free html hit counter Peak Oil Debunked: 413. OIL SHOCKS DO NOT CAUSE GLOBAL RECESSION

Thursday, July 30, 2009

413. OIL SHOCKS DO NOT CAUSE GLOBAL RECESSION

As noted in the previous article, peak oil doomers constantly say that oil shocks (or high oil prices) inevitably cause economic recession. They produce graphs showing the coincidence of recessions with oil price spikes, and suggest that the historical record is unequivocal.

For some countries, like the US, their point is very true. However, consider the flipside: when the US is getting bled to death and recessing due to high oil prices, countries like Saudi Arabia and Russia are swimming in cash and growing like never before. The money that is sucked out of the US economy is diverted to and spent by oil exporting economies, and the result is a net wash in terms of global GDP. The global GDP doesn't care who spends the money, or where it is spent, or what it is spent on. In fact, there is no simple logical reason why an oil shock should cause global growth to halt or reverse -- a fact which has been noted by economists.

The actual statistics on world growth bear my point out. Here is a graph of world oil production from 1978 to 1994 (a period I like to call "The Big Glitch"; figures from the BP. Stat. Rev. 2007). Note that there was no net growth in oil production in the 14 years from 1979 to 1993.

This was a period which began with a huge oil shock, and some of the highest real oil prices in history (click to enlarge):

And yet world real GDP grew the entire time (figures from the World Bank's World Development Indicators Database):



This is further supported by the following Table of global real GDP 1950-2001 (P. 233, The World Economy, Angus Maddison; click to enlarge). Note that an oil shock has never caused global growth to even halt, let alone reverse:



If declining oil production and high oil prices cause recession, why didn't the world economy recess during the Big Glitch? The world economy grew steadily without any net growth in oil production for 14 years.

In fact, in the 1979-1993 period, the world produced far less than it would have produced in a 14-year production plateau:
And yet world growth continued, unimpeded. The peak oilers tell us that a plateau will have devastating effects on economic growth, because the economy can't grow without growth in oil production. And yet that did not happen during the Big Glitch, even though far less oil was produced than would have been produced in a plateau. On the global level, something is very wrong with their theory that oil shocks cause recession... what is it?
by JD

53 Comments:

At Thursday, July 30, 2009 at 4:53:00 PM PDT, Anonymous goofy said...

Kunstler, wrong yet again.

Wal-Mart Could Give Solar Energy Tremendous Boost

"Wal-Mart’s Solar Energy Experiment

Wal-Mart Stores (NYSE: WMT) is already evaluating the feasibility of installing solar energy panels on the roofs of its stores. Consider it “dipping a toe” in the water to check its temperature.

If an experiment involving a few stores pans out, Wal-Mart could decide to roll out panels to all of its stores. That’s about 35 square miles of surface area."

http://seekingalpha.com/article/152446-wal-mart-could-give-solar-energy-tremendous-boost?source=yahoo

we could be shopping at a power plant!

you could repeat this at every single big box store you could think of.

home depot
lowe's
grocery stores
target
best buy

any regional/local store in the same strip mall as the big box stores.

 
At Thursday, July 30, 2009 at 7:31:00 PM PDT, Blogger Ari said...

One interesting idea I saw proposed was having panels installed in parking lots on tops of canopies, then having plugs hooked up to the panels, allowing plug-in vehicles to charge.

My only concern is that with panel theft so rampant, some places wouldn't go for it due to the risk of loss being considerable.

But, then again, if panels get cheap enough, the motivation to jack them will also drop considerably.

 
At Thursday, July 30, 2009 at 8:15:00 PM PDT, Anonymous Benny "Boom, No Doom" Cole said...

I think there is a terrific parallel today. It would not surprise me if world oil consumption did not recover to 2007 levels for 15 years.
The good news is that by then, perhaps the huge, epic supplies of natural gas will be deployed into the global vehicular fleet.
It seems probable now that "Peal Oil" is a bust.
The Oil Era is ending, with a whimper, not a bang.

 
At Friday, July 31, 2009 at 7:33:00 AM PDT, Anonymous Anonymous said...

Good post JD.
I've been wondering about this too.
My position after examining the data and thinking about it is that it's an excess of demand caused by some kind of runaway bubble (sometimes called a "mania") that causes runups in price that cannot be maintained. At some point the mania cannot be sustained (taxi drivers and cleaners giving you stock tips about oil stocks - meaning there are no more suckers left to bid the price higher) and the bubble collapses.

In this particular case, it's obvious why oil prices were forced so high: unlike the internet boom which was not so physical capital intensive, the housing boom involved hundreds of millions of low mpg pickup trucks carrying bricks and mortar along with millions of very low mpg diggers and earth movers. This was happening all over the world. I wonder how much excess demand was generated by all this effort?

Any case: it's possible the doomers might argue the reverse and say that oil shocks break the camel's back because ultimately the oil exporters only get excess profit during booms in importing countries but at the same time it's possible to argue that even in an economy based on electric transportation there will be booms.

