Wednesday, November 11, 2009

A Gesture from the Invisible Hand

It’s been a long road, but we’ve finally reached the point in these essays at which it’s possible to start talking about some of the consequences of the primary economic fact of our time, the arrival of geological limits to increasing fossil fuel production. That’s as challenging a topic to discuss as it will be to live through, because it cannot be understood effectively from within the presuppositions that structure most of today’s economic thinking.

It’s common, for example, to hear well-intentioned people insist that the market, as a matter of course, will respond to restricted fossil fuel production by channeling investment funds either in more effective means of producing fossil fuels, on the one hand, or new energy sources on the other. The logic seems impeccable at first glance: as the price of oil, for example, goes up, the profit to be made by bringing more oil or oil substitutes onto the market goes up as well; investors eager to maximize their profits will therefore pour money into ventures producing oil and oil substitutes, and production will rise accordingly until the price comes back down.

That’s the logic of the invisible hand, first made famous by Adam Smith in The Wealth of Nations more than two centuries ago, and still central to most mainstream ideas of market economics. That logic owes much of its influence to the fact that in many cases, markets do in fact behave this way. Like any rule governing complex systems, though, it is far from foolproof, and it needs to be balanced by an awareness of the places where it fails to work.

Energy is one of those places: in some ways, the most important of all. Energy is not simply one commodity among others; it is the ur-commodity, the foundation for all economic activity. It follows laws of its own – the laws of thermodynamics, notably – which are not the same as the laws of economics, and when the two sets of laws come into conflict, the laws of thermodynamics win every time.

Consider an agrarian civilization that runs on sunlight, as every human society did until the rise of industrialism some three centuries ago. In energetic terms, part of the annual influx of solar energy is collected via agriculture, stored in the form of grain, and transformed into mechanical energy by feeding the grain to human laborers and draft animals. It's an efficient and resilient system, and under suitable conditions it can deploy astonishing amounts of energy; the Great Pyramid is one of the more obvious pieces of evidence for this fact.

Such civilizations normally develop thriving market economies in which a wide range of goods and services are exchanged. They also normally develop intricate social abstractions that manage the distribution of these goods and services, as well as the primary wealth that comes through agriculture from the sun, among their citizens. Both these, however, depend on the continued energy flow from sun to fields to granaries to human and animal labor forces. If something interrupts this flow -- say, a failure of the harvest -- the only option that allows for collective survival is to have enough solar energy stored in the granaries to take up the slack.

This is necessary because energy doesn't follow the ordinary rules of economic exchange. Most other commodities still exist after they've been exchanged for something else, and this makes exchanges reversible; for example, if you sell gold to buy marble, you can normally turn around and sell marble to buy gold. The invisible hand works here; if marble is in short supply, those who have gold and want marble may have to offer more gold for their choice of building materials, but the marble quarries will be working overtime to balance things out.

Energy is different. Once you turn the energy content of a few million bushels of grain into a pyramid, say, by using the grain to feed workers who cut and haul the stones, that energy is gone, and you cannot turn the pyramid back into grain; all you can do is wait until the next harvest. If that harvest fails, and the stored energy in the granaries has already been turned into pyramids, neither the market economy of goods and services or the abstract system of distributing goods and services can make up for it. Nor, of course, can you send an extra ten thousand workers into the fields if you don't have the grain to keep them alive.

The peoples of agrarian civilizations generally understood this. It's part of the tragedy of the modern world that most people nowadays do not, even though our situation is not all that different from theirs. We're just as dependent on energy inputs from nature, though ours include vast quantities of prehistoric sunlight, in the form of fossil fuels, as well as current solar energy in various forms; we've built atop that foundation our own kind of markets to exchange goods and services; and our abstract system for managing the distribution of goods and services -- money -- is as heavily wrapped in mythology as anything in the archaic civilizations of the past.

The particular form taken by money in the modern world has certain effects, however, not found in ancient systems. In the old agrarian civilizations, wealth consisted primarily of farmland and its products. The amount of farmland in a kingdom might increase slightly through warfare or investment in canal systems, though it might equally decrease if a war went badly or canals got wrecked by sandstorms; everybody hoped when the seed grain went into the fields that the result would be a bumper crop, but no one imagined that the grain stockpiled in the granaries would somehow multiply itself over time. Nowadays, by contrast, it's assumed as a matter of course that money ought automatically to produce more money.

That habit of thought has its roots in the three centuries of explosive economic growth that followed the birth of the industrial age. In an expanding economy, the amount of money in circulation needs to expand fast enough to roughly match the expansion in the range of goods and services for sale; when this fails to occur, the shortfall drives up interest rates (the cost of using money) and can cause economic contractions. This was a serious and recurring problem in the late 19th century, and led the reformers of the Progressive era to reshape industrial economies in ways that permitted the money supply to expand over time to match the expectation of growth. Once again, the invisible hand was at work, with some help from legislators: a demand for more money eventually give rise to a system that produced more money.

It's been pointed out by a number of commentators in the peak oil blogosphere that the most popular method for expanding the money supply -- the transformation of borrowing at interest from an occasional bad habit of the imprudent to the foundation of modern economic life -- has outlived its usefulness once an expanding economy driven by increasing fossil fuel production gives way to a contracting economy limited by decreasing fossil fuel production. This is quite true in an abstract sense, but there's a trap in the way of putting that sensible realization into practice.

The arrival of geological limits to increasing fossil fuel production places a burden on the economy, because the cost in energy, labor, and materials (rather than money) to extract fossil fuels does not depend on market forces. On average, it goes up over time, as easily accessible reserves are depleted and have to be replaced by those more difficult and costly to extract. Improved efficiencies and new technologies can counter that to a limited extent, but both these face the familiar problem of diminishing returns as the laws of thermodynamics, and other physical laws, come into play.

As a society nears the geological limits to production, in other words, a steadily growing fraction of its total supply of energy, resources, and labor have to be devoted to the task of bringing in the energy that keeps the entire economy moving. This percentage may be small at first, but it's effectively a tax in kind on every productive economic activity, and as it grows it makes productive economic activity less profitable. The process by which money produces more money consumes next to no energy, by contrast, and so financial investments don't lose ground due to rising energy costs.

This makes financial investments, on average, relatively more profitable than investing in the kinds of economic activity that use energy to produce nonfinancial goods and services. The higher the burden imposed by energy costs, the more sweeping the disparity becomes; the result, of course, is that individuals trying to maximize their own economic gains move their money out of investments in the productive economy of goods and services, and into the paper economy of finance.

Ironically, this happens just as a perpetually expanding money supply driven by mass borrowing at interest has become an anachronism unsuited to the new economic reality of energy contraction. It also guarantees that any attempt to limit the financial sphere of the economy will face mass opposition, not only from financiers, but from millions of ordinary citizens whose dream of a comfortable retirement depends on the hope that financial investments will outperform the faltering economy of goods and services. Meanwhile, just as the economy most needs massive reinvestment in productive capacity to retool itself for the very different world defined by contracting energy supplies, investment money seeking higher returns flees the productive economy for the realm of abstract paper wealth.

Nor will this effect be countered, as suggested by the well-intentioned people mentioned toward the beginning of this essay, by a flood of investment money going into energy production and bringing the cost of energy back down. Producing energy takes energy, and thus is just as subject to rising energy costs as any other productive activity; even as the price of oil goes up, the costs of extracting it or making some substitute for it rise in tandem and make investments in oil production or replacement no more lucrative than any other part of the productive economy. Oil that has already been extracted from the ground may be a good investment, and financial paper speculating on the future price of oil will likely be an excellent one, but neither of these help increase the supply of oil, or any oil substitute, flowing into the economy.

One intriguing detail of this scenario is that it has already affected the first major oil producer to reach peak oil -- yes, that would be the United States. It's unlikely to be accidental that in the wake of its own 1972 production peak, the American economy has followed exactly this trajectory of massive disinvestment in the productive economy and massive expansion of the paper economy of finance. Plenty of other factors played a role in that process, no doubt, but I suspect that the unsteady but inexorable rise in energy costs over the last forty years or so may have had much more to do with the gutting of the American economy than most people suspect.

