We are starting to see the beginnings of deglobalization: Countries are increasingly at odds with each other. There is wider disparity among political parties. Trump is making what look to many people like unreasonable demands, both within the US and around the world.

I believe that there is an underlying problem that most people are missing. A worldwide shortage of diesel and jet fuel is forcing international trade to begin moving into a new downward phase, relative to the recent share of GDP shown on Figure 1.

Figure 1. Trade as a share of GDP, 1960 to 2024, in a chart prepared by OurWorldinData.org.

While international trade grew as a percentage of GDP between the 1960s and 2008, it has been basically flat since then. Now the shortages of diesel and jet fuel are forcing the international trade percentage to start falling to a lower level.

In this post, I will try to explain the situation further. One conclusion: Conflict results from the need to reorganize the world economy in a way that uses less long-distance international trade.

[1] Background: The world economy is a dissipative structure, operating under the laws of physics.

The economy behaves differently than most researchers assume because economies are dissipative structures, operating under the laws of physics. Most researchers model tiny parts of economies, and because of their views are so narrow, they reach misleading or wrong conclusions.

Most structures that we see, such as books or houses, are, in a sense, dead. Dissipative structures, however, are different in that they can temporarily grow. In order to stay away from being in a dead state, they need to "dissipate" energy of the proper kinds, in adequate amounts. Examples of dissipative structures include plants and animals of all kinds, ecosystems, and hurricanes.

The human body is a dissipative structure that requires food to stay away from a dead state. Hurricanes are dissipative structures that dissipate the heat of a warm body of water.

If an ecosystem doesn't get enough energy of the right kinds, it will adapt to accommodate the actual mix of fuels and other resources available. If an ecosystem doesn't get enough sunlight, or enough warm temperatures, or enough water, it will gradually shift toward a different mix of plants and animals that can operate within the mix of resources available. This is similar to what happens within the human body. If a human doesn't get enough food, their body will shrink or become thinner.

I believe that without adequate diesel and jet fuel, our economy will make a transition analogous to a human going on a diet, or analogous to an ecosystem changing when a different mix of resources is available.

Academic researchers around the world have misunderstood how the process works because they tend to work in ivory towers. They create models based on the narrow view of the economy that their academic area considers appropriate. Once they have developed a narrow model, they cling to it, even though recent insights from physics suggest that a very different model is more appropriate.

[2] Researchers in academic settings make many unwarranted simplifications in their models.

Researchers like to assume that all energy is alike. Substitution is assumed to be relatively easy and quick. Models tend to indicate that if the supply of energy is inadequate, prices will rise. With these higher prices, the economic system will keep problems away practically indefinitely.

The real world doesn't work this way. When we eat food, we cannot simply substitute kale for all our other food consumption and expect to thrive, even though models would seem to suggest that kale is good for us. Within ecosystems, it is the mix of resources and predators that matters. If the top-level predator is killed off, the system will change. The world economy will face similar changes if today's international transport system runs into difficulties.

[3] The fuels especially used for international transport today are diesel and jet fuel.

To be useful in international transport, fuels need to

• Be energy dense
• Be easy to store
• Match current infrastructure, unless change is many years away, and system is rebuilt
• Be inexpensive; not requiring a lot of capital investment in infrastructure to support

Diesel and jet fuel have long been the prime fuels used for international travel and transport. "Bunker fuel," which tends to be heavier and more polluting, has also been used. Its use is strongly discouraged today because of pollution issues.

[4] An issue we have today is that diesel is also essential for many other uses.

Diesel is an essential fuel today for food production and local transport. Most of the agricultural equipment now in use operates using diesel fuel. Diesel-powered machines can easily navigate muddy fields. In addition, diesel also powers most of the heavy semi-trucks around the world. These trucks deliver goods of all kinds, locally, including food.

Another essential use for diesel is building and maintaining infrastructure. This would include:

• Roads
• Bridges
• Pipelines
• Commercial buildings
• Factories
• Pipelines
• Electricity transmission lines
• Building and maintaining structures used to produce electricity, such as nuclear power plants and hydroelectric plants

The importance of diesel to the economy is difficult for most people to see because these are behind the scenes types of activities.

[5] It is very difficult to get the price of diesel to rise for any extended period.

If the price of diesel rises, the price of food tends to rise. This happens because diesel is heavily used in food production and transport. Needless to say, high food prices tend to be unpopular with voters. For this reason, even if the diesel supply is low, the price of the fuel doesn't necessarily rise. If this happened, voters would be very unhappy. They would elect new politicians.

What, in fact, tends to happen is that oil prices (not just diesel and jet fuel prices) tend to bounce up and down. Figure 2 shows a chart of average annual oil prices.

Figure 2. Average annual Brent equivalent oil prices, in 2024 US$. Data for 1948 through 2024 from the 2025 Statistical Review of World Energy, published by the Energy Institute. Data for 2024 estimated based on EIA estimates of spot Brent prices for 2025, adjusted for inflation.

Figure 2 smooths out some of the price irregularities. For example, there was a very high peak in July 2008, but the price fell to a low level by December of the same year. The peak doesn't appear very high on this chart, but it greatly affected financial markets. See my article, Oil Supply Limits and the Continuing Financial Crisis.

[6] Diesel and jet fuel disproportionately come from oil that is quite "heavy." Oil refineries tend to offer lower prices for heavy oil, making it unattractive to extract.

There is a price compression problem with heavy oil:

• Heavy oil tends to be difficult to ship because it doesn't flow through pipelines well. It often needs to be heated, or diluted with a very light oil, to make transportation possible.

• To make matters worse, heavy oil quite often contains sulfur and other impurities that need to be removed, adding refining costs.

• The problem is that these higher costs cannot easily be passed on to the ultimate consumers of diesel and jet fuel. For example, food production and transport depend significantly on diesel, and sometimes even on jet fuel. Consumers of food do not like high food costs.

Because of these issues, the prices refineries are willing to pay for heavy oil tend to be lower than the prices they offer for "light, sweet" oil. For example, the current oil prices shown on OilPrice.com are $70.51 for Brent Crude (a light, sweet European crude), $65.13 for West Texas Intermediate (a sweet US crude) and $50.86 for Western Canadian Select, from Canada's Oil Sands. Russia also has moderately heavy oil; Russia's Urals blend is diluted to make it flow adequately. Its price is listed at $54.48.

These pricing issues make the extraction of heavy oil, especially very heavy oil, unattractive to oil companies. Basically, oil prices do not rise high enough, for long enough, to make extraction profitable. People who look at the Energy Return on Energy Invested (EROEI) of resource extraction would say that the EROEI is very low. In other words, a huge amount of energy needs to be invested to make heavy oil extraction possible. This tends to make the cost of oil extraction expensive.

Because of this price compression, and thus the low prices paid to oil producers, it is not very profitable for oil companies to extract heavy oil. This means that governments cannot charge these companies very high taxes, or they will stop producing oil completely. In addition, tax revenue collected from oil producers tends to fall too low to provide adequate government services., and it also becomes difficult to pay workers adequate wages. These issues lead to unrest in countries with heavy oil reserves, but not much other industry, such as Venezuela.

[7] A naive look at the oil data received from the various agencies does not disclose the nature of the world's oil problem.

A chart summarizing the consumption of different types of oil, based on data from the 2025 Statistical Review of World Energy, is as shown in Figure 3. Note that the Diesel+Jet Fuel layer is the product grouping with the largest consumption. In the US, we hear a lot about Gasoline, but Diesel+Jet Fuel is the layer with the greatest fuel consumption. Diesel+Jet Fuel provides a huge quantity of services, but its usage is mostly hidden from sight.

Figure 3. Figure prepared using data from the "Oil-Regional Consumption" tab of the 2025 Statistical Review of World Energy, published by the Energy Institute. The Light Group is the combination of naphtha, ethane, and liquid petroleum gas (LPG). These are close to gases. The other categories have longer molecules, and thus higher boiling points. The Heavy Group includes waxes, lubricants, asphalt, as well as a fairly unrefined oil, used as a cheap but polluting fuel, shown as "Fuel Oil" on the same tab.

Most published data show only the sum of the four layers in Figure 3. It seems to be rising. This amount represents a combination of quite a few types of oil. When this increasing production is considered along with the reported high oil reserves (particularly heavy oil in Canada and Venezuela), and the belief that prices will always rise if there is a shortage, most researchers cannot imagine that a problem might be occurring.

Researchers often overlook how crucial oil is to the economy. People all over the world need food, roads, and many other things that depend on oil. The number of people who can make an adequate living seems to depend upon the oil supply. It makes sense to look at oil supply per capita. The chart below uses the same amounts, divided by world population. On this basis, world oil consumption is flatter. In fact, per capita oil supply has been somewhat declining recently.

Figure 4. Amounts shown in Figure 3, divided by world population used by the Energy Institute in its 2025 Statistical Review of World Energy. Different colors are used in this chart compared to Figure 3.

The other thing that becomes apparent from this chart is that the overall mix of products coming out of current processes (extracting and refining oil) has been getting lighter over time. This should not be surprising because the most rapidly growing oil supply since 2008 has been tight oil, extracted from shale in the United States. This tight oil tends to be quite light, adding output to the Light Group and to Gasoline, far more than to Diesel+Jet Fuel or the Heavy Group.

[8] The pattern of diesel supply growth provides insight into what is going wrong with world trade. Figure 5. World per capita diesel supply based on data of the 2025 Statistical Review of World Energy, published by the Energy Institute.

Diesel is about 78% of the combined grouping Diesel+Jet Fuel. The two are similar enough that refineries can slightly change the output mix between the two.

The World Trade Organization began operation in 1995. Its purpose was to encourage more world trade. The Kyoto Protocol of 1997 encouraged countries to cut their own CO2 emissions. The easiest way to do this was by sending manufacturing, mining, and other industries to other countries around the world. Thus, indirectly, the Kyoto Protocol also encouraged world trade. Figure 5 shows that between 1995 and 2008, per-capita world diesel consumption was increasing. The restriction in supply that began around 2008 corresponds with the flattening of world international trade shown in Figure 1.

[9] Several issues contributed to the drop in per-capita diesel supply starting about 2008.

(a) In the period before 2008, there was relatively more oil in the Heavy Group that could be refined into Diesel + Jet Fuel (Figure 4). Notice how the Heavy Group layer gets narrower, especially between 1980 and 2008. The Heavy Group includes end uses such as lubricants, waxes, and asphalt. It also includes some heavy oil consumed in close to an unrefined state, such as bunker fuel for ships. Burning such oil is very polluting, so laws have been changed to discourage its use. Simple refining could transform oil such as bunker oil into diesel and jet fuel.

(b) A technique called hydrocracking can be used to transform long hydrocarbon molecules, such as the ones that make up asphalt, into shorter ones. The EIA in 2013 reported, Hydrocracking is an important source of diesel and jet fuel. This technique is expensive, however. It needs a high selling price of crude oil for the economics to work. If the price of oil is high enough, it makes sense to make less asphalt, and more diesel oil and jet fuel.

(c) Price differentials tend to discourage the development of heavy oil fields. As documented in Section [6], the price refineries are willing to pay for heavy oil tends to be quite a bit lower than the price of lighter oil. In the early days of extraction, medium grades of oil tended to give a range of products, from light to heavy. But peak conventional oil took place about 2005, forcing oil companies to extract both very light grades and very heavy grades, with the hope of combining the two types of output to meet the needs of society. Since 2008, the growth in light oil extraction has been spectacular, particularly in the US, with its tight oil from shale. But growth in heavy oil supply has tended to lag.

(d) Depletion is an issue for oil supplies. As with many other resources, the oil taken first is the oil that is easiest to extract and the closest to where the end product is to be used. The oil that is left for later tends to be higher cost to extract and transport. High-cost oil is likely to produce high-cost food. High-cost food tends to upset family budgets, making voters unhappy.

(e) Political issues play a role as well. A major issue is the low profitability of heavy oil extraction because of its low sales price to refineries. With low profitability, tax revenue based on oil royalties tends to be low. Without adequate tax revenue, leaders of countries producing heavy oil for export tend to become belligerent. Examples include Venezuela, Russia, and Canada. Within the US, California produces heavy oil.

[10] The world order seems to on the verge of radical change.

We are now facing a situation in which the world economic order seems to be breaking apart, in order to form a new order that "works" better with the changing quantity of Diesel+Jet Fuel available.

We are dealing with a situation that has much in common with a game of musical chairs.

Figure 6. Chairs arranged for Musical Chairs Source: Fund Raising Auctioneer

The game of musical chairs is played in rounds. At the beginning, there are as many players as chairs. In each round, one of the chairs is removed. The players walk around the circle of chairs until the music stops. When the music stops, all the players try to grab a chair to sit on. There can be small fights over who gets a chair. The person who does not get a chair is eliminated from the game.

When an economy is faced with an inadequate supply of Diesel+Jet Fuel, it needs to regroup in a different way. To do this, some existing businesses and governments must fail, so that others can take their place. In addition, supply lines need to be rearranged to use the resources that are actually available. Customs and beliefs may need to change, as well.

The way nations interact can change as well. In the years of growing international trade, (1970s to 2008), co-operation seemed to be important. Working together was relatively easy. During the tearing down stage, which seems to be starting now, the situation can be expected to be very different. We can expect assertive leaders, and lots of conflict. We are facing this strained situation today.

[11] What lies ahead?

I don't think that any of us know for certain what will happen in the future. Nevertheless, the self-organizing world economy seems to be organizing for itself what is ahead. Or perhaps, the hand of a Higher Power is organizing what is happening.

I have only discussed the problem of inadequate Diesel+Jet Fuel, and its impact on international trade and some other parts of the economy. There are other shortages we need to work around as well:

In many parts of the world, one shortage is of fresh water. This is often connected with depleted aquifers and today's high human population.

Another shortage relates to the critical minerals we need for a high-tech society. Billionaire Robert Friedland describes the issue in this video. We have plunged headlong into high tech goods of all kinds, including wind turbines, solar panels, electric vehicles, batteries, computers, and electrification of many kinds of things without realizing that we would soon reach limits in the supply of many minerals used in making these high-tech devices. China controls the vast majority of the critical minerals that are mined. Countries must try to start producing their own critical minerals, or remain on good enough terms with China to purchase some of the limited supplies available.

A third shortage relates to nuclear, and our plans to ramp up nuclear energy. As far as I can see, uranium extraction is currently constrained. In theory, it can be ramped up, but it takes a long chain of events to do so.

With these shortages, AI seems to be constrained in how quickly its use can be expanded. It needs to become far more energy efficient to be truly useful.

With all of these issues, it seems impossible to keep forging ahead as we have done in the recent past. We are being forced to source more of our manufactured output locally. We need to greatly reduce the transportation of goods across the Atlantic and Pacific. Using tariffs seems to be a way of trying to accomplish this change.

Strange as it may seem, some of Trump's policies make a certain amount of sense, when viewed in the light of the issues the world is facing. I expect that a replacement leader would be just as abrasive. The new leader would likely have different strange policies, but the underlying problems are structural. The new leader would likely also face difficulties in trying to fix today's problems.

I am afraid we will have to wait for the self-organizing economic system to find a solution for us. Perhaps innovations can bring us new ways of doing things that will eventually work around these difficulties. But, for the near term, higher levels of conflict because of resource shortage problems seem likely.

