Why Standard Economic Models Don’t Work - Our Economy Is A Network

Tyler Durden's picture




 

Submitted by Gail Tverberg of Our Finite World blog,

The story of energy and the economy seems to be an obvious common sense one: some sources of energy are becoming scarce or overly polluting, so we need to develop new ones. The new ones may be more expensive, but the world will adapt. Prices will rise and people will learn to do more with less. Everything will work out in the end. It is only a matter of time and a little faith. In fact, the Financial Times published an article recently called “Looking Past the Death of Peak Oil” that pretty much followed this line of reasoning.

Energy Common Sense Doesn’t Work Because the World is Finite 

The main reason such common sense doesn’t work is because in a finite world, every action we take has many direct and indirect effects. This chain of effects produces connectedness that makes the economy operate as a network. This network behaves differently than most of us would expect. This networked behavior is not reflected in current economic models.

Most people believe that the amount of oil in the ground is the limiting factor for oil extraction. In a finite world, this isn’t true. In a finite world, the limiting factor is feedback loops that lead to inadequate wages, inadequate debt growth, inadequate tax revenue, and ultimately inadequate funds for investment in oil extraction. The behavior of networks may lead to economic collapses of oil exporters, and even to a collapse of the overall economic system.

An issue that is often overlooked in the standard view of oil limits is diminishing returns. With diminishing returns, the cost of extraction eventually rises because the easy-to-obtain resources are extracted first. For a time, the rising cost of extraction can be hidden by advances in technology and increased mechanization, but at some point, the inflation-adjusted cost of oil production starts to rise.

With diminishing returns, the economy is, in effect, becoming less and less efficient, instead of becoming more and more efficient. As this effect feeds through the system, wages tend to fall and the economy tends to shrink rather than grow. Because of the way a networked system “works,” this shrinkage tends to collapse the economy. The usage of  energy products of all kinds is likely to fall, more or less simultaneously.

In some ways current, economic models are the equivalent of flat maps, when we live in s spherical world. These models work pretty well for a while, but eventually, their predictions deviate farther and farther from reality. The reason our models of the future are wrong is because we are not imagining the system correctly.

The Connectedness of a Finite World 

In a finite world, an action a person takes has wide-ranging impacts. The amount of food I eat, or the amount of minerals I extract from the earth, affects what other people (now and in the future) can do, and what other species can do.

To illustrate, let’s look at an exaggerated example. At any given time, there is only so much broccoli that is ready for harvest. If I decide to corner the broccoli market and buy up 50% of the world’s broccoli supply, that means that other people will have less broccoli available to buy. If those growing the broccoli spray the growing crop with pesticides, “broccoli pests” (caterpillars, aphids, and other insects) will die back in number, perhaps contributing to a decline of those species. The pesticides may also affect desirable species, like bees.

Growing the broccoli will also deplete the soil of nutrients. If 50% of the world’s broccoli is shipped to me, the nutrients from the soil will find their way around the world to me. These nutrients are not likely to be replaced in the soil where the broccoli was grown without long-distance transport of nutrients.

To take another example, if I (or the imaginary company I own) extract oil from the ground, the extraction and the selling of that oil will have many far-ranging effects:

  •  The oil I extract will most likely be the cheapest, easiest-to-extract oil that I can find. Because of this, the oil that is left will tend to be more expensive to extract. My extraction of oil thus contributes to diminishing returns–that is, the tendency of the cost of oil extraction to rise over time as resources deplete.
  • The petroleum I extract from the ground will consist of a mixture of hydrocarbon chains of varying lengths. When I send the petroleum to a refinery, the refinery will separate the petroleum into varying length chains: short chains are gasses, longer chains are liquids, still longer ones are very viscous, and the longest ones are solids, such as asphalt. Different length chains are used for different purposes. The shortest chains are natural gas. Some chains are sold as gasoline, some as diesel, and some as lubricants. Some parts of the petroleum spectrum are used to make plastics, medicines, fabrics, and pesticides. All of these uses will help create jobs in a wide range of industries. Indirectly, these uses are likely to enable higher food production, and thus higher population.
  • When I extract the oil from the ground, the process itself will use some oil and natural gas. Refining the oil will also use energy.
  • Jobs will be created in the oil industry. People with these jobs will spend their money on goods and services of all sorts, indirectly leading to greater availability of jobs outside the oil industry.
  • Oil’s price is important. The lower the price, the more affordable products using oil will be, such as cars.
  • In order for consumers to purchase cars that will operate using gasoline, there will likely be a need for debt to buy the cars. Thus, the extraction of oil is tightly tied to the build-up of debt.
  • As an oil producer, I will pay taxes of many different types to all levels of governments. (Governments of oil exporting countries tend to get a high percentage of their revenue from taxes on oil. Even in non-exporting countries, taxes on oil tend to be high.) Consumers will also pay taxes, such as gasoline taxes.
  • The jobs that are created through the use of oil will lead to more tax revenue, because wage earners pay income taxes.
  • The government will need to build more roads, partly for the additional cars that operate on the roads thanks to the use of gasoline and diesel, and partly to repair the damage that is done as trucks travel to oil extraction sites.
  • To keep the oil extraction process going, there will likely need to be schools and medical facilities to take care of the workers and their families, and to educate those workers.

