Tim Watkins today published a superb big picture essay explaining the troubling trends in our economy that everyone sees but few understand.
It’s a great primer for anyone curious why the stories they hear from their leaders and news media don’t make sense.
If you’re the kind of person that needs hope, Watkins advises to pray for a very large discovery of low-cost oil or a breakthrough in nuclear energy.
Or, if you’re the kind of person that likes to know the most probable outcome they should prepare for, Watkins advises to get used to living with less in a more local economy.
Despite the cheerleading efforts of the legacy media, the economic storm clouds are growing on the horizon. Oil – the economic “master resource” – passed $80 per barrel yesterday. Meanwhile, central banks around the world have begun to unwind the stimulus packages used to bail out the economy in the aftermath of the 2008 crash. And all the while, governments are struggling to balance the need to manage their borrowing while maintaining the value of their currencies. Add to that the politics of the new nationalism and you have a recipe for turbulent economic times in the very near future.
By far the biggest blind spot in economics, however, is its treatment of energy as just another cheap resource to be exploited. In fact, energy should be treated as a separate category alongside capital, labour and resources in any model that seeks to explain the way the real world works. This is because energy is the transformative force that allows us to (temporarily) defy the second law of thermodynamics, which says that things move from order to chaos; they break down not up. As Steve Keen puts it:
“Capital without energy is a statue; labour without energy is a corpse.”
Another way of understanding this is to see that for a mere $80 dollars we get more than $350,000 worth of work (if we had to pay a human the average wage to do it). This also explains why relatively small changes in the price of energy (particularly oil because its use is ubiquitous) have such a dramatic impact on the monetary economy. Just three years ago, for every $40 spent on oil, companies were returning $350,000 worth of productive work. Today, the same $40 is returning just $175,000 of productive work; something that largely explains the so-called “productivity puzzle,” as well accounting for why ten of last eleven recessions were preceded by a spike in the price of oil.
Without the net energy to allow for genuine economic growth, sovereign debt becomes as unpayable as consumer and corporate debt. It can be defaulted or it can be inflated away; but it can never be repaid in real terms. States, however, are unlikely to concede this point until it is too late. To put it another way, states will use all of the power at their disposal to maintain the exchange rate of their currencies even if this results in economic ruin for their national economies and their citizens.
These, then are the three vortices which (in the absence of some new high-EROEI energy source) are gradually choking the life out of our global industrial civilisation. As the net energy remaining to us declines, an ever greater proportion of our currency and useable energy will be sucked into them until such time as our economy consists of nothing else but the growing of food and the generation of energy in the service of an ever more capricious state. This process will inevitably involve the acceleration of the decline in living standards that those at the bottom of the income ladder have been experiencing since the 1970s. It will also result in a re-localising of economies as the energy required to maintain global supply chains disappears. In this respect, the conservative nationalism of Brexit and Trump may simply be the relatively benign early manifestation of the politics of our energy-starved future.
A friend reminded me of this 2011 essay written by the brilliant physicist Tom Murphy.
I read it when Murphy first published it but I had forgotten how good it was so I’ve dusted it off in the hope that it sees more daylight.
Many Do the Math posts have touched on the inevitable cessation of growth and on the challenge we will face in developing a replacement energy infrastructure once our fossil fuel inheritance is spent. The focus has been on long-term physical constraints, and not on the messy details of our response in the short-term. But our reaction to a diminishing flow of fossil fuel energy in the short-term will determine whether we transition to a sustainable but technological existence or allow ourselves to collapse. One stumbling block in particular has me worried. I call it The Energy Trap.
In brief, the idea is that once we enter a decline phase in fossil fuel availability—first in petroleum—our growth-based economic system will struggle to cope with a contraction of its very lifeblood. Fuel prices will skyrocket, some individuals and exporting nations will react by hoarding, and energy scarcity will quickly become the new norm. The invisible hand of the market will slap us silly demanding a new energy infrastructure based on non-fossil solutions. But here’s the rub. The construction of that shiny new infrastructure requires not just money, but…energy. And that’s the very commodity in short supply. Will we really be willing to sacrifice additional energy in the short term—effectively steepening the decline—for a long-term energy plan? It’s a trap!
In the parallel world of economics, an energy decline likely spells deep recession. The substantial financial investment needed to carry out an energy replacement crash program will be hard to scrape together in tough times, especially given that we are unlikely to converge on the “right” solution into which we sink our bucks.
Politically, the Energy Trap is a killer. In my lifetime, I have not witnessed in our political system the adult behavior that would be needed to buckle down for a long-term goal involving short-term sacrifice. Or at least any brief bouts of such maturity have not been politically rewarded. I’m not blaming the politicians. We all scream for ice cream. Politicians simply cater to our demands. We tend to vote for the candidate who promises a bigger, better tomorrow—even if such a path is untenable.
The only way out of the political trap is for a substantial fraction of our population to understand the dimensions of the problem: to understand that we’ve been spoiled by the surplus energy available through fossil fuels, and that we will have to make decade-level sacrifices to put ourselves on a new track. The only way to accomplish this is through sober education, which is what Do the Math is all about. It’s a trap! Spread the word!
