An Overlooked Detail - Finite Resources Explain the Financial Crisis
Posted by Gail the Actuary on November 21, 2008 - 9:43am
Recently, two major actuarial organizations asked members to submit essays on the financial crisis. The only limitation was that the papers had to be very short--they should fit on two typewritten sheets of paper.
Since I have written in the past on the financial crisis, I took the opportunity to respond. This was my summary of the current financial situation, its connection to our limited resources, and what we need to do to solve the crisis. I never actually use the words "peak oil" and, in fact, the precise timing of peak oil is irrelevant. The issue is really the financial squeeze that occurs when resources starts to become expensive to deliver, and that doesn't really require peak oil.
Our World Is Finite
We all know the world isn’t flat. Any of us would be laughed out of the room if we built a model with a flat earth as one of its major assumptions.
We also know that the world isn’t infinite. There are a finite number of atoms in the earth and its atmosphere. The ability of our atmosphere to absorb pollutants is limited. The ability of our soil to withstand repeated mistreatment is limited. The amount of our non-renewable resources is limited.
Fossil fuels, especially oil, are a particular problem. Even though the amount of resources seems huge, the cost of extraction (in terms of fossil fuel resources, man-hours, and fresh water) increases greatly after we have extracted the easy-to-extract oil, natural gas, and even coal. Substitutes (such as ethanol and solar voltaic) are expensive in terms of fossil fuel use, man-hours, and fresh water. It is also difficult to ramp up quantities to the level needed to substitute for fossil fuels.
Finite Resources but Unending Growth
In spite of the clear issue of a finite world, the financial community has taken as one of its central beliefs that Economic Growth is Good, and is in fact to be expected. A close corollary is that Leverage is Good. Our monetary system is very closely tied to debt, and would come to a screeching halt if lending stopped. Our banks and insurance companies depend on lending, with banks using lending as their primary source of revenue, and insurance companies using bonds for much of the asset side of their balance sheets.
How did we come to believe that never ending growth was possible? One way was a simple look backward. Growth has continued since the industrial revolution. There was a tie-in with energy resources all along. The industrial revolution brought coal to make creation of goods easier. We later added oil, natural gas, and uranium as additional energy sources. The world’s use of energy has ramped up over a long period, practically without interruption.
Another way we justified the idea of unending growth was through economic models that ignored the contribution of energy and, of course, ignored the fact that we are living in a finite world. Economic models of this type include the Solow-Swan Growth Model that considers the contributions of labor and capital, and the Cobb-Douglas production function that considers labor, capital, and productivity. Neither of these models has built in limits, either.
The Tie Between Energy Resources and Economic Growth
Robert Ayres and Benjamin Warr showed a close tie between energy resources and economic growth in 2004. They found that when they used an economic model that considers both growth in energy use and growth in energy efficiency, it explains the vast majority of US economic growth between 1900 and 2000, except for a residual of about 12% after 1975.
Common sense also tells us that energy resources are required for growth, and even to keep our current economy functioning. There is very little economic activity that we can perform without diesel or gasoline or electricity. Common sense would tell us that models such as the Solow-Swan Growth Model and the Cobb-Douglas production function are incomplete.
We Are Reaching Limits
No matter what kind of resources we are working with, they don’t simply “run out”, as we use more and more of them. Instead, they become more and more difficult to extract. In the case of minerals, the ore concentrations become lower and lower. Mines need to be built deeper and deeper. Fossil fuels become of lower quality and more difficult to extract quickly.
For many years, depletion was not really an issue. Resources were so vast, and the leverage provided by energy from fossil fuels was so great, that we could extract as much of almost anything we wanted (oil, natural gas, coal, uranium, copper, phosphorous, gold, platinum, indium, gallium, fresh water, and many other things) very cheaply, in the quantities needed for whatever use was desired.
What has happened in the last few years is that we have started reaching the point where extraction of many of these resources is becoming much more difficult. In April, 2007, the CEOs of Royal Dutch Shell and of French oil company Total SA were quoted as saying that the days of “easy oil” are gone. Just this past week, the International Energy Agency released a report whose executive summary begins, “The world’s energy system is at a crossroads. Current global trends in energy supply and consumption are patently unsustainable environmentally, economically, socially.”
Our Current Economic Crisis
Now that we are reaching a point where the extraction of fossil fuels and minerals of all types are starting to reach limits, we find that if the economy starts to heat up, the price of many commodities starts to skyrocket. Part of this is competition for limited resources. Part of this is the high cost of extraction of these resources, now that we are increasingly reaching limits. Food prices are affected as well, partly because oil (for machinery) and natural gas (for nitrogen fertilizer) are used in food production, and partly because competition with corn production for ethanol drives land prices up.
Once food and fuel prices rise, people find it difficult to repay debt, and debt defaults rise. Now debt defaults are rippling through the economy. The poor financial condition of banks makes them unwilling to lend. This lack of credit is making it difficult for many direct and indirect buyers of commodities to buy products of many types (oil, natural gas, uranium, and copper, for example). Prices are plummeting for a wide range of products because prices are relatively inelastic.
These lower prices have a feedback effect on new production of commodities. In a paper to be published in Journal of Energy Security shortly, I show that the credit crisis and the resulting lower commodity prices are leading to cut backs in planned production of energy products of all types (fossil fuels, renewables, and uranium). As a result, if the economy does start to heat back up again, we will have another round of commodity price increases. This, of course, will be followed by another round of debt defaults.
What Is the Solution?
In a finite world, we will soon find ourselves in a level or declining economy, simply because there are not enough easily-extractible resources to support growth without causing huge price spikes, followed by debt defaults, and another round of credit contraction and commodity price crashes. The only solution I can see is to develop a new monetary system that is not debt based, and is not expected to grow. Ideally, it would decline as there are fewer resources, and as the economy naturally declines.
With a flat or declining economy, long-term debt no longer makes sense. The likelihood that borrowers will be able to repay loans with interest becomes quite low, because the economic system as a whole is not growing and producing a surplus that can be used toward interest payments. It is much easier for a borrower to repay a 20-year mortgage with interest when he is getting promotions and salary increases than when his employer is downsizing and cutting hours.
Somehow, a monetary system needs to be devised which operates without debt, except for very short-term debt to facilitate commercial transactions. In addition, we need to extract ourselves from the debt morass we have created. There is now far more debt and far more promises like Social Security and Medicare than can possibly be honored with existing resources.
The only way I can imagine transitioning to a new form of monetary system is by having an overlap period in which both monetary systems are in place. The new money might initially be limited in supply and only be good for food and energy products (somewhat like a rationing system). People would receive some pay in each monetary system. Eventually, the new monetary system would replace our current seriously problematic system.
(Not part of original two page article)
Links to other financial posts written by me, Gail E. Tverberg, on The Oil Drum
Jeff Rubin: Oil Prices Caused the Current Recession Nov. 5, 2008
Oil Prices: A Little More of the Story Nov. 27, 2008
Why are Oil (and Gasoline) Prices so Low? Oct. 22, 2008
Revisiting an April 2007 Forecast Regarding the Connection Between Peak Oil and the Collapse of the Monetary System Oct. 13, 2008
The Impact of the Credit Crunch on the Energy Markets Oct. 4, 2008
The Connection Between Financial Markets and Energy - Open Thread September 15, 2008
Peak Oil and the Financial Markets - July 31 Update July 31, 2008
The Expected Economic Impact of an Energy Downturn March 26, 2008
Peak Oil and the Financial Markets - A Forecast for 2008 Jan. 9, 2008
Economic Impact of Peak Oil - Part 3 - What's Ahead? Oct. 1, 2007
Economic Impact of Peak Oil - Part 2 - Our Current Situation Sept. 25, 2007
Economic Impact of Peak Oil - Part 1 - A Flashback Sept. 24, 2007
Our World Is Finite: Is this a Problem? Apr. 30, 2007
Other financial articles / presentations by me, Gail E. Tverberg, available elsewhere on the internet
Peak Oil and the Economy Presentation at Association for the Study of Peak Oil-USA Meeting, Sept. 21, 2008
Expected Economic Impact of an Energy Downturn (Video) Talk for Converging Environmental Crises Teach-In at Ohio State University School of Public Health. April 10, 2008
Our World Is Finite: Implications for Actuaries, Actuary of the Future, Society of Actuaries, November 2007.
Our Finite World: Implications for Actuaries, Contingencies, American Academy of Actuaries, May 2007.
Oil Shortages: The Next Katrina?Emphasis, Towers Perrin (Tillinghast), 2006/2.
A few other financial articles of interest on The Oil Drum
The Failure of Networked Systems: The Repercussions of Systematic Risk By David Clarke, October 25, 2008.
Herman Daly on the Credit Crisis, Financial Assets and Real Wealth Herman Daly (with Nate Hagens), Oct. 13, 2008.
Resurgence of Risk - A Primer on the Develop(ed) Credit Crunch Stoneleigh, Oct. 10, 2008.
Monetary Policy and Weaseling Out of Debt Shunyata, Aug. 28, 2007.
Contact
- Content: editors at theoildrum dot com
- Tech support: support at theoildrum dot com
License
This work is licensed under a Creative Commons Attribution-Share Alike 3.0 United States License.
I wonder if the auto industry bailouts are an early sign of community investment decisions funded by tax revenue rather than debt. Fast forward to year 2100 or whatever and suppose say a water turbine on Hoover Dam needs repair or perhaps a broken rail track. Interest is 0% as is economic growth having reached a steady state. There is no fractional reserve system. However the loose federation of governments collects a small amount of tax revenue. Since there is no welfare and wars have been forgotten that revenue pays for repairs to national infrastructure. Next year some other essential project will get most of the tight budget.
Can't happen? I suggest Gazprom and Electricité de France are effectively extensions of national governments and they are making the biggest investment decisions. Soon Detroit will be an extension of DoE.
You think there's going to be water in Lake Mead in 2100?
I don't think debt is necessarily a bad thing. The credit crisis is nothing more than a realization that a lot of people were living beyond their means. Its more about people buying homes, cars, anything they really couldn't afford just to impress their friends/wife/kids/parents. The bankers let them so they could buy the same stuff. I think its more that the American dream got a little off track. Plus the tax brackets are not really well thought out but thats a different topic.
Now would unlimited resources extend the illusion? Sure, but lets not pretend that high oil prices caused this mess.
I don't think the issue is whether debt is a bad thing. The issue is whether debt is sustainable without growth, and I would argue that very little of it is. (You could always have very short term debt, and an occasional investment that theoretically could support a very high interest rate, so it wouldn't disappear all together.)
A debtor always has to pay back debt plus interest, so he/it pays back more than he/it borrowed. If the economy is growing, the payback of the debt plus interest is not too great a burden. If the economy is declining, this is very difficult to do.
Think of a restaurant who gets a loan for its building, or for other purposes. If the economy is growing, it is serving more and more patrons each year, and they are spending more. It has plenty of money to pay back the loan, according to the original plan.
Suppose the economy is declining. There are fewer customers each year, and they are likely spending less (or possibly the same). The restaurant owner still has to hire staff and heat the building. It is much less likely to repay the loan in the declining economy.
With resource depletion, we will be seeing more and more of the latter pattern. This will affect city governments, and their ability to pay back loans. It will affect homeowners (some of whom will be laid off) and their ability to pay back loans. It will people who took out student loans. It will affect almost every kind of loan. If you don't believe it, do you have money to lend? I can find you some borrowers!
Everything you said is true, but I don't think humans would accept the long-term absence of growth. Moving to a monetary system without long term debt would signal otherwise. Somebody much smarter than me will figure a way to get around the resource problem.
What? Was this a sarcastic remark? No-one will get around the resource problem - that's nature for you. The only slight possibility is that someone figures out how to live on other planets or how to extract resources from other worlds, at no net resource cost and with no impacts on our habitat.
There are possible solutions to the resource problem. The keywords are renewable energy and recycling, and ecosystem preservation.
One can probably extend material growth on this planet for hundreds of years if:
1) The energy system is converted to 100% sustainable energy or we develop fusion power
2) All material gods that are desposed get either fylly recycled into raw materials that can be used again, or they are part of a ecosystem loop where the waste is sent to the ecosystem in a form and a quantity so that the ecosystem is able to sustainably reproduce the original resource.
3) The footprint of human activity dos not surpass the carrying capacity of vital ecosystem services needed for the survival of life on this planet. So a preservation of key ecosystems is required.
Theoretically one could imagine that technologists came up with an artificial ecosystem, but not even fully understanding how climate and ocean currents operate we cannot hope to master such technology in the near future.
Haha, people didn't like my little post. Just because resources as we see them now are looking scarce doesn't mean resources as we know them in the future are "finite". 100 years ago Uranium wasn't a resource. Before the iron age, iron wasn't a resource. Humans have a habit of producing new technology that changes the resource picture as we know it.
Humans have been growing for how many years? My money is on growth. I guess I'm a little more optimistic than this "dark ages" crowd.
You are also free to believe the earth is flat, but belief does not make it so. 100 million net resource-sucking, environment-raping humans added to the planet EVERY YEAR. Please tell us "dark agers" how that is sustainable?
Simple it isn't. Was the DOW at 14000 sustainable? No, it is retracting. Businesses and people will adjust, make smarter decisions and it will eventually grow past 14000.
Obviously population growth at the current rate is unsustainable the way we are currently using resources. Either we find a way to sustain this population growth or it will go down until we reach a point where resource usage matches population growth and growth continues. This doesn't mean the end of long term debt.
When oil is extremely scarce will people fall over and get rid of lending because growth is over? No, they will figure out a way around it and growth will take off again until it is unsustainable, retract and grow again. I just don't see how getting rid of lending would fit into this cycle.
Growth is always unsustainable, The Dude. It will never be sustainable. Sustainable means "able to be sustained". If you need to add, "for some period of time", then add it. Sustainable growth is an oxymoron.
Resources will never be infinite, as your previous post said. Sure, some substitution will occur and maybe even resources thought of as unusable may become usable but, if we haven't already reached there, at some point those substitutions will start to be not quite as useful, not quite as abundant and not quite as easily extracted or processed as the resource it is trying to replace. At some point, we will use, or have used, the best resource for the job, after which, substitutes just won't quite make it.
Also, not all resources considered vital for our societies, or considered vital to maintain growth, will be able to be substituted, or substituted at anywhere near the same utility and scale as the declining resource. So we only need to some vital resource to become scarce for growth to cease for ever (apart from occasional minor spurts, if humans survive). That resource might be topsoil, water, habitable land or some rare metal. It might even be people (since the economy needs consumers, to grow).
The planet is finite. Get used to it. Humans aren't really as smart as you seem to believe.
They didn't like your little post because it was decidedly air-headed. If you'd bother to note the changing nature of "resources" right off, you wouldn't have gathered 7 down-rates.
If you're talking nuclear fusion, deuterium for fuel may be limitless, but there are countless other bottlenecks. The power plants are built with enormous amounts of steel, concrete and fossil fuel powered construction equipment. If we use the deuterium-tritium reaction like ITER, tritium is another huge bottleneck. Nuclear fission is a mature technology where uranium fuel is a tiny fraction of the operating costs. Fusion will be more of the same, but with even higher costs.
In your example of the Iron Age, iron ore isn't much use without fuel for smelting, i.e. wood. In a resource-constrained world where all the wood is being used for cooking and heating, how do you bootstrap an Iron Age society? I know about the Bronze Age predating the Iron Age. For the sake of this example, say iron smelting needs much higher temperatures with higher fuel consumption and firewood is in short supply.
Suppose for a second that we aren't facing the peak of energy/resource avaliability and that we can grow beyond using 1/10000th of the solar insolation. This is a facinating topic that will surely be relevant some centuries from now, but every conversation here becomes projection that oil resource depletion is equivelant to total resource exhaustion and malthusian collapse. Certainly financial trauma from retooling trillions of dollars of infrastructure will not be painless, but this isn't the end of growth.
Not a very popular view I realize from the ratings I recieve.
Finanacial growth is an abstraction, a statistical anomaly or artifact if you will. 'Real World' growth or expansion of human infrastructure is limited by available arable land and water as well as topography. 'Development' ... that is, highest and best use ... is currently at a geographical limit. At some point, development costs exceed any measurable benefit. Increasing arable land by removing forest, for instance, or draining wetlands incurs compensating liabilities that are accrued elsewhere. Despite these liabilities being ignored, considered externalities or priced against other market participants, they still exist. There is no 'off balance sheet' in the material world.
Finanacial growth is an abstraction, but the greatest number of Americans have not experienced growth for a long time. This is the root of the current credit crisis; the disappearance of credit- derived- from- savings - and its replacement by Federal Reserve 'liquidity'. This replacement is strongly felt in the financial ecology, less so in the real eoncomy. Yes, it is possible to live and do so with some comfort without growth, millions of Americans have - until recently - done so.
Growth is only a requirement if the economy is built around debt. Eliminate debt as the central fixture of labor, capital and trade and replace it with thrift and the participants will not recognize any need for growth.
Finanacial growth is an abstraction, a person cannot eat it or live in it. It devalues itself in the course of its singular activity - growing - and devalues all else that it measures. Growth is destablilizing and revolutionary. Growth sets persons against each other and devours communities ...
Financial growth has failed over and over at its assigned task, to expand markets for goods. Market expansions are almost always accompanied by credit expansions, 'out of the loop' financial activities and always end with money panics and crashes. Market expansions are also fundamentally prejudiced and often in error; the assumption is that one set or another of products/goods is by fiat appropriate for any particular group of 'consumers'.
In other words, 'What is good for General Motors is good for America'.
Right.
Overall, nicely put. However, not sure I agree that "Market expansions are also fundamentally prejudiced and often in error". Credit expansions, yes --market expansions, sometimes, but not always.
I disagree that a truly "free market" means one with no rules at all --as many anarchists and neo-conservatives believe. I believe it's supposed to mean a human-designed market bound by fundamental rules of fair play. Ideally, it should be free of coercion, fraud, market manipulation, government subsidies, and monopolies/cartels. It should be one that encourages competition and financial transparency, not intimidation and fraud, which tends to weed out bad actors and reward good ones.
Unfortunately, such a market is an ideal, and one we are further from today than we have been in decades.
I think it's also worthwhile pointing out that any real 'improvements' to our per-capita standard of living in past centuries (living longer, better health/medicine, greater material wealth/comfort) are invariably attributable to improvements in science and applied science (technology), not "growth" in population nor "growth" in debt & the money supply.
Symmetrical information is necessary. Depending on how you bound the above, that might or might not be included; I wanted to make it explicit.
While I almost agree since I'm not at all in favour of trying to achieve real growth by printing money and creating debt, I have to disagree!
During the last debth expansion a huge amount of extra "goods" was actually produced and bought in the marketplace. We wouldn't have all those extra SUV's that are now up for sale. Or all those McMansions filled to the brink with home appliances now standing empty and/or unsold. We wouldn't have garages of average people filled up with cheap plastic trash from china. And people wouldnt have been changing their laptops and mobile phones every second year.
It is clear that printing of money can induce production and consumption of material goods. Its also clear that in a world facing limits on mineral resources and ecosystem carrying capacity this debth based growth is bound to hit a wall of high prices and resource constraints.
You are right, up to a point. Eventually, the production outruns the market for what is produced. if there is a market, the items - cars, houses and houses filled with plastic junk - would not be a- mouldering.
The problem exists at the point where markets are opened in geographic areas or to demographics that don't have any money! The only way to allow these persons to be customers is to extend them credit. If there are a lot of people or large areas, this means huge credit expansion:
... loans to Peru in the 1920's to build railroads (and sell the Peruvians locomotives and other rail equipment.)
... subprime mortgages to unskilled construction laborers making $10 per hour to buy $300,000 houses.
... 'Roll- over' loans to auto buyers, leaving many car buyers underwater.
I could get into the China- US trade imbalances but that would take up the rest of The Oil Drum.
Dezakin,
Do you understand that resources, of all kinds, are limited? That was really the point of the article. Amazingly, some people disagree. I know you come close to that as you think resources are just a matter of energy and that nuclear (or maybe solar insolation) will provide whatever energy is needed and without damaging our biosphere.
It's not that it's not a popular view, just that it's an unlikely model of reality.
Investment in solar and nuclear seems to be just as bad as anything else right now. It is hard to see how they will bail us out.
Gail, I think - correct me if I'm wrong - that you've come around to this position - that the current meltdown is a global margin call on nature itself - relatively recently. Or at least your POV has crystallized into something very understandable.
You write that increasing prices are all it takes...
I'd suggest that all it takes is the understanding by a few market players that such is going to happen. That our current meltdown reflects an understanding by some players that limits exist.
The banks won't lend because they already do understand they cannot be paid back. [There is, however, another layer, in that they recognize "end game" and are grabbing for everything they can. Related and unrelated.]
cfm in Gray, ME
I know that the understanding of peak oil is an important issue, and in fact list that as one of the issue in my forecast for 2008. Any banker who can put two and two together will be concerned, if he/she understands peak oil. It is hard to know how much understanding of the peak oil is contributing to the current melt down. People aren't good about stating their motives.
I think there are other issues right now as well.
1. One issue is the fact that banks are being forced to keep loans they make on their balance sheets. In the past, they could put sliced and diced loans into structured securities, and resell them, but this is no longer an option. They also had loans in off-balance sheet accounts, but these are coming back on. All of these loans crowd the balance sheet. They don't have a whole lot of equity, so they aren't too flexible in increasing the amount they can lend.
2. Companies that in the past would have borrowed money on their own are finding necessary to use their "lines of credit" that they had arranged for in the past, to have for a rainy day. By using these lines of credit, this further squeezes banks.
If you look at total bank lending (someone has a link--not sure I do right now), it is really not down by as much as all of the distress would lead you to believe. It is really the non-bank lending and the facilities banks used to have for getting loans off their balance sheets that are down, and this is putting pressure on the banks to absorb the slack.
Sofistek, the point of the article is not simply that resources are limited. Kids learn that in elementary school. It states that because of finite resources a monetary system without debt is inevitable because an end to growth is inevitable. Here's some issues I have:
"In spite of the clear issue of a finite world, the financial community has taken as one of its central beliefs that Economic Growth is Good, and is in fact to be expected."
Just the financial community? All plants and animals seem to have that belief system, right? Also, the author only discusses growth since the industrial revolution. I think that it is a little short sighted to only look at growth since we have been using fossil fuels for energy.
My main disagreement is in the solution.
"The only solution I can see is to develop a new monetary system that is not debt based, and is not expected to grow. Ideally, it would decline as there are fewer resources, and as the economy naturally declines."
I said, I don't think that humans would accept an end to growth and correspondingly an end to long term debt. I was pleasantly surprised to see the rating of my comment at -10 last night and loved your response.
People are always trying to get ahead of each other and are always succeeding. This has been true since the stone age. I don't understand how someone can think because its getting harder to drill oil or mine copper that this will change. People, businesses, and economies that think they can't grow will get run over by ones who do think so because they can. It has always been that way. The limit to what we may think of now as resources will not stop them. That is why I believe there will not be an end to lending or growth.
Humans will accept whatever it is they have to accept. It's an 'easy way or hard way' choice. The future will bring what it will bring, our challenge is to prepare for that bringing.
A hard way is to attempt to force a flawed (financial) system past its capabilities. The result is failure. Design failure in the current system is pretty obvious. A person (economist) can ignore these flaws but this doesn't alter the reality that the flaws have undermined the performance of the entire system ... that the flaws are fundamental.
An easier way is to examine other systems with an eye to finding some utility, somewhere. Economies and monetary structures are tools. If a tool fails, why not others? There are no rules but to succeed.
It's important to align the economic tool to the resource conditions. There really isn't any alternative. A problem is that the current breakdown makes adjustments more and more difficult, since 'rental' capital (debt) is being destroyed and hard capital is found only in the resource base. Because of feedback loops run amok, the 'system' is now cutting off potential solutions rather than illuminating them. Unfortunately, these systematic restraints are artificial yet are considered 'real' and possess real power. When an artificial Credit Default Swap sez your company is worthless, it is for real, even if that company is functioning as it has and should. This 'high- voltage artifice' makes it more likely the entire system - rather than parts to it - will wind up being jettisoned.
I tell people to study how to live as people lived in the 19th century ... because, if we aren't careful, we will wind up living in the 14th century!
I agree that there will likely be no steady state. Economies are either growing at an accelerating rate or declining at an accelerating rate. I think we will see a lot more of the latter, with pockets of the former. You can have debt-based currencies continue on their infinite growth trajectory as the "real" economy declines. It happens all the time, in fact the examples are too numerous to mention.
Yeah, Zimbabwe ...
Plants and animals do grow populations as fast as they can until resources within their ecosystem are exhausted and the populations collapse. Cycles of growth and collapse have been observed everywhere. Do you think that the Mayans or Easter Islanders or Anasazi "refused to accept" an end to growth? (See Jared Diamond's Collapse.)
The_Dude. What people will, or will not, accept is important to how societies develop. However, desires can't trump nature. Why do you thin they can?
There will be an end to growth. That is inevitable on a finite planet. Will there be a resumption of growth thereafter? It depends on whether humans learn the lessons of the history that is being made right now. No doubt, some form of societal or economic growth will occur, for some period of time but, unless humans are as dumb as you think they are, hopefully that won't lead to a resumption of unsustainable societies, of the kind we now have.
Gail may not have hit on the right solution but the point of the article, for me, was the same as the special report in New Scientist, recently, on the folly of growth.
Ok you just argued against yourself. "There will be an end to growth" and "Will there be a resumption of growth?" If there is an end of growth obviously there can be no resumption of growth. It already ended right???
