50/50 Democracy

I see polls are showing a 50/50 split between yes and no in Greece.

This is consistent with a theory I have to explain why so many of our democratic choices end up split close to 50/50 regardless of the issue.

The only issue most people care about is money and most elections and referendums boil down to how to share a finite pie.

The 50% of people with more wealth than the other 50% do not want to give any up.

The 50% of people with less wealth than the other 50% want to take some wealth from the other group.

Therefore most elections end up being very close to 50/50.

Post Peak Oil Choice: Inflation or Deflation?

Greece is what a post peak oil world looks like. Low paying jobs. Smaller and then no pensions. Less and then no health care. Fewer and then no public services. Everyone angry and blaming something except the real issue: falling per capita net energy.

Imagine medieval Europe. That’s our destination, at best.

Krugman and others are saying that forcing Greece to increase taxes and reduce expenditures will make things worse. Instead they think Greece should be able to print money to pay their debt on the assumption that a devalued currency will increase exports and thus solve the problem with economic growth.

This may have been a valid strategy prior to peak oil, but not now. Growth is no longer possible. This means the Greek standard of living will continue to fall regardless of government or central bank policies.

Given this reality, a country can choose to reduce incomes and wealth with deflation or inflation. I prefer deflation, but reasonable people might prefer inflation.

That’s the essence of the Greek referendum: Do you want to get poorer with deflation or inflation?

Peak Oil and Debt

Greeks, on the one hand, want to maintain their standard of living and need debt to do so. Banks, on the other hand, want to grow their business and are motivated to loan more. When physical constraints to growth exist, like peak oil, this is a deadly mix. If you get in over your head on debt then both parties will experience a lot of pain.

The bigger picture is that most countries in the world are living well beyond their means, and equally important, their means are in decline due to peak oil. The main mechanism we use to live beyond our means is to grow debt faster than income. This works for a while but only delays, and then makes MUCH worse, the inevitable day of reckoning.

I think it is time we had an adult conversation and took action to acknowledge we are living well beyond our means and that our means are in decline.

We should shrink the public sector to a level we can afford without debt.  If you value public services then vote to keep them with higher taxes. Debt only works when growth is possible. We must stop using debt in a post peak oil world.

Debt is analogous to CO2. We could (or could have) collapsed the economy and held at less than 2 degrees, which would have been painful, but we chose not to and are now on a path to a much worse fate.

Renewables

People that claim we can maintain our standard of living while switching from carbon to renewable energy do not know what they are talking about. There is no evidence or science to support their claim.

Renewable energy is not growing exponentially and is not replacing carbon energy. The industrialized countries growing solar energy the fastest (Greece, Japan, Italy) are the countries most likely to crash first into depression because they have no fossil carbon resources, cannot afford current energy prices, and have compensated with too much debt.

We can choose to voluntarily and peacefully reduce our standard of living now, or we can wait for nature to do it violently for us.

A voluntary economic contraction will also make climate change less bad.

Is there a solar revolution? Time for data, not adjectives

Efficiency

Tim Garrett shows that efficiency is an accelerator of economic growth rather than a means of conservation. It’s not hard to understand.

If a company increases its efficiency it will produce more profits which can be reinvested to grow the business.

Or if you insulate your home and spend the savings on an annual trip to Hawaii you will stimulate the economy and emit more CO2 than had you not insulated your home.

Efficiency can mitigate overshoot if you capture the dollar savings from the efficiency and prevent them from being spent. For example, tax all the efficiency gains and then bury the tax revenue. You could use the taxes to retire public debt but then you’d have to find a way to prevent the government from borrowing more money to replace the retired debt.

In addition, an efficient economy tends to be brittle and less resilient. For example, most businesses to increase efficiency have reduced inventories and their associated carrying costs by relying on just in time deliveries from all over the globe. If something were to disrupt global shipping and/or the credit system it depends on, most businesses would grind to a halt, including your grocery store, in a few days. Efficiency is not always a good idea. Sometimes it is wise to have some fat in the system.

Efficiency can and should be used to lessen the impact on our standard of living as the economy contracts. However people should realize that all of the low hanging fruit for efficiency has already been harvested.