Recently, many people have begun talking about the US having a k-shaped economy. In it, a handful of wealthy people are doing very well financially, while many others are falling further and further behind. I expect that the low wages of the majority of workers will soon lead to adverse impacts on businesses, governments, and international organizations. This phenomenon is likely to lead to a very uneven world economic downturn in 2026.

The world economy is subject to the laws of physics. The world economy seems to be reaching growth limits because there are too few easily extractable energy resources (as well as other resources, such as fresh water), relative to the world's population. The Maximum Power Principle strongly suggests that even as limits are hit, the world economy cannot be expected to collapse all at once. Instead, the most efficient producers of goods and services will be able to succeed as long as resources are available, while less efficient producers will tend to fall by the wayside. Thus, the Maximum Power Principle somewhat limits the speed of the world's economic downturn.

In this post, I will try to explain the challenges the world economy is now facing. I will also provide some thoughts on how 2026 will turn out.

[1] The k-shaped economy that the US and many other countries are experiencing is an indication that resources are, in some way, "running short."

Humans all have similar basic needs. They need food to eat, and they need to cook at least some of this food before they eat it. They tend to need transportation services, both for themselves (to get to work) and for goods, such as the food they eat. They also need governments to keep order and to provide basic services, such as roads and schools. All these goods and services require energy of a suitable kind, such as human labor, burned biomass, or fossil fuel energy. They also require arable land, fresh water, and minerals of many kinds.

If there are not enough resources to go around, the easiest way to accomplish this is by creating a k-shaped economy. One example is with farmland. In many traditions, when a farmer dies, his oldest son inherits the farm. Younger children are then forced to find other kinds of employment, such as being a craftsman, farmer's helper, or priest in a church. Wages for these younger children can easily fall lower than the income of their land-holding older brothers, especially if large families become common. Creating jobs that pay well for all the younger children becomes a problem.

A similar phenomenon has been happening in many Advanced Economies (US, UK, and other countries included in the OECD) in recent years. Parents are doing quite well financially, but their children often have difficulty finding jobs that pay well, even after advanced schooling. Some adult children are also left with educational debt to repay. This is a new type of k-shaped economy.

[2] The world's current problem is an ever-rising population paired with resources that are becoming ever-more "expensive" to extract.

World population has exploded since fossil fuel consumption became abundant. This has allowed more food to be grown, inexpensive transportation of goods and people, and the development of antibiotics and other drugs.

Figure 1. Chart made by Gail Tverberg based on several population sources.

At the same time, the most accessible resources were extracted first. For example, fresh water initially came from streams, lakes, and shallow aquifers. As the population grew and industrial needs became increased, wells had to be dug deeper and aquifers began to be drained. In some places, desalination now needs to be used. Each of these advances in producing fresh water became more resource-intensive. It became increasingly difficult to gather enough fresh water using human labor alone. Instead, increasing quantities of physical materials, energy supplies, and debt were needed to make the new systems work.

The reason debt was needed to purchase capital goods, such as those required to obtain high-cost water, was because the devices purchased were expected to provide the desired output (water, in this case) for a long time in the future. Securing this future benefit required advance funding, using an approach such as debt. The sale of shares of stock, which are expected to appreciate over time and pay dividends, provides a similar benefit to debt.

A similar issue arises with the increasing extraction of minerals of many kinds, such as copper, tin, uranium, lithium, coal, and oil. Early on, extraction using manual labor and simple tools was sufficient. However, once the easiest to extract resources were removed, capital goods became necessary to make extraction efficient.

Capital goods, such as coal fired power plants, wind turbines, solar panels, and hydroelectric power plants also allowed electricity to be produced, extending the benefits of fossil fuels. Producing these capital devices requires physical materials and energy supplies, as well as debt or the sale of shares of stock for financing.

[3] A major limit on the system seems to be debt and the interest required on the debt.

In an economy, the growth of inexpensive energy supply acts very much like leavening works in making bread; it greatly helps economic growth. With the increasing use of inexpensive energy supply, vehicles can be made ever-less expensively, compared to using much hand labor for manufacturing (literally, making goods by hand). With this growing efficiency, wages rise faster than inflation. In the 1950s and 1960s, young people found that they could marry and live in nicer homes than their parents. Now, the reverse seems to be happening: many adult children are finding it difficult to keep up with the lifestyles of their parents.

Once the inexpensive-to-extract energy supply is depleted, economies tend to add an increasing amount of debt, in an attempt to pull the economy forward. It seems to me that a major limit on the system comes when an economy slows down so much that it can no longer repay its debt with interest.

Figure 2. The author's view of the analogy of a speeding upright bicycle and a speeding economy. "Debt with its time-shifting ability helps pull the economy forward, but it only works if the economy is moving fast enough."

Political leaders like to believe that growing debt, by itself, will pull the economy forward. In fact, this does work, for a time, as long as interest rates are falling. But falling interest rates stopped happening in 2022.

Figure 3. Interest rates on 10-year Treasuries (red) and on 3-month Treasuries (blue), based on data of the Federal Reserve of St. Louis.

Of course, all the added debt contributes to the k-shaped economy. The already wealthy disproportionately benefit from debt payments. They also tend to benefit from dividends on shares of stock and from share price appreciation. The poorer people find that an increasing share of their wages goes to paying interest on debt, especially as interest rates rise.

As debt levels grow, governments eventually have a problem with repayment of debt with interest. They need to raise taxes simply to cover their rising interest payments. This is the reason why Donald Trump wants to get interest rates down. Interest payments are rising rapidly, with near-zero interest rates in the rear-view mirror (Figure 3).

[4] Added technology and economies of scale have been adding to the k-shaped economy.

Technology requires specialization. People with more training and higher skill levels tend to earn more than others. Economies of scale encourage the growth of ever-larger businesses. The people at the top of huge organizations tend to earn more than those at the bottom. Also, as international trade is added, low-wage people in the hierarchy increasingly compete for wages with workers from countries with much lower wage scales. Thus, the wages of less-skilled individuals are increasingly squeezed down.

Furthermore, both added technology and economies of scale require added debt. Again, the interest on this debt (and dividends on stock) disproportionately benefits those who are already wealthy.

[5] In a sense, artificial intelligence (AI) is simply an extension of added technology, with a huge need for electricity, water, and debt.

The hope for AI is that it will make our already k-shaped economy, a great deal more k-shaped. The hope is that AI can eliminate a significant share of jobs, with such high profits that the owners of this technology can become very rich. If it works, the wealth will be even more concentrated at the top than today.

I see the need for electricity, water, and debt as stumbling blocks for AI. I expect that, starting in 2026, the AI rapid growth spurt will seize up because it is already using more resources than are available in some areas. I expect that a significant downshift in AI will adversely affect the US stock market and the rate of growth of the US economy. My hope is that the loss of growth in the AI sphere will not, by itself, bring down the US economy-just nudge it toward recession.

[6] In 2026, with an increasingly k-shaped economy, I expect that world oil prices will drift lower than today.

"Demand" for oil really means "the quantity of oil that people, businesses, and governments around the world can afford to purchase." As the economy becomes more k-shaped, fewer people can afford to buy vehicles of any kind. Poor people, in the lower part of the k, are hardest hit. They will tend to increasingly rely on low energy approaches, such as ride-sharing, walking, or using a bicycle. They will tend to buy fewer goods that are transported internationally. Governments, as they begin collecting less in tax revenue from the many poorer people, will be inclined to cut back their spending on new buildings and road improvements. These changes work in the direction of reducing oil demand, and thus oil prices.

It is this increasingly k-shaped economy that has been holding world oil prices down in 2025. I expect that prices will drift even lower in 2026 because of the increasingly k-shaped world economy. There aren't enough very rich people to hold up oil and other resource demand by themselves.

Oil production will not immediately drop in response to these low prices, although it may start drifting lower in 2027. The US Energy Information Administration is forecasting that world oil production will rise by 1.1 million barrels per day in 2025 and by 1.2 million barrels per day in 2026. These amounts do not seem unreasonable based on new developments that have already started producing higher amounts of crude oil.

[7] The heavier types of oil, from which diesel and jet fuel are disproportionately made, are in short supply now. They are likely to continue to be in short supply in 2026.

World oil production has risen in recent months. When I investigated, I found that the vast majority of the recent growth seems to be in light oil. Thus, the shortfall in diesel and other heavy fuels is likely to continue as in the recent past.

Figure 4. Chart showing the level of per-capita diesel consumption, relative to the per-capita consumption in 1980. Amounts are based on Diesel/Gasoil amounts shown in the "Oil-Regional Consumption" tab of the 2025 Statistical Review of World Energy, published by the Energy Institute.

This shortage of the heavy types of oil has several impacts:

a. With a shortage of heavy oil, a fairly strong country, such as the US, is tempted to attack Venezuela, which has the world's largest reserves of heavy oil.

b. Island nations without their own fossil fuel supplies tend to use a disproportionately large share of diesel and jet fuel, for several reasons: (1) Such islands often burn diesel fuel for electricity. This is an expensive way to make electricity; goods produced with this electricity become too expensive to export. (2) Imports and exports need to be shipped in by boat or by air, again using limited types of fuel supply. Physics tends to push these economies down by making their products expensive to sell elsewhere. Examples of islands with these problems include Cuba, Puerto Rico, Madagascar, and Sri Lanka. Such places tend to be adversely affected by shortages of heavy oil sooner than other locations.

c. Without enough jet fuel, long distance tourism is likely to be reduced in 2026. One issue is the lack of jet fuel for flying planes. Another issue is that an increasing share of the population will not be able to afford long-distance tourism because of the k-shaped economy.

d. Tariffs are a way of discouraging the shipping of goods long distance, to indirectly save on heavy oil. We should not be surprised by their increasing usage.

[8] In my view, deflation is a greater risk than inflation in 2026.

With a k-shaped economy, demand for apartments (especially smaller ones) tends to stay low. As an economy becomes increasingly k-shaped, low-paid workers tend to share an apartment with one or more friends or move in with family members to save money. In a December 23 report, Apartment Advisor writes that the US average asking rent for studio apartments fell by 2.81% in 2025 compared to 2024. The similar comparison for one-bedroom apartments showed a price drop of 1.72% in 2025. In an increasingly k-shaped economy, I would expect this trend toward lower rental prices of smaller apartments to continue and perhaps become more pronounced.

Real estate selling prices may also be an area for downward price pressure. Young people who have not built up equity through prior home ownership tend to find themselves shut out from buying homes. Also, commercial real estate of many kinds seems to be grossly oversupplied in many areas. Given this situation, downward price adjustments seem likely.

Underlying this downward pressure on prices may be some actual cuts in wages. One law firm reports that cuts in wages are becoming increasingly common, especially for employees of smaller companies.

There are precedents for deflation becoming a problem. The US had problems with deflation at the time of the Great Depression. Japan had problems with deflation after its crash in real estate prices in the 1990s, and China (with its real estate price crash) has recently been having problems with deflation.

[9] "Bread and circuses" become more important as the economy becomes more k-shaped.

Many readers have heard about bread and circuses. Before the Roman Empire collapsed, it used bread and circuses to keep its citizens from rioting from a lack of food. The way to prevent food riots is by making sure everyone has enough to eat through food distribution programs, described as "bread." Providing circuses offers a distraction from the fact that there are not enough well-paying jobs to go around.

Today, with our increasingly k-shaped economies, leaders have figured out that meeting citizens' basic needs is essential if unrest is to be avoided. Political leaders somehow need to provide food and healthcare to their poorer citizens. They also need to keep people distracted with entertainment. For many years, governments of Advanced Economies have been trying to provide the equivalent of bread and circuses. In the US, legislation providing Social Security for the elderly was enacted in 1935, during the Great Depression. Many other financial support programs have been added over the years. Today's circuses today are provided through televised entertainment and video games.

A major problem is that the costs of these programs have become more expensive than tax revenue can support. This is especially true of the cost of "bread," if its cost is defined as including healthcare and pensions for the elderly, in addition to food. Ultimately, these high-cost programs can bring an economy down. The high cost of bread and circuses is thus a second limiting factor, besides excessive interest payments on government debt, (discussed in Section [3]).

[10] Leaders of many countries are already making plans that can be used to deal with shrinking resources per capita.

If there aren't enough resources to go around, what can governments do to prevent riots? Two obvious choices come to mind:

(a) Tighten controls on citizens to prevent riots. China has been a leader in this area, and the UK and US seem to be trending in a similar direction. In a sense, the Covid requirements of 2020 were practice with respect to restrictions on movement.

(b) Develop a rationing system that can be used, in case of a shortfall of essential goods. Many countries are looking at central bank digital currencies (CBDCs). These are a digital form of central bank money that is widely available to the public. In the US, I expect CBDCs will be rolled out initially as a way for those who are entitled to food stamps to easily access their benefits. If these digital currencies work, CBDCs can easily be expanded into a widespread rationing system. Government leaders will then be able to decide who can afford to buy what, rather than depending on the way the k-shaped economy currently allocates buying-power.

[11] What lies ahead in 2026?

I don't think any of us know for certain. The general direction of the world economy seems to be toward contraction, but some parts of the world economy will fare better than others.

Europe looks increasingly like it is an "also-ran" behind the US and China in the world economy. I expect its resource use will continue to shrink back in 2026, indirectly benefiting the United States and the rest of the world. I am hoping that with cutbacks in oil usage by island nations and Europe, and the resulting lower world oil prices, the United States will be able to avoid the worst of the recessionary tendencies looming in 2026.

There are some reports that AI, as it is being applied in China, is providing major success in reducing the cost of coal mining in China. If this is true, it may allow China's economy to grow in 2026, despite downturns in many other countries.

I am fairly certain that AI, as it is being developed in the US and Europe, cannot continue its recent exponential growth trajectory, and I expect this to become obvious in the next few months. This shift seems likely to pull down US stock market indices. Here again, I am hoping that despite this issue, the US will be able to avoid the worst of the world's recessionary tendencies.

I don't expect a world war in 2026. For one thing, no country has adequate ammunition capability. I think civil wars and wars against nearby countries are more likely.

It is possible that the EU will collapse in 2026, leaving the individual countries on their own.

At some point in the future, I expect that the central government of the US will also collapse, in the manner of the Soviet Union in 1991. States will likely regroup and issue new local currencies; the new combined governments will likely provide much more limited benefits than the US government provides today.

Many people think that different leadership will change the current trajectory, but I am doubtful about this. Most of the world's problems are "baked into the cake" by resource shortages and by too high a population relative to resources. Keeping immigration down is one way of trying to keep resources and population in closer balance.

All in all, I expect a very uneven world economic downturn in 2026. Economies will continue to become more k-shaped. Governments will do their best to hide problems from the public. Stock markets will likely not do well in 2026, if they can no longer count on AI for an uplift.

Summary:

• Today's financial system allows many promises of future goods and services. These include debts, pensions, and even prices of shares of stock.

• However, the quantity of actual physical goods and services that can be produced appears likely to be shrinking in future years because of resource depletion.

• This mismatch means that many/most of these promises likely cannot be paid as promised. The economy will somehow change to match what is actually available. We should not be surprised if, one way or another, we receive much less than has supposedly been promised. Even if a high currency amount is provided, it likely will not buy very much. Or a new government may be in power, with virtually no promises of benefits.