It sounds like we agree but are talking about different definitions of "long term." I think an economic recession, however long it may be, is not a stop to growth, but a part of the growing process. Adjusting to PO, however long that may take, is not a stop to growth but a part of the growing process.
An end to growth would mean that the world's population, economy, etc. would reach a steady state which I find hard to believe. The only steady state I think would be possible is zero.
The planet may have finite resources but there is an infinite amount of ways to use and reuse them, some known now and some unknown. I also wouldn't restrict your view of resources in the future to what is on this planet.
If you take the attitude that growth will end and take steps like getting rid of debt, you obviously aren't trying to develop new technologies that would allow growth. Some one else will believe that growth is possible, and they will develop new technologies to allow growth and your society or whatever that believes in a steady state world without lending will get left behind in the dust. Yes, these people will get run over eventually FMagyar (assuming humans aren't extinct) because they did not think outside the box.
The_Dude, when I say end of growth, I mean that there will be no economic growth for some substantial period of time. Most recessions seem to last only several quarters, with exceptions. Recessions are, no doubt, caused by all sorts of things but an end of growth caused by scarcity of resources, or an inability to grow some vital resource, would surely be a long term end to growth (apart from little GDP wiggles on the way down). Assuming that economies will not be carefully managed down, there will be an undershoot, resulting in an excess of resources for the economy as it then is. This could lead to another period of growth, though not to as high a level as before the slump.
So, on a finite planet, and ignoring environmental pressures for now, there will be some high point beyond which it is impossible to grow the economy due to a limit of one or more critical resources. But there could technically be later periods of growth, to a lower peak. Whether we go for that later lower peak depends on whether we've learned the lesson that the earth is finite.
"The planet may have finite resources but there is an infinite amount of ways to use and reuse them"
Well, it seems you may not have learned the lesson. No, there are not infinite ways to use and reuse them. Maybe you are confusing "many" with "infinite"? There are many ways to use and re-use, but not all of those will enable economic growth. So there are a limited number of ways, and a much smaller number of economically useful ways. Ultimately, increasing the amount of stuff that gets produced and used, increasing the services offered and taken up, requires increasing consumption of resources. Re-use can't do that, even at an impossible 100% efficiency. Substitution can't do that for ever, on a finite planet.
"I also wouldn't restrict your view of resources in the future to what is on this planet."
I don't. However, I think it unlikely that humans will have figured out an efficient way to recover economically useful quantities of off-world resources, before resources for trying become too scarce. I also don't have a belief that humans must be able to figure this out, even if they do have the time and resources. Too many people think that humans are the ultimate in intelligence, the absolute apex of evolution. It ain't so. Humans might never get off this planet in any meaningful way. So don't go relying on that. If they do, then we can have another discussion about the effects of that.
"you obviously aren't trying to develop new technologies that would allow growth"
Technology can't trump nature. You've yet to disprove that assertion. A blind belief in human ingenuity is not proof.
"because they did not think outside the box."
I would humbly suggest that it is you who are stuck inside the box. You can't imagine a no growth economy. You can't imagine humans not being able to solve any problem. Your belief is total. Unfortunately, it is commonly held, which doesn't give much cause for optimism.
I've got to point at this statement as having a solid counter-example:
How would you characterize the progress of land-based life from mosses to vascular plants to forests of massive trees, herds of mammals, and so forth?
Re-use managed this for a couple hundred million years. I don't see why humanity should worry about more than the next million; if we can manage that, our descendants should have a solid set of tools and an excellent example for the millions to follow.
The_Dude, when I say end of growth, I mean that there will be no economic growth for some substantial period of time. Most recessions seem to last only several quarters, with exceptions. Recessions are, no doubt, caused by all sorts of things but an end of growth caused by scarcity of resources, or an inability to grow some vital resource, would surely be a long term end to growth (apart from little GDP wiggles on the way down). Assuming that economies will not be carefully managed down, there will be an undershoot, resulting in an excess of resources for the economy as it then is. This could lead to another period of growth, though not to as high a level as before the slump.
So, on a finite planet, and ignoring environmental pressures for now, there will be some high point beyond which it is impossible to grow the economy due to a limit of one or more critical resources. But there could technically be later periods of growth, to a lower peak. Whether we go for that later lower peak depends on whether we've learned the lesson that the earth is finite.
"The planet may have finite resources but there is an infinite amount of ways to use and reuse them"
Well, it seems you may not have learned the lesson. No, there are not infinite ways to use and reuse them. Maybe you are confusing "many" with "infinite"? There are many ways to use and re-use, but not all of those will enable economic growth. So there are a limited number of ways, and a much smaller number of economically useful ways. Ultimately, increasing the amount of stuff that gets produced and used, increasing the services offered and taken up, requires increasing consumption of resources. Re-use can't do that, even at an impossible 100% efficiency. Substitution can't do that for ever, on a finite planet.
"I also wouldn't restrict your view of resources in the future to what is on this planet."
I don't. However, I think it unlikely that humans will have figured out an efficient way to recover economically useful quantities of off-world resources, before resources for trying become too scarce. I also don't have a belief that humans must be able to figure this out, even if they do have the time and resources. Too many people think that humans are the ultimate in intelligence, the absolute apex of evolution. It ain't so. Humans might never get off this planet in any meaningful way. So don't go relying on that. If they do, then we can have another discussion about the effects of that.
"you obviously aren't trying to develop new technologies that would allow growth"
Technology can't trump nature. You've yet to disprove that assertion. A blind belief in human ingenuity is not proof.
"because they did not think outside the box."
I would humbly suggest that it is you who are stuck inside the box. You can't imagine a no growth economy. You can't imagine humans not being able to solve any problem. Your belief is total. Unfortunately, it is commonly held, which doesn't give much cause for optimism.
If there's a finite amount of ways you can use and reuse a resource, think of a resource and specifically the ways you can use and reuse it for economic gain. I promise you someone can find a way today, 100, 1000, and 10000 years from now that you haven't thought of to produce an economic gain.
This doesn't make sense, or at least is of no relevance. Are you, somehow, trying to prove to yourself that resources are infinite? Maybe you can prove it to yourself but you can't prove it to others and so will have to rely on your absolute faith. Good luck with that.
So what, if someone will be able to think of some way of using a resource, for profit, in 1000 years? That doesn't make the resource infinite, it just means that, should humans stop using that resource (maybe because it's become scarce or because humans have come to their senses) it may get used for something else, down the road, if there is any left. That isn't infinite, either in the the quantity of the resource, or in the use of that resource.
Economic growth requires the consumption of increasing amounts of resources, somewhere. On a finite planet, that is unsustainable.
In any finite system. But one has to wonder why all of these projections allways assumes eternal bounderies of a single world.
Do you wonder, Dezakin? Perhaps it's because humans are only guaranteed to ever live on, or use the resources of, a single world. Anything else is wishful thinking, at this time. Do you not agree? Perhaps the resources of other worlds could be made available to us (without damaging our habitat) one day, and perhaps humans could figure out how to live on other planets one day. But perhaps none of those things will ever come to pass.
So let's figure out how to live on this planet, without assuming that other ones are available to us. Why do you think that would be a poor strategy?
No, I don't. Human civilization is going to tear through the entire solar system barring a giant asteroid sterilizing the planet sometime in the next hundred years. Its as certain as the continued rotation of the earth.
Because its a vaugue target thats entirely unenforcable and in contradiction with the observed behavior of human civilization. We live on this planet allready, and that its not optimal or sustainable is also a moving definition of what is. Enforcing such behavior is also impossible, and as such its an engagement in intellectual mastrubation trying to imagine the totalitarian state that enforced such harmony with nature instead of simply attempting to mitigate the risks of growth.
I have read everything and sat on the fence, now I say,
PDFTT
Perhaps Dezakin is uninformed but I smell troll, well expressed, but a troll nonetheless. Let him be. As it has been said, the jig is up.
The key is sweeping statements with little or no foundation.
There is nothing to see here, please carry on.
I don't think Dezakin is a troll or misinformed. He is simply in the grip of tragic delusions. But he's a good reminder here that intelligence is no guarantee against such lethal folly, and that insightful wisdom is thin on the ground. I do agree there's negligible merit in discussing with him.
Wow, you actually believe that humans are guaranteed to rampage through the solar system. But don't you see that that is a belief, not a guarantee, in the way that it is guaranteed that the earth will be available to us for as long as there are humans on it? You might well have a strong belief, but you cannot possibly see into the future (though, for all I know, you may believe that you have such powers). It may be that we only ever have this one planet. That is certainly a possibility, even if you don't believe it to be a probability.
From your second paragraph, I assume that you think humans, as a group, aren't intelligent enough to figure out a way to live sustainably on one planet, even though we have a pretty good idea of how to at least attempt it (at least in terms of its essential characteristics). I don't understand, therefore, how you have such faith in humans' ability to survive on, or sequester the resources of, other worlds. On the one hand, you have utter pessimism about the intelligence of mankind but, on the other, you think of it almost as the pinnacle of intelligence, having the ability to solve any problem.
Wow! Just wow!
In that they are all functions of energy, which we have an upper limit of utilizaton on earth of 10^17 watts placed by the radiative capacity of waste heat, some 10^4 more than all of civilization uses today.
In the solar system its quite a bit larger. That human civilization can do nothing but harm a biosphere or even that its welfare is in the long run even dependant on biology at all isn't assured. To assume that we're even close to the end of growth is terribly premature and in my view, ridiculous.
We've barely just begun.
So you think all of the people advocating lower, or no, growth are ridiculous? A recent special report in New Scientist also advocated no growth.
Why do you think humans have to use all of the energy that is theoretically available? Why do you think they should use all of the resources theoretically available? Do you see no limits in terms of the ability of the earth to render our pollution harmless, or of topsoil, potable water, living space, and so on? Reducing it to a theoretical number is only part of the story.
We are probably nearing the end of growth. I think 1.3 planets of resource consumption and pollution sinks is well over the limit of the one earth we have. I would think it is ridiculous to consider otherwise.
Yes. They're advocating a fantasy world.
The same magazine that published reports on hyperdrives...
Why do you want to attack a strawman?
Oh I would agree if we actually were using 1.3 planets of irreplacable resources. We aren't.
That's nice to know, Dezakin. Do you have any links to the research that informs your opinions?
There was no strawman. You gave figures which you regard as the limits to growth. They imply an enormous consumption of resources is possible, way beyond present levels. That is some belief. Is there any research to support your view?
Even if we suppose for a moment, Peak Oil was not an issue and somehow we happened to get most of our energy from solar; it does raise a number of issues. Firstly though, removing one constraint, just means other constraints come into view. Examples are the population or the level of pollution or species and biodiversity loss -which of course are real and urgent issues too. And I forgot to mention global warming but even leaving that aside, you still have the above and other issues.
In fact this was one of the central findings out of the studies that were done as part of the Club of Rome -Limits to Growth reports in the early 1970s. Using what was known as the World Dynamics model (google Jay Forrester), it showed unless you address all issues and in particular population growth, then solving one problem (say energy) just postponed things a bit longer, but allowed other problems to develop and led to just as dramatic collapses later whether in population and or living standards.
The key message coming to us from Nature as it were is that as a society we have to grow up and be very mature and intelligent about what we are doing and cautious. We somehow have to build in the safeguards otherwise like a cancer with uncontrolled growth, the host (i.e. Earth) will be killed and all those who live on it.
A thought experiment is perhaps best. Lets suppose Fusion power was cracked tomorrow (and it won't. Even those scientists working on it agree it will be a minimum of 25 years or more before we get a working reactor that might produce useful amounts of power of the order of 1GW or more and scale up would take years after that), but nevertheless we will imagine somehow it is so. Then in this scenario power is essentially unlimited. Straight off, the suburban sprawl would go into even higher gear. Even the distant deserts, Arctic or anywhere else is in commute distant. We could mine anything, no matter how poor the ore grade. Clearly pollution would soar. Would we bother use our new found energy to clean it up? I doubt it. The assault on the environment would accelerate even more. Currently we are in the midst of the 6th Great Extinction on Earth, but nobody seems to care as if it was unimportant. It is important. Again lets ignore that, because fusion power gives us fusion rockets/spacecraft. So now suddenly the whole solar system is opened up for travel and exploitation. We really could put people on Mars and mine the asteroids. But for what? To make more stuff for our consumer society?
I recall many years ago (circa 1985) reading in some astronomical journals where people had modeled a scenario where we had spacecraft that could reach other solar systems. These models clearly showed that if you allowed the discovery and use of resources to follow an exponential model, that the whole galaxy would be exhausted in a few 10s of millions of years. The only viable one that didn't do this, was one where each 'colony' was self sustaining and did not require resources from the others.
The lesson for us all in this?? We have been following the exponential model. Our global society is hijacked by a cancerous authoritarian political system and the wider public have not personnally taken on board the responsibility of being mature and intelligent about our relationship with the natural world we live in. At this present time, hoping for fusion power is crazy and it would be absolutely lunacy if humanity presently were to harness it at this moment in its history. We would then have the ability to wreak havoc for thousands of lights around us where it is almost certain there are various forms of other life, although not necessarily 'intelligent'.
The odd but strangely coincidental thing is that we somehow were endowed with coal, then oil and then uranium. Each allowed at each stage a more sophisticated and technically complex society to arise and for science to flourish. Each had a catch, coal and oil were very CO-2 heavy, uranium powerful but dangerous. Oil particularly was highly useful and gave great leverage for extracting key and valuable resources for use with technology. And of late we now have the Internet, which could be seen as the final piece in the jigsaw to put it all together. Clearly there is the makings of something greater. But what have we done. We built suburbia and gave everyone (in the West at least) a car and have totally fecked up the atmosphere. One of the consequences of using the energy resources rapidly is that it means our technically complex society in all likelihood will not last long enough to reach fusion. It is almost in reach, but out of reach. It's is essentially the last stepping stone to the stars as it were. Isn't it odd that it was placed just far enough out of reach?
The answer of course is that had we built sustainable cities, educated instead of dumbed down, created free mass transit instead of private cars, protected at least 50% of the Earth for the other species and developed justice and democracy instead of developing weapons and tyranny and torture, then we would have been in a position to use all our resources in a non exponential way and acquired fusion power in our own time.
I think this is sort of the dream of all the solar utopians out there, that if we could just build out enough of it, we just might somehow get by. Its the old message of there is still just enough time. Its a way of saying all the excesses and damage of the past won't matter if we just come clean now. It won't. A lot of wrong moves were made many decades ago and we are paying the price now. This whole global mess, ecologically, energywise, and culturally has much deeper roots and have causation factors that go back quite a long way.
Lastly, I don't actually have any answers but on a broad scale that is how I see it.
You say you don't have any answers, but there it is. Resources have to be bounded by horizons. Horizons understood by the "colony". Meaning that Maine in US should not be consuming more than it produces. Measured on something like Odum's secals - something that tells us that cutting and importing one sequoia from California to Maine is VERY VERY expensive. Perhaps the entire income of Waldo county. Don't do it - can't do it.
Carbon credits need to be geographically restricted to what the same geographical boundaries can sink.
The fish on the Georges Banks, under such a scheme, might recover (doubtful because various ecological tipping points have been passed), and there would be "surplus". "Surplus" fish that would never be harvested. But remember, in nature, NOTHING is wasted. The surplus is only a failure of our understanding.
Boundaries. Local economies need to coincide with bioregions, etc...
cfm in Gray, ME
"The answer of course is that had we built sustainable cities, educated instead of dumbed down, created free mass transit instead of private cars, protected at least 50% of the Earth for the other species and developed justice and democracy instead of developing weapons and tyranny and torture, then we would have been in a position to use all our resources in a non exponential way and acquired fusion power in our own time."
Terence, excellent post. What you describe in the above passage would require a form of governance that went beyond "term limits" of elected officials. Somehow we need to be able to implement long term plans that are maintained and adhered to without being mutated for political motives. Recent history has not followed this pattern well.
You do realize that if you burned all the uranium and thorium with todays technology as fast as you could without melting the planet you would have to do it for some 1-2 million years before it ran out, right? One might suspect sometime over the next several hundred centuries we'll have the next substitute for fission. If not I suppose we'll all just die, but a million years is a good run I imagine.
What percentage of the uranium and thorium resource are we likely to burn through, and at what rate, do you think? Might doing that have any adverse impacts, well before 1 million years?
A vanishingly small percentage at not more than 10^15 watts over the next several centuries before the next new technology matures, be that inexpensive ground based solar, nuclear fusion, space based solar, or magic pixie dust. Its merely a demonstration that energy resources are not a limiting factor on the scale of the lifetime of human civilization as we describe it.
Depends entirely on your perspective. Digging up a majority of the earths crust for fissionables, civilization sprawling across every section of the planet and the ecosystem evolving to become dependant on the waste heat of civilization might be classified as such, but this depends on your values. At a rate of 10^17 watts from fission power you would melt the polar ice caps even if you scrubbed all the CO2 from the atmosphere, so certainly rising sea levels and the like. Nothing a civilization ten thousand times richer wouldn't be able to cope with.
"Its merely a demonstration that energy resources are not a limiting factor on the scale of the lifetime of human civilization as we describe it."
It's not such a demonstration, because it says nothing about rates. Rates of production can be a limiting factor. Environmental damage that production (or use) may cause can also be a limiting factor.
"A thought experiment is perhaps best. Lets suppose Fusion power was cracked tomorrow (and it won't. Even those scientists working on it agree it will be a minimum of 25 years or more before we get a working reactor that might produce useful amounts of power of the order of 1GW or more and scale up would take years after that), but nevertheless we will imagine somehow it is so. Then in this scenario power is essentially unlimited. Straight off, the suburban sprawl would go into even higher gear. Even the distant deserts, Arctic or anywhere else is in commute distant. We could mine anything, no matter how poor the ore grade. Clearly pollution would soar. Would we bother use our new found energy to clean it up? I doubt it. The assault on the environment would accelerate even more. Currently we are in the midst of the 6th Great Extinction on Earth, but nobody seems to care as if it was unimportant. It is important. Again lets ignore that, because fusion power gives us fusion rockets/spacecraft. So now suddenly the whole solar system is opened up for travel and exploitation. We really could put people on Mars and mine the asteroids. But for what? To make more stuff for our consumer society?"
Thanks for this, Terence (real name, or reference to Latin author?).
This is the central discussion we need to have--on this site, in our communities, in the nation, in the world. What is energy and power for? If we don't know the answer to this, we can't know how much or what kind we should be trying to get. It boils down to the even deeper question of what WE are for. Unfortunately, such questions tend to prompt either religious (usually unthoughtful) responses or blank stares and head scratching (or worse).
We really do need to take a long look at ourselves in the mirror and ask what we're for and what we need power to do. Most economists would answer this on the micro level with "self maximization" of some sort, and on the macro level with "eternal growth." These are generally unquestioned axioms in their ideology, so most economists are unable to even think of them as anything that can be discussed.
Many others (an extreme form is our friend Dezakin, here, but he is just a slightly more extreme form of a prevalent mindset) would not for a moment think that preserving--or even not being responsible for the annihilation of--other forms of life and ecosystems could ever fit into any answer to the question of what humans are for.
Probably for any such discussion to be fruitful, it should start with the negative: "What aren't humans for?" That is, what activities dehumanize us? What outcomes are least desirable?
To me, causing the extinction of most of the other complex life forms on the planet is not a positive or desirable outcome. That some others don't seem to share this assumption with me is a constant source of amazement and bafflement for me. But I suspect most don't basically believe this is happening or possible so it need not be part of the equation.
Wow! How about a tough question instead? :-)
As I see it, this is at least three questions, or answerable on three levels; spiritual, philosophical and existential. I doubt that consensus is possible on the first two, but the third is much more pressing.
Ironically, it is the least complex lifeforms that we depend on. They are neither cute nor cuddly, but we may be eliminating them at a much faster pace than koalas with far greater peril.
Like you, I don't understand the headlong rush to a situation that is less than optimal, to say the least. That said, before I started to study, and tried to understand, I didn't either.
So, can the majority "get it" before we reach the point of no return? Can forums like TOD overcome denial and disbelief?
All I can say is "I hope so".
A declining economy doesn't affect everyone equally. That restaurant, due to its tastier meals, might be taking market share from other restaurants in the area. Their profits could be increasing, and they may need further outside investment to open a new store serving the same meals.
To assume all lending ceases in a recession is very poor thinking.
But then wouldn't that be a risky loan to bet that the new restaurant could steal customers from the old?
Wouldn't banks find it difficult to make money in such a way?
Maybe it works once or twice, but more than that? 10% of the time? 5% of the time? Maybe we could call it the "theft-economy"
If it were too risky then it might not be a viable option.
In a lot of ways this is Gail point.
What this means is that the Banker becomes a investor or hard money lender. Money will be made and lost but as with the example whats happening is something marginally better is replacing something else.
You can look at ancient Japan when it closed itself off the Japanese developed what was arguably the most refined culture in the world. Semi-closed Japan the same. Refinement replaces growth.
For energy it would be efficiency. For buildings it would be building to last 500 years.
But if you look at the system from the outside growth is zero for every building built or region expanding another is declining.
We have actually had these patterns start to form already with the Western nations arguably in decline and Asia and the Middle East on the rise. This is a very natural pattern. The problem is resource usage in the west is still very high and the resource base is declining.
Eventually we will revert back to this natural ebb and flow and any attempt at endless growth debt financing will quickly result in collapse just like it used to throughout the ages.
You will still have bubbles and crashes and rises and falls its simply that in a finite decreasing energy world these swing will be much more muted. No 100 years of endless growth.
Sure Mania's or bubbles will happen but they will fail quickly most of the time and in most parts of the world you should see the economic system revert back to one of no debt and a slow accumulation of wealth in durable assets esp in areas that limit population. Some areas will choose large population of poor and wealth concentration.
At some point and who knows when the human race as a whole will eventually begin to limit its population and as the population declines real wealth per capita will increase.
As I understand the English and European wealth system in the middle ages, and probably down close to the present, property transferred primarily be inheritance rather than by purchase/sale. The social system within aristocracy was very cognizant of who would inherit what, and power went with along with the property.
It seems than any number of alternate systems of wealth management are possible, but I'm not sure any are any more "fair" than what we have now.
Your analysis and comments trade off growth and decline. Stasis is the other option, and it would seem that some degree of debt is possible in a static environment, where cash flows can support the restaurant mortgage (barely) which in turn supports a bank (barely) which pays a small interest rate for savers. It's hard to see anything like the current big investment banks and such, but pooling of private money to undertake significant projects would seem to be possible, just much less prevalent.
I've seen others saying that gov't would have to undertake big projects because of down-pressure on private financing, but I don't see the supportable level of taxation being any higher than a supportable level of savings or debt repayment. We'll still have big-gov't/high-tax versus small-gov't/private industry arguments in a static model as well. It'll just be arguing over a pie that's maybe 1/4 as big!
In a static model a gold basis seems reasonable. Why have fiat currency if there can be no significant growth?
This argument holds for long-term debt, but it doesn't really apply to short term debt. Not that you could use short-term debt to buy a diner - typically one would use short term debt for entirely different purposes.
What we have seen however is that people have taken short-term debt instruments (like credit cards) and effectively turned it into long-term debt (either by carrying the debt, or paying the credit card by borrowing from a home-equity line of credit).
Dear Gail,
Interesting and clear, as usual. I have lots of problems with 'green economics' and specifically the concept of 'no-growth' 'low-growth' or 'sustainable-growth.'
This is a simple, but profound, question; is private capitalism compatible with a 'static' or low-growth economy?
What happens to wealth-creation and the need to service the interest payments on loans, credit, investments? That's just for starters.
It seems like we have a lot less wealth creation. If we have a finite world, we concentrate on recycling materials, rather than making from scratch. We take old SUVs and make them into something useful.
Businesses of all sorts become a great deal smaller. If there are infrastructure projects or other large projects, they are funded by a tax on those served.
A lot of debt defaults are going to happen. A lot of people who thought they would receive debt payments are going to be out of luck. Someone will have to decide what happens to all the houses people own but can't pay for and cars they can't pay for. I expect that eventually debt will become rare (except for short-term debt, as for goods in transit).
Gail,
You're describing of course, the death, or end of capitalism and the world we've all known. The end of consumerism and an entire way of life, or death, depending on ones perspective. You do this quite calmly, as if it's inevitable. I wonder. Doesn't this imply that the capitalist aristocracy will meekly accept the demise of the world they've created and controled for centuries, and that they will just go the way of the dinosaurs, vanishing into history without resistance? Are you sure about this? Personally I have my doubts it'll be that easy to create, what's close to a alternative, new, world.
Its absolutely not the end of capitalism just a return to hard money lending.
Hard money lender i.e people that lend a portion of their wealth for a venture are in my opinion true capitalism. The loss if any is a simple transfer of wealth with no change in the money supply. Also hard money lending tends to be a investment regardless of how its structured interest is literally just a precentage of the profits.
Its a end to fractional banking which is not capitalism but just one form of a enormous number of ways that you can fake money via debt. The simplest scheme is writing a hot check but they all involve trading at the end of the day a promise in exchange for real cash.
In the case of hard money lending sure its and exchange of a promise but the promise on the side of the borrower not the lender. A bubble example using the above restaurant would be to borrow money to open the restaurant then sell shares for more financing. This generally results in the restaurant being oversold and unable to meet its obligations.
You can't prevent various ponzi schemes from forming but if the base of the financial system is hard money lending then these fraudulent schemes blow up fast. We have the opposite where the fraud is our monetary base and endless growth is the only way to perpetuate it.
Wealth still accumulates even in a stagnant economy we can still concentrate resources and build things that last longer after the initial investment you can find plenty of Roman built bridges and other structures that are still in use today. Irrigation schemes dams renewable energy projects all of these can result in a slow accumulation of true wealth.
