By Tim Morgan: The need for new ideas



This latest post by Tim Morgan may be my new all-time favorite essay because it discusses the topics that are near and dear to my heart:

  1. Growth is over due to surplus energy depletion.
  2. We are denying 1. with debt.
  3. Viable debt requires growth.
  4. We are denying 3. with printed money and low interest rates.
  5. We are denying the dangerous implications of 4.
  6. We should be acting to minimize harm, instead we are maximizing harm.
  7. We can’t address 6. until we confront our genetic denial.

I don’t think Morgan is aware of Varki’s MORT theory, but denial is central to the essay and reinforces my belief that the first step to developing a rational response to our predicament must be broader awareness of our genetic tendency to deny unpleasant realities.

I’ve extracted a few noteworthy paragraphs below but the whole essay is worth your time to read carefully. There is nothing more important for citizens to understand, except of course denial.


This article explores an issue that is always at or near the centre of where the economy is going. Worldwide, the long years of growing prosperity are over, and this change fundamentally invalidates many things that government, business and the public have always taken for granted.

The reason why growth is over, of course, is that we no longer have access to cheap energy. Where geographical expansion and economies of scale once drove down the cost of accessing energy, the driving factor now is depletion, which is pushing costs upward, and is doing so in an exponential way.


Thus far, and in spite of all the accumulating evidence, we haven’t recognised that growth in prosperity is over. Rather, we’ve tried to delude ourselves, by using cheap and easy debt, and latterly ultra-cheap money as well, to pretend that perpetual growth remains alive and well.


But prosperity in the developed West, already in decline, is set to deteriorate steadily. Comparing 2030 with 2016, prosperity is likely to be 7% lower in the United States, for example, and 10% lower in Britain. These projected declines are in addition to the deterioration that has already happened – prosperity has already peaked in the US, Canada, Australia and most European countries.


Worldwide, we’re subsidising an illusory present by cannibalising an already-uncertain future. We’re doing this by creating debt that we can’t repay, and by making ourselves pension promises that we can’t honour. So acute is this problem that our chances of getting to 2030 without some kind of financial crash are becoming almost vanishingly small.

Finally, any ‘business as usual’ scenario suggests that we’re not going to succeed in tackling climate change. This is an issue that we examined recently. Basically, each unit of net energy that we use is requiring access to more gross energy, because the energy consumed in the process of accessing energy (ECoE) is rising. This effect is cancelling out our efforts to use surplus(net-of-cost) energy more frugally.

The exponential nature of the rise in ECoEs is loading the equation ever more strongly against us. This is why “sustainable development” is a myth, founded not on fact but on wishful thinking.


The lure of denial

These considerations present us with a conundrum. With prosperity declining, do we, like Pollyanna, try to ignore it, whistling a happy tune until we collide with harsh reality? Or do we recognise where things are heading, and plan accordingly?

There are some big complications in this conundrum. Most seriously, if we continue with the myth of perpetual growth, we’re not only making things worse, but we may be throwing away our capability to adapt.

You can liken this to an ocean liner, where passengers are beginning to suspect that the ship has sprung a leak. The captain, wishing to avoid panic, might justifiably put on a brave face, reassuring the passengers that everything is fine. But he’d be going too far if he underlined this assurance by burning the lifeboats.


We know that supplies of petroleum are tightening, that the trend in costs is against us, and that burning oil in cars isn’t a good idea in climate terms. Faced with this, the powers-that-be could do one of two things. They could start to wean us off cars, by changing work and habitation patterns, and investing in public transport. Alternatively, they can promise us electric vehicles, conveniently ignoring the fact that we don’t, and won’t, have enough electricity generating capacity to make this plan viable, and that we’d certainly need to burn in power stations at least as much oil as we’d take out of fuel tanks. At the moment, every indication is that they’re going to opt for the easy answer – not the right one.

