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Eight Pieces of Our Oil Price Predicament

Eight Pieces of Our Oil Price Predicament thumbnail

A person might think that oil prices would be fairly stable. Prices would set themselves at a level that would be high enough for the majority of producers, so that in total producers would provide enough–but not too much–oil for the world economy. The prices would be fairly affordable for consumers. And economies around the world would grow robustly with these oil supplies, plus other energy supplies. Unfortunately, it doesn’t seem to work that way recently. Let me explain at least a few of the issues involved.

1. Oil prices are set by our networked economy.

As I have explained previously, we have a networked economy that is made up of businesses, governments, and consumers. It has grown up over time. It includes such things as laws and our international trade system. It continually re-optimizes itself, given the changing rules that we give it. In some ways, it is similar to the interconnected network that a person can build with a child’s toy.

Figure 1. Dome constructed using Leonardo Sticks

Thus, these oil prices are not something that individuals consciously set. Instead, oil prices reflect a balance between available supply and the amount purchasers can afford to pay, assuming such a balance actually exists. If such a balance doesn’t exist, the lack of such a balance has the possibility of tearing apart the system.

If the compromise oil price is too high for consumers, it will cause the economy to contract, leading to economic recession, because consumers will not be forced to cut back on discretionary expenditures in order to afford oil products. This will lead to layoffs in discretionary sectors. See my post Ten Reasons Why High Oil Prices are a Problem.

If the compromise price is too low for producers, a disproportionate share of oil producers will stop producing oil. This decline in production will not happen immediately; instead it will happen over a period of years. Without enough oil, many consumers will not be able to commute to work, businesses won’t be able to transport goods, farmers won’t be able to produce food, and governments won’t be able to repair roads. The danger is that some kind of discontinuity will occur–riots, overthrown governments, or even collapse.

2. We think of inadequate supply being the number one problem with oil, and at times it may be. But at other times inadequate demand (really “inadequate affordability”) may be the number one issue. 

Back in the 2005 to 2008 period, as oil prices were increasing rapidly, supply was the major issue. With higher prices came the possibility of higher supply.

As we are seeing now, low prices can be a problem too. Low prices come from lack of affordability. For example, if many young people are without jobs, we can expect that the number of cars bought by young people and the number of miles driven by young people will be down. If countries are entering into recession, the buying of oil is likely to be down, because fewer goods are being manufactured and fewer services are being rendered.

In many ways, low prices caused by un-affordability are more dangerous than high prices. Low prices can lead to collapses of oil exporters. The Soviet Union was an oil exporter that collapsed when oil prices were down. High prices for oil usually come with economic growth (at least initially). We associate many good things with economic growth–plentiful jobs, rising home prices, and solvent banks.

3. Too much oil in too short a time can be disruptive.

US oil supply (broadly defined, including ethanol, LNG, etc.) increased by 1.2 million barrels per day in 2013, and is forecast by the EIA to increase by close to 1.5 million barrels a day in 2014. If the issue at hand were short supply, this big increase would be welcomed. But worldwide, oil consumption is forecast to increase by only 700,000 barrels per day in 2014, according to the IEA.

Dumping more oil onto the world market that it needs is likely to contribute to falling prices. (It is the excess quantity that leads to lower world oil prices; the drop in price doesn’t say anything at all about the cost of production of oil the additional oil.) There is no sign of a recent US slowdown in production either.  Figure 2 shows a chart of crude oil production from the EIA website.

Figure 2. US weekly crude oil production through October 10, as graphed by the US Energy Information Administration.

4. The balance between supply and demand is being affected by many issues, simultaneously. 

One big issue on the demand (or affordability) side of the balance is the question of whether the growth of the world economy is slowing. Long term, we would expect diminishing returns (and thus higher cost of oil extraction) to push the world economy toward slower economic growth, as it takes more resources to produce a barrel of oil, leaving fewer resources for other purposes. The effect is providing a long-term downward push on the price on demand, and thus on price.

