Roger Baker : Converging Global Crises and Why We Deny Them

Cartoon from Belonging Las Vegas.
Converging global crises
and why we deny them

It is the system itself that is unsustainable, but the public tends to interpret the problem as being a function of bad leadership.

By Roger Baker / The Rag Blog / August 23, 2012

[First of a series.]

Why crises are converging

The evidence has become quite persuasive that humans are bumping into interrelated natural limits to growth that spell big trouble no matter what we do. We appear to be in the grip of multiple interrelated crises that are converging into an overall crisis.

What do I mean by converging crises? The situation we now see ourselves in is one where the problems posed by the natural global limits on growth are so intertwined that, if we try to deal with any one problem individually, it tends to make the other problems worse.

For example, global warming is merging with peak oil as a major threat. This is because it will necessarily take a lot of oil to deal with either global warming, or a growing shortage of cheap oil itself. The growing list of simultaneous crises we face involves peak fossil fuel, peak food production, water shortages, a stalled global economy, species extinction, and a rising global population.

Compare the situation now with 50 years ago, when none of the five crises listed below seemed too hard to deal with. A steadily rising population and its per capita impact are at the heart of our problems. The 1972 book, The Limits to Growth, used models that tried to project trends to roughly quantify global growth limits.

Richard Heinberg's recent book, The End of Growth, is centered on fossil fuel energy limits that mean that our main policy option going forward will be using our current economic output differently, and hopefully more wisely. The various emerging and interacting limits to growth mean that we will need to learn to be happier with less, to abandon consumerism, and to make a major transition toward working together in the current decade.

The list of converging, interacting crises that we face will certainly have to deal with global warming as a central problem. The nature of the problems we face and their interactions have become like a contracting net that surrounds us. The situation is deceptive and conducive to denial because, like a net, it seems to offer a little room to maneuver in any given direction.

What the public sees on TV and reads in the newspaper is largely comprised of descriptions of the symptoms of problems, frequently calling for more spending as the best solution. In this way, whether or not we want to solve our problems is made into a political choice. Dealing honestly and straightforwardly with the deeper causes of a cluster of interacting problems is much more difficult and disturbing.

Global warming or peak oil by itself would require a unified consensus and focused national effort, similar to winning WWII, to deal with adequately. From the standpoint of global warming, based on the climate science, the future looks either bleak, very bleak, or somewhere in between. Adding a list of other serious problems can hardly improve this situation.

It is the system itself that is unsustainable, but the public tends to interpret the problem as being a function of bad leadership. The polls leave no doubt that our polarized and dysfunctional federal government is unpopular; Congress is now ranked as less popular than the United States going Communist.

There is little public agreement on what to do. Many believe that we have lost our way as a nation, and they see things getting worse. A prevailing hope is that some politicians will know how to create jobs (didn't FDR get us out of the Great Depression?). By electing the right politician, the economy might recover, and that could give us enough money to solve our other problems.

Now let us switch over to what science is telling us. The long-term problems we now face are said to be serious enough to threaten global human survival. It has now been a full 20 years since a majority of the world's Nobel Prize winning scientists cosigned the "World Scientists' Warning to Humanity."

More recently, top scientists have become even more urgent in their warnings that the limits of nature are taking us to a tipping point -- a point at which the limits we face will lead to a rapid deterioration of our situation regardless of our policies. Here is an Ecoshock Radio link to the situation, introduced by Prince Charles.

A prestigious group of scientists from around the world is warning that population growth, widespread destruction of natural ecosystems, and climate change may be driving Earth toward an irreversible change in the biosphere, a planet-wide tipping point that would have destructive consequences absent adequate preparation and mitigation. UC Berkeley professor Tony Barnosky explains how an increasing human population, coupled with climate change, could irreversibly alter Earth’s ecosystem.

If you a prefer a scary but still science-based energy limits and global warming scenario, this video clip is worth pondering. There is a chance that we have already reached a global warming tipping point where positive feedback effects like polar methane release take over.

This interview with a long time futurist, Jorgen Randers, suggests that we might possibly have 40 years of something resembling a normal life yet to come. He is still pessimistic about what will happen beyond then, primarily because of global warming.

The two main barriers he sees are the relentlessly expansionist nature of capitalism, and democracy itself, with its preference to favor short-run policies.

James Howard Kunstler is an excellent writer with an uncommon grasp of energy economics, and a good sense for how the end of growth is likely to interact with U.S. culture and politics. His 2005 book, The Long Emergency, described converging natural limits centered on peaking oil. His new book, Too Much Magic, is an update written to debunk the seductive dream that some kind of new technology will save us, and allow economic growth to continue as it always has in the past.

Kunstler describes the delusional thinking surrounding the slow unraveling of American life, since our energy problems argue that we face a long and unwelcome future of economic contraction.

Al Gore was warning the nation of global warming in his 2000 election, but he was defeated by a president stubbornly in denial of natural limits to continuing growth. Since then, as a nation, we have led the world in global warming denial. A well-established and well-funded right wing media effort has been organized to deny that there are any limits to growth, and to oppose environmentalist concerns that are deemed to be harmful to profits.

Let us look briefly at five converging and interacting factors that I see as the most threatening. Each has its own timing and economics and dynamics.

1. Scientific denial as a well-funded, primarily Republican political war serves mainly to prevent public opinion from being mobilized into policy change to rationally deal with the other crises. Policy change to deal with global warming was seen as a big threat to many existing oil-addictive industries. The current investments have been highly profitable, at least for a few.
   
   Global warming denial propaganda has worked well for the past decade, but especially in the last year things have been changing. Climate change is causing heat waves, forest fires, and droughts to an alarming degree, developments that have strongly shifted public opinion toward acceptance. However the denial efforts continue at a high level and have been broadened to include peak oil.


2. Global population growth is slow at about 1.1% globally, but it tends to drive all the other crisis factors by steadily increasing food requirements. We are almost certainly at peak per capita food already. Food shortages play out as food cost increases. These are a powerful cause of riots and political turmoil and instability in the countries that cannot afford to buy food.


3. Global warming and climate change are part of a slowly developing crisis that has taken many decades to develop. It comes with a built in latency factor that is expected to about double the apparent effects, but these effects have now gotten to the point of causing catastrophic droughts, floods, and food failures.


4. Peak oil is another slowly developing crisis, which will probably end soon with a rude awakening. The cheap conventional oil already peaked in 2005.The addition of much more expensive non-conventional oil has kept the world on a plateau, but the price is still high enough to trigger a global economic crisis and prevent recovery. The "cornucopian" denial-of-any-limits lobby has discovered peak oil and is busily denying it.


5. An impossible debt burden is a predictable consequence of an expansionist economic system, unable to expand any further in a finite world. If finance capital is unregulated it will try to extend more credit than can possibly be repaid. Capitalism has always been prone to periodic credit crises -- termed the capitalist business cycle -- which, in an era of expansion, can be relieved by using Keynesian stimulus.
   
   Since continuing growth is impossible without cheap oil, the global economy is headed toward the mother of all global economic crises. Even the best political and economic policy can only delay the crash.

Next time we'll take a closer look at this short list of converging crises.

[Roger Baker is a long time transportation-oriented environmental activist, an amateur energy-oriented economist, an amateur scientist and science writer, and a founding member of and an advisor to the Association for the Study of Peak Oil-USA. He is active in the Green Party and the ACLU, and is a director of the Save Our Springs Association and the Save Barton Creek Association in Austin. Mostly he enjoys being an irreverent policy wonk and writing irreverent wonkish articles for The Rag Blog. Read more articles by Roger Baker on The Rag Blog.]

