Gail Tverberg, is a professional actuary who applies classic risk assessment procedures to global resources: studying issues such as oil & natural gas depletion, water shortages, climate change, etc. She is widely known in the Peak Cheap Oil space for her reports issued across energy websites over the years under the penname "GailTheActuary".
In this week's podcast, Chris asks Gail to assess the merits of the shale oil "revolution". Does it usher in a new Golden Age of American oil independence?
With her actuarial eyeshade firmly in place, Gail quickly begins discounting the underlying economics behind the shale model:
We have to ask: At what price is the oil available? Is this shale oil available because prices are high and in fact, because interest rates are low, as well? Or is it available if it were cheap oil with interest rates at more normal levels?
I think what we have is a very peculiar situation where it is available ,but it is available only because of this peculiar financial situation we are in right now with very high oil prices and very low interest rates.
The shale oil plays are going to be probably much less than a 10-year flash in the pan. They are very dependent on a lot of different things, including low interest rates and the ability to keep borrowing – which could turn around very quickly. Lower oil prices would tend to do the same thing. But even if you hypothesize that we can keep the low interest rates and that the oil price will stay up there, under the best of circumstances, the Barnett data says they probably will not go for very long.
You know, when you take how long the payout really is on those wells, I think the companies drilling these plays have been very optimistic as to how long those wells are going to be economic. There was a recent study done saying just that: 10 years or 5 years; but certainly not 40 years.
And so these companies put together optimistic financial statements that have the benefit of these extremely low interest rates. They keep adding debt onto debt onto debt. How long can they continue to get more debt to finance this whole operation? It's not a model that anybody who is very sensible would follow.
Similar to many energy experts Chris has interviewed prior, Gail looks at the math and concludes that humans (especially those in the West) have been living on an energy subsidy that is beginning to run out. We have been living outside of our natural budget, and will be forced to live within what remains going forward. As a result, she expect great changes in store for the next several decades: socially, politically and lifestyle-wise.
Click the play button below to listen to Chris's interview with Gail Tverberg (38m:07s):
Chris Martenson: Welcome to this Peak Prosperity podcast. I am your host, Chris Martenson, and today we welcome Gail Tverberg to this program. I am really happy to have Gail with us today. She is a professional actuary who applies her risk assessment expertise to our finite world and all the issues therein – oil depletion, natural gas depletion, water shortages, climate change, things like that. She runs the blog ourfiniteworld.com, and for years authored some of the most informed analyses on the global net energy predicament in her posts at theoildrum.com published under the pen name Gail the Actuary.
Gail, I have followed and respected your work for many years. We have met each other a few times. I am really pleased to have you on the program. Thank you so much for joining us today.
Gail Tverberg: You are welcome. I am glad to be here.
Chris Martenson: There has been a lot of recent noise in the energy space with fracking and the shale revolution. I want to discuss with you the nearly taboo subjects of limits and the idea that economic growth cannot occur forever, and that linkage between economy and energy, in particular. So let’s start there. What can you tell us about the relationship between economic growth and energy?
Gail Tverberg: Let’s put it this way: Without energy of the right kind, it is very difficult to have economic growth. I think it is pretty well nigh impossible. You can have a little bit of technology improvements, but that does not go very far. And you have to have the right kind of energy that is not substitutable very well. You need to have oil for the vehicles that we have operating today. In some cases, we have natural gas to run for heating within houses and such. We have coal for other purposes. But basically, our systems have been set up to use specific types of energy, and you have to have the right kind, not just any kind of energy.
Chris Martenson: Historically, there has been some sort of a relationship between economic growth and energy. I assume it is a pretty tight relationship. And I have seen the charts on your site. You have world oil use on one hand, and percent growth in global economy on the other. Is that correlation, or is it causation?
Gail Tverberg: I think it goes both directions. I think that it takes energy to make products and it may tend to even – to sell services, it takes energy of the right kind. But I think the other side of it works, as well. There is a demand relationship. If people have wages that they get through this whole system that evolves, they have the money that they can afford to buy the goods to keep the system going. So you really have to have both sides of the equation working. It does not work on a one-sided basis. I know economists would like one side; some of the oil people would like the other side; some would like supply; the economists would like simply demand. But I think it is really a double-sided situation.