I wonder what that would look like: unsustainable boom, where all sources of electricity are 100% utilized and hardly any extra demand can be brought online because it would require new nuke plants or solar thermal.

In fact now that I wonder it will look exactly the same.

Electricity prices would skyrocket because of marginal demand then there would be a collapse when the marginal demand is gone.

Same as now.

So that's that then.

As to the future: I expect we *MAY* see one more "oil shock" in the next decade.

If we do, however, there are enough people that believe the peak oil doom bullshit (even in government) that there will be a mad scramble to build new electric generating plant and convert cars to CNG and the plug-in hybrid market will really take off.

I was musing the other day what long distance retail transit will look like when my kids are at college.

I expect for most applications in the US anyway the plug in hybrid will be king. With a partial substitute like that, short distance trips will be covered and as cheap (or cheaper) as they are now.

What about long distance?

How could grayhound buses work to take my kids thousands of miles to college (say to UCLA) from up here in the northern rockies?

I guessed that by then (2020) buses will be CNG powered or all electric.

I wondered how that would work with very expensive gasoline or diesel (say $25 a gallon or even $50 a gallon).
Short term commutes to work would hardly be affected because most trips would be electricity based.
Long term trips with buses with batteries with only a hundred mile range would be difficult unless the buses were designed as walk on-walk off and you changed buses every two hours at "depots".
The better place model for buses would also work.

With very expensive gasoline or diesel it would be unlikely, though, that college kids would be towing their shit in a U-Haul during a 2000 mile road trip.

So maybe roll-on, roll-off onto electric trains?

IF battery tech only tripled it's energy density, however, we have more or less the situation we have now. With a 300 mile range on buses that's not really a huge inconvenience to walk on, walk off every six hours to change buses for a fully charged bus and for the road trip you could easily charge overnight at the motel.

In any case, CNG is likely to be a viable interrim solution for long distance road trips until batteries get up to an appropriate energy density to cover road trips.

So what it comes down to as far as I can see is temporary inconvenience.

At WORST there will be ONE more recession which will involve inconvenience to easy and cheap transportation for many people, but certainly when my kids are in their 20s things will be back to the way they are today.

DB

 
At Friday, July 31, 2009 at 8:15:00 AM PDT, Anonymous Anonymous said...

And another thing:
There has been a zeolite membrane technology breakthrough meaning the energy intensity of chemical filtering has been increased 50-100 times. This applies to such things as *ethanol* and *biodiesel* production.
Another argument against the "low EROEI" idea of doomers

http://www.nsf.gov/news/news_summ.jsp?cntn_id=115332&org=NSF&from=news

DB

 
At Friday, July 31, 2009 at 9:07:00 AM PDT, Blogger DB said...

And there's yet more.
JD posted where he stated that Africa alone could feed the world.
Well there are some corn production breakthroughs on the horizon: As Dr Huffman, a plant biologist from Iowa State University says:

"In the case of corn, since 1955 the average rate of increase in Iowa crop yield has been two bushels, per acre, per year," said Huffman. "That's an amazing accomplishment starting from about 65 bushels, per acre, per year in 1955, up to about 165 bushels, per acre, per year now."

Huffman thinks the future will be even better.

"From 2010 to 2019, corn yields are going to increase quite substantially, maybe at four to six bushels, per acre, per year," he said."

http://www.eurekalert.org/pub_releases/2009-06/isu-isu062409.php

Hmmm. Cheap food. Cheap local transport. (Maybe) Expensive Long Distance Road Transport for maybe a decade.
Doesn't sound too much like doom to me.

DB

 
At Friday, July 31, 2009 at 3:20:00 PM PDT, Anonymous Soylent said...

There's been some tentative work in engineering rice with a C4 photosynthesis system instead of C3. If successful the yield could be increased by as much as 50%.

 
At Friday, July 31, 2009 at 6:43:00 PM PDT, Blogger craftycorner said...

JD's kids can also telecommute to school as well.

As travel becomes more expensive on long hauls, business trips and education will find themselves being conducted via the Internet.

 
At Saturday, August 1, 2009 at 4:40:00 AM PDT, Anonymous Tony said...

So you're saying that because the world, as a whole, has never, yet, experienced a year on year GDP decline (a recession is simply 2 quarters of decline but that detail was not available in the data) then oil prices or scarcity cannot cause GDP decline? You can use the same argument, then, about any factor, since world GDP grew for every year of your data. That is, nothing can cause a global recession, ever.

Seems like very solid reasoning, JD. I wonder why it's not very convincing?

 
At Saturday, August 1, 2009 at 11:12:00 AM PDT, Blogger Sean Daugherty said...

Tony, you do understand the difference between "do not" and "cannot," right? The doomer argument that oil shocks inevitably cause global recession is amply disproven by looking at the record.

Leaving aside your desperate and deliberate misreading of JD's argument, the burden of proof is on the people who claim that oil shocks will cause global recession. Is it possible? Sure. It's also possible that I will earn a million dollars this next year. But I'd need to make a pretty convincing case for that, since I've yet to make anything coming anywhere near that number. Extraordinary claims require extraordinary proof.

