Lies Across America

“Every single empire, in its official discourse, has said that it is not like all the others, that its circumstances are special, that it has a mission to enlighten, civilize, bring order and democracy, and that it uses force only as a last resort.” – Edward Said

The increasingly fragile American Empire has been built on a foundation of lies. Lies we tell ourselves and Big lies spread by our government. The shit is so deep you can stir it with a stick. As we enter another holiday season the mainstream corporate mass media will relegate you to the status of consumer. This is a disgusting term that dehumanizes all Americans. You are nothing but a blot to corporations and advertisers selling you electronic doohickeys that they convince you that you must have. Propaganda about consumer spending being essential to an economic recovery is spewed from 52 inch HDTVs across the land, 24 hours per day, by CNBC, Fox, CBS and the other corporate owned media that generate billions in profits from selling advertising to corporations schilling material goods to thoughtless American consumers. Aldous Huxley had it figured out decades ago:

“Thanks to compulsory education and the rotary press, the propagandist has been able, for many years past, to convey his messages to virtually every adult in every civilized country.”

Americans were given the mental capacity to critically think. Sadly, a vast swath of Americans has chosen ignorance over knowledge. Make no mistake about it, ignorance is a choice. It doesn’t matter whether you are poor or rich. Books are available to everyone in this country. Sob stories about the disadvantaged poor having no access to education are nothing but liberal spin to keep the masses controlled. There are 122,500 libraries in this country. If you want to read a book, you can read a book. The internet puts knowledge at the fingertips of every citizen. Becoming educated requires hard work, sacrifice, curiosity, and a desire to learn. Aldous Huxley describes the American choice to be ignorant:

“Most ignorance is vincible ignorance. We don’t know because we don’t want to know.”

It is a choice to play Call of Duty on your PS3 rather than reading Shakespeare. It is a choice to stand on a street corner looking for trouble rather than reading Hemingway. It is a choice to spend Black Friday in malls fighting other robotic consumers for iSomethings, the latest innovative, advanced TVs, flashy Rolexes, and ostentatious Coach bags rather than spending the day reading Guns of August by Barbara Tuchman, a brilliant Pulitzer Prize winning history of the outset of World War I, which would provide insight into what could happen on the Korean Peninsula. It is a choice to watch 6 hours per day of Dancing With the Stars, American Idol, Brainless Housewives of Everywhere, or CSI of Anywhere rather than reading Orwell or Huxley and discovering that their dystopian warnings have come true.

Conspicuous Consumption Conquistadors

Americans have chosen to lie to themselves. They have persuaded themselves that buying stuff with plastic cards while paying 19% interest for eternity, driving BMWs while locked into never ending indecipherable lease schemes, and living in permanently underwater McMansions bought with 0% down on an interest only liar loan, is the new American Dream. They think watching the boob tube will make them smart. They soak in the mass media hype, misinformation and lies like lemmings walking off a cliff. Depending on their political predisposition, they watch Fox or MSNBC and unthinkingly believe the propaganda that pours from the mouths of the multi-millionaire talking heads who read Teleprompters with words written by corporate media hacks. They tell themselves that buying stuff on credit, giving them the appearance of success as measured by the media elite, is actually success. This is a bastardized, manipulated, delusional version of accomplishment. Americans have chosen to believe the lies because the truth is too hard to accept.

Becoming educated, thinking critically, working hard, saving money to buy what you need (as opposed to what you want), developing human relationships, and questioning the motivations of government, corporate and religious leaders is hard. It is easy to coast through school and never read a book for the rest of your life. It is easy to not think about the future, your retirement, or the future of unborn generations. It is easy to coast through life at a job (until you lose it) that is unchallenging, with no desire or motivation for advancement. It is easy to make your everyday troubles disappear by whipping out your piece of plastic and acquiring everything you desire today. If your brother-in-law buys a 7,000 sq ft, 7 bedroom, 4 bath, 3 car garage, monolith to decadence for his family of 3, thirty miles from civilization, with no money down and a no doc Option ARM providing the funds, why shouldn’t you get in on the fun. It’s easy. Why sit around the kitchen table and talk with your kids, when you can easily cruise the internet downloading free porn or recording every trivial detail of your shallow life on Facebook so others can waste their time reading about your life. It is easiest to believe your elected leaders, glorified mega-corporation CEOs, and millionaire pastors preaching the word of God for a “small” contribution to their mega-churches.

Americans love authority figures who act as if they have all the answers. It matters not that these egotistical monuments to folly and hubris (Bush, Obama, Paulson, Geithner, Greenspan, Bernanke) have committed the worst atrocities in the history of our Republic, leaving economic carnage and the slaughter of thousands in their wake. The most dangerous man on this earth is an Ivy League educated, arrogant ideologue who believes they are smarter than everyone else. When these men achieve power, they are capable of producing catastrophic consequences. Once they seize the reigns of authority these amoral psychopaths have no problem lying to the American public in order to achieve their objectives. They know that Americans love to be lied to, so the bigger the lie, the more likely it is to be believed.

The current lie proliferating across the land of the free financing and home of the debtor is that austerity has broken out across the land. The mainstream media and the government, aided by various “think tanks” and Federal Reserve propagandists insist that Americans have buckled down, reduced spending, increased savings, and have embraced austerity.

