Dec 162016
 
 December 16, 2016  Posted by at 5:44 pm Finance Tagged with: , , , , , , , , , ,  


Parisians duck down to evade German sniper fire following Nazi surrender of Paris, 1945

 

If you ever wondered what the odds are of mankind surviving, let alone ‘defeating’, climate change, look no further than the essay the Guardian published this week, written by Michael Bloomberg and Mark Carney. It proves beyond a moonlight shadow of a doubt that the odds are infinitesimally close to absolute zero (Kelvin, no Hobbes).

Yes, Bloomberg is the media tycoon and former mayor of New York (which he famously turned into a 100% clean and recyclable city). And since central bankers are as we all know without exception experts on climate change, as much as they are on full-contact crochet, it makes perfect sense that Bank of England governor Carney adds his two -trillion- cents.

Conveniently, you don’t even have to read the piece, the headline tells you all you need and then some: “How To Make A Profit From Defeating Climate Change” really nails it. The entire mindset on display in just a few words. If that’s what they went for, kudo’s are due.

These fine gents probably actually believe that this is perfectly in line with our knowledge of, say, human history, of evolution, of the laws of physics, and of -mass- psychology. All of which undoubtedly indicate to them that we can and will defeat the problems we have created -and still are-, literally with the same tools and ideas -money and profit- that we use to create them with. Nothing ever made more sense.

That these problems originated in the same relentless quest for profit that they now claim will help us get rid of them, is likely a step too far for them; must have been a class they missed. “We destroyed it for profit” apparently does not in their eyes contradict “we’ll fix it for profit too”. Not one bit. It does, though. It’s indeed the very core of what is going wrong.

Profit, or money in general, is all these people live for, it’s their altar. That’s why they are successful in this world. It’s also why the world is doomed. Is there any chance I could persuade you to dwell on that for a few seconds? That, say, Bloomberg and Carney, and all they represent, are the problem dressed up as the solution? That our definition of success is what dooms us?

Philosophers, religious people, or you and me, may struggle with the question “what’s the purpose of life?”. These guys do not. The purpose of life is to make a profit. The earth and all the life it harbors exist to kill, drill, excavate and burn down, if that means you can make a profit. And after that you repair it all for a profit. In their view, the earth doesn’t turn of its own accord after all, it’s money that makes it go round.

 

The worrisome thing is that Mark and Michael will be listened to, that they are allowed a seat at the table in the first place, whereas you and I are not. A table that will be filled with plenty more of their ilk, as the announcement of Bill Gates’ billionaire philantropist energy fund says loud and clear:

Microsoft co-founder Bill Gates and a group of high-profile executives are investing $1 billion in a fund to spur clean energy technology and address global climate change a year after the Paris climate agreement. Gates launched the Breakthrough Energy Ventures fund on Monday along with billionaire entrepreneurs such as Facebook head Mark Zuckerberg, Alibaba Chairman Jack Ma and Amazon.com chief Jeff Bezos. The fund seeks to increase financing of emerging energy research and reduce global greenhouse gas emissions to help meet goals set in Paris, according to a statement by the investor group known as the Breakthrough Energy Coalition.

Yes, many of the same folk and/or their minions were sitting at the table with Trump on Dec 14. To see if there are any profits to be made. When a profit is involved they have no trouble sitting down with the same guy they insulted and warned against day after grueling day mere weeks ago. They have no trouble doing it because they insulted him for a potential profit too. It’s business, it’s not personal.

Billionaires will save us from ourselves, and make us -and themselves- rich while doing it. What is not to like? Well, for one thing, has anybody lately checked the energy footprint of Messrs. Bloomberg, Gates, Ma, Zuckerberg, Bezos et al? Is it possible that perhaps they’re trying to pull our collective wool over our eyes by pretending to care about those footprints? That maybe these ‘clean energy’ initiatives are merely a veil behind which they intend to extend -and expand- said footprints?

The ones in that sphere who wind up being most successful are those who are most convincing in making us believe that all we need to do to avert a climate disaster is to use some different form of energy. That all the talk about zero emissions and clean energy is indeed reflecting our one and only possible reality.

That all we need to do is to switch to solar and wind and electric cars to save ourselves (and they’ll build them for a subsidy). That that will end the threat and we can keep on doing what we always did, and keep on growing it all and as the cherry on the cake, make a profit off the endeavor.

 

None of it flies even a little. First of all, as I said last week in Mass Extinction and Mass Insanity, there are many more problems with our present lifestyles than ‘only’ climate change, or the use of carbon. Like the extinction of two-thirds of all vertebrate life in just 50 years leading up to 2020. There’s -close to- nothing wind and solar will do to alleviate that.

Because it’s not oil itself, or carbon in general, that kills; our use of it does. And the rush to build an entire new global infrastructure that is needed to use new energy forms, which will depend on using huge amounts of carbon, is more likely to kill off that globe than to save it. “Carbon got us in this, let’s use lots more of it to get us out”.

The trillions in -public- investment that are would be needed will make us all dirt poor too, except for the gentlemen mentioned above and a handful of others who invent stuff that they manage to make us believe will save us. Still convinced?

 

The lifestyles of the last 10 generations of us, especially westerners, are characterized more than anything else by the huge increase in the use of energy, of calories and joules. As we went from wood to peat to coal to oil and gas, the energy return on energy investment kept going higher. But that stopped with oil and gas. And from now on in it will keep going down.

“Free carbon excess” was a one-off ‘gift’ from nature. It will not continue and it will not return. Different forms of carbon have offered us a one-time source of free energy that we will not have again. The idea that we can replace it with ‘clean energy’ is ludicrous. The energy return on energy investment doesn’t even come close. And you can’t run a society with our present levels of complexity on a much lower ‘net energy’. We must dress down. No profit in that, sorry.

We built what we have now with oil at an EROEI of 100:1. There are no forms of energy left that come remotely close, including new, unconventional, forms of oil itself. Peak oil has been a much maligned and misunderstood concept, but its essence stands: when it takes more energy to ‘produce’ energy than it delivers, there will be no production.

This graph is a few years old, and wind and solar may have gained a few percentage points in yield, but it’s still largely correct. And it will continue to be.

 

 

We have done with all that free energy what all other life forms do when ‘gifted’ with an excess of available energy: spend it as fast as possible, proliferate to speed up the process (we went from less than 1 billion people to 7 billion in under 200 years, 2 billion to 7 billion in 100 years) and, most of all, waste it.

Ever wonder why everybody drives a car that is ten times heavier then her/himself and has a 10% efficiency rate in its energy use? Why there’s an infrastructure everywhere that necessitates for every individual to use 1000 times more energy than it would take herself to get from A to B on foot? Sounds a lot like deliberately wasteful behavior, doesn’t it?

The essence here is that while we were building this entire wasteful world of us, we engaged in the denying and lying behavior that typifies us as a species more than anything: we disregarded externalities. And there is no reason to believe we would not continue to do just that when we make the illusionary switch to ‘clean’ energy.

To begin with, the 2nd law of thermodynamics says there’s no such thing as clean energy. So stop using the term. Second, that we call wind and solar ‘clean energy’ means we’re already ignoring externalities again. We pretend that producing windmills and solar panels does not produce pollution (or we wouldn’t call it ‘clean’). While enormous amounts of carbon are used in the production process, and it involves pollution, loss of land, loss of life, loss of resources (once you burn it it’s gone).

 

An example: If we want to ‘save’ the earth, we would do good to start by overthrowing the way we produce food. It presently easily takes more than 10 calories of energy -mostly carbon- for every calorie of food we make. Then we wrap it all in (oil-based) plastic and transport it sometimes 1000s of miles before it’s on our plates. And at the end of this process, we will have thrown away half of it. It’s hard to think of a more wasteful process.

It’s a process obviously devised and executed by idiots. But it’s profitable. There is a profit to be made in wasting precious resources. And there is a key lesson in that. There is no profit in producing food in a more efficient way. At least not for the industries that produce it. And perhaps not even for you, if you produce most of your food – it takes ‘precious’ time.

It would still be hugely beneficial, though. And there’s the key. There is no direct link between what is good for us, and the planet, on the one side, and profit, money, on the other. What follows from that is that it’s not the people whose entire lives are centered around money who are the most obvious choices to ‘save the planet’. If anything, they are the least obvious.

But in an economic and political system that is itself as focused on money as ours is, they are still the ones who are allowed to assume this role. It’s a circle jerk around, and then into, a drain.

 

Mankind’s only chance to not destroy its planet lies in diverging from all other species in that not all energy available to it, is used up as fast as possible. But that’s a big challenge. It would, speaking from a purely philosophical angle, truly separate us from nature for the first time ever, and we must wonder if that’s desirable.

We would need to gain much more knowledge of who we are and what makes us do what we do, and why. But that is not going to happen if we focus on making a profit. Using less energy means less waste means less profit.

Yes, there may be energy sources that produce a bit less waste, a bit less pollution, than those that are carbon based. But first, our whole infrastructure has been built by carbon, and second, even if another energy source would become available, we would push to grow its use ever more, and end up initially in the same mess, and then a worse one.

 

 

I stumbled upon an excellent example of the effects of all this today:

The Shattering Effect Of Roads On Nature

Rampant road building has shattered the Earth’s land into 600,000 fragments, most of which are too tiny to support significant wildlife, a new study has revealed. The researchers warn roadless areas are disappearing and that urgent action is needed to protect these last wildernesses, which help provide vital natural services to humanity such as clean water and air. The impact of roads extends far beyond the roads themselves, the scientists said, by enabling forest destruction, pollution, the splintering of animal populations and the introduction of deadly pests.

An international team of researchers analysed open-access maps of 36m km of road and found that over half of the 600,000 fragments of land in between roads are very small – less than 1km2. A mere 7% are bigger than 100km2, equivalent to a square area just 10km by 10km (6mi by 6 mi). Furthermore, only a third of the roadless areas were truly wild, with the rest affected by farming or people.

The last remaining large roadless areas are rainforests in the Amazon and Indonesia and the tundra and forests in the north of Russia and Canada. Virtually all of western Europe, the eastern US and Japan have no areas at all that are unaffected by roads.

 

 

It’s a good example because it raises the question: how much of this particular issue do you think will be solved by the promotion of electric cars, or windmills? How much of it do you think can be solved for a profit? Because if there’s no profit in it, it will not happen.

One more for the philosophy class: I know many people will be inclined to suggest options like nuclear fusion. Or zero point energy. And I would suggest that not only do these things exist in theory only, which is always a bad thing if you have an immediate problem. But more than that: imagine providing the human race with a source of endless energy, and then look at what it’s done with the free energy available to it over the past 10 generations.

Give man more energy and he’ll just destroy his world faster. It’s not about carbon, it’s about energy and about what you yourself do with it. And no, money and profit will not reverse climate change, or any other detrimental effects they have on our lives. They will only make them worse.

Jul 052016
 
 July 5, 2016  Posted by at 12:20 pm Finance Tagged with: , , , , , ,  


Dorothea Lange Miserable poverty. Elm Grove, Oklahoma County, OK 1936

We used to have this saying that if someone asks you to do a job good, fast and cheap, you’d say: pick two. You can have it good and cheap, but then it won’t be fast, etc. As our New Zealand correspondent Dr. Nelson Lebo III explains below, when it comes to our societies we face a similar issue with our climate, energy and the economy.

Not the exact same, but similar, just a bit more complicated. You can’t have your climate nice and ‘moderate’, your energy cheap and clean, and your economy humming along just fine all at the same time. You need to make choices. That’s easy to understand.

Where it gets harder is here: if you pick energy and economy as your focus, the climate suffers (for climate you can equally read ‘the planet’, or ‘the ecosystem’). Focus on climate and energy, and the economy plunges. So far so ‘good’.

But when you emphasize climate and economy, you get stuck. There is no way the two can be ‘saved’ with our present use of fossil fuels, and our highly complex economic systems cannot run on renewables (for one thing, the EROEI is not nearly good enough).

It therefore looks like focusing on climate and economy is a dead end. It’s either/or. Something will have to give, and moreover, many things already have. Better be ahead of the game if you don’t want to be surprised by these things. Be resilient.

But this is Nelson’s piece, not mine. The core of his argument is worth remembering:

Everything that is not resilient to high energy prices and extreme weather events will become economically unviable…

…and approach worthlessness. On the other hand,…

Investments of time, energy, and money in resilience will become more economically valuable…

Here’s Nelson:

 

 

Nelson Lebo: There appear to be increasing levels of anxiety among environmental activists around the world and in my own community in New Zealand. After all, temperature records are being set at a pace equal only to that of Stephen Curry and LeBron James in the NBA Finals. A recent Google news headline said it all: “May is the 8th consecutive month to break global temperature records.”

In other words, October of last year set a record for the highest recorded global monthly temperature, and then it was bettered by November, which was bettered by December, January, and on through May. The hot streak is like that of Lance Armstrong’s Tour De France dominance, but we all know how that turned out in the end.

Making history – like the Irish rugby side in South Africa recently – is usually a time to celebrate. Setting a world record would normally mean jubilation – not so when it comes to climate.

Responses to temperature records range from sorrow, despair, anger, and even fury. Anyone with children or grandchildren (and even the childless) who believes in peer review and an overwhelming scientific consensus has every right to feel these emotions. So why do I feel only resignation?

We are so far down the track at this point that we are damned if we do and damned if we don’t. Remember the warnings 30 years ago that we needed 30 years to make the transition to a low carbon economy or else there would be dire consequences? Well, in case you weren’t paying attention, it didn’t happen.

While these warnings were being issued by scientists much of the world doubled down – Trump-like – on Ford Rangers, Toyota Tacomas, and other sport utility vehicles. The same appears to be happening now, with the added element that we are experiencing the dire consequences as scientists issue even more warnings and drivers buy even more ‘light trucks’. Forget Paris, the writing was on the wall at Copenhagen.

 

The bottom line is that most people will (and currently do) experience climate change as a quality of life issue, and quality of life is related to a certain extent to disposable income. Acting or not acting proactively or reactively on climate change is expensive and gets more expensive every day.

If the international community ever takes collective action on climate change it will make individuals poorer because the cost of energy will rise significantly. If the international community fails to act, individuals will be made poorer because of the devastating effects of extreme weather events – like last year’s historic floods where I live as well as in northern England, etc – shown to be on the increase over the last 40 years in hundreds of peer-reviewed papers with verifiable data.

And here is the worst part: most economies around the world rely on some combination of moderate climate and cheap fossil fuels. For example, our local economy is heavily dependent on agriculture and tourism, making it exceptionally vulnerable to both acting AND not acting on climate change.

Drought hurts rural economies and extreme winds and rainfall can cost millions in crop damage as well as repairs to fencing, tracks and roads. As a result, both farmers and ratepayers have fewer dollars in their pockets to spend on new shoes, a night out, or a family trip. This is alongside living in a degraded environment post-disaster. The net result is a negative impact on quality of life: damned if we don’t.