• Today's economic system requires both increasing energy supplies and increasing debt to function properly. We are now encountering limits with respect to both world energy supplies and US government debt. The parts of the world economy that are most affected by limits will likely begin to contract soon.

• We don't know precisely how this contraction will take place, but we can examine a list of countries whose GDP has already been contracting to see how they are faring.

• Perhaps we need to be relying more on our families and/or on "villages" made up of extended relatives or friends for our long-term support, rather than on government programs.

Introduction

The world is filled with financial promises, including loans, pensions, and even the market value of stocks. So far, the system seems to be working, but in a finite world, it is hard to believe that the system will work indefinitely. Governments can create money simply by adding more promises, but they cannot create goods and services in a similar fashion.

We know that actual physical materials are needed to make the goods and services that people depend upon. Energy supplies are particularly important in making goods and services because, according to the laws of physics, energy is required to produce physical goods and services. Forecasts that support current financial promises ignore the fact that we live in a finite world. Eventually, we will run short of easy-to-extract essential materials, including fossil fuels, uranium, lithium, and copper. Economic growth will need to be replaced by economic contraction.

In this post, I will try to explain the situation in more detail, together with some charts showing what is going wrong now, such as Figure 1. In some ways, we already seem to be reaching limits to growth.

Figure 1. Per capita energy growth rates are based on data from the 2025 Statistical Review of World Energy, published by the Energy Institute, with trend line and note. [1] At first, added debt is helpful to an economy.

In some sense, added debt pulls an economy forward.

Figure 2. The author's view of the analogy of a speeding upright bicycle and a speeding economy.

As long as there are plenty of inexpensively available resources and not too much interest to pay, added debt seems to make sense. It pulls the economy forward, in the direction that those resources are to be used. It "feels good" to the recipients of the goods and services made possible by the debt. People like the homes and cars that added debt makes possible.

Ordinary citizens have clear limits on their credit card debt. The limits on government promises seem to be hidden until they are actually reached.

As long as an economy is growing, that growth seems to hide many problems. Carmen Reinhart and Kenneth Rogoff are two well-known US economists. In a 2008 working paper (p.15) examining 800 years of government debt defaults, they remarked, "It is notable that the non-defaulters, by and large, are all hugely successful growth stories." Without "hugely successful economic growth," it is impossible to keep adding debt and repaying it with interest. The growth allows debt to be paid back with interest. It allows the fiction that an economy will continue to grow, and this growth will provide the margin needed to repay the debt with interest.

While the world economy has been an amazingly successful growth story since the industrial revolution, we now seem to be running short of the inexpensively available fossil fuels that have made economic growth so far possible. With this change, the economy is likely to start a major shift from economic growth to economic contraction.

We don't know exactly how this shift from economic growth to economic contraction will take place, but we can hypothesize that the economies that have recently been growing fastest might be farthest from contraction, and the economies that are already struggling with low growth might be the ones most likely to slip into contraction. The countries slipping into contraction can be expected to have special difficulty repaying debt with interest and meeting other financial promises. Some governments may even collapse, perhaps in the way the government of the Soviet Union collapsed in 1991.

[2] Not too surprisingly, given the physics connection stated in the introduction, total world GDP and world energy consumption are highly correlated. Figure 3. Energy based on data from the 2025 Statistical Review of World Energy, published by the Energy Institute; GDP in constant 2015 US$ is as published by the World Bank.

In fact, the growth rate of energy consumption and the growth rate of GDP are also correlated, as can be seen from the similar patterns on Figure 4.

Figure 4. Three-year average growth rates are used for stability. Energy growth rates are based on energy data from the 2025 Statistical Review of World Energy, published by the Energy Institute; GDP growth rates are based on GDP in constant 2015 US$ as published by the World Bank.

A scatter diagram of the X-Y data used in Figure 4 gives the result shown in Figure 5:

Figure 5. Three-year average growth rates are used for stability. Energy growth rates are based on energy data from the 2025 Statistical Review of World Energy, published by the Energy Institute; GDP growth rates are based on GDP in constant 2015 US$ as published by the World Bank. [3] A major issue is the fact that the growth rate of world energy consumption is trending downward. Figure 6. Energy growth rates are based on data from the 2025 Statistical Review of World Energy, published by the Energy Institute.

Figure 6 shows a big upward bump starting not long after the year 2000, driven by the addition of China's inexpensive coal resources to the global energy supply. The low-cost portion of China's coal resources is now mostly depleted. In addition, we don't seem to have any other energy sources that will be available in large quantity in the near future. We have been adding wind and solar, but their impact has been small. Their impact is reflected in the total energy increases shown in Figure 6, and in the other charts above.

[4] Even worse, the rate of growth of world energy consumption per capita is trending downward. In fact, if the trend line were extended to 2025, it would seem to indicate contraction in per capita energy supplies. Figure 7. Per capita energy growth rates are based on data from the 2025 Statistical Review of World Energy, published by the Energy Institute with trend line and note by Gail Tverberg. (Same as Figure 1.)

We know that it takes energy to make physical goods. Even services require some level of physical goods and energy, such as a building to perform these services, electricity to operate tools, and the materials needed to make any tools, such as computers or scissors.

On Figure 7, note that the trend line is dropping below 0% in 2024, and even farther below 0% in 2025. This means that a smaller energy supply is available, relative to the population. If less energy supply is available, fewer physical goods relative to the population are likely to be available, as well. No one announces this, but we see the impact in many ways. For example, we discover that our daily newspaper is no longer being delivered. Or we discover that the products we see in stores are becoming increasingly flimsy. Meanwhile, young people are becoming less able to afford cars, homes, and almost everything else.

Furthermore, with limited total energy supply, international fighting about physical goods becomes more of a problem. The place we see this first is with respect to minerals. With limited energy supply and ores that are increasingly less concentrated, it is becoming difficult to extract enough materials such as uranium, rare earths, and platinum to meet the needs of all countries. Prices may temporarily spike, but they do not rise high enough, for long enough, to allow production to rise to the overall needed level.

[5] Falling interest rates push the economy along; rising interest rates act like putting brakes on the economy. Figure 8. Interest rates on 10-year Treasuries (red) and on 3-month Treasuries (blue), based on data of the Federal Reserve of St. Louis.

Interest rates play a far greater role in the economy, and in economic growth, than many people would expect. Falling interest rates between 1981 and 2022 greatly supported the economy (Figure 8). Since 2022, higher interest rates have acted like a headwind to the economy. This is a concern when it comes to the possibility that the economy is heading into economic contraction because of an inadequate supply of low-cost energy.

Another piece of the picture is the effect of the "yen carry trade." It allows international investors to borrow money at low rates in Japan, and invest this money in the United States and other countries at higher rates. The yen carry trade has been supporting international borrowing, but it now seems to be at the edge of unwinding because Japanese interest rates are now higher. With this change, it is more difficult to borrow yen at a low rate and invest the proceeds elsewhere at a higher rate. The unwinding of the yen carry trade could push US interest rates up, regardless of what the Federal Reserve tries to do.

[6] Interest payments on US government debt are already getting to be a problem.

US government debt is now close to $38 trillion, and total interest payments have recently risen because interest rates are no longer near zero. Total payments now exceed $1 trillion per year.

Figure 9. US federal government interest payments through June 30, 2025.

The US Congressional Budget Office (CBO) is now concerned about the high level of interest payments. When interest rates were very low in the 2008 to 2020 period (Figure 8), it was possible to add debt without substantially raising the amount of interest to be paid. But now, with higher interest rates and the debt balance increasing, interest payments have become very high, to the point where they even exceed defense spending. It becomes difficult to raise taxes enough to cover both interest outlays and other funding shortfalls.

Figure 10. Chart by CBO showing annual deficit in two pieces-(a) the amount simply from spending more than available income, and (b) interest on outstanding debt. Source.

I talk more about some of these issues in post called "Energy limits are forcing the economy to contract." Clearly, if the US economy is being forced to contract, it is very difficult for it to be a hugely successful growth story.

[7] Which countries of the world seem likely to be most resilient against energy limits?

If we believe Reinhart and Rogoff, the countries that would be most resistant to collapse would be the countries that have been growing most rapidly, in recent years. Figure 11 shows a listing of the most rapidly growing countries during the 2019 - 2024 period, based on World Bank GDP data.

Figure 11. Listing based on World Bank GDP data (in 2015 US$) for the years 2019 to 2024. The average growth rate of these countries was 4.9% per year or higher.

The only country on Figure 11 that is an "Advanced Economy" (member of the OECD) is Ireland. Ireland is known for its pharmaceutical exports and for its unusually low taxes on corporations. Many companies choose to domicile in Ireland to take advantage of the country's low tax rates.

All the other countries are, in some sense, "less advanced economies." Wages are likely lower, giving them an edge in extracting resources and in manufacturing, and then selling the goods to more advanced countries. Some of these countries may have been given loans by the IMF or China to help them develop their resources.

China and India are both known for their coal use; historically, coal has been an inexpensive energy product, allowing countries to make goods inexpensively, for export. The only country listed whose growing GDP is based on oil extraction seems to be Guyana in South America. Its oil extraction started very recently.

Figure 12. Listing based on World Bank GDP data (in 2015 US$) for the years 2019 to 2024. Average growth rates were strictly less than 0% for shrinking economies, and between 0% and 0.5% (inclusive) for slowly growing economies.

On Figure 12, the list of shrinking economies reads like a list of sad situations that we have read about in the news, way too many times. Many of the countries have recently been in wars or similar situations. None of the countries are Advanced Economies. A few of the countries (Iraq, Libya, Trinidad and Tobago, South Sudan, Venezuela) are oil producing countries.

With respect to the list of slowly growing countries, shown on the right side of Figure 12:

• Austria, Czechia, Estonia, Finland, Germany, and Japan are all Advanced Economies with inadequate energy supplies of their own.
• Puerto Rico is an island territory that has recently had debt problems.
• Thailand is, in some sense, a dropout from the rapidly growing nations of Southeast Asia. My impression when I visited Thailand earlier this year was that a great deal of overbuilding had taken place. Excuses for more debt had mostly stopped.
• Argentina is an oil-producing country with difficulties.
• China tightened its grip on Hong Kong in 2019, leading to much slower economic growth. Presumably, there were underlying issues that caused this tightened grip.
• South Africa has both coal supply problems and inadequate water supplies.

[8] What lies ahead?

I think that we are already in a world of "not enough to go around," because resource limits are leading to an inadequate supply of finished goods and services for the world economy as a whole. Some countries are already being squeezed out, particularly the countries listed as having "shrinking GDP" in Figure 12. I expect that, over time, an increasing number of countries will be added to the shrinking GDP list. The outcomes may be as bad as seem to be happening to the economies that are shrinking today.

History shows that governments of shrinking countries tend to be overturned by their citizens, or they may collapse on their own. If collapse happens in either of these ways, governmental promises of pensions, and of guarantees on bank accounts, are likely to disappear. Even if the current governments can be maintained, countries will be forced to cut back greatly on the programs they are providing. Pensions may be cut, or they may be inflated away by hyperinflation.

Some governments today talk about possibly introducing Central Bank Digital Currencies (CBDCs). If these currencies are implemented, I would expect that they will be used to ration the increasingly limited supplies of goods and services that are available among their populations.

I do not expect that there will be a formal World War III. Instead, I think the United States is already in a cold war against practically every other country because there cannot be enough goods and services to go around. The US can't go into a formal war against China because it provides parts of the supply chains for many essential goods the US uses today. Even Europe is a competitor for essential goods. For example, the less oil Europe uses, the more oil will be available for other countries.

While new technologies such as artificial intelligence and energy recovery may eventually alleviate our energy problems, it is unlikely that such approaches will solve our problem in the near term. As a result, governments are likely to be less able to keep their promises. Historically, families or "villages" of extended kin have provided safety nets, rather than government programs. Perhaps now is a good time to be thinking about how we can move in this direction, as well.

Economists, actuaries, and others tend to make forecasts as if whatever current situation exists will continue indefinitely or will perhaps improve a bit. No one wants to consider the possibility that things will somehow change for the worse. Politicians want to get re-elected. University presidents want their students to believe that their degrees will be truly useful in the future. Absolutely no one wants to hear unfavorable predictions.

The issue I see is that many promises were made during the period between the end of World War II and 1973, when oil prices were very low, and most people assumed that oil supply could grow endlessly. No one stopped to think that this was a temporary situation that likely could not be repeated. If things didn't work out as planned, debt bubbles could bring down the economy. This was a heading I used in my talk at the recent Minnesota Degrowth Summit:

Figure 1. Text: Our economy has been built as if a growing supply of $20 oil (EROI of 50 - 100) would continue! Simply add more debt if this isn't true.

In this post, I will provide a few highlights from my recent talk. I also provide a link to a PDF of my Degrowth Summit talk and a link to a Vimeo recording of the summit, which includes a transcript. To access the transcript and an outline of the timings of the various talks, scroll down on the front page of the recording. Joseph Tainter spoke first; there was a recorded section showing clips by other speakers that only online viewers saw, and I spoke last (starting at about 1:55 on the video).

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Between 1920 and 1970, US oil supply grew rapidly. The early oil was easy to extract and close to customers wanting to purchase it. There had been warnings from physicists (including, most notably, M. King Hubbert) that this could not go on indefinitely, but most people assumed that any obstacles were far in the future.

Figure 2

Of course, there were other countries producing oil besides the US at that time, so it was possible to purchase imported oil. The US still had some oil it could produce, but it tended to require more complex operations. For example, some of the oil was in Alaska. Bringing this oil to market required working in a cold climate, laying a long pipeline, and using ships to transport the oil to locations with refineries.

Low oil prices were very beneficial to the economy, for as long as they lasted.

Figure 3

We don't appreciate how important low-cost food is to our personal finances. If food purchases amounts to, say, 50% of available income, necessities such as clothing and housing would take nearly all our income. There would be little left over for optional items. On the other hand, if purchases of food require only 5% to 10% of available pay, there would much more likely be money left over for discretionary purchases, such as buying a vehicle or paying for school tuition for a child.

Oil and other energy products are like food for the economy. During the period when oil prices were very low, there was sufficient margin for purchasing all kinds of "extras," such as the items listed in Figure 4 below.

Figure 4

In the low-priced oil era, small businesses were sufficient for many types of operations. There was little need for a deep organizational hierarchy, or for advanced energy-saving versions of manufactured devices. Most goods used in the US were made in the US.

Figure 5

Once the economy started to need more complexity, things began to change.

Figure 6

The economy needs a strong middle class to maintain the buying power needed to purchase goods such as vehicles, motorcycles, and new homes, to keep the price of oil up. If the middle class starts to disappear, or if young people start earning less than their parents did at the same age (adjusted for inflation), then it becomes difficult to keep the prices of oil and other energy products up. Prices must be both high enough for producers and low enough for consumers.

Figure 7

Recessions took place when oil prices rose. Governments found that they needed to bail out their economies with more debt when oil prices rose. Since 2008, the ratio of US debt to GDP has skyrocketed. Quite a bit of the added debt has been to pay for programs for poor people and the elderly.

Figure 8. Chart by the Federal Reserve Bank of St. Louis, showing the ratio of US public debt to GDP. The ratios would have been even higher if internal debt, such as debt owed to pay for Social Security benefits, were included.