In the short term, though, governments can make oil products more affordable by ramping up debt availability. Conversely, the lack of debt availability can be expected to bring prices down. The big drop in oil prices in 2008 (Figure 3) seems to be at least partly debt-related. See my article, Oil Supply Limits and the Continuing Financial Crisis. Oil prices were brought back up to a more normal level by ramping up debt–increased governmental debt in the US, increased debt of many kinds in China, and Quantitative Easing, starting for the US in November 2008.

Figure 3. Oil price based on EIA data with oval pointing out the drop in oil prices, with a drop in credit outstanding.

In recent months, oil prices have been falling. This drop in oil prices seems to coincide with a number of cutbacks in debt. The recent drop in oil prices took place after the United States began scaling back its monthly buying of securities under Quantitative Easing. Also, China’s debt level seems to be slowing. Furthermore, the growth in the US budget deficit has also slowed. See my recent post, WSJ Gets it Wrong on “Why Peak Oil Predictions Haven’t Come True”.

Another issue affecting the demand side is changes in taxes and in subsidies. A change toward more taxes such as carbon taxes, or even more taxes in general, such as the Japan’s recent increase in sales tax, tends to reduce demand, and thus give a push toward lower world oil prices. (Of course, in the area with the carbon tax, the oil price with the tax is likely to be higher, but the oil price elsewhere around the world will tend to decrease to compensate.)

Many governments of emerging market countries give subsidies to oil products. As these subsidies are lessened (for example in India and in Brazil) the effect is to raise local prices, thus reducing local oil demand. The effect on world oil prices is to lower them slightly, because of the lower demand from the countries with the reduced subsidies.

The items mentioned above all relate to demand. There are several items that affect the supply side of the balance between supply and demand.

With respect to supply, we think first of the “normal” decline in oil supply that takes place as oil fields become exhausted. New fields can be brought on line, but usually at higher cost (because of diminishing returns). The higher cost of extraction gives a long-term upward push on prices, whether or not customers can afford these prices. This conflict between higher extraction costs and affordability is the fundamental conflict we face. It is also the reason that a lot of folks are expecting (erroneously, in my view) a long-term rise in oil prices.

Businesses of course see the decline in oil from existing fields, and add new production where they can. Examples include United States shale operations, Canadian oil sands, and Iraq. This new production tends to be expensive production, when all costs are included. For example, Carbon Tracker estimates that most new oil sands projects require a price of $95 barrel to be sanctioned. Iraq needs to build out its infrastructure and secure peace in its country to greatly ramp up production. These indirect costs lead to a high per-barrel cost of oil for Iraq, even if direct costs are not high.

In the supply-demand balance, there is also the issue of oil supply that is temporarily off line, that operators would like to get back on line. Libya is one obvious example. Its production was as much as 1.8 million barrels a day in 2010. Libya is now producing 800,000 barrels a day, but was producing only 215,000 barrels a day in April. The rapid addition of Libya’s oil to the market adds to pricing disruption. Iran is another country with production it would like to get back on line.

5. Even what seems like low oil prices today (say, $85 for Brent, $80 for WTI) may not be enough to fix the world’s economic growth problems.

High oil prices are terrible for economies of oil importing countries. How much lower do they really need to be to fix the problem? Past history suggests that prices may need to be below the $40 to $50 barrel range for a reasonable level of job growth to again occur in countries that use a lot of oil in their energy mix, such as the United States, Europe, and Japan.

Figure 4. Average wages in 2012$ compared to Brent oil price, also in 2012$. Average wages are total wages based on BEA data adjusted by the CPI-Urban, divided total population. Thus, they reflect changes in the proportion of population employed as well as wage levels.

Thus, it appears that we can have oil prices that do a lot of damage to oil producers (say $80 to $85 per barrel), without really fixing the world’s low wage and low economic growth problem. This does not bode well for fixing our problem with prices that are too low for oil producers, but still too high for customers.