Tom Murphy stopped writing in 2013 after (I think) he realized that no amount of education will change the behavior of the majority.
Thanks to Apneaman for bringing my attention to a new blog by Tim Garrett.
Garrett is the most important and least recognized physicist in the world, having explained and quantified the relationship between energy consumption and economic wealth. You can find other work by Garrett that I’ve posted here.
This most recent essay provides a nice overview of Garrett’s theory and its implications.
Because the Gross World Product (GWP) exists, we grow, and then use our growth to access more energy which we can then consume with the higher infrastructure demands. The relevant equation is that every 1000 dollars of year 2005 inflation-adjusted gross world product requires 7.1 additional Watts of power capacity to be added, independent of the year that is considered.
Right now, energy consumption is continuing to grow rapidly, sustaining an ever larger GWP. But it is not the rate of energy consumption that supports the GWP, but the rate of growth of energy consumption that supports the GWP.
This important distinction is flat out frightening. The implication is that if we cease to grow energy and raw material consumption globally, then the global economy must collapse. But if don’t cease to grow energy consumption and raw material consumption then we still collapse due to climate change and environmental destruction. Is there no way out?
There are two and only two topics required to understand the basis of every success and problem in our civilization: thermodynamics and genetic behavior.
By thermodynamics I mean:
- the laws of thermodynamics that govern our universe
- the relationships between energy, economy, wealth, population, and pollution
- the relationship between debt and surplus energy
- the maximum power principle of biology
- the history of energy use
- the types, sources, qualities, density, scalability, and applications of energy
- the discovery rate, consumption rate, and reserves of non-renewable energy
- what is and is not feasible with, and the dependencies of, non-fossil energy
By genetic behavior I mean:
- human behaviors that are mostly hard-wired
- genetic behaviors that contributed to our unique success and predicament
- why those genetic behaviors evolved
Why is it that every famous intellectual understands many topics except the only two topics that really matter: thermodynamics and genetic behavior?
- Steven Pinker
- Sam Harris
- Jordan Peterson
- Noam Chomsky
- Sean Carroll
- Yuval Noah Harari
- David Suzuki
- David Attenborough
- Neil deGrasse Tyson
- Stephen Hawking
- Lawrence Krauss
- Elon Musk
- Stewart Brand
- James Hansen
- Matt Ridley
- Richard Dawkins
- Frans de Waal
- James Lovelock
- Jared Diamond
- Joe Rogan
- Michael Pollan
- Ken Burns
- Chris Hedges
- Vaclav Smil
- Niall Ferguson
- Alan Greenspan
- Thomas Sowell
- John Kenneth Galbraith
- David Stockman
- Joseph Stiglitz
- Paul Krugman
- and many others
Why is it that there is no famous intellectual (nor political or business leader) who understands thermodynamics and genetic behavior?
Why is it that the few intellectuals who do understand thermodynamics and genetic behavior are distinctly not famous?
- Dennis Meadows
- Tom Murphy
- William Catton
- William Rees
- Charles Hall
- Nate Hagens
- Tim Garrett
- Jay Hanson
- David Korowicz
- Paul Chefurka
- Reg Morrison
- Jack Alpert
- Richard Heinberg
- Joseph Tainter
- George Mobus
- Dave Cohen
- Gail Zawacki
- Jason Bradford
- Nicole Foss
- Steve Ludlum
- James @ Megacancer
- and very few others
This can’t be an accidental coincidence because famous polymaths are fluent in many topics.
I suspect the answer is that famous polymaths deny everything they don’t want to know, and they wouldn’t be famous if they didn’t, because their audience doesn’t want to understand those topics either.
It’s a fascinating phenomenon to observe once you see it.
Why is there only one person in the world, a cranky old retired electrical engineer, who writes about genetic reality denial?
I suspect because denial is the reality that must be most aggressively denied to avoid collapsing the house of cards that keeps us functioning.
I haven’t posted anything by Kunstler for a while. When he’s occasionally good, he’s really good, like today.
And so the sun seems to stand still this last day before the resumption of business-as-usual, and whatever remains of labor in this sclerotic republic takes its ease in the ominous late summer heat, and the people across this land marinate in anxious uncertainty. What can be done?
Some kind of epic national restructuring is in the works. It will either happen consciously and deliberately or it will be forced on us by circumstance. One side wants to magically reenact the 1950s; the other wants a Gnostic transhuman utopia. Neither of these is a plausible outcome. Most of the arguments ranging around them are what Jordan Peterson calls “pseudo issues.” Let’s try to take stock of what the real issues might be.
Energy: The shale oil “miracle” was a stunt enabled by supernaturally low interest rates, i.e. Federal Reserve policy. Even The New York Times said so yesterday (The Next Financial Crisis Lurks Underground). For all that, the shale oil producers still couldn’t make money at it. If interest rates go up, the industry will choke on the debt it has already accumulated and lose access to new loans. If the Fed reverses its current course —say, to rescue the stock and bond markets — then the shale oil industry has perhaps three more years before it collapses on a geological basis, maybe less. After that, we’re out of tricks. It will affect everything.
