Energy And The Economy – Twelve Basic Principles

Tyler Durden's picture

Submitted by Gail Tverberg via Our Finite World blog,

There is a standard view of energy and the economy that can briefly be summarized as follows: Economic growth can continue forever; we will learn to use less energy supplies; energy prices will rise; and the world will adapt. My view of how energy and the economy fit together is very different. It is based on the principle of reaching limits in a finite world. Let me explain the issues as I see them.

Twelve Basic Principles of Energy and the Economy

 

1. Economic models are no longer valid, as we start getting close to limits.

We live in a finite world. Because of this, the extraction of energy resources and of resources in general operates in a way that is not at all intuitive as we approach limits. Economists have put together models of how the economy can be expected to act based on how the economy acts when it is distant from limits. Unfortunately, these economic models are worse than useless as limits approach because modeled relationships no longer hold. For example:

(a) The assumption that oil prices will rise as the cost of extraction rises is not necessarily true. Instead, a finite world creates feedback loops that tend to keep oil prices too low because of its tight inter-connections with wages. We see this happening right now. The Telegraph reported recently, “Oil and gas company debt soars to danger levels to cover shortfall in cash.”

(b) The assumption that greater investment will lead to greater output becomes less and less true, as the easy to extract resources (including oil) become more depleted.

(c) The assumption that higher prices will lead to higher wages no longer holds, as the easy to extract resources (including oil) become more depleted.

(d) The assumption that substitution will be possible when there are shortages becomes less and less appropriate because of interconnections with the rest of the system. Particular problems include the huge investment required for such substitution, impacts on the financial system, and shortages developing simultaneously in many areas (oil, metals such as copper, rare earth metals, and fresh water, for example).

More information is available from my post, Why Standard Economic Models Don’t Work–Our Economy is a Network.

 

2. Energy and other physical resources are integral to the economy.

In order to make any type of goods suitable for human use, it takes resources of various sorts (often soil, water, wood, stones, metals, and/or petrochemicals), plus one or more forms of energy (human energy, animal energy, wind power, energy from flowing water, solar energy, burned wood or fossil fuels, and/or electricity).

Figure 1. Energy of various types is used to transform raw materials (that is resources) into finished products.

Figure 1. Energy of various types is used to transform raw materials (that is resources) into finished products.

 

3. As we approach limits, diminishing returns leads to growing inefficiency in production, rather than growing efficiency.

As we use resources of any sort, we use the easiest (and cheapest) to extract first. This leads to a situation of diminishing returns. In other words, as more resources are extracted, extraction becomes increasingly expensive in terms of resources required, including human and other energy requirements. These diminishing returns do not diminish in a continuous slow way. Instead, there tends to be a steep rise in costs after a long period of slowly increasing costs, as limits are approached.

Figure 2. The way we would expect the cost of the extraction of energy supplies to rise, as finite supplies deplete.

Figure 2. The way we would expect the cost of the extraction of energy supplies to rise, as finite supplies deplete.

One example of such steeply rising costs is the sharply rising cost of oil extraction since 2000 (about 12% per year for “upstream costs”). Another is the steep rise in costs that occurs when a community finds it must use desalination to obtain fresh water because deeper wells no longer work. Another example involves metals extraction. As the quality of the metal ore drops, the amount of waste material rises slowly at first, and then rapidly escalates as metal concentrations approaches 0%, as in Figure 2.

The sharp shift in the cost of extraction wreaks havoc with economic models based on a long period of very slowly rising costs. In a period of slowly rising costs, technological advances can easily offset the underlying rise in extraction costs, leading to falling total costs. Once limits are approached, technological advances can no longer completely offset underlying cost increases. The inflation-adjusted cost of extraction starts rising. The economy, in effect, starts becoming less and less efficient. This is in sharp contrast to lower costs and thus apparently greater efficiency experienced in earlier periods.

 

4. Energy consumption is integral to “holding our own” against other species.

All species reproduce in greater numbers than need to replace their parents. Natural selection determines which ones survive. Humans are part of this competition as well.

In the past 100,000 years, humans have been able to “win” this competition by harnessing external energy of various types–first burned biomass to cook food and keep warm, later trained dogs to help in hunting. The amount of energy harnessed by humans has grown over the years. The types of energy harnessed include human slaves, energy from animals of various sorts, solar energy, wind energy, water energy, burned wood and fossil fuels, and electricity from various sources.

Human population has soared, especially since the time fossil fuels began to be used, about 1800.

Figure 3. World population based on data from "Atlas of World History," McEvedy and Jones, Penguin Reference Books, 1978  and Wikipedia-World Population.

Figure 3. World population based on data from “Atlas of World History,” McEvedy and Jones, Penguin Reference Books, 1978 and Wikipedia-World Population.

Even now, human population continues to grow (Figure 4), although the percentage rate of growth has slowed.

Figure 4. World population split between US, EU-27, and Japan, and the Rest of the World.

Figure 4. World population split between US, EU-27, and Japan, and the Rest of the World.

Because the world is finite, the greater use of resources by humans leads to lesser availability of resources by other species. There is evidence that the Sixth Mass Extinction of species started back in the days of hunter-gatherers, as their ability to use of fire to burn biomass and ability to train dogs to assist them in the hunt for food gave them an advantage over other species.

Also, because of the tight coupling of human population with growing energy consumption historically, even back to hunter-gatherer days, it is doubtful that decoupling of energy consumption and population growth can fully take place. Energy consumption is needed for such diverse tasks as growing food, producing fresh water, controlling microbes, and transporting goods.

