Category: Essay

You know you are in trouble when…

Bizarro.com Our Extended Forecast

 

Examples of denial are both profound and unacknowledged.

The short-term solution to our problems is the long-term cause of our problems: economic growth

The long-term solution to our problems is the short-term cause of our problems: reduced consumption

Reduced CO2 emissions from an economic collapse caused by low-cost oil depletion is not sufficient to prevent civilization collapse from climate change caused by previously emitted CO2.

All political parties in all countries and almost all citizens, including the few citizens that understand our predicament, reject our best course of action: austerity

Most citizens have no idea how fortunate they are to be alive at this point in history: Blindspots and Superheroes

Despite wildly different beliefs about our predicament, there is one thing that almost everyone agrees on: I don’t want to change my behavior

The only problems society does not acknowledge, or discuss, or act on, are the only problems that matter: species extinction, limits to growth, debt, peak oil, overshoot, resource depletion, climate change, sea level rise, fisheries collapse & ocean acidification, nitrogen imbalance & tree decline 

Every country has similar economic problems and not one leader anywhere in the world connects the dots and publicly acknowledges the root cause, even after they leave office: declining energy surplus a.k.a. energy extraction cost + debt

Citizens believe the exact opposite of reality: technology creates wealth and energy rather than energy creates wealth and technology

Citizens misunderstand the root cause of social unrest and wars because the media presents these conflicts as political or economic problems and ignores their underlying forces: biophysical constraints

There is evidence that feedback loops are taking over and causing some problems to go exponential: climate change, CO2 emissions, ice loss, sea level rise, debt

The previous year’s worst case predictions are tending to become this year’s most likely prediction: sea level rise

Actions that improve the long-term worsen the short-term: air pollution masks 0.5C of warming, austerity and debt reduction, renewable energy, population reduction 

The only possible permanent solution is rejected by the belief systems of 90+% of citizens: population reduction

The only possible permanent solution is too slow to avoid the worst problems: population reduction laws

Countries fortunate to have a low birth rate often cancel their good fortune with immigration: Canada

The few people who understand the severity of our problems do not set good examples in their personal lives: leaders, climate scientists, environmentalists

History suggests that the consequence of not voluntarily contracting our economies as non-renewable resources deplete is an unthinkable war, so we don’t think about it: nuclear weapons

The quality of our leaders is declining because those people with high intelligence, wisdom, and integrity do not want to be in charge of our predicament, and because citizens are feeling the impact of overshoot, do not understand what is going on, and are angry: Trump

The leader of the free world denies science and issues daily, jaw-dropping, cringe-inducing tweets: Trump

The one world leader that did understand the problem and spoke out was rejected by the citizens and no longer speaks out: Jimmy Carter

We do not acknowledge that the world’s economic problems began with the peaking of a key non-renewable resource: conventional oil

Low energy prices have led citizens to believe we have a glut of fossil energy when in fact: all types of energy have peaked

We do not discuss or act on economic history research that shows countries always get into serious trouble when they permit an important ratio to exceed a threshold we long passed: debt to GDP

Bankers, the creators of money, do not understand the one thing that creators of money should understand: thermodynamics of wealth

The professionals with the most influence on public policy use models that violate the most trusted laws of physics: economists

The scientific theory that explains the relationship between the economy, energy, and climate is ignored by everyone that should understand it: Tim Garrett

The people who deserve the most respect and admiration get the least: scientists

The people who deserve the least respect and admiration get the most: celebrities

All types of non-fossil energy do not provide a substitute for the only energy we can’t live without: diesel for trucks, trains, ships, tractors, and combines, and mining machines; plus natural gas for fertilizer

Operating our economy on renewable energy is not renewable or feasible.

People who think the shale revolution will make America prosperous and energy independent ignore one thing: facts and more facts

Intelligent people who understand the climate change threats, like James Hansen and Bill Gates, and who want business as usual to continue, know that nuclear energy is the only option, but they ignore a problem: peak uranium

If climate deniers continue to win elections and try to maintain the existing electric grid they’ll find that strategy may not work for long: peak coal

A key component of our infrastructure appears durable but is not: reinforced concrete

Citizens most vulnerable to a fragile global supply chain with only a few days of inventory experience the strongest illusion of abundance and security: inhabitants of large cities

The “green” revolution, which increased food production to enable 7+ billion humans, was and is entirely dependent on fossil energy, and has long-term consequences that will make a return to traditional agriculture very difficult.

Most citizens are not even vaguely aware of the invention that enabled their existence and created about 50% of the nitrogen in their bodies: Haber-Bosch conversion of natural gas to fertilizer

Well meaning environmentalists demand that we stop subsidizing fossil energy companies without understanding the source of all that they cherish in modern civilization: fossil energy

Well meaning environmentalists demand that we stop subsidizing fossil energy companies without realizing that many fossil energy companies are going bankrupt: ExxonMobil

A solution frequently advocated makes things worse by accelerating growth and decreasing system resilience: efficiency

The best solution for removing CO2 from the atmosphere is being harmed by the same activity that creates CO2: planting more trees which are then injured or killed by ground level ozone

All climate science models that do not predict disaster now depend on an unproven technology that we probably can’t afford and other species definitely can’t afford: BECCS (bio-energy with carbon capture and storage)

We have not acted to prevent a predictable and very dangerous side effect of trying to maintain business-as-usual with low interest rates: increasing wealth gap

We still enjoy historically vast surplus wealth that could be deployed to improve our future lives but we are squandering it: military, airports, highways, new cars, high rises, etc.

