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Hollow Men of Economics
Posted by Gail the Actuary on July 30, 2010 - 10:40am
Left unaddressed during the past 3 years in most of the debates between economists has been the problem of energy. The reason is simple: post-war economists don’t do energy, except as an ever-expanding resource that the credit system and technology makes available. For the post-war economist, the supply curve of energy–save for brief lags–is always coming back into rough equilibrium with the economy.
Accordingly, the ongoing dispute between Keynesians and Austrians (or Austerians if you like) is exceedingly boring in this regard. As late as 2008, for example, economist Paul Krugman was at least an infrastructure-and-engineering Keynesian. However, Paul quickly converted to becoming just a throw lots of money at the existing system Keynesian. The hollow nature of Krugman’s debate with Niall Ferguson meanwhile comes via their shared belief that the system will self-organize, if you follow their respective prescriptions. They are indeed the inheritors of Adam Smith.
However, neither allowing the economy to deflate further from here via austerity, nor throwing more debt-marked stimulus will solve the present day problem. For the United States, along with the rest of the developed world, has reached a boundary in energy.
Only an economist could wonder in their leisure now, whether energy played a significant role in our current crisis. Indeed the public remarks of Ben Bernanke on the matter of energy, during the 2005-2010 period, were at least as clueless as his embarrassing commentary on the historic bubble in housing and credit. As the nation’s chief economist, Bernanke saw no problem with credit, with derivatives, with the fast inflation in housing prices, or with energy prices. And as an American economist, he was not alone.
As state’s see their budgets collapse and start a new round of layoffs, we should consider the fact that house price inflation masked the lack of wage growth in the United States. And now that house prices continue their descent for a 5th year, American workers are more fully exposed to the decade-long march higher in energy costs. They can experience this individually through energy prices, or more generally through the overall energy cost to the economy. Hence, the chart above.
Unlike many who were either shocked or angered at the ridiculous paper released by Richmond Fed Economist Kartik Athreya, Economics is Hard, I was delighted. For, the paper confirms that at the Federal Reserve, just as in the post-war economics profession, competency has been replaced with authority. Indeed, this was in fact Athreya’s central point: that only a PhD in economics conferred the proper access to discuss economic issues. The most beautiful rebuttal came from Ambrose Evans-Pritchard, who made a point dear to me and one that I have made for years: economics is a social science, not a science. In other words, economists are working down here, alongside the rest of us humanists. History, literature, psychology, and anthropology to mention a few disciplines are all equally competitive fields of knowledge to understand the system of behavior known as an economy. Accordingly, it behooves post-war economists to dislodge themselves of the view that their discipline neatly explains energy and energy supply. Lose the attitude. The problem of energy limits awaits you.
-Gregor
Chart: United States Energy Expenditure as a Percent of GDP 1999-2008. Data used is the latest available. GDP series comes from the US Department of Commerce, Bureau of Economic Analysis. Energy Expenditure data comes via EIA Washington’s SEDS series, for all states and also the country as a whole. I put these two data series together on my own, but, checked it against EIA Washington’s own calculation of Total Energy Expenditures vs GDP. 2009 is not omitted from the chart by choice, but rather, because expenditure data is not easily available yet for that year. Background photo is of a rooftop sculpture by Antony Gormley from his project Event Horizon, which was displayed in both London and New York.
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Gregor.
Fair enough. Now lets play a what if game:
What if economists did include energy in their realm of thought.
How would a Keynesian approach PO?
How would an Austrian approach PO?
Is there a social science that has a more realistic "holistic" view of energy as part of the economy?
.
http://en.wikipedia.org/wiki/Social_sciences#Economics
Emphasis and italics mine.
Well apparently we now have such a problem and current economic thinking seem rather ill equipped to deal with it.
It is becoming increasingly obvious that if economics wants to be included in the sciences they need to be grounded in the basics first. The closest we have to that would be Biophysical Economics. Social Science while useful doesn't qualify as falsifiable science.
Ecological Economics is also a good alternative to look at. I see it as encompassing much of biophysical economics while also looking at the importance of distributional issues and setting social goals (as opposed to the individual actor/maximizing personal consumption goals of neoclassical economics).
I studied ecology before looking into economics and they are remarkably similar in terms of the structure of their mathematical models, as both are about stocks and flows and feedback loops. One trouble with neoclassical economics is that money became viewed as the standard proxy for measuring value. What with pricing on the margin and the discount rate inherent in our money system, this is a bad proxy for doing any forward planning or seeing trouble on the horizon.
Jason, I think I'm more in agreement with you than not and my own view is that there is significant overlap between Biophysical and Ecological Economics. You can't really wrap your mind around the flows of energy in an ecological system if you don't understand biophysics, so perhaps the distinction is moot.
In any case here is a somewhat adversarial opinion on the nuances of the distinction.
http://biophysicalecon.blogspot.com/
I had the privilege of attending the first two BPE conferences in Syracuse NY and got up close and personal with the 'distinction'. Mostly I think the concern that Charlie Hall and the BPE crowd have is that EcoEcon has gotten a little too concerned with things like assigning prices to externalities as a classical economic exercise and has started to diminish the centrality of energetics to the whole program of deeply understanding economic phenomena as embedded in the larger ecological system of Earth. I think there is still more overlap in basic principles than not. Perhaps someday there will be a more umbrella version that can accommodate the fringes from both.
Question Everything
George
Lionel wrote that during the Great Depression ...
The bias (that is hard to see) in conventional, establishment economics is the institutional focus on wealth. This makes economics a social study of surplus management rather than accomodation of shortages. This is the main reason that economics does not 'recognize' peak oil or other resource constraints, it is distributional and rationalizing rather than creative. Economics labeling itself a 'science' is self- evident of this - and also a rationalization.
There is no 'monetarist approach' to Peak Oil, either. Economics as it MUST be practiced versus how it is actually practiced is that economics must be an art or it is a fraud (a form of advertising).
Shortages are the economists' boogeyman, there have been so few and of such limited duration in humans' short 'history' that is no pleasant means to accomodate them has been thought of. That humans carpet the world along with our machines is evidence to the lavish surpluses the Earth has provided (and will continue for at least a little while longer).
Just as we who have spent our lives in an inflationary environment cannot fathom deflation (on an instinctual level) we also cannot 'grasp' shortages. After all, the store is right down the street ... right?
Wait until the shortages actually arrive and you will see a new economics rise up on the road to meet them.
Interesting ...
@ Brad DeLong's site:
Not an energy- related argument but acknowledging the limits of the 'profession' is refreshing ...
Ecology.
Understanding of "Entrophy" >;^)
I didnt think of ecology as a social science.
Traditionally it isn't. However, as ecology is broadly defined as the study of the relationship among organisms and their environment, you can include humans if you believe we are animals that evolved on this planet and have a relationship with the environment. A field called Human Ecology exists, and Ecological Economics is described above. Also, the field called Global Change Science is largely about human-environment interactions.
So ecological economics is a subset of human ecology is a subset of ecology. Thinking of this in math terms it has to work within physical laws. Economics as currently practiced is a fairy tale. They eliminate any boundaries of limits. It is pure math but in a real world setting this does not work. A nobel prize for economics has to be eliminated or the whole dismal science has to be eliminated as it is proven pure fraud mumbo jumbo in terms opf scientific fact. This is like superstition in middle ages. You bleed people or say incantations and stuff happens. Reading guts of birds and so on. It has to be rigorous and scientific. Since however our whole way of life depends on believing on no limits then I suppose civilizational collapse will come before the scientific limits of economics as a subset of ecolgy will be recognized and rigorously implemented.
I've always thought that if you wanted to demolish Keynes, all you had to do was introduce limited resources. Keynesianism only "works" if sub-optimal investments under forced stimulus have a near-zero opportunity cost when compared with better investments that could have been made later. If energy is limited, then sub-optimal current investments reduce the energy available for better future investments. The entire edifice of Keynesian economics fails.
Keynesian economics has seemed to work since WWII because we were in a secular pattern of expanding energy use and rapid growth. They were doing their rain dance during the rainy season, so their rain dance looked like it was working. Now it's the dry season.
I predict a resurgence of classical and Austrian economics. Of course, they ultimately have the same blind spot too... just in a different way. But post-peak the Austrians will "sound more right."
Bullshit. Actual Keynesian economics is as true for any monetary production economy as it is for the present one.
Now, the "everything trends to full employment in the long run" "New Keynesian Economics" is false if you add scarce resources ... but its false in any event, based on a long-ago falsified model of human behavior, so being thoroughly false at the outset, it can't get any more false by adding one more thing for it to be false about.
To clarify what I said a little:
Investments, like everything else, vary in quality and are in limited supply. If there aren't enough good investments, people sit in cash or invest in very conservative things like real estate, precious metals, etc. This is to some extent what's happening now.
Keynesians, or at least some of them like Krugman, advocate using stimulus and monetary policy to force investment to occur. But if there aren't enough good investments, then money gets invested in poor investments including investments with negative ROI.
(Do you think the above is a mischaracterization of what Keynesian economics means? If I'm not mistaken, the essence of Keynesianism is that recessions are failures of aggregate demand and can be cured by counter-cycling spending... or forcing investment to occur.)
If there is an unlimited supply of energy or if your energy sources are renewable, this short term spinning of wheels and digging of holes to fill them in again doesn't matter very much. It keeps people employed, and some of those poor investments might turn out better than people thought.
But if your energy sources are limited and non-renewable, poor investments today rob energy from better investments tomorrow.
I anticipate you calling bullshit on the idea that good investments are limited. Can't we invest in national high speed rail, or nuclear power, or algae biofuel research? Well, point me to where I can buy a long term security or equity in any of these things and I would consider it. But I can't. For an investment to be available, it must be available on the market to be invested in.
What investments are available today? Well, I could invest in another me-too social network or trendy Internet startup. I could invest in lots of struggling mega-corporations that represent more business as usual. I could invest in more private debt, or in a chunk of government debt that is mathematically impossible to pay back in my lifetime, or in housing even though housing has already been over-produced. Get the idea?
Keynes of course argued that the government ought to make big "new deal" style investments. Well, so far that's giving us more road construction that we don't need. I am not a believer in "market mysticism," or the idea that markets are perfect decision makers about allocation of capital. But the problem is that most of the time politicians are worse than markets. Sometimes politicians will put money into something very valuable, but statistically overall that seems rare. Most government spending is on negative ROI projects like wars or essentially amounts to bribes to get people re-elected.
It seems to me that the best thing for us to do in a limited resource non-renewable-powered economy is to "sit in cash" and wait for better investments.
But how will we get the better investments in the future if we don't spend now? The problem here is that better investments require creative events such as inventions. Creativity is serendipitous or unpredictable. Imagine that some intern at the national ignition facility wakes up with the solution to the fusion problem. Now we have a good investment! That could happen tomorrow, 20 years from now, 50 years from now, 100 years from now, or never, and when it happens is only loosely related to how much money we're spending. Creativity can be encouraged and fostered but it can't be bought or manufactured on demand like a product.
You guys are really helping to make Gregor's point! Economics was my minor in engineering school and I can definitely say that Economics got off on the wrong track as a hard science from the get-go when they flipped the standard graphing method. Putting the Independent variable on the vertical and the Dependent on the horizontal is just plain wrong. It drove me nuts switching between classes.
But here is an ongoing argument - although interesting - about what amounts to a philosophy with attempts at hard proofs by rhetoric. How many angels can dance on the head of pin?
About the only involvement I have in Economic theory these days is trying to get Adam Smith's Wealth of The Nations in Civilization III so all my social infrastructure gets paid for. Now there's Keynesian economics in action...
(Not really, I do have to take into account common economic factors when planning out capex for larger and longer projects ;-)
The Civilization games are great! (Just like Frosted Flakes)
They even incorporate resource scarcity and climate change into the game!
This has always made a lot of economics hard to comprehend. It looks to me like they are simply afraid of stating a problem as the soultion of simultaneous algebraic equations, and argue about everything via graphical solution. Is the math of simultaneous algebraic equations (of usually pretty low order) that hard?
That's the way I think about it as well. If the equations are implicit and nonlinear, the graphical method does work, as in demand/supply curves. Yet, I too wish they don't use that technique as a starting point.
The worst part is that the econoomics instructors don't even explain why they use the graphical methods, they just shove it down your throat.
The one branch of math that works consistently in economics is the logistic function:
See page 11:
http://www.agci.org/dB/PDFs/03S2_CMarchetti_Cyclotymic.pdf
Also:
http://en.wikipedia.org/wiki/Logistic_function
The diffusion of practically every important innovation follows an S curve.
Today we have something like 1.16 cars per licensed driver and a similar number of housing units. Practically every market is the same.
By itself, the logistic function does not tell you anything. It is a simple heuristic. On the other hand, if you can derive it via some model, then it begins to tell you something. The reason I think it has such broad applicability is that it can be derived via deterministic arguments (a carrying capacity model using the Verhulst equation) and through stochastic arguments which is a quite recent development.
If economists would use probability models as regularly as econophysicists do then we might begin to get better insight. This is baffling since Keynes essentially wrote his thesis on probability and very few have followed this train of thought, preferring instead to dwell on the deterministic Keynesian principles, such as stimulus speciesding.
I'm investigating the link between science-technology and the economy. Something interesting happened 100 years ago in the US: peak productivity growth! The logistic function is perhaps the best explanation. We are apporaching the limits of implementing science and technology. This is not saying that we will not have new discoveries and inventions, but that they will never have as great an effect on economic growth as 100 years ago.
Perhaps we will be able to reinvent the concept of economic growth so that in no longer depends on ever increasing production and consumption of widgets. Assuming that we can find a way to equitably guarantee basic needs of shelter, food, clothing, health care, mass transportation etc...
How about growth in art, music, science, pure knowledge, edcucation etc... imagine a society that puts more value on these things instead of big screen TVs, and SUVs.
Growth without growth, now that's a novel idea.
That sounds very nice Fred, but it appears that you completely miss the reasons we need growth.
1. We must have growth because the population is always growing. The US population is increasing by about 1 percent per year or about 3 million people per year. We must grow by 1 percent just to stay even with population growth.
2. Technology is always on the march. One thing new technology does, and perhaps the most important thing, is it produces labor saving devices. New technology has been putting people out of work since the invention of the flying shuttle was invented 1n 1773. The economy must grow in order to find new jobs for those that technology puts out of work. The Luddites had a point.
3. Most all businesses run on a line of credit. If the economy does not grow then the interest cannot be paid. Borrowed money must always be paid back with interest. If there is no growth then every business is always sinking a little further in debt each month.
Ron P.
No, I actually understand that quite well.
If you have been following the general gist of my comments over the last couple years you might have noticed that I talk about that quite a bit. Let me try to sum up my view on this.
1) I'm a vocal opponent of two things, growth, economic, and specifically population growth which leads to precisely the dilemma you mention.
2) I believe that the current paradigm of BAU, which is based on growth is unsustainable and furthermore that which can't be sustained, won't.
In nature there are no analogs for infinite growth. Organisms and even entire ecosystems develop, go through a growth phase, mature, when they stop growing then enter a semi stable state before they decline and finally die and are then recycled by other organisms or new systems.
If a natural system goes into overshoot it crashes. What I was trying to suggest is that perhaps we might now enter a stage of maturity where we no longer grow in numbers and no longer need to grow widget production to keep pace. That doesn't mean we should not have growth in the intangibles I mention.
Nor in my view is it inconceivable that we would assign a high value to these things and develop an economy based on an exchange of ideas, knowledge and finely crafted durable goods. Again, this assumes we can provide for the basics of food, shelter, clothing clean water, basic medical care, access to electricity, mass transport etc...
My view doesn't allow for the accumulation of material goods by a small elite of hoarders who wield power over the vast majority... In my world such people would be harshly punished for crimes against humanity and the commons.
Note: I do not have great hope or expectation that this is the path we will follow.
So am I Fred, so am I. I am also opposed to robbery, murder, and other bad things like tornadoes. They happen however despite my opposition. I don't think just being "opposed" to something has any affect on the real world.
Again, I agree. And of course it won't be sustained. So what do we disagree about? Hard to tell from here but I got the impression that you were under the impression that we could create a no-growth economy that is sustainable. If that be the case then we very much disagree on that point. With a world population of perhaps one tenth the present perhaps, but not with anywhere near the current population. What we will eventually return to is what Dr. David Price speaks of the essay linked above: "Energy and Human Evolution".
Ron P.
Number three is simply wrong. Businesses can be profitable and pay interest without growth.
Point one and two are somewhat ok, but the "need" they point to is very weak. To keep even with population growth is desirable, for instance, but the US could do without and still function well.
a single business yes but collectively he has to be correct
No, not at all. Please think again. Businesses does not need economic growth for profitability, nor for debt repayments nor for paying interests. Capitalism does not depend on growth.
where does the interest come from?
From the preference for buying things now instead of in the future. For example, people take out a auto loan to buy a new car now, rather than running the old clunker a few more years while they save the cash to buy a new car then.
and that loan creates new money..yes?
No. Lending of money for interest was done back when gold and silver were the only money available, and it was done before the invention of fractional reserve banking. All that is required is for someone who has a need or desire to spend money now to make a deal with someone who currently has money to pay them back more in the future than is being borrowed in the present.
Mohammed would not have outlawed interest in the 7th century if interest was not a business practice at the time.
still created money back in the day as the coinage was just debased? besides currently fractional reserve banking does increase the money supply..
so if I repeat the question the answer is yes currently...no?
Interest requires that the money supply grow.
However, the bigger mechanism for getting money into the system is the fractional reserve banking system — the fact that the bankers are permitted to create money at will (when they make loans).
Both interest and fractional reserve banking work in expanding economies. They don't work in contracting economies nearly as well.
The use of math in first-year courses varies, but is generally limited, in large part because enrollments would fall as the mathematical requirements increased. Sadly, most freshmen are intimidated by a simple two-equation, two-unknown system. This introduces considerable redundancy into undergraduate programs, since majors are generally taught the same concepts again with the attendant math in subsequent years. And graduate programs in Economics often bypass students with an undergraduate degree in economics for candidates with backgrounds in statistics, mathematics, engineering and physics, largely because they have better training for understanding dynamics systems. Despite this, thermodynamics still has no central role in most economic analysis.