 
At Saturday, August 1, 2009 at 3:50:00 PM PDT, Anonymous Tony said...

Sean,

I'm not desparately misreading JD's arguments. His argument would apply to any factor that anyone might suggest would cause a global recession, since, according to the statistics that JD presents, there has never been a global recession.

But, for the developed economies, are you (and JD) saying that recessions and oil price spikes (and in some cases actual scarcity) cannot be associated with recessions? Are you both saying that high oil prices will absolutely have no impact on those economies? If so, I would find that a remarkable statement as oil accounts for about 38% of global energy use and about 90% of global transportation energy.

I think that what JD is trying to do is convince himself and others that there can never be resource problems, despite economic growth. That would require infinite resources (including infinite subsitutability).

 
At Sunday, August 2, 2009 at 2:06:00 AM PDT, Anonymous Freddy Hutter, TrendLines said...

Thanx for destroying yet another urban legend, JD. While crude fell 5% in each of 1980/81/82, the only harsh effect was a 1% drop in exports in 1982. The only other drop in trade was a 3% drop in 1975.

Global GDP & trade rose in 2008. Because the USA came out of its Recession in May 2009, worldwide GDP is poised to rise again. Global exports are currently down 12% from 2008.

McPeaksters & McDoomers often fail as chartists 'cuz they fail to realize that correlation does not imply causation.

 
At Sunday, August 2, 2009 at 4:41:00 AM PDT, Blogger bc said...

That is, nothing can cause a global recession, ever.

By nothing, I assume no resource shortage.

The question of whether a decline in a particular resource causes GDP decline crucially depends on whether the resource is irreplaceable. That is, there is no other resource that can be substituted that is within geographic, political or technological limits.

Clearly, civilisations that have experienced a loss of a necessary resource have declined. Also clearly, civilisations that have lost an unnecessary resource have continued.

The question is then whether oil, or fossil fuels are irreplaceable resources. It's pretty clear that there are substitutes for all uses of fossil fuels. A wider question is how much we are dependent on cheap energy. In that case too, a large part of energy use could be much more efficient.

So why do recessions happen in the absence of actual resource shortage? The answer is that the economic system is sufficiently complex to be mathematically chaotic. Despite whatever control we apply, it will periodically do unexpected, and undesirable things purely as a fundamental nature of the system.

 
At Monday, August 3, 2009 at 2:02:00 AM PDT, Anonymous Tony said...

"It's pretty clear that there are substitutes for all uses of fossil fuels."

Oh yes, that much is clear (apart from air travel, yet). What is not clear is whether those substitutes can be scaled to that of oil (then the other fossil fuels), whether those substitutes can also fuel growth indefinitely and whether there might be adverse impacts from those substitutes (perhaps by diverting food sources or clearing forests, for example).

 
At Monday, August 3, 2009 at 4:39:00 AM PDT, Anonymous AJ said...

I think the important thing to realize is that 9 billion people (2040-2050) is unsustainable. Also, as you have so well documented, there is an inevitable decline in energy production coming, which is exacerbated by the population increase. I am very excited about the coming thirty years as I believe it will be a time of great change and innovation. Do not quibble so much with the specifics, put your efforts in realization of this change.

 
At Monday, August 3, 2009 at 11:33:00 AM PDT, Blogger Sean Daugherty said...

Tony,

JD addresses your points right in his post. To wit,

"When the US is getting bled to death and recessing due to high oil prices, countries like Saudi Arabia and Russia are swimming in cash and growing like never before. The money that is sucked out of the US economy is diverted to and spent by oil exporting economies, and the result is a net wash in terms of global GDP."

The basic economics of the situation work against "global recession." His point is not that high oil prices do not impact development (non-producing) countries. His argument is that "on the global level," oil shocks do not, historically speaking, lead to recession.

How you've managed to misinterpret this as saying that "there can never be resource problems" makes absolutely no sense to me. If I'm missing something, I apologize, but it looks to me like you're doing little more than constructing a straw man.

 
At Monday, August 3, 2009 at 11:45:00 AM PDT, Blogger Sean Daugherty said...

AJ,

Be careful about making concrete predictions. I tend to agree that 8-9 billion people is, in the medium-to-long run, unsustainable. But I've learned not to place my credibility on the line by making blanket statements that can be rendered meaningless due to future developments. It's the mistake that the most demagogic peakists make when they keep trying to attribute precise dates to "peak oil." If you keep making predictions that keep turning out wrong, it gets harder and harder for people to take your valid points seriously.

That said, I think the value of this blog is that it does look to the future as "a time of great change and innovation." Its targets are those who see nothing but regression and chaos (like Kunstler, Duncan, etc.). To me, that's not "quibbling" with the details: it's a very significant difference in the way in which the topic of peak oil is discussed, analyzed, and coped with.

