Showing posts with label economy. Show all posts
Showing posts with label economy. Show all posts

Wednesday, 5 January 2022

Collapse You Say, Part 10/Time for Change, Part 1: Money

Waves, rocks and ice on the Lake Huron shore

Earlier in this series (Parts 5 and 6) I looked at overpopulation and overconsumption and concluded that while both are serious problems, overpopulation is going to take decades to solve, while overconsumption could be addressed quite quickly. By reducing our level of consumption, we would reduce our impact on the planet and give ourselves time to reduce our population.

In my last post I looked at some of the unintended and negative consequences of the industrialization we've experienced over the last few centuries. I concluded that most of the blame for overconsumption can be laid squarely at the feet of capitalism, with its insatiable hunger to accumulate wealth, its inescapable need for endless growth, and its inability to tackle any problem that can't be solved by making a profit. These days some people are calling capitalism a "death cult", based on those characteristics and the fact that we live on a finite planet. I think they are quite right to do so.

Clearly, the blame for overconsumption should not fall on the supposed innate greed and materialism of individual, ordinary people. The upper classes (mainly capitalists) are superlative consumers and do a great deal of harm themselves. And their marketing efforts have turned the rest of us into pretty good consumers, too. Turn off their incessantly blaring marketing machine and things would be quite different—reducing consumption would look at lot more doable. We'd have a real chance of solving both of our major problems (overpopulation and overconsumption), getting ourselves out of overshoot and avoiding at least part of the die-off that is currently looming ahead of us.

It seems that at this point in this series of posts I am done trying to show that collapse is real and I'm ready to look at what we can do about it. And that is why I am changing the name of this series in the middle of it. It is, indeed "time for change". In truth, I probably should have made the name change starting at Part 7, but it's too late for that now.

Of course, many people in the "collapse sphere" will tell you that what we face is a predicament, not a problem—in the sense that it can't be solved, only adapted to. To those folks I would say, relax—I agree. My idea of a solution to the problems facing us is for us to adapt to them, and that adaptation will probably look a lot like collapse to many of you. We need to have fewer people, all consuming at lower levels that can be sustained by the biosphere, and we must start using up non-renewable resources at a drastically lower rate, until we can manage to replace them with renewables. To quote John Michael Greer, we need to get by with LESS—less energy, less stuff, less stimulation (entertainment). If we choose to do nothing, we'll get there via a brutally hard and deep collapse. But if we deliberately work at adapting instead of trying to save "business as usual", we can get there by a much gentler route, with a lot less grief, and with a better outcome at the end. Still involving major changes to our supposedly "non-negotiable" lifestyles, though.

At the end of my last post (months ago) I promised to tie up a couple of loose ends in my discussion of finance and government, and to talk about how to solve our overconsumption problem by getting rid of capitalism. Over these last few months, I've come up with a wealth of material on these topics and so what was to have been a single post will now be broken up into at least three: I'll be talking about money (finance) today, hierarchies (government) in my next post and what to do about capitalism in the one after that.

Money

Money is a tool and, like all technology, it is not neutral but is designed to be used by certain people for a certain purpose. Money is used by rich people to make more money—to accumulate wealth, and to control poor people. Sure, it can be adapted to other purposes, but I don't believe we can ever stop it from being used for those basic, inherent purposes.

If you study basic economics, you'll be told that money has three primary uses: as a medium of exchange, a unit of account and a store of value. All three of those really just amount to keeping score in the complex game that is our economy. That score keeping is done in ways that facilitate the business of accumulating wealth. This helps those with lots of money get more of it, and works against those with little. We are told that not keeping score would be even worse, but the more I look into it, the less reason I see to believe that.

Capitalism started out with capitalists using their own money to build infrastructure (factories, mines, railways, etc.) to build stuff, which could then be sold for a profit. This soon changed to using borrowed money to do the same. The banks did very well on that, and before long the other capitalists saw that it is possible to use money directly to make more money, dispensing with factories and production of physical goods. This is known as "financialization" and while there are still lots of factories, making lots of stuff (much of it unnecessary), the financial sector is in some ways the business success story of the last century.

Unfortunately, our financial system creates money as debt, which must be paid back with interest. In order to do that, the economy must continually grow. If growth stops or even slows down, it collapses. At the same time, the eventual consequence of growth is also collapse.

The other primary use of money is as a tool for social control. Everything we need has been monetized—the only way to obtain the necessities of life (and much else) is to pay for them with money. Only a very few people live self-sufficiently today, outside of this system. The rest of us need money to live, and a job to obtain that money. In capitalist societies, most of the value created by your work goes to the capitalists, with as little as possible going to you as wages. This makes it challenging to get ahead.

During my lifetime, it stopped being possible to save up enough money to buy large ticket items like an education, a car, a house and so forth. For most people, especially those without rich parents, such things are necessities and can only be had by going into debt to get the required money up front. And it is getting harder and harder to pay back that debt. But that debt must be paid back is a strong value in our culture. To declare bankruptcy and effectively have your debts forgiven means losing essentially everything you have worked for. This leaves us in a position of being under the control of the banks, with very little that we can do about it.

If you look closely, though, you'll see that while not paying debts has nasty consequences for the lower classes, people in the upper classes can often come to some other arrangement if their debts become too onerous. In particular, capitalists whose businesses fail often walk away with little or no consequences since those businesses are set up as corporations with "limited liability".

So, it's pretty clear that in any society that uses money (keeps score) and makes accumulation of wealth a goal, the result will be ever growing inequality between the upper classes and everyone else. In the past, many societies that used money and debt, even without capitalism in the modern sense of the word, found that for the lower classes debt grew over the years until it crippled society. That was because the lower classes played an important part in those societies and when they were crushed under a mountain of debt, the whole society was negatively affected. It was necessary to have a "jubilee" every so often and forgive debts in order to get things working again.

But under modern capitalism, that's never going to happen—the lower classes are, to an ever greater extent, seen as not having an important role to play. Much of traditional work has been replaced by automation. If we are crippled by debt, it doesn't immediately bring our whole society to a halt. Indeed, much of that debt is held by the upper classes, who see it as a benefit. For the rest of us, debt offers a means to allow us to continue consuming, borrowing money just to give it back to the capitalists, with little time for thought about long term consequences.

Most of us are like fish swimming in a sea of money and monetary concerns, unaware that there is any alternative. We are certainly told that there is not. But we need to ask ourselves if money and this whole "keeping score" thing is beneficial or even necessary? Is there any way we could manage to get by without money?

Economists will tell you that money was invented to get away from the inconveniences of barter. But anthropologists who have actually studied pre-monetary societies, would tell you that that is nonsense—barter was used rarely, mainly for trading with strangers. Inside a community, among people who know each other, there are ways of living without money or barter. We'll go into more detail on that in a bit.

Conservative moralists, who have a great deal of influence these days, are concerned about "moral hazard"—telling us that keeping score using money is necessary to maintain fairness, and make sure that people don't take advantage of each other. In fact, very few people do take advantage. And keeping score mostly leads to growing inequality, which is in itself unfair.

And, of course, accountants would have us believe that the whole of modern civilization would grind to a halt if their ledgers didn't balance.

That's all very convenient for those at the top who actually do benefit, but most of these things could be eliminated without hurting the rest of us. And what's really necessary could be rearranged to benefit us and not just the rich.

If we turn to the study of anthropology again, we find that quite frequently during our prehistory we lived in small egalitarian bands who did just fine without money and largely without keeping score. What little score keeping there was, was informal and aimed at censuring people who didn't share well, to prevent accumulation rather than facilitating it.

For such hunter gatherers getting an adequate supply of protein was often challenging and that is one reason why hunting larger game was done enthusiastically, even though it was often not very successful. Hunters were expected to share the meat when they did make a kill, and generally did so, without expecting thanks or any special treatment for making this contribution.

Scientists studying such societies have observed that altruism (sharing) is a strong part of the culture, and have been puzzled about how altruism could be selected for on an evolutionary basis. It would seem that any individual with an inclination to share would inevitably be taken advantage of by less altruistic people, and individuals with innate altruistic impulses would soon be selected out of the gene pool. And indeed they would have been, if selection was acting solely on individuals. But selection also acted on the level of bands, and bands whose members shared well did better and were selected for strongly enough that such behaviour was eventually evolved into human beings. Mutual aid is a powerful tool for achieving success in groups and a major factor in the evolution of many species, certainly including our own.

