While the doomers hole themselves up in their basement apartments with their canned beans, ammo and MREs awaiting the zombie hordes, I will be watching the show on my big screen TV with popcorn and pizza delivered from dominoes. As I stated elsewhere, the doomers are out to lunch when they suggest that the logistics infrastructure will collapse post peak oil.
Given that fully loaded semi trucks combined with a hub and spoke delivery system and long distance container based shipping is the most efficient use of oil we currently have, when oil prices start to rise because of peak oil, it's obvious that the dollars will go to these rather than "local" production of food. The remaining leg of the logistics infrastructure is the last mile which is currently inefficient since it's based on low mileage low efficiency gas or diesel vehicles to take the shopper to the store. In the case where the shopper sits on his/her ass watching TV and ordering by phone or online, the inefficiency of the last mile is removed. That's already true with pizza delivery to multiple stops on a single run even with conventional vehicles. But now we have all electric delivery vehicles courtesty of Ford. The all new 2010 Ford Transit Connect available at a dealership near you.
Also available: full sized electric buses from Optare and 12-15 seater minibuses from Smith Electric and electric taxis from Mercedes. Seems the shopping malls, commuting to work and having frivolous crap bought on the internet delivered to your doorstep are not dead either.
Peak Oil Dieoff? Hit the snooze button.
Tuesday, 9 February 2010
BMW Completes successful year long trial of Electric Mini
The results of the year long BMW lease of all electric mini's is now in.
The BMW group conducted a one year study involving 450 drivers who lease their electric Minis.
The results are the following:
• People found the range of 100 miles to be more than adequate
○ The reported range under real world conditions is between 70 to 100 miles with 45 per cent reporting a range of 100 miles.
○ Drivers typically drove 30 miles round trip on average trips.
○ The average trip of a US driver is 40 miles per day and thus the range is adequate without having to charge away from home. This was validated by the study.
• The electric cars drive as well as conventional cars
○ Drivers reported driving the Mini E as "fun" and especially enjoyed trying to extend the range by the way in which they drove as well as using a single pedal to accelerate and decelerate.
○ Once accustomed to the Brake Energy Regeneration function they enjoyed driving their conventional vehicle less.
• The limited range did not pose any problem.
○ The US recharge needs 4-5 hours and though most people didn't need to recharge once a day because they usually drove far less than the 100 miles, about half of the drivers recharged daily as a matter of routine.
○ Recharging away from home was unnecessary. This indicates that less charging stations would need to be built than initially expected to overcome range phobia of the typical conventional driver since few journeys would be over 100 miles other than long road trips.
The BMW group conducted a one year study involving 450 drivers who lease their electric Minis.
The results are the following:
• People found the range of 100 miles to be more than adequate
○ The reported range under real world conditions is between 70 to 100 miles with 45 per cent reporting a range of 100 miles.
○ Drivers typically drove 30 miles round trip on average trips.
○ The average trip of a US driver is 40 miles per day and thus the range is adequate without having to charge away from home. This was validated by the study.
• The electric cars drive as well as conventional cars
○ Drivers reported driving the Mini E as "fun" and especially enjoyed trying to extend the range by the way in which they drove as well as using a single pedal to accelerate and decelerate.
○ Once accustomed to the Brake Energy Regeneration function they enjoyed driving their conventional vehicle less.
• The limited range did not pose any problem.
○ The US recharge needs 4-5 hours and though most people didn't need to recharge once a day because they usually drove far less than the 100 miles, about half of the drivers recharged daily as a matter of routine.
○ Recharging away from home was unnecessary. This indicates that less charging stations would need to be built than initially expected to overcome range phobia of the typical conventional driver since few journeys would be over 100 miles other than long road trips.
The Financial System will collapse because of Peak Oil Part II
The collapse of the financial system post peak oil part II
In the first part I debunked the myth that the global financial system will collapse once peak oil becomes evident because allegedly "growth" is based on oil and when oil stops growing we will no longer have growth. I did this by demonstrating that we do not in fact have a growth system but instead have a cyclical system and that our system is based on risk rather than the prospect of continual growth.
I will continue this by asking the question: Can the payment of interest be continued past peak oil?