 

5. We depend on a fragile self-organized economy that cannot be easily replaced. 

Individual humans acting on their own have very limited ability to extract and control resources, including energy resources. The only way such control can happen is through a self-organized economy that allows people, businesses, and governments to work together on common endeavors. Development of a self-organized economy started very early, as bands of hunter-gatherers learned to work together, perhaps over shared meals of cooked food. More complex economies grew up as additional functions were added. These economies have gradually merged together to form the huge international economy we have today, including international trade and international finance.

This networked economy has a tendency to grow, in part because human population tends to grow (Item 4 above), and in part because greater complexity is required to solve problems, as an economy grows. This networked economy gradually adds more businesses and consumers, each one making choices based on prices and regulations in place at the particular time.

Figure 5. Dome constructed using Leonardo Sticks

Figure 5. Dome constructed using Leonardo Sticks

This networked economy is fragile. It can grow, but it cannot easily shrink, because the economy is constantly optimized for the circumstances at the time. As new products are developed (such as cars), support for prior approaches (such as horses, buggies and buggy whips) disappears. Systems designed for the current level of usage, such as oil pipelines or Internet infrastructure, cannot easily be changed to accommodate a much lower level of usage. This is the reason why the economy is illustrated as interconnected but hollow inside.

Another reason that the economy cannot shrink is because of the large amount of debt in place. If the economy shrinks, the number of debt defaults will soar, and many banks and insurance companies will find themselves in financial difficulty. Lack of banking and insurance services will adversely affect both local and international trade.

 

6. Limits of a finite world exert many pressures simultaneously on an economy. 

There are a number of ways an economy can reach a situation of inadequate resources for its population. While all of these may not happen at once, the combination makes the result worse than it otherwise would be.

a. Diminishing returns (that is, rising production costs as depletion sets in) for resources such as fresh water, metals, and fossil fuels.

b. Declining soil quality due to erosion, loss of mineral content, or increased soil salinity due to poor irrigation practices.

c. Rising population relative to the amount of arable land, fresh water, forest resources, mineral resources, and other resources available.

d. A need to use an increasing share of resources to combat pollution, related to resource extraction and use.

e. A need to use an increasing share of resources to maintain built infrastructure, such as roads, pipelines, electric grids, and schools.

f. A need to use an increasing share of resources to support government activities to support an increasingly complex society.

g. Declining availability of food that is traditionally hunted (such as fish, monkeys, and elephants), because an increase in human population leads to over-hunting and loss of habitat for other species.

 

7. Our current problems are worryingly similar to the problems experienced by earlier civilizations before they collapsed.

In the past, there have been civilizations that were confined to a limited area that grew for a while, and then collapsed once resource availability declined or population outgrew resources. Such issues led to a situation of diminishing returns, similar to the problems we are experiencing today. We know from studies of these prior civilizations how diminishing returns manifested themselves. These include:

(a) Reduced job availability and lower wages, especially for new workers joining the workforce.

(b) Spiking food costs.

(c) Growing demands on governments for services, because of (a) and (b).

(d) Greater disparities in wealth, as newer workers find it hard to get good-paying jobs.

(e) Declining ability of governments to collect sufficient taxes from common workers who are producing less and less (because of diminishing returns) and because of this, receiving lower wages.

(f) Increased reliance on debt.

(g) Increased likelihood of resource wars, as a group with inadequate resources tries to take resources from other groups.

(h) Eventual population decline. This occurred for two reasons: As wages dropped and needed taxes rose, workers found it increasingly difficult to obtain an adequate diet. As a result, they become more susceptible to epidemics and diseases. Greater involvement in resource wars also led to higher death rates.

When collapse came, it did not come all at once. Rather a long period of growth was succeeded by a period of stagnation, before a crisis period of several years took place.

Figure 6. Shape of typical Secular Cycle, based on work of Peter Turchin and Sergey Nefedov in Secular Cycles.

Figure 6. Shape of typical Secular Cycle, based on work of Peter Turchin and Sergey Nefedov in Secular Cycles.

We began an economic growth cycle back when we began using fossil fuels to a significant extent, starting about 1800. We began a stagflation period, at least in the industrialized economies, when oil prices began to spike in the 1970s. Less industrialized countries have been able to continue growth their growth pattern longer. Our situation is likely to differ from that of early civilizations, because early civilizations were not dependent on fossil fuels. Pre-collapse skills tended to be useful post-collapse, because there was no real change in energy sources. Loss of fossil fuels would considerably change the dynamic of the outcome, because most jobs would become obsolete.

Most models put together by economists assume that the conditions of the growth period, or the growth plus stagflation period, will continue forever. Such models miss turning points.

 

8. Modeling underlying the book Limits to Growth shows why depletion can be expected to lead to declining economic growth. It also shows why extracting all of the resources that seem to be available is likely to be impossible.

We also know from the analysis underlying the book The Limits to Growth (by Donella Meadows and others, published in 1972) that growing demand for resources because of Items listed as 6a to 6g above will take an increasingly large share of resources produced. This dynamic makes it very difficult to produce enough additional resources so that economic growth can continue. The authors report that the behavior mode of the modeled system is overshoot and collapse.

The 1972 analysis does not model the financial system, including debt and the repayment of debt with interest. The closest it comes to economic modeling is modeling industrial capital, which it describes as factories, machines, and other physical “stuff” needed to extract resources and produce goods. It finds that inability to produce enough industrial capital is likely to be a bottleneck far before resources in the ground are exhausted.