On the other hand, tourism relies on inexpensive jet fuel and petrol to get the sightseers and thrill seekers to and around the world with enough dollars left over to slosh around local economies. Think about all of the service sector jobs that rely on tourism that in turn depend entirely on a continuous supply of cheap fuel. (This is not to mention peak oil and the lack of finance available to fund any long and expensive transition to an alternative energy world.) I’m told 70% of US jobs are in the service sector, most of which rely on inexpensive commuting and/or a highly mobile customer base.

Any significant approach to curbing carbon emissions in the short term will result in drastic increases to energy prices. The higher the cost of a trip from A to Z the less likely it is to be made. As a result, business owners and ratepayers at Z will have fewer dollars in their pockets to spend on new shoes, a night out, or a family vacation of their own. The net result is a negative impact on their quality of life: damned if we do.

 

I suppose it deserves repeating: most OECD economies and the quality of life they bring rely on both moderate climate and cheap fossil fuels, but these are mutually exclusive. Furthermore, regardless of emissions decisions made by the international community, we are already on track for decades of temperature records and extreme weather events that will cost billions if not trillions of dollars.

The response in many parts of the world has been to protest. That’s cool, but you can’t protest a drought – the drought does not care. You can’t protest a flood – the flood does not care. And even if the protests are successful at influencing government policies – which I hope long-term they are – we are still on track for decades of climatic volatility and the massive price tags for clean up and repair.

Go ahead and protest, people, but you better get your house in order at the same time, and that means build resilience in every way, shape and form.

Resilience is the name of the game, and I was impressed with Kyrie Irving’s post NBA game seven remarks that the Cleveland Cavaliers demonstrated great resilience as a team.

As I wrote here at TAE over a year ago, Resilience Is The New Black. If you don’t get it you’re not paying attention.

This article received a wide range of responses from those with incomplete understandings of the situation as well as those in denial – both positions dangerous for their owners as well as friends and neighbours.

The double bind we find ourselves in by failing to address the issue three decades ago is a challenge to put it mildly. Smart communities recognize challenges and respond accordingly. The best response is to develop resilience in the following areas: ecological, equity, energy and economic.

The first two of these I call the “Pope Index” because Francis has identified climate change and wealth inequality as the greatest challenges facing humanity. Applying the Pope Index to decision making is easy – simply ask yourself if decisions made in your community aggravate climate change and wealth inequality or alleviate them.

For the next two – energy and economics – I take more of a Last Hours of Ancient Sunlight (credit, Thom Hartmann) perspective that I think is embraced by many practicing permaculturists. Ancient sunlight (fossil fuels) is on its way out and if we do not use some to build resilient infrastructure on our properties and in our communities it will all be burned by NASCAR, which in my opinion would be a shame.

As time passes, everything that is not resilient to high energy prices and extreme weather events will become economically unviable and approach worthlessness.

On the other hand, investments of time, energy, and money in resilience will become more economically valuable as the years pass.

Additionally, the knowledge, skills and experience gained while developing resilience are the ultimate in ‘job security’ for an increasingly volatile future.

If you know it and can do it and can teach it you’ll be sweet. If not, get onto it before it’s too late.

 

 

Dr. Nelson Lebo is a serial permaculture property developer and consultant. He likes underdogs but not drug cheats. Congratulations Cleveland and Ireland.

 

 

May 132016
 
 May 13, 2016  Posted by at 3:03 pm Finance Tagged with: , , , , , , ,  

Before you raise your voice, please allow me to say that I do indeed know this starts to feel like a set of Russian dolls, and this is a re-run of a re-run. It’s just, I didn’t start it. Got a mail yesterday from the people at OpEdNews.com asking if I would allow them to repost something I wrote over a year ago. And since I’m notoriously bad at remembering anything I wrote even just 24 hours ago, when I read what they wanted to republish, it was almost like a whole new world opened up for me. And I kind of liked it.

And only then I saw that what they had read, which was published May 2, 2015 as Quote Of The Year. And The Next. And The One After, was actually largely a rerun of a January 1 2013 article. But, you know, when someone tells you “Your essay is excellent. And as one who has been closely attuned to such matters for nearly 50 years I can say with confidence that your theme is fresh and current as any other we should be reading and heeding today. In fact, I think it is timeless.”, A) you feel young, and B) you say: who am I to disagree with that?

So this today went up at OpEdNews.com, and is now once again up at The Automatic Earth as well. Because I do still think it’s relevant and important to acknowledge that “we are going to evolve through crisis, not through proactive change.”, and that we are nowhere near realizing how true that is, and how much that denial, unfortunately, guides our existence. We’re either not even smart monkeys, or we’re that at best. We need a lot more self-reflection than we are getting, or we’re going down. And my bet, much as it pains me, is on door no. 2. From May 5, 2015:

I very rarely read back any of the essays I write. But maybe that’s not always a good thing. Especially when they deal with larger underlying issues beneath the problems we find ourselves in, why these problems exist in the first place, and what we can and will do to deal with them. Not all of these things can and perhaps should be re-written time and again. Commentary on daily events calls for new articles, but attempts to define the more in-depth human behavior behind these events should, if they are executed well, be more timeless.

Not that I would want to judge my own work, I’ll leave that to others, but I can still re-read something and think: that’s something I would like to read if someone else had written it. Since a friend yesterday sent me an email that referenced the essay below, I did go through it again and thought it’s worth republishing here. It’s from New Year’s Day 2013, or almost 2.5 years old, which should be a long enough time gap that many present day readers of The Automatic Earth haven’t read it yet, and long enough for those who have to ‘enjoy’ it all over again.

I am not very optimistic about the fate of mankind as it is, and that has a lot to do with what I cite here, that while our problems tend to evolve in exponential ways, our attempts at solving them move in linear fashion. That is true as much for the problems we ourselves create as it is for those that – seem to – ‘simply happen’. I think it would be very beneficial for us if we were to admit to our limits when it comes to solving large scale issues, because that might change the behavior we exhibit when creating these issues.

In that sense, the distinction made by Dennis Meadows below between ‘universal problems’ and ‘global problems’ may be very useful. The former concerns issues we all face, but can -try to – solve at a more local level, the latter deals with those issues that need planet-wide responses – and hardly ever get solved if at all. The human capacity for denial and deceit plays a formidable role in this.

I know that this is not a generally accepted paradigm, but that I put down to the same denial and deceit. We like to see ourselves as mighty smart demi-gods capable of solving any problem. But that is precisely, I think, the no. 1 factor in preventing us from solving them. And I don’t see that changing: we’re simple not smart enough to acknowledge our own limitations. Therefore, as Meadows says: “we are going to evolve through crisis, not through proactive change.” Here’s from January 1 2013:

Ilargi: I came upon this quote a few weeks ago in an interview that Der Spiegel had with Dennis Meadows, co-author of the Limits to Growth report published by the Club of Rome 40 years ago. Yes, the report that has been much maligned and later largely rehabilitated. But that’s not my topic here, and neither is Meadows himself. It’s the quote, and it pretty much hasn’t left me alone since I read it.

Here’s the short version:

[..] … we are going to evolve through crisis, not through proactive change.

And here it is in its context:

‘Limits to Growth’ Author Dennis Meadows ‘Humanity Is Still on the Way to Destroying Itself’

SPIEGEL ONLINE: Professor Meadows, 40 years ago you published “The Limits to Growth” together with your wife and colleagues, a book that made you the intellectual father of the environmental movement. The core message of the book remains valid today: Humanity is ruthlessly exploiting global resources and is on the way to destroying itself. Do you believe that the ultimate collapse of our economic system can still be avoided?

Meadows: The problem that faces our societies is that we have developed industries and policies that were appropriate at a certain moment, but now start to reduce human welfare, like for example the oil and car industry. Their political and financial power is so great and they can prevent change. It is my expectation that they will succeed. This means that we are going to evolve through crisis, not through proactive change.

I don’t really think that Dennis Meadows understands how true that is. I may be wrong, but I think he’s talking about a specific case here . While what he makes me ponder is that perhaps this is all we have, and always, that it’s a universal truth. That we can never solve our real big problems through proactive change. That we can only get to a next step by letting the main problems we face grow into full-blown crises, and that our only answer is to let that happen.

And then we come out on the other side, or we don’t, but it’s not because we find the answer to the problem itself, we simply adapt to what there is at the other side of the full-blown crisis we were once again unable to halt in its tracks. Adapt like rats do, and crocodiles, cockroaches, no more and no less.

This offers a nearly completely ignored insight into the way we deal with problems. We don’t change course in order to prevent ourselves from hitting boundaries. We hit the wall face first, and only then do we pick up the pieces and take it from there.

Jacques Cousteau was once quite blunt about it:

The road to the future leads us smack into the wall. We simply ricochet off the alternatives that destiny offers: a demographic explosion that triggers social chaos and spreads death, nuclear delirium and the quasi-annihilation of the species… Our survival is no more than a question of 25, 50 or perhaps 100 years.

Without getting into specific predictions the way Cousteau did: If that is as true as I suspect it is, the one thing it means is that we fool ourselves a whole lot. The entire picture we have created about ourselves, consciously, sub-consciously, un-consciously, you name it, is abjectly false. At least the one I think we have. Which is that we see ourselves as capable of engineering proactive changes in order to prevent crises from blowing up.

That erroneous self-image leads us to one thing only: the phantom prospect of a techno-fix becomes an excuse for not acting. In that regard, it may be good to remember that one of the basic tenets of the Limits to Growth report was that variables like world population, industrialization and resource depletion grow exponentially, while the (techno) answer to them grows only linearly.

First, I should perhaps define what sorts of problems I’m talking about. Sure, people build dams and dikes to keep water from flooding their lands. And we did almost eradicate smallpox. But there will always be another flood coming, or a storm, and there will always be another disease popping up (viruses and bacteria adapt faster than we do).

In a broader sense, we have gotten rid of some diseases, but gotten some new ones in return. And yes, average life expectancy has gone up, but it’s dependent entirely on the affordability and availability of lots of drugs, which in turn depend on oil being available.

And if I can be not PC for a moment, this all leads to another double problem. 1) A gigantic population explosion with a lot of members that 2) are, if not weaklings, certainly on average much weaker physically than their ancestors. Which is perhaps sort of fine as long as those drugs are there, but not when they’re not.

It’s quite simple, isn’t it? Increasing wealth makes us destroy ancient multi-generational family structures (re: the nuclear family, re: old-age homes), societal community structures (who knows their neighbors, and engages in meaningful activity with them?), and the very planet that has provided the means for increasing our wealth (and our population!).

And in our drive towards what we think are more riches, we are incapable of seeing these consequences. Let alone doing something about them. We have become so dependent, as modern western men and women, on the blessings of our energy surplus and technology that 9 out of 10 of us wouldn’t survive if we had to do without them.

Nice efforts, in other words, but no radical solutions. And yes, we did fly to the moon, too, but not flying to the moon wasn’t a problem to start with.

Maybe the universal truth I suspect there is in Meadows’ quote applies “specifically” to a “specific” kind of problem: The ones we create ourselves.

We can’t reasonably expect to control nature, and we shouldn’t feel stupid if we can’t (not exactly a general view to begin with, I know). And while one approach to storms and epidemics is undoubtedly better than another, both will come to back to haunt us no matter what we do. So as far as natural threats go, it’s a given that when the big one hits we can only evolve through crisis. We can mitigate. At best.

However: we can create problems ourselves too. And not just that. We can create problems that we can’t solve. Where the problem evolves at an exponential rate, and our understanding of it only grows linearly. That’s what that quote is about for me, and that’s what I think is sorely missing from our picture of ourselves.

In order to solve problems we ourselves create, we need to understand these problems. And since we are the ones who create them, we need to first understand ourselves to understand our problems.

Moreover, we will never be able to either understand or solve our crises if we don’t acknowledge how we – tend to – deal with them. That is, we don’t avoid or circumvent them, we walk right into them and, if we’re lucky, come out at the other end.

Point in case: we’re not solving any of our current problems, and what’s more: as societies, we’re not even seriously trying, we’re merely paying lip service. To a large extent this is because our interests are too different. To a lesser extent (or is it?) this is because we – inadvertently – allow the more psychopathic among us to play an outsize role in our societies.

Of course there are lots of people who do great things individually or in small groups, for themselves and their immediate surroundings, but far too many of us draw the conclusion from this that such great things can be extended to any larger scale we can think of. And that is a problem in itself: it’s hard for us to realize that many things don’t scale up well. A case in point, though hardly anyone seems to realize it, is that solving problems itself doesn’t scale up well.

Now, it is hard enough for individuals to know themselves, but it’s something altogether different, more complex and far more challenging for the individuals in a society, to sufficiently know that society in order to correctly identify its problems, find solutions, and successfully implement them. In general, the larger the scale of the group, the society, the harder this is.

Meadows makes a perhaps somewhat confusing distinction between universal and global problems, but it does work:

You see, there are two kinds of big problems. One I call universal problems, the other I call global problems. They both affect everybody. The difference is: Universal problems can be solved by small groups of people because they don’t have to wait for others. You can clean up the air in Hanover without having to wait for Beijing or Mexico City to do the same.

Global problems, however, cannot be solved in a single place. There’s no way Hanover can solve climate change or stop the spread of nuclear weapons. For that to happen, people in China, the US and Russia must also do something. But on the global problems, we will make no progress.

So how do we deal with problems that are global? It’s deceptively simple: We don’t.

All we need to do is look at the three big problems – if not already outright crises – we have right now. And see how are we doing. I’ll leave aside No More War and No More Hunger for now, though they could serve as good examples of why we fail.

There is a more or less general recognition that we face three global problems/crises. Finance, energy and climate change. Climate change should really be seen as part of the larger overall pollution problem. As such, it is closely linked to the energy problem in that both problems are direct consequences of the 2nd law of thermodynamics. If you use energy, you produce waste; use more energy and you produce more waste. And there is a point where you can use too much, and not be able to survive in the waste you yourself have produced.

Erwin Schrödinger described it this way, as quoted by Herman Daly:

Erwin Schrodinger [..] has described life as a system in steady-state thermodynamic disequilibrium that maintains its constant distance from equilibrium (death) by feeding on low entropy from its environment — that is, by exchanging high-entropy outputs for low-entropy inputs. The same statement would hold verbatim as a physical description of our economic process. A corollary of this statement is an organism cannot live in a medium of its own waste products.

The energy crisis flows seamlessly into the climate/pollution crisis. If properly defined, that is. But it hardly ever is. Our answer to our energy problems is to first of all find more and after that maybe mitigate the worst by finding a source that’s less polluting.

So we change a lightbulb and get a hybrid car. That’s perhaps an answer to the universal problem, and only perhaps, but it in no way answers the global one. With a growing population and a growing average per capita consumption, both energy demand and pollution keep rising inexorably. And the best we can do is pay lip service. Sure, we sign up for less CO2 and less waste of energy, but we draw the line at losing global competitiveness.

The bottom line is that we may have good intentions, but we utterly fail when it comes to solutions. And if we fail with regards to energy, we fail when it comes to the climate and our broader living environment, also known as the earth.

