend on oil for a disproportionately large share of their total energy consumption. China and India, with energy mixes dominated by coal, were much less affected.

Figure 7. Oil consumption as a percentage of total energy consumption, based on 2018 BP Statistical Review of World Energy data.

Figure 8. Energy consumption per capita for selected areas, based on energy consumption data from 2018 BP Statistical Review of World Energy and United Nations 2017 Population Estimates by Country.

In the 2002-2008 period, oil prices were rising faster than prices of other fossil fuels. This tended to make countries using a high share of oil in their energy mix less competitive in the world market. The low labor costs of China and India gave these countries another advantage. By the end of 2007, China’s energy consumption per capita had risen to a point where it almost matched the (now lower) energy consumption of the European countries shown. China, with its low energy costs, seems to have “eaten the lunch” of some of its European competitors.

In 2019 and the years that follow, some countries may fare at least somewhat better than others. The United States, for now, seems to be faring better than many other parts of the world.

4. While we have been depending upon China to be a leader in economic growth, China’s growth is already faltering and may turn to contraction in the near future. One reason is an energy problem: China’s coal production has fallen because many of its coal mines have been closed due to lack of profitability. As a result, China’s need for imported energy (difference between black line and top of energy production stack) has been growing rapidly. China is now the largest importer of oil, coal, and natural gas in the world. It is very vulnerable to tariffs and to lack of available supplies for import.

Figure 9. China energy production by fuel plus its total energy consumption, based on BP Statistical Review of World Energy 2018 data.

A second issue is that demographics are working against China; its working-age population already seems to be shrinking. A third reason why China is vulnerable to economic difficulties is because of its growing debt level. Debt becomes difficult to repay with interest if the economy slows.

5. Oil exporters such as Venezuela, Saudi Arabia, and Nigeria have become vulnerable to government overthrow or collapse because of low world oil prices since 2014. If the central government of one or more of these exporters disappears, it is possible that the pieces of the country will struggle along, producing a lower amount of oil, as Libya has done in recent years. It is also possible that another larger country will attempt to take over the failing production of the country and secure the output for itself.

6. Epidemics become increasingly likely, especially in countries with serious financial problems, such as Yemen, Syria, and Venezuela. Historically, much of the decrease in population in countries with collapsing economies has come from epidemics. Of course, epidemics can spread across national boundaries, exporting the problems elsewhere.

7. Resource wars become increasingly likely. These can be local wars, perhaps over the availability of water. They can also be large, international wars. The timing of World War I and World War II make it seem likely that these wars were both resource wars.

Figure 10.

8. Collapsing intergovernmental agencies, such as the European Union, the World Trade Organization, and the International Monetary Fund, seem likely. The United Kingdom’s planned exit from the European Union in 2019 is a step toward dissolving the European Union.

9. Privately funded pension funds will increasingly be subject to default because of continued low interest rates. Some governments may choose to cut back the amounts they provide to pensioners because governments cannot collect adequate tax revenue for this purpose. Some countries may purposely shut down parts of their governments, in an attempt to hold down government spending.

10. A far worse and more permanent recession than that of the Great Recession seems likely because of the difficulty in repaying debt with interest in a shrinking economy. It is not clear when such a recession will start. It could start later in 2019, or perhaps it may wait until 2020. As with the Great Recession, some countries will be affected more than others. Eventually, because of the interconnected nature of financial systems, all countries are likely to be drawn in.

Summary

It is not entirely clear exactly what is ahead if we are reaching Limits to Growth. Perhaps that is for the best. If we cannot do anything about it, worrying about the many details of what is ahead is not the best for anyone’s mental health. While it is possible that this is an end point for the human race, this is not certain, by any means. There have been many amazing coincidences over the past 4 billion years that have allowed life to continue to evolve on this planet. More of these coincidences may be ahead. We also know that humans lived through past ice ages. They likely can live through other kinds of adversity, including worldwide economic collapse.

Note:

[1] Note that where the dotted line for 2019 is placed is based on where I see the 2019 economy relative to the downturn in industrial output per capita, based on a number of kinds of evidence, not all of which is cited in this article. The 1972 base model would give a slightly different timing of the downturn, a few years earlier. Also note that while the original “The Limits to Growth” book is no longer in print, Limits to Growth: The 30-Year Update by the same authors is available for sale.

About Gail Tverberg

My name is Gail Tverberg. I am an actuary interested in finite world issues - oil depletion, natural gas depletion, water shortages, and climate change. Oil limits look very different from what most expect, with high prices leading to recession, and low prices leading to financial problems for oil producers and for oil exporting countries. We are really dealing with a physics problem that affects many parts of the economy at once, including wages and the financial system. I try to look at the overall problem.
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2,080 Responses to 2019: World Economy Is Reaching Growth Limits; Expect Low Oil Prices, Financial Turbulence

  1. Baby Doomer says:

    Fed Chairman Powell says he is ‘very worried’ about growing amount of U.S. debt

    https://www.cnbc.com/2019/01/10/fed-chairman-powell-says-he-is-very-worried-about-growing-amount-of-us-debt.html?__source=facebook%7Cmain

    Detroit, Greece, Puerto Rico, Venezuela, next comes the large countries like the US and China..