When I stumbled across LATOC, dieoff.org, or Clusterfuck Nation, my response was not to "put my efforts into the realization of this change," it was to despair and withdraw from any kind of proactive response. I see far more benefit in JD's calmer, measured, and (IMO) more realistic analysis than in those of the people he "quibbles" with.

 
At Monday, August 3, 2009 at 1:29:00 PM PDT, Blogger JJM said...

JD, just saw this article posted on Drudge today. Thoughts?
http://www.independent.co.uk/news/science/warning-oil-supplies-are-running-out-fast-1766585.html

 
At Monday, August 3, 2009 at 2:21:00 PM PDT, Blogger Sean Daugherty said...

JJM,

I don't know whether I entirely agree with him or not, but Tim Haab over at Environmental Economics has a response to Birol's report up already. The basic premise is nothing new: higher prices are desirable because they are the most effective way of decreasing consumption and encouraging alternatives.

In general, I think he's right, but I've never been comfortable with the fact that it's inevitability the poorest people who are hit the hardest by higher prices, even if the long-term effects benefit us all.

 
At Monday, August 3, 2009 at 6:41:00 PM PDT, Anonymous DoctorJJ said...

JJM,
I think Freddy Hutter can, and has already, addressed most of the concerns in that article.

DoctorJJ

 
At Monday, August 3, 2009 at 6:59:00 PM PDT, Anonymous Andrew in Texas said...

I think it is pretty clear, despite the way you have staged this data, that oil shocks DO cause recessions... just as food price shocks do. Or any shock to a commonly used good.

What I don't agree with from the other side is that this cannot be adjusted. A recession is the market telling us things aren't working. We need the price signal because people won't change behavior until they get it.

To say that we can't adjust to less oil usage, if economic pressure is sustained, is ridiculous, especially given the vast supplies of other energy sources.

Whther it comes in the form of higher prices, or higher unemployment, this price signal wil continue till we do something about it. And last time I checked, the unemployed don't buy many SUVs.

Andrew in Texas

 
At Tuesday, August 4, 2009 at 3:29:00 AM PDT, Anonymous Tony said...

Fair points, Sean. However, most of the post was based on graphs of oil prices versus global GDP. As there were no apparent recessions in JD's graph, then one would assume similar comparisons could be made with any resource price or any other factor that might cause recessions.

Yes, he does attempt to suggest a reason for the lack of global recession, with regard to oil prices, though the same could be said of any resource. Those countries that have the high priced resource will benefit from the high prices whilst others will suffer. I'm not sure that the benefit would equal the damage, though. Saudi Arabia produces 10% of the world's oil but its economy is not 10% of the world's, by a long way, so the fact that it gains doesn' make up for steep GDP declines in developed nations. So, I think, more explanation for the apparent lack of global recession is needed.

 
At Tuesday, August 4, 2009 at 3:40:00 AM PDT, Anonymous Tony said...

Sean,

I haven't read every blog post by JD but they appear to be targetted at persuading people that peak oil and peak fossil fuels will not cause a major problem for growing global societies and will not entail many changes to lifestyles that are not already being made in some countries like his country of residence, Japan.

As far as I can tell, JD does not think any particular action is needed, in response to peak fossil fuels. The markets and natural social changes will take care of it. He tries to show that any and every study or book that suggests otherwise is wrong.

So JD's calm and measured analysis is designed, as far as I can tell, to encourage no particular action, other than letting the markets take care of it. Much like your link to an economist telling us how the economy ought to be left to its own devices. Isn't that what was partly responsible for the state of the economy today?

 
At Tuesday, August 4, 2009 at 4:50:00 AM PDT, Anonymous Babun said...

Funny thing, Birol is starting to sound more dim every year. Wasn't too long ago when he was just another oil analyst with no worries about the future. Now he's already starting to sound like a doomsayer - presenting grim problems and no solutions.

Of course, perhaps one shouldn't present things as too bright, as it's obvious any transition is likely to be somewhat painful. But I think it's too easy to get mislabeled in this debate and also you always sound either too dim or too carefree.

How much did oil prices actually affect economies in that last spike? My intuition tells me not very much. I think we'd need to go up quite a bit from that to start seeing anything radical. And if the IEA is predicting a peak at about 2020 I think it's pretty much time to have high prices in 2010 already for them to have a timely effect for the peak.

 
At Tuesday, August 4, 2009 at 7:16:00 AM PDT, Blogger Ari said...

Andrew,

I think JD's point is that oil shocks don't cause WORLDWIDE recessions. Individual nations may be hurt by them, but the world as a whole does not typically enter into recession because of oil shocks.

JJM,

Dr. Birol makes some good points-- particularly when it comes to underinvestment. However, he seems to miss the fact that prices and the current economic situation may have depressed demand for a long time to come. There is a belief amongst some that oil demand will simply skyrocket back up again in the next few years. If the 70s are any indication, that's highly unlikely.

