Puplava interviews Dent on deflation vs. inflation

10 posts / 0 new
Last post
switters's picture
switters
Status: Platinum Member (Offline)
Joined: Jul 19 2008
Posts: 744
Puplava interviews Dent on deflation vs. inflation

I just finished listening to Jim Puplava's interview of Harry Dent Jr. as part of the ongoing "inflation/deflation debate" series they're doing over at FSN.  I highly recommend listening to the archives if you haven't done so already.

In particular I appreciated Dent's focus on the importance of demographics in determining economic activity, and the cyclical aspect of these trends that is consistent across many different times and places.  I also like how he correlates these economic cycles to the cycles we see in nature, i.e. the seasons.  In this metaphor, he believes we are just about to enter "winter", which is a period of contraction, cleansing, and one might even say, destruction. 

He argues that each phase of these cycles (or seasons) is absolutely vital to the health of the economy.  In nature, as in the economy, it is the winter that makes the following spring - a time of new growth and expansion - possible.  There is no spring without winter.  The notion of trying to avoid winter (which our government is vigorously engaged in) is as silly as trying to breathe in without breathing out, or trying to stay awake all night and never sleep.  Such behavior leads to catastrophe in an economic system, just as it does in a living organism.

As much as I appreciated this perspective, which displays a keen understanding of how nature actually works, I was baffled by his response to Jim's question about whether Dent believes in Peak Oil.  Dent said "no, I don't really believe in Peak Oil.  They told us oil was running out in the 70s, and it didn't.  So why should I believe them now?"

The profound ignorance of that statement blew me away after hearing him speak eloquently about the cycles of nature.  As an erstwhile student of nature, isn't he aware that not all processes in nature are cyclical?  For example, once a species becomes extinct it is gone forever.  It doesn't come back.  In the same way, natural resources deplete according to a bell curve - not a circle.  

Prechter made a similar argument in his interview with Puplava.  I think these folks have become so enamored with their cyclical theories that they are applying them to essentially linear processes.  The life cycle of yeast as they ferment wine in a vat is not cyclical.  It's linear.  They consume the sugars and grow at an exponential pace.  Then they all die.  That's it, until more yeast and more sugar are added.

In the case of oil, we don't have any more to add.  And we've got a lot more people using it.  And it costs a lot more to get to.  You all know the arguments.  I'm just so surprised that someone that smart can miss something so obvious.

Tycer's picture
Tycer
Status: Platinum Member (Offline)
Joined: Apr 26 2009
Posts: 601
Re: Puplava interviews Dent on deflation vs. inflation

Perhaps Mr. Dent has not watched The Crash Course. I don't begrudge him on his beliefs. He is after all, the one who woke me up in the 90s to the nature of our economy. 

okubow's picture
okubow
Status: Bronze Member (Offline)
Joined: Aug 16 2009
Posts: 67
Re: Puplava interviews Dent on deflation vs. inflation
switters wrote:

Prechter made a similar argument in his interview with Puplava.  I think these folks have become so enamored with their cyclical theories that they are applying them to essentially linear processes.  The life cycle of yeast as they ferment wine in a vat is not cyclical.  It's linear.  They consume the sugars and grow at an exponential pace.  Then they all die.  That's it, until more yeast and more sugar are added.

In the case of oil, we don't have any more to add.  And we've got a lot more people using it.  And it costs a lot more to get to.  You all know the arguments.  I'm just so surprised that someone that smart can miss something so obvious.

Switters, I think you're on to something here. I don't begrudge economists either, but I know what you mean. Some of these guys are brilliant forecasters, teachers and investors etc., but once you get them outside of the man made economic/financial environment they sometimes say very silly things. In my opinion, we live in a society which views the accumulation of wealth as the highest virtue, and growth as God. Those who possess great wealth or an understanding of it are seen as virtuous and wise. Those who don't, frequently aren't as well respected. (Not trying to stir up class warfare here or anything. Just making an observation based on my personal life experiences, and sharing an opinion.)