Needless to say, there are other effects as well. The existence of my oil in the marketplace will somehow affect the market price of oil. Burning of the oil may affect the climate, and will tend to acidify oceans. It would be possible to go on and on.

The Difficulty of Substituting Away from Oil 

In some sense, the use of oil is very deeply imbedded into the operation of the overall economy. We can talk about electricity replacing oil, but oil’s involvement in the economy is so pervasive, it can’t possibly replace everything. Perhaps electricity might replace gasoline in private passenger automobiles. Such a change would reduce the demand for hydrocarbon chains of a certain length (C7 to C11), but that only reduces demand for one “slice” of the oil mixture. Both shorter and longer chain hydrocarbons would be unaffected.

The price of gasoline will drop, (making Chinese buyers happy because more will be able to afford to use motorcycles), but what else will happen? Won’t we still need as much diesel, and as many medicines as before? Refiners can fairly easily break longer-chain molecules into shorter-chain molecules, so they can make diesel or asphalt into gasoline. But going the other direction doesn’t work well at all. Making gasoline into shorter chains would be a huge waste, because gasoline is much more valuable than the resulting gases.

How about replacing all of the taxes directly and indirectly related to the unused gasoline?  Will the price of electricity used in electric-powered vehicles be adjusted to cover the foregone tax revenue?

If a liquid substitute for oil is made, it needs to be low priced, because a high-priced substitute for oil is very different from a low-priced substitute. Part of the problem is that high-priced substitutes do not leave enough “room” for taxes for governments. Another part of the problem is that customers cannot afford high-priced oil products. They cut back on discretionary expenditures, and the economy tends to contract. There are layoffs in the discretionary sectors, and (again) the government finds it difficult to collect enough tax revenue.

The Economy as a Networked System

I think of the world economic system as being a networked system, something like the dome shown in Figure 1. The dome behaves as an object that is different from the many wooden sticks from which it is made. The dome can collapse if sticks are removed.

Figure 1. Dome constructed using Leonardo Sticks

Figure 1. Dome constructed using Leonardo Sticks

The world economy consists of a network of businesses, consumers, governments, and resources that is bound together with a financial system. It is self-organizing, in the sense that consumers decide what to buy based on what products are available at what prices. New businesses are formed based on the overall environment: potential customers, competition, resource availability, services available from other businesses, and laws. Governments participate in the system as well, building infrastructure, making laws, and charging taxes.

Over time, all of these gradually change. If one business changes, other business and consumers are likely to make changes in response. Even governments may change: make new laws, or build new infrastructure. Over time, the tendency is to build a larger and more complex network. Unused portions of the network tend to wither away–for example, few businesses make buggy whips today. This is why the network is illustrated as hollow. This feature makes it difficult for the network to “go backward.”

The network got its start as a way to deliver food energy to people. Gradually economies expanded to include other goods and services. Because energy is required to “do work,” (such as provide heat, mechanical energy, or electricity), energy is always central to an economy. In fact, the economy might be considered an energy delivery system. This is especially the case if we consider wages to be payment for an important type of energy–human energy.

Because of the way the network has grown over time, there is considerable interdependency among different types of energy. For example, electricity powers oil pipelines and gasoline pumps. Oil is used to maintain the electric grid. Nuclear electric plants depend on electricity from the grid to restart their operations after outages. Thus, if one type of energy “has a problem,” this problem is likely to spread to other types of energy. This is the opposite of the common belief that energy substitution will fix all problems.

Economies are Prone to Collapse

We know the wooden dome in Figure 1 can collapse if “things go wrong.” History shows that many civilizations have collapsed in the past. Research has been done to see why this is the case.

Joseph Tainter’s research indicates that diminishing returns played an important role in the collapse of past civilizations. Diminishing returns would be a problem when adding more workers didn’t add a corresponding amount more output, particularly with respect to food. Such a situation might be reached when population grew too large for a piece of arable land. Degradation of soil fertility might play a role as well.

Today, we are reaching diminishing returns with respect to oil supply, as evidenced by the rising cost of oil extraction. This is occurring because we removed the easy to extract oil, and now must move on to the more expensive to extract oil. In effect, the system is becoming less efficient. More workers and more resources of other types are needed to produce a given barrel of oil. The value of the barrel of oil in terms of what it can do as work (say, how far it can move a car, or how much heat it can produce) is unchanged, so the value each worker is producing is less. This is the opposite of efficiency.

