Energy Prices, Inflation, and Personal Savings

Annual income twenty pounds, annual expenditure nineteen six, result happiness. Annual income twenty pounds, annual expenditure twenty pound ought and six, result misery. --- Charles Dickens.

Monthly savings rate for January 2002-May 2006 (plum), together with a version that assumed prices of gasoline and natural gas had not changed (green). Click to enlarge. The fine lines are the monthly figures, and the heavy lines are a 13 month centered moving average. Graph is not zero scaled, and x-axis is not at zero. Source: BEA NIPA Table 2.6 for personal savings data, and EIA for gasoline consumption, gasoline prices, natural gas residential consumption, and prices.

As readers may have noticed, I've held the view that the post-peak era is likely to be more inflation-prone than the pre-peak era. The reason for this is the strong correlation between inflation rates in the past and oil shocks. I even had a mechanism in mind: that in an oil shock, there is less aggregate supply of goods and services, since just about any good or service requires energy to make and deliver, and so if there's unexpectedly less energy, there's going to be less goods and services. I further assumed that people would respond to this by borrowing and/or liquidating assets in an attempt to maintain their lifestyle. This "bidding war" for the unexpectedly reduced goods and services would in effect raise the velocity of money and cause a rise in the price level.

I was over today at Calculated Risk, and he had a post on the personal savings rate, which had this graph:

Personal savings rate Jan 2004-May 2006. Source: BEA via Calculated Risk.

It occurred to me that the personal savings rate is a way to test my mental model of what's going on, so I investigated further. The idea is that if my model is correct that during a resource-constraint people are borrowing and/or liquidating assets in order to bid for the remaining goods and services, that ought to show up as a drop in the personal savings rate. To summarize the punchline, I discovered that there's some evidence that things are working according to my model at present, but no evidence that things worked that way in past oil shocks. So I am suitably mystified.

First off, given the controversy this tends to cause with various folks of the Austrian persuasion, I should say that what I mean by inflation is a change in the average price level in the economy, causing currency to be worth less relative to goods and services. This is measured by things like the CPI-U, the GDP deflator, etc (and to the extent they differ, I view that as an estimate of the measurement error in observing inflation). One can have short bursts of inflation, or large sustained amounts of inflation. (The US has not really experienced the latter at any time, but various developing countries have and do.) I'm not a fan of throwing away parts of the data under various pretexts (as "core" inflation does). You're welcome to use some other definition of inflation in your writings, but in my posts, that's what I mean by the term.

Firstly, why do I think there's this connection between inflation and oil shocks. Well, as I observed a few months ago, there have been six more-or-less significant oil shocks in the last 55 years (including the current plateau as a very mild one so far), and eight noticeable peaks in the US inflation rates. All six oil shocks coincide with one of the significant peaks, and the three largest inflation peaks are associated with severe oil shocks. The odds of that happening in the absence of a strong causal connection of some kind are miniscule, and it's sure hard to see how inflation could cause the oil shocks, rather than the other way around.

US inflation rate (calculated two ways) since 1950 with various oil shocks labeled. The green line is inflation calculated from the quarterly GDP deflator numbers (percentage change from four quarters earlier). Source: Bureau of Economic Affairs. The purple line is calculated from the monthly CPI-U index (percentage change from 12 months earlier). Source: Bureau of Labor Statistics.

Anyway, I began by looking at the recent situation. The personal income data are available from the Bureau of Economic Analysis (eg see the most recent release, or go here for raw data). I was mostly working from Table 2.6 for monthly statistics, and Table 2.1 for longer-term quarterly and annual stats. The data cover the total amount of personal income Americans received (with some breakdown), the amount they spent, and computes personal savings as the difference. It's a nice series because it goes back a very long way.

I also went to the EIA, and dragged out numbers for gasoline consumption, gasoline prices, natural gas residential consumption, and prices. That allowed me to compute the proportion of personal disposable income (income after taxes and other payroll contributions) being spent on gasoline and natural gas:

Proportion of personal disposable income being spent on gasoline and natural gas Jan 2002-April 2006. Source: BEA NIPA Table 2.6 for personal savings data, and EIA for gasoline consumption, gasoline prices, natural gas residential consumption, and prices.

As you can see, the proportion of income going on these has roughly doubled in four years. The gasoline calculation is a bit crude because it neglects both taxes (which would increase it) and the fact that some gasoline is bought by commercial and industrial customers (which would decrease it). Hopefully the residual error is fairly small. In addition to gasoline and natural gas, households spend a couple of percent of PDI on electricity but electricity prices have been fairly stable. There's also heating oil and diesel but these are a much smaller contribution to household expenses (on average - they are important regionally).

So given that the personal savings rate is the difference between income and expenses for the aggregate of US households -- their profitability if you will -- to the extent they hadn't had to spend money unexpectedly on energy, they might have saved more and borrowed less. Hence this graph which takes out the money spent on natural gas and gasoline over the January 2002 level, and puts it back into the personal savings rate:

Monthly savings rate for January 2002-May 2006 (plum), together with a version that assumed prices of gasoline and natural gas had not changed (green). Click to enlarge. The fine lines are the monthly figures, and the heavy lines are a 13 month centered moving average. Graph is not zero scaled, and x-axis is not at zero. Source: BEA NIPA Table 2.6 for personal savings data, and EIA for gasoline consumption, gasoline prices, natural gas residential consumption, and prices.

(The spike up at the end of 2004 is due to Microsoft's special dividend, and the spike down in summer 2005 is due to hurricanes). As you can see, personal savings would have been fairly flat until the beginning of 2005 but for energy cost increases. And one might imagine that, now energy prices are starting to bleed through into core inflation, if we took into account the indirect effects of energy in the same way, personal savings might have been completely flat.

Of course, this isn't proof that there's a causal connection - it's just consistent with it and an interesting piece of evidence. Let's now look at the separate components of the personal savings rates: the after-income and the personal outlays:

Monthly disposable income and personal outlays for January 2002-May 2006 (nominal dollars). Graph is not zero-scaled. Click to enlarge. Source: BEA NIPA Table 2.6.

As you can see, the problem is not that income wasn't increasing fairly briskly, it's just that we felt a need to increase expenses faster again.

Let's pull back for a broader view:

Quarterly personal savings rate from 1950-I to 2006-I. Graph is not zero-scaled. Click to enlarge. Source: BEA NIPA Table 2.1.

Well! Is it that we are moral degenerates who live on credit cards instead of saving like our virtuous parents? Or that it's getting harder and harder to make a surplus, indeed even get by, now that globalization is moving our jobs to Outer Mongolia for the low wages? Or that all our jobs and heavy industry is moving somewhere they still have cheap energy since the peak of US oil and natural gas in the seventies? All of the above?

Whatever it was, around 1985, the rot sets in and things have been getting steadily worse ever since.

Anyway, we mustn't get too distracted by the big secular trends; our main mission here is a hunt for oil shocks. Let's start at the lower right. That giant dive in the personal savings rate in 2005 sure looks like it matches my model for oil-shock induced profligacy. However, I'm clearly in big trouble in the earlier cases.

For example, the Abadan crisis (where the British blockaded Iranian oil after Mossadegh nationalized the Iranian oil industry) began in mid 1951. It gives a huge (if brief) inflation spike immediately. But the PSR had dropped in 1950, and rises again through the oil shock. Likewise 1973 or 1979 are completely not there as big spikes downward from the prevailing rate. In general, past oil shocks seem to have had very little influence on the savings rate.

Here's per capita PDI and personal outlays in chained 2000 dollars (ie this is real, not nominal, dollars).

Real personal disposable income and personal outlays per capita 1950-I to 2006-I. Numbers are chained 2000 dollars deflated by the personal income deflator. Click to enlarge. Source: BEA NIPA Table 2.1.

Hmmm. Are we really 3 1/2 times better off than our grandparents? Sure houses are somewhat bigger (though somebody's probably still living in Granny's house), cars accelerate faster, stereos sounds better, and kids have more toys. Computers and the Internet are really cool. But somehow it doesn't seem like a 3.5x improvement. I'd give it 1.5x maybe. How much would you pay, or need to be paid, to go back and live in 1950 instead of 2006? The furniture and clothing is nowhere near the quality of Granny's, we don't get to go to the symphony as often, and TV is execrable. But I digress again. The point I really wanted to make is that before about 1980, the two curves (income and expenditure) were almost exactly the same shape - every little wiggle in income was reproduced in outlays. But since then, they have increasingly diverged with the outlay curve getting smoother (including smoothly blasting through the flattening in income in 2005).

This next graph gives us a more precise look at the situation, at the expense of being more difficult to read. It shows the four quarter percentage change in both personal disposable income and personal outlays (economy-wide totals) so that we can see how both income and spending respond to shocks.

Percentage change from four quarters earlier for real personal disposable income and personal outlays 1951-I to 2006-I. Click to enlarge. Source: BEA NIPA Table 2.1.

We can at least see the shocks now - remember in approximate severity order they are 1973, 1979, 1951, 1955, 1990, 2005. Each caused a sharp dive in income (though they are by no means the only things to do so). However, prior to this most recent one, all caused at least as large a dive in the personal outlay line. In some cases outlays fell more than income. But as you can see, since 1980, it's increasingly the case that when income stops growing, spending doesn't follow suit - we just borrow our way through it. Not always though - but obviously often enough that the personal savings rate is tanking.

So I think while my theory may have some value in the near term (as long as we remain such credit hungry spendthrifts) it doesn't appear to have much merit as an explanation in the past.

And that begs the question what does mediate an oil shock into such big spikes in the inflation rate?

My new hypothesis is as follows. When there's an energy shock, there's less energy (or at least less energy than households and businesses were planning on based on recent trends). Since it's very hard for anyone to use energy more efficiently in the very short term (before capital investments in more efficient equipment can be made), this means that someone is going to have to engage in less economic activity. The firms and households whose energy use will be dropped will presumably be those whose energy use is large compared to the amount of value they create with that energy. However, this process involves bidding up the price of energy (or it's most relevant subform: oil), and that affects the income statement for all businesses and all households, even those who win the bidding war to keep using as much energy as they were using.

Let's focus on the businesses for a moment; I now suspect they might be the more important actors. If 5% of a business's costs are oil and the price of oil doubled, and the business cannot use less in the short term, then expenses just went up by 5% over what was expected. Since pre-tax net margins are typically only in the range of 0-10%, that is a huge potential impact on net profits. Since shareholders hate that kind of thing, the business is now under huge pressure to either reduce expenses or increase revenues to increase profits.

Since all businesses are in variants of this dilemma, there isn't really an opportunity to increase real revenues on an economy-wide basis, so the only choices are to cut costs (which promotes a recession), or increase prices (which promotes inflation). The degree to which one or other occurs is going to depend on how much spare capacity there is. If the economy is already in recession, pricing power will be poor, and the effect of the oil shock will go more to deepening the recession. If the economy is strong entering the shock, pricing power might be good and firms will strive to maintain their profitability by raising prices. Households will tend to follow suit to the extent they have pricing power for their labor (demanding wage increases to compensate them for their increased cost of living).

If everyone does raise prices, and thereby spark a spike in inflation, the Fed is likely to notice (with some lag), and respond by increasing interest rates. This will then trigger a recession with some delay (if the initial shock was strong enough), and also bring the inflation level back down.

I'll check this storyline out in more detail in future posts at some time...

Presumably it's the explosive increase in mortgage lending since 1997 that means outlay growth is now sticky downwards. The brakes don't work any more.
Another key factor is the ratio of total public and private debt to GDP.  Since this is a ratio, it increases if debt goes up or if GDP goes down.  The previous peak (about 294%) was during the depths of the Great Depression, when GDP collapsed.   The ratio then declined until the Eighties, when it started climbing, in tandem with the declining savings rate. The ratio is now around 304%.  

Note that if we look at debt as a ratio of debt to nondiscretionary GDP, it looks even worse.  The majority of Americans live off the discretionary income of other Americans.  During this Great Depression it was probably less than 10%.  Perhaps less than 5%.

I think that we are going to see very strong deflationary headwinds--as overextended consumers and businesses try to sell highly leveraged assets.   This is going to be compounded by the effects of home builders and auto manufacturers aggressively marking down the prices of new homes and autos in order to keep their businesses going.  

Inflationary effects of rising food and energy prices will probably act to worsen these deflationary trends as consumers have less disposable income to support their SUV's and McMansions.

My key advice:  cut spending, arrange your life so that you minimize your commute, and most importantly, look into becoming, working for, or investing in a provider of essential goods and services.  Whether we like it or not, we are going to be forced to once again become a nation of producers rather than a nation of Jabba The Hut like consumers demanding that someone deliver food and energy to us at permanently low prices.

I agree with WestTexas that we are headed for deflation. Stuart makes an excellent case and I respect his opinion, but consumer spending is going to dry up (as the savings rate chart implies). Bernanke can print all the money he wants, but unless he gives it away, I don't see how it will create inflation.

Perhaps we will have initial inflation when the recession begins, but once the economy spirals downward, deflation is more likely. There will be some items that are expensive, such as energy and some consumer goods, but prices are not going to inflate every year. Wait until you try to sell your assets, you can expect cheap prices.

I've been studying the future since 1989 and it's going to be worse than people imagine from 2007-2012. Here at TOD you don't realize how many people in the New Age community have know about this coming collapse. GNP is about to peak and begin a downward decline. Corporations are going to begin losing money and going out of business. Unemployment is going to skyrocket. It's going to get ugly, then uglier.

People think housing is going to drop 20-25%. That is way too optimistic. Housing will soon begin dropping like a rock. By 2009, prices will have dropped more than 50% and new constuction will have stopped because of excess inventory. Unemployment will be 20% by 2010. With such a huge collapse of the economy, I don't see how inflation can exist.

You could be right, however, price inflation and deflation of assets can coexist. The USA is part of a global economy (unlike the 1930s). The dollar itself could easily collapse in a severe downturn and if the dollar collapses any imported product will soar in price (even if very few Americans have the money to buy it). The USA is 25% of the global economy (in the early 1950s it was 75%). Even in a depression, I wouldn't expect cheap commodities or cheap imported goods (IMO).  
>I think that we are going to see very strong deflationary headwinds--as overextended consumers and businesses try to sell highly leveraged assets.   This is going to be compounded by the effects of home builders and auto manufacturers aggressively marking down the prices of new homes and autos in order to keep their businesses going.  

>Inflationary effects of rising food and energy prices will probably act to worsen these deflationary trends as consumers have less disposable income to support their SUV's and McMansions.

Excellent point. In the future we will likely see asymetrical ecomomic forces. Ultimately when oil and gas production collapses, the costs for food, energy or any consumpable product than requires energy to produce will rise. At the same time, over extended consumers will lack the ability to purchase durable goods and non-essential services even at reduced prices. Unemployment will soar and deflation will begin.

The fed might act to enact a zero rate policy (aka Japan), but I don't see how that would help much, as most financial business will be buried under litigation and last thing they would want to do is issue more questionable loans. Any significant montarization of the dollar would also have serious ramifications, since I doubt many oversea trading partners would want to ship good to the US, nor would oil and gas exporters be willing trade with us.

>My key advice:  cut spending, arrange your life so that you minimize your commute, and most importantly, look into becoming, working for, or investing in a provider of essential goods and services.

My advice would be to leave urban regions. Who would want to live in a populated area with soaring unemployment, reduction in local gov't services (police, fire, infrastructure), and soaring crime and drug use. If you're providing essential services in a high crime area, you risk your wealthfare and your life.

I note that after falling for many years, violent crime is back on the increase in major metro areas of the US.
And move into rural areas where everything has to be trucked in hundreds of miles to the nearest Wal-Mart; 16 miles (each way) away.  And the nearest job that you are qualified for is 73 miles away.

You can buy milk at the gas station, just 4 miles away.  But you need a 4WD truck to get there in the winter.

Of course, the local meth lab is just two miles away, and they need some reliable help.

Urban areas will do better post-peak than rural areas for a VERY long time.  Perhaps selected cities of 100,000 to 300,000 will do best, but not every one.

It depends how we get our food.  Once again with all of these post-peak prognostications, I believe the time frame is significantly too short and thus the imagined results are too drastic.  
Alan,

I really respect you but this is the most head up my ass statement I have read on TOD for a long time:

<qoute>Urban areas will do better post-peak than rural areas for a VERY long time. </quote>

My perspective may be blurred because I live in the boondocks but I don't need you urban people.  We have the resources you need like food and firewood.  You will starve in the dark.

Todd

I have a different perspective (no surprise).

"Old Urbanism" can be quite energy efficient.  As long as we have an organized monetary economy, I think vital urban areas will be a better place than isolated rural areas. (Phoenix & Las Vegas not included).

I use 6 gallons/month and could cut that down to 4 easily and 2.5 or so gallons/month in a pinch.  Supplying our stores can easily be done by rail (Union Pacific, NorfolkSouthern, CSX, Canadian National, BNSF, Kansas City Southern) as well as barge and ocean shipping.  We have excellent food within 100 miles (salt, fresh & brackish water + rice & dairy & fruit & sugar).

If we trade food & cotton for fuel, it will come through New Orleans.  If you want coffee, it will come through New Orleans.  If we import steel or copper, it will come through New Orleans.

As for fear of crime (or much else), that is just not a major motivator for me.  

And I informed the police of a 3 generation family from the Missouri Ozarks that are, apparently, dealing meth to construction workers. So drugs are not uniquely an urban problem.

And I can get through the winter without any heat at all if need be (note my last winter).

I spent 4 months helping a friend get his business going (he lived ~6 miles outside Searcy, Arkansas on 44 acres).  I was shocked at just how much driving was required to live even with a decent sized garden.  His job before starting his own business was in South Little Rock, trips to Wal-Mart were several times a week, etc.

Alan,

I responded to Lou below.

Look, you are a mouth to feed.  You do not produce anything unless I missed it in some post.  I appreciate your intellect but that only uses joules.

Here are a series of reasonable queations, my answer to all of them is "yes."  What are your answers?

1.  I can provide for my energy needs.  
Comment:  I cannot provide mineral engine oil but I can limit my engine hours to preserve it and run my engines on wood gas.

2.  I can provide my food.
Comment:  Yes, I can.  Boring but sustaining.

3.  I can provide my power.
Comment:  Yup, beside my PV system, I can run either my 8kW gas generator or my 23kW diesel generator on wood gas.