This is just one example, amongst many, of our tendency to avoid unpalatable issues until they are forced upon us. The classic instance of this, perhaps, is the attitude of the democracies during the 1930s, who must have known that appeasement was worse than a cop-out, because it enabled Germany, Italy and Japan to build up their armed forces, becoming a bigger threat with every passing month. Hitler came to power in 1933, and could probably have been squashed like a bug at any time up to 1936. By 1938, though, German rearmament reduced us to buying ourselves time.

Burying one’s head in the sand is actually a very much older phenomenon than that. The English happily paid Danegeld without, it seems, realising that each such bribe made the invaders stronger. It’s quite possible that the French court could have defused the risk of revolution by granting the masses a better deal well before 1789. The Tsars compounded this mistake when they started a reform process and then slammed it into reverse. History never repeats itself, but human beings do repeat the same mistakes, and then repeat their surprise at how things turn out.


Needed – vision and planning

The aim here is simple. There is an overwhelming case for preparation.  With this established, readers can then discuss what might constitute a sensible plan, and try to work out how any plan at all is going to be formulated in a context of ignorance, denial and wishful thinking.


As the cost of energy rises, economic growth gets harder. We’ve come up against this constraint since about 2000, and our response to it, thus far, has been gravely mistaken, almost to the point of childish petulance. We seem incapable of thinking or planning in any terms that aren’t predicated on perpetual growth. We resort to self-delusion instead.


Since the global financial crisis (GFC), we’ve added monetary adventurism to the mix. In the process, we’ve crushed returns on investment, crippling our ability to provide pensions. We’ve accepted the bizarre idea that we can run a “capitalist” economic system without returns on capital. We’ve also accepted value dilution, increasingly resorting to selling each other services that are priced locally, that add little value, and that, in reality, are residuals of the borrowed money that we’ve been pouring into the economy.

We seem oblivious of the obvious, which is that money, having no intrinsic worth, commands value only as a claim on the output of a real economy driven by energy. When someone hands in his hat and coat at a reception, he receives a receipt which enables him to reclaim them later. But the receipt itself won’t keep him warm and dry. For that, he needs to exchange the receipt for the hat and coat. Money is analogous to that receipt.


The first imperative, then, is recognition that the economy is an energy system, not a financial one, in which money plays a proxy role as a claim on output. In this sense, money is like a map of the territory, whereas energy is the territory itself – and geographical features can’t be changed by altering lines on a map.

It’s fair to assume that the reality of this relationship will gain recognition in due course, the only question being how many mistakes and how much damage has to happen before we get there. No amount of orthodoxy can defy this reality, just as no amount of orthodoxy could turn flat earth theories into the truth.

With the energy dynamic recognised, we’ll need to come to terms with the fact that growth cannot continue indefinitely. Rather, growth has been a chapter, made possible by the bounty of fossil fuels, and that bounty is losing its largesse as the relationship between energy value and the cost of access tilts against us.

In one sense, it’s almost a good thing that this is happening. If we suddenly discovered vast oil reserves on the scale of another Saudi Arabia, we would probably use them to destroy the environment.


Meanwhile, the invalidation of the growth assumption will have profound implications for debt, and may indeed make the whole concept unworkable. If borrowing and lending ceased to be a viable activity, the consequences would be profound.

To understand this, we need to recognise that debt only works when prosperity is growing. For A to borrow from B today, and at a future date repay both capital and interest, A’s income must have increased over that period. Without that growth, debt cannot be repaid.

There are two routes to the repayment of capital and the payment of interest, and both depend on growth. First, if A has put borrowed capital to work, the return on that investment both pays the interest, and also, hopefully, leaves A with a profit. Alternatively, if A has spent the borrowed money on consumption, A’s income has to increase by at least enough to for him to repay the debt, and pay interest on it.

In an ex-growth situation, both routes break down. Invested debt isn’t going to yield a sufficient return, because purchases by consumers have ceased to expand. A’s income, on the other hand, won’t have increased, because prosperity has stopped growing.

