Its a fact that our nation's wealth is dependent on the continued growth of our economy. The growth of our econmy is dependent on a constant stream of natural resources.

So I found this report by the UN very interesting:
http://www.unep.org/resourcepanel/Publications/Decoupling/tabid/56048/Default.aspx

Quote :

"By 2050, humanity could devour an estimated 140 billion tons of minerals, ores, fossil fuels and biomass per year – three times its current appetite – unless the economic growth rate is “decoupled” from the rate of natural resource consumption. . . . . . . . . . . Already the world is running out of cheap and high quality sources of some essential materials such as oil, copper and gold, the supplies of which, in turn, require ever-rising volumes of fossil fuels and freshwater to produce. Improving the rate of resource productivity (“doing more with less”) faster than the economic growth rate is the notion behind “decoupling,” the panel says. That goal, however, demands an urgent rethink of the links between resource use and economic prosperity, buttressed by a massive investment in technological, financial and social innovation, to at least freeze per capita consumption in wealthy countries and help developing nations follow a more sustainable path. "

and some other evidence I found convincing


http://www.theoildrum.com/node/7853



-I know any type of "peak" resources argument can be controversial, what evidence do you have refuting or supporting it? The evidence I posted seems to show that many resources are going to become increasingly scarce as well as competition for those resources is only expected to increase

-How can we decouple our economic growth from commodity demand (This could be social, economic etc)? Do you think the new scarcity/competition for commodities is playing any role in our current recession?

7/10/2011 5:25:19 PM

Well, it seems logical to think that at some point commodities will become so expensive that it will start being insanely profitable to recycle pretty much everything, which would lead to better recycling technology.

So basically the same shit they've been telling us for decades.

7/10/2011 9:20:45 PM

The magnitude and implications of the 2000s commodity boom are understated or simply unknown by almost everyone out there.

It is truly amazing the scale of escalation of prices we witnessed during that time period. But possibly more concerning is the snap back from the recession price levels. Almost every price in history has shown a "new paradigm" to later crash, but I'm not so sure about this one, considering that it is so global and so massive.

I think it's likely that the underlying driver is the industrialization of a large fraction of the world. I think we might be seeing the endgame for globalization, although it might be a little premature to be saying that. Either way, for many things there is a definable ceiling for the demand, which is the point that everyone in the world is consuming similarly to Americans. The NATO countries also are going to have to change many things about how they live, and this does not sound easy to say the least.

I think the only thing that can really be said clearly is that if this commodity bubble continues to grow, then other things will fall. Real estate, for instance, can not support current price levels if oil continues to rise in price. The valuations are too spread out among sparsely populated suburban areas for that.

7/10/2011 9:49:47 PM

I agree with both you guys

as to recycling -- If it becomes the main source of our resources it still says a few things. Recycling is still energy intensive and can use a lot of water and I believe the point where it is possible on a very large scale is pretty expensive which is gonna be a drag on our economic growth.

I do think we are lucky that Americans have consumed so much in the past because our landfills may actually become valuable assets which is pretty interesting to think about.

Quote :

"I think we might be seeing the endgame for globalization, although it might be a little premature to be saying that."

This is what I've been thinking a lot about. I'm careful like you that the increasing prices could just be temporary but if its a real deal increase we are going to have to change a lot of our old assumptions.

The quicker and smarter America plans ahead of this curve the more competitive the next generation is gonna be, thus the "decoupling." I just don't think that America can play the old game and outcompete China, India, or Brazil.

7/10/2011 11:00:58 PM

Resource shortages have developed in the past and they have always subsided. Investors are pouring money into developing new mines and expanding existing ones, driving up production very quickly over time. Meanwhile, as China gradually becomes post industrial its resource consumption will flatten (as America's has been for decades). Rising production will eventually run into flattened demand, and prices will fall back.

7/11/2011 12:31:01 AM

Quote :

"as to recycling -- If it becomes the main source of our resources it still says a few things. Recycling is still energy intensive and can use a lot of water and I believe the point where it is possible on a very large scale is pretty expensive which is gonna be a drag on our economic growth."

Well this is why I'm an advocate of developing vast energy resources. By that I mean nuclear and renewables. The fact of the matter is that we will have tradeoffs between energy and materials and other environment destroying activities.