6. Saudi Arabia, and in fact nearly all oil exporters, need today’s level of exports plus high prices, to maintain their economies.

We tend to think of oil price problems from the point of view of importers of oil. In fact, oil exporters tend to be even more affected by changes in oil markets, because their economies are so oil-centered. Oil exporters need both an adequate quantity of oil exports and adequate prices for their exports. The reason adequate prices are needed is because most of the sales price of oil that is not required for investment in oil production is taken by the government as taxes. These taxes are used for a variety of purposes, including food subsidies and new desalination plants.

A couple of recent examples of countries with collapsing oil exports are Egypt and Syria. (In Figures 5 and 6, exports are the difference between production and consumption.)

Figure 5. Egypt's oil production and consumption, based on BP's 2013 Statistical Review of World Energy data.

Figure 6. Syria's oil production and consumption, based on data of the US Energy Information Administration.

Saudi Arabia has had flat exports in recent years (green line in Figure 7). Saudi Arabia’s situation is better than, say, Egypt’s situation (Figure 5), but its consumption continues to rise. It needs to keep adding production of natural gas liquids, just to stay even.

Figure 7. Saudi oil production, consumption and exports based on EIA data.

As indicated previously, Saudi Arabia and other exporting countries depend on tax revenues to balance their budgets. Figure 8 shows one estimate of required oil prices for OPEC countries to balance their budgets in 2104, assuming that the quantity of exported oil is pretty much unchanged from 2013.

Figure 8. Estimate of OPEC break-even oil prices, including tax requirements by parent countries, from APICORP.

Based on Figure 8, Qatar and Kuwait are the only OPEC countries that would find $80 or $85 barrel oil acceptable, assuming the quantity of exports remains unchanged. If the quantity of exports drops, prices would need to be even higher.

Saudi Arabia has set aside funds that it can tap temporarily, so that it can withstand a lower oil price. Thus, it has the ability to withstand low prices for a year or two, if need be. Its recent price-cutting may be an attempt to “shake out” producers who have less-deep pockets when it comes to weathering low prices for a time. Almost any oil producer elsewhere in the world might be in that category.

7. The world really needs all existing oil production, plus more, if the world economy is to grow.

It takes oil to transport goods, and it takes oil to operate agricultural and construction equipment. Admittedly, we can cut back world production oil production with lower price, but this gets us into “a heap of trouble”. We will suddenly find ourselves less able to do the things that make the economy function. Governments will stop fixing roads. Services we take for granted, like long distance flights, will disappear.

A lot of people have a fantasy view of a world economy operating on a much smaller quantity of fossil fuels. Unfortunately, there is no way we can get there by way of a rapid drop in oil prices. In order for such a change to take place, we would have to actually figure out some kind of transition by which we could operate the world economy on a lot less fossil fuel. Meeting this goal is still a very long ways away. Many people have convinced themselves that high oil prices will help make this transition possible, but I don’t see this as happening. High prices for any kind of fuel can be expected to lead to economic contraction. If transition costs are high as well, this will make the situation worse.

The easiest way to reduce consumption of oil is by laying off workers, because making and transporting goods requires oil, and because commuting usually requires oil. As a result, the biggest effect of a cutback on oil production is likely to be huge job layoffs, far worse than in the Great Recession.

8. The cutback in oil supply due to low prices is likely to occur in unexpected ways.

When oil prices drop, most production will continue as usual for a time because wells that have already been put in place tend to produce oil for a time, with little added investment.

When oil production does stop, it won’t necessarily be from high-cost production, because relative to current market prices, a very large share of production is high-cost. What will tend to happen is that production that has already been “started” will continue, but production that is still “in the pipeline” will wither away. This means that the drop in production may be delayed for as much as a year or even two. When it does happen, it may be severe.

