Oil supply optimists claim that new technology combined with private development of the world's remaining oil resources--most of which are now under the control of government-owned companies--would vastly increase global oil production and put off any decline for decades. Texas oilman Jeffrey Brown isn't buying it, and he cites the history of oil production in Texas and the North Sea to explain why....Read more
Thursday, February 25, 2010
Do Texas and the North Sea foretell the future of oil production?
My latest column on Scitizen entitled "Do Texas and the North Sea Foretell the Future of Oil Production?" has now been posted. Here is the teaser:
Sunday, February 21, 2010
Peak demand: The cornucopians reach for a fig leaf
The world's oil supply optimists must feel as if they are in that dream that so many of us have had about arriving at work in our underwear. Oops! What do I do now to save face?
Over the past decade oil optimists repeatedly forecast a glut in oil supplies that kept failing to materialize. Now, they are reaching for a fig leaf hoping no one will remember their consistently errant predictions. That fig leaf is the idea that we have reached peak demand, and that that's the reason we have not seen oil production rise in the past several years.
Strangely, they made no mention of this theory in 2005, 2006, 2007 or 2008 as prices skyrocketed. It was only after the market crashed and a deep worldwide recession ensued--something which would be expected to curtail oil demand--that they formulated the peak demand thesis.
Archcornucopian Daniel Yergin, who kept calling for mushrooming oil supplies throughout the last decade, now tells us that flat production is really the consequence of peak oil demand. Developed nations will from this day forward require no greater quantities of oil. He does acknowledge that demand may grow in China in the years to come. His firm, Cambridge Energy Research Associates (CERA), is on record suggesting that oil production capacity will likely grow 25 percent from now through 2030. But the forecast is later hedged with this statement:
Over the past decade oil optimists repeatedly forecast a glut in oil supplies that kept failing to materialize. Now, they are reaching for a fig leaf hoping no one will remember their consistently errant predictions. That fig leaf is the idea that we have reached peak demand, and that that's the reason we have not seen oil production rise in the past several years.
Strangely, they made no mention of this theory in 2005, 2006, 2007 or 2008 as prices skyrocketed. It was only after the market crashed and a deep worldwide recession ensued--something which would be expected to curtail oil demand--that they formulated the peak demand thesis.
Archcornucopian Daniel Yergin, who kept calling for mushrooming oil supplies throughout the last decade, now tells us that flat production is really the consequence of peak oil demand. Developed nations will from this day forward require no greater quantities of oil. He does acknowledge that demand may grow in China in the years to come. His firm, Cambridge Energy Research Associates (CERA), is on record suggesting that oil production capacity will likely grow 25 percent from now through 2030. But the forecast is later hedged with this statement:
“So much will happen between now and 2030 to affect demand—from changes in the automobile engine and the electric battery to changes in demographics and values,” says [CERA senior director Peter] Jackson. “Peak demand may ultimately prove to be the main driver of long-term supply.”
The International Energy Agency (IEA) has also jumped on the peak demand bandwagon. Fatih Birol, chief economist for the IEA, told Reuters, "When we look at the OECD countries--the U.S., Europe and Japan--I think the level of demand that we have seen in 2006 and 2007, we will never see again." To be fair Birol has been sounding the alarm about oil dependence and suggesting that the world "leave oil before it leaves us." And, he has indicated that peak might come as early as 2020. Perhaps Birol is hedging his bets even further sensing that production may rise little if any from here.
A recent entrant into the peak demand sweepstakes is Saudi Arabia. Always publicly confident about its ability to produce vastly more oil for decades to come, it is noteworthy that the desert kingdom is now announcing that peak demand may be here. This comes not too long after the country announced plans to use carbon dioxide injection in the world's most prolific oilfield, Ghawar. The Saudis insist they are doing this as a public service to help spread the technology of carbon sequestration. But this type of injection is only used in fields that are in decline and for which other methods such as waterflooding are no longer sufficient to maintain production. If world demand can be said to have peaked, then perhaps the Saudis will have a perpetual excuse for why they aren't producing more oil--not because they can't, but because the world doesn't demand it.
One has only to make a superficial analysis of such claims to see that they amount to nothing more than sleight of hand. First, every economist knows that supply and demand are always equal and that it is price that makes them so. Ergo, technically speaking if demand has peaked so has supply. It is a tacit admission that peak oil is upon us.
Now, if what these people mean is that oil supply capacity could grow, but won't because we won't need it, then one must ask the complicated question of why people won't need it. Is it because the economy has been so decimated by a debt-fueled crash aggravated by high oil and other resource prices that it cannot grow? Is it simply because people across the globe on average don't feel that they need to use more oil despite the fact that population continues to grow?
Some claim that energy efficiency and the growing production of alternative fuels will depress oil demand. But no one was saying this before the crash. Why has it suddenly become relevant? Did we just discover energy efficiency and alternative fuels?
It is a truism that no one knows whether the world has reached peak oil or will reach it soon. We'll only know many years after it occurs. But the rush to announce that peak demand has arrived seems to be nothing more than an attempt to put a happy face on peak oil.
No matter what the reason, if world oil production has peaked, we are all in serious trouble. Peak means decline won't be very far away. Peak means economic recovery, let alone robust growth, may be all but impossible. Of course, we could try to run the world economy on other fuels such as natural gas and coal. But we have not prepared our infrastructure to do so, and such preparations are measured in decades, not years. Besides, there are serious questions about the longevity of these fuels as well, especially if we vastly ramp up their consumption.
The announcement of peak demand then is really designed to allow all those who made faulty oil production forecasts to keep selling their sunny optimism about future energy supplies while covering their asses for when the verdict on peak finally comes in. What the purveyors of the peak demand thesis really need to do is find some clothes to put on over their dream-time underwear and get to work figuring out where they went wrong in their analyses of oil supplies.
Sunday, February 14, 2010
Climate change deniers and our human nature
Anyone who has been following the news on climate change recently already knows about the release of hacked emails of British climate scientists. The emails were used by so-called skeptics--most of whom get their funding from fossil fuel interests--to claim that there was something rotten in climate science. As far as I can tell, there isn't much to the so-called skeptics' claims about the emails. But even if their claims were to involve legitimate questions about some aspects of climate science, this would be nothing new.
That's because there is nothing that is absolutely settled in science. It is a process of ongoing inquiry fostered by disagreements between researchers of good faith who try to resolve their differences by looking for more conclusive evidence. It is important to note that so far fossil fuel companies and their supporters have yet to fund truly independent scientific inquiry into climate change. That's because they do not want truly independent inquiry since they would not be able to control the outcome. So, they are not part of the search for the truth since they offer no original physical observations or measurements to further our understanding of climate. But, then it is far easier to throw darts at others from a safe distance than engage in genuine scientific inquiry.
(The one time the fossil fuel interests did try to have some scientific rigor infused into their thinking, they didn't like the results. A primer on climate science prepared in 1995 by the industry-funded Global Climate Coalition's Science and Technical Advisory Committee confirmed key elements of the findings of the Intergovernmental Panel on Climate Change. The primer was never released and only surfaced a decade later, several years after the coalition had disbanded. You can read it here.)
