[ralfy]

It's ironic that I've been sharing the last link and this argument multiple times in this forum, and in several cases used it to counter the fantastic view that a combination of technofixes and "decoupling" will allow for business as usual. Why? Because much of that "wealth" is essentially debt, and has to be backed up with increasing production and consumption of goods, which can't happen in a biosphere with physical limitations.

And yet the debt levels of those countries with growing middle classes, the developing countries, are relatively healthy.

As the sequester demonstrates new lows in America’s fiscal management and the European debt crisis drags on for its third year, it’s worth noting that most of the rest of the world’s financial health is pretty good. Developing countries used to rule the roost when it came to debt crises and defaults. But after a painful period of policy reform supported by considerable debt relief and restructuring, they were in a far stronger position by the end of the last decade. This has allowed them to follow policies that cushioned their citizens from the impact of the global slowdown, rather than having to ratchet up the pain—in contrast to the paths chosen by governments in much of Europe and now, the U.S.

The last decade brought dramatic change. By 2011, suggests the World Bank, the average external debt-to-GDP ratio fell to 42 percent and less than one in three developing countries had a ratio over 50 percent. Compare that to the euro zone, where gross external debt is worth about 125 percent of GDP. Similarly, public debt service in the developing world, measured as a percentage of exports, has fallen from 18 percent in 1990, through 8 percent in 2000, to below 3 percent in 2011.

Lower initial debt levels have also helped developing countries respond more forcefully to the global financial crisis. World Bank economists note that emerging economies didn’t sink as low during the 2008 crisis and bounced back faster than did advanced countries. In the past, they suggest, skittish foreign investors would force developing countries to cut spending and raise interest rates in the midst of a recession, worsening their slumps. This time around—thanks to lower debt, strong reserves, more flexible exchange rate regimes, and increasingly credible central bank leadership—many developing countries have possessed the ability to reduce interest rates and increase spending. And (unlike, say, the U.K.) most were smart enough to use that policy space to avoid shrinking their economies.

How the Developing World Escaped the Debt Trap

Some of the growth in global debt is benign and even desirable. To some extent, this reflects healthy financial system deepening, as more households and companies gain access to financial services. Moreover, debt in developing countries remains relatively modest, averaging 121 percent of GDP, compared with 280 percent for advanced economies.

The debt level in developing economies is still very low, at 42 percent of income, compared with an average of 110 percent in advanced economies. Developing nations today have much lower ratios of debt to GDP than advanced economies.

Debt and (not much) deleveraging

Debt levels are low in these countries because they are poor. That's also why they are only "relatively" healthy, as most people earn only a few dollars a day.

[ralfy]

Pstarr, it's the US and the other developed countries that cut back consumption when oil hits $100. The rest of the world continues to buy it at $100.

Re: “So the richest and most well developed countries will be outbid for oil by poorer countries? Absurd.”
Rich,
It’s always helpful to look at actual data.
Following is a graph showing normalized oil consumption from 2002 to 2010 (2002 = 100, BP Data Base) for China, India, the Top 33 Net Oil exporters and for the US:
http://i1095.photobucket.com/albums/i475/westexas/Slide1-16.jpg The recent trend has been pretty clear. Post-2005, developed oil importing countries like the US have been forced to consume a declining share of a declining volume of GNE, with the developing countries, especially the Chindia region, consuming an increasing share of a declining volume of GNE.
While it’s difficult to predict with certainty what will happen in the future, I suspect that we will see some version of the same trends going forward.

Crude oil and gasoline prices

From what I gathered, rich countries decreased consumption because oil is used significantly for middle class conveniences. For the rest of the world, consumption increased because more oil is needed to provide basic needs, and partly because middle class conveniences are growing in the same.

Fallout from financial speculation partly contributed to the first, and the response to that led to more financial speculation in the rest of the world. But more financial speculation leads to more fallout, and that's what we are seeing right now: the threat of another global financial crash, oil production issues, etc.

[kublikhan]

Debt levels are low in these countries because they are poor. That's also why they are only "relatively" healthy, as most people earn only a few dollars a day.

That is not an adequate explanation. A poor country can have a debt crisis just as easily as a rich one. Remember the Asian financial crisis? Latin American debt crisis? Argentine debt crisis? Anybody rich or poor individual or nation can get in over their head with debt. When I said relative I was speaking in terms of debt as a percentage of GDP, not absolute debt levels which of course would be much higher in the developed world.

From what I gathered, rich countries decreased consumption because oil is used significantly for middle class conveniences. For the rest of the world, consumption increased because more oil is needed to provide basic needs, and partly because middle class conveniences are growing in the same.