I remember hearing a speech by Warren Buffet in which he was addressing a graduating class of MBAs in Florida. He mentioned this phenomenon himself. He said something to the effect of:

"I have the skills that this society rewards. If we were all trapped on a desert island, then my ability to allocate capital probably wouldn't be very helpful. The guy who could grow the most rice would probably be the most useful and highly esteemed."

It doesn't really bother me when people say that they don't "believe" in Peak oil. Peak oil is not a belief. If you jump out of a ten story building and you don't "believe" in gravity, it's really not going to make much difference.

switters's picture
switters
Status: Platinum Member (Offline)
Joined: Jul 19 2008
Posts: 744
Re: Puplava interviews Dent on deflation vs. inflation
okubow wrote:

It doesn't really bother me when people say that they don't "believe" in Peak oil. Peak oil is not a belief. If you jump out of a ten story building and you don't "believe" in gravity, it's really not going to make much difference.

Exactly!  Where this comes into play for me when listening to forecasters like this is that I can't take them that seriously if they're not factoring things like Peak Oil and resource depletion into their analysis.  This isn't just another cycle we're going into.  It's unlike any other period in history.  The folks who look at the future as a series of historical cycles destined to repeat themselves are missing a key point: history isn't always cyclical. Non-renewable natural resources can run out.  Just because that hasn't happened yet doesn't mean it won't happen eventually.  If an economic analyst doesn't understand this, I don't care how elegant their theories are.  I don't trust them.

JAG's picture
JAG
Status: Diamond Member (Offline)
Joined: Oct 26 2008
Posts: 2492
Re: Puplava interviews Dent on deflation vs. inflation

Switters,

I didn't listen to Dent's interview because I read Dent's book and thought it was useless, so I agree with you about Dent. But, I think Pretcher stance was not about Peak Oil itself, but about the perception of Peak Oil. If you don't distinguish between these two facets of Peak Oil, then how do you explain $150/oil dropping to $34/oil in mere months? Prechter's contention is that mood and perception drive the market, not fundamentals, so he has no interest in the fundamentals of Peak oil.

Cloudfire's picture
Cloudfire
Status: Diamond Member (Offline)
Joined: Sep 29 2008
Posts: 1813
Re: Puplava interviews Dent on deflation vs. inflation

Okay, here goes . . . .

I am not a "believer" in peak oil . . . . . alright, settle down, now . . . . What I do believe is this:  that peak oil either is a fact, here and now, or it's a cover story for future diminishing access to petroleum products, for you and me . . . . to allow for the sequesterization of resources for "more important" endeavors by those who feel that the earth's resources are theirs to allocate, as they please . . . . Either way, oil is going to be visibly in short supply, and we're going to have to adjust to that fact . . . . So it doesn't change much in terms of preparation, except that now I have to don my tinfoil suit to shield me from the eggs being hurled at me by the Peak Oilers in the bleachers.  Tongue out

 

Woodman's picture
Woodman
Status: Diamond Member (Offline)
Joined: Sep 26 2008
Posts: 1028
Re: Puplava interviews Dent on deflation vs. inflation

Switters, I thought the same thing when I heard that interview with Dent.  His discussion of the relationship between demographics and economics seems correct, but  ignores current data indicating declining rate of supply of natural resources. 

In a natural process such as yeast as you referred to, the yeast need the right amount of sugar, temperature, pH, micronutrients, etc.  Change any one factor and there can be growth problems.  Similarly, failure to account for all possible significant factors in an economic model may generate unreliable predictions.

switters's picture
switters
Status: Platinum Member (Offline)
Joined: Jul 19 2008
Posts: 744
Re: Puplava interviews Dent on deflation vs. inflation

I guess Kunstler read my mind Wink.  Here's an excerpt from his blog this morning:

    Most curious, though, was when the interviewer, Jim Puplava, probed Dent about his views on Peak Oil.  Dent said he didn't believe in itthat when he was in college in the 1970s (remember the OPEC oil embargo of '73), he learned to disregard any suggestions that we are "running out of oil."  He stated this, by the way, as a simple assertion, without any further explanation, and Puplava didn't belabor him with arguments.  But it was a weird moment.  Of course, it hardly need be said that Peak Oil story has never been about "running out of oil" per se, but rather about declining flows, geopolitical management of flows, and the effects of depletion on industrial economies -- in particular the effect on regular, expected, cyclical "growth" of the type that financial markets utterly depend on to power the trade in investment paper.