The reason such sloppy critiques of climate science have gained so much traction with the public has less to do with their scientific logic--which is almost nonexistent--and more to do with human psychology. Humans tend to be heavily influenced by recent events and by their social milieu. For example, they tend to give more credence to something they heard last week at a party with friends than something published in a scientific journal last year even if it was given broad media play. Hence the effect on the public mind of the not-so-coincidental release of the above mentioned hacked emails right before the Copenhagen climate summit--and the ongoing viral campaign on the Internet, perfect for getting people to transmit disinformation person to person: "I read on the net that..."
Humans also tend to take their cues from their immediate surroundings. That's no surprise. It's really cold and snowy this winter here in the northern United States, ergo some people conclude that global warming must not be that big a deal. Yes, it's absolutely dry as a bone in Australia where it is currently summer and a severe drought has been in progress for years with devastating results. But if you don't live in Australia, you don't think about it much even if you hear something about it on the news.
Finally, humans greatly discount possible future events. This is an understandable evolutionary feature. Humans evolved to concentrate on their current surroundings, not some hypothetical future. They seek their food, status, safety and other satisfactions in the here and now. Is there really any time other than now if you are dealing with your immediate needs?
Climate denial public relations pros know all this about humans, and they count on it to make their strategies successful.
Despite all this it is a testament to humans as planning animals that most people in the world continue to believe that climate change is an important issue that needs to be addressed. But, this may not be enough. It is in the nature of humans to pay attention to the most vocal elements of society, and the so-called skeptics are quite vocal. They are constantly squawking to the media and obtaining coverage (unwarranted, in my view, since they offer mostly misinformation).
But, the fossil fuel interests do not need to defeat climate change regulations. They only need to delay or dilute them in order to achieve their goals. Delay gives those interests one more day, one more week, one more year, maybe even one more decade to sell their in-ground inventories of fossil fuels in an unrestricted manner. Every moment's delay means more money. And, diluting the regulations when they eventually arrive means opportunities for loopholes and even sanctioned delays that will allow them to continue to evade responsibility for their role in climate change.
The members of the climate change denial club are against efforts to control emissions not only because of the threat to profits, but also because they believe that climate change legislation will mean greater government intrusion into their lives. Ironically, when the crises associated with climate change emerge--declines in water and food supplies, mass migrations from areas affected negatively by climate change, threats to coastal areas due to rising seas--we will almost certainly see government intervention in ways that are far more intrusive than those needed to prevent these crises in the first place.
That's because there is nothing that is absolutely settled in science. It is a process of ongoing inquiry fostered by disagreements between researchers of good faith who try to resolve their differences by looking for more conclusive evidence. It is important to note that so far fossil fuel companies and their supporters have yet to fund truly independent scientific inquiry into climate change. That's because they do not want truly independent inquiry since they would not be able to control the outcome. So, they are not part of the search for the truth since they offer no original physical observations or measurements to further our understanding of climate. But, then it is far easier to throw darts at others from a safe distance than engage in genuine scientific inquiry.
(The one time the fossil fuel interests did try to have some scientific rigor infused into their thinking, they didn't like the results. A primer on climate science prepared in 1995 by the industry-funded Global Climate Coalition's Science and Technical Advisory Committee confirmed key elements of the findings of the Intergovernmental Panel on Climate Change. The primer was never released and only surfaced a decade later, several years after the coalition had disbanded. You can read it here.)
The reason such sloppy critiques of climate science have gained so much traction with the public has less to do with their scientific logic--which is almost nonexistent--and more to do with human psychology. Humans tend to be heavily influenced by recent events and by their social milieu. For example, they tend to give more credence to something they heard last week at a party with friends than something published in a scientific journal last year even if it was given broad media play. Hence the effect on the public mind of the not-so-coincidental release of the above mentioned hacked emails right before the Copenhagen climate summit--and the ongoing viral campaign on the Internet, perfect for getting people to transmit disinformation person to person: "I read on the net that..."
Humans also tend to take their cues from their immediate surroundings. That's no surprise. It's really cold and snowy this winter here in the northern United States, ergo some people conclude that global warming must not be that big a deal. Yes, it's absolutely dry as a bone in Australia where it is currently summer and a severe drought has been in progress for years with devastating results. But if you don't live in Australia, you don't think about it much even if you hear something about it on the news.
Finally, humans greatly discount possible future events. This is an understandable evolutionary feature. Humans evolved to concentrate on their current surroundings, not some hypothetical future. They seek their food, status, safety and other satisfactions in the here and now. Is there really any time other than now if you are dealing with your immediate needs?
Climate denial public relations pros know all this about humans, and they count on it to make their strategies successful.
Despite all this it is a testament to humans as planning animals that most people in the world continue to believe that climate change is an important issue that needs to be addressed. But, this may not be enough. It is in the nature of humans to pay attention to the most vocal elements of society, and the so-called skeptics are quite vocal. They are constantly squawking to the media and obtaining coverage (unwarranted, in my view, since they offer mostly misinformation).
But, the fossil fuel interests do not need to defeat climate change regulations. They only need to delay or dilute them in order to achieve their goals. Delay gives those interests one more day, one more week, one more year, maybe even one more decade to sell their in-ground inventories of fossil fuels in an unrestricted manner. Every moment's delay means more money. And, diluting the regulations when they eventually arrive means opportunities for loopholes and even sanctioned delays that will allow them to continue to evade responsibility for their role in climate change.
The members of the climate change denial club are against efforts to control emissions not only because of the threat to profits, but also because they believe that climate change legislation will mean greater government intrusion into their lives. Ironically, when the crises associated with climate change emerge--declines in water and food supplies, mass migrations from areas affected negatively by climate change, threats to coastal areas due to rising seas--we will almost certainly see government intervention in ways that are far more intrusive than those needed to prevent these crises in the first place.
Sunday, February 07, 2010
Characterizing the incalculable
It would be nice to be certain about the future. But, absent time travel, no one can be certain about anything that hasn't happened yet. So, as a substitute many specialists build models in disciplines as disparate as finance and physics to guess what the future might look like given certain assumptions.
In physics the models we have for describing the universe and its properties can be remarkably predictive if they only require input based on the laws of physics. But we have considerably more trouble describing the social world of humans and the interactions of human society with nature. This is because we don't have laws of human behavior that can be nailed down in the same precise, repeatable way that laws of physics can.
The upshot is that we can calculate the probability of a comet hitting a planet with some precision. But we cannot calculate the probability of the stock market going up or down in the next five years. Nor can we calculate the probability of any particular outcome of climate change because what we humans do in the future is such an important factor in determining that outcome. The modeling of climate is also problematic because the climate system itself--even absent any human interference--is so complex that we do not fully understand it.
A rule of thumb then might be that the more complex the system, the less likely it is we will be able to model its actions with precision. And, the greater the number of humans involved in affecting that system and the deeper that involvement, the more difficult it becomes to design precise models of the system. In general, the reliability of a model decreases as the complexity of the system it is modeling increases.