I think it's also interesting to note that Cash for Clunkers is driving people to pick up more fuel efficient vehicles. And that's just the tip of the iceberg, really. Every company seems to be rushing to put out high MPG or zero MPG vehicles right now. Even when the economy starts picking up again, it seems unlikely that the "next big vehicle" will be a Denali getting 13 MPG. I suspect we'll be seeing a lot more hybrids and soon PHEVs than anything else.

Sean,

That is, unfortunately, the story of the world. The rich give up SUVs for smaller cars and the poor... just stay poor. It doesn't have to stay that way, however.

 
At Tuesday, August 4, 2009 at 9:52:00 AM PDT, Anonymous anonymr. said...

nIssan releases it's electric car.

2010 Nissan LEAF EV on a Freeway Near You
http://www.cleantechblog.com/2009/08/2010-nissan-leaf-ev-on-freeway-near-you.html

doomers, hide your eyes! another JIT tech win for the good guys!

 
At Tuesday, August 4, 2009 at 11:44:00 AM PDT, Anonymous Anonymous said...

And looks like when the recovery comes (and it WILL come) we have yet another substitute in the form of nuclear powered container ships:
"Analysis of High-Speed Trans-Pacific Nuclear Containership Service
G. A. Sawyer, J. W. Shirley, J A. Stroud, E. Bartlett, General Management
Partners LLC, USA. C. B. McKesson, CCDoTT, USA.

35 knot ships that could hold more cargo could be built and operated more cheaply than regular oil powered ships. Initial costs are 6 times higher ($900 million versus 150 million.) Three nuclear ships could do the work of 4 regular ships and operational costs would be lower. The higher speed means the fast cargo niche could be addressed. A reasonable timeline is for nuclear commercial shipping in the 10-15 year timeframe."

Oh well. Looks like Wal-Mart will keep on rocking.

DB

 
At Tuesday, August 4, 2009 at 11:53:00 AM PDT, Anonymous Anonymous said...

Also:
Seems that replacement of fossil fuel by renewables is proceeding at break neck speed even in laggard nations like the US:
"According to the latest issue of the "Monthly Energy Review" by the U.S. Energy Information Administration, production of renewable energy for the first third of 2009 (i.e., January 1 - April 30) was six percent higher compared to the same time period in 2008.
Moreover, in April 2009 alone, renewable energy sources accounted for 11.1 percent of domestic energy production and exceeded the amount contributed by nuclear power."

Some other doomer on here said if we built out as much renewables as we could and lumped it all together it would account for maybe 14 units when we really need 100 units.

Ha. Well as it turns out we're ALREADY at nearly 20% including nuclear and renewables and we have TONS of room to grow.

So much for doom.

DB

 
At Wednesday, August 5, 2009 at 8:02:00 AM PDT, Anonymous Anonymous said...

"On the global level, something is very wrong with their theory that oil shocks cause recession... what is it?"

All politics is local. The same idea applies to economies as well. $150 oil knocked the shit out of the US economy. If I were a Saudi Prince with more money than I could ever spend, I probably wouldn't care what happened to the US economy.
You don't get to average the Saudi prince's income with the unemployed's in the US to get some meaningless "global" number.

That's what wrong with your theory, JD.

HDT

 
At Wednesday, August 5, 2009 at 8:12:00 AM PDT, Blogger Ari said...

Another great example of how plastics can be substituted:

http://features.csmonitor.com/innovation/2009/02/11/could-‘liquid-wood’-replace-plastic/

Note that lignin is not scarce and that we already basically trash the lignin produced now. There's probably enough enough in the world to satisfy a good amount of plastics need already, if not the majority of it.

 
At Wednesday, August 5, 2009 at 10:35:00 PM PDT, Anonymous Anonymous said...

"You don't get to average the Saudi prince's income with the unemployed's in the US to get some meaningless "global" number.

That's what wrong with your theory, JD."

On the contrary, that's exactly why peak oil will NOT cause the collapse of civilization.

For example: in the unlikely event that all the countries (such as the US and the UK) which are oil importers collapse and cannot produce manufacturing or maintain an ocean freight fleet on their own, such other countries as Norway, France, Brazil and Canada WILL maintain ocean freight fleets and global manufacturing will simply relocated to those countries. In time, they will produce enough renewables to pull the other lagging countries out of recession.

But that won't happen.
Because we have shitloads of viable substitutes like hundreds of years worth of natural gas and fast coming on line plug in hybrids and rapid renewable growth.

Doom? Whatever.

DB

 
At Thursday, August 6, 2009 at 8:37:00 AM PDT, Anonymous Anonymous said...

"On the contrary, that's exactly why peak oil will NOT cause the collapse of civilization."

This is one sad group of optimists. Building straw men and knocking them down, all because they just can't stand the thought that oil shocks can and do cause major economic calamity in the world's former superpower. Why is it so hard to admit that $150 oil was the straw that broke GM and Chrysler's back? Why must you create this fiction that if we someone average the winners and losers we get status quo for everyone?

Again, it would seem that JD, DB Ari et al are here just to make James Howard Kunstler look like a visionary genius?

