Thursday, September 26, 2013

Richard Heinberg's "SNAKE OIL: How Fracking's False Promise of Plenty Imperils Our Future"

For the full post which previews Chapter 1 of Richard Heinberg's book, go here to

Here is something to take away:
From the start of commercial exploitation of petroleum in 1859 to roughly the year 2000, the inflation-adjusted (to year 2000) price of oil averaged roughly $20 per barrel in most years. A barrel of oil contains the energy equivalent of roughly 23,000 hours of human labor, so $20 per barrel translated to a minuscule energy cost as compared to the cost of the energy sources (principally, human and animal muscle-power) that had built the pre-20th-century agrarian world. The industrial cities of today were founded on ultra-cheap fossil energy. Parking lots were paved, bridges spanned, suburbs and highways constructed—all with a principal fuel source that cost only an insignificant fraction of the cost of human labor.
During the past decade, the yearly average price of oil has jumped to over $100 per barrel. Global annually averaged crude oil prices doubled from $25 in 2002 to $55 in 2005, and then doubled again, from $55 in 2005 to $111 in 2011. The energy of oil is still cheap when compared to the cost of human labor, but it has increased roughly 500% in comparison to its price during the 20th century, the heyday of industrial expansion. We are still wealthy compared to our ancestors; we still enjoy the benefits of cheap energy. Yet now, paving parking lots, spanning bridges, and constructing suburbs and highways costs significantly more than it did previously.
Alternative, renewable energy sources have the potential to replace oil in some applications. Still, the inevitable energy transition away from fossil fuels will take enormous investments, and it will also take time—three or four decades in the best case. It is therefore highly unlikely that society will make sufficient investment, in sufficient time, to avert a steep decline in available energy and a steep increase in energy costs during the coming decades.
The economy can adjust to higher energy prices over time, but that adjustment process may be painful. Since replacing oil with other energy sources will be difficult, and since oil is so pivotal to world trade, the decline of oil will probably ensure the commencement of a historic period of economic contraction—in some respects, a mirror image of the 20th century’s unprecedented boom.9 And that’s a fair interpretation of what we are beginning to see take place around us. Economic weakness plagues the world’s industrialized nations. Efforts to extract “extreme” fossil fuels have taken on an air of desperation. The oil-rich Middle East is in turmoil, with major world powers seeking either to buy influence with rulers or to gain control of resources by destabilizing regimes. Paradoxically, while labor productivity rose during the era of ultra-cheap energy as workers used powered machines to accomplish more tasks, rising energy costs now translate to higher unemployment and downward pressure on wages.
Much of our current economic dilemma has to do with debt—and this in turn also relates to the underlying energy problem. As American economist Robert Gordon has documented, cheap oil and electrification drove rapid economic growth during the mid-20th century.[10] By the 1970s, the expansion of oil- and electricity-based infrastructure was reaching a point of diminishing returns in terms of its ability to keep the economy expanding: most families already had a car or two, as well as a houseful of electric appliances and gadgets. As globalization took hold, American factory workers found themselves competing with workers in poorer nations, and real hourly wages stopped growing. With demand stagnating, new ways had to be found to keep the engine of economic growth humming. Since the 1970s, growth in consumption has been maintained to an ever-greater degree simply by borrowing, with rising consumer debt as a significant driver of commerce. During this period in the United States, debt (all debt, not just government debt) rose at three times the rate of GDP growth. As debt ballooned, the financial industry increased in size relative to manufacturing, agriculture, and the other components of the economy. The financial industry then began blowing bubbles as a way of increasing profits. The most recent of these was the US housing bubble, whose collapse in 2007–2008 left us where we are now. The end of the era of cheap oil and the inflation and collapse of history’s biggest debt bubble are historically intertwined.
With energy literacy, an understanding of energy history, and a peak-oil-informed perspective, current economic and geopolitical events become much more readily understandable—if no less causes for concern.
This passage above dovetails with yesterday's post which was an excerpt of  Robert Ayres and Benjamin Warr's excellent book, "The Economic Growth Engine: How Energy and Work Drive Material Prosperity"

10.Robert Gordon, “Is U.S. Economic Growth Over? Faltering Innovation Confronts the Six Headwinds,” The National Bureau of Economic Research, NBER Working Paper No. 18315, August, 2012,

Wednesday, September 25, 2013

Economic growth = f{Price of exergy inputs U f(efficiency of input conversion (high cost to low cost)} ~Ayres and Warr

"The contribution of this book, we think, is to offer a fundamental explanation of endogenous growth that is both quantifiable and consistent with the laws of thermodynamics. Moreover, the new theory is consistent with the notion that the causal relationship between GDP and the so-called ‘factors’ (K, L, U) is not simply unidirectional and deterministic, as the standard (Solow) model implies. Rather, the relationship is a two-way street, analogous to Keynes’ oft-quoted misstatement of Say’s law, namely that ‘supply creates its own demand’ (Keynes 1936).(1) In the case of useful work, the idea of growth as a positive feedback process was introduced in Chapter 1 and re-iterated in several places thereafter.

At this point, it is worthwhile to point out that a number of economists have discussed the so-called ‘rebound effect’ of energy efficiency improvements (for example, Brookes 1990, 1992, 1993; Saunders 1992). In brief, the ‘rebound effect’ has been introduced by skeptical economists to counter the claims of so-called ‘efficiency advocates’ in the context of discussions of energy conservation and greenhouse gas reduction policy.(2) The efficiency advocates’ usually cited claim – on the basis of engineering studies – is that improved efficiency can sharply reduce the consumption of energy and hence of fossil fuels, which are the source of greenhouse gases and other pollutants.