What are we left with then? Shall we simply give up and say that much of what we would like to model cannot be modeled? I would counsel against this view. The reason many people tell us not to trust models is that they are mistaken about the purpose of modeling. It is not, as many believe, done in order to predict the future. Rather, most modeling is done in the spirit of scenario planning. What if global temperatures rise by 4 degrees C by 2100? What might that imply for other Earth systems and for the human-built environment? What if temperatures rise by only 1.5 degrees C? What level of preparedness might that imply? What if temperatures plunge in the Northern Hemisphere as a result of the breakdown of the thermohaline current? (For a look at a sampling of temperature scenarios based on various climate models, click here. Note especially the large error bars beside the graphs implying large uncertainties.)
But what likelihood might we assign to any of these scenarios? It is simply impossible to assign a clear, calculable probability to any of them. The best we can do is to characterize the incalculable. We cannot know the precise odds of any climate scenario. But, by knowing the range of presumed outcomes, we can start to characterize the effects and therefore gauge the probable severity of any particular outcome.
Let's review for a moment the three conditions under which we actually make decisions in our daily life. First, we can say with certainty who the current president of the United States is. We might misspeak or simply get the answer wrong, but the data is available and incontrovertible. We are thus making a decision under certainty. The answer is certain whether we know the correct answer or not.
Second, if I flip a coin, there is a 50 percent chance that it will come up heads. I can calculate this because I know in advance that there are only two possible outcomes to this action. I cannot know for certain what the outcome of any one coin toss will be. But I can know with certainty what the possible outcomes are. In this situation, I am making a decision under risk. And, I can calculate precisely what the risks are.
Third, we can describe such decisions as investing in a particular stock, taking a particular job, and marrying a person whom we are dating as decisions made under uncertainty. We cannot possibly discover all the information needed to know the trajectory of our stock pick, the degree of success or failure we might meet in our job, or the state of our possible marriage to a current love interest 10 years hence. And, it turns out that policies in response to climate change also fall under this third category. For decisions made under this category we simply cannot gather all the necessary evidence to calculate even the probability of a particular outcome as we could with the coin toss. This is partly because many of the variables would have to come from the future and partly because these situations are so complex that many of the existing variables are hidden from us. (The foregoing discussion on types of decision making is based on a paper by Nassim Nicholas Taleb and Avital Pilpel entitled "On the Unfortunate Problem of the Nonobservability of the Probability Distribution.")
Future oil supplies also fall under this third category of decision making. The Oil Drum provides periodic updates on various scenarios for future oil output including an analysis of which liquid fuels are included in which forecasts. The variables are much like those involving climate modeling. Some of the current data is unknown. Future human actions with regard to oil consumption, oil exploration and oil production cannot be known with certainty. Oil is found underground and therefore must be measured indirectly. Again, we are faced with making decisions under uncertainty with respect to oil supply.
So, given the wide range of oil production forecasts, which are we to believe? Some forecasts posit a business-as-usual scenario through the next couple of decades. Others assume a rather rapid drop-off of available petroleum in the near future. We can assign neither scenario a calculable probability. But we can once again characterize the possible outcomes. The business-as-usual scenario requires little in the way of changes in public policy or personal behavior. The rapid drop-off scenario suggests an emergency that will require heroic measures to navigate.
Now, which of these characterizations for future oil supplies or climate change should we act upon? First, we need to understand that for all scenarios generated under category number three, the further we go into the future, the more important the range of results becomes rather than the actual forecast. In other words, what are the extremes that we believe are possible? To provide some perspective on how we might proceed, ask yourself this question. If you were told that the trans-Atlantic flight you were about to board only crashes 5 percent of the time, would you still board that plane? My guess is that you would change your reservations. Even with a 95 percent chance of surviving the flight, you would find the risk of death too high.
Now if you were to assume that the worst case scenarios for climate change or future oil production have only a 5 percent chance of occurring, would that suggest to you that we need to make some vigorous preparations in order to mitigate or avoid altogether those scenarios? Keeping in mind that we can't actually calculate such a probability, this illustration shows how sensitive humans are even to low probability events if the outcomes are severe enough.
My own answer to the question, as you might expect, is a resounding "yes." But then I believe that the chances of the worst happening might actually be a significant multiple of 5 percent in both cases.
In physics the models we have for describing the universe and its properties can be remarkably predictive if they only require input based on the laws of physics. But we have considerably more trouble describing the social world of humans and the interactions of human society with nature. This is because we don't have laws of human behavior that can be nailed down in the same precise, repeatable way that laws of physics can.
The upshot is that we can calculate the probability of a comet hitting a planet with some precision. But we cannot calculate the probability of the stock market going up or down in the next five years. Nor can we calculate the probability of any particular outcome of climate change because what we humans do in the future is such an important factor in determining that outcome. The modeling of climate is also problematic because the climate system itself--even absent any human interference--is so complex that we do not fully understand it.
A rule of thumb then might be that the more complex the system, the less likely it is we will be able to model its actions with precision. And, the greater the number of humans involved in affecting that system and the deeper that involvement, the more difficult it becomes to design precise models of the system. In general, the reliability of a model decreases as the complexity of the system it is modeling increases.
What are we left with then? Shall we simply give up and say that much of what we would like to model cannot be modeled? I would counsel against this view. The reason many people tell us not to trust models is that they are mistaken about the purpose of modeling. It is not, as many believe, done in order to predict the future. Rather, most modeling is done in the spirit of scenario planning. What if global temperatures rise by 4 degrees C by 2100? What might that imply for other Earth systems and for the human-built environment? What if temperatures rise by only 1.5 degrees C? What level of preparedness might that imply? What if temperatures plunge in the Northern Hemisphere as a result of the breakdown of the thermohaline current? (For a look at a sampling of temperature scenarios based on various climate models, click here. Note especially the large error bars beside the graphs implying large uncertainties.)
But what likelihood might we assign to any of these scenarios? It is simply impossible to assign a clear, calculable probability to any of them. The best we can do is to characterize the incalculable. We cannot know the precise odds of any climate scenario. But, by knowing the range of presumed outcomes, we can start to characterize the effects and therefore gauge the probable severity of any particular outcome.
Let's review for a moment the three conditions under which we actually make decisions in our daily life. First, we can say with certainty who the current president of the United States is. We might misspeak or simply get the answer wrong, but the data is available and incontrovertible. We are thus making a decision under certainty. The answer is certain whether we know the correct answer or not.
Second, if I flip a coin, there is a 50 percent chance that it will come up heads. I can calculate this because I know in advance that there are only two possible outcomes to this action. I cannot know for certain what the outcome of any one coin toss will be. But I can know with certainty what the possible outcomes are. In this situation, I am making a decision under risk. And, I can calculate precisely what the risks are.
