I’m curious if Austrian economics encompasses any analysis of economic activity that takes place off the radar screen, so to speak, of the market. For example, in the following article:
the jam making and consumption by the writer’s family. Seems to me he’s right - by making and consuming his own jam, the GDP just decreased by the value of on jar of jam (an oversimplification, but you get the point). Writ large, this has inarguable economic impact. How is it accounted for in Austrian economics?
Yes he is absolutely correct that an aggregate measure of money transactions like GDP can not in any fashion predict the condition of an individual or even a group of individuals. He is also correct in that he is adding to his interest (Making him wealthier in real terms) but putting very little extra in the GDP computation.
As for his “Peak Oil” stuff, I disagree with that completely. Even assuming the “Peak Oil” point exists, entrepeneurs will find new ways to power vehicles and make petro-chemical products. It is a cost of oil vs the cost of something else issue. Eventually oil will get so expensive that an alternative will be better and then consumers will select the alternative. There is one alternative the article mentions in the supply of food. That is as fuel prices increase the more local growers will have a price advantage in their areas and the more consumers will select the local growers over remote ones.
As for the rising prices of petrol and all other commodities, this is a product of central banking and their creation of money (Inflation) that leads to boom and bust cycles. They are not from the point that demand has passed the ability to the petrol market to keep up and it is oblivion for the human race from here.
As for the value in preserving you own fruits or growing your own food or buying food from local producers, this is all a matter of personal preference.
It’s not even a good measure of activity, given the amount of grey and black market activity it excludes.
In my opinion, it is a big number that seems to go up all of the time, and thus creates a feedback loop that satisfies the criteria of being fit for statist propaganda.
Another problem that I have with the GDP is that it adds in all government expenditures: it assumes that everytime the government spends money, it adds to the economy! Its saying that $20,000 toilet seats somehow add to the economy.
So does Austrian economics offer a metric other than GDP for calculating economic activity and productivity? Of course, as has been noted, merely having such a metric has enabled government manipulation.
Mmmm…no I totally disagree with magical thinking like this when I see it. This is a completely faith based argument. It’s thus religious in nature. I am only interested in rational, fact and logic based arguments. I have looked into all sorts of alternatives, into oil well and oil surveying technologies, etc and I can find no good evidence that ‘something’ is in the pipeline to replace oil. This is especially true if you spend some time to understand just how deeply enmeshed fossil fuels are, and how thorough the interdependencies to it.
As for Peak Oil itself, this is pretty simple really: if you are eating a plate of food, and you keep eating, will you reach the halfway mark? And, if you continue, will you eventually finish the plate? This is a simple mathematical concept for any finite, non-renewable resource. It’s not a question of if, it’s a question of when. Even if you say - more food is being added to the plate, that food comes from somewhere, and if the supply is finite, you will peak and you will find yuorself on the depletion curve. The only way this could be untrue is if oil is NOT a finite resource. But abiotic oil is a joke - again, it’s a faith based argument, more magical thinking. And in case you did not know this, the past 50 years have seen an explosion in oil exploration - yet discoveries peaked back in the 60s and new finds are much smaller than older ones, AND much more expensive to get to and develop. We’re talking geological facts here, folks, and no amount of magical thinking can upend the physical laws of the universe. Even the most brilliant entrepreneurs cannot make the law of gravity or of plate tectonics cease to work!
Basically, proof of peak oil is simple: as supply fails to keep up with demand, prices will go up, and - corrections aside - will continue to go up. So it will be easy to see if you are right and I am wrong: if you are right, oil prices will decrease over the long term. If I am right, the long term trend will continue to go up. Let’s sync back up in a year and see where we are.
Wrong here, too methinks. For one thing, this overly simplistic approach does not factor in the law of receding horizons. For more on this read here:
Also, this argument implies that we’ll be able to simply and relatively easily ‘hot swap’ one or more alternatives for fossil fuels when the price is right. If you look at the details, this becomes quite improbable. What are the alternatives available? All of them in fact, depend on fossil fuels themselves - as feedstocks for hydrogen, or for growing crops to turn into ethanol, and to mine and extract and manufacture and transport the components of the alternative system itself. Additionally, every credible estimate I see for bring alternatives on line and into production is in the decades. 50 years for hydrogen. 10 - 20 for wind (which won’t help with transportation), 20 - 30 for solar (and just try making a PV panel or solar thin film, or a wind turbine for that matter, without fossil fuels! Good luck with that!), etc. Bottom line: no easy solutions. We should have started down this road 30 years ago, then we might be able to squeak something out.
