Jevons Paradox – Coal-Oil-Conservation

    

Jevons paradox

The AGW / Green Langoliers Strike Again

Well, it seems that if you don’t have the truth on your side you can always try a little creative re-writing of history and fudging of reality. The folks who believe that people are warming the plant to death (The AGW thesis) seem to like doing that on Wikipedia. Their latest victim is the Jevons Paradox page. Probably because it was being heavily cited and effectively put a spike in the notion that we had to be taxed to death and drive econoboxes to “conserve” our way to prosperity. Well, you can’t starve your way to a full stomach and you can’t conserve your way to energy prosperity. Conservation is good for other reasons, but reducing aggregate consumption is not one of them.

Here I will be quoting parts of the present Wiki page and putting my comments on it scattered through the text. {My comments will be in bold inside braces and end with -ems.}

Unfortunately, this edit-wiki-for-political-agenda effect is so widespread (at least on the AGW issues and now, it would seem, anything that challenges the “green agenda”) that I must conclude that the use of Wikipedia as an honest reference is not possible.

Since any motivated pressure group can simply take over pages and rewrite the reference, it is not a stable product and not suitable for anything other than a casual referral. To the extent that you do wish to use a wiki page as a reference, it looks like the only reasonable way to do it is via a preserved copy (either your own or via the Wayback Machine.) Saying this pains me a great deal since I love the notion of a shared “barn raising” (it is part of my Amish history from one grandparent…) but when someone can then burn the barn down, what’s the point?

From Wikipedia, the free encyclopedia

{ With accuracy worth all you paid for it. -ems }

In economics, the Jevons Paradox (sometimes called the Jevons effect) is the proposition that technological progress that increases the efficiency with which a resource is used, tends to increase (rather than decrease) the rate of consumption of that resource. It is historically called the Jevons Paradox as it ran counter to popular intuition. However, the situation is well understood in modern economics. In addition to reducing the amount needed for a given output, improved efficiency lowers the relative cost of using a resource – which increases demand. Overall resource use increases or decreases depending on which effect predominates.

{ Well, doesn’t that sound nice. “Modern Economics” understands it; as though Jevons and all the rest of Economic history did not. Sorry, but this has been VERY WELL understood LONG BEFORE modern economics.

Jevons paradox is the simple OBSERVATION that when coal use efficiency was improved the total CONSUMPTION went UP. That’s the whole thing.

The rest of that wrapper about resource usage and technological progress et. al. just gets in the way of a simple truth: If something is cheaper to use and provides more benefit to you, you tend to use more of it.

It was a paradox simply for the reason that folks thought improvements in engine efficiency would result in less consumption. It didn’t. Just like in the 1970’s Arab Oil Embargo we swapped, in large numbers, from Detroit Bargemobiles into little fuel efficient Rice Rockets… then promptly moved further out into the suburbs (since the cars were more efficient) and total oil consumption has gone up… -ems}

    

William Stanley Jevons

The proposition was first put forward by William Stanley Jevons in his 1865 book The Coal Question. In it, Jevons observed that England’s consumption of coal soared after James Watt introduced his coal-fired steam engine, which greatly improved the efficiency of Thomas Newcomen‘s earlier design. Watt’s innovations made coal a more cost effective power source, leading to the increased use of the steam engine in a wide range of industries. This in turn increased total coal consumption, even as the amount of coal required for any particular application fell. Jevons argued that any further increases in efficiency in the use of coal would tend to increase the use of coal. Hence, it would tend to increase, rather than reduce, the rate at which England’s deposits of coal were being depleted.[1]

{ And he was right. He did not know that Britain would find a lot more coal, that the world would be awash in billions of barrels of oil, or that we would discover functionally unlimited nuclear power; so the British coal has not run out. Please see:

There Is No Energy Shortage and there never will be

for more details on energy and why there is no “scarce energy” to conserve.
-ems }

Contents

Rebound effect

    

Elastic Demand for Work: Jevons Paradox occurs
    

Inelastic Demand for Work: Jevons Paradox does not occur

{Here we have two nice simple graphs that purport to show that Jevons Paradox only happens under the case of elastic demand. Sounds good. Looks good. What it ignores is that “price elasticity of demand” is only one of the elasticities of demand and that elasticity is a time dependent function. What is the price elasticity of demand for buggy whips and parsnips? In 1700 they were critical and central to the economy. Today they are hard to find at all. The demand function changes over time. The elasticity with it.