    • Volvo740... says:

      I’m sorry. I thought growing debt was a necessary condition. Now I’m confused!!

      • Artleads says:

        I wonder about that too. Till I can get it clearer, I assume the following:

        – There is no timely alternative to the global economy run on fossil fuels now.

        – If fuel prices drop, fuel production becomes uneconomic to produce

        – Since the economic system is driven by fuel prices, the entire economy is jeopardized by low prices

        – The entire financial system is run on debt (and the growth of debt?)

        – If low fuel prices drive down debt, can more debt increase fuel prices?

        – So are debt, fuel supply all different aspects of the same thing?

        Sorry. This is so tangled and unsystematic (not adding up in an elegant way) that I’ll forget it in the following seconds. Mostly, what is the order and systematic arrangement of the above? Or how are the elements better explained and ordered top to bottom?

        • TimD says:

          Basically, because we are reaching diminishing returns on resource extraction, we are experiencing a resultant drag on economic growth, To compensate for this, the powers that be are resorting to debt growth to paper over the drag due to these resource constraints. That has “worked” so far in the sense that everyone thinks that everything is still awesome or will soon be awesome. This debt can only delay the inevitable though. The question this article addresses is, “is what we are seeing in the macro economy an indicator that debt isn’t working anymore?”

        • Volvo740 says:

          Or we need growing debts, but we can’t admit that. (Just like we usually don’t admit any of the other predicaments either).

          • Theophilus says:

            Yes, admitting that there is a problem is the first step. Debt is an addiction. When someone has an addiction the problem is the solution, and the solution is the problem. To an alcoholic the next drink is both a solution and a problem.

            Growing debt is required to keep inflating a dead economy. At the same time, growing debt is unsustainable and cannot be paid back in the long run. What are we to do? My advice to those who have the power to do so…. Crash the economy now!

            If we crash the economy now, we will leave the most amount of resources and supporting ecological health for the civilization that will follow ours. May God bless them and give them the wisdom not to repeat our mistakes.

        • in order to have infinitely growing debt, there must be an infinitely growing supply of energy input in order to service that debt, or am I being too simplistic here?

          If I take out a 25 yr mortgage, I have to put in 25 years of labour to pay off that debt

          if I don’t or can’t, then the debt defaults.

          There may be many reasons why I can’t—illness, laziness, unemployment. but the end result is the same—default.,
          If an elderly relative dies and leaves me a fortune, I can pay off my debt—but I am in effect using the results of the previous energy input of someone else. I can live it up for a few years,

          Nations run on the same basis—infinite debt based on the assumption of infinite energy input.
          If the nation is lucky and finds oil, as the uk did in the 1980s, then debts can be serviced for a few more years—but eventually, the oil runs out and we return to square one.
          But in the meantime everyone has got used to living the high life, but with the oil gone its necessary to borrow more money to pretend things are OK—so debt becomes income.

          which is of course crazy

          • Artleads says:

            Thanks. So Gail might help us if she didn’t describe debt as such an unqualified need (good), but instead as a desperate short term solution, and one that we should simultaneously be trying to extricate ourselves from. I believe the theory is that the current situation had to happen, and for a reason. But if we change it, then that had to happen too, and also for a reason.

          • Slow Paul says:

            “If an elderly relative dies and leaves me a fortune, I can pay off my debt—but I am in effect using the results of the previous energy input of someone else. I can live it up for a few years,”

            This is basically what’s going on. In the 80s you could buy a house on a single income. In the 90s/2000s you needed a double income. Now, when people at my age (mid 30s) get a mortgage they normally have to get their parents to put their house up as collateral. I guess the next thing is to make a multi home collateral package, where your aunts and grand uncles chip in their old houses. And then what?

            • you climbed the ladder

              so you’ll slide back down the snake

            • Live in boarding houses. Or share space in a dormitory. Take over unused shopping malls, and put up a large number of people there.

              With all the work needed to support living arrangements, the birth rate tends to drop far below replacement.

            • Artleads says:

              “Live in boarding houses. Or share space in a dormitory. Take over unused shopping malls, and put up a large number of people there.”

              If I had a choice, I’d choose living in an RV over this. Gives you lots of the benefits of privacy and autonomy you get in a house.

              “With all the work needed to support living arrangements, the birth rate tends to drop far below replacement.”

              There are third world societies (especially in the African Diaspora) that fiercely persecute homosexuality. As a way to comport with my liberal views, I propose a compromise: 1) Stop overt, public demonstrations of gay sexuality; 2) Stop overt, public demonstrations of straight sexuality. Simply make sex less of a subject of public culture. Keep it to yourself. Focus on community survival instead; 3) Narrow the scope of female dress alternatives. Reduce the incentives to focus on female sexuality through titillating, sexually objectifying attire. And while this would impact women more than men, there would be a requirement to keep ,male attire within similar bounds too. But this would be done through persuasion rather than through coercion. My theory is that this will naturally tend to reduce population.