Another problem I have with this sort of argument is this: it presumes we have a free market which is capable of addressing the problem. Are you serious?? I mean, I am an all out anarchist, and I agree with you completely that free markets, being agents of purely voluntary exchange, are marvelous engines of innovation and prosperity - unfortunately, we have nothing that remotely resembles a free market today. We have a heavily subsidized and regulated mixed market - and one of the most heavily subsidized and regulated sectors is the energy sector!
So what you are saying is essentially that our heavily subsidized and regulated market will be able to respond in the same fashion as a free market, and therefore we are not to worry. Come again?
Let me say this: in general, when the price of some product which is in high demand increases (i.e the supply vs the demand diminishes), at some certain threshold, alternatives will become economically feasible - I understand this and agree with it. But we’re not talking about the general case. There are specific factors here that make oil a special case, chief among them being that all of the alternatives are 1) dependent on oil to be brought into existence, and 2) not ready to step in and replace oil (and in fact, are rather far from this point). Oh, and 3) oil is not just some product in demand - it is a finite, non-renewable product the supply of which is - currently - absolutely imperative for the continued functioning of a modern industrial economy.
So let’s seek a truly generic statement for this general proposition:
When the price of some product which is in high demand increases (i.e the supply vs the demand diminishes), at some certain point, alternatives will become economically feasible, unless first, the system responsible for producing the product and its alternatives collapses. That collapse may occur if the product itself is the key underpinning of the system.
Well, much of it is due to inflation of the money supply, no doubt (though I’d urge you to remember that money supply inflation of the sort practiced by the Fed represents a small minority of the total money supply - much more is represented by bank loans - which you may have noticed are not exactly going so well these days) - but again this is an overly simplistic view, IMO. That is only one component (and a difficult to quantify one at that) - this is a complex issue and there are other components that probably have at least as much influence. Here’s an interesting analysis of the whole subject by a Dutch energy research group which argues that there are now 2 distinct pricing regimes for oil, the first - the traditional - one is the commodity-driven price regime which exists when supply outstrips (or can be made to outstrip) demand (i.e. when you can have marginal or swing production by a producer such as Saudi Arabia), and the next which is now coming into play which is not based on marginal costs, but on ‘real value’ - the paper is here:
The thing that I think is interesting is that this transition to a new pricing regime is completely based on the fact that, given a plateau or peak in oil production (or, more to the point, oil available for export to America, primarily), oil will no longer be a commodity. Because more people will want it than can get it - at least, at the prices which will support the national infratructure which depends not on oil, but on cheap oil. And that’s really the key point that most people seem to miss: we’re not running out of oil - but that doesn’t matter - running out of cheap oil is what matters, because our entire economic infrastructure is feasible ONLY with cheap oil.
So again, this analysis tends to indicate that the peak oil crowd is right about the peak or plateau that seems to have formed since 2005.
The pricing signals are there - Austrians are supposed to be very sensitive to pricing signals. So why do I see Austrians being among the first to discount them in this case by dismissing peak oil and instead leaping to simplistic assumptions about a complex issue? I don’t get it.
Concision is your friend. BTW, Rothbard, Skousen and Reisman have developed alternative measures for production. Just google GDP alongside their names, or check the Praxeology reading list, I think some of it is in there.
I do not think it is religious to believe that complex problems like finding alternatives to petrol and other fossil fuels for the energy to power vehicles is best left in the hands of the billions of actors in the world economy and taken out of the hands several thousand legislators who claim knowledge based upon feelings. I think it is rational. No person or persons or person with computer or persons with big computers can possibly manage the resources needed to develop these alternatives to petrol while allocating wealth to other areas of the economy. The US Government can not even allocate resources well enough to separate between successful technologies like hybrid gas-electric motors and all electric.
Sure there are no immediate alternatives for fossil fuels if you lump petrol substitutes like natural gas and liquified coal into the picture. But breaking down what fuels vehicles we see that liquified coal and natural gas are substitutes for gasoline and diesel. There are others and there are thousands if not millions of people out there in their laboratories or parents basements trying to develop the next method to power a car. The folks who made the Tesla are an example.
Now back to inflation. Austrians define inflation as the increasing of the amount of money and credit in the economy. So the inflation has already happened, and the Fed with Congress are continuing to create inflation. Without the extra money and credit pumped into the economy over the past decade, the US and the rest of world would not have seen near the increase in prices for fuel, food and other commodities. Could petrol prices go up with low or no inflation, sure, but the effect of a true supply shock like a war or something is normally temporary. Besides, the current run up in petrol prices coincides with a run up in gold, copper and food as well so I tend to believe that it is the inflationary policies of the US central bank and not any supply shock that has cause the increases in prices.
