Wednesday, December 28, 2011

Hope in a Cold Season

Last week’s post on the empty promise of December 21, 2012 and other apocalyptic fantasies fielded me a fair number of denunciations. That was predictable enough; the parallels I mentioned in that post between apocalyptic beliefs and bubble economics include the awkward fact that in both cases, those with the most to lose by buying into the delusion du jour are pretty consistently also the ones least willing to hear any questioning of their misplaced dreams.

Under other circumstances I’d simply have shrugged and filed the resulting tirades with the ones I get on a more routine basis from those who can’t stand some other aspect of this blog’s project. Still, one of this latest batch made an accusation that I found baffling at first glance, and then indicative of something worth attention just now. The commenter in question, to be precise, insisted that by criticizing the industry that has sprouted around the fake-Mayan prophecies of 2012, I was treating "love, joy, hope, and inner well-being" as so many delusions.

It probably needs to be said first off that this assertion involves a very odd definition of the concepts just named. Let’s imagine, to put the same logic in a different context, the plight of an unemployed single mother in today’s America during the holidays. She has, we’ll assume, barely enough money to pay the most basic expenses for herself and her children, and the clock is ticking on her unemployment benefits, which will run out after 99 weeks. Her desperate efforts to land any job at all have gone nowhere—that’s common enough these days—and it’s become plain, as the holidays draw near, that if she’s going to be able to afford to keep her children fed and clothed and housed into the new year, there aren’t going to be any Christmas presents.

What does she say to the children? According to the logic offered by my commenter, she presumably ought to insist to them that Santa Claus will show up on Christmas Eve with a big sack full of presents for all. It’s certainly true that this will fill the children with love, joy, hope, and a sense of inner well-being, for the moment. It might even seem like a good idea, as long as you don’t think about what’s going to happen on Christmas morning, when eyes that had been sparkling with delight the night before look up tearfully from the bare floor to their mother’s face.

I think most people recognize that the right thing to do instead in a situation of that kind is to tell the truth, or as much of it as the children are old enough to grasp, and do it early enough in the season that they can get past the inevitable misery and go to work making the best of things. Talk to people who grew up during the last Great Depression and you’ll hear stories of this kind over and over again—the holiday decorations pieced together from wrappers and scraps, the depressingly plain meal livened up with a few little touches or sheer make-believe, the little doll handmade from rags and burlap sacking that’s still treasured three quarters of a century later, and so on. If love, joy, hope, and authentic inner well-being are to be had in such a difficult situation, they’re going to come that way, not by way of making gaudy promises that are never going to be fulfilled.

Still, that sort of ethical clarity—so obvious to most Americans in the 1930s—is apparently far from obvious to a great many Americans today. The speculative bubbles of the last decade, again, offer an uncomfortably clear look at the popularity of delusion in American public life just now. When John Kenneth Galbraith wrote his brilliant and very funny history The Great Crash 1929 back in 1954, he noted that the best preventive for the miserable economic aftermath of a speculative bubble was a clear memory of just how miserable that aftermath had turned out to be. In 1954, he was quite correct; a generation raised in the Depression years kept Wall Street on a very tight leash back then, and indeed Galbraith’s own testimony before a Senate subcommittee in 1955 on the implications of the 1929 experience was enough all by itself to pop a stock market boomlet—a circumstance Galbraith recounted in wry terms in the foreword to the second edition. The memory of 1929 had an immunizing effect so potent that it took until the 1960s for the US stock market to blow its first very tentative bubbles, and it wasn’t until the mid-1980s that a really classic stock market boom and bust followed the traditional path, up with the rocket and down with the stick.

Consider today’s economic scene and the contrast is hard to miss. The tech-stock bubble inflated all through the second half of the 1990s and crashed to earth between 2000 and 2002. No sooner had the rubble stopped bouncing than an even more gargantuan bubble in real estate took off. That crashed in 2008, and even though the rubble’s still bouncing, it’s doing so right alongside a bouncing baby bubble in shale gas. If some clever promoter comes up with a way for ordinary investors to speculate in shale gas leases or something of the kind—and I’ll be surprised indeed if that fails to happen in the coming year—it’s a safe bet that millions of people will take all the money they’ve got left and plunge into the shale market, driving another economically devastating cycle of boom and bust.

