Planet Level Accounting

[7Wannabe5]

Okay, please correct me if I am misinformed, but what I got so far is:

Value of Worldwide Financial Assets: $300 trillion
Value of Global Equity Markets: > $70 trillion
Value of Remaining Petroleum Reserves: $60 trillion (1.3 trillion barrels @ $45/barrel)
Human Population: 7.5 billion
Average American Consumption of Petroleum: 2 barrels/month
Average Human Consumption of Petroleum: .33 barrels/month

How is it possible that equity markets will continue to grow if you plug these stocks and flows into a system diagram? What am I missing?

[Bismarck]

Technology and human adaptability can limit the effects of using a finite resource like petroleum. There's no guarantee that will occur in the future, but it has in the past.

[vexed87]

My model: Fractional Reserve Banking and inflationary policies are the tools by which banks/central banks increase the supply of money. The total value of all goods can only naturally increase in an economy if activity or productivity increases, the responsibility of the CBs is to ensure the supply of money increases/decreases in line with productivity/activity otherwise we may experience increases of inflation or deflation which is bad for stability within the economy. The markets will continue to 'grow' so long as money is printed and dumped into them. As we measure markets as a metric of prosperity, perverse incentives are created to inflate the markets to simulate growth.

[UrbanHermit]

Efficiency: cutting our input cost in half doubles output with no additional inputs. What is the theoretical minimum energy cost for delivering Angry Birds over a network? How close to that are we?

Nonphysical Goods: when JK Rowling wrote Harry Potter she created several billion dollars in IP. How much oil was consumed in the process?

Additional Energy: there exists this thing called nuclear... when you account for unexplored resource deposits, breeder reactors, and thorium, we've got a few million years of supply not counting seawater or asteroid harvesting (which I'd anticipate we could pull off in a few million years). People need to stop freaking out about oil.

Additional Planets: seriously. Who says we're stuck with just one?

[Dragline]

I would imagine that some GE markets will grow and others will not. But there is a good portion of the world's economy that is still not captured by GE markets, so growth in GE is still possible simply by incorporation of that economic activity into GE markets.

Ultimately, it comes down to alternative sources of energy, though. The future-optimists like the Kurzweil crowd are predicting that renewables will grow fast enough to make up the difference. The future-pessimists like some of the peak-oil crowd say "no way."

I do not know the answer, but am guessing that it will likely be different for different locations on the planet.

[jacob]

@7wb5 -

A few major issues:

• The sum-total value of N financial securities is not N multiplied by the last price to transact. While common (in media, etc.), it is highly misleading. For example suppose 10 people hold 10 shares each (100 shares total) currently trading at $10/sh and representing the entirely of a company that owns 100 bicycles. Now suppose one of them wants to sell 1 share and accepts a price of $9. Now, the market cap of the hundred bicycles as it would be reported in the financial press dropped to 100*$9. "Investors lost $100" simply because ONE person decided sell ONE share for $1 less. This also works in reverse. Just because some investor is willing to pay $1 more for the last bicycle to trade doesn't mean that the entire stock of bicycles just went up in value. (This is also why volume matters almost as much as price behavior when it comes to understanding total market behavior.)
• Therefore, the entire value of the world's financial markets are vastly overstated(*). In particular, it can't be converted to cash. It's crucial to grok that cash is just an immediate claim of goods IF AND ONLY IF someone is willing to transact. Otherwise $100 is just three digits in a computer.
• If you want to compare entire systems, it's misleading to convert everything into total dollars and go from there. Because what you're really doing is taking first derivatives (margin values) and linearizing and then doing your calculation presuming that the universe actually is linear when it isn't.

(*) Another way to see this is that P/B are typically above 1 and that a lot of that book value represents old junk that's just kept on the books for accounting reasons. Some of that book value even represents imaginary value like brand equity. Imagine the bicycle company above really being mostly booked at the "LegStrength" brandname, an App with 5723 facebook likes, a contract to lease 10 bicycles, and a CTO with pump and a few inner tubes.

And a couple of minor ones:

• Techno optimists like to think that economic growth can continue by making it more energy efficient, that is, it's possible to increase GDP/fossil inputs (a good proxy is GDP/CO2 which is widely reported) to infinity. A economic model would be one where we all sell each other services. I cut your hair. You write a blog post for me. The food we eat isn't rotisserie angry birds, the housing we live in isn't minecrafted, ... but we ignore that.
• A lot of those fossil fuel reserves are already imputed and worth far less IF AND ONLY IF the world actually goes through with the Paris Agreement. When this becomes generally acknowledged in the market, boom ... the energy sector will take a hit... kinda like when the housing bubble burst when it became generally known that people didn't have the means to pay their mortgages. Currently playing musical chairs.

[7Wannabe5]

Interesting variety of responses or theories. On a recent lovely autumn day, I found myself walking around Greenfield Village (mish-mash historical recreation of lifestyle and industry approximating late 19th/early 20th century endowed by Henry Ford) in the company of a mechanical engineer who is interested in old tools/machinery and believes in the possibility of engineered solutions. So, I started thinking about how the petroleum dominated culture hasn't been that long in existence. My grandmother remembered milk being delivered by a horse drawn wagon to her home in Detroit (not far from where I currently live) and storing it in an ice box to keep it fresh. The vacant urban lot where I garden was part of a dairy farm at the turn of the 20th century. The hip cafe a few blocks away was a butcher shop when my grandmother was born (1920) to a recently immigrated Polish steel worker and his wife who were living in the same neighborhood.

So, I guess part of what I am wondering is in what realms (or markets )we will go forward vs. backwards when the stock of fossil fuels is depleted? My little experiment in urban micro-farming off of a grid which is still existent and nearby (kind of funny to be drinking filtered water from a mason jar half a block from a corner market where I could grab one from a cooler), obviously tends to churn up all sorts of questions along these lines. I found this article quite interesting:

http://www.mdpi.com/1996-1073/7/12/7955/htm

jacob said: If you want to compare entire systems, it's misleading to convert everything into total dollars and go from there. Because what you're really doing is taking first derivatives (margin values) and linearizing and then doing your calculation presuming that the universe actually is linear when it isn't.

Gotcha. I should know this better than anyone since I deal in micro-niche goods that only experience an intermittent pulse of demand.

IF AND ONLY IF the world actually goes through with the Paris Agreement.

Not likely given recent events.

[jacob]

What do you mean by forwards or backwards? (Trick question)

[7Wannabe5]

jacob said: What do you mean by forwards or backwards? (Trick question)

I suppose I mostly meant that I wonder to what extent we will end up making more or better use of ancient technology such as bicycles, paddle wheels, , treadles, lenses and vacuum tubes vs. pvc solar, bio-tech, nano-tech, unknown-tech-of-the-future? Of course, huddling around a bonfire for warmth is different than using a fireplace which is different from using a wood stove which is different from using a modern design wood stove. Also, the manner and degree to which different technologies are integrated can vary.

I thought the article's argument that preferences for end-use products drive change in energy source more than relative availability or expense of energy source was fairly compelling. For instance, although I primarily loaded up on a variety of lithium-ion batteries/banks because I wanted to eventually integrate with solar, I have found that I like them for a variety of other reasons having to due with dislike of cords and dealing with the stink, mess and heaviness of tools that require gas/oil. So, for instance, if the female tool and technology using consumer develops a strong preference for lithium-ion batteries/banks due to lighter weight rendering them easier to handle, even without a preference for solar, the ease of transition to solar will still be made easier. IOW, thoughtful design could motivate self-interest beyond simple price analysis and/or moral issues.