Peter Turchin and Sergey Nefedov have done research on the nature of past collapses, documented in a book called Secular Cycles. An economy would clear a piece of land, or discover an approach to irrigation, or by some other means discover a way to expand the number of people who could live in an area. The resulting economy would grow for well over 100 years, until population started catching up with resource availability. A period of stagflation followed, typically for about 50 or 60 years, as the economy tried to continue to grow, but bumped against increasing obstacles. Wage disparity grew as wages of new workers lagged. Debt also grew.

Eventually collapse occurred, over a period of 20 to 50 years. Often, much of the population died off. An inter-cycle period followed, during which resources regenerated, so that a new civilization could arise.

Figure 2. Shape of typical Secular Cycle, based on work of Peter Turkin and Sergey Nefedov in Secular Cycles.

Figure 2. Shape of typical Secular Cycle, based on work of Peter Turkin and Sergey Nefedov in Secular Cycles.

One of the major issues in past collapses was difficulty in funding government services. Part of the problem was that wages of common workers were low, making it difficult to collect enough taxes. Part of governments’ problems were that their costs went up, as they tried to solve the increasingly complex problems of society. Today these costs might include unemployment insurance and bailing out banks; in ages past they included larger armies to try to conquer new lands with more resources, as their own resources depleted.

Today’s Situation 

Our situation isn’t too different. The economy started growing in the early 1800s, abut the we started using fossil fuels, thanks to technology that allowed us to use them. Oil is the fossil fuel that is depleting most quickly, because it is very valuable in many uses, including transportation, agriculture, construction, mining, and as a raw material to produce many goods we use every day.

Our economy seems to have hit stagflation in the early 1970s, when oil prices first began to spike. Now, some of the symptoms we are seeing are looking distressingly like the symptoms that other civilizations saw prior to the beginning of collapse. Our networked system has many weak points:

  • Oil exporters Governments can collapse, as the government of the Former Soviet Union did in 1991, if oil prices are too low. The fact that oil prices have not risen since 2011 is probably contributing to unrest in the Middle East.
  • Oil importers Spikes in oil prices lead to recession.
  • Governments funding Debt keeps expanding; infrastructure needs fixes but they don’t get done; too many promises for pensions and healthcare.
  • Failing financial systems Debt defaults are likely to be a major problem if the economic system starts shrinking. Debt is needed to keep oil prices up.
  • Contagion if one energy product is in short supply This happens many ways. For example, nearly all businesses rely on both electricity and oil. If either one of these becomes unavailable (say oil to supply parts and ship goods to customers), then the business will need to close. Because of the business closure, demand for other energy products the business uses, such as electricity and natural gas, will drop at the same time. Direct use of energy products to produce other energy products (mentioned previously) also contributes to this contagion.

Unfortunately, when it comes to operating an economy, it is Liebig’s Law of the Minimum that rules. In other words, if any required element is missing, the system doesn’t work. If businesses can’t get financing, or can’t pay their employees because banks are closed, businesses may need to close. Workers will get laid off, and the inability to afford energy products (economists would call this “lack of demand”) will be what brings the system down.

Modeling our Current Economy 

Everywhere we look, we see models of how the energy system or the economy can be expected to work. None of the models match our current situation well.

Growth will Continue As in the Past It is pretty clear that this model is inadequate. Every revision to growth estimates seems to be downward. In a finite world, we know that growth at the same rate can’t continue forever–we would run out of resources, and places for people to stand. The networked nature of the system explains how the system really grows, and why this growth can’t continue indefinitely.

Rising Cost of Producing Energy Products Doesn’t Matter In a global world, we compete on the price of goods and services. The cost of producing these goods and services depends on (a) the cost of energy products used in making these goods and services (b) wages paid to workers for producing these services (c) government, healthcare, and other overhead costs, and (d) financing costs.

One part of our problem is that with globalization, we are competing against warm countries–countries that receive more free energy from the sun than we do, so are warmer than the US and Europe. Because of this free energy from the sun, homes do not need to be built as sturdily and less heat is needed in winter. Without these costs, wages do not need to be as high. These countries also tend to have less expensive healthcare systems and lower pensions for the elderly.

Governments can try to fix our non-competitive cost structure compared to these countries by reducing interest rates  as much as possible, but the fact remains–it is very difficult for countries in cold parts of the world to compete with countries in warm parts of the world in making goods. This cost competition problem becomes worse, as the price of energy products rises because we are competing with a cost of $0 for heating requirements. If cold countries add carbon taxes, but do not surcharge goods imported from warm countries, the disparity with warm countries becomes even worse.

In the early years of civilization, warm countries dominated the world economy. As energy prices rise, this situation is likely to again occur.