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Roger Baker : Converging Global Crises and Why We Deny Them / 2

An unraveling earth. Graphic from Sound of Cannons.
Converging global crises
and why we deny them  / 2

If the total human impact on nature is approaching a natural limit, we face difficult choices.

By Roger Baker / The Rag Blog / August 30, 2012

"Anyone who believes that exponential growth can go on forever in a finite world is either a madman or an economist." -- Kenneth Boulding

[Second in a series.]

One revealing way to understand the total human impact on the natural world is by examining the implications of this formula: I = P x A x T. The formula tells us that the total human environmental impact is proportional to the total population, times its average affluence, times the impact on the natural world of the prevailing technology.

Meanwhile, the science is telling us with increasing urgency that we are headed into dangerous territory by ignoring the total global human impact of growth itself.

If the total human impact on nature is approaching a natural limit, we face difficult choices. Voluntarily reducing population is very unpopular, except through immigration control. So is voluntarily reducing affluence, since almost everyone seeks to "improve" their own personal circumstances.

Only a decrease in the impact of our technology has much popular support. It would call for a transition away from, and a reduction of the impact associated with, a prevailing technology highly dependent on cheap fossil fuels. The expectation is not very realistic, but it's way more than good enough when judged by our current standards of political spin.

The ideology supportive to growth will fight the growing pressure of evidence to the contrary; it will strain to convince us that the growth of our impact on nature will somehow lead to the best result. When the natural limits to growth themselves become a barrier to economic expansion, the science that warns of natural limits will itself meet with widespread opposition and denial.

Given the weight of the evidence, it is clear that capitalism and its integral expansionist philosophy represent the prevailing outlook of our time. The same outlook is shared by many liberals and socialists who likewise promise to get at least the domestic sector of a globally struggling economy back on the "right track."

An economic road map arguing for the best of a list of unhappy, but still achievable, choices might be a smarter goal. But bad news does not sell very well in competition with optimism, concerning the prospects for an eventual economic recovery. The best basis for hope is really quite achievable and is moving forward, it being the earliest possible cessation of our denial.

Now for a closer look at the details of five core crises we face and their interactions. They all have different time frames and dynamics so nobody can now see very well where they are leading us. Hopefully this will help serve as an introduction and inspire further study. Despite denial, there is a growing awareness that converging crises might well lead to rapid change and the need for advance preparation. This is helping to stimulate a rapidly growing transitional community movement in the USA.


1. The Political Denial Syndrome; buying public opinion

The last century of economic expansion, based on cheap fossil fuels, has been highly profitable to a small politically powerful elite, who have in recent decades become active in preserving a profitable status quo. Since the dawn of the industrial era, the accumulation of capital has been constant, based on advances in science and technology. An increasingly for-sale political system has helped to encourage the beneficiaries of this long expansion to mobilize political opposition to reform, using private media funds for persuasion.

The climate change denial lobby has become so politically influential that President Obama has been avoiding the topic. Obama had anticipated last spring that he would soon be obliged by political pressure to talk about global warming. That hasn't happened. In an April 2012 Rolling Stone interview he had said, "I suspect that over the next six months, this is going to be a debate that will become part of the campaign, and I will be very clear in voicing my belief that we’re going to have to take further steps to deal with climate change in a serious way."

The deniers seek to delay a united government policy response, which would mean abandoning trillions of dollars worth of investments tied to a world built with cheap energy. Here Naomi Wolf discusses the past focus on global warming denial:

As the U.S. faces record drought and an Old Testament-level pestilential heatwave in the midwest, American environmental denialism may be starting to change. The question is: is it too late?

America has led the world in climate change denial, a phenomenon noted with amazement by Europeans, not to mention thinking people around the world. Year after year, the U.S. has failed to sign global treaties or curb emissions, even as our status as a source of a third of the world's carbon emissions goes unchanged.

It is fairly well-known what has been behind that climate change denial in America: vast sums pumped into an ignorance industry by the oil and gas lobbies. Entire think-tanks to obfuscate man-made climate change have been funded by these interests, as have individual congressmen and women.

A recent book documents the reach of the science denial lobby, showing how it extends well beyond climate change:

In their new book, Merchants of Doubt, historians Naomi Oreskes and Erik Conway explain how a loose-knit group of high-level scientists, with extensive political connections, ran effective campaigns to mislead the public and deny well-established scientific knowledge over four decades.

In seven compelling chapters addressing tobacco, acid rain, the ozone hole, global warming, and DDT, Oreskes and Conway roll back the rug on this dark corner of the American scientific community, showing how the ideology of free market fundamentalism, aided by a too-compliant media, has skewed public understanding of some of the most pressing issues of our era.

Recently the science deniers have gone on the offensive. ClimateDepot has it all: peak oil denial, climate change denial, and denial of any limits to growth. Climate Depot is sponsored by CFACT, Committee for a Constructive Tomorrow, which has teams of paid organizers, starting chapters at college campuses across the USA.


2. Population growth in the face of peak food per capita

The gradual increase in global population to a current global level of about seven billion has been, by its nature, exponential, with a big acceleration during the last several hundred years, based on cheap fossil fuel energy. Even a slow but exponential growth in population must reach a limit at some point, historically a limit marked by periodic famine.

High agricultural output is in various ways tied to the the cheap energy which is now running short. In the absence of other limits, and especially in the context of global warming, food production tends to be erratic and has now nearly reached the limits of arable land globally available. Since food, and grain in particular, is now widely traded as an international commodity, global shortages tend to be more manageable by means of the richer countries which are able to outbid the poorer countries.

We saw a 2008 global food price spike related to the oil price spike, which led to a global outbreak of food riots. Current food price indexes are again approaching the levels that caused earlier unrest. The result is that a combination of worse global warming and a high price for oil tends to be reflected in rising food cost, which expresses itself through food riots and political unrest which Michael Klare terms "hunger wars".

The Great Drought of 2012 has yet to come to an end, but we already know that its consequences will be severe. With more than one-half of America's counties designated as drought disaster areas, the 2012 harvest of corn, soybeans, and other food staples is guaranteed to fall far short of predictions.

This, in turn, will boost food prices domestically and abroad, causing increased misery for farmers and low-income Americans and far greater hardship for poor people in countries that rely on imported U.S. grains. This, however, is just the beginning of the likely consequences: if history is any guide, rising food prices of this sort will also lead to widespread social unrest and violent conflict.

Currently, about 60% of the total corn crop in the USA is not consumed by humans at all, but is being used for legally-mandated but energy-inefficient ethanol production, and for animal feed. This diversion creates some slack in the system, since the corn could be used to feed humans.

Global warming tends to reduce food production, but in such an unpredictable way that it is still possible to deny climate change and to blame the worsening heat waves, droughts, and floods on bad luck. Notwithstanding, an increasing incidence of crop failures is leading to food shortages and higher food prices.

Meanwhile, the groundwater used for irrigation is running short globally.


3. Global warming and climate change

Climate change is seen as a gradually emerging crisis by its nature, but it has become more noticeable over the last several decades. Scientists have been warning us that the current global temperature increase of about .8 degrees centigrade is only about half of what we can expect once the delayed effects kick in, as Elizabeth Kolbert tells us in her New Yorker story.

Before many effects of today’s emissions are felt, it will be time for the Summer Olympics of 2048. (Scientists refer to this as the “commitment to warming.”) What is at stake is where things go from there. It is quite possible that by the end of the century we could, without even really trying, engineer the return of the sort of climate that hasn’t been seen on earth since the Eocene, some 50 million years ago.

Along with the heat and the drought and the super derecho, the country this summer is also enduring a Presidential campaign. So far, the words “climate change” have barely been uttered... There’s no discussion of what could be done to avert the worst effects of climate change, even as the insanity of doing nothing becomes increasingly obvious.

