Twenty (Important) Concepts I Wasn't Taught in Business School - Part I
Posted by nate hagens on September 20, 2013 - 12:27am
Twenty-one years ago I received an MBA with Honors from the University of Chicago. The world became my oyster. Or so it seemed. For many years I achieved status in the metrics popular in our day ~ large paychecks, nice cars, travel to exotic places, girlfriend(s), novelty, and perhaps most importantly, respect for being a 'successful' member of society. But it turns out my financial career, shortlived as it was, occurred at the tail end of an era ~ where financial markers would increasingly decouple from the reality they were created to represent. My skill of being able to create more digits out of some digits, (or at least being able to sell that likelihood), allowed me to succeed in a "turbo" financial system that would moonshot over the next 20 years. For a short time I was in the 1% (and still am relative to 'all humans who have ever lived'). Being in the 1% afforded me an opportunity to dig a little deeper in what was really going on (because I quit, and had time to read and think about things for 10 years). It turns out the logic underpinning the financial system, and therefore my career, was based on some core flawed assumptions that had 'worked' in the short run but have since become outdated, putting societies at significant risks.
Around 30% of matriculating undergraduate college students today choose a business major, yet 'doing business' without knowledge of biology, ecology, and physics entirely circumvents first principles of how our world really works ~ my too long but also too short summary of the important things I wasn't taught in business school is below.
The Blind men and the Elephant, by Rudyard Kipling
Business as usual as we know it, with economics as its guide and financial metrics as its scorecard, is in its death throes. The below essay is going to appear critical of finance and the nations (world's) business schools. But it is too, critical, of our entire educational system. However, physicists, plumbers and plowmen do not have the same pull with respect to our cultural goals and narrative that financial folk do - as such an examination of the central assumptions driving society is long overdue. But before I point out what I didn't learn in MBA school, I want to be fair - I did learn things of ‘value’ for the waters I would swim in the future: statistics, regression, how to professionally present and to facilitate meetings, and some useful marketing concepts. Of course, like any 20 something student, 1/2 of the value of graduate school is learning to interact with the group of people that will be your peers, and the relationships and contacts that develop. Plus the placement office was very helpful in getting us jobs as well.
The culture at Salomon Brothers impressed me the most and I landed in their Private Investment Department, where we were basically stockbrokers for the uber-rich - as a trainee I wasn't allowed to call on anyone worth less than $50 million (in 1993). After Salomon shut our department down I went to a similar job at Lehman Brothers. At Lehman I increasingly felt like a high paid car salesmen and after 2 years quit to go work for a client, develop trading algorithms on commodities and eventually started my own small fund. But increasingly, instead of trading or trying to grow my business I found myself reading about oil, history, evolution and ecological issues. It really bothered me that 'externalities' were not priced into our goods or profits. One day, on a hike, it struck me that what I was doing felt spiritually hollow and despite it ‘paying the bills’ I began to realize I was more interested in learning about how the world worked and maybe doing something about improving it. In 2002 I gave my clients their money back, embarked on basically a 2 year hiking trip with my dog, and a car full of books. Eventually I would obtain a PhD in Natural Resources, but like many of you my real degree was obtained on this site, interacting with the many and varied people I met and continue to call friends and mentors. I am continuing to work on, or at least think about, making the near and long term future better, despite the tall odds, while living on a small farm in Wisconsin. More on this below.
In the years that have passed, modern society has become a crazy mélange of angst, uncertainty and worry. Many of us intuitively recognize that we’ve constructed a ginormous Rube Goldberg machine which for a number of reasons may not continue to crank out goods and services for the next 30-40 years. We blame this and that demographic for our declining prospects – the Republicans, the environmentalists, the greedy rich, the lazy poor, the immigrants, the liberals, etc. We blame this and that country or political system – evil socialists, heartless capitalists, Chinese, Syrians, Europeans, etc. We watch TV and internet about the latest ‘news’ influencing our world yet are not entirely confident of the connections. But underlying all this back and forth are some first principles, which are only taught piecemeal in our schools, if at all. Below is a short list of 20 principles underpinning today’s global ‘commerce’. I should note, if I was a 25 year old starting business school, eager to get a high paying job in two short years, I wouldn’t believe what follows below, even if I had time or interest to read it, which I probably wouldn't.
20. Economic 'laws' were created during and based on a non-repeatable period of human history
"I found a flaw. I was shocked because I'd been going for 40 years or more with very considerable evidence that it was working exceptionally well." Alan Greenspan testimony to Congress, Oct 2011
The above graphic shows a three-tiered time history of our planet, starting with the top black line being geologic time. The tiny black sliver on the far right, is enlarged in the second line, and the sliver on its far right is again enlarged on the bottom line, where the last 12,000 years are shown. We, both our environment, and ourselves, are products of this evolutionary history. Our true wealth originates from energy, natural resources and ecosystem services, developed over geologic time. Our true behavioral drivers are a product of our brains being sculpted and honed by 'what worked' in all 3 eras of this graph (but mostly the top 2). The dark line on the bottom is human population, but just as well could be economic output or fossil fuel use, as they have been highly correlated over this period.
The economic ‘theories’ underpinning our current society developed exclusively during the short period labeled 'A' on the graph, on a planet still ecologically empty of human systems and when increasing amounts of extraordinarily powerful fossil energy was applied to an expanding global economic system. For decades our human economies seemed to follow a pattern of growth interrupted by brief recession and resumption to growth. This has made it seem, for all intents and purposes, that growth of both the economy and aggregate individual wealth was something akin to a natural law –it is certainly taught that way in business schools. The reality is that our human trajectory –both past and future - is not a straight line but more like a polynomial - long straight stretches, up and down, with some wavy periods in the middle, and ultimately capped. Our present culture, our institutions, and all of our assumptions about the future were developed during a long 'upward sloping' stretch. Since this straight line period has gone on longer than the average human lifetime, our biological focus on the present over the future and past makes it difficult to imagine that the underlying truth is something else.
Evidence based science in fields like biology and physics has been marginalized during this long period of 'correlation=causation'. This oversight is not only ubiquitous in finance and economics but present in much of the social sciences, which over the past 2 generations have largely conflated proximate and ultimate explanations for individuals and societies. In nature geese fly south for the winter and north in the spring. They do this based on neurotransmitter signals honed over evolutionary time that contributed to their survival, both as individuals and as a species. "Flying north in spring" is a proximate explanation. "Neuro-chemical cues to maximize food/energy intake per effort contributing to survival" is an 'ultimate' explanation. In business school I was taught, 'markets go north' because of invention, technology and profits, an explanation which seemed incomplete to me even though it has appeared to be valid for most of my life. Social sciences have made great explanations of WHAT our behavior is, but the descriptions of WHY we are what we are and HOW we have accomplished a vast and impressive industrial civilization are still on the far fringes of mainstream science. Economics (and its subset of finance) is currently the social science leading our culture and institutions forward, even if now only by inertia.
19. The economy is a subset of the environment, not vice versa
If people destroy something replaceable made by mankind, they are called vandals; if they destroy something irreplaceable made by God, they are called developers.
Joseph Wood Krutch
When you have to classify the very capacity of the Earth to support life as an "externality", then it is time to rethink your theory. --Herman Daly--
Standard economic and financial texts explain that our natural environment is only a subset of a larger human economy. A less anthropocentric (and more accurate) description however, is that human economies are only a subset of our natural environment. Though this may seem obvious, currently anything not influencing market prices remains outside of our economic system, and thus only actively 'valued' by government mandates or by some individuals, not by the cultural system as a whole. A landmark study in NATURE showed that the total value of 'ecosystem services' -those essential processes provided to humans by our environment like: clean air, hydrologic cycles, biodiversity, etc. if translated to dollar terms, were valued between 100-300% of Global GNP. Yet the market takes them for granted and does not ascribe value to them at all!!! Part of reason is that the negative impacts from market externalities aren't immediate, and with our steep discount rates (see below), the near term 'benefits' of GDP outweigh 'abstract' costs at some unknown future date.
Mankind's social conquest of earth has brought with it some uncomfortable 'externalities'. We are undergoing a 6th great extinction, which is no wonder given that humans and our livestock now outweigh wild animals by almost 50:1. Our one species is appropriating over 30% of the Net Primary Productivity of the planet. (One can ask, how can we use 30% of sunlight yet have 50x the weight of the other vertebrates and the answer, as we will see below, is our consumption of fossil carbon). A short list of deleterious impacts not incorporated into prices/costs includes: air pollution, water pollution, industrial animal production, overfishing (90% of pellagic fishes (tuna) in ocean are gone), nuclear waste, biodiversity loss, and antibiotic resistance. Perhaps the most ominous is the threat of climate change and ocean acidification, where humans, via burning large amounts of fossil carbon, are impacting global biogeochemical systems in profound and long-lasting ways.
Since GDP, profits and 'stuff' are how we currently measure success, these 'externalities' only measurement is the sense of loss, foreboding and angst by people paying attention. Such loss is currently not quantified by decision makers. In the past, only when there was a ‘smoking gun’ e.g. in the case of chlorofluorocarbons, DDT, unleaded gasoline, did society organize and require rules and regulations for the externalities, but these examples, as serious as they were, were not anathema to the entire human economy.
18. Energy is almost everything
Without natural resources life itself is impossible. From birth to death, natural resources, transformed for human use, feed, clothe, shelter, and transport us. Upon them we depend for every material necessity, comfort, convenience, and protection in our lives. Without abundant resources prosperity is out of reach.
— Gifford Pinchot Breaking New Ground (1998), 505.
In nature, everything runs on energy. The suns rays combine with soil and water and CO2 to grow plants (primary productivity). Animals eat the plants. Other animals eat the animals. At each stage of this process there is an energy input, an energy output and waste heat (2nd law of thermodynamics). But at the bottom is always an energy input. Nothing can live without it. Similarly, man and his systems are part of nature. Our trajectory from using sources like biomass and draft animals, to wind and water power, to fossil fuels and electricity has enabled large increases in per capita output because of increases in the quantity of fuel available to produce non-energy goods. This transition to higher energy gain fuels also enabled social and economic diversification as less of our available energy was needed for the energy securing process, thereby diverting more energy towards non-extractive activities. The bottom of the human trophic pyramid is energy, about 90% of which is currently in the form of fossil carbon. Every single good, service or transaction that contributes to our GDP requires some energy input as a prerequisite. There are no exceptions. No matter how we choose to make a cup, whether from wood, or coconut, or glass or steel or plastic, energy is required in the process. Without primary energy, there would be no technology, or food, or medicine, or microwaves, or air conditioners, or cars, or internet, or anything.
A long term graph of human output (GDP) is one highly correlated with primary energy use. For a while (1950s to 1990s) improvements in efficiency, especially in natural gas plants, complemented energy use as a driver of GDP, but most of these have declined to now have only minor contributions. Since 2000, 96% of our GDP can be explained by 'more energy' being used. (For more data and explanation on this, please see "Green Growth - An Oxymoron"). Some resource economists have claimed that the relationship between energy and the economy decoupled starting in the 1970s, but what happened was just an outsourcing of the 'heavy lifting' of industrial processes to cheaper locations. If one includes energy transfers embedded in finished goods and imports there isn’t a single country in the world that shows a disconnect between energy use and GDP. Energy it turns out, not dollars, is what we have to budget and spend. Quite simply, energy is the ability to do work. How much work, we'll see below.
17. Cheap energy, not technology, has been the main driver of wealth and productivity
The chemical potential energy available from the burning of things (e.g. wood) is rather astounding when compared with the energy which we supply our bodies in the form of food, and the fossil fuels of coal, oil, and natural gas burn even hotter while also being much easier to store and transport. We quickly learned that using some of this heat to perform work would transform what we could accomplish in massive ways. One barrel of oil, priced at just over $100 boasts 5,700,000 BTUs or work potential of 1700kWhs. At an average of .60 kWh per work day, to generate this amount of 'labor', an average human would have to work 2833 days, or 11 working years. At the average hourly US wage rate, this is almost $500,000 of labor can be substituted by the latent energy in one barrel of oil that costs us $100. Unbeknownst to most stock and bond researchers on Wall Street, this is the real ‘Trade’.
The vast majority of our industrial processes and activities are the result of this ‘Trade’. We applied large amounts of extremely cheap fossil carbon to tasks humans used to do manually. And we invented many many more. Each time it was an extremely inefficient trade from the perspective of energy (much more energy used) but even more extremely profitable from the perspective of human society. For instance, depending on the boundaries, driving a car on a paved road uses 50-100 times the energy of a human walking, but gets us to where we are going 10 times faster. The ‘Trade’ is largely responsible for some combination of: higher wages, higher profits, lower priced goods and more people. The average american today consumes ~60 barrel of oil equivalents of fossil carbon annually, a 'subsidy' from ancient plants and geologic processes amounting to ~600 years of their own human labor, before conversion. Even with 7 billion people, each human kWh is supported by over 90kWh of fossil labor, and in OECD nations about 4-5 times this much.
Technology acts as an enabler, both by inventing new and creative ways to convert primary energy into (useful?) activities and goods for human consumption and, occasionally, by making us use or extract primary energy in more efficient ways. Even such services that appear independent of energy, are not so- for example, using computers, iPhones, etc in aggregate comprise about 10% of our energy use, when the servers etc are included. Technology can create GDP without adding to energy use by using energy more efficiently but:
a) much of the large theoretical movements towards energy efficiency have already occurred and
b) energy saved is often used elsewhere in the system to build consumption demand, requiring more and more primary energy (Jevons paradox, rebound effect). Technological improvement thus does increase efficiency, but higher levels of resource consumption and a larger scale of resource extraction offset this advantage.
Despite the power in the Trade, its benefits can be readily reversed. Firstly, if we add very large amounts of primary energy, even if it is inexpensive, the wage increases/benefits start to decline. But more importantly, and has been happening in the past decade or so, as energy prices increase, so too do the benefits of the “Trade” start to wane. The graph to the right (source, page 18) shows that as the price of energy doubles or triples the benefits of this 'Trade' quickly recede. This is especially true for energy intensive transportation, like air travel, and for highly energy intensive processes, like aluminum smelting, cement manufacture- fully 30% of US industry falls into this category. The ensuing reduction in 'salary' from large energy price increases can only partially be offset by efficiency measures or lean manufacturing moves, because the whole 'Trade' was predicated on large amounts of very cheap energy. This is why the mainstream media touting increased oil production or the growth rate in solar/wind is missing the larger point - what matters are the benefits derived at the various cost points of energy extraction/harnessing. Even with large amounts of gross energy, if it is too costly, it is much less helpful or worse, the infrastructure, trade arrangements and expectations built upon continued $40 oil and $0.05kWh electricity will have to be changed. Basically, the benefits to human societies from the mammoth bank account we found underground are almost indistinguishable from magic. Yet we have managed, over time, to conflate the Magic with the Wizard.
16. Energy is special, is non-substitutable in the production function, and has an upward sloping long term cost curve
"Oil is a renewable resource, with no intrinsic value over and above its marginal cost... There is no original stock or store of wealth to be doled out on any special criterion... Capital markets are equipped to handle oil depletion...It is all a matter of money", M.A. Adelman, Professor of Economics, MIT Source
Physics informs us that energy is necessary for economic production and, therefore growth. However, economic texts do not even mention energy as a factor that either constrains or enables economic growth. Standard financial theory (Solows exogenous growth model, Cobb Douglas function) posits that capital and labor combine to create economic products, and that energy is just one generic commodity input into the production function - fully substitutable the way that designer jeans, or earrings or sushi are. The truth is that every single transaction that creates something of value in our global economy requires an energy input first. Capital, labor and conversions are ALL dependent on energy. For instance, the intro text by Frank and Bernanke (2d ed., 2004, p. 48) offers explanations for increased productivity: …increased quantity of capital per worker, increased # of workers, and, "perhaps the most important,...improvements in knowledge and technology." Nowhere in standard economic literature is there even a hint that the "improvement" in technology they refer to has, historically, been directly linked to the progression of displacing solar-powered human and animal muscle with larger and larger quantities of energy from oil, coal, and gas. Though energy is central (in that even more difficult ore grades require more overburden to extract, requiring more diesel fuel, etc), energy is not the only key limiter – other minerals and metals are finite and deteriorating in quality and cannot be (easily) replaced.
Since energy seemed the same as any other commodity economic models assumed that energy and resources would follow the same decreasing cost curve we have come to expect from gadgets like toasters and coffee cups, where the technology, outsourcing of parts to their lowest cost countries, and efficiencies of scale have generally formed a declining cost over time. For a while, energy too followed this curve, but given that high quality resources are finite, and require high quality processed resources themselves to extract and refine, eventually the cost curve of energy and other key minerals and ores, begins to rise again. This 'dual view' of energy vs regular everyday products is a key failing in economic texts. But for most of the past 60-70 years however this omission was perhaps understandable, as there WAS a continuing supply of cheap energy so its worth seemed to be just the dollar price of it. For most, this is still the dominant worldview – dollars are more important than energy.
Historical cost curves for oil, coal and natural gas for Europe - Graph source: Rune Likvern Click to enlarge
15. Energy has costs in energy terms, which can differ significantly than dollar signals
“It is appropriate to conclude that, as long as the sun shines brightly on our fair planet, the appropriate estimate for the drag on the economy from increasing entropy is zero. William Nordhaus
“ The laws of economics are like the laws of engineering. There's only one set of laws and they work everywhere. One of the things I've learned in my time at the World Bank is that whenever anybody says "But economics works differently here", they're about to say something dumb. Lawrence H. Summers
“ ... the world can, in effect, get along without natural resources ... at some finite cost, production can be freed of dependence on exhaustible resources altogether.... Nobel Laureate Robert Solow
In nature, animals expend energy (muscle calories) in order to access energy (prey). The return on this ‘investment’ is a central evolutionary process bearing on metabolism, mating, strength and survival. Those organisms that have high energy returns in turn have surplus to withstand the various hurdles found in nature. So it is in the human system where the amount of energy that society has ‘to spend’ is that left over after the energy and resources needed to harvest and distribute that energy are accounted for. Finite resources typically follow a 'best first' concept of resource extraction. As we moved from surface exploration based on seeps to seismic surveys showing buried anticlines, to deep-water and subsalt reservoir exploration, and finally to hydro-fracturing of tight oil formations , the return per unit of energy input declined from over 100:1 to something under 10:1. To economists and decision makers only the dollar cost and gross production mattered during this period, as after all, more dollars would ‘create’ more energy flowing through our economies. Net energy can peak and decline while gross energy continues to rise, and indeed can go to zero when there is still plenty of gross resource remaining. Everything we do will become more expensive if we cannot reduce the energy consumption of specific processes faster than prices grow. Yet, financial texts continue to view economic activity as a function of infinite money creation rather than a function of capped energy stocks and finite energy flows.
Left chart - western Majors price needed for cash flow break even in yellow, overlayed on OPEC vs non-OPEC crude oil production. Source IEA, Goldman Sach 4/13 report 'Higher long term prices required for troubled industry'. Right curve total oil production from Western Majors - source
Irrespective of the dollar price tag, it requires about 245 kilojoules to lift 5kg of oil 5 km out of the ground. Similar biophysical costs apply to every energy extraction/harnessing technology we have - but they are all parsed into financial terms for convenience. After all, isn't it dollars (euros, yen, renminbi) that our system is trying to optimize? But these physical input requirements will not vary whether the number of digits in the worlds banking system increases or shrinks or goes away. Though fossil fuels are our primary source of wealth, they were created a long time ago, and in drawing down their bounty we have not needed to pay the price of their generation, only their extraction. And, despite enormous amounts of sunlight hitting the earth everyday, real (and significant) resources need to be expended in order to harness and convert the sunlight into forms and at places where it can be used.
There is an enormous difference between ‘gross’ and ‘net’ which manifests in financial sphere via costs. Irrespective of our choice of nominal statistic measuring GDP (wampum or dollars or digits or gold), an increasing % of them will be allocated to the energy sector. If our objective is just to increase GDP, we can just keep growing gross energy by locating and exploiting deeper and deeper pockets of fossil hydrocarbons, but eventually our entire food, healthcare, entertainment infrastructure will be to provide for a giant mining operation. Few media outlets (none actually) handicap the new surge in gross USA oil production by a)capex requirements going up faster than oil prices, b) the enormous increase in diesel use in the shale plays and c) the higher API gravity oil (42 for Bakken, 55 for Eagleford) which exaggerate energy content per barrel between 3.5% and 10.7%. Under current trends, the implications of energy depletion is we will move from energy costing less than 5% of our economy to 10-15% or more. In addition to the obvious problems this will create, we will be using lower quality energy as well. As oil has become more expensive, we are increasingly going towards coal and wood to replace it. Already, in countries with a large drop in ability to afford (e.g. Greece) are cutting down forests to heat their homes in winter.
Net energy is what societies should be focused on, and most don’t even know what it is.
14. Money/financial instruments are just markers for real capital
Some material things make my life more enjoyable; many, however, would not. I like having an expensive private plane, but owning a half-dozen homes would be a burden. Too often, a vast collection of possessions ends up possessing its owner. The asset I most value, aside from health, is interesting, diverse, and long-standing friends. Warren Buffet - The Giving Pledge
Growing a big bank account is like fat storage for animals – but it’s not, because it’s only a marker for fat – its caloric benefit stored for the future is intertwined with a sociocultural system linked to monetary and credit marker. In business school, (and on Wall St.) we were taught that stocks going up ~10% a year over the long run was something akin to a natural law. The truth turns out to be something quite different. Stocks and bonds are themselves ‘derivatives’ of primary capital - energy and natural resources – which combine with technology to produce secondary capital - tractors, houses, tools, etc. Money and financial instruments are thus tertiary capital, with no intrinsic value – it’s the social system and what if confers that has value and this system is based on natural, built, social and human capital. And, our current system of ‘claims’ (what people think they own) has largely decoupled from underlying ‘real capital’.
13. Our money is created by commercial banks out of thin air (deposits and loans are created at same time)
Though societies require ‘energy’, individuals require money in order to transact in the things energy provides. What is money anyways? I certainly didn't learn in business school (or any school for that matter). Quite simply, money is a claim on a certain amount of energy. When our economic engine kicked into gear in the early 1900s, money (not energy or resources) was the limiting factor. We had so much wealth in our natural resource bank account that we needed ways of turbocharging the broader economy so productive ventures could be undertaken by anyone with skill, products or ambition. It was around this time that banks came into existence - to increase the flow of money to match the productive output of our economies only made sense - too little money and we couldn't produce the 'power' needed by a hungry world. Creditworthy individuals/businesses could now obtain loans from commercial banks who were required to keep a small portion of their assets on reserve with a central bank. And it worked fabulously well. Correlation=causation and all that.
We were taught to view credit creation as a series of consecutive bank "intermediations", where some initial deposit rippled through the banking system and via a multiplier, created additional money. E.g. banks are unable to create credit themselves, but are just passing on some wealth already created. This is true for about 5% of money coming into existence. The reality for 95%+ of money creation is profoundly different. The standard concept of lending describes a transfer of an existing commodity to its exclusive use somewhere else. However, this new credit extended by banks does not remove purchasing power or claims on resources from anywhere else in the economy. Since banks are capital constrained, not reserve constrained they lend when (ostensibly) creditworthy customers have demand for loans, not when they have excess reserves. As such the ‘fractional reserve banking’ system taught in textbooks and demonized on the blogosphere is not the proper description. I didn't learn this until 2007 or so. Banks do not lend money, they create it. And this is why the focus on government debt is a red herring. All of our financial claims are debt relative to natural resources.
**(Edit - This new paper by Bank of England states precisely what I did just above -banks are not just intermediaries as taught in textbooks)
12. Debt is a non-neutral intertemporal transfer
The left graph, shows the disconnect between GDP and aggregate, non-financial debt. In every single year since 1965 we have grown our debt more than we have grown our GDP. The right graph shows the inverse - how much GDP we receive for each new dollar of debt - declining debt productivity. Source: FED Z.1 2013, NBER
(Note: I use the terms credit and debt interchangeably, though creditor and debtor are opposites)
Of the broad aggregate money in existence in the US of around $60 trillion, only about $1 trillion is physical currency. The rest can be considered, ‘debt’, a claim of some sort (corporate, household, municipal, government, etc.) If cash is a claim on energy and resources, adding debt (from a position of no debt) becomes a claim on future energy and resources. In financial textbooks, debt is an economically neutral concept, neither bad nor good, but just an exchange of time preference between two parties on when they choose to consume. (* we were taught in corporate finance, because of the deductibility of interest, choosing debt over equity is preferred in situations with taxes – but in the real world, when capital markets are open and credit is flowing, if a CEO has choice between financing a project with equity or debt, he/she will almost always prefer debt. And so they do.) However, there are several things that happen when we issue debt/credit that cause the impact of the convention to be much different than in the textbooks:
1) While we are issuing debt (especially on a full planet) the best and easiest to find energy and resources deplete making energy (and therefore other things) generally more expensive for the creditor than the debtor. People that choose to save are ‘outcompeted’ by people who choose to consume by taking on debt. At SOME point in the future SOME creditors will get less, or nothing. (the question now is ‘when’ and ‘who’)
2) We increasingly have to issue more debt to keep up with the declining benefit of the “Trade”, lest aggregate demand plunge.
3) Over time we consume more rather than adding productive investment capacity. This lowers debt productivity over time (debt productivity is how much GDP we get for an additional $ of debt, or the ratio of GDP growth relative to debt growth). If an additional dollar of debt created a dollar of GDP, or anything close, it would be more or less like the textbooks claim – a tradeoff in the temporal preferences of the creditor and debtor. And, when debt productivity is high, we are transforming and extending wealth into different forms of future wealth (energy into productive factories etc). But when debt productivity is low (or approaching zero as is the case now), new debt is really just an exchange of wealth for income. This is happening now in all nations of the world to varying degrees. E.g. since 2008, G7 nations have added 1 trillion in nominal GDP, but at a cost of increasing debt by $18 trillion – and this doesn’t include off balance sheet guarantees.
Debt can thus be viewed two ways – 1) from a wealth inequality perspective, for every debtor there is a creditor – a zero sum game, 2) all claims (debts) are relative to the energy and natural resources required to a) service them and b) pay off the principle. (So, think 2 Italians: Gini and Ponzi.)