We can only solve our climate/pollution problem if we use a whole lot less energy resources. Not just individually, but as a world population. Since that population is growing, those of us that use most energy will need to shrink our consumption more every passing day. And every day we don’t do that leads to more poisoned rivers, empty seas and oceans, barren and infertile soil. But we refuse to even properly define the problem, let alone – even try to – solve it.

Anyway, so our energy problem needs to be much better defined than it presently is. It’s not that we’re running out, but that we use too much of it and kill the medium we live in, and thereby ourselves, in the process. But how much are we willing to give up? And even if we are, won’t someone else simply use up anyway what we decided not to? Global problems blow real time.

The more we look at this, the more we find we look just like the reindeer on Matthew Island, the bacteria in the petri dish, and the yeast in the wine vat. We burn through all surplus energy as fast as we can find ways to burn it. The main difference, the one that makes us tragic, is that we can see ourselves do it, not that we can stop ourselves from doing it.

Nope, we’ll burn through it all if we can (but we can’t ’cause we’ll suffocate in our own waste first). And if we’re lucky (though that’s a point of contention) we’ll be left alive to be picking up the pieces when we’re done.

Our third big global problem is finance slash money slash economy. It not only has the shortest timeframe, it also invokes the highest level of denial and delusion, and the combination may not be entirely coincidental. The only thing our “leaders” do is try and keep the baby going at our expense, and we let them. We’ve created a zombie and all we’re trying to do is keep it walking so everyone including ourselves will believe it’s still alive. That way the zombie can eat us from within.

We’re like a deer in a pair of headlights, standing still as can be and putting our faith in whoever it is we put in the driver’s seat. And too, what is it, stubborn, thick headed?, to consider the option that maybe the driver likes deer meat.

Our debt levels, in the US, Europe and Japan, just about all of them and from whatever angle you look, are higher than they’ve been at any point in human history, and all we’ve done now for five years plus running is trust a band of bankers and shady officials to fix it all for us, just because we’re scared stiff and we think we’re too stupid to know what’s going on anyway. You know, they should know because they have the degrees and/or the money to show for it. That those can also be used for something 180 degrees removed from the greater good doesn’t seem to register.

We are incapable of solving our home made problems and crises for a whole series of reasons. We’re not just bad at it, we can’t do it at all. We’re incapable of solving the big problems, the global ones.

We evolve the way Stephen Jay Gould described evolution: through punctuated equilibrium. That is, we pass through bottlenecks, forced upon us by the circumstances of nature, only in the case of the present global issues we are nature itself. And there’s nothing we can do about it. If we don’t manage to understand this dynamic, and very soon, those bottlenecks will become awfully narrow passages, with room for ever fewer of us to pass through.

As individuals we need to drastically reduce our dependence on the runaway big systems, banking, the grid, transport etc., that we ourselves built like so many sorcerers apprentices, because as societies we can’t fix the runaway problems with those systems, and they are certain to drag us down with them if we let them.

Aug 312015
 
 August 31, 2015  Posted by at 8:41 pm Finance Tagged with: , , , , , ,  


Dorothea Lange Hoe culture in the South. Poor white, North Carolina July 1936

Nicole Foss recently participated in a live Google Hangouts (not Skype. I’m told) ‘forum’ discussion at the Doomstead Diner site that also included among others, Gail Tverberg, Steve Ludlum, Norman Pagett and Ugo Bardi. Apologies for the fact that I haven’t watched the videos yet and I’m getting the details as I go, so my info will be a bit sketchy.

I’ll run this in episodes. Today’s post contains episode 4. Previously, I posted episode 2 and 1,

Nicole Foss Talks Economics At The End Of The Age Of Oil

and

Nicole Foss Talks Energy Industry Issues and Oil Price Collapse.

Episode 3 has apparently not even been recorded yet, but we’ll post it as soon as it is available,

Part IV- Futurology

The Doomstead Diner site blurb:

Renewable Energy
One of the biggest hopes as the fossil fuels run thin or become too expensive to dig up is a switch to renewable forms of energy. How can such forms of energy be utilized, and how much of our current technological society can be maintained with the renewables?

Building Community
As the larger structures of society begin to break down, a more localized organizational structure will become necessary, both on the food production and distribution level as well as new political organizations. How can communities come together and create the kind of structures necessary for a low per capita energy society of the future?

Psychology of Collapse
Collapse is creating many psychological issues and problems as it progresses and accelerates. More people are under more stress all the time, losing jobs, losing their homes to foreclosure, becoming homeless, waiting on long bread lines for food aid etc. We read daily about increasing suicide rates and the number of mass shootings is also on the increase, recently there were 142 mass shootings catalogued in 142 days, 1 every day. How can we handle these psychological problems that are cropping up, and likely will worsen as the overall economy worsens?

Prognosticating the Future
The toughest part in all of these discussions is trying to figure out what is going to occur in the future, and when it will occur. What is the timeline? Will we see a major breakdown of systems and a Fast Collapse scenario, or will it be a long slow “boiling frog” effect, the “Long Emergency” described by Jim Kunstler or the “slow catabolic collapse” described by John Greer? What can people do now to prepare for this future, especially if they are still dependent on a currently held job in a location which might not be too good in the future, like say they live currently in Las Vegas and have a well paid job in one of the casinos there?

Aug 302015
 
 August 30, 2015  Posted by at 7:24 am Finance Tagged with: , , , , ,  


Unknown California State Automobile Association signage 1925

Nicole Foss recently participated in a live Skype ‘forum’ discussion at the Doomstead Diner site that also included, among others, Gail Tverberg, Steve Ludlum, Norman Pagett and Ugo Bardi. Apologies for the fact that I haven’t watched the videos yet and I’m getting the details as I go, so my info may be a bit sketchy. And so is the order the episodes come in here. I understand episode 3 is not even available yet.

I’ll run this in episodes. Today’s post contains episode 1. Yesterday I posted episode 2, Nicole Foss Talks Economics At The End Of The Age Of Oil.

Part I- Energy Industry Issues

The Doomstead Diner site blurb:

Coal Industry Collapse-Carbon Sequestration
One of the biggest effects we see lately is a collapse in commodity prices, through all sectors. Most intriguing to me is the collapse in coal prices, since coal is used in so many places for the production of electricity. Several large coal mining companies have gone into bankruptcy. How will this affect electricity production as we move along here? Q2: Will the efforts for Carbon Sequestration, Carbon Credits and Taxation have any meaningful effect on this dynamic?

Oil Price Collapse
Many people thought the price collapse in Oil that came at the end of 2014 was unforseen and unknowable. In fact many people in the peak oil community believed for a long time the price of oil would spiral inexorably upward. Some of us here have argued otherwise, that credit constraints would drive the price downward. Steve did the best job of this, and actually pegged the price crash for oil to the month more than two years in advance with his infamous Triangle of Doom charts. Steve, can you tell us how you were able to pull off that stunt? Q: John Mauldin and other shills for the Oil industry assure us that better and cheaper drilling technology will bring up all the oil we need and keep the industry solvent. How realistic is this?

Aug 202015
 
 August 20, 2015  Posted by at 3:56 pm Finance Tagged with: , , , , , , ,  


Gustave Doré Dream of the Eagle (from Dante’s Purgatory) 1868

We’ve come to the end of our little ‘chapters experiment’, using Nicole’s long article. Do let us whether you like things this way, posted in shorter parts rather than one long article. And by all means read through the whole thing one more time. It’s not going to hurt you.

This is the entire article. Part 1 is here:
Global Financial Crisis – Liquidity Crunch and Economic Depression,
Part 2 is here:
The Psychological Driver of Deflation and the Collapse of the Trust Horizon
Part 3 is here:
Declining Energy Profit Ratio and Socioeconomic Complexity
Part 4 is here:
Blind Alleys and Techno-Fantasies
and part 5 is here:
Solution Space


Intro

A great deal of intelligence is invested in ignorance when the need for illusion is deep.
Saul Bellow, 1976

More and more people (although not nearly enough) are coming to recognise that humanity cannot continue on its current trajectory, as the limits we face become ever more obvious, and their implications starker. There is a growing realisation that the future must be different, and much thought is therefore being applied to devising supposed solutions for that future.

These are generally attempts to reconcile our need to make changes with our desire to continue something very much resembling our current industrial-world lifestyle, with a view to making a seamless transition between the now and a comfortably familiar future. The presumption is that it is possible, but this rests on foundational assumptions which vary between the improbable and the outright impossible. It is a presumption grounded in a comprehensive failure to understand the nature and extent of our predicament.

We are facing limits in many ways simultaneously – not surprising since exponential growth curves for so many parameters have gone critical in recent decades, and of course even more so in recent years. Some of these limits lie in human systems, while others are ecological or geophysical. They will all interact with each other, over different timeframes, in extremely complex ways as our state of overshoot resolves itself (to our dissatisfaction, to put it mildly) over many decades, if not centuries. Some of these limits are completely non-negotiable, while others can be at least partially mutable, and it is vital that we know the difference if we are to be able to mitigate our situation at all. Otherwise we are attempting to bargain with the future without understanding our negotiating position.

The vast majority has no conception of the extent to which our modernity is an artifact of our discovery and pervasive exploitation of fossil fuels as an energy source. No species in history has had easy, long term access to a comparable energy source. This unprecedented circumstance has facilitated the creation of turbo-charged civilization.

Huge energy throughput, in line with the Maximum Power Principle, has led to tremendous complexity, far greater extractive capacity (with huge ‘environmental externalities’ as a result), far greater potential to concentrate enormous power in the hands of the few with destructive political consequences), a far higher population, far greater burden on global carrying capacity, and the ability to borrow from the future to satisfy the insatiable greed of the present. The fact that we are now approaching so many limits has very significant implications for our ability to continue with any of these aspects of modern life. Therefore, any expectation that a future in the era of limits is likely to resemble the present (with a green gloss) are ill-founded and highly implausible.

The majority of the Big Ideas with which we propose to bargain with our future of limits to growth rests on the notion that we can retain our modern comforts and conveniences, but that somehow we will do so with far less resource use, and with a fraction of the energy we currently employ. The most mainstream discussions revolve around ‘green growth’, where it is suggested that eternal economic growth can occur on a finite planet, and that we will magically decouple of that growth from the physical basis upon which it rests. Proponents argue that we have already accomplished this to an extent, as the apparent energy intensity of developed state economies has fallen.

In actuality, all that has happened is that the energy deployed to provide developed world comforts has been used in the emerging markets where goods destined for our markets are manufactured, so that the consumption falls within someone else’s energy budget. In reality there has been no decoupling at all. Economic growth requires energy, and there is an exceptionally high correlation between the two. Even the phantom growth of the bubble era, based on the expansion of virtual wealth, requires energy in order to maintain the complexity of the system that generates it.

It is crucial that we understand the boundaries of solution space, in order to be able to focus our finite resources (in every sense of the word) on that which is inherently workable, at least in theory. ‘Workable In theory’ implies that, while there is no guarantee of success given a large number of unpredictable factors, there is also no obvious prima facie barrier to success. If, however, we throw our resources at ideas that are subject to such barriers, and therefore lie beyond solution space, we guarantee that those initiatives will fail and that the resources so committed will have been wasted. It is important to note that ‘success’ does not mean being able to maintain anything remotely resembling business as usual. It refers to being able to achieve the best possible outcome under the circumstances.

Sculptors work by carving away excess material in order to reveal the figure within the block they are working with. Similarly, we can carve away from the featureless monolith of conceivable approaches those that we can see in advance are doomed to fail, leaving us with a figuratively coherent group of potentially workable ideas.

In order to carve away the waste material and get closer to a much smaller set of viable possibilities, we need to understand some of the non-negotiable factors we will be facing, each of which has implications restrictive of viable solution space. Many of these issues are the fundamental substance of the message we have been propagating at the Automatic Earth since its inception and will therefore constitute a review for our regular readership. For more detail on these topics, check out our primers section.


Global Financial Crisis – Liquidity Crunch and Economic Depression

As we have maintained since the Automatic Earth’s launch in early 2008, we have lived through a gigantic monetary expansion over the last 30 years or so –  the largest financial departure from reality in human history. In doing so we have created a crisis of under-collateralization. This period was highly inflationary, as we saw a vast increase in the supply of money and credit versus available goods and services. Both currency printing and credit hyper-expansion constitute inflation, but the outcome, and therefore prescription, for each is very different. While currency printing cuts the real wealth pie into many more pieces, each of which will be very small, credit expansions such as this one create multiple and mutually exclusive claims to the same pieces of pie, hence we have generated a vast quantity of excess claims to underlying real wealth.

In other words, we have created a bubble of virtual wealth, with no substance to back up the pile of promises to repay that it rests upon. As we have said before, this amounts to playing a giant game of musical chairs where there is perhaps one chair for every hundred people playing the game. When the music stops, those best positioned to understand the rules of the game will grab a chair as quickly as possible. Everyone else will be out of the game. The endgame of credit expansion is always a credit implosion, where the excess claims are rapidly and messily extinguished. This is, of course, deflation by definition – a contraction in the supply of money and credit relative to available goods and services – through the collapse of the credit supply, where credit is of the order of 99% of the effective money supply.

A credit implosion crashes both the money supply and the velocity of money – the rate at which money circulates in the economy. Together these factors determine how much economic activity can be sustained. With both the money supply and the velocity of money very low, a state of liquidity crunch exists, where there is insufficient liquidity in the economy to connect buyers and sellers, or producers and consumers. Nothing moves, so there is little or no economic activity. Note that demand is not what one wants, but what one can pay for, so with little purchasing power available, demand will be very low under such circumstances.

During the expansion, both the money supply and the velocity of money increased dramatically, and the resulting artificial stimulation of demand led to an increase in supply, with the ability to sustain a much larger than normal amount of economic activity. But once the limit is reached, where all the income streams of the productive economy can no longer service the debt created, and there are no more willing borrowers or lenders, the demand stimulation disappears, leaving a great deal of supply without a market. The demand that had been effectively borrowed from the future, must be ‘repaid’ once the bubble bursts, leading to a prolonged period of low demand. The supply that had arisen to service it no longer has a reason to exist and cannot be maintained.

The economy moves into a period of seizure under such cIrcumstances. We have frequently compared attempting to run an economy with too small a money supply in circulation to trying to run an automobile with the oil warning light on, indicating too little lubricant. Engines seize up when run with too little lubricant, a role played by money in the case of the engine of the economy. The situation created can also be compared to a computer operating system crash, where nothing functions until the system has been rebooted. During the Great Depression of the 1930s, people noted that they had plenty of everything except money. Liquidity crunch creates a condition of artificial scarcity, where even being surrounded by resources is of little use for a period of time once the operating system has crashed and has yet to be ‘rebooted’.

We will be looking at a period of acute liquidity crunch followed by a long period of chronic financial instability. The initial contraction will be driven by fear and that fear will persist for a long time. This will result in little credit being made available, and only at high cost. In other words, interest rates, which are a risk premium, will be very high as we move beyond the initial phase of contraction and fear is in the drivers seat. Deflation and economic depression are mutually reinforcing, hence once that downward spiral, or vicious circle, dynamic has taken hold, we will remain in its grip for many years.