The political impact of global warming is being driven by an increasing pattern of weather extremes that everyone can see for themselves as droughts and wildfires. There are power grid failures even in the rich countries like the USA. Climate change is experienced through political unrest in poorer areas due to higher food prices as Michael Klare has explained.

Already the effects of global warming have been enough to convince about 70% of the general public that climate change is real. However climate awareness has not yet become a strong political motivation issue compared to chronic unemployment.

Affluent supporters of a free market and the status quo can still manage to ignore climate change, aside from having to turn up their air conditioners and pay a bit more for food and fuel. After running short of the cheap oil that used to run our world, we have been turning to unconventional oil in an attempt to maintain a constant level of liquid fuel output to power the economy.

Producing unconventional oil and fracking to produce gas and the like really means using a lot more fossil fuel as the input required to produce the same barrel of liquid fuel. This is like running harder and harder to keep up, and ultimately makes global warming that much worse. In the USA, we have been straining to burn enough coal electricity to run air conditioners, whereas India has been straining to use its coal to pump enough irrigation water to maintain food production.


4. Peak oil and peaking power generation per capita

When inflexible global oil production meets an inflexible global market demand the economic result can be dramatic. An oil price spike has the capacity to cause a serious economic shock that can, in combination with weak credit regulation, cause the global economy to stall without a lot of advance warning.

We saw this in 2008. The resource reality behind peaking oil and its economic consequences were described in detail in a Jan. 26, 2012 article in Nature (Vol 481, p 433): "'Oil’s tipping point has passed; The economic pain of a flattening supply will trump the environment as a reason to curb the use of fossil fuels,' say James Murray and David King."

The scientists are being joined by economists saying much the same thing. Due to the pervasive role of fossil fuel energy in powering the global economy, there is a growing awareness that high oil prices can initiate recessions. The following from McClatchy offers one example:

For President Barack Obama and Republican rival Mitt Romney, the race for the White House seems indisputably centered around one issue: Who can do more to bolster the sputtering U.S. economy. But to some experts, spikes in oil prices over the last several years have signaled an ominous turn that could make it nigh on impossible for any president to expand the economy as it has in the past.

Unlike previous oil price jumps stemming from turmoil affecting Middle East oil producers, prices surged over the last eight years because tightening supplies couldn’t keep pace with Third World demand, researchers have concluded. “The question is how much can we keep growing without a growing supply of energy?” said James Hamilton, a University of California-San Diego economics professor who has been on the leading edge of research into the impact of high energy costs.

The context of this crisis is that the cheap conventional oil production has already peaked in 2005. Since then, the broader category of global liquid fuel production in all forms has risen to a plateau hovering near a probable peak of about 90 million barrels per day. Whenever the economy recovers enough to demand more liquid fuel than this, the price spikes.

This rationing by price tends to send the economy back into recession. The fossil fuel peak thus tends to conceal itself by generating an economic recession that temporarily reduces demand. This tends to lead to bust and boom cycles that decrease in amplitude over time, finally tending toward stagflation and permanent recession.

This boom and bust interaction confuses the cause and effect relationship between oil and the economy in the eyes of the public. We have recently seen a spate of denial stories proclaiming that peak oil is a myth, and that higher prices can provide all the oil we need from alternative sources like tar sands, but this myth has been skillfully debunked.

We cannot; make a smooth transition from the past world built with cheap conventional oil to a new world trying to keep on growing as usual by using $100 a barrel non-conventional oil, such as the oil that the Canadian tar sands produce. This core economic problem was described in a recent James Howard Kunstler interview in Rolling Stone.

The bottom line is, once you are trying to replace a shortage of easy-to-get conventional oil with unconventional, expensive oil, you’re stuck in a trap. There is a paradox there: you really need a cheap oil economy to support an expensive oil economy.

Some are now claiming that our electric power production problems can be managed by "fracking" to provide natural gas that is cheaper to burn than coal. While there has recently been a glut of cheap natural gas, what is probably going on is that a fracking binge has led to gas supply overshooting demand within the areas served by the pipelines. Cheap fracking gas is a Ponzi scheme, according to industry experts.

If we look at the recent oil market, we see that global oil prices, after a dip in benchmark Brent prices in recent months, have been recovering fast to over $110 a barrel. That is probably about all that a very weak global economy can pay, without falling back into contraction.

Consider the following: If the U.S. economy is increasing its dependence on Saudi oil, as stated in a New York Times article by Clifford Krauss, but the Saudis are now pumping flat out, where does that leave the U.S. economy in its attempt to buy the additional oil that the economy would need to recover or to restructure? The same article has charts useful in understanding the basic trends.

The United States is increasing its dependence on oil from Saudi Arabia, raising its imports from the kingdom by more than 20 percent this year, even as fears of military conflict in the tinderbox Persian Gulf region grow... “This is strictly, totally business,” said Sadad Al Husseini, a former executive at Saudi Aramco, the state oil company. “Saudi production is flat out. Where you send it is a matter of where you make the best profit.”

5. An unpayable debt burden in the wake of unregulated credit extension

The natural world is finite, whereas the world of unregulated expansion of credit and debt is not. The dollar, as a fiat currency, is not backed up by anything other than public faith in its presumed future exchange value; the worth of our dollar is now based on little more than psychology and tradition. This fact alone offers a considerable potential for abuse.

Experience has demonstrated that -- given the absence of laws to prevent such activity -- loan sharks are inclined, by the nature of their business, to try to extend credit in such a way as to lead borrowers to assume perpetual debt. According to a similar principle there has been little oversight to prevent an unregulated system of finance capital from doing much the same thing, but on a much larger global scale.

Our prevailing global system of unregulated finance capital has thus offered a powerful motivation to expand the debt on the books of its component institutions like investment banks to the maximum, just so long as someone, somewhere, can be held legally responsible for paying it back. The global expansion of private debt, secured by credit default swaps and similar paper promises, has been encouraged by central banks like the U.S. Fed, which sets the interest rates.

Meanwhile, the public sector of the U.S. economy, the U.S. Treasury, must always print or tax enough money to balance its books, including paying back a huge overhang of accumulated federal debt. And, as we have seen, the world we have inherited was built with cheap oil. Both borrowers and lenders are trapped in a transition to a much less profitable world, which is becoming constantly more costly to maintain in good condition.

A cascading financial crisis, a sort of domino effect of called-in loans, is unpredictable by its nature, but in our time of instant global transactions, such a crisis can be very fast moving. The scale and speed of federal action to prop up the credit markets after Lehman Brothers collapsed in 2008, associated with an oil price spike, was an indication of what can happen, and how quickly, in response to loss of trust in the various securities and agreements which are basic to the world of global finance.

The scale of global finance capital debt on the books of the global lenders is impossible to repay in terms of its anticipated buying power, as Europe is beginning to realize. U.S. federal debt now appears to be growing at about $5 trillion a year.

It has long been accepted that any attempt to call in a substantial part of bank loans would reveal that the money isn't really there, especially on short notice. This has led to fractional reserve banking to prevent bank runs, and to maintain lender confidence.

To actually earn all the money loaned out would demand the extraction of profit by such extreme and counterproductive exploitation of the natural world that the emphasis has shifted toward concealing and postponing an ultimate global debt crisis. Domestically and globally the debt on the books of the central banks cannot be repaid, in current terms of its promised purchasing power.

The same banks that are too big to fail are too smart to try to call in their loans, or to make their true condition too obvious. The economic warnings are now becoming more common. Jim Rogers is one recent example of those spreading the alarm.