(and see "plasma torch arc")

I'd prefer an energy rich and material poor future. I think that's the best option for the Earth.

7/11/2011 8:37:42 AM

Quote :

"Resource shortages have developed in the past and they have always subsided."

In recent history perhaps, not so in history.

Quote :

"Investors are pouring money into developing new mines and expanding existing ones, driving up production very quickly over time"

The problem is that as mining is expanded, the ores are usually of decreasing quality and require more energy and time to extract and are therefore more expensive -- creating a drag on economic growth (or making them not worth mining at all). In some cases we have also seen that even new investment in infrastructure to extract new resources is not enough to offset the dwindling supply from old mines to keep pace with demand (the "peak" resources idea, I believe Oil and coal both are beyond or near peak)

Quote :

"Meanwhile, as China gradually becomes post industrial its resource consumption will flatten (as America's has been for decades)."

I agree, maybe within this decade? The trouble is that even if their growth stops and they only maintain their new wealth and standards of living that is still a huge increase in world demand for resources. Then tack on the other countries that are trying to follow in their footsteps; demand is only going to increase IMO atleast if we continue with the status quo system.

Quote :

"Rising production will eventually run into flattened demand, and prices will fall back. "

The argument I'm making is that production is not going to rise significantly, atleast not for all commodities, specifically those that are energy related and some of the more important metals.

Quote :

"Well this is why I'm an advocate of developing vast energy resources. By that I mean nuclear and renewables. The fact of the matter is that we will have tradeoffs between energy and materials and other environment destroying activities."

Energy is what the entire "technology" debate hinges on. I agree that we humans are pretty damn smart and with enough energy we can continue to extract and manufacture our wealth for nearly forever (mining the ocean, fighting climate change etc etc etc) and we could continue, with some slight changes, with the status quo.

But technology answers are just unacceptable to me currently. Some of it I can admit is personal bias. I tend to think this line of thinking is how we got here in the first place (I prefer "appropriate technology"). Still I think we can agree that renewables, even if major investments are made to their establishment, are only going to be able to supply us with a fraction of the energy that fossil fuels supply. Nuclear is more capable but uranium supplies are somewhat up in the air with a few forcasting shortages while many others saying reserves could last at the very least into the next century, not to mention the other hurdles it has to clear.




[Edited on July 11, 2011 at 9:49 AM. Reason : .]

7/11/2011 9:22:41 AM

Quote :

"The problem is that as mining is expanded, the ores are usually of decreasing quality and require more energy and time to extract and are therefore more expensive"

But not ten times more, which is how much the price has increased. The price is currently being set by the cost to acquire yet another ton of material, which requires digging new mines hiring workers and buying mining equipment, not the cost of producing the same amount as last year, which only requires paying salaries to existing workers and performing maintenance.

And the high prices are working:

7/11/2011 9:32:47 AM

Quote :

"But not ten times more, which is how much the price has increased. The price is currently being set by the cost to acquire yet another ton of material, which requires digging new mines hiring workers and buying mining equipment"

Thats the point I was trying to make, sorry if it wasn't clear. The cost to acquire another ton of material is more expensive since it requires more energy and time to extract (because the ore is deeper, or of less quality and needs more refining etc). I wasn't trying to say we won't extract the resource because of the expense (it will all become economically viable assuming limitless energy) only that the increasing price will create a drag on the economy, one that we haven't seen in recent history. The 10X increase in probably mostly due to the increasing demand.


and yes the increasing price of oil may have made some areas of US production more viable, but as global demand for oil has increased, WORLD oil production has remained flat since around 2005.

7/11/2011 10:23:05 AM

Quote :

"But technology answers are just unacceptable to me currently. Some of it I can admit is personal bias. I tend to think this line of thinking is how we got here in the first place (I prefer "appropriate technology"). Still I think we can agree that renewables, even if major investments are made to their establishment, are only going to be able to supply us with a fraction of the energy that fossil fuels supply. Nuclear is more capable but uranium supplies are somewhat up in the air with a few forcasting shortages while many others saying reserves could last at the very least into the next century, not to mention the other hurdles it has to clear."