Given that the cost of capital will be very high, and there will be little purchasing power, proposed solutions which are capital-intensive will lie outside solution space.


The Psychological Driver of Deflation and the Collapse of the Trust Horizon

The collective mood shifts rapidly from optimism and greed to pessimism and fear as the bubble bursts, and as it does so, the financial system moves from expansion to contraction. Financial contraction involves the breaking of promises right left and centre, with credit instruments drastically revalued downwards in the process. As the promises that back them cease to be credible, value disappears extremely rapidly. This is deflation and the elimination of excess claims to underlying real wealth.

Instruments once regarded as money equivalents will lose that status through the loss of confidence in them, causing the supply of what retains sufficient confidence to still be regarded as money to collapse. The more instruments lose the confidence that confers value upon them, the smaller the effective money supply will be, and the more confidence will become a rare ‘commodity’. Being grounded in psychology is the primary reason that deflation cannot be overcome through policy adaptations which are inherently too little and too late. Nothing moves as quickly as a collective loss of confidence in human promises, and nothing destroys value as comprehensively.

The same abrupt change in collective mood will also drive contraction in the real economy, but more slowly, since the time constant for change in the real world is much slower than in the virtual world of finance. This process will also result in broken promises as structural dependencies fracture when there is no longer enough to go around. There will be wage and benefit cuts, layoffs, strikes, strike-breaking, breaches of contract, business failures and more on a huge scale, and these will fuel further fear, anger and the destruction of trust.

In the political realm, trust, such as it is, will be an early casualty. Political promises have been regarded as highly suspect for a long time in any case, but considering that the electorate tends consistently to vote for whomever tells them the largest number of comforting lies, this is not particularly surprising. Our political system selects for mendaciousness by design, since no party is normally elected by telling the truth, yet we have still collectively retained some faith in the concept of democracy until relatively recently. In recent years, however, it has become increasingly clear that the political institutions in supposedly democratic nations have largely been bought by big capital. More often than not, and more blatantly than ever, the political machinery has come to serve those special interests, not the public interest.

The public is increasingly realizing that ‘representative democracy’ leaves them unrepresented, as they see more and more examples of austerity for the masses combined with enormous bailouts guaranteeing that the large scale gamblers of casino capitalism will not take losses on the reckless bets they made gambling with other people’s money. In the countries subjected to austerity, where the contrast is the most stark, a wave of public anger is already depriving national governments, or supranational governance institutions where applicable (ie Europe), of political legitimacy. As more and more states slide into the austerity trap as a result of their unsustainable debt burdens, this polarization process will continue, driving wedges between the governors and the governed which will make governance far more difficult.

Governments struggling with the loss of political legitimacy are going to find that people will no longer follow rules once they feel that the social contract has been violated, and that rules no longer represent the public interest. When the governed broadly accept that society functions under the rule of law, in other words that all are equally subject to the same rules, then they tend to internalize those rules and follow them without the need for negative incentives or outright enforcement. However, once the dominant perception becomes that rules are imposed only on the powerless, to their detriment and for the benefit of the powerful, while the well connected can do as they please, then general compliance can cease very quickly.

Without compliance, force would become necessary, and we are indeed likely to see this occur as a transitional phase as social polarization increases in a climate of increasing anger. The transitional element arises from the fact that force, especially as exercised technologically at large scale, requires substantial resources which are unlikely to remain available. Force produces reaction, straining the fabric of society, quite possibly to breaking point.

As contagion propagates the impact of financial and economic contraction, we will rapidly be moving from a long era of high trust in the value of promises to one of low trust. The trust horizon will contract sharply, leaving supranational and national governments lying beyond its reach, as stranded assets from a trust perspective. Trust determines effective organizational scale, so when the trust horizon draws in, withdrawing political legitimacy in its wake, larger scale entities, whether public or private, are going to find it extremely difficult to function. Effective organizational scale had been increasing for the duration of our long economic expansion, forcing an across the board scaling up of all manner of organizations by increasing the competitiveness accruing to large scale. As we scaled up, we formed structural dependencies on these larger scale entities’ ability to function.

While the scaling-up process was reasonable smooth and seamless, the scaling-down process will not be, as the lower rungs of the figurative ladder we climbed to reach this pinnacle have been kicked out as we ascended. Structural dependencies are going to fail very painfully as large scale ceases to be effective and competitive, leading to abrupt dislocations with ricocheting impacts.

Proposed solutions to our predicament that depend on the functioning of large-scale organizations operating in a top-down manner do not lie within viable solution space.


Instability and the ‘Discount Rate’

The pessimism-and-fear-driven psychology of contraction differs dramatically from the optimism-and-greed-driven psychology of expansion. The extreme complacency as to systemic risk of recent years will be replaced by an equally extreme risk aversion, as we move from overshoot in one direction to undershoot in the other. The perception of economic visibility is gong to change substantially, as we move from a period where people thought they knew where things were headed into an era where fear and confusion reign, and the sense of predictability evaporates abruptly.

This is an important psychological shift, as it affects an aspect known as the ‘discount rate’, which reflects the extent to which we think in the short term rather than the long term, or the extent to which we value the present over the future. The perceived rate of change is an important factor in determining the discount rate, and fear, being a very sharp emotion, causes the rate of change to accelerate markedly, driving the discount rate sharply higher in contractionary times.

True long term thinking is relatively rare. We manage an approximation of it at times when all immediate needs, along with many mere ‘wants’, are met and we are not concerned about this condition changing, in other words at times when we take a comfortable situation for granted. At such times, the longer term view is a luxury we can afford, and we find it relatively simple to summon the presence of mind to think abstractly and constructively, and to ponder circumstances which are are neither personal nor immediate. Even at such times, however, it is not particularly common for humans to transcend mere contemplation and actually act in the interests of the long term, especially if it involves aspects beyond the personal, or perhaps familial.

As the financial bubble bursts, and we rapidly begin to pick up on the fear of others and feel the consequences of contagion in our own lives, our collective discount rates are going to sky-rocket. In a relatively short period of time, a large percentage of the population is going to begin worry about immediate needs, let alone wants, not being met. A short time later those worries are likely to transition into reality, as has already happened in the countries, like Greece, in the forefront of the bursting bubble. As discount rates go through the roof, the luxury of the longer term view, which is always quite ephemeral, is likely to disappear altogether.

Where people have no supply cushions and find themselves abruptly penniless, cold, thirsty, hungry or homeless, the likelihood of them considering anything much beyond the needs of the day at hand is very low. Under such circumstances, the present becomes the only reality that matters, and societies are abruptly pitched into a panicked state of short term crisis management. This of course underlines the need to develop supply cushions and contingency plans in advance of a bubble bursting, so that a greater percentage of people might be able to retain a clear head and the ability to plan more than one day at a time. Unfortunately, few are likely to heed advance warnings and we can expect society to shift rapidly into a state of short-termism.

Given the coming rise in collective discount rates, if proposed solutions depend on the ability for societies to engage in rational planning for longer term goals, then those solutions are not part of solution space.


The Psychology of Contraction and Social Context

Expansionary times are times of relative peace and prosperity. If those conditions persist for a relatively long time, trust builds slowly and societies become more inclusive and cooperative, tending to perceive common humanity and focus on similarities rather than differences. In such times we reach out and interact with distant people, even if we have no relationship of personal trust with them, as we have, over time, vested our trust in stable institutional frameworks for managing our affairs. This institutional trust replaces the need for trust at a personal level and is a key factor in our ability to scale up our economies and their governance structures. Individuals raised in such an environment tend to show a presumption of trust towards others, and their inclination is generally to act cooperatively.

There is a sharp contrast between this stable state of affairs and the circumstances which pertain when suddenly the pie is shrinking and there is not enough to go around. As difficult as it can be to share gains in a way perceived to be fair, it is infinitely more difficult to share losses in a way that is not extremely divisive. As elucidated above, a deflationary credit implosion involved the wholesale destruction of excess claims to underlying real wealth, meaning that a majority of people who thought they had a valid claim to something of tangible value are going to find that they do not. The losses will be very widespread, but uneven, and the perception of unfairness will be almost universal.

Under such circumstances a sense of common humanity is much less prevalent, and the focus shifts from similarities to the differences upon which social divisions are founded and then inflamed. An ‘us versus them’ dynamic is prone to take hold, where ‘us’ becomes ever more tightly defined and ‘them’ becomes an ever more pejorative term. People build literal and figurative walls and peer suspiciously at each other over them. Rather than working together in the attempt to address concerns common to all, division shifts the focus from cooperation to competition. A collectively constructive mindset can easily morph into something far more motivated by negative emotions such as jealousy and revenge and therefore far more destructive of perceived commonality.

The kind of initiatives which capture the public imagination in expansionary times are not at all the type which get traction once a contractionary dynamic takes hold. Attempts to build cooperative projects are going to be facing a rising tide of negative social mood, and will struggle to get off the ground. Sadly, negative ideas are far more likely to go viral than positive ones. Novel movements grounded in anger and fear may arise to feed on this new emotional context and thereby be empowered to wreak havoc on the fabric of society, notably through providing a political mandate to extremists with an agenda of focusing blame on to some identifiable, and marginalizable, social group.

While it will not be the case that cooperative endeavours will be impossible to achieve, they will require additional effort, and are likely to succeed only at a much smaller scale in a newly fractured society than might previously have been expected. It is very much a worthwhile effort, and will be far simpler if begun prior to the end of the period of cooperative presumption. All the more reason to adapt to a major trend change adapt in advance. There is nothing so dangerous as collectively dashed expectations.

If proposed solutions depend on a cooperative social context at large scale, they will not be part of solution space.


Energy – Demand Collapse Followed by Supply Collapse

As we have noted many times, energy is the master resource, and has been the primary driver of an expansion dating back to the beginning of the industrial revolution. In fossil fuels humanity discovered the ‘holy grail’ of energy sources – highly concentrated, reasonably easy to obtain, transportable and processable into many useful forms. Without this discovery, it is unlikely that any human empire would have exceeded the scale and technological sophistication of Rome at its height, but with it we incrementally developed the capacity to reach for the stars along an exponential growth curve.

We increased production year after year, developed uses for our energy surplus, and then embedded layer upon successive layer of structural dependency on those uses within our societies. We were living in an era of a most unusual circumstance – energy surplus on an unprecedented scale. We have come to think this is normal as it has been our experience for our whole lives, and we therefore take it for granted, but it is a profoundly anomalous and temporary state of affairs.

We have arguably reached peak production, despite a great deal of propaganda to the contrary. We still rely on the giant oil fields discovered decades ago for the majority of the oil we use today, but these fields are reaching the end of their lives and new discoveries are very small in comparison. We are producing from previous finds on a grand scale, but failing to replace them, not through lack of effort, but from a fundamental lack of availability. Our dependence on oil in particular is tremendous, given that it underpins both the structure and function of industrial society in a myriad different ways.

An inability to grow production, or even maintain it at current levels past peak, means that our oil supply will be constricted, and with it both the scope of society’s functions and our ability to maintain what we have built. Production from the remaining giant fields could collapse, either as they finally water out or as production is hit by ‘above ground factors’, meaning that it could be impacted by rapidly developing human events having nothing to do with the underlying geology. Above ground factors make for unpredictable wildcards.

Financial crisis, for instance, will be profoundly destabilizing, and is going to precipitate very significant, and very negative, social consequences that are likely to impact on the functioning of the energy industry. A liquidity crunch will cause purchasing power to collapse, greatly reducing demand at personal, industrial and national scales. With production geared to previous levels of demand, it will feel like a supply glut, meaning that prices will plummet.

This has already begun, as we have recently described. The effect is exacerbated by the (false) propaganda over recent years regarding unconventional supplies from fracking and horizontal drilling that are supposedly going to result in limitless supply. As far as price goes, it is not reality by which it is determined, but perception, even if that perception is completely unfounded.

The combination of perception that oil is plentiful, falling actual demand on economic contraction, and an acute liquidity crunch is a recipe for very low prices, at least temporarily. Low prices, as we are already seeing, suck the investment out of the sector because the business case evaporates in the short term, economic visibility disappears for what are inherently long term projects, and risk aversion becomes acute in a climate of fear.

Exploration will cease, and production projects will be mothballed or cancelled. It is unlikely that critical infrastructure will be maintained when no revenue is being generated and money is very scarce, meaning that reviving mothballed projects down the line may be either impossible, or at least economically non-viable.

The initial demand collapse may buy us time in terms of global oil depletion, but at the expense of aggravating the situation considerably in the longer term. The lack of investment over many years will see potential supply collapse as well, so that the projects we may have thought would cushion the downslope of Hubbert’s curve are unlikely to materialize, even if demand eventually begins to recover.

In addition, various factions of humanity are very likely to come to blows over the remaining sources, which, after all, confer upon the owner liquid hegemonic power. We are already seeing a new three-way Cold War shaping up between the US, Russia and China, with nasty proxy wars being fought in the imperial periphery where reserves or strategic transport routes are located. Resource wars will probably do more than anything else to destroy with infrastructure and supplies that might otherwise have fuelled the future.

Given that the energy supply will be falling, and that there will, over time, be competition for increasingly scarce energy resources that we can no longer take for granted, proposed solutions which are energy-intensive will lie outside of solution space.


Declining Energy Profit Ratio and Socioeconomic Complexity

It is not simply the case that energy production will be falling past the peak. That is only half the story as to why energy available to society will be drastically less in the future in comparison with the present. The energy surplus delivered to society by any energy source critically depends on the energy profit ratio of production, or energy returned on energy invested (EROEI).

The energy profit ratio is the comparison between the energy deployed in order to produce energy from any given source, and the resulting energy output. Naturally, if it were not possible to produce more than than the energy required upfront to do so (an EROEI equal to one), the exercise would be pointless, and ideally one would want to produce a multiple of the input energy, and the higher the better.

In the early years of the oil fuel era, one could expect a hundred-fold return on energy invested, but that ratio has fallen by something approximating a factor of ten in the intervening years. If the energy profit ratio falls by a factor of ten, gross production must rise by a factor ten just for the energy available to society to remain the same. During the oil century, that, and more, is precisely what happened. Gross production sky-rocketed and with it the energy surplus available to society.

However, we have now produced and consumed the lions’s share of the high energy profit ratio energy sources, and are depending on lower and lower EROEI sources for the foreseeable future. The energy profit ratio is set to fall by a further factor of ten, but this time, being past the global peak of production, we will not be able to raise gross production. In fact both gross production and the energy profit ratio will be falling at the same time, meaning that the energy surplus available to society is going to be very sharply curtailed. This will compound the energy crisis we unwittingly face going forward.

The only rationale for supposedly ‘producing energy’ from an ‘energy source’ with an energy profit ratio near, or even below, one, would be if one can nevertheless make money at it temporarily, despite not producing an energy return at all. This is more often the case at the moment than one might suppose. In our era of money created from nothing being thrown at all manner of losing propositions, as it always is at the peak of a financial bubble, a great deal of that virtual wealth has been pursuing energy sources and energy technologies.

