Monday, September 22, 2008

Crisis of Confidence

So much has transpired recently that I have been reticent to blog, and I apologize for that, but it was time to do some serious homework. I need a certain level of personal assurance before I express my opinions. It’s part integrity and part avoidance of embarrassment.

While, like so many others, I am trying to make sense of this unfolding, I see a common thread:


Be it be peak oil, climate change, cigarettes, coal, the state of the economy or the latest toothpaste, we are constantly being lied to.

Lying takes various forms, but it is almost invariably self-serving. Whether it serves a perceived “higher purpose” or just avoids an uncomfortable social situation, it is important for us to be sufficiently informed and rational to first detect, and then analyze the motives behind lies.

The motivations behind lies have such a wide range that one should examine them on a case by case basis.

So-called “white lies” are borne out of the desire to maintain a desired status quo. Whether the status quo retains any status is part of the issue.

A white lie is generally assumed to be a lie that, once said, leaves things better off than if the truth were told.

Although the term is not generally used, a “black lie” would be widely recognized as something which is not only totally self-serving but which is also detrimental to others not served by the lie. In the present morass, there are no white lies.

In light of the recent financial collapse, I remember Mr. Greenspan’s last address as the chairman of the Federal Reserve Bank; He referred to the economics of the housing industry. If I recall correctly, he said that there was no housing bubble and even of there was it was minor and it would have a “soft landing”.

On a personal note, I also remember a discussion with a close friend regarding Mr. Greenspans’s comments. Although finance is not my strongest suit, I considered the widespread debt on every level and concluded that not only was there a housing bubble, but that it was large and was headed for an inevitable collapse. I have no direct proof of my prediction, so consider this an aside.

In very limited defense of Mr. Greenspan, his position carries great weight, so nuance is important. Any comments could affect the economy significantly so he had a responsibility to be conservative in his statements.

However, recent events have shown that Mr. Chairman was either a colossal liar or terribly incompetent.

As accusations are flying around, looking for the baddies in this mess, a very important point is being ignored.

In order for lies to be effective, they must resonate in some way with the person being lied to. I am reminded of lines from the Simon & Garfunkel tune “The Boxer”:

I’ve squandered my resistance for a pocketful of mumbles, such are promises
All lies and jest, still the man hears what he wants to hear
And disregards the rest

Even before this massive bailout gets fully underway, the mere rumor of it had stock exchanges rocketing back up. Greed and hope spring eternal.

And so the lies continue. Hyperbole, using phrases like “an end of an era”, “game changing”, “dodging the bullet” and so on, clog the airwaves and the blogosphere.

I can imagine the offices of Wall Street ringing with the song “Happy Days Are Here Again”. Sometimes, the most dangerous lies are the lies we tell ourselves.

I will take the contrarian stance and state that very little has changed.

  • Trillions of dollars have left the world economy and will not return.
  • House prices continue to fall and more and more mortgages will become “upside down” where the mortgage amount exceeds the property value significantly.
  • Many mortgages are yet to be reset to higher interest rates.
  • Massive amounts of debt exist on every level in the United States and much of the rest of the world.
  • The bailout will do little to aid the real economy; it is an emergency plan to stave off potential financial hemorrhaging.

A vast lie has been exposed and an additional 700 billion dollars, minimum, will be added to the federal debt, for a total of 11.3 trillion dollars, or approximately $37,000 each for every person in the country. This debt already existed in the system; it has just been moved and does not reflect the largely unknown debt obligations hidden within Fannie Mae and Freddie Mac.

Having the US government buy up worthless asset backed paper allows financial institutions to get toxic debt off their books, but it will be sold at a marginal price. Depending on the margins, this process will mean that write-offs will be in the range of one to five trillion dollars.

As the realities of the so-called rescue plan sink in, and the latest lie of a newly stabilized financial system evaporates, we will likely see a “dead cat bounce” in the markets because the fundamentals have not changed.

By eliminating short selling temporarily in the financial sector and elsewhere, the only way to profit in the markets is through stock price gains. If the fundamentals have not changed, then there is little likelihood of solid gains and no means of protection against losses by short selling.

Monitoring the level of "shorts" is a very effective way to judge the overall confidence in a given stock. Suspension of the practice, removes potentially valuable warning flags.

All of this means that the smart money will be going elsewhere, such as commodities, cash and precious metals.

Once selling short is allowed again, the true value of various restructured institutions will become more apparent and those that are bearish, be they just prudent or predatory, will re-enter the market. Sooner or later the piper must be paid.

If there is one thing that has changed, it is that the financial system is more exposed than ever as the casino it truly is. This is even truer, now that one can only bet on winning, not losing. No one goes gambling with the intention of losing, and gambling operators go to great lengths to highlight the winners.

This requires confidence in the system, but after we have been lied to for many years, it has become a confidence game in the worst sense, when the system needs it the most. Whether it deserves any confidence is another question entirely.

Rising oil prices will exacerbate a shaky economy, eroding disposable income and making many mortgages and jobs less tenable. The next wave of credit woes would likely come from vehicle loan and credit card defaults. Thus the downward spiral begins anew, like a hurricane gaining energy over the warm waters of the Gulf of Mexico.

For the above reasons, further bailouts and stimuli are likely.