It is not clear exactly how oil from shale formations will fare. Producers have leased quite a bit of land, and in some cases have done imaging studies on the land. Thus, these producers have quite a bit of land available on which a share of the costs has been prepaid. Because of this prepaid nature of costs, some shale production may be able to continue, even if prices are too low to justify new investments in shale development. The question then will be whether on a going-forward basis, the operations are profitable enough to continue.

Prices for new oil development have been too low for many oil producers for many months. The cutback in investment for new production has already started taking place, as described in my post, Beginning of the End? Oil Companies Cut Back on Spending. It is quite possible that we are now reaching “peak oil,” but from a different direction than most had expected–from a situation where oil prices are too low for producers, rather than being (vastly) too high for consumers.

The lack of investment that is already occurring is buried deeply within the financial statements of individual companies, so most people are not aware of it. Dividends remain high to confuse the situation. By the time oil supply starts dropping, the situation may be badly out of hand and largely unfixable because of damage to the economy.

One big problem is that our networked economy (Figure 1) is quite inflexible. It doesn’t shrink well. Even a small amount of shrinkage looks like a major recession. If there is significant shrinkage, there is danger of collapse. We haven’t set up a new type of economy that uses less oil. We also don’t have an easy way of going backward to a prior economy, such as one that uses horses for transport. It looks like we are headed for “interesting times”.

Our Finite World

24 Comments on "Eight Pieces of Our Oil Price Predicament"

  1. Perk Earl on Wed, 22nd Oct 2014 11:19 pm 

    Hey NWR, maybe Gail got to thinking about my post to her on QE:

    “In recent months, oil prices have been falling. This drop in oil prices seems to coincide with a number of cutbacks in debt. The recent drop in oil prices took place after the United States began scaling back its monthly buying of securities under Quantitative Easing.”

  2. Plantagenet on Wed, 22nd Oct 2014 11:50 pm 

    Gail concludes that we may reach peak oil because oil prices are too low for oilcos to invest in the needed drilling and development work to produce oil. That is certainly possible, but it seems more likely that we are just seeing the latest and perhaps the last repetition of the pattern of “Boom-Bust” cycles that have characterized the oil biz ever since Col. Drake drilled the first oil well in 1859. We just had a “Boom” with a huge surge in drilling and a concomitant increase in supply. We are now seeing the “Bust” where an oversupply of oil results in a collapse in oil prices.

  3. Northwest Resident on Thu, 23rd Oct 2014 12:08 am 

    Hi Perk — I read a financial article today on one of the sites I regularly visit. The article had three charts which seemed to show a nearly direct relationship between QE tapering and stock market drop and oil price decrease. That was true for QE1, QE2 and now for QE3. Coincidence? Not likely.

    Gail makes what I think is a very valid point about cutbacks in debt leading to oil price drop. I think both you and Gail are on to something!

    If you know that the only thing keeping the global economic balloon inflated is huge injections of cash, then it goes without saying that withdrawing that cash will result in the balloon collapsing.

    The global economy is running on debt. All or most “growth” since 2008 has been through added debt — that’s the POV I’ve read in numerous articles and it is what I believe.

    It just makes sense that cutting back on debt will shrink an economy that is running on debt.

    In a shrinking economy, people are less able to buy products produced from oil, but the producers are still pumping at the same rate, for a while at least anyway. That leads to a “glut” like the one we have now — just like Gail explains.

    If they don’t do a QE4, then I agree with Gail that we will be headed for “interesting times”. And it won’t take long to get there. We’ll end up there anyway even if they do QE4, it’ll just take a little longer to get there.

    No more QE means to me that TPTB are throwing in the towel on trying to grow the economy out of this mess, and well they should. It’s about time!

    This economy is a dead man walking. Every step that BAU takes these days leaves a giant slime mark on the planet and a billowing cloud of toxic vapor in the air. Stretching out the pain and agony of this version of BAU any longer than needed would be a crime against nature and just plain suicidal.

    It’s time to do a coup de grace on BAU, and putting a halt to QE is probably all it will take.