This question is a very loaded question replete with multiple assumptions (as are many of the assertions on which dieoff are based).
The answer to the question "Can the payment of interest be continue past peak oil?" is met with another question: "Can surplus be generated post peak oil in order to pay interest?"
This is turn is answered by the question: "Do we or can we do work other than that provided by oil powered machinery?" and "Will this work provide any surplus?"
If we look closely the ultimate question is this: After peak oil, will ALL work be agricultural?
If the answer is yes then clearly there will be no surplus and thus no interest.
Back in the real world however, we see that even in heavily agricultural countries cities existed prior to the use of oil. Cities clearly are not deriving their income from agriculture and THUS they must have been living off of some kind of surplus. This is simple specialization of labor. In addition, in every single human society there is a power law describing the wealth distribution of the population. The human population since the invention of agriculture has never been homogenously poor. There have always been rich people, wealthy people and those who service them living in the cities. This is not likely to disappear after peak oil. And since the definition of a wealthy person is someone who has more than they need to live, quite clearly such a person will be capable of paying interest since they will be able to accumulate savings. This is also the case for EVERY SINGLE PERSON who earns more than their daily bread.
It's also interesting to note that the world's largest investors (such as Warren Buffer, HSBC bank etc) are not merely investing in gold, oil and ammo but instead are investing in what they reckon will be the markets of the future (i.e. electrified transportation systems, enhanced oil extraction, shale gas, renewables and nuclear (among other things)), quite the opposite of what you would expect if they were aware (as doomers like to suggest) that the world was about to disappear up it's own butt due to the collapse of the financial system brought on by peak oil.
But then again, rich people and their advisors are clearly stupid and unqualified right? Obviously the doomers know better. Sheeesh...
Those who say peak oil will lead to the collapse of the financial system are simply ignorant of real world economics. But that's the point isn't it? The dieoff crowd says "economists are wrong" and thus the world is doomed. My five bucks says otherwise.
In the first part I debunked the myth that the global financial system will collapse once peak oil becomes evident because allegedly "growth" is based on oil and when oil stops growing we will no longer have growth. I did this by demonstrating that we do not in fact have a growth system but instead have a cyclical system and that our system is based on risk rather than the prospect of continual growth.
I will continue this by asking the question: Can the payment of interest be continued past peak oil?
This question is a very loaded question replete with multiple assumptions (as are many of the assertions on which dieoff are based).
The answer to the question "Can the payment of interest be continue past peak oil?" is met with another question: "Can surplus be generated post peak oil in order to pay interest?"
This is turn is answered by the question: "Do we or can we do work other than that provided by oil powered machinery?" and "Will this work provide any surplus?"
If we look closely the ultimate question is this: After peak oil, will ALL work be agricultural?
If the answer is yes then clearly there will be no surplus and thus no interest.
Back in the real world however, we see that even in heavily agricultural countries cities existed prior to the use of oil. Cities clearly are not deriving their income from agriculture and THUS they must have been living off of some kind of surplus. This is simple specialization of labor. In addition, in every single human society there is a power law describing the wealth distribution of the population. The human population since the invention of agriculture has never been homogenously poor. There have always been rich people, wealthy people and those who service them living in the cities. This is not likely to disappear after peak oil. And since the definition of a wealthy person is someone who has more than they need to live, quite clearly such a person will be capable of paying interest since they will be able to accumulate savings. This is also the case for EVERY SINGLE PERSON who earns more than their daily bread.
It's also interesting to note that the world's largest investors (such as Warren Buffer, HSBC bank etc) are not merely investing in gold, oil and ammo but instead are investing in what they reckon will be the markets of the future (i.e. electrified transportation systems, enhanced oil extraction, shale gas, renewables and nuclear (among other things)), quite the opposite of what you would expect if they were aware (as doomers like to suggest) that the world was about to disappear up it's own butt due to the collapse of the financial system brought on by peak oil.
But then again, rich people and their advisors are clearly stupid and unqualified right? Obviously the doomers know better. Sheeesh...
Those who say peak oil will lead to the collapse of the financial system are simply ignorant of real world economics. But that's the point isn't it? The dieoff crowd says "economists are wrong" and thus the world is doomed. My five bucks says otherwise.