4.  I can provide my household and irrigatation water.
Comment:  Again, yes.

5.  I can preserve the food I grow.
Comment:  Barb had a post on this a few Drumbeats ago that I idn't have time to respond to.  The answer is yes. We can steam can,waterbath can, dehydrate, vacuum pack and vacuum pack and freeze (remember I will have power even if the grid goes down).

I don' wat to run this into the ground but shipping coffee thru NO isn't an answer.

Todd

I know how to operate and fix (some things) an utility size power plant, gas, coal (weak) or hydro (not nuke rated).

I grew up gardening and have a fairly good knowledge of orchard farming in different climates.

I have good ties to Iceland and Landsvirkjun (their national power company), so I can "bug out" there in extremis. The alternative, in extremis, would be my grandfather's farms in the Bluegrass area of Kentucky,  But I will stay here in New Orleans as long as a monetary system stays functioning.

Rainwater cisterns are quite doable & easy.

Alan,

Here's the crux as I see the urban versus rural debate and it comes down to complexity.  And, maybe I should have approached your intial post from this perspective and left out all the ancillary stuff.

Most, but not all, rural lives are probably an order of magnitude less complex then urban lives/living, that is, they do not depend upon complexity (I am not saying that technology is unimportant.).  

A simple example:  It snows in the higher elevations here - even though we are only 20 miles from the Pacific Ocean.  No one "takes care" of snow on the private roads, which encompasses most of the area because it is the boondocks.  We have been snowed in for a couple of weeks and others we know of were snowed in for up to 6 weeks this past year.  That's life.

Now, how would an urban are deal with this situation?  How would those urban areas deal with being totally cut off from civilization for these lengthts of time?  Especially, if it was the norm?

My point is that Tainter and, probably, Odum would say that urban complexity is doomed to fail.

Todd

The counterpoint is what is the ratio between energy consumed (particularly liquid fuels) and economic value added ?

My impression is that most rural living is much more energy intense (especially for transportation) and comparable or slightly less economic value added.

In a non-collapse environment, that will work strongly against rural living and make access to social services (for instance medical) much more difficult.

The rural life of today is not that of 1900.  It has (appearances to me) evolved into a very energy intense lifestyle, with "driving everywhere".  The "once a month" trip to town lifestyle is long gone.  And drugs have migrated as well :-(

BTW, There is a particular type of weed that grows well on disturbed ground in New Orleans that makes good (if spicy) greens.

If we go somewhat slowly down the road to collapse (aided by climate changes), rural living will likely suffer worse at first (especially if climate works against them; The Grapes of Wrath was the result of economic depression combined with climatic collapse).

But if the collapse went to completion and urban living became completely untenable, then the rural areas are the only alternative.  Not that rural areas would be good, just not as bad as collapsed cities in the midst of a terrible die-off.

Families starved to death on the south side of Chicago in 1932.
They also starved to death in rural Kentucky.  Each of my parents were aware of those that starved to death in farming country.  One (details hazy) had a child partially crippled by polio and the father had arthritis.

If one is not in prime health and physical condition, you need  a support network.

I have no idea how productive and self-sufficient Todd is, but generally in late 20th, early 21st century American cities subsidize suburbs and rural areas are heavily subsidized. Nothing like current rural life would exist without a steadsy flow of tax dollars generated in cities. This is an exact reversal of the historic norm where cities suck the hinterland dry. America reveres a fictional pastoral idyll and the votes in Congress go to the boonies. Oh well.
There will be plenty urban/rural squabbles if TSHTF. Conflict predictable, outcome unknowable
Of course, the first world cities suck on the resources of the third world, passing some drops on to the country neighbours. Cities need imports of goods.
Hey look a dick size contest broke out between the country boy and the city boy!
Matt, get out the measuring tape. What is six and a half inches divided by pi?
Outcome favors those with
  1. the most long guns
  2. the best training (i.e. veterans)
  3. the best aim

Here's looking at you, babe . . . .
I think the outcome favors those living in New Zealand...
Agreed. NZ is God's Own Country.
Check your email.
It's possible to live fairly sustainably in either a rural or urban setting. Yes, your average rural resident lives an energy intense lifestyle, probably more so than your average urbanite. Now that I'm rural, I'm painfully aware of this.

However, my experience has been that I had less freedom to build a sustainable existence in the city than I do on my rural property. Things like zoning restrictions, small lot sizes and community standards organizations made it difficult to impossible to do many of the things I wanted to do to move towards a less energy lifestyle. The cost of living alone made it necessary to work full-time (ie. 5 days of commuting) to make ends meet in the city. This is no longer the case now that I'm in a rural setting.

I've tried to live sustainably in the city and in the boondocks. For me, it's easier in the boondocks.

Oh, goody--a urination for distance contest.

That should do wonders for the value of this conversation.

Frankly, I think you're both wrong.  The cities won't collapse because they have no food or firewood.  The 'burbs won't evaporate because of higher fuel prices.  And rural areas won't be left high and dry.

Everyone will have to make major adjustments, and at non-trivial costs (monetary and otherwise).  But in everything that I've read about energy issues, I have yet to see anything even remotely approaching a thorough, fact-based analysis that any of the three location categories mentioned above will face extinction.

For example, hand-waving from people like Kunstler about how the 'burbs are doomed is so much balloon juice.  Show me exactly your assumptions about 1) what the price of energy will be, 2) how quickly it will reach that level, 3) how people will respond, both individually and collectively through businesses, universities, houses of worship, and gov'ts of all sizes, etc., 4) how technologies currently very close to commercialization, like nanotech Li-ion batteries and far cheaper thin-film solar PV panels will change our situation, 5) how the continued aggressive rollout of utility-scale wind power and the rising interest in tidal and wave power will affect our circumstances, 6) what it would cost, in cash outlay, energy, and cultural change, to abandon the 'burbs and have all those millions of people in the US move into the utopia of densified cities, and how that would be cheaper than finding other methods for people to keep living in the 'burbs (or the cities or in rural areas).

Unless someone is willing to put together this level of detail about their assumptions and the underlying science and economics, then they're just blowing smoke and they don't deserve the attention of anyone on this site or anywhere else.

Gee Lou,

You sound just like JD.

Todd

I think that the suburbs will be a mixed bag.  I suspect that the biggest suburban homes built in the last 25 years will do worst and many will be boarded up.

Bigger sq ft = increased costs to heat & cool

Larger lots = lower denaity = longer to travel to get to essential services & jobs (on average, being within walking distance of a Super WalMart will be a major plus).

Building quality seems (to me) to have declined steadily and newer homes will require major & expensive repairs and are now "out of fashion" (no concern for energy efficiency, too many sq ft,, and just wrong style/fashion, isolated).  3,000+ sq ft homes built in 1984 will be prime board-up candidates in 2012 IMHO.

Based upon past US experience, demographic changes will be a death blow ro some suburbs.  An investor buys one former McMansion from the bank foreclosure at a DEEP discount after a year on the market.  He rents to a large group of Hispanic immigrants who take a minivan to work together.  Repeat for a couple more homes, have dusty "For Sale - Reduced" signs in front of 1/5th of the homes and decline will be swift from there.

Lou,
As usual, very well-stated and cogent remarks.

When I write about the future it is labeled science FICTION because that is what it is, namely, informed speculation about what might happen "if this [global warming, peak oil] goes on . . ."

The best post-apocalypse novel, by far, that I've ever read is George R. Stewart's "Earth Abides." In it, guess where a community/tribe of people flourish--Berkeley, California.

For what it is worth, I'll put "Earth Abides" #1 on my list of most highly recommended books to read for people worried about what might happen when TSHTF.

Just to throw a little reality into the mix:  During the Depression my parents lived in New York City and my Grandparents lived in rural New England.  The rural situation was much worse than the city.  They were quite cut-off from everything.  There were few people to barter goods with, and they didn't have anything anyway.  They did have gardens, but ended up eating mostly tomatoes.  Most people can't grow anything, even if they live rural.  

My Mother worked as a nurse in Bellview Childrens' Hospital for 50 cents a day.  But she had a job, other people around, was provided meals and housing.  Transportation was quite easy, with the bus and subway services.  It was much better.  

The problem is that most people have only seen pictures of breadlines that were set up in the city.  What they fail to realize is that the city was able to concentrate the resources that it had and provide them to people that were in the city.  It was much more efficient than rural.  Services were much more available and life was a lot more flexible.  

You want to know what the price of energy will be and how quickly it will reach that level?

My concern is that there will be supply disruptions.  The rest of the scenario goes without saying.  Your assumption that energy will always be available at a price is wrong IMO.

I didn't think there were just two places to live in the US (or world): urban or rural.  I live in a city, I guess ... but one warm enough that I don't need winter heat.  I wonder if that puts me ahead of or behind "rural?"  I'm also a mile from a small port (it hasn't been used for freight for a century, but who knows).

If all else fails, Tahiti is a sailboat ride away.

;-), maybe if things get really bad you'll be congratulating yourself as you chop wood, and I'll be talking to those island girls.

Location, location, location.

I'm a few blocks from a railroad track, a bike trail that connects to others, grocery store, two gas stations, hardware store, gun shop, dentist and doctor plus bank and post office--all withing easy walking distance.

Just south of my sugar maple trees is one of the biggest fields in the county, currently planted in alfalfa because of chronically low corn prices. Most fields around here are planted in corn, and most things nontropical grow fine here, including some varieties of tomatoes. In my big back yard is a well-populated community of prarie dogs; wild turkey and pheasants stroll among my bird feeders, abundant good water is easily available from a shallow hand-pump well in my back yard.

My neighbors are armed and friendly (to locals:0)

Come on Don, I'm sure you'd make a fun watch-partner ... keep the Tahiti thing in mind.
I'm about the best rough-water seacook you're likely to find. A few years ago we were cruising Lake Superior with gusts to 45 knots, and I kept the hot beverages and hot meals coming. I am blessed in so many ways:
  1. No need for dramamine, have never even felt queasy;
  2. Learned to cook by observing a master chef in the kitchen of St. Paul's Commodore hotel during the 1940s.
  3. Am really good at cooking to meet individual preferances, e.g. always offer choice of coffee, tea, or cocoa, always offer choice of sandwiches, always have stuff readily available for folks to make their own peanut butter and honey (or whatever) sandwiches.

Can we extend the trip to New Zealand? I have friends there. Also how about Hawai'i on the way back. More friends there.

Do you allow fishing from your boat? I like to troll every now and then.

I've only been in big (for me) seas once, helping with a trip from Baja to San Francisco.  Going north around Point Conception at midnight, we were tacking into 12 foot seas, 50+ mph winds, and the electrics kept going out, leaving me on the helm in complete darkness.  Oh yeah, the Baja yard had also put in the wrong cotter pins, the turnbuckles were backing out, and there was a chance the rig would come down.  I thought I was going to die but decided to be cool about it, lol.

That one didn't make me sick, and I was hungry, so I totally get the importance of rough-water seacook. ;-)

I don't have a boat now, but I figure there would be some response time in any deep crisis ... but this is all "disaster movie" fantasy anyway (or fodder for your next series).  I think we'll really get a slow, almost boring, and not always pleasant, energy adjustment.

You'd better do some research on those  Tahitian girls, most look like an out-of-shape WWF wrestler in a dress. and Tahiti has a culture that doesn't mind, in fact, endorses, eating the outsider.
New Zealand girls have everything to recommend them; back when I was twenty-one I lived there for several months and . . . oh my goodness.
How many beautiful young able seawomen are we going to allow for crew?
What, like we'd set an upper limit?
Well, I do have to make menu plans and figure out how much in the way of food and beverages that we need.

BTW, if you would like some of my sea-going meal plans, I'd be glad to send them to you. It's funny, if we go on a cruise of three boats together, the people on my boat tends to gain weight, maybe five pounds in a week. The folks on the other boat generally lose several pounds.

Standing watch or navigating--shucks there are a lot of people you can find for that. I recommend beautiful highly educated women from university sailing clubs--especially those with "liberated" views. BTW, a big advantage of women as crew is that they eat only about two-thirds as much as the average man--which on my boats tends to be 4,500-6,000 calories per day, plus wine or beer.

I think a forty footer is a good length. I like Aalberg designed boats made in the 1960s, but there are a ton of others out there. Also, I prefer a yawl or cutter rig to a sloop. On a sloop the masts get too tall, and this can be bad, as your experience illustrates.

Also, I do not believe in engines. They tend to fail when you need them. A good alternative is a couple of hundred-pound thrust electric trolling motor with a few deep cycle batteries plus a small wind propellor/turbine to charge them.  

I like Aalberg's too.  Must be the genes ;-)

For what it's worth, I once also read Desirable and Undesirable Characteristics of the Offshore Yachts.  It's quite a double-whammy if you read it with Fastnet, Force 10.  It kinda brings home what "undesirable" means.

I have a bunch of books on cruising that I'll gladly lend to you. My favorites are the ones by the Pardeys.

For crew, here are my standards:
Best crew I've ever had was Pippi Longstocking. She is grown up now (young side of 30) is an actor and film maker. She got her start working as a body double for some hot actresses whose names you might recognize. She is awesome. One time, 40 knot winds, all the guys are seasick, head is occupied with vomiting fool and she has to pee. So, what does Pippi do? She grabs the leeward shrouds, drops her pants and hangs out to leeward with the cold October waves of Lake Superior slapping her butt.

BTW, she is an adoptive niece of mine and I screen all her male friends. The last one was not good enough for her--filty rich, handsome, owned a fitness club, buffed and even a Heinlein fan. Still, not good enough for Pippi.

She may not be the strongest one on a sailboat, but she may be the smartest. I've taken some hundreds of photos of her (clothed) and have been offerred up to forty dollars just for one snapshot. But I don't do commercial photography.

It would be nice to have a film maker on board.

Thanks, but I think I'm in a different phase right now.  The local library does have a good nautical section, and I can endorse the Pardey recommendation.  They tell their stories with a good sense of humor.
BTW,
One of the best places to by big sailboats for cruising the Pacific is in Honolulu. And for why? Because so many rich dunces do the Transpacific, have a horrible experience, and they just turn their yacht over to a broker and say, "Dump it."

HOWEVER, many of these boats are race/cruisers, and that category (IMO) sucks. Cruising boats are built for seaworthiness and comfort. Racing boats are designed to sail as fast as possible--on the edge of coming apart.

Also, I think a lot of yachties run out of funds in Honolulu, then sell their boats to get funds to return to the mainland and start a land life again.

Anyway, I've more than once seen comparable boats for sale in Honolulu for about 25% less than in Newport Beach or the San Francisco Bay area.

I've heard that Cabo is a good place to find cruisers, for a similar reason.  People decide they don't like it ... and it's a hard beat back to California.  (Gotta check "title" carefully of course.)
>And move into rural areas where everything has to be trucked in hundreds of miles to the nearest Wal-Mart; 16 miles (each way) away.

Every thing in Urban areas is usually trucked, flown, or barged in over thousand of miles. The average meal in a urban area travels over 1200 miles.

> And the nearest job that you are qualified for is 73 miles away.

Who says I am planning to commute a job? My intention is to become very self sufficient. I no longer see the current hi-tech/energy intensive economy as sustainable. I believe that in the future steady employment will be difficult to achieve, and I prefer not to end up being permenently trapped in area filled with a large group of miserable, unemployeed and desperite people. Finally I don't want to have to climb 40 flights of stairs or sleep in a hot sufficating apartment, which rolling black outs are the norm and its too expensive to run air conditioning.

>Urban areas will do better post-peak than rural areas for a VERY long time.  Perhaps selected cities of 100,000 to 300,000 will do best, but not every one.

I have to strongly disagree. Urban areas are very dependant on cheap energy. Food, energy, and manufactured goods are all imported into urban areas. It wasn't until the availability of cheap energy that city populations took off.

Most of the US manufacturing jobs have been moved, or are in the process to relocate to rural areas becuase of the lower labor costs and taxes.

West Texas

Another key factor is the ratio of total public and private debt to GDP.  

I have been searching for this statistic in the past and have not been able to find it.  Can you point me to a good reference site for this info?

Thanks....

Data for previous ten-year periods are available there as well - just insert 1945-1954, 1955-1964, etc. in the link I gave.
Hello Stuart,

This is a dip in the deep end of the pool for me as economic theory is not my strong suit compared to many here on TOD.

IF I understand your analysis correctly, an oil shock is tantamount to an aircraft encountering a sudden downdraft--the pilot hopefully applies power, which takes time to spool up, to resume the intended course.  If insufficent power or spare capacity cannot be applied, the pilot to has best fly the lower altitude.  But our negative National savings rate [the aircraft's fuel tank] is the leading indicator that the spare power capacity is largely depleted or rapidly heading to empty.  It suggests that we collectively are drastically trying to lighten the load by pitching things outside the aircraft to help maintain altitude; liquidating assets instead of developing a broad consensus to improve conservation, then fly safely at the lower altitude.

This would seem to indicate that any more oil price shocks would be strongly recessionary for the US and tend to pressure the dollar down, because we cannot afford the time to be using our funds to make the aircraft's engine more efficient and powerful to regain altitude versus pitching stuff overboard now just trying to keep the aircraft from spiraling downward.

If China or Europe have a more positive savings rate than the US-- it will get increasingly easy for them to start outbidding us for energy-->> we don't have much choice but to start a drastic drive to cut wasteful consumption and improve energy efficiency to hopefully increase our savings rate to the positive.

Otherwise, we might see the worst case of oil fungibility: even our diminishing internal native stocks of fossil fuels will be sold overseas to the highest bidder [as Americans cannot afford it]!  Yikes!  Please tell me my thought process is seriously wrong!

Bob Shaw in Phx,Az  Are Humans Smarter than Yeast?

Your thoughts are rock solid. 4:15P.M. EST and no real objection, I love the airplane analogy
I think a better flying analogy is stalling out. If a plane goes too slow, it stalls. If you put the nose up too high, it stalls. If you cross controls in a turn, it stalls. Thus there are various causes of stalls.

If you stall, you may be able to correct it if you have enough altitude to start with.

Or, you may go into an uncontrollable spin and turn the plane into a plow.

Or, you may get the plane into an unusual attitude, panic, do something inappropriate and thereby cause a crash.

The correct things to do (in this order) are:

  1. Treat the throttle (i.e. increase or decrease power).
  2. Level the wings (so you don't get inverted)
3  Control the pitch (i.e. put the nose up or in this case, down)

I could continue this analogy using money supply, fiscal policy, etc., but I've found that one gets rapidly diminishing returns when pushing the analogy too far.