As far as the money supply goes if wealth accumulation is slow and hard money lenders lend out stored wealth then you can use something like gold as a currency. Wealth in the form of deeds to land and buildings don't need cash to back them the just need a notational value or title instead of gold. Money then becomes a issue of currency in circulation and we can of course do this electronically virtual currencies need not be fiat. And the money supply can be backed by any mix of assets with gold being one if its even needed.
The key of course is the amount of "money" does not exceed the total assets. It may and probably is much larger than the amount of money needed for business transactions.
Issuing a debt agianst and asset as money is just fine and works quite well its just you can't play the fractional game and issue more partial ownership notes then the underlying asset is worth. And obviously to prevent from even a unintentional inflation via destruction of the asset you probably don't want the liens to exceed 10% of the asset value.
As and example if you owned 1000 dollars of assets free and clear your lending would be curtailed to say 100 dollars. You have plenty of ways to work with money even in a stagnant economy because true wealth generally will increase however what you can't do is pull of any long term bubble.
To some extent maybe its better to look at quality of life. As long as population is stagnant to decreasing but above the level needed for a functional society over time wealth per capita increases. If population increases then percapita wealth generally decreases and wealth becomes concentrated as its created.
And maybe a better way to look at it is to say consider a world with 1 billion people and a stagnant population obviously wealth would accumulate overtime natural resources would be abundant we would not strain the earth etc. I think its better to look at this problem starting with the "eden" case and work you way backwards.
I'm not sure how you're defining capitalism. Isn't it profit driven? If it is, then there has to be economic growth for capitalism to endure. Otherwise, it's simply a matter of some people getting rich at the expense of others, where there is a balance between winners and losers. That doesn't seem like capitalism to me.
I don't think wealth would accumulate, in a sustainable society. What is this wealth and how does it not consume increasing amounts of resources?
Profit and growth are not necessarily the same. As long as all profit is recirculated into other expenditures in a steady-state mannel, a stable configuration with profit can be envisioned.
Certainly competition with winners and losers will remain a necessity, else efficiency will certainly wane. To many competitors will tend to erase profits for all; too few will tend to increase profits but invite new competition.
I would envision a dynamic and changing economy, perhaps not as roiling as we've come to expect, but with continuing innovation and evolution of businesses as new ideas, proprietors aging-out, natural factors, and other issues make their impacts.
Profit is what is left after all the expenses of an enterprise are accounted for. What is this profit used for, if not to grow the economy? Surely, profit and growth are inextricably linked.
This doesn't mean that a non-growth, non-profit economy/society can't change and develop, to the benefit of all. It doesn't mean people can't innovate. It doesn't mean that new technologies can't arise, though probably not at the rate we seem to have growth accustomed to.
If efficiency is possible at all, then it is possible without winners and losers. The problem becomes one of motivating people to become more efficient, and to innovate, without a profit motive (and the related growth). Too many people just can't see how such innovation is possible without a profit motive. We have to extract ourselves from the current paradigm, which is the only one that most people alive today know about. It will be a difficult and painful process.
Without composite growth even hard money capitalism is a zero sum game. In order for one investor to make a profit someone else has to get poorer. It is true of course that we may well need certain industries to shrink or even die while others grow. That is we need to change the kinds of labor which are rewarded. Such shifts in priority do not necessitate any shrinkage of the average wages of labor, although people who lose their jobs may suffer hardship. But if you cannot grow a new industry without making rich people richer, then in the absence of composite growth of the overall economy either the wages of labor must shrink or the new industry never comes into existence because the profit is insufficient to lure any investors.
I have personally never been able to understand monetary theory. As far as I am concerned all capitalism is 'hard' capitalism in the sense that a factory comes into existence only because people manufacture bricks, mortar, concrete, steel, copper wire, glass, machinery, etc. and other people take these outputs and assemble them into a factory. The financial and monetary system is an accounting scheme that decides who is entitled to what portion of the economic output of society. My simple minded (and undoubtedly 'utopian') view is that the only way to earn a right to consume economic output should be by doing constructive work. The institution of money earning money should disappear from the face of the earth. Any industry requiring capitalization above the cottage level should by financed by the community not by private financiers.
I don't view this proposal as necessitating 'state factories'. I do not see why community funds should not be used to finance private business which are providing goods and services that serve the needs of the community. With public financing the charging of interest would not be required since the risk is being shared by the community. The return on the investment would be the goods and services produced rather than interest. The public bankers who provide finance capital would receive salaries for services rendered and would not earn income proportional to the total volume of loans that they floated.
If we are not going to go the route of collapse and regrowth, then something more than a fiscally conservative version of private finance capitalism is required.
There is space between 'zero- fractional reserve' lendng and what we have today, which is a large, open air gambling casino.
I can tell by opening the mail I have lots and lots of credit (that I would have to repay with interest) and so do many others ... but the crumbling, ugly, plastic world I see around me says there is little return for all of it.
Part of this is a system failure and part a user failure. The system becomes a problem when success in it can only come from either dumb luck or thievery. At that point, a user does not fail when he becomes lucky or a thief.
I used to think there was no alternative to a fractional reserve system, but now i think there is no alternative but to scrap most of it.
I guess I am turning into an Austrian in my old age ...
"I can tell by opening the mail I have lots and lots of credit (that I would have to repay with interest) and so do many others ... but the crumbling, ugly, plastic world I see around me says there is little return for all of it."
Nicely put. It reminds me of the dedicatory quote in the Wendell Berry book _Life is a Miracle_:
"We are not getting something for nothing.
We are getting nothing for everything."
I think the above analogies are faulty.
No, that's wrong. If there's sufficient business in that location to support the restaurant, it's sufficient. The economy does not need to be growing to provide X customers a day to the Coney Island on the corner. A growing economy may even sink the business, by giving customers a taste for more up-scale fare in nicer locations while driving up taxes.
This ignores the fact that businesses in other, older buildings and with older equipment are watching both wear out. A certain amount of on-going investment is required to maintain both, and some are badly built or destroyed by accidents. Replacement of either is done in the expectation of future revenue, and so long as people have created goods and services that they do not spend on immediate consumption, these can be put into investments in new businesses which then pay the investment back out of their revenue.
Expanding vs. contracting economies will affect the future revenue, but the equity model works; IIRC White Castle Hamburgers grew during the Great Depression using investment (equity) instead of debt.
The Dude said:
"You think there's going to be water in Lake Mead in 2100?
There will be plenty of water in Lake Mead in 2100, for either of two reasons.
1. Global warming has continued and the Hadley cells will have moved so far north (and south) that Arizona is a rainforest.
2. Pakistan decided to shut down global warming by nuking a volcano and there are glaciers in Arizona.
For lake Mead to go dry it has to pretty much stay in the same ecotome as it is in now. This is not likely. "Speed and Violence" is pretty much what is happening in global warming in the Arctic, and the amount of ice in the ice pack shrunk more this summer than last, again.
In economics, models within a finite universe are of the Rcardo-Malthus type, which are themselves a subtype of the Lokta-Volterra system of equation. This system of equation only have three type of solution: steady state; oscillation and colapse. Ethernal grwoth not beign one of them they are rarely studied by economists.
It seems to me that in real life we are in the middle of the oscillation stage of the finite system we are in. What worries me is that this may precede the collapse stage. It is hard to see how to shift the economy into a low enough steady state, that it doesn't over-use its resources.
I can understand why economists might prefer an infinite model, allowing for eternal growth.
Years ago, the systems dynamics curves produced by Jay Forrester at M.I.T. more often, than not, showed wild oscillations at the end of the finite resources. The solution to the various crashes or the wild oscillations was a counter-intuitive approach that definitely was at odds with "growth economics." Later, that became the basis of the book "The Limits to Growth."
Even though I had considerable programming experience in high school and had dealth with intersting feedback loops in high school, this was the first-time I think I really considered a larger picture of resource use and the ultimate outcomes in a finite system. Later, as I got into the higher level math and programmed models of various outcomes, it was interesting to see how these factors played out. Those of us whom have that type of systems dynamics background are not, at all, surprised by what we see.
It looks like the predicted rollercoaster ride. Those of you old enough to remember, that will require an "E ticket."
Thanks! Not what everyone was expecting, though.
Sometimes one has to look a little further afield of there profession to see the obvious. The recent dynamic responses in the economy and resources are intuitively obvious to an electrical/electronic/mechanical engineer. No fancy economic model names required. This is a classical response of an Nth (2nd or 3rd) order system at, or near it's stability point. There are two outcomes.
One, reduce the forcing function's amplitude or frequency (usually both are done). Remember the Tacoma Narrows bridge? If the wind speed had reduced, the bridge would not have oscillated apart.
Two, continue with the forcing function the system will blow apart.
But, we need to consider the forcing function whether it is external or a closed feed back system. It's just a matter of scale and perspective. If one considers their immediate community, it would seem the forcing function would be an external source of infinite energy and unmodulated frequency. If one considers the planet, the forcing function must be a closed loop system for anthropogenic inputs. I would think the latter is predominate system characteristic since the world is now globally interconnected. Therefore, the system will self stabilize because of the finite nature of all resources. That is, the forcing function cannot continue at the same amplitude and frequency because it is a product of the anthropogenic system output.
The conclusion from the engineer-centric model analysis would state that the system's inputs, transfer function, and outputs cannot operate at the instability point. This means the energy transfer would be reduced. This correlates with reduced net energy of resources.
Whether we like it or not, there is going to be some damping going on
I would only nudge the differential feedback equations with a 10 foot pole. As far as I can tell feedback of this sort only becomes important where you have a recycled resource such as capital.
Everything I have been able to model, from reservoir size distributions, to discovery, to reserve growth, to extraction is all explainable without invoking feedback that will lead to oscillations. I have no idea why the Lotka-Volterra (L-V) have captured many people's imaginations for economics as I find them really useless for explaining anything. The main problem is that they generate deterministic albeit chaotic outcomes yet we know that an ensemble of systems will display perhaps some chaos, but more importantly a probabilistic or stochastic set of outcomes.
In another comment, SteveFromVirginia laments the lack of interest in Ecological Economics in favor of Classical Keynesian Economics. I think that is a keen observation. Everything we know is wrong about our mathematical modeling of economics around resource constraints. What is interesting is that L-V is very popular in eco-biological modeling but shouldn't be used in ecological economics in anything but the most micro-scale. Forget the economics of pricing and market dynamics and just look at resource usage. This does not oscillate in the sense of cumulative extraction.
But you know, if it wasn't for everyone getting this whole concept dead wrong, I wouldn't be having as much success in coming up with a novel and unique comprehensive model of oil extraction.
"As far as I can tell feedback of this sort only becomes important where you have a recycled resource such as capital."
In our physical existence, the only thing not recycled is energy. All of the frameworks built out of matter are recycled, since none of it is "lost" as in the thermodynamic case.
All of our physical capital, on one level or another, is recyclable, given enough time and the relevant energy inputs.
Good picture, it explains why dispersion theory is important.
WebHubbleTelescope:
The image is too wide, you forgot to add the img tag width="100%"
You know, we all have to learn to Scale Down now...
Is this Your Model?
It looks interesting, but a bit cryptic without further explanation. Is there an explaining text somewhere?
Summary with links
http://mobjectivist.blogspot.com/2008/11/comprehensive-oil-depletion-mod...
This has been such an organic effort with continuous updates to the blog that the information has become quite dispersed. Fortunately it won't take a lot of effort to bring it all together. The chart above is the roadmap I am using to aggregate the material.
Our history tells us we have had financial cycles for years. We also know we have commodity cycles, with commodity prices moving together. In the insurance world, there are cycles as well.
It is not too difficult imagining these cycles getting stronger and stronger, as resources get more constrained. At some point you might get collapse, then rebuilding at a sustainable level.
I suppose it is theoretically possible that an enlightened world could consciously decide to use fewer resources, and bring the amplitude of the swings down. We could build a base for ourselves selves of essentials, at a sustainable level. The level would no doubt be quite low--not electric cars and trains.
In biological systems, the "steady state" usually means to death, because in the steady state the patterns and data are easily predictable.
The sustainable systems we're looking for are complex and self-organized; in complex systems, patterns are predictable, but data aren't. In being alive, it's understandable that one must at a minimum eat, sleep, breathe, and drink water, easily predictable patterns, but how much one does of each one of those things is next-to-impossible to predict.
Prior to the collapse of the complex system, the oscillations become chaotic and unbalanced, and that is what we are beginning to see currently in the economy. Both patterns and data become unpredictable in chaotic systems.
I agree that it's hard to see the economy, being a sub-system which supports our overall society, shifting to lower utilization. Take any organ or system in the human body and reduce it's use, and the entire body is affected. Reduce blood flow, cut off our legs at the knees, stop using the brain, all of these may provide short-term survival at the intermediate-term cost of collapse (dying). The same with our economy and how it affects society.
It's also hard to accept that the system on which we rely is dying, and something new needs to take its place. I think this may relate to how our society progresses, where at different points in each individual's life, there is usually someone else to rely on. Parents, teachers, clergy, colleagues, and mentors with money, skills, instruction, arcane knowledge, charisma, and influence. We think someone is driving the bus, they know what they're doing, and we're heading for ever-greener pastures.
But in being charged with creating something brand-new for society, not only is there no-one to rely on, but the very charge challenges our ideas that anyone was ever driving the bus we're on right now. Or that they knew what they were doing. Or that greener pastures still exist.
Adherents of the "invisible hand" model never had that idea in the first place.
We can be quite sure that greener pastures exist by looking at physics; humanity uses about 0.01% of the available solar energy, so there is clearly enormous headroom in that direction. Physical resources like gold and high-grade iron, not so much; however, we appear to be nowhere near our limits of learning to do new things with resources that are in ample supply, as the biotech industry demonstrates daily.
Life on Earth is an existence proof of what emerges from experiments in turning new things into resources; it apparently began as chemotrophic forms around volcanic vents, and really took off when it invented photosynthesis, land-living mosses followed by vascular plants, etc. Humanity is already tapping the same old energy flows at 10-100 times the efficiency (PV vs. plants), so there is an upside if we can keep ourselves organized long enough to get to it.
Even then there is alimit to how much energy you can tap from renewable ressources. At some point you start to hurt climate, due to albedo change, change in wind patern or change in ocean current. I calculated than a 2%/yr growth rate, we could reache this limit in about 100 years!
I close my eyes for a moment and wrap my mind around the world. I shut off the noise. The noise of economic theory, financial markets, politics, religion, and focus on the physics. It's not that I'm a cold minded engineer/scientific type, it's just we ought to understand that thermodynamics wins every time. So, when I close my eyes I can see systems behaving as classical dynamic systems and this gives me a level of understanding.
We talk about how we can improve this, recycle that, or exploit new found technology. I want to relate a simple model of the forcing function. Over the past 300+ years we have exploited forms of fossil fuels. First it was coal, oil, and then we moved onto uranium. How do these inputs impact "the system". For lack of definitive metrics, let's consider the energy density, defining coal as a base 10. Oil (right or wrong) is a 10 dB (10log) increase, and uranium is a 30 dB (10 log2) increase. The energy density inputs have been increasing logarithmically.
As in physical systems, the same inputs and responses are measured on logarithmic scales, and we have been "amping" up the inputs to the finite Earth's systems in this manner. Now that we have the luxury of some hindsight, to say we could develop fusion power would be to say we would be increasing the energy density inputs another dB higher (factor of 10). At some time, regardless of our good intentions, the systems are going to collapse and break.
The breakdown is not the end of civilization, it is a return to a balanced and sustainable state. Let's look at a common mantra of some environmentally minded - if we just recycle. In a minute of closer analysis, this isn't any different from basing our liquid fuel system on used vegetable oil. If we just recycle enough, there will be enough to go around. There are two problems with this, (1) the material to be recycled has to be made in the first place, and (2) thermodynamics dictates that energy and material inputs are required. There is no free lunch.
To summarize from the view beyond, current energy systems are increasing at logarithmic (exponential) rates driving the dynamic systems into oscillatory destruction, but will self correct. The self correction may not be pleasant for the bi-pedal hominids by the way. And, the underlying cause of the exponential inputs driving the exponential outputs is - pure and simple - population. And here we come back to Dr. Bartlett's original point.
In closing, for all our good intentions and an advanced (questionable) command of consciousness, we cannot "American Dream" our way out of the physical realm. Ironically, this is nothing new under the sun. Many religions and philosophies have had this basic understanding for thousands of years. Why do we think we are so special, or the exception? I'll tell ya why, the hubris and arrogance of science and progress. In the end analysis, these apparent advances will appear as no more than party favors.
And then I come back to earth to walk upon the humans to understand we do have one salvation should we choose to recognize and use it. We are interconnected and share the same destiny. At some other time I'll relate my theory of the Energy-Consciousness Transform - but we live and breath it every day. Does the fish really know of the water? I think this is the key question.
Nobody said we'd ever get to 100%. With improved knowledge, the capture of solar energy could be done in places which reinforce the weather and current patterns we want.
2%/annum is about a 35-year doubling time; over 100 years this would go from about 0.01% of the solar input to roughly 0.07%. I think we could get closer to 1.0% without worrying, especially if this light was captured in areas which have low albedo already, e.g. deep water.
E-P
My blood boils every time I see a factor of 10,000 when referencing used vs. available solar energy. It is a throwaway statement that completely ignores the fact that we are the beneficiaries of a far greater percentage. The fact that we are not directly using a lot of it does not in any way mean that it is available.
-Every milliliter of fresh water on the earth was distilled and transported by solar energy
-Every calorie of food you ingest started at the bottom of the food chain in the process of photosynthesis
-Every plant that struggles to make our atmosphere more breathable does so through solar energy
-Our world temperature sits at around 20 deg. C, not -200 deg. C thanks to the sun
None of the above examples are related to our so-called energy needs such as transportation and electricity. These are an additional layer added by an industrial society.
We continue to exist at the pleasure of our ecosystem and our ecosystem exists almost entirely due to solar energy. Honey bees and trees are not just "nice to haves".
By using sweeping but vague statements such as "We can be quite sure" and "there is clearly enormous headroom", you obviate physics as well as the inconvenient snags such as efficiency, thermodynamics receding horizons, EROEI and entropy to name a few.
By truly looking at physics, rather than some bit of first order trivia, the picture is quite different.
5kWH/m2/day. That is our solar budget, period. When I say "our" I don't mean people, I mean every organism on this planet.
By ignoring our limits and the limits of the system, we will destroy ourselves, if we haven't already.
Quite right. Every so-called solution needs to be thought through and researched. haven't we made enough assumptions about the lack of negative effects of our actions? We apparently "need" to replace finite energy sources so many assume that simply using renewables to the same scale will do the job, because renewables sources of energy are, well, renewable. However, that doesn't mean that renewable resources can be consumed at any rate. They can only be consumed at, or below, the rate of renewal and only to the degree that such consumption doesn't negatively impact our habitat. Otherwise it's unsustainable.
Although there may be a case for redirecting some of the sunlight, it surely is a truism to say that 100% of the solar energy that is captured by the earth is currently employed in supporting life and powering natural energy systems. We need to be very sure that redirecting even a tiny portion, or retaining more of it, does not have adverse impacts. Unfortunately, for many, the perception seems to be that the percentage needed is so small as to have no impact. Making that assumption is hardly a scientific, or sensible, way to proceed.
I agree. You have filled in what I didn't say in the interest of brevity.
A more sinister aspect that I didn't mention was the pernicious attitude that it is our "Right" to jump from one resource to another as we deplete them.
Just because we can does not mean we should. This is not from a moral standpoint, but from the simple math of depletion and the ever present law of unintended consequences. To further your insightful points, we should keep in mind that the looming threat of AGW has increased our net insolation by perhaps 1 or 2%. At the risk of being crude, if we don't know how it works we shouldn't screw with it.
My business is in high tech and understanding what it can not do is perhaps more important than what it can do. Failing to grasp this is a common error for cornucopians. Technology is not automatically a panacea, no matter how we have been taught otherwise.
Quoth pragma:
Yet when the 10:1 ratio of fossil calories to food calories is given, do you bother to note that the efficiency of capturing those calories for processing and transport can be orders of magnitude greater than the efficiency of the food plants themselves?
So? The uses are not exclusive. For instance, the waste heat from a PV panel could easily distill water, and it will drive atmospheric convection just as heat captured by a forest.
And every erg of energy which I use to get that food planted, fertilized, harvested, processed and transported, plus the other energy I personally use to warm, cool, transport and entertain myself, can be met by the sunlight currently going to waste on the roof and pavement surfaces of my property. At 100 quads/year for the nation, the total energy budget of an American is roughly 300 million BTU (call it 320 GJ). My area averages between 4.0 and 4.5 kWh/m²/day, so over my estimated 300 m² of roof and pavement I average 1200 to 1350 kWh/day or about 1580 GJ/year. That's enough for a family of 5 without taking anything away from the lawn, let alone crops. This also does not include the benefits of improved efficiency which are available from well-established technologies.
You respond with a sweeping negation with no specific problems whatsoever. The EROEI of thin-film PV panels is around 20 (and improving); wind farms may be upwards of 40. The efficiency is good enough, and I fail to see what hazards might be lurking in the thermodynamics of superinsulated buildings with aerogel windows.
If you see some actual showstoppers, list them (with specifics). All I see is vague objections used in the service of FUD.
I never said otherwise. What you don't seem to realize is that 5 kWh/m²/day is more than adequate to provide all the services we expect in our modern society, without using one square inch that isn't already denied to those other organisms by roofs or pavement. There's many times that area in parts of the oceans which have few nutrients and very low productivity. Living lightly and living luxuriously are by no means incompatible goals.
Then would it be impolite to ask, given that we live in a finite world, what value economists and by extension economics have for us?
Either they move to models which really are based on a finite world, or we consider their work as a form of religion. At this point, it seems to me that they have developed a whole belief system based on money and profit and growth and have gotten millions of people to believe that it is true. How is this different from all of the other belief systems out there? More modern?
Gail, thank you for this post but damn you now I have to go back and reread your auto-bibliography, but thanks for that too. I can not remember but don't think you did, would you please do a little paper in this précis style on the definition and potential impacts of deflation? I am beginning to think this is the dragon we have to deal with short term. Just a comment on teh infinite models. As you knoiw it is easier to create a modle with no boundries. Makes the math and the thinking much easier. It is almost impossible to modle boundry conditions, drifting into the strange world of chaos theory. Almost all intellectuals seem to avoid this issue in their work and there is always great surprise and excitment when someone actually ventures in that direction. In biology "stable" ecosystems can be analyzed and described more or less accurately but in the zone where two ecosystems meet there is a great dynamic that requires much more analysis and the modles require many more terms and the descriptive text many more pages. grassland contacting forest is one of the more obvious and easier ones. In liturature Mary Louise Pratt ( a linguist) wrote a paper called "Arts of the Contact Zone" http://www.nwe.ufl.edu/~stripp/2504/pratt.html
This surprised a lot of intellectuals and lead to a cottage industry of sorts in the arts community. It simply applies the ecological contact zones to human activities. I think you are right in thinking what we are seeing is the transition zone from the growth system to the contraction system. Maybe impossible to modle so of no interest to most economists. Thanks again.
Well, given how really very little is known for sure about anything, we all should perhaps show a little humility before we start throwing rocks. ;>D But economics is so patently out of touch with reality that it offers an easy, tempting target.
I see the "discipline" of economics more as an ideology than as a religion, but those two forms of belief system, as you put it, stand in a much closer relation to each other than does either to "science" (in general) as a belief system. That's why, among other things, we still have a number of widely divergent "schools" of economics after several hundred years; in contrast, you don't find "schools" of chemistry or biology.
Not saying that economists have not had important and useful insights - just that economics has nothing more germane to offer than any other ideology in making the choices we have to make. And that any scheme which relies on infinity or eternity in any dimension (see also "compound interest") should be rejected out of hand by anyone committed to real solutions in the real world.
Hi Gail,
It seems to me the "belief system" was developed within certain limits (on the theory side) about what economists were willing to talk about; (i.e., what individuals and groups were willing to include as phenomenon they could see and discuss).
It might be useful to see beliefs as rationalizations (for actions), (rather than as a form of religion).
The issue then becomes: Are the rationalizations used to defend or justify past actions? Are the rationalizations used to defend or justify future actions?
I sometimes think that what people most need is way to...experience - (feel? become aware of?) - the emotions beneath the surface of the thoughts, and then, the needs...the primary needs underneath the emotions. (i.e., in this "model" the emotions are indicative of needs, met and unmet)...
Sometimes I feel it's almost like people can't see the possibilities (or options, in a positive sense)...as long as the layer of rationalization is so much the focus. (Or, perhaps I should say, as long as the rationalization is taking the mind prisoner, in sense.)
What references would you recommend if someone wants to read up on Ricardo-Malthus models and Lotka-Volterra Models?
Gail, In my experience I have never seen Lotka-Volterra give anything but qualitative approximations to some dynamic behavior. It might actually make you go insane because of the endless variety in solutions to nonlinear feedback scenarios that these equations represent.
There's this:
http://en.wikipedia.org/wiki/Lotka-Volterra_equation
And there's also an article entitled, "The Simple Economics of Easter Island: A Ricardo-Malthus Model of Renewable Resource Use", American Economic Review, March 1998, pp. 119-138. If you search LoadingVault.com or RapidLibrary.com, you can find a PDF of this article by searching on "Ricardo Malthus".
As some background, there's:
http://en.wikipedia.org/wiki/Complex_systems
That PDF is a very good reference. Th key thing is that they do apply it to a renewable resource; unless you do this the L-V predator-prey equations are useless.