If this is correct, now that petroleum production has encountered the same limits globally that put it into a decline here in the United States, the same pattern of disinvestment in the production of goods and services coupled with metastatic expansion of the financial sector may show up on a much broader scale. There are limits to how far it can go, of course, not least because financiers and retirees alike are fond of consumer goods now and then, but those limits have not been reached yet, not by a long shot. It's all too easy to foresee a future in which industry, agriculture, and every other sector of the economy that produces goods and services suffer from chronic underinvestment, energy costs continue rising, and collapsing infrastructure becomes a dominant factor in daily life, while the Wall Street Journal (printed in Shanghai by then) announces the emergence of the first half dozen quadrillionaires in the derivatives-of-derivatives-of-derivatives market.

Perhaps the most important limit in the way of such a rush toward economic absurdity is the simple fact that not every economy uses the individual decisions of investors pursuing private gain to allocate investment capital. It may not be accidental that quite a few of the world's most successful economies just now, with China well in the lead, make their investment decisions based at least in part on political, military, and strategic grounds, while the nation that preens itself most proudly on its market economy -- yes, that would be the United States again -- is lurching from one economic debacle to another.

It is unfortunately also the case that many of the nations that have extracted their investment decisions from the hands of a self-terminating market system are not exactly noted for their delicate care for human rights. If that proves to be the wave of the future -- and it may be worth noting that Oswald Spengler, among others, predicted that outcome -- then the invisible hand may end up giving us all the finger.

63 comments:

Armando said...

JMG,
How do you do it? Every week you manage to write something worthy or on par with other master pieces of Philosophy.
You are no druid, I now consider you a greatly inspired prophet.

hapibeli said...

Giving us the invisible finger indeed!!1 LOL! LOL! LOL!

John Michael Greer said...

Armando, thank you! Actually, I am a Druid, but then prophecy has been a druidical hobby for a long time now. ;-)

Hapibeli, thought you'd appreciate that.

Theo Tiefwald said...

As much as I thoroughly enjoy reading your insights Mr Greer, I am often discouraged that you and other top-notch modern Western thinkers are in some senses being constantly forced back down in to the hypermaterialistic muck so to speak by having to deal with and unnecessarily fret over economic minutiae and other soul-sapping complications.

We of the 'Faustian West' (thanks, Spengler) have in many senses advanced past this stage and we ought to be well on our way to more important things such as working toward finally leaving our limited cocoon (Earth) and branching out to colonize some parts of our solar system and hopefully even beyond.

But again and again, as has been the recurrent pattern in the last few centuries, too many of our best and brightest Western thinkers keep getting de-evolutionarily dragged down in to the base primordial slime of "filthy lucre," thus distracting them from the higher and more noble goals which are more befitting of their lofty personal, social, artistic, intellectual, scientific, and spiritual abilities.

lonerphrique said...

Speaking of the laws of thermodynamics, here's an interesting piece from physorg.com:

Second Law of Thermodynamics May Explain Economic Evolution

Here are the first and last two paragraphs:

"As Annila and Salthe explain in their study published in Entropy, the second law of thermodynamics was originally formulated to describe the flow of heat from hot to cold areas. However, when formulated as an equation of motion, the second law can be used to describe many other processes in energetic terms, such as natural selection for the fittest species, organization of cellular metabolism, or an ecosystem’s food web. In these systems, free energy is consumed; that is, energy is dispersed in a way to promote the maximal increase of entropy, which is the essence of the second law."

[...]

"As the scientists explain, it’s inherently impossible to predict future economic growth and decline in any detail from this perspective. The fundamental reason for this unpredictability is that the economy’s energy density is not constant, so that a player’s decision will affect future decisions that are open for other players. Physically speaking, the forces (free energy in resources) that drive the flows (economic activities) are in turn affected by the flows and so on. Moreover, each player tries to take into account how their decision will affect the decisions made by others. The result of these complex interactions based on subjective decision-making means that economies with highly effective mechanisms of energy dispersal, such as the stock exchange and the market of raw materials, may change very rapidly and unexpectedly.

" 'The second law encourages activities that consume free energy as soon as possible,' Annila said. 'Therefore, there is the quest to increase productivity and throughput and to find new sources of energy. Moreover, the second law reveals that it is impossible to predict in detail the optimal course of energy utilization because the chosen course itself affects the choice for future actions. Therefore, it makes sense to favor statistically independent actions that open new opportunities to consume free energy, and likewise to regard the use of insider information as illegal since it narrows the choices.' "

I especially enjoyed, "free energy" and "economies with highly effective mechanisms of energy dispersal, such as the stock exchange and the market of raw materials". Not to mention this comment from a reader:

"On a personal note, I hate the Second Law. It really captures the most depressing possibilities in all of human awareness."

Personally, I think the comment thread for the article, "really captures the most depressing possibilities in all of human awareness".

Jason said...

Here we have Egypt vs. US. What interests me is that Rome follows the US pattern, even without a fossil fuel boom. In fact Spengler saw that as well -- money thinning out, away from ground-level reality. Does production automatically become more expensive in some generalized way? Or are we talking about empire, also, as a kind of diminishing return? Or is it a case of the general tendency of a culture to disappear into its own ideas-set?

All of these I suppose. It's very nice that Elinor Ostrom provided a local level alternative both to the command and to the game-theory kinds of market economics, a realistic one it does seem. If only this could be scaled up... this post suggests a firmer democratic hand than currently holds the US wheel would be likelier to prevent a firm *non*-democratic hand later. Self-indulgence has never been so uncomfortable.

Rufus Opus said...

Weren't the Druids referred to by the Greeks as Philosophers?

But anyway, there has been some evidence that the hydrocarbons we all "fossil fuel" really originated in space. Methane pools and other "organic" chemistry exist throughout our solar system.

Maybe a huge glowing tar bubble will fall out of the sky and save us from our energy needs. ;)

DIYer said...

... quadrillionaires until one of them sticks a card in an ATM and tries to withdraw $100, resulting in a blizzard of de-leveraging in the nth order derivatives market, triggering an international financial breakdown idling fleets of container ships and plunging the first world into darkness.

mattbg said...

One problem, I think, is this idea of inflation targets, where a certain level of inflation is considered not only acceptable but desirable. It is a recent way of thinking: before the 20th century, money held its value for a long time.

It necessarily turns everyone into investors/gamblers. You can't simply save what you earn under this system because, if you do that, you will lose money. So, everyone is forced to gamble it on an investment.

Theodore Dalrymple wrote what I think is a very good layman's analysis of this situation:

http://www.city-journal.org/2009/19_3_otbie-inflation.html

Llewellyn said...

Thanks for another great post,"JMG"!

Kevin said...

As I recall, that book The Princess and Curdie, previously mentioned by Ana's Daughter, ends with the city of Gwintystorm collapsing in ruin due to over-greedy mining of its foundations. Its rubble lies in the river it once dominated and its very name passes from memory. There's definitely some applicable metaphor going on there. It seems that thoughtless extraction of subterraneous resources can bring down upon you balrogs and other calamities, and that the most talented purveyors of fantasy and fable have a firmer grasp on reality than most of Wall Street.

PseudoPhil said...

Mr. Greer -

Greetings and thanks from a long-time reader. I have been eagerly awaiting your arrival at the gist of your most recent series of posts.

I find it fascinating to consider that money as an abstraction of wealth would flow towards greater levels of abstraction, causing not only a disconnect between the financial markets and physical reality, but also a tragic misallocation of wealth away from real world productivity. It seems our current economic paradigms have led us horribly astray.

I saw this posted on another board and thought your readers would find it interesting:

http://www.nytimes.com/gwire/2009/10/23/23greenwire-new-school-of-thought-brings-energy-to-the-dis-63367.html

Efforts are being made to incorporate EROEI and resource depletion into economics. It seems the specialists are finally waking up to what holists like yourself have known for years.

Thank you for your continued efforts and your thought-provoking essays.

Peace -
Phil

Keith said...

For some reason your post made me think of this quote from the Zen/Vedanta teacher Adyashanti, speaking about reality...

"This is why I sometimes ask people, “Are you ready to lose your world?” Reality is not something that you integrate into your personal view of things. Reality is life without your distorting stories, ideas, and beliefs. It is perfect unity free of all reference points, with nowhere to stand and nothing to grab hold of. It has never been spoken, never been written, never been imagined. It is not hidden, but in plain view. Cease to cherish opinions and it stands before your very eyes."

Just a thought but, can you be both realised and an economist?

Bill Pulliam said...

Wow, I had never really thought about that particular process; I had sort of imagined the bubble of delusion about the financial systems would eventually pop rather than grow bigger and bigger (silly me).