The current level of debt of the US government is widely viewed as being too high. One analysis suggests that if the ratio of government debt to GDP exceeds 90%, economic growth is inhibited. The US debt to GDP ratio is now 120% on the basis shown, which is well above the 90% threshold. One concern is that interest payments on debt already exceed the amount the US spends on defense each year. Taxes need to rise, simply to pay the interest on the debt.

Growing debt, particularly during the Stagflation Stage, is one of the issues mentioned by researchers into so-called secular cycles, which are long-term cycles that take centuries to complete. In the book Secular Cycles by Peter Turchin and Sergey Nefedov, a group of people somehow obtain possession of an area of land (often by cutting down trees or winning a war) that allows the population of the group to temporarily surge. When the population reaches the carrying capacity of the area, population growth greatly slows in a period referred to as Stagflation. Wage and wealth disparity become more of a problem, as does debt.

Eventually, according to Turchin and Nefedof's study examining eight societies, populations tended to collapse over long periods, ranging from 20 to 50 years. Such cycles are closely related to the periods of growth and collapse analyzed in Prof. Joseph Tainter's book, "The Collapse of Complex Societies."

Figure 9. This chart is my chart, using information from the book Secular Cycles. The extent of the decline of the in population during the Crisis Period is quite variable.

The time ahead looks worrying, if my analysis is correct.

Figure 10 Figure 11 Figure 12

A few comments for my regular readers:

1. My presentation included 51 slides. Look at the PDF to see the full presentation.
2. Even though I didn't mention it, having a rapidly growing energy supply at a very high EROI would not be sufficient to forestall collapse indefinitely. Other issues would emerge. Population would rise higher, and pollution would be more of a problem. Eventually, the system would still reach a limit and tend to collapse.
3. I only included EROI because I thought a few people would already be aware of the concept. I didn't define it or talk about it.
4. My analysis seems to suggest that extenders of fossil fuels, such as wind, solar, and nuclear, need to have very high EROIs. But even with high EROIs, they are unlikely to be helpful for very long because the system would still tend to reach its limits.

We are at a time when there seems to be far more conflict than in the past. At least part of the problem is that slowing growth in the world economy is making it more difficult to repay debt with interest, especially for governments. A related issue is that government promises for pensions and healthcare costs are becoming more difficult to pay. Donald Trump is trying to make numerous changes that are distasteful both to other countries and to many people living within the US. What is going wrong with the economy?

In my view, major cracks are developing in the economy because we are heading toward a collapse scenario of the type that Dr. Joseph Tainter talks about in his book, "The Collapse of Complex Societies." No one has told the general population about the potential problem, partly because they don't fully understand the issues themselves, and partly because the underlying causes are too frightening to discuss with the public. At the root of these collapse-related issues is a physics issue, which is only gradually being fully understood.

In this post, I try to describe some of the issues involved. I don't believe that the situation is hopeless. At the end, I discuss where we are now, relative to historical patterns, and some reasons to be optimistic about the future.

[1] Economies need to "dissipate" energy on a regular basis, just as humans need to eat food on a regular basis.

In physics terms, economies and all plants and animals are dissipative structures. So are tornadoes, hurricanes, and ecosystems of all kinds. All these structures have finite lifetimes. They all need to "dissipate" energy to continue performing their expected functions. Humans require a variety of foods to digest; economies require energy types that match their built infrastructure. The amount of energy required by an economy tends to rise with its human population.

Figure 1 shows that since 2008, world energy supply growth has only barely been keeping up with world population growth. Physics tells us that energy dissipation is required to create any part of GDP, so energy consumption that rises with population growth should not be surprising.

Figure 1. World energy consumption per capita from 1965 through 2024, based on data of the 2025 Statistical Review of World Energy, published by the Energy Institute, with fitted trend lines.

The dips in per capita energy consumption in the latest period correspond to major recessions in 2008 and 2020. Rapid growth in per capita energy consumption seems to take place when growth in some low-priced fuel temporarily becomes available.

[2] Low energy prices are at least as important to the economy as low food prices are to individual households. Low energy prices seem to allow investments that pay back well.

If a family spends 10% of its income on food, the family has lots of money left over for non-essentials, such as a vehicle, trips to movies, and even a foreign vacation. If a family spends 50% of its income on food (or even worse, 75%), any little "bump in the road" can cause a crisis. There is little money available to spend on housing or a vehicle.

Figure 2 shows that oil prices were under $20 per barrel (adjusted to today's price level) in the 1948-1972 period. This corresponds quite closely with the rapid-growth early period shown on Figure 1.

Figure 2. Inflation-Adjusted Brent Oil equivalent oil prices, based on data from the 2025 Statistical Review of World Energy, published by the Energy Institute, for values through 2024. Data for 2025 based on EIA information.

The economy was able to add many types of helpful "complexity" during this early period because of the growing supply of cheap oil. It could add interstate highways and many miles of pipelines. Inventions included television, air conditioning, early computers, and contraceptive pills. Many families were able to buy a vehicle for the first time. Women started to work outside the home in much greater numbers.

Many of these early types of complexity paid back well. For example, interstate highways made travel faster. Early computers could handle many bookkeeping chores. Contraceptive pills made it possible for women to plan their families. Without so many children, working outside the home was more of a possibility for women.

[3] Many indirect changes took place between 1948 and 1970 that would be harder to maintain if oil supplies stopped growing as rapidly and as inexpensively as they did during this early period.

If we look back, we know that in the 1600s and 1700s, people worked pretty much all their lives. It was the growth in energy supplies in the 1800s and 1900s that allowed governments to expand their services. They could promise to provide pensions and health care benefits. The rapid growth in oil supplies in the 1948 to 1970 period allowed even more expansion of government benefits, as well as other changes.

Figure 3, Chart of US crude oil production by the EIA.

US Medicare was added in 1965, providing healthcare benefits to the elderly and disabled. Schools were integrated, promising better education for Black children. After actuarial models started to suggest that pensions could pay out a great deal in pension benefits, businesses started to award pensions to workers, in addition to Social Security.

Social standards started changing, too. Dating couples didn't have to worry about the woman accidentally getting pregnant, at least in theory. No fault divorce became available. Government programs became available to provide funds to single or divorced parents with children.

Of course, if wages of young people started to stagnate, or if there were too many divorces of low-wage people, this whole approach wouldn't work as well. It would be harder to tax wages enough to pay for the many benefits for the elderly, the disabled, and those with low incomes.

[4] Governments facing the problem of high-cost oil did exactly what families with suddenly high-cost food would do, if they had unlimited credit cards. They ran up increasing amounts of debt, to pay for all the promised programs.

We know with our own finances that if we are spending too much on food, we can temporarily work around this problem by maxing out our credit cards and adding more debt in other ways. I believe that the world economy has been doing something similar for a long time.

The push toward added debt has become much greater since 2008 (Figure 1), but the general trend toward increased debt started back in the early 1980s, about the time Ronald Reagan and Margaret Thatcher began their terms. Businesses decided that they needed to use what they now called "leverage" to obtain higher profits.

The debt that economies added was a kind of complexity. If the debt was invested in factories or industry that paid back well, everything went well.

But not all the uses of debt went into approaches that paid back well. For example, paying doctors to give high-priced treatments to elderly people who were certain to die within a few months did not provide much benefit to the economy, apart from the money the physician and the rest of the health care system obtained to spend on other goods and services.

Another way the growing debt was used was to invest in international trade. Companies found that they could outsource many kinds of manufacturing processes to low-wage countries in Southeast Asia, leading to cost savings relative to paying for high-priced US labor. (Human labor is a type of energy used by the economy.) In these Southeast Asian countries, coal was used for many processes, making the energy part of manufacturing costs cheaper, too.

The US and other Advanced Economies (defined as members of the Organization for Economic Development (OECD)) seemed to benefit because goods made in Southeast Asia were cheaper than what Advanced Economies could make for themselves. Two major issues arose, however:

a. Wages for the less-skilled workers in the US tended to stagnate or fall.

Figure 4. Based on data of the Economic Policy Institute.

One reason for stagnating pay was because of wage competition with low-wage countries. As a result, the middle class has tended to disappear. Wage disparity has become a problem.

b. Advanced Economies tended to lose the ability to make many essential goods and services for themselves. If a shortage of inputs were to occur in the future, they would be at a disadvantage.

[5] Now the consequences of too many governmental promises are becoming clear.

Advanced Economies around the world are finding their debt levels ballooning. Much of their higher expenditures are on programs citizens expect to continue forever.

Figure 5. Based on data of the Congressional Budget Office.

US leaders can see that practically the only way that they can fix this situation is by cutting back on many programs the public depends on. If a leader like Trump has a lot of power, he can also try to get a larger share of the world's output by imposing tariffs on the output of other countries. Neither of these approaches will be popular with very many people. If nothing else, there will be conflict over who gets cut out if cuts are necessary.

Other Advanced Nations face similar problems.

[6] Leaders have not told the public about the likelihood of a shortfall of energy supplies and the difficulties this would cause.

Physicists have been warning that a shortfall in fossil fuel supplies was likely to occur since the 1950s. More recent models, such as the modeling represented in the 1972 book, The Limits to Growth, gave a similar picture.

Part of the confusion has been that economists have given an optimistic view of what is ahead. Their (oversimplified) models indicate that in the case of a shortfall, prices will rise. With these high prices, a huge amount of difficult-to-extract fossil fuels would shortly become available, or substitutes would be found.

In my opinion, the model of economists is incorrect. With the middle class shrinking, there is not enough "demand" to keep the price of any commodity up for very long. Instead, prices tend to bounce up and down. This can be seen for oil on Figure 2. Pricing represents a two-way tug-of-war: Prices need to be high enough for the producers to make a profit, but end products (including food grown and transported using oil) must be inexpensive enough for consumers to afford.

With one story being told by the physicists and another by the economists, competing belief systems arose:

• One saying that there would be a major shortage of fossil fuels, particularly oil, starting in the first half of the 21st century because the only fossil fuels we can extract are the fairly accessible fossil fuels. There are constraints caused by geology that seem to be difficult to work around, arising from limitations caused by physics.
• The other saying that any such problems lie far in the future. We should be able to develop new techniques quickly. Otherwise, any shortfall should cause prices to rise high enough to pay for more expensive techniques, or to find substitutes.

Both sides could see a need to limit consumption, one side because we appeared not to have enough, and the other because, if we really could extract as much fossil fuels as they considered possible, models suggested that there would be a climate problem.

To try to satisfy both sides, politicians decided to push the "save the world from CO2 emissions" narrative. This approach had an added benefit: Businesses wanting to import low-priced goods and services, made in China and other low-cost countries, very much favored it. The limitation on CO2 emissions of the 1997 Kyoto Protocol was simply a local limitation on emissions, not a limitation on CO2 on imported goods.

[7] The Kyoto Protocol, as implemented, has had the opposite effect from the hoped-for reduction in world CO2 from fossil fuels.

What has happened with the 1997 Kyoto Protocol is precisely what businesses, looking to sell low-cost goods made in Southeast Asia, wanted. Manufacturing and other types of industry have tended to move out of the Advanced Economies, and into lower-cost countries.

Figure 6. Energy consumption separately for OECD and non-OECD countries, based upon data of the 2025 Statistical Review of World Energy, published by the Energy Institute.

Total world CO2 emissions have risen, rather than fallen.

Figure 7. CO2 amounts related to the burning of fossil fuels, based upon data of the 2025 Statistical Review of World Energy, published by the Energy Institute. [8] The supposed transition to wind turbines and solar panels is not going well.

Wind turbines and solar panels, the way that they are now being added to the overall electric grid, are having far less benefit than most people had hoped. Of course, their benefit is only with respect to electricity production. Farming, transportation of many kinds, and other industries use a great deal of oil and coal, in addition to grid electricity.

Figure 8 shows a breakdown of world energy consumption by type. Electricity from wind turbines and solar panels makes up only the tiny reddish portion at the top. It represents only 3% of the total energy consumption.

Figure 8. Breakdown of world energy consumption by type, based upon data of the 2025 Statistical Review of World Energy, published by the Energy Institute. "Other" includes ethanol, wood chips, sawdust burned for electricity, geothermal, and other miscellaneous types.

We usually hear about wind and solar electricity as a percentage of electricity production. This is a higher percentage, which averages close to 15%.

Figure 9. Wind and solar electricity share of electricity production, based upon data of the 2025 Statistical Review of World Energy, published by the Energy Institute.

The areas with the highest percentage of wind and solar electricity generation are already experiencing blackouts because differences from grid electricity have not sufficiently been compensated for. For example, Spain experienced a 10-hour blackout on April 28, 2025, because of low "inertia." Inertia usually comes from the rotating turbines used in the production of electricity using coal, natural gas, nuclear, or hydroelectric.

Figure 10. Wind and solar electricity share of total energy consumption, based upon data of the 2025 Statistical Review of World Energy, published by the Energy Institute.

Figure 10 shows that in 2024, wind and solar electricity amounted to between 5% and 6% of energy consumption in Australia and the EU. Their high level of usage helped to bring the world average up to a little under 3% of total energy.

[9] There are important things about ecosystems in general and our economy in particular that we are not told about.

I don't think that educators and politicians are generally aware of the following issues relating to ecosystems and our economy:

a. Ecosystems are built to be resilient. As dissipative structures, ecosystems and economies are "self-organizing structures" powered by energy, just as the human body is. We need not fret that we are responsible for species extinction. Ecosystems, like plants and animals, have short lifetimes. A replacement ecosystem will quickly develop if adequate resources (such as sunlight and water) are available. Furthermore, the waste (or pollution) of one species helps provide the nutrition for other species; CO2 provided by burning fuel helps plants grow. Over the long history of life on earth, 99.9999% of plant and animal species have died out and been replaced by other species.

b. Ecosystems and economies also tend to heal themselves, just as human wounds tend to heal themselves. If a fire, or a type of beetle, destroys an ecosystem, replacement plants and accompanying animals will soon find a way to populate the area. If a major government fails, or banks fail, somehow workarounds will be found to take their place. Human systems need order; if governments fail, religious systems that provide order may become more important.

c. Humans, unlike other animals, have a built-in need for supplemental energy, such as firewood, or fossil fuel energy. Over one million years ago, pre-humans figured out how to cook part of their food. Because of this cooked food, their jaws and digestive apparatus could shrink in size. The improved food supply allowed their brains to improve in complexity. Also, cooked food greatly reduced the time required for chewing, allowing more time for toolmaking and crafts. Heat is also important for killing pathogens in water.

d. Humans are smarter than other animals, allowing the population of humans to grow, while the population of many other species tends to fall. This issue continues today:

Figure 11. World population, divided between OECD countries and non-OECD Countries, based upon data of the 2025 Statistical Review of World Energy, published by the Energy Institute.

The large rise in the population of the less advanced economies contributes to the huge number of immigrants wanting new homes in higher income countries. The book, Too Smart for our Own Good by Craig Dilworth, discusses this issue further.

e. It is ultimately the rising population issue discussed in (d) that leads to the typical overshoot and collapse situation. The issue is that available resources do not rise fast enough (in the area, or with the technology available) to provide enough physical goods and services for the population. If a new approach can be developed, or a neighboring area with additional resources can be conquered, population can start to grow again. Figure 12 represents my attempt to show the shape of a typical secular cycle (also called overshoot and collapse cycle) based on Turchin and Nefedov's research regarding collapses of agricultural economies.