Great post - this is the nitty-gritty of it. Whether the (ex noisy-data) graph of 'peak energy' tops out on one particular day is of academic interest, but the actual effect, the power-down, resource-down reality, is what we have to prepare for. The current leaders, be they business or political,have mindsets,knowledge and abilities suited to a now-outdated era.Few will have what it takes to adapt,and those attempting to lead will be making it up as they go along. TOD intellects are the type to help, if anyone can. You have it exactly, how can you borrow if the ability to pay is permanently dwindling, and how do we all trade under that sinking lid? I haven't read Diamond (I should)does he mention trade in declining civilisations? Keep up the good work
godzone.iblog.co.nz
Thanks!
I think I have said at one point was, "Instead of peak oil, we should have been looking for the point where the real cost of energy began rising after its long decline." For a long time, real energy costs were declining, as energy efficiency grew. When the effect of declining EROEI and shortages overpowered efficiency gains and started raising real costs of energy products, we started on an uphill battle. My impression is that this inflection point was about 1999 or 2000.
If there were no debt, it might have been all uphill from the point of rising real energy costs. At some point, though, debt started getting badly impacted, and when debt started imploding, this cut back on demand. This seems to have set up our current oscillation.
Without the debt time bomb, crude oil production would have chugged along for another year or two until the growing group of countries would have fully peaked and started their decline, as foreshadowed in our article
Bumpy Crude Oil Plateau in the Rear View Mirror
http://www.theoildrum.com/node/3793
and as updated in my post here:
http://www.theoildrum.com/node/4752/433062
At that point, around 2010, we would have expected rising oil prices and physical oil shortages, immediately and directly damaging the economy, causing a recession.
The debt crisis, which was triggered by peak oil, has cut this short. It is very likley we are now sliding down a declining oil production path, on BOTH sides of the demand/supply curve. Demand is going down as a result of the recesssion and supply is going down because of the combined impact of low(er) oil prices and less credit for oil field developments which are absolutely necessary to offset rampant decline in old fields of around 5 million barrels/day EVERY YEAR and increasing by 300 Kb/d pa. This process is obscured by lower oil prices.
As long as this process is balanced nothing dramatic will happen but if at a certain stage decline overtakes demand destruction oil prices will either shoot up again or we have shortages if the economy cannot afford higher oil prices.
By 2010, 10.3 million barrels/day will be lost to natural decline. In the last 3 years 2005-2008 the oil industry has been struggling to offset decline. So now, with less money around, it will be even harder.
Therefore, a combination of low(er) oil prices AND physical shortages is entirely possible. That will be a big surprise.
a recession is a powerdown
Therefore, a combination of low(er) oil prices AND physical shortages is entirely possible.
I don't see how that can happen. When shortages develop, there will be a bidding war. Bidding war will give us high prices.
Not quite ... bidding war will give us unaffordable prices, depending on income that price could be higher or lower than now!
Imagine somebody who is unemployed, they can't afford to buy oil at any price ... so, I can imagine a situation of high unemployment where people (en masse) can't afford to pay any price that is profitable for the suppliers but still desperately need to buy some oil ... result? ... shortages and lower prices than now.
The oil has to be affordable AND profitable.
But not everybody's income is going to decrease at the same rate and at the same time. The unemployed person will drop out of the bidding war and oil will skyrocket as the still employed consumers bid against each other for declining supplies.
Don't get fixated on the USA, it isn't the world - oil is fungible and available, but not always affordable, for the whole world.
Most of the world can't afford to buy oil already, even at $10 a barrel.
The still employed people will only buy what they can afford, the producers will only produce what is profitable - the price at any moment balances the two, nothing else, and depending on circumstances could be anywhere brtween $10 and say $10,000 - i.e. prices higher or lower than now and the flows could be higher or lower than now, in the real world the flows and prices aren't obviously linked directly.
The timing of peak oil will be determined almost entirely by unpredictable above ground decisions made by billions of humans. Historical data will tell you when the peak occured.
Most of the world can't afford to buy oil already, even at $10 a barrel.
But they are not the ones who set the price. The price is set by the winners of the bidding war. There are plenty of affluent people in the world (including governments, corporations and the militaries) who can afford to pay $500 for a barrel of oil. As the supply declines, the price will be set by the last man (or government or military) standing.
That is why I think the price will go to astronomical levels. What makes oil different from other commodities is that it is the lifeblood of our civilization and there is no substitute for it.
This essay is simply put ::: brilliant ! and sums up our current situation.
(bookmarked for "later ref" )
And as you yourself said Gail, without mentioning this "freaking phrase" of Peak Oil. Thx
Gail,
I agree with most of your article, but I disagree on one crucial point: In my opinion the current financial crisis has little to do with more expensive oil or other resources. I think almost all the trouble we are now in is due to excessive and reckless lending plus speculation in derivatives. Suppose we go back ten years ago when there was plenty of cheap oil: If real estate prices had boomed to ridiculous levels ten years ago along with ridicuously easy lending practices, we would have had a financial crash then--one every bit as serious as the one we are now in.
In the long run, you are correct. Limited resources will stop growth and declining fossil fuel production will cause real GDP to decline. This point is the big one, and I think it is almost self-evident. But at the moment the current recession is worsening even as oil prices fall. Suppose oil prices fall to $38 per barrel in coming weeks: We would still be in for the worst economic decline since the Great Depression.
In regard to a new monetary system, I think we should try monetarism. If real GDP is going to decline at 3% per year, then I think the M2 money supply should decline at 3% (assuming the velocity of money remains constant, which of course is not the case). What would happen to debt with a declining economy and a money supply declining at the same rate (with adjustments made for change in velocity)? I think that most lending would dry up because of excessive risk, especially in regard to long-term debt.
Unfortunately, I do not think that we are going to try monetarism. Deflation is possible if there is a cascade of financial institutions going bankrupt, so-called "debt deflation." For political reasons I think the Federal Reserve System will monetize the U.S. national debt and thereby create increasing inflation as a less bad alternative to debt deflation. Thus I expect the real burden of debt to be lifted as the value of the dollar diminishes. Obligations (mortgages, Social Security, Medicare, all debts and unfunded liabilities) will be met in nominal terms but not in real terms. I do not advocate inflating away debts, but looking at the history of money we see that it is mainly a history of inflations.
Of course, inflation will do nothing to help with the problem of declining oil production nor with the increasing real costs of producing oil. On the other hand, it will have a less negative impact on the exploration for and development of new oil than would deflation. I expect living standards to decline both through a massive increase in unemployment and also through price inflation at perhaps double the rate of wage inflation.
I know you expect deflation, and I'm not ruling that possibility out. But as I look at the picture of the Fed's rapidly expanding balance sheet, inflation seems likely. Ben is loading the helicopters as I type.
But we can't know weather that is anytime in the near future. Its conceivable to imagine a civilization that makes use of most of the uranium and thorium in the crust or even a significant percentage of the solar flux, many orders of magnitude larger than todays civilization. That there are limits is obvious enough, but that we're even close to reaching them is another matter.
I'm looking at the next twenty to thirty years. Technically, you are correct; we do have enough resources in prosperous countries to make make a successful transition to nuclear plus wind and solar energy. However, physics is not the only binding constraint. Politics is the art of the possible, and there is just too much in the way of special interest power that will fight the drastic departure from BAU that would be needed to make this successful transition away from fossil fuels.
For one thing, to get enough nuclear, solar, and wind power we would have to mobilize our resources as only a command economy can, e.g. the U.S. during World War II and the rapid transition from civilian to military production, with rationing, price and wage controls, and government bureaucrats making production and investment decisions. In other words, we would need to scrap democracy and give a dictator or small oligarchy total economic control.
I am not pessimistic because of physics. I am pessimistic because of political limits to the mobilization of resources. Market incentives are much too weak and too slow to get the job of transition done.
In the far distant future, say a hundred or two hundred years from now, we might have a stable or declining poplulation that is prosperous and with abundant energy, and if we have enough cheap energy we can solve our other economic problems; with a wise and strong government we could also protect the environment. But our existing political institutions suffer not only from the special-interest effect but also from the shortsightedness and rational ignorance of voters effects. What we are likely to get from an Obama administration is more subsidies for ethanol, more public works projects on roads and bridges, more tax cuts and much bigger national deficits. None of this will do much to get more resources into nuclear, solar, and wind energy production.
I'm not that pessimistic, but dont think for a second that I believe scrapping tens of trillions of dollars in infrastructure and investing tens of trillions more will be a smooth transition.
Sure; Many of the large projects need huge amounts of capital and a decade or more of lead time to start producing energy anyways. It will take that long to rebuild the nuclear sector to produce plants at more than a token amount and will take that long to build synfuel plants also. Not terribly likely given capital will dry up for the next couple of years.
But in twenty or thirty years I imagine capital will be picking winners even if government doesnt, though neither is actually precient enough to prevent the pain of restructuring entire industries apparently.
With the reduction in project capital, it will be about working smarter. There is going to be a need for a huge reallocation of resources to make the energy shift-and I am not just talking about financial resources.
The U.S. automobile crisis (which was of their own making, behaving like dinosaurs for many years) is an opportunity to cut the losses, both economically, socially, and environmentally. Instead of throwing good money after bad, shift economic and human resources to new paradigm renewable energy projects. People are forever talking, and moaning about the 'losses'. What about the 'gains' here for retraining, revitalizing and retooling workforce sectors.
It is not about saving something from extinction, it is about supporting a new life form.
Hi, Thaicoon!
Is the US automobile crisis really all of their own making? Surely it's a bit more complicated than that? How about, it's a symptom of a far deeper crisis relating to the way the US directs and uses its resources? I would contend ther's a fundamental flaw in the US model of captitalism, compared to other nations who ascribe to this socio/economic model.
What is the 'flaw'? Very simply put, a chronic lack of central planning and co-ordination in relation to industrial policy, and an anachronistic and highly dogmatic believe in the 'intelligence' of the so-called 'free market' system.
Whilst I agree it's stupid to throw good money after bad, and one should cut ones losses, and divert resources to new, renewable, projects; the way one does this, the scale and the speed, need careful consideration.
The 'gains' from letting the US auto industry collapse dramatically, are difficult for me to see over the short term. 250,000 auto workers, a couple of million dependents relying for their pensions and healthcare, 5 or 6 million jobs in the supply train. The death of the heart of what's left of US manufacturing industry. Allowing this to happen quickly, will have collosal social and economic implications for the United States, and in the short term they are all negative. Letting the market decide who is to live or die is incredibly wasteful as the market often sends the wrong signals, lacks intelligence, is short-sighted and needlessly brutal. After all wasn't it the market that sent the signal to the Big Three that Americans wanted big cars and SUV's?
This idea that extinctions are 'good' and clear the way for new life forms, is a charming theory but it doesn't describe how an economy like the US really works.
Since car consumption has fallen by 50%, car production must fall by 50%. Do we shut down GM, or do we shut down American plants owned by other companies instead? Which ones? Toyota, Ford, Nissan, Chrysler, Honda, Mercedes? Who decides?
The customers are deciding. Congress can only get in the way.
I expect that the Obama administration will provide subsidies for solar power directly by mandate, and subsidies for wind power indirectly, by building the DC Grid.
Does this count as breaking his promise not to raise taxes on the bottom 99%? If mandated solar power buys by power companies is a tax, and I think it is, he may instead demand mandated solar power buys by power companies as a condition of access to the DC Grid. And access to the DC Grid as a condition of sharing power with other electric utilities when one of your plants is down.
Building the DC Grid by borrowing the money off budget (like the Iraq war was off budget) is a possibility. 300 billion for the Grid matched by 300 billion for concentrating solar photovoltaic by utility companies wanting access to the Grid, would still be cheaper than the Iraq war. And likely to be paying more returns on investment, too.
Which leads to illegitimacy of government because of its inability to handle the job. Rapid meltdown.
"But we can't know weather that is anytime in the near future."
Indeed, but, by the same token, we can't know whether that time is way into the future. In the meantime, it would be useful to start the transition to low resource consumption and no growth while we may still have a relative abundance of resource, and while we still have a habitable planet.
Unfortunately, too many people either believe the time is not close and that some future generation will have a much better capability of making the transition. Beliefs that we would do well to discard.
Right, because stagnation is the ultimate goal that we should pursue of civilization.
That's nonsense, Dezakin. It shows a particular lack of imagination to think that a society must only stagnate if it has a no-growth economy. No-growth is not synonymous with no-change. Except, perhaps, in your mind.
Clean tech, primarally solar, has the potential to extend growth further. However and very ironically that new growth based on sustainable renewable energy will also be unsustainable if we do not convert to full recycling of the material goods used in the rest of the economy and decides to at leaste preserve the mimimum of the worlds ecosystems that that are required to keep us alive and breathing.
I guess we differ on where we are now. I had expected for a long time that our current financial system could not hold up under peak oil, and that debt would become very difficult to repay once we stopped growing quickly.
I will agree that there has been a lot of stupidity in the financial markets, including derivatives, structured securities, and loans to people who didn't deserve them. It is quite possible that these stupid actions moved up the date when things started to fall apart, sooner than it otherwise would have been.
I agree that our leaders will take all kinds of steps to attempt to fix the current situation. Because of all of our current resource issues, I am skeptical that our financial leaders will be able to do more than put off the day of reckoning a short while longer. At some point, we will have to figure out a different way of doing things, with a lot less debt, if we expect to have a system we can maintain without growth.
It seems quite likely that people will not understand what the real problems with our current financial system are, If our current system collapses, our leaders will simply try a new version of what we are doing now, to try to fix the situation. If this happens, we are likely to have a new collapse and yet another attempt at a new monetary system fix.
One day a young girl asked her momma, "Why did the tree fall?"
Her mama told her to ask the bloggers on The Oil Drum.
The little girl posed her question and bloggers with funny names began responding. The first said "Because the wind blew too fiercely."
Another chimed in with "But don't forget the rain on the leaves that weighed down the limbs. Without that rain the wind couldn't have done it."
But this wasn't enough...more funny named bloggers added their wisdom. "Don't just look at the surface of the question," they admonished, "but ask where do wind and rain come from?"
"Yes, of course," more said, "the sun did it! Solar radiation drives the hydrological cycles and differential heating of the surface creates high and low pressure cells."
A retired physicist pointed out that the sun is really a massive collection of fusing atoms. "We must place the true cause of that falling tree as nuclear fusion, primarily of hydrogen," he noted.
He got a lot of up arrows for that one!
Brilliant!
Also important to notice that in asking the question, you recognize your similarity to the standing tree as you, yourself, also stand. Then ask, "why do I fall?"
Also, there's gravity.
Then a Big Ugly Tod Troll chimes in with "hey, it just did, get over it. What ya gon'a do about it now kid?"
Maybe the tree was too sick to stand up any longer. All life forms have finite lifetimes.
Okay.
And someone who'd say TOD is nothing but a bubble of intellectual speculations would get lots of down arrows.
Right?
I think the current situation is caused by exactly this. Following a long-discredited pseudo-scientific cult called "growth economics" is the problem, not the solution.
But it's the only weapon in our politicians' arsenals.
We apparently did the "Bretton Woods" thing to get our currency off the Gold standard so we could create liquidity.
I had understood this was done so another depression could be avoided by the newly appointed ability to create currency from nothing. This was the mechanism which was supposed to allow for infinite "growth", as numerical systems, unlike the physical system they are mapped to, are infinite.
By now, I had planned for substantial inflation of our money supply to cover the debt service so as to avoid all the personal, bank, and business collapse I see today.
I had considered there was no way the Government would have taken the path they have chosen. They have now foisted upon themselves countless claims for assistance, coupled with enormous capital gains losses from the equities markets which will be written off against tax receipts.
How in all blue blazes is our nation, in debt up to our eyebrows already, going to pay for this?
I figured I would have much rather been holding shares in oil drilling stocks than holding American dollars, as I had figured they were soon to become about as useful as baseball cards for settling debt. Did I ever figure wrong.
Everybody else sold. I am left holding highly devalued shares of oil drilling companies. To me, what I see is paramount to a jetliner pilot purging fuel to reduce weight. If I were the pilot trying to make it as far as I could, the fuel would be the last thing I would purge.
So now, we have a "strong dollar", jobs outsourced, local people filing unemployment, and a government getting called for all sorts of assistance, while at the same time getting zilched in the tax collection plate.
The Chinese are buying American treasuries? What the hell is it they know that I do not? This to me smacks of the lunacy of giving my spend-happy neighbor a loan when I have all indications he won't be able to pay me back. Ever.
Maybe they will own America when we default? Strong Dollar! Yeah!
I think it will all become clear when the Big 3 become the Big 1, and it's owned by China.
And once they're about 90% down, foreign buyers will scoop up what's left of the big banks, too.
The little-noted option besides debt monetization is sale of US assets to foreign buyers. I figure this will happen to some degree.
But in the end it won't matter. Defaulting on debt is no more or less likely than nationalizing foreign-owned property. I think China fears default, but is stuck because she also needs the foreign purchasers to maintain internal stability. China needs enough new growth to get to the population peak -- after that, she will have many more options.
I just thought that I would point out that when foreign countries buy US treasuries it is not done to profit that country. It is a form of tribute paid to the US empire. It is a transfer of wealth from the vassal state to the lord. Saudi Arabia does not benefit from holding US treasuries, the US does, because it creates more demand for the dollar without any real assets having to be given over to the buyer. The US is then able to print their dollars for no cost and use those dollars to buy real things.
The Chinese Yuan (their currency, i think) is also deliberately kept undervalued for the same reason. Cheap Yuans are used to pay Chinese workers. The products are then shipped to the US in exchange for overvalued dollars. And thus real wealth is transferred from the Chinese vassals to the US lords.
Why would the Chinese accept this arrangement where they do all the work and the US gets all the goods? For the same reason that slavery and domination have existed all throughout history, powerful nations exploit weaker nations.
The underpinning assumption for this lending was that debt can be paid back in a perpetually growing economy which was not possible as crude oil production was peaking in 2005-2008. 10 years ago the debt problem was not as bad as it is now. We have a convergence of debt and peak oil problems.
Don, deflation isn't being 'expected'. Deflation has arrived.
No, deflation has not arrived. So far what we have seen is disinflation, which means a lower rate of inflation. But comparing today's CPI with that of a year ago shows today's CPI higher by several percent. Next month's CPI data will show a similar year on year increase. With deflation (which is possible) I'll believe it when I see it.
The disinflation of the past couple of months has been largely due to falling oil and oil products prices. When Saudi cuts in production begin to bite, I expect the price of oil (and inflation) to go up substantially, regardless of how bad the recession gets.
In regard to the money supply, changes in the money supply lead trends in inflation and deflation. The Federal Reserve System has so far prevented a decline in M2 by not allowing cascading failures by financial institutions. The evidence is that the Fed and the Treasury together can bail out faster than debts go bad. There has been "quantitative easing" of the money supply, which is a polite way of saying "monetizing the debt." There is plenty of national debt out there to monetize, and Ben Bernanke is loading up plenty more helicopters.
For us to see deflation we'd have to see many failures of financial institutions comparable to that of Lehman brothers, and such a cascade of debt deflation does not seem to be in the cards. Never underestimate the power of multitrillion dollar deficits combined with aggressive purchasing of this debt by the Fed. Note that a liquidity trap does not apply when the Fed monetizes the national debt.
Rent has not gone down, but mortgage payments (for new mortgages) has. On the other hand, adjustable mortgage rates are supposed to nominally be tied to inflation/Fed rate, so damned if I know what inflation is right now.
For the record, I do expect hyperinflation.
The CPI conceals more than it reveals. Factor in residential property prices and your disinflation morphs into the real thing. Factor in all those special offers and rebates for consumer goods that seem to have bypassed the statisticians.
Go shopping. The CPI is phoque-nothing compared with the evidence of the senses.
If you don't like the official Consumer Price Index, then use the Shadostats one. Or if you don't like that index, take a look at the GDP deflator. It turns out that it doesn't matter which index you use: Deflation is not here.
Also, look at some hard numbers on the money supply; specifically, look at the growth in M2. With rapid growth in M2 we're not going to get deflation. Deflation in price-level indexes results primarily from deflation in the money supply.
Some goods do decline in price, but a bunch of other things keep going up in price, such as tuition, health care costs, auto insurance, auto repair expenses, haircuts and most other services. The increasing cost of services swamps declines which may be found in manufactured goods or food.
By the way, the official statistics take into acount special offers and rebates.
To argue with the unambiguous numbers is to display the fallacy of invincible ignorance. Note that neither stock prices nor house prices are consumer goods (though imputed rent is counted), so fluctuations in stock prices (financial capital) and houses (physical capital) do not and should not count as part of the Consumer Price Index.
Thanks for your comments, Don. Obviously you are a pro, even if (sometimes) a mistaken one.
I've come across a fascinating essay on the money supply / CPI by Mike Shedlock ('Mish'), which might also interest you. It was written with uncanny prescience in February 2006:
Inflation: What the heck is it?
http://globaleconomicanalysis.blogspot.com/2006/02/inflation-what-heck-i...
Note in particular:
Carolus,
What Mish is referring to is the tendency of official statistics to UNDERSTATE inflation, which is the same point made by Shadostats numbers.
Price level indices are tricky both in theory and in practice. Oddly enough, the theoretical problems are worse than the practical ones. I have a great deal of respect for the people who actually collect and crunch the numbers, and I think these humble economists and statisticians get insufficient praise. Given both the intractable theoretical issues and the serous practical ones we cannot expect great precision from price level indexes. However, both the official statistics and the Shadostats numbers are good enough to tell whether we have inflation or deflation, and so far we have had inflation.
Of course this could change. We may have deflation in the future. But when and if we have deflation, that change will show up both in official numbers and Shadowstats index.
Sometimes you'll see people cheering for the Austrian definition of inflation, which looks at changes in the money supply rather than changes in price-level indices. It turns out that it does not matter much which definition of inflation you use: Changes in the rate of growth in the money supply tend to lead changes in the price level indices, with a six to eighteen month time lag. Thus if you want to forecast what is going to happen to price levels, it helps to use M2 money supply as a leading indicator. (Why use M2? Because M1 is too narrow a definition of money, and M3 is too broad.)
Don,
Thanks again for your comments. It's midnight here in the Grand Duchy of L., so I'll mull over them as I lull myself to sleep. While simultaneously listening to the unabridged audiobook version of Rothbard's 'America's Great Depression', available from Audible.uk for a mere £10.69.
Don,
Any idea of what recently happened to the BASE money supply ("notes and coins only, held outside of the central bank and outside government")? This graph from the St Louis Fed certainly looks inflationary, or even like the beginning of real 'helicopter money'. Here is the same graph plotted along with "depository bank borrowing from the Fed" (BORROW) and "free and borrowed bank reserves of depository institutions" (FORBRES), showing that this huge spurt in cash occurred after the onset of huge bank borrowing and negative reserves (a fine concept...).
It seems unlikely to me that people actually withdrew 0.4 trillion dollars in real cash (i.e., 20 billion $20 dollar bills) in a few weeks. Note that the only other blips in BASE that visibly rise above the normal monthly increase of .000003 trillion are Y2K and 9-11 (first link).
Besides withdrawals, are there other ways to generate a 1.4x jump in cash/BASE?
You raise interesting questions--to which I do not have the answers. In times of uncertainty, people do hold more cash than they do during times of confidence and tranquility in financial markets. On the other hand, it would be wrong to characterize what is happening as a run on the banks.
Normally I just look at M2 and glance at other measures, such as excess reserves; in other words I generally don't pay attention to fluctuations in holding cash versus holding money in demand deposits, because (except in a run on banks) it usually does not matter much.
The data I look at, particularly the sharp rise in M2 during recent months, suggest that we will be having inflationary pressures during the months and year to come. Bank failures, while up, are of smaller institutions that don't amount to much when you look at total numbers. So long as the Fed, the FDIC, and the Treasury keep bailing out the big banks, I don't see deflation in our future.
On the other hand, asset prices can go down a lot more, especially stocks and home prices. Hedge funds may mostly go broke and cease to exist, thus wiping out a lot of paper wealth. But unless there is a cascade of failures in banks and nonbank financial institutions I do not see any debt deflation in the cards. Of course, that is a limited amount of good news. Banks may be afraid to lend, and borrowers may be afraid to borrow, and the Fed and the Treasury may have to weild the bailing buckets at full speed for years to come.
I haven't ever heard it floated seriously, but how would it work to have a currency backed by energy, say a kWh of electricity? The problem with gold is that it's an arbitrary commodity that's mined and stored at great expense, and it's not a good proxy for economic productivity. OTOH, energy or electricity is a good proxy for the ability to "do stuff". Any decrease in the cost of electricity through a solar breakthrough would be reflected in expansion of the money supply. There would also have to be some rusting function of time to prevent hoarding.
The part that I can't figure out is how could you reconcile a currency fixed to an immutable physical quantity like a kWh with currency inflation from fractional reserve lending?
Gold is mined at the expense of its worth (people will mine it when the cost is equal or greater than what it is worth). Storing it is nearly free, unlike energy (what would a kWh bank be? a vault of batteries?). It is easily transported and transferred, which is critical for something that is used for exchanges.
Every thing is given an arbitrary value, gold is not unique in that respect. Value is a subjective judgement made by people, never an immutable objective quantity like mass, distance, time, etc. The values of a kWh of electricity and an ounce of gold are arbitrary and subjective, even though the quantity is objective and fixed.
A pile of coal or other solid fuel, water behind a dam, or a cavern full of compressed air.