HDT

 
At Thursday, August 6, 2009 at 1:33:00 PM PDT, Blogger Ari said...

HDT,

Yes, it's true that "all politics is local" (thanks, Tip), but it's also true that "all politics is global." This is the strange dichotomy of modern politics, and is well-demonstrated by the fact that even municipal politicians today spend time in international arenas. Alpha city mayors, like Bloomberg and Villaraigosa, regularly spend time with international affairs. And so they should-- all life today is to some degree international.

So while it's true that Chinese growth may not register as particularly meaningful to the former American auto worker, it's also true that the world economy is increasingly becoming an odd international amalgam, and the health of the overall system is becoming as important a measurement as national or local measurements.

I mean, did you know that some states in the US still have pretty good economies? I don't think that would matter much to the people in Flint, however.

 
At Thursday, August 6, 2009 at 3:21:00 PM PDT, Blogger Ari said...

HDT,

Riddle me this.

If it was gas prices, rather than decades of mismanagement, that brought down Chrysler and GM (never mind that Ford has survived pretty much intact), then why is it only the two worst managed of the Big 3 that went bankrupt?

 
At Thursday, August 6, 2009 at 5:29:00 PM PDT, Anonymous Anonymous said...

"...why is it only the two worst managed of the Big 3 that went bankrupt?"

Only the strong survive. We see this pattern in nature all the time. The next oil shock will certainly have its own unique set of casualties.

HDT

 
At Friday, August 7, 2009 at 6:40:00 AM PDT, Blogger Ari said...

HDT,

So then you basically argued my point for me. It wasn't REALLY the oil shock, it was the fact that GM and Chrysler were the weakest.

Let's assume that no oil shock had occurred, and the credit crisis had still happened (perfectly feasible). Would GM and Chrysler had survived? I doubt it. For one, GMAC was a basket case, as was Chrysler financing. GM had liabilities greater than assets, as did Chrysler. They were both victims of their own design.

Over-leveraged assets, combined with the inability to extend credit to their customer base is what really killed the Less Big Two. That, and if you factor in gas prices, not having decent smaller vehicles was absolutely killer. Let's not forget that Toyota couldn't keep Priuses in dealerships in 2008.

 
At Friday, August 7, 2009 at 9:53:00 AM PDT, Anonymous Anonymous said...

"The next oil shock will certainly have its own unique set of casualties."

Maybe. But only temporarily.
And the next oil shock after that will have fewer casualties who will recover quicker. And the next oil shock after that will likely have a limited effect.

HDT: you're starting to sound to me like an optimist.

Are you becoming a moderate?

What happened to global doom and dieoff?

DB

 
At Friday, August 7, 2009 at 3:49:00 PM PDT, Anonymous Anonymous said...

"HDT: you're starting to sound to me like an optimist.

Are you becoming a moderate?

What happened to global doom and dieoff?"

I've never said a word about doom here. That's your sad little strawman. Don't you ever get tired of knocking it down?


HDT

 
At Friday, August 7, 2009 at 7:08:00 PM PDT, Anonymous Anonymous said...

"It wasn't REALLY the oil shock, it was the fact that GM and Chrysler were the weakest."

No, it was the combination of the oil shock and weakness. If there had been no oil shock, GM and Chrysler would still be floundering.

Just as epidemics thin the herd, oil shocks thin the economy.

HDT

 
At Sunday, August 9, 2009 at 12:16:00 PM PDT, Anonymous ERB said...

Well JD, this article from the BBC seems to disagree with you:

http://newsvote.bbc.co.uk/2/hi/business/8144533.stm

"Oil prices have been a factor, sometimes the most important one, in several recessions over the last few decades."

"While the oil price was high it added to business costs and left consumers with less to spend on other items, including perhaps mortgage repayments."


It is true that the global economy as a whole may not go into recession right away due to the profits in oil producing regions at the same time. However, primarily oil consuming regions (like the US) do go into recession which in turn affects everyone else (including oil producers in time). If oil reaches a point where prices are very high for a substantial period, eventually the profits in producing regions will drop due to economic disaster in consuming regions.

This is the main point about peak oil and the current recession. It will not be one single peak in price, but instead it will be a series of continuing peaks in the price of oil with each one higher than the last. As the economy recovers after each price shock (such as right now), oil will rise again to new heights and cause more and more "mini-recessions" which together MIGHT form part of one, large, devastating depression if major changes do not being to be made.

 
At Monday, August 10, 2009 at 7:41:00 AM PDT, Anonymous Oil Nitpicker said...

"Building straw men and knocking them down, all because they just can't stand the thought that oil shocks can and do cause major economic calamity in the world's former superpower."

I'm pretty sure that JD has always maintained that the extent to which the US economy relies on car culture, is the extent to which it will be fucked by oil price increases. This is an idea he's articulated many times in his articles on conservation and alternative transportation possibilities.