          • Our whole system is based on the belief of infinite very cheap energy. A lot of people see infinite energy from the sun, and perhaps from the wind. They do not realize that capturing it, and putting it into the form that we really need, adds a whole lot of costs, even if all we are trying to obtain is electricity that is available 24/7/365. Trying to make it substitute for energy use that comes directly from burning coal or oil, or for the raw materials that we get from fossil fuels, can’t really done without infinite investment, if it can be done at all.

            I see the reason for the need for rapidly rising debt to be tied to three different things:

            (1) The need to transfer property from one person to another, rather than to share it in common, or only transfer it upon death. Debt allows payment over the productive life of the property, making property transfer affordable.

            (2) The rapid increase in capital goods, to make the world economy operate as it does. These capital goods need to be paid for over their lifetimes, to make them affordable. “Saving up” for them greatly delays purchasing these devices. These devices are often very helpful for productivity.

            (3) The need to provide for a growing number of seniors, as health care allows longer life expectancies, often in a disabled state. This debt-like obligation is generally not funded. Instead, there is an indirect expectation of ever-higher taxes to fund this, leaving young people ever-poorer.

        • Tim Groves says:

          Debt is the hot air in BAU’s ballon.

          If there is not enough debt, the balloon will not inflate enough to keep flying.

          But if there’s too much debt, the balloon will burst during flight.

          And the rising cost of obtaining energy means that it becomes progressively harder to to keep the air in the balloon hot.

          In this analogy, the peripheral countries and pension recipients can be compared to the sandbags and other ballast that have to be thrown out from time to time in order to keep the balloon aloft.

        • Artleads says:

          So why not start the living in cars now? And what would that do to debt in the macro society?

          • Living in cars would cause mortgage debt to collapse. But it would leave more money to spend on other things. Of course, living in cars, there would be no place to put more stuff that a person bought.

            • Artleads says:

              The Tiny House movement is challenged by space to store things too. I’m a somewhat neat pack rat, in that I have an impulse to arrange a hopeless amount of junk I think will be useful in art. I’m good at fitting a lot of things into a small space. But then I can’t find anything.

    • Davidin100millionbilliontrillionzillionyears says:

      “Detroit, Greece, Puerto Rico, Venezuela, next comes the large countries like the US and China…”

      no…

      next comes all the small and medium countries that are economically between Venezuela and China/USA…

      if those are dominoes, that’s a long line that has to fall…

  2. jarvis says:

    Canada’s goal of 500,000 electric cars on the road by 2019 !!
    We just missed that goal ————— by 400,000 cars.
    If anyone thinks people anywhere are going to change their habits or lifestyle to extend BAU I take this is a clear sign that’s not going to happen. My last electric car was $40,000 with all the incentives it only cost me $20,000 plus free fuel (free charging stations everywhere) and still very little uptake. FE was right we do have a fatal flaw in our DNA

    • Sheila chambers says:

      It’s not just our unwillingness to change our lifestyle, it’s the UNAFFORDABILITY of EV’S that I see as the major problem.
      For decades now, thanks to Clintons NAFTA, CAFTA, WTO & GATT, corporations have abandoned workers in the high cost of living USA & moved production to where there is virtual slave labor & no worker or environmental protections like Mexico, Korea & China.

      Read the label of the things you buy, their not being made here & haven’t been for many years.
      When workers are forced to take low wage, dead end jobs, they are not going to be buying EV’s or much of anything else that’s not essential.
      We once had manufacturers of TV’s like Magnabox & Zenith that begged the government for tariff protections, they refused & now those companies & many others are gone along with millions of good paying jobs.
      Greedy corporations & their demand for more PROFITS set in motion the downward spiral of income for the non elite working class & even collage grads who are finding themselves “flipping burgers” for minimum wage while struggling to pay off those expensive collage loans. Visa workers & illegal workers are cheaper than collage grads & the not cheap enough workers here.

      Chasing the cheapest labor overseas or automating has also destroyed their “consumer” base, what is plan “B” when they can’t find even cheaper labor who also won’t be patranizing their businesses?
      I think we are seeing the result of this, a stagnant economy but then there is a LIMIT TO GROWTH.

      With rising costs for raw materials, energy & a declining “consumer” base, more companies will be forced into bankrupsy & closing leaving more people unemployed & fewer “consumers”, a self feeding downward spiral.
      Now add to this tens of thousands of unskilled, poor, needy, non English speaking illegal immigrants & I see a recipe for collapse.
      (I also cannot afford to buy an EV and aside from that, their still tied to OIL!)

      • xabier says:

        Very true, but I have observed in London that all the new immigrants from Africa are driving around in shiny new cars.

        Of course, they can’t really afford these things, but for now the financial and leasing system is still providing them.