This scenario – in which repayment of debt becomes impossible – isn’t a future prediction, but a current reality, and a reality that is already in plain sight.

We need to be clear that the slashing of rates to almost zero happened because earning enough on capital to be able to pay real rates of interest has become impossible.

Businesses which aren’t growing cannot – ever – pay off their debts, and neither can individuals whose prosperity is deteriorating.


Financial exercises in denial (including escalating debt, ultra-cheap money and the impairment of pension provision) have already created a stark division between “haves” and “have-nots”. Essentially, the “haves” are those who already owned assets before the value of those assets was driven upwards by monetary policy. The “have-nots” are almost everyone else, especially the young.


A logical conclusion, then, is that we need a new form of politics, just as much as we need a new understanding of economics, new models for business and a new role for finance. Co-operative systems might succeed where corporatism – both the state-controlled and the privately-owned variants – have failed.

All of these new ideas need to be grounded in reality, not in wishful thinking, denial or ideological myopia. But reality becomes a hard sell when it challenges preconceived notions – and no such notion is more rooted in our psyche than perpetual growth.

By Tim Morgan: Good idea, bad idea


Here is the latest essay by Tim Morgan in which he makes the case for wind and solar energy, and the case against electric vehicles.

The key points Morgan makes are:

  • The energy cost of extracting fossil energy (ECoE) is rising, due to depletion of our best quality reserves, and this trend will continue, forever.
  • Therefore, the surplus fossil energy that remains to run civilization will soon begin to decline, forever.
  • To protect our civilization, which runs on energy, we must transition to the best alternatives, which are solar and wind.
  • Given the scale of the project, and our limited surplus capital, it will be a serious challenge to build sufficient solar and wind to keep pace with declining fossil energy.
  • Adding new electricity requirements for electric vehicles will make an already difficult task impossible.
  • We need to change our expectations and lifestyles to make do with fewer and smaller fossil energy vehicles, and abandon our dreams of electric vehicles.

So far, so good. All valid points, except I wonder about the feasibility of Morgan’s key conclusion that we must substitute fossil with renewable energy.

Here and elsewhere Morgan presents data that shows increasing ECoE for fossil energy will prevent civilization from continuing as usual. He did not present here ECoE data to show that solar and wind have an advantage over fossil energy.

My expectation is that solar and wind ECoE will be worse than fossil energy because, as he points out, they are deeply dependent on fossil energy for construction and maintenance, and because solar and wind have inherently lower power densities and higher storage costs.

I also think we should view renewables as a flow rather than a stock, that must be replaced every 25 years or so when the equipment wears out, with materials that require fossil energy to produce and install.

What is the wisdom of spending all of our precious remaining surplus energy capital on a solution that will work at best for 25-50 years? Moving to solar and wind could actually worsen our predicament.

We might be wiser to invest our remaining surplus energy capital in building out a softer landing zone. For example local water systems that do not require high energy inputs, local food production, community food storage and preservation facilities, public and shared transportation, home energy efficiency, solar hot water systems, and support for small scale local manufacturing.

Choosing the correct strategy requires accurate data. I hope Morgan is able to present the full life cycle ECoE for solar and wind in a future essay.


In short, whilst the case for maximising renewables seems irrefutable, the logic supposedly backing conversion to EVs is hopelessly flawed. We need to start by looking at why renewable energy is such a good idea, before turning to why EVs are such a bad one.

The case for maximising the development of renewables (such as solar and wind power) is wholly compelling. Failure to do this would condemn the world economy to stagnation in the near-term, with prosperity deteriorating steadily in the developed world whilst making little progress in the emerging economies. In the longer term, continued reliance on fossil fuels would be a recipe for economic disaster.

Put at its simplest, investing in solar and wind power is imperative, and is one of the most important issues that society needs to address. It ranks in importance alongside tackling climate change, and raising living standards in emerging economies.

Renewables are vital because they offer the only plausible way of escaping the economic trap posed by the rising energy costs of fossil fuels. We’re not about to “run out of” oil, gas or coal, but the value that these energy sources contribute to prosperity is already coming under severe pressure.

