Is the world doomed to economic collapse

Calliban · 2019-12-04 06:26:51

With each passing year since about 1980, US interest rates have followed a slowly declining trend. Effective federal funds rate is now zero, meaning that the federal reserve is creating and lending money for free.

https://talkmarkets.com/content/us-mark … ost=137808

Interest rates are basically an expectation of growth. Low interest rates are an attempt to stimulate growth in the economy. If other growth factors are expensive, cheap money is a way of compensating and stimulating growth. The problem is that it hasn't been working. And low interest rates mean lower returns on investment, leading to shortfalls in things like pension provision. We are effectively robbing the future, in a desperate attempt to keep things running today.

https://www.valuewalk.com/2016/11/tempe … ectations/

https://www.zerohedge.com/news/2017-01- … gdp-growth

The mystery behind declining Western World growth rates is solved when one realises that the economy is basically a machine that runs on surplus energy. This is very obvious if you care to think about it, because energy is the enabling factor for any physical activity at all, including the products and services that human beings value. If energy is cheap and abundant, then economic growth can occur very quickly, because the energy supply to the economy can grow quickly.

Between the end of WW2 and the early 1970s; oil was very cheap and in the US at least, supply could be expanded easily using onshore conventional drilling. Unfortunately, America's low-cost, conventional, onshore oil reached peak production in 1971. Ever since then, oil prices rose progressively, gradually squeezing the life out of economic growth.
https://misunderstoodfinance.blogspot.c … -1980.html

Around 2014, quantitative easing began, which allowed shale oil companies access to effectively free money, whose interest rates were lower than inflation. Global oil price declined to levels not seen in decades. But real economic growth has failed to reappear. Could it be that so much labour and physical resources are now being consumed by energy production, that capital investments in other parts of the economy are starting to suffer?
https://ourfiniteworld.com/2013/02/14/t … to-growth/

The hidden cost of low EROI energy. It is precisely the declining 'energy return on energy investment' of energy sources that is sucking the life out of the global economy. Some important reading:

https://www.tullettprebon.com/documents … si_006.pdf

Last edited by Calliban (2019-12-04 06:52:35)

tahanson43206 · 2019-12-04 08:20:17

For Calliban re topic ...

Thanks for creating and developing this topic.

I agree with the proposition that increased abundance and availability of energy to members of the population will (should) lead to increased prosperity.

However, I believe that it is the clever use of whatever resources are available to make useful products and services that is the source of wealth for a population.

Abundance of energy and material supplies feeds into productive activity of human beings.

I'd like to offer a way of thinking about debt that seems foreign to your way of thinking.

When I see the total amount of debt you reported, I see the amount of value individual humans have committed to each other.

If people had not made any commitments to each other, the global debt would be zero, and the economy would be stagnant.

I would expect the total of debt to keep rising as the population increases, and as the amount of goods produced and services exchanged increases.

It is possible one or more economists have explored this idea, but if they have, I've missed the discussion.

(th)

Last edited by tahanson43206 (2019-12-04 08:20:54)

kbd512 · 2019-12-04 22:22:30

Calliban,

The answer to economic problems caused by a lack of the master resource must therefore be "solved" by making energy significantly more unaffordable and scarce through the use of "renewable energy", aka "expensive energy", aka "no energy when the Sun don't shine and the wind don't blow". That makes perfect sense to me. Not!

I have a different theory about the economic slowdown of more recent decades and how it relates to valuation.

Advanced economies are driven by consumption and added value. After basic needs have been met for the overwhelming majority of the citizenry, everything thereafter is a degree of privilege which some will decide has added value while others will not. Everyone will differ in that regard. In a capitalist system, we reserve the right to differing valuation. In a communist system, valuation is forced rather ruthlessly. That's why one system flourishes and the other quickly withers and dies. Without the ability to differ in valuation, valuation is contrived rather than derived. Basically, it's an unnatural state that punishes rather than rewards ingenuity.

For example, against my wishes my wife purchased new clothes for me to wear once I started my new job. Some of the clothes I had previously were still serviceable, in my opinion, and I would've worn those clothes until they had holes in them or more noticeable holes in them. A few of my slacks and shirts were older than my son, but most were only around 5 to 6 years old. There's no way I would ever buy a new article of clothing unless I thought I actually needed it. However, my wife quite clearly doesn't value the exact same things that I do.

If the iPhone 10 is only slightly less capable than the iPhone 11, but the iPhone 11 costs an extra $200, then at some point whatever additional benefits one might derive from the iPhone 11 won't be considered to be worth the additional associated cost (to some specific person or group of people, not necessarily everyone). That said, when there are fewer and fewer people who think that they're deriving sufficient tangible benefits from "the next best thing", then there will be less and less demand and therefore associated supporting activities for the next best thing. Over time, the economy will contract as the participants begin to believe that they no longer derive sufficient added value from newer / faster / more advanced "whatever" for money to trade hands.

On that note, the collapse in population expansion amongst those of us living in industrialized countries has also decreased demand for goods and services. When the pool of new customers stops expanding, or especially when it actually contracts, there are ever fewer customers who may decide that they derive added benefit from the next best thing. The economy eventually stagnates, with decline being the ultimate result. This doesn't mean that growth will stop completely, just that the next best thing has to be nearly revolutionary, or very cleverly marketed as such, in order to be considered a worthy "upgrade".

