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!

http://www.feasta.org/2017/12/07/limits-to-economic-growth-2/

 

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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…

By Jacob Freydont-Attie: The Cross of the Moment

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This excellent 2015 documentary is a series of bright minds discussing the human predicament from different insightful perspectives.

Most of the big issues like over-population, fossil energy dependence, climate change, and species extinction are discussed with honesty and an absence of denial.

I particularly like how the director Jacob Freydont-Attie set the ominous tone by opening with a discussion of the Fermi Paradox.

A couple of participants made the common uniformed claim that we can easily continue business as usual without emitting carbon, and no one commented on how odd it is for such an intelligent species to deny it’s predicament, but on balance I think this is one of the best documentaries I’ve seen on human overshoot.

Thanks to GailZ for bringing this to my attention.

Here is some information from the home site:

A deep-green, deep-time, highly cerebral discussion of the environmental crisis, The Cross of the Moment attempts to connect the dots between Fermi’s Paradox, climate change, capitalism, and collapse. Interviews with top scientists and public intellectuals are woven together into a narrative that is challenging, exhausting, and often depressing as it refuses to accept the easy answers posited by other overly-simplistic climate change documentaries. No fancy graphics or distracting introductions detract from what is essentially an 80 minute constructed conversation among a group of highly informed experts on the most important topic in human history; will our species survive catastrophic climate change?

The film is divided into seven chapters that start from the widest perspective, why do we appear to be alone in the galaxy, and slowly narrows its focuses through a series of topics including Rare Earth Theory, human impact on the biosphere, potential solutions, structural barriers to implementation, the possibility of the collapse of civilization, and a final call for immediate engagement at all levels of society.

Interviewees are Don Brownlee, Roger Carasso, Robin Hanson, Mark Jacobson, Derrick Jensen, David Klein, Bill McKibben, Guy McPherson, Bill Patzert, Gary Snyder, Jill Stein, Peter Ward, and Josh Willis. Some of these are household names, other are more obscure scientists working in academia or for government institutions such as NASA. What they all share is a pressing concern for the future of our planet. Certainly more demanding on its audience than similar films, there is also present here a layer of humor and, more importantly, a deep sense of humanity. By the end the audience has not just explored our current crisis from a variety of thoughtful perspectives, but also become acquainted with these highly original intellectuals as people seeking truth as we all are.

The film takes its title from a stanza of W. H. Auden’s poem The Age of Anxiety, published in 1947.

 

By Respect Silence: Blight for Naught: Wind Turbines and the Rationalized Desecration of Nature

Someone named Respect Silence posted a comment with a link to an essay he/she wrote on the environmental damage caused by wind turbines.

As I read this wise and well written essay I saw a recurring theme of reality denial and so thought it appropriate to repost.

https://evilnoisypeople.wordpress.com/2016/08/29/windturbineslandscapes/

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Being an engineer this quote resonated with me:

Engineers are generally not stupid people, so they’re either lying to themselves or have chosen to disrespect nature.

I once “lied to myself” on all matters concerning the environment. I now understand my old behavior to be inherited reality denial, which is a subconscious form of lying.

Here are a few more noteworthy extracts, however I recommend you read the entire essay.

Reason and restraint were once central to ecological thinking and one wonders if younger environmentalists really understand what “the environment” is, beyond AGW.

Unsettling numbers of environmentalists fail to see that wind turbines are enemies of nature posing as saviors. Ruining the countryside with obscenely large towers is a continuum of the “build, build, build!” mentality that’s destroyed nature throughout history. It’s the towering, spinning version of “drill, baby, drill!” and supply-side ideology. Wind energy promoters are desperate to believe that their emperor isn’t an ungainly giant who cuts down trees, blasts ridges, kills airborne animals and tortures ground-based ones with blight and noise. They claim to be environmentalists but they’re mainly about non-fossil energy and new income streams. The presumption that nothing is workable unless someone’s profiting is a big part of the problem. Austerity and conservation are anti-revenue concepts that don’t sit well with a greedy populace.

Windnuts share many traits with the wingnut climate deniers they claim to despise; always pushing for more gigawatts and construction projects. Instead of protecting nature from people, now it’s about sustaining what people built with fossil fuels, using much weaker forms of energy that require vast acreage. If landscapes must be trashed for the “greener good,” they’re fine with it. Way to go, you soulless idiots! Pursuing a nature-wrecking technology in the name of environmentalism is dystopian irony at its worst. Wind power just escalates Man’s historical plundering of nature and the Manifest Destiny mindset. It squanders our last chance to conserve and downsize per countless warnings about carrying-capacity overload.

True green = small footprint. But unless people practice restraint and use more birth control, our long-term existence on this planet won’t be guaranteed by any technology. Fossil fuels built this whole mess and it will be hard to sustain without them. The whole notion that there “must be a solution” is countered by historical evidence of human greed and shortsightedness.

End note: This author isn’t a global warming denier but wind power should not be a linchpin of climate strategy. It’s taking us in the opposite direction of conservation, restraint and humility. We need a degrowth/steady-state plan vs. the same unsustainable growth rebranded as green. Nature’s been telling us to downsize and a wise species would pay attention.

By Nate Hagens & DJ White: GDP, Jobs, and Fossil Largesse

Certified 100% Denial-Free™.

Thanks to Ugo Bardi for posting this excellent essay by Nate Hagens and DJ White.

https://cassandralegacy.blogspot.ca/2017/11/why-do-we-need-jobs-if-we-can-have.html

Here is some information on EarthTrust’s Bottleneck Foundation that White and Hagens lead.

http://earthtrust.org/bottleneckfoundation/

Nate Hagens continues to produce the best and most accurate big picture explanations of our predicament. You will find many other excellent videos and essays by Nate here.

 

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First, some review of relevant points:

BASIC

1. Fossil carbon compounds are incredibly energy dense, as their formation and processing was done by geologic forces over deep time. One barrel of oil contains about 1700 kWh of work potential.Compared to an average human work day where 0.6kWh is generated, one barrel of oil, currently costing under than $50 to global citizens, contains about 10.5 years of human labor equivalence (4.5 years after conversion losses).

2. As such, these ‘fossil slaves’ are thousands of times cheaper than human labor. Applying large amounts of these ‘workers’ to tasks humans used to do manually or with animals has generated a gargantuan invisible labor force subsidizing humanity – building the scale and complexity of our industry, complexity, population, wages, profits, etc.

3. GDP – what nations aspire to – is a measure of finished goods and services generated in an economy. It is strongly correlated with energy use, and given that almost 90% of our primary energy use is fossil fuels, with their combustion. ‘Burning stuff’ (measuring how much primary energy is consumed) is a reasonable first approximation for GDP globally.

4. Regionally and nationally this relationship can decouple if the ‘heavy lifting’ of industrialization is done elsewhere, and the goods (and embodied energy) imported. (e.g. China). The relationship between global energy use (which is ~87% fossil fuel based) and GDP remains tightly linked.

ADVANCED

5. The common political mantra that higher GDP creates social benefits by lifting all boats has become suspect since the 2008 recession and ‘recovery.’ For the first time in the history of the USA, we now have more bartenders and waitresses than manufacturing jobs. In order to maximize dollar profits, it often makes more sense for corporations to mechanize and hire ‘fossil slaves’ than to hire ‘real workers.’ Real income peaked in the USA around 1970 for the bottom 50% of wage earners.