11. Energy measured in energy terms is the cost of capital
The cost of finite natural resources measured in energy terms is our real cost of capital. In the short and intermediate run, dollars function as energy, as we can use them to contract and pay for anything we want, including energy and energy production. They SEEM like the limiters. But in the long run, accelerating credit creation obscures the engine of the whole enterprise - the ‘burning of the energy’. Credit cannot create energy, but it does allow continued energy extraction and much (needed) higher prices than were credit unavailable. At some point in the past 40 years we crossed a threshold of 'not enough money' in the system to 'not enough cheap energy' in the system, which in turn necessitated even more money. After this point, new credit increasingly added gross energy masking declines in our true cost of capital (net energy/EROI). Though its hard to imagine, if society had disallowed debt circa 1975 (e.g. required banks to have 100% Tier 2 capital and reserves) OR if we had some natural resource tether – like gold – to our money supply since then, global oil production and GDP would likely have peaked 20-30 years ago (and we’d have a lot more of the sub 50$ tranche left). As such, focus on oil and gas production numbers isn't too helpful without incorporating credit forecasts and integrating affordability for societies at different price tranches.
An example might make this clearer: imagine 3,000 helicopters each dropped a billion dollars of cash in different communities across the country (that’s $3 Trillion ). Citizens that get there first would stuff their backpacks and become millionaires overnight, lots of others would have significant spending money, a larger number would get a few random hundreds stuck in fences, or cracks, and a large % of the population, not near the dropzone, would get nothing. The net effect of this would be to drive up energy use as the new rich would buy cars and take trips and generally consume more. EROI of the nations oil fields wouldn’t change, but oil companies would get a higher price for the now harder to find oil because the economy would be stronger, despite the fact that those $3 trillion came from thin air (or next to it). So, debt went up, GDP went up, oil prices went up, EROI stayed the same, a few people got richer, and a large % of people got little to nothing. This is pretty much what is happening today in the developed world.
Natural systems can perhaps grow 2-3% per year (standing forests in USA increase their volume by 2.6% per year). This can be increased via technology, extraction of principle (fossil carbon), debt, or some combination. If via technology, we are accessing energy we might not have been able to access in the future. If we use debt, we are diverting energy that would have been accessible in the future to today by increasing its affordability via handouts/guarantees and increasing the price that energy producers receive for it. In this fashion debt functions similarly to technology in oil extraction. Neither one is 'bad', but both favor immediate consumption on an assumption they will be repeated in continued iterations in the future.
Debt temporarily makes gross energy feel like net energy as a larger amount of energy is burned despite higher prices, lower wages and profits. Gross energy also adds to GDP, as the $80+ per barrel oil extraction costs in e.g. Bakken Shale ends up being spent in Williston and surrounding areas (this would be a different case if the oil were produced in Canada, or Saudi Arabia). But over time, as debt increases gross energy and net energy stays constant or declines, a larger % of our economy becomes involved in the energy sector. Already we have college graduates trained in biology, or accounting, or hotel management, working on oil rigs. In the future, important processes and parts of non-energy infrastructure will become too expensive to continue. Even more concerning is that, faced with higher costs, energy companies increasingly follow the societal trend towards using debt to pull production forward in time (e.g. Chesapeake, Statoil). In this environment, we can expect total capital expenditure to keep pace with total revenue every year, and net cash flow become negative as debt rises.
In the last 10 years the global credit market has grown at 12% per year allowing GDP growth of only 3.5% and increasing global crude oil production less than 1% annually. We're so used to running on various treadmills that the landscape doesn't look all too scary. But since 2008, despite energies fundamental role in economic growth, it is access to credit that is supporting our economies, in a surreal, permanent, Faustian bargain sort of way. As long as interest rates (govt borrowing costs) are low and market participants accept it, this can go on for quite a long time, all the while burning through the next higher cost tranche of extractable carbon fuel in turn getting reduced benefits from the "Trade" creating other societal pressures.
Society runs on energy, but thinks it runs on money. In such a scenario, there will be some paradoxical results from the end of cheap (to extract) oil. Instead of higher prices, the global economy will first lose the ability to continue to service both the principal and the interest on the large amounts of newly created money/debt, and we will then probably first face deflation. Under this scenario, the casualty will not be higher and higher prices to consumers that most in peak oil community expect, but rather the high and medium cost producers gradually going out of business due to market prices significantly below extraction costs. Peak oil will come about from the high cost tranches of production gradually disappearing.
I don't expect the government takeover of the credit mechanism to stop, but if it does, both oil production and oil prices will be quite a bit lower. In the long run it's all about the energy. For the foreseeable future, it's mostly about the credit
But why do we want energy and money anyways?
Continued in Part II
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Very interesting article. I look forward to the rest of the article.
How far away from south central Minnesota are you in Wisconsin?
nice article...I read a book recently about the civil war Return to cold mountain I think...there was a part about how important a dog was to warning if marauders came on the property. I see it you see why can't the rest of the country and world see the flaws in the system...I guess it is just as well..the fear that comes will be untenable.... "We have nothing to fear but fear itself"
I have a huge library on all things related to our overshoot. When pressed to choose only one item to educate a (smart) newbie I usually return to your "Navigating a Room Full of Elephants". Now I have this excellent article to elaborate on your talk.
Sincere thanks for all your amazing contributions on TOD and best wishes for your future.
P.S. I hope you have found time to read Varki's Denial. I have finished my third reading and am relishing the deeper understanding of the insanity that surrounds us.
Rob M
Wonderful stuff. Some websites out there would charge a high membership fee to read analysis even half this well digested & presented. What a nice closing gift to the TOD readership. As archives go, this site will have a lot of nuggets worth mining.
Total agreement!
This one piece , freely given, is worth a hundred times more than a free lifetime subscription to every business publication in the entire country.
The only problem with it- which is on no way whatsoever Nate's fault- is that well over ninety percent of us lack the prerequisite knowledge needed to truly understand it and to FEEL it in our gut, in such as way that we will act on it , in our lives day to day, and in the voting booth.
If we send the link to our friends ,families, and coworkers, only a small fraction of the small fraction that actually read it will be able to comprehend it.
I will point out that I just condemned our educational system in the comments of the Bartlett post in the harshest polite language i could come up with in the few minutes i spent composing that comment.
I just had an old friend (since the seventies) leave after a few days few minutes ago.Career teacher of business education , graduate of a respectable university, a lifelong liberal democrat.
He's a great guy, with his heart in the right place, and in his retirement he is doing significant volunteer work for one of our greatest natural treasures, Shenandoah National Park.
This is a man who keeps his car radio on NPR, and he reads the Washington Post- used to any way, on a daily basis.
He believes in global warming, but he has accepted GW on faith- He has basically zero knowledge of physics and chemistry chemistry, and almost none of geology or any other hard science.
Since he has no real understanding of the problem of GW , any harebrained scheme thought up by anybody with a suit and a spreadsheet will look like a possible solution to him, if the man in the suit has a a rep for making money, or a suitably impressive diploma on his wall.
I just found out to my utter astonishment- which unfortunately I was not able to completely conceal- that he didn't know who cracked the DNA problem.
He freaking didn't know who Crick and Watson are.
Incidentally, his wife teaches English in a very snooty high dollar private school now, but she worked in public schools for almost forty years..
I'm perfectly sure she knows even less science than he does.
Between the two of them, they have probably had well over ten thousand kids , maybe as many as twenty thousand, pass thru their classrooms.
Nate, I would drive five hundred miles to stand in line to shake your hand.
I wouldn't say that about more than a handful of people in the whole world.
Mac
I wanted to reply to your long comment over at Jerome's last post.
In addition to thanks to Nate & Jerome and all; THANK YOU. ;)
best wishes with the apples & nuts and all
Phil H
Mac, I concur 100% And, if word got out it would be a very long line.
This (series) post is the most important, and the most impressive of the many many post in TOD. And done now - at the end.
I am glad, and at the same time sad. Glad to have the chance to see that at least one someone agrees with all of what has become almost a rant on my part, is sufficiently educated to present the facts in a straight forward and understandable way, and, praise God, is a Chicago MBA!!!!
But that should surprise no one. There is no more passionate preacher than the converted.
Thanks for your many posts. When shaking Nate's hand, I hope yours would be nearby to shake as well.
Craig
OFMac- and all
Just returned to TOD and amazed by the latest valuable contributions. I will read over the next month.
Note: The concepts of "discovery" and "patents" are terribly flawed /biased by potential personal benefits, including $ and power/control to manipulate and dominate.
"Edison's" electric light, "Bell Labs'" transistor, "Bell's" telephone, "Watson/Crick's" DNA helix, "Xerox'" copier, "Manhattan project's" Abomb, "Teller's" Hbomb, etc all were dependent on the work product of others who are rarely acknowledged and sometimes almost unknown and even actually unknown. All the while, legal maneuvers, theft,bribery and murder were often the inconvenient backstory to who was officially credited.
Best to all who contributed to TOD and/or read and learned. I raise a toast to the best there is in Mankind. As each makes an exit, may they return in a new ,expanded edition.
.
I agree that our patent system is in dire need of an overhaul- mostly because of the ill influences brought about by our having way too many lawyers and too much corporate money buying influence, and corrupting the intent of the system.
My own wag is that probably half , maybe more, of all the patents issued each year for the last five years or should not have been granted, because they simply aren't new inventions in any real sense of the word real.
But I do believe we need a patent system- otherwise tech progress would be much slower, because applied research and development of new discoveries would be slowed considerably.
Business men, especially small businessmen, would be reluctant to spend their limited capital introducing new tech to the public, knowing that without patent protection , any other company with the wherewithal to do so could jump immediately into the new market- without having gone to the expense of demonstrating and proving out the new tech.
Marijuana for instance is well proven to be a great natural medicine- but no pharmaceutical company will develop the potential, because there is no way to patent the result- and with hop patent, no way to sell enough of the new med, for enough money, to pay for the r and d. Testing a drug for safety and efficacy costs tens of millions of dollars.
There is imo another fault with the system that has come about with changing times. I think that things are changing so fast these days that patents should expire in no more than eight to ten years from either the issue date, or maybe fr4om the f date of first commercial use.
Having said all this, I also agree that a whole heck of a lot of scientists and inventors have been denied the just fruits of their labor, mostly by by scurrilous employers and lawyers in their employ. i also agree that women and "people of color" have been denied intellectual credit and monetary compensation simply because they weren't male and white- or the 'right ' other color, depending on their country- on many occasions.
But in terms of the larger debate about the future of the human species, and the future of the rest of the biosphere, credit or the lack thereof is pretty small potatoes. The world is not a fair place.
Totally agree with you, Greenish.
best
Phil H
Reading all these replies- it seems that the saying about the internet is true- people just go online to read what they already believe. Peak Oil has become a vast echo chamber. There isn't a single real question being raised here- just affirmations- like church.
Nate's post makes no acknowledgement of the abilities of humans to discover new things about nature which allow them to unlock additional energy sources (and the price mechanism which drives this effort). Its as if humans were just some species of rodent trying to survive in a rain forest that is dying. It is a world without intelligence- just simple entropy and draining supplies of resources.
There is a very hidden bias in all PO writings- that man is essentially a dumb passive creature who awaits his doom like a cow. That all scientific discoveries of any value have been already found out and there is nothing else to consider but how fast things will collapse. It is a world devoid of intelligence- populated by brutes who have no idea of what they are doing (but somehow were intelligent enough to create all the technological devices around us). PO doom is based on the singular paradoxical notion that people were once amazingly smart enough to create a high tech world and then, all at once, - everybody collectively loses their brains.
people just go online to read what they already believe.
Don't confuse the readers with the writers - for every person writing something that they haven't really thought out, there are another 10 people lurking and reading, and learning. Some of them aren't writing, because they know that they have something to learn....
That's generally true.
It certainly seems to have honked YOU off not to read what you already believe.
I offered congratulations on a nicely-written essay. They fell somewhat short of "hallelujah".
I don't actually see you asking any questions, for that matter; seemingly just making truculent assertions about human exceptionalism. If you don't often see such congratulations for the stuff you write - which I can believe - you perhaps shouldn't begrudge them to those who put in the effort to be original.
Dude, did you actually read it?
The gist of your comment seems basically religious; you're seemingly fluffed by the fact that the essay and many of the comments are based on referenced science and good observation. Since you responded downstream of my comment, I'll note that I think there's some tasty irony in your invoking "man's intelligence" to distinguish Nate's stuff from yours.
The good news for you is that the site's closing down, and there's no shortage of sites which assume that humans are magical beings who will always be saved from reality by their exceptional cleverness. Get thee there, and be blessed!
I too have had somewhat similar thoughts, but I would not put it so bluntly. I also think it would be foolish to dismiss PO and other limits because man is intelligent and can fix anything. Predicting behavior and phenomenon in the future is a risky business and doubly so with intelligent participants involved, but assuming that technology will come to the rescue is in itself a risky assumption.
Our technology is now so complicated that it is well beyond comprehension of any of us. In fact the only way that we can manage it at all is incrementally by building upon the works of all those who have come before us along with depending upon a fully functional supply chain.
This means among other things that if the current machine stops for any length of time, it will be difficult, if not impossible, to restart it. Even simple tools and machines are not so simple if you have to build from scratch without a fully functioning and working supply chain. And don't think that you can easily revert to a previous technology. You won't have that supply chain either.
IMO there are also inherent limits in our ability to continue to incrementally build upon the existing works. Based on my experience with software, at some point the system becomes so complicated that additional modifications are no longer worth the effort. In software this typically means that major and costly architectural surgery is necessary. In practicable terms this often means that you have painted yourself into a corner with no way out.
Nature is the final arbiter of what is possible and what is not. The hidden assumption on this forum is that the society we created with fossil fuels is not possible without. That may or may not be the case, but for me at least, it is a real question, the most important one of our times.
Also, it is indeed possible that some technological breakthrough will solve our problems. But it is very hard to write something intelligent about the likelihood of such an event. It more or less boils down to faith. On the other hand, lots of intelligent things can be said about a world where no such breakthrough occurs. IMHO Nate's piece is in this latter category.
The "hidden bias" that "that man is essentially a dumb passive creature who awaits his doom like a cow" is a coupled strawman. I've seen very few hidden biases, especially on TOD; they've all been aired out here at some point, and it has been pointed out many times that humans are neither dumb nor passive.
Humans have been quite clever in their aggressive exploitation of virtually any environmental opportunity for wealth and growth. Our species has been historically consistent in this behavior. Those who have a bias that our cleverness will suddenly be diverted towards considering the long-term negative consequences of our exploitations are at a distinct disadvantage if the past is a good indicator of our future behavior, toward each other and the planet. Virtually all of our problems began as solutions, most of our wars have been for resources, and we have a habit of being reactionary when crisis forces our hand. I, for one, am not so naive as to believe that we'll suddenly change this behavior, come together as a species and discontinue our degradations of our environment. Oil was just our latest, greatest opportunity to do so at an unprecedented scale.
"Also, it is indeed possible that some technological breakthrough will solve our problems."
The problem isn't our technology; it's us. Humans are exceptional alright; exceptionally adept at deluding themselves into thinking someone else will cleverly solve their collective predicaments in a way that doesn't involve burning things, creating an ever-growing waste stream and trampling on anything that gets in their way. How's that working out so far?
I dont think the above essay said anything about the future. It used neutral language to state that energy is the basis for GDP and wealth. Did Nate say there won't or can't be new breakthroughs? I think it is clear that IF we get a new very cheap energy technology with sufficient returns that growth could continue for a while (assuming it is ok for environment).
And I think it is very clear (to most that have researched it that is) that we could have a meaningful society without fossil fuels, but it wouldnt have remotely as much consumption or peoples that it does now. The other aspect not mentioned, perhaps in Part II is 'time' - how many decades would we need to effectively transition to even a 50/50 mix? I don't know. I agree with the poster above that the problem is us. We are not satisfied unless we have growth. Our institutions were not designed to manage decline - and look around you - decline is already here, its just not evenly distributed
It used neutral language to state that energy is the basis for GDP and wealth.
The language was seemingly neutral especially if one has an underlying feeling that 'we are all going to hell in a basket.'
I'll bring up one little example from the essay
We are undergoing 6th great extinction, which is no wonder given that humans and our livestock now outweigh wild animals by almost 50:1. [my emphasis]
I drug up the pdf linked but haven't went through it entirely. From a glance it appears Nate's phrase 'wild animals' refers to only to land mammals, possibly birds were included I haven't had time to look that closely.
Using the term 'wild animals' the way Nate did shows a bias, it becomes a loaded term. Last I read the total masses of ants and of humans on this planet were within an order of magnitude of being equal. There are a whole lot of other insect species out there and fish and crustaceans and on and on. A reader might say well insects aren't animals. Well then are they plants? Nate was playing fast and loose when he with his readers emotions with that line, it's 'pitch' not science.
The definition 1. of animals in Webste's New World College Dictionary fourth editionany of a kingdom (Animalia) of eukaryotes generally characterized by a multicellular body, the ability to move quickly and obtain food, specialized sense organs, and sexual reproduction.
"Well we all knew Nate was talking about our fury warm blooded 'landlubbing' kin" the reader might respond. Well yes if the reader is a member of the church 'doom is upon us' they likely would know exactly what Nate was talking about this instant the loaded term 'wild animals' was dropped. If they were trying to sort things out in the science based framework Nate claims to be following they likely were left scratching their heads and might not have read a word farther.
That is just one very easy to dissect instance of a deep underlying bias in this essay. There's is substance in it but seperating the tares from the oats is no mean task.
I got that data from Bill Gates blog, where he linked to Vaclav Smils 'Harvesting the Biosphere'. Its wild vertebrates. Not insects (invertebrates).
With a little googling you can see that human population increased 16% from 2000 and livestock is up 25%. Assuming wild vertebrates are flat (unlikely), wild animals - all of them - are less than 2% of the total living weight on Earth- humans and our farmed animals are 98.5%. If it doesn't concern you that humans and our chattel are almost 50x the weight of all wild vertebrates, well then we just share different philosophies. I swear. The Crusades of 21st century will not be between Christians and Muslims but between businessmen and ecologists. When I heard that stat for the first time about 98.5% of dry biomass weight it felt like I had been punched in the gut. But the fact that someone (you) are quibbling about definition of animals and vertebrates when I linked to the source, kind of sheds light on how this 50:1 happened to begin with. I don't blame anyone, and don't think we planned it this way, but when faced with such facts to push them away is probably natural. Cognitive dissonance and all that
And I do not think we are going to hell in a handbasket. But I do think the drivers of growth -cheap energy and available credit are waning, and our institutions and political body are asleep. Part II is about biology, wants vs needs, GDP, and what its all for. I'll be curious what you think about that side of it
So you get the data from Bill Gates blog, why does your link takes right us to Vaclav's paper where one has to go through quite a bit find the numbers? Did you go through the paper and work out the numbers yourself? If you did kudos, otherwise there is good reason I feel like I'm on a used car lot or in the pews on Sunday morning (always felt the same to me) right now?
You do misread me though, I became extremely concerned about human impact on the biospher 22 years before you were Salamon trainee stint-elborated on in my reply to Phil. Of course I don't have the fervor of a recent convert anymore.
Yes I went thru the data. But to be honest I first thought wild vertebrates included whales, fish etc but Smils data are only land vertebrates. Still.
Yes, a pickle. And both an interesting and profound time to be alive
Yes, a pickle. And both an interesting and profound time to be alive
We are in agreement on that most certainly but do have a somewhat different set of experiences on which we have built our world view. I've a good idea of where you are coming from though but not having really been up there where the levers are being pulled it is likely my picture is missing a tad of refinement a possibly a key insight or few. You may also feel you've a very good handle on where I'm coming from, but not having truly scraped from the bottom after choosing your work path you likely are missing some key insights critical to my world view as well.
And though it is even less important than the 'aminal quibbles' we been discussing, thinking on it I realized your Salomon Bros. time came only 21 years after my epiphany--I hate to spread misinformation ?-)
My oil supply epiphany was much more recent. Christmas Eve Day 2004. It had to do with multiple big low pressure systems spinning off from the Gulf of Alaska, snow shutting down every artery into our isolated regional hub for days and the first type vehicle that came streaming down a freshly opened highway from the far reaches of the road system. I'll give you a hint, the rigs were long, tubular and empty.
When I heard that stat for the first time about 98.5% of dry biomass weight it felt like I had been punched in the gut. But the fact that someone (you) are quibbling about definition of animals and vertebrates when I linked to the source, kind of sheds light on how this 50:1 happened to begin with.
I had not time to respond to this yesterday but I do find your surprise incredulous.
How would you not suspect the balance was not something like that. Even in your relatively wooded state with fair size wooded and riverine patches interspersed with much of the tilled and pastured land you only have a deer population of 600,000 give or take, and you have something like 20-40,000 bear. The rodents might outweigh the bear and deer or not but just Milwaukee's people, cats and dogs could well outweigh all of the above. Last time I heard there were still a good number of dairy cows in the state and Milwaukee proper has less than 20% of the people.
It's just not a big surprise if you've been walking through this world with the blinders off, though it might help if you read something like National Geographic for 20-50 years and watched a bit of TV keeping a bit of a world grid program always running in the 'back of your brain.' Where would you expect this gigantic undomesticated vertebrate population to outweigh us and our pets and livestock?
Asia? lets see two countries with over a billion people long farming all the best land leaving only the steep mountains, deserts, boreal forest and permafrost underlain tundra as major wild habitat swaths--none those habitats support large wild vertebrate density
Europe? the best habitat long farmed with lots of big cities
North America? with coast to coast industrial farms--with the big wild swaths like Asia's not able to support much wild vertebrate population density
Africa? with its burgeoning cities and agricultural and logging pressuring the edges of all major reserves.
South America? a quick look shows 390 million people for less than 8 million square miles--no contest their either and lots of beef cattle
Australia? if it can support much life its a city, farm or a sheep or cattle ranch
Antarctica?
So again why was that such a punch in the gut, weren't your eyes open as you flew and drove across the country? My moves from the city kept me at the edges where wild 'animal' populations were on the high side, but when I moved from the upper Great Lakes to the Rocky Mountains I saw endless farms and cattle ranches not endless bison herds. I don't doubt I live in the only state where wild vertebrates might outweigh humans and their domestic livestock--though with all of our dogs it might be a push. Why do you think I scraped a living along the edge so long--I liked being where it was wilder. But in the end I found it best living here in the suburban bush of Alaska's second largest city where there is no doubt the we and our domestic animals far outweigh the wild stock.
edit on:
[by the way Nate, thank you for all your efforts posting and replying here and through the years. Your work always fosters lively discussion and at least a few commenters punch at your post's weak sections about every time. This time, before this bracketed section, my 'contribution' is ~2400 words. Certainly not as widely read as your key post and lacking in documentation (not going to fight the spam filter) but 2400 words is a significant reply to 6200 word essay. TOD is not all about rubber stamping the 'preachers' as some on this page have claimed. Thanks again to all that have kept TOD going. It has been a great run.]
Err... Luke
Nate actually wrote: "Our one species is appropriating over 30% of the Net Primary Productivity of the planet. (One can ask, how can we use 30% of sunlight yet have 50x the weight of the other vertebrates and the answer, as we will see below, is our consumption of fossil carbon)" - my emphasis.
The point about "sunlight" might have been qualified by the term "photosynthesis". We now comprise a large set of of our own simplified ecosystems and prior ecosystems have become heavily constrained. 'We' are very much a 'world-sized' event, on a par perhaps with the great glaciation events, but as Nate goes on to point out, we are having a disproportionate effect on the oceans.
I was the only commenter who might be described as 'Hallelujah', perhaps embarrassingly so. But Greenish had made clear points and I had no need to repeat them. I responded because I have witnessed the development of analysis on TOD and found this article a useful summary to end with. More 'thanks' on my part, than 'Hallelujah'.
Phil
Phil, thanks for making a comment I was going to make. Luke's unnecessarily-snide remarks are seemingly based on his ignoring the word "vertebrates", thus creating an issue to complain about.
Nate actually wrote: "Our one species is appropriating over 30% of the Net Primary Productivity of the planet. (One can ask, how can we use 30% of sunlight yet have 50x the weight of the other vertebrates and the answer, as we will see below, is our consumption of fossil carbon)" - my emphasis.
But he used the term 'wild animals' first. That is pitch as is the use of the term 'sunlight' instead of photosynthesis which I didn't want to go into as my first reply was already too long. It's intent is to work the emotions, it certainly worked in my case as I had forgotten he used vertebrates later--I did manage to actually read through this entire piece of Nate's by the way. There was not need for the 'wild animal' sentence whatsoever in a science based approach now was there? 'Pitch' by its nature is insidious and pitch does permeate all Nate writes. Though it probably is unavoidable if you are trying to sell any kind of change.
My position does appear to be misread. Years back I posted here what was my epiphany moment on man's global impact. My moment was on Labor Day or Memorial Day 1972--I'd probabaly could sort out the day combing thourh old National Graphic Magazines, they had input to a different part of the 'vision.' I had a 'vision' in which I saw the earth systems more or less as sand on pans of an old fashioned beam balance. There was a huge, huge, huge constant stream sand of input hitting the fulcrum of the balance and dividing equally between the pans where it hit the respective piles and then mostly fell off into the void--that represented sunlight. For ages man scurried around moving grains of sand on the balance pans and even between the balance pans without altering the balance a jot, the steady stream of sand was just so huge. But then we started whittling away at one side of the fulcrum moving the point just so slightly. The stream of sand no longer hit the pans equally. Things changed rapidly after that. Yes very a simple picture, easy to shred as ridiculously so. But it has power in its simplicity and gives the sun it's rightful place in the order of things.
I stand by my final statement
That is just one very easy to dissect instance of a deep underlying bias in this essay. There's is substance in it but separating the tares from the oats is no mean task.
Hey Luke, I respect your point of view. However even if there is some bias in Nate's post the underlying facts are unassailable! Humans are having a major impact on our life support systems and the ecosphere. Things simply can not continue on our present path for long.
Do me a favor take 23 minutes of your life to listen to this highly biased plea from E.O.Willson
http://www.ted.com/talks/e_o_wilson_on_saving_life_on_earth.html
Guess what I'm biased too and I even admit to having an agenda!!! I'm willing to use every trick I know of to help push things along in certain direction. Hint that direction is orthogonal to the current path that the vast majority of humans are pursuing! I'm more in Nate's camp on this!
Cheers!
Fred
I believe it was E.O. Wilson's piece in Nat Geo a while back that stuck the ant mass number in my brain, which jumped right back and screamed out as I read Nate's 'wild animal' sentence. My sometimes 3G connection makes the linked video painful to attempt to watch, is text available. OK got through it, its a plea for getting a better handle on what is here before it isn't.