Good point. Money could be backed by any of those commodities and valued in terms of the amount of electrical energy it can generate. So a ton of coal and 1000 cubic feet of natural gas could be interchangable (I have no idea if those two things would generate the same amount of electricity, just an example). One good thing about gold is that it has an extremely high value by weight. One ton of coal would probably trade for about 1/10th of an ounce of gold right now, so clearly using gold as a medium of exchange has a big advantage over many other things in terms of storage and transportation. Of course we could use claim tickets for the electricity generating medium as a means of exchange. Kind of like how our dollars used to be claim tickets for actual gold.
Well... not really, as it's a lot more complicated than that. There are a great many other uses of both coal and natural gas, and the value varies by the demand for those (as well as the particular grade of coal) as well as the effort required to extract them. There are also the external costs, which are much higher for coal.
This doesn't change the fact that energy can be banked in a number of relatively inexpensive ways.
Don I think the reason you think it was not peak oil that drove us to the current point is your looking at to short a time frame.
The key is when additional debt did not result in additional growth thus one dollar of debt did not generate enough gdp to both retire old debt and generate growth. Say 1.10.
It works very much like EROEI and I think that they are the same. As debt grew more debt had to be created to keep from crashing.
Going back in time and looking at oil production its a pretty safe bet to figure we had peak potential capacity in 1995 looking at the graphs from the early 80's it seems obvious that if demand had remained robust we could easily have hit 100mbd in 1995. Above ground factors such as the fact the worlds economy was not growing fast enough to consumer 100mbd ensure that peak capacity passed without notice. It does show up as both a low point in activity and also the number of drill rigs running.
This is quite similar to lambs dip from spectroscopy.
If you agree that peak capacity did not actually result in peak production instead we had a distorted lambs dip phenomena then the debt bubble and "peak oil" line up nicely.
As I said this also shows in per capita energy peak about the same time period.
Now moving forward to the present this suggests that we are not at peak now but well past peak
the debt bubble interacts with the declining resource base to force extraction increasing both production rate and depletion but this system is no long capable of being forces and has snapped. Short term this has lead to a crash in prices longer term it has assured that future high prices will not result in the ever larger long term investment needed to maximize production. The exponentially increasing price signal can no longer drive exponentially increasing investment in oil since the oil industry fears another snap.
The debt load ensures this even more since long term investments needed in our current energy infrastructure become impossible to fund.
Thus the interaction of the expanding debt bubble with real resource extraction has only served to distort the production curve from a pure Gaussian centered at 1995 with a peak at 100mbd. Within a few years I suspect it will become clear that the real total URR for oil is 1.5 trillion barrels and matches perfectly with what I'm saying.
The point is if you do it this way what you see is that various financial games only serve to distort the resource extraction profile from a Gaussian. A more enlightened use of a non-renewable resource would have squashed it to a very long plateau.
So if you believe what I'm saying then its fairly easy to backtrack the real resource curve from the fiat currency debt bubble. And last but not least the earlier peak of the US distorted the curve slightly but I think its biggest effect was to move us to a inflatable fiat currency the actual inflation did not kick into high gear until later.
And last but not least the proof that its a strongly driven system thats been driven well past the natural curve can be seen in the repeated bubble recession pattern this implies that the economy was being effectively over forced.
I think the only reason why this did not result in peak production is simply because over half of the world was excluded for the most part from growth being part of the communist bloc. So this forced growth was driving a much smaller growable consumer base until later in the 1990's. Once Russia stabilized and both China and India opened up resource production quickly hit the wall.
In fact another way to prove that peak at 50% URR is in the past is the fact that the massive expansion of the debt bubble and addition of literally billion of new customers was unable to drive oil production much higher if we had been closer to 50% URR then one would have expected the flood of debt to be able to distort oil production rising it much higher over the short term. This failed to happen and the debt bubble collapsed.
The fact this may have possibly resulted in a short term oversupply is a minor event but as mentioned above it has interesting long term consequences which ensure that the real URR will not pass 1.5 trillion barrels at least under our current economic system.
I a few years scholars with access to the steep production declines starting in 2008 will be able to backtrack all this and put it together. And they probably will finally begin to use economic models based on a finite planet. I think the key is the recognition that financial games only distort the production curve leading to collapse is the key in forcing us into a more realistic economic model as Gail is suggesting.
Whilst I am not 100% convinced, I think this is a very interesting possibility and I wouldn't rule it out. Given we have used approximately 1 trillion barrels, I noticed there is very little challenge to the notion that there is another trillion to go. I haven't seen any decent criticism of this figure and have somehow always found it a bit suspect, especially given that EROI is falling.
What we have is this unchallenged assumption that the two halves of peak oil are symmetric in terms of quantity but at the same time a recognition that the "cost" of extraction and quality of the resource in the two halves is not the same, yet we seem to think the extraction itself is also symmetric -i.e that we will use the other half. Perhaps there are people who are familiar with other resources in the past to draw experience from. Is there any other resource where it got harder to use and extract after peak, that we have already used? One might think of fisheries and timber, both clearly past their peaks, but I don't think they are comparable.
It would be good to see a chart or table of the remaining reserves in terms of their field size and number distributions and compare the same with where production came from from the first half of the oil age. It might tell us something. In fact, I think it might even prove or disprove what memmel has proposed with regard to the possibility of a Lamb dip for oil.
In my opinion we reached peak net oil exports in 2005 and have been on a bumpy plateau since then. 2009 will see a decrease in net oil exports, but this decrease will be due primarily to a decrease in demand for oil rather than to a decrease in geological limits. The latter decrease, while real, is being masked by global recession.
Our current financial troubles resemble the panics of the past, say 1873, even more than they resemble the Great Depression. In the absence of constraint on energy supply we've had numerous panics in the past. In fact, the word "depression" was popularized during the Great Depression to avoid the word "panic," and originally "depression" meant a relatively mild decline in economic activity until the Crash of 1929 turned into the Great Depression of the 1930s.
I am not saying that higher prices and limited quantities of oil had nothing whatsoever to do with our current financial troubles. What I am saying is that the main sources of the current recession are to be found in excessive lending, securitization of mortgage debt, and speculation in derivatives--and that any input from higher oil prices was a secondary consideration and not a primary cause of our troubles.
In the long-run, this debate on the causes of our current recession is almost splitting hairs. In the long run the Greater Depression (or the Great Decline or whatever it comes to be called) will be caused by declining net oil exports. Thus in the long run I agree with both you and Gail. Looking back twenty years from now we'll see the financial and economic troubles of 2008 as very small potatoes, only a harbinger of much worse to come.
But Don the reason our monetary system worked at all despite the panic and depressions etc was because underlying these brief pullbacks was infinite expansion based on population and energy growth.
My position is they are intimately related economist despite the rap they get are not stupid they realized the best way to model our economy was as infinite growth. The choice of using ponzi schemes to drive the growth results in bubbles and collapses but its very difficult to prevent bubbles from forming in a overall expanding economy. We focus on the retractions since they cause the most pain but on average I'd say like 10 years of growth occur vs say 1 year of contraction. Given the EROEI returns we have had since switching to coal in the 1800's we have done a pretty good job of converting the energy into growth.
I see no difference between economics and EROEI plus Energy quality and efficiency issues. Economics in my opinion should simply be a measure of how energy resources are captured as retained wealth.
Retained wealth is simply at its bottom that the population is happier than before. If the route to happiness is considered to require a ever larger energy footprint and built on a depleting resource then the energy curves and economic curves are symbiotic.
Carl Marx recognized that the means of production where critical to creating wealth and he also recognized the problem our human economies have which is concentration of wealth.
Thats the second half of economics on top of this general expansion in wealth driven by expanding energy supplies you also have the problem of wealth concentration the use of ponzi schemes makes wealth concentration even more problematic thus the bubbles and panics can be seen as simply cases where wealth concentration has exceeded the underlying expansion rate. We have chosen to make the force of wealth concentration equal or greater than even a economy expanding with infinite energy but finite expansion rate can handle.
I think the real problem most people have is they really don't understand how distorted our economy is from a "natural" one even one assuming infinite growth. We are so far beyond sanity that its like not being able to see the shore over the horizon. Look at thousands of year of human history I'd not be surprised to see that we have used up more resources in the last 100 years then we used in the entire history of human civilization. From the perspective of resource/years we are leveraged up 1000:1. When your this far gone how can you even begin to see the truth ?
I agree with all your main points. Wealth and income are both too highly concentrated in our society. We have squandered a precious endowment of fossil fuels.
Economics has to look at more than just energy and total wealth. To produce anything you need numerous inputs: Energy, water, labor, management, raw materials, physical capital (buildings, tools, machinery), technical skills and working capital (cash or cash equivalents on hand to meet day-to-day operating needs).
A great lack of modern economics (especially compared to the classical economics of Adam Smith and the nineteenth century British economists) is that it does not look much at wealth and instead focuses on flow concepts such as real GDP or disposable income. Both stocks and flows matter, and if your stock of wealth in the form of natural resources is depleting, then you're in serious trouble, even if real GDP is increasing.
One area in which the discipline of economics has been improving is in looking at externalities, external (not counted in accounting statements) costs and benefits of production and consumption. Because of negative externalities, the invisible hand often does not work. Another recent advance is the attention given to behavioral rather than theoretical economics. Finally, the kind of ecological economics that Nate Hagens is doing is also a fairly recent advance, as is the steady-state economics done by Herman Daly and others.
The main reason economic growth is seen as so important in conventional economics is that it is the way that jobs are created. In other words, we need economic growth to prevent unemployment from increasing. Growth either has stopped or is about to stop; declining real GDP is in our future. Thus I see massive increases in unemployment as the most severe social-economic-political problem of the next thirty years. In addition, real wages will fall as energy becomes more scarce and more expensive. I do not think anybody has the faintest idea of how to deal with a real GDP that declines at 3% or 4% per year for decades to come. In other words, nobody in authority is willing to face up to falling living standards during our lifetimes and the lifetimes of our children and grandchildren.
Conventional economics focuses on growth because the alternative is too horrible to contemplate.
Thanks but your right but I believe the reason your right is that concentration of wealth does not stop even as the economy declines. I live in one of the wealthiest areas of the US and its still partying on like no tomorrow. Sure housing prices have finally started to decline but the wealth is still flowing into the region out of other parts of the country even as they fail.
As and example generally ponzi schemes are assumed to fail because of lack of entry of new participants I don't actually believe this is true. For example if they went back to no-doc loans right now we would see a massive flood of people ready and willing to enter. They fail because the top of the pyramid has infinite greed and extracts to much money effectively placing a call on the margin accounts. Its the fees and profit taking that eventually collapse the system not a lack on new entrants.
The problem with concentration of capitol is concentrated wealth generates very little gdp. A multi-millionaire spends a fraction of his income on a precentage basis the velocity of money at the top slows to a trickle. What is spent is often spent on "brand name" or fashionable objects priced thousands of times higher then their cost of manufacture. This is a potluck like society that effectively destroys money.
We have no real mechanism to recycle the money back to the bottom thus we use "growth" to allow concentrated money to expand it goes into simply expanding the means of production without generally increasing workers wages. Understand that outside of short periods of time workers are not in short supply. Thus instead of people rising up the pyramid via increasing wages what we have is more pyramid. This is why people believe that growth is required. Its not its simply the only way to recycle concentrated wealth without explicit intervention.
And last but not least this wealth concentration effect is a physical force in economics on par with resource constraints they are equal. As the past economic collapses even with effectively infinite resources show.
Westexas may not realize it but he is a brillant economist. The answer to concentration of wealth is not communism or any other isms its to keep the pyramids short. Thus the number of people between the lowly worker in CEO is at a minimum preferably one at most two. And also to keep the pyramid small i.e a few hundred people at most. If all companies are forced into this structure and ownership is restricted such that a person can only own X amount then we effectively force recirculation of wealth that gives the highest velocity. Certainly "rich" still exist but not the mega rich at least not off the earnings of one generation wealth would take generations to build.
This scheme intrinsically forces localization.
This structure is actually very similar to the guilds of the middle ages.
Can you do big projects sure in the middle ages they built the cathedrals without mega corporations.
You could argue that the church was a mega corp and to some extent it was and this caused a good bit of the problems during the middle ages but it was also fairly decentralized vs todays mega corps.
The point is that the actual project was undertaken with a federation of small companies.
Whats even more interesting is applying this concept to proposed solutions to our current problems.
Would railroads function managed by a federation ? I don't know but I don't see why it cant be done that way.
[sarcanol]
I just don't understand this whole "finite" thingie. My heroes Rush Limbaugh, Larry Kudlow, Sean Hannity and the late Julian Simon --not to mention the Bible-- all tell me that God created the Earth and everything in it for us to consume, multiply, consume more, multiply more, and CONSUME! How can there be "limits" to growth when we are the special, chosen beings created in the image of the Big Man himself?
I'm sure His Anthropomorphic Supremeness will provide us with abundant abiotic oil, ababiotic fish, potash, phosphorus, abiotic cheeseburgers, whatever... should the need ever arise.
Regardless, the Rapture's coming soon, so there's no need for all you gloomy secular humanists to concern yourselves with such trivial non-issues. Perhaps you can amuse yourselves with debating "peak sulfer" while you're all roasting on the Lake of Fire.
[/sarcanol]
Replenish, not plunder until it is depleted.
Replenish, not plunder until it is depleted.
Oh, sure, but how many self-described Christians skim past that and go right for the "multiply", "subdue" and "have dominion" parts?
I've had more than a few conversations with relatives in KY & AL that revealed we truly *do* occupy separate realities.
P.S.
sulfersulfur --must remember to spellcheck b4 posting.It's sulphur. ;-)
Our World Is Finite
We all know the world isn’t flat. Any of us would be laughed out of the room if we built a model with a flat earth as one of its major assumptions.
I would argue that any Peak Oiler who doesn't include stopping population growth as part of his or her post postulating some solution - whether it be the "death of suburbia" and/or "the rise of cities", or some type of renewable energy or nuclear energy growth or electric trains or electric cars or whatever else suits their fancy - is in fact engaging in "flat-earth-like" assumptions. And saying "it's too hard to change population growth and/or population growth rests of too many sacred cows so I refuse to include it" doesn't make the analysis any better than one that includes a flat earth as an assumption.
I agree. Over the top consumption by an ever increasing consuming base (6.7 billion and no end in sight) leads to depletion of finite resource bases. It's pretty much that simple.
I was having a discussion about this with friends the other day, playing a little 'what if' game. I said, "What if the world agreed that population was the issue and all agreed it must be reduced by 4 billion, at minimum, for humans to carry on." Further I said, "And what if everyone was given the option of helping reduce the population by taking a pill. Would you do it?" Keep in mind, all have agreed that 4 billion people must go.
Not a one was quick to answer... either way.
Would you do it? Now? Later?
Sad to say, yes, I'd probably do it. Definitely now if I didn't have kids, and maybe now anyway if I had some kind of reason to assume things would be OK for the family after I was gone. I'd definitely do it later.
Of course, I've had a couple of really bad years, and am totally frustrated with life. In the grand scheme of things I have a pretty good life, but the idiocy I encounter on a regular basis really gets to me, so much so that at times I am willing to essentially say "F**K IT!"
The key to my aggravation and frustration is not so much knowing that big problems exist, but knowing that 1) most people will routinely reject the truth when presented with it, and 2) many of those in power who do know the score will still pursue short term self-interest and screw the rest of us. Knowledge of the problem combined with the knowledge that the solution will not arrive in time, and knowing I'll have to just watch powerless as things go to hell. It's enough to make the pill seem like the best course.
Hi zero,
Watching people not understand how to tell the truth is awful. (OTOH, at least you're aware of how you feel, which may actually be the problem of the "idiocy". For this, I make the suggestion www.cnvc.org. Not because I'm good at it, but because I've seen it work in a positive way.)
Anyway, really...here's what I want to say: "A man is useful so long as he lives." (Lao Tsu.)
Calls to stop population growth are countered with two false dilemmas by those who don't see it as a problem or those who reflexively defend sacred cows. One false dilemma is that you must choose between population growth and severe population decline. And the second false dilemma is that there is only one way to achieve population decline and that is by murder/suicide. However, since mother nature or God, depending on your beliefs, is "murdering people" all the time, all that is required to stabilize or decrease the population is for people to use birth control to get births per woman to decrease to 2.1 or less. So we do need pills, but they aren't cyanide pills.
Exactly right.
Of course, what we really need is a MALE contraceptive pill. Funny how we don't hear much about that nowadays??
There is something much better because you don't have to continuously worry about taking it. The better approach is called a vasectomy. I had one over 30 years ago after my second child was born. It is quick, almost painless :-), and typically 100% effective.
Why saddle women with taking birth control pills for years and suffering the side effects. If you men are really sincere about stopping the depletion of the earth's resources, and leaving something beautiful for future generations, give your family physician a call...
Apparently it required periodic injections "in the zone" to be effective so a few folks balked.
Actually, I had thought they developed something, but effectiveness was not too great. Guess it was more difficult than people thought.
Anyhow, there is still the tried & true surgical option. Not the most pleasant experience of my life, but knowing now what I didn't know then I'd have pursued it sooner. Just took me a couple of years to get up my nerve.
There is a MALE contraceptive pill, it's been around for ages. It's called marriage.
You're assuming monogamy, which isn't necessarily going to hold.
One fertile man can impregnate several women a month. I've read that during wartime, the birthrate doesn't fall much until the F:M ratio gets rather high. Because of this, male contraception isn't going to be sufficient absent a desire to avoid pregnancy. I have my own ideas about achieving this, but others would likely find them too paternalistic.
The false dilemma is that we can choose either population growth or decline. We can't choose either. Population growth or decline are high-level composite effects of billions of lower-level actual choices that people have in their day-to-day lives from the options in their local environments.
Our current population growth is an unintended consequence of billions of decisions in a complex system, like climate change, like resource depletion.
Exactly. Which is why individual choices and actions always have mattered, still matter today, and will matter forever.
I hear people everywhere, whining, "But what can I do? I'm just one person - what I do won't make any difference." Bullshit. You want change? Then, by God, change! What are you waiting for - a gun to your head, or everybody else on the block doing it too? Nothing but your own inertia and fear keeping you from it. And when enough people change, presto! We've got systemic change.
It really ain't rocket science ...
So if governments the world over stop subsidizing a woman's children over the first two, started giving low-cost or free vasectomies, made birth control pills and condoms widely available, you think that would have no effect on the individual decisions of billions or people? What if government's imposed severe fines or some other penalty to women who had more than 2 children? Would this not affect their behavior? Are we wasting our time passing laws punishing murder and other crimes from speeding to grand left?
In a broad sense, yes we are wasting our time, and resources and energy, in passing laws. The legal system operates from the top-down. Behavior, culture, society are created from the bottom-up. While the law does a half-assed job of suppressing misbehavior, it does virtually nothing about engendering socially positive behavior.
But at this point in our complex society, the law's very existence does engender organized systems of various criminal behavior, causing some of the problems it seeks to eliminate.
This issue of causing the problems we seek to eliminate, it is not limited to our legal system. We can see this also in our systems of government, agriculture, technology, and medicine, to name a few.
Well I would certainly get to my destination a lot faster if there were no speeding laws, so they work in at least one case.
Yet with speeding laws, we now have radar detectors, radar jammers, and speed trap databases.
Yes,
I would give you the pill.
Hi Edgy,
They may have also been slow to answer because the question has some odd things about it, so maybe isn't really the best question, or doesn't get to the heart of what you want to say.
If you are trying to ask: "Will you do something - take some action - to make the situation better for others?" That's one you can ask and talk about, along with the degree of inconvenience people are willing to undertake, along with the question "What counts as inconvenience for you?"
The idea of suicide as a sacrifice with beneficial ends: This can be a powerful rationalization.
Or, perhaps you are attempting to talk about (like I said above) about the "degrees" of inconvenience or discomfort (even, perhaps)that a single individual might be willing to undergo in order to make the situation better for everyone, including him/herself.
People do place themselves "in harm's way" in all kinds of situations, for all kinds of reasons. People join the military in the US, where it is not mandated that one do so.
People also remain in dangerous situations - as well as place themselves in such situations - when there are powerful emotional attachments to others, examples we might find on both positive and negative sides (ethically speaking).
So, I would ask you: Can you tell me more about what you were trying to get at?
The oddities about the question are: In reality, the actions might not be as dramatic and drastic as suicide - the problem of humans living in a sustainable matter might be "solved" by many medium-sized actions on the part of most people (for example); asking people to contemplate suicide is kind of creepy in itself; on the practical level, there's nothing in the question that talks about the "cleaning up" from this carnage, nor the psychological trauma that would most likely ensue, or the energy cost of the clean-up; nor is there anything in the question about how such an action might prevent the same initial circumstance from simply occurring again.
Anyway, just some thoughts about what you are saying.
I, Moopheus, would take the red pill.
http://www.themeatrix.com/
"must include stopping population growth"
Abundant and cheap energy, antibiotics, the green "revolution" helped us to reach 7 billions population.
Less energy, the end of antibiotics, poverty, climate change, pollution will "help" us to reach back 3-4 billions in less than a century.
Population will decrease as soon as the death rate becomes higher than the birth rate, and this decrease will not be more spectacular than the increase was.
So, I see not point of advocating population control, especially when such advocates belong to the world minority using most of the resources.
Less energy, the end of antibiotics, poverty, climate change, pollution will "help" us to reach back 3-4 billions in less than a century....
So, I see not point of advocating population control, especially when such advocates belong to the world minority using most of the resources.
So... your argument is that the "right" way to reach a lower/sustainable population is to just allow the negative ecological and economic consequences of overpopulation to kill off billions of people (not to mention quite a few other species of plants and animals). This is somehow "better" than encouraging smaller families and population control. And for Westerners to advocate for population control is hypocritical because we use a lot of resources.
Huh??
I don't see it as right or wrong, moral or a-moral. Until recent centuries human populations have always been limited by food supply and the spread of disease. In more advanced societies if the population grew we would start a major war to cut the population. On a
smaller scale, social control was/is used. In medieval Christian times, excess population was shunted off to convents and monasteries, where they lived a low resource life and failed to reproduce until they died. China has been largely successful in it's one child per woman policy, albeit too late to keep population in sustainable limits. On some polynesian islands, excess population built rafts and sailed off into the sunrise to find a new island and start a new society. Most never got there.
We are returning to the normal human condition for the majority of the human species. There is not much we can do about it on the global scale. Think local, cut your consumption, cut your family size, be modest. We have a lot to be modest about.
Even if we somehow cut back to a billion people - or even less - they'd probably be the richest amongst us and still fly their corporate jets and get about in their flash cars... They'd still use bucket-loads of oil.
Given the "extra time", would they seek to create a better world for their grandchildren, or just more of the same?
Regards, Matt B
I was a bit straightforward, we can and should of course encourage smaller families and population control, and also encourage a reduction in consumption.
The typical western hypocritical stance is when we are horrified of third world population increase without thinking of reducing our footprint.
But for the rest, yes, let it be. We won't kill billions of people, it's just a slight change in the death/birth ratio.
This is a consequence of refusing to prevent that third-world population from coming here and adopting the high-consumption lifestyle.
This also runs into conflicting priorities. It is very hard to reduce the footprint when new people with new demands are being added every day. Further, the reduced population pressure and remittances which follow from emigration to the West allow even more third-world population growth. Closing borders is an essential first step in dealing with these and other problems.
Less energy, the end of antibiotics, poverty, climate change, pollution will "help" us to reach back 3-4 billions in less than a century.
I always wonder about these discussions on population when people casually toss out the idea that nature will do the culling. It certainly will, but I wonder if you realize how horrible a die-off of several human beings is going to be. People will fight tenaciously to live no matter what. Every form of modern weaponry, nuclear, chemical, biological, will be used. The planet will be stripped of most higher life forms.
We have to find a way to reduce population without just letting nature take its course.
"how horrible a die-off of several human beings is going to be"
Who talked about die-off ?
When I was young the world population was nearly half of what it is now. I never never saw babies popping everywhere, I never saw hospital stairways filled with pregnant women waiting for a free room.
I expect to see the world population decrease back to that level for the rest of my life without seeing cadavers or rotten corpses everywhere.
Just think that population may decrease as easily as it increased, without pain. There is no way to reduce population against nature without relying to hard an totalitarian ways. Look at the chinese, they only managed to reach 1.5 billion with a disastrous imbalance between girls and boys. Better do nothing.
There is no way to reduce population against nature without relying to hard an totalitarian ways. Look at the chinese, they only managed to reach 1.5 billion with a disastrous imbalance between girls and boys. Better do nothing.
I refuse to believe this. Many countries in Europe now have either flat or declining birth rates, without Draconian/totalitarian measures. And the boy/girl imbalance in China has a lot more to do with Chinese cultural preference for boys than the 1 child per family policy. And that cultural preference is now (slowly) changing, in response to the relative scarcity of marriage-age girls.
If enough people can be educated about the problem and convinced that birth control is a necessary --and pain free-- solution vs. the very painful alternative (status quo), then reaching critical mass is possible. Not easy... but possible.
I agree that stopping population growth and even trying to get orderly down to a lower population level is the way to go. But why on earth do you at the same time try to dismiss electric trains and electric cars as part a future solution?
I live by the basic assumption that we can vastly increase the amount of renewable energy (even way beyond the current energy output from fossile fules and nuclear), and that we can provide all our basic material needs in a sustainable way using a combination of renewable energy, full recycling and ecosystem preservation. However I also assume that if we don't have full recycling and if we don't preserve ecosystems 100% renewable energy will not ultimately help us survive.
If you have a problem with my life assumption I'd appreciate what exaclty is impossible with either of theese three basic parts.
1) full conversion to renewable energy is possible - at and even way beyond todays amount of watts that currently come from fossile+nuclear
2) full recycling is possible - ending the reliance of mining and ore quality.
3) preservation of at least the required minimim of the worlds ecosystems is possible.
