Economic growth with declining energy?

Denny · Posted: Tue Jul 24, 2007 3:09 pm Post subject:

[quote="I_Like_Plants]
Several months ago, I tried playing "my" (rented) violin for tips on University Avenue in Palo Alto. I made something like $1.50 lol. Mainly because I was not very good, I didn't have much volume, and I should have been standing up, jigging around a bit, and playing something simple'n'bouncy like some fiddle tune stuff. But the looks I got from people were like I'd expect to get if I were the anthrax virus.

One thing you'll see over and over again if you're a street musician is, the little kids love it! They'll rivet their attention on you, and dance if t there's any rhythm at all, and it's just heavenly. Their parents always hate this, and will drag them away, since as Good Americans(tm) they have to learn to be pleasure-avoidant. [/quote]

We have been well trained to accept our entertainment only from approved sources. Informal stuff like you are talking about here is somehow anarchic. And the new generation is even more rigid about this. Funny to think that only a few generations ago, for most people who did not live in the cities where they could attend professional musicians, all music they heard was done by relative amateurs. Yet, more people sang back then, or played an instrument, and likely they enjoyed themselves more than we do today.

sparky · Heavy Crude Joined: Apr 09, 2007 Posts: 120

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Well yes , do we live a better life with a large power usage , probably not
that's why I'm not too much screaming for fusion research ,
if we had more energy we would probably just get to be bigger arseholes .
It is dubious if the oll' planet can take much more of us anyway
and we might get a bit of soul in the process

Still , it's easy to be cool with air conditioning on ,
I've done some bits of back breaking labor and being decadent beat it anyday

Very Happy

Alcassin

Further economic growth is impossible with declining energy.

I try to keep the energy as an equivalent of labour. To make a product you need material and labour/energy, service needs a product and energy. So production and service needs input of energy.

GDP = C + I + G + En

C - Consumption
En - export netto (it is consumption abroad)
I - investment
G - government spending (consumption from taxes + debt and investment from taxes + debt)

So
GDP = Consumption + Investment

Unlimited exponential growth therefore needs an increase of consumption and investment to create more consumption and to invest more to create more consumption. THIS IS GROWTH.

Unlimited growth then needs all-time energy (labour or fossil) inputs, and materials to meet all-time growing investment and consumption. Conserving is only decreasing the energy input with all-time growing economy it will reach the level from which it was conserved.

Productivity = Efficiency = Energy input per unit produced.

The more we are efficient per unit the more we have the money to invest, so we are going to increase production therefore there is no conservation effort without shrinking economy. When growth drops from 5% to 1% the economy still grows = created more goods & services.

In capitalism you MUST reinvest money to the economy because if not - your competitor will do it and he will be able to increase producitvity, and get more products with the same energy input. That's why he can lower prices. And if so - he will get more share of market, and then he has the ability to reinvest his money. That's why capitalism is cornucopian from its roots. YOU CANNOT GROW FOREVER.

In declining economy only the most ruthless and greedy will prevail. And that will turn the economy back to slavery - while more energy from labour will be needed. Sorry to interrupt you "capitalism is cool and natural" guys, but if capitalism was so natural it should have been in ancient Egypt.
_________________
The poor complain; they always do,
But that's just idle chatter.
Our system brings rewards to all,
At least to all who matter.

MrBill · Expert Joined: Sep 15, 2005 Posts: 5220 Location: Eurasia

So if my Casio watch costs $50 and my Rolex $5000 are you suggesting that my Rolex has 100 times as much 'energy' in it because you seem to imply a 1:1 ratio between energy use and GDP growth?

And yet you go on to say that productivity gains (i.e. using less land, labor, capital and energy per unit of output) are possible?

Further you have not stipulated whether you mean nominal GDP, in say dollar terms, or percentage gains?

Alcassin

Mr Bill:

I defend my stance Wink

Sum up energy to create 50$ casio and 5000$ Rolex. I only meant that Casio and Rolex when produced must have energy inputs - GDP is a sum, period.
Add to this effect of scale, total production, energy efficiency, raw materials used and Rolex may cost 100 times more than 1 Casio.

GDP in nominal terms can always grow as there are more money on market. Simply - inflation will mean more growth in nominal terms. In Dollar terms, Yen terms GDP can grow but nominal GDP is worthless. ECONOMY GROWTH IS PRODUCING MORE AND MORE GOODS AND SERVICES NOT PRINTING MORE AND MORE MONEY.

GDP in real terms and in PPP cannot grow forever with decreasing energy input - to do this ultimately you have to invent perpetuum mobile. It doesn't mean much if it is Rolex, Casio, no logo t-shirt or ermenegildo zegna. Every company on Earth must earn profits, so they have to sell more, with growing cost of energy - they will have to make cuts. Every corporation must care about shareholders and pay them, so investment in conservation (and thus cutting) will be always too late. They plan few years ahead, not decades.

