Wednesday, July 01, 2009

Where Economics Fails

It’s occurred to me more than once that we might be wise to set aside an annual weekend to mourn the death of Osiris or Persephone or Bladud the wind-god or some other divinity, as our pagan ancestors did, or as those Christians who still take the narratives of their faith seriously do each year on Good Friday. It might at least put a merciful end to the media’s frantic and macabre efforts to bestow a belated sainthood on each new member of the dead celebrities’ club, no matter how far from sanctity the trajectory of their lives might have been.

Thus you’d be correct in guessing that I didn’t put much time this past weekend into paying attention to the media furore over the death of Michael Jackson. I was, instead, busy with my usual research. While tens of millions of people spent the weekend glued to their TVs reviewing the catastrophic fall from grace of an undeniably brilliant cultural phenomenon that achieved unparalleled success, and then was brought down by a supertanker-sized load of unresolved inner conflicts heated to crisis by a disastrous mismatch between an extravagant lifestyle and faltering income – well, I suppose that’s a fair description of what I was doing, too.

Still, the decline and fall of industrial civilization, that troubled and dysfunctional superstar still wobbling across the historical stage, can’t be tracked that effectively by taking in music videos or soundbite interviews. Instead, I spent the weekend reading through economics textbooks. “Thriller” is not exactly the word I’d use to describe these hefty tomes, but I’d recommend that anyone concerned with the future of our society ought to read at least one. This is not because current economic textbooks offer useful guidance to the challenges of our time. Quite the contrary; the world they describe is as imaginary as Oz, and rather less relevant to contemporary life. What makes them important is precisely that so many of the decision makers of our time treat this fantasy as reality.

Understand current economic thought and you understand most of the mistakes that are dragging industrial civilization down to ruin. The Energy Information Administration (EIA), a branch of the US government, has become infamous in the peak oil scene over the last decade or so for publishing estimates of future petroleum production that have no relationship to geological reality. Their methodology, as described in EIA publications, was simply to estimate probable increases in demand, and then to assume that increased demand would automatically be met with a corresponding increase in supply. Quite a few peak oil writers have suggested some dark conspiracy behind this blithe disregard for the limits of a finite planet, but it takes only a few minutes’ worth of reading to identify the real culprit as the standard notion of the law of supply and demand taught in every first-year economics textbook today.

According to this model of the world, the amount of any commodity available in a free market is controlled by the demand for that commodity. When consumers want more of a commodity than is available on the market, and are willing to pay more for it, the price of the commodity goes up; this provides an economic incentive for producers to produce more of the commodity, and so the amount of the commodity on the market goes up. Increased production sets an upper limit on price increases, since producers competing against one another will cut prices to gain market share, and the willingness of consumers to pay rising prices is also limited. Thus, in theory, the production and price of a commodity are set by a shifting balance between the desire of consumers to buy it and the desire of producers to make a profit from producing it.

What makes the theory so seductive is that within certain limits, and in certain circumstances, it works tolerably well. The problem creeps in when economists lose track of the existence of those limits and circumstances, and this, to a remarkable degree, is exactly what they have done. To be fair, they had good reason to do so, because during the three-hundred-year boom that created the industrial world following the successful harnessing of fossil fuels, the limits rarely applied and the circumstances were far more often present than not. Among the most important roots of the current crisis, in turn, are the hard facts that the limits have begun to come into play, and the circumstances no longer exist.

Let’s start with the obvious. Imagine that a plane full of investment bankers makes a forced landing in the Pacific close to a desert island. The island has no food, no water, and no shelter; it’s just a bare lump of rock and sand with a few salt-tolerant grasses on it. As the bankers struggle ashore from the sinking plane, the need for food, water, and shelter on that island is going to be considerable, but even if each of the bankers have a suitcase full of $134 billion dollars in bearer bonds – like those guys who were caught trying to enter Switzerland a little while back – that need is going to go unfilled, until and unless a ship arrives from somewhere else. The lesson here is simple: economics doesn’t trump physical reality.