As an example in today’s world, there seems to be a huge amount of very heavy oil that can be steamed out of the ground in many places including Canada and Venezuela. (The existence of such heavy oil is one reason the ratio of oil reserves to oil production is high.) To actually get this oil out of the ground quickly would require a huge physical investment in a very short time frame. As a practical matter, we cannot ramp up all of the physical infrastructure needed (pipelines, steaming equipment, refining equipment) without badly cutting into the resources needed to “grow” the rest of the economy. A similar problem is likely to exist if we try to ramp up world oil and gas supply using fracking.

 

9. Our real concern should be collapse caused by reaching limits in many ways, not the slow decline reflected in a Hubbert Curve.

One reason for being concerned about collapse is the similarity of the problems our current economy is experiencing to those of prior economies that collapsed, as discussed in Item 7. Another reason for this concern is based on the observation from physics that an economy is a dissipative structure, just as a hurricanes is, and just as a human being is. Such dissipative structures have a finite lifetime.

Concern about future collapse is very different from concern that one or another resource will decline in a symmetric Hubbert curve. The view that resources such as oil will gradually decrease in availability once 50% of the resources have been extracted reflects a best-case scenario, where a perfect replacement (both cheap and abundant) replaces the item that is depleting, so that the economy is not affected. Hubbert illustrated the kind of situation he was envisioning with the following graphic:

Figure 7. Figure from Hubbert's 1956 paper, Nuclear Energy and the Fossil Fuels.

Figure 7. Figure from Hubbert’s 1956 paper, Nuclear Energy and the Fossil Fuels.

 

10. There is a tight link between both oil consumption and total energy consumption and world economic growth. 

This tight link is evident from historical data:

Figure 8. A comparison of three year average growth in world real GDP (based on USDA values in $2005$), oil supply and energy supply. Oil and energy supply are from BP Statistical Review of World Energy, 2014.

Figure 8. Comparison of three-year average growth in world real GDP (based on USDA values in 2005$), oil supply and energy supply. Oil and energy supply are from BP Statistical Review of World Energy, 2014.

The link between energy and the economy comes both from the supply side and the demand side.

With respect to supply, it takes energy of many types to make goods and services of all types. This is discussed in Item 2 above.

With respect to demand,

(a) People who earn good wages (indirectly through the making of goods and services with energy products) can afford to buy products using energy.

(b) Because consumers pay taxes and buy goods and services, growth in demand from adequate wages flows through to governments and businesses as well.

(c) Higher wages enable higher debt, and higher debt also acts to increase demand.

(d) Increased demand increases the price of the resources needed to make the product with higher demand, making more of such resources economic to extract.

 

11. We need a growing supply of cheap energy to maintain economic growth.

This can be seen several ways.

(a) Today, all countries compete in a world economy. If a country’s economy uses an expensive source of energy (say high-priced oil or renewables) it must compete with other countries that use cheaper fuel sources (such as coal). The high price of energy puts the country with high-cost energy at a severe competitive disadvantage, pushing the economy toward economic contraction.

(b) Part of the world’s energy consumption comes from “free” energy from the sun. This solar energy is not evenly distributed: the warm areas of the world get considerably more than the cold areas of the world. The cold areas of the world are forced to compensate for this lack of free solar energy by building more substantial buildings and heating them more. They are also more inclined to use “closed in” transportation vehicles that are more costly than say, walking or using a bicycle.

Back in pre-fossil fuel days, the warm areas of the world predominated in economic development. The cold areas of the world “surged ahead” when their own forests ran short of the wood needed to provide the heat-energy they needed, and they learned to use coal instead. The knowledge they gained about using coal for home-heating quickly transferred to the ability to use coal to provide heat for industrial purposes. Since the warm areas of the world were not yet industrialized, the coal-using countries of the North were able to surge ahead economically. The advantage of the cold industrialized countries grew as they learned to use oil and natural gas. But once oil and natural gas became expensive, and industrialization spread around the world, the warm countries regained their advantage.

(c) Wages, (non-human) energy costs, and financing costs are all major contributors to the cost of producing goods and services. When energy costs rise, the rise in energy costs puts pressure both on wages and on interest rates (since interest rates determine financing costs), because businesses need to keep the total cost of goods and services close to “flat,” if consumers are to afford them. This occurs because wages do not rise as energy prices rise. In fact, pressure to keep the total cost of goods low creates pressure to reduce wages when oil prices are high (perhaps by sending manufacturing to a lower-cost country), just as it adds pressure to keep interest rates low.

(d) If we look at historical US data, wages have tended to rise strongly (in inflation-adjusted terms) when oil prices were less than $40 to $50 barrel, but have tended to stagnate above that oil price range.

Figure 9. Average wages in 2012$ compared to Brent oil price, also in 2012$. Average wages are total wages based on BEA data adjusted by the CPI-Urban, divided total population. Thus, they reflect changes in the proportion of population employed as well as wage levels.

Figure 9. Average wages in 2012$ compared to Brent oil price, also in 2012$. Average wages are total wages based on BEA data adjusted by the CPI-Urban, divided total population. Thus, they reflect changes in the proportion of population employed as well as wage levels.

 

12. Oil prices that are too low for producers should be a serious concern. Such low prices occur because oil becomes unaffordable. In the language of economists, oil demand drops too low. 

A common belief is that our concern should be oil prices that are too high, and thus strangle the economy. A much bigger concern should be that oil prices will fall too low, discouraging investment. Such low oil prices also encourage civil unrest in oil exporting nations, because the governments of these nations depend on tax revenue that is available when oil prices are high to balance their budgets.