I would phrase it differently. In the US those "conveniences" having been fueled by a combination of decades of cheap oil and extravagant wealth led to a situation where oil was taken for granted and oil uses grew from convenient to frivolous. Like walking the dog in your SUV. On the other end of the spectrum, you have some newly middle class resident in a developing country who's rising income is enabling him to enjoy the fruits of the middle class for the first time. Not so much meeting his basic needs, but perhaps buying a motorcycle for the first time. His middle class is still far below the american middle class however that first barrel of oil he is buying is much more valuable to him than the american's 20th barrel of oil is to him. The marginal utility the newly middle class resident gets from those first few barrels of oil is much higher than the utility the american gets from his last few barrels of oil. I posted this a few times before but they say a picture is worth a thousand words. Who below is getting greater utility out of that barrel of oil? And by extension, which one would be more willing to pay $100 a barrel for the privilege vs making some sacrifices and doing without?

US oil use:


Developing world oil use:

[ennui2]

This is a recent photo of a traffic jam in China.

China has the worst traffic jams on the planet. The idea of the miserly "developing" world using only a small amount of oil is outdated because the developing world eventually, well, develops, and becomes indistinguishable from the US. I know everyone is looking for some cultural alternative to hold up as somehow superior to us wasteful americans, but the fact is that most of the rest of the world are not holding back out of some pious ascetism and are quick to be as wasteful and gluttonous as their economic situation allows.

[kublikhan]

Ennui, despite traffic jams the developing world is still using an order of magnitude less oil per capita than the US.

Oil consumption per capita (bbl/day per 1000 people)
Canada 64
US____ 61
China__ 7
India___ 3
Nigeria_ 2

Oil consumption per capita

I am not talking about pios asceticism. I am talking about basic market reactions to price movements. Look what happened when the price of oil shot up in the 70s-80s energy crisis:

After oil prices rose, firms began shifting to less energy-intensive ways of manufacturing goods and services. Similarly, consumers started to conserve as well. They insulated homes heated by oil furnaces and shifted to alternative energy sources. More importantly, they began buying different types of cars. They gradually ditched the gas guzzlers they purchased in 1971 when fuel prices were not an issue and bought smaller, more fuel efficient vehicles. As we shifted from cars getting 12 miles per gallon to ones getting 28 miles per gallon, the demand for gasoline (and its price) began to fall.

Then look how consumers reacted when the price fell again:

Demands rose rapidly during the first decade of the 21st century. Consumers, lulled by low prices, abandoned their fuel-efficient Hondas and Toyotas for behemoth trucks, vans, and SUVs.

The Joy of Economics

So I am not looking for pios asceticism here. But at the same time trading in your truck or SUV for a fuel efficient Honda/Toyota is not the end of middle class conveniences either.

[ennui2]

I don't like to talk about my personal travels because I don't want people crucifying me over my carbon footprint but I had to take a flight for work to Houston. When I got there, the airport grounds have a sculpture of pump-jack airplane mutant.



Talk about obscene. But what I noticed, beyond enough sprawl to make Los Angeles blush, was that the average passenger vehicle was an F-250. So I am not denying that americans waste energy, some proudly and shamelessly. I just don't think the rest of the world's per capita energy use should be interpreted as a quality of character, because trends indicate that they aspire to live like we do, and as they push and push for that, so goes the planet.

[kublikhan]

My point was not about quality of character. I agree with you and Ralfy there that the rest of the world seeks to emulate the US standard of living. It was about marginal utility of oil. And how the average person in a developing country sees much greater utility by increase his oil consumption from 2 to 3 barrels per year than the average american will see increasing his consumption from 20 to 21 barrels per year. And they are willing to pay more for that privilege as well.

[Strummer]

because the developing world eventually, well, develops, and becomes indistinguishable from the US

There's also this thing called "Europe".

[ralfy]

That is not an adequate explanation. A poor country can have a debt crisis just as easily as a rich one. Remember the Asian financial crisis? Latin American debt crisis? Argentine debt crisis? Anybody rich or poor individual or nation can get in over their head with debt. When I said relative I was speaking in terms of debt as a percentage of GDP, not absolute debt levels which of course would be much higher in the developed world.

Debt can rise due to financial speculation and fallout from such, but ultimately it rises due to prosperity. As income levels, profits, and returns on investment go up, then so do credit levels.

At some point, increased financial speculation leads to financial crashes. That's what happened to the countries you mentioned and to industrialized ones. At the same time, increased consumption and credit fueling a growing global middle class eventually crashes due to peak oil and generally a resource crunch.

No amount of "decoupling" and technofixes will avoid that, and simply because continuous growth in terms of credit and resource consumption cannot take place in a biosphere with physical limitations.