Our path is not going to be redirected by rational forward planning all that much, but rather by reacting to the pressures around us--that is what every other species does here--watch the unfolding battle around the Obama EPA's modest new CO2 limits for power plants if you think otherwise. If our actions redirect the suns energy so as to slide us off the landscape that is how it will be, unless of course we are 'the chosen ones who reflect the perfection' and therefore 'the perfection' just won't let that happen--a dangerous point of view and one I know you don't hold. It looks very much like being a generalist is that path through this extinction, but that may be an illusion as the generalists might rely on tiny vulnerable specialists for their own survival.
Do what you can, mostly we can only try to more or less protect some bioreserves and encourage more biodiversity friendly tech. I don't see that falling ERoEI of fossil fuels is going to suddenly alter our planet dominating course. Burning FF the last couple centuries appears to have allowed us to reach a critical mass of interconnected brains, one which will allow us to redirect energy for our species use until the landscape is finally so changed that it says 'no more.' That of course could happen suddenly if some of the little critters interacted with us in just the 'right' way--but I'm not going to hope for that either. Some change was going to race down upon the current balance eventually, we appear to be the eventually no sénse in taking it to personal. The big system doesn't 'care' unless of course we are 'the chosen ones.'
Do what you can but don't expect peak oil to be the savior. In the meantime I just might work on that 'mosquito burger' you mentioned to me a few years back?-)
I agree Luke!
Though a few of us may be able to set off a few strategic and preventive control avalanches here and there...
There are a few solitary individuals out there doing what they can. But you are right there are no guarantees going forward.
Cheers!
Fred
Good luck to you and greenish on your avalanche control. Regardless how big we try and see things we are always more than a little myopic. The law of unintended consequences can be and very often is very unforgiving.
Well as I said here some time ago, our best hope may be that the intergalactic cable crowd finds our show too darned entertaining to let it go off the air any time soon--pretty chancy way forward though, relying on thumbs up from the arena crowd. Especially from an imaginary one ?-)
Humans will always try to do the best they can with what they've got. But if the speed or scale of events is too large, being smart won't help you.
It's easy to say afterwards you should have anticipated e.g. the height of the tsunami, but you have to balance the possibility of an event versus the cost of providing for it.
Take food grains: knowing that the climate is becoming unpredictable, how much grain should be in storage, where should it be stored, and who should pay for it? Unless you helpfully dream about seven fat cows and seven lean cows, you are going to have to guess, and maybe look stupid in the future as it rots away or runs short.
The closer the world comes to hitting physical limits, the more we resemble grains of sand on a sandpile that has reached criticality. There will be landslides, we know that for certain. But the individual grains can't control where or how big they will be.
Take Fukushima. If the wind had blown in a different direction they would have had to evacuate Tokyo. What the ripple effects would have been I don't know. Certainly devastating for Japan, and maybe for the rest of the world as well. For all we know there is a butterfly flapping its wings in the Amazon right now that will trigger the big one. What will it be and are we prepared for it?
This is a very popular criticism and it does have some merit to it. But first let me point out that, like those that you are criticizing, you make the same mistake in assuming what you already believe. Nate's post DOES acknowledge advancement and innovation in areas of efficiency. But he points out that much of the efficiency gains have already been harvested and that we are hitting diminishing returns. And this is somewhat true. However, I do believe there is a massive amount of waste out there that we can eliminate. The way we design homes is insane. We put almost zero effort into designing them to reduce energy usage. It is like all the aerodynamically stupid cars of the 60's and 90's . . . efficiency didn't matter because gasoline was so cheap.
But onto your general thesis . . . that science and innovation will save us. Again, the same principle applies . . . diminishing returns. Science and engineering do produce new things all the time. But except for a few areas such as digital electronics and bio-engineering . . . progress has slowed down a lot. We largely now understand the physics of the world. And although there are chances at some revolutionary breakthroughs such as harnessing nuclear fusion or massive solar PV efficiency increases, there just are no new energy sources to tap. When was the last time a truly new source of energy was introduced? I'd say over 50 years ago when nuclear fission hit the scene. Since then there have been no new sources of energy introduced. If science and engineering is going to save us . . . why hasn't it? From 2000 to 2007 oil shot from under $20/barrel to over $100/barrel. Where is our savior? The best we got was pressure-washing oil-stained dirt in Canada and hydrofracturing small deposits of oil trapped in shale. That's not gonna power the flying cars we all want.
We are going to keep discovering and innovating. And those innovations will help us a lot. But we've hit diminishing returns. And worse, the burning of ever more fossil fuels is now back-firing against us with climate change. So, no, we haven't forgot about innovation and discovery . . . we just acknowledge its limits. There is a small chance that something truly revolutionary will be created . . . but most likely, the innovation will just slow the problem of PO.
Argghh.. Why a good discussion sprouts here on the last tick of the clock! Science and engineering works on projects that are funded, and TPTB have different priorities than us (i.e. are not PO-aware or want to happily continue BAU) or quite possibly see lower-hanging fruit in some other venue. My business for many years has been custom embedded systems, and I can't recall a single customer making a business decision on the basis of oil depletion or climate change.
There's lots of innovation going on, sure, and lots of technologists would love to jump on a new bandwagon. Someone has to create the crisis first. Sadly I don't see that happening by accident.
For example, there are all these new cool switching power supply chips that convert one voltage to another at very high efficiency. Does anyone use them? Not if they cost a penny more than the older chips. Save money by consuming less power? Sure, but only if some entity - UL, CE, etc. - mandates lower power usage. I think engineers love to make products more efficient, just like a marketeer yearns to polish the company image, but lets be clear: the CFO calls the shots, and the bottom line is profit.
What we need is an economic imperative, clear enough to justify an Apollo-scale project. Then, you'll see lots of innovation, and quickly.
Solar photovoltaic, as something beyond hyperexpensive space applications, certainly is younger than a half century. Only now is it becoming generally economic.
The biggest potential I see ( not yet economic) is "hot rock" Hydrofrac hot rocks, pump water down and get hot water/steam back. Heat exchange to alcohol mix (customized for ground water temperature recovered from hot rock) and run alcohol steam through a turbine.
Other working fluids may work better than alcohol, but I know alcohols will operate well in creating high pressure steam below 125 C.
Best Hopes,
Alan
And, of course, practical wind powered generation is less than 40 years old.
And "safe"* steam power - the kind that drives the turbines that drive the dynamos is less than a century old.
*Safe - as in one doesn't see reports in the news about exploding boilers like one used to see.
he points out that much of the efficiency gains have already been harvested
That's not even a little bit true. The average US vehicle uses about 900 watt-hours per km - this could be reduced to 120 whrs with a Nissan Leaf, and a Leaf's efficiency could easily be doubled in turn. That's a 93% reduction!
And, as you point out, homes could go from enormous consumers to being net zero-energy - it doesn't get more efficient than that!
If science and engineering is going to save us . . . why hasn't it?
The tech we need is right here, right now. We just need to use it.
Well I am constantly searching to see if I may be wrong about the PO facts and so far I have not found that to be the case. I wish it was not true but I am sad it is. If there is a counter argument web page to PO I would love to see it; so far I have not found one.
When I told my Father-in-law(who has a PHD from Stanford) about peak oil the only thing he said was is there advertising on the site, well then they have a vested interest in keeping the fear alive. When I tell others and try to direct them to this site they say you are depressing and don't want to talk about it anymore. So it is really hard to convince people that the world is not flat when they have been told for so long that it is. And maybe it is best that they don't know...
paraphrased a bit from MIB agent K...
There is always an invasion or death ray about to destroy life on this planet - The only way people can go about their lives is if they do not know about it
"It is a world without intelligence- just simple entropy and draining supplies of resources."
So why do you (think) countries (e.g, US, or European countries with mercantilist policies during the colonial era) that consume(d) a lot of resources have standing armies, or are politically affiliated (like a league of nations) with ones that do ?
Well, Nate, you seem to have perfect pitch to my ear. I read this just after I had come back from giving a little talk to a very small bunch of friendly folks at a local festival-a passionate but chaotic statement on the sin of robbing the future to pay for playing around with silly stuff in the present.
I was wondering what, in a sane world instead of the one I happen to inhabit, I would have said that might have conveyed more solid foundations for my conviction. So I was tuned to receive what you said, and I think I received it.
But then I remember an experience in grad school, in which a famous professor gave perfect lectures on fluid mechanics, lulling me into a sense of comfort at understanding perfectly, when in fact I had not really integrated the essence of the ideas into my toolkit of thinking on the subject.
I think what you said was that debt is a game, in which you give real value to a guy who pays you back with a promise of something in the future. A promise which, under present circumstances, he cannot keep-and he knows it, and you don't. Called robbery. Um, no, called BAU.
And playing that game a couple of moves ahead, those playing the debt game are dead, the great majority dead poor and the tiny fraction dead rich, and the next generation gets the ruins left by the game.
So I could have given that as the reason behind my closing line at the festival talk- You kids should, right now, start a class action lawsuit against your grandparents and parents who have robbed you of your planet so as to run their hair blowers.
Wimbi, How's that bicycle transmission coming along? I'm interested in importing bamboo bicycle frames from Brazil into the US and putting the bicycles together here in the US and selling them as a niche market item. Would you be interested in providing the transmissions? I'm guessing I'd have to design a frame specifically for that purpose. My email is in my profile if you feel like dropping me a line.
Cheers!
Fred
Fred. I am putting a blog- winbi's widgets- on the planet beat. latest on transmission, pot engine, gasifiers, etc .
thanks much for all the fun here.
Cheers! I will check it out!
Fred
Wimbi, how about a link to your stuff?
I'm looking in the wrong place
http://www.theplanetbeat.com/content/wimbis-widgets
http://www.theplanetbeat.com/content/wimbis-widgets
OFM, thanks for the interest. I don't know how to navigate that site and probably put my blog in the wrong place. Would be grateful if somebody would point to a tutorial or something on site use.
Sigh. It was so easy here.
A lot of the material taught in higher education---all departments--- is oriented around "more" and "infinite resources" and "endless complexity" and "restatements of the obvious without end".
It's a paradigm that won't quit until it literally drops dead in front of our horrified eyes.
I work in academia so I know.
It has become more and more of a dumb show and a "last man standing" phenomenon.
But what, what, (really) were you expecting? The paradigm that reigns over finance surely reigns over design, literature, business education, economics, and all of it.
It is an elderly weak tyrant that still has control over us.
More like the Wizard of Oz standing behind the curtain pushing and pulling the levers in the Emerald City.
... the elderly weak tyrant played by Frank Morgan in the movie. Pulling levers until it did not work any longer.
You don't notice the tyranny when the tyrant is your uncle. If there were any justice in Oz, Judy Garland would still be working for WWW Enterprises.
"It has become more and more of a dumb show and a "last man standing" phenomenon."
These guys agree:
A Last Hoorah on My Way Out the Door
The Perversion of Scholarship
My father retired as the Dean of Academic Administration and Educational Law at a major southern university, held that position for more than a decade, and was also deeply involved in developing academic standards for high schools to be accredited to graduate students into the university system. Shortly before he died, he admitted to me that his efforts had largely been for naught. The accreditation became more important than the requirements for such. The educational systems he spent his life to set high standards for were being dumbed down. About the time of his death, the university he worked for gutted the advanced academics program he helped to create for exceptional students, mainly in the arts, languages, and literature, and the university decided they needed a football team instead.
How can we expect current and future generations to understand and act upon these things when so few have the tools? They are being told what to think, rather than how to think and learn; not to be bothered with the hard process of understanding things; subjected to neatly packaged ideas that aren't really ideas at all; force-fed fantasies that are fantastically inappropriate for their time.
It occurs to me that TOD was an artifact of peak education as much as anything.
Now I understand cornucopia.
Money and energy are the same thing.
Money can be created from nothing by suitable institutions (banks).
Therefore energy can be created from nothing.
No 13 is in basic economics textbooks. Its the definition of a bank. Are things like supply and demand, comparative advantage etc. in your 1-10?
No 16 isn't true. The long term curve declines. Technology, whether its a horse collar or separate condensor has this result. Technology like the condensor can't outrun depletion of fossil resources indefinitely, and as long as the cost of energy is set by the cost of fossil energy, the curve is liable to go up. However once the fossil curve goes above the renewable curve, and fossil fuel goes the way of the dinosaurs, technology like the horse collar drives the curve down.
If long term means 5 years, then you may be right, but to me long term means the slope as time tends to infinity and thats close to zero but negative, not positive.
Because of our rising reliance on EIA data for net export calculations, I’ve switched over to solely using EIA data, and the EIA data show that the GNE/CNI ratio fell from 12.0 in 2002 to 9.5 in 2005 (a -7.8%/year rate of change) and from 9.5 in 2005 to 5.0 in 2012 (-9.2%/year rate of change), i.e., the rate of decline in the CNI/CNI ratio accelerated from 2005 to 2012, versus 2002 to 2005.
At a GNE/CNI ratio of 1.0, China and India alone would theoretically consume 100% of Global Net Exports of oil (GNE). I define GNE as combined net exports from the top 33 net exporters in 2005. CNI = China & India’s Net Imports.
At the 2005 to 2012 rate of decline in the GNE/CNI ratio, the ratio would theoretically hit 1.0 around the year 2030, in 17 years.
If we look solely at the 2005 to 2012 rate of decline in the ratio of GNE to China's Net Imports, China alone would theoretically consume 100% of GNE in 19 years, around the year 2032.
From 2002 to 2012, the Economist Magazine showed the global public debt increased from $20 Trillion in 2002 to $49 Trillion in 2012, a 9%/year rate of increase.
I think that developed net oil importing countries are desperately trying to keep their “Wants” based economies going, via deficit spending, financed by real creditors and by accommodative central banks, based on the premise that high oil price are temporary, and they will soon once again enjoy significantly increasing rates of increase in the production of lower priced crude oil.
In my opinion, the reality is that, at least through 2012, developed net oil importing countries like the US were gradually being forced out of the global market for exported oil, via price rationing, as the developing countries, led by China, consumed an increasing share of a post-2005 declining volume of Global Net Exports of oil.
Two graphs that compare the declining GNE/CNI ratio to annual Brent crude oil prices and to total global public debt (through 2011):
West Texas and Nate:
Thanks for summing up the situation so well. Terrific.
Paulo
Westexas:
Are we going to be able to find your analytical work anywhere after the death of TOD?
I hope so.
I'll be primarily at the new ASPO-USA website, but also posting stuff on Ron's blog (Peakoilbarrel). New articles will presumably be posted at ASPO-USA and on the Resilience website. I'm working on updating my Export Capacity Index paper with 2012 data.
Thanks, Nate. As others have said, this is indeed a gem.
Perhaps it's because I had absolutely no business training whatsoever, but it just astounds me that supposedly intelligent people could make statements such as that Solow quote. Whatever do they think their almighty dollars are going to go to work on? (and really, it's the word 'work' that I should highlight, since as you so aptly point out, money is a claim on energy which is the ability to do work...)
I use a simple mental excersize to try to help people grok the essence of much of what you say here: You are tasked with building some major project, something like Hoover Dam, for instance. You have access to four unlimited 'piles'. One of raw materials, one of human labor, one of money, and one of energy. Which one can you build the project without? Few to whom I have posed this choose to eliminate the money...
I used to blame the economists, but I now realize they are just following the environmental cues of our time (more on that in Part II). In many real ways it IS the money that accomplishes tasks - at least that is how it seemed when we had plenty of the energy and raw materials - everyone wants money, so money is the limiter!!
Nate, do you consider deprivation and dieoff to be a normal market mechanism?
"Water flows uphill towards money." -- Anonymous, saying in the American West
everyone wants money, so money is the limiter!!
I never really saw it like that. My time and energy were always the limiter. I was always trading those two items for stuff. Generally I agreed for a set amount of money for my time and energy and agreed to pay a set amount for the stuff I got for myself but I always looked at it in terms of how long I'd have to work how hard to get that stuff. But again that might be why I've never had a lot of money?-)
This is a good analogy. I'll keep it.
at some finite cost, production can be freed of dependence on exhaustible resources altogether
For practical purposes sunlight and seawater can be considered inexhaustible on this planet. Granted we have more than a bit of an issue with waste stream, and we do have to make a whole lot better 'trade' to get where Solow is talking about. At the moment we seem to be getting a worse 'trade' day by day. I'd bet that happened ahead of the discovery of the horse collar for a fair piece as well. That of course doesn't mean another 'horse collar' is or isn't in our future somewhere does it? How is it the disclaimer goes 'past performance is no guarantee of future results' or some such... and a really handy dandy new 'horse collar' still doesn't address the waste already in the stream does it?
Which one can you build the project without? Few to whom I have posed this choose to eliminate the money...
I forgot you even mentioned money once you threw in unlimited energy, all I remembered was that we had unlimited raw material and human labor--the project looked like a go to me. Could be why I've never had a lot of money though?-)
Right oh, Luke. I've always had an aversion to spending my labor time to accumulate money, then spend that money to purchase someone else's labor used to transfer another someone else's labor and raw materials, usually with even more labor, money, and energy embedded along the way. We pride ourselves on the 'efficiency' of our manufacturing, supply, and sales chains, but it never very seemed efficient to me.
There are too many things to count around my home that bypassed this process altogether, or retasked things that were part of someone else's waste stream that could be had with little or (usually) no money; only my labor to acquire and convert, perhaps with a little store-bought energy in the form of fuel, maybe a bit of hardware made in Taiwan.
I helped a friend clean up his barn Saturday and no money exchanged hands. I earned a good lunch, and came home with a nice 72" finish mower to pull behind the tractor (needs some TLC, that's all), and a load of other stuff; some really nice electrical boxes full of relays, transformers, timers and terminals. I also brought home a variety of metal stock pieces; aluminum and steel angle iron, etc. He called later and offered a nice air compressor which just needs a new tank (got that already) and a commercial grade sand blasting-shot peening cabinet that needs a bit of work (labor mostly) and some paint; great for cleaning metal parts, etching glass, etc. The money I 'saved' on all of this can go to paint and grease; only a tiny fraction of value received. I also gained enjoyment from time spent with a friend.
Other examples are our solar tracker mounts, made mostly from old satellite dish mounts; acquired with only my labor removing them from the former owner's property, a token payment perhaps, and a bit of fuel. Some money involved in all of this, but not much. With a much smaller amount of money embedded in things, the money seems to be even more valuable, to be conserved and used only when necessary rather than as a default vector to most everything.
I also place a different value on the things we need, that have our own labor, ingenuity, and time embedded. They are more likely to be kept, maintained, and used, rather than thrown 'away'. There is no away. Useful things shouldn't go POOF, like the money used to acquire them. There's a labor => money => stuff disconnect that helps to insulate us from the sources and consequences of our consumption.
Thoreau has a great discussion in "Walden" about riding the train. He estimated that it was better to walk somewhere than to work for even more hours doing something unpleasant to earn enough money to buy a ticket.
The economics today generally favor buying the ticket but that situation almost certainly is reversing.
Thanks Nate for pulling and pooling the factors together in one coherent article. Most of the facts and opinions posited should be familiar to long time TODers but yours is the most succinct to date. It seems that TOD is getting better just as it approaches D-Day. I still find it utterly astounding that your view, our view, of how and why things work or don't work in these the waning days of a fossil based industrial civilization are not mentioned, not grasped by the populace! I guess there are none so blind as those who will not see. Of course this post gets bookmarked but I will print it out just in case. BTW, my son at Dell says that computers, server farms, internet etc consume 17-18% of US electrical energy, not 10%. Doesn't really matter. We do live in interesting times. I will miss these posts of intelligent comments. Oh well, I've got sheep to move and a fence to repair....
Does your son have a reference he could share?
Sorry Nate. I gather the higher number(17%) of electrical power was based on some internal memo dealing with all aspects electrical in reference to computer power. It went beyond just the standard ICT(information computer/communications technology) power usage which was quoted at the number you used:
10%. Their concern was the soaring increase in energy use just in their business and the goal was to increase efficiency to reduce the rate of increase of their carbon footprint. There was a report released in 08 or 09 by the climate group dealing with the increasing energy use of the sector.It was called the smart2020 report. It is a big dense pdf. Here is a link referencing it out of Stanford. The author says in 2010 the sector used 10% with a 7% per year increase.:http://large.stanford.edu/courses/2012/ph240/lee1/.
Here is a key sentence from that paper:"According to the SMART 2020 report, server farms create carbon footprints that grow more than 7% per year, making them one of the greatest challenges faced by the proponents of green IT. Data centers need numerous auxiliary systems, including storage devices, power supplies, and cooling systems. In 2010, over 10% of electricity in the U.S. was due to computer and IT equipment usage."
My son said that their higher estimated power usage was a back of the envelope calculation of any and all electrical consumption of anything related to computer use from using and charging up a smart phone, to computer computation in industry, commerce, transport etc. If you just stick with the narrow ICT consumption it does appear that it was 10% in 2010 growing at 7% pa? I guess if that were true we would be up to 12% or so by now?
well, since 15% of internet traffic is related to cats, so...12%*15%= 1.8% of our energy goes towards cat links and pictures.
;-)
This is a great convergence (and, in a neologistic way, a great "intuition pump") of all these threads. They weave into a braid, and the braids into a matrix, that lifts us into complexity with grace.
I propose that we reapply the identity-myth of Cassandra to ourselves. All those "They's won't listen to us, either. Or perhaps a duck's-back metaphor?
Although this is wasted on the Mob, it is a splendid help for us to advance our new paradigm. It is an Nth-order repetition and it's finally sinking in, becoming more coherent with each iteration.
Thanks, Nate.
Well, sounds good, but think about these predictions from a few years ago:
"catastrophic deflation, then hyperinflation, will come very soon"
"oil prices will stabilize at $38"
"oil prices will rise to over $200, destroying the economy"
"oil production will go into terminal decline very soon"
"all this money-printing will lead to currency debasement and hyperinflation"
"the Obama stimulus and the quantitative easing measure by the US Fed will not lead to a rise of inflation because we are at the zero lower boundary of interest rates; at this level of stimulus, there will be a recovery of GDP, but it will be slow and painful, feel like stagnation"
The first five predictions have in common that they were wrong.
The last prediction is from a scientific economist, Paul Krugman.
For this reason, I am not as sceptical any more of scientific economists (i.e. those who use mathematical models and modify them based on what happens in the real world)
(All predictions are summaries of articles read on the internet, quoted from memory - TOD's death is near, no more time to look up the exact wording)
You'll find very few predictions in the above (and coming) post - what I am trying to do is look at first principles. I don't know what is going to happen, but Im fairly certain of some things that WON'T happen, growth in throughput will not continue for much longer, because we are trapped from both sides - higher energy costs, lower availability of credit. Cheap coal might 'come to the rescue' for a while longer globally, but that would be a Pyrrhic victory. But you are right, in general, there has been a loud and deterministic choir, with all sorts of predictions. Personally I didn't think we'd still be growing (credit) at this level in Europe 5 years on, but many countries (Italy, Spain, Greece, Portugal) can no longer access the credit teat. In addition to their own problems they will be an increasing drag on the core. But its the big picture we should be worried about (or really big picture) How we prepare and respond to this change in trajectory is what this is all about.
p.s. there are very very few 'scientific economists' and PK is not one of them. The more econometrics one uses the less it is science in my opinion. There are definitely a growing number of resource economists that use alternative explanation of productivity than Cobb-Douglas, but its a small minority
p.p.s. and its not a death, but a hibernation. A big difference
Whether or not economics is a science, PK's predictions have been vastly more accurate than anyone in the peak oil/energy decline camp. His predictions about finance and economics have been vastly more accurate than (say) Nicole Foss, who is drastically wrong over and over again, year in and year out. Even his one or two remarks about peak oil (he mentioned it back in 2008, and again in 2010) were far more accurate than almost anyone in peak oil circles. He claimed (in 2008) that unconventional oil would be much more expensive than the $40/barrel some were claiming, that the world economy could keep growing despite a peak in conventional oil, that peak oil would necessitate a gradual shift, and that no collapse of civilization was on the horizon. All of those were correct, unlike the nearly 100% failure rate of predictions issued by the peak oilers.
Bear in mind that he was working outside his area of expertise when discussing peak oil, yet still was more accurate than anyone in the peak oil camp. His predictions about his own area of expertise (economics and finance) have been vastly more accurate, consistently, than those of Nicole Foss, etc.
"[Oil] supplies aren’t keeping pace. Conventional oil production has been flat for four years; in that sense, at least, peak oil has arrived. True, alternative sources, like oil from Canada’s tar sands, have continued to grow. But these alternative sources come at relatively high cost, both monetary and environmental.... [Peak oil] won’t bring an end to economic growth, let alone a descent into Mad Max-style collapse. It will require that we gradually change the way we live, adapting our economy and our lifestyles to the reality of more expensive resources." --PK, 2010
Of course, the "Mad Max-style" collapse he was referring to was the prevailing notion in peak oil circles.
-Tom P
Im not defending people in the peak oil circles, in fact I have been critical of them myself, here and elsewhere. But PK and most in his camp don't see the "Trade" as the driver of wealth, see debt as neutral, see money as more important than energy, see the environment as part of the economy, etc. I think he's a good guy and could ultimately be persuaded otherwise. And because one (vocal) person has been wrong means the tenets of the whole resource depletion community are wrong? Hardly.
p.s. I'd be happy to politely debate these ideas with Prof Krugman. He is smarter than me but I've been reading better books. Set it up.
If Dr. Krugman is not a scientific economist, then who is? What is your quantitative model, what is your prediction for the development of the economy over the next few years? For example, your model could be a correction factor on inflation, e.g. where conventional meodels (e.g. Paul Krugman's predict x percent of inflation/deflation, yourr's would predict x + c. c would represent the economical drag of higher oil prices. What is your c and how did you derive it as a function of resource depletion?
Credit is a more important driver than oil prices. This is not the forum to outline a quant economic model (at this point anyways). And any model that 'predicts' the future, without quantifying human behavior better use a large error band. We could have a GDP +/- 8% depending on whether the Republicans allow the debt ceiling to be increased (I expect they will, but they might let it stay capped, to make Obama/economy look bad). If you tell me how much aggregate credit grows in any quarter/year, I can tell you with 90% confidence what GDP will be - in the next few years at least. The main difference in my model is all the factors of productivity in conventional economics - labor, capital and conversion are all dependent variables on energy. But there are more. I havent even mentioned globalization yet.
A simple model of income, aggregate demand and the process of credit creation by private banks
http://www.neweconomics.org/publications/entry/a-simple-model-of-income-...
Nate,
What impact does it have if some national economies have a steady 1+% to 3% annual increase in energy efficiency ? Oil use declines are a bit less than the overall energy decline, but still in the 1% to 2% range.
At least with oil, decreasing use is tightly coupled with greater price elasticity of demand for oil.
