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Monday, April 25, 2005

American Thermidor (not Lobster)

I recommend reading Stirling Newberry's series called American Thermidor, Part 1 and Part 2. I commend Newberry on trying to make sense of this huge jigsaw puzzle of the world economy:
The reality is that all of the deficit problems, the energy deficit, the trade deficit, the budget deficit, and the wages and wealth deficit, are connected, each one reinforcing the others. They cannot be solved piecemeal: increasing real wages will mean that Americans will burn more oil, and import more, which means a higher trade deficit. In an environment in which other nations have energy deficits of their own, America cannot export its way to material prosperity, and so it votes for budget deficits to keep the economy propped up. This is the centerpiece of why the Republicans hold power: to undo what they have done requires a broad mandate to attack, not one deficit, but all simultaneously.
Some of the arguments seem to echo Jevon's paradox, whereby the Clinton internet economic boom, seemingly designed to reduce energy use by improving productivity (less work travel) actually worked to exascerbate the situation (more vacation travel) -- finally leading to the Bush bust, when people would just not part with the endless riches imagined and hoped for. All told, a brilliant analysis.

I also missed out on commenting on this Peak Oil fracas on DailyKos. Most of these threads burn out fast, but I thought the level of discourse was pretty amazing for a Sunday afternoon.


Professor Blogger SW said...

That was an interesting exchange wasn't it. I think that Stirliing is doing some great work (although he is a bit defensive). I think that where the optimism is misplaced though (regarding peak oil) is that he and most economists look around the world and see the very real mechanism of the profit motive generated by higher prices leading to new projects and enhanced production. All well and good. And obvious. But the point is that it is now an open question as to whether or not these new projects will be capable of off-setting depletion. And given the time lag required for these projects to come on line and the accelerating nature of depletion of existing fields, we are talking a huge requirement for these new projects just for us to stand still.

I think that it is far more likely that these new projects, along with the unconventional sources like tar sands and oil shale will not have the effect of putting off the peak of production but rather have the effect of distorting the production curve from a Gaussian to something that looks more like an error function. Something that takes a long time to come down off this peak and has a very slow gradual decline.

I also don't believe that this is completely accidental. I think that there have been a lot of studies done since the nature of these production curves have been apparent over the last twenty or thirty years that have been designed to figure out how to maximize the value of the resource. The more time and volume after the peak the better from the perspective of the producer. Before the peak you have a relatively cheap commodity, that is in over supply. Not so after the peak.

So, for all these reasons I think we are just about there. Could be wrong of course. That is because there is quite a bit of uncertainty. But from the numbers I'm seeing now, it just doesn't look like the new stuff coming on line is going to keep pace with depletion and that is the definition of peaking. This doesn't have anything to do with demand which simply amplifies the effect. Of course as long as demand exceeds supply you have the same kind of price gyrations, but from a geological perspective it is depletion that is interesting.

6:24 AM  
Professor Blogger WHT said...

SW: I couldn't agree with you more on your analysis.

I think Stirling also understands this (time scales may differ) but mostly think he wanted to point out orthogonal consequences of the oil economy. e.g. There are wildy escalating positive feedback effects from purely political decisions besides those coming about from conventional depletion arguments. The two put together start to make my head spin even worse.

9:30 PM  

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