Chris Martenson: And this is the part I think has been missing from the equation quite often on both sides of the story, which is that when people say, When does Peak Oil occur? you really have to answer the question first, Tell me what the price of oil is going to be. Because at an infinite price, I assume we could actually just make oil out of air – pulling carbon dioxide out and it would not matter. But there are energy limits and economic limits.
So I want to talk about that, because from the economic side, the story right now that I hear pretty constantly is that there has been this shale revolution. And in fact, there are just so many hydrocarbons out there, there is so much petroleum out there, that we have just begun to really tap into it. What is your view there?
Gail Tverberg: I think the situation is that we have to ask at what price is the oil available. Is this shale oil available because prices are high and in fact, because interest rates are low, as well? Or is it available if it were cheap oil with interest rates at more normal levels? I think what we have is a very peculiar situation where it is available, but it is available only because of this peculiar financial situation we are in right now with very high oil prices and very low interest rates.
Chris Martenson: That is an interesting observation. There was just a very nice article in the Financial Times two, maybe three days ago. And I am going to pull a quote from that, where they noted that, “The oil industry’s upstream capex – that is capital expenditures – had risen by nearly 180% since 2000 but the global oil supply, adjusted for energy content, only rose by 14%.” So we saw 180% expansion in spending and a 14% expansion in product. Is that part of the dynamic you are talking about?
Gail Tverberg: Yes, I think that is a big part of the dynamics. And if you stop to figure it out – I have not gone back to look exactly at how much world population grew in that decade, but I am pretty sure it grew by more than 14%. So what has happened is, our oil supply per capita has stayed flat, or maybe even slightly decreased. At the same time, we have spent billions and billions of dollars.
Chris Martenson: And that really is the part of the shale story that I think has to be talked about. There are two parts I want to talk about. The first is that extraordinary cost. I was talking with Gregor MacDonald the other day, and by his calculations, roughly a third of all the oil that is actually out in the mix right now is coming from nonconventional sources, including tar sands, shale, and ultra deep water. And so if we think about world oil being a giant pool, once upon a time that pool was really, really high net energy, really cheap stuff . The dollar-per-barrel stuff coming out of the ground in Saudi Arabia is now being blended slowly over time to the point that up to about a third of the blend includes stuff which costs at least seventy dollars a barrel to get out of the ground, if not more, depending on the type of fund we are talking about.
So when you look at that and you understand that the net energy content of even the small amount of expansion of oil we have had is declining, wander with me over to the economic side. Does what you see in the economic landscape start to make more sense to you – meaning low growth, difficulty of monetary policy, finding real traction, relatively high unemployment, things like that – do those dots connect for you?
Gail Tverberg: I guess I do not go exactly that direction, just because the kind of energy that goes into extracting the oil is not necessarily the same thing that – you can use maybe natural gas to pull out your oil, and it can be cheap, and it may economically work out. So I tend not to go just directly that direction. What tends to happen goes more through the financial circuit, the way I see it, and that is that the buyers are less able to buy the high-priced goods that are made with oil. And so that creates a problem and that cuts back on discretionary spending.
Also, the higher price of our manufacturing, our whole processes compared to, say, China that uses a much higher blend of coal in the mix, becomes more important, because their costs are so much lower. So we become less competitive in the world marketplace.
So there are a lot of financial kinds of ramifications of high oil prices. There is a very strong – I am not sure if you call it – urge. Businesses have a cost incentive to switch their production overseas if they can make things a whole lot cheaper there, and high price of oil tends to exaggerate that need. So all of these things act as brakes on the economy, especially for countries that use very much oil in their oil mix or in their energy mix.
