[cube]

I've noticed a pattern, at least 90% of the time. Whenever someone tries to calculate the economic costs of PO it begins with an assumption of how high the price of energy can potentially rise. Then the extra costs are substracted from people's disposable income....and that's the basic assumption of the "economic costs" of PO.

I'd like to propose a different theory.

Imagine a PO world were the price of energy is only slightly more expensive. How is this possible? As the availability of energy is reduced some companies will go out of business and people will lose their jobs. This translates into a reduction in demand and that in turns equals a cap on how high prices can go.

This is NOT a rosy scenario. In a way it's more bleak then doomer porn. It can be argued that the "economic costs" of shutting down a business (and all the results that follow) is more expensive then simply paying higher energy prices. If we could all just pay quadruple the price for energy and have all the energy to our hearts content then it wouldn't be that bad.

Try to think about a PO world in terms of reduced energy consumption and not in terms of increased prices. You may find the "costs" to be higher then the price of energy.

[nero]

Putting aside for the moment that there is only a very tenuous relationship between the production costs and the price of a barrel of oil, I think your argument is quite valid. In conventional economics, an increase in production costs implies more economic activity and resources being applied to the oil production sector (per barrel of oil) thus reducing the resources available for the rest of the economy. The rise in the prodution cost of oil would free up these resources in just the way you suggest, by the higher cost of fuel driving some marginal businesses off the cliff.

However since the relationship between oil price and production costs is very complicated this is too simple a model of what will happen. The oil profits for the producing companies and countries are spiking because the cost of producing a barrel of oil is not increasing as quickly as the price of oil. They either are not responding to the price signal and milking the business in a giant liquidation sale (Ie. selling off their reserves but not replacing them ) or they believe the price signal is incorrect and expect the price to drop before they could increase production. They might be expecting the price to drop due to increased efficiency or more likely because they expect a recession any time now.

I believe your position on this issue is the fundamental difference between the early peakers and the more optimistic late peakers. The early peakers believe the oil producers are responding to high prices by taking the opportunity to liquidate their assets while the late peakers (myself included) thing the oil producers (especially OPEC) expect the price to drop soon because the world is overdue for a recession.

[cube]

Maybe I should give an example:

Lets assume that you're running a gambling casino in Las Vegas and your air conditioning bill amounts to 5% of your business expenses. If you had to do without air conditioning your "costs" would not equal 5%.......it would == 100%. Meaning you go out of business because I can't imagine anyone wanting to visit Las Vegas if there was no air conditioning.

see what I mean?.......there's a multiplier effect.

If $1 worth of energy gets taken off-line then the potential cost to the economy could be $20. Once PO hits every barrel of oil that gets taken off-line will "cost" the economy $1200 not $60.

Of course I'm making up numbers, but I think you see my point.

This is what I mean I say the primary cost of PO is the results of reduced energy availability, not the increased cost in energy.

[chris-h]

$this->bbcode_second_pass_quote('cube', '
')I'd like to propose a different theory.

Imagine a PO world were the price of energy is only slightly more expensive. How is this possible? As the availability of energy is reduced some companies will go out of business and people will lose their jobs. This translates into a reduction in demand and that in turns equals a cap on how high prices can go.

This is NOT a rosy scenario. In a way it's more bleak then doomer porn. It can be argued that the "economic costs" of shutting down a business (and all the results that follow) is more expensive then simply paying higher energy prices. If we could all just pay quadruple the price for energy and have all the energy to our hearts content then it wouldn't be that bad.

[RonMN]

Think of how our "just in time" supply chain works. Not only businesses, but ENTIRE ECONOMIC SECTORS are set up to function only if it "gets there over-night".

This would put the final nail in the coffin of the airline & auto industry. Huge disruptions in food, energy & water supplies (just imagine if the chemicals didn't make it to the water treatment facilities "on time").

Therefor I would have to assume that the price of energy would be raised, simply in order to strangle consumption from joe 6-pack & businesses would continue to function.

[EnergyHog]

The cost of oil will go up more for those of us purchasing it in devalued US dollars.

[grabby]

$this->bbcode_second_pass_quote('chris-h', ' ')

After peak oil (certain)Muslims countries and Russia to the West "You can be our (bad word starting with b characterising certain females used in a derogatory way for anyone)"

[IslandCrow]

$this->bbcode_second_pass_quote('cube', 'I')magine a PO world were the price of energy is only slightly more expensive. How is this possible?

[gego]

"Primary cost of PO is reduced availability"
"Primary result of PO is reduced availability"

Am I missing something here. You produce less oil each year after peak so there is less available. This is the definition, is it not?