In the very short run, fuel demand for a given fuel is price inelastic. In the long term it is very elastic. Oil went up in the 1970’s oil embargo. Short term electricity was still made by burning oil. Over the next few years those burners were converted to other fuels. There is now very little oil used for generating electricity.

Similarly, if gasoline doubles in price today, I still drive to work tomorrow. Next week I might take the bus. A month from now buy a smaller car. 4 years from now an electric car. WHICH price elasticity do you use? The 1 day? The one year? The 10 year?

So in the longer run, efficiency is subject to that ‘elastic demand’ curve, even if tomorrow it is subject to that ‘inelastic demand’ curve. That this is left obscure in the wiki page is either stupidity or deliberate deception. Neither is a particularly desirable thing… That it is used to justify a Green Tax Agenda leads me to presume it is an agenda driven decision.
-ems}

One way to understand the Jevons Paradox is to observe that an increase in the efficiency with which a resource (e.g., fuel) is used causes a decrease in the price of that resource when measured in terms of what it can achieve (e.g., work). Generally speaking, a decrease in the price of a good or service will increase the quantity demanded (see supply and demand, demand curve). Thus with a lower price for work, more work will be “purchased” (indirectly, by buying more fuel). The resulting increase in the demand for fuel is known as the rebound effect.


This section starts off with an interesting redefinition of “price” as being the non-monetary value from use of fuel. Traditionally in Economics this was called “Utility” (in fact it was some of Jevons work that led to this foundation concept of “utility” in Economics…) Why we need to redefine “price” as the functional equal of “utility” escapes me… But perhaps it is just an innocent attempt to explain the concept of “utility” and the impact on use. Seems a bit misleading to me, but then again I’ve spent 35 years with the concept of “economic utility” in my head, so maybe I’m biased.

The basic concept is pretty simple: Fuel costs less PER USE so you get more USES and so more total aggregate consumption. This redefinition game just seems to be for the purpose of obscuring simple truths:

If I can go further, faster, more comfortably and get more total utility for less cost, I’m going to use more of the stuff that lets me do that.

As near as I can tell, the “rebound effect” is just a restatement of the Jevons Paradox in more general terms and in the context of the tendency of economic laws to change consumption over time. It also brings in the notion of elasticity of demand. OK. No news there. I suspect that it may be the original term Jevons used before it was named in his honor, but here repackaged as a more limited thing than the original.
-ems }

This increase in demand may or may not be large enough to offset the original drop in demand from the increased efficiency. Jevons Paradox occurs when the rebound effect is greater than 100%, exceeding the original efficiency gains. This greater than 100% rebound is known as backfire.[2]

{ “backfire” being just Yet Another Word for Jevons Pardox, but used in the Green context. Don’t know why we need a special word for a special context, but maybe there is some history involved where it got named “backfire” by folks who didn’t know enough Economics to be aware that Jevons had figured this out in the 1800’s. Looks like just a distractor from the basic truth of Jevons Paradox to me. Renamed in the hope of reducing the original (but that’s projection on my part.) -ems }

Consider a simple case: a perfectly competitive market

{ Well right there we’ve entered the land of fantasy. Economists do this regularly. (I know, I am one). It is a legitimate thought device, just don’t confuse it with The Real World. -ems }

where fuel is the sole input used, and the only determinant of the cost of work. If the price of fuel remains constant, but the efficiency of its conversion into work is doubled, the effective price of work is halved and so twice as much work can be purchased for the same amount of money.

{ And now we have a really fantastical fantasy… One input. One determinant of cost. Constant prices. -ems }

If the amount of work purchased more than doubles (i.e. demand for work is elastic, the price elasticity is less than -1), then the quantity of fuel used would actually increase, not decrease. If however, the demand for work is inelastic (elasticity greater than -1 and less than 0), the amount of work purchased would less than double, and the quantity of fuel used would decrease.

A full analysis would also have to take into account the fact that products (work) use more than one type of input (e.g. fuel, labor, machinery), and that other factors besides input cost (e.g. a non-competitive market structure) may also affect the price of work. These factors would tend to decrease the effect of fuel efficiency on the price of work, and hence reduce the rebound effect, making Jevons Paradox less likely to occur. Additionally, any change in the demand for fuel would also have an effect on the price of fuel, and also on the effective price of work.

{ So here we get the reality constraints drug back in, and a slap at Jevons Paradox via the “reduce the rebound effect” line. Gee, if you go from having only one determinant of cost to having more than one, the original one has less than 100% impact on prices. Who knew? (Can you say tautaulogy? I knew you could…) Maybe we ought not to have ignored them in the first place by creating a fictional world?