In per capita terms, the implications of these trends are stark. Comparing 2030 with 2016, gross access to fossil fuels per person is projected to have declined by 14%. Higher ECOEs, of course, will exacerbate this problem at the net level – fossil energy per person, available for all purposes other than energy supply, is likely to be 19% lower by 2030 than it was in 2016.

A more fundamental reason for caution about the rate at which renewables output can grow is that these technologies are derivatives of fossil fuels. Building wind turbines and solar panels requires the use of materials which can be accessed only by courtesy of existing fuel sources, most importantly oil. Everything from humble steel and copper to many of the more sophisticated components relies on fossil fuel energy, all the way from extraction and processing to manufacture and delivery.

This consideration reinforces the case for developing renewables as rapidly as possible, because we need to use our dwindling legacy resources of net energy to create the alternative sources of the future. But it also adds to the bottlenecks likely to be encountered in the development process.

A further twist here is that, to the extent that they are derivatives of a fossil fuel set whose ECoEs are rising, there is likely to be upwards pressure on the ECoEs of renewables themselves. Thanks to two main factors – early-stage technical improvement (“low hanging fruit”), and economies of scale – we have become accustomed to declining unit costs in the development of renewables. Costs are likely to continue to fall, but at a decelerating rate, as the scope for ‘easy’ technical improvement diminishes, economies of scale benefits reach plateau, and the ECoE of inputs rises.

Finally, on this score, we need to note that, by 2030, renewables supply would need to multiply, not by the 3.5x projected here, but by 5.5x, just to keep the fossil fuel requirement for power generation constant at current levels. Delivering enough additional power from renewables to start reducing hydrocarbon-based generation looks extraordinarily difficult – and that’s even before we start adding to electricity demand by switching to EVs.

At this point, we need to note a number of mistaken assumptions which are sometimes made in creating a false relationship between EVs and renewables.

First, and as we have noted, EVs are not an essential driver for investment in renewables – this investment will (and must) happen anyway, even if EVs prove a blind alley.

Second, expansionary investment in renewables is not going to make EVs an appropriate strategy. Just like nuclear in an earlier era, renewables are not going to supply energy in such abundance that it will be “too cheap to meter”. We are going to need every KWH of renewable output just to keep up with growth in the baseload (non-EV) need for electricity.

Third, and unlike renewables, EVs are not going to make a positive contribution, let alone a major one, to stemming climate change. The fossil fuel currently burned in IC-powered transport will simply be displaced from vehicle engines to power stations. Battery technologies raise their own pollution and emissions issues, and some of today’s ultra-optimistic expectations for the life efficiency of batteries are already starting to look somewhat questionable.

Beyond the human fascination with the new, the shiny and the technological, the reasons why we are likely to invest huge sums of our scarce energy-legacy capital into pursuing the chimaera of EVs are simple enough.

First, leadership in government and business still fails to recognise the challenge posed by the mounting cost pressures jeopardising the energy (and hence) economic future.

Second, EVs are a form of denial over the really pressing need, which is to readdress and redesign patterns of travel and habitation that are being rendered unsustainable by energy pressures.

This implies that the push for all-out conversion to EVs is an exercise in denial, along much the same lines as the economic denial implicit in debt proliferation, pensions destruction and monetary adventurism.

We may not – yet, anyway – need to adopt a ‘one car per household’ strategy along the lines of China’s “one child” policy. But, at the very least, we need to be rethinking housing and transport patterns, and investing in incremental automotive technologies.

Leaner-burning engines, tighter (and strongly-enforced) emissions restrictions, hybrids, the increased use of engineering plastics and the imposition of a limit of, perhaps, 1.5 litres on engine sizes might be a better idea than building a new generation of heavyweight vehicles designed to harness an abundance of electricity which simply isn’t going to happen.

By Nate Hagens: Energy, Money and Technology: From the Lens of the Superorganism

Nate Hagens gives the best big picture talks, hands down.