Earth with its diverse complex life and a highly intelligent species is extraordinarily rare, precious, and worth fighting to protect, yet we dream of other barren homes: colonizing Mars

The tool that could be used to unite citizens in common purpose and useful action is instead being used to create tribes that reinforce preexisting beliefs: internet

Many people are hurting and lashing out in anger because they do not understand the cause of their pain: Brexit, Trump, Syria, Venezuela, etc.

The few sources of information that understand and communicate the truth are under threat: fake news

Few people study or heed the best predictor of the future: history

The majority of citizens share a common characteristic that makes the election of an intelligent and wise leader empowered to do the right thing unlikely: wacky beliefs

None of our schools teach skills useful and relevant to our future: growing food and other forms of lower complexity life skills

The thing that enabled the evolution of our high intelligence and its ability to understand and act on problems is the same thing that causes our problems and prevents us from acting on them: denial of reality

The theory that best explains our existence and our self-destructive behavior is ignored by everyone, including those people seeking to understand our problems: Varki and Brower’s Mind Over Reality Transition (MORT) theory

Readers are encouraged to submit additions to the list.

A good place to go next is What would a wise society do?

Climate Change Policies: 2 required + 1 optional

Most scientists consider 2 degrees of warming to be dangerous. Common sense says 1 degree is unsafe because the recent extreme weather and loss of Arctic ice and glaciers have been caused by 1 degree of actual warming.

A new paper in the journal of Science Advances says 7 degrees is likely this century because the climate becomes more sensitive to greenhouse gases as the temperature warms.

Independent newspaper overview.

Full paper.

Interview with the author.

To be clear on the implications, 7 degrees will kill your children.

Much time and effort has been wasted establishing climate change agreements that will not work because the relationship between wealth, consumption, and CO2 has not been acknowledged or addressed.

We have not to date met any of our (ineffective) commitments because we do not understand the nature of our predicament. We cannot reduce climate change with a different type of economic growth. We must stop growing and contract.

Assuming feedback loops have not already taken over (meaning there is nothing we can do to avoid runaway climate change), here are the only 2 policies that would positively impact climate change and every other overshoot threat we face:

1) Increase the interest rate until the economy begins to contract on a sustained basis. An economic crash may or may not be avoidable but we have no choice.

2) Establish a one child policy with a penalty tax of say 25% of total income for every extra child. No exceptions. Countries with cultures that value males more than females should provide a subsidy to families with a daughter to keep the male/female ratio at about 50/50.

Wise countries will implement one additional optional policy:

3) Tax excess wealth and use the funds to pay down public debt.

As the economy and population contracts there will be a natural tendency for the wealth gap to widen which usually leads to social unrest, despots, and war. Wise countries will anticipate this and implement policies to prevent the wealth gap from widening. Collected taxes should be used to pay down public debt because this will help to stabilize our debt backed currency as the economy shrinks.

These policies will cause pain but doing anything else (or nothing) will cause a lot more pain.

On Religion and Denial

On the First Day, Man Created God

 

Let’s pretend an alien came to earth to study the evolution and behavior of humans. What would it observe and conclude?

The alien observed that every human group, in every location of the planet, throughout all of human history, has had some form of religion. The alien logically concluded that religions must be associated with a reproductive fitness advantage.

The alien observed that the human species succeeds in large part due to social cooperation, and that religions serve to define, unite, govern, motivate, and entertain groups, and (especially in times of scarcity) define outside groups as enemies. The alien then understood that the reproductive fitness advantage of religions is to increase the probability of survival through enhanced social cooperation.

The alien observed that there are thousands of different religions, each with a unique story, and that each religion thinks it is the only (or most) true religion. The alien logically concluded that all religions are human imagined stories.

The alien then noticed something very odd.

The one and only thing common to the thousands of religions is that they each have some form of life after death story. Religions can and do tell every conceivable story, but religions do not need a life after death story to define, unite, govern, motivate, and entertain a group. It might be reasonable for a few random religions to include life after death in their stories, but it is not reasonable that every religion has a life after death story.

Unless, observed the wise alien, the need for a life after death story has an important genetic foundation.

The archaeological record suggests that religions with their life after death stories emerged at the same time that humans with enhanced intelligence and an extended theory of mind emerged. The alien concluded that the two must be linked. The alien reconfirmed this conclusion by observing that no other species has comparable intelligence or an extended theory mind, and no other species has a religion.

The alien was stumped to explain the link but knew that there were a few good human scientists so it went to the library and found a book on human evolution by Ajit Varki and Danny Brower. The alien learned that a mutation for an extended theory of mind, which enables an individual to understand the mind of another, would be advantageous to a social species, and would have enabled an individual through normal daily observations to understand her own mortality. All mammals have a useful inherited fear of injury and therefore mortality awareness would have caused the individual to become depressed and less likely to take the risks necessary for survival and reproduction. The mutation for an extended theory of mind would therefore not fix in the gene pool.

Varki went on to explain that if a mutation for an extended theory of mind occurred simultaneously with a mutation for denial of death, then what was a reproductive fitness disadvantage would become a powerful fitness advantage, and the two mutations would fix in the gene pool.