Even today one can observe that there is a great deal of benefit to acting on a basis of mutual aid, working together altruistically in groups. In societies such as ours where there seems to be an ethos against altruism (a la Ayn Rand), people still do act altruistically, often as if compelled to do so. This tends to reduce the effectiveness of money as a control mechanism, and so it is not popular with those in power, but it still happens. And even in large capitalistic companies, in those cases where people are still working together in groups, you will find a co-operative, egalitarian culture, because it is the best way of getting the work done. Of course, management prefers to isolate workers, so as to better control them. Solidarity is a dangerous thing, from management's viewpoint.

Hunter gatherers had very little in the way of possessions—their nomadic lifestyle didn't allow for much in the way of accumulation. So you might say that money would have been of little use to them anyway.

But many tribal societies practicing herding or even sedentary agriculture, who had more in the way of possessions, and more opportunity to accumulate wealth, often got along without money or score keeping as well. In some such cultures, when you compliment another's possession, the owner is obligated to give you that possession. Strange as it seems to us, this is the basis of exchange in these societies and it works just fine for them. Since everyone is subject to the same rules, being greedy backfires very quickly.

It has become clear to me that the concept of fairness is quite different between monetary and non-monetary cultures. Diametrically opposite, in fact.

In our monetary society, fairness means playing by the rules, rules that are intended to facilitate accumulation. Successful people are expected to accumulate wealth. Indeed that is our definition of success—we are taught to admire such people, and to aspire to be like them.

In pre-monetary societies, fairness meant behaving altruistically—sharing, being generous and serving the other people in your community rather than taking advantage of them. Because the groups were small, it was obvious to everyone when an individual failed to share and do their part, and such individuals faced censure from their fellows.

If they had kept score you would see that, over time, the rest of the community came to be more and more indebted to skilled people. To our modern eyes, it might seem like the less skilled were taking advantage of the more highly skilled, but they didn't see it that way. Indeed it was frowned upon for successful people to put on airs in such cultures, or to use their skills to accumulate wealth. They considered it their responsibility to support their community. It was seen as just what human beings do, to the extent of their abilities. And everyone expected that their needs would be seen to by their community, to the extent that was possible. The result of all this was strongly beneficial to the community as a whole, including those we might see as being taken advantage of.

If that sounds like communism to you —from each according to their ability and to each according to their needs—you're right. That is exactly what it was, and a good thing, too.

Occasionally, in our lengthy pre-historic past, the idea of money (or at least the concept of credit) was adopted by various cultures. It caught on pretty quickly because it could be used for all the "advantages" we've been discussing here. In some cases there were also built in mechanisms for redistributing wealth—things like potlatches, funeral feasts and so forth, so that inequality didn't grow destructively, and runaway growth didn't have its inevitable environmental effects.

In other cases where inequality was allowed to accumulated across generations, the mass of people soon caught on and rebelled, reverting to more equitable ways of organizing things. In still other cases, societal collapse resulted. And finally, in cases where neither of those things happened, you ended up with the societies that eventually developed into to our modern capitalist civilization. Sadly, by the time those who were on the losing end of such arrangements realized what was going on, it was too late—those at the top of the organization were firmly in control, and not interested in changes that would impinge negatively on them. We were stuck in the sort of societies we currently have. Which brings us to the subject of hierarchies, which I will get to in my next post.

What I am intending to suggest here is that there are ways of supplying the needs of a society without causing inequality to grow. And without needing the economy to grow endlessly beyond the capacity of the planet to support. The sort of examples I've mentioned here are only a very few of the ways this might be done and I believe we may yet come up with new ideas that work even better.

In closing, I should probably (for the sake of completeness, but with little hope of achieving it) make a few comments on markets and property.

Markets

At the most basic level, markets exist to place a value on goods and services. But never forget—the value of goods only needs to be determined because we are keeping score, and using money to do it. In any case, the supposed magic of the "free market" is largely theoretical. At best, it can only work when all the players involved have roughly equal power. In capitalism, the capitalists have considerably more power than workers and consumers, and love markets because they are open to manipulation and control. Being able to game the market actually creates many of the problems inherent to capitalism.

Property and Ownership

The concept of private property is central to enabling the accumulation of wealth. The strong take what they wish, have the power to hold onto it, and use it to generate further wealth. Civilization consists largely of having laws to protect the private property of the rich and a police force to enforce them.

In such a system, owners have the right to abuse their property and deplete its resources, with consequences that are currently beginning to come due the world over (climate change, habitat destruction, resource depletion). In a sustainable society, land and resources would be the property of the community as a whole and that ownership would be about stewardship not exploitation.

We should also be clear that there is a distinction here between private and personal property. Personal property consists of items that you use in daily life (like your toothbrush, and your shoes and clothes). A community might elect to extend personal property rights to tools, homes and garden plots. But if you take property rights much further, you end up with individuals having the right to exploit land and resources to their own benefit and the detriment of the community and planet as a whole. Which is exactly what we want to avoid.

During the last few months while I've been dragging my feet about writing for this blog, I've been reading a number of very interesting books, which bear upon what we are discussing. Here is a list of those books, along with a few that I've read previously, but that also have been a help.

Debt, The First 5000 Years, by David Graeber

Hierarchy in the Forest: the evolution of egalitarian behavior, by Christopher Boehm

The Art of Not Being Governed, by James C. Scott

Against the Grain, a deep history of the earliest states, by James C. Scott

Living at the Edges of Capitalism: Adventures in Exile and Mutual Aid, by Andrej Grubacic

The Dawn of Everything, by David Graeber and David Wengrow


Links to the rest of this series of posts: Collapse, you say?

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Wednesday, 3 April 2019

What I've Been Reading, March 2019

Links


Miscellaneous


Responding to Collapse,


Peak Oil


Climate Change

  • Europe is Using Wood from U.S. Forests to Replace Fossil Fuels, Institute for Energy Research
    "Carbon accounting of forest management has long been fraught with controversy, as scientists warn that it does not reflect the true climate impact. They believe that trees should be allowed to mature and store carbon instead of being harvested. The European Union, on the other hand, intends to partially meet its commitment to the Paris agreement by using all forms of biomass, including wood pellets."
  • 10 Myths about Carbon Pricing in Canada, Canada's Ecofiscal Commission


Economic Contraction


Energy


Disaster Mythology


Hazard and Risk


Food


Practical Skills

My little granddaughters (age 6 and 7) were here during March Break and we did some peg weaving.

I've been meaning to study up on how linen is made from flax for some time, and You Tube offered the videos below when I went looking for peg weaving.


Secession

  • The Brexit Endgame, by Amy Davidson Sorkin, The New Yorker
    Brexit is scheduled to take place on March 29th—but the United Kingdom isn’t ready.


Debunking


Science Based Medicine

  • The 5 deadliest habits to avoid as you get older, by Erin Brodwin, Business Insider
    Overall this is a pretty good article. It needs to be a little more clear about what constitutes "processed" foods, about which many people have strange ideas. For instance, I would include honey in this food group—doesn't matter if it was processed by bees, it's still a refined carbohydrate.
  • The Power of the Nocebo Effect, by Shayla Love, Vice Magazine—Tonic
    "Nocebo is the evil twin of the placebo effect—and my constant companion. I set out to find out what it is, and how I could learn to harness the more positive effects of medical mind games."
  • Glyphosate and cancer – revisited, by Andrew Kniss, A Plant Out of Place—thoughts from someone who spends life amongst the weeds.
    The largest data set we have (by far) which does the best job (by far) of accounting for confounding variables shows absolutely no association between handling glyphosate and developing non-Hodgkin lymphoma.


Lacking an Owner's Manual

The human body/mind/spirit doesn't come with an owner's manual, and we continually struggle to figure out how best to operate them.


There is No God, and Thou Shall Have No Other Gods

I don't think I've made any secret of the fact that I am an atheist, but I may not have made it clear that I think any sort of worship is a bad thing and that believing in things is to be avoided whenever possible. Indeed, I do not believe in believe itself. That's what the "Thou shall have no other gods" is about—it's not enough to quit believing in whatever God or Gods you were raised to believe in, but also we must avoid other gods, including material wealth, power and fame.