6. GDP only measures the ‘goods’ and doesn’t measure the ‘bads’ (externalities, social malaise, extinctions, pollution). Actually, natural disasters like oil spills and hurricanes are ostensibly great for GDP** because we have to build and burn more stuff to replace the damaged areas. (**Note, only to a point – once a country – e.g. Haiti or the Philippines – cannot afford to replace what was lost, then natural disasters become a sharp negative to GDP as infrastructure underpinning future GDP is lost and can’t be rebuilt)

7. On an ‘empty planet,’ pursuing GDP in order to gainfully employ people (and distribute money so they could buy needs and wants) seemed to make sense. However, on an ecologically full planet pursuing GDP with no other long-term plan is using up precious natural capital stocks just to maintain momentum and provide people brain-pleasing neurotransmitters.

8. There are numerous alternative measures to GDP that incorporate well-being and happiness and subtract environmental ills. But it won’t be easy to switch objectives from GDP to e.g. G.P.I. (Genuine Progress or Happiness) because the present creditors will expect to be paid back in real GDP ($) rather than happiness certificates. Still, over time, strict metrics of success based on consumption alone are likely to change.

9. There will likely be a growing disparity between ‘jobs’ (occupations that provide income and contribute to the global human heat engine) and ‘work’ (those tasks that need to be accomplished by individuals and society to procure and maintain basic needs). However, at 2015 USA wage rates, moving from $20 per barrel (the long-run average cost for oil), to $150 per barrel, the army of energy slaves declines from 22,000 per barrel to under 3,000 – meaning the economy shrinks and therefore much more work needs to be accomplished via efficiency improvements, real humans, or making do with less.

10. Our institutions and financial systems are based on expectations of continued GDP growth perpetually into the future. No serious government or institution entity forecasts the end of growth this century (at least not publicly).

 

Okay. Let’s unpack all of this a bit.

Often in the news today, you’ll hear people talking about job growth and job creation like it’s a good thing. Everybody wants a good job, right? The more jobs we have to do, the better off we are!

Yet if you kick open an anthill or a beehive, the insects will not be grateful for the sudden boost in job creation, and they will effectively utilize the cross-species language of biting and stinging to inform you of this opinion. From this we may infer that insects don’t understand economics.

Alternately, it could it be that ants – having honed their behaviors for 130 million years and having attained a total biomass we have only recently (and temporarily) matched – might be in tune with some deep realities about jobs, energy, and the embodied cost of building complexity.

Since this is Reality 101, let’s ask some basic questions. What ARE jobs, really? How do they relate to energy and wealth? How do we keep track of whether we’re richer or poorer? We all kinda feel like we know. And (as a general rule) whenever “we kinda feel that we know” is the case, we should probably take a closer look.

To do so, we’ll first need to add a few things to our story about ants. We need to revisit our invisible energy slaves, discover what “freaks out” capuchin monkeys, and think about what wealth actually is.

Energy Slaves again

As you recall – and as we’ll discuss in greater detail as the course goes on – every American has over 500 invisible energy slaves working 24/7 for them. That is, the labor equivalent of 500 human workers, 24/7, every day of the year, mostly derived from burning fossil carbon and hydrocarbons.

Every American thus has a veritable army of invisible servants, which is why even those below the official poverty line live, for the most part, lives far more comfortable and lavish with respect to energy and stuff than kings and queens of old (but obviously not as high in social status). Being long dead and pulled from the ground – and thus a bit zombie-esque – these energy slaves don’t complain, don’t sleep, and don’t need to be fed. However, as we are increasingly learning, they do inhale, exhale, and leave behind waste. Since they’re invisible, we don’t think about these fossil helpers any more than we think about nitrogen (which happens to be 78% of what we breathe in, but hey, it’s just “there”, so why think about it?) Same with our 500 energy helpers. The extent we think about them is when we fill up at the pump or pay our electric bill – and then only as an outlay of our limited dollars.

We use the “slave” metaphor because it’s really a very good one, despite its pejorative label. Energy slaves do exactly the sort of things that human slaves and domestic animals previously did: things that fulfilled their masters’ needs and whims. And they do them faster. And cheaper. Indeed, it probably wasn’t a big coincidence that the world (and the USA) got around to freeing most of its human slaves only once industrialization started offering cheaper fossil-slave replacements.

The things we value are created with a combination of human and energy-slave work combined with natural capital (minerals and ores, soils and forests, etc.). There are huge amounts of embedded energy in the creation and operation of something like an iPad and the infrastructure which makes it work. When we tap our screen to view a kittycat picture, the image is pulled from a furiously spinning hard drive which may be halfway around the planet, propelled by some fossil slaves, and routed through data centers which are likewise fueled. The internet uses over a tenth of the world’s electricity – that’s a lot of energy slaves. The infrastructure itself has taken decades to build, and requires constantly increasing energy to maintain. But we don’t think much about that either.

So the internet is infrastructure we have invested energy in, just like a built anthill has been invested in with ant labor. If the internet (or an anthill) was destroyed and needed to be rebuilt, that situation would certainly create jobs. But it would also require a lot of energy, raw materials and work. Ants don’t have energy slaves, so they don’t want more work to do. They are dealing with finite energy inputs in their ecosystem. If more energy (ant-labor) is devoted to rebuilding the anthill, less energy is then left to care for the larvae, forage for food, and defend the hive.

Energy slaves don’t care either way about job creation. (Being zombies and all). But why do we?

Everybody wants a good job.

Remember this, because it’ll come up again and again in Reality101: evolution works with what it’s got. It’s a stepwise process, and each step is based on what was available in the step before. This is true both for biological and social evolution. That’s why there are no animals on the Serengeti with wheels: there’s no viable path to evolve wheels from feet, because even if there was a way of designing animals that had wheels, there are no viable intermediate stages. Hold that thought…

Now in times past, a human’s career, their societal function, was largely about their own individual labor and skills. A blacksmith worked with metal. A cooper made barrels. A shoemaker made shoes.

Others made furniture, cloth, or other valuable commodities. Farmers created food. Preachers preached. Others did simpler labor like digging ditches or cutting down trees. The relative value of their labor was roughly set by how much other humans valued the end product of such labor, so a skilled blacksmith might be able to trade his services for more status and better accommodations than a ditch digger. Thus, it became an integral part of human culture that the products of some work were considered more valuable than others. It became a mark of social status and pride to have such a career. Hold that thought too, we’ll be coming right back to it.

Cue the Screaming Monkeys.

“Equal Pay for Equal Work” is currently the slogan for those opposed to sexual discrimination, which is usually characterized by women getting paid less than men. And it’s a sentiment which has deep roots in the ape and even simian mind.

If you give capuchin monkeys the “job” of doing a nonsense task in exchange for a reward, they will happily do it all day long as long as they keep getting a reward – cucumber slices. But if a capuchin sees the monkey in the next cage get a (better tasting so higher value) grape while it still gets a cucumber slice, it’ll go ape, throwing the cucumber slice in the face of the experimenter in a rage. It gets the same cucumber slice it has been happy to work for before, but it no longer wants it, because it no longer feels fair in comparison to its cage mate’s effort and reward. Instead, it wants the experimenter and the other monkey to be punished for this inequity (we watched this video of Frans de Waals experiment in class).