Austerity – Circa 1932

Austerity – Circa 2010

They now proclaim that it is time to spend again. It is the patriotic thing to do, just like defeating terrorists by buying an SUV with 0% down from GM was the patriotic thing to do after 9/11. Defeating terrorists by going further into debt was the brilliant idea of those Ivy League geniuses Bush & Greenspan. Let’s critically examine the facts to determine how austere Americans have become:

• Consumer credit outstanding is $2.41 trillion, the same level reached in early 2007, and up from $1.5 trillion in 2000. This is a 60% increase in ten years. Personal income has risen from $8.4 trillion to $12.6 trillion over this same time frame, a 50% increase. Americans have substituted debt for income in order to keep up with the Joneses. The mass delusion lives.
• The MSM declares that the reduction in overall consumer debt from its peak of $2.56 trillion in 2008 to $2.41 trillion today proves that consumers have been cutting back and paying off debt. This is another media lie. Non-revolving debt, which includes car loans, education loans, mobile home loans and boat loans sits at $1.6 trillion, an all-time high matched in 2008. Credit card debt has “plunged” from $957 billion to $814 billion, not because consumers paid down their balances. The mega Wall Street banks have written off $20 billion per quarter since early 2009, accounting for ALL of the reduction in credit card debt. Clueless consumers continue to charge at the same rate as the peak in 2008.
• Average credit card debt per household with credit card debt: $15,788
• There are 609.8 million bank credit cards held by U.S. consumers.
• The U.S. credit card default rate is 13.01%
• In 2006, the United States Census Bureau determined that there were nearly 1.5 billion credit cards in use in the U.S. A stack of all those credit cards would reach more than 70 miles into space – and be almost as tall as 13 Mount Everests.
• Penalty fees from credit cards added up to about $20.5 billion in 2009.
• The national average default rate as January 2010 stood at 27.88% and the mean default rate is 28.99%.
• Total bankruptcy filings in 2009 reached 1.4 million, up from 1.09 million in 2008. Bankruptcies in 2010 are on pace to exceed 1.6 million.
• 26% of Americans, or more than 58 million adults, admit to not paying all of their bills on time. Among African-Americans, this number is at 51%.

Does This Look Like Austerity? Really?

This data clearly proves that austerity has not broken out across the land of delusion. The billions in consumer loan write-offs by the Wall Street banks that run this country have masked the fact that Americans have not cut back on their spending habits at all. GMAC (taxpayer owned) and Ford Credit continue to dish out car loans to anyone with a pulse and a 600 credit score. The Federal Reserve and the FASB have encouraged, if not insisted, that banks fraudulently value the commercial real estate loans on their books. The Federal Reserve has bought $1.5 trillion of toxic mortgage loans from the criminal Wall Street banks at 100 cents on the dollar. The government’s corporate fascist public relations firms then spread the big lie that the economy is recovering and consumers should join the party and spend, spend, spend.

If Americans were capable or willing to do some critical thinking, they would realize that those in power have created the illusion of a recovery by handing $700 billion of your money to the banks that created the financial meltdown, spending $800 billion on worthless pork barrel projects borrowed from future generations, dropping interest rates to 0% so that the mega-Wall Street banks can earn billions risk free while your grandmother who depended on interest income from her CDs edges closer to eating cat food to get by, and lastly Ben Bernanke’s blatant attempt to enrich Wall Street by buying US Treasury bonds in an effort to make the stock market go up, while the middle and lower classes are crushed under the weight of soaring fuel and food price increases that exceed 30% on an annual basis. The illusion of recovery is not a recovery. With a true unemployment rate of 22%, a true inflation rate of 8% and a real GDP of -1.5% (Shadowstats), we are in the midst of the Greater Depression. You are being lied to, but most of you prefer it.

The Little Lies We Tell Ourselves

“Our ignorance is not so vast as our failure to use what we know.” – M King Hubbert

When Jimmy Carter gave his malaise speech in 1979, Americans were in no mood to listen. Carter’s solutions were too painful, required sacrifice, and sought to benefit future generations. The leading edge of the Baby Boom generation had reached their 30s by 1979, and the most spoiled, pampered, egocentric generation in history could care less about future generations, long term thinking, or sacrifice for the greater good. They were the ME GENERATION. The 1970s had proven to be tumultuous episode in US history. M King Hubbert’s calculation in 1956 that U.S. oil production would peak in the early 1970s proved to be 100% correct.

The Arab oil embargo resulted in gas shortages and economic chaos in the U.S. Hubbert used the same method to determine that worldwide oil production would peak in the early 2000s. If long term planning had been initiated in the early 1980s, combining exploration of untapped reserves, greater utilization of natural gas, development of nuclear plants, more stringent fuel efficiency standards, increased taxes on gasoline, and more thoughtful development of housing communities, we would not now face a looming oil crisis within the next few years. Instead of dealing with reality, adapting our behavior and preparing for a more localized society, we put our blinders on, chose ignorance over reason and pushed the pedal to the medal by moving farther away from our jobs, building bigger energy intensive mansions, and insisting on driving tank-like SUVs, Hummers, and good ole boy pickups. Kevin Phillips in American Theocracy explained that hyper-consumerism, fear, and inability to use logic have left our suburban oasis lives in danger of implosion when the reality of peak cheap oil strikes:

Besides the innate thirst of SUVs, some of the last quarter century’s surge in U.S. oil consumption has come from Americans driving more – some twelve thousand miles per motorist per year, up almost one – third from 1980 – because they as a whole live farther from work. In consumption terms, exurbia is the physical result of the latest population redistribution enabled by car culture and the electorate that upholds it.

Family values are central – if by this we mean having families and accepting lengthy commutes to install them in reasonably safe and well churched places. In the 1970’s such households might have been fleeing school busing or central city crime; in the post – September 11 era, many sought distance from “godless” school systems or the random violence and terrorist attacks expected to occur in metropolitan areas.