This situation highlights the importance that is placed on the economy worldwide. No politician wants a severe economic downturn on their watch. As average democratic terms are four years or less, there is little incentive for long term measures or solutions.

It should be noted that this current crisis is not tied to peak oil. It was entirely caused by a highly leveraged ponzie scheme on Wall Street.

Tragically, the reverse is not true. The financial mess does have severe implications for peak oil mitigation and climate change.

  • An economy in recession will generate fewer tax revenues, further burdening a staggering debt and deficit. The sweeping powers recently given to Secretary Paulson will make expenditure allocation and approval much more onerous, likely thwarting massive and much needed infrastructure improvements. Mr. Paulson is an economist, not an ecologist.
  • The private sector will have less money to invest and more uncertainty where to invest it. Wild price fluctuations in commodities such as oil will muddy the potential returns on peak oil mitigation projects. Capital intensive CO2 control efforts like carbon capture and sequestration (CCS) will be non-starters.
  • Due to a sagging economy and much tighter credit, individual investment efforts by consumers, such as a hybrid car purchase, solar installations or household efficiency upgrades will be minimal.
  • These events are all unfolding while we learning with much more certainty that the need for peak oil mitigation and CO2 reduction is immediate and the window is narrowing.

As we come off the plateau of peak oil, much of the world will be unprepared. Depending on the timing, it will indefinitely extend the recession, or put us right back in a new one.

It is no longer unthinkable that the United States has reached peak GDP.

Risking understatement, these are very serious times and it has never been more important to be informed and look at any and every statement from any so-called expert or pundit with a jaundiced eye.

Saturday, August 30, 2008

Peak Oil Trumps Climate Change


I am not a tree hugger. I am not a member of Greenpeace. I don’t work for a wind turbine company. I am not out to save the earth or mankind. I’m not even politically active.

What I am is a person that decided to try to cut though the agenda-driven noise, educate myself and see if I could arrive at some reasonable conclusions. The following is based on countless hours of reading. Unfortunately, this has included reams of misinformation, disinformation, conspiracy theories, bad science, ignorance and our one-and-only abundant, inexhaustible resource; stupidity. I have also found many credible, well researched and well thought out documents. That said, some things are just not knowable to any certainty. Wherever possible I have cross-referenced data and opinions. In many cases I have done the calculations myself to verify and then done them all over again. I am going to quote very few numbers here but I will make some strong assertions and attack some “truths”. Above all, I have tried to use critical thinking and relied on what “just makes sense”. It has been an amazing learning experience.

I don’t mind if you don’t believe me, but to dismiss me would be at your peril, even if I am dead wrong:

  • The best thing you could do would be to read this and then investigate on your own. I think we are in for some very tough times and I would be very happy to have someone prove me wrong.
  • The worst thing you could do is take someone else’s word for it.

The miracle of oil

The crux of the issue is that as energy sources go, fossil fuels are king. In terms of portability, storability, stability, and energy density they have no equal, not even close. If you are thinking of hydrogen, it is not an energy source; it is an energy carrier, and a damn poor one at that.

Now back to fossil fuels: They are also, at present, essential for non-stationary applications such as transportation. Unfortunately, over two-thirds of our oil goes to transportation.

Without a plentiful supply of cheap energy, the dramatic development in much of the world in the last 100 years would have been impossible. This can not be overemphasized. Oil's ability for multiplication of effort, over human power, is staggering. Just one example is the vast amount of ores extracted, transported and processed to provide the materials essential to our economies could not have happened in the time frame that it did, and perhaps not at all. Keep in mind, the processing and transportation cycle could occur many times for just one product.

To emphasize:

  • The Cathedral of Rouen, which was the tallest building in the world (151 m) until 1880, took almost 900 years to complete. This was accomplished with manpower. Real, physical man-hours, the sweaty kind.
  • The Burj Dubai, presently the tallest free standing structure in the world by any standard, is expected to exceed 800 m and will have taken 5 years to complete. This was accomplished with oil, in more ways than one.

In light of this multiplier, oil is still very cheap, and more importantly, unlike we in a developed world; it is rightly perceived as very valuable resource to a developing nation.

India and China are in a development race. Not against each other, or against the USA, but in a race against time.

Energy is the economy and sometimes even life itself.

If China and and/or India have come to the same conclusions that I have, regarding the limited viability of alternative energy sources, they realize that certain things must be in place prior to serious oil depletion. The "Hydrogen Highway" is nothing more than a cruel hoax and biofuels competing with food needs is insanity. The market economy rarely factors in our well being.

As I try to explain to people the true value of oil and how we have collectively squandered such an incredible endowment, the consistent response I get is “Oh, they will figure something out, they have to!” I have not seen anything in any Constitution that guarantees this and there is no proven breakthrough visible on the technology horizon that I know of. Perhaps if I could find out who they are, I could go quiz them as to their progress. I get back to you on that.

Part of the problem is denial, for those that understand and part of the problem is disbelief because no one who is alive today and born in a developed country ever knew a time when there wasn’t a relative abundance, even during the Second World War.

That said, I feel that the biggest part of the problem is numeracy. It’s an important skill to have. Too few people have faintest idea of the mind-boggling amount of energy we consume and what will be required, in terms of time, money and resources to find a replacement. We are dealing with very large numbers here.