Figure 12. Chart by author based on information provided in Turchin and Nefedov's book, Secular Cycles. The extent of the population decline in the Crisis Period varies from greatly among secular cycles. The decline shown likely overstates the typical case.

f. Outgrowing our resource base is not a phenomenon that began with fossil fuels. In 2020, I wrote a post explaining how Humans Left Sustainability Behind as Hunter-Gatherers. In 1796, when world population was about one billion, Robert Thomas Malthus wrote about population growing faster than food production. This was before fossil fuels were widely used. Now, about 230 years later, population has risen to eight billion, thanks to the availability of fossil fuels. We need major innovations, or additional energy resource types, if we want to work around obstacles now.

[10] We seem to be reaching the end of the Stagflation Period in Figure 12. We are likely starting along the long downslope of the Crisis Period.

In my opinion, the Stagflation Period began when US oil production peaked, in 1970. The estimated length of the Stagflation Period is 50 to 60 years. The 1970 peak is now 55 years behind us, so the timing is just as expected.

The Crisis period is next, listed as lasting perhaps 20 to 50 years. This is the period when governments and financial systems fail. What we think of as national boundaries can be expected to change, while countries themselves will generally become smaller. With less energy per capita, the quantity of government services provided can be expected to fall. Government organizations can be expected to become smaller and simpler. It is unlikely that democracies can continue; authoritarian rulers with a support staff are more likely. Plagues may cause the overall population to fall.

We don't know if the pattern shown on Figure 12 is the correct model for modern times, but we should not be surprised if things do change in this direction. Governments may fail, and, in fact, the replacement governments may fail repeatedly.

I believe that uranium production is also constrained by prices that never go high enough, for long enough, to increase supply.

To pull us out of this predicament, new energy supplies will need to be developed, or old ones dramatically improved. At the same time, the system will need to reorganize in such a way to use these new, improved energy supplies. I would expect that in the new system, the general trend will once again be toward more complexity. New customs and new variations on religions may also develop.

It is theoretically possible that AI could help us find solutions quickly, so we never go deeply into the Crisis Period.

If much of the world economy does temporarily head downward because of limited fossil fuel supplies, some researchers might continue to work on solutions. Other people may temporarily need to focus on growing enough food, close to where it is needed, and finding sufficient fuel sources to at least cook much of this food. Nice things we are used to, such as home heating and repaving of roads by governments, are likely to be cut back greatly.

[11] Hope for the future.

We know that there are many ideas that are being worked on now that might be helpful for the future. They just aren't ready to be scaled up, yet.

At the same time, some energy types we have today might work better if used in a different way. For example, solar panels seem to provide intermittent electricity for a long period, with relatively little maintenance. If they can be made to work where intermittent electricity is sufficient, and their use directed specifically to those locations, perhaps this might be a better use for them than putting them on the grid. Solar panels are made with fossil fuels, but they do act to stretch the electricity from those fuels.

Another possibility for hope comes through greater efficiency in using fossil fuels. History suggests that if we can figure out how to use fossil fuels more efficiently, the price of fossil fuels can rise higher. With a higher (inflation-adjusted) price, more oil and other fossil fuels can perhaps be extracted.

One thing that strikes me is the fact that economies are put together in an amazingly organized manner, with humans seeming to be put in charge of them. Everything I can see seems to suggest that there is a Higher Power, which some might call God, that is behind everything that happens. People talk about economies being self-organizing. However, in a way, it is as if a Higher Power is helping organize things for us. It appears to me that creation is an ongoing process, not something that stopped 13.8 billion years ago or 6,000 years ago.

Seeing how ecosystems heal themselves, and how humans have made it through many secular cycles so far, gives me hope for the future.

One of the chapters of the Sierra Club of Minnesota has asked Joseph Tainter and me to give Keynote speeches on October 25 at what is being billed as Minnesota's First DeGrowth Summit. On site space is pretty limited, but free viewing will be available by internet.

If you want to attend in person, you should probably sign up soon.

This is the notice that the organizers have said that I can share:

Minnesota's First DeGrowth Summit - October 25, 2025

The DeGrowth Summit, hosted by the Sierra Club North Star Chapter's DeGrowth Team, will bring together organizers, artists, gardeners, educators, and community members to share skills, spark collaborations, and celebrate the many ways we're resisting extractive economies and creating thriving local futures.

There are 3 ways to participate in the event: The in-person event is held in Minneapolis, MN where there will be presentations by two keynote speakers, Gail Tverberg and Joseph Tainter. In addition it will bring together organizers, artists, gardeners, educators, and community members to share skills, spark collaborations, and celebrate the many ways we're resisting extractive economies and creating thriving local futures. Expect food, drop-in spaces, workshops, and a vibrant marketplace of ideas—from climate justice to co-ops, repair culture to Indigenous sovereignty. This event is free and you can register at: www.tinyurl.com/degrowthsummit

The second option is a "Watch Party" in Rochester, MN. Here we will gather at the Squash Blossom Farm for lunch and watch the live stream together. After the live stream is done, Gail will be arriving from Minneapolis to have a "Fireside Chat" with the group followed by a bonfire and wiener roast. The cost is $25 which covers the expense of lunch, dinner and the event space. Space is limited to 50 so sign up soon at: 

Rochester DeGrowth Summit Watch Party

The final way to participate is to view the live stream online. The live stream will include the keynote presentations and two other presentations TBD. You can register for this at www.tinyurl.com/degrowthsummit . At the bottom of the registration make sure to check the box for virtual and a link will be sent to you prior to the event.

---

Some additional information:

The Minneapolis Event is at New City Center, 3104 16th Ave S, Minneapolis, MN 55407

The Watch Party at Squash Blossom Farm is at 7499 60th Ave NW, Oronoco, MN 55960

This is the graphic shown in early web material.

I expect to put up a "regular" post in the next few days.

The supply and demand model of economists suggests that oil prices might rise to consistently high levels, but this has not happened yet:

Figure 1. Average annual Brent equivalent inflation-adjusted crude oil prices, based on data of the 2025 Statistical Review of World Energy, published by the Energy Institute. The last year shown is 2024.

In my view, the economists’ model of supply and demand is overly simple; its usefulness is limited to understanding short-term shifts in oil prices. The supply and demand model of economists does not consider the interconnected nature of the world economy. Every part of GDP requires energy consumption of some type. The price issue is basically a physics issue because the world economy operates under the laws of physics.

In this post, I will try to explain what really happens when oil supply is constrained.

[1] Overview: Why Oil Prices Don’t Permanently Rise; What Happens Instead

My analysis indicates that there are three ways that long-term crude oil prices are held down:

(a) Growing wage and wealth disparities act to reduce the “demand” for oil. As wage and wealth disparities widen, the economy heads in the direction of a shrinking middle class. With the shrinking of the middle class, it becomes impossible to bid up oil prices because there are too few people who can afford their own private cars, long distance travel, and other luxury uses of oil. Strangely enough, this dynamic is a major source of sluggish growth in oil demand.

(b) Politicians work to prevent inflation. Oil is extensively used in food production and transport. If crude oil prices rise, food prices also tend to rise, making citizens unhappy. In fact, inflation in general is likely to rise, as it did in the 1970s. Politicians will use any method available to keep crude oil prices down because they don’t want to be voted out of office.

(c) In very oil deficient locations, such as California and Western Europe, politicians use high taxes to raise the prices of oil products, such as gasoline and diesel. These high prices don’t get back to the producers of crude oil because they are used directly where they are collected, or they act to subsidize renewables. My analysis suggests that indirectly this approach will tend to reduce world crude oil demand and prices. Thus, these high taxes will help prevent inflation, especially outside the areas with the high taxes on oil products.

Instead of oil prices rising to a high level, I expect that the methods used to try to work around oil limits will lead to fragility in many parts of the economic system. The financial system and international trade are particularly at risk. Ultimately, collapse over a period of years seems likely.

Underlying this analysis is the fact that, in physics terms, the world economy is a dissipative structure. For more information on this subject, see my post, The Physics of Energy and the Economy.

[2] Demand for oil is something that tends not to be well understood. To achieve growing demand, an expanding middle class of workers is very helpful.

Growing demand for oil doesn’t just come from more babies being born each year. Somehow, the population needs to buy this oil. People cannot simply drive up to a gasoline station and honk their horns and “demand” more oil. They need to be able to afford to drive a car and purchase the fuel it uses.

As another example, switching from a diet which reserves meat products for special holidays to one that uses meat products more extensively tends to require more oil consumption. For this type of demand to rise, there needs to be a growing middle class of workers who can afford a diet with more meat in it.

These are just two examples of how a growing middle class will tend to increase the demand for oil products. Giving $1 billion more to a billionaire does not have the same impact on oil demand. For one thing, a billionaire cannot eat much more than three meals a day. Also, the number of vehicles they can drive are limited. They will spend their extra $1 billion on purchases such as shares of stock or consultations with advisors on tax avoidance strategies.

[3] In the US, there was a growing middle class between World War II and 1970, but more recently, increasing wage and wealth disparities have become problems.

There are several ways of seeing how the distribution of income has changed.

Figure 2. U. S. Income Shares of Top 1% and Top 0.1%, Wikipedia exhibit by Piketty and Saez.

Figure 2 shows an analysis of how income (including capital gains) has been split between the very rich and everyone else. What we don’t see in Figure 2 is the fact that total income (calculated in this way) has tended to rise in all these periods.

Back in the 1920s (known as “the roaring 20s”), income was split very unevenly. There was a substantial share of very wealthy individuals. This gradually changed, with ordinary workers getting more of the total growing output of the economy. The share of the economy that the top earners obtained hit a low in the early 1970s. Thus, there were more funds available to the middle class than in more recent years.

Another way of seeing the problem of fewer funds going to ordinary wage earners is by analyzing wages and salary payments as a share of US GDP.

Figure 3. Wages and salaries as share of US GDP, based on data of the US Bureau of Economic Analysis.

Figure 3 shows that wages and salaries as a percentage of GDP held up well between 1944 and 1970, but they have been falling since that time.

Furthermore, we all can see increasing evidence that young people are not doing as well financially as their parents did at the same age. They are not as likely to be able to afford to buy a home at a young age. They often have more college debt to repay. They are less able to buy a vehicle than their parents. They are struggling to find jobs that pay well enough to cover all their expenses. All these issues tend to hold down oil demand.

Since 1981, falling interest rates (shown in Figure 6, below) have allowed growing wage disparities to be transformed into growing wealth disparities. This has happened because long-term interest rates have fallen over most of this period. With lower interest rates, the monthly cost of asset ownership has fallen, making these assets more affordable. High-income individuals have disproportionately been able to benefit from the rising prices of assets (such as homes and shares of stock), because with higher disposable incomes, they are more able to afford such purchases. As a result, since 1981, wealth disparity has tended to increase as wage disparity has increased.

[4] Governments talk about the growing productivity of workers. In theory, this growing productivity should act to raise the wages of workers. This would maintain the buying power of the middle class. Figure 4. Productivity growth by quarter, relative to productivity in the similar quarter one year earlier, based on data of the Bureau of Labor Statistics, as recorded by the Federal Reserve of St. Louis in its data base. The last quarter shown ends June 30, 2025.

Figure 4 shows that productivity growth was significantly higher in the period between 1948 and 1970 than in subsequent years. Figure 2 shows that before 1970, at least part of the productivity growth acted to raise the incomes of workers. More recently, productivity growth has been lower. With this lower productivity growth, Figure 2 shows that wage-earners are especially being squeezed out of productivity gains. It appears that most of the growth attributable to productivity gains is now going to other parts of the economy, such as the very rich, the financial sector, and the governmental services sector.

The changes the world has seen since 1970 are in the direction of greater complexity. Adding complexity tends to lead to growing wage and wealth disparities. Figure 4 seems to indicate that with added complexity, productivity per worker still seems to rise, but not as much as when the economic system grew primarily due to growing fossil fuel usage leveraging the productivity of workers.

Figure 4 shows data through June 30, 2025. Note that productivity in the latest period is lower than in earlier periods, even with the early usage of Artificial Intelligence. This is a worrying situation.

[5] The second major issue holding oil prices down is the fact that if crude oil prices rise, food prices also tend to rise. In fact, overall inflation tends to escalate.

Oil is extensively used in food production. Diesel is used to operate nearly all large farm machinery. Vehicles used to transport food from fields to stores use some form of oil, often diesel. Transport vehicles for food often provide refrigeration, as well. International transport, by jet or by boat also uses oil. Companies making hybrid seeds use oil products in their processes and distribution.

Furthermore, even apart from burning oil products, the chemical qualities of petroleum are used at many points in food production. The production of nitrogen fertilizer often uses natural gas. Herbicides and insecticides are made with petroleum products.

Because of these considerations, if oil prices rise, the cost of producing food and transporting it to its destination will rise. In fact, the cost of transporting all goods will rise. These dynamics will tend to lead to inflation throughout the system. When oil prices first spiked in the 1970s, inflation was very much of an issue, both for food and for goods in general. No one wants a repetition of a highly inflationary scenario.

Politicians will be voted out of office if a repetition of the oil price spikes of the 1970s takes place. As a result, politicians have an incentive to hold oil prices down.

[6] Oil prices that are either too high for the consumer or too low for the producer will bring the economy down.

We just noted in Section [6] that oil consumers do not want the price of oil to be too high. There are multiple reasons why oil producers don’t want oil prices to be too low, either.

A basic issue is that the cost of oil production tends to rise over time because the easiest to extract oil is produced first. This dynamic leads to a need for higher prices over time, whether or not such higher prices actually occur. If prices are chronically too low, oil producers will quit.

A second issue is the fact that many oil exporting countries depend heavily on the tax revenue that can be collected from exported oil. OPEC countries often have large populations with very low incomes. Oil prices need to be high enough to provide food subsidies for an ever-growing population of poor citizens in these countries, or the leaders will be overthrown.

Figure 5. OPEC Fiscal Breakeven prices from 2014, published by APICORP.

Figure 5 shows required breakeven prices for oil producers in the year 2014, considering their need for tax revenue to support their populations, in addition to the direct costs of production. The current Brent Oil price is only about $66 per barrel. If the breakeven price remains at the level shown in 2014, this price is too low for every country listed except Qatar and Kuwait.

No oil exporting country will point out these price problems directly, but they will tend to cut off oil production to try to get oil prices up. In the recent past, this has been the strategy.

OPEC can also try a very different strategy, trying to get rid of competition by temporarily dumping stored-up oil onto the market, to lower oil prices to try to harm the financial results of its export competition. This seems to be OPEC’s current strategy. OPEC knows that US shale producers are now near the edge of cutting back greatly because depletion is raising their costs and reducing output. OPEC hopes that by obtaining lower prices (such as the $66 per barrel current price), it can push US shale producers out more quickly. As a result, OPEC hopes that oil prices will rebound and help them out with their price needs.

I have had telephone discussions with a former Saudi Aramco insider. He claimed that OPEC’s spare capacity is largely a myth, made possible by huge storage capacity for already pumped oil. It is also well known that OPEC’s (unaudited) oil reserves appear to be vastly overstated. These myths make the OPEC nations appear more powerful than they really are. OECD nations, with a desire for a happily ever after ending to our current oil problems, have eagerly accepted both myths.