The efficiency skeptics point out that improvements in energy efficiency generally result in less energy savings than the efficiency advocates claim, because lower operating costs make energy-using applications more attractive and thus increase demand for energy services over the baseline. In fact, it can be argued that the rebound effect is exactly the mechanism that drives economic growth, under another name.

In a mature economy, the increases in demand are not so great as to compensate for the savings. Econometric studies suggest that a 10 percent gain in efficiency in motor vehicles would only increase demand for vehicle use by 2 percent, not nearly enough to use up all the efficiency savings (Khazzoom 1987). Some other estimates suggest more dramatic rebounds, although the issue is highly contentious.(3) However, there is general agreement that greater efficiency and lower operating costs lead to greater consumption, thanks to a non-zero price elasticity of demand.
By the same token, higher costs will certainly reduce consumption, just as the advocates of carbon taxes assume. However, the consequences of a permanent increase in energy costs and consequent increases in capital and other costs have not yet been taken into account in most long-range economic forecasts.

The most important implication of the new theory, up to now, is that future economic growth is not guaranteed because the efficiency gains that have driven growth in the past may not continue. Economic growth depends on producing continuously greater quantities of useful work. This depends, in turn, upon finding lower-cost sources of exergy inputs or more efficient ways of converting higher cost inputs into low-cost work outputs. In a world where the cheapest sources of exergy seem to be approaching exhaustion, the key to continued growth must be to accelerate the development of lower-cost alternative technologies, and policies, that increase conversion efficiency.

Meanwhile, if the rate of technological advance fails to compensate for the combination of approaching resource (notably cheap oil) exhaustion and policies needed to cut back on carbon dioxide emissions, we have to anticipate the possibility that economic growth will slow down or even turn negative. Global depression in the coming decades seems to us to be a serious risk."

Robert U. Ayres, and Benjamin Warr, The Economic Growth Engine: How Energy and Work Drive Material Prosperity, (Cheltenham: Edward Elgar in association with The International Institute for Applied Systems Analysis , 2009), 296-297.

  1. Say really meant that a produced good represents demand for other goods, and not that every produced good will be sold (Say 1821 [1803]).
  2. The best-known advocate is Amory Lovins (Lovins 1977; Lovins et al. 1981; Lovins and Lovins 1987; Lovins 1988; Lovins and Lovins 1991; Lovins 1998). See also Johansson et al. (1989), von Weizsaecker et al. (1998) and Jochem et al. (2000).
  3. A good review of the evidence can be found in a special issue of Energy Policy (2000) edited by Lee Schipper. See also Jaccard (2005).

Thursday, September 19, 2013

The Growth In Part Time Work Is Here To Stay

While being in a temporary job is an indication of a person being in a career-less job, that is not always the case. Indeed, those we are calling proficians exult in a project-oriented existence in which they move from one short-term project to another. And long-term jobs in which someone must do the same few tasks over and over again are hardly aspirational. Having a temporary job is fine if the social context is satisfactory. But if the global economic system requires a lot of people to have temporary jobs, then policy makers should address what makes them precarious.
Currently, having a temporary job is a strong indicator of a kind of precariousness. For some it may be a stepping stone to the construction of a career. But for many it may be a stepping stone down into a lower income status. Taking a temporary job after a spell of unemployment, as urged by many policy makers, can result in lower earnings for years ahead (Autor and Houseman, 2010).
Once a person enters a lower rung job, the probability of upward social mobility or of gaining a ‘decent’ income is permanently reduced. Taking a casual job may be a necessity for many, but it is unlikely to promote social mobility. Another avenue into the precariat is part-time employment, a tricky euphemism that has become a feature of our tertiary economy, unlike industrial societies.
In most countries, part-time is defined as being employed or remunerated for less than 30 hours a week. It would be more accurate to refer to so-called part-timers, since many who choose or are obliged to take a part-time job find that they have to work more than anticipated and more than they are being paid for. Part-timers, often women, who step off a career ladder, may end up more exploited, having to do much uncompensated work for- labour outside their paid hours, and more self-exploited, having to do extra work in order to retain a niche of some sort. The growth in part-time jobs has helped conceal the extent of unemployment and underemployment. 
Guy Standing, The Precariat: The New Dangerous Class, (London: Bloomsbury, 2011), 15. (bold emphasis added)

Lehman + 5: Have policy makers tackled the causes of the crisis? No

…excess savings reflect a fundamental problem: a growing gap between financial hope and economic reality. Even before the financial crisis, the evidence increasingly suggested that western economies were slowing down. Relative to consensus, US economic growth has disappointed year after year, during good times and bad. Other countries have fared even worse. Driving up asset prices in the hope that this structural malaise can be overcome may only sow the seeds of future financial upheavals.
Instead, there has to be a much greater focus on the growing inconsistency between low structural growth rates in the West, underdeveloped and illiquid capital markets in the emerging world and a persistent but ultimately malignant hunt for yield. The political implications may be unappealing – higher retirement ages, tougher regulation, lower returns, harder work – but better, surely to tackle the underlying problems than continuously to pretend that the monetary magic wand can solve all problems. (King, 2013) (bold emphasis added)
Read the rest  of the post by Stephen King here


King, S. (2013, September 19). Policy makers have not tackled the causes of the crisis. Financial Times. Retrieved from