The world economy doesn’t behave the way most people would expect. Standard modeling approaches miss the point that economies require adequate supplies of energy products of the right kinds, provided at the right times of day and year, if they are to keep from collapsing.
~ Gail Tverberg from, https://ourfiniteworld.com/2021/12/03/is-it-possible-that-the-world-is-approaching-end-times/
Since we finished remodeling our home, this is the time of year when I pay a local company to dump two cords of split firewood in my lawn, (a pile about the size of a small car.) On my patio this morning, as the sun climbs above the old, worn-down mountain behind our neighborhood, the world smells like fresh, black coffee and green firewood.
I remain very optimistic about our world, and our economy—local, national and global. Because: People. Heating primarily with wood only works well for us for a few reasons: The housing density is low enough that multiple wood stoves is sane in a neighborhood. But the housing density is also just high enough that the stores are very close by. These trees grew relatively close, were sawn and split by a local company, and traveled not too far to get to my yard. Troy—the firewood guy—and I will both work very hard though, in the entire process of my heating with wood. Meanwhile, street gas (which isn’t even available on my block), propane (which I use to cook with), and electricity (which is my secondary heat source via heat pump and baseboards) are rising steeply in price.
Lumber prices are also crazy-high. (What was once a $2 2×4 is now nearly $10.) And Troy has resumed sawing lumber, something his father used to do with their equipment decades ago. And he’s taken on another person part-time. Yes, he asked me for more money to cover the fuel-cost of delivery, but the firewood is still less than the other fuel (gas, electric) options available to me for next heating season. My point here is that if everyone keeps making manageable decisions sooner rather than later, things will work out. The difficulty that I see for most people is being honest about what things they have to eliminate, in order to be able to keep their personal universes going.
Together, these approaches comprise “complexity.” They tend to make the economic system less resilient. At least temporarily, they pass fewer of the higher costs of energy products through to current citizens. As a result, the economy can temporarily withstand a higher price of energy. But the system tends to become brittle and prone to failure.
~ Gail Tverberg from, https://ourfiniteworld.com/2021/10/18/spike-in-energy-prices-suggests-that-sharp-changes-are-ahead/
I don’t know whether to say you’ll be better, or worse, off—but I absolutely recommend reading everything Tverberg has ever written. I’ve a number, (nowhere near all of her stuff however,) of things quoted here on the blog; All those posts are tagged Gail Tverberg. History shows many examples, over thousands of years of recorded history, where economies, (empires, civilizations, and the people,) grew slowly and ended precipitously. There’s yet to be an example of a gradual decline. The open question is for how much longer—possibly very very much longer—can humanity continue to incline? (And to be clear, I don’t have an educated opinion about that question.)
The economy runs on energy, far more than it operates on growing debt. Our energy problems don’t appear to be fixable in the near term, such as six months or a year. Instead, the economy seems to be headed for a collapse of its debt bubble. Eventually, we may see a reset of the world financial system leading to fewer interchangeable currencies, far less international trade and falling production of goods and services. Some governments may collapse.
~ Gail Tverberg from, https://ourfiniteworld.com/2021/03/20/headed-for-a-collapsing-debt-bubble/
I’ve been reading, and tagging here on my blog, Tverberg’s commentary for years. I don’t link to these things because I fancy myself Chicken Little. Rather, I link because she has really interesting and insightful things to say about energy.
It is increasingly clear that neither of these assumptions is correct. Despite the claims of epidemiologists, our best efforts have never been able to reduce the number of newly reported COVID-19 cases for the world as a whole for any significant period of time. In fact, the latest week seems to be the highest week so far.
~ Gail Tverberg from, https://ourfiniteworld.com/2020/09/23/reaching-the-end-of-early-stimulus-whats-ahead/
It’s not meant as a doom-and-gloom quote. The article goes on to talk about how our economies really work and what’s really going on.
I’ve a tag for Tverberg for a reason. You should read everything she’s ever written—which would be hard because you’d have to also wade through the amazing, museum-piece that is The Oil Drum. I use that site as a litmus test for anyone who ever mentions “energy”—”Have you heard of The Oil Drum site?” If they have, then I’m really listening.
The reasons why the Green New Deal won’t really work are fairly subtle. A person really has to look into the details to see what goes wrong. In this post, I try to explain at least a few of the issues involved.
~ Gail Tverberg from, https://ourfiniteworld.com/2019/10/02/understanding-why-the-green-new-deal-wont-really-work/
You should read everything Tverberg has ever written about energy. I’ve been following her for about 15 years or so, and she is a font of careful, reasonable discussion.
In recent years, we have heard a great deal about the possibility of Peak Oil, including high oil prices. If the issue we are facing is really prices that are too low for producers, then there seems to be the possibility of a different limits issue, called Collapse. Many early economies seem to have collapsed as they reached resource limits. Collapse seems to be characterized by growing wealth disparity, inadequate wages for non-elite workers, failing governments, debt defaults, resource wars, and epidemics. Eventually, population associated with collapsed economies may fall very low or completely disappear. As Collapse approaches, commodity prices seem to be low, rather than high.
~ Gail Tverberg from, https://ourfiniteworld.com/2018/11/28/low-oil-prices-an-indication-of-major-problems-ahead/
The idea that there may no price where a buyer and seller can agree is patently obvious, right?
Suppose you can only afford to spend $1 on some thing you absolutely need, but I need $100 to cover the cost of producing the thing. No amount of haggling over price will solve this problem. The solution is to add some debt; you borrow some money and buy the thing at some price we can agree on.
