Will our economy survive continuous Oil/Energy decline?
Yes
13%
[ 36 ]
No
64%
[ 167 ]
maybe (see comments)
13%
[ 35 ]
I don't know
7%
[ 20 ]
Total Votes : 258
Author
Message
jato Moderator
Joined: Aug 14, 2004 Posts: 2066 Location: San Diego, Ca.
Posted: Sat Sep 11, 2004 3:06 pm Post subject: Economic growth with declining energy?
Assuming after Peak Oil fossil fuels deplete faster than we can replace them with alternate sources of energy. Assume the total energy production around the world is in decline.
I would assume a total net decline in energy production will prohibit economies from continuing to grow. Am I right?
How can our economy, which is dependant on growth, be allowed to “contract” year after year? I understand there might be small periods of growth, but with declining energy, it would have to contract most of the time. Right?
Can any “optimistic types” explain how our economic system can survive Peak Oil/Energy without a “silver bullet” or miracle technology to save us?
As I have said on other posts, I am not the sharpest economic tool in the shed. I just can’t see how our economic system will survive. Most of you just gloss right over the economic implications of Peak Oil/Energy. I see is as being one of the biggest and most immediate problems.
{This thread is 9 months old. Please skip ahead to page 7 to pick up the discussion} _________________ "Peak oil isn't more than an interesting industry factoid and doesn't have anything to do with the hysterics speculated on ad nauseum around here!" ReserveGrowthRulz
Last edited by jato on Fri Jun 24, 2005 1:17 am; edited 1 time in total
Joined: May 22, 2004 Posts: 1424 Location: Ottawa, Ontario
Posted: Sat Sep 11, 2004 3:55 pm Post subject:
The economy can continue at least for a time with decreasing energy consumption. Even without increases in prices, improvements in technology have pretty consistently meant that the economy expands faster than the rate of increase in energy use. If the price of oil increases the economic insentive to apply the technological efficiencies will increase. This investment in improved efficiency however will drag on people's standard of living. Eg. The money spent improving energy efficiency won't be spent making the latest and greatest gizmo. The extra money spent buying the new energy efficient fridge means you won't get the one with the automatic mug froster.
Perversely the headline number nominal GDP can grow while people's standard of living drops. This is clearly the case if the rate of inflation is greater than the rate GDP. The improvements in efficiency will be a hidden cause of inflation. Say all new small cars were mandated to be hybrids. with current technology hybrids cost more so hey presto we have inflation in the price of cars.
Yes, I think economies can grow during a period of energy decline. Please understand that "can" and "will" are very different things.
Suppose that gasoline moves up smartly to $7.00 per gallon over the next 5 years. People will want more fuel efficient cars, right? So they'll get rid of the old gas guzzlers and buy new cars. They'll cut back on heating and cooling, but they'll purchase insulation and double glazed windows.
If electricity gets iffy, they'll buy solar panels, and solar water heating equipment.
Notice how I keep using the word "buy"? That means more GDP, it means people producing the "stuff" that these people will buy.
We might even see thriving growth in "energy conservation consultants" amongst recovering SUV salesmen!
Now keeping economic growth positive in the face of a declining population would be a great deal more challenging...
Posted: Sat Sep 11, 2004 4:24 pm Post subject: Re: Economic growth with declining energy?
jato wrote:
Assume the total energy production around the world is in decline.
One other point...the total energy production around the world won't go into permanent decline - it will, eventually, reach equilibrium. Even if that equilibrium consists of a few villagers harvesting a meagre crop of corn...
Fossil fuel will be in permanent decline, but not energy. As far as I'm concerned, the global economy is more certain to be doomed than a die-off is certain. With expensive fuel, we have less transportation for goods to move over long distances. Everything will have to become more localized. _________________ "If humans don't control their numbers, nature will." -Pimentel
"There is not enough trash to go around for everyone," said Banrel, one of the participants in the cattle massacre.
"George W. Bush loves poor people. He keeps making more of them." -unkn
Posted: Sat Sep 11, 2004 4:40 pm Post subject: Re: Economic growth with declining energy?
jato wrote:
I would assume a total net decline in energy production will prohibit economies from continuing to grow. Am I right?
