4 ms·

I think you mean Michael Lewis. As for the price of oil and GDP cycles. I am not sure I understand your point. Can you please elaborate? First world economies

by amykyta 12y ago

I think you mean Michael Lewis. As for the price of oil and GDP cycles. I am not sure I understand your point. Can you please elaborate? First world economies are more based around services than industrial production at this point, so while oil is still a hugely important commodity, there have clearly been structural changes in what comprises world GDP.

dredmorbius 12y ago
Yes, thanks, corrected. There's a set of heterodox economic schools which hold that it's principally energy which is responsible for economic growth, and specifically the abundance, const, and convenience of that energy. Hydrocarbons, especially liquid hydrocarbons, are a spectacularly convenient form and store of energy. Electricity is a useful form of energy, though it's not particularly storeable. This has been suggested and explored by numerous economists and others since the early Industrial Revolution, notably: William Stanley Jevons (The Coal Question (1865)), US Navy Rear Admiral Hyman G. Rickover, Kenneth Boulding, Nicholas Georgescu-Roegen, Charles Odum, Charles A.F. Hall, and others. Generally, "thermoeconomics", "biophysical economics", or "ecological economics". Decoupling of energy (and resources generally) from GDP growth has been argued by numerous authors, though I find their case unconvincing. It's been argued against by others. Global GDP vs. primary energy consumption shows a pretty strong correlation, and I find the causality argument plausible: http://i.imgur.com/42I4Jmf.png http://i.imgur.com/42I4Jmf.png (from Wolfram+Alpha). Yes, efficiency has improved, but so has overall consumption: http://i.imgur.com/Hu0NWsI.png http://i.imgur.com/Hu0NWsI.png As for oil and GDP cycles: my point is that while the price and supply of oil were highly stable, GDP variation was very regular. As oil price and supply began to vary, GDP stability went all to heck.
- lifeisstillgood 12y ago
  Just to check - I have long assumed that real "value/wealth" was created through more efficient use of energy / discovery new sources energy (chimney / coal) Is that the jevons / Rickover etc argument?
  - dredmorbius 12y ago
    I don't have a full or easy answer to that myself yet. Real value (as opposed to financial value) is created by re-structuring your environment to provide more useful services. A huge problem with existing economic theory is the failure to account for stock depletion in natural resources (there are other problems, but that's a biggie). So while you can convert stuff in the ground to cash in hand, what you haven't done is to increase your total wealth. You've exchanged your physical stock for financial purchasing power. You can use those stocks to create more value, but in the case of energy tend to consume it in the process (materials can often be recycled). You can look at the economic value created by a quantity of energy -- I've done some exploration of this in terms of $billion GDP/quad (quadrillion BTU energy) or $/barrel: http://redd.it/1vlksg http://redd.it/1vlksg One way of considering a barrel of oil is in how much economic benefit you get from it. In various countries: US: $1022 China: $528 Japan: $1678 Syria: $498 Egypt: $441 India: $493 Germany: $1465 UK: $1586 Switzerland: $2792 Mali: $4425 Note that industrialized nations tend to get $1000+ per barrel, nonindistrialized ones (Mali excepted) $400-500 or so. Oil's been running around $100 - $120/bbl the past couple of years. That means the US sees about $9 in returns for each dollar spent on oil, Switzerland nearly $27. Mali sees a large nominal return, but both its GDP and oil consumption are minuscule. Egypt's in much worse shape: $3.41 in returns per oil dollar spent. India's slightly better ($3.93), China a bit above that ($4.82). But all are running on pretty thin margins. Increased oil prices will push a lot of marginal uses out of reach, and likely shrink their economies markedly. Note that Egypt and Syria in particular are two nations undergoing pronounced unrest -- and which have also recently gone from net exporters to importers of oil. This is a transition described by the Export-land model (https://en.wikipedia.org/wiki/Export_Land_Model https://en.wikipedia.org/wiki/Export_Land_Model). Yes, increasing your efficiency of energy use is one way to increase wealth, but accessing more (or cheaper) energy is another route. You don't have to be more efficient.
    - lifeisstillgood 12y ago
      Stock depletion seems like an odd issue in this context - if energy available is a form of value then the laws of thermodynamics basically make everything zero sum So I would say that turning coal into kinetic energy in a train is an increase in wealth / value for humans. The externalities do need to be accounted for and minimised (climate ch age etc) but otherwise we cannot measure value increase in this seemingly useful way