In this three legged assumption number two is the one least understood. I realize it will reqire a lot of energy today. Todays consumer goods are not primaraly designed for easy recyclability, but if we started to require recyclability standards we could have a posible technological path that will lead to producst that are increasingly easy to recycle. Also the recycling industry wich is in its infancy can expect to see huge technological development. So in time one could argue that energy required to recycle might fall much much lower than today.
But why on earth do you at the same time try to dismiss electric trains and electric cars as part a future solution?
I wasn't dismissing electric trains (I would love to see the US emulate France with regard to electric train transportation) or electric cars or any other partial solution. I was criticizing people who present some good but partial solution(s), and never say a word about what is needed for a complete solution - population stabilization or decline. A full-solution discussion is especially important with the topic of "what new types of power plants should we build" as the main reason building new power plants is required is the continuous growth in population.
2) full recycling is possible - ending the reliance of mining and ore quality.
If you go out long enough, full recycling is an absolute requirement. But for near-term full recycling I hope it doesn't require pre-sorting by those throwing out their trash. I am amazed at how lazy people are regarding recycling programs, both at their home and at work. Some people seem to think it is wrong. At least that is the only explanation I have for a person taking their empty soda can and depositing it in the trash while there is a soda can recycle bin sitting right next to the trash can. Although kids growing up today will have a different view of recycling than their parents and grandparents who might dismiss it because they feel the world was fine and dandy without it for most of their lives.
Guys,
If you think the issue of Peak Oil is complex and subtle, welcome to the population question!
I think one should refrain from making casual, flippant and dogmatice assertions about this frighteningly difficult subject until one has thought about the implications of ones ideas, for at least a couple of seconds!
This may be a highly 'entertaining' way to pass ones time, discussing the fates of billions of fellow human beings, whether they will die of starvation, war or pestilance, or a forced reduction in their numbers; but shouldn't we, at the very least, try to show the 'expendible ones' a little respect and dignity?
Just one of the myriad of intensely tendentious questions relatig to efforts to reduce the planets exploding population is, how and who, decides where and which populations need to be reduced? Actually that sounds like more than one question, but maybe that proves my point? It's very complex, and not for the back of an envelope. Do we reduce all populations of all countries equally, at the same time? Or do we reduce them proportionally? The largest populations reduced most, for example? Surely, looking at it from the perspective of which countries use the most resources, we'd have to reduce the population of the United States drastically and far more than, for example India's or China's in relative terms? How likely is this? It's difficult enough trying to convince Americans to reduce their share of consumption of the earth's resources, but demanding that the US reduces its population by perhaps half, seems like asking a lot to me, but then I don't live in America.
Well, here is my "casual, flippant and dogmatic" answer to the question you posed.
Obviously, as you suggest, the first billion or so whose populations need to be reduced or eliminated are those consuming the most, not just Americans, but middle and upper classes of all developed and many developing countries. "Reducing" the poorest fifth would do essentially nothing to address resource depletion since they only use one or two percent of the non-renewable resources on the planet.
"Reduce" the top fifth or so, and you've reduced resource use by over 80%, leaving much more for the remaining billions to work with.
Such a reduction would presumably include all the posters on this forum.
As you say this is not likely to happen.
What is needed is for those using the most energy to give up their use of the same and more.
One can always ask the powerful to give up their power, but they are rarely inclined to comply.
What is needed is for those using the most energy to give up their use of the same and more.
Are you suggesting this with the idea that population growth can continue for a longer period of time under this scenario?
This would also have the effect of eliminating technological society, including the medical support for birth control and the scientific foundations for understanding just how bad the population/resource problem is. The remaining population would have no difficulty turning the world into the likes of Haiti.
If any population needs to be preserved, it's the part with the knowledge and abilities to understand what's going on. That's the most consumptive part, but a necessary one; the brain's energy consumption is worth it.
Just one of the myriad of intensely tendentious questions relating to efforts to reduce the planets exploding population is, how and who, decides where and which populations need to be reduced?
Countries can decide on an individual basis if they want to be theoretically sustainable (stable population), unsustainable (growing population) or try to make conditions better in the future (declining population). Right now only the most populous country on earth has any policy or laws regarding population stabilization or decline. And even there, prosperity has caused them to relax enforcement. The next two most populous nations, India and the United States, don't have, as far as I am aware, any significant movements calling for a stabilization of their populations. So talking about reduction is premature. First comes stabilization. We are far from even that.
The problem is that some countries may decide to adopt the unsustainable route with the aim of taking land and other resources from other nations. Bangladesh appears to be trying to do this to India, eliminating its Hindu population while exporting people across the border.
"Those who beat their swords into plowshares, will plow for those who do not."
Finite Quantity
Spot on, though population control is ultimately an unachievable goal.
Charles Galton Darwin explained why way back in 1960: in the long run homo contracipiens is always beaten by homo progenitivus -- since natural selection in the long run favours the latter. The pill-takers, Dutch cap wearers and coitus interrupters are eventually selected out. Or: nice guys finish last -- the history of humanity in four words.
CGD's essay "Can man control his numbers?" can be found here:
http://www.globalidiot.net/CGDarwinEssay.html
People will have more than their share of children, and we will deal with it in an appropriate way.
Of course, since I am an L5 believer, the appropriate way is to let them overpopulate their own habitat so their kids leave home and move to another habitat.
After 4,000 years of geometric population growth we are going to start running short of asteroids...
Looking at modern countries it seems like it is an achievable goal. The birth rate has declined voluntarily from the extra activities that wealth gives women. The only thing preventing population stabilization or decline in those countries is the romanticization of immigration and the demonization of anyone who dares to speak out against it. Russia's population has declined and I don't believe they have any significant immigration.
As wealth and living standards decline, we may regress on these things. Europe and Japan's low birth rate can be attributed to a few things which all relate back to wealth:
- Universal education and other civil rights for women
- Hedonistic, consumer culture
- Pensions and universal healthcare (otherwise your children are your retirement plan, and you need to have more children for a good chance of them surviving to adulthood)
They are more efficient with oil consumption per capita because they've never had much domestic oil production, but half the oil use of the U.S. is still very high compared to the rest of the world.
You're correct about Russia's population decline. So it could go either way after a collapse.
Actually that is not true. Indigenous peoples have controlled their own populations for millennia. Natural plant-based bortifactants used by the American original inhabitants numbered over one hundred.
I think it is a sad comment upon the intellectual capabilities of so-called civilization to dismiss out of hand the idea that population control is impossible when it had been the norm prior to the outbreak of the Western Civ ever-expanding cancer cluster.
The truth is that humans who are in close daily, intimate contact with nature are more in tune with the capacity of the land and will respond with the best interests of their clan in mind. Only a species that has physically, psychically, emotionally, and spiritually become detached from nature, and hence reality, can make the claim such as C. G. Darwin does. Unfortunately, as is often evidenced by the many cornucopians who inhabit this site, the insane are only too happy to make these ridiculous claims.
Though, I must say that Gail's brave stance, as I have been mocked on this site so many times in the past for uttering, "we live on a sphere," is a refreshing change from the save the tech, save the car, crowd.
Those nations which have stabilized the size of their populations are the ones the free market capitalists despise, namely the socialist democracies of Europe. The poor have children because a large family is their form of disability and old age social support. The developed world doesn't care about what happens in the poorest countries of the world so they can't establish stable governance which could create replacements for their old ways of caring for the disabled and elderly.
As much as the right wing likes to trash the social democracies of Western Europe, they have much more in common with us than the communism of the Soviet Union. Pension, disability and healthcare payments are either funded by tax revenues or a separate social insurance fund that's invested in the capital markets. If pension funds can't earn interest long-term, you can kiss all that goodbye.
Why on earth do you need interest.
Lets say you work and create wealth and earn 100 dollars a year your expenses are 60 dollars a year and you save 40 dollars a year. you do this for 50 years and thus have 2000 dollars at the end of 50 years. Enough to live for 33 years at 60 dollars a year or to 83. And next assume that you cummulate some assets during this time period say a house or furniture or something. These can be sold if you live longer or given to there children lowering the childrens cost of living say to 50 dollars a year.
You should notice that to pull this off you need a very slow population growth. But you can see that your own children could eventually choose to add and extra child and raise there expenses back up to 60 dollars after a few generations. So populations can slowly rise and fall.
All of this can be done without interest. Where did the money come from to overpay you in the first place ? Well it comes from previous generations that had accumulated wealth to the point that there expenses where zero. The owned their land they produced all of their own food and any work they did was pure profit. I.e selling food from this they higher people with less accumulated wealth. Notice as these people grow older they are not a burden on society as their own children could readily subsidize there retirement assuming you could share parts of your wealth that lower expenses until you died.
Beyond this you simply live with one of your kids after you retire i.e the multi generational family if you don't have children you board with a community member who may have lost a parent or you could readily have community supported retirement homes.
None of this requires interest and all can be done via growing wealth via creation of infrastructure or other works that have deeds acceptable as money.
There is no real reason to convert retirement into a purely financial issue in fact its far better to treat it as a social issue and responsibility of ones children this does not mean you have to have six kids just one. And society can readily provide for those who choose not to have children.
Population is pushing against resources; this is partly because the inability or unwillingness to share resources equably. But that is an unrealistic thought, so le't just run the idea that population is the problem, for sake of discussion. Like, we are in an airplane, we have picked up ice, and we are heading for a crash, unless we remove weight, or can maneuver thru some warmer air long enough to shed the extra weight...
In the the world of finite resources, part of the challenge is to find ways of extending the time for stabilizing population, extending the oil being the operative topic here. We are in for an extended period of regimentation, at best. Some minority of population may be able to insulate itself from the general chaos, with stored food, stand-alone electricity and water supply, etc. And adequate staff of bodyguards and perimeter defenses. Let's think about that objectively...
Better approach is to maintain the social contract by conservation, rationing of supplies and assuring all have a stake in the commenweal thru the Oill Interregnum. This means holistic application of the full panorama of energy and transportation methodologies that wean us from the oil component, while maintaining adequate health & safety & living standards. USA and other developed nations need to especially shrink the need for trasnsport dependence on petroleum ASAP. Because, transport retooling offers the best means of extending the oil supply while maintaining agriculture and gaining time for across the board decisions in all sectors to reduce need for oil.
US political reality will mean a period of fits & starts on the transportation policy, trying ways & means of dealing with the private vehicle syndrome so prominent in the USA. Our "Freedom" has centered around cars so much that America has a serious issue of self esteem about cars that will impede transition to a broader mode approach, as seen in the USA of the 100 years or so of the railway age.
Ideal transport will be a mix of private vehicles used sparingly, most personal trips made on buses, streetcars and local railway lines. Freight likewise will require local connection and warehousing near city centers for victuals and necessities of life. Trucks will be used to bring things to & from rail interface, as was the case early in motor trucking use.
Finite materials, resources mined and manufactured must depend on a body politic able to understand importance of applying the energy determinant: EIOER decides, not convenience or vanities of style, etc. See the USA of the pre WWII twentieth century to examine good working models of railways, some electric, moving people by day & freight, victuals by night. China & Russia, Asia, Africa & South America are now in process of adding rail mileage in anticipation of this scenario; they are doing it for STRATEGIC not political reasons. We have to be smart enough politically to "decide" to return railway connectivity to local economies.
Relearning something we were sucessful at is not always easy; we need to baby step with dormant line rehab, research old rail footprint and make rail work in areas that have only seen pavement for the last fifty years. The General used to make railway locomotives (Electromotive Division) and railway cars (GM Aerotrain...) with same facility they now make Escalades. Which product makes most sense nowadays?
Railway savvy personnel will become available to the private sector from re-commissioned railway operating and Maintenance battalions in the US Army, and the 50 State National Guard Units. Unit adjutants with initiative can obtain their regional rail footprint in US Rail Atlas Map volume, from (spv.co.uk) and be ready when the Homeland Security Department talks railway reconnect. Sources like "ELECTRIC WATER" by Christopher Swan, James A Van Fleet's Rail Transport manual (from AAR 202-634-2100) and (peakoil.net) articles 374 & 1037.
This is in the wings; we have to go thru the car and highway infrastructure dance for a while, but some will work on the US railway machine, under the radar, pulling together resources and networking until the futility of the exclusive rubber tire mindset is clearly evident. The dream of a private vehicle for everyone on earth at puberty is like expecting a seat for everyone -on the Concorde... 'nuff sed!
Some retired GM Exec from the LaGrange plant in Illinois will call up Rahm Emanuel, and talk trains as Job #1 for GM & Ford; the manufacturing capacity laid aside as the car dream withers. GodSpeed.
The idea of converting auto plants to rail rolling stock production is appealing on the surface. Just how many new locomotives and rail cars can be added each year if this is some form of jobs program. Dollar wise a new locomotive is equal to 80 automobiles roughly $2 million. Unpowered rail cars are say 1/2 to 1/4 the cost of a loco. A single loco can pull an average of 25 rail cars. That comes to say $15 million per train or the cost equivalent of 600 automobiles. To replace the production of 12 million autos per year means creating 20,000 additional trains every year. There ain't enough track to park them on.
Let them build track.
I doubt very much that a dry freight car would cost 1/4 as much as a locomotive. $100,000 seems high for something so simple (though I admit that I've found no information on freight car sales prices despite poring over some 300 search results).
The trains I see average about 100 cars.
No point in doing that; most of the plant capacity would go to other things. Wind turbine components would be good, if the lines could be shifted.
If we are at or near the "end of economic growth", there's lot's of work to be done! I'm not sure we need a new monetary system - we will however, need to move away from the idea that our monetary system will somehow provide us with answers and solve our problems. Even more than "addicted to oil", we are addicted to economic growth as requirement of our society and a solution to problems.
Our concepts of 'career', 'advancement', 'retirement', and 'value' will all have to change. If only there were a currency that represented health, wisdom, and fulfillment and we could unleash our creative energies towards the production and accumulation of that kind of wealth....
That being said, in the realm of monetary currency, even in a steady-state or shrinking economy, there will be activities and enterprises that have good growth prospects and there will be productive uses for debt, but the lenders will have to be a tad more careful than they've been up 'till recently...
Funny, Robert Solow was on the radio a few hours ago; he confined himself to discussing whether there would be a 'Depression' or not (he says not) as well as to general issues regarding the credit system itself. Ho Hum!
My reaction was, 'why not have an ecological economist like Herman Daly who would present a more modern and balanced examination of the current situation rather than another classical labor/capital analyst. Establishment, Keynesian economic thinking has a death grip on policy that will not undo until ... death!
Having said this, I haven't seen any real sign of resource supply disruption causing the current crisis. Sprawl has been tending for decades, the farmland and forest falls, the highways creep, the traffic stalls and today is similar to any fall day ten years ago except that today everyone is broke and scared shitless.
- I don't think the gas price spike hurt the economy - or the auto companies - as much as financing issues have. People don' know from peak oil but all are credit 'agonistes' who obsess over credit card balances. People here buy new cars every three years and roll over the leftover financing from previous cars. Fifty thousand due on a thirty- five thousand dollar car is not that unusual. The big change has been the ending of house refinancing and second trust borrowing to pay old loans and auto financing. People are trying to avoid insolvency and ruin by paying off debt, and not taking on any more. Thrift is the new 'excess'.
This is clearly unpatriotic and un- American! Thrift is destroying the American way of life!
- House prices have taken a hit and there are numerous foreclosures. Northern Virginia is prosperous, but 'flippers' have been ejected from this market and the second tier speculators are staring down the barrel of a financial cannon.
- The past five years has seen almost $6 billions in road 'improvements'. Much of this work is ongoing. At the same time, all the state and local governments are in meltdown mode. Tax revenues are drying up and programs slashed. I see these projects and think, "Why? Why? Why?"
- The focus is on whether the Federal government can get a handle on the situation, with the standard model economists on the radio (and I presume the TV) teling all that there will be no 'second great depression'.
Right.
- The Federal borrowings have become so great that they have become hard to ignore. More and more commentators are remarking about the dangerous level of government borrowing. These are different people from those who predict no second great depression. The conditions in all markets are very different this time. Whipsaws and radical movements over a few days are the rule rather than the exception - all do maximum damage. The volatility in the markets have done the most serious damage to the financial system; the interbank lending freeze the least - a loan not made is a loan that won't go bad! The markets have been uncoupled from their manipulators such as the trading floor managers plus the hedge funds (not to mention the Federal Reserve). People with means have lost a lot of money on trades (disguised- as- investments). This has created many dangerous amplifying feedback loops. As more people (and manipulators) lose their shirts and retreat (or are removed) from the markets, the more dangerous the volatility becomes.
- The credit system is clearly broken and not going back together any time soon. A pillar of establishment economic reasoning is the emphasis on increasing market access. From this viewpoint, a paying customer is the hardest thing for a business to secure. An exploding population is an exploding market, waiting to be tapped. What is required is to get money to the peoples' hands and they will begin to consume; more food, cars, electrical appliances, entertainment, fashion and eventually, luxury goods such as mortgage- backed- securities. The source of these goods has rarely been an issue, industrialization has eeen to that. The development and expansion of markets has always been the most difficult and issue to resolve. Strategies to open markets have been exercised since the 18th century. Most have met with mixed success, longer term. Credit issues and currency exchange problems leading to money panics and currency collapse have been the general outcomes of attempting to expand or 'force' market expansions.
- Globalism and extending the production chain as well as allowing unfettered immigration have served to open markets in this round. China, South Asia, Mexico, India and Brazil have joined developed states as trading partners and markets for American (made in China) goods. A billion new members of the middle class have graduated from the edges of poverty and become consumers. Because of imbalances arising from this market- opening process, the interconnected world credit system has tipped. Credit instruments sold into overseas markets contained undisclosed risks that unbalanced the purchasers' banking systems - along with lenders of last resort - and at the same time have put currencies under intense pressure. From this standpoint, the current financial crisis is little different from the south Asia financial crisis of the late 1990's. None of this has been caused by resource issues insofar as the demand- driven price inflation of raw materials such as copper and iron ore was always been affordable by the materials' purchasers up and down the supply and value- added chain, even at peak during this past summer (2008).
- The large- picture price tag for expanding these markets has been noted by ecologists, biologists, climatologists, NASA, zoologists, social studies professionals in undeveloped countries and many, many others. Two results were large on- paper increases in US GDP and speculative activity along with a decline in hard capital - savings - since a byproduct of this globlaization has been flat or decreasing real wages paid to American workers and a concurrent decline in savings. Without savings and real investment the speculation activities became unsupportable and a collapse in values was the (natural) result.
- The overture was Hurricane Katrina; a 'Grand Mal' catastrophe played out on TV with a cast from President Bush to Fats Domino with an ominous undercurrent of climate change. Consider what is happening now in the credit markets an aftershock ... attitudes began to change. America couldn't fix the damage; "Why can't the richest country in the world rebuild New Orleans?" Such small erosions of confidence have large ramifications ...
- Fraud and cupidity on a very large scale has been a cause of the current crisis. Greed not only causes people to lose perspective, it also makes them intellectually lazy and incurious. Curiousity and skepticism are the antagonists of impropriety; these virtues are consequently strongly discouraged by 'money managers'. "Trust me," they all say. Ratings agencies, prospectuses, and the alphabet soup of derivatives were all created to confuse the enemy; the investors gullible enough to buy the products representet by these things.
Our society makes a big show of valuing initiative, but any real activity along this line resides in the past. What is left is a version of Gresham's Law; the 'New! Improved!' substitutes such as cheap credit and cheap labor which drive out the good; the architects, designers, cabinet makers, woodworkers, glassmakers, iron founders, slate men and masons. The skills and artistry that built New Orleans in the first place have perished with their possessors, not to return. Skills have been deemed uneconomical. The substitutes have crowded out the good, just like the Robert Solows have crowded out the economists that would have produced a more accurately representative economic model.
New Orleans was built mostly be hand, without oil, gas or electricity.
Now, the hurricane is breaking onto the US and world economies. The real 'peak' resource issues are a couple of years away, so things are going to either get a lot worse or the decline will be an 'Ell shaped' affair. This is, provided the US dollar is not destroyed by the heedless and stupid borrowings of the government. If the dollar collapses, the 'why' won't matter much.
Could it be argued that the lack of real investment was due to a lack of opportunities due to low EROEI?
Peter.
Many good points, but when you say: "Sprawl has been tending for decades" I wonder what you think enabled all that sprawl for all those decades if not ever increasing supplies of cheap energy?
The same for all the other points.
The culture, assumptions and financial shenanigans that ever-increasing supplies of cheap energy have produced over the last hundred years have not been pretty.
Power corrupts, and access to massive amounts of the earth's energy has generated unprecedented accumulations of power and unprecedented levels of corruption on all levels, as you describe very well.
What happens to such a society and culture when it becomes more and more clear that ever larger quantities of cheap energy will no longer be available?
As the book _The Limits of Power_ clearly lays out, the US had a chance to face this question honestly in the '70s when we hit our own peak oil moment. But with the overwhelming election of Reagan (and the earlier overwhelmingly negative response to Carter's clear-sighted "cardigan" speech), the US set off resolutely on a path of denying limits and of committing ourselves to endless wars to secure energy sources from other countries.
Again, what happens to our denial-based society now is yet to be seen.
It certainly can be argued, but only on The Oil Drum, elsewhere, the EROEI concept evokes a hearty "HUNH???"
There aren't many studies linking worker incomes and speculation activities in a low interest rate environment. There are wage studies AND capital formation studies but not so many sligning these ideas. Okay, I'll admit it, I'm looking at the money angle, but I haven't seen where capital formation/debt creation/securitization.derivative creation/market manipulation (via derivatives and hedging strategies/etc. having any intersection with energy. The closest I can see is where the balance of payments to OPEC over tha past decades has created currency distortions and inflation in OPEC countries and devalued the Dollar, here.
No doubt about it, cheap gas and other resources have propelled the auto culture. Both gas and credit are required for sprawl, but our current crisis has been - so far - mostly confined to the credit markets, beginning with bad mortgages, tending toward securitized products and the markets for them, leading then to bank collapse and runs on currencies. The entire 'growth' infrastructure is flawed. It has been an experiment ... but the credit mechanisms are breaking first.
Keep in mind a lot of current problems are centered around the Credit Default Swap market. This market didn't exist in 1932, so Ben Bernanke didn't get a chance to study it when he was becoming a scholar on The Great Depression before he became Chairman of the Federal Reserve. This market is poised to destroy the all the other markets.
While I gave you a well-deserved up-rate, I think this statement is debatable:
The resource issue was oil; the scarcity drove the price to levels which were pulling over half a trillion dollars a year out of the US economy alone. This situation lasted until the available credit was exhausted, whereupon the importing economies contracted abruptly. This caused consumption of all resources to fall sharply, which in turn gave some relief from high prices (especially oil).
There needs to be global government intervention to stabilize oil prices at some agreed level. The high volatility now damages the economy. How can you do financial planning for projects if we are on such a roller coaster?
Volatility is a boon. It prods people to distrust supply, and thus look for more stable sources of energy, while providing periods of relatively low price that they can use to make the transition easier, if they're smart about it.
No. Volatility is a problem. It cuts off long term production. The stable supply you will be looking for won't be there when you go looking for it.
If volatility drives consumers to slightly higher-priced but stable resources (such as feed-in tariffs for wind), it could still do so.
Another possibility is floor prices for the volatile products. If governments impose taxes to hold prices of the volatile commodities to some minimum, the long-term production of alternatives will not be impaired.
Wonderfully concise. Maybe it is worth considering all contributions be taken down to this length-very time friendly. Educators and legislators take note and use. I particularly thought that the solution offered is practical, and will soften the landing as the current economic model contracts through a series of ongoing corrections-the first of which we have just experienced (ing?). As we power down, and our numbers diminish, we will begin to repay our environmental and social debts.
A large part of our present problems is that "Educators and legislators" must have their information "concise" (read over-simplified and dumbed down) before they'll even acknowledge it.
Good article. It's amazing that so many people, even here on TOD, seem to ignore limits. There is no solution that allows a return to business as usual. There is no solution that allows constant economic growth. There is no solution that will allow the consumption of resources faster than the renewal rate of those resources. There is no solution that allows for the deterioration of our habitat.
A couple of specific comments:
"The amount of our non-renewable resources is limited."
The same is true of the rate that we can consume renewable resources.
"it explains the vast majority of US economic growth between 1900 and 2000, except for a residual of about 12% after 1975'
Perhaps that residual is the exporting of energy intensive industries?
The impact of overpopulation is dramatic.
After a stint in Vietnam in the 60's, I headed from California south and after a few weeks found myself in Venezuela. Caracas was a beautiful modern city built with lots of oil money -- it was a first world class City. There was slash & burn agriculture on the hill sides but no apparent crowding or poverty.
I returned some 20 years later to drive up the Mountain to Caracas and passed miles of cardboard shelters crammed on the steep slopes above & below the highway. It was a sad and ugly experience, of overpopulation and extreme poverty. The City was dirty, deteriorated, crowded and dangerous.
A more recent trip confirms that circumstances aren't improving. I didn't recognize the City.
Caracas is not exceptional. Population of any species plant or animal will grow until resources become limited or change, or a more dominant species arrives.
The rationing of energy will impact a shanty town less, as it uses less energy. However, it may well be that higher income populations will be able to build more efficient infrastructure, homes and energy systems with proper energy management and technology.
Reduced energy availability will certainly limit resources. Marginal populations will be most vulnerable and be impacted first. Ironically if things progress too far, all will be marginal.
Population control will be required to keep limited resources from being destroyed. Limited energy supplies will obviously exacerbate these circumstances. Ironically tropical countries are more likely to have over population, apparently because the need for expensive energy is less.