While we would certainly derive additional benefits from cheaper energy, there will come a point when most of us realize that more consumption doesn't bring about sufficient additional benefits to warrant the increase. There are all kinds of examples of this over time.

tahanson43206,

There are plenty of economists who are adherents to the "debt is good" philosophy, but they're simply not very principled. Debt is an unpaid obligation due to the inability to repay. It's a unit of human productivity that's been practically or even irretrievably lost. I can understand why so many people would believe this, given the wholesale replacement of results-oriented principles with ideology in academia, but it's still just another variation of the broken window fallacy. Anyone who's ever read Henry Hazlitt's "Economics In One Lesson" (freely available online) can plainly and simply understand why broken windows are bad for the economy. Breaking all the windows in a city doesn't add any economic value, even though the window companies stand to make a fortune off of the city's misfortune.

louis · 2019-12-05 05:28:40

So many wrong ideas in this thread!

1. Population is increasing at a very fast rate in both the UK and USA. There is no shortage of population-based demand. Population in both countries is increasing around 0.7% per annum - an extremely high rate of population growth (far too high I would say).

2. Interest rates might have declined since the 80s but that hasn't stopped huge growth in GDP. Real GDP in the USA has grown from $6.8 trillion in 1980 to $18.6 trillion in 2018.

https://www.thebalance.com/us-gdp-by-year-3305543

There might be questions about how the increase has been distributed but there's no doubt the increase has been huge, despite low interest rates.

There has certainly been no "economic slowdown" in the sense of a recession over the last 10 years. But one key factor seems to be slower increases in productivity. That might in turn reflect previous shifts away from manufacturing to services.

3. Low interest rates are probably more an indication of tightened profit margins...basically the US has opened up its markets to external competition (at least until the Trump era has reversed that a little). There was no way American companies could compete with Chinese and Indian companies that had access to very cheap pools of labour (from rural areas) in the hundreds of millions.

4. There's no evidence that renewable energy makes anyone poorer. Hydroelectric demonstrably turned poor countries like Norway and Sweden into advanced economies. Renewable energy is already a cheaper method of electricity generation than coal, oil and gas in many countries in the equatorial and sub-tropical zone. But it also creates lots of domestic employment as well, so rather than make fabulously wealthy Arab potentates even more fabulously wealthy, you spread your energy expenditure as wealth within your own economy.

Last edited by louis (2019-12-05 05:57:54)

kbd512 · 2019-12-05 21:28:48

Louis,

Speaking of "wrong ideas", welcome to the discussion.

Maybe you were off vacationing on Mars about ten years ago, but the world lost hundreds of billions if not trillions of dollars and we're still suffering from the effects of that recession. BTW, some of us would really like to see some of those Mars rocks you undoubtedly collected when you're not otherwise busy.

If you take away the immigrant populations entering the US, both legal and illegal, then you wind up with a nearly stagnant demographic of replacement people to carry on the American experiment. Furthermore, the people who entered the US merely shifted the concentration of people from one area of the world to another. Birth rates have fallen off of a cliff in nearly every industrialized country. In any event, these people simply moved to where the economy was still much better than the places they left. The Millennials and immigrants (the younger ones) are America's only "life line". As the boomers start to die off, America's population will be contracting, not increasing. Our population is only "growing" at present because we have a lot of old people that modern medicine has kept alive for many years longer than they would otherwise live. I think longevity is a good thing, since a well-functioning society needs people around who remember what life used to be like, as a warning order if nothing else, but the fact remains that that's the only reason our population is presently "increasing". That's why we need as many qualified immigrants (law abiding citizens who came here in search of a better life) as we can get our hands on.

There are certainly up-and-coming countries like India where there is a net positive growth in the consumer base. Life isn't all rainbows and roses for them right now, but they're making huge strides in quality of life on a decade over decade basis. China, like the US, is rapidly becoming an old folks home.

Hydroelectric is an example of a nearly tapped-out resource. Developing countries aren't building hydroelectric plants, nor wind or solar farms, like they're going out of style. However, they do seem to have a voracious appetite for coal and gas. That pretty much negates your assertion that coal is actually more expensive than wind and solar. When a rich country purchases wind or solar for a developing nation, the poverty-stricken nation won't turn their noses up at free power infrastructure, even if it's not very reliable. Something is better than nothing.

Most industrialized countries have enacted self-imposed regulations to prevent their use of coal. It's a manipulation of the market that doesn't apply to nations that can't afford expensive energy. That said, it's only been replaced with natural gas. Your proposed plan to solve the storage problem unique to expensive energy is to make and burn natural gas from scratch, which will only further increase the price of energy by consuming more energy. Only wealthy countries can afford to use renewable / expensive / unavailable more often than not energy.

You can advocate for a personal belief only so far, whereupon objective reality rears it's head. Germany has spent more than double the amount of money they would've spent to purchase brand new nuclear reactors, yet only managed to supply 40% of their energy with expensive energy. Nobody even knows how much a 100% expensive energy solution would cost since no country larger than a postage stamp has ever achieved that. Cherry-picking idealized examples as "proof" that something works is not making much of a case for it, either. It's like running a car powered by a fighter jet engine down a drag strip and proclaiming that jet engines can work for passenger vehicles at a global scale. That's the level of absurdity that we're arguing over. At some point, pragmatism needs to be allowed to work its magic.

America, land of litigiousness and bureaucracy, spent $5B for each new 1.25GW light water reactor 15 years after Germany embarked on their Energiewende / Energieunbezahlbar crusade. 20 years later, they've blown through more than twice as much money as it would've cost them to purchase brand new nuclear reactors in today's dollars. Despite having nearly double the required installed capacity to meet their energy demands, in terms of expensive energy, that still provides less than half of the electricity they consume. Meanwhile, they're busily digging up centuries-old forests and bulldozing medieval architecture to get at the coal that you don't think they need.

I'm 100% in favor of experimentation leading to the industrial scale manufacture of synthetic fuels. There's no reason why we shouldn't perfect those processes ASAP. One day, that's all we'll have left.

louis · 2019-12-06 08:07:26

Real World GDP has increased by over a third since 2009. 2009 was the only year of recession in World GDP in the last five decades.

https://www.worldometers.info/gdp/#gdpyear

The USA is not the only country in the world but it too has only had two years of negative growth in the last 25 years.