Third, we can describe such decisions as investing in a particular stock, taking a particular job, and marrying a person whom we are dating as decisions made under uncertainty. We cannot possibly discover all the information needed to know the trajectory of our stock pick, the degree of success or failure we might meet in our job, or the state of our possible marriage to a current love interest 10 years hence. And, it turns out that policies in response to climate change also fall under this third category. For decisions made under this category we simply cannot gather all the necessary evidence to calculate even the probability of a particular outcome as we could with the coin toss. This is partly because many of the variables would have to come from the future and partly because these situations are so complex that many of the existing variables are hidden from us. (The foregoing discussion on types of decision making is based on a paper by Nassim Nicholas Taleb and Avital Pilpel entitled "On the Unfortunate Problem of the Nonobservability of the Probability Distribution.")
Future oil supplies also fall under this third category of decision making. The Oil Drum provides periodic updates on various scenarios for future oil output including an analysis of which liquid fuels are included in which forecasts. The variables are much like those involving climate modeling. Some of the current data is unknown. Future human actions with regard to oil consumption, oil exploration and oil production cannot be known with certainty. Oil is found underground and therefore must be measured indirectly. Again, we are faced with making decisions under uncertainty with respect to oil supply.
So, given the wide range of oil production forecasts, which are we to believe? Some forecasts posit a business-as-usual scenario through the next couple of decades. Others assume a rather rapid drop-off of available petroleum in the near future. We can assign neither scenario a calculable probability. But we can once again characterize the possible outcomes. The business-as-usual scenario requires little in the way of changes in public policy or personal behavior. The rapid drop-off scenario suggests an emergency that will require heroic measures to navigate.
Now, which of these characterizations for future oil supplies or climate change should we act upon? First, we need to understand that for all scenarios generated under category number three, the further we go into the future, the more important the range of results becomes rather than the actual forecast. In other words, what are the extremes that we believe are possible? To provide some perspective on how we might proceed, ask yourself this question. If you were told that the trans-Atlantic flight you were about to board only crashes 5 percent of the time, would you still board that plane? My guess is that you would change your reservations. Even with a 95 percent chance of surviving the flight, you would find the risk of death too high.
Now if you were to assume that the worst case scenarios for climate change or future oil production have only a 5 percent chance of occurring, would that suggest to you that we need to make some vigorous preparations in order to mitigate or avoid altogether those scenarios? Keeping in mind that we can't actually calculate such a probability, this illustration shows how sensitive humans are even to low probability events if the outcomes are severe enough.
My own answer to the question, as you might expect, is a resounding "yes." But then I believe that the chances of the worst happening might actually be a significant multiple of 5 percent in both cases.
Sunday, January 31, 2010
The bottleneck century
In his documentary What a Way to Go: Life at the End of Empire filmmaker Tim Bennett notes that many of the book authors now writing about peak oil, climate change, species extinction and myriad other urgent environmental and resource topics usually end their otherwise grim analyses with what he calls "the happy chapter," a chapter with solutions and responses which will supposedly help us to avert catastrophe.
In a new book, Bottleneck: Humanity's Impending Impasse, William Catton, Jr. dispenses with "the happy chapter" altogether and simply gives us the grim prognosis. Human society is now on an unstoppable trajectory for a significant die-off. Catton, author of the well-known classic of human ecology, Overshoot, expects that by 2100 the world population will be smaller, perhaps much smaller, than it is today. We are in what he calls "the bottleneck century." He likens our situation to that of an airplane taking off at nighttime with a crew that is unaware that the runway is too short. The pilot will accelerate the plane as usual expecting a normal takeoff. Unless the pilot somehow receives and believes a warning to brake and reverse the engines quickly, by the time he or she actually sees the end of the runway, it will be too late and the plane will crash.
Well, the warnings have been issued, Catton explains. And, few people believe them. Catton spends much of the book explaining why this is so. As you read his explanation, it becomes clear why there will be no "happy chapter" at the end.
The main culprit, according to Catton, is the division of labor into ever smaller occupational niches. The marvel of such a system is that people who know nothing about one another's occupation can cooperate through the miracle of the marketplace to increase society's overall productivity and wealth. And, they can exchange every kind of good or service through the medium of money. The downside of such a complex and finely differentiated system is that no one can really understand it.
That might not matter so much except that fossil fuels have enabled humans to increase both their numbers and per capita consumption enormously in the last 200 years. The impact of that vast increase on the world's renewable and nonrenewable resources has been profound. It has lead to all the effects mentioned above and many others including deforestation, heavy erosion of farmland, toxic pollution of air and water, and overharvesting of fisheries.
But how does our complex division of labor make it more difficult to respond to these problems? First, we cannot make an independent appraisal of these problems because of our limited knowledge, mostly confined to our occupational niches. As a result we must rely on experts.
This leads to the second difficulty. We are often faced with competing opinions among experts. Never mind that some of these experts are merely paid spokespersons for the fossil fuel industry or for big agribusiness or for the forestry industry. Without careful discernment, most of the public has difficulty differentiating scientifically-based statements from mere polemic and outright falsehood. The mass media thus becomes a conduit for propagating bad or at least inconclusive information. In short, the feedback we humans need to in order to run our society in a sustainable way is dangerously lacking.
Because language is the way humans coordinate much of their activity--especially in our complex society of highly differentiated occupations--when that language becomes corrupted or is used to deceive, it works against the survivability of the species. One problem is that we have outdated wordmaps which tell us, for instance, that natural resource extraction is really "production" and can therefore be expanded as necessary whenever we like. And, we believe we can throw things "away," when there really never has been any "away." We "throw away" our carbon emissions into the atmosphere and produce global warming. We "throw away" our toxic chemicals into landfills which then leak into our waterways.
Third, since nearly all humans now labor in exceedingly narrow occupational niches, they seek to maintain those niches by competing with others. The famed sociologist Emile Durkheim hypothesized that division of labor would create solidarity among humans through interdependence. Instead, it has created the alienation and competition that go hand-in-hand with the dominance of the market system in nearly every economic transaction. Most humans now believe their lives are about acquiring money rather than resources since for so many money is the only gateway to the resources they need. This financializes their thinking and makes it difficult to talk about Earth systems in some other context than the market.
Fourth, human beings evolve in response to current conditions, not future ones. Humans are known to discount possible future events greatly. This puts their focus on what they are experiencing right now and makes them vulnerable to large, abrupt changes since their inclination to prepare for future changes is exceedingly limited.
The competitive and impersonal nature of modern society, the corruption of language and control of mass communication by vested interests, and the focus of humans on the here and now combine to make it all but impossible to coordinate human efforts worldwide in the thoroughgoing way that would be required to avoid the bottleneck. Those efforts would have to include an immediate drop in fertility rates below replacement, a vast reduction in the consumption of natural resources, and the complete abandonment of the burning of fossil fuels. You can see why Catton thinks such developments must be placed in the "impossible" category.
None of these main points are dealt with systematically in the book, but appear and reappear in various contexts. Catton could have used an editor to help him organize his message and make it more succinct and focused. For example, the many personal anecdotes sprinkled throughout the text seem as if they could have been eliminated or at least been more sharply written. The failure of style in this book may result from it being self-published. But I can understand Catton's urgency. At 84 he may have felt that he didn't want to wait to line up a regular publisher.