Sorry if I'm rehashing tired points here, but regarding an abundant energy future from nuclear power, we already know what we need to do. I'm technology agnostic to this, but plenty of people think Thoirum is like the fairy dust of energy sources. The Uranium tailings, which Terrapower wants to use, would power future nuclear plants 0.993/.7 times as much as what the past U-235 have done so far. That buys us a century of power, then you have the Uranium yet to be mined, then you have the seawater Uranium which would be economical with a Depleted Uranium cycle. At this point, we're talking about over 1000 years at current energy use, and then multiply that by another factor for how long Thorium could power us.

Yes, it's hard to build the plants that could do this, but if we do, it scales relentlessly.

I also think it's wrong to say that renewables could never match fossil fuel power. There are a lot of bogus ideas out there, like space-based solar power, but a technology switch from the "dumb" ways we use renewables now can be a game changer. Both high altitude (tethered) wind and solar has great potential.

More pragmatically, we need to look at projects like those seen in ARPA-E, most of which can be major but fall short of game-changers. Unfortunately, it seems that we need to accept higher prices and let that fuel the slow grind of energy innovation.

7/11/2011 10:35:57 AM

Quote :

"I wasn't trying to say we won't extract the resource because of the expense (it will all become economically viable assuming limitless energy) only that the increasing price will create a drag on the economy, one that we haven't seen in recent history"

You are incorrect. You would be right if you said rising commodity prices will result in a drag on our standard of living, but there is no reason why high (but stable) commodity prices would slow the economy and produce unemployment.

If resource extraction is genuinely becoming difficult, then we will all find work in the mines and oil fields. Each of us would be poorer than we would be if prices were low, but we should not be out of work.

7/11/2011 12:24:13 PM

^^Admittedly I'm pretty ignorant about the future of Nuclear Energy. I understand it has a lot of potential, but it just doesn't seem like any of that is being realized. There are obviously a lot of complications and it seems like there are a huge number of steps that would need to occur in order for it to carry the ever increasing energy demands. As we get more desperate, things could fall into place, I'm just not holding my breath.

Take that opinion with a grain of salt though. Like I said I'm biased (for various reasons) towards a more low-energy future than what we currently live in.

Does this mean that you envision a future where we are forced to slowly transition to Nuclear supplemented with renewables but are able to atleast live lifestyles that somewhat similar to the present? You mentioned that you thought globalization could be on its way out (eventually), I usually associate this with a lack of energy to move goods globally, but why couldnt small thorium (Molten salt?) reactors be put on cargo ships? What was your reasoning for saying that.


As far as renewables I think they are going to become more important, and I welcome them, but barring some big leap in technology (specifically I'm thinking solar efficiency) I don't see them as being able to replace fossil fuels, atleast not in totality. The high-altitude stuff just seems a little pipe-dreamy to me. For them to be built on that scale we have to start talking about rare metal availability etc.



^yeah I suppose I meant our standard of living. But isn't our standard of living connected with the growth of the economy (I realize this isn't true in all cases)? If we all become poorer working in the mines (nevermind being replaced by robots) then who will have the money to buy the goods that are being produced (made from the resources we extract). Fewer consumers, or less consumer buying power, means a slowed economy.



[Edited on July 11, 2011 at 12:44 PM. Reason : ?]

7/11/2011 12:36:53 PM

^^ I often wonder this for just about everything that causes unemployment. Your argument is logically true, but when oil prices spike companies keep talking about how they have to cut back. This often comes in the form of laying off people because if you are a business that uses the commodity as a necessity (like a plastics manufacturer) then you can't cut back on oil, you have to cut back on people.

I feel like this argument was made on a major scale in 2008 (on the entire US economy scale). The increase in the price of oil squeezes balance sheets and we should all understand what that leads to. But your economic argument would possibly mean that that loss of jobs would be made up with job gains in the extraction industry. If not there, then the profits create wealth that stockholders absorb, when would hopefully someday create more jobs.

Of course, this is an incomplete example since the US is a petroleum importer (not sure about commodities as a whole). So jobs lost here would mean jobs gained overseas, and then hopefully we'll console ourselves with some vague notion of re-balancing that may or may not eventually occur and bring jobs back.

I tend to think there is a tradeoff between jobs and purchasing power. Nations can use policy to shift the balance one way or the other, and the mercantilism policies of major exporters like China and Germany can be said to be punishing consumers in favor of workers. I might be getting slightly off topic here...