No mention that it might also increase the effect of Jevons Paradox to have real inputs. It all depends on the impact of the things first ignored, then waved around in the air… A very long way around the mountain to say nothing (but leave behind the feint notion that Jevon’s Paradox has “issues” when it does not…) -ems }

Khazzoom-Brookes postulate

In the 1980s, the economists Daniel Khazzoom and Leonard Brookes revisited the Jevons paradox for the case of a society’s energy use. Brookes, then chief economist at the UK Atomic Energy Authority, argued that attempts to reduce energy consumption by increasing energy efficiency would simply raise demand for energy in the economy as a whole. Khazzoom focused on the narrower point that the potential for rebound was ignored in mandatory performance standards for domestic appliances being set by the California Energy Commission.

In 1992, the economist Harry Saunders dubbed the hypothesis – that improvements in energy efficiency work to increase, rather than decrease, energy consumption – the Khazzoom-Brookes Postulate, and showed that it was consistent with neo-classical growth theory under a wide range of assumptions.[3]

{ Now we have the “Khazzoom-Brookes Postulate” as yet another name for the same effect as Jevons Paradox. Now why do we need 3 or 4 names for the same thing? Maybe just to make it hard to figure out? It is of merit to notice that Khazzoom and Brookes generally had the same conclusion as Jevons; just focused into the context of nuclear power and appliance efficiency standards. So how many ways can we say the same thing in increasingly more obscure ways?

“More utility from less costly energy means I’ll use more energy to get way more utility.”

This is A Good Thing! It’s why we have electric lights, street lights, nice cars, cheap food, basically the “goods” of modern life. Cheap plentiful energy lets us get more of what we want with less work on our part. Where is the surprise, then, that we would use more energy and work less ourselves? The only surprise to me is that some folks would see this as a bad thing. -ems }

According to Saunders, increased energy efficiency tends to increase energy consumption by two means. First, increased energy efficiency makes the use of energy relatively cheaper, thus encouraging increased use (the rebound effect). Second, increased energy efficiency leads to increased economic growth, which pulls up energy use for the whole economy.

{ BINGO! Give Saunders the award for clarity of insight! We use more of the energy for more instances of present types of uses and that frees us and our machines to improve the economy via economic growth (resulting in even more energy usage). The Diesel truck not only lets you haul turnips to market, it also lets you haul your race car to Bonneville! So you spend less time hauling turnips to market with horse carts and more time working on your dragster. I don’t see this as a problem. -ems }

At the microeconomic level (looking at an individual market), even with the rebound effect, improvements in energy efficiency usually result in reduced energy consumption.[4] That is, the rebound effect is usually less than 100%. However, at the macroeconomic level, more efficient (and hence comparatively cheaper) energy use leads to faster economic growth, that in turn increases energy use throughout the economy. Taking into account both the microeconomic and the macroeconomic effects, technological progress that improves energy efficiency will tend to increase overall energy use.

{ Other than the trip into micro vs macro land, this is a reasonably clear statement of what happens. It is phrased such that it sounds like, but for some ill defined “macro” stuff, Jevons Paradox wouldn’t happen. This is, IMHO, misleading.

What it says is that “microeconmic” effects would not show Jevons Paradox. That is only true in a very narrow way. IFF we put Watt’s engines in ONLY the places where the older ones had been, yeah, no Jevons Paradox. But if that let us open more mines or run them longer it would still be the same “microeconomics” (i.e. same industry and companies) and would still be Jevons Paradox.

The first premise (that micro is not subject to Jevons Paradox) is unproven, to put it charitably.

That the rest of the economy happens (“macroeconomics” is the whole economy) and just happens to confirm Jevons Paradox is exactly what Jevons said. To package this as some kind of semi-anomaly is disingenuous.
-ems }

Energy conservation policy

In The Coal Question, Jevons argued that improvements in fuel efficiency do not reduce the use of fuel, “It is a confusion of ideas to suppose that the economical use of fuel is equivalent to diminished consumption. The very contrary is the truth.”[1] This does not imply that increased fuel efficiency is worthless. Increased fuel efficiency enables greater production and a higher quality of material life. For example, a more efficient steam engine allowed the cheaper transport of goods and people that contributed to the Industrial Revolution. However, efficiency increasing technological progress tends to increase, rather than decrease, fuel use.