More generally, the theoretical relationship between supply and demand functions only when supply is not constrained by factors outside the economic sphere. The constraints in question can be physical: no matter how much money you’re willing to pay for a perpetual motion machine, for instance, you can’t have one, because the laws of thermodynamics don’t take bribes. They may be political: Nazi Germany had a large demand for oil from 1943 to 1945, for example, and the Allies had plenty of oil to sell, but anyone who assumed on that basis that a deal would be cut was in for a big disappointment. They may be technical: no matter how much you spend on health care, for instance, sooner or later it’s going to fail, because nobody’s yet been able to develop an effective treatment for death. Economists have come up with various workarounds to deal with external factors of this sort, some more convincing than others.

Another set of factors that can crumple up the law of supply and demand and toss it into the wastebasket, though, has received far less attention. These are constraints that we might as well call “ecological,” and they unfold from the awkward fact that human economic activity is far less independent of the natural world than economists often try to pretend. The scale of this dependence is as rarely recognized as it is hard to overstate. One of the few attempts to quantify it, an attempt to work out the replacement costs for natural services carried out a few years back by a team headed by heretical economist Robert Costanza, came up with a midrange figure equal to around three times the gross domestic product of all human economic activity on earth.

Out of every dollar of value circulating in the world’s economy, in other words, something like 75 cents were provided by natural processes rather than human labor. What’s more, most if not all of that 75 cents of value had to be there in advance in order for the production of the other 25 cents to be possible at all. Before you can begin farming, for example, you need to have arable soil, water, and an adequate growing season, as well as more specialized natural services such as pollination. These are nonnegotiable requirements; if you don’t have them, you can’t farm. The same is true of every other kind of productive work in the human economy: nature’s contribution comes first, and generally determines how much the human economy can produce.

It’s for this reason that E.F. Schumacher, the maverick economist whose ideas are the launching pad for this series of posts, drew a hard distinction between what he called primary goods and secondary goods. Secondary goods are the goods and services provided by human labor, the ordinary subject of economic theory. Primary goods are the goods and services provided by nature, and they make the production of secondary goods possible. The difference between the two is very much like the difference between income and profit in a business: you have to have income in order to have profit, and if you neglect income while maximizing your profit, sooner or later you go bust.

A failure to distinguish between primary and secondary goods is at the root of a great deal of current economic nonsense. It’s usually possible, for example, to substitute one secondary good for another if the supply runs short or the price gets too high, and for this reason it’s a standard assumption of economics – and one of the foundations of the law of supply and demand – that consumers can meet their needs equally well with many different goods. Yet this assumption does not apply to natural goods. In the world of nature, a different rule – Liebig’s law of the minimum – applies instead: production is limited by the scarcest necessary resource. Thus if you have a farm and can’t get water for your crops, it doesn’t matter if you have excellent soil and all the other requisites of farming; you can’t grow anything.

In certain limited situations, to be sure, it’s possible to substitute one primary good for another – for instance, to use low-grade iron ores such as taconite when the high-grade ores have been exhausted. Even when this can be done, though, a law of diminishing returns always applies. You can get iron out of low-grade ore, but the extraction process is less efficient and takes much larger inputs of energy. When energy is cheap, you can ignore this – and this is exactly what happened over the course of the 20th century, as the iron industry retooled itself to use steadily lower grades of ore and steadily larger inputs of energy – but that in itself simply passes costs onto the future, since the fossil fuels that provided the energy inputs are themselves subject to depletion, and to a law of diminishing returns. One way or another, the substitution imposes additional costs without providing any additional economic benefit.

This same rule also applies to every other natural good. Consider the valuable service provided to the world’s economies by the honeybees that pollinate most nongrain food crops. If we succeed in adding the honeybee to the already long list of the world’s extinct life forms, it would doubtless be possible to replace their pollination services by other means, whether that took the form of huge pollinating machines rumbling across the fields or the simpler and probably more economical approach of migrant workers using little brushes to wipe pollen from a bag onto the stamen of every single flower. Note, though, that no farmer in his or her right mind would hire a thousand laborers with brushes instead of calling up the local beekeeper and arranging for a few hives to be left in the fields; substituting some other pollination method for bees would add a huge additional cost to farming, without yielding any additional benefit.