A very likely result will be much greater management of production and distribution of energy, smaller families, and more reliance on electronic communication rather than commuting, long distance for business trips etc.
The haves and have nots will be divided by their access to electronic communication or not.
These changes will require major capital improvements which may not be feasible for poorer areas.
question? Will these changes brought about by the increasing expense of energy be a leveling effect among different socio economic groups, or will it exacerbate the disparity? It may well be that things don't (relatively) change that much. The poorer uneducated areas continue to be so, and the more advanced, advance even more.
Never the less, it seems that energy scarcity and consequent technological responses to the problem could have a democratic/leveling affect to Societies in less developed areas.
sofistek,
That is a good point. I think way too many have lost sight of the fact that the amount of non-renewable resources we can consume in a year. According to Nate's work, in the US, we are already consuming all of the wood grown in a given year, without adding cellulosic ethanol or more feed for power plants. Water tables are dropping, because we are consuming too much fresh water. We need to consume less.
I don't know. There were a whole lot of things that changed at that time. Someone told me that use of derivatives ramped up about then. Interest rates went way up then. I haven't checked to see how soon we started exporting energy-intensive industries, but it could very well have been around then. There were so many things happening at one time, it would be hard to sort out one cause.
Gail
Thanks for the article, I agree except for one point. You suggest that the commodity ramp up was based on fundamentals and that broke the back of the the debt burden.
I would suggest its more subtle than that, the tightening of resources caused a pressure on the "growth" economy (particularly net energy) the response to this was to loosen the money supply, to boost the economy, unfortunately working against the physical resource limits this had little effect and the liquidity was redirected into non productive activities (financials, houses, consumption). The "economy" continued to grow (and the balance of productive to non productive changed) at the the expected rate and inflation was systematically masked.
This was unsustainable and hence we are where we are now, the point is where do we go next?
Neven
I am eagerly watching to see what the bailout of the US auto industry will look like and what they will do with it.
In my opinion they need to go in a radical direction and make vehicles of the size of the Beetle. These are the times to tighten our belts and the Beetle is an excellent symbol of such an attitude. SUV's and Hummers will not make it easy for anyone to live in suburbia. Lacking a good mass transport system most US cities need access to vehicles that get super gas mileage and that cost the user very little.
Here is one idea that you may like to adopt
http://www.kiwiev.com/index.htm
The modern beetle is far too big and heavy. You can make a car that carries four in comfort and reasonable safety at reasonable speeds that
weighs a quarter as much. They were very fashionable 50 years ago...
Speaking of "limits", isn't there one on how "light" a vehicle can be? (Strong winds, wet roads). No doubt an F1 car sticks like glue at 100mph; but watch how it aquaplanes at 25mph in the rain, without all that perpetuated "downforce".
Oh, and ever been in a tiny car on a freeway surrounded by B-doubles? No thanks! I don't care how safe your monococks are, or how many airbags are included: "Tiny and Light" will come off second-best everytime!
Regards, Matt B
You're thinking in a BAU model. Think global economic collapse. End of globalisation. In an energy efficient world heavy goods are shipped
by train or canal barge. I travel to work on 20Kg vehicle, average power about 0.1kW. I would come off worse in a collision with any other road user. However, in the UK cyclists on average live 10 years longer than non-cyclists
(or they have physical fitness of an average adult ten years younger, which probably amounts to the same thing these days)
"You're thinking in a BAU model"
Yes, because that's the way the pollies and Big Boys want it for the forseeable future.
"Think global economic collapse"
How many will be able to *afford* to dump their $30,000 V6 (that'll still buy a lot of fuel, even at $3/litre, $5/gallon) for a $15,000 plastic shell on skinny, low-grip tyres?
Regards, Matt B
I use a 150cc motorbike for most local errands (3 - 10km), but at the moment there's no way I'd toss my nine-year-old on the back for a trip to her netball match. However, in another thirty years when the big V6's and SUVs are sparse, perhaps it'll be OK to carry *her* daughter!
Given that a bicycle is a vehicle, I would say the answer is probably 15 pounds if you use exotic materials like carbon fiber. 20-25 if you use steel..
Actually one thing I find fascinating is the concept of a velo-cab. A very lightweight aerodynamic housing that surrounds a human-powered tricycle. The housing reduces wind resistance, protects you from rain, and would help to keep you warmer in the winter. The ones you can get these days are all high-priced toys, unfortunately.
I have read a first-hand account of a hand-built velo-mobile protecting it's rider from serious injury in a 40mph collision with a car.
Also, the problem with heating is usually one of avoiding overheating.
Neven911,
You are probably correct about the more complex cause, but in two pages I could only explain so much.
Right now, I think the economy has started oscillating. This is not good.
I think ideally what we should be doing is identifying a lower, sustainable standard of living, and be figuring how to get there. I suspect if we found a truly sustainable standard of living, it wouldn't be what people considered acceptable, because they would want something closer to BAU. There would also be an issue of whether everyone has the same living standard, or if a few elite can live better.
I am doubtful much serious work on this will be done, though. I am afraid we will just oscillate until we crash. Then we will try to pick ourselves up to whatever minimal standard of living we can put together from where we are.
Gail,
In my opinion the key question as to whether we have a full-fledged collapse of civiliztion comes down to the issue of how fast we are going to run out of cheap fossil fuels. To some extent, natural gas can substitute for oil, and at some price (probably below $150 per barrel) we can make liquid fuels from coal, though it seems to be a very dirty process with current technology. I suspect that if we have net exports of oil decline at 3% per year that we'll be able to cope with this rate, though it will cause long-term decline in real GDP. On the other hand, a decline in net oil exports of 6% per year means that exports would be down to half their peak levels in only 12 years; that rate of decline is so fast that I do not think it likely we could make a successful transition away from oil.
Rather than extreme oscillations, we may see Greer's and Leanan's slow squeeze over the next several decades.
I agree with you that lack of financial capital is going to hinder us from creating a successful transition away from fossil fuels. In my opinion, only ruthless and dictatorial government actions can mobilize enough resources to invest in enough solar, wind, and nuclear energy fast enough to avoid eventual collapse. It is possible that democracy will collapse into dictatorship in the U.S. before real GDP has fallen to half the current levels. With 25% to 40% of the population unemployed I think we will see "a man on a white horse" to take power from our currently dysfunctional political institutions. BTW, I do not advocate dictatorship, but it seems likely to come in the not-too-distant future.
Will it be a black man on that white horse? ;-)
One view of a sustainable lifestyle can be found at www.myfootprint.org. The main things they leave out, IMHO, are:
1) Number of children (along with how late in life you had them, and what lifestyle you raised them to expect); and
2) Amount of activism and education about resource (and related) issues you are engaged in.
Otherwise, is strikes me a roughly accurate to slightly generous (though I'm sure many will think otherwise.)
Don,
I am afraid I don't have as much confidence in solar, wind and nuclear as you do. In a best case scenario, they might buy us 40 years, but then they would need upgrades and replacements, and it would be too late. We wouldn't have everything in place to make more.
I think though that it is likely that we would start having problems a whole lot sooner than 40 years from now.
I don't think that the nuclear power plants that are being built now are going to find uranium to power them, in part because the price is too low to encourage investment, and in part because no one is planning far enough ahead. This is one article that talks about the problem. I understand one mine that was in a preproduction stage in South Africa was closed before it fully started up, because the economics no longer made sense. Cameco, the largest Uranium producer in the world writes:
There are a whole lot of other issues as well--upgrading and maintaining the grid, maintaining the roads and trucks to service the wind turbines, and finding replacement parts from overseas suppliers when they are needed.
I think a better use of our money would be to figure out what a truly sustainable level long term might be, and plan for it. We almost certainly would have to aim lower--start breeding draft animals, and making hand tools out of recycled SUVs.
This is fantastically ignorant of how nuclear power actually works. We have huge stockpiles of depleted uranium that can be further enriched by building more enrichment capacity, which can be added very fast, and have years worth of physical stockpiles. It isn't even close to analogous to any hydrocarbon fuel.
This chicken little viewpoint that we're at the end of the world has got to stop. Peak oil is about hydrocarbon depletion and that is it. Theres nothing deeper than that and its not an analogy for uranium or any other log normal distributed resource.
But the cult lives on ever popular here that we're returning to simpler times.
We aren't.
Gail, this is surely just completely circular reasoning. It is really saying nothing more than that we will not succeed because we will fail.
If your presupposition involves the certainty of this, then arguments are just dragged into the service of this in a teleological manner.
How in the world it can be regarded as evidence for the impossibility of re-processing uranium that it is currently too cheap to bother, and that fossil fuels remain a cheap competitor escapes me.
In fact although there is severe financial turmoil, the results of this are likely to vary widely, and can't be just assumed to create a fix which is inescapable everywhere.
The history of bankrupt states indicates that many have moved on after this, and things don't usually just stop dead from this trouble.
Your thesis also depends heavily on no substitute fuels being available at reasonable cost in money and energy.
It is perfectly plain that at least two sources have very good EROI and EROEI, advanced high burn nuclear power and thin film solar, including thin-film silicon.
Until it is shown that this is not possible in any area of the world then there is no argument being made at all, merely assertion which directly contradicts available evidence.
Don, I will raise that up one level and say that it is possible to see a play at a global governing body in an effort to control what is in motion right now.
A 2-page answer is unnecessary.
1.You can print money.
2.You can't print trust.
3.If #2 impinges on your integrity, just focus on #1.
Thanks Gail, a wonderfully succinct article which ties all of the main strands together.
I see from my morning paper that the 'commodity price crashes' and general economic mayhem you describe are continuing on their merry way: Brutal share sell-off in US as oil falls below $50 for first time in 3½ years.
I think more people are starting to appreciate the seriousness of the current economic turmoil and are preparing (at least mentally) for a protracted downturn. However, with the possible exception of New Scientist I don't see much evidence in the media that people are connecting our current economic woes with the depletion of resources. It's seen as just another 'boom and bust' cycle, with people fretting over the markets but heaving a collective sigh of relief that the 'commodities bubble' has burst (so we'll soon be able to enjoy cheap fuel again!).
Your point that:
is crucial. I don't think that many people 'get' this. If we're not about to 'run out' of something then it's just not seen as a problem.
It is difficult to get this idea across, especially when people are putting out overstated reserve numbers and saying we have 40 years of oil or 200 years of coal left.
Just before I came over to TOD this morning I checked in on the performance of one of favorite funds:
Ivy Global Natural Resources A (IGNAX)
This is natural resource fund weighted to 33% energy stocks, and 44% industrial materials. So far it has lost 56.65% of its value year to date, including another 11.47% just today.
After checking out Gail’s fascinating post, I went back to some old news just for fun, the Simon-Ehrlich wager:
http://en.wikipedia.org/wiki/Simon-Ehrlich_wager
And then the Simmons-Tierney bet:
http://en.wikipedia.org/wiki/The_Simmons-Tierney_Bet
And then I sat and thought some. And then thought some more.
Questions that no one seems able or willing to answer kept swirling around in my mind. These are some examples:
-In an age of “resource scarcity”, why are people, including those who should be most in the know, hoarding “fiat” dollars, but not hoarding oil, natural gas, propane, or Diesel?
-If high energy prices drove the cost of food up, then how soon can we expect a food and restaurant price collapse, given that the cost of transportation, natural gas for fertilizer, and Diesel for farm machinery have all crashed, and that grain prices are in a major collapse?
-At what point will the dollars being put directly back into the economy by collapsing energy prices and collapsing food prices drive a new boom in spending, as people begin to realize they are in much better shape than they thought, especially if they “pulled in their horns” by reducing debt and reducing spending during this downturn?
-Can we assume that many energy consuming businesses are currently “locking in” these astoundingly low oil and natural gas prices? If not, why not? Do they believe that oil and natural gas will go even lower? (!)
-How long will oil prices have to stay this low before we can say that the Saudi’s were in fact correct to be much more worried about a “shortage of demand” than about a “shortage of supply”?
Gail says “This lack of credit is making it difficult for many direct and indirect buyers of commodities to buy products of many types (oil, natural gas, uranium, and copper, for example). Prices are plummeting for a wide range of products because prices are relatively inelastic.” I will ask that the above paragraph be explained to me. How can prices plummet if prices are inelastic? Are we saying that it was easy to finance oil at $147 per barrel but almost impossible to at $50 per barrel? That would make the price collapse in oil an even greater threat than the collapse in house prices, wouldn't it?
-Have we now constructed the ultimate logical conundrum: If oil prices go up, it proves a resource crisis. But if oil prices collapse it proves a "credit crisis" caused by a resource crisis. Heads I win, tail you lose. Does it seem likely that this type of reaoning will sell to the public at large? It causes even true believers in catastrophe some reason to question, does it not?
And lastly, are we to accept that gasoline at $5.00 per gallon will destroy the American economy but the Asians and Europeans have sustained it at $8.00 plus per gallon for years and survived nicely thank you? And yes, I have heard about their fantastic efficiency, that they use half per person what the Americans use, but if we are paying barely over half price during a supposed energy crisis, this would indicate that even during a full blown crisis we are paying about what the Europeans pay for gasoline at street level (they use half, we pay half, and now we pay barely a quarter on the dollar per person at street level with the current commodities collapse. We must recall that many European and Asian nations are paying such a high price due to taxation, which means that it cannot decline as much in price in those nations without choking off the treasury of European and Asian economies.)
There is just something that does not make sense about this whole crisis as a “supply crisis”. It simply don’t add up. There may indeed be a supply crisis, tomorrow or soon, but the current economic mess does not seem to add up as the long talked about “resource depletion” crisis.
Gail says “An Overlooked Detail - Finite Resources Explain the Financial Crisis”. Many people are comparing this crisis to the 1930’s. What was the finite resource crisis that “explained” that financial crisis? There have been many financial crisis that had nothing to do with finite resources. How can we know this is not another one of those and has nothing to do with finite resources?
Anyway, just for fun...
An anecdotal example: This is something off Youtube: A Porsche GT3 chases a Yamaha RS1 motorcycle.
http://www.youtube.com/watch?v=xygMw4IonuE
Stay with it for a few minutes. Note the number of cars and motorcycles, it’s as busy as an urban highway. This is on the track at Nurburgring, in a nation with $8.00 gasoline, a nation with NO home resources of crude oil, the nation that is supposedly twice as “efficient" as the U.S. in its use of petroleum. This was in April 2007. Do you want to bet whether the crowd has thinned at Nurburgring? It didn’t in the 1970’s. Is this how people are able to use a “depleting” and rare resource?
How hard is it going to be to try to force people to peddle to work in freezing rain on a bike or to do away with cars in their cities to make utopian "pedestrian" malls when they see people in countries with $8.00 gasoline still blowing it out the exhaust pipe like this? Conserve? For the sake of "the future"?...you mean for the sake of the upper class to blast it out the twin exhausts...conserve my ass, long rule the law of the commons...
There is another way to look at this so called “resource depletion” as cause of economic crisis: There was a class war. We lost.
RC
ImOut,
My major concern is that we may be approaching the hoarding stage but not in the manner most ascribe to that term. Even our 750 million bbl SPR can’t be considered hoarding given how quickly it would deplete if we lost all our imports. It would be cost prohibitive to attempt any long term storage that might be classified as hoarding. The hoarding I speak of would be done by the exporting nature. It costs nothing to leave oil in the ground. In some cases, like Ghawar Field, doing so might actually increase ultimate recovery. But the producing nations must balance their needed cash flow against the long term value of reducing production rates. I don’t think we reached this stage yet but we may not be far off. OPEC is currently testing member resolve to decrease production rates in order to raise the price of oil. It will take probably 2 or 3 months to see if this discipline exists now or not. In the mid 80’s it didn’t and thus lead to $10 oil as members produced at maximum rates in order to increase income.
But this isn’t 1986. Many exporters know they are at their own PO and that their higher production rates can’t be maintained. Mexico is the best example: given the sudden and drastic decline in Cantarell Field and the gov’t dependency on its income to sustain itself, they would gladly reduce exports if it gains a price increase. Perhaps we’re not yet at that point for most of the exporters and they’ll once again cut each other’s throat for market share. But I suspect sometime in the next 5 to 10 years enough of the producers (even the KSA) may begin “hoarding” by limiting production regardless of demand and price. One component of such hoarding will likely manifest itself in increased domestic consumption by the exporters themselves. This ELM effect would impact the importing economies no differently then if the equivalent volume were not produced.
I see the OPEC response (to the sudden price drop of oil) over the next 12 months to be the best predictor of how close we may be to the “hoarding phase” of PO.
I think that it is more likely than not the average oil price in 2009 will be higher than the average price in 2008--primarily because of a combination of involuntary net export declines + voluntary net export restrictions.
But as you know, we need some perspective on oil prices, especially compared to some other sectors. The annual price of oil stayed around $20 from 1986 through 1999, and the average price last year was $72 (the 2008 average will be around $100):
Consider the current price of oil versus 10 years ago--$50 versus $14.
Then consider the auto, housing and finance sectors.
Consider the current GM stock price versus 10 years ago--$3 versus $90.
Consider the current D.R. Horton stock price versus 10 years ago--basically flat, after a big runup, and decline.
Consider the current Citigroup stock price versus 10 years ago--$5 versus $25.
thats a real hat in the ring prediction...
if your right the combination of high oil prices and economic downturn is going to make 2009 horrific..its going to really hurt
It's self evident that demand is down, especially in the US, but I think that the perception of the reduction in total worldwide demand is probably overestimated.
Then consider the number of countries that are in terminal net export decline, or at least showing long term declines, e.g., Norway, Mexico, Venezuela, etc. And I think that Russia has joined this list, but time will tell, and even Saudi Arabia, showing a year over year increase, will still be down by about 700,000 bpd in 2008, versus 2005 (my estimate).
Then consider the effect of voluntary restrictions on net exports.
Of course, as I noted yesterday, if most of us are living in cardboard boxes next year all bets are off.
In any case, let's assume that the 2008 average is $100 (which we will see if prices average $50 in November & December). If the 2009 average is $104, this would still be $30 below the 2008 monthly peak, and about $43 below the 2008 daily peak.
its odd thou..
say demand reduction short circuits some production/export crunch..
will we be using more or less energy... less yes?
.. otherwise the price must skyrocket as you indicate
therefore..my thinking goes... the price spring-boarding backup must equal greater consumption than demand destruction holding the price down.
if we are living in cardboard boxes we are in essence in a low(er) energy economy anyway.
the difference in consumption terms between the two scenarios is not great but i suspect the distribution globally is?
To some extent, we are arguing about how the patient--the US and world industrial economy (or at least the economy as we know it)--is going to die.
Let's assume, for the sake of argument, that world net oil exports in 2031 are at 10 mbpd, versus about 46 mbpd in 2005. IMO, we will see the following: A smaller number of consumers paying a higher unit price for a smaller volume of exported oil, as forced energy conservation moves up the food chain. My continuing point is that the lifeblood of the world industrial economy--the volume of net oil exports worldwide--is, and will be, draining away at an accelerating rate.
My take on the US (and world) economy is that it is analogous to a blind, drunk guy, with terminal cancer, suffering from severe heart disease, who is being shot at by gang members--as he tries to cross an Interstate highway filled with speeding 18 wheelers. Is he going to die? Yes. The question is what kills him first.
will russian demographics (ie declining population) effect its export in a manner to offset decline... no I imagine.
yes... the export crunch in the near medium term seems almost impossible to avoid given demographic trends.. even if we envisage some saudi miracle
the eternal $64,000 question... no seems to understand this. Hence all this crystal ball stuff.
'Frogger' meets 'Limits to Growth'. Ten 16 wheelers versus the blind drunk jaywalker. Water, Food, Oil, Global Warming, Chloroflourocarbons, Nanomaterials, Bird Flu, Basement Nukes, Basement Viruses, and an entry to be named later.
WT this is pretty much the same conclusion I came to.
Next I did and extensive amount of research on the demand side with a focus on the Rustbelt economies which for all intents and purposes have been in a deep recession/depression for decades.
What I found was that demand becomes stagnant even as the economy continues to weaken unless you get a a serious population change. In many of these states a lot of people have lost over 70% of there income.
On the other hand I've found strong correlation between growth in housing construction and increasing demand.
Given that I expect demand to remain flat.
Now as far as the price goes I believe that the underlying factor in the increase in prices in 2008 was that the bidding war for oil had reached the point that wealthy countries where now bidding agianst each other for oil.
So the real driver in prices will be if demand is still high enough that the bidding war between wealthy countries reignites if it does then prices will rise until demand destruction begins in the wealthy nations. My opinion is this is around 200 a barrel. If not then prices will hit some intermediate value exactly where is probably hard to say.
Given the intention of most of the developed world to engage in some serious propping up of their economies regardless of the long term damage done right now I expect the bidding war to resume as soon as expectations of imminent collapse wane.
ROCKMAN,
you say
but that depends on whose oil it is. Right now we're still hemmoraging lives and money to keep Iraqi oil under the sand, with the possibility of more to come in Iran.
Oil is dense, but we use too much to store any significant amount. - This is as true personally in my LP tank as it is nationally in the SPR. The only practical hoarde is one intended to cope with intermittent load-shedding (personally) or embargoes (nationally). We're not going to accumulate a decade's worth of fuel or canned tuna or whatever to tide us over until that Mr. Fusion finally arrives on-scene.
What we're seeing right now is a quiet response to the Fed's monetizing of everybody and their sister's debts in the growing disconnect between the value of physical assets and their paper proxies. It reflects a global loss of faith, IMO, in a house-of-cards economic system. Physical hoarding will only be the final step in that process already begun.
BTW, hoarding is buying into a shortage, so that others with the means can't find the supplies. Buying in anticipation of a shortage isn't hoarding at all - it increases the total goods produced for market, which can buoy up the economy temporarily as everybody cashes out their paper.
that's a racing track, for heaven's name. it's got nothing to do with everyday economics or how people get to work
example was never good for anything that has to do with masses. the smokers are living (sortof) proof. you have to look in your own backyard, meaning you'll only care when it starts to hurt you. just like the smokers :)
This is an excellent summary of our situation.
One wonders whether this is possible at all with the contemporary hegemonic capitalistic systems. If it is impossible, we have to find a different mode, and if it is possible, it will likely require changes that will make capitalism unrecognizeable for those most acquainted with it.
It appears to me that the capitalistic model has had the effect of a press-gang on the world's countries: join with the system or suffer. And after that, we're all all trapped in the growth thing; if my country doesn't grow, others will and we'll be left behind. Tragedy of the commons, prisoners dilemma, call it what you will, it's obvious that we have to get together to solve this. Growth as a means to a reasonable standard of living isn't such a bad thing. But growth has become an end in itself. That's strange, since the very word 'growth' implies growth to something. Even my three year old daughter understands that she can't keep on growing forever.
What are we growing to? Can all of the world together come to a decision about a reasonable standard of living, and a monetary system that isn't debt based?
One thought is to have a monetary system which is energy based, with relativities among various types of energy sources.
I think the sellers of oil are getting sufficiently unhappy that they may demand to be paid in something with a more fixed value. I have read that the Middle East is now working on a new currency, that they are hoping to have ready by January 1, 2010. I don't have a link off-hand though, and it may very well not come to pass.
Hi Gail,
There is another overlooked detail that is behind the Financial Crisis >>> you, me, and many of us who have been speaking out about Peak Oil. Theoildrum.com has many readers globally in energy, finance, industry, investing, and manufacturing etc.
For just one example, we know that Theoildrum.com is read at "The Wall Street Journal." And I know my depressing report which cites scientific studies (many from TOD) is read at the WSJ and it has been on many newspaper blogs, including those of the WSJ, NYT and Barron's, and many financial websites as well, such as Seeking Alpha and Jim Kingsdale's Energy Investment Strategies http://www.energyinvestmentstrategies.com/ .
The word is out about Peak Oil, even though journalists avoid it like the plague. And it is clear that alternatives are not going to save the economy. Given the future of Peak Oil reality, it is natural for the stock market to collapse.
All paper investments such as money market, money in the bank, stocks, bonds, pension plans, and even gold are only valuable if there is abundant oil. Oil is the main source of all wealth. Chris Shaw says it best:
http://www.onlineopinion.com.au/view.asp?article=3837&page=0
This may seem a little simplistic, but it seems to me that people must have jobs and stable incomes to survive this mess. If the government would create jobs by rebuilding the railroads, waterway ports and public transport, and also invest in alternative energy infrastructure, we might have a chance. Unlike the financial world, we don't need welfare - we need useful work and decent wages.
There is no plan of how alternative energy infrastructure will provide the liquid fuels needed for transportation, nor the energy needed for fertilizer and heating.
Railroad and public transport coverage is very small in terms of reaching the dispersed populations of the U.S., Europe, and Australia, etc.
Liquid fuels are not needed except for air transportation. Even ocean shipping can burn slurried coal in diesels. Rentech is gasifying coal to make F-T diesel fuel and hydrogen for ammonia production. Electrified rail and electric vehicles are sufficient to substitute for large amounts of transport-related petroleum use. Other uses, such as industrial energy, have other substitutes.
The sad thing is that you've been called on your unsupported assertions many times before, and refused to either support, qualify or correct them.
In an industrialized society, you are right, people need jobs and stable incomes.
If we cannot maintain an industrialized society, then people mostly grow their own food and trade (possibly even barter) for other goods and services. A lot of the jobs are not jobs that are in the economy now.
A lot of our growth came from replacing what work people were doing for themselves with outside employment. Women who were taking care of work at home went to work taking care of other people's children. Does this mean people were really better off?
I expect that a lot of people will drop out of the paid work force in the years ahead, helping to grow food for their families and caring for children and the elderly.