Now, Helicopter Ben--how good a pilot is he?

>Otherwise, we might see the worst case of oil fungibility: even our diminishing internal native stocks of fossil fuels will be sold overseas to the highest bidder [as Americans cannot afford it]!  Yikes!  Please tell me my thought process is seriously wrong!

That wouldn't happen. The Dept of Defense an others would strongly object on the grounds of national security. Beside US domestic production has slide low enough that it would be consumed, even in a severe depression.

The real question is will the US remain the US or will it become the Divided States of America? What happens to gov'ts when the store selves go bare and there is no fuel to heat homes in the winter?

Well, as for China outbidding the US -- they'll be using the same worthless dollars we'll be using, so I doubt they'll be in much of a position to outbid us.

On the other hand, as Kunstler likes to point out, it's a lot easier for China to invade the Iran than it is for the US....

"Firstly, why do I think there's this connection between inflation and oil shocks. Well, as I observed a few months ago, there have been six more-or-less significant oil shocks in the last 55 years (including the current plateau as a very mild one so far), and eight noticeable peaks in the US inflation rates. All six oil shocks coincide with one of the significant peaks, and the three largest inflation peaks are associated with severe oil shocks. The odds of that happening in the absence of a strong causal connection of some kind are miniscule, and it's sure hard to see how inflation could cause the oil shocks, rather than the other way around."

To peg oil shocks to inflation on a graph is to ignore history itself. Don't forget that Nixon destroyed the Breton Woods agreement in 1971.  This act allowed the central banks to start printing fiat money at astounding rates.  If you read a "A Century of War" (http://tinyurl.com/jfm3e) William Engdahl solidly makes the case that the oil embargo was a contrived incident with collusion between Saudi Arabia and the US (Enter Bilderberg and Henry Kissinger).  The resulting increase in oil prices lead to huge demand for US dollars, which allowed the US to expand its deficit spending, and created the "third world" by collapsing weaker economies.  That leads us to the next blip which is the third world debt crisis which HUNDREDS OF BILLIONS of dollars were loaned to newly created third world countries only to have these countries default on the loans( Don't worry they knew that was going to happen).  Who bailed out the banks?  You guessed it, the US tax payer through inflation.  Inflation that came about by, you guessed it, massive injection of liquidity into the system.  As far as wars go, gulf war included, wars are financed by governments by printing massive amounts of money, MASSIVE.  The result is, you guessed it, INFLATION.   I just only scratched the surface here.  INFLATION is caused by increasing the money supply FASTER than the increase of goods and services.   The oil shocks you speak of have much more behind them than you think and had little or nothing to do with monetary inflation...

=AC

==Snips=

http://www.safehaven.com/showarticle.cfm?id=5348

"Every first-year economics undergraduate is taught that correlations are not the same as causal relationships. It is to be regretted that Mr Nugent, along with so many others, has forgotten that lesson. If Nugent and those who agree with him were correct about the 1970s inflation surge being caused by OPEC oil price hikes then the biggest oil importers should have suffered the highest inflation rates. They didn't.

For example, Japan and Germany are completely dependent on foreign oil producers yet after OPEC jacked up oil prices German inflation was only 7 per cent. But Japan's inflation rate leaped to 25 per cent while Australia's inflation rate rose to 17 per cent -- even though it was 75 per cent self-sufficient in oil. America's inflation rates was 12 per cent even though it imported 50 per cent of its oil. Great Britain's inflation rate was racing along at 25 per cent per annum even though she had become a significant oil producer thanks to the North Sea oil fields. Of particular interest is Saudi Arabia, the world's largest oil exporter, whose inflation rate at the time shot up to 35 per cent."

Therefore, oil price hikes are no more inflationary than a general wage rise. If unions succeeded in pushing up wage costs above the market level the effect is not rising prices but rising unemployment. This brings us to the fact that there are only two fundamental ways in which the direction of general prices can be altered: 1) through an increase in the money supply or 2) a reduction in the stock of goods. Number 1 is a money induced change in general prices and number 2 a goods-induced change.

This is why when a dirt-poor country is hit by famine causing food prices to rocket we never say that it is suffering from inflation generated by a sudden hike in food prices. It follows that if a country kept a constant money supply there would be a gentle decrease in prices if productivity were rising. This is precisely what happened in Great Britain from about 1874 to about 1896. As productivity rose faster than the gold supply the costs of production and consumer prices gradually declined."

Hello AngryChimp,

Well, I simply don't know how to economically argue against this or soundly refute it... when politics interfere with normal market functions--> all bets are off.  I will leave it for other TODers to have first crack at this.  I think I know my limitations.

Bob Shaw in Phx,AZ   Are Humans Smarter than Yeast?

when politics interfere with normal market functions--> all bets are off

Well not quite all bets. Politics may influence the money supply, but it can't do anything about the laws of thermodynamics nor the conservation laws of physics. My guess is that the HL calculations we have been seeing (and swapping) are essentially correct, give or take an Iraq or a Greenland ice sheet meltdown or two.

Bob, there is no need to refute Chimp's silly theory, all you must do is re-read Stuart's excellent essay and the connection between inflation and oil prices, or more correctly inflation and oil shocks, becomes irrefutable.

Those of us who are familiar with the Chimp's earlier posts from other lists know that to him everything is a conspiracy theory. Nothing major happens in this world unless it is the underhanded work of those dastardly, conniving, evil-doers in Washington or in some cases that other evil empire, Britain.

Chimp says:

Century of War" William Engdahl solidly makes the case that the oil embargo was a contrived incident with collusion between Saudi Arabia and the US (Enter Bilderberg and Henry Kissinger). The resulting increase in oil prices lead to huge demand for US dollars, which allowed the US to expand its deficit spending, and created the "third world" by collapsing weaker economies.

Yes, it was all the work of that evil-doer Henry Kissinger and his other co-conspirators in Washington. Kissinger and company deliberately conspired to drive up oil prices, which they knew would drive up demand for the dollar, which created the third world by collapsing weaker economies.

So now you know it folks, the third world was created by Henry Kissinger and his co-conspirators in Washington. And in case you not familiar with Engdahl's work, he also makes the case that President Harding was assassinated by British spies working for Shell. The book is a plethora of nothing but evil conspiracies piled one on top of another.

Chimp's other bastion of knowledge is the Safehaven blog site which explains why high oil prices will not cause inflation. As if the inflation we are experiencing right now has nothing to do with high oil prices. Safehaven also lets us in on another secret, the Colorado oil shale. (Actually most of it lies outside Colorado but who cares...)

But the greatest secret of all is how much oil lies - untapped - beneath U.S. soil. You'll be amazed when you see the numbers.

Yes, we have virtually untapped oil riches out west but there is a giant conspiracy by the government and/or oil companies to keep it all a big secret. Yeah right!

Darwinian

"Ye shall know the truth, and the truth shall make you mad."  
~Aldous Huxley

Yes yes, re-read Stuart's excellent essay.  The gods of statistical analysis, linear thinking, and Gaussian curves have spoken and the verdict is in.  There is only one God and all must bow before him.  

Close you eyes click your heels three times and keep saying, "everything is going to be just all right."

==AC

Chimp, you know damn well that my position is that everything is not going to be all right. Everything is going to be terriable. I am the most pessimistic doomer on this list. So don't try to put very silly words in my mouth.

My position is: Every major event that happens to the world is not necessarly the result of some giant complicated conspiracy by those dastardly evil-doess in Washington. But almost every post of yours implies that it is. As Jay Hanson said of you, you have conspiracy on the brain.

I have a different perspective on the world and offered an alternate explanation for inflation during an oil shock and you attacked me.  Did I ever attack you in the past?  That is the work of a fledgling asshole.  Then you take a snip off safehaven, from who knows what article, and try to discredit the entire site as a conspiracy archive without addressing the specific points Gerard Jackson made.  The work of a major asshole.

As if you even understand my position by stating "those dastardly evil-doess in Washington".  As if I think the so called "evil-doers" operate out of Washington.  Again the work of a major asshole.  You also slimily imply that I think EVERY major event was the result of some sort of meeting in a dark cave 2000 meters underground.  Wrong again but what is to be expected from an asshole?

I'm glad you're a doomer and maybe you and I should stick to things we agree with.

As far a Jay goes he spent some time at AB discussing the NWO.  Just a sample:
http://tinyurl.com/gy789
It seems to me that NWO could be a continuation of the ideals of the
Enlightenment using the Physiocratic doctrine as a handbook.[1] When
I read Fox-Genovese's book, I find the exact same shit I have been
hearing from economists for over a decade. It's all there!!!

It's not difficult for me to believe that a market cult (secret
handshakes, etc.) has existed since the time of the Physiocrats. It
would have been imported from France by Jefferson, Franklin, du Pont,
etc.

Has a "Skull and Bones" guy ever gone public? What is the content of
their rituals?

Jay
=============
[1] THE ORIGINS OF THE PHYSIOCRACY: Economic Revolution and Social
Order in Eighteenth-Century France, by Elizabeth Fox-Genovese.
http://www.abebooks.com

If you remember he purchased "Tragedy & Hope: A History of the World in Our Time" on my advice.  So I would say his interest was there but he did not want to delve too deep.  I hope this doesn't shatter your image of your Idol.  

Good Day sir,

==AC

If you can't answer a man's argument, all is not lost. You can still call him vile names.
LOL!!  Answer your argument??

"Bob, there is no need to refute Chimp's silly theory"

"Those of us who are familiar with the Chimp's earlier posts from other lists know that to him everything is a conspiracy theory. Nothing major happens in this world unless it is the underhanded work of those dastardly, conniving, evil-doers in Washington or in some cases that other evil empire, Britain."

"Chimp's other bastion of knowledge is the Safehaven blog site which explains why high oil prices will not cause inflation. As if the inflation we are experiencing right now has nothing to do with high oil prices. Safehaven also lets us in on another secret, the Colorado oil shale."

Answer what argument? The argument that you're an asshole?  You did nothing but go on a rant and slander me and never addressed one thing I said in a courteous manner.  You are a piece of work my friend.  If you don't agree with me or you think my argument is completely silly you could have just moved to the next comment but you had to make it your personal crusade to make me look like an ass to the TOD community.  I do apologize if the word asshole offended anyone.  Upon reflection I may have been out of line.   But I could not find anything more suitable to describe Darwinian.

Well, let's take one grand conspiracy at a time:

If you read a "A Century of War" (http://tinyurl.com/jfm3e) William Engdahl solidly makes the case that the oil embargo was a contrived incident with collusion between Saudi Arabia and the US (Enter Bilderberg and Henry Kissinger).  The resulting increase in oil prices lead to huge demand for US dollars, which allowed the US to expand its deficit spending, and created the "third world" by collapsing weaker economies.  That leads us to the next blip which is the third world debt crisis which

Henry Kissenger and company created the third world via a conspiracy whth Saudi Arabia. Well, I am sixty eight years old and traveled much of the world before the advent of the Nixon Administration. Let me tell you the third world world was there long before Nixon and Kissinger.

What in God's name will the conspiracy theorists think of next. At least they are good for a good belly laugh once in awhile.

Did you ever read it or do you just dismiss it out of hand like a creationist dismisses Darwinism.  Obviously there have always been poor economically depressed countries.   The prices increase of oil forced even more countries into economic chaos and destroyed the ones on the brink.  Why do you think so many loans they knew could never be paid back were made to these countries? Because the bankers felt bad for them??  Read it for yourself and feel free to refute it.

http://earth.prohosting.com/~jswift/engdahl.html

==AC

Relevant Snip;

"On October 6, 1973, Egypt and Syria invaded Israel, igniting what became known as the "Yom Kippur" war.  Contrary to popular impression, the "Yom Kippur" war was not the result of simple miscalculation, a blunder, or an Arab decision to launch a military strike against the state of Israel.  The entire constellation of events surrounding the outbreak of the October war was secretly orchestrated from Washington and London, using the powerful diplomatic secret channels developed by Nixon's White House National Security Adviser, Henry Kissinger.

Kissinger effectively controlled the Israeli policy response through his intimate relation with Israel's ambassador to Washington, Simcha Dinitz.  In addition, Kissinger cultivated channels to the Egyptian and Syrian sides.  His method was to simply misrepresent to each party the critical elements of the other, ensuring the war and its subsequent Arab oil embargo.

Kissinger, who is by then Nixon's intelligence "czar", consistently suppressed US intelligence reports, including intercepted communications from Arab officials confirming the buildup for war.  Washington scripted the war and its aftermath, including Kissinger's infamous "shuttle diplomacy," along the precise lines of the Bilderberg deliberations of the previous May in Saltsjoebaden, some six months before outbreak of the war.  Arab oil-producing nations were to be the scapegoat for the coming rage of the world, while the Anglo-American interests responsible stood quietly in the background.

In mid-October 1973, the German Government of Chancellor Willy Brandt told the US Ambassador to Bonn that Germany was neutral in the Middle East conflict, and would not permit the US to resupply Israel from German military bases.  With an ominous foreboding of similar exchanges which would occur some 17 years later, on October 30, 1973 Nixon sent Chancellor Brandt a sharply worded protest note, most probably drafted by Kissinger:

"We recognize that the Europeans are more dependent upon Arab oil then we, but we disagree that your vulnerability is decreased by disassociating ourselves from us on a matter of this importance... You note that this crisis was not a case of common responsibility for the Alliance, and that military supplies for Israel were for purposes which are not part of alliance responsibility.  I do not believe we can draw such a fine line..."

Washington would not permit Germany to declare its neutrality in the Mideast conflict.  But, significantly, Britain was allowed to clearly state its neutrality, thus avoiding the impact of the Arab oil embargo.  Once again, London skillfully maneuvered itself around an international crisis which it had been instrumental in precipitating.  One consequence of the ensuing 400% rise in OPEC oil prices was that investments of hundreds of millions of dollars by BP, Royal Dutch Shell, and other Anglo-American petroleum concerns in the risky North Sea could produce oil at a profit.  It is a curious fact of the time, that the profitability of these new North Sea oil fields was not at all secure until after Kissinger's oil shock.

By October 16, the Organization of Petroleum Exporting Countries, following a meeting on oil prices in Vienna, raised their prized by a then-staggering 70%, from $3.01/barrel to $5.11.  That same day, the members of the Arab OPEC countries, citing the US support for Israel in the Mideast war, declared an embargo on all oil sales to the United States and Netherlands -- the major oil port of Western Europe.  

Saudi Arabia, Kuwait, Iraq, Libya, Abu Dhabi, Qatar, and Algeria announced on October 17, 1973 that they would cut their production below the September level by 5% for October and an additional 5% per month, "until Israeli withdrawal is completed from the whole Arab territories occupied in June 1967 and the legal rights of the Palestinian people are restored."  The world's first "oil shock," or as the Japanese termed it, "Oil Shokku" was underway.  

Significantly, the oil crisis hit full force just as the President of the United States was becoming personally embroiled in what came to be called the "Watergate affair," leading Henry Kissinger as de facto President, running US policy during the crisis in late 1973.

When the Nixon White House sent a senior official to the U.S. Treasury in 1974 to devise a stratagem to force OPEC into lowering the oil price, he was bluntly turned away.  In a memo the official stated, "it was the banking leaders who swept aside this advice and pressed for a 'recycling' program to accommodate to higher oil prices.  This was the fatal decision..."

The U.S. Treasury, under Jack Bennett, the man who helped steer Nixon's fateful August 1971 dollar policy, had established a secret accord with the Saudi Arabian Monetary Agency, SAMA, finalized in a February 1975 memo from US Assistant Treasury Secretary Jack F. Bennett to Secretary of State Kissinger.  Under the terms of the agreement, a sizable share of the huge new Saudi oil revenue windfall was to be invested in financing the US government deficits.  A young Wall Street investment banker with the leading Eurobond firm of White Weld & Co. based in London, David Mulford, was sent to Saudi Arabia to become the principal "investment adviser" to SAMA; he was to guide the Saudi petrodollar investments to the correct banks, naturally in London and New York.  The Bilderberg scheme was operating as planned.

Kissinger, already firmly in control of all US intelligence estimates as Nixon's all-powerful National Security Adviser, secured control of US foreign policy as well, persuading Nixon to name him Secretary of State in the weeks just prior to outbreak of the October Yom Kippur war.  Indicative of a central role in events, Kissinger retained both titles as head of the White House National Security Council and as Secretary of State, something no individual had done before or after him.  During the last months of the Nixon presidency, no other single person wielded as much power as Henry Kissinger did.  Adding insult to injury, Kissinger was awarded the 1973 Nobel Peace Prize.

Following a meeting in Teheran on January 1, 1974, yet a second price increase of more than 100% was added, bringing OPEC benchmark oil prices to $11.65.  This was done on the surprising demand by the Shah of Iran, who had been secretly told to do so by Henry Kissinger.

Only months earlier, the Shah had opposed the OPEC increase to $3.01 for fear this would force Western exporters to charge more for the industrial equipment the Shah sought to import for Iran's ambitious industrialization.  Washington and Western support for Israel in the October war fed OPEC's anger at the meetings.  Kissinger's own State Department was not informed of Kissinger secret machinations with the Shah.

From 1949 until the end of 1970, Middle East crude oil prices had averaged approximately $1.90/barrel. They rose to $3.01 in early 1973, the time of the fateful Saltsjoebaden meeting of the Bilderberg group which discussed an imminent 400% future rise in OPEC's price. By January 1974 that 400% increase was a fait accompli."

"The U.S. Treasury, under Jack Bennett, the man who helped steer Nixon's fateful August 1971 dollar policy, had established a secret accord with the Saudi Arabian Monetary Agency, SAMA, finalized in a February 1975 memo from US Assistant Treasury Secretary Jack F. Bennett to Secretary of State Kissinger.  Under the terms of the agreement, a sizable share of the huge new Saudi oil revenue windfall was to be invested in financing the US government deficits.  A young Wall Street investment banker with the leading Eurobond firm of White Weld & Co. based in London, David Mulford, was sent to Saudi Arabia to become the principal "investment adviser" to SAMA; he was to guide the Saudi petrodollar investments to the correct banks, naturally in London and New York.  The Bilderberg scheme was operating as planned."

For those of you that may be interested in this read "Confessions of an Economic Hit Man" by John Perkins.  Perkins was a key player in SAMA which he termed the Saudi Arabia Money-Laundering Affair...