Still, despite Catton's discursive style, the reader will be rewarded with his subtle insights into the nexus between nature and human society. Rather than giving us a catalogue of our depleted resources; our poisoned water, food and air; or the data behind our endangered climate, he assumes all of this and tells us why human beings are unlikely to respond to these problems and therefore seem almost certain to face a bottleneck in this century. For those who have read his marvelous book Overshoot, this new book will not seem as challenging as it otherwise might be.
"Bottleneck" ends with a disheartening message for it suggests that there is no alternative but to prepare for the bottleneck. Catton is nevertheless explicit about the advantages of knowing the worst rather than living in any temporary blissful ignorance. He does not believe humans will be wiped out, but rather that their numbers will be considerably reduced and their societies simplified. If his book contributes to some form of ecological awareness that can be transmitted beyond the bottleneck, then he says he will consider it a success. It's an oddly humble objective for a book so sweeping in its conclusions.
In a new book, Bottleneck: Humanity's Impending Impasse, William Catton, Jr. dispenses with "the happy chapter" altogether and simply gives us the grim prognosis. Human society is now on an unstoppable trajectory for a significant die-off. Catton, author of the well-known classic of human ecology, Overshoot, expects that by 2100 the world population will be smaller, perhaps much smaller, than it is today. We are in what he calls "the bottleneck century." He likens our situation to that of an airplane taking off at nighttime with a crew that is unaware that the runway is too short. The pilot will accelerate the plane as usual expecting a normal takeoff. Unless the pilot somehow receives and believes a warning to brake and reverse the engines quickly, by the time he or she actually sees the end of the runway, it will be too late and the plane will crash.
Well, the warnings have been issued, Catton explains. And, few people believe them. Catton spends much of the book explaining why this is so. As you read his explanation, it becomes clear why there will be no "happy chapter" at the end.
The main culprit, according to Catton, is the division of labor into ever smaller occupational niches. The marvel of such a system is that people who know nothing about one another's occupation can cooperate through the miracle of the marketplace to increase society's overall productivity and wealth. And, they can exchange every kind of good or service through the medium of money. The downside of such a complex and finely differentiated system is that no one can really understand it.
That might not matter so much except that fossil fuels have enabled humans to increase both their numbers and per capita consumption enormously in the last 200 years. The impact of that vast increase on the world's renewable and nonrenewable resources has been profound. It has lead to all the effects mentioned above and many others including deforestation, heavy erosion of farmland, toxic pollution of air and water, and overharvesting of fisheries.
But how does our complex division of labor make it more difficult to respond to these problems? First, we cannot make an independent appraisal of these problems because of our limited knowledge, mostly confined to our occupational niches. As a result we must rely on experts.
This leads to the second difficulty. We are often faced with competing opinions among experts. Never mind that some of these experts are merely paid spokespersons for the fossil fuel industry or for big agribusiness or for the forestry industry. Without careful discernment, most of the public has difficulty differentiating scientifically-based statements from mere polemic and outright falsehood. The mass media thus becomes a conduit for propagating bad or at least inconclusive information. In short, the feedback we humans need to in order to run our society in a sustainable way is dangerously lacking.
Because language is the way humans coordinate much of their activity--especially in our complex society of highly differentiated occupations--when that language becomes corrupted or is used to deceive, it works against the survivability of the species. One problem is that we have outdated wordmaps which tell us, for instance, that natural resource extraction is really "production" and can therefore be expanded as necessary whenever we like. And, we believe we can throw things "away," when there really never has been any "away." We "throw away" our carbon emissions into the atmosphere and produce global warming. We "throw away" our toxic chemicals into landfills which then leak into our waterways.
Third, since nearly all humans now labor in exceedingly narrow occupational niches, they seek to maintain those niches by competing with others. The famed sociologist Emile Durkheim hypothesized that division of labor would create solidarity among humans through interdependence. Instead, it has created the alienation and competition that go hand-in-hand with the dominance of the market system in nearly every economic transaction. Most humans now believe their lives are about acquiring money rather than resources since for so many money is the only gateway to the resources they need. This financializes their thinking and makes it difficult to talk about Earth systems in some other context than the market.
Fourth, human beings evolve in response to current conditions, not future ones. Humans are known to discount possible future events greatly. This puts their focus on what they are experiencing right now and makes them vulnerable to large, abrupt changes since their inclination to prepare for future changes is exceedingly limited.
The competitive and impersonal nature of modern society, the corruption of language and control of mass communication by vested interests, and the focus of humans on the here and now combine to make it all but impossible to coordinate human efforts worldwide in the thoroughgoing way that would be required to avoid the bottleneck. Those efforts would have to include an immediate drop in fertility rates below replacement, a vast reduction in the consumption of natural resources, and the complete abandonment of the burning of fossil fuels. You can see why Catton thinks such developments must be placed in the "impossible" category.
None of these main points are dealt with systematically in the book, but appear and reappear in various contexts. Catton could have used an editor to help him organize his message and make it more succinct and focused. For example, the many personal anecdotes sprinkled throughout the text seem as if they could have been eliminated or at least been more sharply written. The failure of style in this book may result from it being self-published. But I can understand Catton's urgency. At 84 he may have felt that he didn't want to wait to line up a regular publisher.
Still, despite Catton's discursive style, the reader will be rewarded with his subtle insights into the nexus between nature and human society. Rather than giving us a catalogue of our depleted resources; our poisoned water, food and air; or the data behind our endangered climate, he assumes all of this and tells us why human beings are unlikely to respond to these problems and therefore seem almost certain to face a bottleneck in this century. For those who have read his marvelous book Overshoot, this new book will not seem as challenging as it otherwise might be.
"Bottleneck" ends with a disheartening message for it suggests that there is no alternative but to prepare for the bottleneck. Catton is nevertheless explicit about the advantages of knowing the worst rather than living in any temporary blissful ignorance. He does not believe humans will be wiped out, but rather that their numbers will be considerably reduced and their societies simplified. If his book contributes to some form of ecological awareness that can be transmitted beyond the bottleneck, then he says he will consider it a success. It's an oddly humble objective for a book so sweeping in its conclusions.
Sunday, January 24, 2010
Days of world consumption: A warning label for oil and gas discoveries
A few years ago I was speaking before a group shortly after a local oil company discovered what was characterized as the biggest find of oil on land in the United States in 30 years. The president of the company refused to speculate about the size of the find other than to say that it was "significant." The media suggested that it might amount to one billion barrels.
I mentioned this find to my audience and asked them how long they thought one billion barrels would last the world at the current rate of consumption. Guesses ranged from six months to three or four years. The correct answer was 12 days. Naturally, people were astonished and dismayed.
That is why I think it would prove useful for a warning label to come with each public announcement of a large oil or natural gas discovery. I understand that the companies that make these large finds are anxious to emphasize the size of the reservoir since this tends to goose the stock price. And, it is reserves that investors seem to react to, though, as it turns out, reserves are probably the least important factor in deciding whether a find is worth producing. (See my recent piece, "Reserves are bunk" for more on this.)