Will the decline of large fields lead to dieoff?
One of the often quoted "truths" spouted by the dieoff doomers is that the decline rate post peak will depend on the world's giant fields and by proxy when the world's giant fields go into decline the world has effectively hit hard depletion. This comes from Ivanhoe L.F., & Leckie G.G's piece in 1993 titled "
Global oil, gas fields, sizes tallied, analyzed" which effectively says that 94% of the world's oil and gas lies in 1500 large fields.
I question this received "wisdom".
For a start, the distribution of virtually every other size plot in the natural world shows a power law.
Take lakes for example: there are only a few dozen giant lakes in the world but there are millions of small lakes. As wikipedia states:
"Small lakes are also much more numerous than big lakes: in terms of area, one third of the world's standing water is represented by lakes and ponds of 10 hectares (25 acres) or less.[citation needed] However, large lakes contribute disproportionately to the area of standing water with 122 large lakes of 1,000 square kilometres (390 sq mi, 100,000 ha, 247,000 acres) or more representing about 29% of the total global area of standing inland water."
If wikipedia is correct about the distribution of lakes (and we have no reason to doubt it) is it possible that the distribution of oil fields is somehow different than the distribution of lakes given that both were formed by natural processes?
I doubt it. There's something clearly wrong with the analysis. I do not believe that 94% of the world's oil lies in large fields when only 29% of the world's fresh water lies in large lakes. It doesn't make sense. I also note that there has been no update to the 1993 piece and this is the crucial piece on which many of the forecasts of depletion are relying on. If there is nothing to offset the decline from large fields then world depletion EQUALS large field depletion.
One point however: it IS likely that the distribution of the EASY TO DRILL oil fields are disproportionately skewed towards large oil fields simply because of cost vs profit. Large fields are easier to find and compare favorably to the sunk costs and overheads of the majors. Majors simply cannot develop the small fields because their costs do not permit. This is true in every business: a small niche market is not worth doing for the likes of giant corporations like Coca Cola, Lever Brothers etc If this is true (and there's no reason to suspect it isn't), it suggests that small oil fields are disproproportionately likely to not have already been developed compared to the giant fields. If this is true combined with the distribution of lakes being possibly similar to that of oil fields we could deduce that we still likely have the same amount of oil as in the large fields but in smaller fields still remaining to be developed. If this is the case, it's a strong argument that the depletion rate of the large fields will be tempered by the development of the smaller fields to some extent but at much greater cost. It can be argued of course that cost is indeed the issue. It's not. The issue is not greater cost, it's continually increasing cost which cannot be adapted to in a reasonable time frame. If the next tranch of oil fields to be developed are all smaller but more or less of the same cost and similarly for the subsequent tranch there what we are likely to see is a step change in the price of oil rather than a smooth and continous price upwards till the world economy explodes. And if we see step upwards and a plateau at a particular price, the question will be asked: have we yet reached the price at which it's cheaper to move to electric power for most applications that are currently powered by oil? Time will tell.
Global oil, gas fields, sizes tallied, analyzed" which effectively says that 94% of the world's oil and gas lies in 1500 large fields.
I question this received "wisdom".
For a start, the distribution of virtually every other size plot in the natural world shows a power law.
Take lakes for example: there are only a few dozen giant lakes in the world but there are millions of small lakes. As wikipedia states:
"Small lakes are also much more numerous than big lakes: in terms of area, one third of the world's standing water is represented by lakes and ponds of 10 hectares (25 acres) or less.[citation needed] However, large lakes contribute disproportionately to the area of standing water with 122 large lakes of 1,000 square kilometres (390 sq mi, 100,000 ha, 247,000 acres) or more representing about 29% of the total global area of standing inland water."
If wikipedia is correct about the distribution of lakes (and we have no reason to doubt it) is it possible that the distribution of oil fields is somehow different than the distribution of lakes given that both were formed by natural processes?
I doubt it. There's something clearly wrong with the analysis. I do not believe that 94% of the world's oil lies in large fields when only 29% of the world's fresh water lies in large lakes. It doesn't make sense. I also note that there has been no update to the 1993 piece and this is the crucial piece on which many of the forecasts of depletion are relying on. If there is nothing to offset the decline from large fields then world depletion EQUALS large field depletion.