{ Up to this point the changes have not been too bad. A little tendency to obscure simple truths with big words and redirection, but the basic truth is in there if you want to dig through it enough. Now the Wiki page starts to go over the edge into the virtue of taxing you to death. Go figure. -ems }

If the Khazzoom-Brookes postulate is correct, in order to increase energy conservation, fuel efficiency gains must be paired with some government intervention that reduces demand (e.g. cap and trade, fuel tax or carbon tax). The ecological economists Mathis Wackernagel and William Rees suggest that cost savings from efficiency gains be “taxed away or otherwise removed from further economic circulation. Preferably they should be captured for reinvestment in natural capital rehabilitation.”[5]

{ Got that? “cost savings” ought to be “taxed away” and “captured”.

Now I’m not always the brightest bulb on the Christmass Tree, but I’ve not seen taxes used to effectively “reinvest” (in “natural capital rehabilitation” or anything else) as long as some good old graft, earmarks, pork projects, and other EXPENDITURES on boondoggles were available. So to my mind, this is just a massive “hand wave”.

The desire is simple: Green Tax on energy to funnel more money to “natural capital rehabilitation” which I can only presume means politically favored projects involving some ill defined “natural” areas that someone wants to make “more natural” via human intervention, whatever that is and however you do it…

Why this is somehow better than letting each of us use the economic gain from that energy efficiency FROM OUR USE OF OUR MONEY as WE see fit for our own benefit is, er, vague… That the economic benefit is “taxed away” DOES mean that the economic advances that OUGHT to have happened with the money in our hands, will not happen.

The assumption is that the “natural rehabilitation” is somehow better than drag racing; but is it better than more and faster ambulances? Less rotten food from better refrigeration and better faster transport to markets? More safety lighting and reduced crime? There is no cost-benefit analysis done with this broad tax. -ems }

Jevons Paradox is sometimes used to argue that energy conservation is futile. For example, that more efficient use of oil will lead to increased demand, and will not slow the arrival or the effects of peak oil. This is usually presented as a reason not to increase fuel efficiency (if cars are more efficient, it will simply lead to more driving).

{ That pretty much sums it up. But conservation is also futile since we have unlimited energy. Why reduce the economic growth and it’s benefits (less Malaria from better pesticides and cheaper to use spray trucks, fresher food, etc.) to save something that we have in unlimited supply? Peak Oil is just a distractor here.

We hit “peak fish” some time ago (the maximum we could harvest from the ocean about 20 years ago). At present, some 30% of fish we eat comes from aquaculture. Did you even notice? When we finally hit peak oil, no one will notice because we will simply start using other, very slightly more expensive, energy supplies. This, BTW, has already started. The “tar sands” of Canada are now being used to produce petroleum products. A couple of decades ago these were not classed as a “resource” because oil was too cheap. The Trillions of barrels of oil and oil equivalents in U.S. Oil Shale and the global Methane Clathrate deposits are still not an ‘economic resource’ due to low oil prices even though we could extract fuel if we wanted to.. -ems }

Several points can be raised against this argument. First, in the context of a mature market such as for oil, the rebound effect is usually small, and so increased efficiency usually reduces resource use.[4][6][7] (However, fuel use may still increase because of faster economic growth.)

{ So having redefined Jevons Paradox as a more limited ‘rebound effect’ that excludes the macro portion of Jevons Paradox we find that it misses due to missing the macro effects? Uh Huh… We also have an assertion that the rebound effect is usually small in “mature markets”.

That’s fine, except that even mature markets change over time. So what we really have here is a statement about the length of time involved.

Yes, more efficient buggy whip making has little impact. But over time that more efficient engine leads to race cars and the Interstate Highway System. In the short run (months) you get reduced fuel use. In the long run (years) you get more fuel use. That was what Jevons said. Hiding it in the obscuration of “mature markets” doesn’t erase it.

Automobiles were a mature market in the 1970s. Despite fuel economy standards, a wholesale shift away from Chrysler and GM to Japanese econoboxes, and significant improvements in the technology of efficiency we have increased fuel use. Can you say “Existence Proof”? I knew you could…
-ems }

Second, even if increased fuel efficiency does not reduce the total amount of fuel used, this ignores other benefits associated with increased fuel efficiency.

{ This is another red herring. Jevons Paradox makes no claim that efficiency is a bad thing, or even neutral. It only states that the aggregate demand will go up. In fact, Jevons specifically states that efficiency improvement is good for the individual user of the product.

I see no reason for this point to be raised per Jevons Paradox other than to promote an agenda.