We willingly believe the lies espoused by the badly informed pundits on CNBC and Fox that if we just drill in Alaska and off our coasts, we’ll be fine. The ignorant peak cheap oil deniers insist there are billions of barrels of oil to be harvested from the Bakken Shale, even though there is absolutely no method of accessing this supply without expending more energy than we can access. Environmentalists lie about the dangers of nuclear power, while shamelessly promoting the ridiculous notion that solar, wind and ethanol can make a visible impact on our future energy needs. Ideologues on the right and left conveniently ignore the facts and the truth is lost in a blizzard of their lies. Here is an explanation so clear, even a CNBC “drill baby drill” dimwit could understand:

When oil production first began in the mid-nineteenth century, the largest oil fields recovered fifty barrels of oil for every barrel used in the extraction, transportation and refining. This ratio is often referred to as the Energy Return on Energy Investment (EROEI). Currently, between one and five barrels of oil are recovered for each barrel-equivalent of energy used in the recovery process. As the EROEI drops to one, or equivalently the Net Energy Gain falls to zero, the oil production is no longer a net energy source. This happens long before the resource is physically exhausted.

After the briefest of lulls when oil reached $145 per barrel, Americans have resumed buying SUVs, pickup trucks, and gas guzzling muscle cars. They have chosen to ignore the imminence of peak cheap oil because driving a leased BMW makes your neighbors think you are a success, while driving a hybrid would make your neighbors think you are a liberal tree hugger. It boggles my mind that so many Americans are so shallow and shortsighted. According to Automotive News, at the start of 2008 leasing comprised 31.2% of luxury vehicle sales and 18.7% of non-luxury sales. This proves that hundreds of thousands of wannabes are driving leased BMWs and Mercedes to fill some void in their superficial lives.

I bought a Honda Insight Hybrid six months ago. It gets 44 mpg and will save me $1,500 per year in gasoline costs. I put 20% down and financed the remainder at 0.9% for three years. My payment is $450 per month. I will own it outright in 2 ½ years. I could have leased a 2010 BMW 328i with moonroof, bluetooth, power seats with driver seat memory, lumbar support, leather interior, iPod adapter, 17″ alloy wheels, heated seats, wood trim, 3.0 Liter 6 Cylinder engine with 230 horsepower for 3 years at $389 per month. At the end of 3 years I’d own nothing. In 2 ½ years I’ll be able to put $450 per month away for my kids’ college education and I’ll be saving more on fuel as gasoline approaches $5 per gallon. The self important egotistical BMW leaser pretending to be successful will need to hand over their sweet ride and move on to the next lease, never saving a dime for the future. I’m sure they’ll make a killing in the market or their McMansion will surely double in price, providing a fantastic retirement.

Delusional Practical

The delusion that cheap oil is a God given right of all Americans can be seen in the YTD data on vehicle sales. Pickups and SUVs account for 48.5% of all sales, while small fuel efficient cars account for only 16.5% of all sales. Americans will continue to lie to themselves until it is too late, again.

	Oct 2010	% Chg from Oct’09	YTD 2010	% Chg from YTD 2009
Cars	448,127	3.9	4,840,525		5.3
Midsize	220,998	-0.2	2,407,457		9.9
Small	142,983	9.7	1,616,840	-1.5
Luxury	78,487	9.7	742,278		7.2
Large	5,659	-31.9	73,950	-0.8
Light-duty trucks	502,038	23.5	4,730,196		16.7
Pickup	147,207	16.9	1,334,133		13.9
Cross-over	195,274	20.0	1,928,191		16.8
Minivan	55,596	21.0	561,736		15.1
Midsize SUV	51,494	86.6	443,922		37.9
Large SUV	23,946	1.5	202,806		12.1
Small SUV	14,861	53.6	146,000	-3.8
Luxury SUV	13,660	22.1	113,408		26.2
Total SUV/Cross-over	299,235	27.4	2,834,327		18.3
Total SUV	103,961	44.3	906,136		21.7
Total Cross-over	195,274	20.0	1,928,191		16.8

Americans are so committed to their automobiles, hyper-consumerism, oversized McMansions, and suburban sprawl existence that they will never willingly prepare in advance for a future by scaling back, downsizing, or thinking. Our culture is built upon consumption, debt, cheap oil and illusion. Kevin Phillips in American Theocracy concludes that there are so many Americans tied to our unsustainable economic model that they will choose to lie to themselves and be lied to by their leaders rather than think and adapt:

A large number of voters work in or depend on the energy and automobile industries, and still more are invested in them, not just financially but emotionally and culturally. These secondary cadres included racing fans, hobbyists, collectors, and dedicated readers of automotive magazines, as well as the tens of millions of automobile commuters from suburbs and distant exurbs, plus the high number of drivers whose strong self-identification with vehicle types and models serve as thinly disguised political statements. In the United States more than elsewhere, a preference for conspicuous consumption over energy efficiency and conservation is a signal of a much deeper, central divide.

M King Hubbert was a geophysicist and a practical man. He observed data, made realistic assumptions, and came to logical conclusions. He didn’t deal in unrealistic hope and unwarranted optimism. He knew that our culture had become so dependent upon lies and an unsustainable growth model based on depleting oil and debt based “prosperity”. He knew decades ago that we were incapable of dealing with the truth:

“Our principal constraints are cultural. During the last two centuries we have known nothing but exponential growth and in parallel we have evolved what amounts to an exponential-growth culture, a culture so heavily dependent upon the continuance of exponential growth for its stability that it is incapable of reckoning with problems of non-growth.” – M King Hubbert

Our country is at a crucial juncture. It is time for thinkers. It is time for realists. It is time to deal with facts. It is time to drive the ideologues off the stage. Are you tired of lying to yourselves? Are you tired of being lied to by the corporate fascists that run this country? It is time to wake up. Right wing and left wing ideologues will continue to spew lies and misinformation as they are power hungry and care not for the long-term survival of our nation or the unborn generations that depend upon the decisions we make today. It is time to see how we really are.