In terms of demand, a person is a person. Once resident in the USA, migrants - even if they are on low incomes - will be adding demand.
Old people also eat, heat and tweet.

Seems like you are just trying to argue population growth away.

I agree hydro is not the future for energy - I referenced it only as an example of renewable energy that has never impoverished anyone.

France is probably the most enthusiastic user of nuclear power in Europe:

https://en.wikipedia.org/wiki/Nuclear_power_in_France

But the new French EPR reactor has been a disaster and looks like it is going to produce electricity at a high cost of 7-9 cents per KwH.
Reference is made to S Korean reactors being the cheapest but South Korean electricity prices for consumers and businesses are between 7 and 10 cents per KwH, so it is difficult going forward to see how even their reactors can compete with wind and solar when they're getting down to producing electricity at 2 cents and lower.

https://www.globalpetrolprices.com/Sout … ty_prices/

The only thing that can possibly prevent complete domination by renewable energy is the storage problem but that too is being addressed.

kbd512 wrote:

Louis,
Speaking of "wrong ideas", welcome to the discussion.
Maybe you were off vacationing on Mars about ten years ago, but the world lost hundreds of billions if not trillions of dollars and we're still suffering from the effects of that recession. BTW, some of us would really like to see some of those Mars rocks you undoubtedly collected when you're not otherwise busy.
If you take away the immigrant populations entering the US, both legal and illegal, then you wind up with a nearly stagnant demographic of replacement people to carry on the American experiment. Furthermore, the people who entered the US merely shifted the concentration of people from one area of the world to another. Birth rates have fallen off of a cliff in nearly every industrialized country. In any event, these people simply moved to where the economy was still much better than the places they left. The Millennials and immigrants (the younger ones) are America's only "life line". As the boomers start to die off, America's population will be contracting, not increasing. Our population is only "growing" at present because we have a lot of old people that modern medicine has kept alive for many years longer than they would otherwise live. I think longevity is a good thing, since a well-functioning society needs people around who remember what life used to be like, as a warning order if nothing else, but the fact remains that that's the only reason our population is presently "increasing". That's why we need as many qualified immigrants (law abiding citizens who came here in search of a better life) as we can get our hands on.
There are certainly up-and-coming countries like India where there is a net positive growth in the consumer base. Life isn't all rainbows and roses for them right now, but they're making huge strides in quality of life on a decade over decade basis. China, like the US, is rapidly becoming an old folks home.
Hydroelectric is an example of a nearly tapped-out resource. Developing countries aren't building hydroelectric plants, nor wind or solar farms, like they're going out of style. However, they do seem to have a voracious appetite for coal and gas. That pretty much negates your assertion that coal is actually more expensive than wind and solar. When a rich country purchases wind or solar for a developing nation, the poverty-stricken nation won't turn their noses up at free power infrastructure, even if it's not very reliable. Something is better than nothing.
Most industrialized countries have enacted self-imposed regulations to prevent their use of coal. It's a manipulation of the market that doesn't apply to nations that can't afford expensive energy. That said, it's only been replaced with natural gas. Your proposed plan to solve the storage problem unique to expensive energy is to make and burn natural gas from scratch, which will only further increase the price of energy by consuming more energy. Only wealthy countries can afford to use renewable / expensive / unavailable more often than not energy.
You can advocate for a personal belief only so far, whereupon objective reality rears it's head. Germany has spent more than double the amount of money they would've spent to purchase brand new nuclear reactors, yet only managed to supply 40% of their energy with expensive energy. Nobody even knows how much a 100% expensive energy solution would cost since no country larger than a postage stamp has ever achieved that. Cherry-picking idealized examples as "proof" that something works is not making much of a case for it, either. It's like running a car powered by a fighter jet engine down a drag strip and proclaiming that jet engines can work for passenger vehicles at a global scale. That's the level of absurdity that we're arguing over. At some point, pragmatism needs to be allowed to work its magic.
America, land of litigiousness and bureaucracy, spent $5B for each new 1.25GW light water reactor 15 years after Germany embarked on their Energiewende / Energieunbezahlbar crusade. 20 years later, they've blown through more than twice as much money as it would've cost them to purchase brand new nuclear reactors in today's dollars. Despite having nearly double the required installed capacity to meet their energy demands, in terms of expensive energy, that still provides less than half of the electricity they consume. Meanwhile, they're busily digging up centuries-old forests and bulldozing medieval architecture to get at the coal that you don't think they need.
I'm 100% in favor of experimentation leading to the industrial scale manufacture of synthetic fuels. There's no reason why we shouldn't perfect those processes ASAP. One day, that's all we'll have left.

Calliban · 2019-12-06 08:40:14

Some interesting ideas here.

I propose the following idea: The economy is basically a machine that manufactures things that human beings value (wealth). As such, it is governed by the laws of physics. We can define economic activity as:
• Human labour…
• …leveraged through the use of artificial energy…
• …which is harnessed by capital equipment…
• …for the production of goods and services…
• …through the action of energy on matter, changing its state…
• creating things that human beings value (wealth).

That is how wealth is made. Possible drags on per capita wealth would be declines in one or all of the following:
1. Labour force as a percent of total population;
2. Quality of labour (education levels, health, etc.);
3. Availability of energy;
4. Quantity or quality of capital equipment;
5. Availability of key materials.

No 1 appears to be declining. I agree with Kbd512 that declining working age population is a very significant contributor to current economic problems. Working age population is now declining as a percent of total population in virtually every developed country. In US and UK, it peaked around 2010. In Germany and Japan, it peaked in the 1990s.
http://conversableeconomist.blogspot.co … n-and.html
It is difficult to see how GDP per capita can continue expanding for very long, if the number of workers is declining. It would require that productivity per hour worked increases at a rate far above historical trends.