Alan
France to Reduce Fossil Fuels by 30% by 2030
http://www.english.rfi.fr/economy/20130920-france-cut-carbon-emissions-3...
And this is on top of a -14.8% per capita reduction from 2007 to 2012, and from carbon emissions just 64% of German per capita emissions
The French grid is now 75% nuke and 10% hydro, renewables can have only a limited impact on that sector. So efficiency will play a major role in this effort.
Efficiency is not dead !
And I repeat my earlier question. What happens if French & Danish efforts are widely duplicated ?
Best Hopes for Those that Prepare,
Alan
You and I (me too, I mean, no offense intended!) are just a couple of apes with brains programmed by evolution to deal with time on a scale of seconds, minutes, days and at the longest, seasons.
Longer spans of time are not easily processed in the lower brain centers where we live, emotionally.
The real world, meaning objective reality outside our heads, moves on other time scales, but so slowly on a human scale that an impatient human being- especially a younger one- perceives a period of ten years as being a veeeery loooong tiiiime.
On the geological scale, ten years is so short a time as to be effectively an instant, and on a biological scale , ten years is an eye blink.
On the scale of history, for instance the history of commerce, ten years is such a short span of time that converted into human terms, it might be appropriate to think of it as a month, maybe a couple of months.
"catastrophic deflation, then hyperinflation, will come very soon"
I am most definitely not as well educated in economics and finance as some famous deflationists, but I have argued in this forum that the powers that be - meaning the federal government in it's entirety , absolutely does possess the power to inflate our fiat money to any extent they please.
Only an idiot- no apologies to anybody on this point- could ever believe that there is "no way to get the money to the people who need it and will spend it".Can they say"guaranteed income" for instance?
Such people are trapped inside a box consisting of their own expertise, and mostly know little or nothing of the larger world. They can't even really conceive of congress doing away with the fed- but congress CREATED THE FED by passing the necessary legislation with a little help from the executive and the courts.
The basic policy of the fed for the last few years has been to print enough money to stop an uncontrollable deflation, without creating a runaway inflation, and by and large, the fed has succeeded.So far at least.I'm personally keeping my fingers crossed that it will succeed for a few more years, until I have gone back to the dust from whence I come.
If you happen to believe that the fecal matter is going to hit the fan, eventually, MUST hit it, due to unpayable debt, declining revenues, and growing obligations brought on by overshoot, then you will see that in the end, when there is no other option left, the federal government - the "fed " as such may no longer exist-will very likely print as fast as necessary as a last resort measure to stave off actual collapse as long as possible.
"all this money-printing will lead to currency debasement and hyperinflation"
All fiat currencies have a life span, and the dollar will be no different. The ones that don't die with the mother country invariably inflate out of meaningful existence, sooner or later.
I remember dime coffee at a poor man's restaurant.
I paid 17.5 times that today in the same exact location, sitting in the same favorite corner booth, to the original owner's descendants. It's still a working class restaurant, not even half as spiffy as a typical newer Mickey D.
Patience, my man!
"oil prices will stabilize at $38"
This was cornucopian bullshit, friend- put out either by liars with skin in the game, or dingalings who still know damned little to nothing about the realities of geology and other hard sciences- which is no surprise, since most economists and business types have no education at all in the sciences, beyond whatever they got in junior high school.
You have obviously lived long enough to see oil prices "stabilize" - for a little while at least in the hundred dollar range .
There are a great many people - smart people - who believe that hundred dollar class oil has basically stalled the world wide economy, and that hundred dollar oil is indeed not so slowly destroying it.
I'm personally convinced that you are likely to live to see two hundred dollar oil, unless you are old like me.I won't be surprised if I see it myself.
I can remember when oil was almost free, wholesale, back when I was a kid, and kids with part time jobs could afford to drive hot rods that got less than ten miles per gallon.
My best friend had 427 (seven liter)v8 with two four barrels.
The production of real honest to god OIL has been stalled for close to a decade while the price of it has increased FIVE TIMES OVER.
Think a bit about that. I might be wrong, but I doubt you will find anything Krugman has written specifically about the implications of this rocketlike rise in oil prices .
Now even a stopped clock is right twice a day, and Krugman has by good luck happened to be more or less right, for all the wrong reasons, for the last few years.
He apparently doesn't know sxxt from apple butter, ABOUT SCIENCE, excuse me for putting it in appropriately blunt terms.
I've read one of his books, and I would happily bet he couldn't pass the final exam for a real ( not survey) freshman level class in chemistry, biology, physics, geology, or agriculture at any legit university.
I finished that one book ONLY because it happened to be the only new one I had on hand that night.
You only need a bite or two from a plate to know a cook is incompetent, but I'm a compulsive reader.
I just checked Yale's (his alma mater) website.
The current requirement university wide natural sciences requirement for graduation at this IVY LEAGUE U IS TWO FREAKING CREDITS.
This must necessarily be a so called survey course, which is probably taught on about on about the same academic level as basket weaving.
Krugman and his sort are like the Mad Queen in "Alice in Wonderland", who worked at it like a job, or an athlete in training, and succeeded "in believing six impossible things before breakfast." (paraphrased, not exact, from memory)
If he were to accept Nate's challenge to a debate, and if the judges were half and half divided between real scientists (including Yale alumni or all Yale alumni!) and Ivy league economists, Nate would win every scientist, and Krugman would win every economist.
Now insofar as the public is concerned, Nate would get the drubbing of his life, because as Twain put it, a man should never argue with an idiot in public.
The public is always too ill informed to know which man is the idiot.
But the public does know what it wants to hear, and it will go with Krugman simply because Nate's the honest and competent bearer of bad news.
In 1975 I was studying Civil Engineering. We had to take one course outside the engineering faculty. Most chose Computer Science. I chose Political Science. Among the readings we were given was Hayek. When asked my opinion, I said he was "old-fashioned". They asked why I thought that, and I replied Hayek assumed unlimited growth and resources, which was clearly wrong in the light of the recently-published "The Limits To Growth".
Forty years later, and nothing has changed. Hayek could still make the same assumptions, and I could still see evidence that the End of Times was upon us. One day I'll be right, but when that day will come I don't know. It seems to be a receding horizon. (But I give us another twenty years, max.)
Incidentally, I thought with my more rigorous academic background I would ace the Political Science course. I had to be better than the airy-fairy Arts types. Not so. I did poorly, and when I read the essays of the A-students which were put on the notice board, I realised why -- they had a depth of insight I could not match. I've been more respectful of Arts graduates ever since.
In the hard sciences you are working with known, quantifiable, materials and forces, applying tested mathematical and computer techniques. The softer sciences are more like dealing with smoke. You need to develop intuition, an instinctive feel for your subject, an appreciation of nuances which is anathema to the more technical guys. Strip away the equations and the best economists are intuitives. Which makes them difficult to prove right or wrong, so you have to go with more or less persuasive as your standard of judgement.
Well said, Aardvark.
Let us pray: Our Father, who art in D.C., give us twenty years!
Craig
Exactly, precisely farmermac...thanks for expressing my thoughts!
I think that Foss has made some good predictions and descriptions of where we are and where we are heading. I don't think we are going to have run away inflation at least not for some time. A lot of the people arguing that we are have a lot of skin in the game---meaning a lot invested in metals... We are going to have a 1934 deflation with a lot less money on the table...It is already happening--- JP Morgan is no longer giving out loans for college, Poland calling in pensions etc... And we may have oil settle at $38 a barrel just no body will be able to buy much of it.
I think to have runaway inflation you need a congress that can actually pass something and this election coming up is going to be even more conservative.
The inflation will come when collapse is close- it will be an early indicator, one of the best ones. The govt. wants to maintain a stable but slowly inflating currency, this is a policy set in stone, and has been, for a century.
The people who grok this status quo, and have billions of skin in the game, from little folks like me with a piddly little farm, to Warren buffet with his billions. have adjusted to this situation and policy, and don't want it changed.
But at some point, collapse is going to have it's way with us, and when the game is down to the last losing inning, you eat your seed corn and burn your furniture- last thing before you starve.
When there is no other option, the govt will print to pay it's obligations, and as fast as necessary.
This will most certainly not solve the problem, but it will delay the final day of reckoning for some time- maybe moths, maybe a few years.
An authoritarian govt might possibly be well enough entrenched to go with austerity rather than inflation.
In the end, collapse is collapse , regardless of the exact way it plays out.
I expect a runaway inflation is quite some way off myself, probably ten years at least, or maybe even twenty, thirty or forty.
I don't have any real argument with Foss herself except the way she used the language - i just think the public intuitively understands deflation as something other than the collapse of Business As Usual.
As I see it, she has the terminology sort of backwards, as the man on the street perceives things.
She seems ( to me) to be saying the collapse of credit is going to bring about the overall collapse, whereas i think the larger c ecological and resource based ollapse will bring about the collapse of credit.
I don't personally beloeve bankers are immune to the guillotine of politics when things get bad enough. Remember the French revolution, and the russian civil wars, and the rise of the Commies.
I suppose the odds are very much against any bankers being beheaded here in the US by a citizens kangaroo court, but I can easily imagine some people who have lost evertything due to bankers malfeasance stabbing one on the street or slipping some arsenic into one's drink in a night club.
There was a well publicized case a while back in Germany about a man who was in effect robbed by his bankers kidnapping a couple of them.
I know some honest God fearing Old Testament Christians who are salt of the earth people- the sort who coach l Little league, visit the sick, clean and cook for them, stop and help strangers fix a flat tires.
They will look you right in the eye and tell you , as quietly as quiet can be, that if a banker or stockbroker stole all their parents money, leaving them destitute, without going to jail, they would hunt the perp down and kill him.
I have known local southern mountain people to do this sort of thing several times over. They go to jail afterward, because it is usually easy to figure out who did in who, and why, in such cases, and they come out satisfied after they pull their time.I never yet heard one of them say he was sorry for what he did, except for the getting caught aspect of it.
I have three known blood relatives who are pulling long sentences right this minute, or will be before too long..
When I lived in the city, I got to know some pretty hard core street guys too- the sort who will casually shoot somebody over an insult.( I would just as soon not go into any real detail as to how and why i got to know them, other than that my work brought me into contact with them over a period of years.I've always been a rolling stone, in terms of how I got my living.Lets leave it by my remarking that the slums of Richmond Va at the time included the gentrifying Fan District, where I lived within a stones throw of Stonewall's statue on Monument Avenue, and that I was a long haired hippie hanging out with the university crowd there,doing some renovation work, and taking a few grad courses at VCU.)
As Nate remarks down thread, exploring this sort of thing is too dangerous to pursue it in any detail.
I won't be surprised, or upset, if this comment has a very short life span.
If were a banker today, I wouldn't advertise the fact unnecessarily, and later on, when things get really tense, I would certainly bunker up . I might even assume a new identity and go into hiding. But this sort of crisis is probably decades away, and may not come to pass within the life span of anybody reading this forum today.
Whether this comment is short-lived or not, this is why I'll read your blog.
No I think we are a long way off from that...if the government really thought that was a danger of above said, they would have some hi-tech spying of its own citizens going on under the guise of homeland security...and its police force would be like commandos.
"She seems ( to me) to be saying the collapse of credit is going to bring about the overall collapse, whereas i think the larger c ecological and resource based ollapse will bring about the collapse of credit."
Are you sure about this? I think that she quite often says that it is a resource collapse due to high oil price and the difficult nature to find the last of it.
No I think we are a long way off from that...if the government really thought that was a danger of above said, they would have some hi-tech spying of its own citizens going on under the guise of homeland security...and its police force would be like commandos.
Don't forget to let people know when you're being sarcastic!
I could have it backwards, probably do, sorry and thanks for catching it. I only read her stuff for a little while a couple of years ago before deciding she is intellectually trapped by her own expertise, and unable to think outside the box or envelope defined by " banking as usual."
I better shut up before I'm buried too deep in a hole of my own digging.
When tshtf, it won't be banking as as usual anymore- not after a while.
She's the expert economist.
I read history and science fiction and classic novels and evolutionary psychology to pass my free time.
This is the sort of question in my opinion that is better answered, to the extent it can be answered by discussing human nature than the nature of banks and banking.
if you define deflation as an across the board decline in prices, with an even greater concurrent decline in purchasing power, we could reasonably call collapse deflationary I suppose.
But so far as I can see, there is nothing- nothing whatsoever- that can stop a sovereign government in extremis from inflating it's currency- either deliberately, or inadvertently.
There are compelling reasons for such a government to pursue inflationary policies , the most compelling of all being it's own survival.
The biggest effect of inflation is to push up prices at the expense of savers and to the benefit of debtors, so long as they can lock in a low interest rates.
Now everybody who is owed money by our government will get burned in proportion to how much inflation comes about.
I realize there are reasons to own bonds paying a couple of percent or less, and there might even be deflation such that the prices of houses, stocks, farmland, etc, drop off sharply .
But what does anyone expect to buy in the future that isn't likely to go up faster than two percent a year.?
Think about this.
In a runaway inflationary situation, you could make the existing payment on a Mcmansion on a Walmart clerk's wages- assuming you could get a job clerking for the Waltons.
The squeaky wheel gets the grease, and the people immediately threatened by deflation get plenty, if they are powerful enough.
All this so called Q E has saved most of the homeowners in this country from seeing their home's sale value go to hell in a hand basket.
But if you have money in a savings account, or Uncle Sam owes you, in the from of a future check and Medicare, your de facto savings are melting away fast.
In the very last analysis, if there are only ten silver dollars in the world, and no other money whatsoever, and only five bushels of wheat for sale, and nothing else whatsoever for sale, all the money would eventual be exchanged for all the wheat,, yielding an average price of two dollars.
If there are a hundred silver dollars, and the same five bushels of wheat, the price will eventually be twenty dollars.
These examples are airtight, but they illustrate my point.
A broke individual can pass bad checks for a few days.
A dollar is in effect a pay to bearer on demand check on the govt that issues it which by law must be accepted for all debts public and private, by all parties, under all circumstances.A govt can pass bad monet for quite a while
If i write a few bad checks, some will clear the bank, and the person who takes them will bwewhole. The person who takes the bad ones lose the whole amount.
When a government writes the equivalent of bad checks by printing money, every body must accept the checks- the money- and pass them along.
The people who are first in line get full value, but in the end, the public loses in proportion to the printing - if the total amount of circulating money is increasing, prices start going up. Nobody losea all, but everybody loses some.
The govt has been printing such checks by the billions on a daily basis- well, this has so far staved off the massive deflationary pressure described by people such as Foss.
But this is like taking a drink or two- the first few ease the aches and pains and worries.
A few too many multiply those same aches, pains and worries.
QE must come to an end, at some point, or it will bring on a runaway inflation .
Sooner or later all these electrons will escape the bankers clutches and circulate thru the economy.
The bankers themselves will probably set them free and sic them after hard goods at some point.
When things spin way out of control, Congress and the Prez will take over and run money and fiscal policies directly.
That's when the electrons will really fly free.
Well I am a single dad to two little girls and I can't decide which is worse--- for a smaller collapse to happen now, while I am still young or when they are older and I am hopefully not too old...
I can't give up so I am left with swimming in these waters...searching for a way out....maybe I will buy silver when it gets to 16....
The really interesting time to buy silver was during the 60's when it was $1.29 per ounce. Futures were at $1.38. If the price rose higher silver coins would be subject to melt. US coin dating was frozen to discourage collectors. The vending machine industry was vulnerable as there was no single alloy available to work their mechanism. For as long as it could the US sold its huge stockpile to prevent a price rise. Eventually two alloy clad coins were developed to mimic the properties of the silver coins. The stockpile was almost completely depleted and the price exploded. Paper silver certificates also circulated and were eventually called in at a nice profit. The clad coins remain in use. Much of the copper has been removed from pennies to prevent melting. I suspect that our entire coinage is vulnerable, especially nickels.
I don't know if anyone was predicting it at the time, but it's pretty well agreed that the seeds of WWII were sown at the end of WWI, principally in the Treaty of Versailles. Took 20 years for those seeds to 'bear fruit'. Point is that a 5-8 year time horizon (based on your quoted predictions having come from 2005-8) is pretty short. I don't pretend to know how long we'll be able to keep stealing from the future on credit as Nate outlines, but my guess is that WT's ELM & GNE extrapolations, which yield no available net exports 15-20 years from now establish the end of the window for things to get 'interesting'.
Patience.
Quite a few people predicted it, but their voices were drowned out.
Some people were already working on it- namely, One Adolf Hitler, in particular although at that time it was only a dream in his troubled mind.
Anybody who truly wants to understand the origins of WWII , in depth , must read Hitler.
I'm sure there must be others here who have read him, but sfaIk, I'm the only one to say so.
History does more than just rhyme, it does repeat to some considerable extent.
Anybody who wants some real insight into the potential origins of WWIII should devote a few evenings to the study of Germany between the first and second WW.
The better book to read to understand the origins of WWII is John Maynard Keynes "The Economic Consequences of the Peace", written after the Treaty of Versailles.
"History does more than just rhyme, it does repeat to some considerable extent."
Which is why I can't understand why there isn't any discussion of The Fourth Turning, 1997, by Strauss and Howe. I'm not going to take the space here to explain their theory. If you don't know about it, just do a web search.
I found this to be a most important book equal to, and better in many ways than, TLG since it deals with "people" rather than computer projections. It really has done a better job of predicting the future than anything else I have read. James Quinn of The Burning Platform has had many articles related to the TFT.
If you aren't pessimistic now, you will be when you come to understand The Fourth Turning.
Todd
Here is a summary of the theory:
http://en.wikipedia.org/wiki/Strauss%E2%80%93Howe_generational_theory
Hi, Todd
Quinn is a real heavyweight.
I read him myself for a good while.
He makes a lot of sense, way the hell too much sense to read him and sleep if you get to thinking about little kids.
I'm not so sure about the Fourth Turning myself- I simply haven't studied this concept long enough to accept it or reject it.
I'll keep an eye open for the Strauss and Howe book, thanks for mentioning it.
Say, Mac, while I see your name: You had asked to be placed on the Update list but as you know I've stopped doing. But, I thought you might like to see what it was like so I'm going to copy and paste a couple and email them to you when I get a chance. They'll be quite a few kb. I'm always behind on email so be patient. The title will be Update Hello.
Todd
Actually, Field Marshall Ferdinand Foch, commander of the allied armies in 1918, predicted it, down to the exact year, saying: "This is not a peace. It is an armistice for twenty years".
You've obviously never read The Fourth Turning nor know what it's about.
Well no, I was replying to the post above, not to yours, check the reply tree.
A link to a summary of my first Oil Drum guest post, in January, 2007, focusing on the Top Three Net Oil Exporters at the time, Saudi Arabia, Russia and Norway:
http://www.theoildrum.com/node/10236#comment-977291
Final sentence from said post:
The three countries' (Saudi Arabia, Russia, Norway) combined net exports were 15.3 mbpd in 2002 and 18.6 mbpd in 2005, a 6.5%/year rate of increase (EIA). This is what we were seeing when I wrote the above brief article. At this rate of increase, their combined net exports in 2012 would have been in excess of 29 mbpd, versus the actual value of 17.5 mbpd, a decline relative to 2005, and a gap of about 12 mbpd between where they would have been at the 2002 to 2005 rate of increase in combined net exports and the actual value in 2012.
Note that the combined net exports from the (2005) Top 33 net exporters were increasing at 5.4%/year from 2002 to 2005, versus a slight decline from 2005 to 2012 (0.5%/year, EIA), and I estimate that post-2005 Global CNE (Cumulative Net Exports) may already be about 20% depleted, through the end of 2012, and some GNE/CNI graphs are shown above. What I define as ANE, GNE less Chindia's Net Imports, fell from 41 mbpd in 2005 to 35 mbpd in 2012.
Here are the main points from the same article:
"This causes Export Land's [hypothetical] net exports over the five year period to fall from 10 mbpd to 3 mbpd, a decrease of 70%... Let's look at real world production with our hypothetical Export Land as a model.... the top three net oil exporters in 2004 were Saudi Arabia (8.73 mbpd), Russia (6.67 mbpd) and Norway (2.91 mbpd), a total of 18.31 mbpd."
"I believe that Saudi Arabia is on the verge of a long term decline in production. Texas, the former swing producer, with a similar P/Q intercept, showed a 29% drop in production over a 10 year period after its 1972 peak."
"If this assessment is correct, Russia is on verge of a dramatic collapse in production, almost certainly in the double digit percentage per year range."
"Norway peaked at 55% of Qt, and has been following the predicted downward slope exactly as predicted."
"Both Russia and Saudi Arabia are probably going to show significant increases in consumption going forward. It would seem from this case that these factors could interact this year produce to an unprecedented--and probably permanent--net oil export crisis."
...Maybe the ELM is correct or partially correct. However, it's clear in retrospect that Hubbert Linearization did not correctly predict future oil production for KSA or Russia, at all. Their oil production was being constrained by political factors, and H-L is not a valid method of predicting future production in that case.
-Tom P
Regarding ELM, it's a mathematical observation, to-wit, given an ongoing production decline in an oil exporting country, unless they cut their consumption at the same rate as the rate of decline in production, or at a faster rate, the rate of decline in net exports will exceed the rate of decline in production, and the rate of decline in net exports will accelerate with time.
Furthermore, if the rate of increase in consumption exceeds the rate of increase in production in an oil exporting country, the country is mathematically trending toward zero net exports, even if production and net exports are temporarily increasing (which is why the US and China became net importers prior to production peaks).
I'm not quite sure how any of the preceding mathematical observations can be "partially correct."
Regarding my initial post on net exports, it was a pretty crude approach to trying to model future net exports from these three countries, but the fact remains that their combined net exports rose at a 6.5%/year rate from 2002 to 2005. This was the observed rate of increase in their combined net exports at the time that I wrote my brief article on net exports in January, 2006. Combined net exports from Saudi Arabia, Russia and Norway fell at close to 1%/year from 2005 to 2012. Here is the country by country summary of what we saw from 2005 to 2012:
Of course, I wasn't responding to the preceding mathematical observations when I said "partially correct". You are inserting something then claiming I was responding to it.
In your exposition of the ELM, you almost always include additional assumptions, beyond the mathematical observations you indicated above. For example, in your exposition of the ELM, you frequently assume that oil exporting countries will not reduce their consumption of oil by more than enough to counteract their production declines, and therefore, net exports will decline. I'd guess you're correct, but it includes an assumption about the future behavior of countries. If that assumption turns out to be wrong, then part of what you're saying will be wrong (not the arithmetic stuff you posted above, but the other assumptions which you include in your exposition of the ELM).
It's possible that much higher oil prices could induce oil exporting countries to curtail their consumption of oil by more than their declines in production. For example, the KSA might decide that generating electricity using oil-fired plants is a bad idea when oil is so expensive, and replace their oil-fired plants with gas-fired or solar plants. In which case, they could reduce their own consumption of oil, and could possibly export more even with flat or slightly declining production.
Personally, I doubt very much that oil exporting countries will do that. I doubt they will reduce their consumption by enough to counteract their declines in production. I'd guess you're correct, and net exports will decline by more than the declines in production. However, it's not just a matter of the mathematical observations you posted above.
-Tom P
Denmark is a case history of a net oil exporter, showing a production decline, that taxes fuel consumption and that has successfully cut their consumption. Denmark’s 2004 to 2012 rate of change numbers (EIA):
(P = Production, C = Consumption, NE = Net Exports.)
P: -8.0%/year
C: -1.9%/year
NE: -18.7%/year
ECI Ratio (P/C): -6.0%/year
As noted above, given an ongoing production decline in an oil exporting country, unless they cut their consumption at the same rate as the rate of decline in production, or at a faster rate, the net export decline will exceed the production decline rate, and the net export decline rate will accelerate with time.
In Denmark’s case, their 2004 to 2005 net export decline rate was 4.5%/year, while their 2004 to 2012 net export decline rate accelerated to 18.7%/year.
In simple percentage terms, a 47% decline in production from 2004 to 2012 resulted in a 78% decline in net exports, even as consumption fell by 14%.
For my most recent essay on net exports (February, 2013), with 24 figures, you can search for: Export Capacity Index. As noted in this article, given production declines, the model, and multiple case histories, show accelerating decline rates (unless consumption falls at same rate as production decline rate or at a faster rate). In way, that's the "Good news." The really scary numbers are the estimated rates of depletion in post-2005 Available and Global CNE (Cumulative Net Exports).
The concluding sentence from my January, 2006 article on net exports:
Some concluding comments from my February, 2013 article:
I think that you ELM analysis indicates that some of these countries will start having some consumption declines. Specifically, various oil exporting countries with fuel subsidies will start to phase out those subsidies. They need to do it to keep up exports. And now they have the disastrous example of Egypt to look at . . . an example of the meltdown that happens if you don't cut your subsidies and then your exports drop to zero . . . a complete meltdown.
All of these countries with heavily subsidized fuel prices will start raising them.
I agree that HL is less than perfect at predicting EUR, but on the other hand it has been good for predicting major inflection points.
Of course, Deffeyes, using HL, predicted a global crude oil production peak between 2004 and 2008, mostly likely in 2005, and as noted above, I thought, using some fairly crude HL estimates, that we were on the verge of serious net export problems in 2005.
As noted above, I estimate that Global post-2005 CNE (Cumulative Net Exports) may already be about one-fifth depleted in only seven years (with developing countries, led by China, consuming an increasing share of a post-2005 declining volume of GNE).
Note that a similar CNE extrapolation for the Six Country Case History* produced a post-1995 CNE estimate that was too optimistic.
EIA Crude + Condensate “Gap” Chart:
Global Net Exports “Gap” Chart:
*Six country case history: Six countries, excluding China, that hit or approached zero net oil exports from 1980 to 2010.
Link to my most recent paper on net exports:
http://www.resilience.org/stories/2013-02-18/commentary-the-export-capac...
It seems to me that most economists believe in Fantasy Island Economics (FIE). On Fantasy Island, oil fields don't decline, as unicorns graze in the pastures, attended to by helpful elves.
But of course, most countries seem to be operating on the premise that FIE is a valid concept.
Speaking of FIE, an Op-Ed in the New York Times:
Overpopulation Is Not the Problem
By ERLE C. ELLIS
And Payden & Rygel has been running ads on CNBC for some time, noting that nearly a quarter of all goods & service produced in all of human history have been produced in just the past 10 years. An excerpt from said ad:
Of course, roughly a quarter (about 23%) of all crude oil ever consumed globally was consumed in just the past 10 years.
And then we have the net export situation.
Tis better to remain silent and be thought a fool than to speak and to remove all doubt.
But the statement you quoted is true.