by amykyta 12y ago

dredmorbius 12y ago

Yes, thanks, corrected. There's a set of heterodox economic schools which hold that it's principally energy which is responsible for economic growth, and specifically the abundance, const, and convenience of that energy. Hydrocarbons, especially liquid hydrocarbons, are a spectacularly convenient form and store of energy. Electricity is a useful form of energy, though it's not particularly storeable. This has been suggested and explored by numerous economists and others since the early Industrial Revolution, notably: William Stanley Jevons (The Coal Question (1865)), US Navy Rear Admiral Hyman G. Rickover, Kenneth Boulding, Nicholas Georgescu-Roegen, Charles Odum, Charles A.F. Hall, and others. Generally, "thermoeconomics", "biophysical economics", or "ecological economics". Decoupling of energy (and resources generally) from GDP growth has been argued by numerous authors, though I find their case unconvincing. It's been argued against by others. Global GDP vs. primary energy consumption shows a pretty strong correlation, and I find the causality argument plausible: http://i.imgur.com/42I4Jmf.png http://i.imgur.com/42I4Jmf.png (from Wolfram+Alpha). Yes, efficiency has improved, but so has overall consumption: http://i.imgur.com/Hu0NWsI.png http://i.imgur.com/Hu0NWsI.png As for oil and GDP cycles: my point is that while the price and supply of oil were highly stable, GDP variation was very regular. As oil price and supply began to vary, GDP stability went all to heck.

lifeisstillgood 12y ago
Just to check - I have long assumed that real "value/wealth" was created through more efficient use of energy / discovery new sources energy (chimney / coal) Is that the jevons / Rickover etc argument?
- dredmorbius 12y ago
  I don't have a full or easy answer to that myself yet. Real value (as opposed to financial value) is created by re-structuring your environment to provide more useful services. A huge problem with existing economic theory is the failure to account for stock depletion in natural resources (there are other problems, but that's a biggie). So while you can convert stuff in the ground to cash in hand, what you haven't done is to increase your total wealth. You've exchanged your physical stock for financial purchasing power. You can use those stocks to create more value, but in the case of energy tend to consume it in the process (materials can often be recycled). You can look at the economic value created by a quantity of energy -- I've done some exploration of this in terms of $billion GDP/quad (quadrillion BTU energy) or $/barrel: http://redd.it/1vlksg http://redd.it/1vlksg One way of considering a barrel of oil is in how much economic benefit you get from it. In various countries: US: $1022 China: $528 Japan: $1678 Syria: $498 Egypt: $441 India: $493 Germany: $1465 UK: $1586 Switzerland: $2792 Mali: $4425 Note that industrialized nations tend to get $1000+ per barrel, nonindistrialized ones (Mali excepted) $400-500 or so. Oil's been running around $100 - $120/bbl the past couple of years. That means the US sees about $9 in returns for each dollar spent on oil, Switzerland nearly $27. Mali sees a large nominal return, but both its GDP and oil consumption are minuscule. Egypt's in much worse shape: $3.41 in returns per oil dollar spent. India's slightly better ($3.93), China a bit above that ($4.82). But all are running on pretty thin margins. Increased oil prices will push a lot of marginal uses out of reach, and likely shrink their economies markedly. Note that Egypt and Syria in particular are two nations undergoing pronounced unrest -- and which have also recently gone from net exporters to importers of oil. This is a transition described by the Export-land model (https://en.wikipedia.org/wiki/Export_Land_Model https://en.wikipedia.org/wiki/Export_Land_Model). Yes, increasing your efficiency of energy use is one way to increase wealth, but accessing more (or cheaper) energy is another route. You don't have to be more efficient.
  - lifeisstillgood 12y ago
    Stock depletion seems like an odd issue in this context - if energy available is a form of value then the laws of thermodynamics basically make everything zero sum So I would say that turning coal into kinetic energy in a train is an increase in wealth / value for humans. The externalities do need to be accounted for and minimised (climate ch age etc) but otherwise we cannot measure value increase in this seemingly useful way