Think for a moment how central this monkey reaction is to the human world around you. We’ll come back to it later in the course, and will refer to the term “capuchin fairness” because a similar mechanism turns out to be behind a great deal of human behavior. We’re outraged at the notion of somebody getting more reward than we do for doing the same thing. Indeed, many large-scale human institutions now stress perceived fairness of process over quality of end results. (A prominent example might be the US Congress). Moreover, this monkey-business also reiterates the concept of relative wealth being more important to a monkey mind (and a human mind, it turns out) than absolute wealth, which is kind of nuts, but that’s monkeys for you.

It turns out that our brains are simultaneously trying to optimize two different, and somewhat incompatible pursuits, both of which have deep evolutionary roots in our social species. One is energy gathering and wealth creation: obtaining food, procuring clothing and shelter – basically optimal foraging theory applied to the human biological organism. The other is equitable social distribution and transparency of process. A tribe of hunter-gatherers needed to cooperate as a mini super-organism to get food and defend territory and stand together against competitors. But within the tribe, an individual’s success depended on it getting a reasonable share of what the tribe had. We’re descended from tribe-members who insisted on at least their fair share, as is every living capuchin, so it’s not surprising it’s such a strong feeling. But when both of these instincts are operating simultaneously, in an era where our species happened upon a buried treasure of fossil pixie dust, some interesting practices emerged…

Ok. Ants. Monkeys. Energy Slaves. So where did “jobs” come from?

A funny thing happened on the way to the Anthropocene. To an ever-increasing degree over the last two centuries, wealth has been created more by fossil slaves than by human labor, significantly more – and it’s at its all-time peak about now. (you’ll have the information to derive this yourself by the end of this course).

If you don’t believe that, try hiring a bunch of people to push you and your SUV around hundreds of miles per week with their own muscles and see what it costs you, and then see how little it costs you to buy the same work in a tank of gasoline. In fact, the vast majority of the tasks and stuff that used to be done by human labor is now done by fossil slaves and the infrastructure they have enabled. The slaves have also made shipping nearly free, so any actual human labor we need can also be hired in the cheapest places on earth (under essentially slave labor conditions), and shipped to us by planes, trains, ships and trucks for next to nothing. So rather than buying furniture from local artisans, we make local firms compete with furniture made halfway across the world which is cheaply shipped to a local store. To a good first approximation, the USA doesn’t make anything anymore (well, movies…).

We have amassed a huge amount of wealth, even if much of it is dumb stuff like plastic toys and salad shooters and things that quickly break. There are so many things we think we want, so we get them. We eat salads with fresh veggies which may be grown 5000 miles away and air-flown to our stores by energy slaves running the planes, refrigerators, trucks, and stores. The average dinner travels over 1400 miles to get to your plate in USA.

We increasingly buy disposable everything – used once and tossed away. Most everything is short-life these days; when your authors were young if you bought a fan, you expected it to last 20+ years. Now if it lasts 2-3 before you toss it, that’s about par for the course. Planned obsolescence exists because it’s “good for GDP.” A new dishwasher now lasts 6-8 years when it used to last 12-16, because they now have integrated cheaper electronics that fail. Our GDP has become tethered to rapid product-replacement cycles keyed to our short attention spans and our enjoyment at buying new things. This creates “jobs” for car salesmen, advertising executives, etc., but has tilted the scales in favor of “useless GDP” rather than real societal utility. We know how to make things with high quality that last, but due to time bias and the financialization of the human experience, such an objective is relatively unimportant in our current culture. Many people get a new phone every 18 months with their cell plan, and perfectly functional ones wind up in the landfills.

But how should we distribute the largesse of the energy slaves? Does everyone get equal shares? Do we take the total number of dollars (which is the way we count such things) created by energy-slave work and divide them equally among the population?

Heavens no. We haven’t even acknowledged that the energy slaves are responsible. Rather, with a bit of help from opportunism, social evolution co-opted the pre-existing “work for pay” concept into an uneven distribution system that “felt” fair.

These days there are a lot of jobs in the USA, which keep us very busy not making much of anything of long term value. We do advertising, hairstyling, consulting, writing, and a lot of supervising of the things our fossil slaves do. We don’t care all that much what we’re doing as long as we feel we’re getting paid at least as well for the same task as the other capuchins – er… people – around us, and that with our compensation we can buy things that give us pleasing brain-reward experiences. These days in this culture, a “good job” is defined by how much it pays, not by what it accomplishes. Many people would consider it an optimum situation, a great job, to sit in a room for 40 hours per week and make $100,000 per year, just pulling a lever the way a capuchin does for a cucumber slice. You know they would (would you? Think about it. Now think about how that compares to the career you’re currently planning).

And that’s where the perceived equality is: the equality of inconvenience. The 40-hour work week is a social threshold of inconvenience endured, which is now what we keep primary social track of rather than the productive output of a person’s activity. In 1930 John Maynard Keynes predicted that wealth would increase 600% in the next century (which is only 15 years away) and because of this wealth, people would only need to work 15 hours per week. He was right about our wealth increase, but paradoxically, we are working longer hours than ever! Because socially, everyone who isn’t a criminal is supposed to have a job and endure roughly equivalent inconvenience. Any segment of society which went to a 15-hour work week would be treated as mooching freeloaders, and be pelted by cucumber slices and worse.

In a society in which we’re all basically idle royalty being catered to by fossil slaves, why do we place such a value on “jobs”? Well, partly because it’s how the allocation mechanism evolved, but there also exists considerable resentment against those who don’t work. Think of the vitriol with which people talk about “freeloaders” on society who don’t work a 40-hour week and who take food stamps. The fact is, that most of us are freeloaders when it comes down to it, but if we endure 40 hours of inconvenience per week, we meet the social criteria of having earned our banana pellets even if what we’re doing is stupid and useless, and realized to be stupid and useless. Indeed, a job that’s stupid and useless but pays a lot is highly prized.

So “jobs” per se aren’t intrinsically useful at all, which is why ants don’t want more of them. They’re mostly a co-opted, socially-evolved mechanism for wealth distribution and are very little about societal wealth creation. And they function to keep us busy and distract us from huge wealth disparity. We’re too busy making sure our co-workers don’t get grapes to do something as radical as call out and lynch the bankers. Keeping a population distracted may well be necessary to hold a modern nation together.

And since most of our wealth comes from invisible, mute slaves we don’t even think about, it isn’t clear to us that what we’re actually doing in current economies is distributing the wealth they create.

That means we can now have wild disparities in pay, as long as it “feels like” others are doing something qualitatively different. The amount paid to a wall street vice president is hugely greater than that paid to a college professor, which in turn is greater than that paid to an environmental campaigner. This has pretty much nothing to do with the relative worth of each function to society, and everything to do with how well-connected such jobs are to the flow of energy-slave-created wealth. Yet if higher pay is received by someone in another “tribe” who we don’t directly interact with, we don’t feel the urge to scream and throw our paycheck. We just wish we had a “better” job.

If we reflect on the possibility that we have en-masse simply accepted the premise that the job is somehow paid what it’s worth, we arrive at some disturbing conclusions. Is a teacher, farmer, or fireman really of less value to society than a real-estate flipper? The amounts paid for jobs have been allowed to float freely, detached from actual societal value as the degree of political connectedness of those with such jobs varies. The vast majority of our wealth comes from primary natural capital in tandem with fossil slaves and from the fruit of empire; jobs are mostly an ad-hoc mechanism for distributing this wealth unequally in a way which effectively conveys the illusion of egalitarian process.