But I think the same arguments that we make for the trade balance today can be made for the inter-generational trade balance, although I'm not sure how much we should expect that to influence or not influence employment. Let's say that we're talking about pricing in depletion of resources, so we choose to tax extraction industries. That could be similar to taxing imports (generic external economic source), which would lead to lower quality of life but ideally more jobs as people are employed doing activities that would use labor to replace oil (like efficiency). Whether or not this translates into unemployment is disputable, but either way it represents a transfer of wealth/power between the capital and labor markets, which can easily translate into unemployment.

Oh my I talk about macroeconomics too much.

[Edited on July 11, 2011 at 12:47 PM. Reason : ^]

[Edited on July 11, 2011 at 12:50 PM. Reason : ]

7/11/2011 12:47:29 PM

Quote :

"Admittedly I'm pretty ignorant about the future of Nuclear Energy. I understand it has a lot of potential, but it just doesn't seem like any of that is being realized."

This is probably about the most obvious fact on Earth about nuclear energy, yes.

Quote :

"Take that opinion with a grain of salt though. Like I said I'm biased (for various reasons) towards a more low-energy future than what we currently live in."

I love to play devil's advocate to this argument. What does a low-energy future imply? If it implies more environmental harm, then are you still biased in that direction? My position is significantly influenced by my perceptions of the position we're in. Forget climatic stability (which is certain eventual destruction), look at the biological stability of the Earth we live in. I think there's a good case to say that we to develop the power to green the deserts and create acropolis-like new ecosystems, because lord help us there won't be much left of what we have now. You think low-energy future works in the vision? Oh heck no.

However, if your statement of "low-energy" is only an observation of how our energy industries are progressing, then I agree. The gap here is between what I think we should be doing and what we are doing. We probably are headed toward a low-energy future. And that kind of scares me.

Quote :

"Does this mean that you envision a future where we are forced to slowly transition to Nuclear supplemented with renewables but are able to atleast live lifestyles that somewhat similar to the present? You mentioned that you thought globalization could be on its way out (eventually), I usually associate this with a lack of energy to move goods globally, but why couldnt small thorium (Molten salt?) reactors be put on cargo ships? What was your reasoning for saying that."

I shouldn't need to argue why molten salt reactors aren't needed for ships, as current technology is more than sufficient. Ships are a size well suited for how we can build "conventional" reactors today. Ships, either way, are very efficient and necessary for commerce. The "fat" to be cut out will be more pronounced in terms of lifestyle (daily transit) and quantity of materials consumed in goods.

I don't think globalization is on it's way out. I think globalization may be approaching maturity. I also kind of take that back. Our imaginations fail us when considering what is socially possible with current technology.

Quote :

"As far as renewables I think they are going to become more important, and I welcome them, but barring some big leap in technology (specifically I'm thinking solar efficiency) I don't see them as being able to replace fossil fuels, atleast not in totality. The high-altitude stuff just seems a little pipe-dreamy to me. For them to be built on that scale we have to start talking about rare metal availability etc."

I think you make too many jumps here. Renewables, and wind in particular, are about to be slammed by diminishing marginal returns. Ask any expert about the sustainability of wind farm additions in the middle of the country. But because the resource is so plentiful, revolutionary technologies have a whole lot of value to grab. Scaling up current wind and solar is a dead end IMHO.

7/11/2011 1:09:47 PM

Quote :

"What does a low-energy future imply? If it implies more environmental harm, then are you still biased in that direction?"

environmental harm is one of the reasons I'm biased toward low-energy but not the only one. I have a hard time imagining how high energy would be better in this regard.

Quote :

"My position is significantly influenced by my perceptions of the position we're in. Forget climatic stability (which is certain eventual destruction), look at the biological stability of the Earth we live in. I think there's a good case to say that we to develop the power to green the deserts and create acropolis-like new ecosystems, because lord help us there won't be much left of what we have now. You think low-energy future works in the vision? Oh heck no. "

I may be underestimating climate change but I think there will be enough left to provide for us. I don't have a lot of faith in our ability to engineer new ecosystems that are as productive or resilient as naturally occurring systems. Greening the deserts is an interesting example. I would argue that low-energy permaculture has been shown to be productive and more sustainable than large energy intensive projects (with extensive irrigation, etc)

7/11/2011 3:35:55 PM

Quote :

"^^ I often wonder this for just about everything that causes unemployment. Your argument is logically true, but when oil prices spike companies keep talking about how they have to cut back...But your economic argument would possibly mean that that loss of jobs would be made up with job gains in the extraction industry. If not there, then the profits create wealth that stockholders absorb, when would hopefully someday create more jobs."

