Peak oil theorists have long been regarded by mainstream economists as the boys and girls who cried wolf. But just because the outlooks of mainstream economists failed to see the wolf does not mean it was not there. Rather, according to Roger Boyd’s Energy and the Financial System: What Every Economist, Financial Analyst, and Investor Needs to Know, a rather large pack of wolves have been with us for quite some time now and our failure to deal with them has meant that they have grown in strength such that jointly they could derail the global economy.
To call Boyd a peak oil theorist, however, would be to reduce the complexity of his view for according to Boyd it is not only the availability of cheap oil that is in decline but rather what is in decline is the general availability of energy sources which provide a high amount of energy in return for energy invested. Indeed, Boyd’s view revolves around a measure economists refer to as EROI, which measures the ratio between the amount of energy returned relative to energy invested. Thus we might better label Boyd a peak EROI Theorist for he believes that increasingly we will need to invest more energy in order to get energy back, as we have used up the vast majority of easily accessible high energy sources of oil, natural gas and to a lesser extent coal.
“What all of this means for investors is that, at best, growth may cease at the global level in the relatively near future. Once you accept that growth will cease, all of the current ‘common sense’ assumptions about investing, such as the assumption of making money from money, cease to be true. Completely different assumptions will be required, including an understanding that the future will be a less wealthy place than the present. [This realization] could destabilize and crash the financial system. “