Price is Not Important  Apart from the warm country–cool country issue, there is another reason that energy cost (in real goods, not just in financial printed money) is important:

The price of the energy used in the economy is important because it is tied to how much must be “given up” to buy the oil or anther energy product (such as food). If energy is cheap, little needs to be given up to obtain the energy. Because of energy’s huge ability to do “work,” the work that is obtained can easily make goods and services that compensate for what has been given up. If energy is expensive, there is much less benefit (or perhaps negative benefit) when what is given up is compared to the work that the energy product provides. As a result, economic growth is held back by high-priced energy products of any kind.

Supply and Demand Leads to Higher Prices and Substitutes  Major obstacles to the standard model working are (a) diminishing returns with respect to oil supply, (b) recession and even government failure of oil importers, when oil prices rise and (c) civil unrest and even government failure in oil exporters, if oil prices don’t keep rising. If there isn’t enough oil supply, oil prices rise, but there are soon so many follow-on effects that oil prices fall back again.

Reserves/ Production This ratio supposedly tells how long we can produce oil (or natural gas or coal) at current extraction rates. This ratio is simply misleading. The real limit is how long the economy can function, given the feedback loops related to diminishing returns. If a person simply looks at investment dollars required, it becomes clear that this model doesn’t work. See my post IEA Investment Report – What is Right; What is Wrong.

IPCC Climate Change Model Estimates of future carbon emissions do not take into the networked nature of the energy system and economy, so tend to be high.  See my post Oil Limits and Climate Change – How They Fit Together.

Energy Payback Period, Energy Return on Energy Invested, and Life Cycle Analysis These approaches look at the efficiency of energy production, comparing energy used in the process to energy produced in the process. In some ways, they work–they show that we are becoming less and less efficient at producing oil, or coal, or natural gas, as we move to more difficult to extract resources. And they can be worthwhile, if a decision is being made as to which of two similar devices to purchase: Wind Turbine A or Wind Turbine B.

Unfortunately, modeling a finite world is virtually impossible. These approaches use narrow boundaries–energy used in pulling oil out of the ground, or making a wind turbine. It doesn’t tell as much as we need to know about new energy generation equipment, together with (a) changes needed elsewhere in the system and (b) whatever financial system is used to pay for the energy generated with that system, will actually work in the economy. To really analyze the situation, broader analyses are needed.

Furthermore, there are the inherent assumptions that (a) we have a long time period to make changes and (b) one energy source can be substituted for another. Neither of these assumptions is really true when we are this close to oil limits.

Where the Peak Oil Model Went Wrong

Part of the Peak Oil story is right: We are reaching oil limits, and those limits are hitting about now. Part of the Peak Oil story is not right, though, at least in  a common version that is prevalent now.  The version that is prevalent is more or less equivalent to the “standard” view of our current situation that I talked about at the beginning of the post. In this standard view, oil supply will not disappear very quickly–approximately 50% of the total amount of oil ever extracted will become available after the peak in oil production. There will be considerable substitution with other fuels, often at higher prices. The financial system may be affected, but it can be replaced, and the economy will continue.

This view is based on writing of M. King Hubbert back in 1957. At that time, it was commonly believed that nuclear energy would provide electricity too cheap to meter. In fact, in a 1962 paper, Hubbert talks about “reversing combustion,” to make liquid fuels. Thus, not only did his story include cheap electricity, it also included cheap liquid fuels, both in huge quantity.

Figure 3. Figure from Hubbert's 1956 paper, Nuclear Energy and the Fossil Fuels.

Figure 3. Figure from Hubbert’s 1956 paper, Nuclear Energy and the Fossil Fuels.

In such a situation, growth could continue indefinitely. There would be no need to replace huge numbers of vehicles with electric vehicles. Governments wouldn’t have a problem with funding. There would be no problem with collapse. The supply of oil and other fossil fuels could decline slowly, as suggested in his papers.

But the story of the cheap, rapid nuclear ramp-up didn’t materialize, and we gradually got closer to the time when limits were beginning to hit. Major changes were needed to Hubbert’s story to reflect the fact that we really didn’t have a fix that would keep business as usual going indefinitely. But these changes never took place. Instead the view of how little change was needed to keep the economy going kept getting downgraded more and more. “Standard” economic views filtered into the story, too.

There is a correct version of the oil limits story to tell. It is the story of the failure of networked systems.

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Mon, 06/23/2014 - 21:33 | 4887872 orangegeek
orangegeek's picture

thumbs up to whomever read this entire article

Mon, 06/23/2014 - 21:48 | 4887927 NidStyles
NidStyles's picture

Cliffs: It basically said that the economy is dynamic and will find it's own way to solve the issues presented to humanity despite the players trying to control the outcomes. 

 

Have no fear Mighty Mouse is here....

Mon, 06/23/2014 - 22:18 | 4888000 aVileRat
aVileRat's picture

The only real way the econometric models can improve is with larger data sets, the only problems is those same data sets will not be used just for real time adjusting for oil or global base load demand. Which is why even if the data were gathered via meta census, it would never really work long enough since everyone would drop out of the tracking study as soon as they knew it could be subverted (to push more resources to your lobby) or perverted (think Communism down to the microscale).

