Krugman Should Have Read EJ's "The Next Bubble"

[GRG55]

Re: Krugman Should Have Read EJ's "The Next Bubble"

Why do you believe this to be so?

Could be she read this [Part II]...;)

[don]

Re: Krugman Should Have Read EJ's "The Next Bubble"

There's two problems with these excellent suggestions.

One, logic has nothing to do with the last 30 years course, except as a means of aggrandizement of primarily FIRE.

Two, this started in large part due to a classic crisis of over production. New, more efficient, means of production face that obstacle.

Check out the post, "Return from the Dead" for a different take on the question.

[mcgurme]

Re: Krugman Should Have Read EJ's "The Next Bubble"

Why do you believe this to be so?

GRG posted a great link that explains in detail.

Fancy stuff aside, it is a matter of simple math.

Start with 100 of something. Take 8% off. = 92. Another 8% = 84. Another 8% =78. In other words, that is a 25% reduction in 3 years, or a 50% reduction in 8 years, and so on.

That rate of decline can be compared to at most a 6-7% reduction in demand last fall in the US, but no reduction in China/India (they are still growing, albeit at a slower rate). World population still growing. And I would argue that with current prices, US consumption is back on the rise, though I have no available data to back that up except observing far more SUV's and pickup trucks on the road in the past month.

Can we really cut oil use by 50% in 8 years????

To put it in perspective, the IEA report states that we need 3 new Saudi Arabias by 2030 to offset this decline. While GRG and others know more than I do about oil resources and exploration, it seems clear from my reading that the likelihood of finding 3 new Saudi Arabias worth of oil that is economically viable to produce in the near future is unlikely. The worst part is that with the current prices, exploration and development of many alternative sources is slowing.

The IEA are not a bunch of peak oil fanatics. Until 2008, their previous annual outlooks were relatively optimistic. The 2008 report is therefore even more scary, taken in that context. It was downright gloomy.

The mainstream media drives me crazy on this issue, because they constantly report "glut." Just do some research if you believe that, and the answer may scare you (it did me, when I encountered the IEA report). I think this combination of (mostly financial) price depression with still tight supply/demand balances is setting us up for much greater problems ahead.

I say all this even though I own a business that directly benefits from high oil prices (a bike shop). But, if the present low prices stay, we will run into serious physical supply shortages within a few years, and that will not be good for almost anyone (except oil exporting countries).

[BadJuju]

Re: Krugman Should Have Read EJ's "The Next Bubble"

I say all this even though I own a business that directly benefits from high oil prices (a bike shop). But, if the present low prices stay, we will run into serious physical supply shortages within a few years, and that will not be good for almost anyone (except oil exporting countries).

Even if your scenario were to come true, it does not take into account natural gas and coal liquefication. Fossil fuels may be on their way out, but I am simply not concerned about peak oil.

[Slimprofits]

Re: Krugman Should Have Read EJ's "The Next Bubble"

We should build a cross country, ultra high speed super rail system from Virginia to California. It should be so large that 10-12 eighteen wheelers can drive on each car.

We need a nuclear powered rail system to rid ourselves of continental flights. Commercial air traffic should encompass only international routes and ultra expensive cross-country routes; only. Save the oil based fuels dammit.

I can just imagine this line with radial cities such as:


Richmond Virginia Line: From New England down the east coast to Miami.

Louisville Kentucky Line: From Chicago down the midwest to Houston.
From Detroit and Cleveland down the midwest to
New Orleans.
Phoenix Arizona Line: From the Upper Plains to Southwest Texas.
From the Canadian Border through Denver to San
Diego.
Los Angeles Cali Line: From Seattle to San Diego.

Something like this would work because the main cross country route is through the center/cheapest land in America. Different radial lines would connect Canada and Mexico with this system and we could avoid having illegal immigrant drivers in each of the three countries because the tractor trailers would be owned by companies with destination drivers.

PRWG Proposed 2050 Intercity Passenger Rail Network

source: The National Surface Transportation Policy and Revenue Study Commission

[santafe2]

Re: Krugman Should Have Read EJ's "The Next Bubble"

Can we really cut oil use by 50% in 8 years????

The short answer is no. We won't have to however. If these numbers are correct or not, we'll continue to explore and develop fossil fuel resources. Also, we'll move more toward electrical energy. The beauty of electricity is that it can be created with multiple base resources, oil, NG, nuclear, coal, wind, bio, solar, etc. We have time but we need a plan or 40-50 years from now, our options will be limited while we are addressing the needs of 50% more humans. Two exponential curves moving in the opposite direction. That's not great news for the unprepared.

[ThePythonicCow]

Re: Krugman Should Have Read EJ's "The Next Bubble"

There's two problems with these excellent suggestions.

One, logic has nothing to do with the last 30 years course, except as a means of aggrandizement of primarily FIRE.

Two, this started in large part due to a classic crisis of over production. New, more efficient, means of production face that obstacle.

Check out the post, "Return from the Dead" for a different take on the question.

Well said.

It seems to me that every financial panic/collapse/depression/... of any significance that we have ever suffered can be characterized as a "crisis of over production." Can you think of any counter examples to this claim ... any panic that was not a crisis of over production? Tulip bulb mania, perhaps (odd that that Panic would be the origins of this sites name)?

[raja]

Re: Krugman Should Have Read EJ's "The Next Bubble"

Can we really cut oil use by 50% in 8 years????

If we have a Great Great Depression . . . yes, I believe so.

[FRED]

Re: Krugman Should Have Read EJ's "The Next Bubble"

If we have a Great Great Depression . . . yes, I believe so.