How can our economy, which is dependant on growth, be allowed to “contract” year after year? I understand there might be small periods of growth, but with declining energy, it would have to contract most of the time. Right?
Jato, I agree. This is why I have made so many posts on this issue. This morning I posted an update to my euro vs petro dollar thread. Here is quote:
Quote:
Over the past three years, 200 basis points in FED rate cuts and about $200 billion in additional deficit spending each year have been required just to keep GDP growth where it is. At the end of World War II, the US had the largest net saving position in the world. The US was able to finance GDP growth itself but as the years rolled by ever greater amounts of savings from the rest of the world have been needed. Our savings rate now is down to 1.3%. To finance itself now, the US needs nearly 80% of the world’s savings. Bottom line, fiscal policy and monetary policy are becoming less effective. Tax cuts, FED rate cuts, and deficit spending are not stimulating the GDP growth we have been accustomed to since the end of WWII.
In a nutshell, we can't grow the economy now. pre-peak.
How to change all this? First it would seem we need a monetary system that does not favor one country over another as the petro dollar hegemony does today. The euro is just the European Union's effort to try and share some of the "free" economical ride that the US has enjoyed for over 30 years.
Second, we need to spend money into existence rather than lend it, thus in many ways, eliminating the need to apply usury to it. Without money reform, or an honest money system, no social reform in my opinion will be possible. Money reform will be the most difficult reform to bring about because so few people understand the problem, which again is why I post so much about it.
Our money supply is a dynamic function of money creation by lending and cancellation by repayment. Loans, of course, require payment of interest. When banks create money to loan, they do not create any money to pay the interest. Therefore we always have more debt than money. When the loan principle is repaid, money is canceled and the money supply is reduced. The interest debt can only be paid by additional borrowing. Interest is the banks’ income, and by not creating money to pay interest, banks have created an exponential annuity to themselves. The entire banking system is a no-win for all of us, and a win-win game for them.
The result of creating $100.00 and demanding $110.00 in return, is that the collective borrowers of a nation are forever chasing a phantom which can never be caught; the mythical $10 that were never created. The debt in fact is unrepayable. Each time $100 is created for the nation, the nation's overall indebtedness to the system is increased by $110. The only solution at present is increased borrowing to cover the principle plus the interest of what has been borrowed. The business or government that cannot expand its borrowing every year is seized by its increasing debt load and dragged under. Under such circumstances, economic expansion is not a luxury but an imperative to stay ahead. That is why the euro vs the petro dollar issue is so important for us to follow, more so than the oil right now.
But the situation is not completely bleak. Here is where the optimism comes in. Just as earlier problems such as the impasse of coinage was solved by paper currency, there are solutions for the problem of unrepayable debt. Obviously the first thing to do is make sure that the ratio of credit to debt is always the same. Under our current Fractional Reserve System, $100 credit is created and $110 debt is demanded in return; that is, there is always more debt than credit. This equation should be $100 credit equals $100 debt.
The mechanics of how to achieve this were proposed over one hundred and fifty years ago. It was proposed that the nation's money be created by two agencies: the banking industry and government.
Instead of taxes, government would be empowered to create money for its own expenses up to the balance the debt shortfall. Thus, if the banking industry created $100 in a year, the government would create $10 which it would use for its own expenses. Abraham Lincoln used this successfully when he created $500 million of "greenbacks" to fight the Civil War.
A government which creates its own money supply becomes independent and the most important result of freeing government from its present debtor relationship to the banking industry would be to make it more able to respond to social pressures for reform. A financially independent government would be able to pursue long term agendas for the betterment of society. For instance, a twin source of money creation could not only rapidly reduce taxes, but create additional funding for other initiatives. A government having the same right of issue as is now monopolized by the banking industry could fund vital job creating initiatives such as environmental repair and sustainable renewable technology on a scale that is hard to imagine.