Chris Martenson: I saw a really revealing chart at one point that showed the PIIGS – Portugal, Ireland, Italy, Spain, and Greece – and mapped those countries against a proportion of their GDP that was dedicated to importing oil, because none of those are oil producers, really. And it was a perfect match between who went first, second, third in that domino series and who imported the most. So there is a clear correlation to being an energy importer. It is a really, really big drain on your finances, and so globally, it is kind of hard to untangle. But when we look at individual countries, I see a fairly strong correlation between the moment when a country becomes a net energy importer and other financial, maybe social, maybe even political difficulties that seem to arise. Most recently, Egypt being a prime example. Do you see it that way?
Gail Tverberg: I think the loss of their oil exports has been a huge problem because the oil exports allowed them to sensitize both the oil price and the food price there. I think they have been able to do a little bit with natural gas exports, but that does not do nearly as much. And when they end up in serious financial problems, then there is a clear problem there. And that is really what has happened recently. If you draw a graph, you can see that as their exports fell off, that was exactly the time when they started having all of the results.
Chris Martenson: Yeah, it was quite a tight correlation. Maybe it was not causation, but it was certainly intriguing, and I have seen that pattern happen in a number of other places and times. But it makes sense, right? To have an economy, you have to have energy. It is the master resource. And so when you can dedicate an increasing portion or a large portion of energy, you will have a more robust economy, and if you have less, you will just have less. That all makes sense.
Now I want to talk about the second part about the shale revolution, which is that as I track the various shale plays that are out there – and they go by a variety of names, I am sure people heard them; the Bakken is one; another one is the Barnett, which is primarily just a natural gas play. It is in Texas and it got drilled first and most frequently – I see that it really started in earnest in maybe 2004 or ’05; it really started getting drilled hard. And so here we are, basically a decade later, and its production seems to have already nosed over. And maybe that happened for a number of reasons, including that they are not drilling it quite as intensively.
But the point I want to get at here is that it seems like the shale plays are going to be relatively short duration. Compare a shale play like the Barnett to the Gower – first drilled in the thirties, still producing today. How do you see the shale plays – are they real long-term durable game changers? Or is the Barnett telling us there may be a ten-year sort of flash in the pan?
Gail Tverberg: I think they are going to be probably much less than the ten-year flash in the pan. I think that they are very dependent on a lot of different things, including low interest rates and the ability to keep borrowing, and we could see them turn around very quickly. And also lower oil prices would tend to do the same thing. But even if you hypothesize that we can keep the low interest rates and that the oil price will stay up there, under the best of circumstances, Barnett says they probably will not go very long.
I think the one thing the Barnett does have, though, is natural gas, natural gas prices because of the glut of natural gas relative to the pipeline availability and relative to what people really will use of natural gas. It has depressed the prices of natural gas, so it has a little bit different situation there. You cannot necessary exactly extrapolate from it, but it does give us a clue.
Chris Martenson: Right, if gas prices had stayed high, there potentially would have been more drilling, and we would not have seen that peak yet is the argument.
Gail Tverberg: If we had, yeah, ten-dollar natural gas, I think we probably still would be seeing some drilling.
Chris Martenson: Okay. So which comes first, then – low oil prices or low oil supplies leading to higher prices? Which do you see is driving the future here?
Gail Tverberg: I see government problems that are being brought on by oil as being the next step. And the government problems will bring the oil prices down. So as oil prices come down, then that brings the supply down. But it is the government problems that are the intervening step in there. It is the fact that the governments are put in a position where they need to support all of these people who cannot find work, and this is related to the high price of oil. And also, it is supporting promises that we have made over the years.
There is also the debt part of it. We depend on very low interest rates to keep the cost of that debt low right now. But the debt has been escalating since 2008, the federal debt has. And so the government is in a very tight situation, and it is the government problems that have the potential to spill over into the rest of the world situation. And it is through that mechanism that we will see the decline in oil supply. That is the way I see it going.
Chris Martenson: All right, so make sure I have got this: Because the government has taken on a whole lot of debt, it is trying to support a lot of people who are out of work; the economy is basically moribund because of high oil prices, so there is a little self-feedback loop in there. But ultimately, it is going to be the fiscal condition of the government – let’s say the U.S. government?
