2026: Expect a very uneven world economic downturn

Posted on December 31, 2025 by Gail Tverberg

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.

Graph illustrating the rapid increase of world population from 1800 to present, showing a rise from 1 billion to 8 billion after the introduction of fossil fuels.
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.

Illustration of a bicycle with labeled components representing economic concepts, such as 'Human rider' as the primary energy provider, 'Steering system' as profitability and laws, 'Braking system' as interest rates, and 'Front wheel' as the debt system.
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.

A line graph depicting the market yield on U.S. Treasury securities compared to the 3-month Treasury Bill secondary market rate from 1940 to 2022, highlighting fluctuations and trends over time.
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.

Line graph showing world per capita diesel supply from 1980 to 2024, indicating fluctuations and challenges in maintaining high levels since 2008.
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.

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Too many promises; too few future physical goods

Posted on December 4, 2025 by Gail Tverberg

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.

Graph showing world growth in energy consumption per capita from 1968 to 2024, illustrating fluctuating trends with a downward trend line indicating potential scarcity.
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.

Illustration of a bicycle with labeled parts representing economic systems: human rider symbolizes primary energy provider, steering system represents profitability and laws, braking system denotes interest rates, front wheel signifies the debt system, gearing system indicates energy efficiency, and rear wheel shows where energy operates.
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.

A scatter plot showing the relationship between world energy consumption (measured in Exajoules) and global GDP (in trillions of 2015 US dollars), with a trend line indicating a strong correlation (R² = 0.9757).
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.

A line graph showing the correlation between world growth in energy consumption and growth in inflation-adjusted GDP from 1968 to 2024, with energy consumption represented in blue and GDP growth in orange.
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:

Scatter plot illustrating the relationship between world energy growth and GDP growth, showing a positive correlation with data points scattered around a trendline.

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.

Line graph showing world growth in energy consumption over the years, with a trend line indicating a general decline in growth rates.
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.

Line graph depicting world growth in energy consumption per capita from 1968 to 2024, showing fluctuations in growth rates with a downward trend line indicating a predicted shortage of energy.
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.

Graph showing the 3-Month Treasury Bill Secondary Market Rate and Market Yield on U.S. Treasury Securities over time, with historical peaks and recessions indicated.
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.

Line graph showing federal government current expenditures on interest payments in billions of dollars from 1950 to 2025, illustrating a significant increase since 2020.
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.

Graph illustrating the total deficit, net interest outlays, and primary deficit in the US from 1975 to projected values in 2035, showing the percentage of GDP.
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.

Table listing the fastest growing countries in the world from 2019 to 2024, categorized by region.
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.

Table displaying the slowest growing countries in the world from 2019 to 2024, categorized into shrinking economies and slowly growing economies.
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.

Posted in Financial Implications, Planning for the Future | Tagged , , , | 1,375 Comments

A lack of very cheap oil is leading to debt problems

Posted on October 31, 2025 by Gail Tverberg

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:

Text slide discussing economic assumptions about oil supply and debt impact, featuring a blue background with white and light blue text.
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).

– – – – – – – – – – – – – – – – – –

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.

Graph showing U.S. field production of crude oil from 1920 to 2020, highlighting the peak in 1970; a visual representation of changes in oil extraction complexities over time.
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.

Line graph showing the average annual inflation-adjusted oil price from 1948 to 2025, highlighting low oil prices pre-1970, where the price was around $20 per barrel.
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.

A list of historical developments in the United States from 1948 to 1973, highlighting social and economic advancements made possible by low oil prices.
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.

Slide from a presentation discussing the low-priced oil era, highlighting key points about the US economy, including low wage disparity, healthcare costs, affordability of homes, and the economic impact of low-cost oil.
Figure 5

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

Slide displaying key points about government spending needs, wage disparity, social changes, healthcare costs, and aging population.
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.

Graph displaying average annual inflation-adjusted Brent oil prices from 1948 to 2025, highlighting low prices before 1970 and the impact of wage disparity on affordability.
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.

Line graph showing the ratio of US federal debt to GDP from 1970 to 2020, indicating significant increase after 1980 and especially after 2008.
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.”

Graph illustrating economic cycles, specifically the Secular Cycle, showing population growth, stagnation, crisis, and intercyclic phases over time.
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.

A presentation slide discussing the Secular Cycles Diagram and its implications for today's economy, highlighting the expected duration of Stagflation and potential upcoming Crisis Years.
Figure 10
Slide displaying conclusions regarding economic predictions and concerns, with bullet points about potential parallels to the Great Depression, job market issues, commodity pricing, debt bubbles, and rising conflict levels.
Figure 11
Slide displaying the conclusion of a presentation, summarizing economic cycles, and emphasizing investment in health, tools, skills, and relationships.
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.
Posted in Financial Implications, Introductory Post, PDFs Available | Tagged , , , , | 1,521 Comments

What has gone wrong with the economy? Can it be fixed?

Posted on October 6, 2025 by Gail Tverberg

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.

Graph depicting World Energy Consumption Per Capita from 1965 to 2022, highlighting significant periods such as rapid growth from 1965 to 1973, challenges from 1973 to 2001, and the debt bubble from 2008 to 2024.
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.

Graph showing the average annual inflation-adjusted oil price per barrel from 1948 to 2024, highlighting low prices before 1970.
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.

Line graph showing U.S. field production of crude oil from 1920 to 2022, illustrating peaks and trends in production levels.
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.

Line graph showing the comparison of US worker pay and productivity growth from 1948 to 2023, indicating a significant divergence after the peak in oil production around 1970.
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.

A pie chart illustrating the breakdown of the 2024 US Federal Government Spending, highlighting categories like Interest on Debt, Social Security, Medicare, Defense, Discretionary Non-Defense Spending, and Other Mandatory Programs.
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.

A graph illustrating world energy consumption from 1965 to 2022, showing trends for advanced economies and others, with a significant increase noted after China joined the World Trade Organization in December 2001.
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.

Line graph showing CO2 emissions from fossil fuels from 1965 to 2022, highlighting world emissions in blue, advanced economies in orange, and other than advanced economies in green, with key events marked in 1997 and 2001.
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.

A chart displaying world energy consumption by type from 1965 to 2024, showing fossil fuels accounting for 87% of consumption, while wind and solar contribute 3%.
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%.

Bar graph showing the 2024 share of electricity production from wind and solar energy by different regions including World, Australia, EU, China, US, Japan, India, Africa, Mid-East, and Russia.
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.

Bar graph showing the share of total energy consumption from wind and solar for various regions in 2024, including World, Australia, EU, China, US, Japan, India, Africa, and Mid-East Russia.
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:

A graph displaying world population growth divided between 'Advanced Economies' and 'Other than Advanced Economies' from 1965 to 2022, showing a significant increasing trend in both categories.
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.

Graph depicting the shape of a typical "Secular Cycle," showing the timeline of potential societal collapse over 300 years, including stages of growth, stagnation, crisis, and intercycle phases.
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.

Posted in Energy policy, Financial Implications, oil shortages | Tagged , , , | 1,621 Comments

Sierra Club talk that may be of interest

Posted on September 13, 2025 by Gail Tverberg

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.

A colorful flyer for Minnesota's First Degrowth Summit, featuring text that highlights the date, time, and location of the event, along with design elements like stars, trees, and a snail. The flyer promotes workshops, mutual aid, and economic justice while indicating the event is kid-friendly and free, with a QR code linking to additional information.

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

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