Finally, and optimistically, America has the resources to lead the world into a sustainable future. But it needs a monetary system which will allow for its resources to be mobilized towards a greater destiny than marketplace superiority. Such a new monetary system with all of its potential would require a dramatic upgrading of society's consciousness and understanding of money, which again is why I post. :D
We have to move from a simplistic belief in money having an intrinsic value of its own and see it as a bookkeeping system of the real wealth of our nations. Ultimately our money is not dependent on gold in Fort Knox but on the human and natural resources which it represents. My pessimism comes into play here, in that I feel it will take a collapse of the existing system before such reform would ever be considered. But the option is out there, and people know about it. My best shot. How'd I do?
Suppose that gasoline moves up smartly to $7.00 per gallon over the next 5 years. People will want more fuel efficient cars, right? So they'll get rid of the old gas guzzlers and buy new cars. They'll cut back on heating and cooling, but they'll purchase insulation and double glazed windows.
Are you kidding? $7/gal gasoline would utterly destroy any economy. I'm not singling you out, Jack, just using your quote for a reference point. Get rid of the old gas guzzlers? To whom? The side of the road or the junkyard? Too many people here do not understand the far-reaching repercussions of rising fuel costs. Where will the money come from for huge capital investments to retrofit their homes? It isn't going to be as easy as running down to the local hardware store and loading the truck and putting it on the credit card! We could easily see interest rates of 20% like we did in 1979.
All fuel related jobs involving "leisure fuel use" will be gone over night, along with all the industries behind them. Does anyone actually think people are going to still buy boats, motorhomes, private airplanes, yachts, jet-skis, snowmobiles, rent cars, leave their lights on, run air conditioners, and go on vacation when gas is $7.00 a gallon? This isn't a cold where you can take two aspirins to get over, this is a full blown raging virus. End of rant. :D _________________ A Saudi saying, "My father rode a camel. I drive a car. My son flies a jet-plane. His son will ride a camel."
Live in Arizona? Check out: http://sustainablearizona.org and read my blog.
I personally don't believe the economy will survive 10 years post peak. The economy has started to go wrong since August 2004. The end of oil era is the end of industrial era
Joined: May 22, 2004 Posts: 1424 Location: Ottawa, Ontario
Posted: Sat Sep 11, 2004 8:05 pm Post subject:
MonteQuest
I've read something very similar on the site before. The federal government does "create" it's own money and then spends it like real money. When the government sells a bond to the central bank it knows the central bank will roll it over from then to eternity because if the central bank redeems the bond all it is doing is reducing the money supply ,which is a BAD thing. Since the government knows that it will never have to repay the loan it has essentially recieved free money. Or in other words it created money by selling a bond to the central bank. You seem to think that the central bank makes the money by loaning it out to people but in reality the only entity that is sure the central bank will perpetually rolling over their debt is the federal government. That is because ultimately the central bank is a creature of the federal government. The federal government gives the central bank its mandate to make money and in return the government gets the special priveledge of knowing that it will never have to repay the bonds held by the central bank.
That is my understanding of the system. Yes it is debt based, in that the federal accounts are done under regular accounting rules. The independance of the central bank is a key feature of a stable monetary system. When the central government has too tight a control over the central bank people start to worry that the federal government will start balancing its books by forcing the central bank to loan it more money than is wise for the economy as a whole. Your idea of having the federal government create money directly is in effect the equivalent of the president being able to call up the central bank governors and ordering them to buy X number of treasury bills. People would worry that the politicians would abuse the power and be tempted to throw any attempt at matching expenditure to taxes. This increase in the money supply would lead to massive inflation and loss in confidence in the money supply. Hence governments have tried in recent decades to shakle their own ability to "print" money by giving the power to an arms length organization who has a clear mandate to control the supply of money.
I've read something very similar on the site before. The federal government does "create" it's own money and then spends it like real money. When the government sells a bond to the central bank it knows the central bank will roll it over from then to eternity because if the central bank redeems the bond all it is doing is reducing the money supply ,which is a BAD thing. Since the government knows that it will never have to repay the loan it has essentially recieved free money. Or in other words it created money by selling a bond to the central bank. You seem to think that the central bank makes the money by loaning it out to people but in reality the only entity that is sure the central bank will perpetually rolling over their debt is the federal government. That is because ultimately the central bank is a creature of the federal government. The federal government gives the central bank its mandate to make money and in return the government gets the special priveledge of knowing that it will never have to repay the bonds held by the central bank.