I’ve come to think that the unrecognized difference between secondary goods, which can be readily replaced by other goods without additional cost, and primary goods, which cannot, is among the most important forces driving our current crisis. For the last three centuries, the industrial economies of the world have been using up every primary good that can be converted into secondary goods at extravagant and steadily increasing rates. Think of any good or service provided by nature – from topsoil to oceanic fish stocks, from the pollution-absorbing capacities of rivers to the storm-buffering properties of wetlands, from breathable air and drinkable water to the mineral stocks and fossil fuel reserves that keep the entire system running – and you’ve just identified something that’s being used up rapidly by industrial societies, with no thought of the potential costs of substituting something else for it, much less of the hard fact that nothing we can possibly do can provide a substitute for some of them once they’re gone.

The mismatch between this hopelessly shortsighted approach and the unforgiving limits of nature is imposing a rising toll of substitution costs on industrial economies around the world. Of course there are other factors involved. Still, as I hope to show in a future post, the best explanation for the “stagflation” that beset economies and baffled economists in the 1970s was the unrecognized burden of substitution costs for a range of natural goods depleted or damaged during the previous decades. Equally, the economic dysfunctions that led central banks around 2002 to flood financial markets with cheap credit – a disastrous decision that ended up powering the boom and bust that landed us in the current Great Recession – were driven by mounting substitution costs for another range of natural goods that had been depleted or overused in the previous decades of prosperity. As peak oil adds a new round of substitution costs to those already in play, this same process is likely to have even more dramatic impacts on the future.


Danby said...

Come now, John, the law of supply and demand, like a vicious dog or a delinquent teenager, is not bad. It's just misunderstood.

All that law states is that a decreasing supply or an increasing demand will drive up the price to a point of equilibrium, where the demand meets the supply, due to the complex of both demand destruction and supply increase which higher prices produce. Conversely it teaches that increasing supply or decreasing demand will drive prices down to the point where equilibrium is again reached by driving production down or encouraging demand via lower prices. The idea that the market will magically generate goods to meet any demand is not actually part of the law of supply and demand, although it seems popular with free-market absolutists and the Austrians (or do I repeat myself?).

Nnonnth said...

lol your 2nd paragraph is another barbed archdruid classic.

Ever since I was a kid I had trouble understanding how people could think economics was actually real. I wish I'd pointed to more of the many naked emperors around me a bit more often; I assumed others knew better than I.

If you can show that this kind of mistake about the nature of resources is at the root of stagflation,that is a huge service to perform.

I am particularly interested, as a non-expert, in how the 'new right' political and economic conditions of the 80s managed to hide the problems for long enough that a) people would forget about them, and b) they would be so much worse when they resurfaced. How could human delusion accomplish this?

Eric Stewart said...

We need to raise awareness about Peak Oil. Take over the internet using social networking to support blogs like this one about peak oil. I'll be sure to digg it. I've got a peak oil blog on Current.Tv presently:

Please support it and all other blogs. Take over the social online media!

Eremon UiCobhthaigh said...


When I came to your Sunday morning talk at Pantheacon this year, I found myself overcome with a certain leaden feeling in my stomach. Everything you said jibed with various bits of information I had picked up over the last twenty years and coaleced it into a rather chilling view of the future. Then I read my fresh copy of The Long Descent. You paint at least a dim hope for the future that I have gotten behind and started making some substantial changes in my material and psychological worlds. After reading this week's post, I realize anew just how grim the next 75 years may well be for the Human race. I find myself wondering how the blamestorming dialogue will play out as events progress.

Joel said...

I hear that when the diode was first demonstrated, electrical engineers thought it was fraudulent because such a device would violate Ohm's law.

Hopefully economics can adapt...theoretically, a theory that works even a little better would offer a tremendous advantage.

Coyote said...

JMG, I am really enjoying your exploration of Schumacher. I am curious if you are going to explore the moral elements of his work? Until we, as culture, direct economists to study questions of prudence in addition to the statistics of commerce, the consumption of primary resources will continue with undiminished ardor.

Seaweed Shark said...

It's no use to say this was another great post, since they are all at pretty nearly the same level of excellence.