      It is exceedingly odd that this does not factor into Dent's thinking, because what Peak Oil inescapably does is introduce the very sobering idea of discontinuity -- that is, that the game has changed radically, especially where all our assumptions about continued "growth" are concerned. In that brief exchange on Peak Oil, Dent seemed to take the position that the "winter" part of any historical financial cycle always produced "new technology" that invariably saves the day, putting this seemingly very smart man in the camp of so many techno-cornucopian triumphalists all wishing for the same outcome: that some mythical "they" will "come up with" a set of rescue remedies to keep all the cars circulating on the freeways, and all the WalMarts groaning with swag.

     Like so many major league prognosticators, Dent arrives at his ideas by building models of reality, assembling "data" to create charts of trends in prices, interest rates, and especially demographics - what age group of people are buying a lot of what in which stage of their lives.  The whole business seems very rational and reasonable except when you realize that it is just another "narrative" -- to borrow one of Nassim Nicholas Taleb's terms -- girded with statistical justification.  One can hardly fault it from a strictly procedural point of view - since, in our culture, conclusions ought to proceed from evidence - but one can't escape the feeling that it amounts to little more than old-fashioned augury... that someone examining the entrails of a dead chicken, spread over the front page of The Wall Street Journal, might arrive at very similar conclusions.  All that said, Dent was an appealingly confident personality on-the-air, the kind of authoritative voice you'd like to believe, if only it were possible.

     Prechter was much the same a few weeks earlier, and he, too, foresees a darker American future, based on a different set of models called Elliot Wave principles.  His forecasts derive from a picture of "social mood" as much as economic data flows.  He, too seems to disregard the Peak Oil story and its implications as the master resource driving growth in industrial economies.

switters's picture
switters
Status: Platinum Member (Offline)
Joined: Jul 19 2008
Posts: 744
Re: Puplava interviews Dent on deflation vs. inflation
JAG wrote:

Switters,

I didn't listen to Dent's interview because I read Dent's book and thought it was useless, so I agree with you about Dent. But, I think Pretcher stance was not about Peak Oil itself, but about the perception of Peak Oil. If you don't distinguish between these two facets of Peak Oil, then how do you explain $150/oil dropping to $34/oil in mere months? Prechter's contention is that mood and perception drive the market, not fundamentals, so he has no interest in the fundamentals of Peak oil.

Well, I guess that's the problem I have with models like Elliot Wave.  Seems to me they can work well with things like the stock market which don't have geological restraints.  And they've worked well even with commodities and natural resources up until now because we've just passed through a period where our ability to procure those resources was limited only by economic or political concerns.  Now, however, we're entering a new period where resource constraints will increasingly dictate what is available and not available.  Is Elliot Wave theory capable of forecasting a catastrophic climate event that would in turn wreak havoc on economies?  Is it capable of forecasting an oil supply crisis where flow rates drop below the minimum capacity needed to get gas to stations across the US, and the subsequent consequences?  I don't know.

 

JAG's picture
JAG
Status: Diamond Member (Offline)
Joined: Oct 26 2008
Posts: 2492
Re: Puplava interviews Dent on deflation vs. inflation
switters wrote:

Is Elliot Wave theory capable of forecasting a catastrophic climate event that would in turn wreak havoc on economies?  Is it capable of forecasting an oil supply crisis where flow rates drop below the minimum capacity needed to get gas to stations across the US, and the subsequent consequences?  

No, of course not.

What EW theory forecasts is how we, as a society, will react to these events, based on our "collective self-image". Within a market context, this is all that matters. If fundamentals mattered to the market, would we have a 60% rally in the markets in 6 months?

I totally agree that Dent's and Pretcher's theories have their limitations, and I think its obvious that no theoretical model can encompass all of reality, otherwise it wouldn't be theoretical. But, to be accurate, we have to recognize that Peak Oil is also a theoretical model, and therefore is also incapable of encompassing all of reality.

Comment viewing options

Select your preferred way to display the comments and click "Save settings" to activate your changes.
Login or Register to post comments