Richard Duncan is another. This is from Terry Weiss at Money Morning:

Richard Duncan, formerly of the World Bank and chief economist at Blackhorse Asset Mgmt., says America's $16 trillion federal debt has escalated into a "death spiral," as he told CNBC. And it could result in a depression so severe that he doesn't "think our civilization could survive it." And Duncan is not alone in warning that the U.S. economy may go into a "death spiral." Since the recession, noted economists including Laurence Kotlikoff, a former member of President Reagan's Council of Economic Advisers, have come to similar conclusions...

One member of this team, Chris Martenson, a pathologist and former VP of a Fortune 300 company, explains their findings: "We found an identical pattern in our debt, total credit market, and money supply that guarantees they're going to fail. This pattern is nearly the same as in any pyramid scheme, one that escalates exponentially fast before it collapses. Governments around the globe are chiefly responsible.And what's really disturbing about these findings is that the pattern isn't limited to our economy. We found the same catastrophic pattern in our energy, food, and water systems as well."

According to Martenson: "These systems could all implode at the same time. Food, water, energy, money. Everything." Another member of this team, Keith Fitz-Gerald, the president of The Fitz-Gerald Group, went on to explain their discoveries. "What this pattern represents is a dangerous countdown clock that's quickly approaching zero. And when it does, the resulting chaos is going to crush Americans," Fitz-Gerald says.

Here Chris Martenson, in part of his celebrated "Crash Course," explains how the three big E's; the economy, energy and the environment, are linked by an ultimately futile effort to maintain exponential growth in a finite world.

Things are not just unsustainable on the federal level. One recent pattern of federal policy has been to try to expand the defense industry budget at the federal level, while pushing the social welfare obligations down to the state level. The state budgets are now often in precarious shape, such that their condition has the potential to lead to a crisis starting at the state level.

Ravitch and Volcker also recommended that federal and state officials work together on Medicaid and health care costs. States, the report said, should carefully monitor the financial health of local governments and address infrastructure maintenance. Ravitch said state and federal leaders need to address the issues immediately. "It is getting worse every day," Ravitch said. "We have to stop bullsh---ing."

[Roger Baker is a long time transportation-oriented environmental activist, an amateur energy-oriented economist, an amateur scientist and science writer, and a founding member of and an advisor to the Association for the Study of Peak Oil-USA. He is active in the Green Party and the ACLU, and is a director of the Save Our Springs Association and the Save Barton Creek Association in Austin. Mostly he enjoys being an irreverent policy wonk and writing irreverent wonkish articles for The Rag Blog. Read more articles by Roger Baker on The Rag Blog.]

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BOOKS / Roger Baker : Richard Heinberg's 'The End of Growth'

Another 'inconvenient truth':
Richard Heinberg's The End of Growth

"The central assertion of this book is both simple and startling: economic growth as we have known it is over and done with." -- Richard Heinberg, introduction to The End of Growth

By Roger Baker / The Rag Blog / February 23, 2012

[The End of Growth: Adapting to Our New Economic Reality, by Richard Heinberg (New Society publishers, 2011); Paperback, 336 pp., $17.95.]

The End of Growth comes as a useful successor and updated sequel to Heinberg's 2004 book, The Party's Over, an important book that led the way by comprehensively describing the economic impact of peaking oil and how that peak would necessarily constrain growth, and then going on to explain how closely peak oil is related to other global resource limits.

Other Heinberg books along the same lines include Powerdown, and Peak Everything.

The new book is clearly written and deserves a much wider audience than it is likely to get, because the news is not that which most people want to hear. Public policy leaders need to read the book because it documents the transition to a stagnating global economy without any easy policy remedy.

Bad news is a hard sell. We can see this by what happened to Al Gore. His warnings about climate change in An Inconvenient Truth were greeted in the U.S. with inaction and denial. This suggests that widespread acceptance of the current situation is also likely to have to wait. Things may have to deteriorate enough that the public consciousness finally reaches a tipping point, leading to a demand for radical action in response to a widely perceived crisis.

There is a huge amount of good reporting and analysis currently available to collect and put together in this sort of book which reviews the global situation from the standpoint of a rapidly growing literature on global resource limits. We can now see a lot more details and tradeoffs and plausible outcomes than we could when The Party's Over was written.

There are many acknowledgements at the front of the book; this book was carefully written and reviewed for accuracy by a number of experts in the rapidly growing peak oil community, and the book is documented with hundreds of references. Not all of Heinberg's recommendations, in particular the Personal Rapid Transit proposal, seem plausible, but most of the advice offered seems sound. Political will is the primary barrier to smart transition.

The book is not shy about describing the daunting problems of a global transition to using less energy, but it clearly tries to be as hopeful as the facts permit. The last chapter, "Life After Growth," recommends a number of appropriate responses and community level solutions.

With less energy to squander, we are necessarily going to be driving less, but we can still do a lot more social networking, as well as developing new local, practical, and pragmatic solutions to our problems. Even though a future without growth seems bleak, the book points out the benefits of understanding the situation and responding appropriately so that we can make the best of a crisis that appears to to be introducing the most challenging period in all of human history.

The economic theory that maximizing the gross domestic product, or GDP, is a meaningful index of social progress, is thoroughly debunked. This old economic expansionist credo was that the more the economy expands its reach, and the more material goods the system produces, the happier we will all be as a result.

According to this way of thinking, wars and planned obsolescence are socially productive. It is probably no accident that those who benefit most from this outlook are those who own the means of production. By contrast, a focus on leisure time and better social relationships, which may equally be sources of happiness, don't show up in the economic data, and thus don't count as progress.

Most of the economic transition recommendations appropriate to a non-growth economy seem like good advice. The last chapter, "Life After Growth," recommends a number of appropriate responses and community level solutions. With less cheap energy to squander on discretionary driving, we are probably going to have to do a lot more social networking and developing local, practical, and lawyer-free pragmatic solutions to our problems. For example Heinberg describes "Common Security Clubs," and the importance of replacing the current consumerist sources of happiness with other neglected social sources.

Heinberg's talents extend considerably beyond writing teaching and lecturing. Heinberg began as a teacher and writer who arrived at an ideal time to help popularize progressive environmental thinking about the implications of global resource limits and tie it all together.

He has been a key force in helping to organize the Post Carbon Institute into a think tank with a large pool of respected associate fellows. Post Carbon Institute has now become a highly regarded source of peak oil preparedness information. Writing books is one way to spread the word, lecturing is another, and sponsoring multi-media videos centered on energy issues is another.

Post Carbon also sponsors the Energy Bulletin, with an excellent editor, Bart Anderson, who provides a daily digest of news centered on energy, and also offers useful coverage of topics like the Occupy Movement. [The coming of the Internet has created a new golden age for editors and analysts; it is like a new meritocracy benefiting those who are skilled at the collecting, editing, and attractive repackaging of content to facilitate easy public access.]

This book is not for everyone. Traditional liberals who believe in the application of Keynesian economic stimulus policy as the best route to economic recovery will be disappointed by this book. So will many sincere environmentalists and socialists. They tend to promise an end to hard times by reform involving a change in better leaders within the current inherently expansionist economic structure of capitalism, or else a resumption of past growth via socialist reorganization.


Has the time arrived for the Peak Oil
message to be widely accepted?

Just as polls show even less public support for belief in global warming than a decade ago, those who warn of peaking oil, water, or food are inclined to generate natural disbelief. We live in an expansionist society with a culture deeply in denial of natural limits. We tend to deny limits that cannot somehow be circumvented by continuing scientific progress, or by the help of market-driven substitutes for scarce resources.

These are concepts that most Americans who grew up after WWII will find naturally hard to believe. One of the hardest ideas to abandon is that the steady scientific and technical benefits of the last century -- and the easier and longer life that seemed to be the result -- cannot be extended indefinitely, even with the help of sufficiently good social management of some kind.