No one should have any problem saying that an oil-dependent economy is vulnerable to oil shortages. You seem to have a problem noting that not all national economies are equally vulnerable in this respect, and that a global perspective is important when considering doomers' long-term predictions for the entirety of industrial civilization, not just the economy of the US.

 
At Monday, August 10, 2009 at 2:10:00 PM PDT, Blogger Disciple said...

Oil price and oil production issues do affect the world gdp:

Checkout:

http://www.frbatlanta.org/filelegacydocs/er0902_graefe.pdf

See figure 5

Growth shrank during the periods of oil price spikes and resumed when new oil sources came online (Alaska, North Sea). This time there may not be a source as large as that.

Also

"Regardless of the cause, the oil price spike had undeniable economic and social consequences
across the globe. Hamilton (2009, 40) considers the 2007–08 oil price spike a critical factor that
helped tip the United States into recession, finding that, “had there been no oil shock, we would
have described the U.S. economy in 2007:Q4–2008:Q3 as growing slowly, but not in recession.”

 
At Monday, August 10, 2009 at 2:51:00 PM PDT, Blogger Ari said...

HDT,

You're conflating the proximate and ultimate causes here.

The ultimate cause was absolutely GM/Chrysler's mismanagement. Any sales drop, even if it had merely been due to a recession that had no oil shock at its core, would have destroyed them both. They were both skating on paper-thin ice.

The proximate cause was, to a degree, oil prices. But let's not forget that even as their SUV sales tanked, their sedan sales were relatively okay-- but they did not have nearly enough of their value chain tied into high value-added sedans like Toyota.

I don't doubt that oil played a role, but I think it's silly to say that oil was THE cause, when any nudge would have done the same thing.

 
At Monday, August 10, 2009 at 5:50:00 PM PDT, Anonymous Anonymous said...

"I don't doubt that oil played a role, but I think it's silly to say that oil was THE cause"

Oil did play major role. It is silly, and no one said it, as you imply. I clearly said it was the combination of high oil prices and sloppy, short-sighted management that took down GM and Chrysler.


HDT

 
At Monday, August 10, 2009 at 5:58:00 PM PDT, Anonymous Anonymous said...

"No one should have any problem saying that an oil-dependent economy is vulnerable to oil shortages."

Yet you,JD, Ari i, et al have a big problem with it. Why is that?

"You seem to have a problem noting that not all national economies are equally vulnerable in this respect, and that a global perspective is important when considering doomers' long-term predictions for the entirety of industrial civilization, not just the economy of the US."

I live in the US. What happens in the US affects my quality of life. I'm interested in what happens on a global level, but I'm more interested in my own backyard, and my own backyard is in big trouble, in large part because of our dependence of relatively expensive imported oil and the effects oil shocks have on the fragile US economy.

HDT

 
At Tuesday, August 11, 2009 at 9:03:00 AM PDT, Anonymous Oil Nitpicker said...

"Yet you,JD, Ari i, et al have a big problem with it."

No I do not, and do not put words into my mouth. If the US continues to be dependent upon an oil-powered transportation infrastructure and makes no significant moves towards efficiency, conservation, and alternatives, its economy is in for a rough ride.

JD, et al, can speak for themselves, but I can't recall JD ever expressing any optimism for the US if it continues car culture.

"I live in the US. What happens in the US affects my quality of life."

That's fine. But this isn't, and never has been, the "Everything's going to be OK for America" blog. Hell, JD lives in Japan, and one of my biggest problems with his analysis has been his seeming certainty that the lifestyle of a single city-dwelling dude living in a country with a public mass transit system as advanced as Japan's can apply to anyone.

The blog's primary focus is on the big doomer predictions about the fate of industrial civilization as a whole. That's why analysis of global economic trends are more important here than just how the USA is doing.

 
At Tuesday, August 11, 2009 at 1:46:00 PM PDT, Anonymous Anonymous said...

"I've never said a word about doom here. That's your sad little strawman. Don't you ever get tired of knocking it down?"

You seem to be plenty worried about vulnerabilities though and seem to strongly side with those who do in fact claim doom. Or do you deny the existence of Kunstler, Heinberg, Simmons, Duncan etc? So debunking those guys in my opinion is not a "sad little strawman". You can argue that it's a strawman but then you need to take the position that all of those guy's theories are strawmen since they are the ones being repeatedly debunked (as they should be).

It's interesting HDT that you only seem to respond to posts of specific types. You never post on ANY of the threads showing advance but you sometimes comment on threads debunking the core myths of peak oil religion and also threads that argue that we may muddle through rather than collapse or threads about the strawman of unlimited growth.

But keep it up, you are well written and clearly well educated even if you are a bit grumpy and angry.

DB

 
At Thursday, August 13, 2009 at 7:28:00 AM PDT, Anonymous Anonymous said...

"Or do you deny the existence of Kunstler, Heinberg, Simmons, Duncan etc? So debunking those guys in my opinion is not a "sad little strawman". You can argue that it's a strawman but then you need to take the position that all of those guy's theories are strawmen since they are the ones being repeatedly debunked (as they should be)."