Gail Tverberg: It is going to be the fiscal condition of the U.S. government, and it is going to be all of the debt outstanding. It is going to be the fact that we cannot keep those interest rates low permanently. We cannot keep this quantitative easing up. And what is going to happen is the interest rates will rise, and that will cause a big problem. Or at least that is one scenario. There are so many different scenarios that could cause a problem. That is just one of them, anyhow.
Chris Martenson: You are talking about all of this leading to a deflationary outcome at some point. The Federal Reserve obviously is working double-overtime to prevent that outcome exactly. A lot of people have staked complete faith that the Fed has this all in hand and will lead to an inflationary outcome, I believe. World bond market prices, equity pricings, resurgence in real estate values, things like that are all collectively telling me that the bet has been made. The Fed will not lose this battle. Do you think they might?
Gail Tverberg: What happens is all of the extra money from the quantitative easing is going into speculation. And it is pumping up the prices of the stock market, the bond market, housing prices, farm prices, you name it. And so it is off in these places where it is not Main Street, it is not doing things that are getting people jobs. And so we have this temporary bubble on assets that cannot stay there if interest rates go up.
Chris Martenson: That is the big “if” in this story. Well, for me, it is a “when” – when interest rates go back up. We have hundreds of years of history on interest rates. And right now, I believe the U.K. or English gilts are at a 400-year low in terms of interest rates. So you might say there is a small chance of reversion to the mean in that story.
Good chance that might happen, and yet, we have this collective bet on such an outcome not happening. People are really hoping for something other. This is, I think, the heart of what you write about a lot – this idea that capital formation is a very different process from printing money. And I have seen otherwise very well-credentialed economists mixing those two things up, using the words interchangeably, that the Fed is basically creating capital. In my mind, capital is something that happens after you have performed some useful economic activity and there is a surplus left over. And then, that capital can be saved and that savings can go back into investment. That loop seems to be pretty well broken, as far as I can tell.
When we look at capital expenditures by corporations, we look at infrastructure spent by the Federal government. Very much a decade of lows. So we are not plowing any of this money back in. It is being used instead for speculation.
But the common story right now says that hey, high asset prices are a cure; they work. High housing prices, prices going up, that creates a wealth effect. Do you disagree with that?
Gail Tverberg: I agree that high housing prices at least keeps people from defaulting on their loans as much when they want to move. They at least are able to get the selling price for their house that they paid for it, so they do not have quite that problem, and the banks are not as bad off, and the insurance companies are not as bad off. So the inflated asset prices do provide a kind of – I think I called it duct tape – provided a kind of duct tape for the economy. But they are not a long-term solution. We need a situation where we, in fact, have – you talked about capital formation. It is really our ability to accumulate all of these kinds of natural resources that we need to make to create new buildings or to maintain roads or to do all of these things. And printing money is not equivalent to having the resources to keep our roads maintained, for example.
Chris Martenson: So let’s talk about the idea of resources. I know one of the things you write about is limits. Obviously, it is right in the title with your blog, ourfiniteworld.com. You believe the world is finite. I get in actual arguments with people who claim that the world is not finite, that it is just that human creativity is sufficient to give us all the resources we need. Talk to me about how you see limits and where you see limits currently in the landscape right now, if you do.
Gail Tverberg: I see limits as being financial limits. Because our system is really put together like a well-oiled machine – that everything sits together in pieces. The whole economy fits together with all of its parts. There is the government part, there is all of the workers, there are the businesses, there are the resources. And the whole machine operates in the way it is intended to work. What happens is, if the oil becomes too scarce or too high-priced, too unavailable, if it messes up the situation, what we know from past collapses is that the way that they came to an end was because the workers’ wages declined. The wages of the common workers no longer continued to rise. This is the way diminishing returns show up in practice.
So the governments could not collect enough taxes from the workers. And the way the whole situation came to an end was that the government could not collect the taxes they need. We are heading sort of that same direction now. There was greater disparity and wealth, and you could not get the taxes from the big businesses, or from the few rich relative to the poor. So it is the fact that this whole system that you have put together no longer can continue. As things evolve in this direction, it is put together within certain tolerances, just like an engine. And you cannot just stop one of the necessary elements and have the whole thing go.