No 2 appears to be on the up (in the US at least), if the number of graduates is at all indicative. But student loan debt is growing exponentially.
https://hyperallergic.com/156068/indict … nd-beyond/

No3: Availability of energy is clearly hitting limits. Global conventional oil production levelled off around 2005 and all supply growth since then has been from more expensive (and lower EROI) unconventional deposits.
https://twitter.com/aeberman12/status/9 … 3253604353

The US shale industry (tight oil) has racked up $2trillion in debt; has never turned a profit and requires enormous drilling rates just to maintain production at constant levels. This technology would never have been pursued if non-OPEC countries had available abundant supplies of conventional oil and it would not be possible if interest rates were greater than inflation. Unconventional supply will grow only as long as interest rates remain low.

No 4: Capital investment appears to be stagnating in OECD countries at least.
http://haskelecon.blogspot.com/2015/06/ … ining.html

No 5: Global materials use is still growing, but shows signs of levelling off. The huge increases since 2000 reflect China's industrialisation.
https://www.researchgate.net/figure/Glo … _330533894

Calliban · 2019-12-06 09:03:00

louis wrote:

Real World GDP has increased by over a third since 2009. 2009 was the only year of recession in World GDP in the last five decades.
https://www.worldometers.info/gdp/#gdpyear

How much of this is the simple spending of borrowed (or printed) money? Most of this is simply inflating asset prices. Asset price escalation is incorporated into GDP growth figures. But it clearly doesn't represent any increase in net wealth for society as a whole. For individuals it may represent an increase in net wealth, if they can sell their inflated assets. But this does nothing but swap ownership and money around. It doesn't create anything real that didn't exist before.

If you want a good indication of Real GDP, look at global exports in manufactured goods. Those are the things that people consume. Not so rosy is it?

https://data.worldbank.org/indicator/BX.GSR.MRCH.CD

Last edited by Calliban (2019-12-06 09:05:19)

Calliban · 2019-12-06 09:44:00

In the developed world, the lions share of debt is owned by private investors (especially pension funds) or domestic banks.

https://www.businessinsider.com/heres-w … ?r=US&IR=T

Low interests rates are now essential in preventing the economy from collapsing, yet they are undermining pension fund returns and bank profitability by destroying the return on capital. This is now less than inflation in developed economies. Yet, increasing interest rates would push economic growth into negative territory. Low interest rates rob long term investors, but allow resources to be consumed today instead of tomorrow. They allow you to keep your job today, but destroy your provisions for old age. The decline in interest rates across the world, suggest that investments across the entire global economy are becoming less profitable. This is discouraging capital investment. China continues to dominate the world in capital investment, but its soaring debt-GDP ratio since 2008, indicates steadily diminishing returns.

This is strongly suggestive of physical resource constraints. Either there are fewer working age people who can afford to buy goods or there is inherently less surplus energy available to fuel the economy. I suspect it may be a combination of the two. It cannot be a coincidence that global conventional oil production peaked immediately before the beginning of the great recession and that all increase in global production has come from lower EROI non-conventional deposits since then. The relatively poor growth in globally exported goods since 2008, suggest that real world GDP has barely budged.

Last edited by Calliban (2019-12-06 09:53:59)

louis · 2019-12-06 18:47:13

I'd say no economy can defy the laws of physics, but an economy doesn't operate on the basis of the laws of physics. Economies operate on the basis of technology, land and raw materials, labour, capital, investment strategies, level of education of labour force, confidence, population growth and other human-based factors (we seem to agree on that).

A contraction in labour power is not very relevant if technology is increasing productivity. Technology is increasing productivity right across the world and will continue to do so in the future. The only reason the USA might be performing poorly in relative terms is because, despite being a continental economy, it opened up its markets to the Communist Chinese and others who operate on completely different rules. It's the equivalent of the Manhattan Native Americans selling off their island for a few beads. Nixon and Kissinger made a just about the worst mistake in history in cosying up to Maoist China.

On use of raw materials you have to understand that recycling technology is improving all the time so don't expect raw material usage to increase at the same exponential rates seen in the past.

Until you can explain why World GDP is increasing at such a rapid rate year by year unimpeded, I won't take any of your Jeremiah predictions seriously.

Calliban wrote:

Some interesting ideas here.
I propose the following idea: The economy is basically a machine that manufactures things that human beings value (wealth). As such, it is governed by the laws of physics. We can define economic activity as:
• Human labour…
• …leveraged through the use of artificial energy…
• …which is harnessed by capital equipment…
• …for the production of goods and services…
• …through the action of energy on matter, changing its state…
• creating things that human beings value (wealth).
That is how wealth is made. Possible drags on per capita wealth would be declines in one or all of the following:
1. Labour force as a percent of total population;
2. Quality of labour (education levels, health, etc.);
3. Availability of energy;
4. Quantity or quality of capital equipment;
5. Availability of key materials.
No 1 appears to be declining. I agree with Kbd512 that declining working age population is a very significant contributor to current economic problems. Working age population is now declining as a percent of total population in virtually every developed country. In US and UK, it peaked around 2010. In Germany and Japan, it peaked in the 1990s.
http://conversableeconomist.blogspot.co … n-and.html
It is difficult to see how GDP per capita can continue expanding for very long, if the number of workers is declining. It would require that productivity per hour worked increases at a rate far above historical trends.
No 2 appears to be on the up (in the US at least), if the number of graduates is at all indicative. But student loan debt is growing exponentially.
https://hyperallergic.com/156068/indict … nd-beyond/
No3: Availability of energy is clearly hitting limits. Global conventional oil production levelled off around 2005 and all supply growth since then has been from more expensive (and lower EROI) unconventional deposits.
https://twitter.com/aeberman12/status/9 … 3253604353
The US shale industry (tight oil) has racked up $2trillion in debt; has never turned a profit and requires enormous drilling rates just to maintain production at constant levels. This technology would never have been pursued if non-OPEC countries had available abundant supplies of conventional oil and it would not be possible if interest rates were greater than inflation. Unconventional supply will grow only as long as interest rates remain low.
No 4: Capital investment appears to be stagnating in OECD countries at least.
http://haskelecon.blogspot.com/2015/06/ … ining.html
No 5: Global materials use is still growing, but shows signs of levelling off. The huge increases since 2000 reflect China's industrialisation.
https://www.researchgate.net/figure/Glo … _330533894