        And of course they, like the whole of the lower class in Britain, have ample clothing made in the factories of Asia…….

        London is really fascinating for sociological observation at the moment.

    • All is Dust says:

      LOL! Only $20,000! How many have $20,000 to spare (even on credit) to buy a car? I’m what you would call ‘middle class’ – I can just about keep my 10 year old diesel car serviced, taxed, fuelled and insured given all of my other financial obligations. If EVs come down to $1,000 a car then I’ll become interested.

    • JesseJames says:

      “P&E Gets AIG-ed: Moody’s Downgrade Triggers $800MM Collateral Call, Liquidity Crisis”
      From zerohedge.com

      pG&E utility on verge of bankruptcy.
      This is the beginning of the end for reliable power in California. Human arrogance knows no end as we see it in action here. CA will kill its own reliable power with solar and arrogance.
      “And speaking of the financial crisis, while Lehman was the spark, its was the bailout of AIG that really precipitated the most violent part of the 2008 crisis. While most analysts see PG&E as an isolated case, now that the biggest California utility is on the verge of insolvency and bankruptcy, and is about to have its own AIG moment, one wonders just how “contained” this particular shock to the system will be.”

      One thing is clear, however: the shock to California residents, or rather their wallets, will be most unpleasant, as their rates are about to surge one way or another.”

      This collapse may come sooner than we want.

      • I am afraid you are correct.

        At some point, there will be real proof that intermittent electricity, with a lot of imports from outside the state, is an extremely expensive approach. I expect that this is part of it.

        I am not sure if derivatives could be affected, but wholesale electricity is traded from state to state, and there are derivative markets attached. If PG&E is not able to provide (even if temporarily), then there will be a call for much more electricity from outside the state.

        • JesseJames says:

          Alabama has approved rate increases for Alabama Power and Light. The utility is upgrading from “wet” coal ash processing to a “dry” coal ash processing process, among other things.
          At least they are not shutting down coal plants. It would be amusing to see high tech ultimately flee California due to utility intermittency and flee to places like Texas or Alabama. It is said that Huntsville Alabama is becoming a new high tech area.

  3. Maybe we will not survive the collapse of modern society. Chaos, resource wars may lead to irredeemable destruction, pollution, and depletion. Much of higher life forms may suffer the same fate. What can survive in a radio-active contaminated world, when nuclear power stations are no longer functioning, and the wastes uncontrolled?
    “The other problem with growing use of resources is [*indeed*] diminishing returns, leading to the rising cost of extracting commodities over time.”
    Ultimately human physical labour will have a higher EROEI than oil, and other resources used for mechanisation.
    Therefore humans can *not* “likely live through other kinds of adversity, including worldwide economic collapse.”
    End HISstory.

    BTW, the unsatiable People in Power have never heard of Ford who paid his workers so that they can buy his cars.

    • Artleads says:

      “Ultimately human physical labour will have a higher EROEI than oil, and other resources used for mechanisation.”

      Meaning that “human resources”–skill, energy, know how–is part of an undervalued extension to IC?

      • Davidin100millionbilliontrillionzillionyears says:

        perhaps it is undervalued, but that’s not what I felt was the main thrust of his comment…

        ultimately human physical labour will be the main source of energy for (non-I) C(ivilization)…

        meaning dirt poor humans in dire poverty barely staying alive long enough to procreate…

        the “end of oil” is certainly survivable…

        but I wouldn’t want to be in that experiment…

        and I’m 60-ish, so I think I won’t be involved…

        I hope…

        • Artleads says:

          Education is very misguided. No doubt, done better (were that possible), you could get more sophisticated labor out of humans. But it’s likely that any change in the quality of human labor depends on better connection between silos than we have now.

          • Education is a way of entertaining children so the parents can work. It also keeps the kids out of the work force. It could be done more efficiently, but that is not necessarily the point.

            Children seem to learn very well in unstructured settings from siblings as well as others. In other societies, this allowed the vast majority of “education.”

            Actuaries have traditionally not had their education programs operate through universities. They take much more of an “on the job learning” approach, plus reading (and taking test on) written material in syllabuses provided. While there is an outlet for peer reviewed papers, these are not given more credence than other papers and client indications. There are no limits one what kind of outside sources a person can consider, when trying to solve problems.

          • Artleads says:

            Up till now, it has been fairly customary to put prisoners to work–free of cost or poorly compensated. Their education tended to be disregarded. I think that formula should be changed. Prisoners should be educated and children put to work. Prisoners treated like beasts are very low quality producers. While children could produce while learning, improving both production and education. In fact, prisoners, well monitored, could be learning along with children, while trained to protect and supervise children who are working. Well it could be considered anyway.

            • The issue the comes up with job training is that fact that we have too many people trained for practically every job, now. This is especially true for jobs requiring a college education.

              When retraining programs have been tried, they haven’t been very successful. One WSJ article says, Retraining Programs Fall Short for Some Workers

              The goal was to help displaced workers gain skills in new industries. But studies show people are earning less or failing to find work.