Refugees and Migration


Poverty, Homeless People, Minimum Wage, UBI, Health Care, Housing

Books


Fiction

Except for Red Moon, all these books are old favourites I pulled from my bookshelves to re-read this month.


Non-Fiction

Non-fiction reading was slow going this month, as I tackled a couple of books that I am finding tough going. So here are some more gems from my bookshelf. I stumbled on The Kon Tiki Expedition in my elementary school library when I was 10 years old. Stayed up most of the night reading it.

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Thursday, 14 June 2018

Autobiographical Notes, Part 4: My Peak Oil Journey

For some time now I been intending to do a post about "My Peak Oil Journey", describing how my understanding of Peak Oil has evolved over the years. I think it will fit nicely at this point in my series of autobiographical notes.

Throughout the history of this blog I've focused on three of the challenges we face: Climate Change, Peak Oil, and Economic Contraction.

I first became aware of climate change in the late 80s and had no trouble accepting its reality. I expected that nuclear fusion or possibly renewable power sources, especially solar, would take over from fossil fuels and solve the problem with ease. But things have not worked out quite so well.

Sometime in 2000 or 2001 I first heard of Peak Oil. Again, my initial reaction was that improved technology would solve the problem. But I was drawn back to the topic repeatedly and by the time I retired from Hydro One, I was convinced that this is not a problem we are going to solve. I retired with a very nice pension, but also a keen awareness that this pension was contingent on the continuing growth of the economy. And even that early on, my reading about Peak Oil made it pretty clear that continued economic growth was far from a sure thing.

My current understanding of the economy took much longer to come together, and is intimately intertwined with my understanding of Peak Oil.

In the early 2000s many people, myself included, had quite a naive understanding of how Peak Oil might play out. I think many of us thought of oil fields as big underground tanks, originally full of oil. In this view we'd be able to keep pumping oil out of the ground until one day it suddenly ran dry. We also thought that the demand for oil was quite inelastic and running out would cause a very serious disaster, quite possibly the collapse of industrial civilization.

There was a lot of speculation about the amount of oil that was actually left, and good reason to suspect that official estimates of oil reserves were artificially inflated. Both the privately owned oil companies and the OPEC countries had (and still have) much to gain from claiming that their reserves are larger than they are in reality. Some of the agencies estimating future oil use numbers based them solely on predicted demand, without considering the realities of the supply side at all.

Gradually, this way of thinking came around to a more realistic picture of porous rock formations saturated with oil and gas and capped with layers of impermeable rock. Drill through the cap rock and the oil (and gas) would start running out. With this more accurate picture came many inconvenient details which gradually, as events played out over the years, became more obvious.

The rate at which oil comes out of the ground is determined by the geology of each particular well, and is at a maximum when the well is new and declines as the well ages until eventually it is no longer profitable to operate the well, the costs of operation being higher than the small remaining production is worth. This happens before all of the oil is removed from the well. There are techniques such as water injection which can be used to increase the rate at which oil comes out of a well, but this may increase the decline rate so that the total production of the well is less in the end.

Discovery of new oil resources must make up for the decline of existing wells and allow for increased use of oil as the economy grows. For the last few decades this has not happened, and it appears to me that the production of "conventional" oil peaked around 2005. This was reflected in the increase in the price of oil from around $12 per barrel in late 90s to just over $140 per barrel in the summer of 2008. The price of oil goes up as demand exceeds supply or even if events make it seem that supply might soon be constrained. It seems that in the months leading up to the summer of 2008, both of those factors were involved in making the price of oil spike upwards.

Looking back on the effect of oil price on the economy, post 2008, it became clear that almost every recession since the 1950s had been preceded by a spike in the price of oil. It turns out that the demand for oil is not nearly so inelastic as some had imagined. When the price goes up we see what is known as "demand destruction"—economic growth slows and people find themselves short of cash, cutting back on discretionary spending and doing whatever they can to use less energy. If the price goes high enough, even conservation begins to look like attractive.

At the same time, the idea that there is no alternative to oil turns out to be a little too simplistic. As the price goes up, oil wells that have been shut down as unprofitable become profitable again. Alternative forms of oil, what is known as "non-conventional oil" (deep offshore oil, Arctic oil, fracked oil, heavy oil and bitumen from tar sands) which had previously been too expensive to bother with, also become economically feasible.

The demand for oil dropped off from 86.3 million barrels per day in 2007 to less than 84.5 in 2009, and the price dropped to just over $40 per barrel. As the economy recovered, non-conventional oil made up for the decline in production of conventional oil and total demand increased to over 99 million barrels per day in 2018. Higher prices 2010 to 2014 (peaking at over $100 per barrel in early 2014) no doubt drove developments in non-conventional oil, while at the same time slowing the recovery of the economy.

In that period (2008 to 2014) the idea of Peak Oil was alive and well. Lots of people were interested, there were numerous websites and books being published, and a variety of groups, (of which the Transition Town movement is probably best known) sprang up in an attempt to bring people together to prepare for what was coming.

And while overall global oil production kept growing, many oil exporting countries reached their production peaks. In a phenomenon described by "The Export Land Model", this happened even quicker than it might have otherwise. As most such countries were experiencing growth in their own economies and improvements in their standards of living, so their domestic consumption of oil was increasing, leaving even less to export than could be accounted for by natural decline, and putting their balance of payments in an ever worsening situation post peak.

In the Middle East climate change brought on increased temperatures and droughts, making agriculture less and less feasible. And this was at a time when money to import food and jobs for bankrupt farmers fleeing to the cities were both in short supply. There is no doubt in my mind that both climate change and peaking of oil exports were factors in the so called "Arab spring". But changing governments does little to improve the situation when there are real, fundamental problems that even the best government would be hard pressed to cope with. In general, everywhere in the world, there is growing disillusionment with new governments, elected to deal with economic and social problems, who turn out to be just as inept as the old ones, and just as much in denial about what's wrong.

It was sometime after 2008 when I put together the missing pieces in my understanding of economics.

The first thing was to realize that it's not really about money.

Money is just a convenient set of tokens—a medium of exchange, a unit of account and a store of value. Of course, a whole "meta" level of business, the financial sector, is based on money. But it's vital not to lose sight of the underlying realities.

The second thing was to understand role of growth in the economy.

Modern economies run on credit. Money is created by the banks as debt and those debts must be paid back with interest. The extra money for the interest comes from yet more loans. This works fine as long as the economy is growing and the banks have good confidence that debtors will continue to pay back their loans, with interest. If the economy stops growing, or even if its growth slows down very much, governments, businesses and individuals who have taken out loans find themselves unable to continue making their payments and are forced to default on their loans. Too many defaults and the banks themselves start failing. So it is vital that the economy continue to grow.

The third thing is the role of energy in the economy.

The reason that debtors can pay back loans is that they used the borrowed money to set up enterprises that create more value than the capital and labour that are put into them. This surplus value can be used to pay off loans, with interest, and leave something as well for the owners of the enterprise. Or in the case of large companies, pay dividends to the investors. Conventional economic theory is pretty vague about where this extra value comes from. But when I read up on "biophysical economics" it became clear to me that the extra value comes from the energy inputs to the process, because the energy costs substantially less than the value it enables us to create.

That Wikipedia article I linked to doesn't mention the two sources where I learned about biophysical economics: Energy and the Wealth of Nations by Charles Hall and Kent Klitgaard, and Life After Growth by Tim Morgan. Morgan also has a website with up to date information.

Extra value (wealth) coming from surplus energy was true to a limited extent even in the past when energy came in the form of food and was converted in mechanical form by human or animal muscles. Things improved somewhat when we learned to harness the mechanical energy in moving air (wind) and falling water. But with the invention of engines that could convert the heat of burning fuel into mechanical energy, things really took off. These engines could drive automated factories which could produce goods with a fraction of the human labor previously required. This started with steam engines burning coal to pump water out of coal mines, replacing horse powered pumps. What followed was the industrial revolution.

The economy grew as it never had before, and as long as abundant cheap energy was available, it continued to grow.

Throughout the history of fossil fuel use, we've used the lowest hanging fruit first—the easiest to access and the highest quality fuels among those. With the result that as time passes, the remaining fuels are harder to access and/or of poorer quality. This leads us to concept of Energy Returned on Energy Invested (EROEI), and the related idea of surplus or net energy.