Part of the difference between then and now is that the 1929 crash came on the heels of a spectacular bubble in Florida real estate, which crashed in 1925, and that followed another nasty little bubble and crash in the stock market in 1921; thus we’re only just now at the point where the idiocy of trying to get rich off bubbles should be sinking in. Another part of the difference is that the financial authorities in 1929 responded to the implosion of the bubble by letting investors crash and burn, where today’s basically wet themselves trying to make sure that investors don’t lose money, even if keeping them solvent means that the economy goes down in flames. Still, I think there’s more to it than that.

In 1929, America was still an expanding society, with an economy that was still producing something other than fiscal hallucinations, and a standard of living that had been moving raggedly upward for a good long time. The delusion that drives bubbles—the notion that it’s reasonable to expect to get rich on unearned wealth—could seize the population now and then, as it’s done since market economies got abstract enough that speculative bubbles became possible in the first place. Still, most Americans could reasonably expect that with hard work and prudence, they could expect to have a better standard of living in the future than they had in the past, and their children could expect to do better still.

Those days are long past. For the great majority of Americans, living standards have been declining since the early 1970s, upward mobility is increasingly a nostalgic dream, and it’s becoming harder even for government flacks to keep pretending that training prople for jobs that don’t exist will make those jobs miraculously appear. Ours is a contracting society, and outside of the narrowing circle of privilege—itself facing, a little further down the road, a far more drastic form of downward mobility—most people realize that hard work and prudence, the road to a better future in past generations, are merely a slightly slower road to impoverishment than the one everyone else seems to be taking.

Combine that with the modern cult of celebrity that showers randomly chosen individuals with brief but spectacular bursts of wealth for the most absurd of reasons—would anybody care to explain to me just what the Kardashians did in 2010 that was worth an income of $65 million?—and the frantic marketing of consumer gewgaws that pervades American culture, and you’ve got a perfect recipe for a society in which an increasingly desperate populace will gamble all they have at increasingly long odds for a shot at unearned wealth. That’s what drove the speculative bubbles of the recent past, and will drive those of the near future. It’s also what drives the fixation on apocalyptic events that will supposedly dump history’s ultimate jackpot into the laps of those lucky enough to draw the winning ticket, whether that ticket is marked "Rapture," or "Singularity," or "December 21, 2012."

Now it’s fair to say there are those—and the commenter mentioned above may be among them—for whom a fixation of that sort is readily confused with hope. It may even be that it’s the closest thing to hope that some of them have left. Still, it’s not actually hope in any meaningful sense of the word. To understand why, we’re going to have to take a hard look at just what hope is.

That’s a vexed question just now, and not only because the current US president used the word to get into office via one of the most monumentally cynical political campaigns of modern times. Even before it got stripped of its remaining content by Obama’s marketing team, the old virtue of hope had gotten tangled up in America’s culture of entitlement, and twisted completely out of shape in the service of cynical marketing disguised as cheap sentimentality. "When you wish upon a star, makes no difference who you are, anything your heart desires will come to you..." Readers of a certain generation will remember hearing that bit of doggerel out of the mouth of an animated insect. I knew a small boy who, after seeing the movie in question, took to singing, "When you wish upon a star, you don’t see things as they are." Like most children, he knew better, and hated being on the receiving end of lies. I sympathized, having had exactly the same reaction a quarter of a century earlier.

We have, to be more precise, confused hope with the facile optimism of the privileged, the sort of thinking that insists that nothing really unpleasant can ever actually happen, not to us. A great many Americans, for example, think that being hopeful in the face of the depletion of fossil fuels means assuming against all the evidence that some ample replacement will be found in time to allow us to keep our energy-intensive lifestyles running. A great many of us more generally think that being hopeful in the face of the limits to growth means trying to convince ourselves that those limits don’t apply to us, or that there will turn out to be some way around them, or that somebody or other will bail us out before our refusal to deal with those limits lands us in consequences harsher than we want to think about.

