Environment & Energy
Related: About this forumThe current oversupply of oil is bad news
[font size=4]Why We Have an Oversupply of Almost Everything (Oil, labor, capital, etc.)[/font]
The Wall Street Journal recently ran an article called, Glut of Capital and Labor Challenge Policy Makers: Global oversupply extends beyond commodities, elevating deflation risk. To me, this is a very serious issue, quite likely signaling that we are reaching what has been called Limits to Growth, a situation modeled in 1972 in a book by that name.
What happens is that economic growth eventually runs into limits. Many people have assumed that these limits would be marked by high prices and excessive demand for goods. In my view, the issue is precisely the opposite one: Limits to growth are instead marked by low prices and inadequate demand. Common workers can no longer afford to buy the goods and services that the economy produces, because of inadequate wage growth. The price of all commodities drops, because of lower demand by workers. Furthermore, investors can no longer find investments that provide an adequate return on capital, because prices for finished goods are pulled down by the low demand of workers with inadequate wages.
---SNIP---
The formula for a growing economy is now failing. The rate of economic growth is falling, partly because energy supply is slowing (Figure 3), and partly because we need more and more growth of energy supply to produce a given amount of economic growth (Figure 2). With this lowered world economic growth, the amount of goods and services being produced is not rising fast enough to support all of the functions that it needs to cover: interest payments, growing wages of common workers, and growing overhead of a more complex society.
The whole article by Gail Tverberg is well worth reading at the link above.
daleanime
(17,796 posts)SamKnause
(13,110 posts)Gregorian
(23,867 posts)It's so complex that I've been sitting here for days trying to figure out how to post it without it going unnoticed.
It's a facet of growth that Gliderguider first brought to my conscious.
Chicken and egg. First there was a group, and they sustained themselves. Then several groups, and they had to find new sources of energy to sustain themselves. And on and on. Like my ancient dad used to say, "limits".
I'm really excited about this economic model of growth. And it's found to correlate extremely well with real world results.
mackdaddy
(1,528 posts)In a body the blood takes the arteries out, but the venous system back. You can NOT do without either one. It is a complete circulation cycle.
Capital is the very life blood of the economy. The economy is a cycle, a circulation of the capital is needed. The problem with concentrating on "supply side" or even demand side is that both sides are needed.
Just as in a living thing if too many parasites suck too much of the blood out of a system it gets anemic and fails, I think the 1% has sucked so much capital out of the system there system is failing. When regular people do not have enough money to spend, they can't buy stuff, which then starves the retail sector and so on.
Trying to keep is all is killing the economy. Henry Ford had it right. If your own workers can't buy your products who will you sell to?
bananas
(27,509 posts)Binkie The Clown
(7,911 posts)And here they come...
bananas
(27,509 posts)Binkie The Clown
(7,911 posts)civilization will have collapsed, the Internet will be a distant memory, and I will have no way of getting my I-told-you-so message to you.
And since nothing I can say to you will bring you to your senses, this post is to inform you that I will not bother responding to your posts on the subject.
bananas
(27,509 posts)A billion years?
A million years?
A thousand years?
A hundred years?
Ten years?
Next year?
Tomorrow?
GliderGuider
(21,088 posts)What would be the point?
GliderGuider
(21,088 posts)From the article:
Most people in the peak oil community believe what economists say about supply and demandnamely, that oil prices will rise if there is a supply problem. They have not realized that in a networked economy, wages and prices are tightly linked. The way limits apply is not necessarily the way we expect. Limits may come through a lack of good paying jobs, and because of this lack of jobs, inability to purchase products containing oil.
The connection between energy and jobs is clear. Good jobs require the use of energy, such as electricity and oil; lack of good-paying jobs is likely to be a manifestation of an inadequate supply of cheap energy. Also, high paying jobs are what allow rising buying power, and thus keep demand high. Thus, oil limits may appear as a demand problem, with low oil prices, rather than as a high oil price problem.
In my opinion, what we are seeing now is a manifestation of peak oil. It is just happening in an upside down way relative to what most were expecting.
It seems to be an issue of how different aspects of the whole economic system work with each other in non-obvious ways. It's the reason that Jevons rebound manifests in unexpected ways in the global economy because money abstracts human activity. Effects from changes in one geographical area or economic sector can be instantly transmitted to other areas because they affect the electronic money flow. For example we might see improvements in North American energy efficiency boosting industrial growth in Korea. The problem of course is that once any activity has been monetized and the money then sent to wherever the demand is, it joins the aggregate global money stream - so it's hard to tell what the original effects were that contributed to Korea's growth.
It looks to me as though that's what's happening here. Wages are declining for a number of reasons, some of which have nothing to do with oil. But that dec;line reduces the demand for oil relative to the supply available, so the price falls.
The problem with Peak Oilers (including me) was that they weren't as strong in systems science as they needed to be. Some like Gail are waking up to that fact, improving their understanding of large-system behaviour, and making more nuanced assessments of the situation. The result is better explanations for a somewhat counter-intuitive situation.
hunter
(38,325 posts)... driving over the cliff is always like that.