louis · 2019-12-06 18:53:33

I think this is completely wrong headed. What determines economic output is essentially technology, particularly technology applied in agriculture and industry. This is why we are seeing huge world GDP growth every year - non stop (apart from 2009) for the last five decades.

Everything else is just minor expansion and contraction. It wasn't the fact that the Model T Ford looked nice that made it sell everywhere, it wasn't the fact that there were millions more Americans in 1920 compared with 1900, it wasn't because Ford were more profitable on a percentage basis than other firms...it was because technology (production line assembly and other innovations) allowed Model T Fords to be produced much more cheaply than before. That's all. Once you could produce them at a certain price people would buy them.

Calliban wrote:

In the developed world, the lions share of debt is owned by private investors (especially pension funds) or domestic banks.
https://www.businessinsider.com/heres-w … ?r=US&IR=T
Low interests rates are now essential in preventing the economy from collapsing, yet they are undermining pension fund returns and bank profitability by destroying the return on capital. This is now less than inflation in developed economies. Yet, increasing interest rates would push economic growth into negative territory. Low interest rates rob long term investors, but allow resources to be consumed today instead of tomorrow. They allow you to keep your job today, but destroy your provisions for old age. The decline in interest rates across the world, suggest that investments across the entire global economy are becoming less profitable. This is discouraging capital investment. China continues to dominate the world in capital investment, but its soaring debt-GDP ratio since 2008, indicates steadily diminishing returns.
This is strongly suggestive of physical resource constraints. Either there are fewer working age people who can afford to buy goods or there is inherently less surplus energy available to fuel the economy. I suspect it may be a combination of the two. It cannot be a coincidence that global conventional oil production peaked immediately before the beginning of the great recession and that all increase in global production has come from lower EROI non-conventional deposits since then. The relatively poor growth in globally exported goods since 2008, suggest that real world GDP has barely budged.

Calliban · 2020-02-07 06:32:17

An interesting study carried out for the Geological Survey of Finland. It concludes that a plateau in global oil production was the direct cause of the 2008 economic crisis. Further shortfalls, resulting from the slowdown and bankruptcy of the US shale sector, could be the tipping point for the next crisis. This will be 3 times larger than the 2008 Great Recession.

http://tupa.gtk.fi/raportti/arkisto/70_2019.pdf

'Starting in January 2005, all commodity prices that the World Bank track to monitor the industrial ecosystem (base metals, precious metals, oil, gas and coal) blew out in an unprecedented bubble. The second worst economic correction in history, The Global Financial Crisis (GFC) in 2008, was not enough to resolve the underlying fundamental issues. After the GFC, the volatility in commodity price continued. This report makes the case that the GFC was created as the entire industrial ecosystem was put under unprecedented stress, where the weakest link broke. That weakest link was in the financial markets. The strain that created this unprecedented stress, was triggered by the global oil production plateauing. This made the oil market in elastic in form. This is postulated to have happened because the Saudi Arabian oil production was unable to increase production in January 2005, in spite a significant increase of operating rig count. If further analysis supports this hypothesis, then the GFC was created by a chain reaction that had its origins in the oil market.'

louis · 2020-02-07 08:33:48

The plateau in oil production is much more likely to have been a result of the gathering financial crisis.

The "economic crisis" was hardly anything of the kind. It was a one year blip (in 2009). Otherwise, World GDP continued its steady year on year increases:

https://www.multpl.com/world-gdp/table/by-year

There's little connection to oil production. Even in the 1970s when world oil production had two very large falls (cartel driven) the world economy continued to grow, uninterrupted.

With renewable energy now becoming cheap I think there is even less reason to believe that oil determines world GDP growth.

Calliban wrote:

An interesting study carried out for the Geological Survey of Finland. It concludes that a plateau in global oil production was the direct cause of the 2008 economic crisis. Further shortfalls, resulting from the slowdown and bankruptcy of the US shale sector, could be the tipping point for the next crisis. This will be 3 times larger than the 2008 Great Recession.
http://tupa.gtk.fi/raportti/arkisto/70_2019.pdf
'Starting in January 2005, all commodity prices that the World Bank track to monitor the industrial ecosystem (base metals, precious metals, oil, gas and coal) blew out in an unprecedented bubble. The second worst economic correction in history, The Global Financial Crisis (GFC) in 2008, was not enough to resolve the underlying fundamental issues. After the GFC, the volatility in commodity price continued. This report makes the case that the GFC was created as the entire industrial ecosystem was put under unprecedented stress, where the weakest link broke. That weakest link was in the financial markets. The strain that created this unprecedented stress, was triggered by the global oil production plateauing. This made the oil market in elastic in form. This is postulated to have happened because the Saudi Arabian oil production was unable to increase production in January 2005, in spite a significant increase of operating rig count. If further analysis supports this hypothesis, then the GFC was created by a chain reaction that had its origins in the oil market.'

kbd512 · 2020-02-07 08:37:51

Louis,

The Model T Ford required gasoline in order to run. The hay burners it replaced required hay. All manufacturing activities require lots of energy. Energy is the master resource, not technology. Technology is a tangible good, at least in human-usable form, that consumes energy. Without energy, nothing else happens.