I WANT a 100 mpg car for my own purposes AND IT WOULD BE A GOOD THING. One of those purposes is that I’d then drive coast to coast 2 or 4 times a year to go see a good friend… “Taxing away” that benefit does not really work for me. I still don’t get to see my friend… And the purpose is to leave more oil in the ground? Why? Is it going to multiply if we leave it there? Is it better to be using oil cars in 100 years rather than electric?

There is no fundamental value to “saving the oil” but there is a fundamental value to economic advancement and greater utility. Especially if I get to visit my friend…
-ems}

For example, increased fuel efficiency may mitigate the price increases, shortages and disruptions in the global economy associated with peak oil. Third, fuel use will decline if increased fuel efficiency is met with government intervention (e.g. a green tax, license fees, etc.) that keeps the cost of use the same.[5] By mitigating the economic effects of government intervention designed to promote ecologically sustainable activities, efficiency-improving technological progress may make the government intervention more palatable, and more likely to be implemented.

{And here we get the unvarnished agenda: The ‘running out’ panic and to promote “ecologically sustainable activities”.

THERE IS NO SHORTAGE of energy and there never will be. Nor is there a shortage of STUFF like petrochemicals. Pumping oil is just as ecologically sustainable as anything else (oil is not alive, so the only impact on ‘ecology’ is how cleanly you pump it out and burn it). When we do run out of oil (in about 100+ years) we will still be driving cars. They will most likely be fueled with some combination of electricity, bioDiesel from algae farms, coal derived gasoline and Diesel fuel, or trash to gasoline and Diesel conversion (all of which are already in production and shown to work.)

So what is more ‘ecologically sustainable’ about still pumping oil in 2109 instead of farming it from algae? Why is it better to reduce the economic growth of the world and our present utility so that we can pump oil in 2109 rather than have electric cars then? It is a fantasy, based on some broken notion of “running out” and oil as evil.

That “increased efficiency of use” might make being heavily taxed for a Green Agenda more “palatable” while leaving me stripped of the economic benefit that ought to have been mine, is not a feature.

And, of course, the article ends with a biased list of links that often support The Agenda. Neutral POV? What a joke.
-ems}

Notes

  1. ^ a b Jevons, William Stanley (1866). “VII”. The Coal Question (2nd ed.). London: Macmillan and Co.. http://www.econlib.org/library/YPDBooks/Jevons/jvnCQ0.html. Retrieved on 2008-07-21. 
  2. ^ Blake Alcott, “Historical Overview of the Jevons Paradox in the Literature.” The Jevons Paradox and the Myth of Resource Efficiency Improvements, 2008. p 8.
  3. ^ Harry D. Saunders, “The Khazzoom-Brookes postulate and neoclassical growth.” The Energy Journal, October 1, 1992.
  4. ^ a b Greening, Lorna (2000), “Energy efficiency and consumption—the rebound effect—a survey.”, Energy Policy 28: 389-401
  5. ^ a b Wackernagel, Mathis and William Rees, 1997, “Perpetual and structural barriers to investing in natural capital: economics from an ecological footprint perspective.” Ecological Economics, Vol.20 No.3 p3-24.
  6. ^ “The Effect of Improved Fuel Economy on Vehicle Miles Traveled: Estimating the Rebound Effect Using U.S. State Data, 1966-2001″. University of California Energy Institute: Policy & Economics. September 21, 2005. http://repositories.cdlib.org/ucei/policy/EPE-014. Retrieved on 2007-11-23. 
  7. ^ “Energy Efficiency and the Rebound Effect: Does Increasing Efficiency Decrease Demand?”. http://www.ncseonline.org/nle/crsreports/energy/eng-80.cfm?&CFID=11262148&CFTOKEN=7028302. Retrieved on 2007-11-21. 

External links

About these ads

About E.M.Smith

A technical managerial sort interested in things from Stonehenge to computer science. My present "hot buttons' are the mythology of Climate Change and ancient metrology; but things change...
This entry was posted in Science Bits, World Economics and tagged , , . Bookmark the permalink.

8 Responses to Jevons Paradox – Coal-Oil-Conservation

  1. Dennis says:

    Excellent critique. I have a couple of points if I may make them, neither perhaps exactly on point.

    I have a science-based education and worked in a science-related field my whole career and I’ve heard this idea repeatedly that, “…the ecosystem needs, blah, blah, blah…”. A good friend of mine, a real ecologist, always used to say, “the only thing an ecosystem really needs is for the sun to come up every morning.” By that, he means that ecosystems are dynamic and change constantly in response to perturbations large and small. Those perturbations (at least the vast majority of them) are part of the life of the system and will simply be incorporated within the normal processes and functions of that system. Life will go on as before for the system though the discerning observer may be able to detect subtle changes.