And no, (neoclassical) economics isn't a "hard" science. Even if one accepted the general premises as a reasonable foundation upon which to base inquiry (methodological individualism, constrained optimization, and equilibrium analysis), model construction requires auxiliary ad hoc assumptions before sharp predictions can be arrived at.
At the university I went to, Economics fell under the Faculty of Arts, which I found very useful because I had a certain number of mandatory art courses I had to take. So I took most of them in Economics. I thought it was pretty funny.
My musical skills were limited to listening to rock music (this was before rock became mainstream), my literary interests were in science fiction (this was before sci-fi became mainstream), my paintings of dead astronauts on alien planets upset the artistic crowd, and my fear of crowds limited my stage career. So Economics was the way to go.
Being a hard science kind of guy, I had a lot more math than the other students (or even the professors), so I tended to throw a lot of advanced math at problems. It really made things a lot simpler. Throw in a few partial differential equations, and the solutions to the problems just popped out of the equations.
It was obvious to me, but the other students (and even the professors) were completely baffled by my solutions. And in reality, sophisticated solutions were a lot clearer and straightforward than the traditional solutions. It's just that you needed a lot of math to understand them.
The conclusion I came to is that Economics is really much more of a science than people seem to think it is, but you really need a lot more math than the typical student does to understand what is going on. In particular, you need a lot of statistics and calculus, and some chaos theory. It's the chaos theory that really freaks people out, but in reality you are dealing with dynamic systems in which long-term prediction is not really possible, so chaos theory is the way to go.
I took economics courses as options while completing a physics degree. "Math econ" is a favorite for physical science and math students, since it can often be used towards fulfilling the "arts" requirement.
While there is some work that examines the economy as a non-linear system, linear approximations still dominate. There are a couple of institutes and one or two journals that specialize in the study of non-linear dynamics applied to social systems.
But, in reality, economic systems are fundamentally non-linear and dynamic, which is where chaos theory enters the picture.
If economists can't handle the mathematics of non-linear and dynamic systems, maybe they shouldn't be doing economics.
The thing missing from your argument, is that we are investing not just cash, labour that would otherwise go unused. As well as we are investing some scarce resources, such as say oil in whatever it is that a Keynesian response is directed to. So pure Keynesianism is mainly interested in the investmnet of money and labour, and not too concerened about using scarce material resources.
Of course we could explicitly recognize this, and stimulate by (and only by) funding projects which are over a period of time scarce resource positive, or at worst neutral. Such societal investment opportunities, such as energy efficiency and renewable technologies do exist. The problem is that our political system ends up awarding much stimulus to a smorgasbord of narrow minded special interests (tax breaks, road construction, etc.).
Too true.
Unfortunately the Austrian school suffers from the same sorts of failures in initial assumptions and the economic schools that are willing to look at their baseline assumptions with a critical eye don't have much political traction yet.
"economic schools that are willing to look at their baseline assumptions with a critical eye "
Which ones are those?
What kind of Keynesian? The heirs of neoclassical economics that tell everyone they are the only economists that exist are not equipped to follow a Keynesian like Randall Wray, for example.
The term "Keynesian" really only pins down that an economist is willing to accept the logical implications of the real world rules for generating and distributing purchasing power with respect to aggregate demand for newly produced goods and services. It does not pin down anything on the supply side, with full-on utilitarian modelers like Krugman on the one hand and Post Keynesians and Institutionalists on the other hand.
As to what one Institutionalist Keynesian would say, it would go something like this.
"Is there a social science that has a more realistic "holistic" view of energy as part of the economy?"
The problem as I see it is that each and every "science" tries to hone in on some issues or "truths" using the specific parameters of that particular science, leaving out way more than they consider, and are therefor nearly always wrong, irrelevant, misleading, etc.
We need the science of EVERYTHING, and it must include a realistic depiction of man in the equation not who we think or wish we were.
Energy-Consciousness Transform Eeyores. Really just a Western, deterministic sense of what many have known and practiced for thousands of years.
IN a sense, it really is this simple. ALL activity requires the flow of energy. ALL work (of economic importance) requires energy flow. NOTHING happens unless energy flows. And it has to be energy at the right power level to do the work needed in the time desired. Unfortunately the main source of such power for modern society is depleting rather rapidly! As the energy flow declines so does the work. Simple.
Question Everything
George
But you can see why guys like those at BPE start stuffing money back into the equations as working out the relevant sinks and conversions of all the little stuff is frankly.. well... nigh on impossible.
its all very well being right but how in a month of sundays do you effect change in economic thinking that produces practical results?
"how in a month of sundays do you effect change in economic thinking"
Outlaw almost all teaching of conventional economics.
Put all current economists in re-education camps.
You could make ecological economics a required course for an economics degree. Unfortunatly, even if implimented today, it would be a case of covering the well after the calf has fallen down it, I think.
I have heard this complaint (impossible to account for every bit of energy) over and over again. The odd thing is that I have years of experience with managerial and cost accounting systems in commerce and they do a pretty fair job of keeping track of all of the dollars involved in operations. I see no fundamental difference between accounting for dollars and accounting for mjoules except the methods of measuring. A failure of imagination is no excuse to avoid doing something.
And the objective isn't to "effect change in economic thinking..." so much as it is to understand phenomena from a scientific study. Once we understand we can work out what needs to change in our economic thinking. Or, at least that would be the case if we had any time left to do this work! That is the part I have qualms about.
if there is no time the point is moot.... you need a short cut
which takes us back to the objection that was first raised? no?
if the counter rebuttal is "no its doable to account for everything at least in a non trivial sense but we haven't the time" then you agree (by default due to a lack of options) with the original point..
so what do we do?
The nice thing about dollars is that it implictly keeps track of all sorts of things. That means we don't need to account specifically for mjoules - they are included in the dollar amounts, along with other stuff. If you think the dollar amounts don't reflect the scarcity of energy reserves, then that's simply due to a specific lack of information - a problem that should largely disappear in the event of peak oil. (The short-sightedness of markets is largely a myth.)
no matter how you view it what you say here simply can not be true because the price of energy resources such as oil can go down...
yet 2 mins thinking will clearly reveal to any person of moderate intelligence that these resources MUST be getting scarcer with every keystroke of this post. irrspective of whether the daily production numbers go up or not!
if the rebuttal is that scarcity is only measured at the access point into the market.. supply then I rest all our cases
the market wittingly or not decides that the resource only exists when someone owns a bit of the said resource, which they can then sell
the market was always wrong because the bit of information as you put it was not ascribing a value to the entire endowment of the resource from the moment they started pulling it out of the ground 100+ years ago.
if it takes peak oil,(which may well have already occurred) for the market to realise this then I think our faith in the collective wisdom of the market is perhaps misplaced
Prices fluctuate because of changing ability and willingness by oil producers to draw on the resource, coupled with discount (oil now is more valuable than oil later) and also because of changing assessments of the ultimate size of resources. I maintain my view. The collective wisdom of the market is the best we have - it reflects the info that is available. If you think it's somehow flawed, then you are probably mistaken and would lose money if you put them where your mouth is.
oil is more valuable now than later? there's an insight
the collective wisdom of the market isn't the best we have. you effectively admit this by outlining how PO may change market prices, but commentators here have supplied the market with the "missing piece" of information for some considerable time... so its not the best in this non trivial instance
the fact I could/would lose money while being so obviously correct about the diminishing nature of the resource doesn't really support the argument that market reflects the increasing scarcity of said resource
does it?
you have it all back to front.. the market can often allow people to make money by making the wrong choices.
in one way I agree with you in that the market is the best we have because its all we have at the (dis)functional point of civilization.
doesn't mean its not in need of reform/rethinking/replacement
If the timing of PO surprise the market, or if the ease of adaptation to peak oil is different from what is expected, it will change prices, yes. But I think that if you second-guess the market on these points, the likelyhood is that you lose money on your bets.
Commentators here have been wrong for some considerable time. When was the first time TOD commentators wrote "PO is upon us!"?
If you have a better understanding than the market of the timing and consequences of PO, you should be able to make money using that knowledge. You likely don't and can't.
In retrospect, yes. But they will be the right choices at the time, with the currently available information.
doesn't matter if I can't the fact The truth of fossil fuel depletion produces no profit for me is not an endorsement of market allocation of depleting resources
In essence your saying the market is correct because some people make a profit and those people have made the right choice. because I can't make those choices(in your judgment) therefore I am wrong and the market is right
that isn't any kind of explanation at all of the lack of short sightedness of the market or its collective wisdom. your position is hardly superior to someone arguing that some people maneuvered themselves in high office in Stalinist Russia. They profited therefore the system is optimum. your saying its right because some people win.
your caught in a trap created by the assumption that money tells the truth
when questioned about the short sightedness of a market confronted with depletion you responded with a explanation of why the market is shortsighted yet maintain that this produced profit therefore was optimum in some fashion you can't have it both ways!
its insane
the changing assessments on the ultimate size of the resource doesn't negate that every passing moment the resource is depleting. The market simply does not address this because of a inbuilt shortsightedness or even dare I say it a refusal to accept certain types of information.
the short term decisions to draw down resources and short term insight into the original resource endowment.. which you argue is a valid explanation of why prices go down yet the market has a long term outlook..is exactly that short term
I don't have to know how much crude there is too know as so as I start using it is depleting. The market doesn't hold that view
I'm saying it's the best available guess. The primary means of doing money by speculation is finding prices that are "wrong" and place bets on them, hoping that time will reveal the errors of valuation and so correct the prices. Lots of smart people are doing this, especially in big markets such as oil. Therefore, market prices can be assumed to include the currently available information.
Very strange retelling. I think the markets are NOT short-sighted. But they can and do change prices when more information become available. This is natural.
How much oil is in the ground is irrelevant. What is recoverable is what is interesting. If tech is invented to enable you to recover a higher percentage of the oil in the ground, the resource available to us is suddenly bigger.
Some economic activity does not require much energy. For example, if someone buys 1000 Intel processors and then sells them one at a time over the period of a month from his computer supply store, this may not require the expenditure of significant energy.
The proportions of capital, labor, supplies, and energy can vary widely depending on the type of economic activity.
Another example would be software development, which usually involves acquiring a variety of development tools, buying software applications and libraries, adding a relatively small proportion (in terms of assembled instructions in the end product) of new code to do a useful function, and selling the resulting application.
Since I earn my daily bread in exactly this field (CS and CSE) I can tell you you have no idea what you are saying. Your simplistic transaction model can't begin to take into account the energies involved in engineering, design, manufacture, shipment, advertising, integration,... do you want me to go on? Seriously Merrill, you need to think long and hard before making these kinds of remarks.
to be fair to merrils POV I think he was perhaps pointing out that a large amount of economic activity especially "the mark up" takes place in the fiddly post energy expenditure phases of a product (thou perhaps not use?)
even though you are quite correct it becomes harder and harder to quantify the energy expenditure at the fringes even if large amounts of "profit" occur in these areas. Pointing out this profit is only really derived from the earlier expenditure of energy is not really that helpful from a practical POV
Correct, there are whole areas of merchandising and trade where the embodied energy in the products and/or the energy used for implementing the trade do not correlate strongly with the value of having the right goods in the right place in the right quantity at the right time.
Consider another store owner, who makes and sells ornamental wrought iron. He buys wrought iron, coke, etc., and then he heats, cuts, bends, shapes, and welds the wrought iron into products that he sells for the same net profit as the computer supply store owner.
You are telling me they are using the same energy per unit revenue or per unit profit?
Attributing all economic value to energy makes no more sense than attributing all economic value to labor.
Well you have hit the proverbial nail... no! in which case the use of monetary value as an economic indicator is a poor reflector on the underlying reality.
in the real world of entropy and "all that physical stuff" intervenes... that discrepancy is going to turn up somewhere eventually..
how about this... command economy +rationing=result
the end
why bother with anything else?
Money is the signal that transmits demand back up the supply chain.
yeah but it doesn't work... because you can up that demand for things that actually produce new money with out adding net available energy... which implodes because the new money is used to buy things that do require energy..
let me think of a recent example... hmmmm errr I know
house price inflation turning into debt and consumer spending
a monstrous unsustainable growth treadmill..
the disconnect between the two is unresolved by suggesting money is a good marker...
conversely trying to get everyone to trade one to one in units of embodied energy is a pretty unlikely scenario too..
which is why i come back to rationing and the command economy
edit : hamfistedness and general poor posting style
Do you know how Texas avoided the bubble and much of the recession? It simply didn't artificially introduce shortages in the housing market. Instead it used liberal, market oriented land policies:
What you suggest, command economy and rationing, are recepies for disaster and untold suffering. If you believe peak oil is upon us or soon to be upon us, then you should fight tooth and nail to get the economy more market oriented, not less. If you do rationing and price controls instead of letting the price mechanism destroy the least valuable demand, you'll be very, very sorry.
I believe everything can be reduced to 2 fundamental costs : energy and time. If you lack something, and have suffient stores of either of those, you can produce almost anything.
In the first case the monetary cost is primarily on the time + expertise (expertise is related to time in the past spent on skill training, and there is also just a time+energy measure) which went into production, distribution and maintainance of the high tech equipment.
In the second there is still a moderate expertise cost, but this time it is added to a high energy cost, also with a moderate time cost.
Any attempt to characterize in just time or energy fails, as other people in this discussion have pointed out.
Because oil production produces energy, the primary limiting factor is time. At a fundamental level the time taken to convert extracted energy into further utility for extracting energy, and the time availability constraint from required resources.
hmmmmm added value can be pretty abstract... 2 pop bands giving performances of equal length using the same amount of energy (same venue ,distance fans travel etc etc) but the demand for tickets for one may be far higher hence "value"
if the ticket to see lady gaga was 6000 euro thermes (whatever) your going to be hard pressed getting the same number of people to see alvin stardust at that price..
You need at least energy, time, materials of various kinds, and information.
For example, if you run out of iron ore and can't make drill pipe and casing, it doesn't matter how much crude oil you have.
If you don't know how to design a fusion reactor, it doesn't matter whether you have a supply of deuterium and tritium.
@ Merrill
More to the point, you also need location (in 3D, to cover air rights and airline landing slots etc).
The value of exclusive use of land/location underpins maybe two thirds of deficit-based dollars, which were created by mortgage loans by credit institutions aka banks etc.
Good point. Aslo other rent-producing property rights like spectrum allotments.
More specifically, or in addition...
Are the energy inputs of programmers amount to nary nothing? Which is a first level model of the Energy-Consciousness Transform; that is, we all too often ignore the energy inputs to knowledge and the effect this knowledge, intent, or consciousness has on the entropic balance. This is no one's particular fault or short coming, no more than a fish cannot be held accountable for not knowing of water.
Isn't there an relationship between entropy and knowledge?
As entrophy goes up so does knowledge.
The universe starts at 0 entrophy and 0 understanding.
And as the universe winds down the amount of knowledge goes to infinite?
According to wiki Claude Shannon had something to say about this.
(I do wish wiki would define the terms in their equations, so Muggins could read them.)
Informational entropy is a measure of the amount of disorder in a system. In general as disorder increases and the number of possible configurations balloons you need more knowledge to keep track of the possibilities.
The breakthrough in thinking comes in realizing that certain configurations can reach a maximum entropy state and the description becomes very simple. In this case minimal knowledge is actually needed.
Informational entropy is a fascinating puzzle because it can twist you into knots before you seee the ultimate simplicity in the principle.
Thank you.
With zero entropy (at the big bang) everything can be described with little information.
At the other end of the universe (at the big ho hum) everything can be described with little information.
Somewhere in the middle you need a maximum of information to describe the situation.
Of cause one is not allowed to know the velocity and position of an entity.
A particle came into being at the birth of the universe.
It's position was known, it was at the origin.
It's velocity was precisely known. It was zero, there being no room to move.
And so it exploded with just enough force not to blow us to smithreens.
And here we are reaching the point where maximum knowledge is needed to describe our situation.
And that knowledge is riddled with holes because the material of the universe is insufficient to process it.
Any good?
So do we put this economics in the too hard basket?
Chaos rulz
The entropy of information theory is not the same as the entropy of thermodynamics, even though the math is the same.
There are theories about the lower bound on the amount of energy needed to do computation. That is a topic in theoretical computer science.
"Another example would be software development, which usually involves acquiring a variety of development tools, buying software applications and libraries, adding a relatively small proportion (in terms of assembled instructions in the end product) of new code to do a useful function, and selling the resulting application."
I think you would be surprised how much energy software development uses. For anything other than small web development shops I'd argue the cost of energy is significant. The outfit I work for has about 5000 employees worldwide, in our headquarters alone there are ~800 of which maybe 300-400 are developers. When you include all the labs there are probably 2500+ computers in the building (plus a signiificant amount of switches, routers and other networking hardware), many of them in big rack mount server pools that run 24/7 using a LOT more power than your typical desktop. Then there is the AC load to cool it all and the overhead energy use of the building. One time the AC in a big lab went out over the weekend and by the time the alarms brought in the techs they found some plastic cases starting to melt from the temperature in there.
Expand this to the scale of Google. Imagine the power used by their hundreds of data centers.
Its well known that in today's IT world, the energy usage of servers is a bigger percent of operating cost than initial purchase these days.
Granted this energy use is a drop in the bucket compared to manufacturing, but it is not negligible.
I've worked for a company with well over 30,000 servers. However, the number used for software development and test was a lot smaller. Most were providing web services and other functions.
Today, the number used for dev and test is dropping due to virtualization, while the compute clusters used by ops continue to expand.
Nevertheless, the energy per unit revenue would not be anywhere near that of something like a petrochemical plant producing synthetic fibers or pharmaceutical feedstocks.
And the nose on your face??
My point is you keeping ignoring the obvious which are the HUMAN BEINGS involved in the process of computing equipment design, construction, maintenance, and the development, etc. There is a massive amount of energy involved in this process. The central point of this essay and subsequent comments is professionals in leadership positions of thought and and policy are externalizing the true costs and don't seem to see the nose on their face. This is covered off in some depth with the discussion of gasoline taxes below.
