So here's a thought: Many of the doomers are of the opinion that if oil production declines then GDP will decline because there is a 1:1 correlation between oil usage and the economy.
Sounds plausible right?
OK How about this for a thought experiment:
Simply buy as much oil as you can and burn it. Will that cause the economy to grow faster than anybody else?
In other words does energy inefficiency drive the economy?
I'll stick my neck out and say, NO.
I suspect that rather than the economy being driven by the amount of energy it consumes, I think there is a correlation (though NOT 1:1) between the better the economy, the more energy used all things being equal.
When you try to look at the data, however, it's hard to get a clear picture. What's definitely not true is that profligate energy consumers have the best economy in terms of GDP per head except possibly in the case of Norway.
Seems to be that Norway wastes a shit load of energy per unit of GDP and so also does Iran.
But yet, Norway is rich and Iran is poor. What gives? Maybe the *real* correlation is that if you have a ton of it, you *waste it*?
China (not a rich country in terms of GDP per head), the Netherlands and the US all use about the same amount of energy to produce a unit of GDP. China is partly self sufficient in energy and so is the USA. The Netherlands imports much of it's energy.
Germany, Japan, the UK and India all generate GDP using less energy per unit of GDP generated.
What's interesting about that is that if you look at the GDP numbers per head instead of GDP per unit of energy the ranking is different.
#1 Norway $52,238
#2 USA $47,132
#3 NL $40,777
#4 Germany $35,930
#5 UK $35,053
#6 Japan $33,828
#7 Iran $11,024
#8 China $7,518
#9 India $3,290
So what do the rankings show: The highest (out of this small section) is Norway, which has a large oil production per capita. The only other large oil exporter in the list is Iran who is down at the bottom end and nowhere near the rich countries. The world's pre-eminent manufacturing rising star is China, who is no more efficient nor more inefficient at producing GDP using energy than the United States or the Netherlands.
The interesting question is this: where are the countries placed who have no oil resources of their own?
Japan, the Netherlands and Germany virtually have to import all of their oil yet they are all firmly in the rich country grouping. What gives?
Perhaps the relationship of GDP to energy usage for a country is more complicated than the doomers make out hmmm?
22 comments:
Maybe GDP is not that useful as a metric for economic health, particularly in an age where GDP is comprised of all sorts of useless, ephemeral crap based on monetary gimmicks.
Anon,
Sounds like you have an agenda driven position there.
The GDP of the USA would be in negative numbers were it not for massive amounts of deficit spending.
Hey again DB!
Thanks for putting some light on the whole "mass extinction event" thing. I am sorry about my seemingly alarmist position at the time when I made my post, but it was only moments after I had seen a television program about it (which itself had a very alarmist tone), it avoke a rather uncomfortable feeling which I had not felt since I first learnt about peak oil.
Also thanks for once more providing your readers with a well-written and insightful articel.
As always I bring some new positions from the doomer pests, this time it is the notion of "peak-Phosphorus" and how we are all "doomed" to die horribly as we will "lose" our ability to produce food in an ever growing world
Might be worth looking into, since it is one of their newest ideas ;)
Wow we have some geniuses among the anonymous cohort this month. Thanks for your illuminating post about deficit spending.
Heh Peak-Phosphorus-Anon,
I consider "peak phosphorus" to be under the general headline of "peak minerals". I already wrote a post about that a couple years back.
Basically the gist is that as long as we have enough energy (read not *oil* - energy) then we can continue to extract minerals since we have barely started tapping the Earth's crust. The post is here:
http://dieoffdebunked.blogspot.com/2009/05/mineral-resource-depletion.html
Ahh interesting articel. The thing I was mostly wondering about though, is that at some point mankind will have to movebeyond "miniral" Phosphorus (as we will run out at some point)
What the doomers claim is that we cannot (in any way) replace Phosphorus when it comes to farming as it cannot be subsistuded
what are your views on this? personally I would say sience would find a way like it always do
Anon,
Could you please start using spellcheck before you post?