What are you disputing in it?
-Tom P
Surely you jest?! Perhaps you are among those that believe that ecosystems are part of the economy?
To really be able to discuss this intelligently we need need to be on the same page.
Let's start with Aiko Huckauf's Ecosystems Theromodynamics.
http://www.uni-kiel.de/ecology/users/fmueller/salzau2006/ea_presentation...
Yikes! Really?
Oh... yeah... that's right. Overpopulation is never a problem. It is the consequences of overpopulation that is the problem. And of course, money can cure those, since you can buy oil, gas and coal with money, and use those to mask the symptoms for as long as you can beg, borrow or print money.
A pénzben van igazság, eh Fred?
Craig
Nem! Nem! Nem! Az energiában van az igazság!
Ironically, after almost 7 months in Brazil I now find myself thinking mostly in Portuguese >;-)
BTW, an anecdotal observation on my part. The language you think in, can totally change the way you see the world!
I was fortunate to have had a prof in grad school that taught us that lesson. The course was called 'Environmental Perspectives', and I rate it as perhaps the best I ever took. We covered a lot of ground, from learning about the cave art of Lascaux to reading the poetry of Gerard Manley Hopkins, to Lakoff's 'The Metaphors We Live By', and more - including a look at how language is like a net we cast to capture reality. The example I recall is lightning. In English, it's a noun, so a thing. But in at least some native American languages, it's a verb, so an event, which seems more apt, when you think about it. Simple example, large ramifications. Bill Eddy was the prof's name. Broadened my thinking for sure.
Swedish:
Åska - thunder. The weather type. Almost a living thing.
Blixt. Yhe lightening itself. An item.
Blixtnedslag. The strike of the lightening. A place and an event.
Intresting thiking.
Made me think of Fukushima...
Yes. The names of Fukushima, Tjernobyl and a (big) bunch of other places has become events as well as places.
BTW, an anecdotal observation on my part. The language you think in, can totally change the way you see the world!
That is why there is always an irretrievable loss when a language dies--unique insights die. But the loss isn't always a negative thing, sometimes world view shackles and blinders can disappear as well.
Ironically, after almost 7 months in Brazil I now find myself thinking mostly in Portuguese >;-)
I still remember the day my freshman year when Mr. Gallo, our somewhat portly and always upbeat HS Latin teacher, almost couldn't contain his joy. The night before he had dreamed in some language (he taught several and was fluent in more) for the very first time.
Hubbert was a brilliant practicing engineer, geologist, and teacher, with the emphasis on practicing.
I have gone to the trouble- couple of hours on the net- to learn little about him.
if he were here today, I have no doubt he would explain that so far as he was concerned, he intended his famous curve to be interpreted as a special case- the special case conditions being that one, the price of crude price would be stable for an extended period of time and that two, the technology of extracting crude would also be stable over the same time frame.
He undoubtedly would have said, in reply to a question in class, that a major break thru in drilling tech, or a several fold rise in price, would move the peak of the curve to the right for a given oil field, or a given country, etc.
My down and dirty check seems to indicate that he never had much to say about the shape of the curve post peak.
He would never have claimed that prices and technology are forever fixed.
What he actually said, and what people think he said, or meant, these days, would no doubt embarrass him, since nobody wants to be thought of as a simpleton- especially somebody like him!
I've read some of Hubberts stuff. He was not afraid of peak oil. He was convinced other sources of energy could take over. When we begun to run out of oil production, other techs would take over. In the beginning he was in favour of nuclear, but later changed in favour of solar. But he also argued this would only happen if we made it happen, and we needed to develop the techs in time.
I argue we did not :c(
Looking forward to Part II! Thanks! One thought: Money is a form of potential energy. Perhaps a currency soon to be devalued. But while it lasts, those who have it are free to spend it wisely.
Interesting, and will take at least 3 readings before being digested. I wonder if you continued the economics learning after 2007. How do you feel about MMT (Modern Money Theory)? Much of the debt people worry about, at least for sovereign currency countries, simply isn't an issue. Also what happens if cold fusion turns out to work, and energy again becomes cheap and nearly infinite? I share some of your concerns, but still have a lot to learn before reaching conclusions. Looking forward to the next instalment. Murray
1. MMT still misses the core issues, many of which I list above. It explains whats going on better than the textbooks, but its another accounting categorization that obfuscates the central issues. Sovereign (outside) money is basically what the central bank produces either in the form of cash or in the form of excess reserves on bank balance sheets (the latter since 2007). The reality in our current system is outside money becomes just another form of inside money as soon as one considers the non-cash portion of the Fed as yet another bank with both deposits and credit, the difference between outside and inside goes away. Indeed, "outside money" is what will have to start flowing once "inside money" creation has dried up. (As is currently being witnessed in Japan, UK, US, EU, etc.) Central banks have just taken over the role that commercial banks had for the prior 50+ years, with some nuances. QE has been misunderstood from the get-go. Its a fairly popular view these days that there's no limit to money creation in the public sector. Unfortunately it is not true - There is no limit...until there is a limit.
2. If cold fusion turns out to work, economic growth resume, debt gets serviced and paid back, new credit into system no problem, and we have dead oceans and landscapes. (ergo, youre right - if a new cheap energy source/technology ensues, then the constraints I list above are pushed back, other than the environmental one. Its my opinion that we aren't mature enough as a species to handle a new energy bonanza at this moment)
Nate---
I would not worry about a alternative energy source that will scale to the needs of our current society.
It has been quite a while, and after the Standard Model was completed in the 70s, we have been wandering in the wilderness, even if that wilderness is a WallMart parking lot without lines.
I would concentrate on mushroom foraging.
Thank you Nate, for an excellent article.
Will you allow me to gloat a little? I grow in confidence every passing day that "we" are right. It's not even close at this point, it's a complete and total demolition.
Guys like Nick and biologist are completely outclassed, while Tom P seems to be on our side without realizing it.
It's like the NFL vs a schoolboy pickup game at this point. Don't waste time with Krugman, life's too short.
Hello Nate,
Great article! I'm trying to wrap my head around your concepts as you have laid out a serious set similar to Chris Martenson's Crash Course.
If money is energy, and energy of one type of energy going into decline, then there is a need to switch to alternatives and alternative strategies. Solar and bicycling are respective examples. I installed $38K of solar hot water, PV array (5kw), additional insulation, and the new Cree LED bulbs(highly recommended). Since the beginning of April of this year, we have been net electrical energy exporters. The amount of energy saved is enough to drive an Electrical Vehicle around town but with no extensive driving; just essential shopping. While it may take 8 years to pay back this investment, it is doable.
Winter is a different story as solar insolation wanes, clouds increase, and the average temperatures get colder, solar can not keep up with BAU energy consumption. The additional of a solar heat collector may work but it will not replace on demand heating. It will likely keep the pipes from freezing. There is also the fact that this solar set up is working in concert with the grid.
I am also seeing more bike lanes established on local roads and a lot more bicyclists. The lanes are somewhat strategic in that I can pedal to the local Farmer's Market, to areas of high gain employment, etc.
When it comes to money as a representation of energy, a decline of one type with suitable but not necessarily better alternatives is possible. In other words, with a current investment in technology created by fossil fuels, it is possible to decrease future use of fossil fuels; thereby extending the fossil fuel resources. With the eventual goal of creating a solar based economy with little to no support from fossil fuels.
Have you given any thoughts to the nature of money with respect to alternatives and other adaptive strategies?
Best regards,
Peter
Peter, of course Ive given thought to it. It depends on whether the 'answer' is from perspective of individual or society.
For society, I think solar and wind are the answer, just not the answer to 'continuing this consumption based society'. A wise species would reduce consumption sufficiently on the gee-gaws to allow for buildout of renewable infrastructure, budgeted at a scale it could be repeated into the future. Wind is great and could be the foundation for a different industrial set-up. Or at minor penetration levels, (10-15%) could make our fossil stocks last longer. But larger than that it doesn't work well in our current system - e.g. I expect germany might soon have to offer subsidies for fossil fuel generation, when for last decade they were offering same for renewables. But the larger point is if wind, or solar in any combination w more expensive FF generation are not enough to keep the global economy growing, then we have many more urgent needs than scaling more electricity. If globalization declines meaningfully, we might discover that the complexity of our supply chains is incredible. On global society level we are playing a giant game theory competition within a giant Rube Goldberg machine. Because 'energy scarcity' is the proximate problem, our collective response is to 'scale more energy' when the ultimate problem is a longage of expectations, and reworking things to use less, aspire for less, prepare for less are what we need to do. A little less or alot less? I don't yet know. And of course, then there is climate. I suspect money, in some sort of sustainable future society will have to have some tether to real capital - perhaps land.
On an individual basis, its a different story. Turning financial capital into energy - solar panels like you have done, makes alot of sense. On the one hand, you are (slightly) 'accelerating' the insolvency of local community because you (if you live in state w net metering) are getting full retail price while only providing the generation, not the infrastructure costs so others will pay higher electricity rates and/or utility goes bust if things scale ~10X. On the other hand, you and anyone like you will be generating electrons in 20-40 years from now which could be a great gift to people in your area. Its complicated but I think if energy is what we have to spend, the more nodes across the country gives us more options in future. I do think we will have a bifurcated system eventually - work when its sunny and windy, and have the 'clean rooms' for e.g. polysilicon wafer production outsourced to the cheapest locations with ample e.g. hydro backup, similar to the way we've outsourced aluminum production today.
On balance I dont think anything significant will change until after some crisis. But societies and individuals that make physical and psychological preparation for a different future will have advantages. Plus you have to enjoy your life...;-)
I expect germany might soon have to offer subsidies for fossil fuel generation
Are you thinking of capacity payments, like those used in the US?
If globalization declines meaningfully
Are you thinking that oil shortages/high prices might stop water shipping?
First, Nate Hagen, thanks a lot for your article, gives me a lot to digest.
"I expect germany might soon have to offer subsidies for fossil fuel generation, when for last decade they were offering same for renewables."
Germany offered subsidies for coal for decades, see "Kohlepfennig" (1974-1995), after legal issues now in other forms. Coal has receive almost 400 billion EUR in Germany. A shift from a per kWh subsidy to a per kW subsidy may actually save money.
Clear advantage of NG is that capital costs of the power plants are low and with low full load hours the price of the fuel, which has a upper limit given by costs of P2G, is not the real killer. Why not 15-20% NG and ~80% renewables?
The Energiewende in Germany is not only about electricity. German final energy: 600 TWh electricity, 600 TWh fuel for transportation, 1500 TWh heat (1100 TWh for heating of buildings, 400 TWh industrial process heat >100 °C). With a goal of saving around 80% in ALL three fields the largest impact comes of course from the heating of buildings. The electricity generation is a key, because renewable electricity has a limited potential in Germany (~800 TWh), savings in other fields can only come from efficiency gains or substitution with energy that is not in the bookkeeping system (like solar). A 1:1 substitution of thermal final energy with renewable electricity is not possible.
"On the one hand, you are (slightly) 'accelerating' the insolvency of local community because you (if you live in state w net metering) are getting full retail price while only providing the generation, not the infrastructure costs so others will pay higher electricity rates and/or utility goes bust if things scale ~10X."
Here the problem is that power and net services are billed per kWh. A seperate billing of energy and power (and services) would remove the freeriding. Interestingly, in case of community heating the seperate billing works. :-)
I think one point needs clarification:
A capacity charge is not a fossil fuel subsidy, and it's not a new thing. It's used widely in the US, and has been for quite a while. It pays a generator to have capacity on standby, but that capacity does not need to be fossil fuel, or any specific energy source: it can be hydro, or synthetic methane, or underground hydrogen. It can be wind and solar, as statistically those sources can and do provide firm capacity - Independent System Operators are paying wind farms at this moment for their firm capacity. Obviously, the firm capacity that wind farms provide is a lower percentage of their peak or average production than for other forms of generation, but it's real and significant.
I should have been more precise. :-)
The "Kohlepfennig" was a payment on a kWh base and was used to cover the difference between the costs of coal from German underground mines and imported coal from surface mines. Goal was to decelerate losses of German jobs in the Rhine-Ruhr-region and to maintain a strategic reserve of domestic mines. Point is that fossil energy has already got a lot of money and some of the bitching now in respect to RE is pure hypocrisy.
The firm capacity aspect was only a minor issue in the German energy landscape, which is usually characterised as pure energy market. Therefore the issues with a higher percentage of wind power and PV. A deep discussion - which I with my lack of economic background do not grasp entirely - is found on Agora Energiewende (in German, they are switching to English):
http://www.agora-energiewende.de/themen/strommarkt-und-versorgungssicher...
To my understanding, the problem of some alternatives to our current market design is that they are irreversible. The least-risk approch would be to create a strategic reserve, that only works when the REs do not deliver. One could use old coal power plants and NG power plants.
So many new specialist's acronyms these days!
What is p2g?
Power to gas, or electricity to gas. The idea is that excess renewables can be used for this.
I feel your pain.
P2G = power-to-gas, CO2 + H2O + energy = methane
Well, no. This is a valuable presentation relative to the importance of natural capital, but it's energy analysis is misleading.
One example: #17: "Cheap energy, not technology, has been the main driver of wealth and productivity" This is highly unrealistic. The fact is, we're surrounded by enormous amounts of energy, and technology is what unlocks it and makes it cheap.
Why didn't the Romans, Goths or Celts use coal? They were standing on top of enormous amounts - it washed up on the beach and showed it's presence and value. The English suffered for centuries due to a wood shortage before they made use of coal, because they hadn't developed the knowledge (aka technology) to make use of it. Native Americans and Mesopotamians lived in Pennsylvania and the ME for millennia before oil was turned into interior lighting. And, electricity and transportation (fueled by coal or oil) weren't nearly as cheap as they are now until after WWII, when improved tech made them so.
Similarly, wind, solar (and nuclear, if necessary, as an inferior choice) now unlock enormous amounts of clean, cheap energy using modern tech. Renewable intermittency is a minor problem, in the grand scheme of things - the question is not whether there are affordable solutions to renewable variance, it's which of many viable solutions will be the cheapest.
This kind of negative presentation is damaging: Climate Change deniers love it when people say that civilization depends on fossil fuels, and they love it when environmental activists discredit themselves by supporting the meme that saving our environment depends on destroying our economy.
Let's not reinforce Koch talking points...
Its net vs gross Nick. Technology is key in enabling access to energy, but its losing the race with depletion and has been for 50 years. We've made up for declining EROI by increasing scale -otherwise net energy would be falling. Do you think its new technology that is accessing tight oil in Bakken? Mostly its 100$ oil that is doing that. Sure wind and solar technology is great, but its not remotely high enough energy return to power a growth based global civilization. Once you understand that, then all sorts of other requirements become urgent, including social reactions, mitigation for poor etc. Sure, going off grid and buying a Tesla are fantastic (Ive ridden in one - awesome - plus they have a 'frunk'), but its too expensive for everyone - by an order of magnitude.
In any case, as I will explain in Part II if I ever finish it, facts won't change people like you's minds. 95% of people reading this post either agreed with almost all of it or disagreed with almost all of it, because of their worldview - only in those moments where ones worldview is shattered are people open to new ideas. IOW you and I could argue and throw up facts to fill pages on here, but its all been said before. Renewables are great, but to believe we can have anything close to todays living standards using a majority of renewables is extremely naive. If climate is as dire as science says, I do not expect the market nor democracy can do anything about it - will have to be 'other'. Good luck to you
Well, a few general thoughts.
I've certainly changed my mind over the years. When I read LTG when it first came out, I was depressed and worried for years. Then I worked professonally in the area, read a lot, and changed my mind.
When I started reading TOD, I reviewed the evidence and decided that PO was real, but that there were good substitutes for oil.
When I encountered Climate Change, I reviewed the evidence and the presentations, and decided that CC was an enormous problem - much bigger than PO. So, I got stressed again...
I base my ideas on the best evidence of the reality, not what anyone else says, or on wishful thinking. I agreed with a lot of what you wrote, and disagreed with some of it. Just the facts, ma'am!
Ask yourself, as you read my thoughts below: what evidence would it take for you to change your mind? You've been pessimistic for quite a while, during which time things have changed quite a bit in the world of renewables and EVs - have you looked at it?
Is there evidence that could change your mind? What would it have to be?
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Ok, a few energy thoughts:
Technology is key in enabling access to energy, but its losing the race with depletion and has been for 50 years.
That applies to oil, and to a lesser extent other FF. The curves are going the other way for renewables - wind and solar real costs are still falling fast.
Sure wind and solar technology is great, but its not remotely high enough energy return to power a growth based global civilization
I really don't see the evidence for that. Wind appears to be at least 16, and very likely about 50:1. Either is good enough. Solar's E-ROI is falling very fast - German PV costs less than $2/Wp, with fully domestically manufactured panels, fully installed and without subsidies - published E-ROI for PV lags far behind the state of the art, but how could $2 of input for 30kWhs of output (over a panel's lifetime, with good insolation) be low E-ROI?
That, of course, is the key: what makes you think renewable ROI isn't high enough?
We have increased net energy by leaps and bounds over the last 50 years, and continue to do so. We haven't been losing a race with depletion for 50 years.
From what I've read, solar power by itself could provide vastly more power than we require for global civilization, and solar thermal power has a higher EROEI than most fossil fuels do now. The problem is, it's more expensive.
You are cherry-picking an unaffordable example. It's like saying nobody will be able to drive because not everyone can afford a Porsche Carrera S.
Why not buy a Leaf, which is dropping in price rapidly?
I think it will be possible to manufacture an electric car which is cheaper to own than any gasoline-powered car is now. The question is how big it will be, and what the range will be.
I have never seen any facts which support that. It's not that I'm disputing any claimed facts. I just have never seen anything which would support that.
...
I think it would be difficult and expensive to transition to renewables in places like the UK, because it's so far from the equator and so overcast that solar power is problematic, and it has a high population density. I think they will need to use nuclear reactors and breeder reactors in the future, as coal supplies start to decline, which is a long way off.
I don't think there is even the slightest chance of "powerdown" or major disruption to industrial civilization because of declining fossil fuel supplies. There are obvious alternatives such as solar thermal, nuclear power, and electrified transport; the alternatives have more than sufficient scale for modern industrial civilization; the market will transition automatically to those alternatives when the time is right, as it always has; and we have far more time than is required to transition. However, renewables and electrified transport might impose minor irritations such as range limitations for cars, modestly higher power prices, fluctuating power prices, and so on.
Of course there will continue to be recessions and volatile oil prices, and gradually increasing oil prices (in fits and spurts) in the future until the alternative to gasoline-powered cars (EVs) become cheaper.
-Tom P
average EROI has been declining for over 50 years. we made up for it by extracting more energy. I would say net energy for oil is in decline already. the breakeven cost (including capex and dividends) from the Goldman report I link is over $120 for 2014 for majors. its over $100 for the non-majors. Bakken oil needs about 10% of the gross for diesel fuel. The BTU of higher API oil in Bakken is 3% lower than what we used to consider standards crude - the 580,000 bbl per day in Eagleford is 16% lower BTU - that all takes quite a bite out of the 'we will surpass saudi arabia' story. Im not sure you read or understood my post - we certainly continue to grow gross energy - but much of this is allocation of resources towards the energy sector. Look at the price curve of coal, NG and oil last 15 years. This all reduces the benefit levels our institutions were based on. Its not a question of having plenty of hydrocarbons left - obviously we probably have 5-10X in the ground what we've used - its the cost to extract them relative to expectations. already in past 6 years 90% of americans have lower wages and pay higher prices. real wages peaked 40 years ago here. if technology were to save us why do silicon valley companies have hundreds of billions cash on the books. I dont think youve looked at the systemic issues between growth and non-growth - its not a question of shortage, its a question of benefits and what people think they already own
Of course using a retail example supermarkets had far lower net per unit than the corner store where I bought Topps baseball cards in back in the fifties, but they had a whole lot more gross revenue. The corner store went out of business but the supermarkets thrived. A much thinner net on exponentially greater gross was the winner there.
There no doubt is a point at which the per unit margins get too thin for supermarkets as there is for the per joule margins for a civilization but tech change does make that a moving target in both cases. There is much more to this than just the declining net.
I would like you to go into a little more detail on your 2007 epiphany on money coming from thin air. I happen to have my old McConnell Economics third edition laying around and it opened right up to the Chapter 17 "How Banks Create Money" which of course describes fractional reserves. At the time I sure took what was described to be creating money out of thin air. It seems we discussed that there was a real multiplier capability when banks started loaning money to start more banks but that is a way foggy recollection and might be way off the mark, Nixon had just been elected the first time when I embarked on my two semester with that book. These days I'm sure all that hedge betting really multiplies the thin airiness of it all if credit is used to make the bets.
Enough head spinning, back to the Eisenhower day for a sec...sure wish I had those NY Giants, Brooklyn Dodgers and Philadelphia Athletics Team Cards (the whole team posing rows--sitting, kneeling standing I think) I got in those first few packets of cards I bought. Those stale pink Topps bubble gum wafers were the only brand that didn't give me a headache for some reason?-)
Creating money from thin air (and the deflation antithesis - sending it back to money heaven) was a popular subject on the Prodigy boards of the 90's. One poster was trying to publish a book on this subject.
Ahem! If I could make an observation.
The whole technology/innovation vs depletion argument is one about comparative rates no? staking a claim that either is primary is an oversimplified and unhelpful polarized position.
If for the sake of argument the Roman empire collapsed because it could not access cheap energy for technological reasons [as suggested] then if its simply a matter of innovation vs energy access then you have to ask why didn't they innovate a solution?
Obviously because there was no way they could invent the technology in time so trying to use this as evidence of why an abundance of cheap energy is secondary to innovation seems moot. This sort of argument of an issue so much more complex is retarded.
Conversely it would be odd to imagine a fossil fuel poor world where we jumped from waterwheels to electric power grids without steam in between. If access is just a matter of innovation then why do these innovations originate in areas of the world where geology and geography have conspired by chance to create opportunity?
Disclaimer; I do not hold to the view the Roman empire collapsed because they could not invent the steam engine in time.
Obviously because there was no way they could invent the technology in time so trying to use this as evidence of why an abundance of cheap energy is secondary to innovation seems moot.
We have all the tech we need, right here, right now. There's no need for more innovation, no need for massive R&D or waiting for years. That's not to say that more innovation isn't a great thing, but we could eliminate fossil fuels *right now* with the tech we have on hand.
Wind power is here. Solar is here. PHEVs, EVs and rail are here, right now. They work, they're affordable, they're scalable.
------------------------------------
The larger point is that there's nothing magical about fossil fuel. It appeared be a great thing at the time we first started using FF, and there's little doubt that learning to burn coal was easier and faster than learning to generate electricity from wind and sun, but...that's in the past. It's time to kick the FF habit - it's dirty, and expensive. We'll be better off without it.
EROEI and its variants has many issues, some of which render it borderline "true but irrelevant".
Rgds
WP
Look at the price curve of coal, NG and oil last 15 years.
Prices aren't the same as extraction costs. I've seen no evidence that coal mining costs significantly more. And, of course, oil prices have a serious scarcity premium, as we see from the enormous profits (aka "rent") received by many national oil companies, such as Aramco. The cost of marginal oil has gone up much more than the average cost of oil.
Not that I don't like high prices - the higher the better, really, for CO2 emissions.
already in past 6 years 90% of americans have lower wages and pay higher prices. real wages peaked 40 years ago here.
That's due to eroding equity of income, not a reduction in real *overall* income from the economy. The rich are getting richer. That's not good, but it's not the same thing as the overall economy stagnating.
That's due to eroding equity of income, not a reduction in real *overall* income from the economy.
However such change definitely affects the structure of production and trade, some very real shifts are happening. Some of the 'oats' in Nate's essay are about trying to find metrics to form a picture of what that change is.
Nate being a money man sees no way 'feeding' can keep on with the finance system being what it is. I being a production, resource harvesting guy see no way the convoluted finance system won't morph so we can keep getting all the 'feed' we can out of this place. Both of us see some sort of bottleneck likely and are merely disputing the length and shape of that neck. You like to look at the brighter side and argue that the bottle will just quit widening and likely slowly taper back as a more educated and substantially sated human world's fertility rate drops below replacement.
All three of us see climate change effects, especially ocean acidification and weather pattern shifts as they affect food production, as the big ball barreling down upon us.
All three of us see climate change effects, especially ocean acidification and weather pattern shifts as they affect food production, as the big ball barreling down upon us.
That's great. I'm afraid the average reader won't get that from Nate's presentation. In fact, it looks to me like falling Fossil Fuel E-ROI is the center of his analysis.
To me, the problem is too much cheap fossil fuel, not too little.
I've a very tough time putting the average reader here in a box.
In fact, it looks to me like falling Fossil Fuel E-ROI is the center of his analysis.
Hasn't that been the center of the entire TOD staff's position?
My take is there are seven billion of us here, and our hardwiring may make us near as resilient as roaches and rats. Knock us down and we will come right back strong as ever in just a little while. We will dominate the landscape until some shift in it slides us off it for good. The 'transition' from our dependence on FF to some other energy source/s, regardless how smooth or rough it goes, will not be that shift.
Of course roaches have been around a whole lot longer it will take a whole lot more of a landscape shift to slide them off than us.
If any take my position as unduly crass it might serve them well to see just how quickly group/s of us can adapt to an entirely new BAU.
Some years back Totonelia linked me to Tadeusz Borowsk's "This Way for the Gas, Ladies and Gentlemen" It's a powerful read that never seems to loose its punch.
http://www.writewellgroup.com/Humanities_Project_2005-06/Primary_Sources...
Calling all technocopians
I grew up believing in a bright future for humanity and good a good education , scientifically based, to further that mindset.
Collapse brought on by war, disease,asteroid, or even an alien invasion, lol, was always a possibility to me, given that education and my love of real history and science fiction.
There is a VERY REAL possibility war or disease will get us yet.
Thankfully the odds of an asteroid big enough to REALLY clean our clocks hitting any given year seem to be in the millions to one class in our favor.
I guess the odds of an alien invasion are no less than a billion to one against, but not actually zero. Hey,lol,you guys are the techno cornucopians. I don't think you want to categorically claim interstellar travel is an impossibility. Life on other worlds is certainly a possibility.
I myself, personally, believe that if another hundred years of "Business as Usual" were possible, we would be home free for centuries or millennia after that.
Another hundred years of well funded research carried out by ever increasing numbers of scientists would no doubt result in the following development of dozens of incredible new technologies- for instance a fully recyclable automobile powered by a fully recyclable battery good for a five hundred mile trip, rechargeable in a few minutes from maqssive solar farms located thousands of miles awy, connected by cheap hvdc or even superconducting power lines.Net zero energy cities powered almost entirely by renewables with a few antique gas plants kept on standby, coal a historical oddity.