There are many whom are much farther ahead than me in the understanding and practice of whole energy systems. My revelation started when I entered the work force after high school and spent time in traffic jams to/from work. The little epiphany was this is the greatest form of mass insanity I have ever seen, and continues to this day with this is one of the greatest wastes of human energy ever seen.
Businesses are famous for externalizing costs to confine their responsibility and performance to a set of boundaries they can control. My example involves safety in the work place. When one gets to work they are required to wear all sorts of protective gear and follow safety procedures. They have meetings and propaganda all over the place. But show up late at 8:20 because you had to drive through the morning snow storm and icy roads and there is hell to pay. They don't consider endangering someone's life to get to the place where safety starts and ends as their responsibility, and therefore irrelevant.
This same isolation of thought and consideration extends to just about everyone, there are very few innocents.
This whole sidetrack is myopic in the extreme.
How can you talk about 'how little energy' anything regarding IT consumes, when the whole existence of our Data-driven infrastructure is wholly dependent upon the continual flow of large volumes of energy? (Which was of course the original Macro idea being floated at the top of this thread, that an economy is dependent upon energy flows.)
Just because you've got a few energy-efficient processes in creating, say, a new App, it is created on the shoulders of a system that simply wouldn't exist without ongoing energy flows that create the entire Virtual and Brick/Mortar environment in which it lives, AND that the economic survival of that particular App will NOT exist in the future without more of the same by the consumers of that product.
In reality, software development doesn't require a lot of energy input. That is why software development is being outsourced to places like India, which doesn't have a lot of energy resources, but does have a lot of very smart, very well educated people willing to work very cheaply.
The server farms do require a lot of electric power, but they don't have to be in the same area as the developers. They can be put somewhere that has a big hydroelectric dam, for instance. It's much cheaper to run fiber optic cables to distant population centers than it is to string big electrical transmission lines.
The real essence of being able to make progress has relied upon the "art" of being able to select and concentrate on those subprocesses that are most salient for your field. I see that happen in something even as mundane as mechanical analysis. The good engineers focus on the important variables, rather than throwing in everything including the kitchen sink.
Yes, the skill of separating first-order from second-order effects. I second what you say about the good engineers. The bad engineers practice job security by convincing management that second-order effects are important. They can then spend more time jerking off, w/o adding any value to the end result.
Unless you're an EE and have to deal harmonics in power systems. A direct result of second order system energy interaction. Jerking off is usually considered a cyclical first order forcing function though. Wave shape depends on preference. ;-)
Even though quite impossible to achieve, I think there is a lot merit in the idea.
Widening your purview, adding to your knowledge, engaging in the pursuit of sciences and skills and arts you have never considered before. These are all welcome assets to someone who likes to keep a keen eye to the traps and pitfalls that may belay our path.
If you can juggle the orders of magnitude, the scales and their interactions, a reasonably accurate estimation of the state of the world becomes possible.
Go ahead and learn everything you can about any subject, and then do another, and another...
Links are laid, comparisons are made, and slowly a picture emerges, much as when agitated water slowly settles to allow a clear reflection.
Of course it is a fool's errand to try to know everything about everything. But it is the only fool's errand to lead one to an ever growing vein of wisdom, and even some little foresight. Some things, I know ain't gonna happen.
If energy abundance has been biasing the economy toward growth, then the bias goes away with the end of abundant energy.
There will be no more, "let's do something to fix the economy", then a few years later saying "see, it worked" because things picked up ( as they were bound to because of energy abundance ). We might start seeing a time when only really effective ideas work, and maybe even those ideas only work less bad than utterly wrongheaded ones.
Unfortunately the public probably won't recognize a good idea if it still results in a net loss of wealth/lifestyle.
Even if the alternatives would have all resulted in a much higher net loss, they'll still call it a bad move any time the situation deteriorates.
Exactly. Those of us who see the TARP and bailouts as an example suffer from that very effect. No-one likes what had been done, but the "control experiment" of what wouldahappened isn't available. So everyone associated with the decision gets tarred with the negativity.
Niall Ferguson is mentioned in the article. Here is his latest interview on the Australian public ABC TV Lateline Business
Political will vital\
29/7/2010
NIALL FERGUSON, HARVARD UNIVERSITY: The difficult decisions are being put off because the politicians simply don't have the leadership skills, they don't frankly have the guts to explain to the American people what has to be done and I'm very much afraid this won't change until another financial crisis, this time in the bond market, makes it change.
http://www.abc.net.au/lateline/business/items/201007/s2968345.htm
You can send as many emails to these TV journos about oil and energy as you like, they just don't get it. Their interview partners are always the same.
Niall Ferguson put together a series for the BBC called The Assent of Money, which is available from the PBS website. Looks like an interesting program, which I didn't catch, since I no longer watch TV. Here's a comment about Ferguson's more recent thinking...
E. Swanson
Pols, Journalists, 'The Mainstream' ..
They only get the occasional glimpse above the oil pool, during a spill, a fire, or a supply/price 'event'. Then it's back to Soaking in It. Except for a few of us, most folks get back to the daily grind and other concerns. They are looking at hazards on other decks of the ship.
I don't know that we are truly the ones spotting icebergs from the crow's nest, or by some sad fluke are simply chin to the table, glaring at icecubes in our drinks.. I think it's the former but try to remain still just a little flexible in my surety.. and yet Pride is not the only thing that will precede a fall. More than a few folks have gone down because they just weren't watching where they were going.
So while the others' eyes have gone back down into the Lido Lounge for more betting on Louge and Volleyball Futures, I'll be wandering around making note of what floats and can be carried outside...
OK, a new campaign of mine. Can we have honest graphs please?
Starting the Y axis at some arbitary level to make it look exciting is plain wrong. I see it a lot on TOD.
It's straight out of that wonderful book 'how to lie with statistics' which I think all on TOD should read . . . the stuff we discuss here is complex, and often contentious. We need not to bend the graph presentation to support our theories.
When I see a graph that has been 'tweaked' this way, I'm afraid I hit the 'close' button. If what you have top say is well-written, then it won't need a sexed-up graph to support it.
Ben
Please.
Non-zero baseline graphs my confuse the numerically challenged, but they are perfectly valid in a scientific/numerate context, such as a TOD discussion page. It only takes a moment to read the Y axis labels and do the mental adjustment. Of course, leaving the Y-axis unlabelled would be a huge red light. You may more realistically complain about the X-axis. Is 10 years enough to put the data in full historical context?
I can see an issue with that graph, but it's not with the Y axis. It's with the X axis. Take it back to the 70s.
To argue that immediate point that peak oil had something to do with this recession, you have to argue that things are fundamentally different now. "It's different this time." There is some basis for that... the 70s oil shortage was 100% political and had nothing to do with geology, while today it seems different.
But the overall point that economics is a failed science because economists don't believe in thermodynamics stands.
I suppose you have answered your own question about it being different now because the economy doesn't care if oil production is capped by above ground factors or geology or both.
the economy doesn't run the economy.. Its just a bunch of stuff that happens. ;-)
I just recently finished a for credit series of psychology classes.
The instructor, a practicing psychologist and a PhD holder , hasn't a clue as to the real nature of the world we live in.
Nothing in the text books used indicates any real understanding on the part of the authors of the real nature of the world we live in.
The social science folks as a group are about as deluded and provincial, after thier own fashion, as any backwoods Bible Thumper.
But the worst of them are dieing off fast, and the newer generation have at least heard of evolution.Heretics among them have actively embraced the concept. ;)
[ It's ok for me to say bible thumper because I a member in good thoough false standing of that culture;everybody else should remember that it ain't polite to criticize the values of others, because our ultra progressive liberal /intellectual betters assure us with the certainty of holy writ that all cultures are equal, and that none is inherently any more worthy than any other.
As a Darwinist, I agree;if the members of a culture are holding thier own, or expanding in numbers and influence, the culture is a successful one; the only objective and disinterested measure of success is reproductive success.Speaking as a softhearted old redneck,however,I don't think highly of slavery or genital mutilation or similar practices. ;) ]
Nobody else in the world, except fortune tellers and preachers, can be so consistently wrong in thier predictions as economists, and continue to not only get paid but actually enjoy guru status.
But of course the problem is not that economists as individuals are stupid, although I suspect many are indeed equipped with rather slow cpus.
The problem is that they are locked into the old gotta-goalong-to-get-along scenario.Economies of scale are nice, but sooner or later nonstop growth leads to too-big-to-fail professions, business entities, philosophies, and even govt.
Several good biologists post here frequently.
Maybe one of them will take this idea and run with it:
Our institutions including banking, manufacturing, retailing,etc,including govt , have gotten too big and inflexible, destroying the diversity of the human ecology, and with it our ability to go with the flow and bend before the wind.There would of course be nothing really new in such a treatment, other than having it all tied together in a single place and organized around the issue of size as the primary variable under consideration. .
Eventually any tree that is not flexible enough to bend before the wind will of course crash in a windstorm.Sooner or later there is always a windstorm-or a drought, or a forest fire.The survival of any big tree, or grove of trees, is questionable;but the survival of some trees,enough trees, if there are many smaller ones scattered over a large area, is not in question.
As a philosophical conservative I have what I will describe for sake of brevity as a distrust of ANY institution being allowed to grow too big and powerful.
Giant energy companies, octopus banks, megaconglomerates of every stripe, big education, big medicine,big law, big law enforcement,big welfare(-in the form of pensions, medical care,social security) big real estate,the military industrial complex;all of these things are dangerous in the extreme, just as a monoculture farming system is dangerous.
I have come to believe in this general idea because it dovetails nicely with what I know of the biological sciences rather than allegiance to any political party or faction.
I am not attacking existing safety net arrangements as I recognize the necessity of thier existence;I am saying that they are at risk because of thier very size;and that those depend upon them are at risk due thier thier lack of diversity in kind and in sources of funding..
Mac,
You raise some good points, but I think the main problem with economics today is the exceedingly narrow education of economists. Most of those who get Ph.D.s in economics have nothing beyond superficial undergraduate general education requirements in social sciences other than economics or in the humanities. This narrowness did not always exist: Adam Smith was a professor of moral philosophy who wrote "Theory of Moral Sentiments" before he wrote "Wealth of Nations." In the nineteenth century there was the field of political economy, which was much broader than is modern economics. Alfred Marshall is a good example of a classical nineteenth century economist, and one can see a strong grounding in the real world in his textbook and other writings.
Today economists do not talk to economic historians; the two disciplines are quite separate, with distinct vocabularies and different methodologies. Economists talk to one another, and few are familiar with history or literature or sociology or anthropology. Most economists have come to see economics as Queen of the Social Sciences with an imperial authority over psychology, sociology, political science, and so on. The valuable findings of cultural anthropologists are ignored by economists, because anthropoligists generally study societies based on tradition rather than societies where market forces dominate social organization.
Parochialism is not confined to economics; for example, it is just as bad among sociologists as it is among economists. Thus I am not singling out economics as any worse than the other social sciences.
Another problem is focus. Economists don't study economies, they study flows of (usually fiat) money and social behavior. The first two courses in economics should be thermodynamics and human ecology, followed by a good study of demographics and the historical population dynamics of human beings.
Thermodynamics is the supply-side limit, and demographics is the demand-side limit. That gives you your control system. Money, credit, and human economic behavior patterns are merely part of the dynamics of the system that bounces around in the space created by those two walls. They are not the primary thing.
Good tools for an economist are a fine pair of boots.
I agree wholeheartedly with your reply in respect to the overly narrow education of most professionals;imo, the problem is virtually universal and only a few people ever become truly knowledgeable across the broad spectrum of the many fields critical to current day societes such as our own.I thought I was pretty smart when I graduated from college, and I was, actually-for a twenty two year old.
Looking back now, I am amazed at two things-the width and depth of my ignorance in those days;and the shalowness of my knowledge today-I am at least fairly well satisfied with the WITDH of what I know about, given that I have spent more of my life reading very good books than any other pursuit. A couple of hours a day here continues my education nicely, as I pursue the most interesting links for a couple more hours.
I also recognize that the run of the mill conventional thinkers in the various firlds possess a hxll of a lot of useful knowledge;and that the leading edge thinkers in most fields, perhaps all fields, are actively incorporating the knowledge gathered by other kinds of specialists into thier own theories and practices.
Such leading edge individuals, however, don't seem to be the ones who sit in the drivers seat at the real centers of power.I can easily imagine our own Nate Hagens becoming a professor at some respectable university, or perhaps even an Ivy, but I can't see the dominant players of the bau scene endorsing him for a cabinet position.
And an economist who wants to keep his job probably has to play along to get along.
A friend of mine has a friend who is a manager of a local bank branch.Said manager, when I asked him about the best investment I could make with a few thousand bucks for a few years suggested that I leave it with him at an interest rate considerably less than the rate of inflation.
A casual inquiry about the rate of interest for a loan on a new truck for the farm came back instantly about five times as high.He argued that I would be better off borrowing the money for the truck, using the (to me)lame argument that I couldn't afford to be w/o the cash handy in reserve.
When my friend has a few thousand to invest for a few years, said manager very quietly, without any paperwork whatsoever, helps him get together with someone who has excellent security, such as a paid for house, but bruised credit, and my friend gets ten percent. Our mutual friend the lawyer, not hitherto mentioned, collects a few hundred in a couple of hours for drawing up the paperwork.
I am treated by the bank guy, who only knows me as a customer with a checking account opened at another branch, as required by his particular gotta go along to get along requirements.I believe most economists are trapped in situations analogous to the banker's.
I alsi believe that most, probably nearly all, non academic practicioners of the various other social sciences are in the same trap.
Your comments in respect to thier intellectual arrogance (Queen of the social sciences) rings true to me.
It seems that each profession is in possession of its own kind of hammers, and all problems look like nails to those possessed of hammers.Hence we should not be suprised that the practicioners of the various professions are convinced that they are possessed of the answers to all our problems-if only the rest of us would be reasonable and let THEM run things!
Of course thier response when they get some power and money but almost invariably fail to get results is to demand more money and more power. ;)
I strongly reccomend EO Wilson's "Consilience" to those interested in the interactions between the various professions as (they come within sight of one another" as Wilson phrases it in the book.
Good recommendation (really, about anything by Wilson is worth reading), but the follow up should be Wendel Berry's "Life is a Miracle"--a thoroughgoing critique of "Consilience" and of the mechanistic views of most "hard scientists" (even of many ecologists).
That's a pretty strong statement, so perhaps you can elaborate? I'm not saying I disagree, as my knowledge of psychology isn't all that impressive, but really? No clue at all? I'm not prepared to just take your word for it, without any examples.
Hi Jussi,
You know what a Blank Slater believes? Start there, so far as I could tell from trying to engage this instructor in serious dialogue in class or out.
Of course even with times as tough as they are, community colleges in the boonies probably have a hard time finding adjunct instructors willing to teach such classes.The ones in this part of the world seem to have either comfotable private practices or secure 8 to 5 govt jobs and don't appear to need the couple of thousand bucks, which is a not a lot, considering the time and trouble involved in teaching such a class.
If not acquainted with blank slate thinking, Stephen Pinker's book "The Blank Slate" is the place to start;Pinker is a leading pro in the field and a professor at MIT.
Said instructor knows there are environmental problems, but only in a general way, but knows next to nothing about energy, banking, finance, overshoot,peak credit, or agriculture- all topics quite familiar to the regulars here.Instructor was quite knowledgeable in respect to certain sports, certain teams, and certain tv shows;also very knowledgeable in respect to current trends in popular culture.Unable to understand-or possibly just unable to admit-that the recipients of many hand out goodies know the rules and play the handout game as well as any banker-but in the minor leagues rather vthan in the majors.
( I personally know several such players-such as two couples who have gotten divorced in order to collect a disability benefit;a paving mechanic who stays on unemployment thru the winter but spends his winter days doing small well paid word of mouth cash carpentry jobs.Women who have defacto husbands with decent jobs and kids but who are living in rent subsidized housing.Redneck type guys such as yours truly always know such people, they are not at all rare in the underclass or lower reaches of the working class.)
This instructor is not the exception;this instructor is the rule;I know many teachers, having been one once myself, and only a very small minority of them read as much as one serious book a year about a subject outside thier immediate professional field.
I seriously suspect that most public school TEACHERS don't even read one serious book a year on average once out of school even including bookis related to thier fields.
A whole generation of educated women bypassed teaching and had professional careers that paid much better. Some women I knew in college who got teaching jobs went back to school to retrain in other careers because the children were unruly. Part of the price we paid for equal employment.
I think you should start reading the crooked timber blog. It is composed primarily of professors in the social sciences, but anyone can chime in. But be forewarned, there are a lot of hardcore philosophy types and any sloppily made argument will be torn the shreds. Perhaps these are the young intellectual whippersnappers rather than the currently reigning crowd in that profession.
Eos,thanks I will check it out-I have not heard of it before.
Actually I do think the younger and more intelligent men and women in most fields involving reasearch are probably willing to question authority and explore the incorporation of new knowledge from othewr fields into thier own work.
But the older guys 'n girls occupy the university chairs and the chairmanships of depts as well as nearly all the positions of adviser to the people at the top of the power structure.
The only way to get rid of such a person is to wait for them to retire or die in harness.
Here we go again.
Speaking as an economist by training and someone who's been blogging about energy and climate issues for seven years (and yes, I'm on the same "side" of these issues as the regulars at this site, much to your inconvenience and discomfort), perhaps I should write a companion piece to this spleen venting. I could go on at some length about how scientists (let alone armchair commentators) don't know Jack about markets and never tire of proposing one ludicrous "solution" after another without thinking for a moment about the economic consequences for millions of people at middle class and below income levels. (A good example is the endless line of typing morons who say they would "just add a $5/gallon tax to gasoline in the US". Ask yourself what the ramifications of that kind of policy would be if enacted exactly as it's so often proposed.) Please don't think I'm saying that only someone formally trained in economics should be "allowed" to comment on such things; I'm simply pointing out that whether you're talking about economics or climatology or oil refining or any narrow and deep field of knowledge that we all have a responsibility to others to do some basic research before spouting off with our crackpot ideas.
