Published on Cassandra's Legacy on Thursday, January 8, 2015
The graph above was created by Gail Tverberg on her blog "Our Finite World". It is, clearly, another case of what I called the "Seneca Cliff" (from the Roman philospher who said "the road to ruin is rapid). The Seneca Cliff takes this shape, when generated by a system dynamics model:
Gail's forecast of the future of energy production is not the result of a the same model I developed, but the reasons behind the steep decline are the same. Gail explains it in a post of hers as:
All parts of our economy are interconnected. If parts of the economy is becoming increasingly inefficient, more than the cost of production in these parts of the economy are affected; other parts of the economy are affected as well, including wages, debt levels, and interest rates.
Wages are especially being crowded out, because the total amount of goods and services available for purchase in the world economy is growing more slowly. This is not intuitively obvious, unless a person stops to realize that if the world economy is growing more slowly, or actually shrinking, it is producing less. Each worker gets a share of this shrinking output, so it is reasonable to expect inflation-adjusted wages to be stagnating or declining, since a stagnating or declining collection of goods and services is all a person can expect.
At some point, something has to “give”.
Which is a good description of the mathematical model at the basis of the Seneca cliff idea. The burden on the economy of increasing costs becomes more and more heavy in times of diminishing returns (or, as Gail says, increasing inefficiency, which is the same). At some point, something "gives" and the whole thing comes down. Seneca rules.