The probably of two rare mutations occurring simultaneously is small and the alien now understood why other social species like dolphins, elephants, crows, and chimpanzees, which would also benefit from an extended theory of mind, had not evolved one.

The alien saw that inherited denial of mortality would have caused each human group to believe a life after death story, which over time through elaboration and transmission errors, became a unique religion.

The alien observed that denial of mortality is a very strong inherited behavior. Groups frequently devote all of their surplus wealth to constructing structures to please and communicate with gods in the after life. Pyramids and cathedrals being two of many examples. The alien observed that the behavior remains strong in modern times because new religions, like Scientology, continue to have life after death stories. And atheists are often spiritual with a belief in some form of life after death.

Varki went on to explain that the mechanism within the brain for denying mortality would be relatively simple to create by mutating the fear suppression module used by mammals when they need to fight, but by necessity of how it works, is quite broad in scope. This means that humans not only deny their own mortality, but also tend to deny anything they find unpleasant which creates an optimism bias that is useful when not facing limits to growth, but harmful with limits to growth, and harmful with lifestyle choices like insufficient exercise and nicotine.

Ah, said the alien, now I understand why almost no humans acknowledge or discuss or act on their severe state of overshoot. And why climate scientists frequently fly long distances to conferences where they criticize fossil energy use, promote green growth, and never mention population reduction.

The human brain, the God it believes in, and the overshoot it enabled and denies, all resulted from the same improbable genetic mutation that occurred about 100,000 years ago.

The alien was finally able to tie up the loose ends that had been troubling it.

The alien saw, on the one hand, an intelligent species capable of impressive intellectual feats such discovering a theory to explain the origin of the universe and technologies for visiting the moon, and on the other hand, a species in a severe state of overshoot dependent on rapidly depleting non-renewable resources and destroying the habitat it needed for survival.

The alien had been perplexed at how such an intelligent species could be in such peril without acknowledging, discussing, or acting on its predicament.

The alien now understood and concluded its report with “Denial created humans, and denial will destroy humans.”

As it boarded its ship for home, the alien reflected on how lucky it was to have come from a planet where life had evolved without the need for death and therefore was able to evolve intelligence without denial.

Denial not only makes us believe in god, it is god, because denial created us, and denial may destroy us.

What would a wise society do?

A wise society would choose some short-term pain in exchange for much less future pain.

A wise society would understand that the foundation of the cliff it is climbing is crumbling and that it should start climbing down to reduce future harm.

A wise society would move slowly and deliberately as it climbed down to avoid falling.

A wise society would use some of the following techniques to climb down:

  1. Educate citizens on what is going on and why.
    • The goal is to minimize responses like panic or blame that can cause a breakdown of law and order or war; and to increase social cohesion and cooperation.
  2. Implement population reduction policies.
    • The goal is to achieve a humane population reduction before nature forces an inhumane population reduction. Given the severity of human overshoot we may not be able to out-race nature however, as Albert Bartlett said, every problem on earth improves with fewer people, so we should do what we can.
  3. Hold referendums to allow citizens to set priorities for reduced government spending.
    • The goal is to engage and empower citizens in difficult decisions that will have to be made. We need to move away from traditional and divisive left vs. right politics into pragmatic resource husbandry.
  4. Reduce government spending until expenditures are a little less than tax revenues.
    • The goal is to configure a government that can function effectively through a prolonged economic contraction punctuated with occasional shocks, and that offers services its citizens can afford.
  5. Model the availability of key resources taking into account the increasing cost of production caused by depletion, and declining demand (what people can afford) caused by falling incomes, declining debt, and decreasing government spending.
    • The goal is to understand the shape of our Seneca curve which is needed for the next point.
  6. Implement policies to proactively reduce the consumption of key resources a little faster than the models predict will occur in a free market.
    • The aim is to maintain social order by controlling the decline rather than being controlled by the decline.
  7.  Prepare fair rationing policies and mechanisms.
    • The goal is to be prepared for possible supply disruptions.
  8. Increase the interest rate enough to cause a steady decline in debt.
    • The aim is to climb down to a lower and safer elevation.
  9. Hold a referendum to decide a maximum reasonable wealth gap between the average and the rich. Tax excess wealth from the rich to pay down public debt. There are 3 justifications for this policy:
    • In a shrinking economy the wealth gap between rich and poor will naturally tend to widen through no fault of the poor or skill of the rich. This is already occurring and will accelerate as the economy contracts.
    • A too wide wealth gap is unhealthy and dangerous for a society. Think French revolution.
    • Paying down public debt with excess wealth benefits everyone, rich and poor, because it helps to stabilize the money system in a shrinking economy.
    • Note that the excess wealth should not be redistributed to the poor because this will accelerate our problems by increasing inflation, resource depletion, and CO2 emissions.
  10. Implement an aggressive luxury consumption tax.
    • In our new world, conservation is good and gluttony is bad.
  11. Place a tariff on imported food and use the funds to support small-scale local food production.
    • The goal is to build resiliency to global food supply shocks that might result from a financial or energy crisis, or climate change damage to crop productivity.
  12. Prohibit the development of farm land or the sale of land to non-residents.
    • This policy recognizes that in the long run the most valuable asset a country will have is its arable land.
  13. Encourage soil restoration.
    • As fossil energy derived fertilizers become scarce we will once again have to rely on organic practices for soil fertility. We have depleted most soils. It will take time to rebuild them. We should start as soon as possible.
  14. Plant trees.
    • Planting trees is one of the few things we can do to remove CO2 from the atmosphere. In addition, wood will be a very valuable future resource.
  15. Protect and restore watersheds.
    • Water is the only thing more important to life than food.
  16. Encourage schools to teach skills required in a less complex society.
    • Much of what is taught today will not be useful at our destination.