              The retraining problem is a key component of U.S. frustrations with global trade. Policy makers and economists knew that some workers would be dislocated by imports from other countries when the U.S. pursued expanded trade with Mexico, China and others in the 1990s.

              The solution was retraining programs meant to help workers build skills in new industries. But retraining didn’t deliver as planned—workers didn’t move to where new jobs developed, fell behind while they were in school or simply found the mountain of developing new skills in middle age too tall to climb.

              The key program is Trade Adjustment Assistance, installed in the 1960s, which provides extended unemployment benefit payments and job training to workers who the government determines lost employment due to overseas competition. Multiple studies have shown that many workers leave the program earning less than they did at their old jobs, and many fail to quickly find jobs.

              On average, workers earned 81.3% of the wages they received in their old jobs three to six month after exiting the program known as TAA, according to the Labor Department’s most recent assessment of the program, and more than a quarter of the 16,375 workers who left the program in fiscal year 2017 failed to find new jobs within six months of completing retraining.

            • Artleads says:

              “The issue the comes up with job training is that fact that we have too many people trained for practically every job, now.”

              Nothing can work on a top down national scale like this. The planners are too removed from the location’s economic system (if it even has a system, there being such universal dependence on a central one.). And the work that everyone needs to do is repair (forever) the things that serve them. That and creating housing out of trash and discard, relatively free of cost. The macro system cannot work indefinitely. The fact that it’s all we have (due to the traditional surfeit of energy) suggest some kind of transitional coping strategy to use what’s here in a different way. Like you say, turning failed malls into housing, etc. All this kind of conversion require skill, but I doubt that these skills can be tailor made or learned from outside a relatively localized community. And of course local communities need to find a way (locally-enough) to get food. What I think a central organizing system would need to do is to see that the local ones work well enough to not cause too much trouble beyond their borders.

        • xabier says:

          A study of tribal life across the globe certainly confirms that human beings can survive, just on the edge, in truly dismal environments, which have been depleted by the actions of their ancestors: such as semi-deserts caused by agricultural over-exploitation and deforestation in an earlier phase of civilization -very common in the Near and Middle East, Central Asia, parts of Spain and Italy, Greece, etc.

    • Going to the Mall is just sooo 1990s!

      • Without cars, young people can mostly play online games with their friends, or look at their facebook pages. You won’t find many of them at malls, except perhaps in restaurants.

        The malls have become dominated by stores selling clothing for women. Closets are full. Women don’t need more clothes, especially expensive clothes. Styles tend to be radical, to convince people that their previous clothes are out of style. Older women (who more often have a car and money to spend) may feel ridiculous in these clothes.

      • Sheila chambers says:

        When I worked in “silicon valley” back in the 80’s & 90’s, I enjoyed going to the mall.

        All indoors & out of the weather, free parking with easy to enter & leave spaces, greenery, music, lot’s of shops, benches to sit on & rest, even free entertainment at times, what’s not to like?

        Of course those strip malls didn’t like them, “mom & pop” shops, what few there were, didn’t like them & customers loved them.

        But then came the INTERNET and all that changed.

        Now we never have to leave home, we can shop the world for what we want or need & have it shipped right to our front door.

        Big box shops killed the “mom & pops” the internet killed the malls, the decline of oil will kill our economy & most of us.
        (Composed on “Note Pad”.)

        • i think they call it progress

        • I think too much complexity helped kill the stores too. It seems like there is a need for very specific parts and items. Finding the right store that sells these things is a head ache. If everyone shops in a general store, and a person goes there often, shopping is easy. Even if a person has few choices, the shopper simply picks from the few choices available, without too much problem.

    • Uncle Bill says:

      From your picture
      TOPEKA, Kan. (WIBW) – Bad news continues to come from Topeka’s West Ridge Mall.
      Multiple stores have announced that they would be closing within the next few months.
      13 NEWS reported in August that Washington Prime Group, the owner of the West Ridge Mall, had listed West Ridge as a non-core property.
      That means it’s not profitable and could go into foreclosure.

      Since then several people have contacted 13 NEWS – asking about rumors that leases were not being renewed, saying stores were leaving.

      Stores expected to leave soon

      Kitchen Collection
      Motherhood Maternity
      Riddles Jewelry
      Stuff 4 U
      Stores that have left in the past year
      Burlington Coat Factory
      Gap
      Kwan Wah
      Sears
      Amy McCarter, the VP of marketing and communications for the Topeka Chamber of Commerce says this isn’t a unique situation for a mall in America.
      “Unfortunately the trend we’re seeing here in Topeka is nothing unusual across the nation as far as trends in shopping and retail specifically that malls are not as healthy as they used to be, kind of generally speaking.”
      The mall sent 13 NEWS a statement saying, “We are committed to the community and offering our guests a dynamic place to shop, dine and spend time together.”
      The Spin machine never ends

    • Slow Paul says:

      They have moved online, ha ha.