    In this regard, I have always found that when someone uses a phrase like “ecological impacts” in conversation with me, I know we are in a political discussion. When they say “ecological consequences”, we are talking science.

    Secondly, I am in my 60’s and in my life, one standard that seems to have always held true is that all governmental forays into the economy, regardless of good intentions and high-blown ideals, has always had the effect of introducing inefficiencies into the economic system. Some of these have been relatively minor, but most have been large and some have been absolutely enormous (ie. the act intended to make easier for minorities to own homes and its later interpretation by the Clinton administration). Politicians, it seems, have no familiarity with the more controlling Law of Unitended Consequences.

    I have enjoyed your writing since finding it on Watts Up With That and appreciate your efforts here (though I’m afraid it doesn’t take long for you to lose me on the intricacies of the stock market). Thank you for your work

  2. pyromancer76 says:

    Dennis, I agree with you regarding your second take when someone says “ecosystem needs” in their authoritative way and in your appreci8ation of E. M. Smith’s efforts.

    E.M. Smith, it is a tragedy that Wikipedia and so much else has been taken over by “blank-edy-blank”. I have no words for the frustration, irritation, and rage I feel at the fraud and lies that are agreed to by people who we all know “know better”. Thanks, E.M. Smith, for your unique ability to give voice to reason and wisdom. I, too, always appreciate your contributions and read every one of them — and learn.

  3. E.M.Smith says:

    BLUSH! Um, stammer, I, well thanks for the compliments!

    I’ll try to come up with a more basic approach to the jargon of trading. It’s a rats nest of complexity on one level, yet fairly simple on another. (For example, the 10 year weekly interval chart of the SPY absolutely tells you if it’s a market going up or going down – bull vs bear market. Takes at most 5 minutes to “get it” even for my friends mom… ) The shorter the time period you are trading, the more “stuff” you must watch… So day trading drives you nuts with detail and exceptions – even for me after 30+ years.

    Interesting observation on “impacts” vs “consequences”… I’ll have to watch for it!

    Government vs Economy? Pretty simple: The kind of person who can lie like a rug, even to the point of convincing themselves of their own Bull Shit, stands a better chance of being elected; whereas the kind of person who can run a company well, must be grounded in reality due to things like budgets, profit, competition, and customer expectations: requiring focus and discipline.

    Basically, Government is all about Show and BS and “managed” by folks who believe their own BS; while business is all about “delivering the goods”, literally. They just don’t understand each other.

    Now politicians are often lawyers and think they are smart so they understand everything. They also lust for power and think they can control everything. But an economy is not an entity that can be controlled. It is inherently an out of control natural process – an “ecology” if you will.

    So the politicians can not refrain from screwing around with it, even though they don’t understand it. The economy has many “paradoxical” behaviours in it. Politicians, thinking they are in control, believe they can change this by fiat. They can’t. But they keep trying… And the paradoxical behaviours keep slapping everyone around until something breaks or the law gets removed.

    Doesn’t matter if we’re talking communism, socialism, or capitalism: That basic truth holds.

    So the more they put laws in place, the more the economy doesn’t do quite what they wanted, so the more control they try to put on with more laws, etc….

    My most basic and persistent frustration is with politicians (and to a lesser extent business managers) who think they can change what an economy or a market does; by fiat.

    Why is it this way? Because a market (or any economy) is the result of millions of decisions by millions of players and it is just not possible to control them all. (And even if you could, that would require perfect knowledge of the paradoxical responses; and of all insights of all the players. Impossible.)

    So the politician says “Drugs must sell for lower prices” and the response of a reasonable manager is to either leave the country or leave the business. In the end, the government must then buy drugs from a company in a foreign land (and at higher prices) or from a less competitive market with fewer survivors (and so with higher prices). The politician won’t stand this and punishes the industry, eventually getting no drugs at any price…

    Now sometimes this process takes several decades to work through, so it can sometimes give gratification to the politician for a while; and this only encourages them more… For examples of this case, see Chrysler, GM, AIG, The Subprime Mortgage Crisis (direct result of government actions to promote houses for everyone – even those with no hope of paying…), and the creeping destruction of private medicine.

    At it’s most basic: Business takes a farmers mindset – you throw away some of your corn as “seed corn” to get more later. Government takes a miners mindset (Gold diggers?) – you grab for all you can get right now, the future be damned and never let go of even a small flake of personal gain.

