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The End of Cheap Oil: Social,
Economic, and Political Change in
the US and the Former Soviet Union
Robert K. Kaufmann
Boston University
February 25, 2011
The Cold War: The Ultimate Social
Experiment
Outline
Energy & Economic Activity
End of Cheap Oil
Quantity: annual production
Quality: Energy Return on Investment
Economic, Social, and Political Change
USA:
Working Harder
Borrowing from the Future
USSR:
Collapse
Economic Activity & Energy Use:
USSR
Energy Use and
Economic Activity: USA
3
2.5
2
GDP
1.5
1
Energy
0.5
0
1900
1910
1920
1930
1940
1950
1960
1970
1980
1990
2000
Energy Efficiency: Fuel Mix,
Household Energy Use, and Price
The Quantity of Oil Supply
The Hotelling Model
• Rank supplies in terms of marginal cost
• Maximize the present value of production
The Hubbert model
• Mathematical parsimony
• Finite supply
• Rise to and fall from a single peak
Oil Production: USA
10
9
8
Million Barrels per Day
7
6
5
4
3
2
1
0
1900
1910
1920
1930
1940
1950
1960
1970
1980
1990
2000
2010
Oil Production: USSR
14
12
Million Barrels per Day
10
8
6
4
2
0
1909
1919
1929
1939
1949
1959
1969
1979
1989
1999
Changes in Quality: USSR
12
10
Investment
Index (1960=1)
8
6
4
Oil Production
2
0
1960
1965
1970
1975
1980
1985
Changes in Quality: USA
25.0
20.0
15.0
10.0
5.0
0.0
1950
1960
1970
1980
1990
2000
2010
EROI Imported Oil US
Energy Use and Labor Productivity
2
1.8
Real Value Added per
Worker Hour
1.6
1977 = 1.00
1.4
1.2
1
Energy/Woker Hour
0.8
0.6
0.4
0.2
0
1900
1910
1920
1930
1940
1950
1960
1970
1980
1990
2000
US Hourly Wage
18
16
14
$2005/Hour
12
10
8
6
4
2
0
1929
1939
1949
1959
1969
1979
1989
1999
2009
Family Income (Male Sole Earner)
60,000
50,000
40,000
30,000
20,000
10,000
0
1949
1959
1969
1979
1989
1999
Female Participation Rate
70.00
60.00
50.00
40.00
30.00
20.00
10.00
-
2000
1990
1980
1970
1960
1950
1940
1930
1920
1910
1900
Median Family Income
70,000
60,000
50,000
2008 $
40,000
30,000
20,000
10,000
0
1949
1959
1969
1979
1989
1999
16
US Savings Rate
12
8
4
0
1929 1934 1939 1944 1949 1954 1959 1964 1969 1974 1979 1984 1989 1994 1999 2004 2009
-4
-8
Million $
1976
1977
1978
1979
1980
1981
1982
1983
1984
1985
1986
1987
1988
1989
1990
1991
1992
1993
1994
1995
1996
1997
1998
1999
2000
2001
2002
2003
2004
2005
2006
2007
2008
2009
International Investment Position
1,000,000
500,000
0
-500,000
-1,000,000
-1,500,000
-2,000,000
-2,500,000
-3,000,000
-3,500,000
-4,000,000
Federal Debt
1.4
1.2
Federal Debt/GDP
1
0.8
0.6
0.4
0.2
0
1943.
1953.
1963.
1973.
1983.
1993.
2003.
Consumer Debt
60
50
Percent
40
30
20
10
0
1959.
1969.
1979.
1989.
1999.
The Former USSR: Collapse
Three uses of oil
• Increase exports to East European allies
• Earn hard currency for western imports
• Increase domestic living standards
The Former USSR: Collapse
Three uses of oil
• Increase exports to East European allies
• Earn hard currency for western imports
• Increase domestic living standards
The Future: Inequality