For now, are most of us just idle princes and princesses in a fossil-slave kingdom, none of us really at huge risk, and mostly doing things which have little net value? And what happens when our fossil slaves grow wings and fly away into the atmosphere? What will the princes and princesses do then?

That’s just Gross.

This leads us to the story of how we keep track of our wealth and productivity and success. How DO we keep track of that collective wealth anyways?

Well for real wealth, mostly we don’t. The value of a healthy ecosystem, clean air, seas full of fish, fresh drinkable water… love, joy, happiness and fulfillment… all these things our market system considers to be of essentially zero value. Armadillos, dolphins, hummingbirds, rainforests… you get the idea.

But our economists have a metric called “gross domestic product” GDP which is what our society uses to roughly keep track of our ‘success’. It represents the dollar value of all finished goods and services produced in a time period (typically, a year) within a nation’s borders. Since that other stuff- you know, the natural world- doesn’t consist of finished goods and services, it isn’t counted (now if you kill the hummingbirds and make them into ornaments for hats, or turn armadillos into ashtrays, they then can be added to GDP because they’re now products which are “finished”!).

The fact that parts of the environment which have been “finished” are considered more valuable than parts which are “unfinished” is one way in which GDP sets a fairly screwy default value in our current world. It’s a tacit societal value system: anything without a transacted money value isn’t part of GDP. So a nation which chops down all its trees to sell to another country for firewood has a better GDP than one which leaves its trees standing. It’s a funny way to figure wealth, but it’s what we’ve got. And oh, by the way, we’re betting everything on it.

GDP is based on money transaction (money is, roughly speaking, a claim on future energy), and since most current wealth is created by our fossil energy slaves, GDP is directly tied to the energy burned by society. Indeed, it has recently been shown that GDP is tied to fossil fuel energy, and thus CO2, in a way which may be described very simply by treating human society as essentially a giant heat engine. In other words, a very simple model which treats human civilization as an essentially mindless consumptive system – a thermodynamic amoeba in search of energy – suffices to match the GDP with the quantity of energy burned.

And over the last 100 years, our burning of energy, and thus our world GDP, has gone through the roof. The number of dollars representing the wealth created from the burning has also increased, and exponentially so in the last 50 years, and since the 2008 crisis, even faster.

It may be reasonable to reflect that during this same period, sometimes called The Great Acceleration, the planet has been largely laid to waste, a mass extinction has accelerated, the seas have been depopulated of most fish, and the systems which sustain large complex life on earth have been progressively compromised. Yet we continue to grow the scale of the heat engine to accomplish the primary objective of the modern human economy: to maximize dollars and jobs.

Bear in mind that what we’re doing – if we get right down to it – is converting trillions of watts of fossil-slave energy into a few watts of pleasing stimulation inside our brains. (alternately: tiny amounts of brain-reward chemicals) And the side-effect of this process is all around us. Mountains of waste, acidified oceans, altered climates, pollution, mass extinctions, and mischief. Here we use “mischief” as the general term for things humans do en-route to pleasing themselves, which may include building racetracks, using disposable diapers, making wastebaskets out of elephant feet, overbuilding fishing fleets, throwing out our electronics every two years to replace them with new ones, etc. It doesn’t “feel like” waste at the time. But if you ask someone in 200 years what percent of fossil magic was wasted, they will likely say “all of it,” because not much useful fossil fuel (or anything previously built with it) will likely remain.

The ubiquity of fossil slavery during our lifetimes has caused us to conflate wants and needs. Most of what we “feel like” we need these days is nothing we evolved to need. Consumerism is driven largely by social competitiveness. Most capuchins – er…, people – find it more important to have a bigger house than their neighbors, than to have an even bigger house in a neighborhood where it’s the smallest one. Relative wealth – it’s not just for monkeys (we and the monkeys like fairness, but it feels more fair if we’ve got stuff at least as good as the people we interact with).

And this signaling of status is important socially and sexually. A lot of the things we feel we need are just for show.

And do you remember the “hedonic ratchet” effect from earlier discussions on bias, heuristics, fallacies and delusion? To get the same mental stimulation we got yesterday, we require the expectations of ever-increasing reward. That means more money and more energy slaves. Or at least the expectation of same.

Happiness is not correlated with wealth beyond having the basics of life covered. Most of the things which actually make us happy, joyful, and fulfilled are in our virtual mental worlds, and not in the physical world at all. A Filipino may have only a small percent of the number of energy slaves as an American, but be every bit as happy, and surveys have shown that to be true.57 It’s quite possible to be “poor” and happy. Equally, it’s quite possible to be rich and miserable. Our brains are even primed for it, seemingly.

So where does this leave us?

Well, you already know that our amoeba-like heat-engine of an economy is wrecking the earth, acidifying the seas, melting the polar caps, causing what could become the greatest mass extinction in 65 million years, and throwing our future into doubt.

But at least we have our good ol’ energy slaves to continue creating GDP. Right?

Well…

Thing is, the energy slaves will soon be going away forever. In the last 30 years we’ve burned a third of all fossil energy that has been used since it was discovered thousands of years ago. Since your authors have been alive, humans have used more energy than in the entire 200,000 year history of homo sapiens.

We are just now passing through the all-time peak of liquid hydrocarbon availability, which is the chief driver of our economies due to its special attributes.

Each year, basically from now on, most of us will have fewer fossil energy slaves marching behind us. You’d think this wouldn’t make much difference, right? Since they’re invisible anyhow? But in fact it’ll make a great deal of difference, because we’re heading back into times – either gradually or suddenly, but inexorably – in which human labor makes up an increasing percentage of the total energy we have available. One day human (and perhaps animal) labor will again be the majority of the work done in human societies – just like it is in an anthill.

And this will happen in the context of a more used-up natural world. Rather than being able to catch dinner by throwing a hook in the nearby ocean, the nearest healthy schools of fish may be ten thousand miles away in Antarctica, and hard to get to without dirt-cheap energy slaves to make giant refrigerated ships to pursue and move them around for us. The copper mines will be mostly used up. The inorganic phosphate deposits we used to make fertilizer, mostly gone. And so on.

Or rather than “gone,” let’s use the more accurate term energetically remote. That is, there will still be loads of “stuff” underground, but it won’t be the very pure ores of yesteryear. It’ll be stuff that requires digging up a huge amount of rock for a tiny amount of whatever we’re after. Because (remember the Easter candy story) we always use the best stuff first. Yet we’ll be going after worse and worse ore with fewer and fewer slaves. And the heavy breathing of the fossil slaves will have pulled our seas and climate back towards conditions in which they were born – a hellish primordial world of toxicity.

This all raises the question – or at least should – of whether it might not be a good idea to set the fossil slaves free and let them rest, since they’re going away soon anyhow and when they do we will really need a livable planet. They don’t need jobs, and we don’t need dollars for happiness. Yet this flies in the face of capuchin entitlement and evolved mechanisms for brain reward, which – in effect – take our current societal arrangements for granted. As our fossil slaves eventually retire – childless –we might have to rediscover the difference between jobs and work, just like the ants.

