Peak Oil is You

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Page added on May 30, 2014

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Peak oil and a sustainable economic model

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Source: The Association for the Study of Peak Oil and Gas

Peak oil can be specifically defined as a hypothetical point in time where the global production of oil reaches its maximum output, after which all reserves will eventually decline until depletion. In scientific and policy oriented communities, the global production of oil has already surpassed peak oil calculations in 2010, and the evidence does not solely lie in the once massive reserves that have now become shallow oil fields. In retrospect, the mass extinctions that lay base to flora and fauna hydrocarbons created enormous oil deposits that sustained the industrial revolution well into the information age. Millions of years of pent up energy from the sun was unlocked to establish the industrial world which we currently inhabit, and thoroughly enjoy. In contrast, oil can no longer be thought of in terms of generating wealth, although oil lords will undoubtedly find ways to capitalize off an increased demand for a shorter supply of our most treasured natural resource. Money is simply a medium for exchange, and it is the natural gifts from nature — including human labor, that transform those gifts into what humans call wealth. According to some researchers, the effects of peak oil can be seen studying historical events in economics, as they present us with the fact that recessions are usually preceded by increases in energy prices. Oil consumption has been preferred over alternative energy sources, and it has become quite clear that after many decades of growth, oil production has reached its peak and is now diminishing. Obviously, unless new reserves are discovered the world will face an inevitable shortage of energy — a looming global crisis.

The pending restriction of energy consumption is argued to pose a massive impact on economic growth; however, economics is a poor model for examining the true physical ramifications of a world after peak oil. While economics is a social science, it deals with material things: commodities and biophysical truths. For many concerned researchers, energy and the numerous materials derived from it will be unable to expand any further. This will ultimately impose major supply shocks on important markets that fuel national economies. The utilization and supply of energy creates wealth. Thus, if there is no more energy then there will be no more creation of “real” wealth.  The massive recession of 2008 is indicative of the physical laws that societies cannot avoid. Peak oil represents the point at which economies can no longer create any real wealth. In this sense, any additional “wealth” created will be a matter of inflation, which will undoubtedly impose inflationary expectations onto an already fragile economy — people will stop spending money. This event will snowball into cataclysmic proportions as the world runs out of the fuel to sustain any means of capital production.

According to some researchers, the current models of economics have not been sufficient in incorporating the laws of thermodynamics  into workable representations of human consumption behavior. Matter cannot be created nor destroyed; it simply transfers into another state. Current economic models rest on simplifying assumptions regarding natural resources as infinite in the sense that they are substitutable, being insignificant with the exception of their market value. This blundering facet of economics ignorantly violates the physical laws nature. The discipline primarily concerns itself with how humans respond to a scarce world, and places virtually no emphasis on the fact that economic models (consumption behaviors) are driven by finite resources.  Hence, the concept of wealth and money can be infinite in an economic model, utterly disregarding scientific truths. The reality of the situation is such that the real wealth lies in tangible material things, like the gifts of nature which are finite and depleting at a worrying rate.

To address the looming global energy crisis, a new model of economics based  not on simplifying but realistic assumptions, must be incorporated. Economics as a discipline must transcend into the realm of a hard science, such that a biophysical basis for economics can become universally enforced.