I wrote more about efficiency here.

The biggest opportunities for reduced consumption are now lifestyle changes.

Socialism 2.0

History proves that to maintain a civil society it is wise to keep the wealth gap between rich and poor to a reasonable level. Every culture has a different optimum wealth gap. For example, Japan’s optimum wealth gap is lower than Europe’s.

The wealth gap has been increasing around the world and is at dangerous levels due to the financialization of our economies and the low interest rate policies we are using to try to maintain business as usual. The wealth gap has been increasing not due to the skill of the rich or fault of the poor, but rather is a predictable outcome of our monetary policies.

Traditional socialist policies maintain the wealth gap by redistributing wealth from the rich to the poor, but in today’s world this policy will make things worse.

Much of the wealth of the rich sits idle. If this wealth is redistributed it will be immediately spent which will increase inflation, resource depletion rates, and CO2 emissions.

We need a Socialism 2.0 that understands limits to growth and the relationship between energy and wealth.

To maintain the wealth gap in our growth constrained world the correct policy is to tax excess wealth from the rich and pay down public debt while not permitting governments to re-borrow the funds, or to convert the excess wealth into cash and bury it.

Are We Experiencing the Peak of What is Possible In the Universe?

Like the collapse of Rome, but with Wi-Fi

 

I think yes. Here’s why.

The laws of physics are the same everywhere in the universe. There are no forms of energy useful on a human scale that we do not already know about.

The laws of biological evolution are likely the same everywhere in the universe. Life’s form and chemistry may differ, but its foundation of evolution by natural selection of replicators is probably universal.

Any life with advanced technology requires two things. First, a powerful brain with an extended theory of mind capable of collaborating on the invention of advanced technology, and second, sufficient energy to allow the specialization of skills, extraction and production of materials, and construction of infrastructure necessary to develop the technology.

Varki explains that a brain with an extended theory of mind initially requires denial of reality behavior.

The only form of energy with the utility, density, portability, and extractability necessary to boot strap the creation of advanced technology is liquid hydrocarbons (oil). The biological and geological processes that create oil remove carbon from the atmosphere, bury it under ground, and release oxygen into the atmosphere. The creation of oil therefore changes the environment, and the burning of oil, which reverses the process, also changes the environment.

If a planet has life with advanced technology then it likely began by denying reality and burning oil. The energy from oil will increase food production which in turn will cause the population and pollution it produces to increase unchecked due to universal reproduction behaviors coupled with denial of reality.

Depletion of the non-renewable oil, disruption to the climate from burning the oil, and other associated negative impacts on habitat make it probable that the life will overshoot its environment and collapse before it has time to evolve the awareness of reality necessary to reduce its population and develop a high density non-carbon form of energy such a fusion, if indeed fusion on a human scale is even possible given the temperatures and pressures involved.

This may explain why we have not detected life in the universe despite trillions of planets.

We should be grateful for being alive to witness the peak of what may be possible in the universe.

Climate Change is a Really Hard Problem, Really

I had an epiphany on climate change yesterday.

CO2 when released into the atmosphere remains for at least a thousand years before natural processes remove it. This means the only thing that matters is the total amount of CO2 we emit, not the rate at which we do so.

As a hypothetical example, lets assume we have 50 years of fossil carbon left at current rates of consumption. Now assume that citizens wake up and elect governments that initiate carbon taxes and other policies resulting in a 50% reduction in global fossil carbon use. What would happen?

  1. Total global wealth would reduce by more than 50%.  Wealth is proportional to the rate of energy use so we would lose 50% of our wealth off the top. In addition, a lot of our wealth is in the form of debt which requires growth to retain its value. This debt would default and become worthless in a shrinking economy resulting in further reduction of wealth.
  2. Fossil carbon reserves would last 100 years instead of 50 years. This assumes that much less wealthy consumers could continue to afford the high cost of extracting the remaining low quality fossil carbon reserves. It is probable that we could not afford these high costs and consumption would therefore drop even more than the 50% targeted by government policies. Which in turn would mean a further reduction in wealth.
  3. The total amount of CO2 released would be unchanged. As speculated in the previous point, it might take longer than 100 years because the maximum possible rate of extraction will decline in a smaller and poorer economy. But in the end, we clever monkeys will probably find a way to burn all the reserves, resulting in the same amount of CO2 released.
  4. The climate would change by the same amount although it might take an extra 50 years or more to do so.
  5. The negative impact on species extinction, ocean acidification, sea level rise, violent storms, food production, and fresh water supplies would be unchanged.

