Comment on Stephanomics on Oil

 IF the world were stimulated enough to get back to full employment, then how much oil would the world need? This is not an impossible question since the close connection between total production and oil production has been visible for decades. Now suppose that the world simply can't pump that much oil at the moment. What are the economic implications of that?
To answer that you have to look at where the world is heading. The price of oil has decoupled from the general price of energy. That means that the price includes a component for the energy, and a component for the extra value of oil as a convenient energy carrier (particularly in our world with so much oil-dependent infrastructure, like trucks, cars, petrol supply chains). This means that (a) Where possible (stationary situations) everyone is moving to other energy sources; and (b) We can increasingly use energy to get oil and still make a profit (this opens up options like tar sands, heavy oil, and in the long run we can even make oil out of thin air, perhaps using algae [I'm not suggesting that algae will ever make cheap oil]).
Other energy will never be as convenient as oil that flows out of the ground under its own pressure. Lack of convenience won't matter if it's cheap enough. The Green view that the cost of energy is unimportant is completely wrong. So the required recipe is clear:
(A) Stimulus must be used to build cheap electricity, not to try to restart "business as usual".
(B) We need to actually suck up any resulting excess liquidity in private hands to prevent us smashing again into the current limit of oil production: e.g. Energy Crisis Bonds in the style of War Bonds.

comments on Azimuth wiki startup

Paul Krugman has some relevant things to say in his blog today (http://krugman.blogs.nytimes.com/2010/09/27/the-power-of-conventional-wisdom/):

When everyone – tout le monde, as Tom Wolfe used to put it, meaning a relative handful of people, but everyone who supposedly matters – is saying something, it takes a real effort to step outside and say, wait a minute, how do we know that? It’s especially hard if you spend most of your time hanging out with other Very Serious People; I know that I myself have a hard time saying that people I know personally are talking nonsense, even when they are. The VSP effect is one reason smart bloggers, both on economics and on politics, have generally been a better guide to what’s really happening in America than famous reporters: their distance, their lack of up close and personal insights, is actually an advantage.

Then lower down:

This is what you need to know: important people have no special monopoly on wisdom; and in times like these, when the usual rules of economics don’t apply, they’re often deeply foolish, because the power of conventional wisdom prevents them from talking sense about a deeply unconventional situation.

Hmm. On the other hand we need genuine subject-matter expertise, which Krugman provides on Economics. On the other hand it is very easy for experts to be too narrowly focussed. I keep asking questions on his blog along the lines of "If world-wide demand were raised by world-wide government action to the level necessary to get unemployment down, then how much oil production would the economy need, and can we produce that much oil at the moment?". My point is that (a) we need government stimulus directed to produce cheap energy to be an (imperfect) substitute for oil; and (b) we need to also soak up private demand (energy crisis bonds?) to prevent smashing (again) into the limit of oil production and crashing the economy. But am I right? As Krugman and others point out, things are very similar to Japan 15 years ago when there was no energy or other shortage. We are missing any way to think clearly about these things. Just different groups of people using lots of adjectives and doing lots of arm-waving (yes there are lots of numbers being thrown around, but their implications are far from clear).

Which brings us back to the question of who has a special monopoly on wisdom. I claim that the subject matter of mathematics is how to think clearly about problems. Yes mathematicians spend time thinking about unimportant problems that they just happen to be able to describe succinctly. And also trying to understand mathematics itself better. But the real problems that drive mathematics are in the real world. Inference is a universal aspect of clear thinking, and this has to involve Bayesian analysis and using maximum entropy to understand what we know before we look at the evidence and how the evidence modifies what we know [and I'm not saying these are easy tools to use]. But this doesn't get us very far in understanding real world economic and environmental problems. I'd be rash to comment but I feel that the place to look has to be flows in configuration space, and the principle of Maximum Entropy Production will be the key to understanding that.

Transport Fuel is an Energy Carrier

What’s the best fuel for interstellar travel? The answer is anti-matter. Insanely difficult and expensive to produce and manage. But the advantage is that you get 100% conversion of mass into energy as you burn it. All the costs take place in the stationary manufacturing plants. There is no shortage of stationary energy. What there is a shortage of is energy for transport.

A similar situation is energy for mobile devices (PDAs, laptops, mobile phones). Here we see that energy carriers can justify being expensive if they can be light and compact. These are exactly the requirements for energy carriers for transport.

At the moment the world depends on oil which combines the qualities of energy source and energy carrier. Once we get beyond that we can perceive a world where there is a lot of cheap energy from Nuclear Power (assuming that something turns up from all the thought that is going into manufacturing nuclear power plants that are of shippable size). For transport we will then convert that to an energy carrier. Given the massive investment a fair amount of that will be done by producing diesel, and that will mostly be done by converting inconvenient natural sources like Alberta tar sands and numerous sources of very heavy oil. Eventually, hopefully soonish, it will be possible to make fuel from thin air using algae and this will be competitive if the carbon price is high enough. However while all that is going on we’ll also be seeing a transition to other energy carriers for transport.