A few good ideas where we may go someday:

http://io9.com/12-futuristic-forms-of-government-that-could-one-day-ru-1...

The article discounts the main problem with Peak oil: Cheap plastics/olifens & chemical half steps are made mainly by structurally impossible long-chains which are only found in oils. Governments are dependent on oil revenues (even down to your local civic highway slush fund), but not to the degree the global middle class and non-OECD's are reliant on cheap plastics for drug coatings, basic tools and marginal corporates (Automotives) on cheap finishings. Kill oil-Fuel demand and you only set back the curve a few hundred years, or push the curve forwards since the fresh supply of cheap oils due to the slack in transport demand encourages substitution into more plastics by rational corporations seeking to max. profits. If a gov. were to try and block the increased use of plastics and/or alternative feedstocks, then you are only going to lead to the mother of all Taper-tantrums.

The only way off cheap oil, is to find a new cheap feedstock for Tools and discretionary purchases. Just like how the scarcity of Bronze led to alternative metals (steel's) and later, Iron to Al/Pb alloys, which: led us to plastics. Sadly, the only way out is to go back to the front, which means off-planet mining. Which is itself a circular reference, because to do that we will need to focus alot of current materials & fuel reserves on earth (and carbon tax credits!!) on beyond-lunar exploration. And once we get there, we likely will need to start up a few new methane extraction projects to heat & power the whole joint; starting the cycle all over again.

Don't bother saying 3d printing will save us all: retail 3d printers use plastics. it's only going to accelerate the problem. If someone can figure out how to fuse methanes together to make C9+'s using nano's. But good luck given the false starts in this field since 2001.

The alternative is we just have a big old war, cut the world population by 89%, and sit around until the next Newton is born, hopefully not in the middle of Sudan.

TLDR: One of the better reposts in a while Tyler. Thank you.

 

 

 

Mon, 06/23/2014 - 22:32 | 4888046 flacon
flacon's picture

Suspension of reality is the paradigm we live under... until reality hits... but then we are all dead, in Keynes own words.... 

Mon, 06/23/2014 - 23:13 | 4888133 Cliff Claven Cheers
Cliff Claven Cheers's picture

Peak Oil is as fake as Climate Change.

Mon, 06/23/2014 - 23:44 | 4888171 Radical Marijuana
Radical Marijuana's picture

Both are real, but distorted by the fact that civilization is controlled through a social pyramid system, by which means a tiny minority are able to control the majority through lies backed by violence. In my opinion, Cliff, you confuse the layers of lies that are operating through society. You mistake some of the relatively scientific facts as not being facts, because you correctly perceive that some aspects of those facts are being selectively promoted in order to serve an ulterior evil agenda.

As the cliche goes, you are "throwing the baby out with the bathwater." You are mistaking the deliberate distortions of the issues by the ruling classes with over-generalizations that the problems themselves to do not exist. Those problems really exist, and actually are way worse, because they manifest in the context of a criminally insane society, dominated by the ruling classes who are not good at anything except being sufficiently dishonest and violent to wipe out their opposition, or control most of the opposition that is left. Merely because our society is actually controlled by systems of legalized lies, backed by legalized violence, does NOT mean that none of the chronic problems actually exist.

Tue, 06/24/2014 - 01:08 | 4888342 ebworthen
ebworthen's picture

After Three Mile Island, Chernobyl, and Fukushima the Nuclear Energy pipe dream has been smoked.

Nuclear fusion, if they can contain the reaction, would possibly be the answer.

Imagine, however, what a perfect target a reactor would be for bad guys.

Other problems are water and arable land.

Not enough food = fewer people.

Always a limit on growth.

Not in economics.

I know.

Tue, 06/24/2014 - 01:20 | 4888360 mrpxsytin
mrpxsytin's picture

You really have no imagination do you?

Tue, 06/24/2014 - 03:45 | 4888463 Occident Mortal
Occident Mortal's picture

Let's get one thing clear about our "finite world".

 

 

If we cannot feed 10 billion people, there will NEVER be 10 billion people. There will only ever be as many people as we can feed.

 

If there isn't enough gas for 3 billion cars, there will NEVER be 3 billion cars.

Tue, 06/24/2014 - 06:51 | 4888569 geekz_rule
geekz_rule's picture

well, there may be 10 Billion people, and 3 Billion cars, but it wont last long..

/sarc

but your point is spot on

Tue, 06/24/2014 - 03:50 | 4888467 ebworthen
ebworthen's picture

I've got a great imagination, but I know for certain that 10 people and 1 bathroom is a problem.