Relevant snips can be found here:
http://tinyurl.com/l96t8

Don't be afraid I won't hurt you.  I'm just one of those crazies that see things in a much bigger context than mere coincidence.  There are plenty of coincidence theorists out there, just watch CNN and Fox...

==AC

I don't suppose it would shake your faith in the author to have your attention brought to the fact that every oil shock has brought both inflation and economic contraction to much of the world?

In other words, the most trivial knowledge of recent history proves their claims and underlying reasoning totally wrong?

If you come up with a graph showing a contracting global money supply (US dollars) in the face of an "oil shock", we can talk.   I would assume you would see the opposite.  The contraction after the inflation is just part of the normal Boom/Bust cycle of fractional reserve banking.

In the face of a oil price shock I would say they government would turn the printing press on full steam to make dollars to cover the increased demand for US dollars to pay for the price of oil.  All those dollars then end up back in the US as construction and weapons contracts that are then injected into the economy causing inflation.  Petrodollar recycling.  They are manipulating the monetary supply to their benefit the few instead of letting the market correct itself.
==AC

Sorry, not a contracting money supply but a stable or non-increasing money supply in the face of an "oil shock".  The contraction would be after the inflationary "boom"...

==AC

You forgot the clincher to the deal Kissinger fashioned to get the Israel/Egypt peace treaty: Egypt demanded foreign aid of equal cash value each year to that given to Israel. H.K. said, "Fine," and to this day we give a couple of billion a year to Egypt in what is a public works subsidy for U.S. farmers in the form of flour and wheat. Israel's foreign aid is also a public works program for U.S. weapons makers who get the U.S. government to underwrite a couple of billion a year to Israel--then Israel tests them out (at no cost to U.S. taxpayers) and figures out how best to maintain them and how to make them work better (again at no cost to U.S. taxpayers).

Where is H.K. now that we need him again?  

Darwinian, Engdahl is not the only person to claim the American government was behind the 1973 oil crisis. Sheikh Yamani, who was oil Minister in Saudi Arabia for nearly 25 years, also claims this was the case. See this article from the mainstream media:
http://observer.guardian.co.uk/business/story/0,6903,421888,00.html

The article says:
"At this point he makes an extraordinary claim: 'I am 100 per cent sure that the Americans were behind the increase in the price of oil. The oil companies were in in real trouble at that time, they had borrowed a lot of money and they needed a high oil price to save them.'

He says he was convinced of this by the attitude of the Shah of Iran, who in one crucial day in 1974 moved from the Saudi view, that a hike would be dangerous to Opec because it would alienate the US, to advocating higher prices.

'King Faisal sent me to the Shah of Iran, who said: "Why are you against the increase in the price of oil? That is what they want? Ask Henry Kissinger - he is the one who wants a higher price".'

Yamani contends that proof of his long-held belief has recently emerged in the minutes of a secret meeting on a Swedish island, where UK and US officials determined to orchestrate a 400 per cent increase in the oil price."

Also, the Washington Post reported the same claim about the US manipulation of this 'crisis' on 28 January 1974 in an article by the journalist 'Jack Anderson'.

So ridiculing Engdahl does not provide proof that the claim is wrong.

WOW what a breath of fresh air PCoyle.

Of course this will be met with the "deniers" most potent weapon, SILENCE.  If not it will be quickly followed up with their favorite finishing move, "CONSPIRACY THEORISTS"!!!  How predictable...

==AC

Are the minutes in question available anywhere?
The minutes in question are almost certainly the minutes of the Bilderberg meeting in Saltsjobaden in Sweden in May 1973 which Engdahl refers to in his book. Some extracts of these minutes are re-produced in Engdahls book (assuming he is not just making it up, which I doubt he is).

According to the French book 'La face cachée du pétrole' by Eric Laurent which was published earlier this year, the investigative journalist and Pulitzer Prize winner, Jack Anderson, was shown Aramco papers which described meetings in 1973 between the company (then owned by Exxon, Mobil, Texaco and Chevron) and Sheikh Yamani in 1973. During this meeting Yamani was given the green light to greatly increase oil prices. Apparently, this was all described by Anderson in an article published on January 28 1974 which was entitled 'Details of Aramco papers disclosed'.

Stuart,

Would it be better if it was on CNN.  Then would it pass the "reality" test??

==AC

I ordered the book and will take a look.  I don't have a TV so I don't watch CNN.
Good for you!!

==AC

Below is just an example of the tremendous power one of these dynastic families can accumulate. I really can't understand how people can just dismiss out of hand what a tremendous INFLUENCE [ie. not pre planned every event in a dark secret cave] these families have had on the creation of our current global system.  If you were to take just three names, Rockefellers Morgan Rothschild, and dedicate some study to see what influence they had over the formation of our current world you would be amazed.  The three families above combined with about ten or more other families have created a pervasive interlocking power that has plagued politicians [toy puppets] for over a century.  They have done nothing but consolidate their power over the years.  The only question that arises is does one really want to know how deep the rabbit hole goes?  It is a deeply personal decision because if you are to study the Arab oil embargo and come to the full understanding of the manipulation and subsequent lack of attention by the media you are left asking yourself what else have we been lied to about.  The billions of lives crushed into poverty so a handful of wealthy families could consolidate its power over nations.  Thus for some the journey begins...

"Since I entered politics, I have chiefly had men's views confided to me privately. Some of the biggest men in the United States, in the Field of commerce and manufacture, are afraid of something. They know that there is a power somewhere so organized, so subtle, so watchful, so interlocked, so complete, so pervasive, that they better not speak above their breath when they speak in condemnation of it."
~Woodrow Wilson,The New Freedom (1913)

==AC

ROCKEFELLERS

John Davison Rockefeller continues to be the most recognized (and perhaps most despised) rich man in the world even though he's been dead since 1937. During the past century, no one family in America has assembled such power and influence as the Rockefellers, thanks to their wealth and close ties to England.

   Years ago the Rockefeller name continually cropped up in any discussion of secret societies, but today's mass media rarely speak of the Rockefeller role in world events. But at one time the name of John D. Rockefeller was on everyone's lips and his finances were known to all.

   An 1897 edition of a rural Texas newspaper reported, "John D. Rockefeller sleeps eight and one-half hours every night, retiring at 10:30 and rising at 7. Every morning when he gets up he is $17,705 richer than he was when he went to bed. He sits down to breakfast at 8 o'clock and leaves the table at 8:30, and in that short half hour his wealth has grown $1,041.50. On Sunday he goes to church, and in the two hours he is away from home his riches have grown $4,166. His nightly amusement is playing the violin. Every evening when he picks up the instrument he is $50,000 richer than he was when he laid it down the previous night. These little facts give some idea of the relentless growth of this man's fortune."

   One insight into the forging of John D.'s business philosophy might be gained by an anecdote told by Nelson Rockefeller. It seems when John D. was a small child his father, William "Big Kill" Rockefeller, who sold cancer "cures" from a medicine wagon, taught him to leap into his arms from a tall chair. One time his father held his arms out to catch him but pulled them away as little John jumped. The fallen son was told sternly, "Remember, never trust anyone completely, not even me."

   At the start of the American Civil War, Rockefeller was a young agricultural commodities broker in Cleveland, Ohio. He quickly recognized the potential of the fledgling petroleum industry there, and in 1863 he and some associates built a refinery. In 1870 he incorporated Standard Oil Company of Ohio.

   "The National City Bank of Cleveland, which was identified in congressional hearings as one of three Rothschild [the dominant European banking family] banks in the United States, provided John D. Rockefeller with the money to begin his monopolization of the oil refinery business, resulting in the formation of Standard Oil," noted a recent investigative video entitled, "The Money Masters."

   Rockefeller, who was quoted as saying "Competition is a sin," ruthlessly eliminated competitors by either mergering or buying them out. Failing that, he cut prices until his competitors were forced to sell. He also managed lucrative railroad rebate agreements, which ensured him a near monopoly on the transportation of oil. Standard Oil--the direct ancestor of Exxon--prospered enormously, and by 1880 Rockefeller owned or controlled 95 percent of all oil produced in the United States.

   Trouble for Rockefeller began in 1902 with the publication of a series of articles by Ida Tarbell, the daughter of a Pennsylvania oil producer run out of business by Rockefeller. Based on five years of research, Tarbell's series was published in McClure's Magazine and entitled "The History of Standard Oil Company." One reviewer proclaimed her work a "fearless unmasking of moral criminality masquerading under the robes of respectability and Christianity."

   Tarbell's expose resulted in government and court actions, which appeared to break up Standard's oil monopoly. However, as early as 1882 Rockefeller had moved to mask his business dealings by creating the first great American corporation: Standard Oil Trust. "The trust embraced a maze of legal structures, making its workings virtually impervious to public investigation and understanding," explained The New Encyclopedia Britannica.

   Such maneuvering continued in 1892 when the Ohio Supreme Court ordered (he trust dissolved. Instead, Rockefeller simply moved Standard's headquarters to New York City. In 1899 all assets and interests were transferred to a new creation, Standard Oil Company of New Jersey.

   In 1906 the U.S. government charged Standard Oil with violating the Sherman Anti-Trust Act. Although apologists argued that Standard was simply caught in an emotional tidal wave of public discontent over the excesses of big business, the U.S. Supreme Court on May 15, 1911, couched its decision in these clear terms: "Seven men and a corporate machine have conspired against their fellow citizens. For the safety of the Republic we now decree that this dangerous conspiracy must be ended by November 15th."

   Eight of the companies formed after the dissolution retained "Standard Oil" in their names, but even these were soon altered to present the image of diversity. Standard Oil Company of New York first merged with the trust company Vacuum Oil to form Socony-Vacuum, which in 1966 became Mobil Oil Corporation. Standard Oil of Indiana joined with Standard Oil of Nebraska and Standard Oil of Kansas and by 1985 had become Amoco Corporation. In 1984 the combination of Standard Oil of California and Standard Oil of Kentucky had become Chevron Corporation, while the old Standard Oil of New Jersey in 1972 became Exxon Corporation. Other former Standard companies include Atlantic Richfield, Buck-eye Pipe Line, Pennzoil, and Union Tank Car Company.

   Ironically, the breakup of Standard only increased the wealth of Rockefeller, who now owned one fourth share of the thirty-three different oil companies created by the breakup of Standard. Shortly after the turn of the century, Rockefeller became America's first billionaire.

   Continued Rockefeller control was confirmed in the late 1930s by the only study of true ownership in America's largest corporations ever made by the Securities and Exchange Commission. The study, The Distribution of Ownership in the 200 Largest Nonfinancial Corporations, was published in 1940. It concluded that Rockefeller holdings, while seemingly small--most were under 20 percent of outstanding stocks-- nevertheless when compared to the remaining widely dispersed ownership were considered sufficient "to give the Rockefeller family control over the corporations."

   Once again, interlocking directorships allowed the Rockefellers and others to maintain control over the oil industry. "All of the eight largest oil companies were interlocked in 1972 through large commercial banks with at least one other member of the top group," wrote Dr. John M. Blair, former assistant chief economist for the Federal Trade Commission. "Exxon had four such interlocks--with Mobil, Standard of Ind., Texaco, and ARCO. Mobil had three--with Exxon, Shell, and Texaco--as did Standard of Indiana--with Exxon, Texaco, and ARCO--as well as Texaco--with Exxon, Mobil, and Standard of Ind.--and Shell with Mobil. Whenever all of the six [largest] commercial banks--exclusive of Bank of America and Western Bancorporation--hold their board meetings, directors of the top eight--excluding Gulf and SoCal--meet with directors of, on the average, 3.2 of their largest competitors."

   Ironically, by the turn of the new century, the old Standard monopoly was being reformed by the anticipated merging of two of the world's oil giants: Exxon and Mobil. This $75 billion "megadeal" was quickly called "Rockefeller's revenge." At this writing the consolidation of oil companies has continued with announced plans for British Petroleum PLC to acquire Amoco.

   By the time of his death in 1937, Rockefeller and his only son, John D. Rockefeller Jr., had not only built up an amazing oil empire but had established such institutions as the Rockefeller Institute for Medical Research (established 1901), the General Education Board (1903), the University of Chicago (1889), the Rockefeller Foundation (1913), the Lincoln School (1917), where the Rockefeller children began their educations, and Rockefeller University in New York City.

   The Rockefellers also were greatly interested in the eugenics movement, a program of scientifically applied genetic selection to maintain and improve "ideal" human characteristics, including birth and population control. This idea grew from the writings of the Victorian scientist Sir Francis Galton, who after study reached the conclusion that prominent members of British society were such because they had "eminent" parents, thus combining Darwin's concepts of "survival of the fittest" with the class-conscious question "who's your daddy?"

   If this sounds like a Nazi experiment run wild, consider that in the late nineteenth century, the United States joined fourteen other nations in passing some type of eugenics legislation. Thirty states had laws providing for the sterilization of mental patients and imbeciles. At least sixty thousand such "defectives" were legally sterilized.

   Of course, to determine who was dirtying the gene pool requires extensive population statistics. So in 1910 the Eugenics Records Office was established as ë branch of the Galton National Laboratory in London, endowed by Mrs. E. H. Harriman, wife of railroad magnate Edward Har-riman and mother of diplomat Averell Harriman. Mrs. Harriman in 1912 sold her substantial shares of New York's Guaranty Trust bank to J. P. Morgan, thus assuring his control over that institution.

   After 1900, the Harrimans--the family that gave the Prescott Bush family its start--along with the Rockefellers funded more than $11 million to create a eugenics research laboratory at Cold Spring Harbor, New York, as well as eugenics studies at Harvard, Columbia, and Cornell. The first International Congress of Eugenics was convened in London in 1912, with Winston Churchill as a director. Obviously, the concept of "bloodlines" was highly significant to these people.

   In 1932 when the Congress met in New York, it was the Hamburg-Amerika Shipping Line, controlled by Harriman associates George Walker and Prescott Bush, that brought prominent Germans to the meeting. One was Dr. Ernst Rudin of the Kaiser Wilhelm Institute for Genealogy and Demography in Berlin. Rudin was unanimously elected president of the International Federation of Eugenics Societies for his work in founding the German Society for Race Hygiene, a forerunner of Hitler's racial institutes.

   Eugenics work, under more politically correct names, continues right up to today. General William H. Draper Jr. was a "Supporting Member" of the International Eugenics Congress in 1932 and, despite or because of his ties to the Harriman and Bush families, was named head of the Economic Division of the U.S. Control Commission in Germany at the end of hostilities. According to authors Tarpley and Chaikin, "General Draper (in later years) founded 'Population Crisis Committee' and the 'Draper Fund,' joining with the Rockefeller and Du Pont families to promote eugenics as 'population control.' The administration of President Lyndon Johnson, advised by General Draper on the subject, began financing birth control in the tropical countries through the U.S. Agency for International Development (USAID).

   "General Draper was George Bush's guru on the population question. . . . Draper's son and heir, William H. Draper III, was co-chairman for finance--chief of fundraising--of the Bush-for-President national campaign organization in 1980." The younger Draper went on to work with population control activities of the United Nations.

   Rudin's eugenics work was to a large part funded by Rockefeller money. "These wealthy American families, like their counterpart's in Britain, feel themselves to be racially superior and they wish to protect their racial superiority," commented author Icke.

   Nepotism proved a connecting link in these family chains. According to biographer Alvin Moscow, "Starting in the year 1917 and continuing over the next five years, the elder Rockefeller handed over his fortune to his only son and heir with no strings attached."

   John Jr., while dealing primarily with philanthropic activities, nevertheless followed his father's mode of business practices, particularly in his opposition to unions. This stance softened, at least publicly, following the Ludlow Massacre of 1914 in which Colorado militia members fired on strikers at the Rockefeller-owned Colorado Fuel and Iron Company, killing forty persons.

   Rockefeller Jr. helped create the United Service Organization (USO) for soldiers during World War II and supervised the building of Rockefeller Center in Manhattan. After the war, it was Rockefeller who donated land in Manhattan for the headquarters of the United Nations.

   Rockefeller Jr. sired one daughter, Abby, who died of cancer in 1976 at age seventy-two, and five sons--John III, Nelson, Laurance, Winthrop, and David.

   The eldest, John III, became chairman of the Rockefeller Foundation and guided millions of dollars to international agencies such as the India International Centre and the International House of Japan. His personal money went to his fabulous Oriental art collection and the creation of the Population Council, a center concerned with overpopulation and family planning. He died in 1978, but his son, John "Jay" Davison Rockefeller, carried on the family's political interest by serving as governor of West Virginia.

   Nelson Aldrich Rockefeller also carved out a career in politics. Prior to World War II he journeyed to Venezuela, where he discovered the culture of South America, as well as the lucrative oil business. Because of his knowledge of the area, President and fellow New Yorker Franklin D. Roosevelt set Rockefeller on his government vocation by appointing him coordinator for inter-American affairs. Rockefeller also served as a four-term governor of New York state following various posts in the family oil and banking businesses.

   In 1953 the Department of Health, Education and Welfare (HEW) was established, and Rockefeller was named undersecretary upon the recommendation of Secretary Oveta Culp 1 lobby. 1 lere Rockefeller was able to push through many social programs as detailed by author Alvin Moscow, who wrote, "Oveta Gulp Hobby was out front as the Secretary; Nelson worked behind the scenes, finding key personnel to head various programs, promulgating research and studies, putting together new programs and then trying to steer those new programs through the Eisenhower administration and through a sometimes skeptical Congress." Eisenhower even appointed Rockefeller special assistant for foreign affairs, the same office his close friend Henry Kissinger held under President Nixon.

   He continually sought the Republican presidential nomination, but his plans were thwarted by Nixon in both 1960 and 1968 and by Senator Barry Goldwater in 1964. Rockefeller eventually was appointed vice president of the United States in 1974 by President Gerald R. Ford, himself an appointee of President Richard Nixon, who was forced to resign over the Watergate scandal. Rockefeller died at age seventy in 1979 under controversial circumstances involving a young female staff assistant.

   Laurance Spelman Rockefeller became the most business-oriented of the brothers and enjoyed a successful career as a venture capitalist. Developing an early interest in aviation, he invested in Eastern Airlines in 1938 along with famed aviator Captain Eddie Rickenbacker and turned the airline into one of the world's largest. Rockefeller also invested heavily in the dreams of a young Scotsman named James McDonnell Jr., who went on to launch what became McDonnell-Douglas Aircraft Corp. He entered the realm of environmentalism and became chairman of the Citizens Advisory Committee on Environmental Quality, president of the American Conservation Association, and chairman of the New York Zoological Society.