Chris Martenson: So the idea here is diminishing returns, meaning that when you have ample resources – and let me use a proxy for that: when you have relatively cheap energy and ample energy, so really, your use of energy is limited by your demand for energy – you can expand debt and probably get reasonable traction out of that. Now, fast-forward to a condition where energy is now much more expensive and we are already saturated with debt. Adding new debt to that system just has diminishing returns, so less bang for the borrowed buck.
Gail Tverberg: I think of demand as what you can afford. And if demand is what you can afford, it is what you can afford with your wages. And as the wages fail to rise, then you have a real problem because your demand does not rise.
Chris Martenson: That has certainly been a very powerful piece for a while. It has been sort of pinned at the feet of globalization, keeping wages under control and all of that. But really, I think you hit on it earlier. We have seen record corporate profits, particularly as a share of GDP. We have seen record flows of this newly created and printed money towards a very, very select class of people. I will not even call it the 1%; it is actually the fraction of the 1%.
So we have a number of dynamics where we are seeing what is available to be had is being syphoned off towards certain centers and not being shared broadly. Are you basically saying that without a broad middle class, it is difficult to have a durable and robust economy?
Gail Tverberg: Yes, I think that is pretty much the case. I think I would also add with all of this growth and profits, what we are seeing, though, is that the oil companies are not seeing the growth in profits. As the people cannot afford this high-priced oil, what we are seeing is lower returns for the oil companies.
Chris Martenson: The big ones, yeah – thank you for bringing that up, because something that I would love to get your view on. I have been mystified, like seeing the oil majors, if the shale oil boons are really the next greatest giantest thing and they are amazing, where are the majors? I mean, we saw shale weigh in and bought a bunch of acreage. It bought some in the Mississippian formation under Kansas, it bought some in the Utica Shale in Ohio, and walked away from both of those investments saying that at least those shale plays were not working out. Why aren’t the majors really playing in this space?
Gail Tverberg: I think part of it is they probably have higher overhead costs. But I think they also have better sense with respect to putting together financial statements and looking at what the real results are going to be. When you take how long the payout really is on those wells, I think they have been very optimistic as to how long those wells are going to be economic. And I think that there was just a recent study done saying that they are not likely to be economic for very long. I forget whether it was ten years or five years, but it is certainly not forty years. And so they put together optimistic financial statements that had the benefit of these extremely low interest rates. They keep adding debt on debt on debt on debt. And so we need to see how long can they continue to get more debt to finance this whole operation.
But it is not a model that anybody who is very sensible would follow. And the bigger oil companies know that you cannot just run an operation on huge, huge, huge, huge amounts of very low interest debt.
Chris Martenson: Yeah, there is an interesting high-level sort of a summary I ran, just back-of-the–envelope; I do not have great numbers for you. Let’s use rough numbers for the Bakken; I will use rough numbers to make it easy. They are completing about 100 new wells per months, and they are getting about 26,000 net barrels per day out of the ground. And let’s say a new well costs $8 million. So they are spending an extraordinary amount of money for each new incremental barrel to come out of the ground because the depletion on the back end is just so strong. But when we look at it that way, the amount that we are paying as a society for those new incremental barrels is actually very, very high. And so it is a tricky sort of a calculation to run, in total, because there is stuff being depleted and new stuff being added.
And so each well, individually, I am sure, might make some economic sense to individual investors. I know some of them really do. But as a society, it is clearly not the same oil that we are used to, and so the comparisons that drive you nuts are the ones in the newspaper that like say, Oh, look, we are producing the same amount as (pick a number) 1998. We have reversed fifteen years of erosion. Those are not really fair, are they?
Gail Tverberg: Right. It is a very different situation. What we are taking out now is just terribly expensive. Back when it was cheap oil, the fact that it was cheap oil is part of what allowed governments to tax it at a high rate and to keep those economies going. I just read that Alaska, even very recently, was collecting 90% of its tax revenue from oil production. But you find governments around the world who are very dependent on oil extraction taxes.