I realize that denial and other human behaviors make it highly unlikely we will do any of the above.

I also realize that some of the ideas require more thought to ensure a good balance between increased short-term pain vs. decreased long-term pain.

I wrote this to demonstrate that we are not without means to influence the future in a positive direction.

On the Wealth of Citizens: An EU Perspective

Those Who Study History

 

The UK voted to leave the EU yesterday.

What’s really going on?

In an industrialized world with abundant resources citizens typically prosper in economies of all sizes.

As populations rise faster than finite resources, the growth rate of per-capita resources slows and eventually must decline. Over time it becomes more difficult to increase the wealth of citizens. In a resource constrained world there are two methods available to grow the wealth of citizens: efficiency and debt.

The first method available to grow the wealth of citizens is to increase the efficiency of producing and using resources. We have done an excellent job of improving efficiency:

  • We optimized the type of energy we use for each application such as using coal and hydro instead of oil to generate electricity, and using oil instead of coal or horses for transportation.
  • We learned how to squeeze oil from sand and rock, how to drill for oil in mile deep oceans, and how to mine coal from the surface with giant machines.
  • We optimized our machines such as switching to lighter fuel-efficient cars, using heat pumps, and abandoning supersonic air travel.
  • We learned how to convert oil and natural gas into cheap and durable materials like plastic.
  • We used electronics and computers to more efficiently control just about everything.
  • We optimized communication with the internet and cell phones.
  • We reduced waste such as insulating our homes.
  • We recycled energy intensive materials such as aluminum cans.
  • We optimized the productivity of our arable land with Haber-Bosch factories that convert natural gas into nitrogen fertilizer, by replacing horses and rain with diesel powered tractors and pumped irrigation, and by growing mono-crops.
  • We optimized the cost of calories by manufacturing high-fructose corn syrup and vegetable oils, and by operating concentrated animal feeding operations.
  • We optimized the harvest of our oceans with powerful ships that net and scrape everything.
  • We optimized the efficiency of global trade with agreements between many countries.
  • We optimized manufacturing by moving it to locations with the lowest labor and energy costs, and the fewest pollution regulations.
  • We optimized shipping with standard containers and ships and trucks to carry them.
  • We optimized distribution to consumers with Walmart and Amazon.

The laws of thermodynamics and the cost of technology and transport mandate a limit to efficiency gains. We are approaching the limits to efficiency improvement.

The second method available to grow the wealth of citizens is to borrow resources from the future. This amazing trick is done with debt. Cash and credit behave the same when spent. Credit however commits us to produce wealth in the future to repay it. This future wealth represents yet to be produced resources. Hence debt’s magic of letting us spend future resources now.

We started using debt in the 80’s to support the wealth of citizens and total debt has grown exponentially since. There are limits to how much debt can be carried by a citizen or government. Money available for living equals income minus interest payments plus any change in debt plus any change in savings.

The combination of stagnating or falling income due to declining per-capita resources and/or rising interest payments eventually imposes a limit on the total debt an individual or government can carry. There are three methods for extending this limit on debt.

The first method for extending debt is to increase the size of economic organizations. Size matters to debt. The larger an economy is the more internal and external resources it can control, the more taxes it can collect, the larger military it can afford, the more confidence and fear it can inspire, and as a consequence, the more credit it can generate. A good example is the USA and the privileges it enjoys from having the world’s reserve currency.

As the wealth of citizens became increasingly dependent on debt there was pressure to increase the size of economic organizations. This in large part explains the formation of the EU. The majority of European countries were keen to join the EU because it promised them access to more debt. Imagine, for example, how much debt and purchasing power an independent Italy with its own currency could have compared to today as a member of the EU.

The second method for extending debt is to reduce the interest rate. We have steadily reduced the interest rate since the early 90’s. We reached the limit of 0% shortly after the 2008 crisis and the interest rate has remained at 0% for an unprecedented 90 months. Some countries are experimenting with negative interest rates however it seems unlikely that this technique will work without dramatic and improbable changes to the rules of money and banking.

The third and final method for extending debt is to print and give money to citizens and/or governments. Most countries have not yet used this method because it reduces confidence in a currency and risks hyperinflation that destroys wealth and can cause war as happened with Germany after WWI. There will be a strong temptation to try this method in the future because it can work well for a period of time. For example, it took 10 years for hyperinflation to take hold after money printing started in Zimbabwe. A politician forced to choose between riots now and hyperinflation 10 years later might well choose to print money.

As an aside, I leave the reader with a question to ponder about the dark side of debt. What will happen if the depletion of finite resources and climate change prevents us from producing the future resources our debts commit us to? The answer to this question explains why I frequently call for reduced public debt.

In summary, a resource constrained world has two methods for supporting the wealth of citizens, efficiency and debt, and as explained above, we are already at fundamental limits for both efficiency and debt.

What must happen next, and what is already starting to happen, is that the wealth of citizens will decrease. This will create social unrest, and given our genetic denial and the difficulty of understanding our complex world, citizens will seek someone to blame.