See, this is why no one takes this site seriously - "deny the existence" of Kunstler, Heinberg, et al? Are you kidding? Are you admitting that JD's arguments are essentially cornucopian fantasies to counter Kunstler's?

When somebody on this blog can make one rational argument without resorting to hyperbole and prefacing every claim with "notice to idiots," and assorted ad hominem attacks, then maybe, just maybe, someone other than your little coterie of techno-utopians would take notice.

Denying or down-playing the role of oil shocks in the US economy is a complete waste of time. Oil is already back to $70, and this after all the furor over speculation, short-selling, etc. The plain and simple fact is that oil is still relatively expensive and going higher despite an enfeebled economy. If you were to argue that high oil prices were a reflection of cheap dollars, I could accept that, but you don't. If oil was as plentiful as you would like to think, it would still be $20/bbl.

Oil shocks are real and they hurt the economy. Get used to it - they're here to stay. The next bubble is on track to inflate and pop again by 2012, when US deficits will be at previously unimaginable highs. The trashing of the dollar will make the next crash even more painful than the last one.

HDT

 
At Thursday, August 13, 2009 at 3:56:00 PM PDT, Anonymous SusanD said...

HDT,
You seem to be griping about this site alot, but not saying anything constructive. JD has a plan, and it seems pretty good. Do you disagree with that plan? What's your solution?

 
At Thursday, August 13, 2009 at 10:08:00 PM PDT, Anonymous Anonymous said...

"See, this is why no one takes this site seriously - "deny the existence" of Kunstler, Heinberg, et al? Are you kidding? Are you admitting that JD's arguments are essentially cornucopian fantasies to counter Kunstler's?"

Not at all. We are saying that those guys are all doomers and much of their extrapolations are based on shaky foundations.
JD may err on the side of humorous takedowns of the way-too-serious doomers but it doesn't detract in any way from the core of his point: there are substitutes for oil in many areas of the economy, peak oil is real, but it will be mitigated. Nobody here is claiming bullshit like abiotic oil is real so from that perspective we're only cornucopians if you take the position that sunlight is practically endless to all intents and purposes.

"When somebody on this blog can make one rational argument without resorting to hyperbole and prefacing every claim with "notice to idiots," and assorted ad hominem attacks, then maybe, just maybe, someone other than your little coterie of techno-utopians would take notice."
See that's where you're wrong.
I personally have been hammering away on several PRIVATE forums for around ten years and some of what JD is saying has started to be picked up by those with the clout to make a difference.

"Denying or down-playing the role of oil shocks in the US economy is a complete waste of time. Oil is already back to $70, and this after all the furor over speculation, short-selling, etc. The plain and simple fact is that oil is still relatively expensive and going higher despite an enfeebled economy. If you were to argue that high oil prices were a reflection of cheap dollars, I could accept that, but you don't. If oil was as plentiful as you would like to think, it would still be $20/bbl."
Talk about hyperbole.
So oil is $70 right NOW. What does that prove? Nothing.
Come back to us in 2020 and we'll see what happened. Until then you can't reasonably argue you know what the oil price is going to do any better than any other speculator. What we CAN do is point out potential substitutes and we ARE.

"Oil shocks are real and they hurt the economy."
For now.

"Get used to it - they're here to stay."
Nope.

"The next bubble is on track to inflate and pop again by 2012, when US deficits will be at previously unimaginable highs. The trashing of the dollar will make the next crash even more painful than the last one."
The trashing of the dollar will surely cause a of pain. But by then there will be significant production capacity available to mitigate any transportation bottlenecks imposed by expensive diesel. Maybe not enough to make a completely smooth transition, but certainly able to mitigate to an extent.

You want predictions:
OK I'll go along with another spike in 2012.
There may be another in 2015 and another in 2018.

My prediction is this: each of them will have less and less effect until the "spikes" only matter to those trading oil since everyone else will have alternatives.

DB

 
At Tuesday, December 8, 2009 at 2:42:00 AM PST, Anonymous refuse/resist! said...

Of course, an r=1 correlation is crap.
But.
Things for you guys to think of:
- total energy use didn't decline
- efficiency gains drastically get smaller as you approach the theoretical physical limits (e.g. car engines - Carnot cycle)
- higher oil prices raise the world GDP

 
At Wednesday, December 30, 2009 at 10:46:00 AM PST, Anonymous Chris Bale said...

It seems patently obvious that oil shocks do not cause recession or, as I think the economist Rubin asserts, that global recessions cause the oil price to drop. Surely it is far more complex an equation and the supply that OPEC deems fit to produce is a major factor in the prevailing price ?

Chris Bale

 
At Saturday, June 12, 2010 at 5:25:00 PM PDT, Blogger BeyondOil said...

oil scarcity causes recession, inevitably. whole lot of evidence is out there, admit it. if not, then ask the US why it occupied Iraq, is demonising Iran, destabilised Africa, befriended with Saudi Arabia, now trying to be close to FSU states...

 

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