I could even borrow this author's very broad paint brush and say my (mis)characterization applies to all geologists or climatologists or oil industry experts or whatever group I chose to attack when I wrote it.
How welcome would such an absurd display of closed-minded, uncritical, prejudicial thinking be?
More to the point, how useful would that be in terms of advancing the conversation we so desperately need to have about our finite resources and the environmental hell we're unleashing on ourselves? Perhaps it's time for all of us to "lose the attitude." Because "the problem of energy limits awaits" all of us.
Lou, we all understand that there are some economists who get it. It is just that the vast majority do not. Growth has limits. How many economists, in their writings, speak of the limits to growth? How many economists believe that limits in the oil supply will impose serious constraints in economic growth? You may indeed believe in the limits to growth Lou, but the vast majority of economists do not.
Ron P.
Anybody who believes exponential growth can go on forever in a finite world is either a madman or an economist.
- Kenneth Boulding
;-)
I think this is being a bit unfair on economists. The people who do not get it, are in denial, or pretend not to get it, are those whose job depends on BAU and the prediction of BAU. Politicians fit nicely into this category.
In fact the majority of people, as long as they are heavily invested in something, will continue to believe in their dream, even it means jettisoning all logic. This is especially true if the alternatives are too dire to contemplate.
Nonsense! Of course the people you describe do not get it. But your words "The people who do not get it" implies that these folks are the only ones who do not get it. Virtually no one gets it! Not just those who think their job depends on it. (Actually everyone's job, in the long run, depends on it.) And people are not in denial, they are just totally ignorant of the situation.
Economists are trained in traditional economic theory. Traditional economic theory implies that growth can continue forever. Well, at least as long as they will live. They, like Keynes, realize that in the long run we are all dead. But while they are alive, the vast majority of economists believe that growth will continue ever upward, except for the brief recession ever few ears of course.
You are correct, the alternatives are too dire to contemplate. But that is not the reason people deny them. They deny because they simply do not believe in doomsayers like some of us. They think we are freaks. They laugh at us. And with good reason. Every doomsayer since Cassandra has been proven wrong. So why in holy hell should they believe us?
They are just being normal. Economists are just being normal in believing what they were taught at the university. I am not being unfair to them. I am defending them. We should not expect them to be any different.
Lou is the exception. He gets it, apparently. He should be proud of that fact and quit knocking those who complain about all the other economists who do not get it.
Ron P.
I like the way you start with "Nonsense!" and then go on to agree with me in the same paragraph :-)
Then you completely misunderstood my first paragraph. You implied that the only folks who do not get it are those who's job depends on it, implying that this is the reason they do not get it. No one gets it because they see us as silly doomsayers who are not to be taken seriously.
Ron P.
I will rewrite my sentence so you understand what I mean.
I suggested that there are people who do not get it (the people who totally ignorant of the situation).
I suggested that there are people in denial (those whose job depends on BAU and the prediction of BAU).
I suggested that there are people who pretend not to get it (also those whose job depends on BAU and the prediction of BAU).
In my opinion, and in yours also, as you stated "(Actually everyone's job, in the long run, depends on it.)", the above includes most people.
Regarding your other statement, "No one gets it because they see us as silly doomsayers who are not to be taken seriously.", I agree that this applies to some people. Others however take in all the logical arguments, but then say "but, but, but it just can't be that bad.....".
Traditional economic theory involves long-term equilibrium solutions for the steady state. Growth is typically handled by some parameter that inflates everything, added after the fact. Technological change is also ignored by traditional economic theory.
I don't mean to nit pick, D-man, but Cassandra was proven correct, not wrong.
That was her curse, to foresee doom, be correct in her prediction, but to have no one believe her. My guess is the "Cassandra" analogy to Peak Oilers will turn out to be spot on.
Yes, I realize that. What I meant to imply was that Cassandra was the last doomsayer to be proven right. All since Cassandra have been proven wrong. I should have phrased it differently.
Of course I was just speaking metaphorically. It is highly likely that there was at least one doomsayer on Easter Island, and in other collapsed states, that correctly predicted their coming demise.
Ron P.
http://www-personal.umich.edu/~bbowman/birds/humor/foo_bird.html
Okay, I'll take the bait. What are the ramifications you are so scared of? That poor and middle-classs people won't be able to afford to run cars? Or won't by able to afford to drive them very far? That they won't be able to support failed bailed-out companies because they can only afford to buy used bikes and share apartments? That they will have to leave their homes and move closer to work and distribution centers?
That's the point. No one said that it would be easy.
Different parts of Europe pay something like 5-10 time what the US pays in gas taxes and it has worked well for them. So a $5 tax would only be what, 20-25 times what the US has to pay now? And people can't afford cars and have to move? Oh well. That's the point. Better now than later. Best would have been 15,000 yesterdays ago.
Calling us crackpots and morons doesn't strengthen your opinion; it does the opposite. Price inflation as a means of rationing is tried and true and it needs to be extended and deepened.
Andrew,
You are correct that a five dollar a gallon tax on gasoline (and diesel) is not a crackpot idea. Far from it: For fifty years many many mainstream U.S. economists have proposed a stiff tax on gasoline to internalize the externalities of consumption related to burning that fuel in internal combustion engines.
The fatal problem with the proposal to increase the tax on gasoline has nothing to do with economics and everything to do with politics. No politician who wants to be elected or re-elected dares to propose increasing the gasoline tax, because to do so is to lose the election. Politics is dominated by the shortsightedness effect, where it is impossible to look beyond the next election; imposing immediate costs for long-term benefits is a way to lose votes and hence is not politically viable.
The immediate imposition of such a tax would probably result in a fatal or near fatal shock to our EXISTING economic structure.
In principle I am not opposed to such a tax, if the revenues are earmarked for what I consider useful ends, but I don't believe there is any way such a tax could be successfully implemented at a stroke;otoh, I would support imposing it a quarter per gallon at a time , increasing the rate every six months or every year for instance.
This would allow people to adjust to the new reality-and finish paying off a car loan and be in a position to trade or buy a more economical car, to move to a place closer to thier job,..that sort of thing.
It would allow people to more gradually back out of investments that will no longer make sense , such as buying a house a long way out in the boonies;and it would allow people who no longer need to commute, such as retirees and people who can telecommute to buy up such isolated houses, helping prevent a housing crash..
It would give more time for people to get used to carpooling, driving minicars,setting up mass transit systems......
I think few if any people proposing stiff gas (or oil or carbon) taxes propose an instantaneous change to the full level of taxation. Most seem to understand that anything so fundamental to the workings of the economy has to be ramped up sufficiently slowly that adaptation to the new state can occur. Of course many of those in opposition throw out scare stoires about the presumed effect of an instantaneous change.
I've lived and worked in Vancouver Canada for the past two years where gas already IS $5.00 per gallon. I didn't notice that the world as we know it had been knocked off of its axis. As a matter of fact, the Canadian economy hardly noticed that Big Brother to the south is in a tailspin. House prices continue to go up, nobody's home is being foreclosed, the most common car in my neighborhood is a BMW or the Mercedes 200 that is too small to import into the US, and the most common taxi is a Prius. Darn few SUV's though--.When I need medical care I just walk into my doctor's office and present my card. Funny how my doctor back in the US always used to put me in a waiting room with no clothes on for an hour before seeing me----. The longest I've ever waited in Canada is 5 minutes. I guess my US doctor was under too much pressure to pay for his malpractice insurance to actually see his patients rather than line them up on an assembly line.
The problem with imposing $5.00 per gallon gas prices in the US is that it is far too small a surcharge to shock the country into actually moving toward energy independence or slowing global climate change. If you add up all the costs of being an Imperial Oil Warlord, environmental destruction, additional health care costs, distortion of any semblance of a democratic political system, etc. the real cost of a gallon of gasoline is likely much closer to $10.00 already--it just is hidden in the "defense" budget and the medical care racket.
However given the existing infrastructure, any gas tax is by its nature a regressive tax, borne by those who can least afford it in a society where public transportation is stillborn. If taxation is to be used as an instrument of economic planning it should not be yet another means to line the pockets of the favored few. In the case of a gas tax (or its more inclusive form of a carbon tax) the way to do it fairly is to make it revenue neutral.
No loopholes for the tax lawyers to burrow into, no bloated bureaucracy to administer it. Simply add $.50 gallon per year to the federal gas tax rate until the cost of gas reaches $8.00 per gallon. Refund 100% of the funds raised equally to each registered voter in the form of a monthly AMERICAN ENERGY INDEPENDENCE BONUS CHECK. Bill Gates gets the same check as you and I-- no means testing, maximum simplicity of administration. The result-- revolutionary change in the economic incentives for energy use and conservation, economic stimulus as almost all of the money is put in the hands of those who will immediately spend it on goods & services, immediate offsets to the additional cost of gasoline, increased voter registration and higher voter participation, and public acceptance because everybody will like receiving "free" money from the Government rather than having to send money to the Government!
My proposal is far too simple to implement and administer for it to every be considered in a country where there are only two political parties, the Know Nothing Party and the Do Nothing Party.
The United States really cannot afford to import the amount of gasoline that it does, and a $5/gallon tax would go a long way toward discouraging Americans from using gasoline. It would encourage them to buy much more fuel efficient cars, and go a long way toward paying for the road maintenance that is currently being is being funded out of other taxes, or not done at all.
These levels of taxation are typical of Europe and Japan, among other places, and originally arose because countries did not want to deal with the severe balance-of-payments deficits that result from high levels of oil imports. The US has an absolutely huge balance-of-payments deficit, much of it caused by oil imports.
The low fuel taxes in the US resulted from the fact that the US used to be a major oil exporter, and the government's goal was to encourage people to use as much of its indigenous resources as possible. Those days are long gone, but the government policies persist. People view cheap gasoline as an entitlement, not realizing that the country cannot afford it.
The US has an absolutely huge balance-of-payments deficit
Aye.
And woe to the little boys who says
"The Emperor has no clothes!!
He is nikked!!"
Andrew, proposing such a tax as a fix for the problem just makes Lou's point.
Lou is right in this case, a $5 gasoline tax would have a devastating effect on the economy, European petrol prices notwithstanding. And the result would be a windfall for other countries, like China and Japan, who impose no such tax. Oil consumption would drop dramatically in the US, because of the tax AND the ensuing recession. That would cause oil prices would drop dramatically in other areas of the world.
That being said, there is no fix to the problem. That is the point most economists as well as most peak oilers do not understand. We are deep, deep into overshoot and there is no cure for overshoot.
Ron P.
There are other approaches besides a stiff tax on transport fuels or a carbon tax. A program of direct rationing to the consumer is one such. The economists use the term "ration by price" to describe the effects of increased taxes on demand. Using tax increases to limit fossil fuels would also have a wrenching impact on the economy, especially as the taxes might need to increase faster than inflation and we've already seen so-called "stag-flation" result from previous sharp increases in fuel prices during the 1970's energy crises. But, rationing would be almost impossible to sell to the public absent a massive crisis, such as another world war.
Perhaps a better statement would be: There were no politically acceptable fix(s) to our problems, as it now appears to be too late even for the unpopular solutions to work, given the massive population growth since WW II..
E. Swanson
Black Dog, that statement implies that there are politically unacceptable fix(s) to our problem. I would submit that this is not the case. There are no fixes to the problem acceptable or unacceptable. Unless, of course, that you are implying that nature's fix is truly a fix. That would be like saying that the death of the patient fixes their cancer problem. Well, if that is what you are implying then I agree.
Ron P.
I'm with you, D-man.
There are certainly such "fixes", the most obvious and abhorrent being a program to rapidly reduce total population to some level which is sustainable. We've seen several such plans during the 20th Century, so there's no need to discuss whether they are politically acceptable, since they have already been rejected several times over. Of course, there would be many more "losers" than "winners" as the population is cut by 80 or 90% and the losers would always out vote the expected winners. Like the problem with cancer, the treatment might also kill the patient, but cutting off an arm or a leg (or 2) likely won't. Cutting off one's head to "cure" a cancer inside would be another matter entirely.
Here's a simple solution for the party of NO WAY. Since they don't like public health care, lets close all the hospitals in the US and make doctors provide their services via house calls to the sick. And, ban the production and importation of vaccines, antibiotics, anesthetics and antiseptic chemicals, except alcohol, to be made available in large quantities for personal consumption. Then, sit back and wait for the waves of epidemics to do Nature's work...
E. Swanson
What is "our problem", exactly?
Our problem is OVERSHOOT.
Seriously, were you really unaware of that fact?
Ron P.
With peak oil being a sub-symptom of the complex problem of overshoot. Near as I can tell, though, overshoot still conforms to the universe's physical laws. So is the problem that overshoot exists, or that we cannot accept that it exists? You can solve problems on a spectrum of changing the outside results to meet your expectations, to changing your expectations to meet the outside.
I'm not a big believer in the theory of overshoot. If you look at the book cited, for instance, it starts off with the Russian famine of 1921.
Millions of Russians died as the result of two world wars, but between the wars millions more died of bad economics (actually, more Ukrainians died than Russians because Stalin exported most of the grain out of the Ukraine despite the fact that millions were starving to death).
It wasn't a lack of farmland or resources that was the problem, because Russia is the biggest country on Earth, and has enormous amounts of farmland and energy resources. Far more than it really needs.
In reality millions died because Stalin thought that Marxist economics worked, and in reality it didn't work. It was mis-allocation of the available resources that killed all those people. Eventually, at the end of the Cold War, the Russians realized that Marxism wasn't working, and the Soviet Union collapsed, a victim of its own internal inefficiencies.
Similarly, tens of millions of Chinese died during Mao Zedong's "Great Leap Forward", for the same reason - bad economics. After Mao died, the Chinese technocrats realized the source of the problem, and (after purging all the Maoists) moved to rectify it by implementing something that looks very much like pure, laissez-faire capitalism. This solved all their historic problems with famines, and is rapidly turning China into an industrial superpower.
You may not like it, but this is just good economics versus bad economics.
Stalin's industrialization during the '30s was more practical than ideological.
During the early '20s, the large holdings of nobility had been broken up and subdivided. Most of the agricultural output that went to market and was available to the urban populations came from the larger holdings of kulaks who still produced a surplus. However, most of the smallholders were peasants living on subsistance farms and they produced minimal output to the markets.
So the objective of the agricultural policy was to move the rural population into new industrial centers, concentrate land in larger holding with mechanization (apply FF energy instead of animal and manpower), and ensure that the larger holdings produced a surplus of agricultural products to feed a growing population in cities and industrial centers.
This was all accomplished by central planning, backed up by ruthless enforcement, and it didn't have much to do with economic theory.
Stalin's policies were based on conventional Communist economic ideology. Stalin assumed that by forcing the rural peasants into communes he could increase agricultural productivity and provide enough food for his newly industrialized cities. However, the Marxist theories turned out to be invalid, the collectives were much less efficient than the individual private farms, and in the ensuing famines millions of people starved to death.
OTOH, China went in the reverse direction, using the ideas of different economists, and starting in 1978 allowed individual families to lease land from the communes and keep the profits from any productivity increases. This resulted in a rapid increase in agricultural productivity, averaging over 7% per year, and the generation of a pool of investment capital in rural areas which went into the founding of rural industries. The rural industries began to employ more and more people, which resulted in the start of the modern industrialization of China. Agriculture's share in the workforce dropped from 71% to about 50% in a period of about 20 years.
Two completely different economic policies, two completely different results. The Chinese achieved the goals that Stalin was trying to achieve, but used market forces rather than central planning to do it.
There were already grain shortages in the 1927 harvest prior to collectivisation. These were exacerbated by '31-'32 by the resistance of the peasants plus the poor weather. However, by the late '30s the program had largely suceeded in achieving higher overall production. Besides, the main objective was to ensure that the Army and the workers were fed. And Stalin did not have 20 years to spend before facing Hitler.
Stalin and the Agricultural Crisis, 1928
The Chinese experience situation is different in that Maoist theory always had a high regard for and focused on the revolutionary role of the peasants. Leninism and Stalinism were focused almost exclusively on the worker and regarded the peasantry as a breeding ground of capitalism.
Somewhere around 7 million peasants died in Stalin's Soviet famine of 1932–1933 . By comparison, roughly 30 million peasants died in Mao Zedong's Great Leap Foreward . The numbers in both cases are approximate because the true census data was suppressed by authorities.
In both cases, the deaths resulted from the economic chaos following forced collectivization. In both cases, minority groups took the brunt of the fatalities. In the Soviet Union, 5 million of the deaths occurred in the Ukraine, while in the Chinese case around 20% of the population of Tibet perished. And in both cases the leaders blamed the problems on the peasants themselves - the familiar "blame the victim" approach to avoiding assuming blame yourself.
After Mao's death, Chinese authorities undertook the Chinese economic reform which converted China's command economy into a market economy and led to the ongoing economic boom and present high level of food production. The Russian economy hasn't undergone the same level of market reforms, and as a result Russia's economy is now about the same size as Canada's and smaller than California's, while China's economy is now bigger than Japan's.
Russia's GDP (PPP) per person is about 2.5 times that of China.
Russia has a number of problems that China does not:
China wisely kept the lid on political change, and modified the economy to a new system of state capitalism with free markets outside the core industries.
Russia's per capita GDP is still bigger than China's, but China is catching up fast. Last year the Chinese economy grew by 8.7%, while the Russian economy shrank by 7.9%. At this rate it won't be long before the average Chinese worker is making more than the average Russian.
China has over 9 times as many people as Russia - that's the same population ratio that the United States has to Canada. Given its superpower aspirations, Russia is probably going to be extremely unhappy about playing the same role to China that Canada does to the United States, but that's very likely to be their ultimate future relationship, given China's huge population and Russia's vast natural resources.
It's surprising that the Russians didn't follow the Chinese model and introduce economic reforms while still keeping a lid on politics, but I guess they thought they were smarter than the Chinese. They were still stuck in the mode of trying to dictate events from the top in one big sweeping change, rather than incrementally introducing reforms at the micro level.