Now, I don't expect any government agency to issue a regulation requiring a warning label on oil and natural gas discoveries. But the next best thing would be for journalists reporting such finds to put them into perspective using a days of world consumption figure, or if the find is natural gas that will only be marketed domestically, days of domestic consumption. Journalists would also do well to explain that depletion rates for existing oil wells run between 6 and 9 percent and that this depletion must be overcome before any growth in supplies takes place. Providing this context would serve to alert policymakers and the public to the true significance (or insignificance) of each find.
Let's look at how some recent large finds might have appeared with the warning label I suggest:
*Based on previous year's consumption **Days of U.S. domestic consumption, 2008
I mentioned this find to my audience and asked them how long they thought one billion barrels would last the world at the current rate of consumption. Guesses ranged from six months to three or four years. The correct answer was 12 days. Naturally, people were astonished and dismayed.
That is why I think it would prove useful for a warning label to come with each public announcement of a large oil or natural gas discovery. I understand that the companies that make these large finds are anxious to emphasize the size of the reservoir since this tends to goose the stock price. And, it is reserves that investors seem to react to, though, as it turns out, reserves are probably the least important factor in deciding whether a find is worth producing. (See my recent piece, "Reserves are bunk" for more on this.)
Now, I don't expect any government agency to issue a regulation requiring a warning label on oil and natural gas discoveries. But the next best thing would be for journalists reporting such finds to put them into perspective using a days of world consumption figure, or if the find is natural gas that will only be marketed domestically, days of domestic consumption. Journalists would also do well to explain that depletion rates for existing oil wells run between 6 and 9 percent and that this depletion must be overcome before any growth in supplies takes place. Providing this context would serve to alert policymakers and the public to the true significance (or insignificance) of each find.
Let's look at how some recent large finds might have appeared with the warning label I suggest:
Date | Description | Type | Recoverable Resource Claimed | Days of World Consumption* |
| July 2000 | Kashagan | Oil | 9 to 16 billion bbls | 119 to 211 |
| Sept. 2006 | Gulf of Mexico Lower Tertiary | Oil | 3 to 15 billion bbls | 36 to 178 |
| Nov. 2007 | Tupi (Brazil Offshore) | Oil | 8 billion bbls | 94 |
| Sept. 2009 | Ngassa-2 (Uganda) | Oil | 310 to 710 million bbls | 4 to 8 |
| Jan. 2010 | Davy Jones (Gulf of Mexico) | Natural Gas | 2 to 6 tcf | 32 to 95** |
| Year End 2008 | Proven U. S. Shale Gas Reserves | Natural Gas | 32.8 tcf | 517** |
Keep in mind that I am not quibbling with the recoverable resource estimates. Nevertheless, we should remember that things don't always work out as oil and natural gas production companies would like. Some will say I should include industry estimates of how much shale gas is likely to become available in North America over time. I say that we should wait and see if the industry projections actually work out. Caution should be our watchword when it comes to making public policy based on industry hype that is largely designed to make a company's stock price go up.
This kind of table, though not a perfect tool, would tend to temper the enthusiasm of the public and policymakers for a course that assumes that oil and natural gas will remain abundant for decades to come. If we want to create a robust society that will weather the inevitable energy transition away from fossil fuels, we might start by looking squarely at what recent large discoveries actually amount to. And, we should proceed, as I suggested in a recent piece, to make our society forecast-proof insofar as fossil fuels are concerned. In short, to paraphrase the current chief economist of the International Energy Agency, we should leave fossil fuels before they leave us.
Wednesday, January 20, 2010
Biophysical economics: Putting energy at the center
My latest column on Scitizen entitled "Biophysical Economics: Putting Energy at the Center" has now been posted. Here is the teaser:
Many scientists have long complained that standard economics fails to account for the biological and physical systems that form the basis of the economy. In short, the economy is a subset of the environment and governed by the same biological and physical laws as every other system on the planet....Read more
Sunday, January 17, 2010
Useful work versus useless toil revisited
It was the contention of William Morris, the great progenitor of the modern arts and crafts movement and the historic preservation movement, that the signal qualities of industrial society are waste and useless toil. One hundred and twenty-six years after Morris gave a lecture entitled "Useful work versus useless toil" to a group of workingmen in London, little has changed except perhaps that the amount of waste and useless toil has grown exponentially.
The waste, of course, is obvious: wasteful consumption (tied neither to survival nor beauty but rather status); planned obsolescence as an industrial principle (which helps create repeat sales as well as ever higher mountains in our landfills); and profligate energy use which exhausts finite sources of energy such as fossil fuels.
Useless toil refers to all those tasks which either produce nothing of value for society (even if they enrich some individuals) or which actually detract from the overall public good. Morris had a nascent environmental awareness and decried the destruction of the landscape caused by industrialism in England.
Today, some of Morris's themes may seem passé. He champions shorter working hours so that people can not only rest but also have adequate leisure to enjoy their lives. He thinks work ought to be on the whole pleasurable, that human beings want to work and make things of value and beauty. And, he wants working conditions to be not merely tolerable, but actually pleasant and enticing.
Some of the world's leading companies have striven to make work as Morris had envisioned it a reality. But perhaps the most questionable aspect of modern work is what it produces. Craft was at the core of Morris's philosophy, and so the mass consumerism made possible by industrial production has created a world that is an anathema to Morris's notions of usefulness and beauty. And, it has condemned countless millions of industrial workers in so-called developing countries to live in conditions not far removed from those suffered by the English working class in the 19th century. Think Charles Dickens' Oliver Twist and Friedrich Engels' The Condition of the Working Class in England in 1844, the latter a truly grim accounting.
Another important indictment would be that against the so-called FIRE economy, that is finance, insurance and real estate. Morris would consider these functions parasitic on the true productive output of the economy. He might have advised keeping such functions to a minimum, more like public utilities than central players in the economy. And, the great mass of jobs involving sales, marketing, advertising, public relations, consulting, legal work, accounting and the broad array of desk jobs necessary for any large industrial concern--the jobs we tell college students to prepare for--would also be considered parasitic on the system. Morris would consider practically all the work in these occupations useless toil, no matter how pleasant the working conditions or how good the pay.
How then to run a complex, modern industrial society along principles conceived by Morris? The simple answer is you can't. But in a society beset by the problems of peaking fossil fuels, climate change, deforestation, depletion of water, destruction of fisheries, and erosion of farmland, Morris sounds like a person in the vanguard of the sustainability movement. Even more famous during his life for his novels than for his tapestries and stained glass work, Morris described the kind of society he deemed consistent with his principles in a utopian novel entitled News from Nowhere.
News from Nowhere describes a highly decentralized craft- and agricultural-based society of small towns and villages, one with democratic governance and equality of the sexes. Using the trope of a man visiting the future--200 years into the future to be precise--we get not only a description of the current conditions, but also a history of how the world evolved to that point.
News from Nowhere is not a literary masterpiece. But it offers a useful look into the mind of a man who thought deeply about the relationship between the way we organize the economy and the way we structure society. And, he offered a radical vision that sounds very much like the radical vision of those now proposing the relocalization of human society in response to the myriad challenges we face to our very survival as a species.