Anyways: to address your issue:
Phosphorus in particular used to be one of the natural "cycles" (like the carbon cycle or the nitrogen cycle) wherein the phosphorus was continually recycled in the biological systems.
The doomers allude to the point that we are mining it now and putting it on top of our ploughed fields in massive inorganic doses, much of which runs off into waterways.
All true.
There are some holes in their argument, however, such as:
We could *easily* re-cycle the phosphorus if we wanted to. For example human and animal urine is chock full of phosphorus. It's just cheaper to use mined phosphorus.
Secondly, as my original article stated, phosphorus is not like coal or oil which are only found in particular formations. Phosphorus is all through the Earth's crust in varying concentrations. Since we have not mined even 1% of the Earth's crust I fail to see how we can "run out" of phosphorus any time soon unless you buy into the dieoff argument that all energy is oil and there is no replacement for oil.
Also see JD's excellent post at
http://peakoildebunked.blogspot.com/2007/12/321-peak-phosphorus.html
Thanks a lot for answering my question! I will be using spell-check from now on. The only reason I haven’t been using it yet is because I forgot to do so. : P
Weaseldog,
My apologies, I deleted your comments by accident instead of publishing them. If you would like to re-submit, I will publish them.
DB said... "Sounds like you have an agenda driven position there."
GDP is a political construct. It's created and manipulated for political purposes.
Any argument that centers on this measure is agenda driven.
As is this comment.
After all, I'd like to some real transparency in how these figures are calculated.
All you'll find on the Gov sites on how economic numbers are generated is a list of things that go into their calculations, but precious little information is given on exactly how they calculate their numbers.
I do take issue with the fact that government spending is becoming an expanding component int he GDP. Simply running the money presses, faster and faster, creates a growing GDP.
Because of this, we don't actually need a healthy or growing economy to see a growing GDP. All we need is a government that keeps increasing it's deficit spending.
So there is really no solid correlation between the economy and the GDP, and so no solid correlation between oil production and the GDP.
Weaseldog,
OK I get your point and I take back what I said about it being agenda driven as it appeared to be at first glance.
The criticism I will lay at your door, however, is that you're not offering an alternative. What I'm doing is using what's available.
We could go into a great deal of detail about GDP and what we should have instead but the fact is it's very difficult to provide a 100% best fit. It's as good as we've got right now.
GDP itself was a replacement for GNP which had it's own flaws.
The main problem I see with GDP is not so much how it's calculated but as you alluded to, what it's measured in.
If the dollar isn't fixed then if you inflate the money supply then obviously you can make it appear that the GDP is increasing.
So therefore we would have to re-run the GDP numbers using constant dollars.
Even that though, wouldn't be 100% adequate because GDP could theoretically increase just by us selling houses to each other (as happened recently) or cutting each other's hair or whatever else.
At that point we are making a value judgement on what is "acceptable" production. Then we are all over the map on subjectivity. Extreme eco-fanatics would say any increased growth is bad and also any increased energy production is bad. I myself might have other opinions as might you.
What we are left with is an agreed upon metric for the health of the economy in the absence of any other and everyone uses it.
That's good enough for me in the absence of nothing at all.
DB said, "The criticism I will lay at your door, however, is that you're not offering an alternative. What I'm doing is using what's available."
That's a valid criticism.
Since 1999, when I first felt I was beginning to understand what oil (energy) meant to the economy, I started writing about the effects in terms of jobs and production.
And in this framework, what I've been specifically referring to is physical goods and services that require the transport and or consumption, and or purchase of physical goods.
Back in 1999, folks laughed at this idea because we had the new 'virtual' economy in the high tech sector.
I won't make the argument that 'virtual work' has no application in the real world or an ideal GNP or GDP. After all, I make my living writing software. But my software is only a tool, for manipulating and controlling real world processes. Processes that consume energy. Today I'm writing CAD/CAM systems to drive CNC machines. My customers are very sensitive to energy prices and availability, as many of these machines consume huge amounts of electricity to cut or weld, using plasma arcs.
