Monday, July 11, 2011

Thoughts on the Link Between Peak Oil and Peak Debt

Gail the Actuary at Our Finite World has a post today on The Link Between Peak Oil and Peak Debt – Part 1.

There is a good discussion in progress, and I've elucidated the MMT position in several comments.

In my view, money and energy are two sides of the same coin. Money fuels the financial economy, turning the wheels of commerce, and energy fuels the real economy, turning the wheels of industry and agriculture. Both are flow issues and can be approached similarly on that basis.


googleheim said...

Are we talking about Flo or Flow ?

hydrodyanmic modeling of economic systematic waves

or the lady in the classic TV hit "Mel's Diner" ... "kiss my grits" ???

Tom Hickey said...

Maybe Craig will chime in that one. He is the engineer.

My point about flow relates to Gail's title "Peak Debt." People tend to look at this in terms of stock, when flow is the key.

Fluid mechanics provides some useful analogies. Even economist use the "bth tub" model to illustrate the difference between stock and flow.

Crake said...

Reminds me of a quote of Thomas Edison that I like (re-reading it now, his style was similar to Googleheim’s)

... said Edison as we sat at lunch... "Some day some fellow will invent a way of concentrating and storing up sunshine to use instead of this old, absurd Prometheus scheme of fire. I'll do the trick myself if some one else doesn't get at it. Why, that is all there is about my work in electricity--you know, I never claimed to have invented electricity--that is a campaign lie--nail it!"

"Sunshine is spread out thin and so is electricity. Perhaps they are the same, but we will take that up later. Now the trick was, you see, to concentrate the juice and liberate it as you needed it. The old-fashioned way inaugurated by Jove, of letting it off in a clap of thunder, is dangerous, disconcerting and wasteful. It doesn't fetch up anywhere. My task was to subdivide the current and use it in a great number of little lights, and to do this I had to store it. And we haven't really found out how to store it yet and let it off real easy-like and cheap. Why, we have just begun to commence to get ready to find out about electricity. This scheme of combustion to get power makes me sick to think of--it is so wasteful. It is just the old, foolish Prometheus idea, and the father of Prometheus was a baboon."

"When we learn how to store electricity, we will cease being apes ourselves; until then we are tailless orangutans. You see, we should utilize natural forces and thus get all of our power. Sunshine is a form of energy, and the winds and the tides are manifestations of energy."

"Do we use them? Oh, no! We burn up wood and coal, as renters burn up the front fence for fuel. We live like squatters, not as if we owned the property.

"There must surely come a time when heat and power will be stored in unlimited quantities in every community, all gathered by natural forces. Electricity ought to be as cheap as oxygen, for it can not be destroyed.

"Now, I am not sure but that my new storage-battery is the thing. I'd tell you about that, but I don't want to bore you..."

Adam2 said...

Great comments Tom.

Peak Oilers are mainly Neo-Malthusians. They do not understand economics. I used to be a Peak Oil Neo-Malthusian. There is some truth to what they say but economic understanding through MMT is a way to defeat it and it gives true hope.

I really like your infrastructure bank idea. Instead of Deficit Spending that is the way to finance the needed infrastructure projects.

The CEO of my former occupation became the President of the ASCE so I remember clearly the grades on our collective infrastructure. This is something that is always ongoing no matter the financial problems of the country.

paul meli said...


I read your entire exchange in the comments. It is striking to me that most of the push-back was of the doom and gloom type coupled with no substantive ideas or solutions but at the same time rejecting yours.

By the way I am an engineer (Mechanical) with a minor in Electrical and have always thought of the economy as analogous to a circuit in equilibrium (operating state). If you understand the function of the various circuit blocks it is easy to predict the outcome of changes to the input.

My discovery of MMT a year or so ago was just confirmation bias I suppose.

Irony is that the link that sent me in this direction was from Brad DeLong's blog.

Kevin Fathi said...

We need electric rail:

Matt Franko said...


BSEE here. I think the key is that most of the folks who pick up on the MMT quickly have what I found at Wiki that is called "Mathematical Maturity".


You get it thru immersion in the calculus probably thru a curriculum that is not "Economics". Enginneering/applied mathematics, probably other disciplines....

This from the wiki link:

"-the ability to recognize a valid proof and detect 'sloppy' thinking

-the ability to recognize mathematical patterns

-improving mathematical intuition by abandoning naive assumptions and developing a more critical attitude"

Tim Geithner I'm sure doesnt have it (he couldnt even handle the IRS 1040!), and he is apparently the most influential economic policy advisor in the Admin since the others have left....


David said...

Peak Oilers are mainly Neo-Malthusians.

Thank you for saying that. I've felt for a long time that most people on the left buy into a sort of generalized neo-malthusianism and peak oil is just the latest manifestation. For them, economic thought always starts with an assumption of scarcity. Paul Erlich, I believe, still enjoys a good deal of credibility with most enviros.

The right believes in straight old- school malthusianism: "we must appropriate all the supplies and starve out the poor or they'll reproduce like locusts and eat us out of house and home."

Never mind that birth rates tend to go down when people enjoy better economic conditions.

I agree that MMT could be part of a philosophy of abundance that, while taking due account of real resource limitations, at least can conceive of something better than the usual dismal alternatives.