With globalised production, the energy input in transport is growing. You can't replace global fleet over night. You can't replace air fleet and all automobiles to cut energy consumption. There is no massive replacement, better "new stuff" must be first invented and produced on massive scale. When the transport efficiency isn't higher than depletion rate = TSHTF. I don't believe in every year 4% growing efficiency in fuel consumption of transport - because every year you will have to replace more and more ships, trucks, airplanes so on. And when there will be less and less oil these conserving means of transport will have to be replaced by something else in the same rate. And when this happens - we will see Peak NG.

MrBill - when oil-producing countries will rise their prices - it will be death to their economy. And for global demand it will be drop in a bucket. After few years with decling supply of oil we will be at the same point. And remaining energy technologies will not help your truck from your ultra-non-existing-sustainable factory, which is not subsidized (when existing-non-sustainable-mass-corporations are), to get resources there and move from there to expand.

Yes there is still correlation between energy usage and growth of economy. When the GDP drops - the markets panic and they are making things a lot worser, because the economy falls below the rate of energy usage, and when they recover they will be at the same point after some time - shock after shock. Capitalism is cornucopian, from bigger efficiency (together with Jevons Paradox) you use more and more stuff. And stuff is never made out of thin air, never falls during rain and is not made by invisible hands.

Still with depletion rate there ultimately will be less and less plastic. I really don't know how are we going to replace this.
_________________
The poor complain; they always do,
But that's just idle chatter.
Our system brings rewards to all,
At least to all who matter.

sparky · Heavy Crude Joined: Apr 09, 2007 Posts: 120

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I'm not much of an expert but I look upon wealth as power usage ,
in australia we are using about 7 Kw per day per capita ,
the world average is 2 Kw per day per capita .
at 0.5 Kw that is the basic survival line

http://upload.wikimedia.org/wikipedia/en/0/0b/Energy_consumption_versus_GDP.png

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MrBill · Expert Joined: Sep 15, 2005 Posts: 5220 Location: Eurasia

Thanks for the clarification. So it really has zero to do with capitalism, as it is ultimately consumption that causes scarcity, and not unlimited growth to feed the beast.

You are right, each corporation, needs to generate a profit to pay its shareholders and attract capital to stay in business. But profits are not the same as growth.

There are two ways to grow your bottomline. One is by increasing sales, and the other is by cutting costs.

P = R - C

So efficiency gains do matter despite what Jevon's Paradox might suggest otherwise. If you produce the same volume of goods & services as your competitor at a lower cost by making better use out of your own land, labor, capital, energy and intangible assets then you will earn more profits, and as you said, then be able to invest more in even more productivity enhancements. This is either forces your competitor to also increase their own efficiency or retreat from head to head competition.

For a real-life example, Japan, Germany, China and the USA are all large manufacturers and exporters. But Japan uses less energy than any of the others, while China uses the most per unit of output. It does not matter whether crude is $30, 45, 60 or $75 per barrel. That is still a cost advantage to Japan.

We can assume this because in terms of land, labor, capital and intangible assets they all compete against one another successfully otherwise they would not be the world's top four manufacturers and exporters. Japan using less energy does not give China a competitive advantage, although their efficient use of energy may mean that crude prices are $75 instead of $90, but we will never know.

It is hard to put numbers on invisible demand and the consequences of what if? But if we reduced Japan's energy efficiency to that of China we would immediately see that they would need much more energy to produce the same amount of GDP. However, that would reduce demand somewhere else, so again it is hard to measure in'it?

The fact is that a Casio and a Rolex are near perfect substitutes for one another as far as watches go, but the Rolex contributes more to GDP than the Casio. There may be $40 worth of materials in a $50 Casio and therefore a 20% profit to be shared between maker, wholesaler and retailer. On the other hand there may be $4000 worth of materials and extra workmanship in a $5000 Rolex. That is still a 20% mark-up or profit, but $1000 is a bigger contribution to GDP than $10.

When global demand outstrips world supply for petroleum then we can look forward to higher real prices for everything made from or using petroleum in production or distribution. And by higher real prices I mean specifically relative to wages. Workers add to demand, but excess labor is deflationary. By definition this means real standards of living will fall. More hours of labor to buy the same standard of living and/or eventually falling living standards despite increasing amounts of labor.

But this is not because of capitalism as you highlighted in bold letters to draw out attention to it. This again is due to consumption. Unfettered communism would have brought us to this very end sooner or later, and likely sooner, as there was no market price mechanism to bring supply and demand into line thereby ensuring that petroleum was wasted in production.

Did you read the McKinsey links? Do you disagree that energy subsidies increase demand for petroleum? I happen to think that subsidies always lead to higher demand than otherwise would have been because they distort the market. Higher prices are supposed to curb demand and make alternatives more attractive, like public transport versus private autos.