So I can guess that all the economic metrics will continue to be redefined in ways that have less and less to do with real economic activity and can sustain the dream of progress as long as possible? I think about this sort of thing every time I hear that 70% of our "GDP" is consumer spending. Come on, how delusional do you have to be to think that (A) CONSUMPTION (much of foreign produced goods) should be counted in the Gross Domestic PRODUCT, and (B) An "economy" based on spending that exceeds by a factor of two the value of everything actually produced is somehow sustainable and self-supporting.

Lance Michael Foster said...

My wife was an economics major, so I have heard about the Invisible Hand for a while...and LOVE the invisible finger addition of yours, JMG!!

All the groupthink as well as my work in druidry has got me to thinkin'...

I am thinking of going without computers for one week: no checking or writing email, no surfing or anything for fun, or any work even. NO computers. And maybe also add no TV for one week. No computers and no TV for one week. I will have to do this during December or January as an experiment. See what happens. Perhaps the week of Christmas, maybe the first week of January. Right now I am leaning toward Yuletide/Christmas week, starting on Solstice (Alban Arthuan).

Not only find out will I miss anything vital (maybe I will, I am sure I will, but I am sure I will live). But also to see if my thinking processes change...see how the electronic world messes with our minds. One week may not be enough, but it will be interesting. Anyone else up for the challenge? No email, no TV, no video games, no cell phone, no ebooks, etc. for 1 week. How have our minds been affected? Could YOU do it?

It is very interesting. I of course grew up with TV since infancy, but the rest only came as an adult, over the last 10-15 years. I have been without such things a couple of times over the last 10-15 years, but never longer than a day or two. Never anything close to a week. But I noticed even after only 1-2 days my mind felt different. Like being a sugar addict, and being denied sugar. It drives you nuts for about 3 days. Then you start calming down and things appear differently...

So far I have gotten a few responses and all were negative. Some were jocular (what? give up my game for a WEEK? haha, no way). Some were plain old, my job requires it, I couldn't do it. Others edged into a kind of panic...

John Michael Greer said...

Theo, matter is also an expression of spirit, and economic life is part and parcel of the whole of being. I should probably say also that I find no merit in the notion that humanity ought to metastasize through outer space, even if we had the energy resources to do so, which we don't. Instead of fantasizing about other planets, let's learn to live on this one, shall we?

Phrique, thanks for the link. I'm not at all sure I agree with their take on the thermodynamics of the economy, though.

Jason, this is where Tainter's concept of diminishing returns becomes so crucial. All complex systems run into diminishing returns as their basic strategies exhaust the easy pickings. Those societies that survive are the ones that figure out how to ramp down expansion and move toward the deliberate pursuit of stability instead. More on this later.

Rufus, sure, and maybe the Tooth Fairy will turn all our fillings into plutonium some day. Sheesh.

DIYer, heh. Exactly.

Matt, actually, inflation is one of the two ways that the innate expansion of the money supply, caused by interest, gets brought back into balance with the limited supply of goods and services. The other way is bankruptcies, defaults on loans, etc.; when you suppress inflation, you guarantee a higher rate of these latter. Take your pick.

Llewellyn, thank you.

Kevin, no argument there. Pull any random paragraph out of Macdonald or Tolkien (who was a major Macdonald fan, BTW), and you're guaranteed more insight than I think you'll find in the entire modern profession of economics.

Phil, thanks for the link. One of the things I'm trying to do here is to point out the places where the mechanisms our society uses to guide itself are leading us over a cliff; some of the new ecological economists are doing the same thing, and more power to 'em.

Keith, good question. I think so; there have been economists (Schumacher and Galbraith come to mind) who combined a solid grasp of economic reality with a great deal of wisdom, and Schumacher was himself a mystic of sorts. BTW, the Adyashanti quote is great -- it's exactly when we stop insisting that the rest of the world is obliged to play the roles we assign it in our self-scripted melodramas that we start moving toward what's real.

Bill, square on target! As Bernard Gross pointed out decades ago, economic indicators have been turned into "economic vindicators" designed to flatter the status quo. The US economy is a shambles; it's been measurably in decline now for decades; it produces very little other than IOUs, and even those are starting to lose their appeal; and yet the numbers keep expanding. It'll bust eventually, but it will take a political or environmental event to pop the bubble of delusion.

Lance, I get the same responses when I mention to people that I haven't owned a TV in my adult life. Electronic media are among the most important drugs people use nowadays to silence their fears and their recognition of this society's widening failure.

aangel said...

The Adyashanti quote truly is great.

In my peak oil talks I often mention that "the stories we tell ourselves" often get in the way of "seeing what is so." Stories are also called narratives or discourses. The human world is full of them, from the mundane ("Everyone needs at least 8 hours of sleep every night") to the sinister ("Let's invade ____ because it's clear they are threatening us").

JMG mentions them from time to time.

Ultimately, it seems to me that it is these stories that prevent us from making major changes.

Unfortunately, the number of people who can distinguish their stories from reality is very, very small — most people believe their stories as the truth.

It gets quite basic the more one examines it: everything that is expressed in language is, by definition, a story since it is not the thing itself.

Once a person sees that (possibly what the East has called Enlightenment?), the whole human endeavor begins to look like what good old Bill spoke of:
"All the world's a stage,
And all the men and women merely players:
They have their exits and their entrances;
And one man in his time plays many parts."

Since learning of peak oil and industrial descent, I am learning to enjoy my time on the stage even more.

mattbg said...

JMG: Agreed that inflation is necessary, but, it doesn't change the fact that inflation forces you to become a gambler with your money, even if you want it to simply holds its value.

I can't avoid seeing that it would have an effect on the collective psyche. It's now not about whether you gamble or not, but about to what degree you gamble.

Many people seem unwilling to cope with these levels of grey.

For example, many distort Christianity's idea that everyone is a sinner to mean that there is no difference between someone who is flagrant at it and someone who occasionally fails.

And many others are either in debt or out of it, and if they're in debt then there's far less resistance to taking on more debt than there would be to making a decision of the same magnitude, but which took you from a condition of good standing to one of indebtedness.

Investments are so complex these days that I would be surprised if the majority knew what they were invested in. From that perspective, it is a gamble. If something went wrong, most wouldn't know why.

Anyway, I don't think we spend enough time considering these unintended consequences.

J Gav said...

"We ought to be well on our way to more important things, such as ... branching out to colonize some parts of our solar system and hopefully even beyond."

Anybody know what Tiefwald's been smoking?

Space travel takes energy too, lots, just to tear loose from Earth's gravity. I quote from JMG's present post: "Producing energy takes energy."

Featherless birds aside for the moment, another particularly nasty twist he points up here is tucked in somewhere just after the middle: "Meanwhile, just as the economy most needs massive reinvestment ... investment money flees the productive economy." Ouch!

And a bit further on, " ... metastatic expansion of the financial sector" possibly at the same time as "chronic underinvestment" in what makes economies run. Double-ouch!

Oh dear, it looks like we have considerable 'getting used to' to do in terms of the new landscape which is taking shape before our eyes. Just getting used to it, of course, won't do much to alleviate the pain but identifying the predicament in precise terms is surely a necessary first stage ... and this post takes a big step towards that end. Thanks.

Ricardo Rolo said...

Well, when all the economy "orthodox" books decide to scrub out of sight their primae thesis that prices ( and money, by default ) are simply a measurement of the value people give to things , it should be not unexpected that things go berserk... it is extremely easy to convince people that they need something ( or like that anedocte atributed to Socrates while in the Athenian market "I only come here to see how much things a man does not need" ), so in theory money can grow to infinite ... the issue is that nothing in the Universe can keep up with human desires inflation

There is much you can say about Adam Smith invisible hand, but the biggest of them is that not even Smith believed in it ... mainly because the conditions needed for it to work pretty much require angels and not humans, as Smith reckoned more than once in his work. To say the truth I expect more to see the return of Viracocha or the ressurection of Tammuz than the invisible hand in a real enviroment...

To end, it is interesting to see the diverging trajectories of the USA and Russia ( just read the title of Putin dissertation on St. Petersburg in 1997 to have a idea of what the Russian elite plan is ) or China. People with no resources gambling and people with resources banking them ... it is a recurrent trend in history: Bizantium is a good example: as more land was grabbed by the Turks, the Bulgars and the Slavs, more intricate were the money issues in the increasingly sieged capital ( and also more recurrent were the claims that either God would save them somehow or that it was better to wait for the Jerusalem in heaven .... ) and also less food got there . If you allow a non druid to "correct" your prophecy, the Wall Street Journal will still be edited in New York and the uber inflated bank acocunts you speak will probably be of americans as well ( as they already are today... alteast 3 of the richest men in the world are americans that got rich by the very productive business of selling a number written in a floppy disk, CD or DVD with the pompous name of "Operating System" ... it is hard to be more ethereal than than )... the issue is that the countries with oil, diamonds, tungsten, bauxite, tantalum and all those niceties will simply not sell them or sell them with some 0´s to the right ( as even you pointed out some months ago that China was starting to do ). And money is useless without a market ,as you already know .... ;)

Arabella said...