The proof of this prevailing cultural outlook is the regular improvement in living standards seen by most Americans throughout their lifetimes. From the depths of the great depression, say about 1932 until about 2007, a period of 75 years, it seemed that in the USA, for those willing to work, a formula for permanent prosperity had been discovered.

There were already academic warnings that there were natural limits to growth such as the Club of Rome book The Limits To Growth. The energy crisis of the 1970's, with a lot of agreement in the popular and scientific press, supported King Hubbert's prediction of a global oil peak.

The nation was rather prepared to sacrifice under the Carter administration. From that time of missed opportunity for a transition until now, we have had a prevailing resource limit denial culture. The current election year strategy revolves around campaign promises that propose that there are neglected polices that, if only implemented, would lead to jobs and economic recovery. No politician is willing to risk defeat by failing to promise a recovery and a brighter future. The public seems to understand that we are in a crisis, but not much about its causes.

The facts argue that we are in now deep into the crisis that James Kunstler outlined in his book, The Long Emergency. In such times we really need leaders who help us break through our denial, who can lead us to make the difficult sacrifices appropriate for times of war, as soon as possible before our ability to respond is paralyzed by a shrinking capacity to respond.

Widespread blindness toward resource limits like auto-addictive suburbia, plus ignoring unsustainable trends, have led us toward what Heinberg terms "a perfect storm of converging crises," a situation so encompassing that it demands a fresh and radical solution.

With peaking oil now widely accepted as fact by many experts, it appears the tide may be turning. The global production of cheap conventional oil, the stuff we used to help win WWII, is known to have already peaked in 2005, according to widely accepted IEA data. Given this fact, the evidence is compelling that only the addition of costlier and harder to access oil, plus equally costly alternative fuels like ethanol, have filled the gap and prevented a global decline in global fuel production since that time.

About the best we can now expect is to keep global fuel production from all sources level at about 90 million barrels per day, despite an ever-rising global population that depends on this fuel for survival.

In reality, a widespread public consciousness of implications of the end of cheap oil will probably have to be come about in large part as the result of the frustration caused by higher gas prices. This is likely to happen as soon as this summer. Higher gasoline prices can be seen and understood by everyone. Unfortunately, the way things play out, the economic relationships are not always easy to see, because high fuel prices depress the economy enough to lower oil demand. This temporarily lowers the oil price until the economy recovers enough to tighten up the market again.


Where things stand now

It has been about six months since The End of Growth was written. How are its main conclusions holding up? Rather well it, appears.

On January 26, 2012, Nature magazine, a top scientific journal, ran an article, "Oil's Tipping Point Has Passed," which documented the arrival of an alarming new phase of oil price economics extending from about 2005 (when the global production of cheap conventional oil peaked) to 2011. During this latest period, global oil production has no longer been responding as previously to rising oil prices with an increase in output. This has profound economic implications which limit growth, as the article describes here:

What does this mean for the global economy, which is so closely tied to physical resources? Of the 11 recessions in the United States since the Second World War, 10, including the most recent, were preceded by a spike in oil prices. It seems clear that it wasn’t just the "credit crunch" that triggered the 2008 recession, but the rarely-talked-about "oil-price crunch" as well. High energy prices erode family budgets and act as a head wind against economic recovery.

The last year has been one of global social rebellion, and this may not be a coincidence. When the price of the oil that powers the world economy rises by a factor of five in only about a decade, it reduces profit throughout the global economy. That causes the system to become meaner and more exploitative of labor to compensate and restore profit. World leaders at their yearly meeting at Davos recently expressed their belief that the prevailing system of global finance capital may be in serious trouble.

The Occupy Movement hasn't yet questioned the concept of economic growth. However it has challenged the concept of corporate-led consumerism with its trend to concentrated wealth, and to favor a tiny elite, while failing to distribute the benefits widely enough to prevent widespread discontent.

The Saudis alone produce enough of the total world oil production, about 10 million barrels a day, that their oil production is vital to hold the global price down, even to its currently elevated level of $120 per barrel for Brent crude oil, now the global price benchmark standard.

As part of a sobering new economic reality, the Saudis have lost much incentive to expand their oil production to hold down its price. On the contrary, the Saudis are effectively raising the oil price by actually cutting oil production in a tight market. The Saudis now maintain that $100 a barrel is a fair price for their oil, which they now argue that they need to conserve for the benefit of their own future.

Peak Oil Consulting economist Chris Skrebowski has recently suggested that the global economy is now caught up in a sort of economic feedback oscillation tied to oil prices. Whenever the economy recovers a bit, especially in the U.S. where fuel costs are relatively unshielded by taxes, and after a delay, it causes a rise in the price of oil until its rising price kills the recovery.

Higher oil prices subtract from and depress consumer spending in other areas. Another factor is that whenever reserve production capacity that still exists is added in response to a rising oil price, this added capacity tends to deplete faster than the big old fields, meaning that such newly added spare capacity is increasingly ineffective at holding oil prices down.

The thinking about peak oil used to be focused more on geology than economics. Recently it has become more clearly understood that there is no natural limit to global petroleum production. There is a natural economic limit that says that you must always produce substantially more fuel than you have invested in its production; a factor commonly referred to as "energy return on energy investment."

In the petroleum industry this ratio of recovery to investment has been getting worse for decades; the remaining oil production sweet spots have become very hard to find, and they are often in politically unstable areas. Skrebowski suggests that the global oil production limit is really economic in character. What is worse, the numbers provide good indications that drilling will soon become unprofitable due to this declining return on investment.

The fact that Brent oil is currently selling for $120 a barrel is partly psychological, due to fear and speculation surrounding political turmoil in the Mideast. Although a lack of political stability can drive the oil price up, it does not follow that a return to stability could lower the price and improve the overall situation very much.

China and India are increasingly able to outbid the industrialized world, with its higher embedded labor costs, for the globally limited amount of economically recoverable oil. This means that, in the new global economy, only a weakening of global oil demand due to its rising oil price can restrain increasing demand.

Oil has become like the new gold -- a new limiting factor tied to the physical world that is uniquely capable of disciplining the world of finance capital by setting an ultimate limit to its economic growth.

[Roger Baker is a long time transportation-oriented environmental activist, an amateur energy-oriented economist, an amateur scientist and science writer, and a founding member of and an advisor to the Association for the Study of Peak Oil-USA. He is active in the Green Party and the ACLU, and is a director of the Save Our Springs Association and the Save Barton Creek Association in Austin. Mostly he enjoys being an irreverent policy wonk and writing irreverent wonkish articles for The Rag Blog. Read more articles by Roger Baker on The Rag Blog.]

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Roger Baker : Is Capitalism in Deep Trouble?

Illustration by Latuff / Marxist.com.

Before the fall?
Terminal Capitalism / Part 2

We take a closer look at the role natural resource limits in combination with the excesses of unregulated finance capital are playing in blocking a global economic recovery.

By Roger Baker / The Rag Blog / April 12, 2013

In the first part of this series about "terminal capitalism," we saw a collection of evidence that the global system of capitalism, the organized basis for most world trade, is in deep trouble. The situation has become so serious and the problems so self-evident that the polls show many average American citizens are questioning the viability of capitalism itself.

A U.S. economic recovery now seems little closer than when the current economic crisis hit hard about five years ago, with U.S. unemployment still at a near-depression level. The BRIC countries of Brazil, Russia, India, and China have done better than the U.S., but recently slower growth has affected these countries too. In "Terminal Capitalism / Part 2" we will take a closer look at the role natural resource limits in combination with the excesses of unregulated finance capital are playing in blocking a global economic recovery.