One point however: it IS likely that the distribution of the EASY TO DRILL oil fields are disproportionately skewed towards large oil fields simply because of cost vs profit. Large fields are easier to find and compare favorably to the sunk costs and overheads of the majors. Majors simply cannot develop the small fields because their costs do not permit. This is true in every business: a small niche market is not worth doing for the likes of giant corporations like Coca Cola, Lever Brothers etc If this is true (and there's no reason to suspect it isn't), it suggests that small oil fields are disproproportionately likely to not have already been developed compared to the giant fields. If this is true combined with the distribution of lakes being possibly similar to that of oil fields we could deduce that we still likely have the same amount of oil as in the large fields but in smaller fields still remaining to be developed. If this is the case, it's a strong argument that the depletion rate of the large fields will be tempered by the development of the smaller fields to some extent but at much greater cost. It can be argued of course that cost is indeed the issue. It's not. The issue is not greater cost, it's continually increasing cost which cannot be adapted to in a reasonable time frame. If the next tranch of oil fields to be developed are all smaller but more or less of the same cost and similarly for the subsequent tranch there what we are likely to see is a step change in the price of oil rather than a smooth and continous price upwards till the world economy explodes. And if we see step upwards and a plateau at a particular price, the question will be asked: have we yet reached the price at which it's cheaper to move to electric power for most applications that are currently powered by oil? Time will tell.
Tuesday, 15 December 2009
Why are all the biggest doomers science illiterate?
Trawling through the various cesspits of peak oil doom boards, I've noticed a common thread. Many of the biggest and most vocal doomers are Druids, Animists, English Teachers, Accountants, Lawyers etc. In other words, functionally illiterate in science.
I reckon this must be the reason why they swallow olduvai "theory" (what a joke) whole and when confronted just regurgitate like big roaches. They breed too. Wherever you get a treehugger more are attracted.
Another type of person attracted to dieoff type theories seem to be those who long for the destruction of modern industrial civilization and actively promote gibberish such as back to the land. Careful not to say "we will die without fossil fuels" and "if we go back to the land all will be well" in one breath.
One particular recent example of this was a comment on a new scientist article regarding Hansen's global warming piece. This clown said (paraphrasal): "What would be wrong with that [dieoff of all humans]? At least the ecosystems would be given a chance to recover." That particular clown hates human beings and would see no problem if humanity went extinct. That's disgusting in my eyes but the hippy/treehugger/global warming crowd are replete with these people.
The reason for that, I suspect, is that anyone with the ability to see through rhetoric and who has at least a sophomoric grasp of deductive reasoning can see that they
1. WANT civilization to fall (and anything that says it will is to be pounced on with great glee)
and
2. WANT a dieoff. (all will be well - with the environment, just not the human population)
It's a bizarre way of thinking but often underneath there is a longing for the "good old days". For those who go further and want extinction, there is nothing less than a total hatred for humankind.
Too late people, the genie was out of the bottle when we invented agriculture.
There's no way we're getting off of the tiger.
I reckon this must be the reason why they swallow olduvai "theory" (what a joke) whole and when confronted just regurgitate like big roaches. They breed too. Wherever you get a treehugger more are attracted.
Another type of person attracted to dieoff type theories seem to be those who long for the destruction of modern industrial civilization and actively promote gibberish such as back to the land. Careful not to say "we will die without fossil fuels" and "if we go back to the land all will be well" in one breath.
One particular recent example of this was a comment on a new scientist article regarding Hansen's global warming piece. This clown said (paraphrasal): "What would be wrong with that [dieoff of all humans]? At least the ecosystems would be given a chance to recover." That particular clown hates human beings and would see no problem if humanity went extinct. That's disgusting in my eyes but the hippy/treehugger/global warming crowd are replete with these people.
The reason for that, I suspect, is that anyone with the ability to see through rhetoric and who has at least a sophomoric grasp of deductive reasoning can see that they
1. WANT civilization to fall (and anything that says it will is to be pounced on with great glee)
and
2. WANT a dieoff. (all will be well - with the environment, just not the human population)
It's a bizarre way of thinking but often underneath there is a longing for the "good old days". For those who go further and want extinction, there is nothing less than a total hatred for humankind.