And so it supports the economy in different ways than we think of it. If you have higher revenue from oil, that means you can tax your citizens less.
So in the prior situation, we had a situation where oil was able to support these economies and they were able to grow. And as we lose the support, now we go out and we try to say, Okay, we are going to do some kind of renewables and we are going to go fund them instead. That is just exactly the opposite direction. And the shale, it does provide tax revenue, too, but at the same time, it is just running up these huge debts so it is not the same kind of operation at all.
Chris Martenson: Yeah, that is a very important distinction that I often see being lost. So I will get in discussions where people say, Oh, but we are using oil so much more efficiently now because we have had these productivity improvements so we are going to get more economy per unit of energy. And I get that argument, but then I want to wander over to Saudi Arabia and I say, Wait a minute. Look, Saudi Arabia has got a pretty robust economy. You can measure it in a lot of different ways – by the GDP numbers, by various statistics, it looks good.
But what Saudi Arabia is doing is they are drawing down a capital account, meaning their natural capital, so they are sucking their reservoirs down. And we measure that the same in economic output as though they were engaging in a whole bunch of wealth creation activities, meaning they have invested in certain property plant and equipment that will give them a robust economy. We measure them and we kind of call them the same thing, and they kind of feel the same to the taxpayer. You are saying, like, the people in Alaska, it is 90% of their tax revenues are coming from an extractive process. And so you feel like you hit a triple, right? Like, Oh, we must do things really well up here. But when that drawdown of that capital account runs out, then you find yourself in a very, very different sort of a situation, and I think it becomes clear – were you drawing a capital account, were you creating new wealth?
For example, where do you see Saudi Arabia going over the next ten, twenty, thirty years?
Gail Tverberg: Clearly, it is going to have problems. It is going to look like Egypt has looked just recently. At some point, you cannot continue subsidizing the living conditions of your population. Egypt had an increase to, I think it is 80 million people. And Saudi Arabia, I forget what the number is, it is 30 million or something like that. But you depend on the oil that you are selling to get the tax revenue that you need for all these subsidies that you have planned.
Chris Martenson: So let’s talk about for a minute if the United States were going to – let me back up. I hear a lot that people think we are heading in the wrong direction as a nation. Even national polls will show that, some 62% or 63% of people, [think we are] headed in the wrong direction. From your perspective, are we headed in the wrong direction? And if so, what is the right direction?
Gail Tverberg: We are headed towards limits to growth. And a nice direction would be away from limits to growth. But I am not sure that we are capable of changing the course of the ship in that direction. It would be really nice if there were a way we could do it. I suppose if we were to do it, it would be, Oh, run after coal, okay? Ihat may solve the immediate problem in some sense, but it would certainly cause problems with respect to pollution and probably with respect to climate change. So coal is not necessarily a solution, but it is hard to see any other kinds of solutions that way.
Chris Martenson: Well, most problems were created by solutions. I forget who said that, but I love that quote. So the right direction, though, if we are going to head away from limits to growth, that means we have to live within some sort of a budget – both a financial budget and maybe a natural budget. We are clearly drawing down our natural budget when we are using nonrenewable natural resources such as fossil fuels, things like that. How do we begin to transition towards living within our – let’s pick one – our natural budget? How would we do that?
Gail Tverberg: I guess the big issue I see on this is that people’s jobs depend on living outside of our natural budget. And so we would cut back, we would have a lot of people lose their jobs, and we would end up with a situation – we could transition away to using less, but using less would leave us in a position where we could not pay back our debt. So it becomes a touchy situation. We would have to, at a minimum, figure out a way to do a government that was much, much, much less expensive than what we have today. The government overheads, government complexity – I mean, this is what Joe Tanner talks about. You get increased complexity, but I call it increased government cost.