“Most of one’s life is one prolonged effort to prevent oneself from thinking. People intoxicate themselves with work so they won’t see how they really are.” – Aldous Huxley

Middle East OPEC reserves revisited

According to the BP statistical review of world energy 2010, the big six Middle East OPEC oil producers (Saudi Arabia, Iran, Iraq, Kuwait, Unite Arab Emirates (UAE) and Qatar) had 743 billion barrels (Gbs) of proved oil reserves (1P) between them, representing 56% of reported proved global oil reserves. Knowledge of this bounty provides OECD governments with much comfort. The trouble is there is no chance these figures are correct. A simple analysis of the published BP data that corrects reserves for historic production and questions reserves revisions that took place during the 1980s points to a proved plus probable (2P) reserves figure in the range 160 to 545 Gbs for this group of countries. It is high time that BP noted in its statistical review that the reserves reporting standard of ME OPEC countries is different to that used by the OECD.

Figure 1 ME OPEC reserves history from BP statistical review of world energy 2010. Chart is copied from an earlier version produced by Rune Likvern.

What is wrong with ME OPEC reserves reporting?

Many regular readers of The Ol Drum will be all too familiar with the following arguments raised against the validity of ME OPEC reserves as reported by BP, this post is written for those who have not heard the story before. Issues with reporting standard fall into two categories, 1) large upwards revisions to reserves that took place during the 1980s and 2) flat line reporting of reserves over time (Figure 1). I will deal with flat line reporting first, but first a few words on reserves reporting standards and mechanisms.

It is important to know that there are two very different reporting standards in operation. The Security Exchange Commission (SEC) guidelines (pdf warning) are very conservative and will normally lead to gross under reporting of reserves in immature oil fields and provinces. The Society of Petroleum Engineers (SPE) guidelines (pdf warning) are much more flexible, with multiple categories, offering companies and countries the opportunity to estimate what may reasonably be expected to be recovered ultimately.

BP specifically reports proved oil reserves (1P) attaching this definition to the spread sheet:

“Proved reserves of oil - Generally taken to be those quantities that geological and engineering information indicates with reasonable certainty can be recovered in the future from known reservoirs under existing economic and operating conditions.”

This is paraphrasing the SEC guidelines and yet it is quite clear that ME OPEC countries are reporting figures more allied to SPE 2P category that includes proved + probable and are non compliant with the standard adopted by BP.

Flat line reporting

A simple scheme for annual adjustments to reserves is as follows:

reserves at start of year
+ new discoveries
± revisions
- production
reserves at end of year

Since 1980, the 6 ME OPEC countries in question have produced 198 Gbs of oil between them, and yet the flat line annual returns (Figure 1) demonstrates beyond any reasonable doubt that reserves have never been adjusted down for this production. Adjusting reserves for production produces the picture shown in Figure 2 suggesting that ME OPEC oil "reserves" are at most 545 Gbs, well below the declared amount.

Figure 2 ME OPEC reserves history from BP statistical review of world energy 2010 adjusted over time for cumulative production.

1980s revisions

All companies and countries are entitled to revise reserves estimates in light of new technical data. The most recent revisions in Middle East OPEC took place in 2002 where both Iran and Qatar presumably booked natural gas liquid reserves in the North Field / South Pars Field that spans the Qatar - Iran border. There is nothing wrong with that. What is more often contested is the validity of large upwards revisions to reserves made in the 1980s, starting in 1982 and ending in 1988 (Figure 1). Prior to this time several of the large multi national oil companies operated in the Middle East and with the nationalisation of the oil industry reserves estimates were revised by the National Oil Companies (NOCs). On the one hand, it is sometimes argued that the upwards revisions were justifiable to take into account higher recovery factors expected through application of new technologies such as horizontal wells. On the other hand it is often argued that the reserves adjustments were entirely politically motivated as countries vied for OPEC production quotas. It seems likely that both arguments may be valid and it is impossible to know exactly where the truth lies.

It is worth observing some of the history between Iran and Iraq. The Iran - Iraq war began in 1980 and ended in 1988. In 1980 Iran had 58 Gbs and Iraq 30 Gbs of reserves. In 1982 Iraq raised its reserves to 59 Gbs giving it a narrow lead. In 1986 Iran retaliated with a rise to 93Gbs giving it a clear lead. But in 1987, Iraq retaliated with a knockout blow raising its reserves to 100 Gbs. The war ended in 1988 and the reserves of these two countries have barley changed since. By 1988 the reserves of Iran, Iraq, Kuwait and UAE were all roughly the same, approximately 100 Gbs each, only Saudi Arabia was permitted to bid higher with 260 Gbs.

How much of this is real and how much of this is fantasy it is impossible to say apart from in Kuwait where more details emerged from an unlikely source in the form of IHS Energy. At a conference I attended in 2006, IHS energy presented their view of Kuwaiti reserves based upon their proprietary database of fields. They showed this chart (Figure 3), suggesting that the large upwards revision in Kuwait in 1984 was bogus and that the pre-nationalisation figures from the 1970s were a more faithful reflection of reality. I wrote a post on this rather important information that can be read here.

Figure 3 IHS Energy estmate for 2P Kuwaiti reserves.

It would be wrong to assume that all of the 1980s revisions are equally bogus. The more than 3 fold uplift in Iraq is certainly questionable, however, Saudi Arabia uplifted their reserves by only 50% after reportedly conducting much technical work. It is however reasonable to assume that the pre nationalisation numbers provide a lower bound since these were compiled with the participation of international oil companies (IOCs) who tended then to be conservative in reserve reporting conventions employed. In Figure 4 the pre-nationalistion reserves figures from 1980 are adjusted for production.