    • Rodster says:

      Sears looks to be going out of business so that should add to more vacant mall property.

  4. Gail, You may not have seen this?
    https://sustainable.unimelb.edu.au/publications/research-papers/is-global-collapse-imminent

    “The results show that the world is tracking pretty closely to the Limits to Growth “business-as-usual” scenario. As the MIT researchers explained in 1972, under the scenario, growing population and demands for material wealth would lead to more industrial output and pollution. The graphs show this is indeed happening. Resources are being used up at a rapid rate, pollution is rising, industrial output and food per capita is rising. The population is rising quickly.

    So far, Limits to Growth checks out with reality….”

    Regards,
    Andrew Jeeves

    • Thanks very much for mentioning this paper. I did see it back in 2014, but had forgotten about it. I saw your comment earlier, but waited to respond until I had a chance to reread the paper.

      As I reread it, there are two things that jump out. One is his reference to the downturn in per capita industrial production starting about 2015, based on the model. I am saying that we seem to be at this point in 2019. I would be interested in seeing updated calculations.

      The other point is something that I had not focused upon previously, and that is what EROI is used for in the model, and how it is calculated. I would describe it as “energy consumption in, versus energy production out, in the same calendar year.” This calculation as described in the paper makes perfect sense to me. This is the calculation being used by Prof. Charles Hall and others on fossil fuels. But it is not at all the calculation that Hall and his followers are using on wind, solar and other so-called renewables.

      If a person does the calculation correctly, the ratio is terribly high energy input, relative to output, for so-called renewables, because the capital investment (both devices and transmission lines) are both very front ended. For example, for solar, for the year 2018, the capital investment would include the energy resources used to make the all the solar devices and the related transmission lines worldwide. If batteries and inverters are needed, these must be included in calculating the energy expenditure as well. The output would be the puny intermittent electricity output generated in 2018, from all of the solar devices that had been put in service in all years, up to and including 2018. It makes no sense to put in an estimate of how long these devices will last in the future anywhere in the calculation.

      It is the fact that the investment is so front-ended that kills the arrangement and leads to falling EROI for energy generation for all types of energy combined. Also, if the problem is low energy prices, there are likely to be lots of governments failing, sooner rather than later, so the idea that the devices might be around in 20 years doesn’t make sense. It certainly is not part of the calculation. The critical thing to determine, as far as I can see, is when total output per capita is starting to drop, and this makes sense only on a calendar year basis.

    • richarda says:

      The thing to look at is productivity, real GDP/Capita, and even then, there are problems with nominal GDP because of varying estimates of inflation. I tend to be cautious in estimating exactly what is happening because of this. see here:
      https://www.zerohedge.com/news/2019-01-12/are-soaring-restaurant-prices-sign-inflation-much-higher-data-suggest
      “…that is, unless it’s really a breadcrumb suggesting that the true rate of inflation in the US economy is actually much higher than the official data would suggest. Of course, if that were true, then it could create serious headaches for investors and participants in the real economy – because not only would the Fed be pressed to accelerate rate hikes, but it would also presumably trigger a damaging repricing in Treasury yields that could ignite a replay of the “Shocktober” market rout. In light of this, we’d like to highlight once again a report published back in 2017 by Devonshire Research Group which analyzed what its authors described as chronic underreporting of US inflation data. Back then, Devonshire suggested that the true rate of inflation could be as much as three times higher than the official rate. They listed a number of reasons why this might be true, starting with the notion that outdated inflation gauges like the CPI had ceased serving as a “financial tool” to be utilized by investors, and had instead become a “policy tool” used by central bankers to justify their hyper-accomodative monetary policy.”
      Note that electricity production, TWh in the USA is essentially flat from 2007, or in gradual decline since then despite annual increases in workforce ~0.5% and population ~0.8%.
      https://www.eia.gov/electricity/data/browser/
      Future generations will be asking – You knew about this for 40 years and you did what? about it.
      I’ll reply, I tried telling you but you.did.not.want.to.know.

      • I expect that the countries that added a lot of wind and solar are especially bad off in this regard. The US is not doing well either. Look at how poorly industrial energy consumption is doing. There are some efficiency gains, but a lot of industrial production is moving elsewhere.

    • I see that you are at the Melbourne Sustainable Society Institute. Is Graham Turner still there? How does a person go about contacting him?

  5. Dan says:

    Love the words “Gail Tverberg says: January 10, 2019 at 3:42 pm The big driver seems to be changes in weather conditions”.
    Notice China and Russia joined in ionospheric modification, per experiments in the fall of 2018? This following the US’s immense potentials of HAARP program results. Military, surface weather, maybe even volcanic causation .Climate has a zillion cycles, but weather is the telling tale to economies. Great EOY article; you are my economic balance sheet. Love is the only answer.

    • The cold weather was early in 2018. I don’t think that experiments in the Fall of 2018 would have an impact. It would have to be the fall of 2017.