That is my understanding of the system. Yes it is debt based, in that the federal accounts are done under regular accounting rules. The independance of the central bank is a key feature of a stable monetary system. When the central government has too tight a control over the central bank people start to worry that the federal government will start balancing its books by forcing the central bank to loan it more money than is wise for the economy as a whole. Your idea of having the federal government create money directly is in effect the equivalent of the president being able to call up the central bank governors and ordering them to buy X number of treasury bills. People would worry that the politicians would abuse the power and be tempted to throw any attempt at matching expenditure to taxes. This increase in the money supply would lead to massive inflation and loss in confidence in the money supply. Hence governments have tried in recent decades to shakle their own ability to "print" money by giving the power to an arms length organization who has a clear mandate to control the supply of money.
The Federal Reserve is a private entity with no oversight by either the president of Congress. Based upon the security assets the FED purchases from the government using a 10% reserve, the FED, not the govt can create $90 for every $10 in reserve. This is lent out to other banks who can do the same, based upon the 10% reserve. Sure , the govt knows and expects this to happen, but the federal government has no control over this, which you admit to in your last sentence. Either way, the money created is debt money. In my proposal the government would spend, not lend the money into existence. there is a big difference. Reread my post, I feel you missed something. Obviously, I was painting a broad picture, without stating necessary checks and balances to prevent your scenario. Do you not see that the present system cannot continue? _________________ A Saudi saying, "My father rode a camel. I drive a car. My son flies a jet-plane. His son will ride a camel."
Live in Arizona? Check out: http://sustainablearizona.org and read my blog.
Suppose that gasoline moves up smartly to $7.00 per gallon over the next 5 years. People will want more fuel efficient cars, right? So they'll get rid of the old gas guzzlers and buy new cars. They'll cut back on heating and cooling, but they'll purchase insulation and double glazed windows.
Are you kidding? $7/gal gasoline would utterly destroy any economy. (Major snip) End of rant. :D
Ahh, but it was an excellent rant!
Truth be told, no, I'm not kidding. As I mentioned at the begining of my post, it's important to draw a distinction between "can" (which I used) and "will". I believe it's possible, but also improbable.
Keep in mind that we're talking two doublings of price over a period of 6 years - so that's about equal to 24% annual price increase. And yet, the fed is cranking the money supply at a rate rather close to that....
That's about double the annual rate for the increase in health care costs, but I don't think it would necessarily and immediately destroy the economy.
If (big if) the fed is able to keep interest rates artificially low, if foreign buyers continue to buy U.S. treasury and agency bonds (God alone knows why they still do - but the game has gone for some time now, so it may yet go for awhile), if general confidence in the economy is maintained (could happen, people believe what they want to be true), then yes, we really might see the economy grow for awhile.
You mention the older cars. Actually, they'll go down in price a lot and there will be a market. The owner will take a financial bath when they sell, but someone will buy the thing.
At some time, when the supply gets critical, we'll see a serious failure of confidence in the economy and the theory of growth. I expect that to occur when Americans start seeing bare supermarket shelves, but not before. That will lead to a classic crash. But until then, as on the Titanic, the band will play, the drinks will be served, and everyone will continue to dance.
Lots of "ifs" in that comeback, me boy! If the price of "gas" was the only variable, that's one thing. But the ramifications to so many industries tie dto cheap fuel will cause lots of unemployment in those sectors I mentioned. Things won't just get more expensive, somethings will stop being made or comsumed.
Quote:
If (big if) the fed is able to keep interest rates artificially low, if foreign buyers continue to buy U.S. treasury and agency bonds (God alone knows why they still do - but the game has gone for some time now, so it may yet go for awhile), if general confidence in the economy is maintained (could happen, people believe what they want to be true), then yes, we really might see the economy grow for awhile.
This, I am convinced will not happen even if peak-oil never materializes. So, rather than rant back and forth, let's see how it pans out, ok?