To extract substantially more oil, the types of oil that are currently too expensive to extract (such as very heavy oil and tight oil located under metropolitan areas) would likely need to be developed. To do this, crude oil prices would likely need to rise to a much higher level, such as $200 or $300 per barrel, and stay there. Such a high price would lead to stratospherically higher food prices. It is hard to imagine such a steep rise in oil prices happening.

[7] The third major issue is that politicians in very oil deficient areas have been raising oil prices for consumers through carbon taxes, other taxes, and regulations.

Strangely enough, in places where the lack of oil supply is extreme, politicians follow an approach that seems to be aimed at reducing what little oil supply still exists. In this approach, politicians charge high taxes (“carbon” and other types) on oil products purchased by consumers, such as gasoline and diesel. They also implement stringent regulations that raise the cost of producing end products from crude oil. California and many countries in Western Europe seem to be following this approach.

With this approach, taxes and regulations of many kinds raise oil prices paid by customers, forcing the customer to economize. Some of the money raised by these taxes may go to help subsidize renewables, but virtually none of the additional revenue from consumers can be expected to go back to the companies producing the oil.

I would expect these high local oil prices will slightly reduce the world price of crude oil because of the reduced demand from areas using this approach (such as California and Western Europe). Demand will be reduced because oil prices will become unaffordably high for consumers in these areas. These areas are deficient in oil supply, so there will be much less impact on world oil supply.

Refineries in China and India will be happy to take advantage of the lower crude oil prices this approach would seem to provide, so much of the immediately reduced oil consumption in California and Western Europe will go to benefit other parts of the world. But the lower oil world oil prices will also act to inhibit future world oil extraction because the development of new oil fields will tend to be restricted by the lower world oil prices.

The lower crude oil prices will be beneficial in keeping world food price inflation and general inflation down worldwide. Some oil may be left in place, in case better extraction techniques are available later, especially in the areas with these high taxes. With less oil supply available, the economies of California and Western Europe will tend to fail more quickly than otherwise.

Unfortunately, so far, these intentionally higher oil prices for consumers seem to be mostly dead ends; they encourage substitutes, but today’s substitutes don’t work well enough to support modern agriculture and long-distance transportation.

[8] Politicians at times have reduced oil demand, and thus oil prices, by raising interest rates.

One way to reduce oil prices has been to push the economy into recession by raising interest rates. When interest rates rise, purchasing power for new cars, and for goods using oil in general, tends to fall. Recession seems to happen, with a lag, as shown on Figure 6. Recessions on this figure are noted with gray bars.

Figure 6. 3-month and 10-year secondary market Treasury interest rates, based on data of Federal Reserve System of St. Louis. The last month shown is July 2025.

Increasing interest rates has led to several recessions, including the Great Recession of 2007-2009. A comparison with Figure 1 shows that oil prices have generally fallen during recessions.

[9] The climate change narrative is another way of attempting to reduce oil demand, and thus crude oil prices.

The wealthy nations of the world have been spreading the narrative that our most serious problem is climate change. In this narrative, we can help prevent climate change by reducing our fossil fuel usage. This narrative makes trying to work around a fossil fuel shortage a virtue, rather than something that needs to be done to prevent calamity from happening. However, when we examine CO2 emissions (Figure 7), they show that world CO2 emissions from fossil fuels have not fallen because of the climate change narrative.

Figure 7. World CO2 emissions from fossil fuels based on data of the 2025 Statistical Review of World Energy, published by the Energy Institute. Advanced Economies are members of the Organization for Economic Development (OECD). The latest year shown is 2024.

Instead, what has happened is that manufacturing has increasingly moved to the less advanced economies of the world. There is a noticeable bump in CO2 emissions starting in 2002, as more coal-based manufacturing spread to China after it joined the World Trade Organization in very late 2021.

The climate change narrative has made it possible to “sell” the need to move away from fossil fuels in a less frightening way than by telling the public that oil and other fossil fuels are running out. However, it hasn’t fixed either the CO2 issue or the declining supply of fossil fuels issue, particularly oil.

[10] The danger is that the world economy is growing increasingly fragile because of long-term changes related to added complexity.

Shifting manufacturing overseas only works as long as there is plenty of inexpensive oil to allow long-distance supply lines around the world. Diesel oil and jet fuel are particularly needed. The US extracts a considerable amount of oil, but it tends to be very “light” oil. It is deficient in the long-chain hydrocarbons that are needed for diesel and jet fuel. In fact, the world’s supply of diesel fuel seems to be constrained.

Figure 8. World per capita diesel supply, based on data of the 2025 Statistical Review of World Energy, published by the Energy Institute.

Without enough diesel, there is a need to move manufacturing closer to the end users. But what I have called the Advanced Nations (members of the OECD, including the US, most countries in Europe, and Australia) have, to a significant extent, moved their manufacturing to lower-wage countries. Fossil fuel supplies in countries that have moved their manufacturing offshore tend to be depleted. Trying to move manufacturing back home seems likely to be problematic.

The world economy is now built on a huge amount of debt. All this debt needs to be repaid with interest. But if manufacturing is significantly constrained, there is likely to be a problem repaying this debt, except perhaps in currencies that buy little in the way of physical goods.

When oil supply is stretched, we don’t recognize the symptoms. One symptom is refinery closures in some oil importing areas, such as in California and Britain. This will make future oil supply less available. Other symptoms seem to be higher tariffs (to motivate increased manufacturing near home) and increasing hostility among countries.

[11] Both history and physics suggest that “overshoot and collapse over a period of years” is the outcome we should expect.

Pretty much every historical economy has eventually run into difficulties because its population grew too high for available resources. Often, available resources have been depleted, as well. Now, the world economy seems to be headed in this same direction.

The outcome is usually some form of collapse. Sometimes individual economies lose wars with other stronger economies. Sometimes, wage disparities become such huge problems that the poorer citizens become vulnerable to epidemics. At other times, unhappy citizens overthrow their governments. Or, if the option is available, citizens might vote the current political elite out of power.

Such collapses do not happen overnight; they are years in the making. Poorer people start dying off more quickly, even before the economy as a whole collapses. Conflict levels become greater. Debt levels grow. Researchers Turchin and Nefedov tell us that food prices bounce up and down. There is no evidence that they rise to a permanently high level to enable more food to be grown.

Anthropologist Joseph Tainter, in the Collapse of Complex Societies, tells us that there are diminishing returns to added complexity. While economies can temporarily work around overshoot problems with greater complexity, added complexity cannot permanently prevent collapse.

[12] We need to beware of “overly simple” models.

The models of economists and of scientists tend to be very simple. They do not consider the complex, interconnected nature of the world economy. In fact, the laws of physics are important in understanding how the world economy operates. Energy in some form (fossil fuel energy, human energy, or energy from the sun) is needed for every component of GDP. If the energy supply somehow becomes restricted, or is very costly to produce, this becomes a huge problem.

As I see it, the supply and demand model of economists is primarily useful in predicting what will happen in the very short term. It doesn’t have enough parts to it to tell us much more.

For any commodity, including oil, storage capacity tends to be very low relative to the amount used each year. Because of this, commodity prices tend to react strongly to any fluctuation in presently available supply, or projected supply in the future. The supply and demand model of economists primarily predicts these short-term outcomes.

For the longer term, we need to look to history and to models that consider the laws of physics. These models seem to suggest that collapse will take place over a period of years, as the more vulnerable parts of the system break off and disappear. Unfortunately, we cannot expect long-term high prices to solve our oil problem.

The Energy Institute recently published its updated energy report, the 2025 Statistical Review of World Energy, showing data through the year 2024. In this post, I identify trends in the new data that I consider worrying. These trends help explain the strange behaviors that we have been seeing from governments recently.

[1] The world’s per capita affordable supply of diesel has been declining, especially since 2014.

Because of it is high energy density and ease of storage, diesel is important in many ways:

• Diesel powers a substantial share of modern agricultural equipment.
• Diesel is the fuel of the huge trucks that carry goods of all kinds.
• Diesel powers much of the world’s construction and earth-moving equipment.
• Diesel (and other similarly energy-dense but less refined fuels) allows long-distance transport by ship.
• Diesel is widely used in mining.
• Diesel powers some trains, provides backup electricity generation, and powers some irrigation pumps.

Figure 1. Chart showing the level of per-capita diesel consumption, relative to the per-capita consumption in 1980. Amounts are based on Diesel/Gasoil amounts shown in the “Oil-Regional Consumption” tab of the 2025 Statistical Review of World Energy, published by the Energy Institute.

Figure 1 suggests that the supply of diesel started being constrained during the 2008-2009 recession. The decrease became more pronounced starting in 2014, which was when oil prices fell (Figure 12). In fact, this downward trend since 2014 continued into 2024. The constraint in diesel production/consumption comes through oil prices that fall too low for the producers of diesel. If prices rise, they don’t stay high for very long.

If there isn’t enough diesel, cutbacks in some applications will be needed. One new workaround for the inadequate supply of diesel seems to be a reduction of international trade through tariffs. If goods can be produced closer to where they are purchased, then perhaps the economic system can accommodate the declining availability of the diesel supply a little longer.

It should be noted that jet fuel consumption is also constrained. The type of oil used is quite similar to diesel. Transferring the transportation of goods from trucks and ships to jet aircraft is not a solution!

[2] Copper supply seems to be constrained.

There has been much discussion of transitioning to the use of more electricity and less fossil fuels. This would require both a greater build out of electricity transmission systems and more use of electric cars. Each of these uses would require more use of copper. Electric cars are reported to each require 40kg to 80kg of copper, while cars with internal combustion engines use only 20kg of copper. Building charging stations for all these cars would further add to copper needs, as would adding new transmission lines to carry the higher total electricity supply.

Figure 2. World copper production, based on data of the 2025 Statistical Review of World Energy, published by the Energy Institute.

Figure 2 shows that even with the expected increase in demand for copper resulting from a shift toward electrification, total world extraction of copper has remained relatively flat. A major issue is that it takes a very long time to build a new copper mine. Worldwide, the average time to new production is 17.9 years. For this reason, a temporary increase in price cannot be expected to drive up production very quickly. If diesel is used in extracting copper, and diesel’s consumption is constrained, the restricted diesel supply can also be an issue in expanding the copper supply.

The new tariffs on copper, announced by President Donald Trump, seem to be intended to drive industries that use copper to look for substitute minerals. With a very long lag, the tariffs might also lead to an increase in copper production. Tariffs have more staying power than volatile price changes. There doesn’t seem to be a quick solution, however.

[3] Platinum extraction also seems to be constrained. Figure 3. World production of platinum and palladium (which is closely related) based on data of the 2025 Statistical Review of World Energy, published by the Energy Institute.

Platinum currently has a wide variety of applications, including use in catalytic converters, jewelry, medicine, and industry.

Some people are also hopeful that platinum will enable the wide use of hydrogen fuel cells to help meet the world’s demand for electrical power in a way that doesn’t require burning fossil fuels. In fuel cells, platinum acts as a catalyst, enabling the separation of hydrogen and oxygen molecules in water through a chemical process, rather than combustion.

One issue mentioned in the lack of growth in platinum production is persistently low prices. New mines will not be opened unless it is clear that production will be profitable. Another source indicates that the largest producing country, South Africa, has been having problems with electrical supply and rail transportation. These problems, in turn, seem to be related to South Africa’s dwindling coal supply. Its peak coal production took place in 2014. We should not be surprised if South Africa continues to have problems producing platinum in the future.

[4] Up until this report, the Statistical Review of World Energy has used an optimistic approach to quantifying the benefits of intermittent renewable electricity.

The traditional method of evaluating energy products involves analyzing the amount of heat produced in combustion. In past years, the Statistical Review of World Energy used a method that essentially assumed that the intermittent electricity produced by renewable sources (including hydropower) completely substitutes for the equivalent dispatchable electricity generated by fossil fuels. I think of this as the “wishful thinking” methodology.

The current methodology gives renewables less credit, recognizing the fact that intermittent sources substitute primarily for the fuel that electricity generating plants would use. It is becoming increasingly clear that intermittent power doesn’t work very well on a stand-alone basis. Many types of workarounds, including batteries and backup fossil-fuel generation, are required to supplement it.

The new methodology gives about 22% more credit to nuclear power than the old method. Nuclear power can be counted on 24 hours per day. Also, like fossil fuel generation, it provides the necessary inertia (the energy stored in large rotating components such as generators, which allows the power system to maintain a steady frequency) to keep electricity moving through transmission lines. Without sufficient inertia, electrical outages similar to that recently experienced in Spain, are likely.

The revised methodology seems to align better with the methods used by the US Energy Information Administration and the International Energy Agency. In the past, it has been confusing with major agencies using different methodologies.

[5] With the new methodology, there are significant changes in patterns from past reports.

With the new methodology, the percentage of energy generated directly by fossil fuels is higher than many of us remember from past reports. Now, the portion of fossil fuel consumption that comes directly from fossil fuel generation has been reduced from 94% in 1980 to 87% in 2024. Using the old methodology, the fossil fuel percentage in 2024 would have been 81%.

Figure 4. Fossil fuel energy as share of total energy generation based on data of the 2025 Statistical Review of World Energy, published by the Energy Institute.

Figure 5 shows the history of non-fossil fuel types of energy, as percentages of total world energy supply. It should be noted that even these types of energy require some use of fossil fuels. Such fuels are used in the initial construction of the devices, for their maintenance, for energy storage, and for transportation (or transmission) to where the energy product is used.

Figure 5. Non-fossil fuels as share of total energy supply based on data of the 2025 Statistical Review of World Energy, published by the Energy Institute.

Figure 5 shows that the share of energy produced by “Nuclear” hit a peak of 7.6% in 2001, and it has been declining ever since. “Hydroelectric” has grown a bit over the years relative to world energy supply.

“Geo, Biomass, Other” as a share of world energy supply has been relatively flat in recent years. It includes biomass in the form of ethanol and biodiesel, which are non-electricity forms of renewable energy. It also includes electricity from geothermal generation, and from burning wood chips and sawdust.

The only real “winner” in recent years has been “Wind + Solar.” As of 2024, this category amounts to 2.9% of world energy supply. It certainly cannot, by itself, power an economy like the one we have today. Section 7 of this post explains a bit more about this issue.

[6] The sad state of nuclear generation deserves a discussion of its own.

There seem to be many factors underlying the substantial decline in nuclear electricity, as a share of total energy supply, between 2001 and 2013:

• There were three major accidents at nuclear power plants, leading to worries about the safety of nuclear generation (Three Mile Island, 1979; Chernobyl, 1986; and Fukushima, 2011).
• The pricing scheme for wind and solar generally gives “priority” to wind and solar. This leads to negative wholesale prices for electricity at some times, and very low prices at other times, for nuclear power plants. This pricing scheme tends to make nuclear power plants unprofitable. I expect that this lack of profitability has been a major issue in the recent decline of nuclear generation.
• There doesn’t seem to be enough uranium produced to support much more nuclear generation than is used today. The US has been using down-cycled nuclear bomb material, but that is now becoming exhausted. See my earlier post.
• Uranium prices never bounce very high for very long. If prices were a lot higher over the long term, more uranium mines might be opened, and more uranium extracted.
• Opening a new mine often involves lag times of 10 to 15 years, making any ramping of uranium production a slow process.

