On Winning the Game

Gail Tverberg in her latest essay uses an airplane video game as a nice analogy for the world economy and concludes that there is no way to win the game.

Gail’s implicit definition of “win” is to maintain or improve our standard of living. I agree with Gail there is no possibility of winning this game and our standard of living will fall dramatically in the not too distant future.

Where we might disagree is that I think we should use a different definition of “win”. We are in a severe state of overshoot. Nothing can be done to avoid a permanent economic contraction. Given this reality we should redefine “win” as achieving the best possible outcome for a plane that is running low on fuel.

Criteria for “best possible outcome” should include:

• Population reduction policies.
• Austerity and conservation policies designed to manage our descent in a civil and humane manner, rather than resisting the inevitable with debt and money printing that will cause a much worse uncontrolled crash.
• Taxation policies to ensure the wealth gap does not widen to a level that causes dangerous social unrest or revolution.
• Programs to use what surplus wealth remains to protect ecosystems and to build infrastructure needed at our destination.
• Policies to prevent wasting surplus wealth on things that will have no value at our destination.
• Educating citizens on what is happening to avoid despots, false blame, and war.

How to implement this new definition of “win” is of course the big question.

It is discouraging that even the Green Party is unable to whisper the word overshoot, let alone offer appropriate overshoot policies.

As always, I return to the core issue:

Reality denial enabled the powerful brain that is central to our success;

AND

Reality denial threatens our existence by preventing us from acknowledging and acting on our overshoot predicament.

It is encouraging that by understanding other genetic traits, like our susceptibility to nicotine addiction, and our brain’s inability safely drive while texting, we have made some progress via government policy to reduce these threats.

The first step to redefining “win” must be to increase awareness of Varki’s Mind Over Reality Transition (MORT) theory.

With awareness, a portion of the population might be able to override their genetic tendency to deny reality, and to influence elections to redefine “win”.

 

Here are a few excerpts from Gail Tverberg’s essay however it’s worth your time to read in entirety.

By Gail Tverberg: A Video Game Analogy to Our Energy Predicament

https://ourfiniteworld.com/2017/11/28/a-video-game-analogy-to-our-energy-predicament/

The way the world economy is manipulated by world leaders is a little like a giant video game. The object of the game is to keep the world economy growing, without too many adverse consequences to particular members of the world economy. We represent this need for growth of the world economy as being similar to making a jet airplane fly at ever-higher altitudes.

What Happens As Coffin Corner Limits Are Reached in the Economic World?

What do world leaders do, as the world economy hits limits? One temptation is for the world leaders in Figure 1 to take their foot off the throttle that is operated by low interest rates and more debt, because they don’t seem to be providing very much benefit anymore. The leaders fear that if more debt is added at low interest rates, it risks creating “asset bubbles” that are easily disturbed if any little bump to the economy occurs. If a big bubble pops, there is a significant risk that the economy could fall down to a much lower level. This is like stalling the jet at high altitude.

World leaders can also use approaches that create situations more like “making the wings come off” the economy. These approaches involve favoring one group over another. For example, a government can give big tax breaks to businesses, but raise taxes on individual citizens. Businesses will ultimately be harmed by this approach, because they depend on individual citizens for their sales. The result is like tearing the wings off the airplane.

Another approach that would tear the wings off the economy involves actions by a different group of world leaders than those shown in Figure 1, namely the leaders from OPEC and Russia. These leaders have different video game screens and different game controllers. They can manipulate the world economy by reducing the supply of oil they provide. With this approach, they hope to increase the price of oil, and thus obtain a larger share of the world’s goods and services through higher tax revenue.

Raising the oil price would benefit oil exporters, but would make goods and services more expensive for oil importing countries. Ultimately, this approach would lead to recession in oil importing nations. The result would likely be worse than the 2008-2009 recession–another way to make the wings come off the economy.

[5] The real enemies of continued economic growth are (a) diminishing returns with respect to oil and other energy production, (b) continued population growth, and (c) increasing wage and wealth disparity. 