Maybe we get the decrease in production envisioned by the Peak Oil crew but for a different reason: lack of demand, ala 1980s. Note the hypothetical future oil price in "New American Dollars." :eek:

[mcgurme]

Re: Krugman Should Have Read EJ's "The Next Bubble"

If we have a Great Great Depression . . . yes, I believe so.

Based on?

It is hard to imagine that scenario, worldwide. The world is too dependent on oil.

(Santafe: I agree about the promise of electricity, that is why I own a business selling electric bikes, and why I have solar PV to charge my own bike - but the build out from where we are now to a future of mostly electric vehicles and the power delivery systems for those vehicles will not be trivial...)

[raja]

Re: Krugman Should Have Read EJ's "The Next Bubble"

Quote:

Originally Posted by raja If we have a Great Great Depression . . . yes, I believe so.

Based on?

It is hard to imagine that scenario, worldwide. The world is too dependent on oil.

It's based on what's already happened . . . and on other people's analysis of what is likely to happen.

I don't see how global massive job loss and business failures can lead to anything other than a historic degree of demand destruction. The loss in the stock market alone has caused many retirement nest eggs to shrink dramatically. The result is that people worldwide are, and will continue to, experience a significant decline in purchasing power, and will cut back on driving, heating and everything else.

[GRG55]

Re: Krugman Should Have Read EJ's "The Next Bubble"

It's based on what's already happened . . . and on other people's analysis of what is likely to happen.

I don't see how global massive job loss and business failures can lead to anything other than a historic degree of demand destruction. The loss in the stock market alone has caused many retirement nest eggs to shrink dramatically. The result is that people worldwide are, and will continue to, experience a significant decline in purchasing power, and will cut back on driving, heating and everything else.

Fine and dandy. But look at the price response of the commodity.

This is actually a "chicken and egg" argument...what comes first the demand destruction or the price cut?

If one assumes a massive global depression on the scale of the US experience in the 1930's, with continued, never-ending decline in consumption, then of course crude consumption and its price eventually both hit zero, just like the Fed funds rate [and we all go back to cooking our meals over wood or cow dung fires]. Now I am sure even raja agrees that zero-zero conditions won't happen. So the issue is really at what combination of consumption and price do we hit the "lowest equilibrium". And when it gets there, how stable is it, and how long does it stay there? Whatever the pundits forecast, the only certainty is...they will be wrong.

[raja]

Re: Krugman Should Have Read EJ's "The Next Bubble"

Fine and dandy. But look at the price response of the commodity.

This is actually a "chicken and egg" argument...what comes first the demand destruction or the price cut?

If one assumes a massive global depression on the scale of the US experience in the 1930's, with continued, never-ending decline in consumption, then of course crude consumption and its price eventually both hit zero, just like the Fed funds rate [and we all go back to cooking our meals over wood or cow dung fires]. Now I am sure even raja agrees that zero-zero conditions won't happen. So the issue is really at what combination of consumption and price do we hit the "lowest equilibrium". And when it gets there, how stable is it, and how long does it stay there? Whatever the pundits forecast, the only certainty is...they will be wrong.

It's about predicting the future . . . .

Nobody knows for sure, but most of us probably have some feeling of outcome probabilities, based on the sum total of our retained life experiences . . . including knowledge of economics, human nature, etc.

FWIW, my "feeling" is that the global economic situation is going to decline significantly. That will cause people to spend less, and this will result in price stagnation or decline. I also "feel" like this situation will go on for several years.

I don't know how far down it will go -- unlikely to zero, of course, but anything is possible. I don't know when it will recover. But the situation looks dire to me at this time. :eek:

I hope I'm wrong . . . .

I think that someday things will turn around, and when they do I'll be catching a ride on the commodity price train going up (if I've got anything left to invest). At that time, oil will be a good bet.

[santafe2]

Re: Krugman Should Have Read EJ's "The Next Bubble"

(Santafe: I agree about the promise of electricity, that is why I own a business selling electric bikes, and why I have solar PV to charge my own bike - but the build out from where we are now to a future of mostly electric vehicles and the power delivery systems for those vehicles will not be trivial...)

I like that terminology, "the promise of electricity". Electricity has such mutable sources. We can engage each other on iTulip with our semi-scientific and ethical arguments regarding energy but electricity is a 200 year old vehicle that delivers energy using ancient sources, recent energy sources like wind and solar and future sources that rely on a much deeper understanding of how electromagnetism can exert its force on charged particles. Electricity has a huge future in our current stationary energy needs and I'm sure electricity has a huge future in our mobile energy needs. We await the next two generations of scientists to reveal it.

I work in the solar energy business. When all the hype, the superlatives, and the adjectives are removed, we sell electricity. Our products are not the answer humanity needs to reach the 22nd Century but we're providing a path. As you pointed to, moving from where we are today to a future where humans in significant numbers can continue to populate the planet is not trivial.

[GRG55]

Re: Krugman Should Have Read EJ's "The Next Bubble"

I like that terminology, "the promise of electricity". Electricity has such mutable sources...

...I work in the solar energy business. When all the hype, the superlatives, and the adjectives are removed, we sell electricity...

Those last three words are interesting indeed. When the switch is thrown most users probably care a great deal more that the living room lamp illuminate than whether the current is the result of converting from coal, hydro, nuclear, natural gas or some other energy source.

So how can solar energy providers, whose installations generally require more time, effort, money from the end user [than a utility hook-up], compete if they just sell the same fungible commodity as the local power company?

Are you not really selling something more? A higher level of security of supply? Or independence from the grid? Securing corporate green credentials? Or some other tangible or intangible that the buyer is convinced justifies the additional cost & complexity of the installation?