It can easily be seen that high oil prices strangle the economies of oil importers. The salaries of consumers go “less far” in buying basics such as food (which is raised and transported using oil) and transportation to work. Higher costs for basics causes consumers cut back on discretionary expenditures, such as buying new more expensive homes, buying new cars, and going out to restaurants. These cutbacks by consumers lead to job layoffs in discretionary sectors and to falling home prices. Debt defaults are likely to rise as well, because laid-off workers have difficulty paying their loans. Our experience in the 2007-2009 period shows that these impacts quickly lead to severe recession and a drop in oil prices.

The issue we are now seeing is the reverse–too low oil prices for oil producers, including oil exporters. These low oil prices are contributing to the unrest we see in the Middle East. Low oil prices also contribute to Russia’s belligerence, since it needs high oil revenues to maintain its budget.

Conclusion

We seem now to be at risk in many ways of entering into the collapse scenario experienced by many civilizations before us.

One of areas of risk is that interest rates will rise, as the Quantitative Easing and Zero Interest Rate Policies held in place since 2008 erode. These ultra-low interest rates are needed to keep products affordable, since the high cost of oil (relative to consumer salaries) has not really gone away.

Another area of risk is an increase in debt defaults. One example occurs when student loan borrowers find it impossible to repay these loans on their meager wages. Another example is China with the financing of its big recent expansion by debt. A third example is the possibility that businesses extracting resources will find it impossible to repay loans with today’s (relatively) low commodity prices.

Another area of risk is natural disasters. It takes surpluses to deal with these disasters. As we reach limits, it becomes harder to mitigate the effects of a major hurricane or earthquake.

Clearly loss of oil production because of conflict in the Middle East or in other oil producing countries is a concern.

This list is by no means exhaustive. Many economies are “near the edge” now. Recent news is that Germany has slipped into recession as well as Japan. One economy failing is likely to pull others with it.

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MalteseFalcon's picture

ZZZZZZZZZZZZZZZZZZZZZZZZZZZZZZZZzzzzzzzzzzzz

0b1knob's picture

A chart without numbers on the vertical OR horizontal axes?   

http://gailtheactuary.files.wordpress.com/2014/01/cost-of-extracting-a-b...

More chart abuse from Zerohedge.   Proves something.   What?  Who knows...

California Nightmares's picture

Odd.  Two population charts. One shows exponential growth, the other linear. 

Or am I misinterpreting this? 

BrosephStiglitz's picture

You're misinterpreting.  Both linear.  Look at the time scales-

 

The exponential growth is human pop. growth since 200AD until present.  The other chart is the pop. growth over the last 50-something years, split between the developing and developed world.  Obviously the population growth in developing countries is far more rapid than the developed countries, where (in general) educational standards, real living costs, life expectancy and other factors have increased significantly.

The first chart is why I have, in other threads, such as the ebola articles, explained that the global human population is in for a real hammering.  That chart is pretty much what you would expect from an algal bloom in a body of water that is subject to eutrophication.  A large exponential spike followed by pop. collapse.

froze25's picture

I think magnets hold the key to free energy. Watch "Modified Howard Johnson Linear Magnet Motor Test …" on YouTube

Modified Howard Johnson Linear Magnet Motor Test …: http://youtu.be/SS4ebCfSHO8

 

barre-de-rire's picture

go read meadows report

 

LordEffingtonThreeSticks's picture

This is another lefty libtard Luddite who knows nothing about how things are really done.  She is a high priestess of global warming.   Let me review for you how a conversation with a friend of mine who thinks like she does goes:

 

2004: ME: We will only hit peak oil when we hit peak demand. It will not be limited by supplies.  It will be limited by the switch to other sources.  In the mean time they will keep finding new oil and methods to get the oil.

2004: Lefty Luddite Libtard friend: BUT WHERE? Where will it come from?

2004: I do not know but it will come.

2004: Lefty Luddite Libtard friend: That can't be.

---------fast forward to 2014---------

2014: ME: What about this fracking stuff? And it is a technique that can be used all over the world.

2014: Lefty Luddite Libtard friend: I did not see fracking coming.  Neither did you.

2014: ME:  That's not exactly correct.

2014: Lefty Luddite Libtard friend: I am a lefty I can't be wrong.

This person has no place on this blog unless she pays you to promote website by placing her ill conceived articles on your site.

 

 

 

LetThemEatRand's picture

Based on these timelines, I'll be dead before the collapse.  Maybe the bankers have something with hookers and blow.

BrosephStiglitz's picture

I suspect we will be seeing the beginning of a collapse within the next 5 years.  We are already seeing the "early warning signals", playing out in slow motion year on year.  Within a decade it should be fairly evident to most.

 

Without major tech. development there is a serious risk of what this document talks about coming to pass.

Ident 7777 economy's picture

 

 

Gail - with mad charts, signifying practically nothing ...

Ignatius's picture

I wish it could have been less than 12 principles.  Twelve is a lot.

How about 3?  I can remember 3 things if I focus.

LetThemEatRand's picture

Cool.  Can I ask you to remind me of the other two?  

Kirk2NCC1701's picture

Gail (he, she?) lost me at Fig.1, where something called 'Work' (intellect + labor) was missing.

Call me eccentric but Fig.1 should read "Matter + Energy + Work --> Product or Service"

MalteseFalcon's picture

Gail is a dude and his middle name is Malthus.