Prior to the topping of the financial bubble, commodities of all kinds had been showing exponential price rises on fear of impending scarcity, thanks to the human propensity to extrapolate current trends, in this case commodity demand, forward to infinity. In addition technology investments of all kinds were highly fashionable, and able to attract investment without the inconvenient need to answer difficult questions. The combination of energy and technology was apparently irresistible, inspiring investors to dream of outsized profits for years to come. This was a very clear example of on-going dynamics in finance and energy intertwining and acting as mutually reinforcing drivers.

Both unconventional fossil fuels and renewable energy technologies became focii for huge amounts of inward investment. These are both relatively low energy profit energy sources, on average, although the EROEI varies considerably. Unconventional fossil fuels are a very poor prospect, often with an EROEI of less than one due to the technological complexity, drilling guesswork and very rapid well depletion rates.

However, the propagandistic hype that surrounded them for a number of years, until reality began to dawn, was sufficient to allow them to generate large quantities of money for those who ran the companies involved. Ironically, much of this, at least in the United states where most of the hype was centred, came from flipping land leases rather than from actual energy production, meaning that much of this industry was essentially nothing more than an elaborate real estate ponzi scheme.

Renewables, as we currently envisage them, unfortunately suffer from a relatively low energy profit ratio (on average), a dependence on fossil fuels for both their construction and distribution infrastructure, and a dependence on a wide array of non-renewable components.

We typically insist on deploying them in the most large-scale, technologically complex manner possible, thereby minimising the EROEI, and quite likely knocking it below one in a number of cases. This maximises monetary profits for large companies, thanks to both investor gullibility and greed and also to generous government subsidy regimes, but generally renders the exercise somewhere between pointless and counter-productive in long term energy supply terms.

For every given society, there will be a minimum energy profit ratio required to support it in its current form, that minimum being dependent on the scale and complexity involved. Traditional agrarian societies were based on an energy profit ratio of about 5, derived from their food production methods, with additional energy from firewood at a variable energy profit ratio depending on the environment. Modern society, with its much larger scale and vastly greater complexity, naturally has a far higher energy profit ratio requirement, probably not much lower than that at which we currently operate.

We are moving into a lower energy profit ratio era, but lower EROEI energy sources will not be able to maintain our current level of socioeconomic complexity, hence our society will be forced to simplify. However, a simpler society will not be able to engage in the complex activities necessary to produce energy from these low EROEI sources. In other words, low energy profit ratio energy sources cannot sustain a level of complexity necessary to produce them. They will not fuel the simpler future which awaits us.

Proposed solutions dependent on the current level of socioeconomic complexity do not lie within solution space.


Blind Alleys and Techno-Fantasies

The majority of proposals made by those who acknowledge limits fail on at least one of the previous criteria, and often several, if not all of them. Solution space is smaller than we typically think. The most common approach is to insist on government policies intended to implement meaningful change by fiat. Even in the best of times, government policy is a blunt instrument which all too often achieves the opposite of its stated intention, and in contractionary times the likelihood of this increases enormously.

Governments are reactive – and slowly – not proactive. Policies typically reflect the realities of the past, not the future, and are therefore particularly maladaptive at times of large scale trend change, particularly when that change unfolds rapidly. Those focusing on government policy are mostly not thinking in terms of crisis, however, but of seamless proactive adjustment – the kind of which humanity is congenitally incapable.

There is a common perception that government policy and its effect on society depends critically on who holds the seat of power and what policies they impose. The assumption is that elected leaders do, in fact, wield the power to determine and implement their chosen policies, but this has become less and less the case over time. Elected leaders are the public face of a system which they do not control, and increasingly act merely as salesmen for policies determined behind the scenes, mostly at the behest of special interest groups with privileged political access.

It actually matters little who is the figure-head at any given time, as their actions are constrained by the system in which they are embedded. Even if leaders fully understood the situation we face, which is highly unlikely given the nature of the leadership selection process, they would be unable to change the direction of a system so much larger than themselves.

Where public pressure on elected governments develops around a specific issue, for whatever reason, the political response is generally to act in such a way as to appear to do something meaningful, while actually making no substantive change at all. Often the appearance of action is nothing more than vacuous political spin, assuaging public opinion while doing nothing to threaten the extractive interests driving the system in the same direction as always. We cannot expect truly adaptive initiatives to emerge from a system hostage to powerful vested interests and therefore locked into a given direction.

Public understanding of the issues agitated for or against tends, unfortunately, to be limited and one-dimensional, meaning that it is essentially impossible to create public pressure for truly informed policy changes, and it is relatively simple to claim that the appearance of action constitutes actual action. A short public attention span makes this even simpler. People are also extremely unlikely to vote for policies which, if they were to make a meaningful difference, would amount to depriving those same people of the outsized consumption habits to which they have become accustomed. The insurmountable obstacles to achieving change through government policy become obvious.

Planned degrowth assumes the possibility of a smooth progression towards a lower consumption future, but this is not how contractions unfold following the bursting of a bubble. What we can expect is a series of abrupt dislocations that are going to wreak havoc with our collective ability to plan anything at all for many years, by which time we will already be living in a lower consumption future arrived at chaotically. Effective planning for an epochal shift requires the capacity for top-down policy implementation at large scale, combined with social cohesion, the ability to maintain complexity, and the energy to maintain control over a myriad distinct aspects simultaneously. It is simply not going to happen in the manner that proponents envisage.

Similarly, a steady state economy is not a realistic construct in light of many non-negotiable realities. Human history, and in fact the non-human evolution which preceded it, is a dynamic history of boom and bust, of niches opening up, being exploited, being over-exploited and collapsing. It is a history of opportunism and the consequences following from it. In the human experience, boom and bust in the form of the rise and fall of empire is an emergent property of civilizational scale. A steady state at this scale is prima facie impossible.

An approximation of steady state can exist under certain circumstances, where a population well below ecological carrying capacity, and surrounded by abundance, is left in isolation for a very long period of time. The Australian aboriginal existence prior to the European invasion is probably the best example, having persisted for tens of thousands of years. The circumstances which permitted it were, however, diametrically opposite to those we currently face.

Proponents of the steady state economy do not seem to appreciate the extent to which we have long since transgressed the point of no return from the perspective of being able to maintain what we have built. Even if we were merely approaching limits, instead of having moved substantially into overshoot, we would not be able to hold society in stasis just below those limitations.

Populations grow and expansion proceeds with it. Intentionally preventing population growth globally is unrealistic. Even China, as a single country, has struggled with population control policies, and has had to take drastic and dictatorial measures in order to slow population growth. This clearly relies on strong top-down control, which is only barely possible at a national level and will never be possible at a global level.

In China we are also going to see that the outcome of population control has challenging consequences, and that a policy supposedly designed to foster stability can have the opposite effect. The desire for a male child has dangerously distorted the gender ratio in ways which will leave the country with a large excess of young men with no prospects for either work or marriage. That is a guarantee of trouble, either at home or abroad, or possibly both. There will also be far too few employed young people to look after a burgeoning elderly population, meaning a rapid die-off of the elderly cohort at some point.

Even then China is unlikely to have managed to get itself back below the carrying capacity it has done so much to destroy during its frantic dash for growth. The tremendous modernity drive China has engaged in essentially undone any benefit curbing population growth might have had, by increasing energy and resource consumption per capita by an enormous margin. It is population times consumption which determines impact, and in China the ecological impact has in many ways been catastrophic. That has to some extent been compensated for by obtaining access to a great deal of land in other countries, but economic colonialism has done nothing for global stability.

While it is possible to conceive, as some steady-state and degrowth proponents do, of a world in which civilization and large-scale urbanism have been dismantled in favour of autonomous, yet networked, village-scale settlements, that does not make it even remotely realistic. Humanity may, in the distant future, after the overshoot condition has been resolved by nature, as it will eventually be, find itself living in villages once again, but they would not be networked in the modern, technological sense, and the population they housed would be very smaller smaller than at present.

If it is below carrying capacity, then it will grow again, restarting the cycle of expansion and contraction rather than settling for a steady-state. Reaching for the stars again would not be possible however, as the necessary energy and resources have already been consumed or dissipated.

People are often inclined to think that a different trajectory is a matter of choice – for instance that we must collectively choose to live differently in order to prevent an ecological catastrophe. In fact it is not a matter of choice at all. There is no basis for top-down control capable of delivering meaningful change, nor would humanity ever collectively choose to scale back its consumption pattern, although individuals can and do. Given opportunities as a species, we take them, as evolution has shaped us to do.

Groups which made a habit of forgoing opportunities in the past would quickly have been out-competed by those who did not. We are the descendants of a long long line of opportunists, selected over millennia for our flexibility in turning an incredibly wide range of circumstances to our advantage. But, in this instance we will have no choice – the shift to lower consumption will be imposed on us by circumstance. The element of choice will be only in how we choose to face that which we cannot change.

Another class of ideas for ways forward is grounded in techno-optimism, suggesting that because human beings are clever and creative, and have tended to push back apparent limits before, that we will be able to do so indefinitely. The notion is that changing our trajectory is unnecessary because limits can always be circumvented. Needless to say, such a view is not grounded in physical reality. These ‘solutions’ are entrepreneurial rather than policy-driven, although they may expect to be facilitated through policy.

Ideas in this category would include such things as smart renewables-based power grids, high-performance electric cars, high-tech energy storage systems, thorium reactors, fusion reactors, biofuels, genetically modified (pseudo)foodstuffs, geoengineering, enhanced automation, high-tech carbon sequestration, global carbon trading platforms, electronic crypto-currencies, clean-tech, vertical farming skyscrapers and many other notions.

Notice that all of these presume the ready availability of cheap energy and resources, along with large quantities of capital, and all assume that technological complexity can be maintained or even increased. Options such as these also have a substantial dependence on the continuation of globalized trade in both goods and services in order to satisfy their complex supply chains. However, globalization depends on the ability to operate at large scale in extremely complex ways, it depends on cheap energy, it depends on maintaining trust in trading partners, and it depends on the ability to travel without facing unacceptable levels of physical risk from piracy or conflict.

Trade does very poorly in times of financial and economic contraction. In the Great Depression of the 1930s, trade fell by 66% in two years. Trust collapses, and with it the contractual ability to agree on risk-sharing arrangements. Letters of credit become impossible to obtain in a credit crunch, and without them goods do not move.

Many goods will in any case have no market, as there will be little purchasing power for anything but essentials, and possibly not even sufficient for those. As we move from the peak of globalized trade, there will be an enormous excess of transport capacity, which will drive prices down relentlessly to the point where transporting goods becomes uneconomic. Much transport capacity will be scrapped. Without credit to oil the wheels of trade, our highly leveraged economic system will grind to a halt.

It is natural that we regard our current situation as being normal, and take for granted that the march of technological progress – the only reality most of us have known – will continue. Few question very deeply the foundations of our societies, and even those who do recognize that change must occur rarely realize the extent to which that change will inevitably strike at the fundamental basis of modern existence. Globalization has peaked and will shortly be moving into reverse. The world will be a very different place as a result.


Solution Space

To use the word ‘solution’ is perhaps misleading, since it could be said to imply that circumstances exist which could allow us to continue business as usual, and this is not, in fact, the case. A crunch period cannot be avoided. We face an intractable predicament, and the consequences of overshoot are going to manifest no matter what we do. However, while we may not be able to prevent this from occurring, we can mitigate the impact and lay the foundation for a fundamentally different and more workable way of being in the world.

Acknowledging the non-negotiable allows us to avoid beating our heads against a brick wall, freeing us to focus on that which we can either influence or change, and acknowledging the limits within which we must operate, even in these areas, allows us to act far more effectively without wasting scarce resources on fantasies. There are plenty of actions which can be taken, but those with potential for building a viable future will be inexpensive, small-scale, simple, low-energy, community-based initiatives. It will be important to work with natural systems in accordance with permaculture principles, rather than in opposition to them as currently do so comprehensively.

We require viable ways forward across different timeframes, first to navigate the rapid-onset acute crisis which the bursting of a financial bubble will pitch us into, and then to reboot our global operating system into a form less reminiscent of a planet-killing ponzi scheme. The various limits we face do not manifest all at the same time, and so to some extent can be navigated sequentially. The first phase of our constrained future, which will be primarily financial and social, will occur before the onset of energy supply difficulties for instance. Some initiatives are of particular value at specific times, and other have general value across timescales.

Moving into financial contraction is going to feel like having the rug pulled out from under our feet, and all the assumptions upon which we have based our lives invalidated all at once. Preparing in advance can make all the difference to the impact of such an event. At an individual level, it is important to avoid holding debt and to hold cash on hand. It is also very useful to have prepared in advance by developing practical skills, obtaining control over the essentials of one’s own existence where possible and being located in an auspicious place. Human skills such as mediation and organizational ability will be very useful for calming inevitable social tensions.

However, community initiatives will have far greater impact than individual actions. The most effective paths will be those we choose to walk with others, as even in times when effective organizational scale is falling, it does not fall far enough to make acting individually the most adaptive strategy. Even in contractionary times, cooperation is not only possible, but vital. In the absence of lost institutional trust, it must occur within networks of genuine interpersonal trust, and these are of necessity small. Building such networks in advance of crisis is exceptionally important, as they are very much more difficult to construct after the fact, when we will be facing an unforgiving social atmosphere.

Cohesive communities will act together in times of crisis, and will be able to offer significant support to each other. The path dependency aspect is important – the state we find ourselves in when crisis hits will be an major determinant of how it plays out in a given area. Anything people come together to do will build social capital and relationships of trust, which are the foundation of society. Community gardens, perma-blitzes (permaculture garden make-overs), maker-spaces, time-banks, savings pools, local currency initiatives, community hub developments, skills training programmes, asset mapping and contingency planning are but a few of the possibilities for bringing people together.

Essential functions can be reclaimed locally, providing for far greater local self-sufficiency potential. The existence of locally-focused businesses, with local supply chains and local distribution networks for supplying essential goods and services will be a major advantage, hence establishing these in advance will be highly adaptive. Choosing to form them as cooperatives is likely to increase their resilience to external shocks as risks are shared. Where they can function at least partially through alternative trading arrangements, or as part of a local currency network, they can be even more beneficial.

Alternative trading arrangements are a particularly important component of local self-sufficiency during times of financial crisis, as they are able to mitigate the acute state of liquidity crunch which will be creating artificial scarcity. Implementing alternative means of trading will allow a much larger proportion of economic activity to survive, and this will allow many more people to be able to provide for themselves and their families. This in turn creates much greater social stability. Alternative currencies in particular are already being relied on in the countries at the forefront of financial crisis, which already find themselves facing liquidity shortage.

It is by no means necessary to wait until crisis hits before establishing such systems. Indeed they can have considerable value locally even in stable times. Since they only constitute money in one area, and, being fiat currencies, must necessarily operate within the trust horizon, they help to retain purchasing power locally, rather than allowing it to drain away continually. Once well established, alternative currencies can go from being parallel systems to being the major form of liquidity available locally.