Taking a typical oil well from the early twentieth century, the energy equivalent of 1 barrel of oil would have been used to get 100 barrels of oil out of the well. This gives you an EROEI of 100, and surplus energy of 99 barrels of oil equivalent.

Looking at present day corn based ethanol, to produce 1.3 gallons, it takes the energy equivalent of 1 gallon of ethanol. This gives you an EROEI of 1.3 and surplus energy of .3 gallons of ethanol equivalent.

This can be helpful in choosing the sorts of energy we should be using—early twentieth century oil wells are something we can only dream of today and the corn ethanol business is hardly viable without large subsidies. But there is more to it than that, because surplus energy is what drives the economy and makes economic growth possible. If you look at all the energy sources a country uses and calculate a weighted average EROEI, it can tell you quite a lot about that country's economy.

As that average EROEI declines toward about 15, economic growth grinds to a halt and it becomes difficult to raise capital to start new ventures and to maintain existing infrastructure. Below 15 a modern industrial civilization quits working. Because this is a weighted average, choosing to produce more energy from low EROEI sources makes things worse while temporarily seeming to make them better. It has been estimated that the current average EROEI of the world economy is around 11. Of course some lucky countries are doing much better than that.

But because of our "lowest hanging fruit first" approach, EROEI continues to decline. Real economic growth appears to have stopped in the 1990s, with governments using clever new ways of calculating gross domestic product, and unemployment and cost of living statistics to make things look better in the short run. And low interest rate policies to encourage lots of borrowing and keep the economy growing, again, in the short run.

By early 2014, oil prices had topped $100 per barrel and it looked to many of us like the economy might fall apart again as it had done in 2008.

But then oil prices started to fall, bottoming out below $40 per barrel. Why the slump happened is not well understood, but it had been predicted by a few (notably Nicole Foss of the Automatic Earth) as yet another step on the way to Peak Oil.

There was a glut in oil supply from 2014 to 2017. Several factors contributed to this.

The first, no doubt, was the increase in non-conventional oil production, particularly tight oil in continental US, accessed through the "hydro-fracturing" process, commonly referred to as "fracking". Contrary to popular belief this was not enough supply all of America's demand for crude oil. But it did add about 4 million barrels a day to US oil production.

All the hype about fracking as a new source of crude oil and natural gas caused some people to conclude that Peak Oil was dead, and that any shortage of oil was a very long way in the future. Even President Obama announced that there was enough tight oil to last 100 years. In fact, nothing could be further from the truth. In 2017, the United States produced an average of about 14.2 million barrels per day, and consumed about 19.8 million barrels per day, with the difference made up by imports, changes in petroleum inventories, and petroleum refinery processing gain.

No doubt fracking has significantly decreased the amount of oil the US has to import. But this is temporary—the decline rates of fracked wells are much higher than those of conventional wells and most of the sweet spots in the tight oil plays have already been used up. Realistically, America's supply of tight oil will likely run out early in the 2020s.

But even if there was enough tight oil and gas to last 100 years, fracking is a classic case of trying to use a low EROEI energy source (somewhere between 3 and 5, in this case) to keep an economy going. You might expect that this oil would be more expensive than conventional oil, but as we learned in 2008, high energy prices cause recessions, which should lead to over-production and lower prices.

Parts of this happened—oil prices certainly went down. But oil consumption continued to grow, by about 1.7% per year. Strangely, it appears that this extra energy did not result in corresponding growth of the US economy. It is a bit of a puzzle where the energy went, until you realize that fracking is a very energy intensive process (the "energy invested" part of EROEI). Fracking itself is the "gas guzzler" that was causing the growth in US oil consumption. This is what I call "energy sprawl", where the extensive infrastructure and energy use required to make low EROEI energy sources work begins to dominate the economy and the landscape.

OPEC was initially unwilling to cut back production to bring the price back up, but in late 2016 an agreement to cut production was signed by many OPEC producers and Russia as well. At the same time, many other non-OPEC producers were experiencing natural decline.

The price of oil bottomed out just under $40/barrel in early 2016, bounced around in the $40s and low $50s, and then in mid 2017 started to increase pretty much steadily, as the glut began to dwindle. Today the price is in the high $70s/barrel and has topped $80 in the past few weeks. The glut is over and the U.S. government has quietly asked Saudi Arabia and some other OPEC producers to increase oil production by about 1 million barrels a day to bring the price down to a more acceptable level.

OPEC economies were hurt badly by several years of low prices and one suspects they will be only too glad to increase production. The question is how long they will be able to do so before the natural decline rates of their oil fields catch up with them.

The major oil companies were hurt by low prices too, and cut back on their investment on discovery in order to save money. This has left us in a very bad situation as far as oil supply goes over the next few years. Trillions of dollars would have to be spent on discovery to catch up with demand. It seems to some of us that there is no sweet spot where oil prices are low enough to keep the economy growing and high enough to make the oil business profitable.

In any case, it seems unlikely that there are actually sufficient oil resources out there even if we could find the money to spend on discovery. Beyond natural supply decline and reduced spending on discovery, we are seeing geopolitics playing a role in Peak Oil as well. Major oil producers like Venezuela are facing sanctions and internal economic chaos. Their oil industry is suffering as a result and production is falling off. If President Trump gets his way, something similar will likely happen with Iran. An overall peak in production will likely occur sometime in the next few years.

How will the economy respond to this? Not well, to be sure, but the specific details will include some surprises that are very hard to anticipate.

That's my "Peak Oil Journey", to date at any rate. No doubt there is more to learn. We're pretty good at explained what just happened, but not so good at predicting what's coming next. It always seems to involve something we just haven't considered yet.

While I was following the story of Peak Oil, my life carried on and I tried to prepare for the challenges that lay ahead. Eventually this lead to me starting this blog and calling myself a "Kollapsnik". More on that next time.


Links to the rest of this series of posts:

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Tuesday, 20 February 2018

The Bumpy Road Down, Part 5: More Trends in Collapse

Bitteersweet Berries
Still on the vine in February

In my last post I started talking about some of the changes that will happen along the bumpy road down and the forces and trends that will lead to them. (The bumpy road down being the cyclic pattern of crash and partial recovery that I believe will characterize the rest of the age of scarcity). These changes will be forced on us by circumstances and are not necessarily how I'd like to see things turn out.

The trends I covered last time were:

  • our continued reliance on fossil fuels
  • the continuing decline in availability, and surplus energy content, of fossil fuels
  • the damage the FIRE industries (finance, insurance and real estate) will suffer in the next crash, and the effects this will have
  • the increase in authoritarianism, as governments attempt to optimize critical systems and relief efforts during and after the crash

Oscillating overshoot with declining carrying capacity

I've once again included the stepped or "oscillating" decline diagram from previous posts here to make it easier to visualize what I'm talking about. This diagram isn't meant to be precise, certainly not when it comes to the magnitude and duration of the oscillations, which in any case will vary from one part of the world to the next.

The trends I want to talk about today are all interconnected. You can hardly discuss one without referring to the others, and so it is difficult to know where to start. But having touched briefly on a trend toward increased authoritarianism at the end of my last post, I guess I should continue trends in politics.

More Political Trends

Currently there seems to be a trend towards right wing politics in the developed world. I think anyone who extrapolates that out into the long run is making a basic mistake. Where right wing governments have been elected by those looking for change, they will soon prove to be very inept at ruling in an era of degrowth. Following that, there will likely be a swing in the other direction and left wing governments will get elected. Only to prove, in their turn, to be equally inept. Britain seems to be heading in this direction, and perhaps the U.S. as well.

Another trend is the sort of populism that uses other nations, and/or racial, ethnic, religious and sexual minorities at home as scapegoats for whatever problems the majority is facing. This strategy is and will continue to be used by clever politicians to gain support and deflect attention from their own shortcomings. Unfortunately, it leads nowhere since the people being blamed aren't the source of the problem.

During the next crash and following recovery governments will continue to see growth as the best solution to whatever problems they face and will continue to be blind to the limits to growth. Farther down the bumpy road some governments may finally clue in about limits. Others won't, and this will fuel continued growth followed by crashes until we learn to live within those limits.

One thing that seems clear is that eventually we'll be living in smaller groups and the sort of political systems that work best will be very different from what we have now.