The opportune word I used was "stable". Instability or uncertainty are job killers. If the price of a commodity shoots up 10x, more has happened than a price increase. Systemic stability has been lost. As such, investors don't know what to do. The price spike may be temporary, it may be permanent, no one knows so everyone sits on the sideline and wait. Not only are businesses dependent upon cheap oil going out of business, but businesses dependent upon expensive oil are not taking their place. However, as time passes and people become confident what prices will be going into the future, investment will return and so will employment.

Let us consider a worst case scenario, such as Japan, which has no resource production of its own. As oil prices rise, consumers spend more of their income for energy and less for everything else. Local industries have less income and shrink, laying off workers. No domestic oil industry exists, so no new jobs there can be created. However, as imports as measured in Yen have increased, a trade deficit has developed. As Yen denominated securities build up overseas, exchange rates adjust causing Japanese goods to become relatively cheaper, causing foreigners to purchase more Japanese goods. The added demand for Japanese exports will cause Japanese industry to grow, eventually closing the trade deficit and restoring full employment. Keeping in mind although the Japanese are fully employed, all of them are absolutely poorer as their pay checks are buying less stuff for the same amount of oil.

[Edited on July 11, 2011 at 4:08 PM. Reason : .,.]

7/11/2011 4:05:23 PM

Quote :

"Japanese goods to become relatively cheaper, causing foreigners to purchase more Japanese goods."

The problem here is that shipping goods around the world is going to become much more expensive as energy prices increase eating into Japan's ability to trade.

I think you overestimate foreigners ability to find work in the extraction industry. Foreigners will be suffering under high energy prices too, their buying power will also likely diminish.

7/12/2011 10:27:39 AM

Quote :

"The problem here is that shipping goods around the world is going to become much more expensive as energy prices increase eating into Japan's ability to trade."

It burns about as much fuel to ship a ton of cargo a thousand miles as it does to truck that same ton twenty miles across town.

Quote :

"I think you overestimate foreigners ability to find work in the extraction industry. Foreigners will be suffering under high energy prices too, their buying power will also likely diminish."

Eh? Are you suggesting the buying power of oil well owners falls when the price of oil increases? Saudi Arabia's exports, measured in terms of dollars, grows when the price of oil increases, so unless they decide to burn all the money they are making they must do something with it, either import goods/services from overseas or invest the money overseas. Either way, the demand is there, Japan just needs to serve it to restore full employment.

7/12/2011 10:48:52 AM

^ Indeed, the oil extraction industry is very capital intensive and highly illiquid. Famously, look at how much production budged in response to the ballooning and complete cratering of the price in 2008.

The vast vast vast majority of short term changes in price goes to the revenue of the stakeholders. Some of that will be directly reinvested into extraction (lol, probably very little), then much more will be reinvested generically into the capital markets, and then some will be spent. To buy themselves something nice.

7/12/2011 11:24:45 AM

The buying power of oil owners or those that have invested in it doesn't diminish but the rest of the world's does. Those that stand to profit from increased energy prices are a small minority compared to those that can profit during falling energy prices. I'd argue that concentrated wealth does not produce the same amount of demand that a more evenly spread wealth does. In this way a vast majortiy of the foreigners that are driving the Japanese economy (The world's middle class) are going to feel the energy pinch just like the Japanese and have diminished buying power.


also

A cargo ship is more fuel efficient than a truck until it gets to port, where it still has to go through the same distribution lines as a factory trucking goods across town. So you are talking about a truck trip vs a truck trip + a cargo ship trip

7/12/2011 12:41:43 PM

Quote :

"I'd argue that concentrated wealth does not produce the same amount of demand that a more evenly spread wealth does."