Literacy also plays a part. Oil companies are referred to as energy producers, but this is misleading. Oil companies consume energy in the process of extracting and processing oil, which is a pre-existing energy resource. This applies equally to all other natural resources. A generating station produces electricity, but it does not produce energy, it consumes energy while it converts the energy contained in various fossil fuels.

Once we can no longer chop it down, dig it up or pump it out, we will have to capture it and/or convert it. To do that in any quantity, we will need many, many wondrous machines.

What we choose to do and make with the remaining oil will determine how well we will live and thrive in a Post Oil world on a limited energy budget. Some say Hummers and A380’s are wondrous machines but they won’t do the trick. Do I need to say “part of the problem…”? We need to create an alternative energy conversion system and that task will be much, much more difficult when the oil is gone. Some would say impossible relative to how we live now.

For 99.5 percent of renewable energy, the sole source is solar, and it always has been. Our brief blip with oil was due to solar energy that had been converted and banked. That account is about to be closed and we will be on a solar budget. So many joules per day and that’s it. We can save it but we can’t get an advance. This is not my opinion, this is physics.

In one hour more sunlight falls on the earth than

what is used by the entire population in one year.

“Gee, thanks for that. I feel so much better now. I’ll just get a few solar panels and life will be peachy. There is so much energy out there that we will all live like kings.”

This woeful bit of vague, meaningless, useless information was gleaned from a website promoting alternative energy. It is also terribly, dangerously wrong. Don’t get me started. Please figure this out for yourself. Not for my sake, for yours. I will specifically address this cornucopian rubbish in a later post.

Numeracy factors into any implementation as well. Once any given technology is selected, the sheer number of resources that have to be applied to planning, procurement, construction and commissioning are difficult to get your head around.

Then there is the issue of time frame. These will be megaprojects that may not be completed before the oil runs out. I must point out that as each and every country does the math, there will be fierce competition for resources that will continue to climb in price as supply drops and oil prices rise. If investors are waiting for oil prices to rise high enough to guarantee profitability and immediate payback, we will all pay dearly.

The Oil Clock
I believe that we have reached Peak Oil and the life of relatively cheap oil is finite; between 20 and 40 years. I also believe that it is closer to the former, but the time frame for both peak and depletion is largely moot. Twenty years is a relative blink of the eye, after which we are faced with a Post Oil world. Middle age gives you that perspective.

You can not get rid of the oil clock. You can slow it down through conservation, higher efficiency or alternative energy. That might give you enough time to track down that jar of magic pixie dust that you bought on the Web and is either back-ordered or stuck in shipping.

You can even stop the clock by not using a single drop of fossil fuel, but it is such a versatile feedstock for innumerable chemical processes that it should be limited to that use and that use only as soon as possible. Please note I said should, but that is highly unlikely.

Much like climate change, there are going to be winners and losers in the Post Oil era.

This is why I dislike the term "Global Warming" and prefer “Climate Change”. Not only will there be an increased general warming of the earth, but heat movement patterns are changing, evidenced by changes in ENSO, (the El Nino Southern Oscillation) and also in the Gulf Stream. These changes will become more dynamic and dramatic as the CO2 levels, temperature and ocean levels increase.

Similarly, as fuel prices increase, changes in energy movements and money movements will also become very dynamic, and the effect on the winners and losers will be no less dramatic.

What I see is a Goldilocks scenario; after Peak Oil:

  • Too Cold. Third world countries will never develop, as they have no pre-existing infrastructure and can not afford to establish one. The plus side is they are not addicted to oil. Providing the government is not malevolent, most can likely survive on subsistence farming. Limited resources will eliminate any excess population.
  • Too Hot. Developed countries will experience severe, radical changes for which they may not have the resources such as physical skills or mental skills needed to cope. At the very least, the effort and cost of adapting to a Post Oil world will be enormous. For example, a proposal to provide a replacement for just 20% of the US electrical supply with wind turbines will cost between 350 and 400 billion 2008 dollars and would not be completed until 2030. This is simply a proposed scenario and there is no indication that there is any serious inclination to do so in the near future. This substantial investment would do nothing to address the energy needs of most transportation systems. Further energy burdens will emerge as fresh water stocks dwindle and energy intensive water processing methods such as reverse osmosis are required.

The highly developed infrastructure of the first world is a double edged sword. The entrenched energy burden is staggering and the population is disinclined to deprivation or hard work. Expectations of income and lifestyle are high and deeply engrained. (Thank you, Madison Avenue.) Further, it is likely that a large portion of the infrastructure is in decline. As resources are directed towards energy issues, further infrastructure declines will occur prior to Post Oil. This is the equivalent of starting out on a long road trip with a bald set of tires and a leaky radiator.

On the plus side, the only way that a country can survive in a Post Oil world is through the very resources that part of the present infrastructure provides.

To put this in clear relief, the holy grail of energy production is controlled nuclear fusion. Uncontrolled nuclear fusion is what the world’s nuclear arsenal provides and I’ll mention that later.

Underdeveloped countries have neither the financial ($20B USD) nor technical resources to establish a Large Hydron Collider like the one starting up at CERN. It may never produce energy related solutions, but at least Europe can ante up to get in the game. It’s not the only game in town but the others are just as expensive.

Now we get to the porridge that may be "just right", and I did say maybe.