Too late people, the genie was out of the bottle when we invented agriculture.
There's no way we're getting off of the tiger.
Monday, 19 October 2009
Limits to Growth's version of Dieoff
Debunking the "limits to growth" model of dieoff.
There are five main variables considered in the model (from the early 1970s!). They are:
Population, food production, industrialization, pollution and consumption of non-renewable resources.
Here are the limits:
Nonrenewable resources are assumed to have no possible renewable substitutes and will last 250 years. (A number pulled out of a hat). Further, it is assumed, however, that other non-renewable resources may replace the initial renewable resource. Technology is allowed to raise efficiency of usage by a factor of 4. (So far so good, quibbling about no substitutes for non-renewables by renewables aside, at least the model accepts that efficiency can stretch resources).
The absolute size of the global economy (agricultural and industrial) is assumed to rise linearly. Further it's assumed that raising global pollution 10 times will have a marginal effect on lifetime but raising it 100 times will have a large effect on mortality. (Arbitrary but let's run with it). In addition, it accepts that pollution may be reduced by pollution control technology by a factor of 4. (Again arbitrary but let's run with it).
Agricultural assumptions state more or less that the world cannot feed 20 billion people.
(Again, arbitrary).
Population is assumed to be uncontrollable even with contraceptives, based on the "fact" that the average preferred family size, even for a wealthy and healthy population is 3 children or more always.
(May be based on statistics. I can see flaws but let's run with it.)
With all of these assumptions, we get the population growing to nearly 10 billion by 2060-2070 and then collapsing due to pollution, failure of agriculture and non-renewable resource depletion.
If we take the efficiency combined with pollution control model and assume unlimited resources, the population still crashes, although it gets to nearly 20 billion before doing so, and the economy grows much larger before crashing along with the population.
There are significant flaws with these assumptions.
Population is static or declining in all rich countries with the exception of the United States, which is (barely) above replacement levels. Clearly raising income limits population growth.
Agriculture: There is more than enough to go around even today, but yet, people are starving. Obviously the availability of enough food is not the limiting factor. A realistic assessment shows that incomes are too low. Interestingly it seems that the very poorest countries are the ones with the highest birth rates. Putting these two together, deductive logic shows that raising incomes should therefore limit population. And it does, as is shown by 40 years of data after the model was proposed. In addition, there is significant effort in the non-agricultural area to produce non-conventional food from sources such as algae (which, while not currently affordable for anyone outside the rich world, are in theory, capable of feeding billions of people on non-agricultural land)
Substitutes for non-renewable resources
If we look at the end-use for *necessary* non-renewable resources, they fall under the categories: Heating, Cooking, Fertilizers and Transport.
As JD has shown on his blog (and here too) there are *several* substitutes in all of the areas that do not need non-renewables. In the case of Heating, Cooking and Transport electricity is an adequate substitute. In the case of fertilizer systems changes might be needed at the societal scale for phosphate fertilizer, and nitrogen fertilizer is readily available from electricity and air.
Pollution control.
The assumptions are wildly inaccurate. Pollution can be reduced down to close to zero at considerable expense and reduced to tolerable levels much more inexpensively.
I thus reject the limits to growth model which (like the peak oil dieoff model) is so flawed as to be unusable.
There are five main variables considered in the model (from the early 1970s!). They are:
Population, food production, industrialization, pollution and consumption of non-renewable resources.
Here are the limits:
Nonrenewable resources are assumed to have no possible renewable substitutes and will last 250 years. (A number pulled out of a hat). Further, it is assumed, however, that other non-renewable resources may replace the initial renewable resource. Technology is allowed to raise efficiency of usage by a factor of 4. (So far so good, quibbling about no substitutes for non-renewables by renewables aside, at least the model accepts that efficiency can stretch resources).
The absolute size of the global economy (agricultural and industrial) is assumed to rise linearly. Further it's assumed that raising global pollution 10 times will have a marginal effect on lifetime but raising it 100 times will have a large effect on mortality. (Arbitrary but let's run with it). In addition, it accepts that pollution may be reduced by pollution control technology by a factor of 4. (Again arbitrary but let's run with it).