The capitalist imperative: 
Grow or die

Richard Heinberg, director of the Post Carbon Institute, begins his book, The End of Growth, as follows: "The central assertion of this book is both simple and startling: Economic growth as we have known it is over and done with." He then presents over 300 pages of various kinds of supportive evidence backing up this conclusion. I will touch on some evidence in this essay, while saying that since the book was published in 2011, the evidence in support of this conclusion seems stronger than ever.

If that is indeed the case, the end of growth is very bad news for capitalism itself, since capitalism is based on an inherently expanding economy that needs to keep growing or it dies. The way the capitalist system works is basically that bankers or finance capitalists extend credit; they lend money that is invested in the production of goods that are then sold to pay off the loans plus make a profit sufficient to pay back the lenders, with enough left over to reward the lenders with interest.

If and when such a system starts contracting, profits suffer or may disappear entirely and there is an economic crisis until confidence in the system is restored and growth resumes. It is in the nature of the capitalist system to be subject to periodic booms and busts that comprise the capitalist business cycle. Most economists including Marx have been well aware of this fact. The remedy proposed by Keynes was to stimulate a contracting economy with government-sanctioned deficit spending, as I described in "Terminal Capitalism / Part 1."

However, if the contracting global economy is unable to grow in real material terms due to some deeply rooted physical constraint or resource limit, then no governmental policy can revive the growth on which the system depends.

Governments can print money and inject it into the economy to try to revive spending, but If there is not enough cheap energy to permit a real economic expansion in terms of marketable goods, then the money will be spent sooner or later. Then the deception will be revealed by inflation due to a surplus of money and a shortage of goods.

There is a factor called the velocity of circulation of money, which is really psychological in nature amounting to a shift in consumer spending behavior from saving to spending. That leads easily to inflation or hyperinflation initiated when the public finally understands that there is more money than goods like food available for purchase. Governments can revive spending behavior by printing sufficient money, but they can't restore genuine prosperity without more real goods being produced and made available for purchase.

The remainder of this essay will attempt to explain the physical factors which are working in opposition to a real revival of the global economy in terms of its ability to expand the production of material goods. If that can't happen, then capitalists can no longer earn interest on their investments. Whenever a dollar invested or deposited in a bank is seen to buy less than before it was invested or banked, the incentive to invest, on which capitalism depends, disappears and the urge to buy commodities like gold that preserve their exchange value increases.

Growth may have already reached its limits and stopped forever! The global economy as a whole has not expanded since the energy and economic crisis hit in 2008. The numbers tell the tale. Stuart Staniford's excellent blog, Early Warning, tracks many interesting and important trends, including in this case the volume of world trade as measured by the WTO.

The following is Staniford's description of the situation about six months ago, featuring a seasonally corrected chart which shows that the volume of global trade seems to have stalled at about the same level that it had reached in mid-2008. Since the BRIC group has done a little better than most, it follows that the USA, Europe, and Japan have lost ground.

"...after the 2008 financial crisis, global trade collapsed and then recovered strongly till early 2011. For the last eighteen months, however, it's been basically stagnant. This likely reflects a combination of a sluggish U.S. recovery, a double-dip recession in Europe, and the slowdown in China. The global economy continues to act like an engine firing on only three cylinders."

Grounds for denial

Anyone familiar with world history knows that both the global economy and human population have been growing, at least fitfully, for thousands of years, and that the rate of growth accelerated greatly following the industrial revolution in England hundreds of years ago, with the advent of steam power and vast factories and improved machines to produce ever cheaper marketplace goods..

We like to tell ourselves that continual progress in science and technology will keep paying off by creating the new energy sources and the improved technology that we need to maintain ourselves and solve our problems, especially when we take care to grow in a smart way with sensible restraints.

When there were few factories, there was little need to regulate toxic discharges into lakes and rivers. Now with many more people and factories, most of us are willing to accept that stronger regulation is needed for the benefit of the general public. Increasingly we can see there are limits imposed by nature. Expansion of industry in China using coal for power is becoming a major health threat.

Few economists in the day of Adam Smith or Marx, with the notable exception of Malthus, could foresee a day that there would be any important limits to economic expansion that could not be overcome by human ingenuity and continually improving technology. If there were such limits, it was presumed that these were local limits that could be dealt with rather easily. If natural resources such as metal mines were exhausted in one area, one could always move to a fresh area, and use the advantages of continually improving technology to keep production expanding, ad infinitum.

In reality it is found that technology tends to harvest the low hanging fruit in terms of available resources first and then moves on. While there was an abundance of cheap energy available, this exhaustion of resources and a simultaneous increase in unwelcome consequences could be concealed for a time. In the USA, there has been a well-funded, right-wing corporate disinformation campaign to lead the public to deny that burning fossil fuel is changing the climate for the worse. Now people are beginning to realize the unhappy truth.

According to a growing number of skeptics, including Heinberg, the fatal flaw of economics, as traditionally practiced, is that it is an abstract discipline, oblivious to the limits of the finite world that it claims to study and to model. Since economics is a system that assumes exponential growth, it is apparent that at some point an expanding economy has to run into natural resource limits on our finite planet. Most people have assumed that most such limits were far in the future.

As individuals, the human participants in the growth process have been unlikely to be very conscious of global limits; they were mostly concerned with the everyday challenges of surviving, or raising and feeding a family. However, now, when there are more than 7 billion people collectively involved in an effort to keep the global economy growing to satisfy their own needs, limits are starting to crop up everywhere.

Illustration from India Resists.

Scientists have been warning us, 
but are we ready to listen yet?

The end of growth is not a far-fetched possibility. In fact, there have been a number of credible predictions that this is bound to happen sooner or later because of the increasingly serious side effects of growth itself. The 1972 book The Limits to Growth by the Club of Rome used a computer model to arrive at the conclusion that there are limits to the expansion of the global economy imposed by nature that are likely to lead to overshoot and collapse within the lifetimes of many now living .

The conclusions were updated in a sequel 30 years later. "Overshoot: The Ecological Basis of Revolutionary Change" is another classic work that pointed out the radical implications of an expanding human population overshooting the resources of a finite planet, followed by collapse.

There has been no shortage of warnings from the scientific community that continuing economic growth would lead to disaster. It has now been more than 20 years since a majority of the world's then-living Nobel Prize-winning scientists issued the "1992 World Scientists' Warning to Humanity". This is taken from the introduction:

Human beings and the natural world are on a collision course. Human activities inflict harsh and often irreversible damage on the environment and on critical resources. If not checked, many of our current practices put at serious risk the future that we wish for human society and the plant and animal kingdoms, and may so alter the living world that it will be unable to sustain life in the manner that we know. Fundamental changes are urgent if we are to avoid the collision our present course will bring about.

One might imagine that when the world's most eminent scientists warn humans that they had better shift course to avoid a looming environmental disaster, their warning would get a lot of media attention. That didn't happen. The World Scientists' warning was mostly ignored because it interfered with the nearest thing most humans have to a global religion; a belief in endless progress based on the blessings of modern science in combination with expanding world trade.

New investment based on improvement in technology has always brought benefits like easy communication and an improved standard of living. The fact that the few capitalists who maintain control of the investment and economic expansion process tend to be the major beneficiaries has tended to be overlooked.

Global warming by itself probably has the potential to cripple the global economy, as does human population overshooting food supply. With a global population of 7.5 billion, we see natural limits of one kind or another cropping up everywhere and interacting to create converging crises. More and more, solving one growth-related problem tends to create other problems. Trying to deal with any one limit tends to reveal other limits.

These include such factors as a limit on arable land for farming, potable water availability, increasing soil erosion and depletion, air and water pollution, the fertilizer needed to maintain high crop yield, and the list goes on. "Convergent Crises and Why We Deny Them" discusses the fact that these limits tend to interact.