Why? An instantaneous rise in the price of oil is nothing but a transfer of dollars from oil buyers to oil sellers. No money is destroyed in the transfer. As such, World GDP is unchanged, all that changes is who gets to consume that GDP. Oil consumers will consume less, but every dollar of consumption they lose is gained by oil producers. Unless they burn the money, they must do something with it, and what they do with it is the demand needed to restore employment.

Quote :

"A cargo ship is more fuel efficient than a truck until it gets to port, where it still has to go through the same distribution lines as a factory trucking goods across town."

Not true. This was exactly the reason why manufacturing was centered in coastal cities: if the factory is right next to the port, no need for expensive horses to pull it across country, just load it onto the boat and move it more cheaply from San Francisco to Tokyo than it can be moved to San Jose.

7/12/2011 2:08:28 PM

Quote :

"Why? An instantaneous rise in the price of oil is nothing but a transfer of dollars from oil buyers to oil sellers. No money is destroyed in the transfer. As such, World GDP is unchanged, all that changes is who gets to consume that GDP. Oil consumers will consume less, but every dollar of consumption they lose is gained by oil producers."

Middle class oil consumers have an increased marginal propensity to consume compared to the rich oil producers. A much larger portion of the wealth that the middle class creates (from using energy) is turned around and used for consumption in the economy. This is not true of a minority of rich oil producers who have a lower propensity to consume. Its the difference between the world economy creating 1,000 yachts a year versus 1,000,000 small runabouts a year.

Quote :

"just load it onto the boat and move it more cheaply from San Francisco to Tokyo than it can be moved to San Jose. "

The difference I was trying to represent would be a factory trucking goods from San Fran to San Jose vs a factory in Tokyo shipping goods to San Fran and then trucking them to San Jose. Cargo shipped on boats still has to be distributed once it reaches the port.

7/12/2011 2:58:00 PM

Quote :

"This is not true of a minority of rich oil producers who have a lower propensity to consume."

It does not matter what the money is spent on. Money the Saudi's spend on consumables will most likely be imported from China. Money not spent on consumables, such as spent on investments, will go to Japan to make whatever it was the Saudi's invested their money into.

Quote :

"The difference I was trying to represent would be a factory trucking goods from San Fran to San Jose vs a factory in Tokyo shipping goods to San Fran and then trucking them to San Jose. Cargo shipped on boats still has to be distributed once it reaches the port."

I have no doubt San Jose will trade less with Tokyo, since San Jose will be trading less with everyone, including San Francisco.

International trade will only grow with high energy costs. What will collapse is intra-national trade over land. If fuel prices go apocalyptic, any city that doesn't happen to either be on the coast or on a railroad line will die.

[Edited on July 12, 2011 at 4:10 PM. Reason : .,.]

7/12/2011 4:09:45 PM

Quote :

"International trade will only grow with high energy costs. What will collapse is intra-national trade over land. If fuel prices go apocalyptic, any city that doesn't happen to either be on the coast or on a railroad line will die."

Woah now. I am not quite familiar enough with the chain of economic inputs to be debating this effectively, but I think what you're talking about is an oversimplification of our infrastructure.

Is there any location that pays less for products due to proximity to shipping and transit hubs? I mean, sure there are small towns out there that may find themselves stranded, but currently, the cost of living is less there anyway. It would be a truly upside-down world to see port towns flourish comparatively due to shipping costs.

I mean, what you're saying is ignoring everything about modern distribution models. It doesn't matter who Walmart gets their stuff from, they're going to transport it to a monster distribution center, sort it, and then ship it back out in pieces. If we can't spend the fuel to do local distributions, then we can't sort the stuff ANYWAY!

7/12/2011 4:33:20 PM

The GMO Commodity Index includes soybeans, corn, and other agricultural commodities whose prices have increased in recent years, but this has not really been discussed in this thread. These increases concern me more than increases in the price of zinc and copper or even oil.

I am worried about ag commodities because the recent rise in their prices could be an indication of things to come as climate changes continues to take a toll on crop yields.
http://www.nytimes.com/2011/05/06/science/earth/06warming.html

If that is true, that means the cost of production using current methods will only increase with time (because lord knows no govt will take action to mitigate the problem). Maybe a new green revolution will change all that, but if it doesn't we will have to devote more and more land&resources to agricultural production (ignoring possible increased volatility in food production). That will create a clear drain on a standard of living. Who knows how large.