   Winthrop Rockefeller was considered the maverick of the Rockefeller clan. Dropping out of Yale in 1934, he made his way to Texas where he worked as an oil field roustabout. During World War II, he served as a combat infantryman in the Pacific theater earning a Purple Heart and Bronze Star with two Oak Leaf Clusters. Returning home, he developed a taste for drinking, women, and New York cafe society. But in 1953, tiring of this lifestyle, he suddenly moved to Arkansas where he was voted "Arkansas Man of the Year" in 1956. His famous name allowed him to gain the office of governor in 1967. It was then that a young Arkansas Democrat, Rhodes scholar, and DeMoley member named Hill Clinton may have gained the attention of Rockefeller. Winthrop, too, died of cancer in 1973, just two months before his sixty-first birthday.

   David Rockefeller was the youngest of the five Rockefeller brothers and the one who became the most powerful, if not the most prominent. After earning a B.S. degree from Harvard, he entered the London School of Economics, a school largely funded by the Rockefeller Foundation, the Carnegie United Kingdom Trust Fund, and the widow of J. P. Morgan partner Williard Straight. Here he came into contact with the teachings of Ruskin and other socialists, including Harold Laski. Educated at Oxford, Laski early on advocated political pluralism but later turned to Marxism and became a luminary in Britain's Socialist Party. He once wrote that the state is "the fundamental instrument of society."

   Returning to the States, David Rockefeller exhibited his deep feelings for England in a letter to the New York Times in April 1941 in which he stated, "We should stand by the British Empire to the limit and at any cost. ..." Just before the outbreak of war, he obtained a doctorate degree from the University of Chicago. His doctoral thesis was entitled "Unused Resources and Economic Waste." Perhaps articulating the driving ambition of the Rockefeller brothers, he wrote, "Of all forms of waste, however, that which is most abhorrent is idleness. There is a moral stigma attached to unnecessary and involuntary idleness which is deeply imbedded in our conscience."

   During the war, he entered the U.S. Army as a private but was soon working in North Africa and France with the Office of Strategic Services (OSS), forerunner to the CIA. This experience, along with his schooling in England, strengthened a lifelong concern with foreign affairs. It was most probably during this time that Rockefeller developed high-level intelligence contacts which later brought him insider knowledge of many top-secret operations.

   By 1948 David Rockefeller was chairman of the board of trustees of the Rockefeller Institute. The president of the institute was Dr. Detlev Wulf Bronk, a biophysicist specializing in the human nervous system. According to the controversial MJ-12 documents, Bronk not only was ë member of MJ-12--reportedly a supersecret group in charge of the UFO issue--but leader of the team that autopsied "extraterrestrial biological entities" recovered from a crashed disk near Roswell, New Mexico, in July 1947.

   After the war, Rockefeller joined the staff of Chase National Bank of New York, where his uncle, Winthrop Aldrich, was chairman of the board and president. Chase traced its history back to central bank advocate Alexander Hamilton's Bank of the Manhattan Company begun in 1799, and by 1921 it had become the second largest national bank in the United States. In 1955 Rockefeller played a major role in the merger of Chase with the Bank of Manhattan Company, which resulted in Chase Manhattan Bank. In 1969 the bank became part of Chase Manhattan Corp. in line with the trend of establishing holding companies to avoid banking laws prohibiting certain activities, such as the acquisition of finance companies. That same year David Rockefeller became the company's board chairman and chief executive officer, thanks primarily to his preeminence in international banking.

   His connections to the world of international politics as well as intelligence were improved when his uncle Aldrich retired as chairman of the bank in 1953 to become U.S. Ambassador to the Court of Saint James (England). Aldrich was succeeded by John J. McCloy, a former chairman of the Council on Foreign Relations. McCloy, who has been called the "architect of the postwar American intelligence establishment," served as assistant secretary of war from April 1941 to November 1945, president of the World Bank from 1947 to 1949, and U.S. Governor and High Commissioner for Germany from 1949 to 1952. McCloy also served on the Warren Commission, helping mediate disagreements with members who were troubled by the controversial "single bullet" theory of JFK's assassination. According to author Alvin Moscow, David Rockefeller soon became "the undisputed protege of McCloy."

   David Rockefeller had already joined the Council on Foreign Relations in 1941 before war came, and by 1950 had been elected vice president.

   His interest in foreign affairs could not have been entirely altruistic, since it has been estimated that the multinational banks, with Chase leading the way, loaned more than $50 billion to developing nations between 1957 and 1977. Even sympathetic biographer Moscow admitted, "David's fascination with international relations, necessitating intricate knowledge of the governmental, social and economic policies of nations throughout the world, on both sides of the Iron Curtain, dovetailed uniquely with his interest and concern in expanding Chase Manhattan's business in the international banking market."

   To say that David Rockefeller may be one of the most important men in America would be an understatement. According to Gary Allen, in the year 1973 alone, "David Rockefeller met with 27 heads of state, including the rulers of Russia and Red China." In 1976 when Australian president Malcolm Fraser visited the United States, he conferred with David Rockefeller before meeting President Gerald Ford. "This is truly incredible," wrote author Ralph Epperson, "because David Rockefeller has neither been elected or appointed to any governmental position where he could officially represent the United States government."

   But the Rockefeller influence--if not control--extends far beyond their banking and oil interests. The Rockefeller Brothers Fund, for example, in 1997 listed nearly $500 million in assets. It was incorporated in 1940 by the five brothers. Since that time, the Fund has dispersed more than $461 million in grants to a wide range of activities and institutions including various universities, numerous arts programs, the Smithsonian Institution, Buddhist Zen Center, Aspen Institute, Asian Cultural Council, Brookings Institution, National Audubon Society, National Park Foundation, Planned Parenthood of New York City, NAACP, German Marshall Fund of the U.S., Yale University, Center for Strategic and International Studies, National Academy of Sciences, and the Society for International Development.

   In 1977 the Fund contributed $1 million to the Council on Foreign Relations. Perhaps due to the adverse publicity of conspiracy writers, this amount had dropped to a mere $45,000 in 1997, $25,000 of which went to study the "economic and political implications of Korean unification." The Trilateral Commission, which received $120,000 from the Fund in 1977, was not mentioned in their 1997 annual report.

   In 1997 the Fund also spent more than $1.2 million in grants for various projects in New York City, an area of special and long-term interest by the Fund.

   The Fund is especially involved in environmental issues, as evidenced by its donations to National Environmental Trust, Greenpeace Environmental Trust, National Wildlife Federation, American Conservation Association, Environmental Defense Fund, among others. Conspiracy authors have noted that if someone owned an interest in companies which might be adversely affecting the environment, what better way to gain some measure of control over activists than by heavy contributions?

ËÛ²ó M. O'Neill, niecr of the five Rockefeller brothers, in 1998 ended her term as chairwoman of the Fund. The position was assumed by Nelson's son, Steven C. Rockefeller. The one-world outlook of the Rockefellers was still evident in the Fund's 1997 annual report. Mrs. O'Neill wrote that the Fund had "a refocused 'One World' strategy, with an explicitly global perspective and an emphasis on the convergence of national and international frameworks."

   Fund president and CFR member Colin G. Campbell wrote that Rockefeller money was being used to help create "a number of cross-sectoral partnerships . . . that involve such sometimes unlikely partners as nonprofit and for-profit entities, government agencies and nongovernment organizations, research universities and grassroots activist groups."

   "In fact much of the U.S. government's involvement in health, education and welfare in the latter half of the twentieth century seems to have been pioneered by the Rockefeller Foundation in the first half of the century," commented author Moscow.

   Rockefeller activities always seem to involve or produce world leaders. Henry Kissinger already has been mentioned. Prior to World War II, a Rockefeller Foundation division on economic research was headed by Canadian W. L. Mackenzie King. A mentor to John D. Jr., Mackenzie later became prime minister of Canada.

   Contributing to the power of their name was the fact that Rockefeller projects were nearly always successful. According to biographer Alvin Moscow, the brothers "moved warily before lending the Rockefeller name or finances to any new endeavor or enterprise. But once committed, they stayed with their commitments for the long haul, giving generously of their money, their time and their efforts. It became known in various civic and social circles that if a Rockefeller was involved, the project most likely had merit and was expected to succeed."

events in the history book are rarely what actualy happened.
example.
ww1 did not start with the assanination of the arch duke. it started because germany was cut off from oil supplys at the time the rest of the world were switching thei military machines to run off of it.
the united states did not enter ww2 after peral harbor was attacked, it entered the frey when it denied oil supply to japan.
Oversupply can cause inflation but it's not correct to say that the cause of inflation is oversupply. I think it's well accepted now that it can have several causes ... loss of confidence in the future being one of them, and widespread increases in raw materials prices being another. I think Stuarts explanation of inflation hikes makes sense.

Your statistics about global inflation rates are interesting but it implies there's only a single variable at work. Government responses to the crisis will have had a big effect as well.

"Oversupply can cause inflation but it's not correct to say that the cause of inflation is oversupply. I think it's well accepted now that it can have several causes ... loss of confidence in the future being one of them, and widespread increases in raw materials prices being another."

Hello Mike,

It is not my intention to equate increases in money supply to be the ONLY factor to cause price inflation.  It is my belief that it plays such a large role that it makes other factors diminutive in comparison.  The central banking system relies on inflation to exist and there is a multitude of ways for the Fed to expand the money supply at its discretion...

==AC

exactly. Get the leeches!
Monetarists. Got to love their belief that the money supply is the variable that explains everything. When all else fails, look at the money supply! (Get the leeches! Bleed the patient!)

Countries are like people in that their symptoms to the same disease can vary wildly because of variation in their particular (politico-economic) constitutions. Some are relatively immune, others not so, but that doesn't mean the disease isn't present in all of them. SA, for instance, saw massive inflation becase as the beneficiary of all that oil money and with an underdeveloped economy it had the classic problem of too much money chasing around too few assets. But you wouldn't have had this problem at all if the price of oil hadn't spiked and petrodollars began flooding the country. Same disease (oil price hike) different outcomes due to differences in their immune systems (instittuions).

'Big' inflation/deflation is like a fever. It means you're sick, but not how or why. It's a symptom, not the disease itself because money is the medium price signals are sent through, not the signal itself and it is the signals people look for and care about.

...oil price hikes are no more inflationary than a general wage rise.

Tomato(e)/Tomato. What's important here is how the price increase works its way through the economy. Say a wheat blight wipes out all wheat crops. Sure, the resulting increase in prices isn't necessarily 'inflation' but I'm just as dead. Focusing on the money supply as opposed to how real prices increase or decrease and affect real people is a relatively pointless exercise. Whether energy inflation eats away the purchasing power of a dollar or gas becomes so expensive that it becomes the new defacto medium of exchange doesn't help us much -- we're out of gas in both cases and the signal that was sent (increasing scarcity of oil) was the same. Did I die of AIDS or the Influenza that came after HIV destroyed my immune system?

If unions succeeded in pushing up wage costs above the market level the effect is not rising prices but rising unemployment.

:-) always fighting the last disease...er...battle. How are those leeches?

This brings us to the fact that there are only two fundamental ways in which the direction of general prices can be altered: 1) through an increase in the money supply or 2) a reduction in the stock of goods. Number 1 is a money induced change in general prices and number 2 a goods-induced change.

Golly gee, MV = PQ! Hooray! E=MC^2 too. P =  MV/Q. Why is V moving? Why is Q? What does this mean? Who does it hurt? Who does it help? Who determines what M is? The mercury in the thermometer is rising or falling. Why? Why is that important?

Inflation means there's more money out there than goods and services?! Horrors! M must have increased. Or does it mean V has increased? Or maybe Q changed. Maybe all three have changed. Maybe they changed diffrently in different countries.  

Unless you tell me what relative prices look like and why they are moving this is unimportant and derivative information. Talking about money as the key variable is usually like taking a magic trick at face value. What really caused the rabbit in the hat to disappear?  

I agree with much of your analysis, but I think there is more to monetarism than meets your eye.

For all intents and purposes, major inflations and deflations are primarily monetary phenomena. So velocity is not constant . . . so what? That really does not matter much. Find me a single instance, anywhere and anywhen in history when a major long-lasting inflation was not closely linked to big changes in the money supply.

Now to say that changes in the money supply are linked to price level changes is NOT to say that that is the whole story. There is much more to the history of inflations than changes in the money supply. I tend to go along with the thinking of John Maynard Keynes and Fritz Machlup as well as the thinking of Milton Friedman when it comes to understanding inflation.

Also, please recall the famous quote from Paul Samuelson, when he changed his mind and said: "We are all monetarists now." What he meant was not that Friedman was correct in all details but rather that money does matter--and matters a lot.

Let me repeat however: Inflation is a complex phenomenon. It is as much a result of political pressures as it is of economic ones. Also, to a large extent, the history of money is the history of inflations.

From Prodigal Son:
But you wouldn't have had this problem at all if the price of oil hadn't spiked and petrodollars began flooding the country.

You seem to be at odds with your logic. Isn't a flood of petrodollars the equivalent of printing money? I mean more money means more money.

And Don Sailorman hits it on the head when he asks:

Find me a single instance, anywhere and anywhen in history when a major long-lasting inflation was not closely linked to big changes in the money supply.

Sure there can be different causes, but the result is the largely the same -- more actual money in the system relative to economic activity.

V

"You seem to be at odds with your logic. Isn't a flood of petrodollars the equivalent of printing money? I mean more money means more money."

Excellent Cherenkon!!  What some people seem to be unable to grasp is with the Fed as "lender of last resort" just prints the US out of trouble whenever it is needed.  Prodigal Son left out that all those petrodollars flooding SA found there way back to the shores of the US as trillions of dollars in weapons and construction contracts to US firms.  Of course all that liquidity trickled into the US economy resulting in inflation.  What does he think the "flooding petrodollars" were a natural phenomenon and had nothing to do with monetary expansion?  No it was the price of oil that caused all that inflation!!
It's time to open your eyes and stop believing what you were told...

"One might equate growing up with a mistrust of words. A mature person trusts his eyes more than his ears. Irrationality often manifests itself in upholding the word against the evidence of the eyes. Children, savages and true believers remember far less what they have seen than what they have heard."
Eric Hoffer (1902 - 1983)

==AC

Not at all, my point was that countries respond differently to  the same stimuli (inflation) according to how their internal institutions and structure of relative prices differ -- which suggests the emphasis on the money supply doesn't tell you much of anything beyond that the economy is sick.

Take, for instance, some famous cases of inflation -- the long-term devaluation of the Roman currency in the closing  decades of the Roman empire, The medieval price revolution, the inflation of the 16th century, and inflation during the 1970s. Was money the root cause of generic 'inflation' in all these cases?

The Roman empire, for instance, was an empire dominated by landed aristocrats who, because of their great wealth, could make or break the sitting empereor by throwing their great wealth to rivals -- thus taxing them became politically unaccecptable and currency devaluations the principal way to pay the empire's expenses.

In the inflation of the medieval period you had a classic    case of economic growth butting up against the limits of technology and politico-economic organization. Currency wasn't being debased deliberately, but more people meant  greater demand for every good and service in the European economy with little or no increase in productivity. Prices rose faster than people could adjust, dieoff occurred, and eventually a new equilibrium was reached.

The 16th century inflation was like both previous cases as  population was beginning to butt up against existing resource contraints and the Spaniards were spending their new American bullion like drunken sailors.

And the inflation of the 1970s? What caused that? Overaly rigid institutions and an oil shock.

So, besides proving the truism that MV=PQ, how does knowledge that the money supply was out of whack in each case really help us? I suppose the Roman Fed should have raised interest rates, right? I also suppose the Fed can magically make more oil too.    

Don:

I agree that very large long-lived hyperinflations are invariably about the money supply.  But in countries with somewhat moderate (let's say sub 20%) money supply growth and inflation, the two do not appear to be terribly well correlated.  Plus the aggregates themselves (M1, M2, etc) are not that well correlated with the monetary base (the thing the Fed really controls - it's own balance sheet).

Stuart,
You are entirely correct, but that is not the whole story.
  1. Inflation largely depends on expectations of future inflation rates.
  2. Most of the time, inflationary expectations are "adaptive," i.e., they are a weighted average of about the last five years experience with price level changes.
  3. When inflation rates increase abruptly, there is often a quick shift to "rational" expectations, where finance types and ordinary people look for every scrap of information and rationally begin to suspect that inflation may be heading up and out of control, e.g., U.S. 1979-80.
  4. As Milton Friedman pointed out, monetary policy works with LONG and HIGHLY variable time lags. I think he is right about that, and it is, IMO, a strong argument in favor of monetarism.

Keep up the supremely excellent posts!
Don,

Nice post.
That is what Murray N. Rothbard says in "The Mystery of Banking"...

We have dealt so far with influences on the demand for money that have been either one-shot (frequency of payment and clearing systems), remote (confidence in the money), or gradual (supply of good and services). We come now to the most important single influence on the demand for money: This is the publics expectation of what will happen to prices in the near, or foreseeable, future. Public expectation of future price levels is far and away the most important determinant of the demand for money. But expectations do not arise out of thin air; generally, they are related to the immediate past record of the economy. If prices, for example, have been more or less stable for decades, it is very likely that the public will expect prices to continue on a similar path. There is no absolute necessity for this, of course; if conditions are changing swiftly, or are expected to change quickly, then people will take the changes into account.

If prices are generally expected to remain the same, then the demand for money, at least from the point of view of expectations, will remain constant, and the demand for money curve will remain in place. But suppose that, as was the case during the relatively free-market and hard-money nineteenth century, prices fell gradually from year to year. In that case, when people knew in their hearts that prices would be, say, 3% lower next year, the tendency would be to hold on to their money and to postpone purchase of the house or washing machine, or whatever, until next year, when prices would be lower. Because of these deflationary expectations, then, the demand for money will rise, since people will hold on to more of their money at any given price level, as they are expecting prices to fall shortly. This rise in the demand for money (shown in Figure 3.6) would cause prices to fall immediately. In a sense, the market, by expecting a fall in prices, discounts that fall, and makes it happen right away instead of later. Expectations speed up future price
reactions.
On the other hand, suppose that people anticipate a large increase in the money supply and hence a large future increase in prices. Their deflationary expectations have now been replaced by inflationary expectations. People now know in their hearts that prices will r/se substantially in the near future. As a result, they decide to buy now--to buy the car, the house or the washing machine--instead of waiting for a year or two when they know full well that prices will be higher. In response to inflationary expectations, then, people will draw down their cash balances, and their demand for money curve will shift downward (shown in Figure 3.7). But as people act on their expectations of rising prices, their lowered demand for cash pushes up the prices now rather than later. The more people anticipate future price increases, the faster will those increases occur.
Deflationary price expectations, then, will lower prices, and inflationary expectations will raise them. It should also be clear that the greater the spread and the intensity of these expectations, the bigger the shift in the public's demand for money, and the greater the effect in changing prices."