Agricultural assumptions state more or less that the world cannot feed 20 billion people.
(Again, arbitrary).
Population is assumed to be uncontrollable even with contraceptives, based on the "fact" that the average preferred family size, even for a wealthy and healthy population is 3 children or more always.
(May be based on statistics. I can see flaws but let's run with it.)
With all of these assumptions, we get the population growing to nearly 10 billion by 2060-2070 and then collapsing due to pollution, failure of agriculture and non-renewable resource depletion.
If we take the efficiency combined with pollution control model and assume unlimited resources, the population still crashes, although it gets to nearly 20 billion before doing so, and the economy grows much larger before crashing along with the population.
There are significant flaws with these assumptions.
Population is static or declining in all rich countries with the exception of the United States, which is (barely) above replacement levels. Clearly raising income limits population growth.
Agriculture: There is more than enough to go around even today, but yet, people are starving. Obviously the availability of enough food is not the limiting factor. A realistic assessment shows that incomes are too low. Interestingly it seems that the very poorest countries are the ones with the highest birth rates. Putting these two together, deductive logic shows that raising incomes should therefore limit population. And it does, as is shown by 40 years of data after the model was proposed. In addition, there is significant effort in the non-agricultural area to produce non-conventional food from sources such as algae (which, while not currently affordable for anyone outside the rich world, are in theory, capable of feeding billions of people on non-agricultural land)
Substitutes for non-renewable resources
If we look at the end-use for *necessary* non-renewable resources, they fall under the categories: Heating, Cooking, Fertilizers and Transport.
As JD has shown on his blog (and here too) there are *several* substitutes in all of the areas that do not need non-renewables. In the case of Heating, Cooking and Transport electricity is an adequate substitute. In the case of fertilizer systems changes might be needed at the societal scale for phosphate fertilizer, and nitrogen fertilizer is readily available from electricity and air.
Pollution control.
The assumptions are wildly inaccurate. Pollution can be reduced down to close to zero at considerable expense and reduced to tolerable levels much more inexpensively.
I thus reject the limits to growth model which (like the peak oil dieoff model) is so flawed as to be unusable.
Tuesday, 6 October 2009
The Financial System will collapse because of Peak Oil Part I
The Financial System will Collapse because of Peak Oil.
It's often heard on peak oil doomer sites that Peak Oil will lead to the collapse of our financial system because our system depends on growth and peak oil will cause growth to stop and thus since our financial system owners know this, once peak oil is identified, all the money will be pulled out and things collapse.
Let's take a look at these one by one.
1. Our Financial System Depends on Growth
This is really a two part argument. The first is about interest and the second is about growth in the economy. In the first case the argument is that the financial system depend on interest and that it needs interest to continually be paid back otherwise the scheme will collapse.
OK Let's look at that.
What is interest?
It's a percentage of the principal of a loan which will be paid back in addition to the original principal.
OK with me so far? It's naively possible to say that if the lender doesn't get paid the interest the system will collapse, right? And further, that OIL is required to generate the income to pay it back. Well, interestingly (no pun intended) interest doesn't always get paid back, and also interest existed long before we had an oil based economy.
The money to pay back interest is generated from income which is not spent now and comes from labour OR capital. Note that I said labour OR capital, not capital only.
Is the financial system based on interest?
Certainly part of it is, but it's naïve to say that all of it is.
The system in fact is based on RISK. The higher the risk, the greater the reward. Sometimes this reward comes in the form of interest (as in money lending). Sometimes it comes in the form of asset appreciation due to speculation, yet other times it comes from "buy low, sell high".
The argument that interest will disappear with peak oil must be extended fully to mean that no profit can be made post peak oil. This is clearly false.
In fact, even the interest part of the financial system is based on risk. The riskier the debtor, the higher the interest the debtor must pay in exchange for the loan. In other words, the interest is a reward for taking the risk, not a guarantee of return. Currently as it stands, loans are not repaid all the time. Some of them are collected and some are not. The bankruptcy system is in place to make sure that an honest but insolvent debtor can escape his/her debts and the bad debt is written off via the taxation system.
