Economic growth with declining energy?

MrBill · Expert Joined: Sep 15, 2005 Posts: 4986 Location: Eurasia

I think that The Wealth and Poverty of Nations, along with Guns, Germs & Steel as well as Collapse are good starting points in this discussion, but not the last word.

You will find they need to be optimistic at the end of their analysis because they have an important message to deliver and outright doom and gloom is not very popular. I don't think a few positive sentences change the overall thrust of the books though.

You are right that we are dealing with many other problems like climate change; habitat destruction and the extinction of species; collapsing fish and marine stocks; soil erosion and salination; and the demands that over-population place on the resources of a finite planet; as well as others simultaneously against the prospect of less net energy to deal with these problems in the future.

I do not think we need new economic schools of thought to deal with these problems. What we need to do is abandon the tried and tired ideas that have been found not to work. And there are many of those that still enjoy a popular currency because collectively many of us are still looking for an easy answer to these problems that does not entail sacrafice or changing our behavior. I am here to tell you that such a path does not exisit and it is waste of time to try to develop new economic theories in search of such a solution.

I have used this example before and I will use it again to illustrate my point. If you have a forest, and on average it takes 70 years to grow a tree to maturity, then your total allowable cut per season is one-seventieth of the size of the forest, combined with re-planting each tree that is harvested, if you want to sustainably manage that forest. There is no economic model in the world that says you can harvest trees faster than that or save money by not re-planting the trees that you cut down. That becomes exploitation of a resource not good stewardship. Just like there is no economic law that states you can afford to provide for ever more people on a fixed, given amount of finite resources such as a forest.

If petroleum is an important part of your overall energy mix, and if it is a limited, non-renewable resource then any growth built on that given energy mix will by definition disappear forever once that petroleum is gone. What you replace it with is another matter. If you have another reliable substitute, fine. If not, then tough luck. The living standards based on access to that cheap, abundant source of energy will fall. And that energy will not be available to help mitigate the economic problems of those other resource depletion problems either.

I have also said this before, but it is worth repeating because there are still many here that simply are unable or unwilling to accept that the basic laws of supply and demand do not, nor have they ever, meant that you can increase supply indefinitely by increasing price. That is simply wrong. Price is for the most part there to limit demand. New supply can only come online in so far as it is physically available. A marginal increase in supply of farmland is possible if grain prices are high due to demand, but high prices cannot materialize an increase supply in petroleum if it does not exist.

However, high prices can lead to the search of alternatives, if they exist, and there is no guarantee made by anyone that an alternative is as good or as efficient as the original. But if no alternative exists then you are just SOL. I hope I never have to say that again, but then that really would be too optimistic around here! ; - )

Also, if nominal GDP falls, it falls. It will contract to that point where it finds a new equilibrium based on the new inputs land, labor, technology, energy and know how. If that new equilibrium does not include a petroluem substitute, or even fish, for example, then you will have exactly what you would expect and that is falling living standards and/or population contraction.

No amount of hand wringing is going to stop that or bring back the energy that we wasted or the species that we made extinct. And we certainly do not need any new economic models to explain what happened. Demand exceeded sustainable supply or as Jarred Diamond would say 'the carrying capacity of our closed system.'

And a new currency, even one based on energy units, is not going to reverse the consumption caused by unsustainble population increases and existing lifestyles. Again back to your forest. You can only harvest one-seventieth of your trees. It matters little whether you count them one by one or simply assign a monetary value to each. That is just accounting. If you cut twice as many this year, then you need to cut half as much next year until you make up that deficit. If you decide to cut 98.57% of the trees in the first year, you have to wait 69 years to cut the remaining trees before starting again.

That is a lot of rambling. But I am going to be away for a week, so thanks for bringing this thread back to life. Take care and have a nice weekend. Cheers.
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The organized state is a wonderful invention whereby everyone can live at someone else's expense.

LoneSnark · Intermediate Crude Joined: Nov 15, 2007 Posts: 500

cube · Fusion Joined: Mar 12, 2005 Posts: 3066

Alcassin

MrBill · Expert Joined: Sep 15, 2005 Posts: 4986 Location: Eurasia

LoneSnark wrote:

LoneSnark · Intermediate Crude Joined: Nov 15, 2007 Posts: 500

MrBill · Expert Joined: Sep 15, 2005 Posts: 4986 Location: Eurasia

LoneSnark, you are a man emoung boys! But careful, peak oil is a geological fact and not an economical problem to be 'solved'. Plus I put zero confidence in current socio-political structures to deal with post peak oil resource depletion in the first place! I like your posts, but you need to read a lot of stuff that has already been logged ahead of you. In the meantime, welcome, it is a pleasure to see your perspective here. Cheers. MrBill
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The organized state is a wonderful invention whereby everyone can live at someone else's expense.

LoneSnark · Intermediate Crude Joined: Nov 15, 2007 Posts: 500

It is nice to be welcome. And I am merely presenting my belief as to how the world has, does, and will work.

It is purely an opinion when I state it, being about the future, but I have 100% confidence in current socio-political structures dealing with the geologic fact of peak production (whenever that is reached). All that remains to be answered is now much pain will be involved in dealing with it, which is entirely up to how the Government responds to the situation. If they respond as they did in the 1970s then there will shortages, recession, inflation, and other dislocations. If they respond as they did in either 1980 or 2005 then we will avoid shortages, recession, and inflation.

Doly · Expert Joined: Dec 03, 2004 Posts: 4027

MrBill · Expert Joined: Sep 15, 2005 Posts: 4986 Location: Eurasia

Thanks for that excellent link, Doly!

LoneSnark · Intermediate Crude Joined: Nov 15, 2007 Posts: 500

Ahh, the middle-way argument. Yes, in the question of whether to save the patients life or kill him, we have opted to merely leave them to die.

Scactha

TheDude

cube · Fusion Joined: Mar 12, 2005 Posts: 3066

sparky · Tar Sands Joined: Apr 09, 2007 Posts: 98

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The financial times is a pretty good read ,
they are of course establishment but far more intellectually nimble that the free trade zealots at the economist .
martin Wolf is no Bolshevik but you can feel the man hasn't poured concrete in his brain yet and can add two plus two

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