JMG - I agree with Armando. And not only do I find your thoughts intellectually challenging and stimulating, but your writing is most excellent.

Which brings me to my question: My husband and I would like to purchase your book. Through what online venue should we buy it in order to accord you the maximum 'cut'?

:-)

Gene Shinai said...

JMG,

I am so tempted to steal the title of this post. I hope that does not offend. I'll find a way to credit you and, link to this post. Btw, speaking of Gold, did you see this?

Simon said...

Isn't the enduring cheapness of oil, and consequently transportation, what allowed the production of goods to be spread all over the world and made the decline of manufacturing in the usa possible? It made very little difference whether the oil came from Alaska or Arabia, don't you think?

Gene Shinai said...

JMG,

your title is safe though it has inspired me to a similar title and I will credit you in that post. Thanks again,
-Gene.

Thardiust said...

Energy is actually infinite since the Law of Conservation of Energy proves this. The energy problems we're having today amount to somthing like rowing a boat since when everyone fails to make compromises and rows in their own direction instead of together, energy is wasted instead of being focused to achieve a common goal. Of course I think Earth, as a civilization rowing a boat in circles, could repeat this scenario forever and ever if there was a lake of infinite fish in the lake we're rowing in but, unfourtonately, there's a Law of Conservation of Mass too which we're going to have to deal with unless we can find ways to create more matter that we can put energy into then eat which is, for now, impossible.

bastronaut said...

I hope you at some point expand on the idea of energy economics: that the flow of energy is equally or more important than the flow of capital, and that the history of expanding economies is merely a distorted view of the history of expanding access to sources of energy.

The discovery of fossil fuels was a blip. If we had treated it as a finite windfall, a guarantee against the fluctuations of other, renewable energy inputs, instead of fooling ourselves that it was limitless, what a difference it would have been to the last hundred years of human civilization.

That said, I'm still on the fence, personally, about the consequences. At least, it won't be the loss of fossil fuel that will be our undoing, but waiting too long to learn how to make renewables work (and investing too much in flim flam, financial voodoo and ponzi schemes). But I'm a techno-optimist and an anthro-pessimist.

The future is how you make it. I personally think that the Southern Hemisphere will learn from the mistakes of the Northern, and will lead the next chapter of cultural and economic history in fifty or a hundred years.

bastronaut said...

I want to also say that I'm with Theo: metastasis is better than stasis. And exploring the universe would be fun. There's plenty of opportunity for people to continue to explore life on Earth while also exploring life (and non-life) off Earth. Please don't try to force a false dichotomy.

The irony about the whole energy wind-down is that it's completely localized. The universe is overflowing with energy! The quantity of energy reflected back out into space from the Earth every day is more than the human species has harnessed in its entire history (the solar influx being constant, while human energy use has been exponential).

It may be too late for our society, but it's not too late for the human species to come to a new attitude. Then again, it may not be in the cards for human beings, or life at all. No one knows.

BrightSpark said...

Another excellent post, and one that really does put paid to the suggestions that people's best hopes will automatically get worked out as industrial abundance comes to an end. By that I mean the forlorn hope of some that their particular pet political idea might suddenly surface as the way forward during any ensuing collapse. It might happen, but like anything, it would require a lot of work.

I'm interested in your thoughts about people's reaction to crisis, as to whether it will be similar to that of the markets. I have a suspicion that many people will prefer to inhabit the make believe world of indoors reality television or ever more elaborate internet-based social networking sites, rather than deal with the decline in the real world.

The only way to deal with that is for people to see and experience first-hand the real value of community (even if its purely a psychological salve on the way down), and that will probably take old fashioned organising and activism.

Gaelan said...

If I grok what you've said here--and I'm not at all sure that I do--it would seem that the best course of action for an individual would be to invest heavily in paper finance for now, and use the profits extracted therefrom to invest in the production of goods and services that use very little energy or make do with solar energy as it comes naturally. In other words, become one of those Wall Street quadrillionaires, and invest the bulk of your earnings into things like farmland, livestock, and factories that produce animal-powered agricultural tools.

Is this correct? My own inclination has been to steer far clear of paper finance altogether for fear of crashes, and to focus only on low-tech production. Predictably, this has made me cash poor and resource rich. So long as goods in this country are sold for prices kept low by cheap energy and cheap labor, I expect this pattern to continue until money becomes worthless--something that I recognize may not happen in my lifetime.

I wonder, though, from what you've indicated here, if it wouldn't be better to drain finance to feed material production--sort of the opposite of what we've seen so far. An investment banker can buy a lot more farmland than a farmer can, and from what you describe, it sounds like that disparity will only become intensified in the future. Your thoughts?

John Michael Greer said...

Aangel, good. Once you grasp the role that narratives play in defining how people think about the future, it becomes possible to glimpse past them now and then -- and that's crucial.

Matt, the point I'd make here is that your money will be worthless in the not too distant future, one way or another. All economic discussions need to start from the very unpalatable reality that your money will not keep its value, because the amount of money (of one sort or another) vastly outweighs the amount of goods and services it can theoretically buy.

Gav, you're welcome. Whatever Theo is smoking, it's a popular blend these days.

Ricardo, excellent! There's a lot to learn by paying attention to what Smith actually said, as you've done here. I'll be talking more about that in a later post.

Arabella, bless you! In pretty much every case, the author gets a better share in royalties from books bought either from a locally owned bookstore, on the one hand, or directly from the publisher online, on the other. I'd encourage you to try the former option first; if that doesn't work, New Society Publishers will happily sell you a copy.

Gene, thanks for the link! Peak gold, now...

Simon, it actually does make a difference, in that a large share of the profits of oil in Arabia go into the pockets of Arabians rather than those of, say, Exxon. There never was a global economy, just a great deal of rhetoric justifying catastrophically bad economic decisions.

Thardiust, whether or not energy in the abstract is infinite is irrelevant. Highly concentrated energy in this particular corner of the cosmos, in forms that we can use, is very, very finite, and we're running out. I wish people would take the time to learn a little thermodynamics!

Bastronaut, I've discussed the whole issue of renewables and net energy dozens of times on this blog, and don't really have time to rehash the issue now. Let's just say that I don't share your techno-optimism. As for metastasis being better than stasis, I doubt you'd be happy if the cells in your body agreed with you. Unlimited growth is the ideology of the cancer cell.

BrightSpark, I think you're probably right, to a point. A lot of people will try to flee the real world via various kinds of escape hatches, online unreality among them. The thing is, though, that this particular evasion is self-limiting; it only lasts as long as you can pay your bills. For a growing number of Americans, that's becoming a major challenge.

Gaelan, nah, it looks that way at first glance but the radical instability (and rampant fraud) in the financial sphere make that a sucker's bet. You're better off getting practical skills, and keeping a foot in both worlds as long as you can.

Karim said...

Great insight to the inner workings of an economy in relation to energy costs. Your sense of irony is a wonder in itself.

P.S. Are all druids as gifted as you?

Karim said...

Greetings all

Given the last paragraph of this week's Archdruid's post, is it reasonable to extend the conclusion that those countries which will do better in a post peak oil environment will be those that are less democratic? If that is so, will the fall of market economies also mean the fall of democratic regimes? Interestingly enough for the past few years I have been involved with a number of people in my country Mauritius trying to figure out how our own democratic institutions might fare past peak oil. In one of our 4 different possible scenarios we thought that our system of parliamentary democracy may collapse and give rise to some form of authoritarian regime.
I am afraid that GMD may be telling us that if Mauritius or any country is to have some degree of economic success in a past peak oil environment, democracy may have to be significantly curtailed.
I hope I got it wrong though...

John Michael Greer said...

Karim, of course all Druids are as gifted as me! ;-) I don't think, as it happens, that totalitarianism is a necessary response to the slow disintegration of the industrial economy, though it's likely to be a common one. The crucial detail is that economic systems must once again be subordinated to some broader social purpose than maximizing the profits of individuals. I'll be getting into that in upcoming posts.

davedol said...

