Energy and Economics: "The economy is moving from a tailwind pushing it along to a headwind holding it back"

Our snappy little introduction to December 15's "Making energy too cheap to meter" was:

The history of humanity's material progress is the history of energy, energy density and energy sources. 

Here is Gail Tverberg going much deeper into the relationship at her Our Finite World blog, December 16:

The problem is hitting limits in the extraction of fossil fuels

We know that historically, many economies around the world have collapsed. We also know that there is a physics reason why this happens. Growing economies require a growing supply of energy to keep up with a growing population. At some point, the energy supply and other resource needs cannot grow rapidly enough to keep up with population growth. When this happens, economies tend to collapse.

In their book Secular Cycles, researchers Peter Turchin and Sergey Nefedov found that economies tend go through four distinct phases in each cycle, with each stage lasting for quite a few years:

1. Growth
2. Stagflation
3. Crisis
4. Inter-cycle

Based on my own analysis, the world economy was in the Growth Stage for much of the time between the Industrial Revolution and 1973. In late 1973, oil prices spiked, and the world was put on notice that the energy supply could not continue rising as rapidly as in the past. Between 1973 and 2018, the world economy was in the Stagflation Stage. Based on current data, the world economy seems to have entered the Crisis Stage about 2018. This is the reason for saying that headwinds are beginning to hold the economy back in the title of this article .

When the Crisis Stage occurs, there are fewer goods and services per capita to go around, so some participants in the world economy must come out behind. Conflict of all kinds becomes more likely. Political leaders, if they happen to discover the predicament the world economy is in, have little interest in making the predicament known to voters, since doing so would likely lead them to lose the next election.

Instead, the way the physics-based self-organizing economic system works is that alternative narratives that frame the situation in a less frightening way gain popularity. Political leaders may not even be aware of how dependent today’s economy is on fossil fuels. Researchers may not be aware that their “scientific” models are misleading because they look at too small a portion of the overall system and make unwarranted assumptions.

In this post, I show evidence that the economy is reaching energy limits. In the last section, I explain how my view differs from the standard narrative, which says that there is almost an unlimited amount of fossil fuels available to burn, if we choose to utilize these fossil fuels. According to this view, humans can prevent climate change by voluntarily moving away from fossil fuels.

The standard narrative proposes a reasonable plan for citizens of parts of the world without adequate fossil fuels (cut back on buying fossil fuels), but without telling citizens what the real problem is. The standard narrative also gives the impression that there is a near-term clean energy alternative. In my opinion, this is wishful thinking for the reasons I describe in Sections [6] and [7]. Section [2] also sheds light on the reasonableness of moving to renewable energy.

[1] The world has been warned, at least twice, that collapse might occur about now.

Back in the 1950s, several physicists, including M. King Hubbert, became interested in the limits that the world was up against. The military became interested in the problem, as well. In 1957, Admiral Hyman Rickover of the US Navy gave a very insightful speech. One thing Admiral Rickover said was, “With high energy consumption goes a high standard of living.” Another thing he said was, “A reduction of per capita energy consumption has always in the past led to a decline in civilization and a reversion to a more primitive way of life.”

Regarding the future, he said,

For it is an unpleasant fact that according to our best estimates, total fossil fuel reserves recoverable at not over twice today’s unit cost are likely to run out at some time between the years 2000 and 2050, if present standards of living and population growth rates are taken into account. 

The issue Admiral Rickover is pointing out is that as extraction costs rise, fossil fuels become increasingly unaffordable. If citizens cannot afford food, housing, and other basic goods made with high-cost fossil fuels, those fossil fuels will be left in the ground. If politicians try to pass the high cost of extraction on to consumers, it will cause inflation. Citizens will become unhappy with politicians and will vote them out of office. This is basically our problem today....

....MUCH MORE

The introduction to our last visit to Our Finite World, October 30:

The Intersection Of The Financial and Physical Universes and Why the Former Won't Fix the Latter

Although some oil & gas exploration might help, who in their right mind would finance such a thing when the powers-that-be, from the international to the small-town mayor tired of talking potholes, say the goal is to eliminate the industry?

This piece by Gail Tverberg runs a bit contra to the Russell Napier interview that was making the rounds a couple weeks ago with his capex boom optimism but Gail is an actuary, she has to deal with the cold, hard reality of numbers and she's been applying that gimlet eye to the nexus of energy and finance for a long time....