The best the peak oilers can argue is that an oilshock induced recession would increase the number of bad debts (as recessions always do) and thus the amount of credit available to the system would reduce (called "tightening lending"). This is hardly a disaster and is the normal situation. Post recession, any banks would be better placed to predict who would be a good creditor and who wouldn't. So the interest part would conceivably contract but not disappear.
Is the entire system based on interest? No it is not.
Parts of it (the commodities market, the futures market and the stock market) are based on asset appreciation. Bidders for the various instruments bid on their perceived value of an instrument whether it is undervalued (if they're going long) or whether it is overvalued (if they're going short). This type of instrument (in the stock market for example) is based on the premise that a profitable company will be worth more in the long run and thus pay higher dividends (share of profit) in the future, or not as the case may be. Since stock markets existed in the seventeenth century (pre industrial revolution) and commodities markets for much longer than that, it's hard to argue that they depend on oil.
The second case is an interesting one because it using the word growth to mean many things. In the context of the peak oil doomer argument, growth is generally assumed to mean "growth in resource usage" because of the assertion that economic growth needs energy growth and that the only "real" kind of growth is growth that creates more "stuff". The doomer argument is that you cannot have unlimited growth in a finite world and our system (based on infinite growth) is therefore unstable and will ultimately collapse.
Well, if you look at the question of "growth", with regards to the financial system, what you're really talking about is the growth of savings. Is it possible that savings can grow without an oil based economy? Why yes it is. All someone has to do to grow their savings is to spend less than they earn. Unless the doomers are going to argue that peak oil means everybody suddenly has to spend every penny they ever earn from now on, then the argument that growth of savings will stop is nonsensical. Clearly we can grow savings.
Can we grow the economy? Yes we can. All we need to do is have people spend more and more money. How is this possible even today if people don't have infinite money? It isn't possible long term even today. Growth today is based on fractional reserve banking which multiplies the money in deposit accounts by the "money multiplier". This allows the economy to grow beyond it's natural rate limited by the growth of savings.
Now the more astute among you will have noticed an anomaly when we talk about growth.
It's this: growth cannot possibly continue forever unless either income rises forever or else the money multiplier is infinite.
So we have stumbled on a fundamental truth. Our current system isn't based on growth.
The horror!
So what IS it based on?
Cycles.
This is evident in the commodities markets where the cycles are visible based on growing seasons. EVERY other market is exactly the same, except the cycles are longer.
Clearly since summer always follows winter, a system based on cycles will always seed, grow, boom and bust only to do the same again next time. The key point is that one industry is replaced by another and "growth" is in the new industry which replaces the old.
What we are witnessing with peak oil is the end of the boom phase of the oil industry. Concurrently with this we are in the very early stages of the "seed" phase of the industries that will replace oil.
Our system is based around this fundamental fact.
Now the doomers could say "but our economy has been growing steadily concurrently along with oil".
I would argue that what they are seeing is correlation, not causation.
In an apples to apples comparison, a large populous country with similar laws and infrastructure to a smaller country in terms of population with similar laws will have a smaller economy.
There is thus a reasonable argument behind the proposition that just maybe, the world economy is so large because the population is so large and that the larger the population, the more energy is used. The causative factors are exactly backwards from what the doomer crowd would have us believe.
The second part will follow later.
It's often heard on peak oil doomer sites that Peak Oil will lead to the collapse of our financial system because our system depends on growth and peak oil will cause growth to stop and thus since our financial system owners know this, once peak oil is identified, all the money will be pulled out and things collapse.
Let's take a look at these one by one.
1. Our Financial System Depends on Growth
This is really a two part argument. The first is about interest and the second is about growth in the economy. In the first case the argument is that the financial system depend on interest and that it needs interest to continually be paid back otherwise the scheme will collapse.
OK Let's look at that.
What is interest?
It's a percentage of the principal of a loan which will be paid back in addition to the original principal.
OK with me so far? It's naively possible to say that if the lender doesn't get paid the interest the system will collapse, right? And further, that OIL is required to generate the income to pay it back. Well, interestingly (no pun intended) interest doesn't always get paid back, and also interest existed long before we had an oil based economy.
The money to pay back interest is generated from income which is not spent now and comes from labour OR capital. Note that I said labour OR capital, not capital only.