PDF
http://tinyurl.com/ypdpt p46

given that the personal savings rate is the difference between income and expenses for the aggregate of US households
Shifting demographics and other factors probably have more to do with the "negative" savings rate than the current energy shock.
I have a few obsevations about the main thread here.

When did .com go bust?  Why would you save money in the mid eighties instead of investing in the market?  Is the savings rate down slope at the same time as the stock market rise?  Is this included into the savings rate on the graph.  I forget the timing of these events.

Rises in housing and auto are not all inflation.  

Have you ridden lately in a cool muscle car from the sixties?  Very primative compared to a modern car.  All those extra's cost extra.

Same with houses - double pane windows cost more than single.  R-19 walls take wider studs and more insulation.  R-30 ceilings also take more insualation. This all adds to the cost.  Old houses and new houses are not apple and apple comparisons.

Stuart,  Thanks for all the work on the information you presented.  I have been looking for this for a long time.  

Westexas, again thanks.

I've often thought of another quotation from Wilkins Micawber while reading TOD. Posters pin all their hope on cellulosic ethanol, oil from algae, clean coal, you name it. That quotation is 'something will turn up'.
To all,

This is my "last" post.

#1. "The Oil Drum" is a website generally concerning Peak Oil/Gas, the extraction of fossil fuels, etc. The problem is rather simple -- (1) how much resource and types are/were in the ground, (2) how much we have taken out, and (3) how much can we expect to get out in the future. Given the rather simple notion of this problem, it is surprising how complicated it is to figure out the specifics sometimes.

#2. Lately, "The Oil Drum" has contained a good bit of discussion about economics. Economics is a very complicated area. In my opinion, it is orders of magnitude more complicated than the Peak Oil (and related issues). In my business I constantly see errors of fact and opinion caused by the complexity of economics. It seems to me that most financial organizations do not even have an appropriate amount of good historical economic data from which to draw reasonable conclusions. By comparison, there is a lot of highly relevant historical data regarding Peak Oil.

What I'm saying here is that I'm going to personally avoid responding to any economic issues/discussions in TOD because it frustrates me to see so many opinions on economic issues posted which, in a number of cases, can be refuted by simply referring to the data that is readily available and relevant. I'm not trying to mute discussions here. I enjoy everyone's opinion. Thanks to all.

Agree, and I pledge to do the same henceforth.
Just because data is easily available does not mean everybody knows where to find it, or that it exists.

I see from your profile you work in the futures markets? Well, given that we can't really change how much is in the ground  and questions about when it runs out are interesting but largely out of our hands too, why not discuss possible solutions (ie, economics + technology)?

It'd be a shame if you stopped contributing because some of us make mistakes ...

Excellent point. Economics is like medicne 200 or so years ago. Leeches and tax cuts -- both applied in the same manner.
For what it's worth, as a non-geologist and non-economist, the peak oil thing seems to lead to (possible) economic outcomes.  I don't feel bold enough to post on the subject very often, but I think I've learned some bits by having:

http://www.econbrowser.com/
http://www.env-econ.net/
http://www.marginalrevolution.com/marginalrevolution/

in my RSS subscriptions.  I should probably pull in some more, but that's been my limit.

It strikes me so far that economics is very like peak oil in that you can find an expert who will support any position. ;-).  Does inflation not appeal to you, do you favor deflation?  Well, throw a link to Robert Reich!

http://www.commondreams.org/views06/0620-31.htm

So I hope people with a grip on economics won't drop out here ... but will help me with my learning curve.

whats a RSS subscription?
Maybe I just used the technical name and you already know it as "subscribe to this blog"?

It's a system used to send news of updates and new stories out to readers.  Rather than visit each blog, you can just bring up your "rss reader" and see the list of news.  There are a number of "rss readers" out there, including those built into browsers.

For what it's worth though I use "bloglines."  It's a free acount and easy enough to play with and see how it works:

http://www.bloglines.com

The nice thing about a "server side" solution is that it's there when I hook up from a hotel in another city.

I hope at least you're still reading... and above

Re: "Shifting demographics and other factors probably have more to do with the "negative" savings rate than the current energy shock"

No doubt the current still small energy shock is only a contributing factor. Regardng those "other factors". Would your "data that is readily available and relevant" include

  • the huge and growing wealth disparity in the US?
  • the current account and trade deficits?
  • the documented and growing lack of upward income mobility in the US?
  • the growing lower class and shrinking middle class?
  • the exorbitant cost and inflation of medical care and education?
I'm sure you get the idea. So, if we pile on higher (or much higher) costs due to the peaking of oil, things look kind of bad, don't they?

I don't know what your disposable income is but in my experience those who have lack empathy for those who don't have. As Billie Holliday put it

Them that's got shall get
Them that's not shall lose
So the Bible said and it still is news
Mama may have, Papa may have
But God bless the child that's got his own
That's got his own
-- Dave
Hello Dave,

Thoughtful Humanistic post!  I am always amazed how art & song can be so concise, coherent, and descriptive in encapsulating economic survival.

Ok, another dip into the deep end of the dismal economic swamp, but hopefully from an illustrative biosolar perspective.

Nature has an economic function and a natural interest rate.  The accounting system is ruthless, but inherently fair.  Hopefully, I can expand these thoughts for TODers, and compare to my Humanimal Economic System.

An animal or plant invests tremendous energy and time into the process of generating viable offspring.  This is essentially a natural gift or 'economic loan' of surplus internal stores in exchange for possible 'profitable' genetic continuance and/or inclusive fitness in social animals.

The natural wealth creator is the Sun and the evolutionary process, but this is obvious to all.  Assume the steady state growth rate is 1% yearly [I have no idea what the world aggregate scientific biosolar growth rate actually is].  Thus, the natural input of daily 'currency' to induce energetic change is a fixed amount and velocity [for my simplified example].

Now, obviously the world is not flooded with excess sunshine as biosolar dollars, but genetic mechanisms exist to balance the books; the natural food-chain striving for sustainable equilibrium.  The natural process of living and dying roughly burns this 1% biosolar currency increase, in my vastly simplified example, and there is no natural aggregate inflation.

The natural transfer of accumulated somatic surplus energy [biodollars] to new life is a loaning process.  A banker, loaning you dollars, is essentially lending you biodollar energy so that you can hopefully accomplish productive work.  But, the laws of physics and inherent equilibrium forces dictates that the long term aggregate interest rate and velocity of all these biodollar loans should never exceed the Sun's 1% input rate.

So let's go back and compare the natural accounting system and our accounting system.  A coyote has three pups: each initially invested with equal biodollar loans.  They do their best to survive, but only one matures to reproductive age at the natural 1% interest rate.  The death of the two other pups totally cancels their biodollar loans.  Nature does not try to recoup her natural losses by increasing the interest rate or taxing the remaining pup.  The biodollar profit arises from limited survival and the tendency towards equilibrium.

Our accounting system does not function this way.  A banker attempts to recoup any energy loan losses of human endeavors by increasing the aggregate loan rate higher than the natural 1% rate.  This helps force our Tragedy of the Commons whereby we resort to aggregate win-lose competition and eventual depletion [lose-lose for nearly all], instead of striving for sustainability at the natural biosolar rate.

It is a radical impossible thought, but if a Nature somehow automatically killed any human who was an unsuccessful biodollar borrower [like the dead coyote pups], then we already would be at relative sustainability, and bankers would be inherently forced to loan and collect biodollars only at the natural 1% rate.  The growth rate would be naturally fixed, and failed loans would be uncollectible if Nature struck failed borrowers with lightning, for example.

Worst of all, Nature created huge biodollar stores of detritus energy.  The exploitation of this resource by all: has allowed bankers to vastly increase profitable interest rates higher than the daily input to help promote growth far in excess of sustainability, thus our Overshoot.  It further promoted rampant growth in wealth disparities and a general attitudinal disconnect from natural forces creating our collective incomprehension at what we are really doing to our little planet.

Thus, the humanimal ecosytem.  From elite 'topdogs' to a poor Bangladeshi 'gnat', we now jockey for advantage using detritus leverage, extrasomatic tools and weapons, and distorted economic functions that bear little resemblence to natural processes.  It evens distorts the underlying ecosystem thru pollution, extinctions, global warming, etc. The lack of tight feedback loops to restrain growth, and/or the political creation of controls to create profitable advantages for certain parties continues to run amuck even now.

If the borrower can gain access to 'energy slaves' at a sufficient rate, he/she can repay the loan, but at a high environmental cost.  Even those who borrowed, but cannot repay the loan still caused degradation because they attempted to grow at the higher than sustainable rate. This has been the Hubbert Upslope trend, and only the Mafia deliberately kills those failed borrowers in a rough approximation of imitating Nature.

So now we are confronted with the gradual loss of detritus, forcing us back to sustainability and natural interest rates.  If a successful biosolar powerup can achieve a higher natural efficiency, from 1% to 2% or more through permaculture, PV, wind, hydro, careful stewardship of other species, etc, etc, then we can retain some modern civilization from this discovered biosolar harvesting excess.  But the tendency towards less complexity will hopefully vastly reduce the hierarchy levels in the humanimal ecosystem creating more compassion, empathy, communication, and connectedness with Nature.

Nature, by and large, does not have an intended inheritance system: each organism has to survive on its own efforts.  Total confiscation of assets upon a person's death, if fairly redistributed in some philanthropic manner, would also reduce the multi-level Humanimal Ecosystem and tend to drive towards sustainability.  Our genetic desire to hoard, then pass on to our children in support of inclusive fitness, does not support biosolar equality functions.

Failing my optimistic scribblings, I will quote one of the last postings by Jay Hanson at Dieoff_Q&A to help provide discussion balance:
------------
I see my worst fears unfolding in front of my face. The
world is headed to global nuclear war over energy resources. The animal
didn't evolve to avoid war, it evolved to use war as a tactic to gain energy
resources.

"Males typically obtain meat in human and nonhuman primate societies
and then attempt to use it to manipulate or control females." -- Craig B.
Stanford, 1999

War is inevitable because our are chemical-addictions -- an endless drive
for more-and-more.

"In the first place, I put forth a general inclination of all mankind a
perpetual and restless desire of power after power, that ceaseth only in
death." -- Thomas Hobbes
-----------------
Bob Shaw in Phx,AZ  Are Humans Smarter than Yeast?

I'm not an expert in either oil or economics, but I understand the problem that many have with discussions on economics. Harry Truman is reported to have said that he'd like to meet a one-armed economist, so he wouldn't have to hear - on the one hand it could be this, but on the other hand, it could be that. There is also the problem with the government continually changing the assumptions underlying its public data, which require constant attention to the footnotes in their reports. Additionally, there is debate on how they calculate the data. For example, the hedonic adjustments to prices used to calculate CPI.

However, are the problems with analyzing economic data any different from analyzing the data on oil? Matt Simmons constantly points out that we really don't have a clue what the actual data is for domestic stocks, because they are all based on samples and unauditted data. There is no gas guage, as Matt often says. He also calls for data reform because we don't really know what in the ground reserves are and are making policy decisions based on data that is also unauditted. Matt calls this "Trust Me" data.

Yet the Oil Drum examines the available oil data and through open debate tries to determine what the truth is.

Economics is admittedly difficult, but the available economic data and the opinions of economists are used daily in making public and private decisions in all aspects of the economy, including energy.  As such, I hope the Oil Drum continues to look at economic issues and I greatly appreciate Stuart's work on this subject.

This is my first post. As I have little expertise in the areas of discussion on this site and probably won't post often.  However, I am concerned about peak oil and the future and have been impressed by the  analysis and debate taking place on the Oil Drum. I don't think you can examine peak oil in a vacuum, because that is not how government or business decisions get made.  Those decisions will impact how the world responds to peak oil, so I sincerely hope that the Oil Drum continues to look at this topic.

Well said, and an excellent perspective on our debates.
[O]pinions of economists are used daily in making public and private decisions in all aspects of the economy, including energy.

As a newbie poster you got it square on right!
To make economic decisions in the energy sector like:

  1. To drill or not to drill more in GOMEX
  2. To drill or not to drill in ANWR
  3. To drill or not to drill off Florida and California
  4. To invest or not invest in ethanol plants
  5. To invest or not invest in wind power
  6. need we keep the list going?

(see also my direct response to wetstephens here)
avoid ... any economic issues/discussions in TOD because ...


HATE to break this to you ...
BUT Hubbert's curve is ...
A graph of economic activity

It essentailly shows the "productivity" outputs of human investments in exploration around the globe. It shows the productivty resulting from human willingness to continue drilling more holes as Return On Investment (ROI) drops due to geological or other constraints.

To say that PO and economics should not be mixed together is like saying oil and vinegar should not be mixed when discussing salads. Like saying chocolate syrup and ice cream shouldn't be mixed when discussing sundaes.

Peak Oil is indivisbly intertwined with Economics.

If Shakespeare were writing a play on Big Oil / Peak Oil, Lord Hamlet Browne would rise to center stage, holding a dinosaur skull in hand, and pondering:

"To drill or not to drill, that is the economic question."

Well-stated!

Note that Hamlet killed and then was killed--not committing suicide conciously, but his actions were self-destructive (though moral, given the morality of the times).

Peak oil is not only economics and petroleum geology: It is also sociology and politics.

Wow. I bow. The Sailorman is back .. in full force.
What wisdoms did thou gather during thy Odyssey?

welcome back

Thanks.

With no mock humility and no irony I can say that I know less than I did yesterday and more than I will tomorrow. As Socrates and Plato so elegantly stated, to have true knowledge (as opposed to mere opinion) one has to be able to see how everything is connected to everything else--and be able to explain it to others.

The hardest thing in the world is to get rid of false opinions. For example, in the olden days I thought there were important differences between the Republican and Democratic parties. Now I think there is about 12 cents worth of difference. I thought oil would peak around the year 2000 and as far back as 1949 made that prediction. (True, I was only nine years old at the time, but I had very strong opinions and was convinced that I knew most important things.)

So ... you be 66 years young and yet you have accumulated far more insight than the average man. I salute you.

What struck me was that from the mere one liner: live or not live; and you sent your Odysseus's quiver through the whole verse. Well done:

To drill, or not to drill: that is the question:
Whether 'tis nobler in the mind to suffer
The slings and arrows of outrageous petro fortune,
Or to take arms against a sea of Middle East troubles,

And by opposing end them? To not extract: to sleep, to powerdown;
To seek energy no more; and by a sleep to say we end
The heart-ache and the thousand natural energy shocks
That flesh is heir to, 'tis an anti-consummerism
Devoutly to be wish'd. To power down, to sleep;
To sleep: perchance to dream: ay, there's the rub;
For in that sleep of powerdown what dreams may come
When we have shuffled off this consummerist's coil,
Must give us pause: there's the respect
That makes calamity of so long a guzzler's life;
For who would bear the whips and scorns of time,
The oppressor's wrong, the proud man's contumely,
The pangs of despised love, the Thermodynamic law's delay,
The insolence of office and the spurns
That patient merit of the unworthy takes,
When he himself might his quietus make
With a bare bodkin? who would fardels bear,
To grunt and sweat under a crudeless life,
But that the dread of something after powerdown,
The undiscover'd country from whose bourn
No traveller returns happily, puzzles the will
And makes us rather bear those petro ills we have
Than fly to alternative energies that we know not of?
Thus conscience does make cowards of us all;
And thus the native hue of resolution
Is sicklied o'er with the pale cast of thought,
And globe-saving enterprises of great pith and moment
With this regard their currents turn awry,
And lose the name of action. - Soft you now!
The fair Deffeyes! Soother, in thy orisons
Be all my energy-wasting sins remember'd.

I like short comments.

IMO we could benefit from an infomal rule that comments should not exceed 300 words.

If you have more to say, well, no problem, just make a lot of comments (as I do).

Metaphorically, I have returned to Ithaca. I live about six miles from the house I grew up in and still go to the same library (new building, same place) that I did in 1946.

For twenty years I was exiled in California, but as I saw that California was the future, I decided to retreat to the place of happy childhood memories.

"For twenty years I was exiled in California, but as I saw that California was the future, I decided to retreat to the place of happy childhood memories."  -- Don Sailorman

This entire excellent article by Stuart and the resulting subsequent noise were worth wading through for that one line. ;)

Welcome back, Don.
Great literary achievement--maybe it could be posted along with the introductory comments that rotate at the top right of TOD. Oh, and I hope the Energy Bulletin picks it up.
I second the welcome back, Don.  Noticed the absence, but have been away at work and didn't see when you returned, Jubal.

I think the economic discussions are also vital in another way.  Money is an energy storage medium, an energy transfer medium.  It, beyond CTL or GTL or electricity is probably the most flexibly adapted energy source for converting human work, food calories, real estate, ideas, financial work itself into pretty much anything else.  Of course it depends upon the vagaries of human behavior and on our consistent trust in the symbolism involved.. but within that, it makes the (Human) world go 'round, which is what it seems we here are ultimately concerned with.

Bob Fiske

wstephens,

I find the hard material on this site of great interest and often very insightful. But some of the discussions go off into lala land and/or more appropriate for a discussion on a Star Trek blog. The site loses value at that point.

But your point is well taken, economics, like history, requires much study to be presented well. Too many comments are three-book-willy discussions.

>What I'm saying here is that I'm going to personally avoid responding to any economic issues/discussions in TOD because it frustrates me to see so many opinions on economic issues posted which, in a number of cases, can be refuted by simply referring to the data that is readily available and relevant.

Peak Oil and economics are coupled together. I think its a good idea to discuss economics and how Peak Oil as well as financial risks will change the future.

At this point it may be a close race to which event resets the global ruleset. It could be a collapse of oil production or an economic crisis. Should one occur, it would inevitably affect the other.