World wide prosperity and well educated women might result in declining birth rates, world wide, to the point that population issues would resolve themselves.Personally, I think this would be the case .
But I have gradually come to realize that we are in the same situation as a patient in an ambulance listening to the following conversation.
Doctor:
I can save him if you get him here within fifteen minutes, absolute max.
Ambulance driver( Nascar star who volunteers with the local rescue squad):I've got the pedal to the metal with escort and clean air , but it's twenty minutes and eighteen seconds to the er doors.
IT'S NOT THAT SOLUTIONS TO OVERSHOOT ARE IMPOSSIBLE IN PRINCIPLE.
The problem is that we are in such dire straights already that there is not time enough, nor resources enough, left to us to develop and build out the solutions.
Now if Mother Nature were to gift us with a fast moving, highly infectious, invariably fatal disease that happened to kill about ninety eight percent of us- well then, assuming the ones of us remaining didn't fire off the nuclear stockpile, we might be ok.
By the time the population recovered into the billion range, there wouldn't be enough easily accessible ff left to fry the planet anyway, and we would have developed and DEPLOYED the tech to really not need the ff
I don't think that it's that we don't have enough time or resources to develop and build out the solutions.
It's that we are not doing them, we are not on the path to doing them, and too much comparative advantage (to bastardize an economic term, but by this I mean transfer of money and power) is gained, at least in the short term, by *not* doing them.
We have had the time and knowledge since (at least) the seventies, and we have not only not done them, but have moved further from doing them. (At least in the U.S.; my apologies to Germany, France, Iceland, etc., who are at least making the attempt, even though their efforts have a few generations - i.e., old paradigm supporters dying - to go before they become net positive, and not just net growth positive.)
I also disagree with the infectious disease being beneficial in that way. As long as we have not made the decision and commitment to be "sustainable", we will not be, no matter how few our numbers. Albert Bartlett made that clear; 98% recovery of population is only 5.64 doublings away, which can occur in less than 200 years at our peak of world population growth. We must decide ourselves from the right-hand list, but be prepared to do the unpalatable ones if necessary so nature doesn't do the even more unpalatable ones (like repetitions of the infectious disease until we decide we don't need it repeated anymore, and pick others ourselves).
These quibbles aside, I have thoroughly enjoyed reading your postings over the years, and highly respect and agree with where you are coming from.
Precisement.
Focus on present and biological push towards degrading an energy gradient w complex systems (Maximum power). (writing part II now)
Per the Danish Environmental Attache at their Washington Embassy, the Danes see a significant competitive advantage in being fossil fuel free by 2050 - and advantages as well till they reach their goal.
And I do not think the Danes are wrong.
The French goals are nearer term (plans for 2030 are about finished), but they see economic advantages as well in their reduced oil & energy use.
Best Hopes for Better Analysis of Competitive Advantage,
Alan
I'm puzzled by this idea that we have a biological urge to use ever more power.
Fertility has fallen sharply below replacement in most of the world - the primary places where fertility rates are high (e.g., MENA, other parts of Africa) are authoritarian cultures where women are powerless to do anything but give birth to more children than they want.
OECD consumption of hard goods and primary energy has plateaued.
The biological problem: humans take a while to learn new things, especially as a group. We also give too much power to wealthy elites whose wealth is dependent on FF BAU, but I don't know what that translates into as a biological paradigm.
You won't be puzzled any more , if you will read a couple of good books about the true nature of evolution and how it works. Any two or three books touching on this subject written in the last couple of decades written by any bonafide biologist will be satisfactory.
I'm familiar with the Maximum Power Principle.
The question is, does a reductionist evolutionary biology approach really apply here?
Look at the evidence: humans can and do control their fertility and their consumption of primary energy.
You can measure the state of the economy in an industrialized country by monitoring the short term fertility rate. When a 'normal' recession occurs, as in the UK, the rate goes up, as unemployed females see a family as an alternative career. When recession turns into major contraction, as in Greece or Russia after USSR, fertility drops sharply was women start realising the will not be able to feed the children. We are not actively controlling our population, we are allowing side effect of our society to distract us from reproducing as soon as women are fertile. The UK is going through a baby boom. We cannot built schools and train teachers fast enough.
If you Google "uk fertility rate", you'll see that the UK has been significantly below the replacement rate of 2.1 for 40 years. The recent increase hasn't changed that.
Germany is at 1.36. Even China is at 1.58.
This is not about the max power principle.
There have been many fully qualified scientists, including one very famous and accomplished astronomer, who haven't had a clue about the real nature of evolution. I can't remember his name at the moment, but he famously said that the chance of evolution creating a human eye was of the same order as that of a tornado blowing thru a wrecking yard of scrap metal and assembling a fully functional jet airliner.
Now this guy could probably do most calculus problems in his head.
I'm afraid you are wandering in the same swamp of misconceptions but not so far lost as the astronomer.
I do acknowledge that you are a brilliant person, and that you have a superb grasp of the possible upper limits of our adaptability and our current technologies.
I used to think much the same way you do; the real difference between us now is that I just don't believe the ambulance of adaptation and innovation will make to the hospital in time to save us from a hard crash.
Think of evolution this way for a minute.
Assume you are immortal, and have nothing to do but play a simple card game, involving dealing your self a hand, and then being allowed to "draw" a card at a time, forever, or for as long as life lasts thereby improving that one hand, incrementally, on average , over time.
You would eventually wind up with a superb hand, depending on which cards you would choose to hold, but you would also at times hold a poor hand.
In the real world, the "poor hands" die out. Then the next player gets a new deal- as a new species, starting out with new cards.
Now evolution is an entirely impartial, lifeless, valueless , goalless statistical process.
If a mutation enhances fitness, it lasts, in the endless card game, until it becomes a detriment, like the energy and resource sucking eyes of blind cave fish, and then evolution gradually will get rid of it, by the same slow incremental process..... because the blind fish with the smaller eye will survive a little more often..
Once you understand this, you will see that evolution adds new features or complexity , in a manner of speaking with a gas pedal for each new feature, in the form of enhanced fitness.
But since evolution is a non living statistical process, without goals, it does not add a brake pedal when it installs a new feature.
The brake pedal can only come later, when the new feature or complexity becomes a hindrance to fitness.. and it may be a very long time in arriving and doing it's job- it will be millions of years yet before blind cave fishes have no eyeballs at all, and there may arise some new utility for them, so that they will be retained, although I can't guess what that use might be.
We humans do things that feel good, because evolution programmed us that way, such as expand our numbers and exploit any and all resources that come our way. Evolution has no values, no goals, no life of it's own, and is not even potentially capable of caring a rats axx about humans, or any other species going into overshoot.
However, we do possess an evolved ability to think and plan, although most of us make only very minimal use of it, and we are capable to some extent of regulating our behavior for example by refraining from having children when it looks as if we might not be able to care for them, or even because we simply would rather indulge ourselves than spend our time and resources looking after kids.
There has been no occasion for us to evolve a defense against overshoot.
But there is a well developed theory involving population dynamics and "kin selection" which enables us to understand that individuals can and do sometimes sacrifice their own chance to reproduce for the good of the family; and a well informed person occasionally extends the concept of family to the entire human species. A number of members of this forum make no secret of the fact that they have made this decision.hence the decision to not have kids is paradoxically actually compatible with survival of the species.
One of the leading lights in the field of evolutionary psychology, Stephen pinker, has said , iirc, about his own decision not to have kids, that natural selection and or evolution can go jump in the lake.
There are even a few, such as Greenish, who have expanded their own intellectual horizons too the point that they look not only at humans but the entire biosphere as being worthy of protection- and not just for selfish human reasons, although such selfish human reasons are entirely sufficient to justify protecting the biosphere as a whole.
Some of us will survive, and other species will reclaim ecological space the dead ones vacate.
Now about reductionism;
Here are a few words from Consilience by E O Wilson, who most assuredly does understand the hard sciences and also just as surely deeply appreciates the arts and humanities:
The cutting edge of science is reductionism, the breaking apart of nature into it's natural constituents.The very word, it is true, has a a sterile and invasive ring,like scalpel or catheter. Critics of science sometimes portray reductionism as an obsessional disorder, declining toward a terminal stage one writer recently dubbed "reductive megalomania." That characterization is an actionable misdiagnosis. Practicing scientists, whose business it is to make verifiable discoveries, view reductionism in an entirely different way:it is the search strategy to find points of entry into otherwise impenetrably complex systems..Complexity is what interests scientists in the end, not simplicity.Reduction is the way to understand it.The love of complexity without reductionism makes art; the love of complexity with reductionism makes science.
page 59 first Vintage edition April 1999
Mac,
All of that makes sense, except: after one "reduces" a system to it's parts (aka "analysis", from the root scientific concept of breaking things down to understand them), one has to put them back together again. Evolution is simple in concept, but it creates very complex biological systems which we don't yet understand. Evolutionary biology is useful (and I imagine someday will be even more useful), but today people often just use it to confirm their prejudices.
Again: the evidence is overwhelming that humans can and do choose to control both their fertility, and primary energy consumption. Malthus was dead wrong.
As for a crash: I'm very worried about Climate Change. I'm worried about other things, like pandemics, and nuclear war. Transitioning from Fossil Fuels doesn't even belong on the same chart as those worries.
Malthus was dead right given the prevailing conditions of his time.
Of course he did not fore see the coming industrial revolution - which was of course made possible by innovation COUPLED WITH abundant and easily accessible coal and iron ore, etc.
Now it has turned out that educated and prosperous societies - with the caveat that the education MUST EXTENT TO WOMEN- do indeed reduce their birth rates.
I myself noticed this phenomenon a good long while ago, on a personal level, and on a society wide level in some other countries. The birth rate in my own extended family has fallen from four to seven or more per woman in my great grandparents time to one or two less during my grandparents time to much less than that in my grand parents time to three or four in my own parents generation - all the way to to just about the replacement level replacement in my own generation, and I'm already old myself.
My nieces and nephews are in danger of allowing the family line to go extinct.
Now if Malthus didn't foresee this drop- well then, neither did anyone else with a reputation for doing do, to my knowledge.
And he's still getting the last laugh in many major parts of the world.
But to come back to the same horse we have beaten nearly to death- it seems extremely unlikely to me that we can grow wealthy enough fast enough for this amazing voluntary drop in lifetime female fertility to save our collective fat backsides.
I have never argued so far as I can remember, that avoiding overshoot and the ensuing collapse is technically impossible.
I do maintain that barring a miracle, we as a species simply aren't going to do what is necessary to forestall overshoot.
We are in respect to overshoot like a skier who has started down a ski jump; it's too late to change course.We simply have to ride her out and hope for the best.
Transitioning from fossil fuels is going to involve a lot of war, and there is a distinct possibility future wars will be chemical and biological as well as conventional and nuclear.
Smaller countries faced with destruction by larger conventional powers, and especially nuclear powers , may very well resolve to defend themselves any way they can.
The potential for easy, fast, and cheap- in relative terms- innovation in chemical and biological weapons is immense.
I am as scared of overshoot related war- hastened along by climate chaos of course - as I am of climate change.
My personal gut feeling is that we are looking both in the eye, and will have to survive both as best we can, if we can.
My gut feeling extends to thinking that hot war is going to wipe out more of us than an overheated climate, because the war will-imo- come sooner.
Of course being only human, and old already, and afflicted with that greatest of human frailties- the tendency to discount the far off future in favor of the near term present- I'm only mildly afraid at all.
Malthus was dead right given the prevailing conditions of his time.
Well, he wasn't even right for his time. He believed that contraception was immoral, and therefore it would not be used!
Further, some argue that Malthus’s argument was principally a class one, designed to rationalize why the poor must remain poor, and why the class relations in nineteenth-century Britain should remain as they were.
His greatest fear was that due to excessive population growth combined with egalitarian notions “the middle classes of society would . . . be blended with the poor.” Indeed, as Malthus acknowledged in An Essay on Population, “The principal argument of this Essay only goes to prove the necessity of a class of proprietors, and a class of labourers.” The workers and the poor through their excessive consumption, abetted by sheer numbers, would eat away the house and home (and the sumptuous dinner tables) of the middle and upper classes.
He made it clear that the real issue was who was to be allowed to join the banquet at the top of society.
Charity simply encouraged early marriage and larger families, he concluded, inspiring an 1834 Poor Law that effectively limited public relief to people toiling in workhouses. Charles Dickens, appalled, rebuffed Malthus with the tale of a flinty miser who had a change of heart. "A Christmas Carol" is still in print.
Transitioning from fossil fuels is going to involve a lot of war
It's certainly possible. I don't really see much chance of war between major powers (although they certainly could miscalculate - the area between China and Japan is worrisome), but Pakistan, for instance, is an obvious candidate for collapse and ensuing nuclear war.
The US would have been far better off to invest $2T transition away from oil, rather than in oil wars. Of course, war profiteering, presidential politics, and protecting Israel were also motives....
Nick, I am almost convinced that you are a troll out having a little fun, but maybe you are just somebody who enjoys a good argument.
Well so do I , lol.
It's obvious that you are a techno fundamentalist, and arguing with any fundamentalist is as pointless as argueing with an advertising sign that endlessly repeats the same message.
You are now confusing the rationalizations and personal values of FREAKING PREACHER who lived hundreds of years ago, prior to the Industrial Revolution, with his actual objective observations - which were in essence that the ability of humans and other species to reproduce, given adequate resources, is exponential, whereas manufactured or cultivated resources tend to grow only in a linear fashion if at all.
Now anybody who knows doo doo about either history or biology knows that prior to the industrial revolution, Malthus's observations fitted the data quite well in the large majority of cases of societies far and wide,geographically and temporarily .
Your arguments are straw men, appeals to emotion, rather than to reason, this time around. Incidentally, i have read both Dickens and Malthus.
I will point out to you one of the most pertinent observations ever made in the annals of science- it only matters what is said- not who says it. Observation and experiment will determine the truth or falsehood of any and all claims.
I majored in agriculture at a land grant research university and I used to teach farm kids how to grow more corn- or whatever- every year. Exponentially more.
I understand your mindset very well indeed, because I used too share it.
But I have continued on with deepening and broadening my own education, over the last half century, and some time ago I realized that I was almost certainly wrong in principle - and as as a practical matter, dead wrong, in holding to that mindset.
I envy you your peace of mind, given that you simply have no doubts.
I suppose you must consider nuclear Pakistan a minor power- and if she goes to war, next door bitter enemy India another minor power too?
i have never had any hope of winning YOU over to my pov.
But speaking as a teacher, I can say with confidence that we have , together, added a bit to the knowledge of some of the thousands of people who read this site who have not yet made up their mind about these various issues.
Hence the time and the bandwidth has not been wasted.
Feel free to have the last word, i'm sure it will be a pithy one.
Arguing with Nick is akin to playing Whack a Mole! It's entertaining for a while but it soon loses it's allure.
Nick has a number of good / valid points which often are not addressed in responses.
Rgds
WP
Yes he does occasionally have some good points, however his continued insistence on believing six impossible things before breakfast tends to heavily detract from them.
Fred,
Nothing impossible about wind, solar and EVs being ready for primetime.
Don't you agree that our primary problem is too much Fossil Fuel, not too little?
I agree that solar and wind are ready for primetime but I highly doubt my understanding of primetime is the same as yours. Perhaps as time goes by our views will converge a bit more on this point due to reality eventually taking precedence over public relations.
As for how much fossil fuel we have left to exploit and burn I think the point is moot, we have already put enough CO2 into the atmosphere to cause profound changes for a very long time to come. We as a global civilization missed that boat a long time ago. Even if it were physically possible for every human to purchase a Nissan Leaf or Chevy Volt it wouldn't change the path we are already on.
7 billion humans consuming finite resources on this planet will ultimately hit a brick wall. That's basically Malthus' premise and as far as I'm concerned he was and continues to be right! What happens then is anybody's guess but I don't think it will be a smooth transition into a new less energy intensive paradigm for a lot fewer humans. You can argue all you want that humans are voluntarily curbing their birthrates. Even if a few of them are, in the aggregate we are not doing that at all. The only thing that will stop population growth is less access to resources and food.
Humans 1 Yeast 1 it's a tie!
Cheers!
Fred
we have already put enough CO2 into the atmosphere to cause profound changes for a very long time to come.
I agree. OTOH, we can do a lot more damage with more CO2, right?
Malthus' premise
This may be a distraction. FWIW, Malthus wasn't concerned with resource sustainability - he was focused on the fertility side, which he felt would outpace agricultural output.
argue all you want that humans are voluntarily curbing their birthrates. Even if a few of them are
FWIW, most are. I think your major concern is that even if population was stable, you feel that it will hit a wall. And, under FF BAU, I tend to agree.
up page I wrote Fred
Our path is not going to be redirected by rational forward planning all that much, but rather by reacting to the pressures around us
and I will carry that foward here
the reduction in our fertility rate is just a reaction to pressure (or to the lack of it--one and the same) it is not a long term planning thing
the reduction in our fertility rate is just a reaction to pressure (or to the lack of it--one and the same)
I'm not sure what you mean. The very most affluent countries (and the more affluent in developing countries) are the one's having fewer kids - the decline in fertility isn't because of financial pressures.
Women have fewer kids when they get other choices, like careers. They have fewer kids when child mortality falls and they choose not to have have more kids as insurance; when there are pension systems, and when they move off the farm and don't need more indentured workers (in the form of kids), etc.
I think it's hard to argue that China's family planning policy isn't part of a large conscious plan.
I mean we are part of the natural order not set apart from it--that is a very important point to always keep in mind.
Women have fewer kids when they get other choices, like careers. They have fewer kids when child mortality falls and they choose not to have have more kids as insurance
couldn't have described a 'lack of pressure' any better if I tried
China's case is interesting, but the Chinese were/are just reacting to very obvious food supply pressure. Nothing out of the ordinary for species to have fertility limiting mechanisms as they approach environmental limits. I may be mistaken but I seem to recall that some insect queens can manage that type of long term planning. The Chinese one child mandate most certainly did not go big picture enough to avoid massive environmental degradation, it remains to be seen whether or not they will be able to react to that pressure fast enough.
The classic case in the natural order is that population rises, food gets short, and death rates rise until the population is reduced to the carrying capacity.
We're not seeing anything remotely like that. Instead, we're lowering child and adult mortality, increasing food intake, and *then* reducing fertility. That doesn't look anything like the "natural order".
As China's fertility fell, their diet was simultaneously getting better. There was no starvation.
If you want to argue that there was a conscious awareness of longterm food supply limits, and a conscious decision to prevent problems *before* they happened, I could go along with that. But...that's not the "natural order". IOW, we're a lot smarter than reindeer...or yeast.
Now, are we smart *enough*? That's not clear. Obviously, as a society we don't learn fast enough, and react fast enough to prevent serious environmental damage...
Says who?!
And, the areas with the highest rate of hunger also have the highest fertility. In other words, affluence is a cure for both overpopulation and hunger.
You really might want to check those stats (33% of the world isn't starving!). A quick look at the World Food Programme gave a different picture:
"The vast majority of hungry people (98 percent) live in developing countries, where almost 15% of the population is undernourished. "
Though the strategy you describe is common there are many, many, many population stabilization or reduction strategies in the world that do not require massive die off to respond to finding the limits of environmental carrying capacity. Unfortunately I forget what I see and read almost as fast as it comes in.
Cow moose in my neighborhood do respond to low population per habitat by many more of the having sets of twins, when the area comes close to its carrying capacity far fewer have twins. Don't think much conscious planning is going on there but you never know, and I know I've seen much more impressive no big die-off strategies attributed to far less biologically complex creatures.
Between 108 BC and 1911 AD there were no fewer than 1,828 major famines in China, or one nearly every year in one or another province; however, the famines varied greatly in severity. Wikipedia
I'd argue it was much more an awareness of and reaction to past food supply limits, than of/to long-term supply limits. That and the fact that modern medicine had reduced mortality rates which means one the child mandate was as much a reaction to reduced pressure to multiply as anything. Not all that different from the cow moose not having to carry and nurse twins when the local moose population 'felt' high enough. Mostly reactions to greater or lower pressure but yes we do learn and have a collective memory and do some long term planning. So as I said
Our path is not going to be redirected by rational forward planning all that much, but rather by reacting to the pressures around us
no one here has suggested yeast are guilty of any degree of forward planning whatsoever, not even Bob Shaw
Well I've had enough of this 'smarter than yeast' typing stuff, I think I'll go knead a little bread dough and watch the critters in action ?-)
Well, I guess we're agreed on the widespread existence of "no big die-off strategies", and that humanity shows *some* signs of sense...
We are now that you've allowed that the natural order of things includes other than the 'classic case' as you described it up thread. I guess you just trolled that bait out there for sport.
Well, no - the scenario I described is, as far as I can tell, the model that is used on TOD when people talk about overpopulation.
I've seen that reindeer overpopulation story too many times.
An example of human planning: take a look at the coal industry in the US. It's in terrible shape, with companies going bankrupt due to lack of sales. That's explicitly due to conscious human planning to reduce CO2 (and other pollutants).
Time magazine begs to differ:
It’s Not Just Obama’s Carbon Rules That Are Killing Coal. It’s Cheap Gas.
New regulations from the EPA will make it almost impossible to build a new coal plant. But cheap natural gas was doing that already.
Humans 1 Yeast 1 it's a tie!
Penalty shootout. Winner to play the Lemmings.
Oh, my goodness. Now I've gotta be pithy. A high standard to live up to.
Well, how about (with apologies to Frost):
Some say the world will end in fire,
Some say in ice.
From what I’ve seen of the world entire,
I hold with those who favor fire.
------------------------
As for Malthus: what did you think of the specific things I said? Was Malthus really being an paleolithic anthropologist?
the ability of humans and other species to reproduce, given adequate resources, is exponential
The *ability* is. That's not in question. The question is whether people can, and do, control their fertility. I think if you look at the history of early civilizations, you'll find that periods in which fertility outstripped ag productivity certainly had their major moments, but that much of the time, for most civilizations, people could and did control their population. Late marriage, abortion, infanticide, low level war, euthanasia and many more techniques (look at those burkhas!) prevented overshoot and famine.
Again, as far as I can tell, Malthus was not a careful observational scientist, he was an ideologue. And, of course, he was making a forecast, and can be judged on that basis: his forecast has been proved wrong by the recent behaviour of fertility in the world.
simply have no doubts.
Oh, I have a lot of doubts - I'm simply willing to make reasonably strong arguments for things which seem pretty clear. For instance, that wind, solar and EVs are ready for prime time, and that their major barriers are political, raised by the small minority that stands to lose.
consider nuclear Pakistan a minor power- and if she goes to war, next door bitter enemy India another minor power too?
I think that both countries are not generally considered to be "great powers" (I think that pretty much corresponds to the permanent members of the US security council (US, UK, Russia, France, China), plus probably Germany and Japan). But, if you go back and read what I said once more, you'll see that I was partly agreeing with you. I think there's a significant risk of resource wars, and of nuclear wars. That's the major reason I don't really like nuclear power: it's joined at the hip to weapons. No one ever used a research wind turbine to produce plutonium.
OTOH, I don't think major war is likely - such a war would come from a miscalculation (e.g., China and Japan sparring about mineral rights), which I think is possible, but unlikely. WWI and II, for instance, weren't mistakes - they were a direct outgrowth of Germany and Japan's complete willingness to go to war to claim what they thought were their rightful places as "great powers". That willingness has disappeared.
I think that both countries are not generally considered to be "great powers" (I think that pretty much corresponds to the permanent members of the US security council (US, UK, Russia, France, China), plus probably Germany and Japan
I don't disagree though one should note that India and Pakistan do hold about 20% of the world's people. Power is distributed quite unevenly isn't it--what else is new eh?
I am writing a fan fiction piece, mainly for my own thoughts, on the ONLY society/nation on Earth to consistently make rational decisions in their own long term self interest - the Union of Scandinavia & Antarctica. Which happen to have the only land not scoured clean of resources, the deglaciated areas of Greenland and Antarctica. Set @ 350 years from today. You might "enjoy" the "Brief History" (I had to fit into Greer's world, set in the Mississippi River Valley after an 80 m sea level rise. Population is about 1/2 of 1% of today there).
http://starsreachscand.blogspot.com/
I am working through the "rats & cats" ecology of Tasmania ATM. A picture of the world that we can leave to the future. It is quite a thought experiment.
Best Hopes for Those that Prepare,
Alan
On the war front - my guess is that any nuclear exchange will start with nuke-based EMPs since they are a very cheap and simple way to shut down a developed nation. These would obviously be followed by explosive and EMP nukes of the attacked nation if nothing more than as retribution. However, if ship based nukes were used, it might not be possible to determine who actually did it (think of gas use in Syria). In any case, at that point, regardless of whether a perpetrator could be determined, the war is over and survival becomes the word of the day.
Two good fictional views of society after an EMP are: One Second After by William Forstchen and Lights Out by David Crawford (Halfast). LO started as a series by Halfast on AR15.com years ago. It used to be available as a free download then; I don't know about now. EMPs are not a joke and should scare the crap out of everyone.
And, if war isn't on your plate, then think about a Carrington event.
Todd
Our electrical/utility room is built like a Faraday cage, mainly to deter lightning damage and EM interference from the equipment. Has worked well to this point. It's below grade, doubled the rebar in the concrete walls, and has grounding that extends throughout the house's footings (copper was much cheaper when I started the house). The ceiling is metal roofing (mainly for fire deterrence) which is also well grounded. Lightning arrestors at the PV arrays and generator outside, and at the disconnects inside; also on the AC panels and phone lines. A strike this spring blew the phone line protector off the wall, but didn't get past it. I've often wondered how this stuff would fare in an EMP event, not that it would matter much.
I consider an EMP strike/event to be a low-probability, very high-impact consideration. If things get to that point, we'll already be in the deep stuff. At least my canned stuff should be OK. Here's to manual can openers and Mason jars ;-)
There is no evidence to show that humans are controlling their fertility and energy use.
Sure, you can find limited examples to support what you say, but when look at the facts you see the world as a whole is in population and energy runaway.
I combined these two graphs from Gail Tverberg's blog. My interpretation is that energy use rose rapidly from the 1940s with the widespread use of the Haber process. This in turn enabled population to grow faster due to fertilizer production.
There's another energy upkick from 2000 on. I'm not sure what it is, but my guess is more people adopting a Western consumer goods lifestyle.
Humans are addicted to energy use. You've got as much chance of stopping it as stopping the drugs trade. In other words, it can be done, theoretically, but the depressing reality is it is virtually impossible, given human nature.