Yesterday UK citizens blamed the EU. Because most UK citizens do not understand the underlying forces that are causing their hardship they probably have made things worse for themselves, at least in the short-term. Longer term, when there is insufficient affordable oil to support long distance trade, all communities will have to re-localize to survive.

Other independence movements within Europe are building momentum for similar reasons. A primary message of Donald Trump is that “others” are to blame for the hardship of US citizens.

A recurring theme on this blog is that some form of civilization collapse is inevitable and not too many years away. If the majority of citizens do not understand and/or deny what is going on the collapse will be much worse than it needs to be.

We still have sufficient resources to prepare a softer landing zone.

The first step is an adult conversation about what’s really going on.

Denial is Layered: What is Your Blind Spot?

Denial seems to come in layers.

It is common to break through one layer of denial to see a portion of reality but to then have another layer of denial block an even more important aspect of reality.

For example:

  • Many environmental activists fly to long distance conferences where they condemn fossil energy companies, promote green growth, and ignore population reduction.
  • Most bankers understand all aspects of wealth except what creates it.
  • Most climate scientists believe we can switch to renewable energy without harming the economy despite abundant physics to the contrary.
  • All climate models that predict a livable planet assume carbon capture despite zero evidence that we can scale or afford this technology.
  • Many vegans want to avoid killing despite the fact that all life depends on the death of other life.
  • Many vegetarians think grains are sustainable.
  • Many people try to be green by recycling and buying a hybrid car.
  • Enlightened governments try to address climate change by spending money on the problem without realizing CO2 emitted is proportional to money spent.
  • Many citizens in collapsing societies have large families and assume corrupt politicians are the cause of their problems.
  • The new enlightened Pope has not yet buried any of the Vatican’s wealth.
  • Many atheists are spiritual.
  • Most religions think other religions are wacky.

Denial of denial is a strong force as demonstrated by the very small number of people interested in Varki’s denial theory, and by the strong emotional response discussing it evokes.

Since I claim to understand what is actually going on an obvious question to ask myself is what am I in denial about?

A friend thinks I am in denial about what motivates me. I think I am seeking truth. She thinks I am seeking status. I hope she is not right.

My best guess is that I may be in denial on two points.

First, I may be wrong to believe that we have any ability to influence the outcome.

Life is governed by the laws of physics and evolution. We seem to be doing what the universe and our genes “want” which is to replicate and degrade the energy gradient as quickly as possible.

I like to think we have free will but we may be just along for the ride.

Second, my chance of surviving the upcoming bottleneck might be improved if I was in a state of denial and accumulating wealth as quickly as possible despite the negative effect of this on the planet.

It makes me happier and more functional to think we can influence the outcome and that I am helping.

My feelings are illustrative of why denial evolved in the first place.

Denial increases our reproductive fitness by enabling an optimistic high intelligence that can out-compete other life for finite resources, while ignoring unpleasant things it is capable of understanding that might otherwise cause depression and reduced reproductive fitness.

Perhaps I am in denial about other things. Or perhaps because I can speculate on my own denial I am in fact not in denial at all and am a rare mutant without the denial gene. Many events in my life suggest there may be some truth to this speculation.

Readers are encouraged to speculate and to comment on their own experiences.

Interest(ing) Denial: 0% for 90 Months

Interest rates have been zero for 90 months.

This is not normal. Something fundamental has changed.

It’s fascinating how rarely we discuss the root cause of zero interest rates.

David Stockman is one of the financial commentators I occasionally read because he has a good understanding of the widespread and un-prosecuted fraud that took place leading up to the 2008 crisis, and because he understands the dangers of excessive debt.

Today Stockman wrote an article on zero interest rates.

The Cult of Central Banking is Dead in the Water

Stockman understands something is seriously wrong…

There has never been a time in financial history when anything close to this happened, including the 1930s. Nor was interest-free money for eight years running ever even imagined in the entire history of monetary thought.

He understands that the symptom is insufficient growth and that more cash and credit won’t cure it…

There is a structural growth problem, of course. But it has absolutely nothing to do with monetary policy; and it can’t be fixed with cheap money and more debt, anyway.

He understands that the medicine we’ve taken is not working…

Since the year 2000 when monetary repression began in earnest, the balance sheet of the Fed has risen by 800%, while the amount of labor hours used in the US economy has increased by 2%.

At a ratio of 400:1 you can’t even try to argue the counterfactual. That is, there is no amount of money printing that could have ameliorated the “no growth” economy symbolized by flat-lining labor hours.

He understands that our response has been fraudulent, at least in an ethical sense, for future generations…

In essence, during the last 15 years the Fed has gifted the US economy with a $4 trillion free lunch. Uncle Sam bought $4 trillion worth of weapons, highways, government salaries and contractual services but did not pay for them by extracting an equal amount of financing from taxes or tapping the private savings pool, and thereby “crowding out” other investments.

He understands that zero interest rates are no longer helping household incomes because the private sector reached Peak Debt in 2007 and is now slowly reducing its debt…

He understands that cheap credit has created new problems waiting to explode…

Likewise, total US business borrowings have increased from $11 trillion to $13 trillion since the fall of 2007, but it has not lead to additional investment spending. Instead, the Fed fueled inflation of financial assets has induced businesses to cycle virtually 100% of their incremental borrowings into financial engineering. That is, stock repurchases and M&A deals.