Many people who have thought about this assume that we'll return to feudalism. I think that's pretty unlikely. History may seem to repeat itself, but only in loose outline, not in the important details. New situations arise from different circumstances, and so are themselves different. Modern capitalists would never accept the obligations that the feudal aristocracy had to the peasantry. Indeed freeing themselves of those obligations had a lot to do with making capitalism work. And the "99%" (today's peasantry) simply don't accept that the upper classes have any right, divine or otherwise, to rule.

In small enough groups, with sufficient isolation between groups, people seem best suited to primitive communism, with essentially no hierarchy and decision making by consensus. I think many people will end up living in just such situations.

In the end though, there will still be a few areas with sufficient energy resources to support larger and more centralized concentrations of population. It will be interesting to see what new forms of political structure evolve in those situations.

Economic Contraction

For the last couple of decades declining surplus energy has caused contraction of the real economy. Large corporations have responded in various ways to maintain their profits: moving industrial operations to developing countries where wages are lower and regulations less troublesome, automating to reduce the amount of expensive labour required, moving to the financial and information sectors of the economy where energy decline has so far had less effect.

The remaining "good" industrial jobs in developed nations are less likely to be unionized, with longer hours, lower pay, decreased benefits, poorer working conditions and lower safety standards. The large number of people who can't even get one of those jobs have had to move to precarious, part time, low paying jobs in the service industries. Unemployment has increased (despite what official statistics say) and the ranks of the homeless have swelled.

Since workers are also consumers, all this has led to further contraction of the consumer economy. We can certainly expect to see this trend continue and increase sharply during the next crash.

Our globally interconnected economy is a complex thing and that complexity is expensive to maintain. During the crash and the depression that follows it, we'll see trends toward simplification in many different areas driven by a lack of resources to maintain the existing complex systems. I'll be discussing those trends in a moment, but it is important to note that a lot of economic activity is involved in maintaining our current level of complexity and abandoning that complexity will mean even more economic contraction.

At the same time, small, simple communities will prove to have some advantages that aren't currently obvious.

Conservation

All this economic contraction means that almost all of us will be significantly poorer and we'll have to learn to get by with less. As John Michael Greer says, "LESS: less energy, less stuff, less stimulation." We'll be forced to conserve and will struggle to get by with "just enough". This will be a harshly unpleasant experience for most people.

Deglobalization

For the last few decades globalization has been a popular trend, especially among the rich and powerful, who are quick to extol its many supposed advantages. And understandably so, since it has enabled them to maintain their accustomed high standard of living while the economy as a whole contracts.

On the other hand, as I was just saying, sending high paying jobs offshore is a pretty bad idea for consumer economies. And I suspect that in the long run we'll see that it wasn't really all that good for the countries where we sent the work, either.

During the crash we'll see the breakdown of the financial and organizational mechanisms that support globalization and international trade. There will also be considerable problems with shipping, both due to disorganization and to unreliable the supplies of diesel fuel for trucks and bunker fuel for ships. I'm not predicting an absolute shortage of oil quite this soon, but rather financial and organizational problems with getting it out of the ground, refined and moved to where it is needed.

This will lead to the failure of many international supply chains and governments and industry will be forced to switch critical systems over to more local suppliers. This switchover will be part of what eventually drives a partial recovery of the economy in many localities.

In a contracting economy with collapsing globalization there would seem to be little future for multi-national corporations, and organizations like the World Bank and the IMF. While the crash may bring an end to the so called "development" of the "developing" nations, it will also bring an end to economic imperialism. At the same time, the general public in the developed world, many of whom are already questioning the wisdom of the "race to the bottom" that is globalization, will be even less likely to go along with it, especially when it comes to exporting jobs.

Still, when the upcoming crash bottoms out and the economy begins to recover, there will be renewed demand for things that can only be had from overseas and international trade will recover to some extent.

Decentralization

Impoverished organizations such a governments, multi-national corporations and international standards groups will struggle to maintain today's high degree of centralization and eventually will be forced to break up into smaller entities.

Large federations such as Europe, the US, Canada and Australia will see rising separatism and eventually secession. As will other countries where different ethnic groups have been forced together and/or there is long standing animosity between various localities. If this can be done peacefully it may actually improve conditions for the citizens of the areas involved, who would no longer have to support the federal organization. But no doubt it will just as often involve armed conflict, with all the destruction and suffering that implies.

Relocalization

The cessation of services from the FIRE industries and the resulting breakdown of international (and even national) supply and distribution chains will leave many communities with no choice but to fend for themselves.

One of the biggest challenges at first will be to get people to believe that there really is a problem. Once that is clear, experience has shown that the effectiveness of response from the victims of disasters is remarkable and I think that will be true again in this case. There are a lot of widely accepted myths about how society breaks down during disaster, but that's just what they are: myths. Working together in groups for our mutual benefit is the heart of humanity's success, after all.

Government response will take days or more likely weeks to organize, and in the meantime there is much we can do to help ourselves. Of course it helps to be prepared... (check out these posts from the early days of this blog: 1, 2) and I'll have more to say on that in upcoming posts.

The question then arises whether one would be better off in an urban center or a rural area such as a small town or a farm. Government relief efforts will be focused on the cities where the need will be greatest and the response easiest to organize. But just because of the millions of people involved, that response will be quite challenging.

Rural communities may well be largely neglected by relief efforts. But, especially in agricultural areas, they will find fending for themselves much more manageable.

I live in a rural municipality with a population of less than 12,000 people in an area of over 200 square miles (60 people per sq. mile, more than 10 acres per person). The majority of the land is agricultural, and supply chains are short, walking distance in many cases. Beef, dairy and cash crops are the main agricultural activities at present and they can easily be diverted to feed the local population. Especially if the food would go to waste anyway due to the breakdown of supply chains downstream from the farm.

So I think we're likely to do fairly well until the government gets around to getting in touch with us again, probably sometime after the recovery begins.

In subsequent crashes the population will be significantly reduced and those of us who survive will find ourselves living for the most part in very small communities which are almost entirely relocalized. The kind of economy that works in that situation is very different from what we have today and is concerned with many things other than growth and profit making.

Rehumanization

The move toward automation that we've seen in the developed world since the start of the industrial revolution has been driven by high labour costs and the savings to be had by eliminating labour from industrial processes as much as possible. That revolution started and proceeded at greatest speed in Britain where labour rates where the highest, and still hasn't happened in many developing nations where labour is very cheap.

Sadly, the further impoverishment of the working class in Europe and North American will make cheaper labour available locally, rather than having to go offshore. During the upcoming crash, and in the depression following it, impoverished people will have no choice but to work for lower rates and will out compete automated systems, especially when capital to set them up, the cutting edge technology needed to make them work, and the energy to power them are hard to come by. Again, the economic advantages of simplicity will come into play when it is the only alternative, and help drive the recovery after the first crash.

The Food Supply and Overpopulation

In the initial days of the coming crash there will be problems with the distribution systems for food, medical supplies and water treatment chemicals, all of which are being supplied by "just in time" systems with very little inventory at the consumer end of the supply chain. To simplify this discussion, I'll talk primarily about food.

It is often said that there is only a 3 day supply of food on the grocery store shelves. I am sure this is approximately correct. In collapse circles, the assumption is that, if the trucks stop coming, sometime not very far beyond that 3 day horizon we'd be facing starvation. There may be a few, incredibly unlucky, areas where that will be more or less true.

But, depending on the time of year, much more food than that (often more than a year's worth) is stored elsewhere in the food production and distribution system. The problem will be in moving this food around to where it is needed, and in making sure another year's crops get planted and harvested. I think this can be done, much of it through improvisation and co-operation by people in the agricultural and food industries. With some support from various levels of government.

There will be some areas where food is available more or less as normal, some where the supply is tight, and other areas where there is outright famine and some loss of life (though still outstripped by the fecundity of the human race). In many ways that pretty much describes the situation today but supply chain breakdown, and our various degrees of success at coping with it, will make all the existing problems worse during the crash.

But once the initial crash is over, we have a much bigger problem looming ahead, which I think will eventually lead to another, even more serious crash.

With my apologies to my "crunchy" friends, modern agriculture and the systems downstream from it supply us with the cheapest and safest food that mankind has known since we were hunters and gatherers and allows us (so far) to support an ever growing human population.