On GDP, Stone Heads and Babies

“Can you think of any problem in any area of human endeavor on any scale, from microscopic to global, whose long-term solution is in any demonstrable way aided, assisted, or advanced by further increases in population, locally, nationally, or globally?” Al Bartlett

So other than using up non-renewable resources and degrading the natural world, what other consequences can there be when maximizing GDP is our plan for the future?

Well, for one thing, it can lead us to really screwy societal choices.

For instance in the infamous Easter island culture, there was an organizing belief in belief that all food, resources, and other good things came from their dead ancestors, and that the way to make your dead ancestors happy was to build giant statues for them. This was actually not that different an organizing concept from GDP, in that both exhibit a near-hallucinatory level of disconnect from physical reality and ecology.

As ecological changes on Easter island worsened due to rats cutting into food supplies, it “made sense” to vastly ramp up the production of giant stone statues, making them ever-bigger (and hence presumably more pleasing to the dead ancestors… “too big to fail”, perhaps…). This was a colossal undertaking for a stone-age people using human muscle power, and required a lot of wood for rollers and leverage. So they cut the trees down, which caused erosion to begin washing away their productive farmland.

The worse things got, the harder they worked making stone giants. The final generation of stone giants never left the quarries – they were too big to move. As a part of this process, eventually the last large tree was cut down, which made sense based on their organizing beliefs, but was in retrospect not a good plan. It not only meant their fertile soil washed away, but meant they could no longer make boats to go fishing. So they starved, fought, and suffered a lot as their populations crashed.

For the Easter Islanders, erecting these stone monuments was an example of “jobs” masquerading as “work” – basically tasks done for social-obligation reasons that did not provide actual biological or group-fitness benefits. (do you think there may be modern-day equivalents?)

Today it’s easy to joke about these islanders and their “giant stone heads” as a high point in the history of human doofus-ness. Yet our adherence to GDP is a similarly skewed metric, equally detached from the realities of ecology, from human happiness, and from the potential for future generations with decent life quality. On a much larger scale, we too are eroding farm land (which these days is largely a dead medium used to hold the seeds in place and receive industrially-produced fertilizer and pesticides), destroying the ability to get fish (by wiping out fisheries), and, because of our numbers, mucking things up to a degree the Easter Islanders never reached.

We’ve already mentioned that – due to being blind to the energy slaves who do nearly everything for us – we now tend to conflate “jobs” with “work”, where “jobs” are just a social distribution mechanism for energy-slave largesse – an entitlement entwined with social status – and “work” is what is necessary to temporarily improves an individual, tribe, nation, or species’ circumstances.

We’ve also noted that we have folded “planned obsolescence” into most built consumer devices, so they break more quickly and require replacement, tuning their life-cycle to human whims and brain rewards rather than to real utility. Mostly we don’t really even want or expect gadgets to last as long as they used to; as long as we can afford it, we want the newer, cooler, stuff. And advertising helps keep our culture primed for it.

The fact is, we have designed a social system that requires growth. Money –really a claim on future energy and resources – comes into existence irrespective of whether such future energy and resources will be available. Each year we need growth in a household/city/state/nation/world to service and pay off monetary loans that were created previously. No serious government or institutional body has plans for anything other than continued growth into the future. Growth requires resource access and affordability but starts first with population.

So, right as our energy slaves are about to start going away forever, leaving 7-10 billion humans without the things they have come to take for granted, our nations have decided the answer is to make more babies! Yep, to raise GDP you need more demand for toys, diapers, teachers, etc… more jobs, because more jobs means more transactions which means more GDP! More GDP means “growth” so growth is good! China has just reversed its 1-child policy, which prevented massive starvations and slowed the horrendous assault on China’s environment. Many other nations, such as Japan, Germany, and Sweden, are now offering bonuses for getting pregnant. In Denmark advertising firms are encouraging couples to have more babies for the good of the economy via sexy commercials.61

Paradoxically, as traditional drivers of GDP growth – development of virgin land, credit expansion, low cost fossil fuels, and groundbreaking innovation- wane in their impact, there may be renewed incentives proposed not to shrink our population as ecology would advise, but instead to grow it! Currently we are having (as a species) over 120 million babies per year. This works out to over 335,000 human babies born every day – compared to a total extant population of all the other Great Apes (bonobos, chimpanzees and gorillas) of about ~200,000! Since ‘demand” is considered a quasi-magical force in current economic theory, babies are considered to be good for business (yet children brought into the world now for GDP reasons will face some real challenges in their lives. Nate and DJ decided not to do that for a host of reasons).

China is building massive empty cities now. No kidding. Cities with nobody in them, ready to be moved into by the bonus babies to grow GDP. That’s edging perilously close to building giant stone heads.

When you get right down to Reality101 and the intermediate human future, this is actually worse than building giant stone heads, because stone heads don’t suffer, reproduce, or require further degradation of the ecology to provide for. In many real ways, the world and human species would be far better off if we immediately moved from GDP to “giant stone heads” as a metric for success (and say, doesn’t that imply to you that we might even do better than giant stone heads, if we put our minds to it?).

GDP sets a money value on everything in the natural world and in human experience, and the most important things are currently valued at or near “zero.” Yet as we’ve seen, GDP is currently tied to the work of fossil slaves, who will be gradually flying away. There’s no way, even in principle, for “growth” such as we’ve recently seen to continue indefinitely, and considerable data points to it ending quite soon. GDP will begin a long decline because it’s tied to finite realities in the physical world.

The good news, of course, is that GDP is an insane metric for success, just as “giant stone heads” was (though to give the Easter islanders their just due, at the time they had no evidence their belief was nuts, while in 2016 we have demonstrable proof that the conclusions of neoclassical economics are refuted by basic science). If we decide that we value happiness, quality of life, and a healthy planet with uncounted thousands of human generations left, we could in principle jettison GDP and do things differently.

It won’t be easy, only necessary. It’ll be easier to fail than succeed, for the societal inertia of a raging amoeba hungry for growth is a hard thing to change. Nothing much depends upon it other than the human destiny and the fate of complex life on the planet.

Learn to see the giant stone heads around you, and think about them.

By Bjørn Lomborg: On Renewables

Lomborg gets it right until the punchline in which he neglects to mention that we need to either repeal the laws of physics and chemistry, or reduce our population and consumption.

Denial is amazing.

We need to get real on renewables. Only if green energy becomes much cheaper – and that requires lots of green R&D – will a renewables transition be possible.

 

23795928_10156258956543968_5680302030027907673_n

 

No, renewables are not taking over the world anytime soon.

We have spent the last two centuries getting off renewables because they were mostly weak, costly and unreliable. Half a century ago, in 1966, the world got 15.6% of its energy from renewables. Today (2016) we still get less of our energy at 13.8%.

With our concern for global warming, we are ramping up the use of renewables. The mainstream reporting lets you believe that renewables are just about to power the entire world. But this is flatly wrong.

The new World Energy Outlook report from the International Energy Agency shows how much renewables will increase over the next quarter century, to 2040. In its New Policies Scenario, which rather optimistically expects all nations to live up to their Paris climate promise, it sees the percentage increase less than 6 percentage points from 13.8% to 19.4%. More realistically, the increase will be 2 percentage points to 15.8%.

Most of the renewables are not solar PV and wind. Today, almost 10 percentage points come from the world’s oldest fuel: wood. Hydropower provides another 2.5 percentage points and all other renewables provide just 1.6 percentage points, of which solar PV and wind provide 0.8 percentage points.