8 Comments on "Peak oil and a sustainable economic model"

  1. Davy, Hermann, MO on Fri, 30th May 2014 7:00 am 

    I would further add to the failures of economics the failures of recognizing systematic principals of complex systems such as chaos, bifurcation, self-organization, tipping points, equilibriums and positive/negative feedbacks. We seem to live in a cultural, political, and economic world that sees “decouple” of the above points from our local or IOW reality. The reality of the situation today is we have created and a self-organization has developed where we are in a complex human system. This human system can now be considered one of the dominant natural ecosystem on earth today. It is global and all inclusive of humans and other species and ecosystems. We are not acknowledging we are in a highly connective system especially in our political systems. It is said all politics is local but today we have a delocalized local. We no longer can survive locally without the global at least as whole. Significant loss will occur with population and complexity. We are in overshoot to carrying capacity, at limits of growth, and facing diminishing returns both locally and globally. When this highly brittle systematic state breaks to a lower level of complexity we will see a population, economic activity, and social complexity that cannot be maintained at current levels. The further dangers that must be considered is the chaos that will enter the system making this drop in complexity dysfunctional, irrational, and erratic. A smooth drop is probably not in the cards. A level of reboot to a stability that allow economic activity is not predictable or assured at anything recognizable to BAU. It is our human nature to hope for a modest fall in time and duration but this is simply not assured. The system is beyond reform or managed de-growth in a macro sense. We are capable of managed de-growth at the micro level. I am afraid as the realization of collapse coalesces in increasing amounts of people it will be self-fulfilling. This is likely in the near future with the financial system. We are close to this break and very little is being acknowledged or prepared for in the macro. The ride down will be wild and nothing like what we saw on the ride up.

  2. Makati1 on Fri, 30th May 2014 7:47 am 

    With everyone’s income dependent on BAU, there will be no changes until the inevitable collapse. Then there will be hell on earth for a few decades until it levels out at an 18th century level economy for the the billion or so that survive, if we are lucky. If we are not lucky, the combination of a nuclear war and climate change will make our survival impossible.

  3. tahoe1780 on Fri, 30th May 2014 10:05 am 

    “How did you go bankrupt?” “Two ways, gradually and then suddenly” Hemmingway

    I see evidence of the “slow burn” all around me here in the states; record low workforce participation, record high foodstamp/foodbank usage, record debt, cities collapsing, retail chains closing stores, rising food and fuel prices, manipulation of definitions to maintain appearance of BAU, i.e. “oil”, “GDP”, “unemployment”, “inflation”, etc.

  4. J-Gav on Fri, 30th May 2014 10:27 am 

    Makati – You know me, the eternal optimist (ha-ha). I’d say more like late 19th century, early 20th level because some of the gains in science and medecine should still be around (some form of penicillin for ex. even if resistant microbes take out many antibiotics). That’s assuming your worst-case scenario doesn’t transpire of course.

    Davy – Pretty weird when you think about it, isn’t it? I mean Sapiens sapiens in such a mess – and most of them not even realizing it.

    Sometimes I wonder if it doesn’t have something to do with the conceptual boundaries we tend to live within – unconsciously. It seems we may have the potential to break out, but then those boundaries lead to such broad fragmentation of the various constituent parts of reality that putting Humpty-Dumpty together again becomes a hugely daunting task.

    By that I mean re-assembling things that should have never been separated in the first place – like humans and nature. In any case, I agree that if it can happen, it will have to start at the micro level. On the upside, maybe it already has started but just isn’t quite visible yet …

  5. Davey on Fri, 30th May 2014 11:44 am 

    Gav, this could be the great awakening in waiting

  6. Dave Thompson on Fri, 30th May 2014 2:06 pm 

    If the climate crisis don’t snuff it all out, then a few of the 440 nukes will catastrophically melt down and will do it.

  7. J-Gav on Fri, 30th May 2014 3:35 pm 

    Davey – I’m not one to say that what you suggest ‘couldn’t be.’ Just that it appears to be a good ways off for the time being. I keep up with what’s going on here and there and modestly try to contribute to it where I live. Things are reaching an interesting stage. More and more people are crowd-funding alternative economic, energy, community arrangements. That’s encouraging.

    Critical mass ain’t there yet and the Powers that be will defend their prerogatives to the hilt, which means an uphill battle. Nevertheless, an unexpected acceleration in the opposite direction is still possible, strange as that statement may seem. Everybody should read Kropotkin.

    The cards are stacked against us, which means we need to bring in a new (unmarked) deck.

  8. Juan Pueblo on Fri, 30th May 2014 4:47 pm 

    I agree with Mak and Davy, too.

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