Sorry I probably missed addressing some of your points, but that is all I can write at this time. Thanks.
_________________
The organized state is a wonderful invention whereby everyone can live at someone else's expense.

Alcassin

MrBill · Expert Joined: Sep 15, 2005 Posts: 5220 Location: Eurasia

You seem to want to fight a battle based on ideology, in which case you have come to the wrong place. That battle has already been fought and the free-market won over the centrally planned economy.

No communist country exists anymore that has not accepted the free-market economy, simply because it is superior at allocating goods & services more efficiently. The free-market economy is so superior that it has delivered the highest living standards for the greatest number of people in the history of the world. The only reason we can afford to consume non-essential items is because the free-market has already taken care of all of our basic needs.

There really would not be much to talk about if we were not faced with post peak oil resource depletion. And that is what I am interested to talk about. Please spare me the lectures on the evils of capitalism or consumption.

The source of consumption is of course an expanding population. No matter how frugally you live, or force others to live, you cannot have negative consumption. Every person who is alive consumes everyday until they die. It is not ideology. It is a fact!

Also, do not confuse labor and know-how or intangible assets with energy. They are not the same. Yes, you can substitute some for one or the other, but the value of your Casio or your Rolex does not come down to the difference in energy consumption, but due to craftsmanship which is labor combined with knowledge. Craftsmen have been producing intricate works of art and mechanical precision long before the internal combustion engine was developed. In fact without their collective skills it would not have been possible in the first place.

If you want to sit there and tell me that we need land to grow crops. That we need food to go to work. The we need energy to move products from A to B. And that without energy none of that would be possible. It is like, no crap, Dick Tracey!

But petroleum is not the only source of energy. It is an important part of our current energy mix needed to run this economy. The transition to another economy using either less energy or another energy mix or both will mean lower living standards. Not more debt. Excess unemployed labor will not be able to borrow to keep consuming in an environment of lower living standards and higher real prices for all basic necessities stemming from less energy and the remaining energy that is more expensive. But neither are they likely just to starve to death. That would be too convenient for the rest of us.

If you have less energy and more surplus labor you substitute labor for energy. Look at the developing world. In parts of sub-Sahara Africa they are farming using Stone Age technology. Not because they are unaware that other technology exists, but because they lack access to that technology.

The future will contain communities of production clustered around sources of reliable, renewable energy like hydro, nuclear, solar, bio-mass, geo-thermal, etc. The farther you get away from those sources of energy the more backward will outlying societies be and will have to rely on more draught power and more human effort.

Stationary sources of power, like coal while it lasts, will power rail. We built railways around the world in Colonial times and they can be built again. The only reason they have gone out of fashion is because of the automobile. That and the fact that uneducated criminals and tinpot dictators in their infinte wisdom decided to tear up the tracks to use the rails and ties for other purposes!

Once the age of the automobile is gone we will revert to what is tried and tested. The same for ships, boats and barges. They can be made to run on almost anything and they carry more freight with less energy than trucks. Manufactured goods will be delivered to central warehouses located on rail or water and then distributed by foot, by horse and cart and by any other means. Again, you have to look at the developing world.

Will this new age suck compared to what we are used to? Of course! But what is unsustainable is be definition going to end sooner rather than later. Once the marginal cost of exploring, drilling, extracting, transporting, refining and distributing petroleum exceeds the marginal economic benefit of using petroleum then the age of petroleum will be over.

In other words when the EROEI is less than 1:1. Then we will move onto the next available alternative no matter how imperfect a substitute it is. There will be no other choice. We can hope that some future technology will mitigate that painful transition to a new equilibrium, but we cannot count on it.

And with 10 billion people I really do not have a philosophical problem with poverty. The free-market has already lifted hundreds of millions of the poor out of poverty. That they want to jump back into bed and reproduce like rats is hard to stop. If the world population would have stabilized at 3 billion then we probably would have no poverty in the world today. But it did not, so we have 6.7 billion, 700 million added in the past 7-years alone. 700 million is larger than the population of the EU and USA combined. Plus many of those 700 million, along with billions of others, were born in places that cannot support them in environmental terms or any other terms.

Did I decide they should be born? No. I would not have made that mistake. Now you tell me that I have to bridge the information divide, provide food, clothing and shelter, and give every child a laptop? Give me a break! If we have not solved those social problems in the age of plenty then we are not going to solve them on the backside of post peak oil resource depletion, and as you point out falling GDP.

We had our chance and we blew it! Now some of us will salvage what we can. Is it fair? Did anyone say it would be?
_________________
The organized state is a wonderful invention whereby everyone can live at someone else's expense.

Alcassin

Thank you for your very long answer Smile