Neither will most renewables in 2040 come from solar PV and wind, as breathless reporting tends to make you believe. 10 percentage points will come from wood. Hydropower provides another 3 percentage points and all other renewables provide 6 percentage points, of which solar PV and wind will (very optimistically) provide 3.7 percentage points.

Oh, and to achieve this 3.7 % of energy from solar PV and wind, you and I and the rest of the world will pay – according to the IEA – a total of $3.6 trillion in subsidies from 2017-2040 to support these uncompetitive energy sources. (Of course, if they were competitive, they wouldn’t need subsidies, and then they will be most welcome.)

Most people tend to think about electricity for renewables, but the world uses plenty of energy that is not electricity (heat, transport, manufacture and industrial processes).

Actually, if the world miraculously could make the *entire* global electricity sector 100% green without emitting a single ton of greenhouse gasses, we would have solved just a third of the total global greenhouse gas problem.

As Al Gore’s climate adviser, Jim Hansen, put it bluntly: “Suggesting that renewables will let us phase rapidly off fossil fuels in the United States, China, India, or the world as a whole is almost the equivalent of believing in the Easter Bunny and [the] Tooth Fairy.”

We need to get real on renewables. Only if green energy becomes much cheaper – and that requires lots of green R&D – will a renewables transition be possible.

Data for graph: “A brief history of energy” by Roger Fouquet, International Handbook of the Economics of Energy 2009; IEA data DOI: 10.1787/enestats-data-en, and World Energy Outlook 2017, unfortunately not free, https://www.iea.org/weo2017/

Hansen quote: http://www.columbia.edu/…/mail…/2011/20110729_BabyLauren.pdf

The world emitted 49Gt CO₂e in 2014, and all electricity/heat came to 15Gt or less than a third, http://cait.wri.org/profile/World.

 

By Tim Morgan: Death of a High-Fashion Model (aka Sustainable Development)

113-4jpg_page1

https://surplusenergyeconomics.wordpress.com/2017/11/20/113-death-of-a-high-fashion-model/

Tim Morgan proves here that sustainable development is a myth, and that economic growth is incompatible with addressing climate change. This means that all of our international climate change agreements are pure nonsense and nothing more than vehicles to help us deny reality.

Nate Hagens, another person I respect, states this reality as: There is no green, without lean.

Morgan also suspects our extreme use of debt to create growth will crash the system and thus prevent CO2 from climbing to catastrophic levels. My understanding of the science is that CO2 is already at a level incompatible with civilization, but I agree a crash will make the future less bad, assuming we don’t go to war fighting over the remaining energy scraps.

 

Between 2001 and 2016, recorded GDP grew by 65%, adding $47tn to output. Over the same period, however, and measured in constant 2016 PPP dollars, debt increased by $135tn (108%), meaning that each $1 of recorded growth came at a cost of $2.85 in net new borrowing.

This relationship between borrowing and growth makes it eminently reasonable to conclude that much of the apparent “growth” has, in reality, been nothing more substantial than the spending of borrowed money. Put another way, we have been boosting “today” by plundering “tomorrow”, hardly an encouraging practice for anyone convinced by “sustainable development” (or, for that matter, sustainable anything).

 

As we have seen, then, the very strong likelihood is that real growth in global economic output over fifteen years has been less than 1.6% annually, slower than growth either in energy consumption (2.2%) or in CO² emissions (2.1%). In compound terms, growth in underlying GDP seems to have been about 26% between 2001 and 2016, appreciably less than increases in either energy consumption (+40%) or emissions (+37%).

At this point, some readers might think this conclusion counter-intuitive – after all, if technological change has boosted efficiency, shouldn’t we be using less energy per dollar of activity, not more?

There is, in fact, a perfectly logical explanation for this process. Essentially, the economy is fuelled, not by energy in the aggregate, but by surplus energy. Whenever energy is accessed, some energy is always consumed in the access process. This is expressed here as ECoE (the energy cost of energy), a percentage of the gross quantity of energy accessed. The critical point is that ECoE is on a rising trajectory. Indeed, the rate of increase in the energy cost of energy has been rising exponentially.

 

As we have seen, a claimed rate of economic growth (between 2001 and 2016) that is higher (65%) than the rate at which CO² emissions have expanded (37%) has been used to “prove” increasing efficiency. It is entirely upon these claims that the viability of “sustainable development” is based.

But, as we have also seen, reported growth has been spurious, the product of unsustainable credit manipulation, and the unwinding of provision for the future. Real growth, adjusted to exclude this manipulation, is estimated by SEEDS at 26% over that period. Crucially, that is less than the 37% rate at which CO² emissions have grown.

On this basis, a claimed 17% “improvement” in the amount of CO² per dollar of output reverses into a deterioration. Far from improving, the relationship between CO² and economic output worsened by 9% between 2001 and 2016. In parallel with this, the amount of energy required for each dollar of output increased by 11% over the same period.

 

In short, if growth continues, rising ECoEs dictate that both energy needs, and associated emissions of CO², will grow at rates exceeding that of economic output.

We are back where many have argued that we have been all along. The pursuit of growth seems to be incompatible with averting potentially irreversible climate change.

There is a nasty sting-in-the-tail here, too. The ECoE of oil supplies is rising particularly markedly, and there seems a very real danger that this will force an increased reliance on coal, a significantly dirtier fuel. A recent study by the China University of Petroleum predicted exactly such a trend in China, already the world’s biggest producer of CO². As domestic oil supply peaks and then declines because of higher ECoEs, the study postulates a rapid increase in coal consumption to feed the country’s voracious need for energy. This process is most unlikely to be confined to China.

 

The central contention here is that the case for “sustainable development” is fatally flawed, because the divergence between gross and net energy needs is more than offsetting progress in greening our energy mix and combatting emissions of harmful gases. “Sustainable development” is a laudable aim, but may simply not be achievable within the laws of physics as they govern energy supply.

If this interpretation is correct, it means that growth in the global economy can be pursued only at grave climate risk. A (slightly) more comforting interpretation might that the super-heated rate of borrowing, and the seemingly disastrous rate at which pension capability is being destroyed, might well crash the system before our obsession with ‘growth at all costs’ can inflict irreparable damage to the environment.”

By Richard Heinberg: Saudis and Trump: Gambling Bigly

If you’re like me, you find the Middle East difficult to understand with its many tribal, religious, energy, and geopolitical themes.

This essay by Richard Heinberg does a nice job of explaining what’s going on in the Middle East today. Because our civilization depends on Middle East oil, it is an important topic worth understanding.

http://www.postcarbon.org/saudis-and-trump-gambling-bigly/

Imagine a hypothetical Middle Eastern monarchy in which:

  • Virtually all wealth comes from the extraction and sale of depleting, non-renewable, climate changing petroleum;
  • Domestic oil consumption is rising rapidly, which means that, as long as this trend continues and overall oil production doesn’t rise to compensate, the country’s net oil exports are destined to decline year by year;
  • The state has a history of supporting a radical version of Sunni Islam, but the people who live near its oilfields are mostly Shiite Muslims;
  • Power and income have been shared by direct descendants of the royal founder of the state for the past 80 years, but the thousands of princes on the take don’t always get along well;
  • Many of the princes have expatriated the wealth of the country overseas;
  • Population is growing at well over two percent annually (doubling in size every 30 years), and, as a result, 70 percent of the country is under age 30 with increasing numbers in need of a job;
  • Roughly 30 percent of the population consists of immigrants—many of whom are treated terribly—who have been brought into the country to perform labor that nationals don’t want to do;
  • A sizeable portion of the nation’s enormous wealth has been spent on elaborate weapons systems and on fighting foreign wars;
  • A powerful Shia Muslim nation located just a couple of hundred miles away has gained geopolitical advantage in recent years; and,
  • For the past three years oil prices have been too low to enable the kingdom to meet its obligations, so it has rapidly been spending down its cash reserves.