  • A developing country like China or India has some huge advantages. Each has an enormous workforce accustomed to manual labour. Manpower, particularly cheap manpower, will be critical. Much of the population consider deprivation a way of life. They also have a well educated, highly skilled and highly motivated segment of the population. They have the infrastructure to make advanced technology as well as an established and improving transportation system. Perhaps most importantly, they each have the mentality of a rising power without the burdens of apathy and trivial distraction. Neither country is susceptible to extreme bullying as they both have nuclear weapons. (Yes, I believe it may come to that) Nuclear aside, neither is particularly concerned about damages to the ecosystem, which means they are largely unfettered. They are presently exempt from CO2 emission constraints, and are likely to stay that way. China has the additional advantage of having a strong single party government so any policy direction charted is not stalled or sent off course by lobbying or partisan politics,(or elections for that matter).

The geo/economic/politics of energy
So, in order for
China and India to continue to build their infrastructure as efficiently, as cheaply and as quickly as possible, they will be in an "Oil Rush". During Peak Oil and Post Oil, they will likely be able to produce various renewable energy products at a fraction of the cost of the first world. After all, they have been training to do that for years by supplying the West with billions of dollars worth of crap and technotrinkets that we so love. They will be capable of providing themselves with renewable energy systems and if there is any surplus of systems or energy, they can be sold to the developed world, thus providing increased cash flow.

To put the human resource of China in perspective; China holds $260B in US federal debt. At $.57/hr (the average Chinese wage) that $260 B could employ the equivalent of the entire US workforce for one and a half years at 40 hours a week. That’s more than a few odd jobs worth. Liquidation of that obligation would also undermine the dollar's value. This is yet another example of where numeracy, awareness and knowledge are crucial.

iPODs and DVD players today, wind turbines and solar cells tomorrow.

Meanwhile, the US is wallowing in debt, (largely foreign owned), on a federal, state, civic and personal level. It has a decimated middle class with a questionable education and an impending recession exacerbated by sky high energy costs. The critical petrochemical infrastructure is rusting out because the industry could not afford to replace it when oil was $10/bbl and have made no significant investments since, unless it applied to oil exploration or development. Other infrastructures have fared little better as maintenance and upgrade investments were instead offered up to the twin gods of Profit and Low Taxes. The public and privates sectors are equally culpable.

The US has a demoralized population with a deeply divided, dysfunctional political structure with little apparent will or purpose. Americans are preoccupied with filling their SUVs with $4 gas, so they can read about Paris and Britney while waiting in the checkout to buy imported food. On the other hand, most Chinese and Indians consider themselves lucky to have a motorcycle and blessed if they have a car. Further, as they continue building their infrastructure, they have the luxury of designing in energy efficiency, rather than shouldering the cost of retrofitting existing structures and systems. Frugality is an intrinsic part of their lifestyle that doesn't need to be learned.

Most of the developing countries’ inhabitants can exist without heat or air conditioning, perhaps not well but they can exist. The northern, developed countries learned how to exploit fossil fuels to stay warm and cozy. How do we, the developed world compensate for a lack of cheap plentiful fuel, and what will it cost?

Oil reserves are only a small part of the price equation, production is the key. At present, world production is barely keeping up with demand. The slightest deficit can have a significant upward effect on price. Manipulation of production may drop the price slightly but there are indications that production can not be increased without damaging some very large reservoir structures that are already in decline. As demand drops in the US, due to recession or conservation, continued demand from India and China will tend to keep the price, and production, up. As reserves fall, prices will continue to rise. This will deepen and/or lengthen the recession in US and most of the western world that is a not a net exporter of oil. This will further impede their transition to renewable energy.

While it is true that a sagging US economy may affect revenues for the developing world, I posit that India and China will continue their development programs unabated, just at a lower rate. I feel that they can little afford not to do so. Whether the expansion is based on ideology or pragmatism matters little.

I did say that oil would never come down didn’t I? Well, unless there is a major world economic downturn, vast new reserves suddenly appear or nano-particles can recover the unrecoverable portion of all the reservoirs, I stand by it. Any fluctuations will be just that, and they will become wilder as supply and demand become more closely coupled.

Even if any of above conditions change, that will simply delay the same ultimate scenario, as was shown by the demand drop during the energy crisis of 1972, which was a manipulated shortage, not a real one.

You may be asking about unconventional oil such as in the Alberta Oil Sands? Well, yes it’s true that there are an estimated 1.7 trillion barrels there and it can be extracted at great financial, energy and environmental cost but it all comes back to production. The entire complex, involving many oil companies, and 30 Billion dollars invested, presently produces about 1.9 million barrels per day and is expected to produce about 5 million barrels per day by 2030 providing they can find a sufficient skilled workforce and material costs don’t go through the roof.

Now, what is that as a percentage current world demand? What is the estimated demand by 2030? I urge you to Google it, to start your path to energy awareness.

I’ll give you a hint, to emphasize once again our profligate ways; the world presently consumes one thousand barrels of oil per second, 24/7.

“Lions and tigers and bears! Oh, my!”
“Oh, the cost, the effort, the economy, my economy!”, “Someone else should go first!”.

During the Second World War, both sides mobilized, huge efforts were undertaken, vast sums were spent and some economies were ruined, but we did it and we all recovered. Why not now?

