Eurozone = Toast, Economists puzzled.

I listen a lot to NPR and BBB World Service.  Of course I hear over and over about the debt crisis in Greece, Italy, Ireland, Portugal, etc.  I keep hearing about hopes for fixing financial houses and "returning to growth".  With increasingly expensive petroleum, that seems unlikely.  Gail Tverberg's overview explains that as oil gets more expensive, debt burdens of governments are likely to increase.  In Europe, it seems it's reaching the level that will drive some countries into default, which will lead to the dismembering of the Euro as a common currency.  Chris Skrebowski explains that the advanced economies can't tolerate expensive oil and still grow.  He estimates U.S tolerance limit for a growing economy is $90/barrel.  He estimates China can tolerate at least $110/barrel.

In my last post, I talked about the stress that $100/barrel oil puts on our economy.  I also expressed my puzzlement over economists' apparent inability to perceive a link between expensive oil and a stressed economy.  In a recent guest article in The Oil Drum, ecological economist David Stern sheds light on my conundrum.  He explains that when energy, i.e. oil, became very cheap in the 20th Century, economists began using mathematical models that ignored energy because it was such a small cost.  For 60 years, economists have used those models and been trained to discount the role of energy in a developed economy.

This realization led me to realize that the most important piece of planning for a future of more expensive and scarcer hydrocarbon energy is the paradigm shift.  Average citizens and the experts who are interviewed for news and analysis need to think about the world differently.  Until that occurs, they can't think rationally about the rest.