What differentiates Nate is his wide and deep understanding of the economy, energy, ecology, and human behavior that he weaves into a coherent realty based description of our predicament.

Nate also does an admirable job of illuminating positive aspects of, and constructive personal responses to, the coming much smaller and less complex world we will all experience in the not too distant future.

Here is his latest talk, a keynote give January 23, 2018, at the King Abdullah University of Science and Technology in Saudi Arabia.

This talk is a refinement of similar talks by Nate I have previously posted. In addition to being more succinct and polished, this version benefits from high quality professional recording.

I’m looking forward to reading Nate’s new book which he said here will be published and made available for free in the next month or two.

Here are some comments Nate posted on his Facebook page.

Back from Saudi Arabia -was a short and great trip – the new King Abdullah University for Science and Technology is one of the richest schools in the world (something approaching $40 billion in endowment and as of yet only 1,000 students). My first trip to Middle East reasserted my belief that people the world over are pretty much the same (duh – we come from same place) – there are crazies and assholes in every country but most people are kind, warm, and pro-social. I had great conversations with taxi drivers, students, janitors, store clerks etc. I met a guy from Tunisia at airport and we laughed about all the world problems and what a time it was to be alive. Most humans just want to spend quality time w family and friends, tell stories and listen to music, play with their dog, do meaningful interesting work, and be free. It gives me hope that despite being African, Asian, European or American, despite being Christian, Buddhist, Muslim or Atheist, there is a growing group that transcends these tribal boundaries towards thinking about and working on the future transition. (another of a handful of silver linings facing some serious global storm clouds)

Below is the video of the keynote I gave – I finally condensed the relevant aspects of what we face into less than an hour, but had to speak pretty fast to do it. If you haven’t watched one of my talks for a while this would be the best one to watch (plus their technology was amazing, 5 cameras, etc.) (the 2nd talk The 40 Flawed Assumptions Underpinning Modern Civilization, was in a different venue and not filmed)



An interview with Nate was also recorded at the conference. I really like the thoughtful questions and responses, as well as it’s unhurried pace.

By Raúl Ilargi Meijer: 10 Years Automatic Earth

Chart by Charles Hugh Smith @

Here is a nice 10 year recap on the work of Nicole Foss and Raúl Ilargi Meijer, with a refresher on where we are today, and why almost everything you read in the popular media today is pure fantasy.

Note that belief in fantasy is yet another way to describe denial of reality.

The 20 trillion (that’s 20 thousand billion) dollars Meijer refers to is the amount of new debt (aka. printed money) that central banks worldwide have created since we “recovered” from the 2008 financial crisis. That’s a really really big number that should worry anyone with a functioning brain.  And it’s also a pretty good proxy for how much we’ve increased human overshoot since 2008.

What has changed, and increased, a lot over the past decade is the media. They have moved, more than before, into a kind of la la land where narratives are invented and presented with the express intention of keeping people feeling good about themselves in the face of all the distortion and disasters they face.

The big move in energy is not so much peak oil, but a meme of moving away from oil. ‘Renewable energy’ is all the fad, and it works, because it holds the promise that we can maintain our levels of energy consumption, and our lifestyles in general, pretty much up to some undefined moment in the future. For all you know, a seamless transition.

It’s a nonsense narrative, which originates not just in wishful thinking, but much more than that in widespread ignorance about what energy actually is and does, and what qualities oil and gas bring to the table that no other energy source can.

We must have written a hundred articles about such themes as energy return on energy invested (EROEI), and that the EROEI on renewables doesn’t allow for our present complex societies to continue as they are. Renewables are not useless by any means, but switching to them from oil will mean a huge simplification from our present lives. More than anything, probably, we have to ask if that would be such a bad thing.

But that is a question we avoid at all costs, because it is a threatening one. It implies we may have to do with less, and that’s not what we’re hardwired to do. Like any other species, we always want more. This is so ingrained in our world that our economies depend squarely on a perpetual need to strive for more tomorrow than we have today. Not as individuals, perhaps, but certainly as a group.