You need to have much, much, much, much lower government cost in order to make the system work at a lower energy level. So you end up with a situation where you cannot have all the programs you have had in the past. But you cannot change the rules on people. You cannot say, Okay, we will get rid of Social Security, we will get rid of Medicare, we will get rid of Medicaid, we will get rid of, our overseas Air Force and all of the other branches of the service. That is hard to do. But historically, when countries or civilizations have gotten back from the edge of collapse, it is by cutting back government.
Chris Martenson: Yeah, that overhead function is – in my life once upon a time as a consultant, if I wandered into a company and saw that it was spending 40% on overhead, we would start right there.
Gail Tverberg: That is the one thing that you have to cut back on is overhead. And that is why the government is in the area that is the one that is likely to have the big problem.
Chris Martenson: And of course, that is the play setting the rules that wants to have no part of that particular discussion that we just raised. So is your view that we trundle along until a forcing function makes change happen?
Gail Tverberg: It would be nice if we could figure out a way to do it. But just as a practical matter, it is hard to see how you can get any group of elected officials to come up with something and say, Okay, folks, you thought you were going to have Social Security. Well, forget about it. You thought that your deposits in the banks were going to be insured. Well, that is kind of a big cost to us. We are no longer going to insure them anymore. You thought you were going to have Medicare but forget about it. That is not what they are going to do.
So I guess the way I see it playing out is that it does go until it is forced. It is just really too hard to get any agreement by anybody of anything that would make any change in the timeframe that things would have to play out.
Chris Martenson: I know a lot of people share that particular view, which is why I note that a lot of communities and individuals have sort of picked up the mantle and said, All right, if the government is not going to come to this on its own terms, we have to start getting ready on ours. Including the entire – the State legislation in Utah is talking about how to be financially ready, given the idea that – and this was being led by CPAs and in cohort with State legislators. The CPAs just ran the numbers and said – Look, this just does not add up. We cannot pencil this out. The Federal government is insolvent. When it runs into some sort of a fiscal nightmare is anybody’s guess but it is a guarantee at this point. Prudently, as a state, we need to understand what happens when forty-two cents of every budget dollar we spend which comes from the Federal government, what happens if that gets diminished or even dries up entirely, how would we cope. Because people still need to be served in hospitals and go to school and roads need to be plowed and life might go on.
So they are asking the question, How does life go on when we get to that sort of end game? Do you see it as, in your view – I think I know the answer to this – are they behaving rationally and prudently?
Gail Tverberg: I think they are behaving rationally and prudently. I think that as we got more energy supplies available, there was a tendency towards greater and greater – I am not sure what the right word is – bigger areas being covered by you have the European union, you have the United States, you have the Soviet Union. These groups cover more territory and they bring together what were, in some cases, warring tribes. As the amount of energy is available, it becomes harder and harder to keep these widespread diverse areas together and have enough money to support all the programs that have been provided.
So the tendency over time is going to be towards smaller units and towards lower-cost government back in the direction we had before. Back when you had kings and queens, they may be dictators in some sense, but they are cheaper to fund that kind of government than it is the kind of government we have today. So rationally, that is not the kind of government as a citizen I really would want. I would want something that is like what we have today. But at the same time, when you cannot afford it, then that becomes a problem. So I see big changes are likely over the next twenty, thirty, forty years.
Chris Martenson: Very interesting. Final question for you: You have been at this for a number of years, and I am wondering how the interest in and the tenor of the conversation has been over time for you.
Gail Tverberg: I think it kind of morphs as you go along. I think that – and it sort of depends on who you are talking to – I think that the financial people have not really understood that the oil situation is so closely tied in with their situation. I think there is a lot more feeling of this concern about the government financial situation now, but people have decided that maybe the oil situation is no longer a problem. They just do not realize what the connection is with the current financial situation.
Chris Martenson: Your blog is ourfiniteworld.com. Do you have any events or anything else you want to draw people’s attention to here?
Gail Tverberg: Not right now. I eventually hope to get a book written. We will see whether that happens or not. That would be in 2014.
Chris Martenson: We very much look forward to that, and of course, would love to talk to you about it when that happens. So best of luck with that, and it has been just wonderful talking with you. And keep up the good work.
Gail Tverberg: Thank you.