BrosephStiglitz's picture

It's true that a lot of this content is rehashed Malthus.  It still does not invalidate the core message.  I have been (trying) to explain this to my friends and family in the past, but most told me to shut the f*ck up.  Everyone is too busy trying to keep their heads above water now.

Basically the only thing which can break this particular chain of events is the advent of a new technology which provides significant low-cost energy, preferrably a stable and low-cost energy source which is easily transported.  That certainly rules out conventional nuclear (I am not all that informed on thorium reactors, although some have discussed the possibilities), and it also invalidates a lot of other renewable energy sources.

Solar might provide some kind of basic possibilities for electric cars and so on, but I have serious doubts it could be scaled to support the entirety of the developed world, let alone the developing nations.

The really interesting part of all of this "research", is that if this is true, then the first countries past the post in terms of development (US/Europe/Japan etc.), are likely to still remain more prosperous moving into the future.  Whereas China has an (over)abundance of labor which it can just exploit to build up its capital, it will become increasingly costly. Consequently the developed nations might see a slow stagnation as capital falls into gradual decline.  Most people currently expect China to be the next big thing, and if this is the case, it might be for entirely different reasons than people expect (cheaper labor costs over any kind of tech. progress.)

The most worrying implications of this whole philosophical track of thinking is that, if true, we will probably see massive migration across borders, and continents.  That will be very difficult to manage.  Even going back as far as Caesar's journals of his Gaulish campaign, we can see, that large-scale migration is terribly disruptive leads to civil unrest/conflict.  This was true back then, when entire tribes were trying to shift to more "prosperous" lands.  It is true now when populations do so.

waterwitch's picture

The recent massive downturn in oil output from Mexico due to the twighlight era of the Cantarell field is a major contributor to the mass exodus of Mexicans into America.

Also, a major energy source still remains in the many forms of conservation. China gets this.  Economic incentives can help here. 

Can't get around EROEI either.  There are no free lunches.

MalteseFalcon's picture

The recent exodus from Mexico into the US is because Mexico is a shithole, the US border is wide open and there is no penalty for employing ILLEGAL immigrants.

Let's greatly increase the number of high consuming Americans and see if that helps things any.

Ident 7777 economy's picture

Appreciate the finely tuned sarcasm that 3 others missed completely ...

daemon's picture

" Solar might provide some kind of basic possibilities for electric cars and so on, but I have serious doubts it could be scaled to support the entirety of the developed world, let alone the developing nations. "

Don't forget that between the first gasoline motor prototype and the first operational vehicle, a lot of time passed, a lot of trials and errors.

With solar energy that will also be the case. It is simply a question of some combination of efficiency / cost / durability threshold. And given the problems raised by fossil energy, we can reasonably expect solutions to be found in a not so distant future.

MalteseFalcon's picture

"With solar energy [...] It is simply a question of some combination of efficiency / cost / durability threshold."

It is also a question of overcoming the 'energy' companies i.e. some of the most powerful 'folks' on the planet.

daemon's picture

" It is also a question of overcoming the 'energy' companies i.e. some of the most powerful 'folks' on the planet. "

Yes, you are right, let's not forget that essential part of the problem .

Ident 7777 economy's picture

BOTH you guys are idiots and certainly not engineers. A word of advice: Innumeracy is not a positive attribute.

daemon's picture

" BOTH you guys are idiots and certainly not engineers. A word of advice: Innumeracy is not a positive attribute. "

Impressed by the depth of the comment ...... really . Of course, not in a positive sense.

I suggest you take a look at this : http://www.technologyreview.com/news/527926/exotic-highly-efficient-sola...

to simply get a tiny glimpse to the fact that, probably a lot of people are thinking out of the box to solve problems, other seriously pavloved people, like you, deem unsolvable.

And yes, unless WW3 or ebola or something similar sends us (what will be left of us) back to stone age, we will use solar energy, among other renewable energies, to do an awful lot of things and we will replace fossil fuels.

And no, it's not "innumeracy", it's simply knowledge of what science is, and isn't.

BrosephStiglitz's picture

The issue then becomes other commodity resources.  Particularly those used in high-end electronics with low resistivities.  Silver, gold, etc.  Silver would be in particularly short supply in the event we switched to solar in a big way.

 

The Japanese and other major electronic manufacturers are trying to eliminate the need for silver based on its highly volatile prices.  They are working on replacement compounds.  Whether they are successful, or not, is anyone's guess.

You also have Rare Earth Elements, which (unlike their name suggests) are not so rare in the earth's crust, but are virtually impossible to extract from regular soil in large quantities.  Thus, you must find mineral deposits.  These might also be scarce, plus China controls a huge share of the market, because nobody can compete with them sending peasants down into mud-caked uranium mines where they will inevitably die a horrible death, just to mine the shit at low cost.

NB: In addition to the energy situation, you also have dwindling phosphate rock reserves (used to create fertilizers, and explosives).  This could impact the global food supply and Grantham certainly seems to think it is worth worrying about.  I read a 200 page report on Scribd about the phosphate rock situation written by a Dutch researcher, it seems okay for now, but moving forward at this current population? No dice.  If in the worst case scenario that energy prices go up AND phosphate rock goes up substantially, we could quite easily see the onset of starvation.

daemon's picture

" The issue then becomes other commodity resources. "

Yes. And not only the scarcity/rarefaction of some, but the way we use them and don't recycle them even when there are clearly possibilities to do so.

 You mention the, apparently crucial, dwindling phosphate problem. Take a look at this : http://www.nhm.ac.uk/research-curation/research/projects/phosphate-recov...

and after that, think about the fact that a large proportion of world population lives in cities where there is no such recycling. Some people are working on it.