  4. Davy on Thu, 23rd Oct 2014 5:27 am 

    NR/Perk ,I am on the same page with the QE/market relationship. I am referring to commodities and equity markets. The statement referring to a new QE is interesting. This is something the markets are looking for from all the major economic powers and they have all hit limits to the debt liquidity injections with diminishing returns with apparent and unintended consequences. The dangers are now becoming too high for the central banks to ignore. The needed breakout of the world economies has not happened and likely will not at this point. I am not sure what will happen here on out both choices lead to contraction. Currently all major central banks are doing the usual jawboning to buy time. Eventually the markets will demand their next morphine drip. If they do not get it the markets will most likely sink. If another QE is introduced the dysfunctions and inconsistencies will create a drop soon enough. I imagine they are going to choose the path of greatest control with the least amount of damage i.e. a “muddle”. These things seem to play out in cycles. Let us say we are in for another break within a quarter or two. We now have liquid fuels growth disturbance in play. I have always thought the most likely aggregate PO scenario is economic contraction causing demand destruction knocking down liquid fuel production which limits economic recovery. From here on out I believe the descent has begun. Expect food insecurity to start raising its ugly head within a year. The key to this game is diminishing returns of debt liquidity. Without debt the markets cannot generate the wealth effect. Debt effectiveness is lost the higher the market climbs. The central banks eventually run out of effective debt injections. For example at some point the Fed will have almost all US debt on its balance sheet eliminating liquidity in a vital global market. Economic activity goes down putting pressure on complexity. If complexity growth is ever lost entropic decay sets in. This will likely lead to random descent with administrative dysfunction, irrational economic abandonment, and loss of confidence. The key question is duration and degree of pain until a stability reboot.

  5. marmico on Thu, 23rd Oct 2014 5:38 am 

    Gail makes what I think is a very valid point about cutbacks in debt leading to oil price drop

    No. The level of U.S. credit market debt is increasing by ~3% year on year.

  6. marmico on Thu, 23rd Oct 2014 6:06 am 

    For example at some point the Fed will have almost all US debt on its balance sheet eliminating liquidity in a vital global market

    No. The Federal Reserve records ~22% of the federal public debt on its balance sheet. It was ~16% pre-The Great Recession.

  7. Davy on Thu, 23rd Oct 2014 6:39 am 

    Marm, I copied this to my notes back in August of 2013. Marm, you do agree we live in a finite world and this condition is a potential with QE?

    A few months ago, when discussing the most pertinent topic for Bernanke and his merry central-planning men we said that “with every passing week, the Fed’s creeping takeover of the US bond market absorbs just under 0.3% of all TSY bonds outstanding: a pace which means the Fed will own 45% of all in 2014, 60% in 2015, 75% in 2016 and 90% or so by the end of 2017 (and if the US budget deficit is indeed contracting, these targets will be hit far sooner). By the end of 2018 there would be no privately held US treasury paper. Still think QE can go on for ever?” What followed was 3 months of heated debate on whether the Fed will or will not taper which for some reason were focusing on the wrong thing – the economy. Ironically, how the economy is doing has nothing to do with the Fed’s decision, which is entirely decided by the increasing shortage of private sector “quality collateral” i.e., bonds. How big is this shortage? As noted above, the Fed’s literally absorbs ~0.3% of the bond market each week. And according to the most recently released Fed balance sheet data, this is indeed the case. According to SMRA calculations, the Fed owned about 31.47% of the total outstanding ten year equivalents. This is above the 31.24% from the prior week, and higher than the 30.99% from the week before – a rate of increase almost in line with what we predicted. Inversely this means that the percentage of ten-year equivalents available to the private sector decreased to 68.53% from 68.76% in the prior week. Long story short, the Fed just soaked up 0.23% of the bond market in one week and half a percent in two weeks, a ratio that will only increase in time, and unless there is a taper, may reach 0.5% per week.