An excellent and easily accessible explanation of the natural limits to growth by Charles Hall (see below) and John Day is here.

If we are very lucky, the global economic expansion forces will be forced into an orderly retreat before they overshoot the resource base. If not, humans everywhere are likely to face an abrupt economic collapse in which the decline is a lot steeper than the preceding economic expansion. This tendency for decline to be faster than growth has been called the Seneca Effect.


Why expansionist economics can't deal with a
falling energy return on energy investment (EROI) 

Rising energy cost, and oil in particular, is the factor that has the greatest ability to interfere with business as usual. The historical rate of global growth has fallen sharply in the last decade, and an important factor is the economic burden of rising energy costs. In Terminal Capitalism / Part 1, I cited the January 26, 2012, article in the distinguished science journal Nature by James Murray and David King, titled "Oil's tipping point has passed." This paper points out that the global economy seems to have permanently shifted to slower growth after the world supply of cheap conventional oil peaked in 2005, when we started to use much higher priced oil, like the oil we get by drilling in the Gulf of Mexico.

The International Energy Agency has made it very clear that the global economy is at risk when oil prices are greater than $100 per barrel -- as they have been in recent years, and will surely continue to be, given the inelastic response of global production. Historically, there has been a tight link between oil production and global economic growth. If oil production can’t grow, the implication is that the economy can’t grow either. This is such a frightening prospect that many have simply avoided considering it.

Domestic oil used to be very abundant and cheap to produce in the United States; however U.S. oil production peaked in 1970, so the U.S. turned to cheaper imported oil. Now the cost of imported oil has risen sharply too, especially after the cheap conventional oil production hit its global peak.

The cost of oil or any other traded commodity is generally determined by the amount of work that it takes to produce that commodity. The concept of "energy return on investment" or EROI essentially means the payback ratio, or the amount of energy you need to put in in order to get even more energy back out.

The EROI concept is important from an economic standpoint whether it is applied to drilling for oil, or for the work expended in building a dam to generate hydroelectric power, or when building and using a wind turbine, or any other means of generating power. The April 2013 issue of Scientific American has an article by Mason Inman, "The True Cost of Fossil Fuels," which explains the EROI concept and its important implications for our existing economy. The same EROI concept has important implications for any human economy, whether ancient or modern, capitalist or socialist.

The EROI concept was developed by environmental scientist Charles Hall, who says of oil and gas, "Everywhere you look, the EROI is declining."

The Scientific American article is accompanied by an interview with Hall where he explains that different EROIs support different kinds of economic organization, and the mostly unwelcome economic implications of the currently falling EROI in the USA. As Hall says in this interview,

We know that the middle class has not increased its income now for 20 years. Behind that -- not always the immediate cause, but looking over the shoulder of the causes -- I find the decline in the availability of energy. It's terrifying to people -- politicians and economists -- who base everything on growth. I think they won't talk about it because the concept is terrifying.

Most people have little idea of how rapidly the EROI has been falling, and what this steep rate of decline implies for the U.S. economy, and indeed for the global economy. Richard Heinberg's book The End of Growth, in Chapter 3, gives some numbers and EROI estimates by Hall (pages 118-119). It is estimated that circa 1930 we could get back as much as 100 barrels of oil for every barrel we expended through drilling, giving an EROI of 100.

Photo by Albert Bridge / Geograph / Earth Times.

By 1970, this had fallen to about a 30-to-one payback or EROI. By 2005, the EROI had fallen domestically to about 15, A fairly recent paper by Hall, et al, indicates a current U.S. oil and gas EROI below 11. However the EROI for imported oil produced where the fields are less depleted has stayed higher and is now estimated by the Scientific American article to globally be about 16.

Meanwhile, the EROI from coal is still about 20, as is the payback ratio from wind in a good location. Photovoltaic solar EROI is much lower at about six. These numbers are rough averages and of course vary with location. Chinese coal payback economics is different from that in the USA, but these numbers give a rough idea, and indicate a steady EROI decline.

A falling EROI tends to show up as a price increase for everything. There is no way to avoid using increasingly costly liquid fuels to transport coal and in the course of producing and transporting all other commodities.

The steady decline in EROI for liquid fuels is particularly worrisome because almost all global transportation is powered by liquid fuels. That is why an economic peak to the global oil supply can cripple the world economy. Even a nation that uses a lot of coal for power like China is in trouble if it tries to convert its coal energy into liquid fuel energy. It can be done, but this results in a much lower EROI for the coal-based liquid. Liquid fuel energy, electric power energy, and thermal energy each have their own EROI economics.

It is estimated that a modern industrial economy needs an EROI of at least five or greater to function properly. If global oil supplies have already fallen to only 16, and are still falling pretty fast, it is apparent that some economies, and especially an oil-addictive economy like the USA, is in trouble no matter what kind of leadership it has. This is true until the economy has the time needed to make a transition which, as the "Hirsch report" indicates, necessarily requires several decades of serious effort.

There is a theory of maximum possible complexity of a society related to the EROI level at its economic base. Without economic growth, the whole system, what was once termed the "political economy" runs into political trouble too. You can't have a very technically sophisticated and centralized economy based on a low EROI. Nor can you maintain a complex legal and military support structure for global finance capital investment. Without cheap energy you cannot have a global system of finance capital that maintains an orderly system of global trade with its highly sophisticated and centralized production of complex goods.

American anthropologist and historian Joseph Tainter has written an important book, Collapse of Complex Societies in which he analyzes why civilizations like ancient Rome probably rose and fell in accord with a changing EROI, just as much as because of the abilities of their leaders. Ancient civilizations can't control the far reaches of an empire if they can't afford to feed the armies that maintain their central control.

There are analogies to be found today when the United States attempts to project its military power globally without the advantage of cheap oil. Similar limits apply when investment bankers attempt to organize complex global production systems which depend on complex global supply networks.


Why alternative energy probably
can't keep our economy growing

Since the cheap energy that built the U.S. economy is rapidly being depleted and is being replaced by more expensive energy, there is a natural desire to try to replace our energy with renewable energy, especially with wind and solar power as an alternative. How hard that would be, what it would cost, and how long it would take are the key issues.

In 2009 the Post Carbon Institute did a study of this question and put out a report, "Searching for a Miracle: Net Energy Limits and the Fate of Industrial Societies," which can be downloaded at this link. The abstract of this report concludes as follows:

Perhaps the most significant limit to future energy supplies is the “net energy” factor -- the requirement that energy systems yield more energy than is invested in their construction and operation. There is a strong likelihood that future energy systems, both conventional and alternative, will have higher energy input costs than those that powered industrial societies during the last century. We will come back to this point repeatedly.

The report explores some of the presently proposed energy transition scenarios, showing why, up to this time, most are overly optimistic, as they do not address all of the relevant limiting factors to the expansion of alternative energy sources. Finally, it shows why energy conservation (using less energy, and also less resource materials) combined with humane, gradual population decline must become primary strategies for achieving sustainability.

Currently the degree of alternative energy market penetration is low and is likely to stay that way. It is possible to cover our roofs with solar panels now, but if it were not difficult and expensive to get off the grid, it would probably already be common. President Obama started advocating wind and solar alternatives when he first came into office, yet these numbers are not increasing at nearly the rate that would be needed to replace fossil fuel energy before a declining EROI interferes.

Both Germany and China have industrial polices in place that mandate switching to alternative energy as soon as possible. Germany is running into limits caused by the need for backup power when the alternative energy level reaches about 10-20%. In China, about 70% of their power now comes from coal, with imported oil used as a supplement for transportation.

Making the switch from black to green energy is creating severe air pollution from the coal used for the transition. It is true that photovoltaic solar energy has gotten a lot cheaper in the last several years, due to a big push by China to expand its alternative energy industry. China has the advantage of a command economy to promote alternative energy which the USA lacks except for sporadic and controversial attempts like Solyndra.

