EC 2020: The Year Things Started Going Badly Wrong

How today’s energy problem is different from peak oil

Many people believe that the economy will start going badly wrong when we “run out of oil”. The problem we have today is indeed an energy problem, but it is a different energy problem. Let me explain it with an escalator analogy.

Figure 1. Holborn Tube Station Escalator. Photo by renaissancechambara, CC BY 2.0 via Wikimedia Commons.

The economy is like a down escalator that citizens of the world are trying to walk upward on. At first, the downward motion of the escalator is almost imperceptible, but gradually it gets to be greater and greater. Eventually, the downward motion becomes almost unbearable. Many citizens long to sit down and take a rest.

In fact, a break, like the pandemic, almost comes as a relief. There is suddenly a chance to take it easy; not drive to work; not visit relatives; not keep up appearances before friends. Government officials may not be unhappy either. There may have been demonstrations by groups asking for higher wages. Telling people to stay at home provides a convenient way to end these demonstrations and restore order.

But then, restarting doesn’t work. There are too many broken pieces of the economy. Too many bankrupt companies; too many unemployed people; too much debt that cannot be repaid. And, a virus that really doesn’t quite go away, leaving people worried and unwilling to attempt to resume normal activities.

Some might describe the energy story as a “diminishing returns” story, but it’s really broader than this. It’s a story of services that we expect to continue, but which cannot continue without much more energy investment. It is also a story of the loss of “economies of scale” that at one time helped propel the economy forward.

In this post, I will explain some of the issues I see affecting the economy today. They tend to push the economy down, like a down escalator. They also make economic growth more difficult.

[1] Many resources take an increasing amount of effort to obtain or extract because we use the easiest to obtain first. Many people would call this a diminishing returns problem.

Let’s look at a few examples:

(a) Water. When there were just a relatively few humans on the earth, drinking water from a nearby stream was a reasonable approach. This is the approach used by animals; humans could use it as well. As the number of humans rose, we found we needed additional approaches to gather enough potable water: First shallow wells were dug. Then we found that we needed to dig deeper wells. We found that lake water could be used, but we needed to filter it and treat it first. In some places, now, we find that desalination is needed. In fact, after desalination, we need to put the correct minerals back into it and pump it to the destination where it is required.

All of these approaches can indeed be employed. In theory, we would never run out of water. The problem is that as we move up the chain of treatments, an increasing amount of energy of some kind needs to be used. At first, humans could use some of their spare time (and energy) to dig wells. As more advanced approaches were chosen, the need for supplemental energy besides human energy became greater. Each of us individually cannot produce the water we need; instead, we must directly, or indirectly, pay for this water. The fact that we have to pay for this water with part of our wages reduces the portion of our wages available for other goods.

(b) Metals. Whenever some group decides to mine a metal ore, the ore that is taken first tends to be easy to access ore of high quality, close to where it needs to be used. As the best mines get depleted, producers use lower-grade ores, transported over longer distances. The shift toward less optimal mines requires more energy. Some of this additional energy could be human energy, but some of the energy would be supplied by fossil fuels, operating machinery in order to supplement human labor. Supplemental energy needs become greater and greater as mines become increasingly depleted. As technology advances, energy needs become greater, because some of the high-tech devices require materials that can only be formed at very high temperatures.

(c) Wild Animals Including Fish. When pre-humans moved out of Africa, they killed off the largest game animals on every continent that they moved to. It was still possible to hunt wild game in these areas, but the animals were smaller. The return on the human labor invested was smaller. Now, most of the meat we eat is produced on farms. The same pattern exists in fishing. Most of the fish the world eats today is produced on fish farms. We now need entire industries to provide food that early humans could obtain themselves. These farms, directly and indirectly, consume fossil fuel energy. In fact, more energy is used as more animals/fish are produced.

(d) Fossil Fuels. We keep hearing about the possibility of “running out” of oil, but this is not really the issue with oil. In fact, it is not the issue with coal or natural gas, either. The issue is one of diminishing returns. There is (and always will be) what looks like plenty left. The problem is that the process of extraction consumes increasing amounts of resources as deeper, more complex oil or gas wells need to be drilled and as coal mines farther away from users of the coal are developed. Many people have jumped to the conclusion that this means that the price that buyers of fossil fuel will pay will rise. This isn’t really true. It means that the cost of production will rise, leading to lower profitability. The lower profitability is likely to be spread in many ways: lower taxes paid, cutbacks in wages and pension plans, and perhaps a sale to a new owner, at a lower price. Eventually, low energy prices will lead to production stopping. Without adequate fossil fuels, the whole economic system will be disrupted, and the result will be severe recession or depression. There are also likely to be many job losses.

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J. Lewis Jr. 4 weeks ago Member's comment

Those that have, need to do more with less. Those that have less need to stop doing "IT"!

Growing world population may be good for business and the stock market, but not for survival. The only sustainable solution is with many fewer people consuming much less. We can either work toward that end or let Mother Nature solve the problem.

Gary Anderson 3 days ago Contributor's comment

Population control can go terribly wrong. Genocide is usually the final solution.

J. Lewis Jr. 4 weeks ago Member's comment

and you propose to move back into caves?

J. Lewis Jr. 4 weeks ago Member's comment

and your solution is....????

Angry Old Lady 4 weeks ago Member's comment

Well, cavemen never had these problems. So...

Moon Kil Woong 4 weeks ago Contributor's comment

Or another way to look at it is not enough consumption and low, no or negative population growth is leading to not enough growth which leads to lower consumption and lower population growth. We need changes to the economic system that counteracts this deadly cycle especially compounded with increased technological efficiency.

Gary Anderson 3 days ago Contributor's comment

We are down to one growth nation. China! Perhaps we shouldn't keep trying to destroy that growth. We need China.

Mike Nolan 3 days ago Member's comment

Maybe if China were kept in check, the US would absorb that growth for ourselves!

Gary Anderson 3 days ago Contributor's comment

That transfer of jobs to the US is unlikely. We can hardly make facemasks.

Moon Kil Woong 3 days ago Contributor's comment

Its doubtful China is already losing manufacturing to even lower cost companies. Unless you want to work for $0.25 a hour this business is never going to US workers.

Texan Hunter 1 day ago Member's comment

I doubt they work for that little, but illegal immigrants who probably be willing to match those wages.

Mike Nolan 3 days ago Member's comment

You are correct, I got ahead of myself. Americans would never work for so little.

Terrence Howard 4 weeks ago Member's comment

Right as usual!