Tue, 06/24/2014 - 08:15 | 4888672 max2205
max2205's picture

I love this....propose a model that has a 250 year cycle.....by the time it's proven to be crap you've been dead for 150 years.     Yo!

Tue, 06/24/2014 - 08:15 | 4888674 max2205
max2205's picture

I love this....propose a model that has a 250 year cycle.....by the time it's proven to be crap you've been dead for 150 years.     Yo!

Tue, 06/24/2014 - 15:18 | 4890333 daveO
daveO's picture

How many US citizens were killed at Three Mile Island versus Iraq? On the flip side, how much money did Big Oil make? There's plenty of energy. Tesla once said we'd plug into the environment to get all we want. Unfortunately, he didn't understand Rockefellers.

Mon, 06/23/2014 - 22:50 | 4888089 NidStyles
NidStyles's picture

I find it odd that I am getting junked for merely explaining what the article said, but whatever. Haters are gonna hate.

 

The future of engineering is in Materials Science, and it's for the very reasons you outlined in your post. While I agree with you on the difficulties you elaborated on and a bit more than that, I agree with the author of this article in that humanity will always find a way. A lot of the limiting structures put in place to keep a few select participants in a few select industries in power thanks to political favors will have to go away first, but there are possibilities that using composites and plant based oils in the here and now will offset and real issues in the future thanks to eventual advancements.

Being able to process methane and recycle it and use it as fuel is the future though, of that I am certain. It's the only reasonable option we have ATM. 

 

 

Mon, 06/23/2014 - 23:07 | 4888120 aVileRat
aVileRat's picture

I'm the +1, don't look at me. I chose to post under you for that very reason as I think you started a good sub-thread tonight which expands on the main point policy wonks should be talking about.

 

 

Mon, 06/23/2014 - 23:10 | 4888127 CrazyCooter
CrazyCooter's picture

You must work in sales ...

I find it odd that I am getting junked for merely explaining what the article said, but whatever. Haters are gonna hate.

... and not engineering.

You got a couple junks by the time I started on the thread (after RTFA). People pride themselves on much higher junk rates. You just wanted to continue to not contribute, or sell whatever you are selling.

I do not disagree materials science (Nanotechnology: A Gentle Introduction to the Next Big Idea by Ratner and Ratner for anyone looking for a gentle, non-engineering introduction to implications) is a potential K-Wave, but the article (if you bothered) clearly highlights the role of energy in keeping people fed and existing industries (which can't roll backwards to buggy whips) supplied with resources necessary to support a very complex economy of goods and services.

Humanity won't find a way without significant downsizing. Go have a three martini lunch.

Asshat.

Regards,

Cooter

Tue, 06/24/2014 - 00:06 | 4888185 NidStyles
NidStyles's picture

Neither, I work in trends and analysis. My background is in physics. 

Material Science is not just plastics and hard materials, it's also how chemicals interact on different levels and through differing mechanisms. The next great energy revolution is always predictable before it occurs, and right now that is the field that is making the most headway towards solving our energy needs.

 

 

Here check this out too:

http://phys.org/news/2014-06-barrels-biology-scientists-cost-competitive...

Tue, 06/24/2014 - 00:52 | 4888320 Thorny Xi
Thorny Xi's picture

You're getting junked because you missed the point Gail's making.  Completely. 

Tue, 06/24/2014 - 01:23 | 4888364 mrpxsytin
mrpxsytin's picture

Nidstyles, when are you arriving in Australia? We should catch up when you get over here. I get what you're trying to tell these guys. But they can't listen to you, it's too painful for them.

Tue, 06/24/2014 - 09:17 | 4888767 Flakmeister
Flakmeister's picture

Still lying through your teeth eh? 

Nice link BTW, I guess even a blind squirrel finds a nut every now and then...

Tue, 06/24/2014 - 00:55 | 4888324 I Write Code
I Write Code's picture

There's a large noise element in ZH scores this is the Internet y'know and they let anyone in here.

Materials science?  Hey tennis rackets have come a long way since the wooden rackets with cat gut when i was a kid, if the material gets much better it's going to have to swing itself, just by its crystal structure.

Tue, 06/24/2014 - 01:11 | 4888346 ebworthen
ebworthen's picture

Over optimistic extrapolation.

The growth of the past 100 years can't be sustained with "technology".

There are physical limits to the carrying capacity of the planet that have nothing to do with technology, nor a solution from it.

Tue, 06/24/2014 - 01:21 | 4888363 mrpxsytin
mrpxsytin's picture

The ones downvoting you are the ones who are on their way to extinction. Their choice. 

Tue, 06/24/2014 - 01:35 | 4888374 Seer
Seer's picture

" I agree with the author of this article in that humanity will always find a way."

Huh?

Tue, 06/24/2014 - 08:01 | 4888641 Matt
Matt's picture

NidStyles: 

"I find it odd that I am getting junked for merely explaining what the article said, but whatever. Haters are gonna hate."