The Chinese approach of introducing economic reforms slowly and gradually, starting with the most inefficient part of the economy, the subsistence farming sector, certainly worked much better than trying to decontrol everything all at once.
don't forget their One Child per family policy, which kept the population from growing, in effect removing an estimated 250 million people from the population by 2000. This policy also released a considerable number of females from child care to be utilized as workers in other productive activities. As with any new large scale plan, there were unintended consequences...
E. Swanson
True. This was a break with Mao who was of the opinion that "with every stomach comes a pair of hands", which was consistent with communist theory that all value derives from labor.
The Chinese "one child" policy certainly helped contribute to their economic boom since it freed up resources which went into economic growth rather than child rearing, and prevented their large population from overrunning their limited resources.
However Russia's population is actually declining, despite the fact that Russia does not want it to do so. The main reason, other than the lower Russian fertility rate, is that the Russian death rate is nearly twice that of China. The average Chinese male now lives nearly 10 years longer than the average Russian male.
Darwinian,
There are no fixes to the problem acceptable or unacceptable.
You really are displaying a total lack of imagination and knowledge of world history.Why do you think that a drop in liquid fuel supply( for example no oil imports except from Canada, would cripple the US economy?
Would it be impossible for US vehicle manufactures to replace 25mpg vehicles with 50mpg vehicles let alone 180mpg PHEV or electric vehicles that use almost no oil?
Are you saying that with severe gasoline rationing of private vehicle use, the US consumer would still demand to buy and drive 20mpg SUV's, even if they only could buy 3gallons per week?
Would workers refuse to car-pool in sub-compacts instead of driving to work alone in 2 tonne vehicles?
Would parents insist on driving children to schools 1mile distant in monster vehicles when they can walk them to school?
Would shoppers still insist on driving to shops every other day instead of walking, bicycling or driving once a week?
Are you saying people would rather see 70% of population starve, rather than reduce oil consumption by 70%?
Much of the oil consumption is unrelated to personal vehicles. Commercial trucking uses a massive amount, I'm not sure how you could get drastically increased mileage out of those.
Only 8,989,000 barrels/day in 2008 was related to motor gasoline consumption, that was less than half of total consumption.
What on earth is your point?
Much of the oil is UNrelated to cars, and as you show, MUCH of it also IS from cars, or nearly HALF of total consumption. (That According to your number, which sounds high to me in this case, but it still will be a considerable part of our oil use, no?)
Commercial Trucking would have to be offered different solutions, but that's ok, we have room for more than one project. I recall Electric Rail Freight being discussed a number of times here..
Maybe Ron is right. There is NO SOLUTION to this problem.., but maybe there are simply SEVERAL that need to be combined, if not to grant us that Shining Utopia, then at least to push us in the right direction so that there will be a chance for a few more survivors than Ron's despairing course would afford.
Of course, it is perfectly feasible to switch most of your freight movement to electric rail. This is not the American way of doing things, but it seems to work very well in France and Switzerland, and the Chinese are doing a major expansion of their electric rail system.
There would always have to be some trucking, but there are alternatives to diesel fuel. I worked for one oil company that converted most of its truck fleet to natural gas. In their case, they did it because the economics worked out better (they had a lot of surplus natural gas).
And I once worked for a boss from England who used to reminisce about running the company trucks on coal during WWII. It wasn't a perfect solution (a truck set the main garage on fire when its coal-to-gas conversion unit malfunctioned), but the Germans were sinking most of the oil tankers.
And, as an extreme case, Switzerland managed to get through WWII with almost no fossil fuels at all. However, they had anticipated the War would come and had contingency plans in place to deal with it.
So, there are always alternatives to oil-based fuels. The problem for the United States is that its planning has gone 180 degrees in the wrong direction since its oil production peaked 40 years ago. If you make the wrong decisions it's not surprising that you would have serious problems.
Are you seriously saying that they wouldn't?
Read some history, please! Elites have generally been perfectly happy to make the masses starve, while continuing their own consumption unabated.
Irrelevant. It isn't the elites that consumes the bulk of the gasoline - it's the ordinary citizens. So 70% of the population will not starve rather than reducing oil consumption, since that same population will prioritize food over gas.
Neil, you really are displaying a total lack of understanding as to what the problem really is. However...
Yes a drop in the liquid fuel supply would indeed cripple the US economy. I know you can sit in your armchair and imagine everyone riding bicycles to their jobs where they make automobile parts, or a thousand other products which would no longer be needed because of the fuel crisis.
A drop in the liquid supply, if deep enough, would throw millions of people out of work. You pundits are always talking about how we could do with less. Of course we could do with less but doing with less means the people who produce the stuff we do without will do without a job. Jesus, how difficult is that to understand.
And it would not be just a US recession, it would be a world recession. All those Chinese who produce the stuff we would be doing without would be unemployed also. Less consumption for the world means less employment for the whole damn world. That is the one thing the pundits of less always forget.
And last but not least, the problem is just too many people trying to eek a living from a planet that is being stripped daily of its life supporting capacity. We are deep into overshoot and more and more oil is needed daily to give employment to more and more people. Even if the oil supply kept growing forever the world's population of Homo sapiens would sooner or later collapse.
Ron P.
No one mentions the violence that would ensue....just nature's course.
I believe the results of overshoot will be akin to kicking over a hornets nest, yelling "fire" in a 330 million theatre. That is just the US version
Paulo,
There has really been no shortage of mentions of the 'violence that (will) ensue' .. of course, it is also made to sound like it will be an ubiquitous and permanent state of affairs, which I think plays better in screenplay format than on a sciency-blog, but that's just me.
I can sit in my armchair and reminisce about riding my bicycle to my job with a giant Canadian oil company where I thought of new and innovative ways we could produce more oil that we could sell to you Americans. Alternatively, when the weather was bad, I took the wind-powered electric train. On the political front, I lobbied for more bicycle paths and more light rail transit. That freed up even more oil to sell to you Americans.
After my sister got her engineering degree, she worked in oil sands research, while her husband did fuel alcohol research. My brother put together a giant natural-gas liquids operation supplying the US market. The whole family was involved in producing more liquids to send to the United States.
Now, realistically, you don't need to use as much liquid fuels as you do. You could put in bicycle paths and light rail transit, electrify your rail systems, and otherwise find alternatives. But it will be expensive because, frankly, all the cheap oil is gone. Canada has lots of expensive oil, but you do have to pay in hard currency, and you won't like the price. Maybe you'll have to scrap the SUV and switch to a bicycle because you won't be able to afford gas. But, it's not the end of the world - as I say, I commuted to work by electric train, and the cost was extremely affordable because they avoided gold-plating the system.
The alternative to you buying the oil is that we could sell it to the Chinese. That seems to be what the next family generation is working on. The problem from your perspective is that the Chinese are extremely good at producing automobile parts extremely cheaply, so they have ways of paying for the oil. You may have a problem.
Ron,
Yes a drop in the liquid fuel supply would indeed cripple the US economy. I know you can sit in your armchair and imagine everyone riding bicycles to their jobs where they make automobile parts, or a thousand other products which would no longer be needed because of the fuel crisis.
You missed a few rather important points about what I said. Firstly, some fuel will contine to be available people will give priority to its use. First uses to go will be short trips in a 2 tonne vehicle to pick up a lite of milk, or a loaf of bread. Next will be short trips to church, sporting events, recreational shopping, people will walk or bicycle. Next will be single passenger trips to work, car pooling will become more common. I know this will happen because I lived in US in 1970's, I car pooled to work, we turned down heat to 60C to save gas, we cooked on wood fuelled fireplace, we slept in sleeping bags.
As for non-existent jobs in auto industry, expect a boom in EV and PHEV sales if the gas ration is only 3gallons/week.
I have never understood how people think that extravegant waste of oil contributes anything to the economy, really does a Prius driver consume less than a 15mpg SUV driver?, no, just less imported oil and more of something else, every $1 spent on oil, means one $1 less to spend on other products that have a much lower energy content/$1 value.
Even if the oil supply kept growing forever the world's population of Homo sapiens would sooner or later collapse.
I totally agree, luckly the oil supply will not keep growing, and our species does not have to collapse, it just has to transition from FF to nuclear and renewable energy, and we seem to have plenty of these for a fairly comfortable lifestyle for several billion people.
You are asking about things that never were and asking, "why not"? This is because of the things that were which explain, "this is why it got to be the way it is". The hurricane has already begun, it is too late for the raindrops to vote.
Hunh? Gasoline taxes in Japan are somewhere around $5/gallon. Chinese taxes are much lower, but China tends to charge tolls on its roads instead, and probably will start to raise fuel taxes now that it is a net oil importer.
Hunh back to you RockeyMntGuy! What has their current tax structure got to do with anything? $5 a gallon tax on gasoline would cause a deep recession in the US and much less gasoline use. That would mean far more oil available for Japan, China and everywhere else regardless of their current tax structure!
Ron P.
It depends on how you adjust the tax system. If a $5/gallon tax is offset by tax reductions or increased subsidies elsewhere, the net effect on the system is neutral. You are just discouraging the consumption of gasoline and encouraging the consumption of something else. Public transit, for instance.
I mean, this is how much of the world works. If you are in France, driving is expensive, but you can always take high speed rail instead. Their rail systems are electric, and 80% of their electricity comes from nuclear reactors. They tax gasoline and subsidize nuclear power.
You pays your money and you takes your choice. The choices the US has made are not necessarily the ones I would have recommended.
And China's going to buy the oil anyway. They'll just outbid you for it. Be prepared for that to happen.
Win-win.
I disagree. If you raise fuel taxes and simultaneously cut other taxes (sales tax, income tax, the g-d d-mned property tax) at fair an proportionate levels, there would be ZERO impact to the consumer. Europeans AS A SOCIETY do not pay more for gasoline than the US. They pay more tax on gasoline and therefore less than they would in other taxes if the gas tax was lower. This tax revenue goes into the coffers to pay for gov't spending on other things.
But what a gas tax does that other taxes don't would do is make it smart to conserve fuel as a way to pay less taxes. But there is no net cost to the consumer. If anything, it will relieve them, because as they consume less fuel, our balance of trade will improve.
I think you are taking a simplistic view of the economy.
And there is an answer to peak oil: use less oil.
It seems to me the problem is not the absolute (or even relative) amount of tax is w.r.t. median income. The problem really is in the rate of change. If there is an increase of 10 cents per month for the next 5 years, what would the ramifications be ? The inexorable and definite increase of oil price would help investments into energy saving and efficiency - not armageddon.
To start your rant, please tell us whether you agree or disagree with the Ambrose Evans-Pritchard commentary which Gregor MacDonald linked to up top. Or, perhaps you might tell us how you would get the economics profession to include the reality of the EROEI of energy sources, particularly fossil fuels...
E. Swanson
Lou, attitudes don't help, but as I pointed out to Don a few days back, the overwhelming number of economists have a giant blind spot, in my view. You truly are a rare bird and I for one appreciate that you "get it."
But your colleagues in general just don't get it. Here's a comment I made from a few days back:
Here is the link the paper by Montier:
http://files.me.com/aangel/a3g6ry
Thank you for finally providing that link.
(That is one creepy looking sheep)
And best opening sentence ever in an economics paper:
Hurry and download your copy before they're gone.
I actually provided it on the previous story when you requested it. You must not have gone back to check after I did that.
louGrinzo:
Economics, when all is said and done, is a minor branch of anthropology, and mainly the study of money. And in a world of fiat currencies, money is completely untethered from the physical universe...namely, money is nothing! A figment of the overactive human imagination, a cheap confidence trick or magic show.
Economics has become a study of nothing. That's why economists are so defensive, and why they have pretended to dedicate themselves to price stability or full employment or secular human progress or some such bullshit (profanity used for effect). And in that regard, our Greater Depression is proving, without doubt, that they have failed.
In short, economists study nothing, and they have failed at the goals they have established for themselves to fill that void. They deserve both pity and contempt.
When we inevitably return to a gold standard, let's see if the economics profession can redeem itself.
"When we inevitably return to a gold standard ..."
But we are much too sophisticated to do return there without some mechanism for adjusting the exchange rate between gold and the legal currency. So in effect the exchange rate becomes fiat money. Unfortunately we have learned how to deceive ourselves and we can't figure out a way to unlearn this forbidden knowledge.
More directly, I believe that we cannot 'go back' to the gold standard or to any other idealized remembered past. Too many people have books that detail techniques for working the angles in those earlier times.
How does a bankrupt state (and there will be plenty of them) pay to import the bare necessities. The answer is barter or Gold. Confetti will not be acceptable. For the bankrupt state's citizens confetti will do nicely.
"How does a bankrupt state ... "
I don't know, but that doesn't prove that someone won't come up with a way to address the problem. Failure of us to invent a way proves nothing. In times past a lot was accomplished on the basis of trusting the word of the sovereign. Exchange of second sons as hostages to the fathers performance, maybe.
Maybe revert to wars of conquest and enslavement. But blank slate economic visions ... I doubt.
And have your money supply controlled by South Africa, China and Sudan?
Suicidal-- how about basing it on a resource you control?
Good article. Seems to have sparked a bit of debate on the issue which is good to see. Not much on the solution side from anybody but I think people are just about tapped out of solutions that will never be implemented.
Lou,If you don't mind saying, where do you get YOUR CORN PONE? (litery allusion to Mark Twain)
I'm willing to place a small bet that you are not dependent on a paycheck issued by a govt agency, bank, or any large copporation unless the management guys are contrarian long term thinkers. So far as I can tell, such businesses are fairly rare annd usually privately held.
My guess would be that you are either an academic or have money of your own-perhaps earned through shrewd investing.
Lessee ... as one who has called repeatedly for a $5 a gallon gas tax (for the first year, a second $5 a gallon tax for the second year) okay I'm not a moron.
"Nobody listens to me, I'm an idiot!"
I can tell you what the ramifications would be, gasoline in the US would be higher- priced than anywhere else in the world.
http://en.wikipedia.org/wiki/Gasoline_and_diesel_usage_and_pricing
- It would certainly get peoples attention. Certainly after OPEC is declared by the US government a criminal organization.
- Nobldy would consider Americans decadent, 'sheeple', slaves to luxury and convenience or undisciplined any more!
- The idea is to put the auto industry- fuel production duopoly out of business: they've had their fun. Get them out of the way! The tax and elimination of subsidies (such as for electric cars) would certainly be steps in that direction.
- Much of the auto industry would collapse. including independent repair shops, dealerships, 'speed shops', outdoor power equipment makers, leisure power boating and other gasoline- dependent firms that would be knocked out of business. The industry's margins are paper- thin. Good riddance! There are too many crack dealers, too. Certainly there will be ramifications of these also go out of business as well (which could be done by decriminalizing/legalizing street drugs).
- Unemployment would double in two years. The western world has cast its lot with the auto as the answer to all things. Where the (economists') lie exists is the failure to honestly calculate and carry the costs forward to the autos' users. If the total costs of orienting our society around the car were honestly directed toward the users rather than being stealthily removed to whatever 'commons' can be found, there never would have been an auto industry in the first place. This is because too few would have voluntarily accepted those costs to allow a mass- production industry to develop. Large taxes would bring SOME of the real costs forward.
I don't know how I was able to contemplate the interaction of two different dynamics all by myself like that, being an idiot.
- Poor people would not be able to drive or afford a car. Good grief! They cannot afford yachts or private railcars or aircraft, either!
- The Saudi government would complain bitterly.
- Economists would suggest that China and India would use up any gas that the US doesn't. I say, bully for them. If they want to act like trained economists and waste themselves to the point of collapse, let them do it! Fuel consumption for agriculture competes with (mindless) personal transport consumption. It will be interesting watching the auto- lusting Chinese and Indians starve on television while they wash and polish their wonderful cars.
- Conservatives would be outraged especially if the action was coordinated with restructuring the country's debts. there are certainly severe consequences to restructuring those debts but since I'm an idiot I'll pass on that for the moment.
- Liberals would be outraged (but these could be safely ignored).
- $13 gasoline would have limited effect on VMT because people 'love their cars' and would risk bankrupting themselves in order to keep using them. This is what people are doing right now @ $3 a gallon!
Consequently, other initiatives leading to reduced auto use would require implementation.
The auto infrastructure could them be safely demolished. Canals would be a pleasant replacement. People could enjoy themselves along the banks of canals and use boats to transport goods and themselves in a leisurely way.
Millions could be employed building canals, next-to-canal infrastructure and boats. It would be a generational task unlike the quick and dirty land rape that accompanies the expansion of the auto into every nook and cranny of peoples' lives today. Unemployment caused by knocking down the consumption model would be ended by inventing new jobs in new (old) industries such as those related to canal building.
Even though I'm an idiot, I can see that getting rid of the cars is something the cars are in the process of doing all by themselves. The tax program is simply a matter of government doing its job, seizing initiative, making policy so that outcomes aren't ceded to the force of events. This is what governments are supposed to do.
They are also supposed to lead. We have hollow policy makers to accompany hollow economists.
Outside of name- calling I cannot see any ideas from you. The situation is spiraling out of control right under your nose. What's your big idea?
Nice picture. New York 2020?
Atlantis, 1220.
Ha, ha ha!
Ft. Lauderdale 2010 just little ways up the Intra Coastal from where I live. I could build you a solar powered gondola if you want. We already have hybrid diesel electric water buses That you can ride all day long for a one time price of $11.00... they stop at all the best bars along the water front.
http://www.expedia.com/pub/agent.dll/qscr=tsdt/locn=Miami+%28and+vicinit...
What European gas taxes would do for the US? Well, billions would end up in US tax coffers instead of in the pockets of Saudi royals. It would therefore be possible to lower income taxes MORE than the hike in gasoline tax, and so unemployment should go down a bit. The US would in some ways become a bit more than Europe (smaller cars, more dense cities, more public transport and so on). What else?
The only thing a $5/gallon tax would do is make it so the Toyota Prius is back ordered for a decade and any vehicle that gets less than 30mpg becomes worthless overnight. It would never work.