Figure 4 Comparison of official ME OPEC reserves with official reserves adjusted for production and pre-nationalistaion reserves figures adjusted for production. The arrow gives the likely range of 2P reserves.

This exercise provides likely upper and lower bounds for ME OPEC reserves that lie between 160 and 545 Gbs. My best guess would be that reality lies somewhere in the middle at around 350 Gbs, less than half the official figures.

Conclusion

It has long been held that ME OPEC countries are reporting as reserves what would normally be regarded as ultimate recoverable reserves (URR) give or take a few 100 billion barrels of politically motivated revisions. It must surely not be beyond the wit of very smart folks who work at BP to see that it is wrong to classify ME OPEC reserves as "proven" and to give these same weight as the OECD reporting standard. It is high time BP (and other government agencies) got its house in order and noted on the Annual Review spread sheet the anomalies in the ME OPEC reports that are so glaringly obvious.

IEA World Energy Outlook 2010: Questionable Assumptions and Major Omissions

(http://www.worldenergyoutlook.org/docs/weo2010/key_graphs.pdf)

1. Net Energy. The WEO assumes all energy resources are equal, without considering "Net Energy" or "Energy Return on Energy Invested." Society needs a certain level of energy to maintain its current state of development. The resources we are talking about using now are of lower and lower net energy (oil sands, oil shale, arctic oil, very deep oil, coal-to-liquids; also many of the "renewables"). It is not at all clear that all of the resources being examined in the WEO are really of value in solving our energy problems.

2. Quality of Energy. One cannot simply substitute one type of energy for another. Even if we have a temporary surplus of natural gas, the vast majority of our cars cannot run on natural gas. Ethanol can be substituted for a small share of the gasoline in today's cars (10% for cars made prior to 2007 and 15% for those made since then), but if the amount of gasoline declines, so will the amount of ethanol that can be used for substitution--this is a major reason that work today is being done on "drop-in" fuels. Electricity is not substitutable for liquid fuels, without major changes in the machines now using liquid fuels--for example, a semi-truck or bulldozer will generally not run on electricity, and of course electricity does nothing to replace the many non-fuel uses for oil such as medicines, synthetic fabrics, herbicides and pesticides. Variable electricity, such as from wind and solar PV, reduces the fuel needed for electric generation, but it is not otherwise a replacement for fossil fuels.

If one wishes to have substitutability across qualities of energy, there are long term changes that can be undertaken to make this happen (for example, replace cars of one type with another type), but such changes are neither quick nor cheap.

3. Recession from High Prices (Low Net Energy). If we try to use lower and lower quality energy resources, prices can be expected to rise higher, because low net energy and high cost pretty much go hand in hand. There are strong indications that oil above $85 a barrel (in 2009$) sends the US economy into recession. (See this post by Dave Murphy. Others have come to a similar conclusion.) The recessionary impact may be the signal that the amount of net energy that the economy is receiving is too low. The IEA assumes that OECD economies can continue to grow, regardless of oil price or of alternative energy price, even though this is very questionable.

4. OPEC Politicized Reserves. Many of the countries that the WEO is hoping to obtain increased oil production from between now and 2035 are countries that have very politicized reserves.

Graph showing historical oil reserves by Rune Likvern.

Back in the early years of development, reserves were set by International Oil Companies, including some from the US, doing work in these countries. But after National Oil Companies took over, upward reserve "adjustments" were made by a number of OPEC countries, in moves that seems to be designed to help with getting increased OPEC quotas, or to elevate the countries in the eyes of their citizens and of people around the world. Very recently, there have been additional upward adjustments, which seem also to be political in nature. None of these amounts are audited.

It is possible that if we had 10,000 years for extraction, and could afford oil that sells for $500 a barrel, these countries might have the amount of oil claimed. But no one has reviewed how many resources can legitimately be claimed as reserves, in a reasonable time frame, at a cost that economies can afford to pay.

5. Questionable USGS Reserves. USGS published its last major set of reserve estimates in 2000, but it is not clear that these estimates are very useful in determining how much is actually extractable at prices economies can afford to pay. There are also questions as to whether there have been major mistakes in estimates. Just last week, the USGS announced that most of the oil resources it was expecting in the National Petroleum Reserve in Alaska were in fact, natural gas resources. (Natural gas reserves in this location are of little economic value, because the natural gas is too far away from markets--yet another low "net energy" issue.) How do we know that other resources (for example, the supposed resources in the Arctic National Wildlife Refuge), are not as badly mis-estimated?

6. Omission of Export Analyses. Oil exports available to importers have been declining for five years now. Oil use by oil exporters rises each year, since populations of these countries are growing, and since leaders want to keep their citizens happy. The oil available to oil importers is only what is left, after oil exporters have taken what they see as necessary for their own needs. WEO does not look at this issue. (See this post.)

7. Overly Rosy View of Unconventional Natural Gas. Production of shale gas is currently high and prices are low. The question is whether this is a temporary market aberration (to be followed by bankruptcies and reduced production) or something one can count on as a major offset for future natural gas shortages. The Oil Drum has published articles such as this one by Art Berman, and this one by myself, Gail Tverberg, suggesting that production costs are much higher than current market prices.

High costs here again are no doubt related to low net energy return. The typical Wall Street view is that prices can rise as much as needed to get the natural gas, but as with oil, this assumption may prove to be wrong. If natural gas prices rise very high, the result may simply be worse recession. This result could mean that extraction is taking more energy than the gas itself is producing--especially if one takes a broader view of required energy, including required infrastructure such as roads. So if the energy return of unconventional gas is too low, it may have to be left in the ground.

8. Failure to address why world oil production has been flat for six years. If the amount of available oil reserves is so great, why hasn't new oil been rushed into production in the last six years, as oil prices spiraled to $147 barrel? If there was difficulty raising production in the last six years, how can one possibly assume in the "Current Policies" scenario that oil production would continue to rise in the future.