MicroHydro - Perhaps I'll put you on a list of people with which I *will* discuss economics. :-)

Mike Hearn - I like to discuss possible solutions.

Prodigal Son - "leeches and tax cuts", I like that!

odograph - "economics...an expert...will support any position". Yes, and the non-experts will do the same with even stronger conviction and no data.

Dave - "those who have lack empathy for those who don't have." What have we just seen Warren Buffett do? I've got my own "save the world" project.

Advocate - Very well stated. Your post makes me re-think my frustrations and second-guess my "vow of silence".

step back - "intertwined" I agree, but my main problem is with the surplus of economic comments that are essentially unrelated to Peak Oil - and often incorrect to boot!

Jack Greene - "discussions go off into lala land" Thank goodness it's not just me noticing this.

TechGuy - "its a good idea to discuss economics and...Peak Oil." Hmmm....

Geez! Everyone is so enticing! "Discuss economics, go ahead, it won't hurt you..." If I give this another chance then I'd have to find a better way. Keep the good, throw out the bad or something. Man, I feel like I'm drinking the kool-aid, or being "assimilated". I should ponder this decision for a while because the frustrating feelings have been with me for a while.

I'll suspend that "last" post commitment until further notice. I need to think. Thanks to all again.

Re: Warren Buffet

His fortune as reported in the NY Times is $44 billion. He just gave away $31 billion.

That leaves him "just" $13 billion to live on.

And, to rub it in, he is the exception that proves the rule. Are you really that shallow?

Screw it. There's no getting through to some people. Something about empathy which I mentioned above. So, do you think that the world should be modelled on the TV program "Survivor"? Everybody for himself. There is such a thing as the commonweal.

How about privatization of water? Do you like that idea? It's big among some economists I hear. However, this is not quite like the privatization of Cheez Puffs.

How about privatization of water?

I think it is better to meter water than to allow unlimited consumption. Here in the UK, we are slowly converting (voluntarily - mostly) to meters. And yes, the water companies have been privatized and are supposedly regulated. However, in the SW of England (the dryest area), Thames Water has been building houses on reservoirs and failing to cut huge leakage rates (33%?) while making record profits. A failure of regulation in my opinion. An argument for re-nationalizing water? I'm not so sure. Either way, everyone needs to have a sufficient income (via work or welfare) to pay for water, food, energy etc. Which is why I like Westexas' idea of a carbon tax offset with reduced payroll taxes.

Cool, glad to hear it :) The only way to improve the quality of the debate is to call people out when they make unsubstantiated claims ... if you have beef with the numbers or arguments in my demurrage post please do say!
odograph - "economics...an expert...will support any position". Yes, and the non-experts will do the same with even stronger conviction and no data.

Unfortunately, one of the "three articles" I read was this one:

http://www.marginalrevolution.com/marginalrevolution/2005/12/dont_trust_expe.html

Maybe one you rope out the pseudo-experts, the hacks explaining market moves on cable news, etc., the professionals look beter and show "less conviction." ;-)

Dave -- I should not have used anecdotal data on you. To return to my original point there is "data that is readily available and relevant" to the issue of family foundatations. I was trying to say something about my motivations rather than debate aggregate giving trends.

Additionally, I do not think "survivor" is the right model. Here is a version of my opinion in May regarding "fellow feeling". I believe that the issue of the "disadvantaged" (see parent of that post) is intrinsic to "commonweal". And that the "disadvantaged" is the driving issue to socio-political-economic debate.

Mike Hearn -- "call people out when they make unsubstantiated claims" This is the problem that I have. There is so much of this as to be frustrating. It's like the old "tar baby" metaphor -- once I touch a "bad data" discussion then I feel the need to follow thru until the muck is cleaned up. This usually leads to a "you just don't get it" type of response -- which is essentially the same as "this time it's different". My TOD profile has for a long time dealt with my opinion of that.

odograph -- A favorite quote of mine which you may find useful as well.

"The skepticism that I advocate amounts only to this (1) that when the experts are agreed, the opposite opinion cannot be held to be certain; (2) that when they are not agreed, no opinion can be regarded as certain by a non-expert; and (3) that when they all hold that no sufficient grounds for a positive opinion exist, the ordinary man would do well to suspend his judgment. - Sceptical Essays, Bertrand Russell

Stuart Staniford -- You are NOT part of the problem. I'm sorry if this was implied.

That is a good quote - I didn't happen by to see it until just now.
You like Russell?

"Gradually, by selective breeding, the congenital differences between rulers and ruled will increase until they become almost different species. A revolt of the plebs would become as unthinkable as an organized insurrection of sheep against the practice of eating mutton."
~Bertrand Russell, The Impact of Science on Society

How true it is...

==AC

Heh, that one broke down.  Perhaps a case of decline and fall.
interesting.
but on what time scale?
not to mention i would think alot of the behaviors between the ruler and the ruled classes is mostly taught.
I agree the economics is very complex and hard to understand and get right.  I also don't see how we can predict much about how a free market economy is going to react to resource constraints (like peak oil and its brothers close behind it) without learning and thinking a great deal about economics.  That's why I keep returning to the subject every month or two.
Bingo!  I keep telling people that the peak oil phenomenon is the most cross-disciplinary issues facing mankind right now.  Geology, a whole raft of energy use technologies, economic, cultural issues, domestic and international policies and politics, etc.  

As a card-carrying economist, I keep trying to stress how incredibly hard it is to talk about peak oil and its ramifications without accidentally tripping all over bad assumptions.  The number one evil in that sense, is the old linear projection/"we'll just keep on doin' what we're doin' now" gem.  Or, as I like to remind people when they make gloom and doom predictions: This (our behavior) can't go on forever!  Which is the surest proof yet that we'll make changes.

Will those changes be enough to graceully and comfortably save us from the pain of peak oil and peak natural gas?  Absolutely not; we're already too close for a gentle transition.  But we'll still be able to keep the bus from going over the cliff.

There are two distinct types of predictions.

The predictions of greater interest, and lower utility, are "What will happen ?"  IMVHO, an unanswerable question ATM.  Just not enough information for reliable predictions, except maybe upper & lower bounds that are MILES apart.

The other class of predictions are the truely valuable "What should we do ?"  

The results of good preparation are uncertain (see above) but the range of actions needed can be defined in some detail and even priorities can even be set (see electrified rail concepts I keep pushing).

So, in broad terms, we KNOW what to do !  And even some specifics.

The same is true for Global Warming.  

And some solutions work for both problems, whilst others help one and hurt the other.

Stuart Staniford, louGrinzo, and AlanfromBigEasy,

My "Economic Vow Of Silence" Restated

I've tried to identify within TOD the problem "economic" categories of discussion in the context of Peak Oil (sorry for the long post):

  • (1) "Global Macro" (e.g. sample issues are inflation / deflation, monetary machinations, central banking, petrol-dollars, interest rates, debt, savings, etc.) I have two views here:

    (a) What will happen after Peak Oil? There is enough complexity within the historical data relevant to these issues that very good (time invariant) models do not exist for "global macro" even in the absence of the Peak Oil issue. So it would seem to me, that adding an additional variable (Peak Oil) necessarily makes modeling even more complex. It appears to me that discussions tend to break down to essentially "this time is different" logic. Economists apparently cannot use simple models in the same way that Physicists can use a "frictionless plane" because in the case of economics "other variables" always seem to create chaos in the model (insert endless bickering here). This chaos doesn't appear to thwart the physicists. In a nutshell - by using historical data almost nothing can be concluded, or "if it is different this time" then historical data will be largely inappropriate.

    (b) Peak Oil already happened! Another version of the "Global Macro" discussion would stem from the fact that the amount of oil per capita (world) peaked in the 1970s at 2.2 liters per person (per day) and by 2004 had fallen to 1.7 liters per person (Al Bartlett). So the mitigation of oil scarcity per person has been going on for about 30 years. No one seems to discuss this version of Peak Oil because it makes the problem seem in some sense so passé. This version is also a de-facto defeat of most "doomers" (who don't realize this), or at least changes the issue to a political, not economic, one (i.e. hoarding, war, etc.). Those discussions tend towards the "you just wait and see..." comments - even as the historical data shows mitigation in progress. In a nutshell - this is really about the mitigation that is already well underway.

  • (2) Collapse of markets, supply chains, food system, etc. These discussions are a bad version of #1a. They are usually specific conclusions from isolated data (assuming data) or bad assumptions. Proponents sometimes even feel that their case is already "proved" or going to happen any day now. My view is that there are always people called for a "crash" of some kind, and if they hang around long enough then something eventually does. This does not make those predictions useful. In a nutshell - this is useless "doom" mongering.

  • (3) Economics Not-directly related to Peak Oil (e.g. housing bubble, dollar exchange rates, CPI calculation flaws, value of gold, conspiracies and manipulations, etc, etc, etc.) These discussions are usually guru quoted opinions, "trades", or theories of only contemporary passing relevance. The main problem in this one is a tertiary connection to Peak Oil at best. In a nutshell - no value added here.
So, my feeling is that I should decide to personally refrain from comment on any thread that falls into #2 or #3 at least (waste of time). The #1 discussions may have some merit, but they seem to lead to trying "to predict" things, rather than to truly "model the outcome".
Hey, I love your taxonomy! Thanks.
Well, we may be economic klutz's but I think it's still useful to discuss these issues.  And, yes, we know Stuart's definition of inflation is technically wrong.

I would argue, without the benefit of any supporting data, that:

  1.  The official CPI is meaningless and grossly understates actual costs to the consumer.

  2.  The return on conventional savings was actually less than inflation.  Therefore, to save meant losing money.

  3.  Wages, in real terms, have fallen for a decade or more.

  4.  Interest rates on loans was set artificially low.  In addition, in the case of housing, there was no need to have saved money to get a loan.

Assuming that the above statements can be supported, people were/are acting rationally by not saving. In overly simplified terms, people did/are doing what people always do in this kind of situation, buy today because the cost of goods will be more tomorrow and, further, they will have less money with which to purchase things if they wait.

In sum, the savings rate has nothing to do with energy costs.

Todd

It strikes me, the rank amateur, that with high debt (which must be serviced) and increasing energy prices, consumers will be squeezed between the two.  That should leave less money around to chase goods, and create inflation in Stuart's sense.

... but what do I know, I'm just some guy who would prefer deflation.

Wouldn't less money and more goods create deflation?
Pfft.  That's what I thought I typed.
It seems so clearly stated by westexas. Higher energy costs make less $ available and a surplus of (non esential) goods makes the  prices drop.  I understand that very easily.  Products that are esential can raise prices to offset increases in energy prices.  i see rising prices at the grocery store (wow!)  
This ignores any increases in money supply.  Most posters agree that this is a longer term inflationary proplem as it takes while for the money to work it's way into the economy as increased prices.  

Because so many people earn thier living in non esential ways (Coffee shacks vrs. making coffee at home?) why wouldn't this start a downward spiral? Lowering prices= less extra $= lower wages= less extra $= lower prices (again)etc. etc....  until something gives. ("inflate or die"??)

Why won't working wage jobs go into decline as bussiness's try to hold on and they replace higher paid workers with cheaper ones?  Won't this mean there is less $ floating around so there is still more contraction?
Please tell me in clear, simple, easy to understand wording why this will not happen?

If you'll forgive me for mentioning it, my post is "7:25 AM PST" while his is "7:40 AM PST" ... sneaky guy just posts higher ;-)

Seriously though, somebody with better economic chops than me should compare it to the Japanese situation.  I think their real estate crash was the primary driver for deflation, and even though the people had high savings, they were sitting on their money ...

Really my outlook is in an indeterminate state.  One day I could tell you inflation and the next deflation ...

The major difference between the Japan situation and the USA situation is the currency. One country with a very strong currency (fundamentally), one country with a very weak one. The extremely high level of debt in the USA makes a deflationary asset collapse likely, the fundamentally weak currency makes an inflationary collapse possible. No one has a crystal ball, but beware comparisons to Japan (the USA has more in common with Argentina).
When you say this:

"Hmmm. Are we really 3 1/2 times better off than our grandparents? Sure houses are somewhat bigger (though somebody's probably still living in Granny's house), cars accelerate faster, stereos sounds better, and kids have more toys. Computers and the Internet are really cool. But somehow it doesn't seem like a 3.5x improvement. I'd give it 1.5x maybe. How much would you pay, or need to be paid, to go back and live in 1950 instead of 2006? The furniture and clothing is nowhere near the quality of Granny's, we don't get to go to the symphony as often, and TV is execrable."

I suppose the answer might vary a lot depending on who you asked...

But I think there are some things on which we could all agree. Going back to the 50's would mean reliving the "Cold War". Given that the launch orders for the nukes were given at least once (to a Russian sub during Cuban missle crisis) and we came extremly close other times due to false missle launch detections etc. I think its fair to say global thermonuclear war was avoided by nothing more than a fluke, and the actions of some heroic "trators" within the military ies of the superpowers for whome we should all be forever grateful. How do you value that?

If I was an American male born in 1950 I'd have been right in the window for the draft to Vietnam. A little older than that and i might have been killed in Korea.

If I was not white, and living in North America, I would yet to have seen  the civil rights movement.

If I was a woman and looking for a job, or an abortion?

If I was a native person in Canada I or my children would be in the "Residential school abuse" window.

If I was a Red, or maybe just a Jew with too high an opinion of himself I might be called to testify before the House committee, or find myself blacklisted etc.and if not I'd still have to make it through Cointelpro...

You get the idea.

On the other side, income distribution was much more equal then. Blue collar jobs were more secure, more lucrative, and more prestigious. More people read good books.
And kids got polio.

And people lived several years less on the average than they do now.

And there was no Medicare.

And cars had no seat belts.

However, having been alive in 1950, even with vivid memories of the Korean War (which was way more costly in terms of blood and %of GDP than the U.S. occupation of Iraq), I think 1950 was better than now--but mainly because of the absence of TV and the presence of street cars and rail travel. Better for me, anyway, because I was and am white, male, and middle class.

Thus, because there are so many different dimensions, I do not think good comparisons can be made as to quality of life in different eras.

Kinda funny how no one lists the new dangers of this time:

More cancers, higher crime rates, murder rates, more pollution on an insidious level, less open space, denser even more car-centric cities, more obesity, more diabetes, more heart disease, more poor people, more homeless, more spying on the public, fewer fish, less ozone, global warming, increased chance for nuclear terrorism, terrorism, GW Bush, exurbs, two hour commutes, fewer bicycles per capita, both parents more often have to work, longer work weeks, less family interaction, distancing of friendships by electronic means and etc.

My guess is that happiness is based more on social rather than monetary parameters and that we in this society, America, are suffering greatly compared to earlier less technologically advanced eras.

About triple the global population compared to 1950.

Far more people live now in extreme poverty than in 1950.

Each day, more people are added to the world's population than in 1950.

We got herpes, we got AIDs, tra la la, and in the 1950s we used condoms and had penicillin for clap and the syph. We got jumbo jets to help smugle birds across borders to help in spreading Avian flu.

Ancient Chinese curse:
"May your children live in interesting times."

However, to me, living in 1950, science fiction made the world so exciting, and SF peaked in 1953 with about two dozen magazines at the stands. Science fiction has gone way downhill since the death or extreme age of the Great Ones--Heinlein, Asimov, Clarke, deCamp, Poul Anderson, etc.

As Shakespeare's Hamlet said "to dream no more"

Was it the atomic bomb & cold war that ended the dream?
The loss to North Korea?
What made 1953 a turning point in your eyes?

Are not the new generations of Star Wars, Star Trek, and The Matrix extensions of the fantasy dreams?

Maybe you lament the end of reading.
The new generation gathers its world views through film.

1953 was a big year for me:
  1. Puberty
  2. My mother died at the age of 46 (With modern techniques of diagnosing and treating cancer she probably would have lived to age 60+)
  3. I went to an excellent and unusual private school.
  4. Girls discovered me.
  5. Science fiction peaked in quantity and (perhaps) in quality.
  6. The fighting ended in Korea.
Knowing we're never going to mars, much less the stars, kind of killed it off. We can't even keep hubble up there. THe space station justifies the shuttle, and vice versa.

BTW - what are the chances we ever even get back to the moon?

On getting back to the moon, chances are 95% in IMO increasing every day.

You doomers should really lighten up.

In my future history (science fiction--solid science), the first STARship takes off before the end of this century, essentially following the plan of "The Millenium Project."

Homo sapiens will go back to the moon. I won't guarantee the United States will go back to the moon but homo sapiens will, and in not too many more years. Heck, in reviewing various recent things I don't find a contradiction in seeing homo sapiens moving into space while a major dieoff occurs here on earth. Only a relatively tiny number of human beings need to get into space in order to create a genetically sustainable colony and I can see that number reaching space several times over before the crap hits the fan in its entirety. Unfortunately, at my age, I am unlikely to be one of those migrating outward, thus I will keep my rifle ready and my ammo dry while I prep my own garden.

But have no doubt about things going south. Unless we control population, population will kill off most of us. Peak oil remains just one expression (of many) of over population. We have a simple choice - either we can control our population or nature will control our population for us.

In my future history (peak food, not peak oil, though of course the two are related) there is a 98-99% global dieoff of humans. Nevertheless, it is an upbeat series of novels, full of Sailorman's wit, (mild) sexual references, and heroes winning out against evil and tremendous odds.

It is my goal to keep the spirit of R. A. Heinlein going in science fiction. He wrote largely for and about Boy Scouts and engineers--two good types for heroes, though mine is short, fat, mathematically challenged and extremely nearsighted without glasses. But then again, guess what I was like as a 12 year old . . . :-)  ?

I don't think we understand our own biology well enough for long-term off-planet living ... yet.

http://www.wired.com/news/medtech/0,1286,65252,00.html

With all due respect Odograph, Robert A. Heinlein and I disagree with your position. Do you recall his novelette, "Universe"?
It's been a while since I read Heinlein, but I think we all had a simplified view of the human organism, and it's nutrition, back then.

We have problems now with long space flights, and that doesn't touch on what would happen when you fully disconnect a human population from the earth bioshpere.  We are getting, for instance, new data on an old observation - you may have heard that children of dairy farmers in Germany grew with healthier immune systems than children of city dwellers.

A recent link along those lines is ...

http://pub.ucsf.edu/today/cache/feature/200606219.html

I'm think we'll figure it out given time, but I think we might have to haul a much more complex biosystem with us than early writers expected.