Those longterm world energy charts aren't very useful. You need to look at OECD countries over the last 40 years, and then at the last 10 years. The question we're discussing here whether primary energy consumption can and does plateau in a developed country - China in particular should be excluded.
As for fertility, countries with more than half of the world's population have reduced their fertility rates below the replacement rate, right? And most of the rest have fertility rates that are falling fast.
For instance, China, with a fertility rate of about 1.6, which is well below the replacement rate of 2.1., and the US at about 1.9, Germany, Russia and Japan at about 1.4, etc, etc.
You can prove anything if you cherry-pick your data.
Sure, but this argument is whether whether people keep on having kids forever, or keep on using more energy, forever.
Key word, forever: that applies to people who "have enough", like in the OECD. No one's arguing that people in China don't want more energy, and for pretty good reasons.
Hi, Altosack
I agree, I rushed my comment off a bit hastily.
We HAVE known what we should be doing since the early seventies, if not before, and we have not been doing it, and , we haven't even gotten started doing the right thing on a meaningful scale .
I should have written:
"I believe we no longer have both time enough, and resources enough, to convince the people of the world to change their ways and also develop and deploy the new tech needed to build out a sustainable renewables based economy."
Maybe I should have had my hypothetical Horseman wipe out 99.9 percent of us.;-)
That way we would probably be so thin on the ground we would reproduce a lot slower, due to lacking the critical mass of people needed to support an exchange based economy.
I have - following other people's lead- often thought that if we survive the coming crash- and I think we will, barring flat- out- fire- off- every -existing -atom bomb war- that after this aforesaid crash, there won't be enough accessible fossil fuels left for us to ever go into a ff based overshoot situation again.
We wont. There was only one round in the chamber, and we are fireing it off now. No second drinks on this party.
So if we don't go into the space- nanotech- singularity- age right now, we will miss the chance all together. For ever.
I know this has been beat to death many times over the life of TOD but I don't recall much mention of it lately. Renewables get built thanks to fossil fuel "subsidies". What is the nature of the energy source that was used to build the factory that builds wind turbines? What is the nature of the energy source that is currently powering the solar PV factory? What is the nature of the source of energy that allows these technologies to be transported to, and installed upon mountain tops and roof tops?
When Nate says "Sure wind and solar technology is great, but its not remotely high enough energy return to power a growth based global civilization" perhaps part of what he's trying to say is related to the fossil hydrocarbon subsidy baked into all of these alternatives?
(Liquid) Fossil fuel infrastructure initially was built with the help of coal, wood, animals, wind and people. As the infrastructure became a larger part of the total it started feeding and creating itself. Same with "renewables". right now aluminum for example is "created" with a fair amount of renewables (electricity from hydro). as renewables become a larger part of the mix the fraction of renewables creating renewables increases until perhaps, hopefully, one day it reaches 100 pct.
A way to see what's going on is to look at energy mixes in different countries. For example in Alan's comment above he mentions that Denmark is aiming at 100% renewables at some point. Assuming they are at 20% right now that means that the energy content of every Vesta turbine is in effect created 20% by itself. The renewables beast, slowly but surely, is starting to feed itself.
There are plenty of stats out there by country which give you a sense of the energy sources they are using. That said, obviously the earlier we (as in we, humanity) can reduce FFs to a marginal slice of energy inputs the better it is for all of us - for a number or reasons.
As I've said in previous comments, the choice whether to use FFs for cruise ships or to build for example solar farms is a societal choice, not an insurmountable barrier to life after FFs.
Rgds
WP
A little synchronicity from yesterday's Alternet:
http://www.alternet.org/media/most-depressing-discovery-about-brain-ever
I'd describe the problem this way: most people rely on the authority of leaders, or of groups they belong to, rather than thinking for themselves.
An easy way to see this: take a controversial public policy proposal, and see how you feel about it, depending on whether it comes from the leader of your political party or religious group, or from the leader of a party or religion that you don't like.
Were you mad when Bush did something embarrassing, but didn't think it was important when Clinton was embarrassed? Or vice versa?
question for you, Nate
If you have written more , published someplace freely accessible, on your point thirteen, will you kindly post more links?
And if you, or anybody else , can recommend any books dealing specifically with this subject, written from your pov, books which are accessible to the layman, I'm sure there are many of us who will read them.
Thanks in advance!
DistinguishedFarmerMac, that's the only one I will not publish more on publicly. As it stands I probably hit too close to the mark above (always a dance to be sexy without pulling your pants down). The video link in the post is from Richard Werner who has written quite a bit about it. It's...not something you want to shout from rooftops. To say our money (as opposed to government debt) comes mostly from thin air is as far as one wants to go, which itself is so far from most peoples reality that it will mostly be discounted as crazy. For those working towards a different future, the massive confusion on money, debt, finance, central banks, modern monetary theory, inside/outside money, etc is actually a good thing, because it extends the runway: to convert financial capital into real, to nearshore basic, simpler supply chains, etc. It is more likely than not that 'debt' ends up not being a problem, (or at least THE problem), but if so, then we have other problems (e.g. freedom).
It is enough (and helpful in tailoring response) for most people to understand that resources (primarily energy) comprise the lowest trophic structure of our economy, and eventually (now) diminishing marginal returns to higher extraction (and environmental) costs become too great to continue growth in aggregate. Debt is also a constraint, but a complicated (and scary) one that doesnt need to be included to tell a legitimate story of where human ecosystems are at present. Plus if you get sucked into thinking about/following monetary vortex people become deterministic and frozen w/ inaction. Remember, despite our multiple constraints, Americans use about 95X the exosomatic energy our bodies require daily, we are at the pinnacle of science and knowledge of our species, etc. That our financial claims and complexity are egregiously out of line w reality is solvable. Its human behavior/reaction that is the lynchpin.
" Its human behavior/reaction that is the lynchpin."
I agree wholeheartedly.
My own intellectual "center" is based or built - I hope!- on a solid understanding, a foundation, of the basic physical sciences, but I do have some non trivial background in the arts and humanities- some of it formal, at two years worth of grad and under grad courses, and a lot more self taught . I read a good book every week- a serious book.
E. O. wilson wrote a book titled "Consilience the Unity of Knowledge"- the theme of it being that the soft sciences and the arts and/or humanities are gradually fusing with the hard sciences to create one giant body of knowledge- a sort of theory of everything that goes a full oder of magnitude beyond the way this term is used by physicists discussing a unified final theory of physics alone.
everybody who wants to understand our current reality should read it.
I have often ranted here about the shortcomings of psychologists, etc, but modern day psychologists have mostly made the transition to hard science, and they know quite a lot- maybe not anymore than many an author of a classic novel or treatise on human nature- but still a lot.
One thing that many a classic writer and all modern psychologists know is that human beings are quite plastic or adaptable in behavior and mind when we are very young- but that as we get older, we lose this flexibility of the mind, and consequently, tend to demonstrate a much narrower range of behavior than we would otherwise.
Put a Quaker baby with a Hun family. and Hun baby with the Quaker family, and each will grow up observing the customs and mores of his adopted society, in general terms.(There may be some minor genetic tendency in the people of either culture to exhibit slightly different behaviors, but proving this is hard indeed.)
Most of us here in this forum imo are are willing and ready to to accept these observations as being intuitively true.
So the question is-
What do you do to mold the beliefs and behaviors of people?
There is so far as I know only one GOOD answer to this question, and that is to control the education and the environment of the child to the extent you can so as to bring the child up to be the man or woman with the mores and mindset you desire.
I used to be a teacher, and I believe in outreach- and the only way outreach can REALLY work is to get to the kids first, before their role models and peers teach them things that -to us at least- are erroneous and dangerous.
It is possible of course to change the mind of the occasional adult - if he has no strong opinions either way in respect to a given issue. you can for instance convert an automobile agnostic from a casual acceptance of the superiority of a gasoline powered car to a casual acceptance of the superiority of an electric car.You have only the very slimmest of chances, an "approaching zero" chance, to convert a true believer from either camp.
It is possible to create virtual or synthetic role models for kids. It's been done hundreds of times, thousands of times, , maybe millions of times, and role models will be invented for kids so long as we remain human.
I have created a role model especially tailored for disadvantaged country boys which will help educate them into the ways of independent and creative thinking, and move them to adopt what I personally consider good values. If such a boy happens across Klem, he will read all he can about him, and take what Klem has to say to heart.
Some people here will take strong exception to some portions of Klem's personality and values.
So be it. Young people, boys and girls- look to role models who express their inherent desire to rebel.
I'm going to post two short pieces by Klem in a couple of comments shortly after I post this one, to demonstrate the technique.
I hope most of you well be amused. I'm sure a few at least will be scandalized.
I know this site focuses on energy supply and this article provides many sound comments on what has,is and will be happening. However, it leads to misunderstanding as it deals with only part of the issue. Useful energy is a property of materials and what happens to those materials in the energy flow process of doing work should be taken into account. The article focuses on energy supply and the production of goods. This is regarded in the article as creating material wealth What about what happens later? Natural forces ensure that all those goods, including the infrastructure, will have a limited life. The energy flow ends up as waste heat but the associated material has a destiny of being transformed to waste material. So the material wealth is transient obtained by using up accumulated natural material wealth by largely inefficiently using energy obtained from stored resources such as the fossil fuels and uranium.
http://i289.photobucket.com/albums/ll225/Fmagyar/NotoThermodynamics.jpg
Ain't thermodynamics fun?
My god, Fred, you some kinda nut?
If Economics ever becomes a real science, it will have to be solidly based on the second law of thermo- the cost of anything is proportional to the total flow of available energy-sun, needed to put the world back together as it was before that anything was done.
I taught engineering thermo for 15 long years and know how hard it is for even somewhat above average brains to get that idea.
But my recent experience with solar, PV etc, has got me excited about a possible rapid move toward an all solar society. Right at the moment, on a nice sunny day, we are running everything in the house, including heat, cooking and a car, on a copious flood of lovely quiet solar electricity. And it didn't cost as much as that fat pickup truck down the road there.
And it's real true second law cost is way, way less.
I am feeling insufferably virtuous, as is appropriate on this holy day.
Yep! And darned proud of it!
I think Richard Feynman nailed it when he said the following:
I have worked with PV in the past... When I return to the US in October after having spent eight months in Brazil there are a few things I would like to work with, solar is one of them! Maybe after I get back into the swing of things and the dust settles a bit I'll figure out a way to do it again.
If you had to take the typical member of any species and ask what their best strategy is, you'd get a reply something like:
"Just breed, and hope for the best."
If you asked your geese why they flew south for the winter, they'd reply, "Dunno. We just do."
We have certain ingrained behaviors which have evolved over eons and we're not going to stop. Even if there is a crash and 90% of all people are wiped off the face of the earth, if you asked the survivors what their best strategy was, they'd reply:
"Just breed, and hope for the best."
not exactly. we don't breed because we think we need more offspring to make it through the bottleneck. we breed because we enjoy having sex and women love babies. (I don't mean that in sexist way - just look at a random family reunion where someone brings a newborn - there will be a ring of women around waiting turns to hold it and an outer ring of men looking on). We do things that 'feel good'. Using less and truncating our current experiences for the sake of some abstract future climate change or resource shortage is most definitely not what we're wired for. But that doesn't mean it can never happen. E.g. I chose not to breed when I learned about all this (but I still get the feelings...;-)
The irony of course is that thinking about and writing about all these things will be maladaptive. Knowledge is a curse in some respects, unless the knowledge is aligned with current paradigm.
When I begun to grok all this, I for a period had the weird feeling I wanted to reproduce like crazy, so that someone would survive to the other side.
Purely emotional off course. Girlfriend have a medical condition where pregnancy is a no-no and I don't really want a kid anyway.
One of the best decisions I ever made was having a vasectomy some 40+ years ago. I have one grandchild who hopefully will get through college without outrageous debt.
Did you all hear the report fro Deutsche Bank that the world's population will stabilize and then drop by 2050? They said something like "a new direction or era for our species" (I don't recall exactly).
Basically in 40 years, growth will be no longer interesting or possible (maybe before that, of course). So there will be a new paradigm.
DB didn't say anything about that...about life being so tough that people couldn't make room fo another human, that food might be difficult to get, etc.
I will be around 85 by then (if I am still alive). I can only imagine how different everything will be.
Of course their prediction is not necessarily correct.
Aren't many people already losing interest in being wealthy and having lots of stuff?
Yes. But of that number only 10% (my guess) because they realize its a hollow goal. 90% because the goal is no longer possible
No longer possible? Hm. I think they aren't thinking right about what goal, I think of my childhood during the depression, my mother and older sibs confirmed my recollection that we were feeling fine and happy (wealthy) without hardly any of the "stuff" we have now. We had lots of food, shelter, friends and connections and a great sense of community. Old folks were well cared for- having two or three people on that job is one huge improvement on what I see today with only one totally exhausted caregiver.
i saw the very same pattern in villages in Bangladesh during my traveling days, and their "stuff" was mighty near zip. Their kids did a lot of the old folk care- a much better idea than ours.
Community and friends and a small amount of stuff is not all that hard to afford.
But I gotta admit that those PV panels are mighty nice stuff.
wimbi - i didnt mean some people cant get wealthy nor that community and friends and small stuff isnt a better beacon (more in PartII), only that real wages for USA peaked 40 years ago and since 2007, 90% of people have flat or declining take home pay and things cost more. for most young people, there are fewer degrees of freedom than when we were young(er). btw, shoot me an email -want to send you something
Nate. I put a disguised email address on my account, which will require intense effort by NSA to put together so it works.-- Or, a real little tiny effort by you or anyone else here. Hope to get something non-spamwise.
Nate, excellent article and a great TOD summary.
I am struck by the similarities between where we are now, and the comments made by "experts" after the 2008 crash:
"no one saw it coming, no one could have predicted it"
"it was a 1000 year flood, it will never happen again in our lifetimes"
when we go over the cliff again, they will probably be saying the same things.
It is amazing how much people are prepared to spend on a house even though it deplete their economy to the point nothing else could be done.
Nate good post. Builds on your lectures I have seen online I guess. A work in progress no doubt
I suspect concepts 12 and 11 are not easily digestible by the general public though I would have said that of 13 a few years ago.
Non-neutral intertemporal transfer is not a reader friendly term. The concept you outline is very important and given the nature of the idea quite well explained to us Todites, but still a toughie for a lot of people.
Develop trading algorithms on commodities without externalities really seems like something which work will work great now but may crash then a limit is hit.
For example if people move from country side to cities there will be large demand for new houses but a limit will be hit at latest then there are now people left on country side. There is a limit in how much food people could eat at least outside USA, how many work hours they could do. If speed of logging for timber is higher than the growth sooner or later a limit would be hit. Some resources deplete over time. The areas to develop will sooner or later run out, for examle the area with oil rich shale in Bakken.
I have many times heard talk about stranded natural gas just like it would be wortless if not developed now. I have apples in the garden which will rotten if not used within a few weeks but the natural will probably stay for millions of years.
I will finish with trade balance. A contry with negative trade balance will either deplete the value of the currency or loose assets, they will be bought by a country or people living in a country with positive trade balance. The Cumulative Current Account Balance per capita and Cumulative Current Account Balance give a picture of the current situation. I guess some of the countries wery well of today sooner or have to start to pay their bills. Capitalism is regarded as superior system compared to communism at ironically the two largest old communist countries have developed a huge trade surplus against the largest capitalistic country although probably not because of the communistic ideology.
I have a real post rather than a test post up now at oldfarmermac.blogspot.com.
My friends here will hopefully get a chuckle or two out of it.
sorry mac but typing in "oldfarmermac.blogspot.com " doesn't get me anywhere. I even signed on. and couldn't get to the post.
hermit, your email addy needs an update. My blog is up and working for sure.
Just a nitpick, but weren't banks around long before 1900?
not the central bank (FED), in its current form
History of central banking in US
And exactly how is that relevant?
Rgds
WP
Perhaps the Fed is being confused with the elimination of the gold standard.
The gold standard stifled economies, because the supply of gold couldn't expand as fast as the economy.
Just increase value of gold, it will happen automatically then in short supply, done.
You can't increase the value of gold that many times- the amount that would represent a million bucks would probably fit in on pin head , give the size of the economy these days.
Somebody who found an old wedding band in drawer would be rich- except for the fact that the ownership of it would be outlawed , and he would have to turn it over to the govt. for a pittance.
The ownership of gold in this country in the form of bullion was outlawed ,but jewelry was allowed since so many people owned a little, such as wedding bands, and forcibly collecting such jewelry would have been impossible.
The people would have lynched any legislator who voted for such a confiscation.
And then if we did value gold at a million per ounce, or more, somebody somewhere would figure out how to mine an extremely poor deposit, and make a thousand fold profit on every ounce,or more, and flood the market with the new supply.
The price of gold cannot be controlled well enough for it to serve as a stable base for money .
It's been tried before, several times..
We had to go off the gold standard back when I was still a young guy .
Yes you can, just print more money to pay for the gold you want and the value in your currency will increase although inflation is a totally different story so you are probably right anyway.
The supply of gold do not have to increase and this is a major difference between a commodity which is used/consumed.
In order for gold to back a currency, and therefore keep the currency stable, the gold HAS TO BE FOR SALE - at a fixed guaranteed price- at least to foreign central banks and people outside the country issuing the gold backed currency.
The treasury of the US did not have to sell gold to the American people when it was ILLEGAL for them to own gold bullion.
But to keep the price of gold at thirty five bucks, the treasury had to sell it to all other comers with dollars in hand.
It quickly became obvious- to every body except old fashioned gold nuts- that there wouldn't be enough left in Ft Knox to make a pair of wedding bands if we didn't get off the gold standard once the market price of gold, as determined by supply and demand, as opposed to the wishes of central bankers, went above thirty five and stayed there.
The new fashion gold nuts believe that gold will continue to go up, maybe even to five or ten thousand an ounce.
I'm agnostic about that- but I suppose it could happen, in the event of a serious enough crisis..come to think about it, i believe such crisis is coming our way, EVENTUALLY- but not for a long time yet, given a little luck.
The current Drudge Report has an amusing depiction of the US $, upper left conner
Yes now I understand, if you print money to buy gold your gold will be to expensive and no one want to buy your gold or your wortless currency.
Put another way I will make the assumption amount of money available will not change availability of goods or which transactions are done. In such case amount of money to transfer for each transaction will scale linearly with available money.
In reality other assets would be preferred above money since value decrease constantly.
This is not a serious discussion, at least not from my side.
To back a currency by gold you measure the weight of the gold and divide with the total amount of printed money and get the price per unit weight. In this case the gold will run out at exactly the same time as there will be no more money available.
If you accept any currency and set the price to low you will however almost certainly run out of gold.
Agree about the Fed. I guess my point is just that central banking was around ~200 years earlier in England, according to
http://en.wikipedia.org/wiki/Central_bank
There's a bank in Italy thats over 500 years old and it was by no means the earliest bank in Italy.
There were banks in China at least 500 years before that, and there is evidence of banking in China from a thousand years before that. The Fed in 1900 isn't a direct copy of a two-thousand year old Chinese bank, but it is in direct line of descent from medieval Italian banks which may have got their ideas from China.
See wikipedia article on the history of banking and references therein.
Hey Nate, how close are you to Blue Mound, Levis Mound, or Standing Rocks? You should go MTBing with us sometime! =D
Nate. recent information convinces me that my earlier sweeping generalization that MBA's from fancy schools are all tall charming sociopaths needs qualification.
.
I am now quite convinced that some of even them are exactly the opposite. (attempt at friendly jest)
I certainly hope your efforts bear success. As I said, you seem to have perfect pitch to my ear. Do you do lectures to enthusiastic people in little towns who want to do the right thing but don't quite know what it is?
I do lectures, but only infrequently now. I do guest lectures at colleges remotely (did one this am at Royal Academy of Sweden on Skype) -other than that typically only local (WI/MN). here is one from U of Wisconsin Madison recently.
Ive spent 7-8 years figuring out the bigger picture - enough talk has been done on that - now we move to the next level - for most people that just means keeping their heads down and going about their daily lives, but for some it means sussing out our natural resource/sink balance sheet and navigating a path given those assets/liabilities. For an even smaller subset its about paradigm change, putting their foot down that theyre not going to define their success in life by how many digits they have or how much stuff and they find it unacceptable that thousands of species are dying and there is a non-zero chance we have dead oceans in our kids lifetime if not before. Everyone has a role - for most people, being kind, producing a little, consuming a little less will be more than helpful. good luck to you with your endeavors
Before TOD goes away, thank you very much for all the time and effort you've spent to explain everything you've found out. It's been so helpful.
These are a group of energy aware people worth keeping a eye on:
Deep Green Resistance
I never been an MBA into business school but I agree in what you have posted. Bottom line is energy produce money.
Nate,
Your concepts have validity, but they are not universally true - and there in lies what I promote.
During WW II, Swiss energy came from hydroelectric, wood and a small amount of coal that they bartered for from the Germans (no oil). Stored oil went to the Swiss Army (which included bicycle regiments), Swiss Air Force, police & medical and a very small amount to agriculture. Yet their economy survived and functioned. There was a decoupling of GDP and energy in this specific case.
-------
From an environmental report by SBB:
1/3rd of freight tonne-km #
1/6th of passenger-km
3% of transportation energy used by SBB.
Stationary energy (stations, HQ, shops) came from the grid. Motive power (16.7 Hz) came 90% from SBB owned hydroelectric plants and 10% from the grid. The Swiss grid is half nuke & half hydro
# I took reported % and rounded them by 1% to 1/3rd and 1/6th
In order to increase the rail market share, the Swiss people are investing 31 billion Swiss francs. Almost half of that goes to build a 58 km & 20 km tunnel to create a flat straight rail line between Zurich and Milan under the Alps. Capacity 300 trains/day.
We have NOT almost exhausted our efficiency gains as you claim.
Americans could live a higher quality of life with 1/4th the energy (likely 1/10th). Just moving from Suburbia to TOD cuts carbon emissions by -3/4ths.
it requires about 245 kilojoules to lift 5kg of oil 5 km out of the ground. Similar biophysical costs apply to every energy extraction/harnessing technology we have
Hydroelectric dams clearly have a much higher ratio as does solar PV over their lifespan (century plus it appears for silicon types). Wind can have an EROEI over 50 with recycling, which is better than your number.
Your descriptions aptly fit the American economy,and much of the world's economies, but I do not find them to be universal truths.
I am following closely the Danish & French Climate Strategies. From 2007 to 2012, per capita Danish carbon emissions dropped -26.5% and French carbon emissions (from a lower base and 85% decarbonized grid) -14.8%. Both nations have serious & valid plans to continue this transformation.
Best Hopes for Those that Chose to be Exceptions,
Alan
What does the balance of trade look like for Denmark/France? In particular, do they produce essentially all of their own food? If so, then your figures above are very encouraging. But if they are as yet net importers of food/goods, then... not so much.
Both Denmark and France are net food exporters. I think neither nation has a Balance of Payments problem, although tourism is a major positive for France#.
# In 2007, France has 2,048 km of high speed rail lines. The Grenelle Environmental Agreement called for an additional 2,000 km by 2020. Many of these new lines will connect to their neighbors as well as criss-crossing France. So France is likely to continue to get regional tourism without oil, if their neighbors are not broke.
I was going to edit my remark and add that Chf 31 billion, adjusted for currency & population, is equivalent to over $1 trillion invested by the USA in oil free transportation.
Best Hopes for Those that Prepare,
Alan
My main blog has a dozen examples of small French cities & towns getting new tram. Latest was Tours France, pop. 138,000, Metro @ 280,000. New 14.2 km tram line opened August 31, 2013, Plans for a second one @ 2020 if they can settle the argument over the route.
My essay "A Revolution in Paris" in my blog details their plans to double the Paris Metro (+208 km), +78 km trams and add an 8 km tunnel & subway stations to one of their commuter lines. By 2030, almost 3 million more daily riders are expected. 90% of the Paris Metropole will be within 2 km of a station (Metro, tram, RER).
http://oilfreetransport.blogspot.com/
A comparable expansion for the Greater Washington DC area (mainly focused inside the Beltway) that I am making with one of the original planners of DC Metro (1962-63)
http://oilfreedc.blogspot.com/
Best Hopes for Those tha Prepare,
Alan
Re: France
The euro crisis no one is talking about: France is in free fall
Farm subsidies still get top share of EU austerity budget
French Balance of Payments Deficit Widens to EUR5B
France's Hollande 'in denial' over crisis after downgrade
France economic growth forecast lowered: Finance minister
I would argue that their economic problems would be worse if they had not made the infrastructure investments to steadily reduce their oil consumption for the last dozen years. Going forward, their planned investments will likely accelerate the reduction.
http://mazamascience.com/OilExport/ Choose France
and my essay, National Policies and Oil Consumption
http://oilfreetransport.blogspot.com/2012/06/national-policies-oil-consu...
To add to the table, in 2012 French oil consumption was down another -3.1%.
More than a recession could account for.
Best Hopes for Good Policies,
Alan
That could well be true (tho impossible to prove), and I agree that spending money on renewables and electric rail is better than many alternatives. But you need to take off your rose-colored glasses. It doesn't help make your case when you champion particular examples while choosing to ignore their very serious problems.
And US oil consumption is down even more than 3%, despite better growth (of sorts) and comparatively little in the way of funding for alternative transportation.
My analysis is NOT of a nations overall economic strategy, but a subset - Climate Strategy and Energy Strategy. Look at my National Strategies & Oil Consumption essay (linked above) for a longer time-line view of US vs. France vs. Denmark oil consumption.
Per a very quick look at EIA, US oil consumption was 18.949 million b/day in 2011 and 18.554 million b/day, a -2.1% drop, less than the French.
So far, the rolling 12 month gasoline & diesel consumption in France is -1.0% below months 13-24.
Per EIA, US oil consumption was up +0.4% for the first six months of 2013.
These are slightly different measurements but they do show trends.
My thesis is that wise public policy infrastructure investments are creating a secular decline in both energy and oil use in France and Denmark. Market & economic forces push oil & energy demand up & down against the secular trend downward in those two nations.
While market & overall economic forces are the primary determinant of US oil & energy consumption up & down.
Best Hopes,
Alan
A significant issue is whether such "wise infrastructure investments" are enough to tip the balance in a prolonged oil crisis.
France appears to have created a secular trend of reduced oil consumption of -1%/year in a stable oil price and economic environment. Denmark a bit more, closer to -2%.
My argument is that these investments have "elasticity of transportation supply".