The perceived solution is to run all our stuff on electricity, with the electricity produced by other means than fossil fuels, so-called alt energy. This will only happen on the most limited basis and perhaps not at all. (And it is apart from the question of the decrepit electric grid itself.) What’s required is a political conversation about how we inhabit the landscape, how we do business, and what kind of business we do. The prospect of dismantling suburbia — or at least moving out of it — is evidently unthinkable. But it’s going to happen whether we make plans and policies, or we’re dragged kicking and screaming away from it.
Corporate tyranny: The nation is groaning under despotic corporate rule. The fragility of these operations is moving toward criticality. As with shale oil, they depend largely on dishonest financial legerdemain. They are also threatened by the crack-up of globalism, and its 12,000-mile supply lines, now well underway. Get ready for business at a much smaller scale.
Hard as this sounds, it presents great opportunities for making Americans useful again, that is, giving them something to do, a meaningful place in society, and livelihoods. The implosion of national chain retail is already underway. Amazon is not the answer, because each Amazon sales item requires a separate truck trip to its destination, and that just doesn’t square with our energy predicament. We’ve got to rebuild main street economies and the layers of local and regional distribution that support them. That’s where many jobs and careers are.
Climate change is most immediately affecting farming. 2018 will be a year of bad harvests in many parts of the world. Agri-biz style farming, based on oil-and-gas plus bank loans is a ruinous practice, and will not continue in any case. Can we make choices and policies to promote a return to smaller scale farming with intelligent methods rather than just brute industrial force plus debt? If we don’t, a lot of people will starve to death. By the way, here is the useful work for a large number of citizens currently regarded as unemployable for one reason or another.
Pervasive racketeering rules because we allow it to, especially in education and medicine. Both are self-destructing under the weight of their own money-grubbing schemes. Both are destined to be severely downscaled. A lot of colleges will go out of business. Most college loans will never be paid back (and the derivatives based on them will blow up). We need millions of small farmers more than we need millions of communications majors with a public relations minor. It may be too late for a single-payer medical system. A collapsing oil-based industrial economy means a lack of capital, and fiscal hocus-pocus is just another form of racketeering. Medicine will have to get smaller and less complex and that means local clinic-based health care. Lots of careers there, and that is where things are going, so get ready.
Government over-reach: the leviathan state is too large, too reckless, and too corrupt. Insolvency will eventually reduce its scope and scale. Most immediately, the giant matrix of domestic spying agencies has turned on American citizens. It will resist at all costs being dismantled or even reigned in. One task at hand is to prosecute the people in the Department of Justice and the FBI who ran illegal political operations in and around the 2016 election. These are agencies which use their considerable power to destroy the lives of individual citizens. Their officers must answer to grand juries.
As with everything else on the table for debate, the reach and scope of US imperial arrangements has to be reduced. It’s happening already, whether we like it or not, as geopolitical relations shift drastically and the other nations on the planet scramble for survival in a post-industrial world that will be a good deal harsher than the robotic paradise of digitally “creative” economies that the credulous expect. This country has enough to do within its own boundaries to prepare for survival without making extra trouble for itself and other people around the world. As a practical matter, this means close as many overseas bases as possible, as soon as possible.
As we get back to business tomorrow, ask yourself where you stand in the blather-storm of false issues and foolish ideas, in contrast to the things that actually matter.
My good friend Ian and I have regularly hiked Strathcona Park since we were 16 in 1975. We decided to celebrate turning 60 by tackling the toughest hike in the park.
The first 3 days on Phillips Ridge were excellent although the “undulations” and “lots of down” were much tougher than we expected. A bout of food poisoning likely caused by trail mix purchased from a bulk food bin cancelled our planned side trip to the Golden Hinde peak. Even if healthy I’m not sure we would have tackled it after speaking with returning hikers who spoke of feeling exposed and unsafe, and wishing they had brought helmets to protect themselves from falling boulders. Seeing the route to the peak up close was intimidating. We have new respect for people who accomplish the Golden Hinde peak return trip.
The final “3 day adventure” on the Elk River “route” proved to be a bushwhacking nightmare. Each day we made only about 30% of our expected progress despite grueling effort. We had the best available maps and guidebook but the “route” had no flags or cairns and no signs of recent use. The maps were out of date and did not reflect obstacles like new landslides. On a whim, just before departing, I purchased a digital version of our paper map and we would have been screwed without it and my phone’s GPS. Even with the GPS, we had to retrace many steps and elevation changes many times.
Tired, discouraged, not wanting to face the ordeals of retracing our path, and believing it unlikely we could complete the Elk River route before running out of food, we decided to punch the eject button.
We were very lucky to have brought a satellite phone and to have found a helicopter not already committed to fighting forest fires with a pilot brave enough to fly in low visibility smoke. Our “rescue” was quite a thrill for me because I had never been in a helicopter and the heavy smoke forced the pilot to skim the trees down a river valley to avoid bumping into something hard. Click the link above for some great video.
Next year I hope we do the Bedwell trail out to the west coast but we’ll first find some people who have recently done the trail.
In case you’re wondering, I detected a lot of denial in my brain throughout the adventure. 🙂