I would phrase it differently. In the US those "conveniences" having been fueled by a combination of decades of cheap oil and extravagant wealth led to a situation where oil was taken for granted and oil uses grew from convenient to frivolous. Like walking the dog in your SUV. On the other end of the spectrum, you have some newly middle class resident in a developing country who's rising income is enabling him to enjoy the fruits of the middle class for the first time. Not so much meeting his basic needs, but perhaps buying a motorcycle for the first time. His middle class is still far below the american middle class however that first barrel of oil he is buying is much more valuable to him than the american's 20th barrel of oil is to him. The marginal utility the newly middle class resident gets from those first few barrels of oil is much higher than the utility the american gets from his last few barrels of oil. I posted this a few times before but they say a picture is worth a thousand words. Who below is getting greater utility out of that barrel of oil? And by extension, which one would be more willing to pay $100 a barrel for the privilege vs making some sacrifices and doing without?

US oil use:


Developing world oil use:

Where did you get the idea that middle class conveniences are characterized by walking dogs in cars and not car ownership, and that most people in poor countries do not want cars, let alone delivery vans, better goods, safe and furnished homes, etc?

[ralfy]

Ennui, despite traffic jams the developing world is still using an order of magnitude less oil per capita than the US.

Oil consumption per capita (bbl/day per 1000 people)
Canada 64
US____ 61
China__ 7
India___ 3
Nigeria_ 2

Oil consumption per capita

I am not talking about pios asceticism. I am talking about basic market reactions to price movements. Look what happened when the price of oil shot up in the 70s-80s energy crisis:

After oil prices rose, firms began shifting to less energy-intensive ways of manufacturing goods and services. Similarly, consumers started to conserve as well. They insulated homes heated by oil furnaces and shifted to alternative energy sources. More importantly, they began buying different types of cars. They gradually ditched the gas guzzlers they purchased in 1971 when fuel prices were not an issue and bought smaller, more fuel efficient vehicles. As we shifted from cars getting 12 miles per gallon to ones getting 28 miles per gallon, the demand for gasoline (and its price) began to fall.

Then look how consumers reacted when the price fell again:

Demands rose rapidly during the first decade of the 21st century. Consumers, lulled by low prices, abandoned their fuel-efficient Hondas and Toyotas for behemoth trucks, vans, and SUVs.

The Joy of Economics

So I am not looking for pios asceticism here. But at the same time trading in your truck or SUV for a fuel efficient Honda/Toyota is not the end of middle class conveniences either.

Go back to the second picture you shared. That's not a fuel-efficient Japanese car.

[ralfy]

My point was not about quality of character. I agree with you and Ralfy there that the rest of the world seeks to emulate the US standard of living. It was about marginal utility of oil. And how the average person in a developing country sees much greater utility by increase his oil consumption from 2 to 3 barrels per year than the average american will see increasing his consumption from 20 to 21 barrels per year. And they are willing to pay more for that privilege as well.

It's not so much emulating that standard but purchasing passenger vehicles for business and for leisure, construction materials for safe and sturdy houses, furniture, appliances, and electronic gadgets, etc.

In the end, the world does not need to copy what the U.S. is doing to overshoot.

[dolanbaker]

because the developing world eventually, well, develops, and becomes indistinguishable from the US

There's also this thing called "Europe".

If the US & Canada were more like Europe, the global oil consumption would be about 15% lower.

[onlooker]

And they are willing to pay more for that privilege as well.

Yet therein lies the problem for the poorer countries. As oil becomes more expensive and difficult to access, the rich countries will have to lower their consumption rates and they can because as noted they have spare and superfluous excess. Yes jobs will be lost but these countries will adjust to live more akin to how people live in poor countries. Yet for poor countries they cannot afford to consume less oil because that would put them into a dangerously low level insufficient to support some basic needs. So in reference to the quote willing to pay more, well rich countries will also be willing to pay more , so who will outbid who. I would think the rich always have a leg up on the poor.

[kublikhan]

Yet therein lies the problem for the poorer countries. As oil becomes more expensive and difficult to access, the rich countries will have to lower their consumption rates and they can because as noted they have spare and superfluous excess. Yes jobs will be lost but these countries will adjust to live more akin to how people live in poor countries. Yet for poor countries they cannot afford to consume less oil because that would put them into a dangerously low level insufficient to support some basic needs. So in reference to the quote willing to pay more, well rich countries will also be willing to pay more , so who will outbid who. I would think the rich always have a leg up on the poor.

You would think so. But that is not what has been happening. When oil got into the $90+ range it was the rich oil importing countries like the US, Europe, Japan, etc that cut back on oil consumption, not the developing countries.