The problem is that this agriculture is not sustainable. It requires high levels of inputs--primarily energy from fossil fuels, but also pesticides, fertilizers and water for irrigation--mostly from non-renewable sources. And rather than enriching the soil on which it depends, it gradually consumes it, causing erosion from over cultivation and over grazing, salinating the soil where irrigation is used and poisoning the water courses downstream with runoff from fertilizers. We need to develop a suite of sustainable agricultural practices that takes advantage of the best agricultural science can do for us, while the infrastructure that supports that science is still functioning.

The organic industry spends extravagantly to convince us that the problem with our food is pesticide residues and genetically engineered organisms, but the scientific consensus simply does not support this. The organic standards include so called "natural" pesticides that are more toxic than modern synthetic ones, and allow plant breeding techniques (such as mutagenesis) that are far more dangerous than modern genetic engineering. Organic standards could certainly be revised into something sustainable that retains the best of both conventional and organic techniques, but this has become such a political hot potato that it is unlikely to happen.

As I said above, during the upcoming crash one of the main challenges will be to keep people fed. And I have no doubt that this challenge will, for the most part, be successfully met. Diesel fuel will be rationed and sent preferentially to farmers and trucking companies moving agricultural inputs and outputs. Supplies of mineral fertilizers are still sufficient to keep industrial agriculture going. Modern pesticides actually reduce the need for cultivation and improve yields by reducing losses due to pests. It will be possible to divert grains grown for animal feed to feed people during the first year when the crisis is most serious.

Industrial agriculture will actually save the day and continue on to feed the growing population for a while yet. We will continue to make some improvement in techniques and seeds, though with diminishing returns on our efforts.

This will come to an end around mid century with the second bump on the road ahead (starting at point "g" on the graph), when a combination of increasing population, worsening climate, and decreasing availability and increasing prices of energy, irrigation water, fertilizer, pesticides and so forth combine to drastically reduce the output of modern agriculture.

Widespread famine will result, and this, combined with epidemics in populations weakened by hunger, will reduce the planet's human population by at least a factor of two in a period of a very few years. Subsequent bumps as climate change further worsens conditions for farming will further reduce the population, resulting in a bottleneck towards the end of this century. Without powered machinery, synthetic fertilizers and pesticides and with drastically reduced water for irrigation, agricultural output will fall off considerably. And our population will fall to match the availability of food. I do think it unlikely that the human race will be wiped out altogether, but our numbers will likely be reduced by a factor of ten or more.

Turning to Violence as a Solution

It is a sad fact that many people, communities and nations, when faced with the sort of challenges I've been talking about here, will respond with violence.

In the remaining years leading up to the next crash, I think it is likely that even the least stable of world leaders (or their military advisors) will remain well aware of the horrific consequences of large scale nuclear war, and will manage to avoid it. As has been the case since the end of WWII, wars will continue to be fought by proxy, involving smaller nations in the developing world, especially where the supply of strategic natural resources are at issue.

War is extremely expensive though and, even without the help of a financial crash, military spending already threatens to bankrupt the U.S. As Dmitry Orlov has suggested, after a financial crash, the U.S. may find it difficult to even get its military personnel home from overseas bases, much less maintain those bases or pursue international military objectives.

But even in the impoverished post-crash world, I expect that border wars, terrorism, riots and violent protests will continue for quite some time yet.

Migration and Refugees

Whether from the ravages of war, climate change or economic contraction many areas of the world, particularly in areas like the Middle East, North Africa and the U.S. southwest, will become less and less livable. People will leave those areas looking for greener pastures and the number of refugees will soon grow past what can be managed even by the richest of nations. This will be a problem for Europe in particular, and more and more borders will be closed to all but a trickle of migrants. Refugees will accumulate in camps and for a while the situation will find an uneasy balance.

As we continue down the bumpy road, though, many nations will lose the ability to police their borders. Refugees will pour through, only to find broken economies that offer them little hope of a livelihood. Famine, disease and conflict will eventually reduce the population to where it can be accommodated in the remaining livable areas. But the ethnic makeup of those areas will have changed significantly due to large scale migrations.

In Conclusion

I've been talking here about some of the changes that will be forced upon us by the circumstances of collapse. I've said very little about what I think we might do if we could face up to the reality of those circumstances and take positive action. That's because I don't think there is much chance that we'll take any such action on a global or even national scale.

It's time now to wrap up this series of posts about the bumpy road down. At some point in the future I intend to do a series about of coping with collapse locally, on the community, family and individual level. I think there is still much than can be done to improve the prospects of those who are willing to try.


Links to the rest of this series of posts:
Political Realities / Collapse Step by Step / The Bumpy Road Down

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Saturday, 6 May 2017

Evaluating Existential Threats, Part 4: Conclusions

Sunset Over Lake Huron, May 3, 2017

In the first 3 posts in this series ( 1, 2, 3) I talked about global catastrophic risks (the kind of things that threaten human well being on a global scale), and existential risks (which threaten us with extinction). Of course, the distinction between the two is only a matter of degree. We looked at how to evaluate such threats in general and then evaluated a number of specific threats, looking at:

  1. Risk: what is the likelihood of this happening?
  2. Severity: what are the consequences if this does happen?
  3. Difficulty: how hard will it be to do something about this?
  4. Timescale: how soon will this happen?

Just to get us quickly up to speed, here is the list of threats that I classified as worth worrying about:

  • collision with an asteroid (or comet)
  • massive solar flare (coronal mass ejection)
  • economic singularity
  • human sourced pandemic
  • biotechnology
  • ecological disaster
  • climate change
  • resource depletion
  • population and agricultural crises
  • warfare

The first two are not manmade (non-anthropogenic), although our vulnerability to the effects of a massive solar flare is mostly a result of our love of cheap electronics, and electrical grids and an internet that are not sufficiently hardened. For the non-anthropogenic threats I looked at all four of the factors to determine if there is cause for concern.

The rest of the list are manmade (anthropogenic). All of them present a high degree of risk and a high severity, and all but two (a human sourced pandemic and biotechnology) are already happening and very likely to intensify in the near future.

The Wikipedia article on catastrophic and existential risks that I've been referencing in this series of post adds up all the various risks and concludes that the likelihood of human extinction by 2100 is around 19%. This seems fairly reasonable to me, though I'd place lower probabilities on risks like artificial intelligence and nanotechnology and higher probabilities on climate change, resource depletion, ecological disaster, and population and agricultural crises.

But there is a big range of outcomes between extinction and business as usual, including various degrees of societal collapse, entailing loss of life, organization and technology. I would argue that some sort of collapse is very likely—essentially a certainty if we don't take some corrective action soon.

What I haven't done as yet, for these anthropogenic threats, is look at the difficulty of mounting such a response or the likelihood of its being successful. In order to do this, I think it would be helpful if we could make some sense of all these threats and how they fit together in an interconnected, systemic context. And that is the subject of this post.

If indeed there is nothing that can be done, then we should relax, quit worrying and try to enjoy the ride. But remember, these threats are manmade. We are causing the problems, so can't we just stop whatever it is we are doing wrong? I think we should at least consider it. If that won't work, another alternative would be to accept what is coming and take steps to adapt. And it seems to me that the things we might do to adapt are also things that will reduce the severity of the situation we are facing.

In addition to the major threats listed above, there are also a great many minor economic, social and political disruptions happening these days which do not seem catastrophic on a global scale but may well lead us to the "death of a thousand cuts". With all this going on it is very difficult to sort out cause and effect and determine what our response should be. Conventional wisdom would have us treat the symptoms, the surface disruptions, but remains unwilling to consider that there might be anything fundamentally wrong with the system as a whole.

As we shall see shortly, much of the activity that is causing our problems is economic activity. At the same time, as more and more aspects of our lives become "monetized", we are giving up the last vestiges of self sufficiency and becoming ever more dependent on the monetary economy for our continued survival. To be so dependent on the very thing that is causing our problems is not a good situation.

This being the case, I think it would be helpful to look to the science of economics for a deeper understanding of what's going on. Unfortunately conventional economics (Neo-classical economics or Chicago School economics, henceforth referred to as NCE) is hardly fit to be called a science at all. It violates a number of physical laws and is inconsistent with actual human behaviour. These folks would have us look at the economy as a perpetual motion machine, in which money and goods go around and around, with no reference to the physical and biological aspects of the world, or the realities of friction and entropy.

Figure 1

There a number of myths being propagated by NCE, and since policy decisions are based on these myths, they represent a serious handicap in our attempts to cope with the challenges facing us.