For Morris two guiding principles undergirded his social thinking: 1) Nature ought to be the aesthetic guide for society, and 2) pleasure in labor is a necessary condition for the creation of beauty. These principles are not a bad place to start if you are trying to remake all of society. They focus us on nature as we must, and they provide the basis for an appealing vision of a low-energy society that provides high satisfaction for its members.
The waste, of course, is obvious: wasteful consumption (tied neither to survival nor beauty but rather status); planned obsolescence as an industrial principle (which helps create repeat sales as well as ever higher mountains in our landfills); and profligate energy use which exhausts finite sources of energy such as fossil fuels.
Useless toil refers to all those tasks which either produce nothing of value for society (even if they enrich some individuals) or which actually detract from the overall public good. Morris had a nascent environmental awareness and decried the destruction of the landscape caused by industrialism in England.
Today, some of Morris's themes may seem passé. He champions shorter working hours so that people can not only rest but also have adequate leisure to enjoy their lives. He thinks work ought to be on the whole pleasurable, that human beings want to work and make things of value and beauty. And, he wants working conditions to be not merely tolerable, but actually pleasant and enticing.
Some of the world's leading companies have striven to make work as Morris had envisioned it a reality. But perhaps the most questionable aspect of modern work is what it produces. Craft was at the core of Morris's philosophy, and so the mass consumerism made possible by industrial production has created a world that is an anathema to Morris's notions of usefulness and beauty. And, it has condemned countless millions of industrial workers in so-called developing countries to live in conditions not far removed from those suffered by the English working class in the 19th century. Think Charles Dickens' Oliver Twist and Friedrich Engels' The Condition of the Working Class in England in 1844, the latter a truly grim accounting.
Another important indictment would be that against the so-called FIRE economy, that is finance, insurance and real estate. Morris would consider these functions parasitic on the true productive output of the economy. He might have advised keeping such functions to a minimum, more like public utilities than central players in the economy. And, the great mass of jobs involving sales, marketing, advertising, public relations, consulting, legal work, accounting and the broad array of desk jobs necessary for any large industrial concern--the jobs we tell college students to prepare for--would also be considered parasitic on the system. Morris would consider practically all the work in these occupations useless toil, no matter how pleasant the working conditions or how good the pay.
How then to run a complex, modern industrial society along principles conceived by Morris? The simple answer is you can't. But in a society beset by the problems of peaking fossil fuels, climate change, deforestation, depletion of water, destruction of fisheries, and erosion of farmland, Morris sounds like a person in the vanguard of the sustainability movement. Even more famous during his life for his novels than for his tapestries and stained glass work, Morris described the kind of society he deemed consistent with his principles in a utopian novel entitled News from Nowhere.
News from Nowhere describes a highly decentralized craft- and agricultural-based society of small towns and villages, one with democratic governance and equality of the sexes. Using the trope of a man visiting the future--200 years into the future to be precise--we get not only a description of the current conditions, but also a history of how the world evolved to that point.
News from Nowhere is not a literary masterpiece. But it offers a useful look into the mind of a man who thought deeply about the relationship between the way we organize the economy and the way we structure society. And, he offered a radical vision that sounds very much like the radical vision of those now proposing the relocalization of human society in response to the myriad challenges we face to our very survival as a species.
For Morris two guiding principles undergirded his social thinking: 1) Nature ought to be the aesthetic guide for society, and 2) pleasure in labor is a necessary condition for the creation of beauty. These principles are not a bad place to start if you are trying to remake all of society. They focus us on nature as we must, and they provide the basis for an appealing vision of a low-energy society that provides high satisfaction for its members.
Sunday, January 10, 2010
Making society forecast-proof
The trouble with forecasts is that they are almost always wrong. That's in part because the accuracy of forecasts deteriorates rapidly with time. I might predict quite well what I will be doing tomorrow. But predicting accurately what I will be doing exactly one year from today or exactly 10 years from today is exceedingly difficult if not impossible, even if I already have something planned.
How much harder it is then to predict the state of complex systems such as the world's energy delivery systems 10, 20 or 30 years hence. There are many factors that make such predictions hard including:
How much harder it is then to predict the state of complex systems such as the world's energy delivery systems 10, 20 or 30 years hence. There are many factors that make such predictions hard including:
- the inaccessibility of audited data such as oil and natural gas reserves for many of the largest producing countries in the world
- the uncertainties about future discoveries
- the uncertainties over the rate of depletion for fossil fuels
- the uncertainties concerning future technological advances in extraction and energy efficiency
- the growth and viability of alternative fuels
- and the future course of energy prices and the world economy just to name a few.
And yet, we have premised our entire future on business-as-usual forecasts made by leading energy consulting firms and government agencies. Strangely, some of these forecasts come without even the slightest hint about how unreliable they may be. A forecast from the highly influential energy consulting firm Cambridge Energy Research Associates tells us we have precisely 3.74 trillion barrels of remaining recoverable oil in the world. It concludes that a peak in world oil production is still at least 20 years off and is to be followed by an "undulating plateau that may well last for decades." Neither a range nor an error bar can be found in this forecast.
Because such forecasts have been embedded in public policy and business planning worldwide, we have made our entire global society dependent on getting these forecasts right. If they turn out to be too optimistic, then we could all be in for serious trouble. Since long-term energy forecasts--and really any long-term forecasts--are difficult if not impossible to get right, perhaps we should consider making society forecast-proof insofar as that is possible.
When it comes to energy supply, the surest way to make that happen would be to power society with 1) solar energy and its derivatives including wind, waves, and biomass, 2) energy derived from gravity such as tidal power and 3) hydroelectricity which is made possible by gravity and the water cycle. These sources fall under the heading of renewable energy, of course, and it more a scientific fact than a forecast that the sun will burn for a few more billion years and that the force of gravity will be with us indefinitely.
A global society powered in this manner would be immune to any forecasts about future supplies of fossil fuels, be they pronouncements of plenty or warnings of imminent supply shocks. Yes, the future of the petrochemical industry might be at stake, and given the current nexus between agriculture, oil and natural gas, this is no small issue. But if food production were also made independent of fossil fuels, then we would create an even more resilient society. (Such a move might mean many more people would be involved in growing food in such places as their yards, community gardens, and unused urban, suburban, and rural lands. But again, the upside would be an agriculture freed from the dangers inherent in fossil fuel supply forecasts.)
Naturally, the industries and interests which benefit from the world's addiction to fossil fuels would not be in favor of such a society. And, that is why they entertain us with their frequent forecasts of fossil fuel abundance far into the mists of the distant future.
If we were to attempt to make all major activities in global society less exposed to forecasting errors, many of those who currently make their living producing essentially defective forecasts would lose their jobs. No doubt they would forecast a tremendous cataclysm if this were to occur.
Forecasts may, in fact, be desirable in many parts of our lives. We like to know what the weather will be today and tomorrow and perhaps for the week. We seem to have an appetite for the weather report regardless of how many times it is in error. Companies need to project what their prospects will be before they attempt a new venture, release a new product or enter a new market. In each case the forecast a company makes may be right or wrong, but a wrong forecast won't bring down all of society!
