The Stagflation Phase the beginning was 2005I was doing some research and found this.
The Stagflation Phase
Stagflation is characterized by increasing oil prices relative to wages while quantities increase marginally if at all due to the decreasing quality of oil reserves (the sweet spots are produced first). The tool to study this phase is Equation (3.6) in [5]. The phase is also characterized by decreasing profits. For example if we change units to energy, the EROEI of oil dropped from around 100 during the growth phase to 20 at the beginning of the stagflation phase. When EROEI is 100, you invest a barrel of oil, you get back 100 barrels of oil. After using a few barrels on food, say 80 barrels can be used for sex, drugs, rock and roll, and conquest. When EROEI is below 20, investing a barrel of oil will only yield 15 barrels to use for sex, drugs, rock and roll, and conquest (of course efficiency has improved so you get more sex, drugs, and rock and roll per barrel). Profits first begin to fall in oil consuming industries. They stagnate and then fall in the oil producing companies. The cost share of oil increases (in family budgets) as the economy loses it's ecodiversity. Wages fall as the choice in jobs falls. More and more companies lose their sex appeal. As stagflation continues, some producers become more aggressive as historically this produced higher profits. Some of these aggressive investors have trouble meeting their debt obligations. Stress and competition increases. The first thing to go is the sex. The drugs and delusions are the last to go.
Oil becomes less and less affordable. It is important to understand that oil becomes less affordable in several ways:
- Higher oil prices.
- Lower wages due to less ecodiversity.
- Unemployment due to decreasing ecodiversity and a changing economy.
The pain is not evenly spread. An elite class develops that can buy influence and take advantage of the pain of others to live extravagantly. Note that our intensive agriculture is very much an oil consumer [4] and will also suffer from lack of profits as food becomes less affordable. In France, for every three retiring farmers only one farmer takes up the trade.
If investors maximize their profit, then the cost share theorem will become increasingly valid. That is, the cost share of oil will tend towards its elasticity or relative importance in the economy.