Originally published at: https://peakprosperity.com/my-most-powerful-economic-insight-in-one-lesson/
The most powerful economic insight I’ve gathered over the years is a deep understanding of the role of energy in being THE main ingredient for everything economic occurring that we hold near and dear to our hearts. Sadly, it’s also still the least well understood by those in power.
Our leaders seem to have the wrong idea about energy, which mainly revolves around the idea that they can safely ignore the topic except when it validates their desire to bomb the Middle East. Then they become very interested for a week or two.
It is my view that this will lead us into big trouble:
It’s ain’t what you don’t know that gets you in trouble. It’s what you know for sure that just ain’t so.
~ Mark Twain
In particular, our leaders seem blissfully unaware of the connection between the economy and energy. They appear ot have mistakenly bought into the fiction that energy is a subset of the economy rather than the truth, which is that the economy is a subset of energy.
While this is the core concept I’ve been promoting for nearly 20 years, it takes in new urgency with the recent announcement from the US government that US oil production is about to peak.
To really appreciate just how profoundly important that is, it’s important first to understand both what ‘money’ actually is and what we mean when we say “economy.”
Money is nothing more than a human-to-human agreement that it represents a claim on “stuff.” In Gross Domestic Product (GDP) terms, those are goods and services. If you have money, you can buy these things; if not, you cannot ‘claim’ the efforts of your fellow humans. That’s the agreement. Otherwise, what we call money today is really nothing at all, not even paper with ink on it in most cases. Mostly it’s ones and zeros on hard disks.
Second, for the economy to grow (a.k.a. “GDP”), more goods and services have to be produced in some future period as compared to some prior period of time. As in, “more care sales next quarter than in this quarter.”
By way if illustration, the sum of these subset economic categories has to get bigger for the economy to “grow:”
So, more food will be sold next quarter or year. More information processed, not less. More construction spending vs. less. Etc.
With a little bit of thinking, it’s easy to resolve the role of energy in bringing about each of these activities, whether goods or services. More houses means more laborers, more dishwashers, more flooring, and more concrete. That’s easy to envision, but even if it’s more services, such as ‘more psychotherapy sessions,’ that means more therapists who will eat more food, have more offices that need heating and cooling, and who will eat more food, etc.
Unless productivity increases (a more nuanced part of the conversation), it always requires more energy to get more of any of the above things. Ergo, economic growth requires more energy.
But does that energy exist? Will the necessary amounts of energy be there in exponentially larger quantities in the future to support the exponential increases in debt we’ve had over the past 50 years? What if it isn’t?
Ah! This is where things become truly … activating. With the right mindset, of course.
As I lay out in the Crash Course, the most vital of all sources of energy is oil. The data is as robust over time as it is clear:
More economy requires more oil consumption. Perhaps AI will allow us to make vast improvements in productivity and efficiency, which will certainly help, but it may also toss millions out of work, which won’t help. We’ll have to wait and see.
But we don’t have a lot of time to figure all this out because as even the U.S. EIA now projects, U.S. oil production is just two years away from peaking:
This is big news. Really big. Now it’s not just some random internet blogger telling you that oil is finite and that US oil production i near a profound and life-altering peak, it’s the US government itself.
Because (1) paying off all that future debt is a claim on future money, and (2) because money is a claim on current goods & services (a.k.a. ‘GDP’), and (3) those claims have been growing exponentially without any apparent thought, concern, or planning, then we have to ask if perhaps this isn’t the future that’s in store?
I might be wrong, but I’m not confused.
This is the future until and unless we see that true leaders who ‘get it’ are both willing to step up and articulate the predicaments we face and take the political heat from telling people that it’s time to tighten our belts.
Until and unless that happens, it’s time to build your resilience. In other words, build your resilience.