More trinkets, more gadgets, more energy. And for a -relatively- long time, more people. Relatively, because population growth is a recent phenomenon. It started at the very moment we began to have sources of ‘free’ or ‘surplus’ energy. Give any species a source of ‘surplus’ energy, and it will use it up as fast as it can, and proliferate to achieve that, until the surplus is gone. We are no different.

Of course, as the 2nd Law of Thermodynamics holds, the use of energy produces waste. More energy use produces more waste. One source may be slightly less polluting than another, but it’s thermodynamics that dictates the limits here. No energy source is fully renewable, and clean energy is just an advertizing term. And with an energy return too low to run complex societies on, those are hard limits. The only way out is to use less energy, but our economic models are geared towards the opposite, as are our brains.

Meanwhile, we’re saddling our children with the consequences of our prolific use of energy. Species extinction runs a hundred or a thousand times faster than is ‘natural’, ever more of our arable land is too polluted or wasted to produce food, and the grand mass of plastics in our oceans exceeds that of the living creatures that fed us for a very long time, taking the numbers of these creatures down so fast our grandchildren will have to eat jellyfish.

Ironically (and there’s lots of irony in the story of our tragic species), we produce more food per capita today than ever before, but its distribution is so warped that one group of us throw away more than we consume, while another goes hungry. And to top it off, much of what we eat lacks nutrition, and is often even downright toxic for us; it makes us fat and it makes us sick.

Then again, our entire environment is also fast becoming toxic. We’re a bloated, obese, asthmatic, allergic and cancer-riddled species, and yet we call ourselves a success. It’s all about the narrative.

But as Nicole and I said 10 years ago, and still do, it’s finance that will be the first crisis to hit. It will hit so hard it’ll make any other crises, environment and energy, feel like an afterthought. Pension plans across the board will prove to be a Ponzi, housing will collapse, shares will crumble, scores of people will lose all their savings and their jobs, their homes.

This is because, in an ostensible effort to ‘save’ our societies and economies, our -central- bankers and politicians decided to put everything on red, and loaded another $20 trillion into the upper shelf of the financial world, the very shelf that was most rotten to begin with in more than one sense of the word. And they’re not the ones paying the heftiest price for this stupidest bet of all times, you are.

All in all, the only possible conclusion we can draw is that in the past 10 years, things have indeed changed. Thing is, they have changed for the worse. Much worse. And the recovery narrative can’t and won’t hold. Question is who realizes this, and what they are planning to do with the knowledge.

By Ugo Bardi: Are We Decoupling?


When driving at speed towards a brick wall should you accelerate or brake? The laws of physics prevent you from going through the brick wall, but you can influence the condition of your health at the brick wall.

This essay by Ugo Bardi shows that our standard of living is totally dependent on non-renewable resources that emit carbon. If we continue with monetary strategies to maintain business as usual we will experience a brick wall at speed when debt accumulates to a level that makes it ineffective at supporting the extraction of high cost fossil energy, and prior to the crash, we will continue to push the climate from an already unsafe state to something worse.

A wise society would acknowledge its denial of a dire predicament, set a goal to maximize well-being at the brick wall, and step on the brake to manage a fair and civil contraction of the economy via population reduction, austerity, and conservation.

Decoupling looks like an obvious idea, isn’t it? After all, isn’t that true that we are becoming more efficient? Think of a modern LED light compared with an old lamp powered by a whale oil. We are now hundreds of times more efficient than we were and we also saved the whales (but, wait, did we…..?). So, if we can do the same things with much less energy, then we could grow the economy without using more energy, solving the climate problem and also the depletion problem. It is part of the concept of “dematerialization” of the economy. Then we paint everything in green and all will be well in the best of worlds.
But there has to be something wrong with this idea, because it is just not happening, at least at the global scale. Just take a look at the above image.
In the end, society needs energy to function and the idea that we can do more with less with the help of better technologies seems to be just an illusion. If we reduce energy consumption, we’ll most likely enter a phase of economic decline. Which might not be a bad thing if we were able to manage it well. Maybe. Calling this “a challenge” seems to be a true euphemism, if ever there was one. But, who knows? Happy 2018, everybody!

