Our Finite World asks if we are headed for a lower standard of living in the world?   This piece by Gail Tverberg is well worth a read but here are some highlights.

The amount of oil that is extracted from the ground each year has been close to flat since 2005, regardless of what has happened to price. Since world population has been growing, this means less and less is available for each person. We use oil in many important ways, including growing food, manufacturing and transporting goods, and in some parts of the world, heating homes. There is a clear tie of oil with standard of living. If we have less oil, the tendency is for people’s standard of living to drop.

 

 

The “natural” approach for fixing this problem is recession and debt defaults. With limited oil supply, oil prices rise. As oil prices rise, the higher prices leave less funding for everything else, because oil is important for many necessities–food and commuting expenses particularly. A person who pays more for food and commuting expenses will cut back on discretionary spending. This leads to layoffs in market segments affected by cutbacks in discretionary spending–especially construction of new homes, building of cars, restaurant spending, and donations to charitable organizations. Those laid off tend to default on loans. Others default as well, especially those who were living “at the edge,” before oil prices rose.

The government tries to fix the problem by “stimulus,” and temporarily “fixes” the situation. This temporarily hides the situation in the governmental sector. What happens, though, is that the government finds itself with increasing debt levels because of its stimulus efforts, and inadequate taxes, because so many have been laid off work, and are not contributing to the tax base.

All of this leads to governmental debt problems, including the United States’ problems with debt limits, and the problems many European countries are having with debt.

How does all of this get fixed? Basically, what the natural system does is push us towards a lower standard of living.

The author suggests several alternative remedies to mitigate human suffering in a world with high oil prices , but all lead to either a lower standard of living globally or regionally, the risk of a resource war, do not address the problem in any reasonable time frame, or are unlikely to occur (e.g. mandated global family planning).   The author concludes:

It is hard to see that any of these approaches will lead to very satisfactory outcomes, in short enough time frames. Ultimately, we are all likely to find ourselves with lower standards of living. This is something governments find it very difficult to talk about and plan for. Perhaps if we could start facing up to the real issues we are dealing with, it would be easier to find mitigations for our problems.

In related posts, Gail discusses the link between Peak Oil and Peak DebtPart 1 here.  Part 2 here.

 

 

Tags: , , ,