Indeed, as we demonstrated in a post earlier this week—–precisely 100% of the entire increase in corporate borrowing since the turn of the century has been pumped back into the casino in the form of stock repurchases.

The world is drowning in excess production capacity owing to the massive worldwide credit inflation and repression of capital costs during the last two decades. That was the effect of total global credit growth from $40 trillion in the mid-1990s to upwards of $225 trillion today—-an $185 trillion expansion that exceeded the growth of global GDP by nearly 4X during the same period.

So far so good, then we get to Stockman’s diagnosis and prescription…

In fact, tepid growth of labor hours, productivity and output is a supply side problem. In that respect, replacing the current burdensome 16% payroll tax on America’s high cost labor with a consumption tax on the nation’s heavily imported goods would do more for supply side growth than central bankers could ever accomplish in a month of Sundays.

In a word it is this. Fire the Fed. Attend to supply side policy. Let market capitalism do the rest.

Stockman’s diagnosis is that growth is stalled because US labor costs are not competitive. His solution is to stimulate growth by shifting taxation from payroll to import duties.

His logic is obviously flawed. If uncompetitive labor costs are the cause of low growth, why is the entire world struggling to grow?

Stockman believes productivity originates from…

… work, exertion, sweat, discipline, enterprise, innovation, invention, sacrifice and savings.

He completely misses the vital role of energy in our economy.

Here is what is actually going on…

A growing economy means that total income is increasing. Income equals productivity (what is produced) plus the change in debt.

Productivity results from combining effort (labor), capital (machines and credit), knowledge (technology), raw materials (stuff), and energy (90+% non-renewable fossil) in an efficient manner (efficiency).

We have no shortage of labor (plenty of unemployed), no shortage of capital (plenty of idle machines and low-cost credit), no shortage of knowledge (plenty of new graduates), and no shortage of raw materials (yet). Our efficiency is pretty good and is approaching engineering limits for improvement.

Our productivity growth has stalled because our energy use growth has stalled because the cost of extracting fossil energy now exceeds what we can afford to pay while growing.

The cost of extracting fossil energy has been increasing at a compounded rate of about 17% per year because it is a finite resource and we chose for obvious reasons to burn the easy to get and inexpensive energy first. What remains is expensive and will get progressively more expensive to extract.

The trick we have used since about 1980 to hide this inconvenient energy reality is to increase our debt faster than our productivity.

When we borrow more money than we repay in a given year, the difference (credit) looks and behaves like earned income (productivity). It makes no difference to our lifestyle if we pay with a $20 bill or our MasterCard.

Eventually we reach a limit to the amount of debt we can service with our income. This limit can be extended by reducing interest rates, which we’ve done, but even at extremely low rates there is still a maximum amount of debt that can be supported by a given income.

Citizens reached their debt limit in 2007 which precipitated the 2008 crisis.

Since 2008 we have been masking our energy reality by increasing public debt which, unlike private debt, is not limited in the short-term by income because governments can print money to service their debt.

There are several ways to print money. The method we have used so far is called quantitative easing (QE) which is the government borrowing money from itself and us winking at each other and telling ourselves that we intend to repay the debt someday. Any honest assessment of our ability to repay our government debt from taxes would show that the debt cannot and will not be repaid.

Another type of money printing, which we may soon try, is to print and hand out money directly to citizens. The main difference from QE is that we will stop winking at each other.

The implication of printing money is that we have chosen to reduce the value of future money to maintain our current lifestyle. Put another way, we are living beyond our means and the difference between what we are spending and what we are earning will be subtracted from our future standard of living. This means we are making the future much worse than it needs to be.

The thing that’s sustaining our standard of living (public debt) is growing faster than the thing needed to sustain the public debt (our productivity). This is one definition of a bubble.

We are living in a giant, global, and unprecedented debt bubble.

All bubbles, by definition, must burst.

When bubbles burst they always revert through their mean. The bigger the bubble, the greater the unnecessary future pain we create.

When bubbles burst they never deflate slowing in a controlled manner. We will not experience a smooth transition from our current standard of living to a new lower standard of living. It will be a bumpy and probably unfair process where those least deserving of pain are hit the hardest.

When our bubble bursts it will create real hardship with little or no time to adjust, and will create the conditions necessary for social unrest, crime, despots, and war. The worst of history will likely repeat but on a much larger scale because our situation is unprecedented.

The relationship between the economy and energy is clear yet even the better commentators, like Stockman, are in denial and choose not to look.

Growth is over. De-growth is coming soon.

Most will say “no one could have seen this coming”.

The facts are clear for anyone that chooses to look.

We could have reduced our population and lifestyles in a safe, civil, and fair manner, with the added benefit of less damage to the environment, which we’ll desperately need when the oil is gone, but chose not to because of evolved denial.

On the Leap Manifesto

The Leap Manifesto is being discussed within Canadian political circles, and is gaining support from prominent environmental leaders.

The intentions of the Leap Manifesto are admirable, but its thermodynamics are flawed.

Society does not subsidize fossil energy. Fossil energy subsidizes everything in modern society to the tune of over 50 energy slaves per person. These slaves have and will continue to demand more pay because the easy to extract oil is gone. What oil remains becomes more expensive to extract with each passing day.