An Arab Spring in Saudi Arabia in 2020 would result in more French citizens crowded on the new trams & Metro, the bicycle paths of both Copenhagen & Paris would be more congested, and oil use would drop significantly. Perhaps, SWAG, an extra 50% drop from 2000 levels of gas & diesel consumption. So if France of 2020 is using -25% less gas & diesel than France of 2000, in a short term crisis, that could easily jump 50% to -38% (75% to 62% is a -17% drop in immediate consumption). Good, but not enough from better infrastructure. "Reduced economic activity" would likely need to take up the balance.
In 12 to 24 months, new tram cars could be built, lanes taken away from cars for bicycles, more bicycle parking added, some people move closer to work or a tram to work, some freight moves from truck to rail, and other quick structural additions made. Again, SWAG, the immediate 50% increase of the 2000 to 2020 delta could turn into an 80% increase in the delta. -25% below France 2000 turns into -45%.
From 75% of France 2000 the day before the Riyadh riots, to 55% of France 2000 two years later due to the elasticity of transportation supply, and projects under construction are completed. A -27% drop in oil consumption before considering "reduced economic activity".
In a crisis, the plans for 2030 should be completed by 2026/7 - and few more hurried enhancements added (two more stops added to the end of a tram line or new Metro line, platforms lengthened for longer trams, new bicycle bridges over major roads, etc. PLUS much greater adaptation. Electric cars become very popular. Trains carry a majority of freight, the culture of bicycling "everywhere to everything" begins to displace "Drive Everywhere to Everything". Housing patterns change as new TOD appears and more.
France 2027 may use a third, or even a fifth, of the oil of France 2000 after a decade of oil crisis, even before "reduced economic activity" is considered. The baseline of oil consumption would have dropped drastically.
Now the question is - will that be enough in the world of 2027 ?
Best Hopes for Those that Prepare,
Alan
good stuff to actually wrap our heads around Alan, thanks
Many different metrics, but here is something else:
US miles driven down by 10% from the peak. What's going on? Less goods transported, unemployed not driving to work, people choosing alternatives, a combination. In France? Probably also a combination. But without actual data (e.g. transit ridership stats), it's just speculation. And given that the French economy is not doing that great either, it seems rather improbable that the decrease in oil use there is mostly due to government policies, regardless of their merit.
French tram ridership statistics - 2.2 million/day
http://oilfreetransport.blogspot.com/2013/03/ridership.html
Unfortunately, this does not include the six French cities with Metros (five of the six also have new trams). In those cities, I could not find new tram ridership #s separated from established Metro ridership (although Metros are also being extended).
The influence of urban rail extends beyond just direct substitution. It also suppresses driving in other subtle ways. As my mentor said "People that take transit to work do not drive to lunch".
Best Hopes for more,
Alan
As an addendum: 38% of urban trips in Copenhagen were by bike in 2010. They hope to increase that to 50% by 2015.
And much, much more is going on. In both nations there is a multi-front effort to reduce oil consumption in a variety of ways.
Alan
I just found tram ridership in French cities with Metros. These are all new lines
Paris - 315,000
Marseilles - 96,200 (9,200 of that on an old tram line)
Lyon - 250,000
Toulouse - 14,000
Lille - 32,000
Total - 707,200
And Avignon expects 40,000 riders/day when their tram line opens in 2019.
That makes 3 million riders/day on new tram lines. I multiple by x4.75 to adjust French to US population.
The French island of Guadeloupe (think Hawaii) voted two weeks ago to build two new tram lines. Open 2019 and 2022 with 78,000 daily riders. A few plans have failed after this point, but the vast majority are completed.
And the expansion is not yet done ! Towns and cities with trams keep adding new lines, or extending an existing line two to five more stations. The same with Metro.
Best Hopes,
Alan
A map of France that shows how widespread urban rail is.
http://upload.wikimedia.org/wikipedia/commons/f/f3/Carte_des_transports_...
M = Metro, VAL = type of automated light Metro, T = Tram, TP = Tram on tires, TB = Trolley Bus
Dashed circle means "under development".
Map needs to be updated. Tours just opened their first tram line August 31st (second in 2020) and Lens has given up their plans.
Best Hopes for More,
Alan
That's adjusted for population. That's useful for some analysis, but it's not comparable to national consumption statistics. Total VMT is down by a much smaller amount (2%?), while total consumption is down by something like 12% from it's peak.
I applaud France's efforts, and your work to highlight them.
It's worth mentioning that EVs (including HEV/PHEV) can also be ramped up pretty quickly (especially given that even in "normal" times cars less than 6 years old account for 50% of VMT).
Also, carpooling can cut oil consumption in half overnight (11% of US commuters carpool right now - that's more than mass transit). The average car has 1.15 people in it: that's a lot of room for "elasticity of transportation supply".
Alan, thanks for mentioning the holes in the Alps. Typically Swiss detail-obsessed quibble: half nuke and half hydro is slightly off. Nuclear power is around 40% and hydro around 55%. Leaves 5%, half of which are new renewables, with solar accounting for just 0.5%. Lots of room for improvement there, but we're working on it! Perhaps a greater difficulty is the tendency of Swiss drivers to show off in big, gas-guzzling cars. Swiss cars are among the most over-motorized in all Europe. A farmer in the mountains needs that kind of vehicle, of course, but the many SUV owners in our so-called good neighbourhood most certainly do not. Switzerland adopts EU norms for vehicle exhaust, like many other EU regulations, though we will likely never join the EU. - You are right about WWII, but my grandparents and even my parents remember the war and postwar years as hard times. People went mildly hungry although households and schools had a veggie patch as a matter of course, even years after the war. We are net food importers and have a lot to re-learn in these matters.
Typically Swiss detail-obsessed quibble
:-) You must speak Deutsch at home.
Francophone Swiss that I work with are not quite so picky. Google Hans Herren (grew up in Valais Canton among Francophones although born outside Bern).
And yes, WW II and afterwards were very tough times. Unemployed were drafted and sent to farms to work. During the growing season, workers were drafted on weekends for farm labor on farms that could be reached. And then during harvest time for a week or more.
Switzerland could just barely feed itself (perhaps 100 or 200 calories/day too few), planting every space they could, with half as many people as today.
Best Hopes for the Swiss :-)
Alan
Schwyzerdütsch and some French :-) Yes, the population is rising, although in recent years through immigration rather than reproduction. There is even a political initiative that wants to limit immigration for ecological reasons. It has real chances of being accepted by voters. Nimbyism, no more. No ecological problem deigns to stop at the borders our species creates. And neither would the consequences of civil unrest in Saudi Arabia. Best hopes for everybody!
Dennis Meadows spoke at ASPO in 2006 on Peak Oil and Limits to Growth. Here is a link to a review of his presentation that will take you to the actual presentation:
http://www.resilience.org/stories/2006-08-28/aspo-5-dennis-meadows-peak-...
Sadly, the PDF conversion process messed up some slides. But his core points are clear:
1. We face many, many limits. Oil is just one of the first. As resources deplete, our industrial capacity will deplete, and thus our ability to "solve" problems will shrink at the same time that many new limits demand attention.
2. Our existing infrastructure is huge. It gets larger and larger as we grow. It is going to be impossible to replace our existing oil infrastructure anywhere near as fast as oil will deplete. He shows some data on how much infrastructure. This is part of the growth problem. The larger the economy grows, the more energy it consumes just to stay that size, and the less available to grow (or change), and the more accumulated energy embedded in the infrastructure that must be replaced.
3. It takes energy to change energy sources. This puts limits on how fast you can grow a new replacement energy source. He gives an example based on rough numbers for nuclear power. But the point applies to any energy source. Micheal Dale did a great presentation on PV and Wind at the Global Energy Systems Conference. Needless to say, there is no way to grow a lower EROI energy source fast enough to match the depletion rates of existing energy. We are locked into a post-fossil depression of tremendous magnitude. Locked in. We waited too long to change.
4. There are many ways to change. The hardest one, change the aspirations of a culture, take the longest, but can be the most effective. If we all choose to live in small towns with no cars, computers, central heat, or fridges, and using bikes or walking most places, then we don't need much energy. Solar PV and batteries might be able to give us some really nice electric light that our ancestors would have found astonishing (and we find inconvenient). Sharon Astyk is pretty famous for writing books on how to live this kind of lifestyle. But that is not the world's current aspiration.
One of the things I find the most fascinating (in a tragic sort of way) is that we have understood these problems for more than 40 years, and yet have almost totally failed to address them, except in very minor ways. A slight bending of the growth curve here or there. China is struggling with pollution issues that were experienced and addressed 60 years ago. We seem psychologically incapable of avoiding overshoot and collapse. And Meadows does a nice and very simple job of showing part of why: simple problems are ones where short term thinking leads to long term success. And hard problems (such as overshoot) are where short term thinking leads to long term disaster. All our institutions have baked in short term thinking. The market. NPV. Election cycles, etc.
I think about all the cities that had to burn to the ground before the residents figured out that fire proof exteriors were a requirement (short term cheap, long term loss). Or flood before levies were raised (short term low tax, long term loss). Or how many civilizations collapsed because of over farming or over grazing (short term food boost, long term starvation). I begin to think that prevention is a lost cause and the real place to work is remediation. I am very interested in the next article that dives into the human brain piece of this puzzle.
Biologists talk about evolutionarily stable strategies. Meaning strategies that are resistant to exploitation over time. And I wonder if long term thinking is just not evolutionarily stable. Trees shade each other out as they grow toward the sun. In close proximity they grow so tall they are vulnerable to tipping over. But any tree that chooses to stay short (not overshoot) is going to be starved for light by a neighbor that grows taller. If trees could just sit down for a conference and agree to a height limit, they could all live a much better life. But some one tree would cheat, and soon the race for height would be on again. China spews pollution, and US manufacture demands pollution laws be dropped here so they can compete. Is long term thinking just not feasible? The nature of our physical system allows life to have flourished. Does it also restrict us to overshoot and collapse?
Huge infrastructure? energy depletion too fast for renewables? Here I feel an urge to repeat an old refrain of mine- All of above not a problem if we look ourselves straight in the big box stores, and recognize how VERY MUCH all this infrastructure and energy is simply not important AT ALL.
Try this. Go into just any store in any town in USA. Walk down any isle at random. Check off the stuff that you really need, and compare that number with the number of things you really don't need, and in fact, nobody needs. Then look at the ratio Need/Notneed
That tells you just how much of our running around could be better not done at all.
So? Declare a jubilee year, Everybody just only does the really needed stuff. Then they talk over what it is we would want to be if we were able to be it. Then, using all the goodies we have saved by not being what we are , go be what we would want to be.
OK, I have done my duty for the day, now back to the shop to play around with widgets (unneeded, but fun).
PS. Don't bother to tell me that this is not the way people think. Of course they don't, otherwise, we wouldn't be into such a multiple of bowls of deep doodoo.
Your answer brings to mind Matt Damon’s interview scene in “Good will Hunting” where he ponders the effect of policy decisions. OK, so we only buy the “necessary” stuff. Painless right? So how many people lose their jobs from this process? I guess the businesses selling this stuff will be unaffected by lower sales. So much of the economy is dependent on consumerism throwing it off is not a painless option. People are also just so rational as to what they think is “necessary”. And rationality will guarantee everyone will have similar results, right? I’d suggest reading David Hume, who first noticed that reason is the slave of the passions, and cannot be any other way with humans. We are riding the back of the tiger, we cannot get off, and don’t dare stay on.
We are riding the back of the tiger, we cannot get off, and don’t dare stay on.
well brother Bruce (local 1243 here) we best try and enjoy the ride. 'Better for the digestion' as they might have said in Hume's day?-)
Snowing here today on our full color foilage, by the way. Hope it doesn't get too carried away--in 1992 a foot and half of wet snow dumped on the leafed trees and they bent over and shorted out the power for fews days. By mid winter the landscape looked like a freezer full of upright, unwrapped brocolli ?-)
TOD appears to be dead but still kicking, so I'll add a few comments from my own personal experience.
When I went to the University of Calgary back in 1966, when it had about 1/6 of the students it has now, I came from an opposite perspective. I had already taken Grade 12 biology, chemistry, and physics, which were mandatory for entrance to any kind of serious university program in Alberta, and since the Alberta high-school system was more rigorous than the US one, these were equivalent to Biology 101, Chemistry 101, and Physics 101 in a US university. The university started us off with 200-level courses, which was traumatic but survivable for students who didn't need a social life. I liked Chemistry and took my first B.Sc. in it, but belatedly realized that the job market was poor, so I switched to Computer Science, which was much more lucrative. I ended up with two degrees, in Chemistry and Computer Science, the latter by accident (I signed up for a few computer courses for my personal amusement, and they said, "Do you know that this gives you another degree?")
Today, with the cranking up of standards in Alberta and the dumbing-down in the US, Alberta is probably graduating high school students closer to US second-year university level. In fact, the standards are as high as some of the provinces in China, which is something most Americans don't know but should worry about. Alberta doesn't have many people, but China has billions, and Chinese secondary schools are at least as good as in Alberta, and much better than American ones.
But to return to my main theme, the University of Calgary required me to take three full-year Arts courses in addition to English (mandatory for everyone, a good idea) and my hard-core science and math courses. In Literature, my tastes were mostly Sci-Fi, my paintings mostly involved alien worlds with two suns and skeletons of astronauts buried in the sand, and my poetry revolved around monsters killing flowers and small defenseless animals. Mainstream Arts professors were unfamiliar with themes of that sort at that time, so I didn't think they would be a good choice. However, I discovered they considered Economics to be an ART rather than a science, so I took all my Arts options in Economics.
What I noticed in taking these "Arts" courses was that if you hit the economics problems with a lot of high-end mathematics, the equations produced valid answers without much effort. If you did it the tradition way - "One bean, two beans, another bean, another bean..." It just took forever, and the results weren't very rigorous. I tried asking the professors, "Why don't you just use calculus to solve this problem?" and their response was, "Hunh?" One politely asked me to stop asking questions because I was, "Frightening the other students". Although many people think that Economics is an Art, in reality it is a Social Science - it is describing the behavior of people, and that is always difficult. People behave in inherently unpredictable but statistically analyzable ways. You can analyze it, but the math gets into the range of relativistic or quantum physics. It is related to Chaos Theory, which was originally developed to analyze the stock market. Hardly anybody understands Chaos theory but it is very useful, and some Quants made a fortune analyzing markets, unfortunately incorrectly.
Later on in my career these Economics courses turned out to be very useful. If a manager said, "OMYGOD the Capital Budgeting system we have been working on for the last year doesn't work. We need a Capital Budgeting system and we only have three months before year-end or we won't have a Capital Budget next year." I could say, "Yeah, sure, no problem, I'll have it done in two months." If you can pull it off, that sort of thing affects your salary and often gives you stock options. It's also useful for planning your retirement financing, particularly if you can get control of your company pension and put it into self-directed funds, and worked very well for planning mine.
The bottom line is that a business or economics degree is a good thing to have, job market-wise, but you should back it up with a lot of hard science and some heavy duty math to ensure that you know what you are talking about. Similarly, if you get a hard science or math degree, you should backstop it with some business and economics courses to ensure that you can actually make some money with your education. You should also take some Law courses so nobody can screw you out of the money you make.
oh - I need to read this post ! aka I need to find solitude to concentrate ! the upcoming weekend will suit ....thanks in advance ...
Apparently, Bernanke will keep buying about $85 Billion per month in Treasury bonds. I noticed an interesting coincidence. The US consumes about 19 million barrels of liquids per day. Assume a retail price of about $150 per barrel. Over 30 days that would be 19 million barrels per day X 30 days X $150 per barrel = $85,500 million, or in round numbers about $85 billion spent per month in liquids purchases in the US.
jeff
yes, it's all about credit now. until its not. The support measures in aggregate, are permanent. Remove any/all of them, and economy goes south very quickly due to inability to afford. Without the artificially low interest rates, direct liquidity to institutions, guaranteed credit markets (housing, student), explicit and implicit too-big-to-fail guarantees, ongoing government deficit spending, ongoing central bank balance sheet expansion etc. demand would go down pretty sharply, and with it oil prices, and with it oil production, and.... (Next up is rule changes)
It has seemed to me these last few years that the high price of oil has has had the effect of keeping core inflation in check. Which is why the FOMC has had the freedom to keep rates near zero and stimulate through QE.
Just my naive view of things. After paying for food and energy, folks have less discretionary funds to spend on the less(non)-essentials driving down demand, and hence prices. So core inflation has remained low. There are also a lot of people still out of work, in part because of the consequences of the run up in the price of oil retailers have had to keep prices low just to find buyers.
It's perhaps a non-intuitive way of looking at it, but maybe high oil prices have kept core inflation low, which has kept interest rates low. I don't see the price of oil going down substantially so then I don't think inflation will rise, so interest rates may well remain historically low for some time.
If the economy picks up the price of oil will rise to a point that it will dampen the economy again. It may well be that the price of oil has replaced the Fed's ability to throttle (slow/accelerate) the economy. Time will tell.
I have been following population and what is now called peak oil for almost 60 years. Unfortunately I never had time for a college course in business or economics. Economic theory was forced to remain a minor hobby. I believe that the TOD "economics is not a science" mantra is overdone. Granted many economists have agendas or limited knowledge outside of their field. But I have encountered quite a few economists that were interested in limits. From the distant past Kenneth Boulding, Barry Commoner and others including a particularly impressive Cal Tech Professor whose name escapes me. Recent encounters would include Faith Birol, Nicholas Stern and Graeme Maxton. My all time favorite would be the economist Nicholas Georgescu-Roegen. Supply demand curves and their variants seem both important and scientifically valid. They apply to all of nature including man.
-- Lesson 2 from a link to an internet economics course to be posted - I hope - is titled "Choice in a World of Scarcity" and includes a title (slightly modified) from the Rolling Stones "You can't always get what you want."
I was unable to post the power point slide from the U Pitt economist Thomas McGahagan. Here is an old post on supply demand curves from TOD. There is also a part II and a separate detached discussion
http://www.theoildrum.com/node/2899
I have encountered quite a few economists that were interested in limits.
That's most of them. Economics is defined as the science of allocation of scarce things. Now, many of them are worried about *different* limits...
I'd also point people to Steve Keen and Charles Eisenstein re: economics with resources limits in mind.
The article inspired a new currency. The HuWE - Human Work Equivalent. If a barrel of oil equals 22,664 work hours then it sounds like a good system for a global currency. It's like a petro-dollar but based on work not barrels.
http://humanworkequivelent.blogspot.com/
OK I get it. At some point in time resources (energy) are abundant relative to money supply. On one day, resources become scarce(r) relative to the money supply, so more money has to function as 'energy' during that period. As resources require more and more resources as time passes, more money (debt) needs to compensate, masking declining net energy. Net energy is the arbiter - its keeps the system honest, but its signals will be masked by more credit, for quite a while. So in forecasting oil and gas extraction, in present day you have to also forecast debt production. Makes sense.
Thanks, Nate, for re-newing this post and keeping comments live. It's been a very interesting conversation, and a fitting final heartbeat of TOD. Take your time writing Part II...
Arts should be up today, Euans after that, and then Gone Fishing sign...;-) I'll probably post Part II on my own site, appended here
Thanks for this Nate.
I wonder if you've thought about the role of the intellectual property market in modern debt financing?
I.P. looks to me like an enormous bubble without even a house inside it - secured entirely on dangerous copyright laws. A lot of 'growth', and lots of new (government-protected) debt. Perhaps even most of it.
Really glad you're still thinking out loud.
Jeremy.
Dog, please put put an email address in your profile.
I have had many ill formed thoughts about this sort of thing- without quite making the in the skull transition from uneasiness to posting a comment about the real value of trademarks, patents, reputation, etc, of corporate businesses and entities.
Now Apple for instance is theoretically worth about as much as any company on earth, or has been , recently.
I own a Mini, and I'm well pleased with it, I'm not knocking or badmouthing Apple at all.
But if the company were to cease to exist tomorrow, it really wouldn't make much difference in the scheme of things.. If Microsoft were to go broke next week, it really wouldn't amount to much, in terms of the big picture.
Computers are either already generic and interchangeable consumer toys and business productivity tools, or so fast approaching this status that within a few months almost everybody who wants a new computer would have forgotten about these companies, except for the fact that most of us are familiar with the os and peculiarities of Microsoft, and some of us with Apple likewise. But somebody would have bought up these systems, and support them.
The only real long term consequence might be that I T as an industry would simply move to open source faster than ever.
IF GM had been allowed to vanish into the dustbin of history, as in m y opinion should have happened, the only real consequence, as i see it, would have been that the Volt would have died stillborn.
Practical mass produced somewhat affordable hybrid cars might have been a year or two longer getting to market.
The assets of the company would have been bought up, the workers with real skills would have found employment with another company expanding to take up the slack,, and there would never have been a shortage of new cars on the lots of the many other manufacturers .
What we got instead was another row of bricks in the walls of the "too big to fail fortress" corporations have built around themselves by buying politicians and playing on the fears and ignorance of the common citizen.
--
Almost any Ma and Pa two bit restaurant can serve as good or better coffee and burgers as Mickey D - and about as fast too-- without a corporate office building, or ad campaign, or franchise fees and CPA's to manage it all
I'm not anxious to see BAU collapse, but it would not bother me in the least to buy only locally brewed beer with a the name of a local brewer known only to his local customers on the label, or no label at all.
Last year, when Apple was at its peak, it was worth more than the top 10 German companies together. Now that is the best indication of how the US stock market is completely detached from the real world by now.
For the worth of Apple, you could buy all the following:
Siemens
Volkswagen
SAP
BASF
Bayer
Daimler
Deutsche Telekom
Allianz
BMW
E-on
And as you said, what would happen if Apple disappeared tomorrow? Basically nothing. Whereas if Siemens disappeared, the world would come to a standstill, as most of the world's infrastructure runs on Siemens' industrial control systems. The same goes for BASF, who is the major chemicals provider for thousands of different industries. It's like we are living in some surreal fantasy-world.
Well, if Siemens goes broke, the installed systems will continue to run, and somebody - mostly former Siemens people wearing new uniforms driving former Siemens trucks with new paint jobs- will continue to maintain them.
But you get it- and in principle you are dead on the money.
If we lose companies such as Siemens and Apple the real pain will not be much noticed except by IT people- this loss being the gast paced research and development and commercialization such companies carry out. Smaller businesses simply can't afford to move the cutting edge forward in the same fashion due to capital shortages.
The real question , in terms of the citizen on the street, and the overall economy, may be this one:
If companies whose success is based on brand recognition and marketing prowess go broke, what will be the effect on the individual's, and the country's wealth?
This question could be better answered by Nate himself, or an economist, etc, but here is my own opinion for what it is worth:
An individual with his money tied up in such a company m may be at considerably higher risk of losing it, when there is a bad economic turn down, than if it were in a company whose success is based on greater efficiency or high indusry entry costs keeping out the competition, etc.
I mostly quit buying premium name branded stuff such as breakfast cereals years ago, finding that store brands are satisfactory in most cases, for a lot less money.
In a lot of cases, it is damned near impossible to tell any difference.
I have never met anybody who can reliably tell the difference between fifteen dollar vodka and forty dollar vodka once you mix it with oj, although there are people known as professional tasters who can do it in the dark.
Now if a breakfast food company such as Kellogs goes broke- there will still be plenty of cereal on the shelf and total sales of such foods, and total employment in that field of industry, will probably hardly change at all, so the overall economy would not suffer.
Now let's consider the case of a long term decline in many or most people's disposable income - if the decline is steep and permanent, there will be knock on losses in many other field as people cut back on status based consumption.
Advertising moguls for instance aren't going to realize much revenue on ten dollar vodka brands , compared to forty dollar brands.
i can't even guess how far such ripples might spread thru the economy, but my gut feeling is- a long way.
Computers are either already generic and interchangeable consumer toys and business productivity tools, or so fast approaching this status
And the robots are just starting here.
http://www.project-syndicate.org/commentary/the-future-of-work-in-a-worl...
Almost any Ma and Pa two bit restaurant can serve as good or better coffee and burgers as Mickey D - and about as fast too-
http://www.businessinsider.com/burger-robot-could-revolutionize-fast-foo...
While energy will become more expensive labor costs are looking to outstrip the costs of machines.
And from an eMergy POV - which has more embedded energy? An 18 year old burger-flipper (plus prep cooks) or a machine?
I look at the graphs of world population and energy use, and I see an exponential function. As the late Al Bartlett taught us, I am afraid, very afraid.
But one among us sees a bright future. Call it Nicktopia. I'll try and paint a picture.
In Nicktopia, the winds blow steadily and the sun shines day and night. Fossil fuels are but a memory, as are farms. We need the land to house the thirty billion population in suburban housing. Rain falls on schedule to wash the streets and water the plants. Food is made in factories. Forests are there to absorb the small amount of CO2 coming off the recycling plants. In the forests roam animatronic grizzlies, smiling at the happy children and telling them not to light fires, although most of them don't know what fire is.
People live to 90 years old, conveniently divided into thirty years education, thirty years work, and thirty years retired. Education is mostly play, work is mostly checking the stupid machines haven't run over their own cables, and retirement is playing with the grandchildren or watching Dancing With The Stars on big screen television. At ninety, you take a pill and hallucinate the fantasy heaven of your choice, and quietly slip away with a smile on your lips.
aardvark: Spot on.
Here is an article advocating implementing tolls at the rate of 3.5 cents/mile for cars and 14 cents/mile for trucks to pay for 'Interstate 2.0', a proposed recapitalization/rebuilding of the U.S> Interstate system.
http://www.psmag.com/politics/pay-3-5-cents-mile-used-interstate-66416/
Meanwhile, a small number of truckers have mooted the idea of conducting a three-day 'strike' to 'shut down America' to protest their allegations of 'government corruption'.
http://www.huffingtonpost.com/2013/09/20/truckers-shut-down-america_n_39...
The vast majority of people really don't seem to grok the unfolding limits to growth situation.
These folks' ideas aren't even wrong...they are completely missing the mark on the actual fundamental predicaments humans face, and on the potential ways to make things 'a little better than they would otherwise be', to quote Alan Drake.
I wish we could turn the energy from these off-kilter ideas towards the implementation of investing in our railways to take as much long/medium-haul freight as possible off the Interstate highway system. Investing in increased standard-speed (let's say up to 100 mph) passenger train service between cities seems logical to me as well. Instead of obsessing about high-speed (very expensive!), focus on reliability, comfort, and efficiency/cost.
Unfortunately, I have a hard time envisioning the time when the people of the U.S. break out of their BAU trance and decide to deal with the World as it is, not as they believe/wish it is.