If you do the math, you'll see that those cars wouldn't get worthless overnight. You're wrong, it's as simple as that, and it would work as I said. And of course, you should introduce the tax gradually over the course of a decade or two, preferably along with climate summit negotiations that makes other countries agree to stop subsidizing and follow suit. (You'd probably want to do a carbon tax instead of pure gas tax.)
In a rat race only the rats win:
This is what we are fighting for in Iraq and Afghanistan:
The American Way is exported. There is reason why the UAE's net exports are declining:
Not to mention the carnage on these same roads:
What's worthless, again?
There's an old joke about some guys who are shipwrecked on a desert island with a crate of tin cans and no can openers. The others are trying to figure out what to do about it, but the economist confidently declares he knows how to solve the problem. The others are happy to hear this. So the economist fixes his gaze into the distance, furrows his brow and says, "First, assume a can opener . . . . "
Next assume the money they are throwing at the economy is actually worth more then the paper its not printed on... :)
You know, one fact that I found amazing was that, although tin cans had been in use since before 1772, the can opener was only invented in 1855. So, for over 80 years, people would take a can off the shelf, look at it, and say, "How the heck do I get this thing open?" Apparently the answer was never, "Invent a can opener".
So, people would typically have a hammer and chisel handy for the purpose of opening their cans. Woodsmen would take a hatchet and chop the top off. Hunters would stab it repeatedly with a large knife. In the Civil War, soldiers resorted to shooting the tops off their cans. People who had none of the above were reduced to smashing them open with rocks.
Although the first can openers were introduced in the 1850s, in 1866 someone thought to attach a can opener to the can (the old "churchkey" sardine can opener) and in the 1960s pull-top cans were introduced.
I don't know what this has to do with this topic, other than that if economists were responsible for tin can design, we would still be bashing them open with rocks, whereas if engineers were in charge, you'd have a $50,000 laser can opener, and if government bureaucrats were involved, you'd have to file an environmental impact statement and wait 5 years for approval before you could open one. If the environmentalists had their way you couldn't have a tin can at all and would have to carry your food in rolled-up banana leaves.
Not really, they'd just tell you its a waste of energy to make cans and cook food in the first place.
Unfortunately economists don't understand the advantages of being economical with resources and energy...yet.
http://ecobites.com/diy-recycling-projects/722-diy-solar-food-dryer
BTW it works with protein sources such as insects(most efficient) and even fish and meat.
Mmm, a little garlic, olive oil some sundried tomatoes and some nice big sundried grasshoppers tossed in a frying pan placed right in the focal point of your parabolic concentrating solar oven (made out of an old umbrella and some aluminum foil)... Yummy!
Though fresh fish rolled in banana leaves steamed on hot rocks heated in a bonfire on the beach ain't too bad either. Did that a lot down in Brazil back in the day...
Of course, back in the 1840s, the joke ended with canner saying, 'Imagine an Economist..'
It's pretty funny that you can take a whole non-sequitur and end up with a couple convenient jabs at environmentalists. Right out of the blue! Very good.
Actually, there was a bit of poetry with the visceral link between 'smashing open a can with rocks', and 'Environmental Impact Statement' .. I thought that was very impressionistic, if not a little snarky.
You will note that I not only took jabs at Environmentalists, but also at Economists, Engineers, and Government Bureaucrats. I'm an equal opportunity jabber.
Environmentalists may think they are somehow special and morally superior to other people, but the other three occupational groups would disagree with them about that.
I think we can all agree that Lawyers are the lowest form of life, just below sharks and dung beetles, but other than that, claims of moral superiority are highly subjective.
The "smashing a can open with rocks" solution struck me as something a cave man would do if someone handed him a can, but apparently it is still the only solution that many people can come up with to difficult technical problems. Evolution is a slow, painful process, but according to recent DNA studies, it has been accelerating in recent generations. We are evolving faster than ever. There is still hope for the future.
It should be included in this thread that when you get a bunch of environmentalists who talk about 'Canning'.. it's safe to assume that they are implying the use of reusable glass jars and not one-off slugs of sheet iron, which would help not only with their own 'resource footprint', but would also be a benefit to those poor folks on the island.
Sadly, the economist might find himself struggling for days to make his imaginary can-opener get any traction on the jar-lid.
Is that morally superior, or just smart?
Lawyers are the lowest form of life
How can I put this nicely? Up yours. Adversarial common law is the only thing that stands between us and dictatorial arbitrary tyranny. Lawyers wrote the Declaration of Independence, U.S. Constitution, Bill of Rights and 14th Amendment.
+1776
Adversarial common law is the only thing that stands between us and dictatorial arbitrary tyranny.
And here I thought it originally was a bunch of guys with muzzle-loading flintlock muskets. However, if you wanted to put a row of lawyers up in front of them to stop the incoming bullets, I wouldn't disagree.
Caveat: The only reason I take cheap shots at lawyers is that I have a lot of friends who are lawyers. I feel I have a moral obligation to toughen them up for real-world conditions. If they break down and cry because someone said something mean to them in court, they're probably in the wrong business.
Beans.
Any fool can cook fillet steak.
But only a master chef can cook beans.
Dum Dum the Clown can run an economy with infinite resources.
This death spiral will take a lot of memes with it.
Coulrophobia Fear of Clowns
The late Nicholas Georgescu-Roegen was a Professor of Economics who wrote extensively about energy and material entropy. His fans have developed a facebook site.
http://www.facebook.com/pages/Nicholas-Georgescu-Roegen/291939863624
As to the type or kind of science to which economics should be assigned: The governing body of the organization that administers the Nobel Memorial Prize in Economics has issued a statement that they, as a body, believe that their prize is offered for work in any and all of the Social Sciences. This, of course, does not settle the issue of what Economics actually is. But it should give pause to anyone who might think to advocate a different assignment because their assignment will have a difficult time winning market share in the marketplace of ideas.
First, let me 'help' this post by giving some context(eia link of the author)--the energy$/GDP$ are just not that bad today.
Somehow this discussion by derailed into a failure of all economics rant( plague on both your houses) so lets go look at System Ecology or some other entirely theoretical construct based on that looming
graphic.
Economics in our system is all about money, not energy.
As long as we aren't (much) past Peak Energy and our energy habits aren't changing we need to separate the issues.
Keynes came up with his theory when the economic system literally collapsed and he found a way to 'save' capitalism by government stimulation, which has worked
well in periods of low economic growth. Overtime, the stimulus became too addictive and caused stagflation, cured by Volker by draconian money supply contraction.
The Austrians are complete idiots who believe that the 'entrepeneur' is the source of all economic growth(the USSR? China?) and
the government ability to print money is the source of all evil(Gold=God).
This latest crash produced some Austrian apostates such as Alan ('Well, Brooksley, I guess you and I will never agree about fraud,”') Greenspan.
Should economists try to figure out a new economic system for Peak Resources? Maybe based on btus?
Given the fact that they don't seem to have a consistent understanding of this one it is a waste of time.
The economists already have a theory on how to grow the economy---increase demand.
Is that sustainable?
No.
Next question?
I have to defend the Austrians a little bit, though I do think most "pop Austrians" are total idiots.
The root of the Austrians love of gold is the idea that money should measure something. While I'm open to skepticism on the gold front, I am sympathetic to that idea. One problem with economics seems to be this:
1) Economists study the economy, which uses money as its primary signaling mechanism.
2) The results of economic study is sent over to the Federal Reserve, which uses them to control the money supply.
3) The money supply in turn sends signals to the economy. Goto 1.
See a problem there? You're not studying the underlying system! You're studying the effects of the policies that are based on your studies! Stop that or you'll go blind.
How far would physics get with a fiat kilogram?
There's another area where I'm sympathetic with the Austrians too. They seem to be the only people who have a problem with the idea that you should have a totally opaque closed organization ruled by a private priesthood with the power to control the money supply. Nobody else sees a problem with this?
AdamI:
Sheep don't have a problem being controlled and manipulated.
Americans are used to having a giant military to bomb evildoers, Social Security and Medicare so they can live forever, oil from the Middle East so they can drive their SUVs, goods from Asia so they don't have to make anything.
Americans are sheep, and that's why they accept Bernanke bucks.
But the tide is changing, and, historically speaking, faster than we can imagine.
"How far would physics get with a fiat kilogram?"
But there actually is a fiat kilogram. It is a hunk of metal that is housed at the International Bureau of Weights and Measures in Sèvres, France. Secondary standard hunks are kept at the National Physical Laboratory in UK and at NIST in US.
Having a fiat unit of mass was a great advance in physical science and technology. What makes fiat currency a problematic idea is the propensity of governments to change the fiat. To my knowledge, no one has ever proposed to change the fiat kilogram. Economics seems to suffer from shallow thinking about fundamental ideas like money and what it means to human society.
I guess you could call those reference hunks of metal fiat kilogram masses if you like but they actually physically exist in a concrete way-a dollar bill has only a symbolic existence as fiat money;physically it's only a piece of paper.The mass value defined by the sample is not subject to inflation nor to deflation.
I should probably look into the accepted usages of the word before I post this comment, but if I'm wrong it won't be the first time, nor (hopefully) the last.
Each individual dollar bill surely exists as a physical object. Each individual counterfeit fiver also exists. The one has value - by fiat, by government decree. The other has no value, also by fiat. The government decides what is money and what is not. It is a power that governments reserve to themselves with vigor.
The standard kilogram is a thing about which there is a social agreement (fiat) that its mass is one kilogram. There is no way to weigh it and check that it really is 1kg.
Goofy ideas about the inherent value of gold are --- goofy.
If you knew anything about Austrian economics you'd know that Austrians would agree with you when you say "Goofy ideas about the inherent value of gold are --- goofy." The Austrians argue that value is subjective (hence the subjective theory of value). They do not argue that gold has an inherent value. Why many Austrians advocate a gold backed currency is because government can't simply make more gold because gold is a scarce resource. So a gold backed currency would be a hard currency which is advantageous in the Austrian view.
"The standard kilogram is a thing about which there is a social agreement (fiat) that its mass is one kilogram."
Social agreement does not simply equal fiat. Gold historically was a socially agreed upon currency. The fact that it's socially agreed upon does not make it fiat.
That chunk of junk in France is obsolete... meet the new and improved standard.
http://www.azom.com/News.asp?NewsID=2627
To me it is a sweet irony that the material happens to be silicon.
I feel a scold coming on, but I'll restrain myself. There is no "fiat kilogram" you numbskulls! (I lied) A kilogram is based upon the mass of fresh water 1 litre volume at sea level 20 degree C. It is actually based on a nominally naturally occurring substance.
Because some of the reference points can change throwing the reference off a few thousands of a percent one way or another, the hard non-variable reference was constructed. If one either a) paid attention in physics or chemistry class, b) was not an economist, or c) the U.S. used the metric system, one would know this common fact.
If we really want to get down to brass tacks here, the imperial foot length measure is a fiat unit. It originated with the length of the foot of the current king. Most of the unit system the U.S. uses is mostly fiat with the barrel of oil, or barrel of oil equivalent being one of the most absurd.
Ehem... shouldn't that be 4°C, the temperature of max density?
Though I still kinda like the Silicon-28 1kg shpere.
6.0221415 x 10^23 atoms per mole.
The atomic weight of Si is 28.0855 grams per mole.
Silicon-28 is an isotope of silicon. atomic mass: 27.9769265 u
2.1507648 X 10^25 Si atoms in a 1kg sphere of pure Silicon-28
Another comment on AdamI's defense of Austrians.
I think there is a wealth of evidence that money is socially defined. Throughout human history, people have used a variety of physical objects as money. The value of all these different forms of money was established by social convention, and by convention in economic theory, this arbitrary social convention was a problem to be addressed and 'solved'. IMHO, not much progress has be made toward a general solution of the value of money. If it is indeed true that there must be a fixed general definition of money for current economic theory to be valid, then the field is mired in deep doo-doo.
As to Austrians attempt to identify gold as the standard of value; I think it is evidence of the shallowness of the thinking of economists.
Money is simply a scalar number assigned to a good, service, asset, futur promise, etc. to represent its value in a standard way so that comparisons can be made mathematically. Specific units of money are defined in terms of their convertibility, i.e. a dollar is defined by the number of yen, euros, troy oz of gold, gallons of gas, bushels of wheat, haircuts, BigMacs, etc, that it can buy.
"The Austrians are complete idiots who believe that the 'entrepeneur' is the source of all economic growth(the USSR? China?) and
the government ability to print money is the source of all evil(Gold=God)."
1) No need for insults.
2) No need for straw man fallacies.
The main aim of the Austrian school is preventative. Unfortunately governments do not listen and run up huge trade deficits, budget deficits and equity bubbles. The resulting crashes necessitate taxation through inflation, which the Austrians in general do not appreciate as they tend to be the people with sound economics and have not mortgaged themselves to the hilt.
Exactly. The Austrian refrain throughout the crisis has been that the bubble was the crisis. The most important thing is to have a sound economic system grounded in reality so that mega-bubbles and mega-crashes don't happen.
I've even heard some Austrians say that they don't care as much about the response to the crisis, and even admit that the best short-term strategy might involve things like quantitative easing to bring the money supply back into line with what's actually out there. But in the long term, they believe that we should abolish the credit-fiat system so that this doesn't happen again.
Of course, business cycles still happen. Another component of Austrian belief is that to some extent booms and busts are not avoidable, and that any attempt to do so simply defers to the pain until later and increases it. Attempts to prevent booms and busts with monetary policy just ends up creating bigger and more vacuous booms and bigger busts. An analogy I've heard is with allowing forest fires... if you prevent all forest fires, eventually the forest builds up so much flammable material that you get one big mega-fire that destroys everything. Some fire is natural, and should be allowed to occur. The Austrians argue that with each rescue of the economy following each credit bubble we are building up kindling...
Ok.
I am challenged to come up with a better economic system than the one we have now.
It will have to have powerful, timely negative feedback loops. Thanks Donella.
(For instrumentation types, P=close to 0, I =once per hour and D start with 0 and increase slowly)
An example.
Put a $1 tax per on carbon as it enters the economy. Give that money to everyone, every hour. Display the amount for all to see.
This establishes a powerful, timely negative feedback loop, with little impact on the money supply.
The tax tapers off as carbon use reaches a setpoint chosen by economists.
Adjust the setpoint as required.
My assumptions in this example are that the availability of carbon is the strongest driver of the economy.
However, I do not want to distract the reader from the basic idea that the economy is a system that needs powerful negative feedback loops.
I am sure others will have ideas of their own on what the most powerful drivers of the economy are and I encourage them to invent their own feedback mechanisms.
To illustrate the place energy has occupied in economic theory consider the following thought experiment: Suppose that the oxygen content of our atmosphere suddenly degraded to where sea level felt like 10,000 feet. Everyone would be working less effectively and the economy would suffer. Before this happened, oxygen was regarded as a free good in infinite supply and not necessary to account for. Now, it suddenly is critical to all economic thinking.
I have a degree in math, a masters in economics and worried about economic neoclassical models when I was in grad school.
To answer Gail's questions about what the Austrians and Keynesians might do. If you are a really, really, pure Austrian, I suspect you would want to remove subsidies for ALL kinds of energy, both renewable and non renewable (and there are plenty of subsidies for fossil energy in the US) and then let the market do its thing.
My economics training tells me, that would not do us much good. The pure free market prescription relies on price signals of scarcity to tell us what to do. The boom and bust nature of the oil business has in fact given us inconsistent price signals. (Think, high prices in the '70s, bust in the '80s and '90s, the 2008 price spike and subsequent decline.) These have not provided the incentives for the kind of longterm planning for energy scarcity, that most of us on this site believe are necessary.
I have less of an idea of what Keynes would do. I suspect he would rise to the occasion and find a way to provide incentives for energy efficiency and a transition to renewables, if only because Keynes was a very pragmatic gent. In addition, Keynes actually did say that he did not believe in infinite economic growth, and hoped that once society had figured out how to provide basic necessities, people would devote themselves to artistic and intellectual pursuits. Spoken like like the card carrying member of the Bloomsbury Group, not to mention the husband of ballet dancer Lydia Lopokova.
I don't think Keynes wrote much about energy or natural resource policy; his "General Theory" is all about getting out of the Great Depression. So all one can really say, is that some Keynesians "get" peak oil and some do not. But probably more Keynsians get it than Austrians, if only because most Austrians are viscerally opposed to government economic intervention. And most of us here would agree that SOME kind of intervention is needed, if we can't trust the market to solve the PO problem on its own.
This is an amazing indication of the shallowness of economic thought. Daniel Malthus, father of the famous Thomas R. Malthus was a friend of David Hume and Jean-Jacques Rousseau. Young Thomas was introduced to Rousseau's ideas about the perfectibility of man and society in his childhood. His Essay on the Principle of Population was a criticism (demolition?) of these ideas that he wrote as a mature member of the Anglican clergy. Keynes' idea of a perfectible society seems to have been demolished more than a century before it was expressed. (see Wikipedia article on Malthus)
I think theres a bit more to it than that. Austrians seem to have a strong dose of morality-play mixed into their economics. The economy misallocated investment, it must suffer the consequences (i.e. the poor shlocks who can't get a job deserve their fate). After the economy has done sufficient pennance for past sins, then recovery can begin. This is very attractive to the conservative mindset, which amplifies the government action is evil sort of thing.
There also is a disagreement about what money should be. The Austrians want a stable source of value, so that stuffing money in your matress and waiting for a long period of time won't have any cost other than opportunity cost. Keynesians, see money as an instrument of economic exchange first, and long term store of value as secondary at best. That means they are willing to print more if the velocity of money has slowed (i.e. cash is spending longer time stuffed under matresses) in order to maintain a stable level of economic activity.
Al Capp on economics - 1948.
http://en.wikipedia.org/wiki/Shmoo
Analysis
“ The Shmoo, as every literate person must know, was one of history's most brilliant Utopian satires. ”
—The Baltimore Sun, 2002
For most of my life, I was born in 1952, I have seen the cost of certain services such as health care, higher education, legal services, and insurance increase faster than the cost of goods, in particular food, fuel, and consumer goods. Since renewables will require more labor to produce than fossil fuels I see the possibility that the price of goods may start to rise faster than the price of services. Fossil fuels will not be the only essential natural resource to become harder to obtain in the near future. Many metals now require the mining of much more source rock than in the past.