"Cliffs: It basically said that the economy is dynamic and will find it's own way to solve the issues presented to humanity despite the players trying to control the outcomes."

Your summary misrepresents the article. The article is saying the economy is a complex network that will fall apart due to declining oil production / increased cost of energy, and that the economy, as a vast network, is too complex to accurately model.

The problems probably will not be solved (well, in the end, it will work itself out, but it will be pretty messy). This is mainly due to too much government, and too many people demanding too much for the amount of resources available to governments, since governments are all built around infinite exponential growth.

I think the article is saying we are facing a collapse in civilization, and in this case, the civilization is global.

Tue, 06/24/2014 - 15:13 | 4890307 daveO
daveO's picture

One Rockefeller trumps a hundred Newtons. 

Tue, 06/24/2014 - 09:13 | 4888825 taketheredpill
taketheredpill's picture

 

 

I know you're probably screwing with me/us but anyway....what the author is saying is that our society has grown into a complex network that is based on cheap fossil fuels.

The author also states that complex systems fail, and ours is likely to fail as well.

Substitutes for oil is a theory that works on paper but in real finite world the system that would finance/develop the substitute system will not exist/function.

Complex systems are not designed to adapt.  They are not designed at all.  They just grow more and more complex until they fail.

 

We're fucked.  Probably.

 

 

Tue, 06/24/2014 - 09:25 | 4888874 Flakmeister
Flakmeister's picture

Nid, it said absolutely no such thing....

Tue, 06/24/2014 - 03:06 | 4888437 Serenity Now
Serenity Now's picture

orangegeek,

I tried, but there's no f-ing thesis.  She lost me at the paragraph about how we're competing with warm countries that have free energy from the sun, and yet they somehow manage to be THIRD WORLD.  It was a non-sensical paragraph, so I stopped there.  

In order to attempt to add something to the discussion, economics has always been about the allocation of scarce (finite) resources which have alternative uses.  The author seems to try to make that point in the beginning of the article, but she goes off the reservation after that.

Tue, 06/24/2014 - 08:06 | 4888651 Matt
Matt's picture

As energy costs rise, warm countries will gain competitive advantage over cold countries, since housing and heating costs are far lower. Food production can be higher, and more solar power and natural light is available.

On the flip side, it depends on how hot. Productivity is lower in tropical places because it is much harder to do intense manual labour at 35 celsius than at 15 celsius.

The article as a whole, as I understand it, is saying the economy is a complex network, which is why existing models are inadequate and why the system is doomed to failure.

Tue, 06/24/2014 - 15:27 | 4890378 daveO
daveO's picture

The author went off the rails by not accounting for monopolistic businesses that stifle competition and lead to the inevitable collapse. I still remember Hanoi Jane's 'China Syndrome' propaganda coming out under Carter's administration. The same administration that used Three Mile Island as an excuse to shut down nuclear construction. All the while, the Ad Council(a taxpayer funded group) was running ads about oil running out in 20 years. Carter was a Rockefeller puppet who pulled the plug on nuclear. The biggest insult was Carter was a nuclear engineer in the Navy(never had an accident). He was the original Obama. 

Tue, 06/24/2014 - 21:51 | 4891744 Matt
Matt's picture

The United States still has no long term storage and is now going to use the spent fuel ponds for decades or even centuries. Good thing they didn't keep building more of those old designs.

Tue, 06/24/2014 - 09:14 | 4888827 taketheredpill
taketheredpill's picture

 

 

I think she was trying to get people who live in countries where the seasonal low in temperature is below freezing to try and imagine life without heat (oil, NG, wood stoves etc.).

 

Mon, 06/23/2014 - 21:33 | 4887873 zorba THE GREEK
zorba THE GREEK's picture

You can say that again.

Mon, 06/23/2014 - 21:40 | 4887894 kaiserhoff
kaiserhoff's picture

Rubbish.

Standard economic models don't work because government is now 50% of nominal GDP,

  and government sucks ape shit.

Mon, 06/23/2014 - 22:17 | 4888004 Seer
Seer's picture

Am I the only zero-govt person who can comprehend that the world is finite?

Mon, 06/23/2014 - 22:39 | 4888059 samsara
samsara's picture

No, there are a couple of us...

"You can lead a man to Knowledge,

But you Can't make him think"

ps

You'd appreciate this SEER

http://www.theoildrum.com/node/10242

Tue, 06/24/2014 - 01:07 | 4888341 Seer
Seer's picture

Thanks, sam.  I wasn't aware of Bartlett's passing.  He was the real deal.  Great comments there from folks.  Knowing brings peace of mind...

Mon, 06/23/2014 - 23:16 | 4888138 CrazyCooter
CrazyCooter's picture

No, this is an infinite growth troll-trot.