What happens if you cannot take on more debt? You need the thing, you cannot afford the price, and you cannot leverage future payment (aka, debt) to purchase the thing…
What happens as more of the world can no longer afford to purchase oil at the price needed by the oil producers?
What happens as more of the world runs out of debt?
…and if you think running out of debt is not possible, please go read more of Gail’s writing.
Today’s indications seem to suggest that an even more major recession than the Great Recession may strike in the not too distant future. Why should this be the case? Am I imagining problems where none exist? The next ten sections provide an introduction to how the world’s self-organizing economy seems to operate.
~ Gail Tverberg from, https://ourfiniteworld.com/2018/07/11/the-worlds-weird-self-organizing-economy/
“Ten sections.” “Introduction.” Some thinking and integration of ideas will be required.
The reason for the strange behavior of energy prices near limits is because the system is very interconnected. It is a self-organized system that gradually changes over time. New customers are added over time. These customers are often also wage-earners. They decide what to buy based on their own wages, and based on other considerations, such as the prices of competing products and whether inexpensive financing is available.
~ Gail Tverberg from, https://ourfiniteworld.com/2018/05/11/how-the-economy-works-as-it-reaches-energy-limits-an-introduction-for-actuaries-and-others/
Supply-and-demand is a model. There’s nothing wrong with the model. Does the model still fit reality as we approach the limits of how much energy our economy can consume? (tl;dr: it does not.)
The catch is that we are too close to the “edge” to be testing an increase in interest rates. Economies, below a certain “stall speed,” cannot repay debt with interest, and cannot hope to provide entrepreneurs with an adequate return on investment. Our low rate of growth is already close to this stall speed.
~ Gail Tverberg from, https://ourfiniteworld.com/2018/02/21/raising-interest-rates-is-like-starting-a-fission-chain-reaction/
There’s a graph early on in this article that is, frankly, alarming.
When I put together a chart of per capita energy consumption since 1820 for a post back in 2012, there was a strange “flat spot” in the period between 1920 and 1940. When we look at the underlying data, we see that coal production was starting to decline in some of the major coal producing parts of the world at that time. From the point of view of people living at the time, the situation might have looked very much like peak energy consumption, at least on a per capita basis.
~ Gail Tverberg from, https://ourfiniteworld.com/2017/12/19/the-depression-of-the-1930s-was-an-energy-crisis/
One of my rules-of-thumb is to thoroughly read everything written my Gail Tverberg.
Years ago, I found a web site called The Oil Drum which was a collecton of superlative thinkers all writing about things related to petroleum. Actually, it still IS a superlative collection, because they’ve left it up as-is to be an archive.
There has been a misunderstanding regarding the nature of our energy problem. Many people believe that we will “run out” of fossil fuels, or that the price of oil and other fuels will rise very high. In fact, our problem seems to be one of affordability: energy prices don’t rise high enough to cover the rising cost of producing electricity and other energy products. Adding wind and solar tends to make the problem of low commodity prices worse.
~ Gail Tverberg from, https://ourfiniteworld.com/2017/01/30/the-wind-and-solar-will-save-us-delusion/
Presented without comment.
The general trend in falling productivity growth does not seem to be particularly recent. OECD data shows a long-term pattern of slowing productivity growth, dating back to the 1970s for many developed economies.
~ Gail Tverberg from, https://ourfiniteworld.com/2016/09/20/why-really-causes-falling-productivity-growth-an-energy-based-explanation/
Presented without comment.
Few people have stopped to realize that intermittent electricity isn’t worth very much. It may even have negative value, when the cost of all of the adjustments needed to make it useful are considered.
Energy products are very different in “quality.” Intermittent electricity is of exceptionally low quality. The costs that intermittent electricity impose on the system need to be paid by someone else. This is a huge problem, especially as penetration levels start exceeding the 10% to 15% level that can be handled by operating reserves, and much more costly adjustments must be made to accommodate this energy. Even if wind turbines and solar panels could be produced for $0, it seems likely that the costs of working around the problems caused by intermittent electricity would be greater than the compensation that can be obtained to fix those problems.
~ Gail Tverberg from, https://ourfiniteworld.com/2016/08/31/intermittent-renewables-cant-favorably-transform-grid-electricity/
I’m not saying “abandon all renewable energy sources.” I am saying, “you should go read this article… and everything else on that web site.”
Instead of the scenario envisioned by Peak Oilers, I think that it is likely that we will in the very near future hit a limit similar to the collapse scenarios that many early civilizations encountered when they hit resource limits. We don’t think about our situation as being similar to early economies, but we too are reaching a situation of decreasing resources per capita (especially energy resources). The resource we are most concerned about is oil, but there are other resources in short supply, including fresh water and some minerals.
~ Gail Tverberg from, https://ourfiniteworld.com/2016/08/08/an-updated-version-of-the-peak-oil-story/
Presented without comment.
… demand doesn’t pick up quickly as prices drop. We are dealing with a world that has a huge amount of debt. China in particular has been on a debt binge that cannot continue at the same pace. A reduction in China’s debt, or even slower growth in its debt, reduces growth in the demand for oil, and thus its price. The same situation holds for other countries that are now saturated with debt, and trying to come closer to balancing their budgets.
~ Gail Tverberg from, http://ourfiniteworld.com/2014/11/05/oil-price-slide-no-good-way-out/
I have now discussed this a few times, and a common objection raised is that she is over-complicating a simple case of supply-and-demand. To which I say: What part of our enormous, intertwined, legacy, critical to everything from food to medicine to transportation to energy production, global dependency on petroleum is simple?