Beyond a close-knit community, it will be very helpful to have an informed layer of local government, as this confers the potential for a top-down/bottom-up partnership between local government and the grass roots. Local government is capable of removing barriers to people looking after themselves, assisting with the propagation of successful grass roots initiatives and acting facilitate adaptive responses with the resources at its disposal, even though these will be for more limited than currently.

Contingency planning in advance for the distribution of scarce local resources would be wise. With the trust horizons drawing inwards, local government may be the largest scale of governance still lying within it, and therefore still effective. It operates at a far more human scale than larger political structures, and is far more likely to have the potential for transparency, accountability and reflexive learning.

That is not to say local government is necessarily endowed with these qualities at present. The odds of it becoming so will increase if informed and public spirited individuals get involved in local government as soon as possible, rather than setting their sights on regional or national government. Presiding over contraction will, however, be a thankless task, as constituents will tend to blame those in power for the fact that the pie is shrinking. The job will be a delicate balancing act under very trying circumstances as the fabric os society becomes tattered and torn, but as difficult as it will be, it will remain essential, and getting it right can make a very substantial difference.

Higher levels of government may currently appear to be the relevant seats of power, but are far less likely to be as important in a period of crisis as their response time is far too slow. It is possible that higher levels of government may temporarily be involved in useful rationing programmes, but beyond a certain point, the most important initiatives in practice are likely to be those profoundly local. National governments are more likely to generate additional problems rather than solutions, as they crack down on angry populations during an on-going loss of political legitimacy.

Given the fragility of trade in the future we are facing, programmes of import substitution could be useful, if there would be time to implement them before financial crisis deepens too substantially for the necessary larger-scale organizational capacity to fucntion. Being able to provide for the essentials, without having to rely on vulnerable international supply chains, is extremely beneficial, and food sovereignty in particular is critical.

Once trade withers, we will once again see tremendous regional disparities of fortune, based on differing local circumstances. It would be wise to research in advance what one’s own local circumstances are likely to be, in order to work out in advance how one might live within local limits. Getting expectations aligned with what reality can hope to deliver is a major part of adaptation without unnecessary stress.

In the longer term, we can expect to move through economic depression into some form of relative recovery, although we may see large scale conflict first, and will not, in any case, see a return to present circumstances. We will instead be adapting to the age of limits, mostly in an ad hoc manner due to on-going instability and consequent inability to plan for the long term. The bursting of a bubble on the scale of the one we have experienced has far reaching consequences that are likely to be felt for decades at least. In addition, our current condition of extreme carrying capacity overshoot means that we will actively be tightening our own limits, even as the population declines, by further cannibalizing remaining natural capital.

The operating system reboot which could lead to relative recovery would involve the restoration of some level of trust in the financial system, following the elimination of the huge mass of excess claims to underlying real wealth, and very likely the subsequent destabliization of a currency hyperinflation some years later (timeframe location dependent). We are very likely to see financial innovation, which is nothing more than another name for ponzi scheme, banned for a very long time, and likely the creation of money as interest bearing debt as well.

Humanity is in the habit of locking the door after the horse has bolted, so to speak, only restoring financial regulatory controls once it is too late. Once restored, regulations requiring plain vanilla finance will probably persist until  we have once again had time to forget the inevitable consequences of laissez faire. This will be measured in generations.

The small-scale initiatives which we need to navigate the crunch period could be scaled up as trust is slowly re-established. The speed at which this might happen, and the scale that might eventually be workable, are unclear, but it is not likely to be a rapid process, and scale is likely to remain small relative to today. Society will be lower-energy and therefore significantly simpler by then, with far smaller concentrations of population.

While some fossil fuels will no doubt be used for essential functions for quite some time to come, the majority of society will be excluded from what remains of the hydrocarbon age. We will likely have renewable energy systems, but not in the form of photovoltaic panels and high-tech electricity systems. Diffuse renewable energy can give us thermal energy, or motive power, or the ability to store energy as compressed air, all relatively simply, but at that point it will not be a technological civilization.

We are heading for a profoundly humbling experience, to put it mildly. Technological man is not the demigod he supposed himself to be, but merely the beneficiary of a fortuitous energy bonanza which temporarily allowed him to turn dreams into reality. We would do well, if we could summon up sufficient humility in advance, to learn from the simple and elegant technologies of the distant past, which we have largely discarded or forgotten.

We could also learn from present day places already constrained by limits – places which already operate simply and on a shoe-string budget both in terms of money and energy. It takes practice to learn to function without the structural dependencies we have constructed for ourselves, and the sooner we begin the learning curve, the better off we will be. Focusing on solution space for our ways forward would save us from countless blind alleys in the meantime.

This is the entire article. Part 1 is here:
Global Financial Crisis – Liquidity Crunch and Economic Depression,
Part 2 is here:
The Psychological Driver of Deflation and the Collapse of the Trust Horizon
Part 3 is here:
Declining Energy Profit Ratio and Socioeconomic Complexity
Part 4 is here:
Blind Alleys and Techno-Fantasies
and part 5 is here:
Solution Space

Aug 192015
 
 August 19, 2015  Posted by at 1:13 pm Finance Tagged with: , , , , , , ,  


Gustave Doré Dante looks upon the negligent rulers 1868

In case you missed it, we’re doing something a little different. Nicole wrote a very lenghty article and we decided to publish it in chapters. Over five days we are posting five different chapters of the article, one on each day, and then on day six the whole thing. Just so there’s no confusion: the article, all five chapters of it, was written by Nicole Foss.

This is part 5. Part 1 is here:
Global Financial Crisis – Liquidity Crunch and Economic Depression,
Part 2 is here:
The Psychological Driver of Deflation and the Collapse of the Trust Horizon
Part 3 is here:
Declining Energy Profit Ratio and Socioeconomic Complexity
and part 4 is here:
Blind Alleys and Techno-Fantasies


Solution Space

To use the word ‘solution’ is perhaps misleading, since it could be said to imply that circumstances exist which could allow us to continue business as usual, and this is not, in fact, the case. A crunch period cannot be avoided. We face an intractable predicament, and the consequences of overshoot are going to manifest no matter what we do. However, while we may not be able to prevent this from occurring, we can mitigate the impact and lay the foundation for a fundamentally different and more workable way of being in the world.

Acknowledging the non-negotiable allows us to avoid beating our heads against a brick wall, freeing us to focus on that which we can either influence or change, and acknowledging the limits within which we must operate, even in these areas, allows us to act far more effectively without wasting scarce resources on fantasies. There are plenty of actions which can be taken, but those with potential for building a viable future will be inexpensive, small-scale, simple, low-energy, community-based initiatives. It will be important to work with natural systems in accordance with permaculture principles, rather than in opposition to them as currently do so comprehensively.

We require viable ways forward across different timeframes, first to navigate the rapid-onset acute crisis which the bursting of a financial bubble will pitch us into, and then to reboot our global operating system into a form less reminiscent of a planet-killing ponzi scheme. The various limits we face do not manifest all at the same time, and so to some extent can be navigated sequentially. The first phase of our constrained future, which will be primarily financial and social, will occur before the onset of energy supply difficulties for instance. Some initiatives are of particular value at specific times, and other have general value across timescales.

Moving into financial contraction is going to feel like having the rug pulled out from under our feet, and all the assumptions upon which we have based our lives invalidated all at once. Preparing in advance can make all the difference to the impact of such an event. At an individual level, it is important to avoid holding debt and to hold cash on hand. It is also very useful to have prepared in advance by developing practical skills, obtaining control over the essentials of one’s own existence where possible and being located in an auspicious place. Human skills such as mediation and organizational ability will be very useful for calming inevitable social tensions.

However, community initiatives will have far greater impact than individual actions. The most effective paths will be those we choose to walk with others, as even in times when effective organizational scale is falling, it does not fall far enough to make acting individually the most adaptive strategy. Even in contractionary times, cooperation is not only possible, but vital. In the absence of lost institutional trust, it must occur within networks of genuine interpersonal trust, and these are of necessity small. Building such networks in advance of crisis is exceptionally important, as they are very much more difficult to construct after the fact, when we will be facing an unforgiving social atmosphere.

Cohesive communities will act together in times of crisis, and will be able to offer significant support to each other. The path dependency aspect is important – the state we find ourselves in when crisis hits will be an major determinant of how it plays out in a given area. Anything people come together to do will build social capital and relationships of trust, which are the foundation of society. Community gardens, perma-blitzes (permaculture garden make-overs), maker-spaces, time-banks, savings pools, local currency initiatives, community hub developments, skills training programmes, asset mapping and contingency planning are but a few of the possibilities for bringing people together.

Essential functions can be reclaimed locally, providing for far greater local self-sufficiency potential. The existence of locally-focused businesses, with local supply chains and local distribution networks for supplying essential goods and services will be a major advantage, hence establishing these in advance will be highly adaptive. Choosing to form them as cooperatives is likely to increase their resilience to external shocks as risks are shared. Where they can function at least partially through alternative trading arrangements, or as part of a local currency network, they can be even more beneficial.

Alternative trading arrangements are a particularly important component of local self-sufficiency during times of financial crisis, as they are able to mitigate the acute state of liquidity crunch which will be creating artificial scarcity. Implementing alternative means of trading will allow a much larger proportion of economic activity to survive, and this will allow many more people to be able to provide for themselves and their families. This in turn creates much greater social stability. Alternative currencies in particular are already being relied on in the countries at the forefront of financial crisis, which already find themselves facing liquidity shortage.

It is by no means necessary to wait until crisis hits before establishing such systems. Indeed they can have considerable value locally even in stable times. Since they only constitute money in one area, and, being fiat currencies, must necessarily operate within the trust horizon, they help to retain purchasing power locally, rather than allowing it to drain away continually. Once well established, alternative currencies can go from being parallel systems to being the major form of liquidity available locally.

Beyond a close-knit community, it will be very helpful to have an informed layer of local government, as this confers the potential for a top-down/bottom-up partnership between local government and the grass roots. Local government is capable of removing barriers to people looking after themselves, assisting with the propagation of successful grass roots initiatives and acting facilitate adaptive responses with the resources at its disposal, even though these will be for more limited than currently.

Contingency planning in advance for the distribution of scarce local resources would be wise. With the trust horizons drawing inwards, local government may be the largest scale of governance still lying within it, and therefore still effective. It operates at a far more human scale than larger political structures, and is far more likely to have the potential for transparency, accountability and reflexive learning.

That is not to say local government is necessarily endowed with these qualities at present. The odds of it becoming so will increase if informed and public spirited individuals get involved in local government as soon as possible, rather than setting their sights on regional or national government. Presiding over contraction will, however, be a thankless task, as constituents will tend to blame those in power for the fact that the pie is shrinking. The job will be a delicate balancing act under very trying circumstances as the fabric os society becomes tattered and torn, but as difficult as it will be, it will remain essential, and getting it right can make a very substantial difference.

Higher levels of government may currently appear to be the relevant seats of power, but are far less likely to be as important in a period of crisis as their response time is far too slow. It is possible that higher levels of government may temporarily be involved in useful rationing programmes, but beyond a certain point, the most important initiatives in practice are likely to be those profoundly local. National governments are more likely to generate additional problems rather than solutions, as they crack down on angry populations during an on-going loss of political legitimacy.

Given the fragility of trade in the future we are facing, programmes of import substitution could be useful, if there would be time to implement them before financial crisis deepens too substantially for the necessary larger-scale organizational capacity to fucntion. Being able to provide for the essentials, without having to rely on vulnerable international supply chains, is extremely beneficial, and food sovereignty in particular is critical.

Once trade withers, we will once again see tremendous regional disparities of fortune, based on differing local circumstances. It would be wise to research in advance what one’s own local circumstances are likely to be, in order to work out in advance how one might live within local limits. Getting expectations aligned with what reality can hope to deliver is a major part of adaptation without unnecessary stress.

In the longer term, we can expect to move through economic depression into some form of relative recovery, although we may see large scale conflict first, and will not, in any case, see a return to present circumstances. We will instead be adapting to the age of limits, mostly in an ad hoc manner due to on-going instability and consequent inability to plan for the long term. The bursting of a bubble on the scale of the one we have experienced has far reaching consequences that are likely to be felt for decades at least. In addition, our current condition of extreme carrying capacity overshoot means that we will actively be tightening our own limits, even as the population declines, by further cannibalizing remaining natural capital.

The operating system reboot which could lead to relative recovery would involve the restoration of some level of trust in the financial system, following the elimination of the huge mass of excess claims to underlying real wealth, and very likely the subsequent destabliization of a currency hyperinflation some years later (timeframe location dependent). We are very likely to see financial innovation, which is nothing more than another name for ponzi scheme, banned for a very long time, and likely the creation of money as interest bearing debt as well.

Humanity is in the habit of locking the door after the horse has bolted, so to speak, only restoring financial regulatory controls once it is too late. Once restored, regulations requiring plain vanilla finance will probably persist until  we have once again had time to forget the inevitable consequences of laissez faire. This will be measured in generations.

The small-scale initiatives which we need to navigate the crunch period could be scaled up as trust is slowly re-established. The speed at which this might happen, and the scale that might eventually be workable, are unclear, but it is not likely to be a rapid process, and scale is likely to remain small relative to today. Society will be lower-energy and therefore significantly simpler by then, with far smaller concentrations of population.

While some fossil fuels will no doubt be used for essential functions for quite some time to come, the majority of society will be excluded from what remains of the hydrocarbon age. We will likely have renewable energy systems, but not in the form of photovoltaic panels and high-tech electricity systems. Diffuse renewable energy can give us thermal energy, or motive power, or the ability to store energy as compressed air, all relatively simply, but at that point it will not be a technological civilization.

We are heading for a profoundly humbling experience, to put it mildly. Technological man is not the demigod he supposed himself to be, but merely the beneficiary of a fortuitous energy bonanza which temporarily allowed him to turn dreams into reality. We would do well, if we could summon up sufficient humility in advance, to learn from the simple and elegant technologies of the distant past, which we have largely discarded or forgotten.

We could also learn from present day places already constrained by limits – places which already operate simply and on a shoe-sting budget both in terms of money and energy. It takes practice to learn to function without the structural dependencies we have constructed for ourselves, and the sooner we begin the learning curve, the better off we will be. Focusing on solution space for our ways forward would save us from countless blind alleys in the meantime.

This is part 5. Part 1 is here:
Global Financial Crisis – Liquidity Crunch and Economic Depression,
Part 2 is here:
The Psychological Driver of Deflation and the Collapse of the Trust Horizon
Part 3 is here:
Declining Energy Profit Ratio and Socioeconomic Complexity
and part 4 is here:
Blind Alleys and Techno-Fantasies

Tune back in tomorrow for the article in its entirety.

Aug 172015
 
 August 17, 2015  Posted by at 1:28 pm Finance Tagged with: , , , , , , ,  


Gustave Doré Dante before the wall of flames which burn the lustful 1868

We’re doing something a little different. Nicole wrote another very long article and I suggested publishing it in chapters; this time she said yes. Over five days we will post five different chapters of the article, one on each day, and then on day six the whole thing. Just so there’s no confusion: the article, all five chapters of it, was written by Nicole Foss. Not by Ilargi.

