Microeconomic measures can produce counterintuitive 'emergent' effects at the macro or systemic level. The commendable act of saving money by individuals during uncertain economic times has the perverse macroeconomic effect of making a recession  worse: in aggregate there will be less money available for spending, suppressing demand for goods and services. Economists call this effect 'the paradox of thrift'. Similarly, logical efforts by companies in such conditions to reduce their wage bill or their postponement of investment decisions will reduce spending in the economy  and deepen the economic downturn.

What can be done to counteract this harmful dynamic? The missing spending can be replaced by government spending: governments have it within their power to effectively counter economic downturns!

Economy Emergent Phenomena Fiscal Spending Paradox Of Thrift

Economy Finance

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Environment Brazil Soy Agriculture Economy Export

The statement that there can be no economic activity without  energy and that fossil fuels are finite contrasts with the fact that money is not finite and can be created by governments via their central banks at zero marginal cost whenever needed.

An important fact about COAL, GAS and OIL (even when produced via fracking) is that their net energy ratios are falling rapidly. In other words the energy needed to extract a given quantity of fossil fuels is constantly increasing. This ratio (Energy Invested on Energy Returned - EIOER) provides yet another warning that we can no longer rely on fossil fuels to power our economies. We cannot wait until the ratio falls to 1/1 before we invest seriously in alternative sources of energy, because by then industrial society as we know it doday will have ceased to exist. 

PS: A link between growth in energy consumption and GDP growth is clearly illustrated on slide 13 of Gail Tverberg's presentaion entitled ''Oops! The world economy depends on an energy-related bubble''. In fact, the slide shows that growth in energy consumption usually precedes GDP growth.

https://gailtheactuary.files.wordpress.com/2015/10/oops-debt-bubble-10_30_15.pdf

Energy Economy Fracking

Model showing the effect of bank lending of deposited money as a multiplier in the creation of new money. Multiplier effect is shown as related to the bank reserve requirement on deposited funds.

Banking Deposits Economy

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Environment Sustainability Society Economy

To maintain economic wealth (roads, hospitals, power lines, etc.) power needs to be consumed. The same applies to economic activity, since any activity requires the consumption of energy. According to the Environmental Protection Agency, the burning of fossil fuels was responsible for 79 percent of U.S. greenhouse gas emissions in 2010. So whilst economic activity takes place fossil fuels will be burned and CO2 emissions are unavoidable - unless we use exclusively renewable energy resources, which is not likely to occur very soon. However, the increasing CO2 concentrations in the atmosphere will have negative consequences, such droughts, floods, crop failures, etc. These effects represent limits to economic growth. The CLD illustrates some of the more prominent negative feedback loops that act as a break on economic growth and wealth.  As the negative feedback loops (B1-B4) get stronger, an interesting question is, 'will a sharp reduction in economic wealth and unavoidable recession lead to wide-spread food riots and disturbances?'

Limits To Growth Energy Economy Global Warming

This is the original model version (v1.0) with default "standard run" parameter set: see detailed commentary here and here. As of 2 September 2015, ongoing development has now shifted to this version of the model.

The significance of reduced energy return on energy invested (EROI) in the transition from fossil fuel to renewable primary energy sources is often disputed by both renewable energy proponents and mainstream economists.​ This model illustrates the impact of EROI in large-scale energy transition using a system dynamics approach. The variables of primary interest here are: 1) net energy available to "the rest of the economy" as renewable penetration increases [Total final energy services out to the economy]; and 2) the size of the energy sector as a proportion of overall economic activity, treating energy use as a very rough proxy for size [Energy services ratio].
This model aggregates energy supply in the form of fuels and electricity as a single variable, total final energy services, and treats the global economy as a single closed system.
The model includes all major incumbent energy sources, and assumes a transition to wind, PV, hydro and nuclear generated electricity, plus biomass electricity and fuels. Hydro, biomass and nuclear growth rates are built into the model from the outset, and wind and PV emplacement rates respond to the built-in retirement rates for fossil energy sources, by attempting to make up the difference between the historical maximum total energy services out to the global economy, and the current total energy services out. Intermittency of PV and wind are compensated via Li-ion battery storage. Note, however, that seasonal variation of PV is not fully addressed i.e. PV is modeled using annual and global average parameters. For this to have anything close to real world validity, this would require that all PV capacity is located in highly favourable locations in terms of annual average insolation, and that energy is distributed from these regions to points of end use. The necessary distribution infrastructure is not included in the model at this stage.
It is possible to explore the effect of seasonal variation with PV assumed to be distributed more widely by de-rating capacity factor and increasing the autonomy period for storage.

This version of the model takes values for emplaced capacities of conventional sources (i.e. all energy sources except wind and PV) as exogenous inputs, based on data generated from earlier endogenously-generated emplaced capacities (for which emplacement rates as a proportion of existing installed capacity were the primary exogenous input).

Energy EROI Economy

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