By Tim Morgan: The Way Ahead

Perfect Storm

Tim Morgan, author of the seminal report Perfect Storm: Energy, Finance and the End of Growth, from which I extracted the above image, just published a nice year end essay.

I’ve highlighted in red Morgan’s references to denial, although I don’t think he is yet aware of Varki’s MORT theory.

What we know

Based on the SEEDS platform, and helped enormously by reader input, we’ve reached a point at which our understanding of issues is very comprehensive, and can be considered leading-edge in providing interpretations unavailable to conventional methodologies. The system has proved itself a very effective predictor – so much so that some very general projections are made later in this discussion.

First, though, it’s well worth reminding ourselves quite how much we now know.

We know that the economy is an energy system, with a parallel financial economy attached to it in a subservient role. Most of us had long suspected that this might be the state of affairs, but we have now gone a long way towards demonstrating it. We can claim that our ability to predict has become superior to that of conventional thinking. The much-vaunted V-shaped recovery after 2008 hasn’t happened, and massive stimulus hasn’t restored robust growth. The surplus energy perspective always suggested that neither of these consensus expectations was likely to be proved right.

We have known for some time that, in the developed economies of the West, prosperity is deteriorating, something about which the consensus view is still in deep denial. Some of the consequences of waning prosperity have already become apparent, most notably in politics, where events such as “Brexit” and the election of Donald Trump were wholly predictable on the basis of adverse trends in prosperity. Some other logical consequences, in business and finance as well as in politics, are eminently predictable, even though they still lie in the future.

Energy-based analysis, and recognition of the proxy nature of the financial system, have enabled us to understand policy, and its failures, over an extended period. We know that real or “organic” growth began to fade after 2000, and, because we understand energy dynamics, we know why this happened.

We can identify two phases in a process of denial-response to this basic reality. The first was the period of credit adventurism, a policy of unfettered and irresponsible debt creation between 2000 and 2008.

The second, beginning in 2008-09 and still ongoing, is monetary adventurism, and comprises the addition of the recklessness of ‘cheap money’ to the debt recklessness of the earlier chapter.

Just as credit adventurism led to the 2008 banking crash, monetary adventurism is highly likely to create a second and an even more serious (and potentially existential) financial crisis, this time extending far beyond banking, and into the fiat currency system. We know that this must have political and social as well as economic and financial consequences, and we know that the destruction of pension viability – a direct consequence of the crushing of returns on capital – will play a big part as this unfolds. Just as importantly, the conventional thinking which didn’t see 2008 coming is now in blissful ignorance about what is likely to happen next. This ignorance isn’t simply hubris or blinkered thinking. It reflects the breakdown of established paradigms.

Finally – for now – we know that the case for “sustainable development”, as it is generally understood, lacks demonstrated viability, and is a matter of assumption rather than analysis. In short, it is wishful thinking. We know this because energy-based economics, with its distinction between the real and the purely financial, requires us to understand the dynamics of credit, money and “growth”. This process strips away the claims made for growth upon which, in turn, are predicated assumptions about climate change.


Looking ahead

From this body of understanding, backed up by statistics, we are able to make some projections with high levels confidence about predictive accuracy. This article isn’t the place for detailed predictions, but there are a number of broad outlines which are worth noting.

Critically, prosperity in the developed economies will continue to deteriorate. This trend appears irreversible and, in some countries, is being exacerbated by mistaken policies. ‘Prosperity’, in this context, means average discretionary incomes – that is, the spending power of individuals and households, after the cost of essentials has been deducted from their resources.