Do not confuse oil price with cost. The oil price today is low because consumers have maxed out their credit cards and can no longer afford to pay their energy slaves.  Oil companies are going broke because it costs more to extract oil than they can sell it for. Think about this. It’s a big problem.

The fact that our energy slaves have become more expensive than we can afford is the root cause of dangerous worldwide public debt growth, and a fragile economy that has required zero percent interest for 8 years. All of the idiot lights are flashing red on our dashboard if we care to look. The weaker countries are already starting to fail.

It takes fossil energy slaves to make renewable energy slaves. And the renewable energy slaves require even more pay than the fossil energy slaves because their muscles are weaker, and they need some fossil energy to stay fit. For example, think about the roads and trucks and tools and parts needed to maintain a windmill or solar panel.

We need renewable energy and we have no choice but to move in their direction. But we can’t run today’s society with them. Don’t take my word for this. Pay attention. Look for any example in the world that contradicts what I just said. But look honestly. You must include all of the energy that is consumed, including, for example, the coal it took to manufacture the goods, and the oil used to produce and transport the food, that was purchased from another country.

We need to understand our predicament before we can construct useful policies.  And we need to reset our expectations. While we might enjoy 50 slaves today we may have to make do with 5 slaves in the future. That’s still a lot better than most people have enjoyed for the last 10,000 years.

It’s also important to understand that no one is at fault. The last few generations got lucky with a fossil energy windfall. Kind of like mice that had a party in an overturned grain truck.

A deep and honest understanding will lead to policies that emphasize conservation, austerity, population reduction, wealth gap reduction, re-localization, and lastly, renewable energy.

I do not see any mention by the Leap Manifesto of the first 3 and most important items in my list. Conservation, austerity, and population reduction. These are important because we are in severe overshoot and would be wise to voluntarily climb down from the cliff.

It’s doable and desirable. Most people in the developed world consume much more than they need to have happy and healthy lives. All of these policies will help to reduce many serious environmental threats like climate change.

WASF

There is hope, but not for us - Franz Kafka

One portion of the population doesn’t believe humans are in overshoot and therefore sees no need to change their lifestyles.

Another portion is vaguely aware of a problem but prefers not to think about it nor possible changes to their lifestyles.

Another portion believes overshoot is real but thinks others need to change their lifestyles first.

Another portion thinks we have a problem but it is not caused by humans so there is no need to change.

Another portion thinks everything is in the hands of God so there is no need to change.

Another portion thinks they’ve already done enough by buying a new electric car, recycling, and reusing grocery bags.

Another portion believes renewable energy, carbon capture, and other technologies will solve the problem.

Another portion understands the problem but chooses not to change because they do not believe their sacrifices will make a difference.

The balance of the population thinks it’s too late to do anything and therefore see no need to change.

The only thing everyone agrees on is that there is no need to change.

WASF

Overshoot Awareness: The Pros and Cons

I want to discuss the pros and cons of broad public awareness of our overshoot predicament.

Disadvantages of Overshoot Awareness

Sooner Economic Contraction

Today’s global economy is a massive bubble waiting to pop.

Bubbles are created when many people believe that the price of an asset will go up and use debt to purchase the asset. This creates a self-fulfilling positive feedback loop as purchases bid up the price which increases collateral for more debt to fund more purchases.

Assets inflated by a bubble do not generate sufficient wealth to justify their price. Bubbles are accidents waiting to happen because an unpredictable shift in belief towards realism or pessimism will cause a collapse in price as the market unwinds its debt leverage, usually oscillating below fair value and damaging innocent bystanders in the process.

Bubbles have been common throughout history but today’s bubble differs in that instead of one asset class such as dot-com or tulip mania, all asset classes are inflated and its size relative to GDP, and especially future GDP, is unprecedented.

A few examples:

1) The quantity of government debt and other obligations exceeds the servicing ability of future taxpayers, doubly so when interest rates rise in response to the risk of default. Government economic models assume more growth than is physically possible with depleting fossil energy. This means all currencies are over-valued. Currencies have retained their value because most people still believe what their governments tell them.

2) The quantity of corporate and private debt exceeds the servicing ability of realistic future income. This bubble has not yet popped because governments have held interest rates at near zero for 8 years. When interest rates start to rise, as they must when default risks become impossible to deny, this house of cards will collapse in defaults.

3) Stock prices have been inflated by cheap debt and the majority’s belief in infinite growth. Companies have used debt to buy back stocks to falsely improve their appearance to investors. Speculators have used debt to profit from stocks. Central banks have used debt to manipulate stock prices up to create the facade of economic well-being. A rational analysis of stock prices relative to future earnings, especially in light of declining net energy, and an eventual increase in interest rates, would show that stocks are a massive bubble waiting to pop.

4) Real estate is over priced. In the long run the average price of a home must equal the average income’s ability to obtain and service a mortgage. Incomes are falling and will continue to fall as energy depletes. When interest rates rise, many mortgages will become unaffordable and real estate prices will drop. Furthermore, the availability of mortgages, which are needed to support real estate prices, is dependent on a financial system that can create generous credit, which in turn is dependent on reasonable economic growth, which is not possible with declining energy.

Central banks have done a surprisingly good job over the last 8 years of not permitting the bubbles to collapse. Their ability to continue supporting the bubbles is highly dependent on public sentiment. If the majority loses faith in the central bank’s ability to stimulate growth then it is game over and the economy will experience a large correction.