I bet people thought that it was impossible to replace coal until someone discovered that petroleum was good for more than kerosene. And before that, I bet everyone thought that steam was the end of technology. Right now, if it weren’t for the government getting in the way we could be making plastic from hemp and working on affordable nuclear energy generation, for just two examples. The only reason oil has been a staple of our economy for so long is because our economy has been prevented, by law, from growing out of it.
As much as the science behind nuclear energy may be considerably more sound than in previous years where fear of use was warranted (especially with pebble bed reactors), I still am not comfortable with nuclear; the possible risk is too great, in my view.
I would much rather use solar & renewables, as well as geo-thermal. MIT recently replicated the process of how plants store their energy (interesting article here: http://web.mit.edu/newsoffice/2008/oxygen-0731.html ), so I’d imagine solar energy will be considerably more friendly. The idea of further developing technology in converting waste heat into electricity, would also be excellent.
I don’t think wind energy would be viable though (:snickers at Picken’s big mouth: ).
You said: “Even assuming the “Peak Oil” point exists, entrepeneurs will find new ways to power vehicles and make petro-chemical products.”
This statement contains no hint of fact or evidence supporting this assertion. I’m sorry, but this is pure magical thinking - it’s a faith-based argument by definition. It’s not rational unless you follow it up with plenty of due diligence and research, or at least address the underlying logical components needed to support this notion (abundance of entrepreneurs, economic and technological environment conducive to entrepreneurial innovation, funding, etc), yet none of this is evident in your post, thus, magical thinking.
The free market is an amazing thing - but it is NOT a miraculous thing. The free market is terrific at solving complex problems (though frankly, it’s not nearly as good at solving complex problems as is civil society at large - something that I see ignored or unremarked all the time on ancap and libertarian boards - remember that the market is not the only component comprising civil society) - but that brings up my other point that you did not address: we do not have a free market, or anything remotely resembling a free market. We have a heavily regulated and subsidized market, especially when it comes to the energy sector. So even if the free market were miraculous, it doesn’t exist. Yet you assert that entrepreneurs operating in a market dominated by government and their favored and protected corporations can work wonders just as though it were a free market. Well, in this case, why do we need a free market if the one we have run by govt and their pals works the same magic? I completrely disagree with this. I think that true entrepreneurs are currently being hobbled, crippled even, because government favoritism of corporations with deep political connections and deeper pockets keeps them that way on purpose so the big guys don’t have to compete. So I think there is very little chance of entrepreneurs - and I’m NOT talking about the ones who dream up new investment vehicles like CDOs and SIVs containing sub-prime mortgage time bombs, but REAL entrepreneurs like Burt Rutan - coming through for us because there are so very, very few of them able to operate at the level that is needed. I think the notion that thousands of thousands of entrepreneurs stand ready to leap into action to ameliorate this looming crisis - or that the govt would permit them to do so - is yet more magical thinking.
Natural gas is peaking or has peaked also, and is used in an awful lot of power plants (not to mention as a feedstock for fertilizer - food or fuel?), so lots of competition for the same fuel (and Canada - our biggest supplier - is increasing its domestic consumption, meaning their will be less leftover for us going forward). That’s why we see lots of talk about LNG being shipped in. Only nobody wants an LNG terminal anywhere near their homes or cities, and so there is no provision being made to get the stuff here.
By liquified coal I assume you mean synfuels, or coal-to-gas?? Several problems with this, too - first, most analyses show mass conversion would use the available coal quickly, leading to a peak situation sooner rather than later, and the other problematic aspect is the ERoEI is very poor and getting worse partly because of the degradation in available coal quality, IIRC. And of course, the conversion process dumps massive amounts of hydrocarbons into the atmosphere - not likely this would be permitted, let alone encouraged on a vast scale.
I’m not saying any of this is impossible - what I’m saying is that the nature of the problem - the fact, whether we realize it or not, that fossil fuels are the very basis of our entire economy - makes this an incredibly comiplicated and difficult problem to solve - this is much, MUCH more challenging than going to the moon was because oil is inextricably intertwined throughout virtually every aspect of our society and eonomy. That’s why I take issue with assertions that entrepreneurs coupled with the power of the free market (which does not exist) will simply figure it all out for us.
Several comments here:
The amount of credit in the economy is shrinking - that’s what the credit crunch is all about. So while the Feds are printing money, and extending loans, bank credit is contracting, and bank credit is the vastly larger portion of the overall money supply. There was a good thread recently on money supply, but it’s still awfully dicey to assert that the money supply as a whole is expanding simply because the Fed is printing up money. This needs to be quantified before your assertion can be taken seriously.