While this debate rages; “Have we peaked?”, “When will we peak”, “When will we run out?” ad nauseum, the earth gets warmer, the air gets fouler, the oil reserve gets smaller and the population grows larger. Tick-tock. It won’t be any easier on $200 oil or $300 oil.

“You think that’s inconvenient??
If we assume that
China and India are as oblivious as the United States, and we would be very foolish to assume that, then soon we will all just be out of energy, renewable or otherwise. The fewer renewable energy systems we create just means that fossil fuels are depleted that much faster. That scenario would be nothing less than apocalyptic. It would, however, nicely take care of food shortages and climate change assuming we don’t reach the tipping point first.

In the absence of nuclear fusion or pixie dust, forget about climate change. We will try to work it in there if we can, but no promises. In our ongoing quest for so-called development, to paraphrase George Bush Sr., it's all about the energy stupid, and that energy is oil.

Wednesday, August 20, 2008


This blog has the potential to become a rant, so I will try to tone it down.

I just watched an interview on PBS with Bob Lutz, Vice Chairman of Global Product Development for General Motors.


He is heading up the development of the Chevy Volt PHEV, expected to be released in 2010.

Mr. Lutz commutes regularly, by flying his own helicopter and also uses it to fly to his two private ex-military jets which he flies for his amusement.

The interview and surrounding video was little more than an infomercial for the Volt, but there were some telling moments. For brevity, I will paraphrase. Please watch the video for your own interpretation.

When it was suggested by Charlie Rose that GM should have seen high gas prices coming, his emphatic response was “Nobody could have seen it coming.”

Touting the company and the product, he asserted that no other car company in the world had the technical skills, knowledge and resources to produce the Volt. That could easily be argued, but if that level of depth and expertise does exist, it begs the question why no one in authority at GM understood the ramifications of the works of M. King Hubbert, Robert Hirsh, Robert Hansen and many others.

The issue of climate change was raised as an impetus for a change in marketing strategy. Mr. Lutz opined in a derogatory tone that certain market segments had a perception about what was needed or wanted in a car and so GM is responding. His tone and demeanour suggested that he was dragged kicking and screaming to change direction. I admit that this was just my perception, but it was very clear that he holds educated people in contempt. I see this as a tacit admission that people looking “behind the curtain” are a threat to GM's success. I posit that Mr, Lutz just might be a conservative, his "right brain" assertion notwithstanding.

His direct response directly about climate change was a vague “well, some say”, but it was clear to me that he rejects the concept. It was unclear whether he rejects the idea entirely, or whether he just doesn’t believe that the cause is anthropogenic.

Through the entire video there was a real shell game being played with words. Mr. Lutz regularly emphasized that GM was “design driven”, and then said the “design” was passed on to the engineers to somehow make it work. Ease of manufacture was clearly second. As an engineer, the suggestion that the design is done before the engineers get the job is highly insulting. Any oil depletion mitigation will be done by engineers, not by sketch artists.

“Design Driven” is the mantra of the GM CEO, Lyle Wagoner. It is also bafflegab. What Mr. Lutz is really talking about is the styling of the car. How it looks trumps how well it works.

I don’t discount the importance of style, we all prefer things which are visually pleasing, but GMs history of putting a new skin on an old frame make me wonder how much focus was put on real technical innovation. Are you old enough to remember “fins”?

One point was particularly egregious. Mr. Lutz stated that high gas prices were beneficial in that they “aligned” the consumer with products that GM would have to make anyway, due to government imposed fuel consumption restrictions. Apparently, he feels that these restrictions were some sort of arbitrary draconian imposition by the government, punishing both the auto industry, and the consumer. Poor GM is now hampered in its benevolent efforts to give the customer what they want.

This offensive spin attempts to hide the fact that it disrupts the ongoing drive by GM and many others to tell the public what they need. I am disappointed that it has made its way onto PBS.

Obviously, Mr. Lutz is a shill of the first order and probably should be dismissed as such but it begs the question “How pervasive is this attitude in the corporation?” I have no sudden urge to rush out and invest in GM shares.

Overall, I found the so-called interview riddled with arrogance, hubris and contempt. Mr. Lutz’s lifestyle, generation and attitude give new meaning to the term “fossil fuel”

Sad, really.

Monday, August 18, 2008

Unraveling the Unraveling

Within the relatively small community of “Peakists”, they divide roughly into three groups; Cornucopians, Doomers and the largest group, that I will simply call Moderates. I would describe the Moderates as a group of very concerned, but cautiously optimistic, or not so optimistic people. I’m undecided where I fit in, but it is somewhere between the latter two.

Right up front I’ll confess to some hubris in the title, as there are many things which are simply unknowable, but a useful starting point for predicting the future is to examine the past.

Samuel Clemens, a.k.a. Mark Twain said:” History doesn't repeat itself; at best it sometimes rhymes

There is evidence for this, but when it does rhyme it is because it is a different stanza from the same song. If we are about to rhyme with past events, that would suggest that we will not collapse into a great smoldering heap in a few months or years but a slow decline over several generations to a civilization more akin to how we lived around the end of the 19th century.

Recent disparate events have made me reconsider some of my beliefs.

How Fast? How Far?

