Actuary Gail Tverberg explains the tight correlation between the rates of GDP growth and growth in energy supply. For decades, energy has been becoming more costly to obtain, and instead of accepting lower GDP growth, we have been using debt to fund further energy exploration and extraction.
That strategy has diminishing returns, Tverberg warns. And we are close to the moment of reckoning:
The more we look at it the more we see that the rate of growth and energy supply is very closely correlated with the rate of GDP growth. And I know on some of my recent posts I’ve included a chart that goes back to 1820 that shows the same correlation. You have to have an increasing supply of energy in order to get GDP growth. The GDP growth tends to be a little higher than the energy growth. That’s especially the same when we made the change in the mid 70’s, when we had the big first oil crisis and we realized that Japan had already started making small cars, and so we could make smaller cars, too, and save quite a bit of oil very quickly. And we realized then that we didn’t have to burn oil to create electricity; there were a lot of other alternative approaches, including nuclear. So we pulled those off line, and where home heating had been done by oil it was easy to transfer that to other types of energy. So we had a number of different things we could do very quickly back then -- and I think people got the idea that because we could pick the low-hanging fruit, then somehow or other we could do the same thing again. But we’re not getting that same kind of effect any more.
I think the thing that people don’t realize is how closely the growth in debt is tied to the growth in the economy. Even back many years ago we needed to add more debt as the economy attempted to grow, and what you would see very often back then was some country would add debt to fund a war. And if they were successful, maybe they would get some increment into the economy so that the debt made sense. And if they lost the war then somebody got their bonds written off. But what’s happened is that, as the cost of energy has gone up, especially since about the mid 70’s, the amount of debt required to find GDP growth has gone way, way up. And I think this is because it takes a given quantity of energy in terms of BTU’s or in terms of how far it can make a truck go -- if it now costs a whole lot more to do that, we’re going to have to borrow a whole lot more money in order to make the whole system operate. We have a seen a spiraling of debt since the mid 70’s, and I think that’s very much related to the higher cost of energy since then.
That only works for a while. You can dial up your debt growth for a while but then you discover that debt growth has a lot of adverse effects. And one of the big ones is that it tends to funnel money to the wealthier class and take money away from the poor members of society.
I’m afraid what it means is that at some point there’s got to be a discontinuity. Something has got to break.
Click the play button below to listen to Chris' interview with Gail Tverberg (61m:03s)
But unfortunately it does not include you.
I've got to run but I cannot resist observing that the obvious conclusion of company buy-backs comes when there are no more shareholders. (There's got to be a graph for that. ) Once the companies have no shareholders my understanding is that they no longer need to be listed on the Stock Exchange. They become private. Or is that pirate?
It is strange that LENR is neglected by the DOE, industry and the Pentagon. But no stranger than the history of nuclear power—if it weren't for the leadership Admiral Rickover, and his personal friends in Congress, nuclear fission power for submarines and power plants would never have seen the light of day. The best endowed institutions rarely disrupt the status-quo.
The point being is that it was not receiving any attention, but people are noticing. If there is a war I anticipate that lethal competition will suffice to shatter the inertia.
EDIT Not quite Carl, Pamela Mosier Bose of the Navies SPAWAR is right on to it. And they were granted a patent.
This interview clearly articulate a highly plausible scénario. I sensé that we are very very close to the scenario of de-complexification of m. Tainter. All the bells and whistles are either currently being silenced, or on a fréquency that we and/or the system just can not hear/discerne. overwhelming force, tsunami are the images poping up. We have been préparing methodically in the PP spirit. The in coming speed of the de-complexification seems to be on a différent magnitude than the rate of improvement of our préparation. Thank you for the clarity with which the steps are brought forward. We will update our project timelines.
Excellent discussion, Chris and Gail - thank you for your data driven common sense and willingness for total honesty. It is so refreshing these days to hear blunt but truthful analysis. It's what keeps me reading here at PP.com
I've had a question for a while that you (or others) can maybe answer though. That is are the death rates of people worldwide or in some countries going up? So many issues out there that would make me think people will die earlier than otherwise due to pollution and environmental degradation and even cultural collapse. I have seen a report that in white people in their middle ages in the US that the death rate is up due to suicide and drug use. In Brazil thousands of babies have been born with tiny brains and face a short and painful life from the virus of a mosquito bite which has now been found in Puerto Rico too. I have seen estimates of 1.6 million people a year die prematurely from air pollution in China. Some fish in the US are going extinct from endocrine disrupters that can't be doing us any good. Farmworkers are getting cancer. Toxic mercury is in the fog in San Francisco, etc, etc, etc. The chemical soup that we all breathe, drink and eat will take it's toll in shortened life spans at some point, won't it? My question is: is it already showing up in actuary data?
