Economic salvation from shale gas?

A lot of people believe economic salvation depends upon economic growth and some people believe that salvation will come as a result of shale gas.

It could be true.

However, in a previous reincarnation I was a charter member of the skeptics club.  A more likely scenario is that shale gas may give us a temporary reprieve.  There are environmental and economic concerns.

The environmental concerns relate to global warming and earthquakes.  Also the current availability of cheap shale gas is interfering with the development or renewable energies such as wind and solar.

The economic concern relates to marginal cost.  (Marginal cost is the cost of extracting the last unit sold.)  If shale gas is going to be our salvation, then the marginal cost of extracting it will have to decrease as more gas is taken.  If the marginal cost increases, then it will only slow down the rate of economic decline.

The exploitation of shale gas is the result of high oil prices and the development of new and expensive technology.  It takes a lot of energy to get it out of the ground.  Certainly the gas currently being extracted is the easiest and cheapest.  There is some probability that future extractions will be more difficult and expensive.

Another concern about the potential for a return to economic growth is what is happening to the marginal cost of other minerals and resources such as topsoil and copper.

Rather than seeking a return to economic growth we might be better off to adapt our lives and our economy to zero or negative growth.  For some ideas about how to do that please see my essay: LETS go to market: Dealing with the economic crisis.

Here are links to three articles on shale gas. One, two, three.

 

If you liked this post your are invited to comment, press the like button and/or click  one of the share buttons. If you disagree you are invited to say why in a comment.  While I like the idea of sharing this platform, my personality is such that I don’t reply to many comments.

An excess of energy from the sun

In a comment on this weblog  Robert Dagg Murphy makes some  interesting points.

That we are using only a tiny portion of the energy from the sun is a valid point.  A breakthrough in the use of solar energy would certain change the outlook.

I figure we are currently using solar energy concentrated in the form of oil, coal and wood.

I like to say my wife and I live on a 53-acre solar collector.  We have in the past used wood from our property although the last few years we have burned industrial waste.

Murphy’s comment that “High unemployment is a sign of success” reminds me of a passage in the book Social Credit by C. H. Douglas, a British engineer and published in 1924.

He pointed out that technological developments freed people from drudgery and allowed then time to do other things.  If only we had allowed that to happen.

I read this book some years ago and the last time I looked I was unable to find the passage.

This book was picked up and adapted by a radio preacher in Alberta who started a political party and became premier of that province.  British Columbia also elected a Social Credit government but these governments soon forgot all about Douglas.

 

If you liked this post your are invited to comment, press the like button and/or click  one of the share buttons. If you disagree you are invited to say why in a comment.  While I like the idea of sharing this platform, my personality is such that I don’t reply to many comments.

Agricultural pollution

This week’s Economist has an article on agricultural nutrient pollution in the Mississippi River.

The economics way to deal with agricultural pollution presents us with a dilemma.   The changes required are so radical the screaming from those affected would generate enough hot air to destroy the world from global warming.

I believe the price of any item should include the full costs of producing the item.  This way we can make purchasing decisions according to our own values.  This applies to food as well as everything else.

Therefore the costs of agricultural pollution should be paid by the producers and passed on to consumers.

In some cases it may be difficult to calculate the costs of pollution but we could start by eliminating all subsidies which would probably reduce a lot of pollution.  In any case subsidies should be given to consumers rather than producers.

If we had to pay the full costs of producing food, there would probably be some major changes in our eating habits to healthier foods and more home gardens.

Rio+20, green economics, sustainable growth

One of the major news events of this week is a festival of hot air known as Rio+20 or Rio+20 United Nations sustainable development conference.  I predict the major legacy of this event will be a contribution to global warming.

I think this conference will be a statement of blind faith that economic growth can continue if we call it green or sustainable – and change the faces of the decision makers.  I cannot share that faith.

The discussions will appear to center on the question: Is the goal  to harness economic forces in service to the environment or to harness the environment in service to powerful economic interests?  However a more basic question will probably be who gets to make decisions the “powerful economic interests” or environmental activists.

However if the activists were to get into a position of power they would probably find their decisions being  based on debts that had to be repaid and special interests that had to be protected.

It may be that continued economic growth is not going to happen, in which case these arguments are not relevant.

Are evironmental and economic problems interconnected?

I always thought we lived in a highly interconnected world but when it comes to environmental problems and economics few people appear to make a connection.

For example, the fifth Global Environment Outlook (GEO-5) report from The U.N. Environment Programme.  It was released two weeks before a big environmental conference in Brazil.

This report identifies the key drivers behind climate change as population growth and urbanization, fossil fuel-based energy consumption and globalization.

It seems to me that all of these will have a steadily increasing negative impact on our economy.  It could well be that they are behind the current economic crisis.

However, the report says the annual economic damage from climate change is estimated at 1-2 percent of world GDP by 2100, if temperatures increase by 2.5 degrees Celsius.

I fear this report is overly optimistic and unless we get some more realistic assessments we will not change our behaviors in time to prevent a major catastrophe.

How will overuse of resources show up in the economy?

On a number of occasions this web log has noted the Living Planet report and its claim that we are currently using 150 per cen of the resources that the planet will sustain.  If this is true, how is it going to affect the economy and how will we notice it?

It may be that the quantity theory of money can help us.  This theory states that

MV=PQ

Where
M is the amount of money in circulation
V is the velocity at which the money is exchanged in the economy
P is the prices at which goods and services change hands
Q is the quantity of goods and services produced.

If we are using resources faster than they can be replaced where will it show up in this equation?

The first place to look is on the PQ side.  As the demand for resources increases, and as resources become more difficult to extract or produce then we can expect prices to increase.

There may also be shortages or declines in some components of Q  some resources will be at or near depletion and many will require increasing amounts of energy to extract.  This again will cause an increase in prices.

On the other side of the equation velocity is difficult or impossible to  measure so we have to ignore it.  Money supply is also difficult to measure.  Definitions  usually start with cash in circullation and demand deposits in the banks known as M1.  However, other types of deposits are often added to M1 sot that we can have multiple defitions of money – your choice.  Money is created when the banks make loans and central banks try to control the total by purchasing or selling government bonds.

One thing is clear:  changes in the Q part of the equation are going to force changes on the other three variables.  If there are stressful or abrupt changes in Q, there will probably be turmoil in the financial side of the economy.  We probably need to evaluate what is happening to Q in physical rather than monetary terms.

We should also note that changes in M can affect production of goods and services. For example, what would happen to the North American food factory if a failure in the banking system were to prevent farmers from getting the loans to put chemicals on their crops?  Also a major drop in the money supply (such as probably happened with the housing crisis a couple of years ago would and did create turmoil in the economy.

So if we are using resources at a faster rate than they can be replaced how are we likely to notice it?  Overall there will probably be a steady rise in prices and a steady decline in living standards,  unless there is a huge major shock  to the system.  Also where there are localized shocks such as earthquakes, tsunamis  or an electro magnetic pulse from the sun (forecast for sometime in the next two or three years) we can expect major drops in local standards of living as people will find it difficult to recover.

As time passes, more and more people will be faced with a lower standard of living.  But people being people, some will prosper.  The rich will continue to get richer and the poor will continue to get poorer.

Wouldn’t life be nicer for everyone if we could go back to the golden years of prosperity?

Agriculture and environmental issues

Since writing the previous post I came across this article on environmental issues associated with agriculture.  There are even more reasons to be concerned although one must note agriculture is supporting more people than ever and at least some people are living longer than ever.

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