There is an interesting book called "The Little Ice Age: How Climate Made History", which describes the uneasy adjustments that were made to a previous climate event.

Executive Summary: Thames River Ice Fairs and Mass Starvation.

[Edited on July 12, 2011 at 4:54 PM. Reason : ``]

7/12/2011 4:51:54 PM

^^ MrFrog, you said it yourself: "modern distribution models." The relevant factor about distribution in the modern world is that energy is cheap. Walmart does not mind shipping the goods to distribution centers because doing so consumes cheap land and energy to conserve expensive labor. But energy has not always been cheap. 100 years ago energy was ungodly expensive. And in that world, cities did not exist that were not either on the coast or connected by rail to the coast. Goods were sorted right there at the port or rail head. The idea of shipping containers a hundred miles away to be sorted at a Walmart distribution center would have been absurd.

7/12/2011 5:30:43 PM

Quote :

"It does not matter what the money is spent on."

I'd argue that it does, specifically in regards to money velocity. Middle class spending on durable goods tends to increase money velocity in the economy creating a multiplying effect. The rich tend to invest a higher percentage of their money which takes more time to be reintroduced back into the economy.

GDP = the money supply x the rate at which it is exchanged. If we assume the money supply stays nearly constant then higher rates of exchange will produce a higher GDP. Don't misrepresent this as me hating on investing, any healthy economy balances investment (for future growth) and spending (for today's growth). While no one knows specifically where this balancing point is located I would argue that a rich minority would overinvest and create a suboptimal GDP.



^^Yeah Ag is an interesting problem and like you said probably more important than anything else being discussed. In the oil drum link in the OP there is some discussion about increasing prices as well as the increasing price of phospate and fertilizers.

I think the lowered yields from BIG Ag projects will eventually allow a more decentralized structure to take over -- where medium sized, less intensively farmed areas are more the norm, and there are a lot more of them, as well as more backyard vegetable gardens. Small time farmers may become a big portion of the new middle class (although I doubt they will be as rich as todays middle class) I think this type of system will be more resilient in the face of climate change as well.

[Edited on July 12, 2011 at 5:40 PM. Reason : .]

7/12/2011 5:39:00 PM

The federal reserve is responsible for regulating the money supply. If the structure of the economy changes to produce a lower over-all monetary velocity then temporary deflation will result until the federal reserve increases the money supply to compensate.

Recessions happen. They are also temporary. The current recession is an exception for reasons that have nothing to do with energy prices.

7/12/2011 6:02:15 PM

I don't believe the current recession had much to do with energy prices, but energy prices could hinder us from a speedy, full recovery. Wrapping back in with the OP, how are things going to change so that we can cope with this new reality?

Quote :

"If the structure of the economy changes to produce a lower over-all monetary velocity then temporary deflation will result until the federal reserve increases the money supply to compensate. "

Interestingly, the FED has increased the money supply to allegedly unprecedented levels, but velocity is still low and so our GDP has grown very little. The people with money are just sitting on it.

I think velocity has stayed low because
a) banks are backing away from some of the crazy financial products that used to be all the rage
b) and the uncertainty caused by the structure of our economy changing. The changing structure is being caused by the shift in natural resource prices and developing countries outcompeting us for them. (A new age of scarcity?)

7/13/2011 9:03:32 AM

Quote :

"Why? An instantaneous rise in the price of oil is nothing but a transfer of dollars from oil buyers to oil sellers. No money is destroyed in the transfer. As such, World GDP is unchanged, all that changes is who gets to consume that GDP. Oil consumers will consume less, but every dollar of consumption they lose is gained by oil producers. Unless they burn the money, they must do something with it, and what they do with it is the demand needed to restore employment. "

18th_century_conservative_economist.txt

7/13/2011 9:48:25 AM

^ Otherwise known as Adam Smith, perhaps?

7/13/2011 10:21:29 AM

I agree with LoneSnark's logic but i'd prefer GDP $'s staying in my community not buying skyscrapers in Dubai.

7/14/2011 5:11:05 PM

Nevermind. No time for this now.

[Edited on July 15, 2011 at 12:23 AM. Reason : .]

7/15/2011 12:23:06 AM