  • The real economy is subject to the forces and laws of nature, including thermodynamics, the conservation laws and various environmental requirements. NCE ignores these issues.
  • Economic production requires physical work and the energy required to perform that work is a significant input to the process. NCE counts only capital and labour as inputs and when it finds that these inputs don't add up to match the outputs, it attributes the difference to "technological change". But in fact, the discrepancy is nicely accounted for by including energy as a third input.
  • NCE ignores the economy's boundaries with the real world, disregarding the flow of energy and materials into the system and waste heat and degraded materials out of it, and any effects that those flows may have.
  • NCE holds that a successful economy must grow, despite the fact that we live on a finite planet. It refuses to acknowledge the existence of real limits to growth.
  • It is basic to the scientific method that theoretical models are tested and proved or modified to match reality before gaining acceptance. In NCE this is often not the case—policy is based on models that simply have not been validated.
  • NCE is based on the idea that human beings always behave in their own best interests. In fact this is clearly not so—people are both far more altruistic and far more vindictive than NCE allows for.
  • NCE equates consumption of market goods with human well-being. In fact, once basic needs are taken care of, further material acquisitions contribute relatively little to happiness.
  • NCE fails to consider the importance of how wealth is distributed in a society and the negative effects of inequality.

But there is a another branch of economics—"biophysical economics"—that I think has a lot more promise. It takes into account all the factors that are involved in the existential threats we are talking about, and does not commit the ideological errors about human beings that plague NCE. Figure 2 below is the biophysical version of Figure 1.

Figure 2

Figure 2 is the "interconnected, systemic context" that links all the anthropogenic threats together and makes sense of them. Before we talk in detail about how this works, we need to have a closer look at some ideas that may not be obvious from the diagram.

1) We are looking at a complex adaptive system here—it is complex in that its behavior as a whole is not predicted by the behavior of the components. It is adaptive in that the individual and collective behaviors change and self-organize in response to events, adapting to the changing environment and attempting to increase their survivability. It is not easy to predict the behaviour of such a system, especially from the inside. Nor is there any guarantee that this behaviour will always lead to positive outcomes. Especially in a case like ours, where the individuals are human beings and groups of human beings who are not well informed about the overall situation.

2) Both the Earth Systems and the Human Systems depicted in Figure 2 are also dissipative structures. Indeed, I would say that the key to understanding what is going on in our world is to realize that this is the case, and to grasp what it implies.

Living organisms (including human beings), ecologies and economies are dissipative structures. So are human societies. All these structures maintain themselves by taking in energy and materials and giving off waste of various sorts. They maintain a reproducible steady state, but this state is not a matter of equilibrium, indeed it is definitely not in an sort of "balance" at all. If the supply of energy and materials falls below the appropriate level, this state cannot be maintained—death and dissolution follow. On the other hand, if a surplus of energy is available, these systems grow and become more complex.

Perhaps the simplest analogy I can give is that of a toy balloon with a small leak. As long as we can keep pumping in air, we can keep the balloon inflated. To accomplish this it takes material resources (air) and energy (to pump the air). If either of these is not available the balloon soon deflates.

3) When you see the economy as a dissipative structure, it becomes clear why energy plays such a critical role. What may not be quite so clear is why cheap fossil fuels are particularly important. We'll get to that shortly.

Years ago I started out thinking that money was what made the economy work. And money certainly has it's uses—as a medium of exchange, a unit of account and a store of value. But money is really just a set of tokens representing something much more fundamental—energy.

There was a time when almost all the energy used to make goods came from muscles, human and/or animal. We gradually developed tools and machines which made better use of that muscle power, but the industrial revolution didn't really get going until we learned to convert other forms of energy into mechanical energy to drive those machines. Primarily the energy of falling water and moving air (wind) and the chemical energy stored in biomass and fossil fuels. Fossil fuels are a very concentrated source of energy and easy to move to where that energy is needed, so they quickly become very popular.

The other great thing about fossil fuels was that their price (basically just the cost of getting them out of the ground) was only a tiny fraction of their value in terms of the goods they could be used to produce. Thus the productivity of coal fired factories was much higher than that of muscle powered cottage industry. This led to a couple of centuries of unprecedented growth, fueled first by coal and then by oil and natural gas. And if that was the whole story, our industrial civilization would be doing just fine.

Unfortunately, there are some other things about fossil fuels that we need to consider:

  • They are not renewable on any sort of timescale that is useful to the human race.
  • We have already used up most of the easy to get at, high quality sources, the "low hanging fruit", so to speak. In the oil business this is known as "conventional oil", as if that sort of oil is the rule, rather than the exception.
  • There are lots of hydrocarbons left to dig/pump out of the ground, seemingly enough to last us a very long time. But they are either harder to access (tight oil and gas, deep offshore oil) or lower quality (heavy oil, tar sands, lignite coal).
  • We have recently developed technology that allows us to access and use more of these fuels. But this technology is expensive, both in terms of capital investment and the amount of energy needed to build, operate and maintain it.
  • Convenient as they are, burning fossil fuels releases carbon dioxide, which causes climate change with all its negative consequences.

For the purposes of the economy "surplus energy" is what's actually important. The "surplus energy" of an energy source is what's left over when we subtract the amount of energy required to access the source. A closely related concept is EROEI, "energy returned on energy invested".

In the "good old days" of oil, it only took one barrel's worth of energy to get 100 barrels of oil out of the ground, leaving a surplus energy of 99 barrels. This corresponds to an EROEI of 100 (and a surplus energy of 99), and it means that in energy terms, that oil was cheap. Today, even conventional oil has a much lower EROEI, in the range of 10 to 30, and "fracked" oil or tar sands oil has a EROEI in the range of 3 to 5. As far as fossil fuels go, this ongoing reduction in EROEI is a pretty definite trend. Note that an EROEI of 3 gives a surplus energy of 2, part of the reason that low EROEIs are a problem.

If we look at the average EROEI of all the energy sources used by an economy, it can tell us a good deal the current state of the economy as a consequence of the availability of surplus energy. When the average EROEI drops toward 15, economic growth slows. As it drops further, it becomes difficult to raise capital for new construction or maintenance of existing infrastructure. Below 10 it is unlikely that a modern industrial economy can be maintained at all, and we would be forced to change to something less energy intensive.

To put this in perspective, the average EROEI of the world today is around 11 and it is headed lower. It looks to me like all those low EROEI hydrocarbons in the ground aren't going to do us much good.
Note: it appears that the pdf file with world economic data is no longer at that link.
Here is a link to the file on my Google drive.
Here is the blog post by Tim Morgan where the file was referenced.

Switching over to renewables has been suggested as a solution to the depletion of fossil fuels and to climate change, but there are several problems with this:

  • Renewables themselves have a low EROEI.
  • When you add in storage equipment to level out the energy supply from intermittent renewables (wind and solar) you roughly cut the EROEI in half.
  • Renewables generate energy in the form of electricity. But electricity only accounts for something less than 20% of our energy use. The rest is currently powered directly by fossil fuels. Some of this energy use promises to be very difficult to convert to electricity.
  • Renewables might seem to solve the climate change problem, but the change over to renewables itself would require burning a whole lot of extra fossil fuels, with the increased release of CO2 which that would entail.
  • And of course, when an economy has a low average EROEI, raising capital for new projects is hard to do.

All in all it seems unlikely that we'll manage to install anywhere near enough renewable energy sources to allow us to continue with "business as usual". Even our current relatively small scale efforts are contributing to "energy sprawl" (fields of wind turbine and solar panels popping up everywhere) and diverting capital from other important efforts.

EROEI is a good sort of measure, in that it lets us avoid talking in terms of money, and provides a good indicator for the "health" of the economy. Energy prices in dollars (or whatever) can be quite misleading, as they are affected by many other things than the availability of surplus energy.

During the last half of the 20th century almost every recession was preceded by a spike in the price of oil, which makes sense—cheap energy makes the economy grow and expensive energy slows it down.

In the 1990s, though, the EROEI of oil had declined enough to stop real economic growth. Governments responded by adjusting the way GDP is calculated, to make the economic situation look better than it really was. Those same governments intensified their use of debt to stimulate the economy.

In the financial sector of the economy, investors in search of high yielding investments substituted bubbles for real growth, first with the dotcom bubble and then with the housing and derivatives bubbles that led to the financial crash of 2008. Since then despite the creation of huge amounts of government and private debt, there has been no real return to vigorous economic growth.