The Model T didn't leave poop in the streets, wasn't tied to a farm that produced hay, and could be mass manufactured at a human-controlled rate, unlike breeding of work horses that still happens at a biology-controlled rate, so long as the energy to make the cars was available. Beyond that, a horse takes you where it feels like going. If the horse does't feel like going somewhere, then you're not going there. Within limitations a car will go wherever the driver steers it. As long as a comparatively small supply of gas and lubricants is fed into a motor vehicle, it never becomes fatigued and doesn't require numerous rest stops for hay and water. Learning to drive well enough to get from Point A to Point B also takes less practice than learning to ride a horse. Drivers also quickly discovered that the internal combustion engine was an effective way to pack tiny little horses with the same output as their full-sized brethren into a space that wasn't large enough for a single horse. Shortly thereafter, horses were relegated to prancing around in the aptly named dog and pony shows.

When cheap energy is affordable and widely available, the technology humanity produces advances and we advance as a result. Without affordable energy, human technological progress stagnates. All modern technology runs on copious amounts of cheap energy.

Calliban · 2020-02-07 09:58:10

Kbd512 is correct. Every economic good and service is the product of energy acting on matter, under human control. Try to think of even one exception? Technology facilitates that process and the complexity of organisation that allows technology to evolve, is enabled by high EROI energy, because it allows greater specialisation within the workforce. Low-cost, high EROI energy is the key enabling resource; the basis of all of the wealth that we have achieved in the past couple of centuries. The link below provides a good primer for explaining the problems that the global economy is now facing with declining EROI of fossil fuels.
https://surplusenergyeconomics.files.wo … onomy2.pdf

What has been happening since the 1970s is that the trend EROI of fossil fuels has been falling, as the higher quality oil and gas deposits (think large, conventional, onshore oil and gas, with low sulphur content) has gradually depleted and been replaced with output from unconventional, offshore and smaller conventional fields.

To be clear, we are not even close to depleting the Earth's supply of fossil fuels. There are huge remaining deposits of tar sands, tight oil, deep coal, gas hydrates and there remains conventional oil and gas that is not yet tapped. The problem is that what remains is increasingly low grade. It requires greater investments of energy, labour and physical infrastructure to recover it. That means lower EROI and reduced surplus energy. Less surplus energy means less wealth.

Since the turn of the century, the decline in EROI has accelerated, to the point where average prosperity in advanced economies is now falling. People that have to work for a living are very much aware of this and public anger is evident across the world. Advanced economies were the first to suffer the impact of declining EROI, because these economies are more complex and energy intensive. On paper, GDP continues to grow, but it is increasingly the result of asset price accumulation that results from the spending of inflated money supply (quantitative easing). This has led to exploding inequality as the owners of assets like real estate, stocks and bonds have grown richer on paper. In the meantime, real hourly wages (corrected for inflation) have declined.

By the early 2020s, EROI will have declined sufficiently to halt prosperity growth in most developing countries as well. At this point, it should be undeniable that energy resource depletion is the problem that is squeezing the life out of prosperity. Economic stresses are already visible in China, which has only maintained growth for the past 10 years as a result of enormous infrastructure spending.

Whilst there was no avoiding the declining EROI of fossil fuels, the worst effects of the problem could have been mitigated by allowing high EROI nuclear energy to substitute for it. But this energy source has been made unworkable by regulatory red tape and years of atrophy, that has effectively crippled supply lines for its key components. We all live in the shadow of that failure. The damage that declining prosperity will do to advanced economies over the next 30 years, will be worse than a thousand nuclear meltdowns.

I think I and others have shown through exhaustive analysis on this site, that low EROI intermittent energy cannot substitute the high EROI fossil energy of yesteryear.

Last edited by Calliban (2020-02-07 10:07:14)

louis · 2020-02-07 11:01:30

I disagree. Technology is king. In the early 20th century there were roughly equal numbers of electric, gasoline and steam vehicles on our roads. This was while our economies in the Western World were booming. It wasn't just gasoline that was producing the economic success.

It was the technology that was most important. Without tarmac roads your gasoline would have been useless. Trams were a big advance as well. Electric trolley buses were very successful.

Gasoline was marginally more efficient and very flexible as a fuel. But ICE engines are highly complex of course - one of the great beneficiaries of gasoline cars were motor vehicle repair engineers. From that point of view, horses are much more reliable and electric cars are as well.

From the 1920s onwards hydroelectricity began transforming many previously impoverished countries like Norway and Sweden.

As I've remarked before, we should also learn from the example of Tokyo in the 18th century. It was the largest city in the whole world at the time - over one million people. It had no coal power at all. But it had a lot of rice and it was really the rice surplus that supported urbanisation.

So there are lots of factors involved in a successful economy. Energy obviously is important, but fetishising it doesn't help give a rounded view.

I think we are now seeing a spreading green energy revolution that will provide a cheap energy basis for all countries.