One of the issues in the recent flat production is the flow rate of reserves. Some of the unconventional oil is extremely slow to extract. Reserves to production ratios can be extremely misleading, because the fact reserves are there, doesn't mean a reasonable amount can be extracted in a given year. It is a little like having a bank account with $5 billion dollars, that you can only remove $100 a year from.

9. Assumption that smart grid will be of more benefit than it will be. Great hopes are placed in the smart grid, but if use an approach that gets electricity from more renewable energy, our fluctuations in electricity availability will be more seasonal (spring and summer when rains greatest for hydroelectric; local seasonal variations for wind; summer vs winter for solar). A smart grid will do nothing to solve this issue. (See this post.) Having each electric company send out time of day and time of week rates, the way telephone companies did years ago (Call on Sunday when rates are low!) would seem to accomplish much of the same objective, at a lower cost.

10. Assumption that major improvements in energy intensity of GDP can be expected in the future. In the past, improvements in energy intensity of GDP have been observed for a variety of reasons--shift in the nature of the economy to one more focused on services; ability to substitute modern energy-efficient cars, appliances, power generating units for less efficient ones; and building of more energy efficient buildings, for example. WEO 2010 assumes huge continued improvements in energy intensity, particularly oil energy intensity:

Perhaps some improvement in energy intensity of GDP can be made, but I wonder whether we are kidding ourselves about the extent of the possible improvement. As energy availability reduces, the shift toward a service economy may very well reduce. This could especially be the case, if certain types of imports become too expensive relative to locally produced goods, and it is necessary to shift production back more to OECD countries. Also, it takes energy to make new cars, appliances, and power generating stations, and to build new energy-efficient buildings. If energy is more scarce, replacing these is likely to take place at a slower rate than in the past, not at a faster pace. Some proposed activities like carbon sequestration and coal to liquids would seem to act in the opposite direction of lower energy intensity of GDP. At a minimum, this issue needs to be examined more closely.

11. Failure to consider constraints other than oil. There are many limiting factors, other than oil. Water is already a problem in many parts of the US and in much of the rest of the world. Lack of availability of water may be a problem if carbon capture and storage is considered, or if new fossil fuel or nuclear generating capacity is added for other reasons. Minerals ores are becoming more and more depleted, and some, such as those for rare earth minerals and lithium, are available in only a few places on earth. Maintaining or increasing production will take an increasing portion of what oil is available. Biofuels are clearly limited by the amount of arable land available to plant them, and by their impacts on soil depletion. Normally, the soil is enhanced each year by the recycling of organic matter to it. If this is removed, soil quality can be expected to degrade.

12. Failure to put together all of the costs. Under any scenario there will be huge costs involved. For example, if we use a scenario with a significant amount of wind power, there will need to be an expensive networks put into place, with an upgraded grid, electrical storage, and fossil fuel backup generation. Carbon capture and storage applied to coal would require greatly increased coal mining, new railroads for all of the coal, greater fresh water use, and would reduce energy efficiency. Without putting all of the costs together, it is hard to see what is feasible and what is not.

One of the big concerns when considering all of the costs is the capital needed to finance all of these improvements. At this point, major governments are spending far more than they are taking in in taxes. All of the enhancements that are planned through government spending will need to be considered in addition to collecting current revenue shortfalls. The total costs may well put a cap on what can realistically be done.

13. Where do they expect to find all that lovely crude which has yet to be found?

That is the light blue chunk of the above chart. Frankly, it is laughable. Anything else wrong with the report must take a backseat in terms of importance. (On slide 7, you will find the same IEA graph but with: crude oil fields yet to be developed and crude oil fields yet to be found).

The Status Quo's Fundamental Paradigms Are Broken

The paradigms which undergird the global status quo are broken; doing more of the same (the current strategy) will not fix them.

Reading the Mainstream Media, you almost forget that the Status Quo's fundamental paradigms are completely broken. The Status Quo's essential paradigms are as follows:

1. "Growth" is the essential lifeblood of the global economy.

2. "Growth" means higher GDP and economic activity. Thus new luxury condos and Starbucks cafes on the coast of Peru boost Peru's GDP, and thus Peru is experiencing "growth" which is not just intrinsically "good" but essential.

3. "Growth" requires consuming more resources.

4. There will always be more resources into the foreseeable future. For instance, here is the Status Quo's depiction of fossil fuels supplies:

5. The transition from fossil fuels to alternatives will be slow and seamless because there is still plenty of cheap oil and gas.

6. The dominant paradigms of the global economy are the State Corporation (China) and the Corporate State (U.S.A.). Both are permanent because they are highly efficient.

7. Restrictions on trade and capital flows are "bad." They cause depressions.

8. The nation-state is a durable social structure which will never be seriously threatened with dissolution.

9. As long as the global "pie" of wealth keeps expanding, everyone can grow wealthier together.

10. Low interest rates and expansion of money supply and credit are the three essential financial fuels for "growth."

I think a strong case can be made that each of these paradigms is either already broken or in danger of breaking. Studies have shown that when presented with factual evidence that their core beliefs are wrong, humans respond by clinging even more tightly to their fallacious beliefs.

I think that is precisely the reaction of the global Status Quo.

Here is a typical presentation of the Status Quo's faith in the "China Story" that China's growth can and will continue unimpeded for decades to come:

The Game Changer (China).

Elizabeth C. Economy is a well-informed, insightful analyst. Yet she presumes that China can grow like a tree to the sky and that its consumption of oil and other resources can likewise double every few years forever.