  8. marmico on Thu, 23rd Oct 2014 8:40 am 

    unless there is a taper There was. Why haven’t you adjusted your world view?

    The Fed buying GSE securities knocked down annualized mortgage interest payments to 2000 levels. Mortgage debtors are not financially repressed.

  9. Northwest Resident on Thu, 23rd Oct 2014 11:05 am 

    marmico — You are correct. There WAS a taper for QE1, there WAS a taper for QE2, and there IS a taper for QE3.

    Your one-statistic one-liners scattered on the comments section of this article are missing the main point and may not even be accurate — as is often the case your stats are of unknown origin.

    Of course national debt is increasing — due to accumulating obligations for Social Security, Medicare, etc… But that has nothing at all to do with the main point that Gail is making.

    “In recent months, oil prices have been falling. This drop in oil prices seems to coincide with a number of cutbacks in debt. The recent drop in oil prices took place after the United States began scaling back its monthly buying of securities under Quantitative Easing. Also, China’s debt level seems to be slowing. Furthermore, the growth in the US budget deficit has also slowed. See my recent post, WSJ Gets it Wrong on “Why Peak Oil Predictions Haven’t Come True”.”

    Debt is being used by major corporations to buy back their own stock in unprecedented levels. That is debt that might otherwise be used to launch new projects designed to increase profits in the “normal” times of “the good old days”. Launching those projects would increase the demand on oil and put upward pressure on oil prices. But they aren’t launching new projects, they’re laying off employees, they are closing locations, they are stocking up on short term temp employees with low wages and no benefits, they are freezing or cutting wages for FTEs, and they are using cheap debt to reduce the dividends they have to pay — in other words, they are circling the wagons figuratively speaking, digging in for tough times ahead. How are oil companies supposed to justify increased levels of debt to fund their work when any bank/lender can see that the demand for future oil is shrinking, not growing?

    There are so many ways to slice this situation. Scan the internet as I’m sure you do and there are a million conflicting arguments on the subject coming from all different directions. Every POV can be “proven” right and every POV can be “proven” wrong, based on the info available. Much of that information is purposeful disinformation put out to purposely cloud the issues.

    Gail does a great job of cutting through all the smoke and mirrors and presenting a compelling logic that explains what we are seeing — in my opinion.

    Have you tried running your one-liner stats by Gail to get her reaction? You can post those zingers on her blog in response to this article. If she bothers to respond, it would be very interesting to see what she has to say. Please, do it, let’s see what Gail’s response to your stats will be.

  10. marmico on Thu, 23rd Oct 2014 11:58 am 

    as is often the case your stats are of unknown origin

    You wouldn’t know a statistic if it hit you on the ass on the way into the doomstead circle jerk.

    Tverberg’ latest piece is word salad with some meaningless charts on Egypt and Syria. For instance, she is big on wages and WTI. Well here is the chart for the last 10 years comparing the indexed two variables indexed. What does it tell you? It tells me that since the December 2007 business cycle peak through September 2014 hourly wages continuously increase and have risen 17% and WTI bounces around and has risen 2%. Try figuring that out with her dumb chart.

  11. GregT on Thu, 23rd Oct 2014 12:18 pm 

    “If complexity growth is ever lost entropic decay sets in. This will likely lead to random descent with administrative dysfunction, irrational economic abandonment, and loss of confidence.”

    And WAR.

  12. Northwest Resident on Thu, 23rd Oct 2014 12:43 pm 

    marmico — Classy response from a classy dude. Just what I expected.

    I’ll take it from your response that you have declined the “post your one-liner stats on Gail’s blog to get her response” challenge?

    Just as well. You’ve probably already been blocked from posting on her site by now anyway — that’s just a guess.

    Keep those stats coming, marmico. They are very persuasive and compelling data points.

  13. Davy on Thu, 23rd Oct 2014 12:44 pm 

    Marm, any comment on the huge amount of people that have given up on work altogether and withdrawn from the labor force. Your stats probably do not take into account the growing wage disperity. Marm, you going to tell me that just slapped my ass? I would respect you more if you had some balance.