A disadvantage of overshoot awareness is that it would trigger an economic correction sooner than letting the random vagaries of belief take their course, or letting mathematics and physics force the correction.

The larger a bubble gets the more pain it causes when popped because its deflation usually swings below the mean on the way to reality, and more innocent bystanders get hurt.

It’s best to avoid a bubble in the first place, and although we’re well past that point, the sooner we remove the bandage the better off we’ll be in the long run.

Put more succinctly, there is no free lunch.

Hoarding and Shortages

We live in a very efficient world. Companies use just-in-time delivery to minimize inventory and waste. Citizens no longer have root cellars or put up preserves for winter consumption because grocery stores are so abundant and convenient. Grocery stores have about 3 days stock on hand and depend on a complex network of credit, energy, and technology to operate.

Resilience to shocks is improved by building buffers and redundancies. A probable outcome of broad overshoot awareness would be buffer building induced shortages of important staple goods.

This risk could be mitigated by rationing policies as were used during World War II.

Mental Health Problems

Acknowledging overshoot forces one to question and overturn several hundred years of growth based culture, religion, education, and deeply held beliefs by the majority. The adjustment can be traumatic.

To succeed in today’s society you must contribute to overshoot. An aware person knows they can be happy with less consumption, but choosing a frugal lifestyle often makes you a failure in the eyes of an unaware majority.

There is no “happy” solution to overshoot. The future will be painful for most. The best possible outcome is a lot of hard work to make the future less bad. It is difficult to be motivated with this awareness.

For these reasons a common outcome of overshoot awareness is depression.

Mental health problems perhaps could be minimized if overshoot awareness was accompanied by an understanding that overshoot is a natural outcome of abundant non-renewable energy and evolved human behavior. Perhaps not. A renewed belief in religion is a more likely outcome.

Having the majority and their leaders aware and working together to prepare for a low energy world, rather than individuals working in isolation, offers the best chance of minimizing mental health problems. But this outcome would require the majority to override their inherited denial of reality which makes it improbable.

Relationship Damage

Becoming aware of overshoot before friends and family become aware can damage relationships. The aware person wants to educate and warn those closest to them. Those not aware usually do not want to hear the message because most humans have an evolved tendency to deny reality. This stress can damage families and friendships.

Advantages of Overshoot Awareness

Fewer Despots and Wars

As energy depletes and the climate worsens, incomes, wealth, and abundance will decline. Eventually there will be life threatening shortages of food and other necessities.

Tribes evolved to survive in times of scarcity by fighting other tribes for resources. The most united tribes with the most warriors willing to sacrifice their lives often had the best chance of winning and surviving. This in part explains the evolutionary success of religions.

To fight effectively requires a well-defined enemy. There is thus a natural tendency to blame other groups for hardship.

In the absence of understanding what caused scarcity, the majority will support despots that blame others, and these despots will start wars.

Wars in the past often improved the lives of the winners because the most important resource was land.

Wars in the future will make things worse for both the winners and the losers because the most important resource is energy. Modern wars consume large amounts of energy and will accelerate the depletion of the resource that is being fought over, leaving less energy for everyone when the war ends. This is sometimes referred to as a resource depletion death spiral.

It is of course possible that a despot will decide to eliminate the energy-consuming population of its enemy with nuclear weapons. This scenario will also make everything worse for both the winners and the losers, for obvious reasons.

Humans would therefore be wise to avoid future wars. Awareness that overshoot is causing scarcity, that no one is to blame, and that war will make things worse, is the only reasonable path to avoiding future despots and wars.

It would be much wiser to use the remaining surplus energy to proactively reduce our population, and to create infrastructure required to survive in a low energy world.

But again, as mentioned above, we first need to break through our evolved denial of reality.

More Acceptance and Cooperation

Awareness of the underlying overshoot related causes of problems experienced by individuals would increase the acceptance and cooperation necessary to make a bad situation better.

Most viable mitigation strategies will require broad societal cooperation. These strategies include rationing of scarce resources, proactively shifting economic activity from one sector to another, progressive taxation and wealth redistribution, and generally more government involvement in all aspects of life.

More Preparedness

Although per capita energy is in decline, we still have a considerable amount of surplus energy available to do useful work. The longer we wait the less surplus energy will be available to help us prepare for a low energy world.

Broad awareness of overshoot would accelerate our preparedness for the inevitable, and reduce future pain.

Positive Behavior Changes

Although there is no “happy” solution to overshoot, a broad awareness and voluntary shift in behavior would help. For example, a lower birthrate, reduced luxury consumption, less travel, and more care of the commons would all help.

Avoiding a Chaotic and Dangerous Crash

All of the above advantages to overshoot awareness fall under the umbrella of replacing a chaotic and dangerous crash with a more orderly and planned contraction.

Many of the things that made life pleasant over the last century will be at risk in a chaotic crash. These include democracy, law and order, health care, social safety nets, peaceful trade, environmental protection, and functioning electricity, water, sewer, and communication grids.

We would be wise to preemptively release the pressures that threaten a chaotic crash.

Conclusions

On balance I think the advantages of overshoot awareness outweigh the disadvantages.

A society with its majority understanding overshoot, what caused it, and that no one is to blame, would help make the future less bad.

Unfortunately our evolved denial of reality is a powerful impediment to awareness.

I fear the majority will never understand what is going on.

I wrote more on this issue here.