Gail's latest post is out, but IMO its a very wordy way of saying no matter what the party is over.
Conclusion
We are certainly at a worrying point in history. Our networked economy is more complex than most researchers have considered possible. We seem to be headed for collapse because of low prices, rather than high. The base scenario of the 1972 book “The Limits to Growth,” by Donella Meadows and others, seems to indicate that the world will likely reach limits about the current decade.
The modeling done in 1972 laid out the basic situation, but could not be expected to explain precisely how collapse would occur. Now that we are reaching the expected time frame, we can see more clearly what seems to be happening. We need to be examining what is really happening, rather than tying ourselves to outdated ideas of how the economic system works, and thus, what symptoms we should expect as we approach limits. It may be that $50 per barrel oil is one of the signs that collapse is not far away.
https://ourfiniteworld.com/2016/05/31/5 ... esnt-work/I will give her credit, this time the doom comes from the fact that commodity prices are too low to encourage high employment and tax revenue. So high prices are bad for the economy, moderate prices are bad for the economy and low prices are very bad for the economy.
Didn't a lot of us think $50/bbl was a scary as heck prospect back in 2006? I know I certainly did! We went through a massive period of change in the oil economy in the last decade. If the thought of the lower tax income government gets from $50/bbl oil is actually a significant blow to budgets compared to what the government saves on energy costing just half of what it cost two years ago. Same thing for unemployed oil/gas workers, commodity extraction industries have always gone through boom/bust cycles since they started being financed with massive debt.
When a business has to self fund as a general rule they watch every penny and only spend as needed because they are putting "real" assets at risk. However when a business is created using debt borrowed from others and the people running the place are protected by bankruptcy laws if they mess up it leads to a huge swell of foolish spending, the classic boom which then gets followed by the bust.
Without easy debt those cycles still exist, but the scale is very small in comparison.
Whoops, back to Gail's latest article. If you follow the link just below the quote you can read through the whole thing, I only quoted a very small portion of it. To me it reads very much like circular logic, like there is only one possible price where the economy grows and people can afford oil at the same time. IMO this is a completely faulty viewpoint because oil price and usefulness is a sliding scale, when prices are down like they are today more people buy SUV's. When oil is $147/bbl the low cost oil producers are making money hand over fist, but the rest of us with $5.00/gallon gasoline are cutting our driving to a minimum and looking for fuel efficient vehicles. Cause and effect rule through the whole range.
Looked at another way, in most OPEC countries the price of energy is literally trivial as a portion of the budget. People have no motivation to conserve energy at all. I will compare that to say, people who live in the Great Lakes region of North America like myself. We have no motivation to conserve potable water, the cost of city water is very affordable. At the same time people in India and Pakistan right now are suffering from the lack of potable water due to droughts and heat waves coupled with their very high population. I can't use California as an example because the government massively subsidizes water prices there keep them artificially very low.
If all we needed was a magic price point where revenues would be high enough to stimulate the economy while also being priced low enough for the average consumer then the government top down approach of setting the price would fix everything. Unfortunately there is a brilliant economic theory called "the Laffer Curve" that demonstrates how prices and costs change over a continuum of values. There is a point on the curve where you get maximum of X for a minimum of Y, in this case economic stimulation for lowest price of oil. However circumstances constantly influence exactly where that price point needs to be for maximum effect. In essence the Laffer Curve is a map of free market dynamics. The fewer taxes and regulations and the more small businesses instead of large monopolies the more flexible the price point is for greatest efficiency. Contrariwise the more regulations, the bigger the bureaucracy, the more very large "too big to fail" businesses that make up the whole economy the less flexible the situation is and the slower it is to adapt to changing circumstances.
This IMO is a good part of the reason young governments tend to have more impact, they do not have massive regulatory bodies and they tend to not allow big outside companies to dominate their political decision making process. This is also the reason several of the USA founding fathers thought a 'revolution' every 40 years or so would be a good thing, because it would reset the situation to the government being of limited impact and also clear out all the big monied interests from their positions of power.
We are in the place now where we have lost our flexibility. When oil went from $32/bbl to $147/bbl over just five years time it strained everything massively and caused huge disruptions. Unfortunately instead of letting the economy really crash and reset from a true sound floor level the USA government massively intervened under the "too big to fail" theory of management. As a result very little changed structurally and though oil prices dove deep in late 2008 and early 2009 they settled in the $80-$110/bbl band and stayed there with lots of new debt being dumped into the industry for fracking in 2010-2014. When KSA decided they wanted to pop that bubble it was too late, the slow as a glacier economy had begun structural adaptation to oil priced in that range. Despite mass lay offs in the Oil sector of the economy we have not had a total bubble burst event. Yes a lot of small fish are already bankrupt and they are starting to disappear, but they only existed in the first place because of the artificial QE money printing spree of the USA.
Unless people suddenly lose confidence in the USA dollar, which no longer seems like a likely thing to happen given all the massive fraud and abuse people have accepted as normal, the economy such as it is will continue until Peak Oil actually causes physical shortages. After that there are many paths, governments that make good decisions will manage to keep BAU for a while after peak, others who make poor decisions will not.
Posted: Fri 10 Apr 2015, 19:39:47