It’s interesting by contrast to consider the historical conditions that surrounded the evolution of the concept of hope in the ethical thought of the Western world. Like so much of postclassical Western culture, it emerged out of the creative collision between Greek philosophy and Christian religious ideas in the late Roman world. That was not an age of economic expansion and rising standards of living. Quite the contrary; as the Roman Empire ran up against its own limits to growth, and then drove itself into bankruptcy and collapse trying to defend borders defined in a more expansive age, economic crises and a soaring tax burden sent standards of living steadily downwards while the Empire lasted. Its fall in turn brought an age of chaos in which whole regions that had once known widespread literacy, busy market economies, and such amenities as central heating devolved into fragmented, impoverished and drastically underpopulated successor states in which eking out a bare subsistence was an achievement not everyone managed.

The current American concept of hope would not have lasted long in the protracted downward spiral of the Roman world. The concept of hope as an ethical virtue, by contrast, became universally accepted during that same downward spiral. Why? Because hope, to translate its definition out of the ornate moral philosophy of the day, isn’t a sense of entitlement that insists that good things will inevitably come one’s way. Rather, it’s the recognition that some good can be achieved no matter what the circumstances might be, combined with a sustained willingness to try.

Compare hope to any of the other ethical virtues celebrated in that harsh time and the distinction is even clearer. Courage, for example, isn’t a facile assurance that one is destined to win. It’s the quality of character and the act of will that does the right thing in the face of danger and fear. This is, among other things, the opposite of the conviction that victory is inevitable. That’s a logical point—if someone recognizes no danger and feels no fear, he’s not courageous no matter how many risks he unknowingly runs—but it’s also a practical one. One of the commonplaces of military history, for example, is the army that believes it can’t lose, and then collapses in panic when the battle turns against it because it has never had to grapple with the possibility of defeat.

In the same way, hope doesn’t depend on a sense of entitlement that insists the universe is obligated to provide us with whatever happy ending we think we want, and in any real sense, it’s incompatible with notions of that kind. Hope is the quality of character and the act of will that finds some good that can be achieved, no matter what the circumstances, and then strives to achieve it. The sense of entitlement, in turn, is precisely equivalent to the belief that victory is inevitable, and it produces the same sort of brittleness; it’s for that reason that it tends to collapse into despair, and it’s despair, ultimately, that feeds fantasies of the apocalyptic event that will make everything different.

It’s for this reason that apocalyptic fantasies always flourish in the aftermath of grandiose movements for social and spiritual transformation. Behind the current flurry of 2012 prophecies lies the New Age movement’s conclusive failure to create its own reality, just as the parallel flurry of Rapture prophecies mark the bitter endpoint of a trajectory that began with the buoyant optimism of the "Jesus freaks" and the Good News Bible, when enthusiastic young Christians believed they could remake the world in Christ’s image. Hubris disguised as one kind of hope always ends up giving way to despair disguised as another kind of hope. In the process, the concept of hope itself risks being discredited.

That’s profoundly unfortunate, because it’s when overblown ambitions crash to the ground that hope in the true sense of the word is most needed. Behind the rise and fall of the New Age and the Evangelical movements stands the vaster rise and fall of another attempt to build Utopia here on Earth, the attempt we call industrial civilization. Right now, as the limits to growth tighten around us like a noose and an economy geared to perpetual expansion shudders and cracks in the throes of decline, one of the things that’s needed most is the willingness, in a time of gathering darkness, to locate what lamps can still be found, and light them. To return to the metaphor I offered earlier, we need to listen to the voice that tells us, "Honey, I’m really sorry, but Santa Claus isn’t coming this year"—and having heard that, and done whatever grieving we need to do, we need to draw in a deep breath, accept the hard fact, and get to work to spread at least a little light and warmth in a cold season.