There is also the issue of financing any shift to nuclear electricity. Upfront costs are huge, but nuclear power plants (with proper fossil-fuel-based maintenance) can operate for 60 to 80 years. As limits on fossil fuels are reached, building all these plants, using large amounts of fossil fuels, seems likely to reduce fossil fuels energy available for other uses. This makes financing a major challenge.

[7] The recent annual rising trend of 0.2% in per capita consumption of energy looks vulnerable to disruption by any economic problem that arises. Figure 6. World energy consumption by type of energy based on data of the 2025 Statistical Review of World Energy, published by the Energy Institute.

A major reason why energy consumption keeps rising is because, as population rises, there is a need for more food, housing, and transportation for this larger population. The consumption of energy products allows people to meet these needs. In fact, every aspect of GDP depends upon energy consumption.

Figure 7. World per capita energy consumption based on data of the 2025 Statistical Review of World Energy, published by the Energy Institute.

Figure 7 indicates that world energy supply per capita rose between 1965 and 1979. It remained relatively flat between 1979 and 2002 and then rose quite rapidly until 2008. Since then, its growth rate has again been essentially flat. Fitted trend lines show what these growth trends have been:

Figure 8. Similar to Figure 7, with exponential trend lines fitted for time periods noted in text.

I have written recently about the huge US government debt increase since 2008 that has tended to prop up both the US and world economies. With all this “support” since 2008, the fact that world per capita energy consumption growth has only risen by 0.2% per year is frightening. With the high level of debt, there is a danger that there will be another major recession that could bring huge financial difficulties. At some point, higher debt levels become unsupportable. Thus, what is really an energy crisis can “morph” into a financial crisis.

Figure 9, One-year increase in total world energy consumption based on data of the 2025 Statistical Review of World Energy, published by the Energy Institute.

The types of events that have brought energy consumption down in the past are quite varied, as shown on Figure 9. Note that the lows keep getting lower. There is a danger that another recession-type event could come along and push the world economy toward a long-term downtrend in energy supply per capita.

[8] China plays a huge role in the world’s energy consumption. As resource limits are hit, China has the potential to pull the world economy down with it.

China energy consumption (Figure 10) follows a very different pattern from world energy consumption (Figure 6).

Figure 10. China’s energy consumption by fuel based on data of the 2025 Statistical Review of World Energy, published by the Energy Institute.

There are several important things to notice about China’s energy pattern:

(a) China’s energy consumption is heavily dominated by coal.

(b) There was a sharp expansion in China’s energy consumption, starting about 2002. This is related to China joining the World Trade Organization (WTO) in December 2001. On Figure 8, we noted 2.0% annual world per capita energy consumption growth between 2002 and 2008, which was far greater than in either the period before 2002 (at 0.2%), or the period after 2008 (at 0.2%). This shifting pattern was largely driven by China’s spurt in energy consumption after joining the WTO.

(c) China’s energy consumption has been growing more rapidly than that of the rest of the world. This is closely related to China’s becoming the leading manufacturer for the world economy, at the same time most of the wealthier countries have been moving manufacturing to lower-cost areas (ostensibly to reduce CO2 emissions).

(d) China’s energy consumption now plays an outsize role in the future of the world economy. In 2024, China consumed 27% of the world’s energy supply. This is more energy than that consumed by the US (16%) and the EU (9%) combined.

(e) With this energy dominance, any stumble in the world’s supply of fossil fuels and other mineral resources will affect China.

One area where China is running into limits is with respect to oil supply. China imports most of its oil. Comparing 2024 to 2023, China’s total oil consumption decreased by 1.4%. Its diesel consumption decreased even more, by 2.8%.

As the leading manufacturer of the world, China has been consuming huge amounts of minerals such as copper. This Copper Council report seems to indicate that China uses about 56% of the world’s copper supply. If there is a shortage of copper, China will be affected.

We can look at energy consumption growth on a per capita basis. Not surprisingly, China’s rapid growth has pulled down per capita energy consumption growth elsewhere.

Figure 11. Energy consumption per capita, separately for the World, China, and the World excluding China, based on data of the 2025 Statistical Review of World Energy, published by the Energy Institute.

The pattern shown in Figure 11 is disturbing. Outside of China, energy consumption per capita has been falling for a long time. The rest of the world, to a significant extent, has lost its ability to manufacture the goods needed for its own people. China’s energy consumption per capita is now reported to be on a par with Europe’s, but China, too, faces issues as it encounters resource limits of many kinds.

No wonder there is conflict among nations! Every country would like limited resources. If one country has more, other countries will get less.

[9] Inflation-adjusted oil prices have bounced around, rather than following a consistent upward pattern. This limits their long-term impact on production. Figure 12. Average annual inflation-adjusted oil prices based on data of the 2025 Statistical Review of World Energy, published by the Energy Institute.

Commodity prices of all kinds seem to be influenced by many temporary situations, including debt availability and concerns about war. Higher prices do induce short-term changes that can influence supply of some energy products. For example, when oil prices are high, more production of diesel can economically be achieved by “cracking” long molecules of very heavy oil to produce shorter diesel-length molecules. When oil (and diesel) prices are low, this conversion process starts to be money-losing.

Thus, as we saw in Figure 1, diesel production increased between 1994 and 2008, in line with rising oil prices (Figure 12). Conversely, diesel barely held steady between 2008 and 2014. After 2014, when oil prices were clearly lower, diesel production fell significantly.

A major problem in creating greater mineral supplies for the long term is that new mines of all types take many years to develop. So does opening a completely new oil field. Prices tend not to stay high enough, for long enough, to encourage opening new mines and new oil fields. We see this pattern repeatedly, in diverse areas, including oil, copper, platinum and uranium, holding down the supply of these mineral resources.

Over the long term, affordability seems to play a larger role than rising demand in the prices of commodities, holding prices down. As a result, it is low prices that seem to lead to the falling production of commodities.

[10] Conclusion

This analysis confirms what I have shown earlier: The world economy is hitting energy limits in many ways.

I have written about the world’s diesel and jet fuel shortage in the past. Updated data from the 2025 Statistical Review of World Energy confirms that the world’s diesel supplies are not rising sufficiently to keep pace with world population growth. I believe that the shortage of diesel, and perhaps of oil in general, underlies the push toward more tariffs. One effect of tariffs may be to reduce the amount of long-distance shipping.

The 2025 Statistical Review of World Energy includes data for a few minerals that will likely be used if there is a transition away from fossil fuels. Of the minerals shown in the report, copper and the platinum group seem to be the most limited in supply. The relatively flat production at a time when demand should be expected to be rising gives us a clue that limits are being reached. Unless someone can figure out a way to get prices to stay at a significantly higher level, low supply of these minerals is likely to remain a long-term problem.

The overall energy supply does seem to still be rising slowly, but progress in transitioning to non-fossil fuels is painfully slow. We hear much talk about ramping up nuclear electricity production, but my analysis suggests that such a transition will be difficult, at best.

There is a great deal more analysis that can be done with the new data. I expect to be looking at this data in more detail in future posts.

Today, the world is filled with conflict. Part of the problem is oil limits, but there are many other issues as well:

• Resources such as coal, lithium, and copper are also becoming more expensive to extract.
• Fresh water is often inadequate for the world’s rising population.
• Debt levels are very high.
• Complexity is very high.
• An adequate standard of living is becoming unaffordable for many people.
• The increasing world population leads to a need for more food and more paved roads.

These symptoms strongly suggest that the world economy is headed for a slow-motion collapse.

Figure 1. Overall pattern of today’s predicament, in an image by Gail Tverberg. We seem to be up near the top now.

The system causing the problem is physics-based. Without enough affordable energy of the right types, the economy tends to collapse. This is the predicament we are facing today.

What should ordinary citizens do? I am not certain that there is one correct answer, or that I know it. In this post, I would like to offer some suggestions for discussion.

[1] Every day, give thanks for the many things you do have.

We are at the peak of resources per capita. This means that, as a group, we have as many goods and services as any population that has ever lived. We also have lots of natural resources remaining. We have a huge amount of complexity, with many young people receiving university degrees.

It is easy to lose sight of how much we do have. Most readers of this blog eat a variety of food in the quantities desired. We live in homes that are heated in winter. Even today, many people around the world are not as fortunate as we are.

[2] To the extent possible, stay away from conflict yourself.

The physics of the system will create conflict because the system must change if there is no longer enough oil to ship huge amounts of goods and services across the Atlantic or Pacific Oceans. Perhaps a few highly valued goods and services can be shipped long distance, but patterns must change to put the production of goods and services closer to the consumption of goods and services. This is a major reason why countries are quarreling now.

There is no point in individuals strongly objecting to cutbacks in trade because today’s lack of oil supply is demanding these cuts. The only way one country can lessen the impact of the reduced oil supply is to push the reduction in indirect oil consumption onto another country, using quotas or tariffs on its imports of goods and services. Needless to say, pushing other countries down to benefit one’s own country is likely to create conflict.

Another issue is that with reduced oil and other energy supplies, governments cannot continue to provide as many services as they have in the recent past. They need to reduce the number of government workers in many departments. This is the reason for the many cutbacks by the US Department of Government Efficiency and similar cuts in other countries. It also means that benefit programs, such as those aimed at seniors, the disabled, or hurricane relief, will need to be reduced or eliminated in the future.

We can argue about which programs should be cut back first, but ultimately, all government programs will need to be cut back substantially. Just printing money to try to solve the problem will likely lead to inflation; money doesn’t solve the physics problem we are facing. Energy products of the right kinds are needed for every part of GDP; not having sufficient oil is likely to cut back the supply of goods produced using oil products, including food.

If you get involved in protests, or even in war, you will be putting yourself in harm’s way. And, in the long run, you are unlikely to gain significant benefits personally.

[3] Expect declining complexity in the future.

There are many aspects to complexity:

• Much international trade
• Much debt
• Businesses with multiple layers
• Governments providing a wide range of services, including pension plans and health care
• Energy efficient vehicles
• Appliances that are designed to save energy
• Healthcare with many specialized physicians and high-cost drugs
• Agriculture with many hybrid seeds, herbicides, insecticides, and soil amendments

All these types of complexity will need to be scaled back in the future, but we don’t know precisely to what extent or how rapidly. We cannot go back to old solutions because these won’t necessarily be available. For example, we know from the past that if an economy no longer operates with horses and carriages, it will no longer make buggy whips.

We need to expect a rapidly changing world. Complex appliances we own will fail, and we will not be able to obtain replacement parts. Many drugs imported from Asia will no longer be available. Homes purchased with debt will be affordable by fewer and fewer people. We need to be aware of these issues and change our expectations accordingly.

[4] Expect fewer goods and services to be available in the future, and money to have less value.

We are no longer moving to an ever-better world; we are moving (at least for a few years, perhaps much longer) to a shrinking world economy. Do not be surprised if home values drop and stock market values fall.

Saving money for the future makes less and less sense because fewer goods and services will be available to buy in the future. Even saving gold will not necessarily work around the problem of there being fewer goods to buy. For example, farmers and others involved in producing food will likely get food before others, to assure the continued production of food. This will leave less food for others to buy.

Electricity is likely to become intermittent in the years ahead. It would seem wise to stay away from purchasing condominiums that can only be accessed by elevators.

[5] Focus on the present, not the past or the future.

In our current world, great stress is placed on planning for the future. For example, workers are encouraged to save for retirement, and young people are encouraged to take courses that will allow them to work in a well-paying occupation for the long term. This plan assumes that that the upward trend we have seen in the past will continue. We also expect that governments will be able to make good on their promises.

But we really cannot expect this pattern to continue for the long term. The best we can hope for is that what we have right now will continue. If a family member is lost, the remaining members will need to pick themselves as quickly as possible and continue as best they can. This is one reason an extended family is helpful in Africa. Such an approach will increasingly be helpful elsewhere.

Fossil fuels have made retirement possible. As fossil fuel availability declines, retirement is less likely to be available. Everyone will need to work as long as they are physically available. Thus, saving for retirement becomes a less useful goal.

[6] Living in groups, particularly family groups, will increasingly make sense.

When things were going well, and wages of most educated people were high, it made sense for many people to live by themselves. If they had an argument with their spouse, picking up and leaving might sound like a sensible idea. The job of each spouse would be sufficient to pay for housing for each separately.

As the economy goes downhill, people will need to live in more compact housing in order to save on heating and transportation expenses. Multiple generations will increasingly need to live together. In the case of singles, they will increasingly need to band together. Government programs will likely not be sufficient to provide separate living arrangements for a mother with children or for elderly individuals in care homes.

[7] Young people should not go into debt for higher education.

At this point, the US has educated far too many people with college degrees (and beyond) relative to the number the economy can afford to hire. With declining complexity, adding more college-educated workers to the pool makes little sense.

A better choice for most young people is a short course or certificate program leading to a useful skill, such as appliance repair or becoming a licensed practical nurse. Apprentice programs may also make sense.

If families are wealthy enough to pay for their children’s education, a few people with advanced degrees will probably be needed. There may be some solutions to today’s problems that can be tackled by these individuals.

[8] People will need to be more flexible in their career choices.

As the economy changes, job availability will change. Demand for workers in many of today’s high-paying careers will likely decline. For example, fewer specialty physicians will be needed. There will also be a need for fewer college professors, fewer stock market analysts, and fewer computer programmers.

The most immediate new jobs will involve the demolition of infrastructure that is no longer needed, such as movie theaters, shopping malls, office buildings, and many homes. Some materials will likely be saved for reuse elsewhere. This may involve heavy labor. Smaller, more local stores or open-air markets may open. Jobs previously held by immigrants picking vegetables and fruit will also be available.

How does a person step down from a high-paid desk job to a low-paid manual labor job? I don’t know. But, somehow, we need to be thinking through this issue.

[9] People should focus on taking care of their own health through healthy eating and adequate exercise.

I expect the healthcare industry will be forced to change. One part of the problem will be fewer imported drugs and medical devices; another will be that most people will be less wealthy. They will not be able to afford the enormous costs of today’s bloated US healthcare system. Somehow, the system will need to shrink back.

Fortunately, there is a way that people can become healthier, despite lower spending. People can cook their own food, instead of buying over-processed food available from grocery stores and restaurants. They can eat less meat than the average American eats, and they can stay away from sugary soft drinks. They can exercise more. Part of this exercise can take place by walking to more local markets.

[10] Planting a modest garden, as far as this is possible, is probably a good idea.

Most people do not have sufficient land to plant very much in the way of food crops. In fact, a large share of my readers probably lives in apartment buildings. And most young people, attempting to live on their own, will not have space to grow food crops. The cost of buying land is likely to be high, and property taxes will need to be paid.

If space is available on property that is already owned, fruit trees that grow and bear fruit without the need for pesticide spraying are a good choice. These trees will likely take several years to get started. Potatoes are another reasonable choice, as are vegetables in general.

It is not clear to me that people who set out to operate a self-sufficient farm will have much success. They require a complex infrastructure to support them. Such farms are very vulnerable to robbers and generally don’t have good backup plans if something goes wrong, such as the farmer becoming injured. I wish these individuals success in their endeavors, but I am not optimistic that these farms will succeed beyond their first major setback. We need a bridge to sustainable agriculture, but it is hard for me to see one right now.

[11] Concluding Observation: Why standing back from conflict is a suitable approach.