Previous to the 1990s China, India, Brazil, and what was the Soviet block were not serious competitors for the world's natural resources. Not only has the population exploded in the past century but also what we consider the middle class has experienced rapid growth in the past 20 years with most of that growth coming in the BRIC countries. More people competing for fewer natural resources means we will all pay more for goods than we have in the past.
I can partially explain cost of health care rising. The biggest problem spiralling up the cost of health care is the legal and regulatory environment. Frankly the burden of paperwork and regulatory guff that a healthcare provider has to fill in is outrageous and has spiralled out of control over the period 1952-present. In an adversarial, litigious environment where the cost of failure to document correctly is loss of licence, most healthcare professionals are forced to waste endless hours box ticking. Expensive malpractice insurance and expensive clinical governance requirements stem from the aggressive persecution of medics by patients lawyers. Sure in the past there have been poor doctors and poor outcomes. But the response has been an insane regulatory overreaction with huge costs. And still there are poor doctors and poor outcomes.
In addition the end of the "patrician" model of healthcare is seen as empowering for the patient, but sometimes means the MD spends much time outlining options that frankly the patient is often ill equipped to choose from, even with hand holding and time consuming explanation. Sometimes it would be more efficient if we allowed the doctors to just get on with minimal discussion and do their best. (This is not a politically correct opinion in medicine at present).
I think as we see healthcare getting more and more stretched and under resourced during energy descent, the patrician style "doctor knows best" may well return as an efficiency measure. One thing is for sure: the demands of the current regulatory regime will not be possible in a low energy future.
Want cheaper healthcare? Dont sue the guy/gal who is trying to save your life/limb. Call off the ambulance chasers. "No win no fee" is strangling your hospital. Get the politicians to reduce the regulatory burden on healthcare. Redtape kills patients and costs money. Allow doctors to perform medicine and minimise the requirement to document crap. Sometimes medicine goes wrong, because life is like that, things dont always work out. At some point on the energy descent we are going to have to accept that life is risky, and medicine is no different.
Its healthcare. Let us care for our patients with less fear and you may find it is a cheaper and better for everyone.
I have experienced the old school of medicine.
Dr Van Wyke of Filabusi in Rhodesia.
He saw 300 plus non paying patients per month. (aBantu)
If he got a patient capable of paying he had to charge like a wounded bull. We all understood and paid.
He did house calls.
My daughter got malaria and he was a real doctor.
When UshiwaKunzi chucked Van Wyke out of the country because of his white skin, Sister Dhlameni leaped to Van Wyks's defence and gave the Minister a real earful.
Our doctors used to tour the country aiding the sick. None of them got rich, nor were they accountable to anyone.
There are more riches and rewards in life than Money.
Money is an illusion. A string of zeros with a floating point.
It was invented by the Prince of Illusions to enslave us all.
Can you give some numbers on how much the lawyers are adding to the cost of health care? I have been hearing this argument for decades yet no one has put up credible numbers on the cost of holding malpracticers accountable for their carelessness. Most of the paperwork in the doctor's offices is because there are 1500+ insurance plans that their staff must deal with. A single payer system means doctors won't need so many office staff. Also people who have a long standing relationship with a doctor are less likely to sue over a small mistake. The uninsured don't have these long standing relationships and have no other option to pay malpractice caused health care bills.
My malpractice insurance and state licensing fees together are in the order of $3500 pa. That's a cost that has gone up far faster than inflation, and I pass it straight on to my patients. And I am a low risk operator, in an area with modest claim values, carrying out less risky procedures: I have never been sued or had a complaint from a patient. For guys with a different risk profile, the cost can be 10 or twenty times that. For doctors working in high claim value areas like obstetrics we can be talking north of $100,000 dollars even with a good risk profile.
http://www.usatoday.com/news/health/healthcare/2002-07-01-malpractice.htm
Thats 108000 dollars to pay before you even see a single patient, equip a facility or employ any other staff. That's why medicine costs a bunch.
If the doctor sees 25 patients per day 5 days per week for 50 weeks per year then the $100,000 pa obstetrician malpractice insurance works out to $16 per patient visit. For the $3500 pa doctor malpractice works out to 56 cents per patient visit. Now how much do you charge per visit?
These are examples of the direct costs. Now add in the fact that the physician or surgeon has to spend time documenting their patients to a watertight medicolegal standard. I spend at least as long writing notes as I do seeing patients, to make sure I have covered my ass. I spend a long time explaining options to patients to make sure they comprehend what is being done, so they dont sue my ass for unexpected effects. The indirect cost is in the 25+ other patients I dont see, because I need to write up and explain stuff thoroughly to a legal standard. I know that it is part of the job as currently defined by the law. I accept that and comply. But it is heart breaking to know there are people out there on my waiting list that I could see and help if I had more time.
Speaking from a Canadian perspective, I can say that American-trained doctors do many more tests than Canadian-trained doctors. The number of tests the Americans do really annoys the lab techs because they are mostly pointless. The doctors are not going to learn anything new from doing extra tests, and the tests cost a lot of money. They think the doctors should proceed to treat the patient on the basis of what they find out on the first set of tests, and either they'll be right or wrong, and the patient will either get well or die. The extra tests don't make any difference in outcomes.
The doctors also don't do much CYA paperwork. They just run the patients through as fast as they can and only log the important facts.
In the Canadian system, the doctor is not likely to lose in court unless he does something obviously incompetent, and the loser usually pays the legal bills for the winner, so you don't see many frivolous lawsuits. This is one of the reasons the Canadian health care system is much cheaper than the American one, despite the fact it covers everybody in the country.
As to the $5.00 per gallon tax being moronic or onerous or whatever. I'm very afraid that this will soon be imposed by the market regardless of what we do or don't do. I personally believe we would have been far better off had we tried to prepare when Jimmy Carter espoused his thoughts on energy to us in the mid seventies. I know from the Hirsch Report that we would have had a far better chance to mitigate our plight with more time and greater FF than we will have due to our prodigious consumption over the last thirty five years. But it is so true that most of our planning is done with the time line of the next election cycle. I believe this contraction of liquid FF will test many disciplines which we have held sacrosanct for too long. I think the problem, or one of them will be that we have enjoyed such success in the past and have wrongly attributed them to other impetus than the abundance of oil. An issue raised by someone on TOD recently was the fact that we so handily defeated the Nazi's. Had it not been for our abundance of oil would this have happened? Or had they made it to Baku or ME oilfields would this have changed our fate? Off subject a little but I want to thank Matt Simmons for his writing "Twilight in the Desert". Reading this book was truly a life altering event for me, as it certainly made me realize that the life I had come to expect and believed was so secure was anything but. Well enough.
Economics is not yet a science. The tip-off is that there are "schools" of economists -- for example the "Freshwater School" versus the "Saltwater School" of economics.
Areas like Art, Architecture, Literature and Philosophy have schools, e.g. the Ashcan School, the Bauhaus School... Sciences generally do not.
There is no "Particle School" versus "Wave School" of physicists. There may have been once, but physicists have long since agreed that sometimes you use one model and sometimes the other. In new areas, such as string theory, there may be groups with different theories, but they don't rise to the de facto political organization of "schools".
Most of economics that is discussed on the web and in the press belongs to the branch that is really Political Economy, although in academia it has been dressed up with mathematics to look like a science. The branch of economics that is closest to a science would be Econometrics, but that is dull and boring and largely devoid of celebrity economists.
Does Neoclassical Economics Rot Your Brain?
I recommend this rule of thumb to evaluate various "schools" of economic thought:
If zombies conquered the world, but continued to spend money, would any of the economic models need to change?
If the answer is "No", their underlying assumptions might be a tad unrealistic...
Hubbert's Prescription for Survival, A Steady State Economy
http://www.hubbertpeak.com/hubbert/hubecon.htm
But first we have to get to a point where we operate off the flows of the Earth instead of whittling down the stocks. Steady state at the current level is still unsustainable because we are, in my view, deep into overshoot.
This is our future:
Not the blue line and clearly not the red line below:
The orange line is a possibility and can't be dismissed out of hand. I (and many others) are working to create the green line.
I maintain that we won't be able to tell the difference between the green and blue lines for some time. I also think the blue curve is an easier "sell". Actually there is a lot of space between blue and green. More research and development of the right things makes the solution more blue than otherwise would be the case.
What is techno fantasy? The red line looks like the way to go. A journeymen engineer can make it happen, whatever it is.
"Techno fantasy" is the belief that we can increase efficiency of use of resources without limit, so that the geological, energetic, and materials-science realities of declining quality of smaller deposits of minerals can be overcome. The term is in part a label for the all-too-common naïve extrapolation of a cultural myth of all-conquering technological progress. The fantasy is that we'll be able to develop technologies like sub-stellar nuclear fusion when needed, just because we want to.
What limits? Firstly there are limits to material strength, and therefore there is a lower bound on the physical mass of industrial capital needed for any given quality of the resource base and level of output. (It may be easy to reduce the mass of a water pump or an apartment building by ten percent, but you can't reduce it by 99.9 per cent, despite the promises of nanotechnology proponents.)
As the resource base declines, and we turn to greater numbers of smaller, more costly, worse-located deposits of minerals, we need more industrial capital for the same output. (Instead of one oil well producing 50 million barrels from one deposit, five oil wells and fifteen water-injection wells, each three times the depth of the first, produce 5 million barrels from three deposits.)
This increased industrial capital can either come from cutting production of final consumer and service goods (suburbs, washing machines, shopping malls) or by growing industrial production ... but the latter just means that we consume resources faster. In either case the proportion of industrial capital used for final goods declines. In the limit, all industrial capacity is used to maintain industrial capacity.
Because the replacement deposits are lower quality, we need to deal with larger quantities of unused material, so we need more industrial capacity for this reason also. ( The 5 million barrels of new oil is "sour", requiring a desulfurization plant and sulfur disposal. When copper was found in 10 percent ore outcropping at the surface, we only needed to crush 10t of material per tonne of copper. Now, with 0.5 percent ore well below original ground level, we need to move and pulverize 200t - 2,000t of ore and overburden to produce a tonne of copper.)
Because of the extra work, extra power is required. (In theory nanotech/biotech could help here ... until you realize that they are rate- and density-limited.) Increasing available power is actually the easiest of our difficulties, technically. However, changing from fossil fuels to a fission, wind, solar, soupçon-of-biofuel constellation will displace existing political elites, and historically they have not gone quietly. "Techno fantasy" in part refers to ignoring the political realities of elites clinging grimly to their positions of privilege.
"Recycle!" is not the answer. About a billion people have used about half our fossil fuels to extract metals from the richest ores and lock them up in structures, vehicles and appliances. Now, the other six billion want the same per-capita mass of structures, vehicles and appliances. We're a long way from a steady state in which recycling would be a solution. (In the US, about 60% of new steel is produced from scrap steel. In China, it's about 3%, and that's imported. Chinese steel production is all being locked up in reinforced concrete, pipes, railways and shipping containers, and vehicles and equipment. None of those are being recycled yet.)
Substitution may delay the decline in production for final consumption, but there are limits to substitution, and substitution in one area may make things worse in other parts of the industrial system.
Finally, the general consensus is that we've left it too late to try to import resources from elsewhere in the solar system, even if that turned out a) to have a net gain and b) to be sufficiently scalable.
Summing up, the "techno fantasy" is that the convex part of the S-shaped resource consumption growth curve is located at infinity.
Well stated.
As someone who has dealt with real world engineering for over 30 years, having designed hundreds of million millions of dollars worth of projects and optimized a number of porcesses, I see a large percentage of the population who live in techno fantasy.
gregvp:
Nice comment.
I'm a declinist/doomer precisely because of what you outline in your post. It's much too late in the game to ask how large entities are going to manage descent, much less a complex nation like the United States.
The best we can do is relocalize, make connections, and hope for some political sanity in the area in which we live.
To get the red line we will have to leave the planet. There are too many limits down here. We need Lebensraum.
Regardless of how economics is viewed or defined, whether it encompasses other aspects of human behvior or not, it seems the 08 collapse was wholly placed by economists at the feet of the mortgage meltdown, while higher energy prices were blamed on speculation.
It's bad enough that oil production started an undulating plateau in 05, (unable to meet rising demand causing the price to spike) but to miss a great opportunity to finally admit and understand the constrained energy situation as it relates to oil, means we are destined to experience the same scenario again and again until the correct realization is acknowledged. Afterall, it's only when a problem is understood and accpeted for what it is, that a plan B (if there is a viable one available) can be sought.
I happen to share the view that the vast majority of economists just don't "get it" because they tend to only focus on one "E" - the Economy. There are a few other "E"s out there that have to be taken into account including Energy, the Environment and Exponential growth.
My main fault with classical economics is that it's core mathematics seeks to describe a closed system with an equilibrium point. This is just a really poor way to go about describing what is obviously an open system that owes its complexity to the same thing as every other open system; energy flows.
Puff a whole lot of net free energy into an economy and it will blossom and become complex. Withdraw that same energy and watch it collapse. Inflate, deflate.
Given this massive blind spot in conventional economics I don't spend much time trying to debate it or fix it because it's like trying to debate the effectiveness of bamboo vs. clay figurines with cargo cult priests. If the very center of the entire world-view is that out of tune with reality, you might as well slip on a grass skirt and join them than debate them. At least you'll have a good time.
Until economics incorporates open system modeling and energy flows into the core of its thinking my prediction is that it will continue to flail, miss the mark, and remain confused.
I recently wrote a Defcon 5 version of this thinking for a Yahoo! Finance editorial that was well received which can be found here: http://www.chrismartenson.com/blog/stocks-bonds-are-now-hazardous-your-w...
I've sent Nick from another thread over here to read your comment, Chris. Nothing I've been able to show him seems to shake his assertion that 'it's unproven the economy will contract as oil production declines.' I know, it's an odd thought but that's what he thinks.
(But I'm definitely not suggesting spending any time on the conversation.)
Chris, I wanted to nit-pick on a specific point in your Yahoo! article:
This is an often discussed and thoroughly understood subject on TOD, but when we get into the "name that date" game, are you discussing conventional oil or all liquids? The reason for asking is I believe the uninitiated get misled by this statistic of the combined conventional oil and condensates thrown together under a general liquids production. We're not comparing BTU's to BTU's here, so to speak; or EROI for that matter.
If we're talking conventional oil, it's peaked. If all liquids, I'm with you on the 2014-2015 time frame.
BC, while waiting for Chris to reply please indulge me my two cents worth.
Oil is oil, condensate is oil, tar sands are oil, bottled gas is not oil. So I go with the EIA's "Crude + Condensate" and use their definition of oil.
But the question is when did/will it peak? It peaked in 2005 and we have been at peak ever since. Any monthly or yearly peak since 2005 is within the noise level, within the margin of error. We are at peak today. The data from the EIA may show a slightly higher peak than one in the past. Then again it may not. It simply does not matter. We are at peak today. I think that question is settled, in my opinion anyway.
The question is now: When do we drop off this current peak plateau? My guess, 2012 or no later than 2013. But my point is that the question has changed. Let us not argue over such a small amount that it is within the margin of error.
Ron P.
Good catch.
I was definitely in "shorthand" mode when I wrote that defaulting to the most likely definition of 'peak oil' that a Yahoo Finance reader would encounter in the future.
To me that's 'all liquids.'
I'm less clear on where the net free energy peak is, my intuition coupled with the work here suggests it may already be passed, but I certainly do wish we had more robust information to work with.
And to add further complexity, I think that demand will exceed supply a year or two before peak so I am anticipating price surprises and export declines in the 2012 - 2013 timeframe, unless a big old double-dip comes along to destroy demand again.
But,as we all know, predictions are difficult, especially about the future (~Yogi).
At any rate, when I am writing for the masses I 'go light' preferring reasonable depth and accuracy over trying to tell everything in the interest of trying to hold attention and maybe plant a few seeds.
Chris, love your web site and I have taken your "Crash Course"... twice. I have learned a lot that I previously did not know from that crash course. But on this point we must disagree:
This is a very confusing point and before we indulge in any discussion about "supply and demand" we should define exactly what we mean by supply and demand. But as I understand it the difference between supply and demand always has an arbitrator... price.
As long as we have have price as an arbitrator, demand can never exceed supply. For instance right now we may have an excess of $100 dollar oil and a dearth of $50 oil. But we have just the right amount of $79 dollar oil.
My point, no matter what the supply of oil is, the price will make sure we have just the right amount to meet demand.
Ron P.
Happy to disagree with you here... :)
In the run up to the $147/bbl price in July of 2008, supply had been exceeded by demand in 5 out of 6 quarters, leading to the price spike. At least, that's my read...some have tried to blame speculators but when speculators see a supply/demand mismatch they respond by driving up the price. So they were merely properly responding to a fundamental supply/demand mismatch.
In the case of the 5 quarters I am speaking of there was still ample supply - nobody ran out - but because the world pumped "x" but consumed "x + y" we saw dramatic price spikes. That's what I mean by "demand exceeding supply." When it happens, prices spike.
Over the long haul prices and supply/demand will come into balance, but the reason that prices move in the first place is due to a mismatch between supply and demand.
But that's in a steady-state world where prices stimulate supply. What happens in a global story of insufficiency? In my view the design of our exponential economy has a built in requirement for a certain amount of energy to run properly below which it sputters and fails. If we can call that the baseline demand, then we can predict that such demand is highly inelastic and quite likely to propel prices to rather dramatic heights.
What he said.
;-)
Chris, thanks for your efforts, especially your Crash Course in economic reality. Most economists seem to think of the Earth outside the boundary which they draw as being of no consequence to economic activity. Of course, they draw their boundaries to include the valuable resources, while leaving out the problems of waste from economic activities and the value of the life support services provided by the rest of the Earth's biosphere. As long as we have a governing philosophy based on an assumption of unlimited resources and unlimited sinks for pollution, we are only going to continue BAU, getting ever deeper into trouble.