We also know that this waning prosperity will be accompanied by further balance sheet deterioration, meaning that debt will continue to increase faster than economic output, and that provision for the future (most obviously, pensions) will continue to be undermined. The “global pension time-bomb”, for example, cannot be defused without the adoption of policies which would have crippling near-term effects. It seems highly likely that the public will, sooner rather than later, come to understand that their chances of enjoying a comfortable retirement are being destroyed. This recognition is likely to become a political factor of immense importance.

In a political climate characterised by deteriorating prosperity, worsening insecurity and growing resentment over perceived unfairness, the centre-right can expect to get the blame, and it can only make its defeat all the more comprehensive if it argues for more, rather than less, of failed policies like privatisation and deregulation. “Popular” or “populist” politicians can expect to make further gains, though this does not mean that their policies will always be implemented. Donald Trump’s budget, and the growing likelihood of “BINO” – meaning “Brexit In Name Only” – illustrate the determination of the elites to frustrate popular demands. These are promising conditions for the political Left, once it has purged its ranks of the “new” or “centrist” wings perceived by activists to have “sold out” to “liberal” economics in the recent past.

All of this has profound implications for business and finance. The established model, which remains built around the promotion of volume expansion despite deteriorating consumer circumstances, is going to come under increasing pressure. Any business whose strategy is founded on low wages, reduced security of employment, globalisation or the deregulation of consumer and employee protections is in urgent need of a “plan B”. Meanwhile, the near-certainty of a second financial crisis requires a rethink from financial institutions, whose assumptions about another taxpayer bail-out are, very probably, dangerously complacent.

Finally, public tolerance of wealth and income inequalities seems certain to deteriorate still further. Sooner rather than later, either Left or “populist” leaders are going to start asking quite how much money any individual actually needs. The ultra-wealthy might need to dust-off those plans for flight, though it seems increasingly likely that they can forget about New Zealand as a bolt-hole.

By Brian Davey: Limits to Economic Growth?

These notes from a lecture recently given by Brian Davey are a very nice primer and refresher on limits to growth.

The most interesting thing about limits growth is that it is, by far, the most important issue we should be discussing as a species, yet it is pretty much the only issue that we never discuss.

Denial is amazing!






This diagram by Charles Hall (and reproduced in my book Credo) can be thought of as illustrating the idea of the techno-fix transition if it were possible. It shows two diagrams of the economy and energy system in 1970 and 2030. There are no figures – the point of the pictures are to show the way that more energy is extracted out of the global system and then used in the global economic process between the two dates – and to show the different proportions in which the global economic output is divided up. Although more energy is being used at the later date a much higher proportion of the output of the society has to take the form of investment goods – machinery, equipment and infrastructure – with a smaller proportion in the form of final consumer goods. The higher machinery, equipment and infrastructure has to be applied to extracting energy because more resources are needed for pollution and waste control, for reducing greenhouse gases, for coping with the depletion of energy minerals, for investing in energy sources like solar or biofuels that give a very low energy return on energy invested and to cope with intermittency. In other words – the higher investment in energy does not mean higher output of energy – it is necessary to cope with the declining efficiency, declining returns of the energy system past the limits to growth.

Since a large proportion of total production is being devoted to investment goods to cope with depletion and pollution, less is left over for consumer goods and particularly for discretionary consumer goods – luxuries, the goodies of a consumer society. But what consequences would this have? As people have to pay more for clean energy they would have less for the knick-knacks on sale in the luxury shops in airport lounges, if indeed people could any longer afford to fly. The argument here is that this would be crushing to a consumer society and there would be a permanent recession in the consumer goods sectors – indeed there would be a political crisis in such a society.

In summary, the theorists of 1972 argued that growth would run out as more and more resources would have to be devoted to the work arounds and techno-fixes to deal with depletion and pollution. They did not deny that techno-fixes would be available – what they were drawing attention to was that adopting them would take resources away from growing production to fixing the problems. Eventually fixing the problems would become too expensive so industrial production and food production would turn downwards. They were right. That’s exactly what is happening…