    • Have no opinion on HAARP but have definitively negative one on the idiotic wind farms in the NorthSea/BChannel, Baltic and on the continent as well. It surely altered weather (wind) patterns through out the year. If you watch animated meteosat info a lot it’s quite apparent in the specific direction – vector of these monstrosities there is always noticeable “slowdown” and peculiar action on the wind/air mass as it is “trying to go around” these obstacles. It’s basic stuff like putting enough small stones into running river/creek.. it alters things downstream..

  6. Baby Doomer says:

    How many times has the human population doubled? Comparisons with cancer (Hern 99)

    These observations support the hypothesis that the human species has become a malignant process on the planet that is likely to result in the equivalent, for humans, of ecosystem death, or at least in a radical transformation of the ecosystem, the early phases of which are being observed.
    https://link.springer.com/article/10.1007/BF02436121

    • Uncle Bill says:

      Growth for the sake of growth is the ideology of the cancer cell. Edward Abbey
      Good old Catus Ed.. ,miss ya RIP

      They cannot see that growth for the sake of growth is a cancerous madness, that Phoenix and Albuquerque will not be better cities to live in when their populations are doubled again and again. They would never understand that an economic system which can only expand or expire must be false to all that is human.”
      ― Edward Abbey, Desert Solitaire
      “It’s a great country: you can say whatever you like so long as it is strictly true–nobody will ever take you seriously.”
      ― Edward Abbey, Desert Solitaire
      In the first place you can’t see anything from a car; you’ve got to get out of the goddamned contraption and walk, better yet crawl, on hands and knees, over the sandstone and through the thornbush and cactus. When traces of blood begin to mark your trail you’ll begin to see something, maybe. Probably not.”
      ― Edward Abbey, Desert Solitaire

      One last one…But you NEED this road….I know I was talking to a madman.

    • Chrome Mags says:

      But if the illness/cancer kills the host, ah, that’s the rub.

    • Yes, that’s basis of the old grand theory where humanoids act as mere terraforming agents, who just switch the Earth (thanks to tapping into fossil fuels, mineral and overall accumulated abundance) into another environmental stage/age/epoch, not the first species known to perform exactly such “re-formating” function given the knowlage of paleontology,geology,..

      This theoretical branch then divides upon is that just natural evolution process or are we in effect sort of laboratory experiment for some upper macro living organism (above Cosmos).. And that also leads into various ~theological stuff etc.

      • xabier says:

        To a ‘Divine MInd’, working and evolving over immense periods of time, the damage inflicted on the Earth by industrialised mankind, clearly moving it with incredible rapidity to a new -and from our point of view impoverished and hostile – state, would be a mere blip.

        And, as the experience of life for the majority of human beings has always been one of pain and anxiety, a struggle to maintain position in the primate hierarchy – fear of famine, disease, enslavement, etc, it is perhaps not to be regretted that we will likely all but disappear…….

  7. Baby Doomer says:

    Ocasio-Cortez and her leftist followers’ real agenda for America.

  8. Baby Doomer says:

    Russian Official Cancels US Visit, Saying ‘Second American Civil War’ Is Underway

    https://www.newsweek.com/russia-cancel-visit-american-civil-war-1287282

    • Davidin100millionbilliontrillionzillionyears says:

      sure, he is worried about all the Yellow Vests here…

      • Baby Doomer says:

        The very beginnings of fracture lines are appearing. Unlike a war that basically was divided along the Mason-Dixon Line, this one will be entirely about class. The first civil war had class underpinnings but this one will know no boundaries.

    • Chrome Mags says:

      I think he’s right. Maybe we haven’t reached a point of warfare in the streets, but there are definitely two US’s now, much like there were before, during and afgter the Civil War. One part of the country is watching Fox News. The other part is watching MSNBC. People watching one don’t watch the other. It’s not like people say, “Well, we’ve watched Fox for a while, let’s tune into MSNBC now.”

      One camp thinks you know what is a hoax, the other takes it quite seriously. One camp adores war and wants more and the other thinks we should be more peaceful. One camp thinks Russia is our friend, and the other doesn’t. One is racist and the other isn’t. One thinks there should be more tax cuts for the super wealthy, and the other doesn’t. One side doesn’t think Americans deserve affordable healthcare, while the others do. And on and on it goes along divided ideologies. At this point it’s a psychological war that keeps getting more and more entrenched. The two sides are locked into their positions and there doesn’t seem to be any interest on either side to meet in the middle.

      But it keeps getting worse. Now the R’s are using Fox News as a propaganda station. There is no difference between that TV station and the R party. They have melded together. One could say the same about the Dems and MSNBC. How does a country ever extricate itself from this situation? It looks permanent. I even wonder if the country will get divided into two halves. One half will have no other races, except white, and in that half people not super wealthy will be slaves to the rich, and go off to war as a badge of honor to protect the super wealthy. There will be no healthcare unless someone makes over 5 million a year, and those making over 1 million a year will pay no taxes including no sales tax. They will carry with them a special card that excludes them from taxation. Their president will Paul Ryan and reading Ayn Rand will be required in school. Christianity as a religion will be the only one allowed.