  14. MSN Fanboy on Thu, 23rd Oct 2014 12:53 pm 

    marmico… If there is a declining labour participation rate & more part-time work / wealth gains at top (bourgeois) wouldn’t that also prove your above point, with the graph?

    The graph you give does show a correlation but not necessarily a causation. 🙂

    but anyone who calls nr on his bullshit is a friend of mine

  15. Perk Earl on Thu, 23rd Oct 2014 1:08 pm 

    “If they don’t do a QE4, then I agree with Gail that we will be headed for “interesting times”. And it won’t take long to get there. We’ll end up there anyway even if they do QE4, it’ll just take a little longer to get there.

    No more QE means to me that TPTB are throwing in the towel on trying to grow the economy out of this mess, and well they should. It’s about time!”

    Ya to that, NWR. The following is a test of the US govt. in conjunction with the Fed:

    We will let the economy stand without any further QE stimulus injections and simply pray that it does well, even though we already have Japan as an example of what happens when a country gets behind the energy predicament 8 ball.

    So let’s see what happens. My guess is by the middle of winter things will not look so rosy. We shall see…

    “Currently all major central banks are doing the usual jawboning to buy time. Eventually the markets will demand their next morphine drip.”

    Absolutely, Davy. The patient is sick without cheap oil, suffering low if any growth even with QE. Now we step off the curb post taper into the unknown abyss of market traders whining in the near future to get more stimulus (QE4) and that’s even before the 4.5 trillion in bonds are sold from QE1-3, that will cause inflation requiring a rise in interest rates, which will cause defaults…and suddenly they will say it turns out the QE program was working but we should still have it as an open ended program just in case we need an injection here or there if the patient is feeling queasy or worse about to collapse.

  16. Northwest Resident on Thu, 23rd Oct 2014 1:37 pm 

    MSN Fanboy — I’m shocked! You’ve been flitting in and out of this forum for quite a while, playing both sides, and never once have you challenged or disagreed with one of my posts. And now I learn that you are characterizing my posts and my opinions expressed as “bullshit”. Man, I’m really hurt, like a stab in the back.

    But on the other hand, I guess I’m not surprised to see you taking sides with marmico. After all, birds of a feather do flock together.

    Regarding that chart. It takes an absolute FOOL and a complete denier of reality to try to argue that American wages are rising. The evidence (and yeah, marmico, the STATISTICS) overwhelmingly disprove that false assertion.

    “Using conventional methods of analysis, the data show that the median earnings for prime-age (25-64) working men have declined slightly from 1970 to 2010, falling by 4 percent after adjusting for inflation.

    This finding of stagnant wages is unsettling, but also quite misleading. For one thing, this statistic includes only men who have jobs. In 1970, 94 percent of prime-age men worked, but by 2010, that number was only 81 percent. The decline in employment has been accompanied by increases in incarceration rates, higher rates of enrollment in the Social Security Disability Insurance program and more Americans struggling to find work. Because those without jobs are excluded from conventional analyses of Americans’ earnings, the statistics we most commonly see — those that illustrate a trend of wage stagnation — present an overly optimistic picture of the middle class.

    When we consider all working-age men, including those who are not working, the real earnings of the median male have actually declined by 19 percent since 1970. This means that the median man in 2010 earned as much as the median man did in 1964 — nearly a half century ago. Men with less education face an even bleaker picture; earnings for the median man with a high school diploma and no further schooling fell by 41 percent from 1970 to 2010.”

    ht tp://

    That’s just one of millions of authoritative articles that address the issue.

    marmico and MSN — Seriously? You really think that wages are rising in America?

    P.S. Using data provided by the Fed (in St. Louis or elsewhere) to try to prove your points should be done cautiously. The Fed and the US Government are known to sometimes propagandize and put out misleading information to fool the witless into believing things that aren’t necessarily true. Surely that hasn’t happened to you guys?