One thing different about the modern economy from the older agricultural economy is the value of information. Information is the world’s most valuable resource. Economies without information assets suffer, while those with it succeed. Information is an invisible energy. Can information save us as we deplete our natural resources? I don’t know, I can only hope.

Unrestrained consumerism combined with the global economy is destroying the American economy. If the price of energy makes transportation much more expensive, the price of goods from overseas will soar. Exports will decline. And maybe America will return to being self sufficient like we used to be before the global economy became the most power force on the planet. Would that be a bad thing?

Karim said...

Yes, my wording was too strong, a totalitarian response is probable but not inevitable nor final.

Indeed economic systems must now cease to serve the nearly exclusive purpose of wealth accumulation by the few at the expense of the many.

It ought to be subordinated to the welfare of all, nature and society inclusive.

The difficulty, as I see it, lies in making the rich and powerful and their numerous servants accept a new paradigm in economics before they unleash destructive forces to protect their sand castles from the rising seas.

Theo Tiefwald said...

JMG:"Theo, matter is also an expression of spirit, and economic life is part and parcel of the whole of being. I should probably say also that I find no merit in the notion that humanity ought to metastasize through outer space, even if we had the energy resources to do so, which we don't. Instead of fantasizing about other planets, let's learn to live on this one, shall we?"

Mr Greer - I agree with most everything that you wrote, but the problem in my opinion is that nearly everything these days is being reduced down to economics and money, i.e. base hypermaterialism has hijacked our culture and this is leading to the atrophy of our higher human impulses.

Peoples, cultures, and nations need higher ideals and lofty things to strive toward. According to Spengler, The West is 'Faustian,' and as we have given up that striving Faustian spirit in favor of materialism we are clearly in decline. This may be the result of natural historical forces per Spengler's ideas, or it may be because we have temporarily lost our way.

They just found that significant amounts of water exists on the Moon, surely enough to support one or more human colonies. I do not misanthropically view humanity as a metastatic cancer, and thus I want to see us expand beyond this earthly cocoon...for what good is a butterfly if it stays forever cooped up and never emerges from its cocoon? And that's what my suggestion was about -- we humans, despite all of our advancements as a species, haven't even left our cocoon yet. Thus there is no reason why we should all retreat back down in to the primordial muck from whence we crawled just because we have become partially prostrate due to the 'social construct' of money.

From the Moon the next step would be colonies on Mars, and then one or more moons of Jupiter, Saturn, and hopefully beyond. In terms of energy, spaceships powered by nuclear reactors could take us that far, but it will take awhile to perfect that technology. Colonizing the Moon would still be a great first leap out of Mother Earth's nest and most of all would get people looking up again in to the Great Infinite instead of down in to their increasingly empty wallets. It would help to raise morale and imbue people with a sense of hope again, qualities which are sorely lacking in the modern hypermaterialistic West.

I agree that we have a lot of (re)learning to do about how to better live cleanly and sustainably on this planet, and your book THE ECOTECHNIC FUTURE is a step in the right direction, seeking to combine some forms of high-technology with more ecologically-friendly living patterns. Once we can master this, shall Western humanity be content to remain 'on the farm' forever so to speak despite our amazing advancements made thus far? I think not...too much untapped potential.

Economic problems are pretty easy to understand overall: basically, WE HAVE SOLVED THE MAJOR PROBLEM OF PRODUCTION, AND NOW WE MUST SOLVE THE PROBLEM OF DISTRIBUTION. Also, the anarchic situation which currently reigns in terms of the 'free market' surely needs to be scrapped in favor of systems which are much more organized, especially locally/regionally. People also need to be made to feel more secure in their local living spaces, which means a rather large overhaul of local/regional planning and the like. That's about it. Economists and other dyed-in-the-wool materialists can argue about the specifics until the cows come home, and they probably will, but that doesn't change the aforementioned facts.

The North Coast said...

I love that closing statement, Dr. Greer.

And that is why a free market just might be the best way to allocate energy. Can we think of a fairer way?

The fact is that people simply will NOT reduce their consumption until market signals, such as escalating energy prices, tell them that buying cars for their teens, living 50 miles from work, spending $80 a week in restaurants, and using the clothes dryer to dry two towels and a pair of socks, are not appropriate survival behaviors.

If decisions concerning concerning settlement patterns and transportation had been left to market forces, we might not now be saddled with the huge suburban buildout we have now, or worse, the growth of huge cities in the most water-short areas of the country.

But our government in its great knowledge and foresight chose to direct a major portion of our taxes to encouraging auto use and ownership, and suburban development, from about 1920 forward. Our cities were given over to the auto very early on, about that time. In St. Louis, as of 1924, you could not build an apt bldg with more than 18 units without providing off-street parking. Then, in the 30s, Roosevelt, great of heart but limited in knowledge and with no idea of how such a program would play out over decades, decided that the best thing we could do is encourage people to move out of overcrowded city nabes to auto suburbs, and there was, even before WW2, a fairly massive movement of middle-class whites to the old railroad suburbs just past the city limits. After the war, the stream became a flood as the FHA "redlined" perfectly intact city nabes while offering low-down-payment loans for newly built suburban cottages, and the interstate highways pretty much became the tombstones of the cities.

Meanwhile, the Bureau of Reclamation was building the fantastic plumbing system on the Colorado River, to make life possible in one of the most arid regions in the world, and to trigger the mass movement of millions of people from the moist, fertile Midwest and Northeast to a places that couldn't support more than relative handfuls of people without the water supplied by BuRec's 600' and 700' mega-dams.

Well, and those dams have now become a maintenance nightmare requiring massive energy imputs, and at the expense of areas of the country much more hospitable to life. One is literally about to fall down. What will happen when we no longer have the fuels to maintain these structures, as well as provide gold-plated highway maintenance on the interstates, at the expense of non-car owners like myself.

Unwinding our energy dependence and restructuring this country is going to be a much more daunting task- if it is even doable at all-because of the massive government programs enacted over the past 90 years that skewed markets in favor of suburban development and habitation in some of the most hostile climates on Earth, and these developments could not have taken place without the ham fist of government force. People could not have afforded them otherwise, and would have had to make their choices within their means.

And I have no doubt that, left to work strictly within their means, people would not have moved to distant suburbs en masse, let alone desert towns with no reliable water supply.

Danby said...

Davedol,
Yes information is valuable in the present economy. The reason, however, is not our technology, which allows us to collect information much more quickly, but our very very complex fossil-fuel powered economy, which makes that information actionable. What difference the price of tea in China, when the lower transport costs from India swallow up any differential?

In other words, the value of information is dependent on the complexity and commoditization of the resource markets, which is dependent on petroleum. Globalism is very much the child of the Arabian oil fields.

Theo,
The problem with your analogy is that we are NOT butterflies. Nor are we salmon, which swim upstream to spawn and die. Nor are we sharks, swans, paramecia, horses or other dramatic animals. We are humans, a large communal mammalian species adapted to the consumption of grass seed, tubers, mustard species and meat.

What possible purpose could be served by a permanent human colony on the Moon, let alone a satellite of Jupiter? Especially at the cost of exajoules of energy? That it would make you feel better is precisely beside the point.

You also, laughably, say:
Economic problems are pretty easy to understand overall: basically, WE HAVE SOLVED THE MAJOR PROBLEM OF PRODUCTION, AND NOW WE MUST SOLVE THE PROBLEM OF DISTRIBUTION.
That would have been easy to believe in the 19th century, or even as late as the 1970s, but we are here talking about peak oil, and the devastation it will wreak on an industrial system built on and for petroleum. Petroleum is exactly what was supposed to have solved the problem of production. It's running out now. Waving your hands and declaring "Nuclear energy will solve this problem, so I don't have to adjust my expectations of the future" is not only disingenuous, it's counter-productive.

Glenn said...

Another wonderfully essay. Thanks, John.

An Agrarian society based on the growth of grain is supported by sunlight for energy, but there are also other resources that are necessary: land and water. The only renewable part of that equation is the sunlight.

If you look at the cradle of civilization, the Fertile Crescent, the first thing you realize is that it is now mostly desert and cities. Where did the Cedars of Lebanon go? Why is it parched earth with little top soil? The water, never so abundant is dammed and the subject of international bickering.

Now look at California's central valley fast losing its ground water reservoirs and top soil, and becoming poisoned by chemical residues from fertilizers. California hit peak water use some time ago, and we should look at peak topsoil density not just in CA, but in the wet Midwest.