This is like asking the question; “If I fall off a 1000 foot cliff, will I hurt myself?” The short answer is “It depends”, and begs a number of questions. Did you jump, or were you pushed? Did you fall by yourself or with others?

If you jumped, and you are not suicidal, then you likely made some preparation. You either put on a parachute, or placed a large stunt-man style airbag at the bottom. If you thought it through, you carefully selected the time and landing spot AND you knew how to use your device before you jumped. (This is an important point here). If you were pushed, then you were in all likelihood unprepared and you will most likely die.

If you jumped by yourself, then you may at worst suffer a sprained ankle or perhaps even a broken leg. If you fall with others not so prepared, they may land on you and your efforts would have been for naught. The slightly smarter ones may figure out why you are wearing a parachute, and take it away from you before you jump, or try to grab you on the way down, also foiling your plans.

The depth of your fall will also vary, depending on preparation. If you make the trip at terminal velocity you will likely fall more than 1000 feet, as you will end up below ground level. This is referred to as overshoot.

The length of time for decent from Peak Oil will be determined by the depletion curve. If consumption is limited only by geological production factors, then the curve will follow some variant of Hubbert’s Peak. This will result in maximum prices over a minimum time period.

The depletion curve can be stretched out by a reduction in total energy consumption, or by employing alternate energy sources. It seems likely that it will be a combination of both. It’s important to note that the area under the curve will not change, as that area is the total remaining reserves.

Obviously, common foresight and preparation will play an enormous part in answering this question. The slower and more orderly the descent, the less painful it will be.

Historical References

In order to predict what may happen, others have made many references to various empires and civilizations that have gone before us.

One common example is the Mayan civilization. Through soil depletion and possible climate change in the form of drought, combined with an unwillingness to adapt, the massive and sophisticated civilization disappeared over a period of up to two hundred years. This is a relatively comforting thought, however…

Recent Events

  • The battles in Georgia seem to be prompted by two issues; Control of the BTC pipeline and an ongoing crusade by Vladimir Putin to restore Russia to its former power and glory. For the sake of brevity, I won’t elaborate but I highly recommend watching the documentary “The Putin System”.
  • Both Protracted and sporadic conflicts between the United States and the Middle East continue to remind us of the total dependence on oil and the importance of continued supply. As Vice President Dick Cheney said, “The American way of life is not negotiable.”
  • The Olympics in Beijing are the coming out party for China. Because of this event the media has highlighted the enormous growth and industrialization of the country. It also highlights the rapidly blossoming love affair with consumerism and capitalism. The Chinese have chosen a path and show no signs of wavering.

So, as I see it, we have a very contentious situation here. We have three very large industrialized countries; one wants to become a superpower again, one that has every intent on remaining a superpower and one that is pushing hard to become a superpower. The three threads I see running through these countries are hubris, energy and nuclear capability.

Peak Oil Mitigation

As I have said before, (along with many others) our present way of doing things is not sustainable and renewable energy is butting its head up against the laws of physics, particularly the laws of thermodynamics. For this reason, I choose the word mitigation, not replacement.

A Saudi minister said, “The Stone Age didn't end because we ran out of stones; we just found better technology to stones.” True, but it is also apocryphal. While we will be using wind turbines and photovoltaics, we will also be dusting off our metaphorical stones.

In order to maximize our mitigation, a concerted effort is needed, requiring vast amounts of capital and resources. Unfortunately, the free market requires a return on investment, with reasonable confidence that market conditions are stable enough to maintain those returns over the life of the infrastructure.

I say unfortunately, because we are dealing with a tightly coupled supply-demand situation. As an economy grows, consumption grows. Oil demand goes up and oil prices go up. As oil prices rise, the economy then contracts. This is The Devil’s Seesaw, as coined by Peter Pogany of The Energy Bulletin. The seesaw has two effects. It causes bursts of renewed oil consumption and non-viable renewables and secondly, when energy prices and the economy are low, there is less capital available for mitigation. This will send us stumbling and lurching, not gliding down Hubbert’s curve.

So, to go back to history and the Mayan’s decline, the present situation has some disturbing differences and one glaring similarity;

  • The Mayan troubles were protracted because the resource decline was protracted. Their soil did not deplete overnight.
  • The Mayans were in control of their own corn production.
  • To my knowledge, there was not widespread scarcity in the greater region or globally. Feel free to correct me on this.
  • The Mayans had the opportunity to go elsewhere, and likely did so. (Richard Branson does not have enough space ships, and they fall back to earth anyway.)
  • The Mayans were unwilling or unable to adapt.

As significant as M.King Hubbert’s work was, using it as a basis for planning is a gross oversimplification. It assumes, or at least implies (unintentionally) that future distribution of oil will be uniform based on demand. Factoring supplies being cut or rerouted instantly and perhaps permanently was beyond the scope of the study.

In simpler terms, when the world is producing at 50% of peak oil, it would be folly to infer that each country will receive 50% of what they were receiving at the peak.

Thus, a smooth shift away from fossil fuels will require a global effort involving commitment, cooperation and consistency. That said, history shows me that we do not play well with others when we are threatened. The watered-down shambles that became The Kyoto Protocol is a testament to this.

So, will we rhyme with history? Considering an unstable economy and major geopolitics with self-serving interests, I don’t think we are even singing the same song.