  17. marmico on Thu, 23rd Oct 2014 1:50 pm 

    Marm, any comment on the huge amount of people that have given up on work altogether and withdrawn from the labor force

    Ya, it is sad that so many folks had their aspirations cut and it’s been piss poor since the female participation rate peaked at the millennium and is in decline and the lead edge boomer turned 62 (“early” social security benefits) in 2008.

    The silver lining is demographic: the mid-millennial cohort of 1991 is larger than the mid-boomer cohort of 1957 so the labor force participation rate will probably bottom out and start rising for prime age (24-55 years old) labor.

  18. marmico on Thu, 23rd Oct 2014 2:08 pm 

    marmico and MSN — Seriously? You really think that wages are rising in America?

    You, sir, are the epitome of intellectual bankruptcy!

  19. Northwest Resident on Thu, 23rd Oct 2014 2:26 pm 

    marmico — And you, sir, are the epitome of fabricated statistics, name calling, obnoxious retorts and all around trollishness.

    I’m very pleased to be the target of your crude and pompous belittlements, marmico. You stop in from time to time, toss out a fabricated stat to make yourself appear “smart”, you like to use big words to impress, you’re the master of one-liner insults. Since you first came to this forum, you’ve directed all your vileness and insulting one-liners at rockman, shortonoil, Davy and other individuals who are far superior in intellect and humanity than yourself. I’m proud to join the ranks of those who rankle you enough to evoke your esteemed attention.

    “the labor force participation rate will probably bottom out and start rising for prime age (24-55 years old) labor”

    Where’s your fabricated statistic (or twisted reasoning) to support that prophesy?

  20. marmico on Thu, 23rd Oct 2014 2:57 pm 

    Lie in bed with Tverberg. Where do you think she gets her data?

    The fact that you don’t know that the St. Louis Fed has easily accessible data on tens of thousands data points that make up the economy is your past loss, maybe your future gain. You are probably so dense that you didn’t know that the charts I link are interactive.

    Real compensation (wages and benefits) in the nonfarm business sector has almost tripled since 1949. That is 3x the purchasing power. Where do you think that people get all this money over the last 65 years to buy all those goods and services? Now I’m not denying that the last 15 years haven’t been a slog for many households.

  21. GregT on Thu, 23rd Oct 2014 3:35 pm 

    “The silver lining is demographic”

    More like the straw that will sever the spine of the already broken camel’s back.

  22. Davy on Thu, 23rd Oct 2014 6:32 pm 

    Marm, you admitted that all is not peachy. That is the first step to your mental health improvements. Can I advise you further?

  23. MSN Fanboy on Thu, 23rd Oct 2014 6:40 pm 

    I began disagreeing with all of you when you started to argue ebola will bring collapse.

    Peak oil, collapse will happen, but in your dialogue on ebola you revealed a particular characteristic.

    There is a difference betwixt saying everything will cause a collapse of civilisation… such as ebola

    Then actually giving the hard data, such a peak oil

    You ridicule the cornocopian mindset yet represent the antithes, everything is all doom and gloom, even hyped up media rubbish about ebola

  24. Kenz300 on Sat, 25th Oct 2014 9:50 am 

    The only thing you can control is your own use of energy. You can be part of the problem or contribute to a solution.

    Cities once had trolley’s running thru the center of town providing transportation for the masses.

    It is time to move away from the auto centered city and to the people centered city.

    As the price of oil and transportation continues to rise people will be looking to reduce their monthly transportation costs. There is a growing movement to reorient our cities to include more walking, biking and mass transit.

    Walking, riding a bicycle or taking mass transit reduce the monthly transportation costs and saves energy.

    Some cities encourage bikes………. they provide safe walking and biking lanes and trails.

    Top 10 Cycling-Friendly Cities – YouTube

    Bike Friendly Cities, The Journey to School – YouTube

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