Now, ask yourself: What could possibly go wrong here?

We are, of course, discussing Saudi Arabia, which has been much in the news lately.

 

The centerpiece of “Vision 2030” is the proposal for a purpose-built city, Neom, that would be powered by solar panels and busied by cutting-edge industries like artificial intelligence, biotechnology, IoT, and robotics; its water would be supplied by desalination plants and its food grown hydroponically. Neom, if ever actually built, would most likely either be an enormous waste of billions of dollars and untold amounts of natural resources that can never be used for better purposes (as in hundreds of Chinese “ghost cities”), or would lead to an even uglier and more extreme version of haves vs. have-nots than already exists in Saudi Arabia. Add continued rapid population growth and the whole exercise becomes transparently futile.

A cheaper and more sensible plan (though likely not as popular) would be to end population growth, slash overall consumption, reduce economic inequality, make peace in the region, and aim for home-grown development of intermediate technology. Not as glamorous, not as attractive to an ambitious risk taker. But practical nonetheless.

However, even this plan comes with substantial risks, as climate change could foreclose on any progress by 2100 with deadly high temperatures that make much of the Middle East uninhabitable by humans. If the region still has a window for peaceful adaptation, it is small and quickly narrowing.

By Tim Morgan: Will things go bang soon?

Tim Morgan continues to impress.

Here he explains what caused the 2008 financial crisis, why it will happen again soon, why it will be much worse this time, and what will probably trigger it.

I challenge you to find a single example from mainstream journalism with such intelligent explanatory clarity.

It is so refreshing to find a mutant not in denial.

https://surplusenergyeconomics.wordpress.com/2017/11/13/112-will-things-go-bang-soon/

We may not be clear yet about when the next crash will come, but we understand a very great deal about the mechanism that will make it happen. Put another way, we have a narrative that puts all the pieces in the right places.

This narrative is telling us that a crash is highly likely – and that it may happen a lot sooner than we think.

Let’s start with the fundamentals. Contrary to conventional thinking, the economy isn’t really a monetary system at all, but a surplus energy dynamic. What drives the output of goods and services is the quantity of energy we can access, less the energy consumed in the access process. If the available quantity is constrained – or the energy cost of accessing it increases – the output of the economy will decrease.

Money, having no intrinsic worth, has value only as a “claim” on the output of the real economy, which means, ultimately, that money is a claim on surplus energy. Debt, as a ‘claim on future money’, is really a claim on future energy.

For more than two centuries, there has been sustained growth in available surplus energy. This has enabled total financial claims – the aggregate of money and credit – to increase as well, without toppling the financial system.

What we’ve been witnessing since the turn of the century, though, has been an increase in the energy cost of energy (ECoE), combined with emerging constraints on the quantity of accessible energy. This process makes the continued growth in aggregate money and credit dangerous, because we are creating claims that the real economy will not be able to meet.

Once understood, this process makes sense of what has been happening. Between 2000 and 2008, credit creation soared, but debt-financed growth drove up energy demand in a way that eventually brought the system to the brink of collapse. In 2001, when prices averaged $24/bbl, OECD consumers spent about $430bn on oil, of which around $240bn went on imports. By 2008, when oil averaged $97/bbl, these numbers had increased to $1,700bn and $1,050bn. Oil was now costing OECD customers $1,270bn more than it had just seven years earlier – and $810bn of that increase was being spent on the higher cost of imports.

Moreover, these huge liquidity drains are only those related to oil. Other forms of energy also soared in cost, as did energy-intensive commodities such as minerals and foodstuffs.

This was what brought the debt-financed party to an end.

Looking a little more closely at this, the increase in the cost of oil to the OECD quadrupled between 2001 and 2008. The increase in ECoE over the same period was much smaller than this. According to SEEDS, global ECoE for all energy sources rose from 4% in 2001 to 5.4% in 2008, a rise of one-third.

So the rise in market prices vastly over-cooked the underlying trend in ECoEs. In relation to this fundamental benchmark, oil was underpriced in 2001, and overpriced in 2008.

This tells us that something else was going on.

That ‘something else’ was supply constraint.

Just as westerners were bingeing on credit, emerging market economies (EMEs) were consuming more energy and other commodities, notably as exports ramped up. Rising energy demand was colliding with more pedestrian growth in supply. Investment in supply tracked market prices higher. When demand dropped after 2008, the ensuing fall in prices became inevitable.

In retrospect, we “got away with it” in 2008, for three main reasons.

First, governments’ balance sheets were strong enough for them to bail out the banks without forfeiting their own credibility, and that of their currencies.

Second, the authorities bought time by adding monetary adventurism to the established credit adventurism.

Third, the cooling of the economy took the heat out of energy markets.

To know when and if a second crash may happen, and what its results are likely to be, we need to test these three “get-outs” as they now are.

First, government balance sheets. On the basis of amounts owed (rather than the market value of bonds), the aggregate debt of advanced country governments was 67% of GDP in 2007. Now it is 102%, and still rising. Bailing out the banks now would be a lot harder than it was back in 2008. Not only are government balance sheets weaker, but bank exposure has increased as global debt has grown. To be sure, reserves ratios are higher now than they were back in 2007. But, because banks borrow short and lend long, no amount of reserving can render them immune from the consequences of a loss of faith.

Second, “monetary adventurism”. Back in 2008, typical rates were 5.25% in the United States and 4.3% in the European Union. Now, the equivalent numbers are around 1% and -0.25%. There’s no scope, then, for further monetary adventurism, unless central banks are prepared to go for deeply negative nominal rates, a policy which would be barking mad, even if it didn’t, very probably, necessitate helicopter money and the banning of cash.

So that leaves us with our third component, which is energy. Essentially, a big rise in oil prices would crash the system.

Is this likely? On balance, it is. Oil demand is growing at around 1.4 mmb/d each year. Supply has kept pace, mainly thanks to increased shale and other unconventional output, plus an increase in supply from OPEC. Neither may be sustainable. Shales are extremely capital intensive, because of the “drilling treadmill” caused by ultra-rapid decline rates. Few OPEC countries have much scope to deliver increased supplies. Underlying ECoE, SEEDS says, is 42% higher now than it was in 2007.

Put this higher ECoE together with the slump in investment caused by the fall in crude prices, and the implication is that crude prices could spike, and do so rather more quickly than is generally expected.

That, then, is what we should be watching for when looking out for another crash. All the other conditions are in place, including excessive debt, weak underlying growth (reflecting rising ECoEs), overstretched government balance sheets, and an inability to repeat the monetary adventurism of 2008-09.

All that we’re waiting for is an oil price spike, and a trigger equivalent to the “Lehman moment”.

Both may come sooner rather than later.