And, that is my central point. I am not suggesting that we somehow eliminate forecasting. Rather I am proposing that we structure our lives and society so as to make forecasts largely irrelevant. A resilient, robust society would be one that is not dependent on finite, nonrenewable energy sources. It should be highly decentralized, diverse, redundant and mostly small in scale in its critical functions such as the procurement of energy and food.
Under these conditions forecasting would be far less critical, and errors in forecasting would be far less likely to lead to a civilization-wide catastrophe. This is true for two reasons. First, the energy sources for such a society could not suffer depletion. Second, due to the highly decentralized nature of such a society, parts of it could fail without bringing down the entirety of global civilization. Naturally, there should be arrangements for mutual aid when catastrophes occur. But that aid would be much more assured in a system where most of the parts of the system survive and thrive even in the face of a localized tragedy.
Making society forecast-proof doesn't assure us that no problems will arise. It only helps us to keep those problems smaller, more localized and therefore much more manageable when they do arise. This may one day be seen as a virtue in a world experiencing ongoing global financial turmoil borne of the excessive size of financial institutions and the excessive concentration of risk in them, risk that was poorly understood and therefore poorly forecast.
A simpler, more robust world is possible, and we would be wise to choose it before that simplification is forced upon us by circumstances that we may find exceedingly unpleasant.
_____________________________________________________________
The inspiration for this piece was a presentation featuring Nassim Nicholas Taleb, author of The Black Swan, who now seems to be on a mission to make the world safe from forecasters. He discusses his views alongside Daniel Kahneman, a Princeton psychologist who has studied economic behavior and found it to be far different from what neoclassical economics predicts. Kahneman received the Nobel Prize in economics for his work.
The discussion between these two men focuses primarily on the fragility of the current global financial system and how to make it more robust. It is a stimulating hour of listening.
Listeners might want to consider one obvious implication of Taleb's conclusions. The value of one's investment and/or retirement portfolio is entirely dependent on frequent accurate forecasts from today up to the date of planned liquidation. Should nonprofessionals be risking their savings in this way?
--KC
Sunday, January 03, 2010
The problem of induction and the blindness of fools
The problem with the future is that it's not always like the past. In fact, were this statement not true, history would indeed be "bunk" just as Henry Ford once said. But, of course, history is a chronicle of what changed and therefore led to a future that was different from the past.
So, it is puzzling that such an obvious truism is so easily dismissed when it comes to the future of oil and energy in general. Enter one Porter Stansberry, an investment newsletter writer, who knows that "peak oil is an economic impossibility." In the linked interview he likens oil to copper. We have found substitutes for copper, namely optical fiber, so we will certainly find substitutes for oil in the quantities we need at the time we need them. He insists though that we won't need them for a very long time.
Stansberry is correct when he states that "[i]t does not naturally follow that a limited supply of oil would limit our production of energy." There are certainly many other known ways to extract energy from the environment. Perhaps some of them such as widespread deployment of thorium-based molten salt reactors might validate Stansberry's observation. But then he states:
So, it is puzzling that such an obvious truism is so easily dismissed when it comes to the future of oil and energy in general. Enter one Porter Stansberry, an investment newsletter writer, who knows that "peak oil is an economic impossibility." In the linked interview he likens oil to copper. We have found substitutes for copper, namely optical fiber, so we will certainly find substitutes for oil in the quantities we need at the time we need them. He insists though that we won't need them for a very long time.
Stansberry is correct when he states that "[i]t does not naturally follow that a limited supply of oil would limit our production of energy." There are certainly many other known ways to extract energy from the environment. Perhaps some of them such as widespread deployment of thorium-based molten salt reactors might validate Stansberry's observation. But then he states:
The idea that we would lose the ability to create energy in an economic way, in my mind, is absurd. The entire history of the human population is nothing but falling prices for valuable commodities-not measured in dollars, but measured in real terms. I have no doubt in my mind that by the time I'm dead the price of energy in real terms will be far less than it is today.
Here he makes sweeping general statements about the past. It is not true that commodity prices have been falling in real terms for all of human history. There have been sustained bouts of rising prices. It is true that real prices for many commodities have been on a roughly downward trajectory from the beginning of the industrial revolution. This is in part due to the rising availability of cheap fossil fuel energy used to obtain those commodities, whether it is metal from ever lower grades of ore or rising farm productivity largely abetted by fossil fuel inputs such as nitrogen fertilizer from natural gas and pesticides and herbicides from petrochemicals.
So, in one respect Stansberry's analysis suffers from failing to distinguish between sources of energy such as fossil fuels and materials which do not provide energy such as copper. Fossil fuels, our main sources of energy, are the prime movers in the industrial economy. We cannot simply substitute some other materials for them without careful discernment. There are many factors to consider such as energy density, portability, energy return on investment, the requirements of the existing infrastructure and so on.
Still, Stansberry may be right in what he asserts about the future or he may be wrong. But one thing he cannot be is certain. It is a truism that no one can prove anything about the future. So, we often choose to extrapolate current trends. This is what Stansberry does, and it is where he moves from logic to mere supposition. Stansberry, like so many of us, falls into the trap of the problem of induction.
The problem of induction is simple to illustrate. Whenever we notice a recurring pattern in events, we often assume that that pattern will persist, and we sometimes make unwarranted claims usually in the form of a general rule:
Karl Popper (1902- 94) was critical of the inductive methods used by science. The empiricist David Hume (1711-76) had argued that there were serious logical problems with induction. All inductive evidence is limited: we do not observe the universe at all times and in all places. We are not justified therefore in making a general rule from this observation of particulars. Popper gives the following example. Europeans for thousands of years had observed millions of white swans. Using inductive evidence, we could come up with the theory that all swans are white. However exploration of Australasia introduced Europeans to black swans. Poppers' point is this: no matter how many observations are made which confirm a theory there is always the possibility that a future observation could refute it. Induction cannot yield certainty.
And, yet on something as important as energy policy, people with the views exemplified by Stansberry hold sway. They do not accept that their view could be in error. To do so would imply a much different energy policy than the one which most countries are now following. Most policymakers stick to Stansberry's view even though there is considerable evidence that fossil fuel production, particularly oil, may begin to decline soon. And, they seem not to understand that existing alternatives suffer from problems of scalability and energy density and face the all important rate-of-conversion problem.
But, one does not have to know anything with certainty in order to decide on policy. In fact, policy is always based on incomplete information about the past and guesses about the future. What policymaking requires, especially in critical areas such as future energy supply, is humility and therefore caution. The amount of caution required depends on the plausible dangers we face. The range of possible outcomes for oil production five, 10, even 20 years hence is so wide as to require excessive caution when planning the world's collective energy policies.
If the optimists such as Stansberry are correct, then policies suggested by that excessive caution will have put global society on a sound road to an alternative energy economy. That would reserve much of the remaining hydrocarbons for high-value uses such as fertilizers, plastics and pharmaceuticals rather than mere burning. If the optimists are wrong, then such policies will be the difference between stability and chaos, between life and death, for the billions that inhabit the Earth.
These are the consequences that might result from the blindness of fools who do not understand basic logic. And, we cannot count on nature to suffer such fools gladly.
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