Since the EROI for U.S. fossil fuel energy has been falling, it is becoming more and more costly to make the transition to wind and solar power alternatives. The average U.S. family is still in debt, and without real economic growth, those who can find jobs must now often work at the minimum wage. The economy is sending the message that alternative energy is becoming less affordable, even with much less expensive silicon photo-voltaic panels made in China.

Both wind and solar energy have the disadvantage of requiring high up-front capital costs. By contrast, gas turbines are an inexpensive way to generate electric power, and the natural gas produced by hydrofracturing or "fracking," is cheap for now. However this low cost is probably unsustainable, both because of rapid horizontal well depletion and because we are drilling and depleting the best locations first.

Besides a falling EROI to power the transition to alternative energy, there are other problems. Intermittent power sources require storage or backup when the wind isn't blowing and the sun isn't shining. Texas has had a policy of subsidizing the power grid to deliver power from West Texas where wind energy is cheapest, but the grid itself is expensive and the state is strapped for cash.

At certain times of the day when the sun is shining, PV energy can already cost less than fossil fuel energy, but most people demand power when they need it. Rooftop power requires very expensive battery storage (lead acid batteries are expensive and only last about five years whereas nickel-iron batteries are durable but expensive). If the energy comes from a public power grid, a backup source of fossil fuel power is still needed due to the intermittent generation factor.

Certain types of solar energy, like home water heating and solar ovens for cooking, are already cost-effective, and will likely come into common use when people are obliged to conserve energy because of its rising cost. Better thermal insulation is likewise very cost-effective.

Illustration from Theprisma.

Capitalism has become a global Ponzi scheme

A global peak in oil production is likely to be fatal for capitalism soon thereafter, as the globally prevailing economic institution, as the author has argued here. Given the choice, it seems better to face economic crisis sooner rather than later, both in terms of the lesser total damage done and the better chances for eventual recovery. Of course such an outlook is not apt to be well received, or to be adopted as policy, but the argument seems valid.

Recently Gail Tverberg's excellent blog, Our Finite World, has done a good job of explaining and updating the problems facing an economy based on lending and credit; to generate a real return on invested capital it must necessarily face a decline in growth. The situation is outlined in her recent post, "How Resource Limits Lead to Financial Collapse." As Tverberg says; "Many from the 'peak oil' community say that what we should worry about is a decline in the world oil supply. In my view, the danger is quite different: The real danger is financial collapse coming much earlier than a decline in oil supply."

In theory, the world of banking, of finance capitalism, is supposed to be closely in tune with the physical world, since it controls and impacts the real world through investments like mines and factories that produce goods for markets and consumers with money to spend.

A close link between the world of banking and money and the real physical world was once maintained and enforced by declaring that dollars could be redeemed on demand for gold or silver. There is now nothing to link the dollars created by the Federal Reserve to the physical world. Nowadays the dollar is a fiat currency, backed up by nothing except its prevalence as the standard reserve currency used for most global trade, and the fact that it has little competition in this regard. The worth of a dollar is only to be judged by what it will buy. This has changed over time, and nearly always for the worse.

Since the availability of oil for transportation is arguably the single factor that currently limits the growth of the global economy, the real worth of a dollar might as well be judged by the fact that it will now buy about a quart and a half of Brent crude oil on the global marketplace. Since there is a long-standing agreement in place to price globally traded oil solely in dollars, and since all countries need oil, this has tended to preserve the status of the dollar as the one currency needed to buy the oil which every country needs.

In effect, this means that all dollars should really be seen as petrodollars. The dollar lacks any plausible value except for its current purchasing power in oil or other liquid fuel, which has declined sharply over the last decade.

With all this in mind, lets try to put our current global situation in perspective. The system of capitalism, which is the foundation of the global economy and world trade, needs to keep expanding to maintain its health and avoid sinking into a deflationary world depression. A handful of giant investment banks indirectly control the entire U.S. economy, because they function as the board of directors for the Federal Reserve. The unelected Fed sets the prime interest rate and regulates the creation of dollars, by allowing the banks to loan dollars into existence.

In the absence of effective banking regulation to maintain discipline, the system has become strongly biased toward permitting the infinite exponential expansion of fiat currency and investment in defiance of our finite world. In other words, the global economy has become a vast Ponzi scheme. The distinctions between investment bankers, finance capitalists, and global corporations have become blurred.

Strip away the smoke and mirrors and bankers are revealed as respectable, well-paid gamblers who risk public money on investments that are likely to fail because of a constantly falling energy return on energy investment. With the end of meaningful banking regulation, the giant investment banks have been free to place bets on practically anything that involves money, with the wagers insured by the federal government.

The biggest investment bankers and their banks are regarded as too big to fail, and so they are essentially permitted to gamble without risk. The elimination of risk has, over time, actually led them to gamble on the riskiest ventures. These tend to pay the best returns, exactly because of the high risk. This interview -- "Our System is so Flawed that Fraud is Mathematically Guaranteed" -- features Chris Martenson interviewing banking expert Professor Bill Black. It paints an appalling picture of investment banking as a racket and a confidence game, where capital investment has shifted to the areas of greatest risk.

The biggest banks now hold hundreds of trillions of dollars worth of paper agreements, pledges to pay off a huge accumulation of speculations and hedges amounting to gambling debts still on the books. These speculative paper banking agreements dwarf the entire global economy, which is only about $70 trillion a year.

Bank of America’s holding company -- the parent of both the retail bank and the Merrill Lynch securities unit -- held almost $75 trillion of derivatives at the end of June, according to data compiled by the OCC. About $53 trillion, or 71 percent, were within Bank of America NA, according to the data, which represent the notional values of the trades. That compares with JPMorgan’s deposit-taking entity, JPMorgan Chase Bank NA, which contained 99 percent of the New York-based firm’s $79 trillion of notional derivatives, the OCC data show.

This being the case, it becomes apparent that the American dollar is at the center of a vast global Ponzi scheme which can never pay back its lenders in terms of the anticipated buying power, simply because there is no longer enough cheap fossil fuel remaining for the global economy to recover after a severe crisis.

Nobody can accurately predict how long the current situation can be maintained but, given the facts of the matter, we can see that there is certainly going to be a global economic crisis. Only the timing, which is based on investor psychology and the Federal Reserve's ability to keep the game going, is uncertain.

To sum up the situation we face, the scientists are warning us that even at best, a well-managed global economy can only avoid a severe environmental crisis for perhaps three more decades, because of the fundamental limits of nature. However, the chances of our poorly managed system of global capitalism lasting even that long are slight. Given the time typically needed to recover from a severe economic crisis like the Great Depression, this suggests that a severe global economic crisis or collapse must put an end to capitalism as we know it in the not very distant future.

James Howard Kunstler has outlined some of the social response scenarios in his books The Long Emergency and Too Much Magic. The potential for transition communities to help us through the hard times to come are a topic of frequent discussion on Resilience.org, sponsored by the Post Carbon Institute, a think tank devoted to coping with these sorts of problems.

Local economies centered around local agriculture and local production of the goods needed for survival are likely to be an important part of our future. We cannot start planning soon enough.

[Roger Baker is a long time transportation-oriented environmental activist, an amateur energy-oriented economist, an amateur scientist and science writer, and a founding member of and an advisor to the Association for the Study of Peak Oil-USA. He is active in the Green Party and the ACLU, and is a director of the Save Our Springs Association and the Save Barton Creek Association in Austin. Mostly he enjoys being an irreverent policy wonk and writing irreverent wonkish articles for The Rag Blog. Read more articles by Roger Baker on The Rag Blog.]

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