Then think about how we build cars, The divine car. On average a car weighs about 1000 kgs. And when you look at this : http://www.fueleconomy.gov/feg/atv.shtml

and realize that, in most cases, probably about 80% of its operational life will be spent transporting a person weighing about 100 kg, most of the time in urban cycle, and not in necessarily flat regions, you understand that we are still not used to think in terms of efficiency/durability.

Of course there are other examples you can think about. The fact is, when you look at the situation globally, that clearly, we have a habit of spoiling resources outrageously.

There is no doubt that we have a lot lot of problems to solve, and particularly in the way we perceive and use our environment, and our lives. I guess there will be serious shocks and lots of casualties before we change our behaviours.

barre-de-rire's picture

funny part is nobody understand still why israel is making its way to sea.

nobody get why usa push kiev to fuck russia.

 

but all in all, of sure, no... " bla bla no axis "  of course this is all BS... keep going, no problem,

that was announced in 72. you all spited on the information.

you pushed the NAFTA in 90' before europ did maastrich...

 

result ? same, all went east...

 

now you wanna merge usa with europ do the same shit named TTIP ... ?

you think you can go over 20 years this way, change 2 - 5 times presidents ? you are more dangerous than any religion believer then.

 

red fish in a bocal  has the mankind, 30sec of memory, as one wrote above to make joke & show himself smart... " i got only 3 thing i can memorize if i focus. "

don't worry darling, when your .gov will start nuke dancing in the sky, the only thing you will memorize is the 1st letter of the word Fuck before u gone vaporized.

 

 

LordEffingtonThreeSticks's picture

Never the less her message IS invalid either way.  She's an actuary. Please don't ask her to show imagination.  That would be a mistake.

daemon's picture

" Call me eccentric but Fig.1 should read "Matter + Energy + Work --> Product or Service" "

Technically, in physics, work and energy are 2 words describing the same quantity. And when you think about it, in this particular case, what you call work : (intellect + labor), effectively is simply part of the energy you have to put in the system, even if you aren't used to see it as such .

Duffminster's picture

This post gets around to energy towards the end.  I'll put in a compelling video on energy first:

The Reality of Free Energy & Free Energy Devices

and this

The Truth Behind The Energy Lie(What The Energy Cartels Don't Want You To See) full movie

What I believe is not well understood is that economic growth is a result of cash flow.  When the 1% (corporations included) are putting trillions away in secret hiding places from the Caymans to Switzerland to inversion of their companies to foreign nations that money is not circulating.  Fed monetary policies do nothing to increase the velocity of money or in simpler terms net societal cash flow.  While CPE is at about 2.1% the real inflation that has occured and is most obvious is in asset prices.  Yes, QE does cause inflation, massive inflation.  The problem with asset inflation is that it doesn't generate cash flow to the broader economy but serves as a form of socialism for the investing class with the bulk going to the top 5% and concentrated mostly in the top 1%. Fed policy generates a massive increase wealth and income inequality, while concurrently setting up potentially very large financial and social instability, neither of which provide what the broader economy requires, money in the hands of the broader economy that can generate cash flow, consumer spending, economic growth. The system attempts to compensate by increasing consumer credit but that has reached a limit.  Ultra low interest rates also encourage ever greater sovereign debt creation.  The problem with that such policies lock nations and central banks into a policy of always super low interest rates, which discourages savings and drives up asset bubbles to the breaking point.  If interest rates were to revert to their long term mean for US sovereign debt payments in the range of 5% or more, the US would likely default on its debt obligations and likely suffer some kind of social revolution and vast instability.  More likely, those with the most control would seek to enter into a large scale conflageration as they have in the past when power was so highly concentrated among a few and empires were threatened by the corruption that the elite brought upon themselves.  What else is possible? Fed policy has driven a massive bubble in corporate bonds and high yield (junk) bonds as treasuries in many cases are paying next to or below nothing in inflation adjusted yield, depending on you calculate inflation.  This has driven even junk yields below 6%, which is hardly "high yield" by any historical metric and yet that debt is accompanied by far greater risk.  This is coupled with massive liquidity problems in the high yield bonds, which have grown to $1.4 Trillion with dealer liquidity having dropped as low as $6 Billion laterly.  Prior to Lehman dealer liquidity was in the range of 15% of the total bond market and is now down in the range of 1.5% and this sets up massive risk potential if there is any large run on bond ETFs.

The truth is that there are solutions and none of them have to do with monetary policy, but they are certainly not going to be adopted by the existing elite ruled government representation. Tax code is the first place to start. We need a tax system closer to what we had in 1960 than what we have now and it needs to be simpler. We need to use tax code to put as much money into consumers pockets as possible because they create economic cash flow because they spend there money when they receive it.  For households up to $100 thousand I'd say to pretty much cut taxes.  I'd raise the top rate to closer to 70% and have the brackets move as high as $10 Billion with a fairly steep drop off.  As far as corporate taxes, I'd basically cut the top rate dramatically, close virtually every special interest tax loopehole and provide a repatriation holiday to bring existing overseas money back.  I would level capital gains taxes at the same rate as that of the federal income tax rate, so if you were making under $100 thousand and made it all through capital gains, you would pay nothing.  This gets smaller invetors into the capital markets and investing.  However if you were in tax braked paying 20%, say at $300 thousand under a new tax code, you would pay 30% on capital gains. The few loopholes I would leave would be designed to stop outsourcing alltogether through incentives and to continue to ecourage capital spending but more virorously and I would do the same for domestic hiring, training and R&D. 