    It’s hard to have a healthy farm, or ecology, with miners digging up the land…

    Per “voice to reason and wisdom”: near as I can tell, it comes from a unique environment where I grew up. Surrounded by folks who had a strong belief in the virtue of truth and the value of old wisdom. Got me focused on things like truth, wisdom, understanding, clarity, honesty, integrity. Add to that some English roots with the love of language, some Irish with the gift of gab, a bit of Amish discipline, devotion and foundation. It all adds up to me.

    So if there is a truth, it must be embraced. And it must be shared with others ( the Amish thread). And explained well and clearly (doing honor to English) but preferably with a bit’o style (Irish song…)

    And at some core level, I just like to Keep A Tidy Mind, and that’s easier if you just store the truth, and do it in a clean and compact way…

  4. H.R. says:

    I share your frustration and distrust of Wiki, E.M.

    I ran up against the problem of a Wiki topic being taken over by an agenda driven group in the very early days of Wiki. I’ve probably only used Wiki a half-dozen times in the past several years. For example, the last time I used it was to research which elements in low carbon steel might increase the formation of pinholes during TIG welding. There’s not a lot of spin that can be put into that topic.

    Nice rant, though, and I learned quite a bit from it. I’ve had the obligatory micro and macro economic undergrad courses and one grad level economics course. Jevon’s Paradox was mentioned, but not covered in depth. Thanks for that post.

  5. Gale Whitaker says:

    King Hubbert’s peak oil study says nothing about “running out of oil”. Running out of oil is not the issue at all. The peak oil study is about maintaining the production rate the world demands in order to maintain it’s ever expanding growth in GDP and population (currently 85,000,000 bpd). When shortages start to occur Joe sixpack will not be able to fill his tank so that he can go to work to earn his daily bread. Very soon his children will begin to starve. This probem will create a situation where folks get really angry and violence becomes the order of the day. Do you think this situation will ever occur? What if does? Should we have a contingency plan that might help sidetrack this kind of disaster? Do you think that American made products might be cheaper on the world market if they could be produced using less oil consumption? HUMM, maybe a little conservation might pay off for the business oriented conservatives in this country after all.

  6. E.M.Smith says:

    @Gale:

    I’m very familiar with what Hubbert’s peak says. Yes, we reach “Peak Production Rate” for oil someday. So What!

    The “onset” will take a decade or two just to measure. The “peak” on a bell curve of about 300 years total length is measured in decades and it is very easy to adapt on those time scales. We still have folks arguing about “did it start 10 years ago” vs “It might start in a decade”. (It didn’t start yet, the Saudis opened the spigot a bit and crashed oil prices… while proving we had more ‘upside’ to go.)

    Please see:

    http://chiefio.wordpress.com/2009/03/20/there-is-no-energy-shortage/

    It will help you come to understand the reality of our massive energy supplies. (The link is in the article above, but I guess you missed it…) I’ll put a bit of it here, but really see no reason to reproduce the whole thing here as a comment…

    It points out we have 1 TRILLION bbl of oil in shale in North America alone. Recoverable at about $3 / gallon of gasoline. We do that AFTER peak oil.

    (Tar Sands, Oil Shales, Gas To Liquids, Coal To Liquids, these are all excluded from the definition of peak oil so you really need to look at peak OIL PRODUCTS, not peak oil, when projecting your doomsday scenarios / mindset …)

    Peak Oil is not peak oil PRODUCTS.

    We will have gasoline and Diesel Oil available in hugh quantity for a few more hundreds of years at affordable prices (assuming $3 to $4 a gallon is affordable) from tar sands, oil shales, coal, and natural gas. After that, we go to Algae (unless some price breakthrough lets us move sooner).

    Nobody will starve due to Peak Oil. No violence will come from it (provided we are not prevented from using Coal To Liquids, Gas To Liquids, Oil Shale, Oil tar sands, etc. etc. by the present AGW movement…)

    So no, I don’t think the situation will ever occur where a shortage of Oil PRODUCTS leads to social disorder (unless caused by OPEC for political reasons or from incredibly stupid government policies that put coal, shale, tar sands, and other fuels off limits – though even then we could use Algae farms and get all the Oil PRODUCTS we want at about $3 to $5 / gallon…)

    FWIW, the US is among the most efficient in the world in terms of energy used per unit of production. There is very little that curtailing oil consumption would or could do in that regard. Industry largely runs on electricity, with natural gas for chemicals and dryers and with coal for metals refining. No oil here. Let go of it.