Of course there will be less economic activity (businesses closing) because there will be less oil to fuel them. Of course there will be more humans closing also (dieoff) because there will be less oil to fuel the agricultural business, hence less food, because there will be less oil to fuel the medical business, hence less health care, and because there will be less oil to produce everything that supports human life.

The price changes for oil are simply the way the economy rations out the remaining supply, so those businesses and humans with the least economic success are the first to go. The fact that oil will become scarce relative to other economic goods means that the price will increase relative to other goods. The price increase is the way the economy communicates to you that oil is more scarce. If your business closes or you lose you job, effectively it is because something else is more important to buyers than what you are offering, given all the circumstances, or because some other business or employee is more efficient at giving buyers what they want.

[cube]

$this->bbcode_second_pass_quote('gego', '.')..
Am I missing something here. You produce less oil each year after peak so there is less available. This is the definition, is it not?
.....

[nero]

$this->bbcode_second_pass_quote('', 'I') hate to admit this but Americans only support Adam Smith style capitalism when the economy is doing good. Once things get bad the invisible hand gets chopped off and everybody becomes a Communist and expects the government to "solve the problem" by interfering in the free market. I remember during the hurricane disasters of 2005 when there was brief spike in prices, there was a poll question:"Do you you think the president is doing enough to keep gasoline costs affordable?"

That question made my skin crawl. Here's my question, why would you want to give the government the power to control the price of a commodity? However it wasn't just in the news but also in regular daily conversations where I hear people enthusiastically state how they wanted George Bush to make gasoline cheaper.

[gego]

$this->bbcode_second_pass_quote('cube', '
')
Expect to see some form of price controls once PO hits.

[chris-h]

what capitalism ?
the rules are for the others
not for US

Open your markets we close ours.
Sell your big business we do not sell ours
Environment ? you protect it it is bad for our economy .
Taxes on OUR oil and gas ? Forget it you do it.
Take loans from IMF with high high interest we prefer to print more notes .
You think our version of capitalism is unfair ? Well reconsider because accidents happen.
Free market means WE subsidize whatever we feel like (defense ,agriculture) while you will be punished if you do the same.


capitalism is a nice idea when used among equals.
But when an empire is using it the empire does not follow the rules that the others must
So capitalism + empire = WE POWN YOU NOOB GIVE Us ALL YOURZ MONIES !!!!

[MrBill]

Both Cube & Gego make good points.

High prices for crude oil for example is simply a net transfer of wealth from users to producers. Nothing is gained or lost. It makes the price of somethings like mined minerals more expensive to extract, while putting more disposable income into the pockets of oil producers. If you are neither oil nor mineral producer you are much worse off unless what you produce can offset higher prices for energy and base metals.

However, oil scarcity is completely different. Then producers AND consumers are worse off. Producers cannot offset a loss in revenue from a drop in production in a post peak oil world as they have less to pump regardless of the price. Meanwhile, any industry, like mining for example, that relies on energy inputs also has to shoulder higher costs, but there are fewer buyers. So it is not just a net transfer as before, but less economic activity in total.

Any economic power that oil producers may have over consumers will be very short lived because they are running out of oil as well. Unless they can buy up the means of production in a post peak oil world in the meantime then their power and influence will end the day they ship their last exportable barrel of oil.

Some, but not many, oil producers have adequately prepared for that day. Some are very rich now, but I cannot imagine life in Dubai, a desert, for example post peak oil with the world's oceans rising submerging all their manmade islands and mansions. And no air conditioning or power for the elevators of their 100 storey high rises. That is the end game of the geological reality of post peak oil depletion. There are no winners.

[Doly]

$this->bbcode_second_pass_quote('MrBill', 'S')ome are very rich now, but I cannot imagine life in Dubai for example post peak oil with the world's oceans rising submerging all their manmade islands and mansions.

[MrBill]

$this->bbcode_second_pass_quote('Doly', '')$this->bbcode_second_pass_quote('MrBill', 'S')ome are very rich now, but I cannot imagine life in Dubai for example post peak oil with the world's oceans rising submerging all their manmade islands and mansions.

[Doly]

$this->bbcode_second_pass_quote('MrBill', '
')My guess is instead that they like most everyone is expecting great innovations in nano-technology for harvesting solar radiation and other huge engineering feats in fusion energy to compensate for less petrocarbons.

[MrBill]

$this->bbcode_second_pass_quote('Doly', '')$this->bbcode_second_pass_quote('MrBill', '
')My guess is instead that they like most everyone is expecting great innovations in nano-technology for harvesting solar radiation and other huge engineering feats in fusion energy to compensate for less petrocarbons.