Beyond tax code there is the better solution that can free the human race and that is free energy technology.  If such technology is allowed to come to market it can resolve almost every woe that ails the human race.  That is a big if.   Tesla was the first to show that energy can be generated simply from the ambient flux within the electromagnetic field of the Universe.  This technology has arisen and been shut down many times by those who live in the constant fear of obsessive need to dominate and control via resource scarcity.  Wherever there is flux there is the ability to extract energy.  It has proven over and over again that torroidal systems can extract electricty from the large flux that is constantly occuring in the surrounding fields.  Every time this technology is brought forward that powers that be confiscate or worse. While there are a lot of scams out there in regard to free energy, there are resources and evidence validating the designs that can deliver energy at the cost of simply building related devices. By simply doing an internet search on a phrase like "free energy info" you can find the working designs and patent references for many of these.  Currency can be translated into energy and if we can deliver currency to the economy via free energy, most of the problems of the world and the suffering of humanity can be eliminated.  Unfortunately the current sociopathic elite live in a state of perpetual fear and thus a need to control dominate and eliminate anything that would keep them from their nightmare, which they seek to impose on everyone else.  Once we overcome all fear of death, then we realize that we have absolute power to change the dream from their nightmare to a world which is based in infinite abundance, peace and prosperity for all.  What else is possible?  How does it get better than that?

Here is just one of several sites that deal in this subject of free energy generation. 

http://www.free-energy-info.com/NewcomerIndex.html

barre-de-rire's picture

telsa, next biggest scam after 21/12/2012

 

only fucking americans can believe that you can got free energy...

 

go back school... you seriously need it.

 

the only thing you got for free, mostly genetically because of your fucking GMO,  is free mental illness... this is totally pathological relevant.

 

nobody has any plan,scheme, blu print of any shit of this most 21th century scam.

for only one reason, once they published,   ppl realize it is utter BS :)

 

but one thing would be true, you paid for the blue prints HAHAHAHAHAHAHA HOHOHOHOHOHOH HIHIHIHIHIHHIHI....

fuck you, morron dumbfucks. u not deserve to live. suck nigger ebola cock   %====> 

 

 

 

Ident 7777 economy's picture

The innumerate non-engineers do not understand they are getting 'hosed' and the are they real 'product' behind these hoaxes ... if I had _no_ conscience I would be tempted to 'clip' these sheep too and make a few easy (and fun) bucks.

Milestones's picture

Interesting, well thought out post; also well presented.

Thanks for the heads up on the energy link.

Enjoyed reading your comments .  A small tip of the hat to the late Mike Ruppert who was searching for answers.               Milestones

Seeing Red's picture

What's more likely -- an "inventor" breaks the known laws of physics, or it's a scam?  I've researched a few of these (as a hobby) and they've all been complete scams so far.  Think I'm wrong?   Most of these guys are happy to take your money.  Bad science abounds in the USA -- look at the number of moon-landing deniers (FYI, figuring out where they screwed up in their "proof" arguments is often entertaining and a good way to practice high-school-level physics again).

christiangustafson's picture

I love you, Gail.

Also, I love you, Gail.

DaveyJones's picture

like this site, the oil drum will hold an interesting place in history 

MalteseFalcon's picture

The Oil Drum is history.  The funding, which came from 'Oh, I don't know where', was withdrawn.  Vaya con Dios, Oil Drum.

BrosephStiglitz's picture

Not at all actually.  This article bridges the gap between physics and economics.  Even if the physics knowledge detailed within is rudimentary at best (and probably subject to some inaccuracies- a physics graduate could say better.)  Nobody on this earth can escape the realities of physics.  That's an immutable fact.

MalteseFalcon's picture

Yes, Einstein's physics stayed strictly within the bounds of Newton's physics.  That's why no one knows Einstein today.

BrosephStiglitz's picture

Except we're not talking about the theory of relativity, or quantum mechanics, or string theory.  The energy situation can merely be reduced down to the mechanical work equation.  Any higschooler over the age of 15, in any developed country should be able to explain that.  It is one of the most basic physical concepts around.

A glut of relatively abundant energy makes mechanical work much easier to do.  That is the fundamental reason behind a rather epic population hockey-stick when, for millennia, the global population increased at a much more stable rate.

Edit:  Well, sorry, I am talking like an economist now.  That is one of the main reasons, along with capital accumulation and technological progress.  However, a large part of that came from freely available energy.

MalteseFalcon's picture

Oh wait.  They just "discovered" a new large oil deposit in the North Sea off of Scotland.  So it isn't physics, it's geography or is it geology?

Damn, the oil just about runs out and then some clown finds more.  Was this find in the "official" reserves figure? I guess any analysis is bullshit if the input data is bullshit.

Captain Obvious.'s picture

All perfectly true and based upon the assumption that we have reached the end of the scientific endevour.

"All that is left is to dot the "ts" and cross the "is"." When did we hear those famous words last? Oh yes. Lord Kelvin, 1900.

Which are you going to trust, Your cultural beliefs or the empirical data?

http://coldfusionnow.org/

Not meaty enough for you? Get your teeth into this then.

http://lenr-canr.org/

Or not.

The other option is to bend over for Mr Darwin.

christiangustafson's picture

Maybe for the survivors.