Les,
I hope this doesn't sound patronising. It isn't meant to. It might just be 'mad.'
What you're suggesting, a massive job creation programme for the US, is emminently sensible, but is incredibly difficult to impliment. Useful jobs and decent wages would receive support from most people, and there's so much that needs to be done, re-building the country's infra-structure etc.
But, I believe that not everybody supports this idea, and unfortunately these people run the country! The reason the financial system expanded so rapidly was that there was far, far, more profit to be made 'creating money' out of thin air, than there was in investing in American jobs and industries.
Over the last thirty odd years resources have been transferred from ordinary Americans to super-rich Americans. People's wages couldn't keep pace with rising prices and they were forced to subsidize their incomes by borrowing, and borrowing, and borrowing, until it was impossible to borrow more.
The financial system, or Wallstreet, owns the political system, they have bought it and all the politicians, they own Washington. Proof? The ease with which they squeezed trillions out of the Congress compared with the way Detroit is being treated, but then of course it's only millions of ordinary Americans that risk losing their livelyhoods, not Paulson and his cronies!
Paulson, is, of course, a banker, a member of the absolute elite, one of the aristocrats who own and rule the entire country. He's supposedly worth over 600 million dollars, and reminds me of Dracula in more ways than one.
Yes, it is important to keep in mind that the other major event going on besides geological resource reduction is the huge sucking sound of all our money being vacuumed up to the top sliver--or as thatsitimout wrote, "The class war is over and we lost." The dracula comparison is quite apt. We have nearly all become credit serfs, our essence draining away. When there is little left to extract from that source, the elite may well do what Samosa is reported to have done toward the end of his regime--require the peasant to donate their blood so he could sell it to the highest international bidder.
(Ironically, or not, my daughter just got back from a very popular--for young teen girls--movie called _Twilight_ based on an even more popular book of the same name. It is a romance based around vampires. Will this make comparisons of the rich to vampires seem more enticing than damning to this generation?)
Ultimately to this class, nearly all the rest of us are disposable. They know very well about resource depletion and are making sure that they will be the ones with all the cards (and effective defenses) when the game ends. The current protests in Iceland and the police riots outside of the RNC in St. Paul are preludes to what is to come.
On a lighter and more fantastical note, if the super-wealthy did decide to redistribute their wealth and the populus became suddenly wise, informed and enlightened, what kind of new economy and monetary system would work in an equitable world-powerdown situation? I hear things about tying currency to oil or other energy sources, but how exactly would that work in practice?
And vice versa. These people should be careful, because they are already getting people angry enough to turn the calendar back to 1789.
Gail - another fantastic probe into our[society's] economic house of cards.
Much like I wrote about last week, the need for an economic transformation to a system based on thermodynamics and other physical realities, like depletion, is long overdue. The ultimate driver of your analysis above is the cumulative effects of resources that are generally less abundant, harder to get, and of lower quality. A time-series analysis of the energy return on investment of resource acquisition is one method by which we could quantify all three of those effects and how they correlate with economic growth over time. Well, food for thought. I have a post coming soon on TOD:EROI that discusses the impacts of peak oil, EROI, and the concept of "best first", which will probe more deeply into these topics. Again, nice work.
Gail, I am still not sold on this idea that a zero-growth economy must imply a 0% interest rate. I do believe that in such an economy, there will be very little lending/borrowing going on, because it will be hard to accumulate a lendable surplus, and it will be hard to come up with the funds to pay it back. However, in such an economy, the top priority will be to ECONOMIZE - to minimize waste to the maximum extent possible. In such an economy, no assets - including accumulated surplus funds - could be wasted, all assets would have to be put to their best use. I don't see how they would be able to carefully manage assets for their most productive use if assets were "free". More likely, the rental values of all assets would be very high to assure that they would be put only to their highest and best use, and also to accumulate funds for their replacement as they deplete or depreciate.
Interest is the rental fee for the use of money, and I don't see why it would be any different from anything else. More likely, the interest rate would be very high, maybe well into double digits. Yes, most people couldn't pay that in a zero-growth economy, and that is exactly the point: most people shouldn't be borrowing money in a zero-growth economy, and a high rate of interest will assure that they don't, because they can't.
In a zero-growth economy, accumulating any lendable surplus at all will be very difficult, requiring deliberate and painful reductions in living standards in order to save what would otherwise be consumed. Why would anyone bother doing this unless there was the opportunity to earn a high rate of return in the future as a reward? Even at that, the ability of most people to do so will be quite limited, and many will pass on the opportunity. Thus, the supply of lendable surplus will undoubtedly be quite limited in any case. It is these real constraints on lenders and borrowers that will mostly serve to limit credit/debt to playing a very minor role in such a zero-growth economy.
There may be a little debt. If there are very high return projects that have a pretty decent chance of succeeding, it may make sense for them to be able to borrow money. Interest rates are likely to be high, however.
Fantastic piece Gail. Thank you so much.
This article also addresses the finite resources bit;
"The Parable of the G-20: Blind to the Elephant"
by Devinder Sharma
http://www.commondreams.org/view/2008/11/20-7
"The elephant in this case is the parasitical global financial system. It has thrived all these years on the hungry stomach of starving millions, extracting every last available ounce of blood. Untamed and unregulated, it demolished the borders of the nation-state to emerge unfettered and free -- unrestrained by governments, and liberated from society's control. In the process, speculative and mobile financial capital has played havoc with the global economy. The elephant has been on a rampage."
"The solution lies in the principle of self-reliance that Mahatma Gandhi advocated so many years ago. It is time to revisit Gandhi and dig out his vision for a sustainable world; where production by the masses is not replaced by production for the masses; where food security does not mean importing cheaper food; where every hand is provided a decent job; and where growth does not translate into profits, but happiness."
Well, I totally agree with what you're saying. However, speaking as a scientist, I have one minor quibble:
We use flat earth models all the time. We teach our students that projectiles fly in parabolas (they don't really, they follow a piece of an ellipse) because on the scale of a football field, the earth is (to all intents and purposes) flat. My point is, there is no right model of anything: all models have domains of applicability and limitations. For example, if you want to project the path of a baseball, a flat earth model does fine (throw in air resistance corrections as needed). If you want to put a satellite into low earth orbit, a round earth with Taylor expansion to correct for the higher order moments combined with Newtonian gravity does fine, if you want to send a probe to Jupiter, it behooves you to throw in some general relativistic corrections. (probably just simple 1/r^3 corrections, but I don't work for NASA, so I don't know how precise they have to be.)
Maybe it would be a stronger argument (stronger than saying "your models are wrong") to point out that models make assumptions that limit their applicability and when the model fails, you need to revise your assumptions (flat earth vs. round earth), and in extreme cases, revise the basic model itself (Newtonian gravity vs. General Relativity).
dtbks,
Our models are not as 'static' as many people think. They are, and have always been, and I believe always will be, works in progress; moving, changing, being refined and adapted as we understand more perfectly the world and universe around us, but we won't ever reach 'perfection.'
I've just had a discussion with somebody who was under the false impression that they 'understood' history and what historical 'facts' were, and what really happened at a particular time and in a particular place. Considering the difficulty we have in understanding the present, which is far closer to us, the idea that we will have an easier time with the past, is something I've always found rather amusing. Whenever I think I've really understood something, I give myself a quick pinch, wake up, and realise how much more I've still got to learn. I try to keep moving, but I know I'll never really arrive, the goal I'm heading for keeps moving.
Exactly my concern with Gail's excellent post.
As a philosophical point, the case for limits is unaswerable.
However, it makes a great deal of difference whether statis, or indeed contraction, happens at some hunter gatherer stage of development, or in a very advanced technological civilisation.
It seems to me that the fact that there will ultimately be limits gives false support to the notion that the limits are reached at any particular point in time.
The question of 'why now' still has to be fully answered.
The clearest answer is due to energy resources. If resources become more and more scarce, and have a lower and lower EROEI, then it is surely game over.
If that is not the case, then a lot is possible, although clearly we are at a stage where other resources such as water and the treatment of sewage etc need much more serious attention, and must be properly costed.
Two technologies at least promise very high EROEI, thin film solar and high-burn nuclear technology.
We are currently masters of neither in the requisite quantity, but we also know that they are clearly possible.
Gail's standard answer to this is that both the financial circumstances and also the infrastructure will have deteriorated so that this in not possible.
It is difficult to see how it is possible to be confident that this will be the case everywhere, and if this is not the case then the dynamic of these old-fashioned, growth orientated ideas would shortly push out those who had not adapted.
This is the basic reason why the philosophically apparently correct attitude to growth would have been such lousy practical advice for any individual society over the last 200 years at least.
Plenty had lower growth rates, if not always a philosophical commitment to no growth, and they were pushed aside.
We can observe this in nature too, where the apparent 'balance' is the result of all trying to maximise their reproductive success and not the result of the lion developing advanced ideas on ecology.
Does this mean that we should try to push on with development regardless?
By no means, as it is clear that we have to get a lot smarter in our use of resources, and in effect once a certain stage of development is reached then the only way of 'increasing' that resource, such as water, is to use it better.
It does not seem a sufficient argument to simply state following Tainter's ideas that decline is baked in the cake, so the technological measures we know would do the job won't be adopted.
One result of declining resources might be concentration of power, as the means to dominate monopolise the resources which remain.
Under those circumstances even if total resources are declining, the concentration of the remainder should be enough to create technological 'hot spots', which would at some stage re-colonise the remainder.
All that is needed are high EROEI technologies.
Debt has a physical meaning which can be understood apart from monetary theory. Debt is the expenditure of economic output (goods and services) in the present that will be paid for by future productivity. In some cases physical debt is unavoidable. Building a rail road line is expensive, and it takes years of use before the freight and passenger traffic pay for the original outlay of capital. Machines for semiconductor processing are extremely expensive and also take years of use to pay back the initial outlay of capital. And so forth.
Of course, in the steady state, there would be no need for these physical debts to create hardship for society as a whole. The income from past investments in infrastructure would pay for the current investments required to keep the infrastructure from decaying.
To me, it is easily conceivable that, for accounting purposes, certain kinds of long term debt could still exist in a post-growth world. However, such debts could not be interest based and would therefore require public or community financing rather than private financing.
I would agree with that.
I don't believe that the energy business has ever been true capitalism anywhere. Electric utilities have always been monopolies( until the 'deregulators' decided to 'fix' that system leading to Enron style nonsense). The nuclear industry was a government program as were the hydrodams. Oil being fungible was international but with OPEC has become a defacto oligopoly.
Energy investment in the future will be either run as public enterprises(charities) or as private companies whose main activities consist of lobbying corrupt politicans for subsidies to satisfy investors.
At one time, one could hope that technology would improve profitability continuously overcoming all scientific constraints. But that has not occurred.
The american myth of a free market in energy will eventually wither away in the face of the spectacle of endless corruption and real financial bankruptcies.
If we faced the reality we could save a lot of pain and heartache but that is too much for most americans (the Europeans are likely to be better adapted for this).
It reminds me of the famous parody by Anatole France from 1908.
http://en.wikipedia.org/wiki/Penguin_Island_(book)
Gail,
Excellent as usual. I am heartened to see some heavy hitters on TOD (you and Nate in particular) expressing some of the same thoughts that I have tried to get across for a while. For example, coming to recognize the deep relationship between money and energy (exergy in my view, cf. What is money - really?). I gave a talk at the first meeting of Charlie Hall's biophysical economics group at SUNY-ESF in Sept. about revising and extending Howard Odum's notions of money = energy to produce a new view of money and its role in a steady-state economy.
And debt financing (borrowing from the presumed future rather than the past, What is borrowing - really?). Borrowing short term to finance a project should be done from past savings, i.e. from increases in efficiency or new technology that increases the exergy available to the steady-state economy, producing an energy surplus for rainy days and good ideas.
And growth economics (what is possible and what isn't, Two possible futures and one that is impossible). The possibilities of achieving a Herman Daly-style steady-state economy where energy flows through the economy are regulated to achieve a maximization of human well fare (not necessarily human stuff) are in front of us. This recession/depression might really be an opportunity in disguise.
And for those commentators worried about the issue of overpopulation: my last two blogs refer to the necessity of reducing the population to match the exergy available at steady-state. You are right to ask how this can be achieved (humanely).
Gail has exposed the problems. I am thinking about solutions.
George
The financial crisis was planned years ago...
Watch
http://video.google.com/videoplay?docid=-515319560256183936
Notes from rural Ontario
Went down to my local bearing shop for a new oil seal for my tractor. "We don't stock that any more. I'll order it in. Be a few days." Ok I say. While he writes it up. How's biz? He looks at me for awhile, sighs and then says. "Last spring we were doing about thirty-five orders a day for stuff. Now it's around six." Mostly for equipment I ask? He says. "About half automotive, the rest industrial and equipment." We commiserate for awhile about things and the economy falling apart. Perhaps the economy needs new bearings.
Paul
In a Home Depot, or Fleet Farm or whatever there is in your neck of woods, I sometime wonder how the sheer complexity of choices and disparate suppliers is going to impact our society. Imagine if you took a random 20% of companies that would go belly up - might that be the particular spark plug for your tractor or chainsaw blade or replacement part for your furnace or car, etc? We have become used to such a dizzying and plentiful array of choices and backups, that if some companies stop shipping products it might have unintended consequences (e.g. very large butterfly wings).
One of the reasons we lost the Challenger is that the old supplier of asbestos putty shut down. We didn't just lose the Shuttle, we lost several Titans in a row after they switched to the new putty, after a dependable launch of dozens.
Then there was the guy that made surfboard cores. He shut the company down and retired. Took six months for a new supplier to open up.
Then there was the resin plant in Japan that burned down. It made low radioactivity resin for potting chips. We switched to 4 meg chips from 1 meg chips six months early because we just didn't have enough resin for the world's production of chips. It had to be low radioactivity resin because of soft alpha error in the little capacitor 'bit buckets' used in semiconductors.
Gail,
I googled 'Solow-Swan growth model' and found an interesting description of it in a history of economic thought web site,
http://cepa.newschool.edu/het/essays/growth/neoclass/solowgr.htm
I haven't actually checked this description against any actual writings of Solow, but there is a ring of truth to the site.
The growth model was a improvement over earlier work in that it allow for continued stable growth over extended periods of time. Previous models had been unstable and once set in motion would deviate from stable growth very quickly and collapse into chaos very quickly - They didn't explain the observed reality that growth did, in fact, occur in longish periods (months, quarters) of stable economic activity. It was a great improvement.
Inside the construction of the model, there is a production function, F(K,L) which is the amount of economic output for given inputs of capital, K, and labor, L.
Notice, there is no mention of natural resource input in this F(). The assumption has always been that not mentioning resources was OK because there were plenty, and the real limitation would be adequately handled by accounting for the K(apital) and L(abor) needed to extract them. I think adding these variables to the model is needed. I think introducing a second, different kind of money into the real world is far less likely to be a productive innovation in economic theory. There already is a lot of economic thought on how to treat multiple forms of money within a single economy. Multiple money forms adds complexity, but not, IMHO, wriggle room that allows solutions to managing world trade.
OTOH, an improved production function that builds in depletion of world natural resource limits, will surely not allow a steady growth solution. It might even lead to predictions of the kind of instability we are seeing today.
The cause of this recession is similar to that of many other recessions which is a lack of proper regulation. For instance the oft cited 1987 crash was preceded by the S&L deregulation and the subsequent criminal activity surrounding it. The 1929 crash was a result of the lack of adequate margin requirements. This one is similar in that rules concerning margin requirements for derivatives were not there on the assumption that these investments weren't publicly traded. These unregulated big boys were playing with other people's money which is why strong rules should have been in effect. Underneath this mischief was the falling real wages of the working class who are the end customers of what the big boys invest in. The rise in fuel prices last year drove the little guys to the point of buying gas instead eating out a little less and other restrained spending. With all businesses operating on thin ice of constantly rolling over debt a small drop in sales led to layoffs. The cycle of fewer and fewer customers has kept repeating and now the big boys couldn't roll over their debts one more time and had to sell fast which hit the investment markets.
Is long term prosperity for America's workers possible again in a resource limited world? It depends on how much innovation there is in recycling resources and in finding substitutes. It also requires a new definition of prosperity. Prosperity ought to be measured in how well the bottom does and not in how much the upper classes consume. Having three auto execs flying to Washington and back to Detroit in three separate private jets looks better in the GDP figures than if they had all rode together on an airliner. The cost of just the fuel for those trips was probably more than my entire year's income. That these filthy rich men didn't give it a second thought shows how much of the world's resources, as limited as they are, could go to improving the quality of life for billions of people.
Define "bottom".
Do you include people who don't want to work? Who may want to work, but have no useful skills or problematic traits or tendencies? Insisting that this group benefit for doing nothing (or even subtracting value) is one way to drag entire economies into the dirt.
If you want to fix the problem of the freeloading rich, change the way government is financed. Since the purpose of government is to protect wealth, it should be paid for by people in proportion to their wealth (perhaps with a substantial deductible). Something like 100 basis points per year on assets, with a $1 million deductible, would generate a fair amount of revenue from the people who benefit most from the protection provided by government.
Couldn't agree more, which is why I'm working with the UK Government on Tradable Energy Quotas (TEQs).
Incidentally, since both the UK and Obama have now committed to 80% reductions in GHG emissions by 2050, 'decoupling' emissions from energy use and economic growth becomes a rather important concept. Straightforwardly enough, if we can't grow our economies while simultaneously reducing emissions by 80% we are now committed to a shrinking economy.
Good luck with TEQs. That's one of the better ideas I've heard, as a way to reduce energy consumption. If it includes a constantly reducing quota, similar to the Oil Depletion Protocol for oil, then it has a chance. Without something like that, governments can "commit" to whatever they like, and even pass those commitments into law, but such commitments will have very little effect.
I'm not too optimistic, though. No government will commit to a shrinking, or even steady state, economy. At least not for the foreseeable future or not until it really sinks in that this is a finite planet.
Thanks sofistek. Yes, what first drew me to TEQs a few years back was the fact that it provides a way to actually guarantee achieving emissions targets, while also addressing peak oil.
As I mentioned, what's interesting is that our Government here in the UK have already committed to a legally binding 80% reduction in emissions by 2050, which means a shrinking economy unless someone can crack the 'decoupling' trick, so the constantly reducing quota is already in place.
I think if a Government commits itself to such a legally binding target it becomes somewhat 'politically difficult' for them to then argue "oh yes, but we never had any intention of achieving it". That's why we need to keep pushing TEQs in front of them and asking how else they intend to meet their stated goals. Doing my best :)
Unfortunately, those parliamentarians who passed the law will be long gone, well before they have to take stick for not achieving it.
Such legislation is good but it's action that counts. If we see no progress towards such reductions, and no actions that promise to realise such huge reductions, then the laws will mean nothing. It doesn't show commitment, to me, only a wish to appear to be making a commitment. As I understand it, the Labour government has always talked the talk, but emissions have risen in almost every year they have been in power since the mid nineties.
Remember that laws can be repealed just as easily as they can be enacted.
What are the boundaries of this quota mechanism? If you put PV and solar thermal panels on your house, do you have to pay taxes on that energy... or give anything over your allotment up to the government?
Your quotas should only apply to things in limited supply, like fossil energy, imported energy and GHG emissions. Wind and solar energy's limits are a long ways off, and quotas should not apply.
Probably the best system of money to solve these problems would be a gold and/or silver standard. Metal coins naturally enter circulation without debt and are never retired, unlike debt based fiat paper money. Expansion of the quantity of the money is naturally controlled and closely linked to energy expenditure. The more energy there is available the more mining can be done. So when energy is scarce less new money is pulled out of the ground, when it is more abundant more money is brought into circulation. Gold and silver money also prevents many of the kinds of abuse and fraud inherent in banker controlled fiat money. The bankers cannot simply print more gold when at their convenience like they can with paper. They cannot create inflation at will and cannot be used as a source of instant wealth for the politically well connected.
I think that a portion of most economies will use gold and silver in the near future as one type of currency. The paper money scams of the world seem to be falling apart.
When the Spanish came back from the New World with gold ingots (melted down from priceless art works), they thought gold was a magical store of value. I guess they thought more gold would cause more goods to magically materialize, instead all they got was inflation imposing enormous hardship.
However all durable and reasonably uniform commodities can be used as currency. Our computerized world could make it manageable to have lots of commodity-currencies in addition to printed money, with changing exchange rates. This would actually encourage us to stockpile these useful commodities for a rainy day. Sensible people wouldn't choose gold as their preferred commodity-currency unless its exchange rate with other commodities reflected its genuine usefulness. This seems like the way to create Gail's new money.
Yes, the historically rare event of rapid inflation of the gold supply didn't help the economy. It had the same effect as the banker generated inflation of today. Gold is still works well as a money because finding huge new sources of gold (and thus inflation) is very unlikely, any geologist can confirm this.
Using other commodities to back money has the possibility of working too. Gold is not unsensible though. It has the advantage of being rare, indestructable, easily stored and transfered, fungible, and widely valued. Admittedly, gold does not have much use aside from being a money. This has never stood in the way of it being used as money. It works as long as enough people accept it for trade.
We should have known it. At the very lowest end of Africa this old warning sign stands on top of Cape Town's Table Mountain:
I took this picture 20 years ago - looking back.
I didn't take a proper picture in the other direction. To display the Empty Space in front of me was beyond the capabilities of any camera: A sheer vertigo, the threat of a relentless downward spiral.
At that time I was lucky to find a mountaineer who had done the trip before and knew the safe path down to the plains.
I wish we had such a mountaineer right now.
7 billion humans, only one sane voice, as always: Gail.
Gail,
You write, "A monetary system needs to be devised which operates without debt...." This concept was also conceived by another prescient thinker, who also envisioned a sustainable economy. He not only warned against taking interest, but commanded that debts be released every seven years, laying out his system in Leviticus 25:23, in Deuteronomy 15:2, and in additional works over the subsequent millennium.
Although our current monetary system represents a rejection of these precepts, the concepts remain to some extent in Islamic finance. It seems that US government officials are also taking note, according to this recent news item:
"On Oct. 25, while on an official visit to Saudi Arabia, Deputy Secretary of the Treasury Robert M. Kimmitt told reporters that the U.S. was interested in learning more about Islamic finance, and the Treasury Department held an "Islamic Finance 101" course in Washington on Nov. 6 to educate government officials on its ins and outs." http://www.foxnews.com/story/0,2933,451416,00.html
Whether re-thinking debt is revolutionary or reactionary, it certainly makes sense once we accept that growth cannot continue forever.
Whow! If they do take this seriously then this is definitely revolutionary:
Not only because this is a completely new look on a culture that before was rather considered the "Axis of evil",
but also because the islamic system is not based on mechanically converting risks into interest rates but rather on something else: trust. Not blind trust, but personal trust and transparency. This is just the opposite of what we knew from our bancrupt banking system.
Islamic banking is a very recent invention (in no way traditional) and has a very thin layer of disguise over plain old interest.
Mostly, Islamic banking is a way to impose Sharia restrictions on free societies. It should be prohibited.
Edit: I was directed to this essay on Negationism in India (revisionist history, denying the bloody past of Islam vs. the Hindus). There are lessons here for anyone who might consider taking at their word the proponents of Islamic banking, and Islamic apologists in general. Yesterday's terrorist attacks in Mumbai make it particularly timely.
I am convinced that religions of all sorts have worthwhile insights that they transmit through a series of stories. We chose to ignore the prohibition on charging interest and the seven-year forgiveness (also fifty years).
Im surprised about the clear message of this nice statement.
This financial crisis shows, that economy looses the ability to grow anymore. The real existing world is unable to follow the monetary an therefore unmaterialized world.
Therefore any labor by any government to get the economy growing again is not only stupid but dangerous.
This System is not perfect, as any system might be. It could not survive end of growth, because it is living through growth.
The question is: will mankind be able to understand that its wrong to work for the return of growth? And will mankind accept that we must say goodbye to this system before it says goodbye to us?
I think that capitalism is not able to be reformed. But what should follow?
Runaway gasoline prices did conspicously precede, the market collapse. The marked deflation in the economy would be expected, due to enormous leverage it provides our economy; although the dramatic negative impact on our wealth and standard of living, of which we are witnessing today, did not need to be a necessary victim.
I would agree that our current financial system, based around fractional reserve banking regulated by the Federal Reserve, has not served us well - it is critically unstable and radically warps the free market economy. Furthermore, to be clear in sum, it is horrendously criminal and unconstitutional in nature (http://www.campaignforliberty.com/). The damage ensuing, and further damage, may be mitigated be ousting the Federal Reserve. It is based on outdated Keynesian economics: while Austrian economics has predicted its downfall/s to the tee. There is a bill being put forward to put our monetary system back on solid footing HR2755: I would suggest you request your Congressional representatives to support it.
Although there is strong pressure, from the government and banking institutions, to continue the status quo, there are some who are attempting to take banking in a sustainable direction. You could call it retro banking (pre-1913). It appears that Indian Reservations are good for more than just cigarettes and casinos...it has allowed the Free Lakota Bank the freedom to establish a sound, and honest bank. It has a 100% reserve lending policy; and its own currency, based on silver coinage. You may want to look into it, or like banks, as a progressive banking option... http://freelakotabank.com/
Additionally, growth is not a necessary component of life. At least 99.99999% of our ancestors (in my estimation), did not require a 'growth based economy'. They survived and, if able, lived well. Growth is not a requirement, especially when the world is supporting nearly 7 Billion people. Drink a little less coffee; God forbid work less hours; and enjoy your lives! Slowing down may buy us the time to contemplate, and debate, GOOD solutions to our looming catastrophes. Not only is this a practical and prudent approach, it may be our only option.
Michael