Most people have a completely mistaken idea regarding what oil limits will look like. They assume that oil limits will lead to very high prices or long lines at gasoline stations. They fail to appreciate that oil limits will arrive at the same time as many other limits, including affordability limits. They also fail to understand that prices that are too low for producers will bring down oil production quickly. In fact, too low oil prices, rather than too high, are the issue the world is facing today.

What oil limits really lead to is lots of conflict: among nations, among political parties, among people who feel that it is unfair that they have spent a lot of money on an advanced education but cannot find a job that pays well enough to repay their education-related debt with interest. As limits of many kinds mentioned in the beginning of this post are hit, today’s economy will need to greatly shrink back in size. Many governmental structures that we expect today, including the EU, the World Bank, and the UN, may disappear.

We don’t know precisely what is ahead over the longer term. Some people believe a religious ending is likely. Other people think that some of the research that is currently underway may eventually lead to a solution. Still others are concerned that some parts of the world will need to shrink back to a very low level, perhaps similar to hunter-gathering, before these economies can grow again.

Regardless of how things play out, it is the physics of the self-organizing system that determines what happens next. No matter how offended we as individuals may feel regarding what some political party or politician has done or has not done, individuals are not able to fix the system, except to the extent that available inexpensive energy supply allows such a fix. This is why standing back from whatever conflict is taking place seems to me to be a suitable strategy.

I predict that the world economy will shrink in the next 10 years. I think that this is bound to happen because of energy and debt limits the world economy is hitting. There are a variety of other factors involved, as well.

In this post, I will try to describe the physics-based limits that the economy is facing, related to diminishing returns of many kinds. The problem we are facing has sometimes been called “limits to growth,” or “overshoot and collapse.” Such changes tend to lead to a loss of “complexity.” They are part of the way economies evolve. I would also like to share some ideas on the changes that are likely to occur over the coming decade.

[1] The world economy is a tightly integrated physics-based system, which is experiencing diminishing returns in far more areas than just oil supply.

When extraction of a mineral takes place, usually the easiest (and cheapest) portion of the mineral deposit is extracted first. After the most productive portion is removed, the cost of extraction gradually increases. This process is described as “diminishing returns.” Generally, more energy is required to extract lower quality ores.

The economy is now reaching diminishing returns in many ways. All kinds of resources are affected, including fossil fuels, uranium, fresh water, copper, lithium, titanium, and other minerals. Even farmland is affected because with higher population, more food is required from a similar amount of arable land. Additional-cost efforts such as irrigation can increase food supply from available arable land.

The basic problem is two-fold: rising population takes place while the easiest to extract resources are depleting. The result seems to be Limits to Growth, as modeled in the 1972 book, “The Limits to Growth.” Academic research shows that problems such as those modeled (sometimes referred to as “overshoot and collapse”) have been extremely common throughout history.

Precisely how this problem unfolds varies according to the specifics of each situation. Growing debt levels and increasing wage disparity are common symptoms before collapse. Governments become vulnerable to losses in war and to being overthrown from within. Epidemics tend to spread easily because high wage disparity leads to poor nutrition for many low-wage workers. Dr. Joseph Tainter, in his book, “The Collapse of Complex Societies,” describes the situation as the loss of complexity, as a society no longer has the ability to support some of the programs it previously was able to support.

At the same time the existing economy is failing, the beginnings of new economies can be expected to start. In some sense, economies “evolve,” just as plants and animals evolve. New economies will eventually replace existing ones. These changes are a necessary part of evolution, caused by the physics of the biosphere.

In physics terms, economies are dissipative structures, just as plants, animals, and hurricanes are dissipative structures. All dissipative structures require energy supplies of some type(s) to grow and remain away from a dead state. These structures do not “live” endlessly. Instead, they come to an end and are often replaced by new, slightly different, dissipative structures.

[2] Over the next 10 years, the general direction of the economy will be toward contraction, rather than growth.

There are many indications that the world economy is hitting a turning point because of rising population and diminishing returns with respect to resource extraction. For example:

[a] Debt levels are very high in the US and other countries. A rising debt level can temporarily be used to pull an economy forward without adequate energy supplies because it indirectly gives workers and businesses more spendable income. This income can be used to work around the lack of inexpensive energy products of the preferred types in a variety of different ways:

• It can allow consumers to afford a higher price for existing energy products, if the additional funds get back to customers as higher incomes or lower taxes.
• It can allow businesses to find more efficient ways of using resources, such as ramping up international trade or building more efficient vehicles.
• It can allow the development of new energy products, such as nuclear power generation and electricity from wind and solar.

What we are finding now is that these new approaches tend to encounter bottlenecks of their own. For example, oil supply is sufficiently constrained that the current level of international trade no longer seems to be feasible. Also, wind and solar don’t directly replace oil; electricity based on wind turbines and solar panels can lead to blackouts. Furthermore, diminishing returns with respect to oil and other resources tends to get worse over time, leading to a need for ever more workarounds.

If at some point, extraction becomes more constrained and workarounds fail to provide adequate relief, added debt will lead to inflation rather than to hoped-for economic growth. Higher inflation is the issue that many advanced economies have been struggling with recently. This is an indication that the world has hit limits to growth.

[b] Because of low oil prices, companies are deciding to cut back new investments in extracting oil from shale, and likely elsewhere.

Figure 1. Brent equivalent oil prices, in 2024 US dollars, based on a combination of indications through 2023. Sources include historical oil prices in 2023$ from the 2024 Statistical Review of World Energy, published by the Energy Institute; the increase in average Brent spot price from 2023 to 2024, published by the US EIA; and the US Consumer Price Index for Urban consumers.

Figure 1 shows that oil prices rise and fall; they don’t rise endlessly. They rose after US oil production hit its first limits in 1970, but this was worked around by ramping up oil production elsewhere. Prices rose in the 2003 to 2008 period and then fell temporarily due to recession. They returned to a higher level in 2011 to 2013, but they have settled at a lower level since then.

One factor in the price decline since 2013 has been the production of US shale oil, adding to world oil supply. Another factor has been growing wage disparity, as workers from rich countries have indirectly begun to compete with workers from low-wage countries for many types of jobs. Low-wage workers cannot afford cars, motorcycles, or long-distance vacations, and this affordability issue is holding down oil demand.

US oil production from shale is in danger of collapsing during the next few years because prices are low, making new investment unprofitable for many producers. In fact, current prices for oil from shale are lower than shown on Figure 1, partly because US prices are a little lower than Brent, and partly because prices have fallen further in 2025. The recent price available for US WTI oil is only about $62 per barrel.

[c] World per capita coal production has fallen since 2014. A recent problem has been low prices.

Figure 2. World coal production through 2023 based on data of the 2024 Statistical Review of World Energy, published by the Energy Institute.

Transportation costs are a major factor in the delivered price of coal. The reduced production of coal is at least partly the result of coal mines near population centers getting mined out, and the high cost of transporting coal from more distant mines. Today’s coal prices do not seem to be high enough to accommodate the higher costs relating to diminishing returns.

[d] In theory, added debt could be used to prop up oil and coal prices, but debt levels are already very high.

Besides the problem with inflation, mentioned in point [a], there are problems with debt levels becoming unmanageably high.

Figure 3. Figure from page 10 of The Long-Term Budget Outlook 2025 to 2055, published in March 2025 by the US Congressional Budget Office.

Figure 3 shows US government debt as a ratio to GDP. If we look at the period since 2008, there was an especially large increase in debt at the time of the 2007-2009 Financial Crisis and the 2020 Pandemic. The debt level has become so high that interest on the debt is likely to require tax revenue to rise endlessly. The underlying problem is needing to pay interest on the huge amount of outstanding debt.

Putting together [a], [b], [c], and [d], the world has a huge problem. As the world economy is currently organized, it is heavily dependent on both oil and coal. Oil is heavily used in agriculture and in transportation of all kinds (cars, trucks, trains, airplanes, and ships). Coal is especially used in steel and concrete making, and in metal refining. We don’t have direct replacements for coal and oil for these uses. Wind and solar are terribly deficient at their current state of development.

The laws of physics tell us that, given the world’s current infrastructure, a reduction in the availability of both crude oil and coal will lead to cutbacks in the production of many kinds of goods and services around the world. Thus, we should expect that GDP will contract, perhaps for a long period, until workarounds for our difficulties can be developed. Today’s wind turbines and solar panels cannot solve the problem for many reasons, one of which is that fact that production and transport of these devices is dependent upon coal and oil supplies.

Thus, without adequate oil and coal to meet the needs of the world’s growing population, the world economy is being forced to gradually contract.

[3] Overall living standards can be expected to fall rather than rise during the next decade.

A recent article in the Economist shows the following chart, based on an analysis by the United Nations:

Figure 4. Chart showing global average “Human Development Index,” as calculated by the United Nations, in the Economist.

Figure 4 shows the trend in the Human Development Index as level in 2023-24. I expect that the trend will gradually shift downward in 2024-2025 and beyond. Modern advances, such as the availability of potable water in homes and the availability of electricity 24 hours per day, will become increasingly less common.

The Economist article displaying Figure 4 notes that, so far, most of the drop in living standards has happened in the poorer countries of the world. These countries were hit harder by Covid restrictions than rich countries. For example, the drop in tourism had a greater impact on less advanced countries than on rich countries. Poor countries were also affected by a decline in export orders for luxury clothing.

Outside of poor countries, young people are already finding it difficult to find jobs that pay well. They are often burdened with debt relating to advanced education, making it difficult for them to have the same standard of living that their parents had. This trend is likely to start hitting older citizens, as well. Jobs will be available, but they won’t pay well. This problem will affect both young and old.

[4] Governments will be especially vulnerable to cutbacks.

History shows that when overshoot and collapse occur, governments are likely to experience severe difficulties, indirectly because many of their citizens are getting poorer. They require more government programs, but if wages tend to be low, the taxes they pay tend to be low, too.

Unfortunately, the kinds of cutbacks being undertaken by the Department of Government Efficiency (DOGE) are very much necessary to get payments by the US government down to a level that can be supported by taxes. Regardless of how successful the current DOGE program is, I expect a huge reduction in the number of individuals on the payroll of the US government, perhaps by 50% to 75%, in the next 10 years. I also expect major cutbacks in the funding for outside organizations, such as universities and the many organizations DOGE has targeted.

At some point, the US government will need to reduce or eliminate many types of benefit payments made now. One approach might be to try to send many kinds of programs, such as job loss protection, Medicaid, and Medicare, back to the states to handle. Of course, the states would also have difficulty paying for these benefits without huge tax increases.

[5] Ten years from now, universities and colleges will enroll far fewer students.

I expect that university enrollments will fall by as much as 75% over the next 10 years, partly because government funding for universities is expected to fall. With less funding, tuition and fees are likely to be even higher than they are today. At the same time, jobs for university graduates that pay well will become less available. These considerations will lead fewer students to enroll in four-year programs. Shorter, more targeted education teaching specific skills are likely to become more popular.

There will still be some high-paying jobs available, requiring university degrees. One such area may be in finding answers to our energy and resource problems. Such research will likely be carried out by a smaller number of researchers than are active today because some current areas of research will be discarded as having too little potential benefit relative to the cost involved. Any approach considered will need to succeed with, at most, a tiny amount of government funding.

High paying jobs may also be available to a few students who plan to be the “wheeler-dealers” of the world. Some of these wheeler-dealer types will want to be the ones founding companies. Others will want to run for public office. They may be able to succeed, as well. They may want to study specialized tracks to advance their career goals. Or they may want to choose institutions where they can make contacts with people who can help them in pursuing their career goals.

For most young people, I expect that four-year university degrees will increasingly be viewed as a waste of time and money.

[6] In a shrinking economy, debt defaults will become an increasing problem.

A growing economy is very helpful in allowing financial institutions to prosper. With growth, future earnings of businesses tend to be higher than past earnings. These higher earnings make it possible repay both the borrowed amount and the required interest. With growth, there is little need to lay off employees. Thus, the employees have a reasonable chance to repay mortgage loans and car loans according to agreed-upon terms.

If an economy is shrinking, overhead becomes an ever-larger share of total revenues. This makes profits harder to achieve and may make it necessary to lay off employees. These laid-off employees are more likely to default on their outstanding loans. As debt defaults rise, interest rates charged by lenders tend to rise to compensate for the greater default risk. The higher interest rates make debt repayment for future borrowers even more difficult.

All these issues are likely to lead to financial crises, as debt defaults become more common.

[7] As debt defaults rise, banks tend to fail. This can lead to hyperinflation or deflation.

In a shrinking economy, the big question when banks fail is, “Will governments bail out the banks?”

If governments bail out the failing banks, there is a tendency toward inflation because the bailouts increase the money supply available to citizens, but not the quantity of goods available for purchase. If enough banks fail, the tendency may be toward hyperinflation–way too much money available to purchase very few goods and services.

If no government bailouts are available, the tendency is toward deflation. Without bailouts, the problem is that fewer banks are available to lend to citizens and businesses. As a result, fewer people can afford to buy homes and vehicles using debt, and fewer businesses can take out loans to purchase needed supplies. These changes lead to less demand for finished goods. This change in demand can indirectly be expected to affect commodity prices, as well, including oil prices. With low prices, some suppliers may go out of business, making any supply problem worse.

Regardless of whether bailouts are attempted or not, on average, citizens can be expected to be getting poorer and poorer as time goes on. This occurs because with a shrinking economy, fewer goods and services will be made. Unless the population shrinks at the same rate, individual citizens will find themselves getting poorer and poorer.

[8] Expect more tariffs and more conflicts among countries.

Without enough oil for transportation, the quantity of imported goods must be cut back. A tariff is a good way of doing this. If one country starts raising tariffs, the temptation is for other countries to raise tariffs in return. Thus, the overall level of tariffs can be expected to rise in future years.

Without enough goods and services for everyone to maintain their current standard of living, there will be a definite tendency for more conflict to occur. However, I doubt that the result will be World War III. For one thing, the West seems to have inadequate ammunition to fight a full-scale conventional war. For another, the nuclear bombs that are available are valuable for providing fuel for our nuclear power plants. It makes no sense to use them in war.

[9] Expect an increasing share of empty shelves, as time goes on.

High tech goods are especially likely to disappear from shelves. Replacement parts for automobiles may also be difficult to find, especially before an aftermarket of locally manufactured parts appears.

[10] Interest rates are likely to stay at their current level or increase to a higher level.

The high level of borrowing by governments and others makes lenders reluctant to lend unless the interest rates are high. It should also be noted that current interest rates are not high relative to historical standards. The world has been spoiled in recent years with artificially low interest rates, made possible by Quantitative Easing and other manipulations.

[11] Clearly, this list is not exhaustive.

The world economy has gone through two major disruptions in recent years, one in 2008, and one in 2020. Very unusual changes such as these are quite possible again.

We don’t know how soon new economies will begin to evolve. Eric Chaisson, a physicist who has researched this issue, says that there is a tendency for ever more complex, energy-dense systems to evolve over time. This would suggest that an even more advanced economy may be possible in the future.

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Some of you may receive an email about my Substack post. I put in some email addresses back in January 2024 when I put up a post on Substack earlier. Subscriptions will continue to be free both places. This is a direct link to my new post. https://gailtverberg.substack.com/p/economic-contraction-coming-right