You have said in the past that the decline of the modern commercial civilization will go through many stages of down, briefly up and down again, as ever-lower support levels are held for a while and then collapse. But much of what you say in this post implies that the first drop is likely to be very steep and very chaotic indeed, because maintaining "growth"--however one defines that--upon an ever-dwindling resource base of ever poorer quality supplies that are ever-more difficult to reach has required modern commercial civilization to raise up ever more complex and tenuous systems, like the medievals piling additional levels upon the foundation of a Roman aqueduct to supply ever larger populations. Such a system becomes so brittle that it only has to fail at one point, anywhere along its length, and suddenly we go from having a great deal of water to having none at all. The remote, low-quality resources cannot be put to use without the peak of technology, now unavailable. The water table has dropped to low to be hand-pumped; the remaining oil is under the deep ocean and no one can maintain an offshore rig or keep tankers in repair. Every system breaks down at once, and where is the bottom? This implies the catastrophic, near instantaneous end to all civilization and the resulting "Mad Max" years that you have asserted are modern fantasies. Have you become more pessimistic?

Dan Treecraft said...

How frustrating that Milton Friedman couldn't be here to see his wonderful obsession, now swirling around the toilet bowl.

As always - NO FAIR!


John Michael Greer said...

Danby, of course the law of supply and demand isn't "bad" -- it just doesn't always work the way current economic theory says it should. To borrow an electronic metaphor, it's like the way that changes in grid current affect plate current in a vacuum tube; it's a very straightforward linear relationship, except when it isn't.

Nnonnth, the New Right of the 1980s was able to end the stagflation of the Seventies by flooding the world with cheap oil from the North Slope and North Sea reserves, which had just been brought into production. I'll be talking later on about the way that energy resources are to other primary goods as primary goods are to secondary goods. It was a cheap temporary fix; too bad its long-term effect was to leave the world up the creek without a paddle.

Eric, you get one free spam post like this; any further posts need to contribute to the conversation, or they won't get put through.

Eremon, it's going to be a rough time, no question, but those who prepare for hard times will have a tolerably good chance of coming through it with their humanity intact, and bringing through the best parts of our cultural heritage as well.

Joel, your crystal ball is working well, I see. I'll be arguing later on that those societies that adopt a more sane and ecological vision of economics are going to have huge advantages in the struggle for survival opening around us right now.

Coyote, I have a deeply ingrained skepticism about the value of moral pronouncements; their track record as a means of causing change is, well, abysmal. (Moral behavior is what we all know we ought to do, while we're doing something else.) Thus it's crucial to point out that ecological sanity is a practical necessity for survival, without dragging in the moral dimension.

Shark, actually, I'd disagree that the points made in this post support the claim of a catastrophic collapse. They're simply the reasons why decline is inevitable -- one shortage can be worked around, but an interwoven pattern of shortages effecting nearly all primary goods is beyond anyone's capacity to fix. That doesn't mean the impact of those shortages will hit all at once -- quite the contrary, it suggests to me a death of a thousand cuts, dragged out over a substantial period.

Beetle, it's one of the ironies of history that the people responsible for most of our species' really awful decisions rarely hang around to see the consequences. Of course the same thing is true of good decisions, too.

John Michael Greer said...

By the way, several people have tried to post things saying "testing" or the equivalent. Those don't make it through moderation. If you want to contribute something to the conversation, get typing and it'll get through.

Semiretired1997 said...


Thank you for your weeks earlier reference to Schumaker's, "Small is Beautiful". I had a chance to read the local library copy, and appreciate the references to the book and your commentary. Please drop a hint when some advance reading will be advised.

I bought "The Long Descent" and thoroughly enjoyed it and look forward to the release of the forthcoming book.

Cheers, bru

RJ said...

The law of supply and demand is in fact a description of human behavior, rather than say, the law of gravity, which describes a physical reality. I'm quite certain the physical reality of depletion is one the US intelligence community has been cognizant of for quite some time. It's just been more profitable for the power structure to engage in perception management rather than initiate a power down.

Certainly, quite a bit of ideological hubris and self deception was involved in formulating a last man standing approach to energy policy, but anything other than self deception would in fact be non-negotiable.

I think it was William Catton who posited that the most difficult task going forward will be to avoid scapegoating. That may indeed be true, but those responsible for the formulation of a coherent US energy policy while regarding conservation as some sort of altruistic pipedream must be held accountable. Especially if they profited from it.