There is not one word in this long essay which even hints at the possibility that constraints in the real world might hinder China's vast ambitions and appetites for "the good life" of middle-class consumption for its 1.2 billion citizens.

Though China runs a good PR game about building a "green economy," we should note that its energy consumption equaled the U.S. this year and its production of vehicles far surpassed the U.S. this year.

Like every other industrialized nation, China's alternative energy sector supplies at best a sliver of the nation's energy. This is a global chart from the IEA which includes nations like Brazil which have vast biofuel industries using sugar cane.

While subsidizing state-owned plants to manufacture solar panels is certainly a forward-thinking strategy, in the meantime building tens of millions of vehicles every year which require gasoline is pursuing an entirely different set of "growth" and dependency priorities.

Even in the U.S., electricity consumption has risen 25% since 1990, outstripping population growth.

Let's look at some facts before we buy into the paradigm that China (or any other nation) can grow to the sky.

I was accused of saber-rattling after I pointed out in The Great Game: Geopolitics and Oil (October 19, 2010) that the U.S. has a "hard power" presence in the heart of the Mideast while China has a presence in Sudan and other African nations. Let's look at which presence controls more oil:

Now let's look at the reality rather than the fantasy of future oil production:

That sets up an inevitable grab for the resources needed for "growth." The timeframes on this chart are of course approximations; no one knows exactly when oil demand will rise above maximum oil production, but the status quo paradigm that China can double its consumption of oil every few years is clearly wrong.

China is culturally predisposed to feeling that the last few hundred years of weakness was an anomaly and that China is once again the center of the world. (The Chinese character for "center" has been read as "middle," i.e. the Middle Kingdom, but this misses the crucial self-awareness of China as the center of the world).

The future course of China's rising confidence in its heft can be seen everywhere: in its hardening claims for islands in the South China Sea, in its plans to divert rivers originating on the Tibetan plain away from other nations to benefit its own consumption, and in its recent export restrictions of rare industrial metals.

Anyone believing China will remain content with making solar panels while its supplies of essential resources dwindle is misreading China's larger plans.

Another paradigm which is already broken is the trade-capital flow fantasy of mercantilist nations funding consumer nation's consumption. China's dissatisfaction with the end-game of this dynamic is already apparent, and a similar breakdown is occurring in Europe as the mercantilist machine that is Germany must bail out one consumer nation after another.

That dynamic is already doomed, and incantations to the contrary are simply beliefs which are unsupported by fact.

The other core paradigm of the Status Quo is a massive Central State--what I call The Savior State in the Survival+ critique.

In the U.S., personal income is around $9 trillion, and the Federal budget is around $3.6 trillion and state/local governments and agencies consume about $1.5 trillion. So government is about 36% of the nation's GDP.

Recently, the Federal government has been borrowing $1.5 trillion a year to maintain the status quo (representing about 11% of GDP). While the Status Quo presents a happy PR picture of an economy rebuilding its decaying infrastructure, the reality is the Federal borrowing is merely propping up personal income. "Transfers" are funds delivered by the government to individuals:

Lastly, the entire fantasy that exponentially rising debt/credit can fuel an asset bubble that then fuels a "virtuous cycle" of rising net worth and more borrowing and spending is also irrevocably broken. Let's start with the trajectory of mortgage delinquencies:

As asset bubbles pop, the "wealth effect" reverses:

No matter how much uncollectible debt is written down, assets are falling faster: the debtor, the bank and the debtor nation all lose "The Red Queen's Race":

Ultimately, the implosion of the Savior State's finances mean the paradigm of a vast Central State is also threatened. We can understand this another way by considering the Central State as an energy consumer. As long as the Central State provides more benefits that it consumes, then the organism it lives off of (the economy) will support it.

But when the benefits dwindle and the carrying costs of the Central State continue rising, than at some point the economy can long longer support the consumption costs of the Central State.

At that point the Central State collapses or shrinks down to a sustainable size.

Anyone who believes the Savior State will endure without any adjustment in the coming decade is simply ignoring the facts and hardening their faulty beliefs. That refusal to learn from facts is not a successful survival strategy.

I don't have "all the answers" or a crystal ball, but it seems clear that "more of the same" is not a sustainable option. New applications of technology and new social/economic models (both localized and international) will have to be developed, tested and adapted which require less energy and resources.

A Survey of Unlikely Voters

It is election season in the United States, and if you tune in to any of the local news programs/comedy shows you are likely to get an earful of commentary, opinion, conjecture and wild speculation on what the “likely voters” are likely to do. Allow me to save you the trouble: they are likely to go and vote. Who they are going to vote for doesn't matter: without exception they are going to vote for an American politician: a lawyer or a businessman, someone belongs to one of a few available political categories, all of them misnomers designed to confuse the public. There are those who call themselves conservatives, and who are in fact not conservatives at all but free market liberals. There are those who call themselves libertarians, but who either are not libertarians at all, or have somehow forgotten their anarchist-socialist roots, and who are in fact also free market liberals. Then there are the “liberals,” who are also free market liberals but aspire to being nice, whereas the rest of the free market liberals are nasty. But nobody here wants to be called a “liberal,” because in this topsy-turvy political universe it has become little more than a term of abuse. It takes a long time to explain this nonsense to visitors from abroad, and when you round out the explanation by saying that these distinctions don't actually matter—because no matter what these politicians call themselves they are all state-capitalists who have been exhibiting quite a few fascist tendencies of late—the visitors inevitably feel that you have wasted their time.