End of the World of the Week #2

Say what you will about the paired prophetic hysterias surrounding 2012 and the Rapture, not even their most extreme forms get quite as dotty as the apocalyptic beliefs retailed in the early 19th century by French philosopher Charles Fourier. One of those people for whom the word "crackpot" might as well have been invented, Fourier spent his working life as a traveling salesman and his off hours elaborating the Harmonial Philosophy, a dizzyingly complex theory of everything that included a set of colorful predictions about the impending total transformation of the Earth and everything on it.

There were many other thinkers in Fourier’s time who were convinced that their ideas marked a vast turning point in the history of the world. Nobody else, as far as I know, took it to the extent of thinking that the general acceptance of his philosophy would turn the oceans into lemonade. That was just one of the great transformations that, according to Fourier, would happen once a significant minority of the Earth’s human population embraced the Harmonial Philosophy and ushered in the era of Harmony, the fulfillment of Earth’s history. Torrents of "cosmic citric acid," he claimed, would then descend from heaven to turn the seas tart and tasty. Meanwhile four additional moons that ran away from Earth orbit—they were embarrassed to be seen with a planet whose inhabitants hadn’t accepted Fourier’s ideas—would come swinging gaily back to their places; lions would turn into cuddlesome, vegetarian antilions; and human beings, freed from drudgery by Fourier’s discovery that economic problems could be solved by "passional attraction," would devote their time to gourmet dining and orgiastic sex.

Odd as these ideas sound today, they were hugely popular in Europe and America, and something like a hundred Harmonial communes—"Phalansteries," as they were called—were organized by enthusiasts hoping to make the dream real. Alas, neither the cosmic citric acid nor the antilions showed up, and the communes folded promptly once it became clear that passional attraction wasn’t up to the task of producing enough food, clothing, and other necessities for even the most devoted believers. At its peak in the 1820s, the movement unraveled thereafter, feeding erstwhile followers still eager for Utopia into other radical movements of the time. There was a brief attempt to revive Fourier’s ideas in the 1960s—something about his ideas, not to mention his prose style, seems to mesh well with the popular drugs of the time—but outside of that, he remains one of the forgotten ancestors of today’s Utopian beliefs.

—story from Apocalypse Not

Wednesday, December 21, 2011

Tweedledoom and Tweedledee

It occurred to me a few days ago that this week’s Archdruid Report essay will be posted on a date that future generations may remember, at least in passing. One year from now is December 21, 2012, a date onto which quite a few people have piled extravagant labels and grand expectations, but which will get a different moniker after the fact; the one I have in mind is Nothing Happened Day.

No doubt the confidence expressed in that latter phrase will rankle with some of my readers. It’s a safe bet, in fact, that somebody’s going to post an indignant comment here insisting with some heat that the future isn’t predetermined, and a giant comet or the space brothers or something might show up on that day and make me look like an idiot. That’s a very common way of looking at things, and there are contexts in which it’s also more accurate than not; it’s just that this doesn’t happen to be one of them.

Not all predictions, after all, fall within the wiggle room that the laws of nature and the innate cussedness of things give to the future. When somebody announces that a working perpetual motion machine is about to hit the market, for example, they’re quite simply wrong—as wrong as if they announced that tomorrow the Sun will rise in the west and rocks will fall straight up into the sky. There are plenty of uncertainties in physics—more than most people outside the physics profession realize, or so I’m told—but the workings of basic conservation laws on the human scale aren’t among them. If somebody makes a prediction that contradicts those, especially if it relies on some tried-and-untrue gimmick that’s been responsible for an abundance of failed predictions before, you can safely bet your bottom dollar that it will fail again.

The same argument is just as valid, interestingly enough, for predictions that fall afoul of the limits of the cosmos in subtler ways. The example I have in mind here is the logic that drives bubbles and busts in a market economy. Behind every speculative bubble, to be a bit more specific, is the conviction that some class of assets which is rising in price will keep on doing so indefinitely. That conviction is always false, and it’s always disproven within a couple of years, but you can’t have a speculative bubble without it—it’s the delusion that the price of the asset class du jour is just going to keep on zooming upwards that leads otherwise sensible people to sink their net worth into stock or subprime mortgages, and lose it all—and so, with weary predictability, that delusion gets trotted out every time an asset class starts blowing bubbles.

