[DesuMaiden]

I doubt it. I doubt the economy will get better after peak oil. Once peak oil is passed, our oil supply will contract, and as a result, our economy will also contract. As our economy contracts, our economy will only get worse. Expect greater unemployment and higher food prices, as our economy contracts and worsens due to the decline of oil production.

[dolanbaker]

Yes, it will decline and that decline will be very uneven. In some countries like China at some point in the near future their building boom will eventually fizzle out as they run out of investors for the pyramid scheme that the housing market has become. It's important to remember that there are several types of recession, those caused by financial instability like a housing bubble and those caused by resource constraints like insufficient oil. Both will cause a downturn followed by a recovery, the main difference is that a recovery after a recession caused by resource constraints will be short lived as the constraints will quickly reappear. The construction industry is a huge consumer of oil as was proven in Ireland when our house building collapsed, oil consumption dropped nearly 30%. If a similar thing happens in China there could be an enormous drop in global oil consumption and price.

If such a price drop happens (it may be happening as we speak) then there is a probability that many of the oil producers who will become unprofitable as a result of the price drop will simply down tools.

Then at the first hint of an economic recovery, the price of oil will rise rapidly as there will very quickly be a supply constraint due to the reduced production, production that may be slow to restart after the oil companies have shut up shop.

The next few years could be a real roller-coaster ride.

[GHung]

Actually pstarr, the "Triangle of Doom" comes from Steve Ludlum at Economic Undertow-

http://www.economic-undertow.com/author/steveludlum/

As for "will the economy get better after peak oil", it depends on how you define 'better'. I've always felt that the industrial age economy sort of sucked in a sense; never seemed honest somehow. If you believe that economies are better after they de-complexify, then the answer is yes.

[eugene]

I've now been watching climate change for 30 yrs. One thing for sure, Americans are, definitely, not worried. I know few people but the few I do know are marching cheerfully on to some wonderful future. In fact, I read few comments that, in my opinion, are reality based. An arrogant sense of entitlement certainly leaves it's trail everywhere. People envision some "wonderful" world of simplicity with a nostalgic sense of community populated by people who will magically learn the skills of basic living in a yr or two. I consider denial as strong a mood alter as any drug. This all by people perfectly willing to sacrifice the populations of distant countries for $3 a gallon gasoline. And the sons/daughters of the poor who still believe a military career is a path to success. But as, almost, all comments would say "I am a doomer". In other words, I am not a believer we will all sail into beautiful sunsets on rafts of plenty. I will say it's been one helluva ride and I've, certainly, benefitted from it.

[MD]

What do you mean by "better"?

What is certain is that it will be different than what came before.

[Henriksson]

It's arguably not much of an economy at all. If we go by the sensible definition of "economy" as householding with limited resources, we can see that the current economy, which operates according to a capitalist mode of production, is rather the opposite; an exercise in how to use as much of them up as soon as possible. Having an economy dependent on growth is obviously good for making it grow, but then that's no longer possible it will fall like a house of cards, leaving its mess for others to clean up. Hopefully it will never come back again.

[Loki]

-- when the price of oil goes to around $100,lots of economies go into recession. That is what happened in 2007. If your business spends too money on oil, it is not spending it on labor, capital improvements, other expenses, profits. Same to with the homeowner. They are not buying stuff. The economy stagnates. Demand lessons. Recession. This is the demand ceiling

-- on the other hand, when the price of oil goes below $100 oil companies can't afford to drill for expensive oil anymore. That would be the supply basement

Less oil means more demand and inflationary pressure to push the price of oil higher. But then the price bumps into the demand ceiling. Then people stop buying oil, and the oil companies can't get enough money to drill expensive oil. around and around and around. The is what a real Depression looks like. Everything swirls down the crap hole.

I see these feedback loops in a more positive light. They've served to buffer the effects of peak oil.

The dynamic creates volatility and acts as a serious drag on the economy, no doubt, but within a limited range. This buffering effect is what the fast crashers didn't foresee. Remember this old chart?:



Things have turned out a little less dramatic. No Olduvai Cliff in sight.

[Loki]

I doubt it. I doubt the economy will get better after peak oil. Once peak oil is passed, our oil supply will contract, and as a result, our economy will also contract. As our economy contracts, our economy will only get worse. Expect greater unemployment and higher food prices, as our economy contracts and worsens due to the decline of oil production.

Most likely.

The question is what are you going to do about it?

[ROCKMAN]

Let's try another approach to the meaninglessness IMHO of the global PO date. First, very simply is that the date oil consumption by every country peaks? IOW if a country's oil consumption doesn't peak on that day is the GPO event relevant? An easy answer actually: just look at the countries that have already reached their peak consumption. Greece reached PC in 1984. IOW even though we hadn't reached GPO Greece was facing the dynamic of declining access to oil 30 years ago. And the potential "lack of access" to oil is what some have offered as the coincident event with GPO. Obviously that's not true on a country by country basis. How does that render the discussion of all countries having declining access to oil? Obviously that hasn't been the case so far. And then there's the big anomaly: the US...declining consumption going hand in hand with increasing production.