[kublikhan]

Debt can rise due to financial speculation and fallout from such, but ultimately it rises due to prosperity. As income levels, profits, and returns on investment go up, then so do credit levels.

At some point, increased financial speculation leads to financial crashes. That's what happened to the countries you mentioned and to industrialized ones. At the same time, increased consumption and credit fueling a growing global middle class eventually crashes due to peak oil and generally a resource crunch.

None of this changes the fact that today developing countries today have growing middle classes, rising wealth, rising oil consumption, and yet healthy levels of debt. I don't doubt we will see financial crashes going forward. But IMHO, it is the developed nations that appear more vulnerable at the moment.

Where did you get the idea that middle class conveniences are characterized by walking dogs in cars and not car ownership, and that most people in poor countries do not want cars, let alone delivery vans, better goods, safe and furnished homes, etc?

Walking a dog in an SUV was just an extreme example of the kind of waste I was talking about. A more widespread example of reducing oil consumption would be something like trading in a truck or SUV for a fuel efficient honda or toyota. Or even mass transit/bicycling/walking. My point was that we can still enjoy middle class conveniences while at the same time reducing our oil consumption. As another poster pointed out, just lowering US & Candian usage down to European levels alone would reduce global oil consumption by 15%.

[onlooker]

You would think so. But that is not what has been happening. When oil got into the $90+ range it was the rich oil importing countries like the US, Europe, Japan, etc that cut back on oil consumption, not the developing countries.

Actually K, that is exactly my point. The developed countries are cutting back their oil use because they CAN. The developing countries not so much and in fact are eager to increase. Well, that is what we are tracking on PO.com how expectations are crashing upon the shores of reality. Their is not going to be enough cheap accessible oil for everyone. So we are seeing the beginning of that. As the situation worsens the richer countries will not wish to cut back more, in fact as we speak the Middle East is in chaos because the US and others are keen to have leverage there because of the oil. So when push comes to shove, the richer countries as well as the more potent militarily will assure their access to oil leaving the poor countries without this resource. Of course when scarcity really hits how will China, India , US resolve this without coming into conflict? I would add that oil producing countries also will have an advantage over non oil producing. Export Land Model. Russia sits pretty because they are oil producing as well as having potent military.

[ennui2]

Their is not going to be enough cheap accessible oil for everyone. So we are seeing the beginning of that.

No. We're seeing a glut right now.

[ROCKMAN]

"If the US & Canada were more like Europe, the global oil consumption would be about 15% lower. And if China, Brail and India become more like Europe global oil consumption would soar...or at least prices would. And if the US and Canada consumed the same amount oil per capita as Belgium or the Netherlands global oil consumption would be the same since both EU countries consume about the same amount as the US and Canada. Which is still about half of what another EU country, Luxembourg, consumes.

[tita]

The problem is not who is able to pay more. It's about how higher prices impact the growth of global economy.

China's main activity is exporting goods. Their growth is linked to the market they have all around the world, not only themselves. And we also export stuff to China (machines, cars). You can't dissociate them from us in an economical point of view. They are able to pay more if the market stays steady.
Higher prices lower productivity when oil is used. A transport company obviously need oil to keep their activity running, and will pay more. Either they reduce their margin to stay competitive, but it's so thin now that it's not an option. Or they increase productivity (lower wages, more goods per transport), but it's probably already done. Or they charge more. In any case, there is a loss for the economy.
Of course, there are options to increase productivity in the use of oil (higher mpg cars, living nearer workplace, using public transport). We can pay more and use less oil.

And we can go on endlessly on these examples. The world is huge and complex, and we can't figure out the impact of 100$+ barrel of oil in examining all the examples.

So I don't give a shit on how oil is used. I know that growth tends to increase the use of oil (globally), that we need high prices to increase the oil production (Shell arctic drilling is an example) and that the growth slow down in periods of sustained high prices. A retroactive system, which has two outcome: either it stabalizes somewhere (which is what our economy need), or it oscillates with greater amplitude and is uncontrollable (which is roughly the case since 1972).

[onlooker]

Good points Tita. However I do not think it can stabilize for two reasons. Because is the foundation energy source and its accessibility or lack thereof cannot help but reduce growth or precipitate contraction. It is simply logical as all economic activity pretty much depends on energy. Second, the framework of our economic systems unfortunately, has come to rely too much on unsustainable debt and borrowing. In this context, a slowdown or contraction will put the brakes on lending as creditors will not lend in such an environment or if they do it will be at such high rates that it will be but a trickle of lending. In fact you could say debt is pretty much unsustainable already throughout the world. So, the link of the world economy to oil is not negotiable. As oil goes so goes the economy.