This is part 3. Part 1 is here:
Global Financial Crisis – Liquidity Crunch and Economic Depression,
and part 2 is here:
The Psychological Driver of Deflation and the Collapse of the Trust Horizon


Energy – Demand Collapse Followed by Supply Collapse

As we have noted many times, energy is the master resource, and has been the primary driver of an expansion dating back to the beginning of the industrial revolution. In fossil fuels humanity discovered the ‘holy grail’ of energy sources – highly concentrated, reasonably easy to obtain, transportable and processable into many useful forms. Without this discovery, it is unlikely that any human empire would have exceeded the scale and technological sophistication of Rome at its height, but with it we incrementally developed the capacity to reach for the stars along an exponential growth curve.

We increased production year after year, developed uses for our energy surplus, and then embedded layer upon successive layer of structural dependency on those uses within our societies. We were living in an era of a most unusual circumstance – energy surplus on an unprecedented scale. We have come to think this is normal as it has been our experience for our whole lives, and we therefore take it for granted, but it is a profoundly anomalous and temporary state of affairs.

We have arguably reached peak production, despite a great deal of propaganda to the contrary. We still rely on the giant oil fields discovered decades ago for the majority of the oil we use today, but these fields are reaching the end of their lives and new discoveries are very small in comparison. We are producing from previous finds on a grand scale, but failing to replace them, not through lack of effort, but from a fundamental lack of availability. Our dependence on oil in particular is tremendous, given that it underpins both the structure and function of industrial society in a myriad different ways.

An inability to grow production, or even maintain it at current levels past peak, means that our oil supply will be constricted, and with it both the scope of society’s functions and our ability maintain what we have built. Production from the remaining giant fields could collapse, either as they finally water out or as production is hit by ‘above ground factors’, meaning that it could be impacted by rapidly developing human events having nothing to do with the underlying geology. Above ground factors make for unpredictable wildcards.

Financial crisis, for instance, will be profoundly destabilizing, and is going to precipitate very significant, and very negative, social consequences that are likely to impact on the functioning of the energy industry. A liquidity crunch will cause purchasing power to collapse, greatly reducing demand at personal, industrial and national scales. With production geared to previous levels of demand, it will feel like a supply glut, meaning that prices will plummet.

This has already begun, as we have recently described. The effect is exacerbated by the (false) propaganda over recent years regarding unconventional supplies from fracking and horizontal drilling that are supposedly going to result in limitless supply. As far as price goes, it is not reality by which it is determined, but perception, even if that perception is completely unfounded.

The combination of perception that oil is plentiful, falling actual demand on economic contraction, and an acute liquidity crunch is a recipe for very low prices, at least temporarily. Low prices, as we are already seeing, suck the investment out of the sector because the business case evaporates in the short term, economic visibility disappears for what are inherently long term projects, and risk aversion becomes acute in a climate of fear.

Exploration will cease, and production projects will be mothballed or cancelled. It is unlikely that critical infrastructure will be maintained when no revenue is being generated and money is very scarce, meaning that reviving mothballed projects down the line may be either impossible, or at least economically non-viable.

The initial demand collapse may buy us time in terms of global oil depletion, but at the expense of aggravating the situation considerably in the longer term. The lack of investment over many years will see potential supply collapse as well, so that the projects we may have though would cushion the downslope of Hubbert’s curve are unlikely to materialize, even if demand eventually begins to recover.

In addition, various factions of humanity are very likely to come to blows over the remaining sources, which, after all, confer upon the owner liquid hegemonic power. We are already seeing a new three-way Cold War shaping up between the US, Russia and China, with nasty proxy wars being fought in the imperial periphery where reserves or strategic transport routes are located. Resource wars will probably do more than anything else to destroy with infrastructure and supplies that might otherwise have fuelled the future.

Given that the energy supply will be falling, and that there will, over time, be competition for increasingly scarce energy resources that we can no longer take for granted, proposed solutions which are energy-intensive will lie outside of solution space.


Declining Energy Profit Ratio and Socioeconomic Complexity

It is not simply the case that energy production will be falling past the peak. That is only half the story as to why energy available to society will be drastically less in the future in comparison with the present. The energy surplus delivered to society by any energy source critically depends on the energy profit ratio of production, or or energy returned on energy invested (EROEI).

The energy profit ratio is the comparison between the energy deployed in order to produce energy from any given source, and the resulting energy output. Naturally, if it were not possible to produce more than than the energy required upfront to do so (an EROEI equal to one), the exercise would be pointless, and ideally one would want to produce a multiple of the input energy, and the higher the better.

In the early years of the oil fuel era, one could expect a hundred-fold return on energy invested, but that ratio has fallen by something approximating a factor of ten in the intervening years. If the energy profit ratio falls by a factor of ten, gross production must rise by a factor ten just for the energy available to society to remain the same. During the oil century, that, and more, is precisely what happened. Gross production sky-rocketed and with it the energy surplus available to society.

However, we have now produced and consumed the lions’s share of the high energy profit ratio energy sources, and are depending on lower and lower EROEI sources for the foreseeable future. The energy profit ratio is set to fall by a further factor of ten, but this time, being past the global peak of production, we will not be able to raise gross production. In fact both gross production and the energy profit ratio will be falling at the same time, meaning that the energy surplus available to society is going to be very sharply curtailed. This will compound the energy crisis we unwittingly face going forward.

The only rationale for supposedly ‘producing energy’ from an ‘energy source’ with an energy profit ratio near, or even below, one, would be if one can nevertheless make money at it temporarily, despite not producing an energy return at all. This is more often the case at the moment than one might suppose. In our era of money created from nothing being thrown at all manner of losing propositions, as it always is at the peak of a financial bubble, a great deal of that virtual wealth has been pursuing energy sources and energy technologies.

Prior to the topping of the financial bubble, commodities of all kinds had been showing exponential price rises on fear of impending scarcity, thanks to the human propensity to extrapolate current trends, in this case commodity demand, forward to infinity. In addition technology investments of all kinds were highly fashionable, and able to attract investment without the inconvenient need to answer difficult questions. The combination of energy and technology was apparently irresistible, inspiring investors to dream of outsized profits for years to come. This was a very clear example of on-going dynamics in finance and energy intertwining and acting as mutually reinforcing drivers.

Both unconventional fossil fuels and renewable energy technologies became focii for huge amounts of inward investment. These are both relatively low energy profit energy sources, on average, although the EROEI varies considerably. Unconventional fossil fuels are a very poor prospect, often with an EROEI of less than one due to the technological complexity, drilling guesswork and very rapid well depletion rates.

However, the propagandistic hype that surrounded them for a number of years, until reality began to dawn, was sufficient to allow them to generate large quantities of money for those who ran the companies involved. Ironically, much of this, at least in the United states where most of the hype was centred, came from flipping land leases rather than from actual energy production, meaning that much of this industry was essentially nothing more than an elaborate real estate ponzi scheme.

Renewables, as we currently envisage them, unfortunately suffer from a relatively low energy profit ratio (on average), a dependence on fossil fuels for both their construction and distribution infrastructure, and a dependence on a wide array of non-renewable components.

We typically insist on deploying them in the most large-scale, technologically complex manner possible, thereby minimising the EROEI, and quite likely knocking it below one in a number of cases. This maximises monetary profits for large companies, thanks to both investor gullibility and greed and also to generous government subsidy regimes, but generally renders the exercise somewhere between pointless and counter-productive in long term energy supply terms.

For every given society, there will be a minimum energy profit ratio required to support it in its current form, that minimum being dependent on the scale and complexity involved. Traditional agrarian societies were based on an energy profit ratio of about 5, derived from their food production methods, with additional energy from firewood at a variable energy profit ratio depending on the environment. Modern society, with its much larger scale and vastly greater complexity, naturally has a far higher energy profit ratio requirement, probably not much lower than that at which we currently operate.

We are moving into a lower energy profit ratio era, but lower EROEI energy sources will not be able to maintain our current level of socioeconomic complexity, hence our society will be forced to simplify. However, a simpler society will not be able to engage in the complex activities necessary to produce energy from these low EROEI sources. In other words, low energy profit ratio energy sources cannot sustain a level of complexity necessary to produce them. They will not fuel the simpler future which awaits us.

Proposed solutions dependent on the current level of socioeconomic complexity do not lie within solution space.

This is part 3. Part 1 is here:
Global Financial Crisis – Liquidity Crunch and Economic Depression,
and part 2 is here:
The Psychological Driver of Deflation and the Collapse of the Trust Horizon

Tune back in tomorrow for part 4: Blind Alleys and Techno-Fantasies

Aug 152015
 
 August 15, 2015  Posted by at 1:54 pm Finance Tagged with: , , , , , , ,  


Gustave Doré Dante and the Angel of the Church before the Door of Purgatory 1868

We’re going to try something a little different. Nicole wrote another very long article and I suggested publishing it in chapters; this time she said yes. So in the next five days we will post five different chapters of the article, one on each day, and then on day six the whole thing. That way, you will have some time left over to spend with your families… 😉

Just so there’s no confusion: the article, all five chapters of it, was written by Nicole Foss. Not by Ilargi.


Intro

A great deal of intelligence is invested in ignorance when the need for illusion is deep.
Saul Bellow, 1976

More and more people (although not nearly enough) are coming to recognise that humanity cannot continue on its current trajectory, as the limits we face become ever more obvious, and their implications starker. There is a growing realisation that the future must be different, and much thought is therefore being applied to devising supposed solutions for that future. These are generally attempts to reconcile our need to make changes with our desire to continue something very much resembling our current industrial-world lifestyle, with a view to making a seamless transition between the now and a comfortably familiar future. The presumption is that it is possible, but this rests on foundational assumptions which vary between the improbable and the outright impossible. It is a presumption grounded in a comprehensive failure to understand the nature and extent of our predicament.

We are facing limits in many ways simultaneously – not surprising since exponential growth curves for so many parameters have gone critical in recent decades, and of course even more so in recent years. Some of these limits lie in human systems, while others are ecological or geophysical. They will all interact with each other, over different timeframes, in extremely complex ways as our state of overshoot resolves itself (to our dissatisfaction, to put it mildly) over many decades, if not centuries. Some of these limits are completely non-negotiable, while others can be at least partially mutable, and it is vital that we know the difference if we are to be able to mitigate our situation at all. Otherwise we are attempting to bargain with the future without understanding our negotiating position.

The vast majority has no conception of the extent to which our modernity is an artifact of our discovery and pervasive exploitation of fossil fuels as an energy source. No species in history has had easy, long term access to a comparable energy source. This unprecedented circumstance has facilitated the creation of turbo-charged civilization.

Huge energy throughput, in line with the Maximum Power Principle, has led to tremendous complexity, far greater extractive capacity (with huge ‘environmental externalities’ as a result), far greater potential to concentrate enormous power in the hands of the few with destructive political consequences), a far higher population, far greater burden on global carrying capacity, and the ability to borrow from the future to satisfy the insatiable greed of the present. The fact that we are now approaching so many limits has very significant implications for our ability to continue with any of these aspects of modern life. Therefore, any expectation that a future in the era of limits is likely to resemble the present (with a green gloss) are ill-founded and highly implausible.

The majority of the Big Ideas with which we propose to bargain with our future of limits to growth rests on the notion that we can retain our modern comforts and conveniences, but that somehow we will do so with far less resource use, and with a fraction of the energy we currently employ. The most mainstream discussions revolve around ‘green growth’, where it is suggested that eternal economic growth can occur on a finite planet, and that we will magically decouple of that growth from the physical basis upon which it rests. Proponents argue that we have already accomplished this to an extent, as the apparent energy intensity of developed state economies has fallen.

In actuality, all that has happened is that the energy deployed to provide developed world comforts has been used in the emerging markets where goods destined for our markets are manufactured, so that the consumption falls within someone else’s energy budget. In reality there has been no decoupling at all. Economic growth requires energy, and there is an exceptionally high correlation between the two. Even the phantom growth of the bubble era, based on the expansion of virtual wealth, requires energy in order to maintain the complexity of the system that generates it.

It is crucial that we understand the boundaries of solution-space, in order to be able to focus our finite resources (in every sense of the word) on that which is inherently workable, at least in theory. ‘Workable In theory’ implies that, while there is no guarantee of success given a large number of unpredictable factors, there is also no obvious prima facie barrier to success. If, however, we throw our resources at ideas that are subject to such barriers, and therefore lie beyond solution space, we guarantee that those initiatives will fail and that the resources so committed will have been wasted. It is important to note that ‘success’ does not mean being able to maintain anything remotely resembling business as usual. It refers to being able to achieve the best possible outcome under the circumstances.

Sculptors work by carving away excess material in order to reveal the figure within the block they are working with. Similarly, we can carve away from the featureless monolith of conceivable approaches those that we can see in advance are doomed to fail, leaving us with a figuratively coherent group of potentially workable ideas. In order to carve away the waste material and get closer to a much smaller set of viable possibilities, we need to understand some of the non-negotiable factors we will be facing, each of which has implications restrictive of viable solution space. Many of these issues are the fundamental substance of the message we have been propagating at the Automatic Earth since its inception and will therefore constitute a review for our regular readership. For more detail on these topics, check out our primers section.


Global Financial Crisis – Liquidity Crunch and Economic Depression

As we have maintained since the Automatic Earth’s launch in early 2008, we have lived through a gigantic monetary expansion over the last 30 years or so –  the largest financial departure from reality in human history. In doing so we have created a crisis of under-collateralization. This period was highly inflationary, as we saw a vast increase in the supply of money and credit versus available goods and services. Both currency printing and credit hyper-expansion constitute inflation, but the outcome, and therefore prescription, for each is very different. While currency printing cuts the real wealth pie into many more pieces, each of which will be very small, credit expansions such as this one create multiple and mutually exclusive claims to the same pieces of pie, hence we have generated a vast quantity of excess claims to underlying real wealth.

In other words, we have created a bubble of virtual wealth, with no substance to back up the pile of promises to repay that it rests upon. As we have said before, this amounts to playing a giant game of musical chairs where there is perhaps one chair for every hundred people playing the game. When the music stops, those best positioned to understand the rules of the game will grab a chair as quickly as possible. Everyone else will be out of the game. The endgame of credit expansion is always a credit implosion, where the excess claims are rapidly and messily extinguished. This is, of course, deflation by definition – a contraction in the supply of money and credit relative to available goods and services – through the collapse of the credit supply, where credit is of the order of 99% of the effective money supply.

A credit implosion crashes both the money supply and the velocity of money – the rate at which money circulates in the economy. Together these factors determine how much economic activity can be sustained. With both the money supply and the velocity of money very low, a state of liquidity crunch exists, where there is insufficient liquidity in the economy to connect buyers and sellers, or producers and consumers. Nothing moves, so there is little or no economic activity. Note that demand is not what one wants, but what one can pay for, so with little purchasing power available, demand will be very low under such circumstances.