Here's story you might find amusing about optimism and pessimism:
A family had twin boys whose only resemblance to each other was their looks. If one felt it was too hot, the other thought it was too cold. If one said the TV was too loud, the other claimed the volume needed to be turned up. Opposite in every way, one was an eternal optimist, the other a doom & gloom pessimist. Just to see what would happen, on the twins' birthday their father loaded the pessimist's room with every imaginable toy and game. The optimist's room he loaded with horse manure. That night the father passed by the pessimist's room and found him sitting amid his new gifts crying bitterly.
“Why are you crying?” the father asked. Because my friends will be jealous, I'll have to read the all these instructions before I can do anything with this stuff, I'll constantly need batteries, and my toys will eventually get broken,” answered the pessimist twin. Passing the optimist twin's room, the father found him dancing for joy and digging in the pile of manure. “What are you so happy about?” he asked. To which his optimist twin replied, “There's got to be a pony in here somewhere!” _________________ A Saudi saying, "My father rode a camel. I drive a car. My son flies a jet-plane. His son will ride a camel."
Live in Arizona? Check out: http://sustainablearizona.org and read my blog.
Posted: Sat Sep 11, 2004 11:39 pm Post subject: Re: Economic growth with declining energy?
jato wrote:
Can any “optimistic types” explain how our economic system can survive Peak Oil/Energy without a “silver bullet” or miracle technology to save us?
Even when we face peak oil, we will not be facing peak energy. You're conflating the two when you should be making a clear distinction. Basically, all the other sources still have plenty of room to grow. Peak oil may be imminent, but I haven't seen any research to suggest we are facing peak energy soon. Have you? The other sources are not miracles. They're sources we're all familiar with: gas, nuclear, coal, solar, conservation etc. What makes you think we won't grow using those alternatives?
This investment in improved efficiency however will drag on people's standard of living. Eg. The money spent improving energy efficiency won't be spent making the latest and greatest gizmo. The extra money spent buying the new energy efficient fridge means you won't get the one with the automatic mug froster.
I often read articles saying similar things about retailing, i.e. Wal-Mart's sales are dropping because people are spending more at the pump. But why would that have any effect on GDP or growth (which is measured with GDP)? There is still a transaction, and money still changes hands. The value of goods and services does not decline, just the nature of the good/service purchased.
Quote:
Perversely the headline number nominal GDP can grow while people's standard of living drops. This is clearly the case if the rate of inflation is greater than the rate GDP. The improvements in efficiency will be a hidden cause of inflation. Say all new small cars were mandated to be hybrids. with current technology hybrids cost more so hey presto we have inflation in the price of cars.
My understanding is that improved functionality of products is factored into the inflation statistics. For example, computers consistently cost the same, but they get more and more powerful, and that is why computers are deflating. So the inflation can be massaged away be claiming that people are paying more for a more functional product, and thus not paying more at all.
Joined: May 22, 2004 Posts: 1424 Location: Ottawa, Ontario
Posted: Sat Sep 11, 2004 11:57 pm Post subject:
MonteQuest.
I don't think I'm missing anything, but I do think I interpret it less sinisterly.
This is how I see it:
Actions:
1. The gov. creates a T bill and sells it to a bank for $1000
2. the fed receives the T bill to hold in trust as a security from the bank. in response the fed gives the bank $1000
3. The feds spends a $1000 dollars in paper clips
4. The paper clip manufacturer deposits the money into the bank
Net Results:
1. The bank's deposits increase by $1000
2. The fed has printed $1000 and disbursed it into the banking system and now holds a T bill
3. The government has spent $1000 on goods and servces and has an unredeamable debt held by the fed of $1000.
4. The paper clip manufacturer has increased his bank account by $1000
It seems to me the government has found some new money here that it knows will not be missed. The two hands of government have done an elaborate charade whose net effect is to pass into the hands of the government some new money to spend into the economy. It is when the government spends this money that the money supply actually increases.
The Fed is very much a creature of the government. It was created by an act of congress, the president appoints the govenors, it's mandate is specified by the act and any "profit" it has is returned to the Treasury. I put the profit in quotation marks since with the ultimate power to create money the Fed accounting must require some wicked loops of logic.
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