But if you try to explain this nonsense to a domestic audience, it will be you who will feel that your time has been wasted. US voters are easy marks for political tricksters, and it is probably something that just can't be helped. The neatest trick is getting them to vote against their class interest. A few generations ago we had the “Reagan democrats”: working class people who voted—not once but twice!—for someone who was anti-union and generally anti-labor. And now, a few decades of political progress later, we have the “Teabaggers”: middle-aged obese and sickly white people who are about to cast their vote for someone who will take away their government-provided electrifc scooters and their very expensive medical care. When the political tricksters fail and the voting public actually gets a little bit upset, it is time to send in the clowns, and so most recently a couple of late-night TV comedians have joined the fray, holding a massive rally to “restore sanity.” This new sanity is epitomized by the following family portrait: daddy is a “Conservative Republican” mommy is an “Obama Liberal,” the son is a “Libertarian,” the daughter is a “Green,” and the dog (the only one of them who is sane) is trying to run away. Meet the Losers: they are the ones who have no idea what class their family is in, or what their class interest is, and as far as their chances of making successful use of democratic politics to collectively defend and advance their class interest, well... they are the Losers—that says it all, doesn't it? All that blood spilled in the name of liberty and democracy, and to show for it we have a country of insane Losers and the odd sane stray dog, free to a good home.

But it is all a waste of time: the Losers may vote or not vote, they may flap their gums at the breakfast table or twinkle their toes up and down the street holding signs, where they may take part in peaceful protest or get teargassed and shot with rubber bullets—the result will be exactly the same. No matter who US politicians claim to be, all of them exhibit two powerful but conflicting tendencies: to bureaucratize and to privatize. The bureaucratizers among them wants to grow public bureaucracies, creating political machines and systems of patronage, and providing ample scope for pork barrel politics. The privatizers among them want to dismantle public institutions and privatize everything under the sun in order to shrink the public realm and to enhance the concentration of private wealth. These two imperatives are at odds, not for any ideological reason, but simply because there is an inevitable tug of war between them: big public bureaucracies expand the public realm, but privatizing the public realm shrinks it. All American politicians find it in their interest to both expand government and to privatize its functions. When the US economy is growing nicely, the two factions find that their wishes are granted, and they go merrily along enlarging federal and local bureaucracies while assisting in the concentration of wealth, making everyone they care about happy—everyone except the population, which is being steadily driven into bankruptcy and destitution, but that's just a problem of perception, easily remedied by an army of political consultants come election time.

This public-private feeding frenzy is called “bipartisanship.” When the economy isn't growing, the two factions are forced to square off against each other in what amounts to a zero-sum game. This is called “gridlock.” Currently the US economy is growing at such an anemic rate that unemployment (defined as “percentage of working-age able-bodied people without a job”—not the fake “official” number) is continuing to increase. Even this anemic growth is likely to be corrected down in the coming months. The future glows even dimmer: a good leading indicator of economic growth happens to be “discretionary consumer durable goods spending,” and the good people who have had their eye on it tell us that it has been trending downward for a few months now, and portends a GDP growth rate of around negative six percent, which, if it holds at that level and does not deteriorate further, gives the US economy a half-life of just under a dozen years. A continuously shrinking economy assures continuous gridlock.

Although most if not all political commentators are on record saying that gridlock a bad thing, it is hard to find a reason to agree with them. Given the country's predicament, which of the two fruits would we wish this putatively beneficial bipartisanship to yield: the gift of more federal and local bureaucracy or the gift of more privatization and concentration of private wealth in fewer and fewer hands? Let us suppose that you are a big fan of government bureaucracy; how, then, do you expect the country to be able to afford to feed all these bureaucrats when the economy—and therefore the tax base— is shrinking? And supposing that you idolize the ultra-rich and expect to become one yourself as soon as you win the lottery; how, then, do you expect your riches to amount to anything, seeing as the vast majority of this private wealth is positioned “long paper”—currency, stocks, bonds, intellectual property or some more exotic or even toxic pieces of paper with letters and numbers printed on them. All of these financial instruments are bets on the future good performance of the US economy, which, by the way, is shrinking. A continuously shrinking economy is a large incinerator of paper wealth, and all these paper instruments are in the end just ephemera or memorabilia, like tickets to a show that's been cancelled. The bureaucratic contingent and the wealthy-on-paper contingent have enough paper between the two of them to feed the fire for a little while longer, but does the country really need a bipartisan effort increase this rate of combustion? If you enjoy being part of this system, and want to show your appreciation for it by casting a vote, you might as well vote for gridlock, because doing so is more likely to prolong your pleasure.

Cast your vote for gridlock, if you wish; your time is yours to waste. But what of all those who aren't particularly interested in voting? My informal survey of unlikely voters indicates that a surprisingly large number of them is thinking of leaving the country. Some days it seems like anybody who has a brainwave is thinking about running away. This is especially true of dual citizens who hold a US passport as a passport of convenience (it is one of the easiest in the world to get). For them it is more a question of “When?” It is also true of those born elsewhere, or have a foreign-born parent, or some other tenuous connection with another country. But there are many among those who are thinking of leaving who have lived in the US their entire lives, have barely ever ventured abroad, and are not proficient in a single foreign language! They don't know how to fit in anywhere but here, but they do know that they can't stay where they are. Finding these people a good new home seems like a bit of a challenge.

It seems that many of those who are clever enough to realize that voting here is a fool's errand also want to leave this country. But how many of them are actually successfully leaving? The answer (again, based on my decidedly informal and limited survey of unlikely voters) is that the vast majority of those who are thinking of leaving are failing to do so. This is rather unfortunate, because the planet can absorb only so many US expatriates. Should you decide to become one yourself, it would make sense for you to try to find yourself a chair to sit down on before the music stops. Even now the mood in many countries is turning anti-immigrant. The longer you wait, the higher your risk of becoming stranded in what remains of the US.

I will certainly have more to say on this topic—once the election fever has abated, Washington is safely gridlocked, and the bonfires of bureaucratic grandiosity and paper wealth are burning bright.