First we have some serious culling of the herd ahead.

saveandsound's picture

Unfortunately, LENR doesn't work.

kevinearick's picture

Intermittent Learning:   Fire Creates Its Own Weather

Short cut efficiencies ‘work’ under zero variability, so the system seeks zero variability, until it blows up, which physics tells you is going to happen, but that doesn’t tell you when. If there’s a 90% probability that your distributor circuit is failing, a 9% probability that your fuel pump circuit is failing, and other, a thousand different possibilities, is 1%, are you going to swap out your distributor and/or your fuel pump, or buy another car? (no, no, & no)

If you accept higher education, forming a committee to solve a problem from the past, created by higher education, to propose a plan for the future, buying consensus with printed money, while a thousand other outcomes occur, you get what you get, war. At the beginning of each empire cycle, this stuff is common sense, because Goliath just got his a* kicked, again. Labor is in the business of cleaning up the mess and rebooting the system.

The vast majority of critters will accept derivative civil marriage compliance by age two, and confirm compliance to a particular peer pressure event horizon, usually their parent’s FILO placement, by age sixteen. The vast majority of the rest will join the futile peer pressure resistance event horizon, employed as an example to the remainder, who will be hunted down by process of elimination.

Capitalism simply exploits the resulting demographic boom bust cycle of socialism, in what it chooses to call a market. When the boom started was the time to consider demographic stabilization, and when the capitalists lost control was the time to implement developments. In 2008, the price tag was $2T. Now that the critters have demonstrated complete incompetence, bidding against themselves to the tune of $50T, and demographic collapse has taken hold within the majorities, war is escalating out of control.

The FILO ‘first-ins’ are given every advantage – free money, technology, extortion, military and information advantage, within the closed system they create for the purpose, but the committee gets beat by a kid every single time, which is the point of public education. Don’t get upset because your children tell you school is stupid; tell them to teach themselves, to focus on the relationship between life and gravity, because timing gravity to turn on itself is everything.

Waiting for God’s time, unknown recognition, is not about sitting on you’re a*, reading the bible, re-reading empire History, gossiping at the office, building a more efficient rat trap, or coming up with yet another theory on the Internet, to maintain the status quo of false assumptions. It’s about preparing to be successful until you are, practicing faith, by seeking and finding what others do not, acquiring physical and mental skills in the process of developing your talent.

The economy is always being rebuilt, from the bottom up, hidden only by false assumptions accepted by the majority, through kindness of a stranger, because no one can f* you like your family, copying feudalism more efficiently. In a nutshell, regardless of job, which is always fubared, you clean up the mess on Friday so the critters can start on Monday, until you don’t, by walking through gravity to alter the outcome data, making stupid obvious for those who have not accepted the false assumptions.

If you happen to be assigned to the homeless event horizon with kids, and you figure out how to feed and cloth them, get them off to school with a good attitude, and get yourself to that $10/hr job, when 1st, last and deposit is $2500, without accepting the assumptions of your station, whether you are advantaged or disadvantaged is a matter of perspective. Regardless, your role is a helleva lot more important to the economy than which quarterback supposedly won the superbowl, not that you can’t enjoy a football game.

The morons, paying $100/barrel for oil, increasing rent on falling income, and bombing impoverished children along with their parents’ industry, to get cheaper crap at higher prices, are their own worst enemies. Regardless of answer proffered by the socialists, it should be obvious that queuing people up as bait for capitalist predators, to secure FILO entitlement, doesn’t work.

On a scale of 100, parenting is 100. Anything you do at a public, private or non-profit corporation is a 1. Finding an effective spouse and having children, as real demand becomes obvious, is your top priority. Next is a job and a landlord to adjust your income to rent ratio. What you actually do for an empire job is irrelevant, as is the empire. For every Joe Montana, there were a thousand better quarterbacks who didn’t go to the NFL, because the false assumptions of the majority simply weren’t a priority.

We have 2000 firefighters up here creating economic activity, fighting nature, while their boss ships redwoods through San Francisco to Asia, and replaces it with pot, playing last to lose in a drought. It’s always a food war, but you’ll have that. The critters are going to do what they are going to do, following the laws of gravity. Don’t step in front of that train expecting them to stop. You can see everything you need to see at the station.

magnetosphere's picture

this author has repeatedly demonstrated a profound ignorance of how and why the steam engine was invented, and likely does not understand what the benefits of a heat engine even are

HughK's picture

She understands steam power and internal combustion, which is why she - and the rest of us - should care about the relationship between energy and the economy.

Temerity Trader's picture

WTF? Who f***ing cares? The Economy. ONE basic Principle! The Fed!

All that matters is will the Fed print moar money?  Oil doesn’t matter, so long as people can borrow cheap Fed dollars to buy it. There are ONLY two things that matter, consumerism and debt. Forget about everything else. They are selling more giant SUVs than ever! Why? Because consumers can borrow cheap Fed dollars and use plastic to fill the tank; then default and Uncle Sugar bails out the banks.  Rinse, repeat. Duh! What part of this don’t the ZH perma-bears understand? NOTHING f***ing matters but consumerism and debt. If energy prices soar, QE infinity is guaranteed. Loan forgiveness is next.

The Fed will support the stock market because they believe 100% in the trickle-down wealth effect. And it works. You can see it every day, penniless unemployed people driving brand new sheet metal with the newest I-Phone in their ear. Houses selling to cash buyers, bidding wars=cheap Fed $$. There is so much “liquidity” out there, it is unreal. It is all chasing the same assets. If things turn ugly, Fed announces another QE and trillions more $ to be created.  Bears are gored again and again.  “But, but, if oil prices rise!” LMAO.