You also need to quantify that the SOLE component of oil price increases has been the Fed’s inflationary policy, because as it stands, this is a dangeruos and unwarranted assumption. The analyses I have seen - and in fact I pointed you to one which you apparently didn’t bother to read - indicate that there are numerous components, including a non-commodity-driven pricing regime, and an increasing number of bilateral agreements between specific oil producers and consumers - exactly what one would expect if long term demand were expected to outpace long term supply. Further, if a ‘true supply shock’ is when the supply of oil is temporarily reduced, what do we call it when the suplpy is permanently reduced? And if, as you say, prices go up during the former, then wouldn’t one expect that they would go up much more - similar to what we’ve seen recently - in the case of the latter?
What I am suggesting is that you loko at the data and attempt to figure out what it means rather than starting with your political agenda and then trying to fit the data to that agenda. You cannot do this if you insist on magical thinking and non-quantified assumptions about oil prices and money supply inflation.
I bet you could research that and find visionaries who saw much further than coal and steam. I bet you could find short sighted people who didn’t. This proves nothing.
Your point about hemp is well taken - I say that because it backs up exactly one of the central points I am making: we do not have a free market. We have a market that suffers under vast government intrusion. Thus, why the faith that entrepreneurs will somehow be a silver bullet for any problems that crop up?
All the posts here presume that some sort of alternative will replace oil - either yet another finite, non-renewable resource like coal or natural gas, or a renewable like solar, wind, geothermal - and presumably things will proceed pretty much as they have been from there.
But imagine this for a moment: nothing will replace oil. It’s too late. The entity most likely to be ‘put in charge’ of ‘finding a solution’ will be government, which will, of course, bungle it. Society crumbles…
Imagine that peak oil - the end of cheap and abundant oil, not the end of oil - is not a problem in search of a solution - which is how it’s being treated here. It’s a new condition. It’s a new paradigm.
Seems to me that States would have rather a more difficult time in such a post-peak world than they do in today’s. The criminal enterprise that is the State relies, like any enterprise, on economies of scale to effectuate its business efficiently. That will no longer be possible. It is entirely plausible that an opening for liberty is at hand. Why do I sense that this scares the shit out of many people here?
I am highly suspicious of generalizations such as this - there are innumerable historical events which give the lie to this one in particular. Social chaos in history has led to the destruction of any number of States. Problem was: new States were erected atop the ruins of the old. Certainly, it could be said that social chaos - in many cases - can be made (or even are manufactured) to strengthen the State, but it depends on the particulars of the case.
A moment’s thought will serve to convince you that this is an erroneous and non-factual assertion.
Consider this: if what you are saying was true, then there would only be one set of States, each of which would stretch back to the dawn of history. Since that is not the case, ipso facto, this is a false statement.
Now, once that’s dispensed with, consider what is different this time. The State will cease to have access to the means by which it oppresses, at some point. I anticipate a full out Statist push at first - a draft (we need more soldiers to go get ‘our’ oil), martial law (thx to Bush’s recent gutting of Posse Comitatus and Insurrection Acts), etc. But at some point, with oil wars not going well (Iraq: a preview) and with oil producing nations (Russia is the #1 producer right now - how many knew that?) no longer willing to feed our addiction with their precious oil, preferring to hoard it for their future use (do you see how this changes the entire world paradigm? it’s not about peak production - it’s about peak exports), the State will, over time, begin to lose access to easy transportation, communications, and other essential infrastructure services. Manufacturing will grind to a near halt. Food production - do you have any idea how totally dependent food production (not to mention food distribution - the average item on your dinner plate has traveled around 1500 miles to get there) in the US is on petroleum?? - will dramatically drop. Nationalized food production - esp of organic farms - may well be in the cards. Along with nationalized nearly everything else, as the State recognizes the threat to its sphere of control.
As these things happen, and the State increasingly demonstrates it’s ineptitude and powerlessness, people might just learn that they can do things on their own that the State cannot do for them. Like feed and protect themselves. Not very many will be able to learn, but some will. If given the chance.
I don’t know if this is the way things will turn out, but it’s plausible. In fact, I would have to say that after decades of witnessing a total lack of any credible obstacle to the ongoing increase in State power, for the first time in those decades, I see a plausible scenario wherein liberty may just get the chance to come to the fore. Odds are still heavily against it, but less so than at any time within my memory.
A credible peak oil proponent, Matt Simmons heads up one of the world’s largest energy investment bank, Simmons and Co. Was on Cheney’s energy task force. Not a hippie environmentalist. Not a libertarian. A political and energy industry insider. Which of course is why he’s the only peak oil proponent ‘The Economist’ would cover - story here.
Could a modern version of Jeffersonian agrarianism be in our future? Along with at least a chance to reclaim liberty? Doubtful, in America. A population of fearful sheep, dreading liberty, conditioned to servitude, they will probably opt for a warlord to ‘keep them safe.’ But maybe in isolated pockets…