Worse, we find today a large fraction of the public which thinks that we can go back to some ideal version of government which had less strict regulation of our activities than has been adopted to deal with existing problems. The ultimate question is, how can the philosophy of governance be improved to meet the problems resulting from a limits to growth perspective? Or, worse, as discussed often on this forum, is it even possible to contemplate such a future without first going thru an economic collapse and die off of a large fraction of humanity?
E. Swanson
Chris Martenson names four E's
1. Economy (the Big E)
2. Energy,
3. Environment and
4. Exponential growth
____________________________
There is yet another major E:
5. Exuberant promise givings by faceless Entities
____________________________
The Fifth E permeates through the porous fabric of the other four E's.
Because we are fish swimming through this pervasive liquid, we can't see it.
But it is always there in one hidden form or another.
=============================
Say you "own" a couple of acres of land.
And on this land you have some trees (eeya eeya oy).
And under this land you have some oil.
And in one corner of this land you have a McMansion (filled with kids).
And parked on a driveway of McMansion you have a McSUV.
And stowed inside a safe within your McMansion you have some money ($$)
Now a first Exuberant Promise that has been given to you by some faceless entities is that you have a "right" to do as you please with the things you "own".
___________________________________
So if you cut down all the trees and sell them as firewood, that's OK.
What happens to the "Environment" from this rightful activity of yours is an unaccountable "Externality".
So fogetta about it.
======================================
A second Exuberant Promise that has been given to you by some faceless entities is that Business As Usual will always be there for you in the form of, well, BAU
So if you deplete some oil out of your "reserves" and use the the oil to tool around town in your McSUV (with your plenitude of kids packed in the back), nothing has really changed and BAU will forever continue as BAU.
So fogetta about it.
======================================
A third Exuberant Promise that has been given to you by some faceless entities is that the Money ($$) in your safe will always be store of "value" and that faceless others in your community will always redeem that value ...
Don't get me started on that one.
That Exuberant Promise/Fifth Lament means 'Writing a Check that all our 'Yeah, Buts' can't cash?
Isn't there and old joke to the effect of "If you placed all the worlds Economists end to end, they wouldn't be able to reach a conclusion...".
There are some economic researchers who do understand the role of energy in the economy:
http://www.iea.org/work/2004/eewp/ayres-paper1.pdf
http://www.iea.org/work/2004/eewp/Ayres-paper3.pdf
The current crisis is a stagnation that occurred at the end of a Kondratiev wave:
http://en.wikipedia.org/wiki/Kondratiev_wave
The cause of the stagnation is the saturation of the last growth driver, that is, the microprocessor-fiber optic-internet-personal computer-wireless telecom sectors.
The short version of the history of technology as it relates to the economy:
http://www.iiasa.ac.at/Admin/PUB/Documents/RR-89-001.pdf
Studying the many science or technology timelines available on the Internet you will see that the great discoveries like physics, chemistry, the germ theory of disease, crop nutrition, etc. occurred in previous centuries. Besides computer-internet-telecom and commercial aviation, the significant innovations of the second half 20th C. include the Green Revolution.
Energy transition is not conducive to economic growth. All alternative energies require more input than water power or oil drilling in the 1930’s that produced 100 bbl per foot drilled. A successful new energy storage technology for cars that actually reduced energy consumption would contribute slightly to economic growth, but would not have the same growth effect the oil did in building out the current system of millions of miles of highways:
http://www.iiasa.ac.at/Admin/PUB/Documents/XB-90-704.pdf
I am not a Keynesian; however, I do not understand why we can't afford to repair our worn out bridges or build a few high priority transportation projects. Also, we need to get moving on nuclear projects.
interesting links.. cheers
Thought I would add that econophysics is the really only interesting trnd in economics to those with a mathematical sciences background. Thermoeconomics doesn't really cut it for me; in the same way that statistical mechanics is much more useful than thermodynamics in studies of the aggregate behavior of a collection of entities.
I have not yet looked into econophysics, but it seems to me that mathematically the important thing about economics is system scale. Thermodynamics is suitable for studies of systems of large numbers of agents -- trillions or more. Economics needs a mathematics suitable for the mesoscale -- hundreds to billions of agents.
Given the quantised, non-linear, non-transitive, time-, location-, and event-dependent nature of key variables in economics, it seems to me that numerical simulation of graphs of agents is the way forward for the discipline.
It really doesn't matter that there is not a "foundation" for economics. Most of the important-in-practice stuff in chemistry was discovered before there was a good model of the atom. Genetics was pretty well sorted out before the discovery of the structure and operation of DNA.
We like to think of the universities (the community of learned people--("the ivory tower") as something that should be objective and separate from companies and the govt sector. In fact, no such separation exists. The Universities just reflect the situation "on the ground". If there is a huge excess of energy around, as there has been for the past 500 years, then economists will assume that there is surely a huge excess of energy around and will build these assumptions into their work. Just as people built skyscrapers, malls, highways, etc...on the assumption that there would never be a problem with these structures based on energy being unavaialable.
Tainter`s theory about complexity applies to academe too. Scholars develop more and more complex theories/modes of discourse if they can (as long as the energy is tere in the society--this will support them), because they are in competition.
Universities are subject to the same forces that affect the rest of us. The work that comes out of them reflects this.
I expect thinking at the universities will eventually reflect the energy constraints we face. That will be interesting. I wonder what that will look like.
While this certainly applies to the arts, the main goal for scientists is to simplify things as much as they can.
Sometimes the more complex theory has the benefit of being more accurate, though. Such is life.
What bothers me about classic economics also, is that it counts the production of "goods" and "bads" equally :-(
For example, if a detergent is worth 1$ plus 2$ cleanup cost, it counts as a 3$ economic activity, when it really should be a -1$ economic activity.
Herman Daly's paper is very nice, indeed:
http://www.theoildrum.com/node/3941
I agree that EROI is going to determine future growth in Earth, if we do not run out of water, arable land, etc, before that.
in 2005, elbaradei, who simply was unable to find iraq's WMDs, and couldnt find iran's nuke weapons, is awarded the nobel peace price three days before aumann and schelling are awarded the economics prize, "for having enhanced our understanding of conflict and cooperation through game-theory analysis" and providing the theoretical basis for the 9-11/PNAC/AEI "war on terror" operation that started with sharon's visit to the al aqsa mosque a year before 9/11.
so if economic theory has degenerated into game theory, then what?
or has economic theory improved itself to game theory?
or is the whole works a load of cobblers?
and who was gaming who, when the nobel committee gave aumann the economic prize three days after they gave elbradei the peace prize...?
...because this whole operation, since a year before 9/11, has smacked of psychohistorians at work, and aumann, the nobel-winning economist, is basically a psychohistorian... and if psychohistorians are to be sucessful in manipulating world affairs, they must work in secrecy.
.
the basic ideas of government by psychohistory...
1. you must have a reasonably accurate account of history... these accounts of history will be used to test and calibrate mathematical expressions that are developed to predict and manipulate human behavior... aka, "future history".
2. you need sophisticated mathematical descriptions of human behavior.
3. if your history is truthful and your math is sophisticated enough, you can predict trends in mass human behavior, although you will still be unable to predict behavior of individual humans.
4. you can spot unwanted trends in mass human behavior hundreds of years before they become problems, and head them off with a minimum and undetectable application of force.
5. your predictions and even the guild of psychohistorians itself must be kept secret, lest the resistance counterpredict and nullify your predictions.
6. the public will be fed lies tailored to produce the desired response.
.
aumann's got this other little theory: that you can tell what people know by how they act.
...the upshot being, if we're acting like peak oil and global warming are the real deals, then why should the rest of the world believe the exxon/AEI/CERA denials? ...especially when the AEI seems to be the center of neocon lunacy?
.
.
does it take a nobel-caliber economist to figure this stuff out?
.
the rules for governing by psychohistory (in the post above) came from donald kingsbury's "psychohistorical crisis", a sort-of sequel to asimov's foundation series... in which the flaw in psychohistory is explored, that flaw being: the guild of psychohistorians will develop factions who tend to counterpredict and nullify each other's manipulations.
...which seems to be the situation we got now... paralysis, stagnation, gridlock because the truth is too ugly to acknowledge... the truth is our best bet for dealing rationally with our problems, but the truth is intolerable.
there's a couple other interesting ideas in kingsbury's book... one is the "fam", a supercomputer worn on your shoulder and plumbed directly into your brain... your fam has to be installed while you're a kid, so it can adapt itself to your thought processes as you grow up... in the end, it's like being as smart as google, only without the bullshit.
i guess somebody has proven, somewhere along the line, what "the truth" is.
another thing: the abrahamic religions are gone... i guess kingsbury assumes that the truth about the abrahamic religions is just one of the truths we, sooner or later, will have to face.
...keeping in mind that this story takes place hundreds of thousands of years in the future, and earth has become a planet of souvenir peddlers (hucksters cashing in on earth's mythical significance as the birthplace of humanity) and nomadic hunter gatherers.
i guess my problem is: i dont know how much time we have left... how long before someone goes tilt and bites off more than they can chew, in defense of bad ideas... aka, untruths?
we all know how corrupt the system is, we know that economists make their living serving that system, but economists are mostly geared towards confusing the public, and it doesnt look like they have much influence on reality, unless they've moved over to game theory and are attempting to game themselves into running the world, which results in wars that kill millions of people.
or are economists a complete non-factor? ...are the racial supremacists, religious fanatics and their corporate fascist allies really running things?
looks like a temporary alliance, western, dedicated to running the world, but their goals and motives are antagonistic to each other: we wreck the world, and jesus comes back to rule... or, we wreck the world, and repair it: tikkun olam... or, we maximize profits, whatever else happens... or, we know it's all horseshit, and the only logical thing to do is loot.
beats me
we dont know how long islam can survive without its foundations... and the foundations of islam are clearly rotten.
the christians will exterminate or convert jews in the end times.
the jews will subdue everybody, including christians amd muslims, and repair the world according to jewish supremacist philosophy.
how long can such bullshit survive?
getting nuked by aumann would be like getting nuked by santa
so america protects israel, and america runs out of gas... then what?
9/11?
i mean, who can take this bullshit seriously if you're inevitably gonna die anyhow?
Blade Stall,
You're starting to Hijack, here. and while its occasional use isn't that bad, you're ongoing Repetitions of the word "BS" are getting a bit much, eh?
i still belong
Sure you do, and Billy still rocks.
But you're speaking your mind on everyone's time here.
If you get to ranting, it makes it less likely folks will want to listen to you, cause it gets too hard to tell what you're saying. I don't disagree with your point.. just try not being so obnoxious with the way you do it...
how you gonna sugarcoat the truth?
you can ignore me... i'll eventually go away, but it's kinda hard to ignore geology, physics, chemistry and the consequences of believing in imaginary supreme beings who've given you permission to waste your life support system.
I don't ignore any of those things, and I don't ignore antisocial behavior, either. They are all problems that are keeping us back. Saying BS a bunch of times doesn't make you "Brutally Honest" .. That's not what made George Carlin profound or powerful in what he said..
You invoke Imaginary Supreme Beings out of the blue... is that your way of saying that only religious people would suggest that you behave like an adult?
Personally, I'm agnostic.
i'm sorry my language offended you... but in my opinion, racial supremacists and religious fanatics with nukes are more dangerous than people who cuss on the internet.
will we wind up using our nuclear primacy to achieve our benevolent global hegemony?
that oughta settle, once and for all, whose imaginary supreme being has the most juice, hadnt it?
Brevity is the soul of wit.
A 10 page rant is a 10 page rant even if it is broken up into one sentence posts.
Brevity is the soul of wit.
He who posts a blank page is the wittiest of them all.
Black humor...
"racial supremacists and religious fanatics with nukes.."
If that's who you are setting your bar against to decide you're doing ok, then you might raise your expectations a bit.
Come on, I'm just saying contain the rant a little. Use the words for effect.. but there's no effect left if they're in every other post, and then more importantly, the discussion at this site sinks a bit more.
Other people will see it and quickly start running off at the mouth like the pretty much useless comments sections of every article in the Internet news now.
Sorry if I sound like the kid in homeroom with the pocket protecter (I never had one.. well, I never took it to school.. never at dusk anyway..), but a little self-restraint will go a long way to making this a really valuable discussion.
Regards,
Bob
so that's the basic psychology of it.
nobody can refute the logic or the psychology, so we're left with lame attempts to... what?
i got to admit: some of those attempts are not so lame, not when they're looting billions of dollars from whatever mysterious thing it is that props up the american economy.
but maybe that's what economists are about: fucking people's minds up.
Blade,
I am a firm believer that profanity has its place in discourse and words such as fu@k are words I use myself when I feel it is appropriate to the discussion at hand. I also know that the moderators on this site frown upon and have been know to censor such language if not properly disguised as I have done above.
Their argument whether you accept it or not is that they do not want their site to be blocked by software at say educational institutions where such words are only considered acceptable on the playground but not in the hallowed halls or the school library...
It's their site and their rules, sooner or later you will run afoul of them if you do not abide.
Just a friendly suggestion...
http://www.youtube.com/watch?v=F4HW3ZU_lPM
"...they do not want their site to be blocked by software at say educational institutions..."
that's reasonable, and thank you for the friendly advice.
although it seems likely that anyone who's appointed themselves guardian of public morals would be able to filter out "chickensh@t" just as easily as they filter out the real thing.
but, then again, if the guardians of public morals were so concerned about our well-being, they'd work harder to get to the roots of our problems, wouldnt they?
in the long run, i guess it wont make much difference, so maybe the chickensh@t approach is okay.
FM,
That specific word was the subject of a linguist's talk on NPR radio not long ago
I never knew from whence or how the F word arose.
Apparently it was forged out of the Roman Empire's Fornix (their word for "furnace").
No, not because of the heat of the furnace. It's a bit more convoluted than that.
Apparently as the Roman Empire collapsed, industrial shops that used furnaces to make stuff became abandoned and taken over by prostitutes. The activity that took pace in these "fornix" populated shops became known as "fornix-ation" or fornication as the word evolved.
The King did not like this stuff going on without him collecting taxes on it.
A license was therefore required.
Shops that paid their taxes would post a sign to this effect:
Fornication Under Consent of King
or if you take the first letter of each word except the 4th, it becomes ...
Interesting
That might be one solution.. I remember always hearing about the ILLEGAL variation,
For Unlawful Carnal Knowledge, but the Wiki page has some fairly believable suggestions.
Still, I wonder which king, using Modern English would have passed such a law?
truth is our best bet for dealing rationally with our problems, but the truth is intolerable.
Aye! :-(
http://www.webs05.com/images/political/an-inconvenient-truth.jpg
McDonald`s has about 3000 restaurants in Japan. It announced last winter that it would close around 500 of them and remodel around 200 of the remaining ones.
I have seen one of the shut down McDonalds.
On a commercial strip, a very ugly place cemented up to its eyeballs. Parking lots, gasoline stations, fast food.....
The McDonalds has been there for at least 10 years and I think probably longer than that.
And now it is boarded up!!!! Along with hundreds of others around the country!!
The energy draining out of the system has definite ramifications. Among them....the wasteful (global) business model of McDonalds no longer functions.
The stores they remoideled were ones in cities where people don`t drive. The fast food business model still works--for now--- if they eliminate the customer`s car.....then the customer has cash to spend on fast food and watseful packaging.
But peak oil is definitely taking its toll on the BAU paradigm of waste and enedless resource consumption. So economists will have to look at this and start to include it in their models. First--the best business models may feature "no car", "no paper", "no electricity", no resource waste at all. Suddenly I am selling lemons or apples (which I grew) out of a basket on the street corner where live. That is now the most profitable business model. I have no employees (except my family) and no office. I have no computer for this business. I need no suit and tie, no company car, no bank account. I don`t need a college education and I don`t even need an economist to explain the world to me, since I am doing fine simply by not wasting anything---a very simple precept that anyone can understand implicitly. It is a very austere business model. Some won`t like it.
12,804 in the United States. I wonder how many are stores that are free-standing with parking versus stores in food courts, sidewalk storefronts in shopping districts, stores in public transportation terminals, etc.
History, literature, psychology, and anthropology to mention a few disciplines are all equally competitive fields of knowledge to understand the system of behavior known as an economy.
Accordingly, it behooves post-war economists to dislodge themselves of the view that their discipline neatly explains energy and energy supply. Lose the attitude. The problem of energy limits awaits you
Well said. Economists confuse their models with reality--a viewpoint people in the physical sciences long ago had beaten out of them
Thanks so much for all the replies, and the extended discussions. This piece received very good attention over the past few weeks, and the re-posting here at the Oil Drum has given me more feedback to work with. I've read all 270 comments.
I want to see the profession of Economics demoted, from its current position of high influence, in our institutions and government. And I think it's a worthy goal to ensure that happens from this point forward. The profession has injured itself, however, so for the moment I am content to give it a light shove as it self-immolates.
What I do not want to see, however, is the discipline rejected. Instead, I have hope that a new wave of historians, psychologists, scientists, and energy analysts will breath new life into the field. That's already happening, in my view. And, the major figures that I mention in my post are really of a special class, and deserve much more criticism than I have given here.
It is my view that we are exiting from an anomalous 250 year period, roughly starting with the publication of a Wealth of Nations and the first growth in coal extraction, and ending sometime in the past 20 years. The intellectual laws now promoted by post-war economists imo are only operational to the extent they squat on top of that abundance, and the versatility it affords. Accordingly, now it's time to say: bye bye Gauss, and bye bye Adam Smith.
Best,
G
Can I suggest a book by John Bryant entitled "Thermoeconomics: A Thermodynamic Approach to Economics" published in 2009 by Vocat International. The book stems from a peer-reviewed paper by the same author entitled "A Thermodynamic Theory of Economics", published in the the International Journal of Exergy in 2007.
Not very to the point of what the article is about, but I couldn't resist the temptation: I do prefer Keynesians debating with Austerians, to prevent a possibly confusing debate in Austria, Europe.