Another big problem we face is agribusiness, huge monocrop farms. They oust small family and community farms sending any remaining young people fleeing to the cities. This is happening world wide with Brazil's forests disappearing to huge monocrop farms. With the spread of suburbs much of the gray green monofarms have turned to the gray of concrete. Here is a thought provoking link to a new study comparing urban vs. green lands in global warming. It suggests that city and land management might help slow the warming.

Land Use as Climate Change Mitigation
http://pubs.acs.org/doi/abs/10.1021/es902150g

Another concern is the push to the moon and the joy of the discovery of water there.
Eeks, another place to plunder. "Earth first, we'll strip mine the others later."

As for your conclusion, I'm curious how a social democracy like Sweden is handling peak oil, the economic meltdown and global warming. We don't need to look only at the extremes of free market anarchy and totalitarian planning.

Lance Michael Foster said...

Bless those folks who have grand visions of what humanity "ought" to be or "should" be, etc. Bless idealists, while visions of sugar plums dance in their heads.

I think humanity is pretty cool, amazing, beautiful, warts and all, but the tipping point is engaged. I love deer, they are supremely beautiful and elegant, but that doesn't negate the lesson of the Kaibab plateau.

Metastatic cancer is actually an appropriate analogy. A gorgeous beautiful cell in the blood, in the marvel of the brain, is exquisite. But what is good goes out of balance it becomes what is bad = harmful.

A good cell that grows and destroys other cells and takes up their space/function with replicating versions of itself, and on and on and on, that is what cancer is.

There are three resolutions to cancer:

1. Remission- a mystery, when cancer stops on its own (can humanity go into remission? Can we stop using all that energy, stop having so many children? Learn to accept life on earth for what is it, not what it could be?)

2. External treatment/excision through surgery, radiation, medication, etc. (aka meteor strike, famine, wars, global climate change, etc.)

3. Death of the body, and therefore of the cancer cells. (the destruction of the atmosphere etc. by human action would kill us too...too bad we would take most of life down with us...but viruses, bacteria, and those worms down in the bottom of the sea by the volcanic vents, would survive, along with scattered surprises, and would begin the long slow process of evolution and adaptive radiation into various econiches...over millions of years)

As soon as I read a post about what people "should" or "could" or "ought" etc. to do, I confess I stop reading. I am interested in the gerund: what people ARE DOING. And it ain't gonna happen.

We will adapt and survive, some of us, after all, the world was populated by a small family band of humans living in Africa only 100,000 years ago to the 6 billion of today.

The funny thing is, even if the Star Trek fantasy occurred and we spread to other worlds and galaxies, we take earth with us...because WE -ARE- EARTH in human form.

John Michael Greer said...

Dave, I don't think it would be a bad thing for America to live within its means, but remember that this involves a spectacular cut in our standard of living. We currently use about a third of the world's resources and industrial production, and making do on local resources will require us to get by on a small fraction of that.

Karim, I wouldn't worry too much about the rich. Most of them have even less of a clue than the average American, which is saying something, and as the economy comes unglued and takes away the basis for their power, they'll be the last to figure out what happened.

Theo, the earth isn't a cocoon. It's the whole of which we are a part. The notion that we ought to abandon it for space is like claiming that a plant ought to gain its freedom by pulling itself up by the roots. Similarly, we haven't solved the problem of production; we simply postponed it for a brief time by stealing the earth's carbon reserves and burning through them for a three-century joyride.

You're right that we need a higher sense of purpose than that provided by economics, of course, but the delusion of space migration is just another form of the same thing -- the same fixation on more power, more resources, and all. That's the sort of thinking that's landed us in our present predicament. Like Faust, western civilization sold its soul for a few years of limitless power -- and now time's running out, and Mephistopheles is showing up on schedule to drag Faust down to damnation.

North Coast, free markets don't exist. What you're asking is whether a market controlled by the rich is fairer than a market controlled by the government. My suggestion is that either extreme is a bad idea.

Danby, exactly!

Glenn, one of the problems with conversations on the internet is that the same inaccurate factoids keep on being trotted out endlessly. You claim, like so many other people, that the Fertile Crescent is a barren wasteland due to agriculture. Have you looked up the current state of agriculture in, say, Syria and Iraq, where grain has been grown as long as anywhere on earth? (Hint: Syria is a major grain exporter today, and Iraq was until the first Gulf War limited its access to markets.) It's always possible to point to a few awful examples and a few inaccurate generalizations, and jump from that to the claim that agriculture per se is doomed to failure, but a more thorough consideration of the facts shows that such claims simply aren't true.

Of course current petroleum-fueled agribusiness has no future, and a good many other dimensions of today's agriculture will have to change radically as we move further down the far side of Hubbert's peak. That leaves a great many agrarian options. As for the middle ground between "free market anarchy and totalitarian planning," er, this is exactly the point I've been trying to make for the last three weeks. I'm glad that you've noticed thast the middle ground exists, but it would have been nice if you'd also noticed that this is what I've been talking about.

Ana's Daughter said...

@Kevin: you're quite right, at the end of Macdonald's book the city of Gwyntystorm collapses because once Curdie dies and the people elect a king from amongst themselves their habits of greed and folly end up right back in control. The final scene is of the rapids of the river running through the echoing canyon that was once the city.

Definitely applicable metaphor. ;)

ZenMouser said...

Meanwhile, just as the economy most needs massive reinvestment in productive capacity to retool itself for the very different world defined by contracting energy supplies, investment money seeking higher returns flees the productive economy for the realm of abstract paper wealth.


JMG, that quote sums up the difference between pro-fit economy and recursively pro-fitting processes of thermodynamic currents.

Although using 2ndL TD has great potential to advance the discussion, the bad harvest/pyramids can't be changed back analogy is somewhat incomplete. The problem isn't entirely that the energy has been captured in a brick and mortar establishment (although that's part of it. There are too many moving parts in the equation, including population, for "frozen asset" to be the end point of what is essentially a dyamic energy exchange).

This very topic came up in a discussion of E=mc^2.
Take away mass (set it to 0) and you don't getE=light. It's a product equation. Take away mass, that leaves 0*light = you get nothing. The light went on for me as far as describing that we are spiritual beings having an earthly experience.
You free up the value of either to keep the equation moving, i.e., higher returns.

Thermodynamics turns our attention towards currents and currency. In our example of energy going into brick and mortar buildings, we have to examine the value assigned to the pyramid, which is relatively arbitrary if you think about it.

Economy has come to mean short term greed. Thermodynamics in the sense that it's being used here speaks more to the correction (dynamic equilibrium) in the process of relational valuing (which is oscillative and approximating in nature).

That we keep going from bubble to bubble in the US economy seems like a function of a populace studying one variable in the equation at a time, using a short term illusory pro-fit model. What we're learning is that what we've been defining as pro-fit economically isn't pro-fitting for human beings to operate dynamically moving, sustainable, interdependent niches.

So far, Big Finance, Energy, Pharma & Insurance (for starters) have all developed compartmentalized models that maximize their profits as though they were silos. We've had bubbles in dotComs, auto, and finance/housing. Health Ins & many medicines are overpriced compared to any other industrial country. Market models were detached from shared currency (grok fully all meaning of current) by way of overvaluing or in the case of autos, estimating greater turnover in purchase frequency (or failure to develop fuel economy). As you noted, energy pricing impacts influenced decisions by venture capitalists and consumers alike. To wit, the WSJ article on PeakOil pricing models, traditional tycoon vs. new (who ultimately won out) driven by short term profiteering.

So what do we do now? Focus less on money and more on currency. To paraphrase one of your recent interviews, we probably will need to develop a barter economy and that economy will have to be dynamic enough to interface with the restructure/retool economy (which will also retrain, which would have been a wise investment in the first place, but i digress). These are currency corrections a la 2ndL TD.

As for pyramids, they may be (physically) transformed by a pissed off invisible hand of Mother Nature, but right now we are seeing the *value* transformed. Think molecules flowing back into houses as some of the air is let out of the over-inflated unit. The social arrangements will change as well. Probably more molecules than before will move into the pyramid. Collectively speaking, there may be some increase in the flow of nomadic, cross-pollinating traveling while others may cohere in intentional community.

Yes the physicality of the pyramid transforms more slowly. The value of the pyramid is transformed through flow of currents & currency.

bastronaut said...