And a comment: I thought Gail's use of the word "discontinuity" was spot on. (dictionary: Unpredictable, unforeseen, natural or man-made sudden change, consequence, event, or force that confounds or disrupts earlier expectations or estimates.) The reason is that we really don't know which aspect of our predicament will break first and then how that will affect the other aspects. I rather think that industrial agriculture will be the breaking point first and that it might cause massive die-off. That would change everything else. I don't say that with any glee or undue pessimism - I just think the industrial agricultural system has cancer and is not being treated. It is terminally ill and is making us sick too. And I don't think the governmental powers will have any effect once the final effects of destroying the ecosystem are in full view. They can print money and create weird monetary schemes but they can't print food or soil. That's just a hunch on my part based on observations. But my point is that the discontinuity that has to come to stop the unsustainable could come from many directions and we can't really predict how it will play out. So I liked the word "discontinuity" and consider it quite precise and accurate.
This discussion brought up for me again the urgency I now have to make myself and family able to live outside of our money system. I am going to double down on my ability to provide food, shelter and other needs without money or at least without much money. The timing of the Prosper book is great.
My new Year's contribution, after my weekly PP check-in, cheap oil will probably last another 5 years(given no major geo-political issues) and contribute to a deflationary course. Oil companies will continue to economize and look for sweet spots to keep cash flows positive(just barely). Whether peak oil becomes a reality or Iran and Saudi Arabia do something to interrupt supplies to the world, prices will eventually start heading back up to maybe $50-$60 bbl. However, we will be so overdrawn at the bank that inflation will come back, uncomfortably for consumers/taxpayers - happily for Ben and Janet and friends, and we will be forced to cut back our spending, affecting, as Gail points out, jobs.
For all you oil nuts, Rusty Braziel's 2016 outlook is the best summation I've read on the current US/Canadian energy situation.
He sees more of the same? 2% Growth? (Got to love that word. It is on every economists lips.)
I predict that the economy will deflate like air going out of a balloon. There, I've said it. Pulled the pin. Everyone run for cover. She's gonna blow!
Yes, there will be a great reckoning. Globally. Wages are not ordained to stay high. The Central Banks have totally distorted market prices and input costs so I expect much disruption before defaulting currencies are reformulated. R.I.P. EURO.
Thanks PP, I'm a big fan of Gail's work!
Running with the debt theme I've been circling Dr.Tim Morgan's Surplus Energy Economics blog for about a year which seems to echo a lot of Gail's points about energy and debt.
Currently working my way through his Perfect Storm paper (free to view - written in 2013 I believe). Here are a few snippets to whet your appetites;
and
As both Gail and Tim point out, the need for growth to fund both future entitlements and pay down debt in a world of diminishing energy returns is simply insane. Needless to say, I think that we're going to see a lot of disappointed people.
Meanwhile in the UK our government is currently issuing fracking licences to drill below national parks despite market price being well under the cost of production. Any guesses as to where the next bailout will be directed? The madness continues…
Hi Chris, this is a great interview. The content seems like obvious conclusions (clarified, brilliantly articulated and explained in detail by Gail) that any sensible observer might arrive at when looking at the world around him or her, and the way that the developed economies seem to be working. Living in 'democracies' with educated citizens and 'free media', you might expect that these sorts of discussions would be taking place in our parliaments and debating chambers and all over mainstream media. What is utterly amazing is that our legislators and rulers are NOT having these discussions (or at least if they are, then they are NOT being broadcast to the majority of the citizens.)
Hats Off to You and Adam for your fantastic efforts!
The reason I started the work of opening up the sorts of discussions we have here is precisely because they were not happening at the higher political or institutional levels.
At a recent talk at Berkeley a couple of college students came up afterwards and wanted to know why the obvious and utterly serious data I presented was not being taught to them, and was there a way they could become involved with our work?
And, yes, it is utterly amazing that these critical discussions are not happening among our legislators and rulers.
But they're not, and that's why we each have to prepare ourselves as best we can based on the best information we can access.