There are lessons here for Mars of course.

kbd512 wrote:

Louis,
The Model T Ford required gasoline in order to run. The hay burners it replaced required hay. All manufacturing activities require lots of energy. Energy is the master resource, not technology. Technology is a tangible good, at least in human-usable form, that consumes energy. Without energy, nothing else happens.
The Model T didn't leave poop in the streets, wasn't tied to a farm that produced hay, and could be mass manufactured at a human-controlled rate, unlike breeding of work horses that still happens at a biology-controlled rate, so long as the energy to make the cars was available. Beyond that, a horse takes you where it feels like going. If the horse does't feel like going somewhere, then you're not going there. Within limitations a car will go wherever the driver steers it. As long as a comparatively small supply of gas and lubricants is fed into a motor vehicle, it never becomes fatigued and doesn't require numerous rest stops for hay and water. Learning to drive well enough to get from Point A to Point B also takes less practice than learning to ride a horse. Drivers also quickly discovered that the internal combustion engine was an effective way to pack tiny little horses with the same output as their full-sized brethren into a space that wasn't large enough for a single horse. Shortly thereafter, horses were relegated to prancing around in the aptly named dog and pony shows.
When cheap energy is affordable and widely available, the technology humanity produces advances and we advance as a result. Without affordable energy, human technological progress stagnates. All modern technology runs on copious amounts of cheap energy.

louis · 2020-02-07 15:37:55

EROI is a misleading concept.

The EROI of nuclear power is fantastic, but the price of nuclear power is fantastically high. Why? Because, however good the EROI, you need to employ a huge amount of human labour in building a nuclear power station, running it, maintaining it and decommissioning it.

The EROI of green energy is, potentially, getting on for infinite. You could have solar panels made at a solar panel factory built from parts mined by equipment using solar energy and assembled using robots using green electricity. Those solar panels could then provide the electricity that would allow more solar energy production and so on. The more your economy is integrated into solar energy and the more robotised the manufacture of solar panels, the greater the EROI. But of course the most important thing about solar is that the fuel, the photons, arrive at your generator free of charge.

The reason average prosperity in Western economies has been under pressure can be traced to a number of causes. Primarily I would say free trade is responsible, as capitalist firms have sought the cheapest labour sources around the world. Mass immigration has had an impact as well - direct importation of cheap labour. Deskilling thanks to computerisation is another cause - this has impacted very badly on a lot of previously well paid jobs in areas such as banking, hotel management...anything where algorithms can take over.

Calliban wrote:

Kbd512 is correct. Every economic good and service is the product of energy acting on matter, under human control. Try to think of even one exception? Technology facilitates that process and the complexity of organisation that allows technology to evolve, is enabled by high EROI energy, because it allows greater specialisation within the workforce. Low-cost, high EROI energy is the key enabling resource; the basis of all of the wealth that we have achieved in the past couple of centuries. The link below provides a good primer for explaining the problems that the global economy is now facing with declining EROI of fossil fuels.
https://surplusenergyeconomics.files.wo … onomy2.pdf
What has been happening since the 1970s is that the trend EROI of fossil fuels has been falling, as the higher quality oil and gas deposits (think large, conventional, onshore oil and gas, with low sulphur content) has gradually depleted and been replaced with output from unconventional, offshore and smaller conventional fields.
To be clear, we are not even close to depleting the Earth's supply of fossil fuels. There are huge remaining deposits of tar sands, tight oil, deep coal, gas hydrates and there remains conventional oil and gas that is not yet tapped. The problem is that what remains is increasingly low grade. It requires greater investments of energy, labour and physical infrastructure to recover it. That means lower EROI and reduced surplus energy. Less surplus energy means less wealth.
Since the turn of the century, the decline in EROI has accelerated, to the point where average prosperity in advanced economies is now falling. People that have to work for a living are very much aware of this and public anger is evident across the world. Advanced economies were the first to suffer the impact of declining EROI, because these economies are more complex and energy intensive. On paper, GDP continues to grow, but it is increasingly the result of asset price accumulation that results from the spending of inflated money supply (quantitative easing). This has led to exploding inequality as the owners of assets like real estate, stocks and bonds have grown richer on paper. In the meantime, real hourly wages (corrected for inflation) have declined.
By the early 2020s, EROI will have declined sufficiently to halt prosperity growth in most developing countries as well. At this point, it should be undeniable that energy resource depletion is the problem that is squeezing the life out of prosperity. Economic stresses are already visible in China, which has only maintained growth for the past 10 years as a result of enormous infrastructure spending.
Whilst there was no avoiding the declining EROI of fossil fuels, the worst effects of the problem could have been mitigated by allowing high EROI nuclear energy to substitute for it. But this energy source has been made unworkable by regulatory red tape and years of atrophy, that has effectively crippled supply lines for its key components. We all live in the shadow of that failure. The damage that declining prosperity will do to advanced economies over the next 30 years, will be worse than a thousand nuclear meltdowns.
I think I and others have shown through exhaustive analysis on this site, that low EROI intermittent energy cannot substitute the high EROI fossil energy of yesteryear.

SpaceNut · 2020-02-07 17:03:20

kbd512 wrote:

To be clear, we are not even close to depleting the Earth's supply of fossil fuels. There are huge remaining deposits of tar sands, tight oil, deep coal, gas hydrates and there remains conventional oil and gas that is not yet tapped. The problem is that what remains is increasingly low grade. It requires greater investments of energy, labour and physical infrastructure to recover it. That means lower EROI and reduced surplus energy. Less surplus energy means less wealth.

Even if every drop or chunck or fumes were gone, we know how to make there replacements but the cost of the replacements are not cheaper and in many cases will be very expensive. In which we will be paying for the equipment switch over to make the replacement fuels. We even know how to harness the wind, water and sun but even when the inputs to the devices are free still do not give you cheap energy as its not cheap enough for the average person to save anything from doing so. With the only way to getting cheap energy from those is from the giant companies that provide power now to each of us.

louis · 2020-02-07 19:48:52

We're not there yet but I think within the next 20 years there will come a point where at many locations around the planet it will become financially viable to manufacture (and thereafter store) methane which can then be used to produce heat or electricity at at prices which outbid all other fuels, given it doesn't have to be drilled deep for in locations often 10,000 miles away from where you need to use the fuel.