@The North Coast: are people still arguing that the "proof" that markets work is that governments (read: societies) make bad decisions? I think most people with reasoning faculties have already worked out that mobs (aka "markets") are not rational, are prone to intense manipulation by vested interests, and are generally even worse than well-meaning governments at predicting the future. Your rhetoric is broken.

Blame is beside the point, anyway. Markets and governments are both examples of human behaviour. Arguing "for" or "against" them is absurd. Blaming one or the other for our woes is absurd. If markets were so magical, as you claim, governments would simply participate in markets according to your expectations. But they don't, and neither does any other bloc of wealth/power: corporations, unions, churches, or PTAs. There is no market!

bastronaut said...

JMG: statis is the ideology of the vacuum. Better cancer than the stillness of the empty void. But cancer is a false analogy.

Change is. Trying to prevent change - even wishing for it - is a kind of a mental illness.

I'm neither a techno-optimist nor a techno-pessimist. I just know that you don't know the future anymore than I or anyone else does. All prophets are false.

Your analyses of our current economic and social situation are astute and meaningful, but your predictions about the consequences will prove to be as wrong as everybody else's past a few decades. Pretending to knowledge you don't have is worse than hubris. But then, it's also "normal" human behaviour, too.

John Michael Greer said...

Lance, I do pay attention to the ideologies; while they're not a good guide to the future, they do offer a few useful hints about what their believers will do.

Ana's Daughter, and I bet the people of Gwyntystorm were talking about how once they finished mining out all the props beneath the city, the whole kit and caboodle of them would rise up into the sky and float away to Neverland.

Mouser, of course the metaphor isn't exact, but it does point up a crucial issue: energy does not earn interest. Still, thanks for some solid points.

Bastronaut, it's always amused me that so many people who have some specific fantasy about the future fall back on "well, you don't actually know the future" as their defensive line when faced with disagreement -- as though ignorance of the future offers a free ticket to project whatever fantasy one prefers onto its inkblot patterns. Believers in the Rapture make exactly the same argument.

What you've labeled "stasis," by the way, might better be called balance, equilibrium, or harmony. "The ideology of the vacuum"? Hardly; it's the state toward which healthy living systems move over time, and only our current culture's ideology of metastatic growth blinds us to that fact.

Lance Michael Foster said...

Now that's a VERY good point you made, JMG!

das monde said...

If you are curious what Adam Smith would probably say about the current economy, check this mock interview!

It is worth mentioning that Adam Smith used the phrase “invisible hand” only three times in his voluminous writings, and in quite “unrecognizable” contexts. The phrase appears once in the “Wealth of Nations”, in the chapter on mercantile political economy. He uses the metaphor in a simple argument that by cautiously preferring domestic markets over oversees, merchants un-deliberatively support domestic industry. This quote became profound and “central” only from the 1950s:

He generally, indeed, neither intends to promote the public interest, nor knows how much he is promoting it. By preferring the support of domestic to that of foreign industry, he intends only his own security; and by directing that industry in such a manner as its produce may be of the greatest value, he intends only his own gain, and he is in this, as in many other cases, led by an invisible hand to promote an end which was no part of his intention. Nor is it always the worse for the society that it was not part of it. By pursuing his own interest he frequently promotes that of the society more effectually than when he really intends to promote it. I have never known much good done by those who affected to trade for the public good. It is an affectation, indeed, not very common among merchants, and very few words need be employed in dissuading them from it.


If Adam Smith were blogging today, he would be complaining that he did not mean that this invisible hand works in all cases. He was skeptical of merchants’ evaluation of any interests, including their own!

das monde said...

JMG, your observations about impact of money supply on economic growth (or futility of modern investment games) are good. But the emphasis on “borrowing money at interest” betrays an important misconception. The interest rate never creates any money - it does something opposite. Say, if a credit card company puts up an egregious interest rate for you, that by itself does not create any money whatsoever - it only compels you to come up with more money by whatever means you are able to. You might succeed in fishing up enough money to cover the interest rate - but that only means that many others will be much less lucky. What actually creates money is the so-called “bank loan” (forget the interest rate). “Borrowing money” from a bank is a misnomer: the bank does not take away money from its deposits and optimistically hands to you. It rather makes a promise that the “borrowed money” (made up just of thin air and your signature) will always be available to you (or to the seller of your new home or car). If it looks too crazy when you think about it, the craziness is the point of all modern economic marasmus.

In particular, don’t hold your breath for imminent inflation out of “huge government spending” or whatsoever. The key problem is that money is getting desperately locked out out of productive economy. The growing difference between financial wealth claimers and indebted producers is becoming a chasm of historical proportions. Paper money may indeed be loosing value in the stratosphere of financial “investments”. But down on Earth, money as legitimator of any economic activity is gravely lacking. Keynessians know an important point. Even Obama’s trillions are not enough, especially if they are “naively” pumped into the unforgiving stratosphere rather than where they are needed.

The banking people with resources might be doing quite a good job in “relieving” the productive economy of monetary growth, along with compelling lessers to gamble, or coming up with adequate rhetoric to justify the economically catastrophic course.

Which brings us to a historical perspective. It is often amusing to see projections of modern economic living back to the Middle ages, Rome and even the stone age of “The Flinstones”. But before Adam Smith and Charles Darwin, there was so much less subjective awareness of the economic struggle we have to endure. Even if trade and commerce were indeed slowly evolving from the ancient times, most of either the aristocracy or the peasantry could live comfortably ignorant of its secrets. The invisible hands that lead to invisible finger salutes so fast have little objective relevance either, in the long term history or evolution.

What really changed with the industrial evolution and global trade is the wealth and power balance between aristocracy, fresh industrial bourgeoisie (for a lack of better description) and the peasant and labour classes. The merchants and manufacturers did not have comparable social power ever before. That shift in the power balance was initially accommodated rather differently throughout Europe, America and the rest of the world. The British monarchy was smart enough to side with the new bourgeoisie, while the French monarchy was clueless, etc. Read it here for a bit more. What is happening now is perhaps the last stage of this runaway development. It is probably no accident that a fated social-economic or political singularity is approaching right when “we” are meeting limits of planetary resources.

Ana's Daughter said...

@JMG: Nah, I figure they gathered in small groups around the edges of the big central square, talking confidently about how their most self-interested wise men would invent something with which to replace the rock columns they were mining out from under themselves. ;)

J Gav said...

A good point indeed, Mr Foster.

But coming back to the original gesture. I think A. Smith, were he alive today, might be flipping us off for more than one reason. He was essentially a moral philosopher. That was his intellectual upbringing, as it were. He believed in putting savings aside. Anathema to the 'shop till you drop' consumerism of today (or was that yesterday?). He lived in a period one generation after set-up of the modern central bank (the Bank of England) and pretty close to the modernization of the insurance industry (actuarial tables, interestingly also originated in Scotland with the Ministers' widows' fund).

The point being that 'saved' capital still has to go somewhere. Some may still put it under their mattress but you see what I mean. How much 'future safety' can people actually buy? This apparently simple question is fraught with anguish in our time and will no doubt continue to bedevil those lucky enough to have 'savings' for some time to come. For the rest of us, the question is already elsewhere but the 'answer' is not yet clearly delineated.

mthierauf said...

JMG - excellent analysis, no one (outside of James Kunstler) could come close to articulating the link that our modern economy has to cheap energy.

BTW, i posted a comment to your last post regarding regulations but you didn't seem to believe me when i said that regulations are written for the benefit of big business. well, i thought i would send you a link to help persuade you: http://www.washingtonsblog.com/2009/05/big-banks-have-already-killed-reform-of.html

John Michael Greer said...

Lance, which one?

Das Monde, granted -- by "lending at interest" I was using shorthand, and not horribly accurate shorthand at that, for the entire net of systems by which money is made to expand in quantity over time. I'll be discussing that entire system, and its inevitable termination, in a future post. Interesting you should mention pre-capitalist economic systems -- they'll also see some discussion in a bit.

Ana's Daughter, you may just have inspired a future post.

Gav, an excellent point. The issue I think very few people have grasped just now is that in a contracting economy -- by which I don't mean one with a contracting money supply, as in a recession or depression, but one in which the production of goods and services is steadily decreasing over time -- all investments, on average, lose money, and all wealth becomes worth less over time. More on this soon.

Mthierauf, I'm always willing to be compared with Kunstler! The Long Emergency was one of the two books that convinced me it was worth trying to write about this stuff. Thanks also for the link, but I think my point still stands: monopolies today are less dominant than they were in the days when there was no government regulation at all, so however distorted the regulatory environment has become, it apparently still offers some scraps of protection against the extremes of monopolistic behavior.