Is the financial system based on interest?
Certainly part of it is, but it's naïve to say that all of it is.
The system in fact is based on RISK. The higher the risk, the greater the reward. Sometimes this reward comes in the form of interest (as in money lending). Sometimes it comes in the form of asset appreciation due to speculation, yet other times it comes from "buy low, sell high".
The argument that interest will disappear with peak oil must be extended fully to mean that no profit can be made post peak oil. This is clearly false.
In fact, even the interest part of the financial system is based on risk. The riskier the debtor, the higher the interest the debtor must pay in exchange for the loan. In other words, the interest is a reward for taking the risk, not a guarantee of return. Currently as it stands, loans are not repaid all the time. Some of them are collected and some are not. The bankruptcy system is in place to make sure that an honest but insolvent debtor can escape his/her debts and the bad debt is written off via the taxation system.
The best the peak oilers can argue is that an oilshock induced recession would increase the number of bad debts (as recessions always do) and thus the amount of credit available to the system would reduce (called "tightening lending"). This is hardly a disaster and is the normal situation. Post recession, any banks would be better placed to predict who would be a good creditor and who wouldn't. So the interest part would conceivably contract but not disappear.
Is the entire system based on interest? No it is not.
Parts of it (the commodities market, the futures market and the stock market) are based on asset appreciation. Bidders for the various instruments bid on their perceived value of an instrument whether it is undervalued (if they're going long) or whether it is overvalued (if they're going short). This type of instrument (in the stock market for example) is based on the premise that a profitable company will be worth more in the long run and thus pay higher dividends (share of profit) in the future, or not as the case may be. Since stock markets existed in the seventeenth century (pre industrial revolution) and commodities markets for much longer than that, it's hard to argue that they depend on oil.
The second case is an interesting one because it using the word growth to mean many things. In the context of the peak oil doomer argument, growth is generally assumed to mean "growth in resource usage" because of the assertion that economic growth needs energy growth and that the only "real" kind of growth is growth that creates more "stuff". The doomer argument is that you cannot have unlimited growth in a finite world and our system (based on infinite growth) is therefore unstable and will ultimately collapse.
Well, if you look at the question of "growth", with regards to the financial system, what you're really talking about is the growth of savings. Is it possible that savings can grow without an oil based economy? Why yes it is. All someone has to do to grow their savings is to spend less than they earn. Unless the doomers are going to argue that peak oil means everybody suddenly has to spend every penny they ever earn from now on, then the argument that growth of savings will stop is nonsensical. Clearly we can grow savings.
Can we grow the economy? Yes we can. All we need to do is have people spend more and more money. How is this possible even today if people don't have infinite money? It isn't possible long term even today. Growth today is based on fractional reserve banking which multiplies the money in deposit accounts by the "money multiplier". This allows the economy to grow beyond it's natural rate limited by the growth of savings.
Now the more astute among you will have noticed an anomaly when we talk about growth.
It's this: growth cannot possibly continue forever unless either income rises forever or else the money multiplier is infinite.
So we have stumbled on a fundamental truth. Our current system isn't based on growth.
The horror!
So what IS it based on?
Cycles.
This is evident in the commodities markets where the cycles are visible based on growing seasons. EVERY other market is exactly the same, except the cycles are longer.
Clearly since summer always follows winter, a system based on cycles will always seed, grow, boom and bust only to do the same again next time. The key point is that one industry is replaced by another and "growth" is in the new industry which replaces the old.
What we are witnessing with peak oil is the end of the boom phase of the oil industry. Concurrently with this we are in the very early stages of the "seed" phase of the industries that will replace oil.
Our system is based around this fundamental fact.
Now the doomers could say "but our economy has been growing steadily concurrently along with oil".
I would argue that what they are seeing is correlation, not causation.
In an apples to apples comparison, a large populous country with similar laws and infrastructure to a smaller country in terms of population with similar laws will have a smaller economy.
There is thus a reasonable argument behind the proposition that just maybe, the world economy is so large because the population is so large and that the larger the population, the more energy is used. The causative factors are exactly backwards from what the doomer crowd would have us believe.
The second part will follow later.
Subscribe to:
Posts (Atom)