SpaceNut wrote:

kbd512 wrote:
To be clear, we are not even close to depleting the Earth's supply of fossil fuels. There are huge remaining deposits of tar sands, tight oil, deep coal, gas hydrates and there remains conventional oil and gas that is not yet tapped. The problem is that what remains is increasingly low grade. It requires greater investments of energy, labour and physical infrastructure to recover it. That means lower EROI and reduced surplus energy. Less surplus energy means less wealth.
Even if every drop or chunck or fumes were gone, we know how to make there replacements but the cost of the replacements are not cheaper and in many cases will be very expensive. In which we will be paying for the equipment switch over to make the replacement fuels. We even know how to harness the wind, water and sun but even when the inputs to the devices are free still do not give you cheap energy as its not cheap enough for the average person to save anything from doing so. With the only way to getting cheap energy from those is from the giant companies that provide power now to each of us.

tahanson43206 · 2020-02-19 12:06:21

For Calliban re topic ...

The article at the link below includes a line about folks who live in Upper England.

For Louis re article ...

I'd be most interested in your analysis of and reflection upon the content of the article at the link below.

Looking on from "over here", the arguments and facts presented seem right to me, but obviously I could be misled if I have misinterpreted something (or two).

https://www.yahoo.com/finance/news/coun … 12767.html

For Calliban ... this is more of rhetorical question, but I hope you will find it interesting ...

Why does the idea of "spending" occupy so much thought time? The American Amish have solved that problem hundreds of years ago, by simply organizing themselves to accomplish complex large scale tasks without spending any new money at all.

Why is the rest of the world unable to organize itself to accomplish needed changes without borrowing?

(th)

SpaceNut · 2020-02-19 17:05:11

They have not gotten lazy to actual work that takes muscle power to succeed.

louis · 2020-02-19 18:09:16

I think that article is a reasonable summation. The UK has a very unbalanced economy geared to London, probably the leading world financial centre (some say second to New York). The current government (because its political majority depends on it) is trying to rebalance the economy. It's difficult as long as you have London acting like a huge magnet for investment, infrastructure and people of talent.

Relating this to Mars, I think we can see the first major city on Mars is probably going to be a sort of London there. It will just completely overshadow all the other settlements by virtue of its size, its vibrancy, its cultural aspects, its transport connections, its talented population and its economic weight. But the situation in outlying settlements on Mars will probably be more like in Australia than the UK. In the UK, the outlying towns away from London are centres of poverty and deprivation. In Australia, if you want to make a good amount of money quickly you go and work 12 hour shifts in very unpleasant conditions in a mining settlement. The people there aren't poor but they endure tough conditions. So, that's what I expect for Mars - the small outlying settlements won't be islands of poverty but they will certainly be overshadowed by the big central city (my Sagan City).

tahanson43206 wrote:

For Calliban re topic ...
The article at the link below includes a line about folks who live in Upper England.
For Louis re article ...
I'd be most interested in your analysis of and reflection upon the content of the article at the link below.
Looking on from "over here", the arguments and facts presented seem right to me, but obviously I could be misled if I have misinterpreted something (or two).
https://www.yahoo.com/finance/news/coun … 12767.html
For Calliban ... this is more of rhetorical question, but I hope you will find it interesting ...
Why does the idea of "spending" occupy so much thought time? The American Amish have solved that problem hundreds of years ago, by simply organizing themselves to accomplish complex large scale tasks without spending any new money at all.
Why is the rest of the world unable to organize itself to accomplish needed changes without borrowing?
(th)

Calliban · 2020-09-21 15:28:41

The latest instalment from Tim Morgan's Surplus Energy Economics blog.
https://surplusenergyeconomics.wordpres … -part-one/

Interestingly, per capita prosperity in advanced economies peaked in the early 2000s, with growth having slowed dramatically in the 1990s. The final peak corresponds with two significant turning points in the world's economic development: (1) the admission of China to the WTF and the asset stripping of Western industry; (2) the peaking of global conventional (high EROI) oil production.

The average American is now about 8% poorer than he was in the early 2000s. For Britain, the figure is something like 10%. Western politicians seem genuinely oblivious as to what is going on. Since 2008, governments have responded to deteriorating economic conditions by reducing interest rates to values far beneath real inflation and have attempted to stimulate economic demand by inflating money supply. Central banks are now earnestly discussing the prospect of negative interest rates, something that would have been unthinkable fifteen years ago. So far, these efforts have resulted in enormous increases in debt that have reached levels that can now never be repaid. Quantitative easing has inflated the value of assets and has generally worsened wealth inequality.

Politicians and economists seem to have fallen into the collective delusion that the economy is a financial system. In the mind of an economist, the economy is a metaphysical thing, that can be stimulated through the financial trickery of modifying interest rates and expanding money supply. Somehow these people have lost track of the reality that the economy is a real collection of physical assets, people and machines, that use energy and materials to produce real goods and services. The physical output of the economy is only ever a function of physical inputs. Money is simply a claim on that output. Debt is a way of pulling future output forward. The problem that we now face is that the physical resource base for the economy is deteriorating and prosperity is declining along with it. The economy is a machine governed by the laws of thermodynamics. No amount of financial manipulation can regenerate a declining energy resource base.

Financial gimmicks are masking the problem by propping up asset prices and are leading to a divergence between stock and real estate markets and the underlying economy, giving the impression in the minds of our political leaders that they can print their way to prosperity and that underlying economic fundamentals don't matter.

Last edited by Calliban (2020-09-21 15:42:46)

SpaceNut · 2020-09-21 16:45:38

And yet the rate of interest on all other loans, credit card are all going up. What did not is saving interest....

kbd512 · 2020-09-21 17:46:49

SpaceNut,

It's just a big club, but people like you and I aren't in it and probably never will be.

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