As a consequence of post peak oil, it seemed logical to me, back in 1999, that we'd see job loss from demand destruction. We'd see strong decline in businesses that produce real world goods and services, starting with the biggest energy consumers first.
And we'd see increased emphasis on running the economy on money created from complex financial instruments, leveraged against each other in complex Gordian knots.
You can't after all just 'print money'. You've got to pretend it's based on something.
The reasoning that got me to that conclusion is that as demand destruction continues, bankers would look at balance sheets for businesses they work with and see that they were becoming increasingly unsafe to lend to. This wouldn't be a conspiracy. Just normal banking. you look at a customers accounts, if they don't look very profitable, you as a banker won't be interested in investing in them.
So lending to businesses should get tighter and tighter in the Post Peak environment.
continued....
But bankers make their money in transactions and loans. If they can't loan to business, they are going to need to make up for it somewhere else. So they start loaning to each other, and creating complex financial instruments to sell over and over, to each other.
The politicians don't want to see a meltdown while they are in office, so they deregulate everything. With deregulation and lax enforcement, fraud multiplies. The government begins to sanction the fraud. Fraud becomes the backbone of the economy.
And of course... running the money presses (real and virtual) faster and faster. But it's not really printing money because they've got those great GDP numbers, that are bolstered by printing money faster and faster....
I'm using a broad brush to describe this, because the details, really don't matter much. To keep growing, the measured economy must shift from being based on real physical processes, to virtual imaginary ones. More and more perceived value must come financial instruments, and not the production and manipulation of physical goods and services.
One problem with these virtual processes, is that they don't really need people. They don't do much to create jobs. They are just electrons moving on circuit boards. The resources they use are negligible compared to the vast sums of money they move.
In 2005 I started making the claim that when the housing bubble busts that the banks would get bailed out, and they would make mad money several ways during the bust.
They would foreclose and keep real estate that they purchased using money created from nothing, backed by the taxpayer. They would collect mortgage insurance to cover the money lost. The taxpayer would give them a big bailout to cover the loss again.
So at no risk to the banks at all, the banks would get free Real Estate, and get paid several times over to take possession. Knowing the banks, our government and playing out the Peak Oil model, it seemed logical this would happen.
And it did.
We have more bailouts, job losses, and business failures coming.
But the GDP will remain strong, no matter how bad it gets on main street.
Weaseldog,
Wow. Long comment. Thanks for that.
If I may I will summarize your points and then I'll address the issues one by one.
1. Physical goods need transportation. Thus peak oil affects them -
See my many posts about transportation which use alternatives to oil.
2. Machines use energy -
Again you have to buy into the fallacy that energy EQUALS oil. It does not. The machines use ELECTRICITY. If all manufacturing relocates to e.g. Quebec or Norway (two areas that would still have electricity post peak oil assuming the worst in other ways) then we would still have manufactured products.
3. The economy would perforce switch to complex financial instruments because the bankers know they can't make money post peak oil due to not being able to pay interest etc -
This is also a fallacy as I have pointed out in another post. In any case, you have put the buggy before the horse. The switch to financial fraud happened well in advance of any putative peak oil which has not happened yet and is not happening this year or the next. This also feeds into some kind of conspiracy that the banks know all about peak oil and share the dieoff theory of it. In fact the banks do not hold any such theory nor conspiracy and this is easily proved by looking at Deutsche Bank's reports on electric transportation in which they predict the switchover will be faster than most people expect. While I do not share their super optimistic projections, there are also some things they have missed out, like the likely substitution of electric vehicles in the LOGISTICS sector which is starting to pick up speed.