Forget the Greek economic nightmare and look at a much more stable and vital economy: Germany. Obvious a country with growing access to and consumption of oil. NOT! Germany reached PC in 1998. And the US: 2006. And now Saudi Arabia: whoops...no PC yet...still growing. And another oil exporter: Norway. PC in in 2006 five years after peak production in 2001. But no big surprise there...consumption continued to increase in one exporting country for a while and still grows in the another. But what about other big consumers? Neither China nor India have peaked consumption yet. In fact healthy consumption growth in the face of higher prices.

So there you go: a wide range of peak production, production increases, peak consumption, consumption increases, etc. So exactly what is going to change in the dynamics of individual countries after the date of global peak oil? It would appear that the consumption of oil has had little to do with global oil production rates and much more related to the price of oil and the economic viability of a country. IOW the date of GPO seems rather unimportant to me. Thus the debates over the date seems even less relevant IMHO.

[Shaved Monkey]

Having crap jobs, to create crap, so people buy more of it, is not really better than not.
Im hoping a more realistic price on energy will make us use what's left of it for what we really need,not more corn cob holders.

[dolanbaker]

Having crap jobs, to create crap, so people buy more of it, is not really better than not.
Im hoping a more realistic price on energy will make us use what's left of it for what we really need,not more corn cob holders.

The fundamental issue with employment is the fact that mechanisation has made the mass production of food/stuff (useful and useless) extremely cheap , it has also eliminated millions of jobs.

Back in the 1960s we were told that all this mechanisation would create a world of leisure as people would only need to work about 20 hours a week, but wages would have needed to double (relative to costs) to make this possible, it didn't happen. What we have instead is an underclass of people dependent on social welfare.

If people could support themselves & their family on one part time wage, then many of the social problems brought about by unemployment would be solved.

[Herr Meier]

-- when the price of oil goes to around $100,lots of economies go into recession

Total nonsense. The price of oil has nothing to do with recession. It's the slope of change, that makes or breaks the day.
Price doubling from $10 to $20 over night has a much larger negative effect on the economy than a price hike from $100 to $200 over the course of 10 years.

[ROCKMAN]

Herr - Even though Donlan agree on much I would have to side more with you this time. Donlan is certainly correct that $100/bbl has hampered economic growth in many countries... but not all. But as I've pointed out before I've been very surprised that the price increases haven't plunged the world into a recession as happened with the high prices of the late 70's. That led to the global recession so severe it pushed oil prices down 70%. We're now starting to see some oil price declines but nothing on the order of the collapse in the mid 80's. But the slide has just started... maybe. It took 4 - 5 years for the price surge to create that 80's global recession. So Donlan more yet be proved to be more correct then you feel.

[Pops]

I've been going on for a while that the price of oil in this economy just can't go to $500 or $1,000 bbl because demand at that level would be nil - and I've been taking flack for it every step of the way, LOL My premise is simply that oil prices can't rise indefinitely without killing demand so the economy would contract to match the oil flow. The result would not be a stair step up in oil price but a steady pressure down as ability to pay erodes.

Whether you believe Hamilton that oil price spikes cause contraction or the opposite view that economic spikes cause high oil price, there is no denying they are joined at the hip. The economy getting "worse" and an apparent oil glut with falling prices will be two sides of the same coin. As the Minister from KSA would say: "The world is well supplied." LOL

Both Laherrère and Chris Sebrowski have argued this but the idea that the price will inevitably rise and that will be the sign of the peaking of production is still the predominate view. Oil has mirrored the economy for a long time and any idea it is somehow different now is silly - the only difference is that now production is supply constrained rather than demand constrained (Kopits). Instead of the economy driving production (and price) up, production will drive the economy (and price) - down.

Wouldn't it be a kick in the pants if everyone were wrong and the world economy pooped out at $125/bbl? And wouldn't it be even crazier if instead of the oil price stair-stepping up with each cycle, the economy just kept getting less resilient...
and each go around the high price was actually lower than the last time?
And so instead of higher prices enabling greater efforts at extraction and encouraging alternatives, we wound up going in the other direction and simply couldn't afford the cost of deploying 10,000 fallout generating plants or hundreds of square miles of thermal solar ovens or even the development cost of deep water or kerogen cooking or any other "unconventional" oil source for that matter...