Rich said...

Really could have done without the two paragraphs about Jacko. That now represents the most I've read about his passing, purely because I enjoy your writing.

Otherwise, I am enjoying your most recent series of posts, trying to pinpoint the holes and distortions in current economic theory which are continuing to lead us down the wrong road.

I often wonder what history (likely oral, localized histories) 50-100 years from now, will come up with to explain the fragmented results of what appears to have been a great but decadent society. I expect that, on this one, even hindsight will not be 20/20.

messianicdruid said...

What we need is a nice large comet that has circled the furnace a few thousand times and built up an ocean of of hydrocarbons cooked to the perfection of naphtha and tar, or brimestone if you prefer, to pass just inside the Roche Limit of earth and let our greater gravity import some of it, without any lightening or such to set it on fire. Sometimes it works and sometimes it seems like the wrath of God. Anyway you either get a landscape ruined for much of anything that grows, or one that is only scorched earth, draped with burning pitch, various gases and heavy oils. Some people's version of Hell.

So at the very best you would have mass migration of all mobile life forms that survived from certain areas to {and with} whatever was available.

This stuff would take years to sink in, capture unwary seekers of water, or be used by industious types. And the cycle resumes.

Hopefully, we won't get lucky.

John Michael Greer said...

Semiretired, I generally try to make these essays self-explanatory without benefit of outside reading. Still, I'll see what I can do.

RJ, everyone living in the US for the last half century has profited richly from the arrangements you're talking about, which allocate a third of the world's resources and industrial product to the 5% of humanity that live here. Exercises in fingerpointing, as Catton quite rightly pointed out, are a waste of our remaining time.

Rich, my guess is that people in the future will remember our time as a golden age when people knew everything and could do anything, and they'll come up with various mythic explanations for our fall -- we did something that angered Gaia, maybe. A thousand years from now, nomadic warlords in what are now the Great Plains will still call themselves by a title that can be traced back to "President of the United States," in the same way that Caesar became Kaiser, Tsar, and the like, in the hope of cashing in on the prestige of the ancients. History does have a sense of humor.

Messianic, nah, what we need is for pigs to sprout wings; the resulting access to new ecological niches will increase their numbers to such an extent that we'll be able to power future civilizations on bacon grease.


Honestly, what's the point of daydreaming about hydrocarbon-rich comets and suchlike dei ex machina? There's no geological evidence for anything of the sort happening any time since the late Precambrian, you know.

Nnonnth said...

JMG: The New Right of the 1980s was able to end the stagflation of the Seventies by flooding the world with cheap oil from the North Slope and North Sea reserves... It was a cheap temporary fix; too bad its long-term effect was to leave the world up the creek without a paddle.

So a problem caused by excessive drawdown was masked by... more drawdown. Much as if, in kicking heroin, you masked your withdrawal symptoms by bingeing on... heroin. :)

Some interesting stuff by Dave Cohen here:

... some of which bears upon this idea, but of course no ecological angle.

nutty professor said...


Nothing profound this week from me, just appreciation for your posts. I thoroughly enjoy your writing, even when it is most challenging and hard to take, like vile-tasting medicine. Still, it is hard to discover joy in the discourse...

messianicdruid said...

"There's no geological evidence for anything of the sort happening any time since the late Precambrian, you know."

Arch, I wasn't making any claims about frequency, or expecting any reprieve. I'm sure your dating is good. How many industrial civilizations do you think there have been?

If humans past on stories of brimestone and such falling from the sky, would that mean there were humans right after the Precambrian? If not we wouldn't be thinking about it falling from the sky. Or maybe it happened after that.

If we don't expect it to happen again for 500+ million years, maybe we will have to go to the comet.

John Michael Greer said...

Nnonnth, exactly. One way to treat withdrawal symptoms is to dose yourself with the drug in question; as a short term fix, it's hard to beat. Thanks for the link to Cohen's stuff!

Professor, I wish I had a more cheerful message to pass on, but there it is.

Messianic, you'd probably be better off trying to convince pigs to mate with pigeons.