It's interesting to note what was going on with the price of oil while this was happening. In the late 1990s, the price of oil was around $12 per barrel. From there it went up more or less steadily to around $140 in August of 2008. With the financial crash, the price of oil fell off to about $30 per barrel and then with the so called recovery, came back up to around $100 per barrel. Then in late 2013 the price of oil started to fall, went below $40 per barrel and has not gone above $60 per barrel since then. Currently (May 2017) the price is just below $50 per barrel.

Several things seem to be happening:

  • Demand destruction: the combination of low EROEI and high prices 2009 to 2013 slowed the economy down and reduced the demand for oil (and other bulk materials like steel). With average EROEI getting continually worse, the economy is not recovering, even with the current low oil prices.
  • Price wars: both the US and OPEC are pumping as much oil out of the ground as possible, keeping oil prices low.
  • The low oil prices are having a destructive effect on fossil fuel companies, lowering their profits and reducing the development of fossil fuel resources.
  • As Nafeez Ahmed explains, there is a lot of misleading information about amount of conventional oil that is left:
    According to Professor Michael Jefferson of the ESCP Europe Business School, a former chief economist at oil major Royal Dutch/Shell Group. “… the five major Middle East oil exporters altered the basis of their definition of ‘proved’ conventional oil reserves from a 90 percent probability down to a 50 percent probability from 1984. The result has been an apparent (but not real) increase in their ‘proved’ conventional oil reserves of some 435 billion barrels.”
    "Global reserves have been further inflated by adding reserve figures from Venezuelan heavy oil and Canadian tar sands— despite the fact that they are "more difficult and costly to extract" and generally of "poorer quality" than conventional oil. This has brought up global reserve estimates by a further 440 billion barrels."
    “...the standard claim that the world has proved conventional oil reserves of nearly 1.7 trillion barrels is overstated by about 875 billion barrels.”
  • This and a lack of understanding of the economic results of low EROEI, have led some to believe (especially in the US) that "drill baby drill" is the right strategy.
  • Resources needed elsewhere are being used on low quality fossil fuel projects.

In my opinion, it would be better not to waste capital on accessing lower EROEI fossil fuels, to accept the inevitable energy decline and try to make the remaining fossil fuels last longer, especially for uses that don't involve burning them.

Now you may have been wondering what all this has to do with catastrophic/existential threats, but as we shall see shortly, the anthropogenic threats listed at start of this post can be viewed as disruptions to the Earth Systems and Human Systems shown in Figure 2. And interactions between our economy and its energy supplies are at the heart of those disruptions.

They can be classified as primary, secondary and tertiary effects, based on their position in a cascading stream of cause and effect. It has taken us a while to get here but now, at last, we will take a look at those threats and how they fit into the biophysical economy. The individual threats appear in bold in the discussion below.

Primary Threats

To my way of thinking, the primary threat is resource depletion.

The diversion of resources for our use disrupts the ecologies which rely on those resources. Examples would be our over use of water, arable land, forests and fisheries. Note that we ourselves depend on those ecologies, so we suffer as well.

The use of those resources has led to a good deal of success for the human race and this, in the form of overpopulation and over consumption is a problem in itself.

Then there are all the immediate consequences of the depletion of resources on which we rely. This certainly applies to non-renewable resources, in particular fossil fuels, on which we rely to keep our economy running. As the resources become depleted we are forced to move to lower EROEI energy sources, and the economy suffers as a result.

But even renewable resources are also being depleted as we use them at a rate faster than they are being renewed.

And lastly, there are the effects from the degraded byproducts of our industrial processes, especially the release of carbon dioxide into the atmosphere from the burning of fossil fuels, agriculture and forestry.

Secondary Threats

The secondary threats are consequences of our profligate use of resources and their resulting depletion.

Earth Systems are disrupted by the downstream consequences of resource use. We use the environment as a sink for the byproducts of our industrial processes. Pollution, in other words. And when there is a sufficiently large amount of pollution, the Earth Systems can no longer cope and start to be damaged. This contributes to ecological disasters. While there are many different types of pollution, carbon dioxide and the resulting climate change is the one that is currently of greatest concern.

These are just some of the effects of climate change:

  • more extremely hot days, fewer extremely cold days
  • currently wet areas getting more and heavier rain (flooding)
  • currently dry areas getting less rain (drought)
  • intensification of tropical storms
  • less winter snow pack
  • retreating mountain glaciers
  • melting polar ice caps
  • warming oceans
  • sea level rise
  • ocean acidification

These changes are already having disruptive effects on our global civilization, which will only get worse as they intensify:

  • agriculture grows less productive with the disappearance of the reliable weather it relies on, in some areas it becomes impractical to continue farming
  • health effects of heat waves and the spread of tropical diseases into formerly temperate areas
  • damage to homes, businesses and infrastructure due to increasingly heavy weather and rising sea level

There is much that could be done to reduce CO2 emissions and slow and eventually stop climate change, but most all of this involves reductions in the burning of fossil fuels, resulting in even less surplus energy to drive an already stressed economy.

Inside the economy, the decreasing EROEI of the fossil fuels we are using causes economic contraction, which has a whole bunch of downstream consequences.

  • reduced profits for businesses, leading to closings and bankruptcies
  • unemployment, and lower wages and more precarious situations for those who still are employed
  • a reduced tax base makes it harder for governments to maintain the social safety net, fund their obligations, and keep their election promises in general

Our current financial system is optimized to facilitate economic growth and it does not work at all well when the economy starts to shrink.

Businesses turning to automation to counteract the effects of economic contraction cause even more unemployment (economic singularity).

The depletion of fossil fuels, fossil water and plant nutrients like phosphorous, along with climate change, are leading us towards an agricultural crisis. This is intensified by an ever growing population. The first sign of this happening is the increasing cost of food. which hits the poor first and hardest, leading to some of the tertiary threats.

Tertiary Threats

Climate change, economic contraction and agricultural crises lead to political and social disruptions: protests, revolution, terrorism (including use of biotechnology), food riots, famine, migrations, war and so forth. People squeezed together into slums breed human sourced pandemics. (There, I've managed to tie the whole list of anthropogenic threats together.)

Populist politicians with overly simplistic solutions gain power by making promises they have no idea how to keep and which largely couldn't be kept in any case. Right wing extremists in the west and Islamic extremists in the Middle East both react to economic stress and take violent actions which allow them to feed off each other. The mass media perpetuate misconceptions about what is going on and what it would take to fix it. And so on.

And if, as all this disruption progresses, should there be a massive solar flare or an asteroid strike, we'll be hard pressed to do anything but take it on the chin.

Conclusion

So, to get back to where we started, is there any action we can take to prevent this perfect storm of threats? Well, if you mean any action that will allow us to keep business as usual rolling along with "good" growth numbers, I think the answer is pretty clearly no. Our industrial civilization is going to collapse, to some greater or lesser extent. We can't prevent this, but we could take action to mitigate its effects, turning it into a slow and relatively gentle crash. I've written a series of posts called "A Political Fantasy" that goes into detail on that. As you might guess from that title, I think there's a big difference between what "could" be done and what is actually likely to be done.

Still, I don't think the situation is beyond hope. What we can't avoid, we can adapt to.

We need to drastically reduce the human population, and it looks like events will take care of this for us. We need to drastically reduce the amount of energy we are using, and again, it looks like events are going to do the job for us. Those with problems taken care of all we need to do is find ways to keep some fraction of the human population alive through all these events. And again, we won't have to make any horrible decisions about who to get rid of. Even with all of us trying as hard as we can, only a few of us will succeed.

It would we helpful to have a rough idea of what's ahead and the sort of things that will help to see us through. And, perhaps even more importantly, a clear idea of what won't help so we can avoid wasting time and effort where it would do no good. My next series of post, Collapse Step by Step will deal with exactly those issues.

To leave you something to chew on, I will say that forward looking people should be considering a move to a better location: well above sea level, out of the path of tropical storms, where it rains regularly, it isn't too hot and the population density is already low. If such a location was beyond walking distance from large urban centres, it would be ideal. And if you can make such a move before the majority of the population catches on, have time to get set up and reduce your reliance on the monetary economy, and become part of the local community, so much the better.

Credit is are due to the authors of three books which influenced me considerably in the writing of this post:

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