By JT Roberts: On Resources and How the World Really Works

I don’t know who JT Roberts is but he is very bright and is an excellent writer. I stumbled on some comments she made in a recent post by Tim Morgan and I thought they were so good I’ve copied them here.

https://surplusenergyeconomics.wordpress.com/2017/10/27/111-a-spike-to-puncture-the-bubble/

In the 70s just as US domestic oil production peaked Nixon made some unusual but very interesting moves.

  • Opened China for trade
  • Established the EPA
  • Created a Petro-Dollar deal with Saudi’s
  • Took the Dollar off Gold

I have a very difficult time believing that he, or his cabinet, or congress had any clue of the significance of those particular moves. I think that in particular they would not have understood the Limits to Growth reality, since they decided not to give ear to the findings by Meadows and Forester. US wealth had been built on abundant easily accessible energy and mineral resources. The US was the manufacturer to the world up until 1970 not because of innovation but because the world couldn’t compete on price. ( The Battle of Somme was the effective killing machine it was because of the cheap steel rails that had been supplied by the US, these latter became the light gauge system in the UK ) No other country had the combination of resources at the volumes that the US had. As these became depleted it hampered growth because of affordability. Had it only been a matter of raising the price to meet increased cost of production why didn’t that happen? Affordability is the real driver of growth not supply and demand.

By opening China it gave the US access to offshore its energy intensive industries like steel production, and mining. As well as labor intensive industries like clothing. ( A population living on rice is far less costly in energy terms then one living on hamburgers) Establishing the EPA created additional pressure to move manufacturing elsewhere. The suspension of Dollar-Gold convertibility was a necessity as there wasn’t enough gold to cover the dollars in circulation. It also hampered the ability to create currency. The risk was that dollar demand would collapse but that was countered with the Petro-Dollar arraignment effectively giving the currency a place to go rather than returning to the US to be inflated away. That move calmed the markets, because they felt that at least their dollars could now be converted to oil, which is of higher value than Gold.

Saddam Hussein, and Qaddafi threatened the stability of that system. Saddam had boycotted sales of crude to the US in 2002 and started selling his oil in Euros. For 30 days he stopped all exports in a show of force that he had control of their national petroleum system. What he didn’t understand was he was threatening to limit access to what the US needs most, energy and resources. The war was the answer to that threat. Now Iraqi oil is safely in the control of the international oil majors. Qaddafi had made a similar error since his interest wasn’t to allow the state owned system to be controlled by the oil majors. He also threatened the the Petro-Dollar by creating a competing gold currency that was being used in Africa. The French were particularly at risk as it was replacing the Franc still in use in there former colonies.

If we look closely at NAFTA we see that much of it revolves around access to resources. In exchange for easier economic trade with the US, both Canada and Mexico have agreed to unlimited access to their oil and other resources. When the USSR fell we saw the same pattern. Anglo-US corporations rushed in to gain access to whatever resources they could. Putin the patriot didn’t play ball like Yeltsin. So now he is vilified. Canada and Mexico have peaked in oil production, and now NAFTA is at risk. The UK joined the EU just as it had oil to sell and promptly left when it didn’t.

What we see is a common pattern that is larger then any political system.

Capitalism is a dissipative system out of equilibrium, as all dissipative system are. Like hurricanes Capitalism requires energy input to exist, anything that threatens that will collapse the system. It must grow or die. Within the structure, like hurricanes, there can be self organized subsystems. Tornado’s, Micro-bursts, and other elements that feed off the core. With Capitalism these are corporations and governments. In order for the core to survive the entire system must grow in aggregate. As the net energy driving the system declines the structure weakens, like a hurricane on land or cold water.

Not only is it impossible to return to a local agricultural existence. It is also impossible to decouple the elements of the system. We see that with Trump. His platform was isolation, and now its war. He has no choice he’ll make similar moves as Nixon did, but it can’t work because there is no more sweet spots to exploit.

Just as the shale play is a high cost desperate act of a dying industry. (Shale was well know in the 70s but as uneconomical as it remains today) The US will attempt to turn back time with it’s military machine as it has in the past. The problem is they can’t return affordability so the system will simply grind to a halt.

I guess Adam Smith was right about an Invisible Hand.

 

Without energy to drive real growth all you have left is moving money around. I think most mistake the symptom for the cause. The lax regulations are needed to increase debt which increases money supply. So strangely the corruption is part of the system.

For example it has been documented that the primary money laundering economies are US and U.K. So for all their show as the bastions of freedom and democracy the reality is they benefit from corrupt dictators that stuff their ill gotten gains in the western banking and real estate system.

With Trump it’s just irrelevant he’s neither good or bad. He is no different then any other elected president. He is limited to the resources at his disposal and won’t accomplish anything beyond that. Basically a symptom not a cause.

The Appolo success if we so call it really needs to be considered in context. If you compare the energy production of the US with the USSR it becomes clear that technology wasn’t the key to the space race. In actuality the Soviet rocket engines were 20% more efficient and more powerful. They dared to pipe oxygen rich exhaust from the turbos into the primary engine. But it was done because of necessity they couldn’t afford to waste the fuel. It also constrained their ability to test run the engines. Instead they choose to test them at launch.

The arrow all points in the same direction. Without the resources that the US had access to the USSR could not compete. But it had nothing to do with technology because they were winners with technology.

AK 47 is another example.

I sum it up this way. If you have wood you cook with wood. If you have coal you cook with coal. If you have oil you cook with oil. If you have gas you cook with gas. If you have a lot of it you have trains, planes, and automobiles. I might add rockets. With a little of it you cook.

Technology is a function of abundance not the cause of it.

It’s interesting to note the Roman Empire grew in wealth through military conquest. Then it started developing schools of higher learning in imitation of the Greeks.

Education has never preceded empire. So the thought that education or technology are the source of wealth is false. It has always been resources. It will always be. So in that regard it is no coincidence that the US military is larger then the next 10 militaries combined. So the military industrial complex was also a necessity.

Ironically the competitive economic system, communism thought that they could only find success within a highly educated society. Lenin targeted Germany for that reason. But educated people make poor soldiers. Ignorant religious zealots make far better soldiers. Which system promoted religious freedom and zealotry? For God and Country. God save the Queen. In God we trust. One nation under God.

So in many places Americans are hated because of their ignorance. But perhaps their ignorance has been their strength all along. In this regard we might want to watch closely the current US administration.

War is Peace
Freedom is Slavery
Ignorance is Strength

By James Hansen: Scientific Reticence

Here is the latest (draft) paper from James Hansen, the world’s best climate scientist.

In summary, the situation is much worse than you’re being led to believe.

We argue that global warming of 2°C, or even 1.5°C, is dangerous, because these levels are far above Holocene temperatures and even warmer than best estimates for the Eemian, when sea level reached 6-9 meters (20-30 feet) higher than today. Earth’s history shows that sea level adjusts to changes in global temperature. We conclude that eventual sea level rise of several meters could be locked in, if rapid emission reductions do not begin soon, and could occur within 50-150 years with the extraordinary climate forcing of continued “business-as-usual” fossil fuel emissions.

The 2 C goal set by our governments is not an appropriate goal because it is clearly dangerous, and despite this, we are almost certainly not going to achieve the goal.

It’s not like we tried and failed. We’ve done nothing except talk and deny the science.

Hansen laments here that even scientists are denying the science.

Where are the adults?

Clipboard-20171026

 

http://www.columbia.edu/~jeh1/mailings/2017/20171026_ScientificReticence.pdf