[phaster]

I realize the current system is unsustainable in economic terms, that is prices will go up when demand exceeds supply for a limited resource like oil. I also realize the economic system will need to adapt or reach a new equilibrium point.

I also figure that there will be winners and loosers in future economic systems, and I'm sure anything to do with increasing energy efficiency  and producing carbon neutral energy will among the potential winners.

My own gut feeling is, that the economic winners in a post peak oil world will be those who truthfully acknowledge a problem exists, then use their knowledge to find solutions to mitigate the problems of peak oil, and have the managerial skills to produce and sell the solutions to mitigate the problem...

Out of intellectual curiosity I posted a question to people who are aware of the peak oil problem and tend (I feel) to have a doom and gloom out look, asking them to play devils advocate. From the few responses there, they responded with answers that seemed to reinforce their belief in a doom and gloom world.

http://www.peakoilstore.com/forum/index ... 407.0.html

So I've got a few economic questions, and the first one is does a doom and gloom economic outlook lead to a self-fulfilling prophecy?

Second question is, has anyone ever looked at the subject of sustainable economics or made a model of a system that is shrinking because of the psychology of doom and gloom which produces no new products vs the economics of a system where hopeful individuals use technology to build new markets? If so what were their conclusions? If not, think something like this would make an interesting war game to educate the public about how to build a sustainable economy?

[SILENTTODD]

$this->bbcode_second_pass_quote('phaster', 'S')o I've got a few economic questions, and the first one is does a doom and gloom economic outlook lead to a self-fulfilling prophecy?

Second question is, has anyone ever looked at the subject of sustainable economics or made a model of a system that is shrinking because of the psychology of doom and gloom which produces no new products vs the economics of a system where hopeful individuals use technology to build new markets? If so what were their conclusions? If not, think something like this would make an interesting war game to educate the public about how to build a sustainable economy?

[MrBill]

phaster, this is indeed a loaded question. No one can say anything constructive about the future without immediately being labeled self-deluded, an irrational optimist, or worse, an economist.

My own feeling is that it is hard to thrive when others are struggling to survive.

Any serious economic downturn typically undermines the middle class. This is because many times they are not ready for the downturn and so have too much debt and too few assets to deal with it. And often because of knee-jerk reactions by politicians that make a bad situation worse.

I cannot point to any successful country that does not have a large middle class. A few rich and a lot of poor people is not a recipe for a stable society, and usually portends to many other social problems. Made worse when the so-called elite becomes disconnected with the problems of the many, or even scornful of them. Too many examples to list here.

$this->bbcode_second_pass_quote('', 'M')y own gut feeling is, that the economic winners in a post peak oil world will be those who truthfully acknowledge a problem exists, then use their knowledge to find solutions to mitigate the problems of peak oil, and have the managerial skills to produce and sell the solutions to mitigate the problem...

[phaster]

$this->bbcode_second_pass_quote('MrBill', '
') However, no sustainable society will ever be designed by the negative and unimaginative. So, yes, I guess it would be a self-fulfilling prophecy.

[MrBill]

Actually, the concept sounds fascinating. I am not sure how it would work in reality as there are some serious disagreements about how policies affect economic outcomes due to feedback loops. And I am not a gamer, but it seems to me from what I have read that many gamers are more interested in winning than learning, so they would try to game any system of rules you impose.

But from my own experience, we used to teach Treasurers and CFOs how to trade foreign exchange by having mock FX trading sessions where they were forced to be market makers. They split into 4-teams and were to ask each other for prices. Then to spice up the game we added central bank intervention and the release of economic statistics at odd intervals.

It was really funny to see some of these aggressive, alpha males melt under pressure. I saw one Fortune 500 CFO frozen like a deer in the headlights when he got caught long and wrong and the price plummeted. And that is just playing with funny money. If it were the real deal you can understand how things like the Amaranth meltdown happen.

Another game we used to play a lot of, especially around Christmas when interbank markets were quiet ahead of year end, was a game called The Fixing Game.

You play with 4-guys (or more) and again it is a market making game. You use cards. You take out the face cards and are left with ones to tens. Or forty cards. You deal out 3 cards to each player face down. And then you throw three dummy cards in the middle face down as well. So you have a range of theoretical outcomes from the 3x4 + 3 = 15 cards mostly low-valued cards like 1, 2 or 3s or alternatively they may be more 10, 9 and 8s.