4. You say the economy has to switch to virtual because it won't be possible to continue to expand physical production. I dispute both counts. We WILL be able to expand physical production because it depends on electricity NOT oil and we are already generating large revenue from virtual. It's far better to ship music over internet wires than it is to make and transport CDs. Software is also capable of generating substitutions such as the software developed by a japanese company which enables an increase in efficiency of electric field generated magnets in substitution of high magnetic flux rare earth magnets.
In short while I share your belief in peak oil and I applaud your excellent blog, I do not share your projections since I do not agree with your assumptions or your analysis of the data.
GDP is not totally useless. Coupled with unemployment and debt per capita, you start to get a real sense of the health of an economy.
GDP is kind of like body weight. Bigger is not always better.
Anonymous,
"GDP is not totally useless"
Exactly my point. There are arguments pro and con for the use of GDP but it's a workable metric if not a perfect metric.
DB said, "1. Physical goods need transportation. Thus peak oil affects them -
See my many posts about transportation which use alternatives to oil."
I'm sure you've written many fine posts on this.
There is no other energy source capable of exponentially rising production to make up for a decline in oil.
Assuming oil is in say a modest 3% decline.
You want to ramp up a fuel source that current measures at 10% of the BTUs we get from oil.
That other fuel source with have to ramp up at about 10X the rate of the oil decline, or 300% every year.
Transportation or manufacturing, the problem is the same.
For solar panels that would come out to be what? 50,000% each year?
If something does make the cut, that'll be great. I'll congratulate you. I still remember though when it was common knowledge that renewables would replace oil if it ever got to then unheard of price of $14 barrel. As oil prices increase, the bar keeps getting moved.
DB said, "3. The economy would perforce switch to complex financial instruments because the bankers know they can't make money post peak oil due to not being able to pay interest etc -"
I've never said that. I didn't say that this time. That's a good strawman though.
Thank you for reinforcing my argument that the economy will increasingly come to depend on virtual goods.
I see that we agree on some things.
We even have virtual farms now! no need to grow real food! / SARCASM... :)
Of course increased efficiency must be in play. But that hits hard limits pretty quick.
I'll tell you what is even more efficient than sending music over the wire. That's creating it with acoustic instruments and voice. This system even works without electricity.
Thank you for your even tone in this debate. I've added you to my blogroll.
Anonymous said, "GDP is not totally useless. Coupled with unemployment and debt per capita, you start to get a real sense of the health of an economy."
Right, and stone soup is great if you add chicken, carrots, onions, potatoes and seasonings.
@Weaseldog: "There is no other energy source capable of exponentially rising production to make up for a decline in oil."
Yes there is. Efficiency plus demand destruction plus substitution.
As I've pointed out before, electricity far more efficient at transportation than oil (4X).
But just to recap: At 4X, a 1% decline in oil would require a 0.25% replacement by electrical production and electrical transportation.
But that's not taking into account that our current transportation system is woefully inefficient compared to what we could have.
In North America we still have idiots arguing that they need big trucks because they feel safer in them.
Those big trucks create the situation where the average mpg in North America is 14 miles per gallon whereas *conventional* engines can reach as high as 60 miles per gallon.
Three quarters of oil use in North America is due to transportation and is subject to the 15 miles per gallon. Our heavy duty big trucks are even worse and could be substituted out on to long distance freight trains.
If we ONLY increase our fuel efficiency to 30mpg for each 1% decline rate then that further reduces the replacement requirement to 0.5% divided by four which is an eighth of a percent.
If we further reduce that requirement by substituting some of it off onto buses while we build up production of electric vehicles we could reduce it further.
A study was done by the USDE which pointed out that we could power 85 million daily commutes on electrical power with NO CHANGE to the grid. Off peak power alone could take of it.
85 million commutes I make to be ONE THIRD of our fleet. A measly one per cent wouldn't even be noticed.
As to your strawman OK I retract the statement. If you didn't say it, then it's because I'm used to your argument being used in that way by other peak oilers who are more towards the doomer end of the spectrum.
Anyways, thanks for the debate.
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