This means enlightened citizens willing to reduce their standard of living by more than 50% is not enough to avoid a disaster for their grandchildren and other species.

To reduce our impact on the climate we must leave fossil carbon in the ground and never burn it for at least a thousand years.

We therefore have no choice but to collapse our population and per capita consumption to, at best, an ancient Roman level. I say at best because the Roman civilization used wood and other resources at an unsustainable rate which led to its collapse.

This of course will not happen voluntarily.

It was an epiphany for me because I am trying to live a low carbon lifestyle but now understand that it probably makes no difference what I do, including influencing those around me. So now I am back to square one wondering what is the best thing to do with the balance of my life.

Why Are We Printing Money?

It’s a simple question.

You’ll hear different simple answers depending on the politics of the speaker. Talking heads on the news will usually say it’s to stimulate growth or to create jobs.

It’s also a big clue.

Large scale money printing has been tried many times in history and it never ends well.  We can expect modest inflation at best, high inflation, social unrest, and war at worst. We’ve been printing full steam for 5 years. They must know it’s risky. They must have a good reason. What’s the real reason?

Could it be?

1) The government is unable to borrow sufficient funds to cover their large deficit without causing interest rates to rise, which would force large cuts in services, and so makes up the shortfall with printed money.

2) The government is worried that if they stop printing the stock market will fall because it has become dependent on easy money. And they don’t want the stock market to fall because then people feel less wealthy and spend less.

3) The government wants to encourage retirement accounts to switch from low risk interest bearing investments to high risk equities, thus stimulating the stock market and increasing investment in companies that might create growth.

4) The big banks are in trouble and are dependent on money printing from which they skim fees and carry trades to rebuilt their reserves.

5) The government wishes to debase the currency to improve export competitiveness.

6) The government seeks to cause inflation as a means of reducing real levels of public and private debt because they know the underlying economy is struggling to service its high debt level.

7) There is little or no real growth which means the money supply is not growing fast enough to cover interest owed on existing debts, and given high debt levels, a large deflationary collapse would occur without a continual injection of new printed money.

There may be some truth in all 7 possibilities, but I discount the first 5 because we’ve had government cutbacks, high interest rates, stock market crashes, bank failures, and competitiveness problems in the past, and we recovered just fine.

I also discount 6) because inflation will cause interest rates to rise which will be a very big problem for governments with high debt.

That leaves 7) which I think is the main reason.

We’ve bumped up against limits to growth.

The Big Picture on One Page

Flation

 

  • our incomes are not rising…
  • which prevents us from increasing our already high debt…
  • which prevents us from affording higher oil prices…
  • which prevents an increase in oil production…
  • which prevents an increase in productivity…
  • which prevents an increase in wealth creation…
  • which prevents our incomes from rising (see above)…
  • which prevents the money supply from increasing…
  • which threatens our ability to pay interest on existing debts…
  • which threatens the value of debts…
  • which threatens a deflationary collapse…
  • which threatens social unrest…
  • which threatens politician’s jobs…
  • which guarantees money printing will continue until it can’t…
  • which erodes the value of our retirement savings…
  • and someday (probably after a crash) will cause fierce inflation…
  • which will make food and other necessities very expensive…
  • which will create social unrest…
  • which will threaten politician’s jobs…
  • which will encourage despots…
  • and thanks to geology…
  • it will cost more next year to produce the same quantity of oil…
  • and the year after…
  • and so on until it costs 1 barrel of oil to produce 1 barrel of oil…
  • and then we will use 100% renewable energy…
  • just like the Romans…
  • except we have to feed 7 billion instead of 100 million…
  • and producing food will be a challenge…
  • with most of the good soil, fish, and forests gone…
  • and an unstable climate…
  • and rising sea levels…
  • and scarce fertilizer…
  • and wars between tribes over remaining resources.