John Michael Greer said...

Bastronaut (offlist), if you want to throw a hissy fit, please do it elsewhere.

Ken said...

Hi to all,

This was my first visit to Eschaton (a link from Naked Capitalism). I'm bowled over by both the insight of the content and the elegance of the writing, not only of JMG but most of the commenters. I have to avoid reading the archives just now or else my head will explode...

Someone mentioned entropy, and JMG alluded to something similar when he noted that economic systems decline as they "exhaust their easy pickings".

I am reminded of my youth, and an early short story by T. Pynchon, "Entropy". As I recall, he posits that entropy can be counteracted by the artist, who synthesizes new order out of nothing and thus overcomes the relentless tendency toward decay.

We in the West have structured our lives to waste energy; we are practically compelled to do so. Most talk about energy focuses on replacing oil rather than using less of it. As in most areas of human life, the emphasis is on maintaining the status quo at the expense of all else, especially the future.

We have at hand 'easy pickings' in terms of simply using less energy (easy for me to say, as I live in Europe and have been able to go car-less). It's a shame that we've built so much infrastructure around cheap energy, but that investment is already a loss; better to admit it soon and change course.

Of course, the bottom line of scarce oil is not changed, but the effects could be greatly attenuated and the way paved for an orderly transition.

Ana's Daughter said...

@JMG: Good!

Any chance you're going to write one some day about the phenomenon of paralogic and what it does to one's reasoning ability? I've noticed that some of the people who are talking past you lately are using it to a remarkable degree.

Lance Michael Foster said...

JMG: Which one [point]?

LF: The part where you said, "Lance, I do pay attention to the ideologies; while they're not a good guide to the future, they do offer a few useful hints about what their believers will do. "

This morning there was a story in the local paper here in Montana, "State seeing new rise in anti-government, hate groups"

"In Hamilton, they call themselves Celebrating Conservatism. In Eureka, they have become known as the Lincoln County Watch. Down in Bozeman, they are the Oath Keepers.
The names may vary but the groups share a common platform that has gained the attention of researchers this past year, including those who warn that such anti-government groups are growing more active.
With the nation having its first black president, coupled with a poor economy - not to mention a social debate that includes gay rights, health care, immigration and the bailout - the groups are coming out after 15 years of silence, looking to place themselves back into the mainstream discussion."
The rest is at http://www.helenair.com/news/state-and-regional/article_ccf7b5d2-d06b-11de-bc4e-001cc4c03286.html

MawKernewek said...

I have just read Martin Rees' "Our Final Century".

He argues, that the point of colonising the Moon or Mars, would be to create a part of human civilisation that is not vulnerable to a global crisis on Earth.

However the investment in terms of energy to create a self-sustaining community (i.e. one that doesn't have to be expensively re-supplied from Earth at frequent intervals) on the Moon or Mars would likely be large enough to be prohibitive in a post-peak world. For a self-sustaining colony the infrastructure to provide water, air and food for a colony would all have to be manufactured in place.

It would be the ultimate lifeboat community, safe from any calamity on Earth.

I imagine wealthy philanthropists will attempt to set up lifeboat communities in various places.

I wonder whether Iceland offers a better bet. The abundant geothermal energy could power a sustainable technological society indefinitely. And they have relative isolation from geopolitical hazards such as refugees from failed states and (possibly artificially created) pandemics.

Bioterror is a serious threat according to Rees, in a world with a declining economy there may be many people with shattered dreams, which could be very dangerous. Extreme political or religious movements will likely gain adherents.

It may be possible for such an organisation to spread a genetically engineered virus.

I expect Russia will do well for the next century or so, since they have an artificially low population (thanks to Stalin and Hitler), significant resources, global warming potentially improving their climate for agriculture, and a nuclear arsenal which will deter attack.

I wonder if the Russians might try to colonise space. Whether that would be the government itself or a consortium of wealthy individuals is anyone's guess.

Martin Rees thinks the latter, since private individuals may take more extreme risks than the government will be willing to.

Vic said...

JMG, I'm sneaking in a reply and question to your post although it's not quite on topic and I realize that's an irritant. Your recent blogs have made me revisit Tainter: "Here is the reason why proposals for economic undevelopment, for living in balance on a small planet, will not work.Given the close link between economic and military power, unilateral economic deceleration would be equivalent to,and as foolhardy as, unilateral disarmament. We simply do not have the option to return to a lower economic level,at least not a rational option. Peer polity competition drive increased complexity and resource consumption regardless of costs, human or ecological." He then goes on to say, as you have aptly pointed out, "Both the primary and secondary world powers have sufficient economic strength to finance diminishing returns well int the future." Do they? He concludes the paragraph with this parenthetical thought " ...(This fact, however, is no reason for complacency. Modern evolutionary processes, as is well known, occur at a faster rate than those of the past.)." What on EARTH is a "rational option" then?
It would appear that on a personal level if you agree that one is primarily responsible for the consequences of their actions then some form of "undevelopment"is a necessity. We have to be bound by our photosynthetic allotment? Are we not going there despite our clever mental constructs and abstractions?

John Michael Greer said...

Ken, that's true, of course, and it's one of the reasons I argue for a slow decline rather than a fast collapse. Still, given that the side effects of wasting energy include most of what counts as a current American lifestyle, I think it's wildly optimistic to expect an orderly transition of any kind -- especially when what we're transitioning to involves at least a 75% reduction in population.

Ana's Daughter, nah -- my experience is that when you talk about paralogical thinking, everybody thinks you're talking about someone other than them, and the more paralogical they're being, the more fixed the conviction.

Lance, it's getting to the point that the most profitable thing a political party can do is lose elections. They can sit on the sidelines, point fingers, and rake in big donations from outraged supporters. The Democrats spent the last eight years doing that; now it's the GOP's turn. I wonder how long it will take before both parties fight over who gets to lose?

Maw Kernewek, the problem with the space-colony-as-lifeboat notion is that the investment needed to create a self-sufficient colony on the Moon or Mars would bankrupt any modern nation. We don't have the money, the resources, or the time. As for other locations -- well, Iceland's not for sale, last I heard. I haven't read Rees' book, so I'll reserve judgment on the rest, but the title doesn't exactly encourage me.

Vic, if you're assuming that a rational option is one that will result in an appealing future, there are none. If a nation deindustrializes, it is overwhelmed by its enemies. If it does not, it crashes and burns with everyone else when the whole system comes unglued. Take your pick.

This is why I say we're facing a predicament rather than a problem; problems have solutions, while predicaments don't.

MawKernewek said...

I'm not saying a billionaire will literally buy the nation of Iceland, but say a consortium of billionaires offered $100bn of investment for the nation of Iceland, the population is only about 250000 so that would be $400000 of investment for every citizen.

If that was offered in exchange for the said billionaires and a few thousand of their family and friends to be permitted to settle in Iceland, I don't see why such an offer should not be accepted.

Case Wagenvoord said...

Your articles never fail to enlighten and inform me, and I always come away from one of them with a fresh insight. However, I do have a small quibble with your opinion about the usage of the word “fascist.”

The word is much abused, almost to the point that it has rendered it useless for intelligent discourse. However, there is a danger in this because we are seeing a gradual movement in that direction in the United States, and if we are dismissive towards the word “fascist,” we may miss what is happening to our country.

Picture, if you would, a moving Venn diagram consisting of two circles: the nation and business, and imagine them slowly merging. When they converge into a single circle, you have the classic definition of fascism.

Where we run into trouble is with the assumption that all fascist societies are authoritarian, and in the past this has been true. However, it does not follow that this will be true of fascist governments in the future. It is theoretically possible to have a non-authoritarian fascist government, and I would suggest this is what we have in America. Here, social control is maintained not by oppression but by seduction.

We are in the Age of the Self and from that has flowed the instant gratification of the self. Give a person enough toys and that person my not feel the pliers of oppression slowly closing. (How willingly we remove our shoes before boarding our flight.)

But alas, fascism carries such a load of emotional dynamite that its use is problematic. That is why I prefer the term corporatist state, or corporatist security state.

Gary said...

When I hear or read someone saying "oh, but no one knows the future", as if that makes their projection or fantasy just as valid as anyone else's, I am reminded of a quote by Herman Kahn, the notable cold warrior: "90% of the future is obvious". I first heard this in my youth, and with the perspective of age, I observe that the future is a lot like the past.