Peak Economy (was Oil Price Softening)
Post by Pops » Wed May 04, 2011 8:37 pm (a year and a half before the first appearance of the "Triangle..." )


Then this one with a jiggered chart:




Then The Cheap Oil Tipping Point

The basis for optimism from people like Yergin is that the economy will get used to oil at $80+ and everything will be fine.

The problem of course is after another year or two or three of 5%/year depletion in existing fields, $80 oil won't cut it either and we'll need to go to the $90/bbl method.

So where is the limit?

And finally, The Wedge - extraction cost vs 'ability to pay':

So it seems to me we are entering The Zone, the end of the wedge, the place where expensive oil, oil-like substances and not-oil-at-all has come to the rescue temporarily but replacing depletion seems difficult going forward, let alone growing supply. The key term of course is expensive. All the business blogs are talking about the huge amounts of oil "recently discovered" and the "new" enabling technologies - of course what they neglect to point out is many of the resources themselves have been known about for decades and the primary new enabling technology is $100 oil.

So anyway, "better" will be when the economy adjusts to functioning with fewer energy slaves. Slaves did all the grunt work for the Romans, the Mayans and Aztecs and they were the basis of the economy in the pre-war American south. "Reconstruction" will be long and hard, just like it was after the collapse of those economies I'm afraid.

[Pops]

I forgot this one:

High oil prices, painful enough to encourage changes in behavior but not so high as to preclude those changes are the only mitigation for the effects of peak FFs. But quick increases to the very high prices levels peakers like Simmons warned of can't be maintained for any length of time so can't "Collapse" the economy down to some stone-age bug-eating level.

Simmons and others predicted overnight expensive oil due to rapid depletion. The only way I can see that happening is in a "cliff" scenario: high prices and stubborn demand resulting from the inertia of the old, cheap oil economy "pull forward" difficult to extract oil - like fraced, deep, arctic oil, causing the initial period of decline to be the steepest period, rather than the later, mid-downslope period - a higher peak but a steep cliff. But even then I don't think extremely high prices could be maintained long.

Think of it like this, the uses for oil are distributed along a continuum of utility, with many uses of oil today mere convenience at best and simple habit at worst. A high oil price can change those wasteful behaviors if the price stays high long enough. So at $100 oil, is the trip to the quick sac in the 4x4 to get a bottle of water worth $3 in unleaded?

Sure, we'd "like" to drive down for an Evian and we probably continue to do so at $3 if the high price appears to be temporary. But after some period, even the $3 cost for the Evian trip becomes less tolerable as it cuts into other, more important purchases, maybe baby's new shoes for an example. So for a while we drink tap water instead of driving for the Evian. After some time with no prospect of oil prices falling, we decide it would be better to trade in the 4x for an old Beetle or even better, move within walking distance of the Quik Sac. That is real mitigation.

[Ibon]

I forgot this one:

Sure, we'd "like" to drive down for an Evian and we probably continue to do so at $3 if the high price appears to be temporary. But after some period, even the $3 cost for the Evian trip becomes less tolerable as it cuts into other, more important purchases, maybe baby's new shoes for an example. So for a while we drink tap water instead of driving for the Evian. After some time with no prospect of oil prices falling, we decide it would be better to trade in the 4x for an old Beetle or even better, move within walking distance of the Quik Sac. That is real mitigation.

This is not only mitigation but also cultural adaptation. For when you can't fulfill your wish with the instant gratification of driving to get that Evian water you are taking the first steps toward a discipline that also includes much more cooperation around dealing with constraints. You will pool together with others every time you consume fuel.

I see this already operating in rural Panama. Fuel is very expensive when you look at the average wage. So anytime we take the truck anywhere we are pooling shopping lists and errands for others as well as ourselves. Often we are asked when we are planning on going to the provincial capital and people will wait until then to join us or ask favors to purchase something for someone.

So how does this actually translate to cultural change? Well, when you have a high level of autonomy you tend to become more intolerant of the small stuff. In other words you can "afford" the intolerance. But when you need the cooperation of others you are less autonomous and you cannot "afford" intolerance. This results in a conditioning toward more cooperation and communal pulling together.

If your neighbor has an irritating habit you are less tolerant when you have maximum autonomy but when you need that neighbor to pool your transportation needs then you find his irritating habit more tolerable.

For folks in developing countries they are already way way way way ahead of the average american in understanding this tolerance.

We are juveniles but we will also learn this... It will be good for us.

But there is also forces that will keep us intolerant. The digital malaise of your own mobile personal devices has only exasperated the autonomous intolerance so many folks have developed because of how they are able to so perfectly tune their digital worlds to their needs. Digital media has become a giant mirror for our narcisism. I suspect that as physical resources constrain we will also see the pathology of retreating into your private digital universe also increase.. For it will only be there that you can continue to indulge in the pure narcisism of your own private digital autonomy. Our last refuge of personal indulgence.