We seem to be playing a video game where the players don’t understand who the real enemies are.

Diminishing returns with respect to oil and other energy production have to do with the cost of energy extraction rising ever-higher, as more resources are extracted. There are a lot of resources that we can “see,” but that we cannot economically extract, unless prices rise to very high levels.

Continued population growth is a problem because it is really “energy per capita” that matters. Each individual needs food, transportation, and housing. All of these things take energy. Many years ago, when most of the workers were farmers, it was necessary to create ever-smaller farms, as population rose. This clearly would lead to lower food production per farmer, unless some sort of technological breakthrough was taking place at the same time. Today, we have a parallel issue.

Increasing wage disparity tends to be associated with the rising use of technology. When most labor is hand labor, workers truly do “pay each other’s wages.” All wages can be fairly equal. With increased technology, some workers have specialized training; others do not. Some workers are supervisors; others are laborers. Unless the overall output of the economy is rising very rapidly, non-elite workers find themselves increasingly unable to afford the output of the economy. It is this falling “demand” (really affordability) that tends to pull an economy downward.

[8] In fact, since 2014, the selling prices of oil, natural gas, and coal have all fallen below the cost of extraction.

It is popular to think that the reason why oil prices are too low is because of overproduction by the United States or Saudi Arabia. When a person stops to realize that essentially the same situation arises for all three fossil fuels, a person begins to understand that there likely is an affordability issue underlying the low prices for all three fuels. The affordability issue, of course, arises because energy supply is not rising quickly enough because (at over $20 per barrel), it is too expensive to be truly affordable. The “atmosphere is too thin” at today’s high cost of energy extraction.

[11] The whole “game” has been confused by a lot of not-quite-correct pronouncements from academic circles.

A lot of well-meaning people have tried to solve our energy problems, but haven’t gotten the story right.

Economists have gotten the story pretty much 100% wrong. Energy is very important for the economy. Furthermore, energy prices don’t rise endlessly.

Peak Oilers have confused matters by talking about oil, coal and natural gas being determined by the amount of technically recoverable resources in the ground. This might be true if energy prices could rise endlessly, but clearly they cannot. By following the wrong views of economists, Peak Oilers have led world leaders to believe that far more resources are available to be extracted than really is the case.

People who call themselves Biophysical Economists haven’t really gotten the story correct either. The Biophysical Economists realized that there was a need for a measure for diminishing returns. They put together a measure which they called Energy Returned on Energy Invested. The measure, unfortunately, only “sort of” works. It gives a lot of wrong answers. It does not suggest that oil prices above $20 per barrel are a problem. It also does not suggest that substitutes for oil that are priced above $20 per barrel are a problem. It tends to give a lot of “false positives” when it comes to the question of whether renewables can be substituted for fossil fuels. It seems to suggest that a particular ratio is important, when it is really the total quantity of an energy product available at a very low price that is important.

I should not pick on the Biophysical Economists. There are many others with academic credentials who produce metrics that really aren’t very helpful. Energy payback time is not a very helpful metric, especially from the point of view of deciding whether or not to use a particular device. It is not the energy that the economy must pay back; it is the full cost of manufacturing the device that needs to be recovered, including human labor costs and taxes. In some applications, the cost of mitigating intermittency may also need to be considered.

Even the standard Levelized Cost of Energy calculations can give misleading indications, if they are used on intermittent renewables without taking into account the cost of mitigating the intermittency.

With all of these issues, it is not surprising that world leaders have difficulty playing the energy and economy game. In fact, it is hard to see any winning strategy.

One of the issues that makes the game impossible to win is the fact that all sides must win. A solution that cuts out the oil exporters is a problem for an economy dependent on oil. Any solution that cuts out the workers is a problem, partly because businesses need workers as consumers, and partly because governments need workers as taxpayers.

The reason I have not included any discussion of renewables is because at this point in time, we do not have any renewables that are sufficiently inexpensive and sufficiently scalable to represent a solution.