In light of this, I find the idea of a gradual decline over a century or two to be highly optimistic. As has been said, this is a whole new ballgame.

I think I just took a step towards the Doomer camp.

Thursday, July 31, 2008

Pondering the Endgame

After almost a year of regular study and analysis, I have cross referenced various theories and independently performed countless calculations using data from a variety of sources including my own empirical evidence. As they say, "I'm from Missouri".

I have concluded for myself, and to a certain extent by myself, that we are entering an era that involves a change so massive that few people can comprehend it, and perhaps more importantly, fewer still are willing to comprehend it. We are in denial that the present paradigm is not sustainable and no amount of tweaking will fix it. We are on the cusp of the era of a very limited resource budget. This era will likely be long lasting.

I have been labeled a cynic, but I think cynicism has been given a bad rap. Evolutionary theory has shown that self-interest is essential for the survival of any species. I define myself as a realist with experience. But I digress; I am not a Cassandra (yet) although I have few illusions.

The ramifications are wide ranging and profound, almost endless. Rather than dwelling on them, I now am trying to unravel what the endgame will look like.

In order to do this, I think it is important to examine where we are right now. Our starting point will factor largely in our upcoming journey. Making an assessment of our mental and emotional capabilities is no less important than performing an inventory of our physical resources. This applies both to yourself and to those around you, to decide how you choose to interact and with whom.

The reaction to dwindling resources and a radically different paradigm will be determined by a number of factors;

  • The maturity of the individual.
  • The general mindset of the society as a whole and the local community (peer pressure).
  • The mental and physical skill set that each person possesses and the skill sets that exist as a whole.

In a nutshell, this means the ability to accept and adapt. As these abilities will vary widely due to socioeconomics, local climate and political environment, so will the success of adaptation vary widely. While many of our capabilities will be determined by technology, I am looking at our sociological capabilities. Whatever we accomplish will not be done by machines but by people, but most of us are starting out with a serious disadvantage.

Our most pressing problem is the abrogation of parental responsibilities and the tacit usurping of those responsibilities by an entity that is far from benign. This must be acknowledged, examined in detail, and dealt with if we are to overcome it.

Through a sustained and methodical process lasting almost 100 years, our priorities have been hijacked and our values have been perverted. In the truest sense, I believe that the USA is a very sick society. It is less so in Canada, but that doesn't mean it deserves the Gold Star. To be clear, these are not personal value judgments. I am not a religious fundamentalist nor am I a social activist. I make these assertions simply on the basis of common sense and critical thinking. To wit, a result of simple observations of trends and analysis of the observed consequences.

The "American Dream", perhaps better called the "American Folly" is by far the No. 1 export of the USA. It is the foundation of most, if not all of what is produced by the USA and has made many individuals obscenely wealthy. Sadly, the USA now produces very few physical things, as most of its revenue-generating physical output is produced by proxy. Many of the country’s wealthiest people, such as marketers and stock traders produce nothing at all. Sadder still is the fact that this deluded concept has been very effectively propagated throughout the world.

This unbridled growth has been driven by consumerism. I won't rant about consumerism per se although I could easily do so. That said, I will make the following assertions and clarifications:

I differentiate consumerism from the legitimate exchange of goods and services. Consumerism is a process of producing goods for the consumer that is no longer a symbiotic process but a parasitic one, with little regard for the well-being of the host:

  • No products are produced which are expressly for the benefit of the customer. Some products may actually be beneficial, but this is predominantly a pleasant side effect. Most products produce no benefit above tradition methods and cost substantially more. Hand sanitizer is a perfect example, as it is no more effective than soap and water and has been promoted through fear mongering.
  • Products, promotion methods and production methods that are detrimental to the consumer, society or environment are limited only by potential legal liability or loss of reputation. Anything else is an externality.
  • Customer satisfaction is important only to the extent that any lack thereof would impede future sales. This is less of a problem than you might think, as the consumerism contract is often fulfilled simply through the mere possession of the product. To express dissatisfaction is to attack the basic tenets of the delusion.
  • No producer has ever made a product any better than necessary, and succeeded in a mass market.

A far more troubling aspect than consumerism itself is the intentional process of establishing a new mindset and belief system in the collective public mind that is necessary in order for consumerism to succeed. The first step is to break down any existing value system and any cognitive skills which could thwart the marketing effort. This involves:

  • Suppression of the rational mind.
  • Suppression of personal responsibility.
  • Suppression of potential consequences arising from personal actions.
  • Prioritizing the needs and wants of the individual above that of society.

Once this mindset is established, the misguided mind (or perhaps unguided mind) is then ripe for destructive and brilliantly executed messages:

  • Exploitation of existing rational fears.
  • Creation and/or exploitation of irrational fears.
  • Creation of unrealistic expectations.
  • Creation of an unrealistic sense of entitlement, assuming entitlement is not itself unrealistic.
  • Creation of a false sense of abundance, both generally and personally.
  • Creation of false needs and continuously advancing those false needs.
  • Denigration of anything which is old or "obsolete" be they physical items or societal values.
  • Assertion that "standard of living" equates to “quality of life".
  • Intentional avoidance of anything implying restrictions, limits or boundaries.
  • Assertion that consumption equates to living well. Replacement of a possession needs only the most trivial of justifications.