Please find "Universe" and let me know what you think of it after you read it.

I have yet to find an important issue that Heinlein failed to address thoughtfully.

still the evidence speaks for it's self.
every attempt we have made to make a self contained bio-sphere has failed miserably.

as for reasons for going to space, they are misguided.
the united states wants to go back to the moon so it can claim it still has it, like a person in his 40's trying and failing to prove he can still do things he did when he was in his 20's.
other country's want to go so they prove they can do it too, they just want entrance into a club nothing more.

as for the original reason we went. it was the single most expensive "mine is bigger then yours" event. which is imho the main reason public interest died soon after same as any window of opportunity for a sustained space exploration program.
while i do not doubt the book must be a good story, i seriously doubt it has any hidden key that will make something like this possible.

IMO you may be missing the point.

Heinlein raised questions and explored them with thought experiments. He never claimed to be a prophet or seer.

Note that in the nineteenth century small sailing ships routinely sailed around the world, sometimes staying at sea for six months without seeing land.

I think suspended animation is a good idea for starships.

In the future, perhaps.
Presently, it is a little hard on the subject(s).
Wimps and wusses and complainers!

"Ships" of steel and men of flab.

Aarrrrghhhhhhhumph. A sad state of affairs, me matey, that's what I say.

Grump.

Great article; but this struck my funny bone:

The gasoline calculation is a bit crude...

Whatever it was, around 1985, the rot sets in and things have been getting steadily worse ever since.

I don't know how this is figured in to the savings rate, but at what point does rate of retirees drawing on savings out weigh the savings rate of the working?

Some what related, as there is an increase in the ratio of retirees to workers it would seem natural to assume an increase in goods/services demanded to goods/services produced.  Add in a reduction in available energy to produce these goods/services and the result would inflationary.

Similar to the social security funding nightmare the US faces as the retiree/worker ratio increases, are we in for a demand/production ratio that simply cannot be met by the workforce?

I can't speak for Stuart, only he can do that. But my perspective on his writings is that his basic "take" on things is a humanistic one and also compassionate. Inflation due to higher energy prices is bound to hurt people. That is a bad thing. In this, I entirely agree.

What irks me about economics and some (I didn't say all economists Lou, Don Sailorman) is the rationalization of human suffering through the manipulation of statistical arguments and many other types of modelling. People become abstract entities (like the integers) and their "real lives" are thus obscured.

What irks me about economics and some (I didn't say all economists Lou, Don Sailorman) is the rationalization of human suffering through the manipulation of statistical arguments and many other types of modelling. People become abstract entities (like the integers) and their "real lives" are thus obscured.

Dave, I don't understand what you mean by the rationalization of human suffering. Is explaining why we have suffering rationalizing? How would one explain why we have suffering in the world and not be rationalizing. Would you have it that we simply avoid the subject? What about suffering in general? Animals suffer too you know.

The total amount of suffering per year in the natural world is beyond all decent contemplation. During the minute it takes me to compose this sentence, thousands of animals are being eaten alive; others are running for their lives, whimpering with fear; others are being slowly devoured from within by rasping parasites; thousands of all kinds are dying of starvation, thirst and disease. It must be so. If there is ever a time of plenty this very fact will automatically lead to an increase in population until the natural state of starvation and misery is restored.
     Richard Dawkins: River Out of Eden, page131-132.

Would you describe Malthus' opus "An Essay on the Principle of Population" as a rationalization? It was really all about economics. He tried to explain why he thought the poor would always be with us. You might describe his work as rationalization but I believe the world would be poorer without the works of Malthus.

Explaining why there will always be suffering among Homo sapiens as well as all other species is not to say it is good, or bad, or just or unjust. It is just to explain nature. And we are richer for people like Malthus and Dawkins for trying to explain it. Well, that's my opinion anyway.

Policies are based on economic arguments. Remember "Reaganomics", trickle-down, what George the First called "voodoo economics". Milton Friedman lives in an abstract world. It's always been hard to tell that he's talking about real people. Many economists make some over-simplified assumptions about the the way people operate and then proceed to do the math. Somewhere along the way, the fact that they are ultimately talking about people becomes obscured. In the income distribution, those people in the 2nd deviation on the left are also called homeless or sometimes street people. I know these people, I see them and give them pocket change everyday without being asked.

The fact that suffering is inherent in animal life is a given. Analyzing it the way many economists do is a defense mechanism that abstracts that suffering in such a way as to actually bury it. As in all human psychological defense, the idea is to put reality at a remove such that one does not have to meet it head on.

John Kenneth Galbraith, rest in peace, never lost sight of the real subject of economics. Neither does Paul Krugman or James Hamilton. I would say promote "the greatest good for the greatest number". Unfortunately speaking in some Platonic sense, it is hard to define "The Good". But I wouldn't depend on economic social science to do it for the reasons just mentioned.

best, Dave

Please do not beat up on Milton Friedman until you have read at least two of his books. I first became acquainted with Milton some fifty-one years ago at the University of Chicago, where we both played tennis. He's a little tiny guy, about 5'3" tall and used to play doubles with three other guys who were strong, fit and well over six feet tall--George Stigler, a guy named Wallis, and I forget the other one. Anyway, he was on most days the most effective player on the court.

When people beat up on Adam Smith without having read "Wealth of Nations" (not to mention "Theory of Moral Sentiment") I get upset. When people criticize particular economists with no evidence that they have studied them, I get upset.

By the way, some of my favorite econimists are John Maynard Keynes (the man who saved capitalism), Robert Heilbroner and Lester Thurow (both socialists), and also J.K. Galbraith.

Oh I forgot: George Stigler is also one of my most alltime favorite economists. In the second edition to his famous intermediate microeconomics textbook, "The Theory of Price," on a page before the preface he wrote:

"Half of this book is wrong. Unfortunately, I don't know which half."

All great economists are humble, with the exception of John Maynard Keynes, who had nothing to be humble about.

I went to the University of Chicago (BA, general studies in the Humaniies, graduated 1975).

best, Dave

Northwestern for its pretty girls,
Chicago for its Standard oils, . . .

We used to quote that clever jingle back in the good old days of Robert Maynard Hutchins and his disciples. The education I got there in just one year as an early entrant was amazing.

U.C. Berkely had more classes, a better sailing club, and a sociology department in which women outnumbered men 7 to 1.
Sailorman has always looked at ratios:)

Also, the tuition at UC was $42.50 per semester (It was called an "incidental fee," because tuition was free back in the good old days.) So, of course I became a profesional student and may be #2 alltime record setter for number of graduate credits accumulated during fourteen joyful years I spent there, accumulating knowledge and teaching beautiful women how to sail.

Re: "All great economists are humble, with the exception of John Maynard Keynes, who had nothing to be humble about"

Damn right.

Policies are based on economic arguments, yes. They are also based on power. On politics. On raw self-interest (economic  and otherwise). On the dead weight of the past.
Economics is continually interesting and an economic interpretation can be applied to most anything. Economics alone does not explain history.
There's no useful economic explanation for why Dave gives his change to the homeless. Thank you, Dave.
Economists advise. Corporation executives and our fearless leaders at various levels of government have the power to make decisions. Generally speaking, they do not have knowledge of economics and distrust economists.

For example, President J.F. Kennedy could never remember the difference between monetary and fiscal policy. Finally he hit on the scheme of remembering that Chairman of the Board of Governors of the Federal Reserve System (who is chief honcho for monetary policy) was William M. Martin; Martin begins with an "M," and monetary policy begins with an "M."

True story.

Well, what can you expect from a Harvard grad?

This is the first time I have heard anyone claim that Jack Kennedy was a moron.  
Evidently you weren't alive in '63. Such charges probably thrown more freely then. Try reading Hersh's Dark Side of Camelot.
Thanks. I will read it. The only potentially negative things I have heard about JFK were the womanizing, drug use and mafia ties, but the moron part never got promoted as strongly.
One of the few prejudices of politicians which are highly justifiable.
Well said Dave. I really appreciate all the open discussion on the ramifications of peak oil. All the analyses that suggest we are at or near peak can be digested fairly quickly and are hard to refute. But the mere existance of 'peak oil' doesn't tell us what problems it will cause nor what our rational course of action should be in the face of it. Therefore the variety of responses/solutions discussed here are invaluable for my personal education, so I will keep reading and forming my own opinions. The one thing I deplore is the occasional degeneration of the discussion to personal attacks on the poster and the seeming occasional failure to recognize that we are talking about real people's lives here.
PS. I'm for AlanFromBigEasy for president. He could declare a 'War on Global Warming', assume wartime powers and completely redo our transportation system.....
Hmmm. Are we really 3 1/2 times better off than our grandparents? Sure houses are somewhat bigger (though somebody's probably still living in Granny's house), cars accelerate faster, stereos sounds better, and kids have more toys. Computers and the Internet are really cool. But somehow it doesn't seem like a 3.5x improvement. I'd give it 1.5x maybe.

Here are three that I haven't seen anyone else bring up. I would rate all of these as more than 3.5x better than the 1950 equivalents.

Compare telephone service. Then, over 10% of homes had no phone. For those who did, an extension was a luxury and a second line was almost unheard of. Long distance was very expensive. No wireless: no cordless phones, and certainly no cell phones. No answering machines: if you needed to talk to Bob, it might take several calls to his home before you could even leave a message for him.

Compare dental services and capabilities for the average person. Modern dental technology means that people avoid a lot of pain and complications. One of the things I always try to look at in old photographs is the condition of people's teeth. People pay a lot to avoid the kind of dental problems that were common then.

Compare long-distance travel. The term "jet setters" as a synonym for the rich and famous didn't just happen. A trip to Europe was out of the question for most people and the trip of a lifetime for many of the rest.

Kinda funny how no one lists the new dangers of this time:
More cancers, higher crime rates, murder rates, more pollution on an insidious level, less open space, denser even more car-centric cities, more obesity, more diabetes, more heart disease, more poor people, more homeless, more spying on the public, fewer fish, less ozone, global warming, increased chance for nuclear terrorism, terrorism, GW Bush, exurbs, two hour commutes, fewer bicycles per capita, both parents more often have to work, longer work weeks, less family interaction, distancing of friendships by electronic means and etc.

My guess is that happiness is based more on social rather than monetary parameters and that we in this society, America, are suffering greatly compared to earlier less technologically advanced eras.

Fewer bicycles per capita? Really? Would your source also know how much and for what they are used?

When Cherenkov and Sailorman chime in together it's entertaining as kittens. And informative.

Long distance phone service was expensive and inconvenient; i remember it cost about $15 to talk with my father for three minutes back when he was doing fieldwork for his Master's in Anthropology back in the early fifties. But answering machines? I hate them. I hate telephone ping-pong.
I hate cell phones. I hate pagers. I do not now and never will "instant message." I'm a curmudgeonly old geezer.

Dentistry is better now, especially orthodontia. Maybe a factor of 2 advance.

Oh, but I forgot Viagra! At my age, that makes life 1,000 times better than it would have been in 1950. Because I spend as much on Viagra as food (just kidding), that means that for me life is better and there has been no inflation for me, personally, since 1950. Viagra and its competing drugs mean that we old geezers can go on being old fools until we drop . . . .

So you're pro-inflation, then, as far as Viagra is concerned..
No, I'm pro "economic justice," which means that Medicare Part D should supply me with a reasonable amount Viagra pills per month, say about forty or fifty, instead of only a measly six. Did you know Medicare covered Viagra? What next? Penis transplants:0?

The financing of Medicare (and to a lesser extent Social Security) is going to cause as much economic pain as peak oil between now and the year 2020. IMHO, generational income redistribution has potential to create the greatest political strife in the U.S. since the Civil War.

What about Peak Oil? Well, with oil at $120+ per barrel, how willing are you youngsters going to be to keep on financing my Viagra through Medicare and Jamaica vacations through Social Security?

We old geezers and old grandmas vote, and so will all the Boomers who are relatively few years away from Medicare. We can outvote you youngsters, and if you think we will vote for anybody who even hints that our benefits will be reduced, I have news for you . . .

The financing of Medicare (and to a lesser extent Social Security) is going to cause as much economic pain as peak oil between now and the year 2020.

Medicare, quite possibly. Although my own guess is that by 2015 the system for paying for health care in the US will be so broken -- make that, it will be evident to so many voters that it is broken -- that we'll get major changes, and Medicare will be changed drastically as well.

As for SS... if we accept the forecasts as absolute gospel, the forecast shortfall in 2020 is $96B against a GDP of >$25T, and would be only the third year where there is a shortfall. But in 1996, the forecasts said payments would exceed payroll tax revenues by 2012. In 2006, the forecasts say payments will exceed those revenues by 2018. The same forecasts have missed revenue growth one year out on the low side in five of the last six years. I will cheerfully bet a beer that payroll tax revenues exceed SS payments in every year from now through 2020.

At the same time, the General Fund is currently running a deficit of >$500B per year against a GDP of less than half that; the CBO estimates that if the tax cuts since 2001 are made permanent, the General Fund deficit will continue at about that rate for a few years, then start to expand rapidly as interest payments really kick in; it is not necessary to pick on SS and Medicare to have serious fiscal pain well before 2020...

My 'inflation' comment was purely prurient and crude, I assure you.  Just hoping that Crude isn't off-topic on an Oil site.

I hope we can both vote together to let Medicare at the very least bargain and quibble with their great numbers of patients to get competitive pricing.  I don't know if it's the Genexers or the Glaxos and Pfizers that you'll find yourself voting against.

so for the sake of argument, and if you could only choose one of the two choices, which would it be? Medicine? or Viagra?
Surely, you jest;-)
But they have to bury you in an open casket.
No way. I am giving my cadavar to the U. of Minnesota Medical school. They can dissect my amazing brain (have never had a headache, have never had a hangover, can beat anybody at the original Genus edition of Trivial Pursuit;-)
and remarkable body to the benefit of science.

Thus I cheat the morticians and save a lot of money.

I was brought up to be frugal and generous at the same time.

The personal savings chart going back to 1950 is really telling. I am a debt-phobe and don't really go along with all this "leverage" philosophy that seems to be the mantra of all modern politics and personal lifestyle. I've heard it pointed out that the personal savings numbers don't include stock ownership or home equity and that the buying power of the U.S. consumer is actually much healthier than what these savings numbers portray since, from the mid '80s on, the stock market became popular along with residing in your investment. This may explain a lot of the fall off in the savings chart after 1985. Traditionally, it has been a rule that you devote less than 1/3 of your income to house payments, but that has gone way up. This all strikes me as a "house-of-cards" philosophy. It is all fine and good as long as stock prices and home prices keep spiralling upward, but if the spiral starts going the other way, these wonderful spiral mechanics feed the return to earth. What happens after the consumer has tapped all his home equity and has every dime of savings in the stock market and is loaded up on credit card debt? Nothing but bad stuff. Any reversal of this pattern of stupidity implies pulling money out of the stock and home markets, which will either have to be done gradually for a little pain or all in a panic for a lot of pain.

This "house-of-cards" stupidity" is our government's mode of operation as well. Running the national debt up is OK because we'll grow our way to fiscal responsibility. So cut taxes and viva la pork.

Interesting, I found an amusing new blog, and discover this take from "an engineer" looking at "economists" ;-), echos of TOD threads:

The ongoing debate about the many ways to measure "inflation", the definition of the word "inflation", and the ruckus regarding owners' equivalent rent as it relates to said measures of "inflation" are all starting to make the nation's economists look like Keystone Cops.

http://themessthatgreenspanmade.blogspot.com/2006/06/keystone-inflation-cops.html

It's too late at night for me to find the links and expostulate, but Stuart, I think by now you've read articles and reviews on the Two Income Trap theory, which hold that the main thing driving the middle class in the United States into debt (or into a twenty ought and six path to misery) is housing prices, not personal spending. Note also that the income - outlay crossover is a recent phenomenon, as is the housing bubble.

The TIT theory is well backed, and my offhand guess is that it points to deflation, not inflation in our near future. Not that it makes the oil shock any gentler.

After going through 146 comments people alluded to but never brought up the difference between mean average,(per capita) and median average(50 percentile). It would be interesting to see how the gap between per capita and 50th percentile incomes have grown since 1950 and especially since 2000. All of the growth in personal income since 2000 has gone to the top 20% and most of that growth has come from foreign investments. The rich have not and probably never have invested tax cuts in new jobs for Americans. Since 1975 working families have in constant dollars experienced pay cuts almost every year. The minimum wage has not been raised in 9 years in spite of annual pay raises for Congress. The reason the saving rate is so low is because wages are so low. Most folks cannot afford to save money without being brought up on child neglect charges. Since Social Security is financed by wage based taxes that is the only reason it faces any financial problems.
Like others further up the page, economics is not my strong point either, but the peak oil graphic presented by Step Back caught my eye.

The up-curve on the oil production chart is of course mimiced by The Dow, FOOTSIE, Dax - whatever, and the down curve gives a glimpse of the future.

The buy and hold strategy for equities (stocks) is predicated on the assumption of forever growing profits, and these forever growing profits have been built on a forever growing supply of virtually free energy - oil.

In the UK, a PE ratio of 20 is awarded to a company based solely on the expectation of growing profits.  A PE of 20 translates to an earnings yield of around 5%, half of which may be distributed as a dividend giving an income yield of 2.5%.  Why take the risk on this investemnt if profits are not going to grow in the future? Especially with interest rates rising.

Markets at some point will realise that forever growing profits are a thing of the past and will re-rate stock prices accordingly.  I won't go into any more detail as this may deprive some TODers of their sleep - but have a look at the peak oil chart to get a feel for what might happen.

A totally perverse situation at present is that without exception stock brokers are forecasting lower oil prices next year (they have been doing this for about 5 years now) and the expectation of falling profits means that oil stocks are on forward PE ratios of beween 6 and 12 (in the UK).  These oil companies are in fact the only part of the economy (along with miners) that have growing income, and they "own" vital strategic resources.  It is the oil stocks that shoudl be on PE ratings of 12 to 20 - I've been waiting patiently now for 3 years.

The low ratings given to oil stocks does of course impede their ability to raise capital, a situation made worse by short-sighted taxation policies of the UK and other governments - the start of a downward spiral.

In the UK we curently have a pensions crisis and I fear this might soon become a pensions night mare.

I see that the BOE has just left our interest rates on hold - consume, consume, consume!