During the expansion, both the money supply and the velocity of money increased dramatically, and the resulting artificial stimulation of demand led to an increase in supply, with the ability to sustain a much larger than normal amount of economic activity. But once the limit is reached, where all the income streams of the productive economy can no longer service the debt created, and there are no more willing borrowers or lenders, the demand stimulation disappears, leaving a great deal of supply without a market. The demand that had been effectively borrowed from the future, must be ‘repaid’ once the bubble bursts, leading to a prolonged period of low demand. The supply that had arisen to service it no longer has a reason to exist and cannot be maintained.

The economy moves into a period of seizure under such cIrcumstances. We have frequently compared attempting to run an economy with too small a money supply in circulation to trying to run an automobile with the oil warning light on, indicating too little lubricant. Engines seize up when run with too little lubricant, a role played by money in the case of the engine of the economy. The situation created can also be compared to a computer operating system crash, where nothing functions until the system has been rebooted. During the Great Depression of the 1930s, people noted that they had plenty of everything except money. Liquidity crunch creates a condition of artificial scarcity, where even being surrounded by resources is of little use for a period of time once the operating system has crashed and has yet to be ‘rebooted’.

We will be looking at a period of acute liquidity crunch followed by a long period of chronic financial instability. The initial contraction will be driven by fear and that fear will persist for a long time. This will result in little credit being made available, and only at high cost. In other words, interest rates, which are a risk premium, will be very high as we move beyond the initial phase of contraction and fear is in the drivers seat. Deflation and economic depression are mutually reinforcing, hence once that downward spiral, or vicious circle, dynamic has taken hold, we will remain in its grip for many years.

Given that the cost of capital will be very high, and there will be little purchasing power, proposed solutions which are capital-intensive will lie outside solution space.

Tune back in tomorrow for The Psychological Driver of Deflation and the Collapse of the Trust Horizon .

May 052015
 
 May 5, 2015  Posted by at 7:32 am Finance Tagged with: , , , , , , ,  

I very rarely read back any of the essays I write. But maybe that’s not always a good thing. Especially when they deal with larger underlying issues beneath the problems we find ourselves in, why these problems exist in the first place, and what we can and will do to deal with them. Not all of these things can and perhaps should be re-written time and again. Commentary on daily events calls for new articles, but attempts to define the more in-depth human behavior behind these events should, if they are executed well, be more timeless.

Not that I would want to judge my own work, I’ll leave that to others, but I can still re-read something and think: that’s something I would like to read if someone else had written it. Since a friend yesterday sent me an email that referenced the essay below, I did go through it again and thought it’s worth republishing here. It’s from New Year’s Day 2013, or almost 2.5 years old, which should be a long enough time gap that many present day readers of The Automatic Earth haven’t read it yet, and long enough for those who have to ‘enjoy’ it all over again.

I am not very optimistic about the fate of mankind as it is, and that has a lot to do with what I cite here, that while our problems tend to evolve in exponential ways, our attempts at solving them move in linear fashion. That is true as much for the problems we ourselves create as it is for those that – seem to – ‘simply happen’. I think it would be very beneficial for us if we were to admit to our limits when it comes to solving large scale issues, because that might change the behavior we exhibit when creating these issues.

In that sense, the distinction made by Dennis Meadows below between ‘universal problems’ and ‘global problems’ may be very useful. The former concerns issues we all face, but can -try to – solve at a more local level, the latter deals with those issues that need planet-wide responses – and hardly ever get solved if at all. The human capacity for denial and deceit plays a formidable role in this.

I know that this is not a generally accepted paradigm, but that I put down to the same denial and deceit. We like to see ourselves as mighty smart demi-gods capable of solving any problem. But that is precisely, I think, the no. 1 factor in preventing us from solving them. And I don’t see that changing: we’re simply not smart enough to acknowledge our own limitations. Therefore, as Meadows says: “we are going to evolve through crisis, not through proactive change.” Here’s from January 1 2013:

Ilargi: I came upon this quote a few weeks ago in an interview that Der Spiegel had with Dennis Meadows, co-author of the Limits to Growth report published by the Club of Rome 40 years ago. Yes, the report that has been much maligned and later largely rehabilitated. But that’s not my topic here, and neither is Meadows himself. It’s the quote, and it pretty much hasn’t left me alone since I read it.

Here’s the short version:

[..] … we are going to evolve through crisis, not through proactive change.

And here it is in its context:

‘Limits to Growth’ Author Dennis Meadows ‘Humanity Is Still on the Way to Destroying Itself’

SPIEGEL ONLINE: Professor Meadows, 40 years ago you published “The Limits to Growth” together with your wife and colleagues, a book that made you the intellectual father of the environmental movement. The core message of the book remains valid today: Humanity is ruthlessly exploiting global resources and is on the way to destroying itself. Do you believe that the ultimate collapse of our economic system can still be avoided?

Meadows: The problem that faces our societies is that we have developed industries and policies that were appropriate at a certain moment, but now start to reduce human welfare, like for example the oil and car industry. Their political and financial power is so great and they can prevent change. It is my expectation that they will succeed. This means that we are going to evolve through crisis, not through proactive change.

I don’t really think that Dennis Meadows understands how true that is. I may be wrong, but I think he’s talking about a specific case here . While what he makes me ponder is that perhaps this is all we have, and always, that it’s a universal truth. That we can never solve our real big problems through proactive change. That we can only get to a next step by letting the main problems we face grow into full-blown crises, and that our only answer is to let that happen.

And then we come out on the other side, or we don’t, but it’s not because we find the answer to the problem itself, we simply adapt to what there is at the other side of the full-blown crisis we were once again unable to halt in its tracks. Adapt like rats do, and crocodiles, cockroaches, no more and no less.

This offers a nearly completely ignored insight into the way we deal with problems. We don’t change course in order to prevent ourselves from hitting boundaries. We hit the wall face first, and only then do we pick up the pieces and take it from there.

Jacques Cousteau was once quite blunt about it:

The road to the future leads us smack into the wall. We simply ricochet off the alternatives that destiny offers: a demographic explosion that triggers social chaos and spreads death, nuclear delirium and the quasi-annihilation of the species… Our survival is no more than a question of 25, 50 or perhaps 100 years.

Without getting into specific predictions the way Cousteau did: If that is as true as I suspect it is, the one thing it means is that we fool ourselves a whole lot. The entire picture we have created about ourselves, consciously, sub-consciously, un-consciously, you name it, is abjectly false. At least the one I think we have. Which is that we see ourselves as capable of engineering proactive changes in order to prevent crises from blowing up.

That erroneous self-image leads us to one thing only: the phantom prospect of a techno-fix becomes an excuse for not acting. In that regard, it may be good to remember that one of the basic tenets of the Limits to Growth report was that variables like world population, industrialization and resource depletion grow exponentially, while the (techno) answer to them grows only linearly.

First, I should perhaps define what sorts of problems I’m talking about. Sure, people build dams and dikes to keep water from flooding their lands. And we did almost eradicate smallpox. But there will always be another flood coming, or a storm, and there will always be another disease popping up (viruses and bacteria adapt faster than we do).

In a broader sense, we have gotten rid of some diseases, but gotten some new ones in return. And yes, average life expectancy has gone up, but it’s dependent entirely on the affordability and availability of lots of drugs, which in turn depend on oil being available.

And if I can be not PC for a moment, this all leads to another double problem. 1) A gigantic population explosion with a lot of members that 2) are, if not weaklings, certainly on average much weaker physically than their ancestors. Which is perhaps sort of fine as long as those drugs are there, but not when they’re not.

It’s quite simple, isn’t it? Increasing wealth makes us destroy ancient multi-generational family structures (re: the nuclear family, re: old-age homes), societal community structures (who knows their neighbors, and engages in meaningful activity with them?), and the very planet that has provided the means for increasing our wealth (and our population!).

And in our drive towards what we think are more riches, we are incapable of seeing these consequences. Let alone doing something about them. We have become so dependent, as modern western men and women, on the blessings of our energy surplus and technology that 9 out of 10 of us wouldn’t survive if we had to do without them.

Nice efforts, in other words, but no radical solutions. And yes, we did fly to the moon, too, but not flying to the moon wasn’t a problem to start with.

Maybe the universal truth I suspect there is in Meadows’ quote applies “specifically” to a “specific” kind of problem: The ones we create ourselves.

We can’t reasonably expect to control nature, and we shouldn’t feel stupid if we can’t (not exactly a general view to begin with, I know). And while one approach to storms and epidemics is undoubtedly better than another, both will come to back to haunt us no matter what we do. So as far as natural threats go, it’s a given that when the big one hits we can only evolve through crisis. We can mitigate. At best.

However: we can create problems ourselves too. And not just that. We can create problems that we can’t solve. Where the problem evolves at an exponential rate, and our understanding of it only grows linearly. That’s what that quote is about for me, and that’s what I think is sorely missing from our picture of ourselves.

In order to solve problems we ourselves create, we need to understand these problems. And since we are the ones who create them, we need to first understand ourselves to understand our problems.

Moreover, we will never be able to either understand or solve our crises if we don’t acknowledge how we – tend to – deal with them. That is, we don’t avoid or circumvent them, we walk right into them and, if we’re lucky, come out at the other end.

Point in case: we’re not solving any of our current problems, and what’s more: as societies, we’re not even seriously trying, we’re merely paying lip service. To a large extent this is because our interests are too different. To a lesser extent (or is it?) this is because we – inadvertently – allow the more psychopathic among us to play an outsize role in our societies.

Of course there are lots of people who do great things individually or in small groups, for themselves and their immediate surroundings, but far too many of us draw the conclusion from this that such great things can be extended to any larger scale we can think of. And that is a problem in itself: it’s hard for us to realize that many things don’t scale up well. A case in point, though hardly anyone seems to realize it, is that solving problems itself doesn’t scale up well.

Now, it is hard enough for individuals to know themselves, but it’s something altogether different, more complex and far more challenging for the individuals in a society, to sufficiently know that society in order to correctly identify its problems, find solutions, and successfully implement them. In general, the larger the scale of the group, the society, the harder this is.

Meadows makes a perhaps somewhat confusing distinction between universal and global problems, but it does work:

You see, there are two kinds of big problems. One I call universal problems, the other I call global problems. They both affect everybody. The difference is: Universal problems can be solved by small groups of people because they don’t have to wait for others. You can clean up the air in Hanover without having to wait for Beijing or Mexico City to do the same.

Global problems, however, cannot be solved in a single place. There’s no way Hanover can solve climate change or stop the spread of nuclear weapons. For that to happen, people in China, the US and Russia must also do something. But on the global problems, we will make no progress.

So how do we deal with problems that are global? It’s deceptively simple: We don’t.

All we need to do is look at the three big problems – if not already outright crises – we have right now. And see how are we doing. I’ll leave aside No More War and No More Hunger for now, though they could serve as good examples of why we fail.

There is a more or less general recognition that we face three global problems/crises. Finance, energy and climate change. Climate change should really be seen as part of the larger overall pollution problem. As such, it is closely linked to the energy problem in that both problems are direct consequences of the 2nd law of thermodynamics. If you use energy, you produce waste; use more energy and you produce more waste. And there is a point where you can use too much, and not be able to survive in the waste you yourself have produced.

Erwin Schrödinger described it this way, as quoted by Herman Daly:

Erwin Schrodinger [..] has described life as a system in steady-state thermodynamic disequilibrium that maintains its constant distance from equilibrium (death) by feeding on low entropy from its environment — that is, by exchanging high-entropy outputs for low-entropy inputs. The same statement would hold verbatim as a physical description of our economic process. A corollary of this statement is an organism cannot live in a medium of its own waste products.

The energy crisis flows seamlessly into the climate/pollution crisis. If properly defined, that is. But it hardly ever is. Our answer to our energy problems is to first of all find more and after that maybe mitigate the worst by finding a source that’s less polluting.

So we change a lightbulb and get a hybrid car. That’s perhaps an answer to the universal problem, and only perhaps, but it in no way answers the global one. With a growing population and a growing average per capita consumption, both energy demand and pollution keep rising inexorably. And the best we can do is pay lip service. Sure, we sign up for less CO2 and less waste of energy, but we draw the line at losing global competitiveness.

The bottom line is that we may have good intentions, but we utterly fail when it comes to solutions. And if we fail with regards to energy, we fail when it comes to the climate and our broader living environment, also known as the earth.

We can only solve our climate/pollution problem if we use a whole lot less energy resources. Not just individually, but as a world population. Since that population is growing, those of us that use most energy will need to shrink our consumption more every passing day. And every day we don’t do that leads to more poisoned rivers, empty seas and oceans, barren and infertile soil. But we refuse to even properly define the problem, let alone – even try to – solve it.

Anyway, so our energy problem needs to be much better defined than it presently is. It’s not that we’re running out, but that we use too much of it and kill the medium we live in, and thereby ourselves, in the process. But how much are we willing to give up? And even if we are, won’t someone else simply use up anyway what we decided not to? Global problems blow real time.

The more we look at this, the more we find we look just like the reindeer on Matthew Island, the bacteria in the petri dish, and the yeast in the wine vat. We burn through all surplus energy as fast as we can find ways to burn it. The main difference, the one that makes us tragic, is that we can see ourselves do it, not that we can stop ourselves from doing it.

Nope, we’ll burn through it all if we can (but we can’t ’cause we’ll suffocate in our own waste first). And if we’re lucky (though that’s a point of contention) we’ll be left alive to be picking up the pieces when we’re done.

Our third big global problem is finance slash money slash economy. It not only has the shortest timeframe, it also invokes the highest level of denial and delusion, and the combination may not be entirely coincidental. The only thing our “leaders” do is try and keep the baby going at our expense, and we let them. We’ve created a zombie and all we’re trying to do is keep it walking so everyone including ourselves will believe it’s still alive. That way the zombie can eat us from within.

We’re like a deer in a pair of headlights, standing still as can be and putting our faith in whoever it is we put in the driver’s seat. And too, what is it, stubborn, thick headed?, to consider the option that maybe the driver likes deer meat.

Our debt levels, in the US, Europe and Japan, just about all of them and from whatever angle you look, are higher than they’ve been at any point in human history, and all we’ve done now for five years plus running is trust a band of bankers and shady officials to fix it all for us, just because we’re scared stiff and we think we’re too stupid to know what’s going on anyway. You know, they should know because they have the degrees and/or the money to show for it. That those can also be used for something 180 degrees removed from the greater good doesn’t seem to register.

We are incapable of solving our home made problems and crises for a whole series of reasons. We’re not just bad at it, we can’t do it at all. We’re incapable of solving the big problems, the global ones.

We evolve the way Stephen Jay Gould described evolution: through punctuated equilibrium. That is, we pass through bottlenecks, forced upon us by the circumstances of nature, only in the case of the present global issues we are nature itself. And there’s nothing we can do about it. If we don’t manage to understand this dynamic, and very soon, those bottlenecks will become awfully narrow passages, with room for ever fewer of us to pass through.

As individuals we need to drastically reduce our dependence on the runaway big systems, banking, the grid, transport etc., that we ourselves built like so many sorcerers apprentices, because as societies we can’t fix the runaway problems with those systems, and they are certain to drag us down with them if we let them.