Each player has to make a market of the total value of the 15 cards. The range of prices of 15 cards using 4 players with 3 cards each and 3 in the middle is from 36 to 129 (if I have done my calculations correctly). It is no fun unless you bet money. Even a penny a point makes it more fun (and it can add up quickly).

A mid-market price would be 36 + 129 / 2 = 82-83. But each players 'expectation' of the final market price will be determined by the cards in his or her own hand. Say you have more 1, 2 and 3s you might think lower than 82. Say you have more 8, 9 or 10s then higher than 83.

If I make you a price of 60-63 and you buy from me at 63 then I am short, say 10 lots, and you are long 10 lots at 63. If the price turns out in the end to be 83, then I have to pay you the difference between 83 - 63 = 20 (x 10 lots or 200 points). If we were playing for a dollar a point that would be $200.

Alternatively, if I made you a market price of 60-63 and you gave me at 60 then you would be short at 60 and I would be long. In which case you would owe me 23 points if the fixing price is 83 in the end.

But one card after another each player flips his own card up so the other players see what it is as well. So if I have mainly 1, 2 and 3s and you flip-up a 10 I might have to adjust my price expectations higher. After each card is flipped, each market maker has the right to ask another market maker for a dealable price. You cannot refuse to make a market. Just like the real deal.

If you make a choice price, say 82, the person has to deal. They have to either buy or sell at 82. If you make a price of 80-83, say, then the other player has the right to accept one side or the other, but can also say, nothing there. The market maker has to deal. No choice.

Then after each round, we flip up one of the cards in the middle. These are like 'economic releases' as they also affect the final price as well as everyone's expectations about this price. A 10 will have different pricing expectations than say a one card.

And so it plays out. After each card a round of market making. You accumulate a long or short position (or reduce it) with an average price, say 63 or 83 or 103, based on your guess as to the final price of the 15-cards. Then after the final cards we have the fixing and the official settlement price. Then you pay off all your losing bets and collect your winnings.

I have taught my friends & family how to play this game and it is really like foreign exchange market making. Some take to it like ducks to water and others are bewildered by it.

"Why did you make a low price, so that I bought from you?" "Because I am short and I want the price to go down." "Well, you dummy, it does not matter where you want the price to go, you have to react to the new data. If you are short and you think the final price will be higher you want to buy back your short, not add to it." But, of course, as in real life people do not like to take losses.

And some firms offer computer simulation games to help train traders as well. So good luck with your modeling. Maybe something interesting will become of it as well. Cheers.

[evilgenius]

Don't forget to take into account sustainable societies having to war against societies willing to burn fossil fuels unto the worst outcome. It is the duration, whether it can be fought over a long enough period of time, that worries me. Any thinking leadership not convinced of its ability to last against those relying on oil will matchup as an oil based competitor until it either weakens or overcomes its opponents, then it will powerdown. In the meanwhile it will appear as committed to all that look on, even to its own members. There isn't any way to know the truth unless a peson is privy to inside information.

In this scenario the knowledge of how to build solar panels that power on a scale of a hundred for a hundred times less sq surface area would be tantamount to capturing the most advanced MIG fighter during the Cold War.

Dream on, huh.

[phaster]

$this->bbcode_second_pass_quote('MrBill', 'A')ctually, the concept sounds fascinating. I am not sure how it would work in reality as there are some serious disagreements about how policies affect economic outcomes due to feedback loops. And I am not a gamer, but it seems to me from what I have read that many gamers are more interested in winning than learning, so they would try to game any system of rules you impose.

Maybe something interesting will become of it as well. Cheers.

[phaster]

$this->bbcode_second_pass_quote('ElijahJones', '
')Well, let's look at the premise. If I believe there won't be any water tomorrow I will probably take steps to ensure that I and those I care about have water. Then again I may take a more philanthropic approach and try to solve the overall problem so that everyone has water. Either way my beliefs do affect my choices and therefore my future.

So the question becomes one of how closely my beliefs are in line with reality. After that comes the question of feasability of goals.

I would say that most people who take the time to really understand peak oil have their lives deeply affected by it. But I don't think we constitute a large enough percentage so as to make sweeping changes to the economies of the world. No, the people crying that Hummer are the average Joe who needs to get the kids to soccer practice and has very little time to question the idea that cheap energy will last forever. There about 10,000 such people for every self-fulfilling doomer in the room.