Earl said...

another factor of the market economy is that the more scarce something becomes (Tuna anyone?) the more "valuable" it becomes and the more resources will be poured into harvesting the depleting stocks so that the final stage will see those resources disappear even faster.

The net will be that the resources needed for substitution work are being eaten up in trying to sustain the failing one and pushing out of reach any possibility of making the transition.

Earl said...

RJ quotes catton saying "the most difficult task going forward will be to avoid scapegoating"

I'm betting that scapegoating takes a level of time and energy that most people wont have access to; they will be too damned busy trying not to starve to engage in that rubbish.

Draco TB said...

Many years ago, before I went to uni to learn about proper economics, I started thinking about what money is. The first conclusion is that it's an abstract representation but that just begs the question: What does it represent? It doesn't represent anything physical - 1914 and the beginning of WW1 saw the end of the Gold Standard that had been in place for about 20 years (It had been an absolute failure BTW). It didn't represent Labour, if it did then everyone would be paid the same as Marx said - An hours work for an hours work.

In theory it represents some sort of value but how was that value defined? As it happens, the value that money represents is entirely dependent upon who happens to be holding the money at the time. A hundred dollars to someone with millions in the bank doesn't represent much but to the person who's looking to it to supply his food for the next month it represents much.

So, the answer I got was: Money, an abstract representation of perceived value.

This is interesting because one of the things it seems to me that economists do is to view money as THE primary resource. ie, If you have enough money you can do anything you want. Actual supply of resources isn't questioned but taken for granted.

This is, of course, delusional. Sooner or later, no matter how much money the banks print, with the way we're going their won't be any resources left to buy.

eknudtson said...

John, I've read one of your books and have been keeping up with this blog for a few months now. This post, among your other recent posts has been a true pleasure for me and a fine example of your skills, style and personality.

Thank you,

tony said...

Concerning stagflation in the seventies, you might want to consider this:
In 'La face cachée du pétrole" Eric Laurent shows (convincingly in my opinion) that the oil shock of 1973 wasn't caused so much by the Arab nations, as it was by Western oil companies that wanted higher prices. Without giving much attention to this, he says that this was because they wanted to develop more costlier oil projects (like North Sea). So you could say that in the end geological factors (oil becoming more difficult to produce) caused the 1973 oil shock.

hapibeli said...

I send your posts to my daughters and their partners as well as a few others, hoping that they will at least consider the information available here. I'm beginning to understand, that whether they can consider it or not, depends on their level of fear regarding any major "belief" shift. It was hard enough, and took many years, for my understanding of human frailties, to allow me the "luxury" of an alternate view of modern civilization. From MY partner; " it is like unravelling a blanket, that has been woven over decades from the time of your birth". Thank goodness we have blogs and the commentators such as yours to extend and enhance our understanding of the current paradigm and its delusions. Hallelujah! As the christians would say...

John Michael Greer said...

Earl, your point about the market economy is a good one, and feeds into the way that the common confusion between money and wealth distorts the production and consumption of goods and services. More on this later. As for scapegoating, though, there's far too many examples of people pursuing a scapegoating agenda down to their last breaths for me to share your optimism.

Draco, I see your crystal ball is in working order. We'll be getting into this territory a few posts down the road.

Eric, thank you.

Tony, thanks for the pointer -- I'll check Laurent's ideas out. In the terms I've been using in this post, the exhaustion of oil supplies that are cheap to produce and their replacement with oil from more expensive sources is a classic example of substitution costs.

Hapibeli, granted -- it takes serious mental effort to step outside of the collective thinking that directs so much of what we imagine are our own private thoughts, and see the world in ways that aren't entirely conditioned by the narratives we learn before we're five or so. Still, it's a bit easier to do so when those narratives, and the worldview based on them, is visibly coming apart at the seams.

Dan Treecraft said...

JMG & hapibeli, et al,

I especially appreciated your ( hapibeli's ) point about a kind of luxury that allows some of us the opportunity to see that the world isn't like the "Just So" stories that we are fed as children and as compliant adults, It takes maturity and time, and temperament and the special luxury of curiosity...... and maybe some unusual intellectual wiring. You've made a most salient observation. So many people simply do not have those luxuries at any given point in their lives.
Thank you.

cognosyn said...