Generally, anything which is "unpleasant", i.e. reality, is ignored or discounted.

In this Alice in Wonderland existence, the oft-used economic term “discretionary spending” is perhaps the most telling. The term now only addresses where the money will be spent, not if it will be spent. Considering that personal savings in the USA are at the lowest level since 1933, and credit card debt is out pacing income growth by over 150%, this assumption seems to have merit. In the world of consumerism, spending involves little or no real discretion, to the extent that the spending is not determined by any available funds after essentials are covered, but by the spender’s available credit. This is a testament to the success of the above campaign.

A byproduct of this barrage, in concert with reduced education standards and poor parenting is the reduction of key skills such as literacy, numeracy and critical thinking. This loss of abilities that are essential to self-direction further advances the decline.

The damage to the quality of life, both for the individual and the society is enormous. This has taken several forms;

  • The goal of consumerism is to reduce an individual, or limit a developing individual to a developmental stage somewhere between infancy and adolescence, thereby limiting or eliminating any opportunity for true self-actualization.
  • In the ongoing, frantic drive for ersatz success, parental responsibilities have been neglected or ignored, and influence from the extended family has been greatly reduced. Through these multi-generational actions we have all but lost any contact with, or access to, key values and knowledge which will be critical to our upcoming survival needs.
  • Further, reduction or elimination of these positive parental influences has severely impaired the very capacity needed to expose and counteract the above fantasy world. Indeed, once the first generation that is in a state of arrested development starts parenting, the process is almost self-sustaining. We have lost our culture of symbiotic mutual self-interest.
  • Once the link between material acquisition and so-called fulfillment is forged, the consumer is placed in a never-ending destructive cycle, resulting in sustained discontent, emotional imbalance, and often depression. As the victim is rarely able to discern the error in the underlying premise, correction of this psychopathy often requires professional treatment.
  • True social interaction, the sense of self-worth and the sense of place that comes from existing in a community has been largely lost.
  • Consumerism has achieved a Nirvana where shopping is now a recreational activity in and of itself, irrespective of any real need or the means to support the purchase.

As damaging as the above is, I feel that the biggest loss of all has been perpetrated by the insidious repackaging and promotion of negative values by presenting them as positive attributes. While many of these labels have some merit in a rational environment, they should not be confused with the doublespeak that has permeated the present skewed society.

  • “Rights”, are foisted upon us with no mention of the accompanying responsibilities (see Entitlement below).
  • "Empowerment", is in reality selfishness.
  • "Liberation", is in reality sanctioned irresponsibility.
  • "Independence", is in reality denial of the individual as a part of the society.
  • "Entitlement", is in reality the disconnection of reward from effort or accomplishment.
  • "Self Worth", is in reality egotism.
  • Obfuscation of the difference between "quality of life" and "standard of living" completely ignores the very real emotional and spiritual needs of a society and the individual.
  • The trivial is exalted as important and anything of depth is ignored or met with vacuous stares. Dysfunctional behaviour is celebrated.

True, healthy values have been palmed and replaced with false, unhealthy ones. This bit of legerdemain puts control in the hands of the magicians and quashes the very attributes that they purport to provide. This is slavery sold as emancipation. I see little difference between this conduct and drug dealers that present their product as a solution to one’s woes.

Psychologists have shown that an individual raised without limits or boundaries becomes a very unhappy and insecure person. Further, I believe that there is an intrinsic drive in a developing child to establish a framework and belief system unconsciously. He or she is akin to a sponge, which through the laws of physics has no choice but to soak up water, regardless of whether it is mountain spring water or sewage.

One could question how responsible the individual is for this situation, but it is largely moot or at least a starting point for another discussion. There is a lot of blame to go around. We are where we are, with a lot of deluded and damaged people on the loose.

All of the above is little more than preamble, as the key question is still “How will we behave when we are told no?” As I mentioned, the length and success of the adjustment period is dependent on how we choose to adapt. A deeper question is, how adaptable are we really? This is a question that I do not have the experience or knowledge to answer but it begs some fundamental questions about human development. Allow me to explain.

During the stages of an individual’s development, there are windows of opportunity during which physical, emotional and cognitive attributes are established. Outside these windows, development of a given attribute is more difficult and in some cases impossible. This has been clinically shown for the immune system, sight, speech, spatial orientation and motor skills to name a few.

In practical terms, we are not the same generation or even the same grounded society that was largely agrarian and accustomed to physical labour, which survived the hard scrabble existence of the great depression. We have neither the experience nor a point of reference. Whereas those entering the depression were faced with a new reality, many of us must first confront reality at the same time that reality is in great flux. This does not bode well for the future.

So, will the population that has been kept in a state of dependency and adolescence be physically able to reject these artificial, but nonetheless entrenched beliefs and develop the skills that were denied them during their critical development periods or will those neural pathways be inaccessible?

In simpler terms, will we see petulant children or mature adults face the challenges?

The answer to this question will be the difference between discomfort and not surviving. It will play a big part in how the endgame of peak oil, overpopulation and climate change is played out.

Regardless of what physical solutions may or may not exist, denial, disbelief and ignorance must be conquered before anything else has a hope of succeeding. If this adjustment period is protracted, it will waste valuable time that we can little afford.

It’s time to wake up, and grow up.