    The major impacts on our export costs are, roughly in order:

    1) Foreign Exchange Rate
    2) High labor costs
    3) High taxes, especially on corporations and capital gains
    4) Government policies (i.e. things like CARB in California is going to cost Toyota about $1 Billion just to comply with the unique and wasteful “special” smog laws in California. You can project the same kind of costs on Chrysler, GM, Ford, etc. Now THAT is waste that could be removed…)

    Oil is almost entirely used for TRANSPORTATION, not PRODUCTION. (See the chart at the top of the “No Energy Shortage” article). Most of the goods for export are shipped via RAIL. The only more efficient mode of transport is SHIPS (which is where the rail takes the goods). (Trucks are used for more local delivery to retail outlets) So the only place where “oil” comes into export is the transportation fuels for rail and ships – and those run on Diesel engines.

    In that article I point out that THE most efficient engine IN THE WORLD is a Diesel. You are going to get exactly ZERO efficiency improvement by moving away from the Diesel and Diesel Oil. There is just nothing to gain there.

    The only potential there is a tiny bit of theoretical improvement if you electrified the entire rail system and powered it via nuclear electricity. The cost of this is horrific due to the vast length of rail in the USA and the high cost of all the tons of copper it would take.

    That is, BTW, why the USA uses Diesel Locomotives while much of Europe is electrified. They largely run very short track compared to ours so it takes much less material and labor to electrify. The economics of the electrification infrastructure are quite different… (This is not a theoretical. Rail providers regularly look for places to electrify. One cross country piece in the midwest was ripped out because it was cheaper to run Diesels… All that electrified rail costs a lot of LABOR to maintain.. )

    BTW, business does most of the recycling in the country and also does the most for energy conservation. A modern business facility is remarkably efficient. There is really very little to gain there. What most folks mean by efficiency (and I suspect what you mean) comes down to deprivation. To use less to use less. What businesses do is make more with what they have. There are whole engineering departments devoted to this. If a new technology comes along that lets an oil company make 1% more gasoline from a bbl of crude with 1% less energy, you can bet that an engineer is assigned to figure out if it makes sense for them and how soon to do it. I know because I’ve done such efficiency reviews. (At one time I made a specialty of it on the compute side of things. At a prior employer we ‘scored’ a very large 6 figure rebate check from the utility company for electric efficiency improvements ;-)

    So no, I don’t see where your unsupported assertion that there will be some magical reduction in cost of production will have any impact at all via some ill defined “conservation”.

    Also, FWIW, it may just be a Silicon Valley thing, but in my business experience many of the executives where HIGHLY liberal and most were somewhat liberal See Steve Jobs, Warren Buffet, George Soros, and a host of others. The mythical “conservative businessman” is just that, a myth. The population in business reflects the population at large. In my experience, it’s the blue collar folks who are more conservative. Being rich lets you afford to be liberal, thus the phrase “Limousine Liberal”… there is much truth in it…

    Per the running out doomsday scenario and the virtue of a contingency plan: Yes, we ought to have one. THE major threat we have to our social stability is a collapse of oil supply. But not from Hubbert’s Peak.

    I lived through it the last time it happened. It will be driven by political activities and will be an OPEC (i.e. Iran and Venezuela lead) artificial cut off in supply. We ought to have continued our synthetic fuels program started after the 1970’s Arab Oil Embargo. South Africa did and is now running on coal derived oil (see SSL Sasol – South African Synthetic Oil Company for an existence proof. It works.). This ought to be done for economic and political stability reasons, not due to some Peak Oil Malthusian Catastrophe fantasy.

    Please see the “never run out of energy” link in the article or repeated above in this comment. It really does deal with all this…

  7. Jim Papsdorf says:

    Another VERY interesting read !!!!!
    Regarding many of the AFTER oil sources you list [oil tar sands, oil shale] do they not all require enormous uses of water which mitigates against their future ?

  8. E.M.Smith says:

    @Jim:

    Tar sands take a lot of water for the present form of processing. There are ways that take less. Coal to liquids takes some water for the reaction. In many cases, salt water could be used (for things like cooling, for example) and with some creativity, the cooling in one step can deliver fresh water steam to the parts that need it. It’s not an impossible task…

    One other point: Even if a particular site has limited water available from, say, a nearby river: That does not limit the quantity of fuel that site can produce, only the rate. So maybe it takes me 200 years to convert that patch of tar sands to fuel (as I wait for each year’s rainfall to deliver my small batch of water). This is bad how? There are so many sites with resources that we can get the total rate we want, even if many sites are of a long life / slow rate profile.

Comments are closed.