Draco TB, I engaged in the same sort of consideration regarding money, and came to the conclusion that it is powerful as a symbol of the non-symbolic. (I'll look forward to that future post, Archdruid, as I do to them all.)

martinb said...

I don't understand your analogy that primary and secondary goods are similar to income and profit. I would have said rather that it's like not paying your workers and claiming a huge profit thereby.

A minor quibble. I am looking forward to you applying E.F. Schumacher's insights to stagflation. I have been a Schumacher fan ever since reading Small is Beautiful thirty years ago, and I think his hour might just have come.

John Michael Greer said...

Beetle, granted. All we can do is try to encourage those who do.

Cognosyn, that's nicely put -- "a symbol of the non-symbolic." I think it was Freud who pointed out that in the language of dreams, money and feces are interchangeable.

Martin, there are companies that get away with not paying their workers, at least for a while. My point is that if you don't have primary goods, you can't even get started, because all secondary goods are transformations of primary goods in one form or another. (Even human labor is a transformation of air, water, and food.) More on this in the next post.

Dan Aktivix said...

I'm new to this blog - been reading the last few posts. Great brain-food you're feeding us here. I'm a student of complex systems, trying to model a range of adaptive 'social technologies' we might need in the coming years. As part of this, I've dug into a fair bit of economics. I do agree with much of what you say, but feel a little protective of economists. Yes, it has severe problems, but it also has many uses.

As the first commenter pointed out, supply and demand is only a model. It seems to me you're not distinguishing models and the uses to which they are put. Any good economist knows the limits of their theory. E.g. read this by Krugman and this wonderful book that takes apart some of the criticisms thrown at economics 101.

Models can be used by powerful people as a figleaf of mathematical respectability to hide a political motive. But this doesn't mean the models are useless. Indeed, supply and demand has the advantage of being intuitively so useful that it helps shed light on the peak oil issue for anyone - dwindling supply will increase the cost as the same amount of money chases less goods. You're right - the problem is clearly much larger than this simple economic insight - but this doesn't lessen the usefulness of that insight.

A famous quote: "The master's tools will never dismantle the master's house. They may allow us temporarily to beat him at his own game, but they will never enable us to bring about genuine change." (Audre Lorde)

This is absolutely wrong. I can see why people think it - one doesn't want to be tainted with methods used by bankers even now laughing their socks off as they get back to business-as-usual, having fleeced governments to keep them alive. But economics has useful tools we will need - and we need to be wombles, making good use of the things that we find, if we're going to survive.

A little warily, in case you think it's spam, here's a recent post of mine on 'adaptive landscapes' used by three societies - entirely different approaches to managing scarce resources with a proven record of working. I think it's this sort of thing that we'll need (I'm building computer models of this stuff) - but we'll also need economics.

JimK said...

Here is a simple model I created to combine market economics with Hubbert's logistic behavior of petroleum production:

It's still vastly too simple to capture any fragment of reality, but still it can give a little insight into some of the subsystem coupling that goes on.

secondera said...

It is difficult to believe that the ruling class is going down the long dark staircase with the same world view that the media purveys. So it stands to reason that they believe that despite the consequences of business as usual, their wealth will insulate them from the misery and suffering inflicted on the rest.

A pragmatic strategy to correct for this problem is to redistribute wealth through corporate, personal and estate taxes.

Equitable wealth distribution is not just about equitable wealth distribution. Being an equal stakeholder in a collective future insures that future for everyone. We need to destroy this idea that some people can buy their own lifeboats.

future said...

Long time reader here but first time commenter. I was reading the fall of Angkor in National Geographic Magazine

In essence, Angkor rose to its heights due its water systems and canals. Eventually they became so complex that it led to their downfall.

nemo said...

I agree nothing trumps nature's laws. One thing we never discuss is how many people can one planet support till it becomes unsustainable? If you take the the average life expectance and multiply it by yearly gallons of gas,lbs of meat,grains and all other consumable goods then add it all up nature rules and people run out of every thing. Cost will soar until money and wealth is a thing of the past. The question is what to do to correct our errors? Or is the fate of our future sealed?!

Rufus Opus said...

If you stop by the Cedar Light Grove in Baltimore, let me know. I'd like to meet you some time.