      The other half will be a mix of all races. The rich will be taxed high to help pay for healthcare for all. A small army/navy/airforce will only defend, not attack other countries. All religions will be welcomed. Social security payments by citizens will not be used for tax cuts, only being used for its intended purpose; retirement.

      • Baby Doomer says:

        America should just divorce itself before things get worse..The northeast can join Europe..The northern states can join Canada..And the west coast can have their own country..And the religious right can have the south and rustbelt to turn into the “Handmaid’s tale”..A right wing military/religious dictatorship with guns and god in every school..And they can force their young woman into breeding stock for the “faithful”..And they can finally fulfill Hitler’s ultimate solution with an all white Aryan state..

        • The language in this is way over the top, but it does have some truth to the way the forces are operating.

          Of course, the West Coast (“left coast”) is very energy dependent. It can’t survive on its own. Its technology seems to some to create salvation for everyone, but it doesn’t; instead, it creates a lot of homeless people who are very unhappy. It creates the possibility of epidemics in closely packed cities.

      • xabier says:

        The error, always, is to suppose that your ‘camp’ whichever it is, is inherently superior – in all respects – to the other side.

        With a little perspective, corruption, self-interest, self-delusion and plain ignorance are seen on all sides, and the voices of reasonable, sensible, well-informed people are simply drowned out.

        Both the ‘Left’ and the Republicans in the US are doomed, as they represent out-dated ideologies working with assumptions unsuited to the era of collapse which we face, and which cannot deliver what they promise.

        Physical reality will triumph over ideologies, and over mankind.

        • The Trump Wall sounds like an unneeded appendage, until a person starts to figure out that Mexico is very likely to have a similar outcome to Venezuela in the very near term because its oil exports are heading to zero, and the price obtained for these exports is way too low. We know that people from Venezuela have started to spill out into surrounding countries. It would seem as though Trump is trying to prevent a similar situation.

          I don’t think that there is any issue with the Mexican people being “bad.” They tend to be very hard working, if jobs are available, and their culture is not that different from that in the US. The problem is too little resources per capita when US population is rising because of growing immigrant population.

        • Sagebrush Country says:

          +1 “…out-dated ideologies…unsuited to the era of collapse…we face…”

      • I can tell that you come from a Democrat’s perspective. The deal killer is that there is not possibly enough energy per capita to allow what you are talking about in the last paragraph. The government will collapse quickly. The idea looks great, from a point of view of what is right, and what most religions teach, and how we should treat each other. If we had sufficient resource per capita, we could do all of these things, as well as spend huge amount of resources on pollution control and fighting climate change. All of these ideas are unfortunately just ideas of a bygone era, an era of growing energy consumption per capita. It is impossible for those who are doing fairly well financially to see the situation from the point of view of the many who can see the direct impacts of too little energy consumption per capita from their front-row perspectives.

        • xabier says:

          Quite true Gail: in the era of growth and energy abundance, it was possible to make a plausible case for government action, welfare, and other programmes, in many social areas; and it could indeed all be funded.

          The Left in Europe, particularly, still has this basic attitude, a hang-over from the past: here’s a social/medical/educational problem, now give us the funding, and we will have a better society.

          They are acting on the assumption of immense societal wealth which is no longer valid, whatever one may think of the causes they espouse, which are often very decent.

          The movements which are insulted as ‘populist’ are in fact ,in many respects, deeply conservative, looking back to the days of abundance and seeking to revive them: alas 1960 was a long time ago…..

        • Nope.avi says:

          “It is impossible for those who are doing fairly well financially to see the situation from the point of view of the many who can see the direct impacts of too little energy consumption per capita from their front-row perspectives.”
          They and their neighbors are the direct beneficiaries of the supply side economic policies used to prop up the global economy. They are given more resources than they can consume. From their perspective, “we” are consuming too much—fossil fuels, government services, etc.

          They assume everyone lives nearly as well as they do and are shocked by what many people at the bottom have to do without.

          At the same time, a small reduction in their wealth terrifies them. The Tea Party and Occupy Wall Street were all reactions to a small reduction in wealth for the upper classes.

          Affluenza is real social phenomenon, it comes with , psychological disorders the notable of which include bulimia and suicide.

          • this is why violence is the first response to major wealth/asset/energy reduction

            the violence doesn’t stop until the reductions have reduced below the point where violent activity is possible

            Zimbabwe has just double the cost of fuel–the result is likely to be violence–until there’s no more energy left for that

            then collapse is likely

            for a long time Zimbabwe has been our future on a small scale

  9. Davidin100millionbilliontrillionzillionyears says:

    China is now rolling dice:

    https://www.cnbc.com/2019/01/10/moodys-china-is-pushing-untested-policies-amid-slowing-growth.html

    if it works at all, it will be merely temporary…

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