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64 comments on We're In Deep Water

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BalticMan on October 7, 2005 - 4:41pm Permalink | Subthread | Parent | Comments top
I agree, step back, much of what passes as academic economics sounds like babble to me. But the Morgan Stanley piece (and other pieces like it that have only recently begun to appear) suggest to me that maybe, just maybe, the "mainstream" financial community is starting to acknowledge just how difficult our energy position is. As Dave's original post shows (yes, I wanted to tie back into the thread somehow!), deepwater is going to be less productive than many now expect. If the "mainstream" financial community is now taking a baby step toward investing in the energy complex (and not just speculating on an oil price spike), that might become important.

55 more baby steps, and maybe we'll be on our way to some of the solutions that are being discussed on this thread and others. Waking up Joe Sixpack to peak oil is important, but getting the finance people to see the oil industry as something other than just another severely-cyclical commodity industry is also a big part of the solution, too.

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step back on October 7, 2005 - 5:30pm Permalink | Subthread | Parent | Comments top
Econo-talk is not just "babble" (refering to Biblical origin of word from the Towers of Babble), it is psycho-babble; meaning that the words used by the high priests of economics are mesmerizing and pull one into a hypnotic state where one loses all sense of what might be fair or out of balance.

Take the word "commodity" (please).

Oil is considered a "commodity".

What does that mean?

from Webster online: http://www.m-w.com/cgi-bin/dictionary?book=Dictionary&va=commodity
Definition number "c": a mass-produced unspecialized product <commodity chemicals> <commodity memory chips>

That does not give the full picture though. Pork bellies are commodities. There is an unlimited amount of "pork" that can be created in this country. To equate "oil" with "pork" and with "commodities" in general creates a false hypnotic perception.

Readers of TOD know that "pork" does not make the world go round in the same way that "oil" makes it spin. Airplanes do not fly on pork power. A generic commodity trader would not know that. One commodity is basically like the next. That is what "commodity" means. It's fungible. It's interchangeable. One is like the next. Makes no difference which slice of the lot the buyer gets. It's all indistinguishable.

That's how the financial community "thinks".

So, for us to convince "them" that crude oil is a special case, would take a lot of hard hard work.

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Rajiv on October 7, 2005 - 11:10pm Permalink | Subthread | Parent | Comments top
The main problem with economics is the time value of money. It emphasizes current consumption over long term survival. Long term survival of the human species and in fact, the survival of the planet gets discounted away. the higher the interest rate, the more short term the planning horizon. Thus no thought is given as to what results current actions will have in the long term. The assumption, no, I should say the core of economic modeling is that status quo will continue for the term of the planning horizon) thus for the long term, we are always doing "too little, a little bit too late."
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step back on October 8, 2005 - 2:08pm Permalink | Subthread | Parent | Comments top
A fundamental principle of the Adam Smith religion is that each person behaves according to his/her own selfish interests. For simplicity, let us assume each person starts working at age 25 (post college) and lives to age 75.

Death is, of course, the personal event horizon. So as the individual makes financial decisions throughout his/her work life, the time left for selfishly reaping the rewards (profits) of investment is 50 years minus years_worked-already.

Therfore, as one gets older, and presumably wiser and more productive, and also more senior in society's decison making hierarchy; the "vision" of future time gets shorter and shorter.

Is it any wonder that Alan Greenspan does not give too many wise owl hoots about what will happen to America because of the huge debt acquired. It's not going to be "his" problem.

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RayJ on October 8, 2005 - 3:42pm Permalink | Subthread | Parent | Comments top
Rajiv,
The problem (if indeed it is a problem) is not with economics but with how people behave and how easy it is to model.  As you say, the higher the interest rate, the shorter the planning horizon. The fact that people living in an economy with hyper-inflation find it difficult to plan for their retirement is not because they are short-sighted but because it's hard figure out what is going to happen in the next year, let alone 20 years out.

I agree that economic models do not do a good job of modeling the non-linearities and discontinuities that can happen over the long term.  But that is because it is hard to do.  It's like blaming physics and engineering for us not having fusion power; it's just hard.

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Gloomy on October 8, 2005 - 4:38pm Permalink | Subthread | Parent | Comments top
I both agree and disagree. Modeling human behavior can be hard yes. It requires making huge set of assumptions which may or may not be valid for a certain economic structure.

But I strongly disagree with the approach taken by economists. The mainstream of this pseudoscience is making their assumptions, building their models and is trying to fit the reality to their models. Worse of all - if their models fit some particular situation or event they take this as a proof that the model works. But if it does not fit - then they do not challenge their assumptions but attribute it to the profoundly meaningless word "externalities". When everything goes OK those externalities can easily be ignored... but if something really begins to mess up the real world slowly begins to abandon the economist fantasy world. Eventually if we experience an economic implosion, everything will become an externality.

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tom deplume on October 8, 2005 - 9:11am Permalink | Subthread | Parent | Comments top
Fisher-Tropsch and thermal depolymerisation processes can convert pigs and their manure into aviation fuel. It would be more efficient to convert corn stover to fuel but any carbohydrate source can be used.
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64 comments on We're In Deep Water

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