I already deduced, based on the low post volume and the few posters at the top, that this post is unfortunately not appreciated by the ZH audience. Gail does excellent work and always presents things I know in ways I don't see. Few authors do that.

I am gonna smack .49 cents on this bad boy tomorrow and send to my old man who refused to get a computer. He loves this shit (72 yo Vietnam vet and finance major, heckles the libs at the senior center).

<shrugs>Nature will sort it all out in time.</shrugs>

Regards,

Cooter

Tue, 06/24/2014 - 00:31 | 4888288 Seer
Seer's picture

Something that I'd always wanted to ask:  Is that avatar a picture of your dog?

If you're a dog person then perhaps you might appreciate this (picture of my dog):

https://www.dropbox.com/s/pl37i2kskiio0qw/P1090015.JPG

Tue, 06/24/2014 - 03:10 | 4888439 Serenity Now
Serenity Now's picture

Awww, cute!  What kind of dog is that ? Me want!  :)

Tue, 06/24/2014 - 11:43 | 4889506 Citxmech
Citxmech's picture

Looks like a "Mastador" (See "Old Yeller" aka "Spike").

Beautiful pup btw.

Tue, 06/24/2014 - 00:52 | 4888319 Slarti Bartfast
Slarti Bartfast's picture

You're not alone. But it seems to be almost instinctively ignored by most.

Tue, 06/24/2014 - 02:00 | 4888401 Serenity Now
Serenity Now's picture

+1

Tue, 06/24/2014 - 01:54 | 4888392 goldsansstandard
goldsansstandard's picture

There is an infinity in knowledge.
There is an infinity in small
There is a whole lot of room left.

All of humanity, all seven billion of us , if shredded would not fill one small mountain .

It's a long long way to filling up the planet.

and smart people and organizations are tinkering all the time, figuring out how to do more with less stuff and less mess.

The way forward is so bright we would need shades , if people just left each other alone.

The first stp in the right direction is helping the malthusians see the way.

Malthus has been wrong for over 200 years, and will be for a very long time.

Tue, 06/24/2014 - 08:57 | 4888778 Flakmeister
Flakmeister's picture

Wow, that sounds like Nirvana....

No, the other Nirvana...

Tue, 06/24/2014 - 10:12 | 4889046 PeakOil
PeakOil's picture

Yes, well in the past 150 years humanity has managed to mostly burn through a once-in-history cornocopia of fungible, easily transportable & extractible, extremely versatile non-renewable high density energy. Consider equivalence in human energy terms. How many man-slave-years equivalents do we get from a gallon of gas going to and from the grocery store? Fossil fuel energy is *the* capital upon which our modern civilization is based. (it's called "petro-dollar" for a reason) No energy - no economy. And we have been eating our seed-corn for 150 years. Energy wise what long lived, sustainable return do we get from burning oil? In the long-term none. We burn up our seed-corn to support a modern, energy intensive, JIT, extremely complex, networked, interdependent, highly nonlinear & unstable, requiring huge energy inputs, unsustainable economy. A poster child for everything that is counter to Taleb's notion of anti-fragile. We are extremely vulnerable to systemic collapse and are growing more so by the day. Commuting to and from work to jobs that are equivalent (energy-wise) to shuffling deck chairs on the Titanic. That is, providing no lasting benefits as our primary energy sources deplete - which they are, rapidly. When those barrels of oil are burned they're gone. They ain't coming back. The cheap oil is gone and now we're on to the expensive stuff. The stuff we can no longer afford in $ terms in addition to EROEI.

We're not hunter gatherers anymore. Asking how many complex human civilizations using concentrated methods to extract resources from the environment have not collapsed is perhaps analogous to asking how many fiat money systems survive in the long run. None. Both suffer from flawed assumptions and willful ignorance of human nature.(we choose to ignore what we would rather not acknowledge)

Uncritical faith in technological "progress" to save our asses due to our squandering wasteful ignorance is just that. Uncritical faith. Another failed religion.

Malthus was early.

Tue, 06/24/2014 - 15:36 | 4890424 daveO
daveO's picture

Brazil's current ROEI on cane fuel isn't going any lower and with technology will likely rise. There is a floor. Coal was replaced, it never ran out. TPTB must talk up oil prices by scaring the herd. If they don't, debt levels cannot increase thanks to the Petro Dollar. When debt defaults, their lies collapse, along with their strangle hold on the economy.

Tue, 06/24/2014 - 10:00 | 4889058 Citxmech
Citxmech's picture

Environmental constraints on populations are a lot more subtle than just volume and space.  The whole point is that you can't just "do more with less."  Efficiency gains in any system are limited by thermodynamics.  

Basing our economy on oil is a form of deficit spending.  That can't be addressed by squeezing an extra few percent out of existing tech.

If you think you need to help the Malthusians see the way - why don't you shed some light - what energy source will pick-up where oil leaves off?

BTW If you can't see it yet - it's probably already too late.

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