What this means is that once you learn to recognize the signs of a speculative bubble, it’s possible to make exact predictions of future events with perfect confidence. A fair number of people—I was one of them, as longtime readers of this blog will recall—did that with the real estate bubble that popped so catastrophically in 2008. Few bubbles in economic history showed the signs of imminent trouble more clearly than this one, and while all but a tiny fraction of economists missed those signs, they were not lost on less blinkered observers. As Keith Brand over at the HousingPanic blog—a voice of sanity all the way through the bubble—used to say, “Dear God, this is going to end so badly.” He was right; his more specific predictions, and those of a lot of other bubble bloggers, were by and large square on targer; and those who derided them—and there were a lot of them, some with impressive credentials—have spent the last three years doing their best to pretend that they didn’t make fools of themselves.

None of this is irrelevant to our present situation, as it happens, because we’ve got another speculative bubble going at full roar in America just now. It’s considerably more focused than the real estate bubble—well, to be fair, the real estate bubble was by most measures the most gargantuan speculative bubble in the history of markets, so just about anything’s going to be more focused—but it may yet wreak comparable damage on what’s left of the American economy. The asset at its heart? Shale gas.

The shale gas bubble is the big economic story you haven’t heard about, though that will likely change in the near future. Behind all the hype about limitless shale gas are two simpler and noticeably less impressive realities. The first is that fracking technology applied to shale deposits can free up modest amounts of natural gas. The second and more important is that for the last half dozen years or so, at least, fracking technology applied to Wall Street has been able to free up immodest amounts of credit, providing the funding for an explosive growth in the natural gas drilling industry.

The intersection between those two facts has produced a classic bubble, with wildly inflated reserve estimates bringing a torrent of cheap credit to bear on an asset that can’t support the grandiose claims made for it. Because US mineral rights laws and Wall Street’s expectations both require firms that buy shale gas rights to produce right away, irrespective of the state of the market, natural gas is now selling for a price—wobbling around $3.50 per thousand cubic feet, last I checked—that covers much less than the cost of drilling and extraction. My readers will no doubt recall real estate speculators in the midst of the bubble feverishly buying rental properties even when the rent covered only a small fraction of the mortgage payments; the logic here is exactly the same.

Thus it’s as certain as anything can be that at some point in the fairly near future, probably though not certainly within a year or two, the shale gas bubble is going to pop, major names in the industry are going to go the way of Countrywide Mortgage and Washington Mutual, and gas drilling is going to slump until rising gas prices and declining budgets for exploration and drilling come back into a relationship that makes sense. Mind you, it’s equally certain that the closer we get to the bubble’s end, the more extravagant will be the claims made for the permanence and game-changing nature of the so-called “shale gas revolution,” and the more abusive will be the responses of those whose jobs depend on the bubble to any suggestion that a bubble is in fact what’s going on.

All this brings us back to December 21, 2012, and the prophecies of cataclysm or mass enlightenment that have clustered around the end of the Mayan calendar. To start with, of course, the Mayan calendar doesn’t end in 2012. In point of fact, it doesn’t end at all—like most ancient peoples, the Mayans saw time as a circle, not a straight line—and the Mayans themselves didn’t predict anything out of the ordinary for that day; it’s just the rollover date for one of the many cycles of time they tracked. The whole shebang was quite simply invented by the late José Arguelles out of a free mix of New Age philosophy, scraps of misunderstood Mayan lore, and the drug trips of Terence McKenna, and it’s thus not surprising that no two people agree on what 2012 is supposed to bring. In many ways it’s become the ultimate inkblot onto which any imaginable fantasy can be projected; since the only thing anybody seems to agree on is that whatever happens that year will be very, very big news.

Look closely, though, and the belief in a 2012 apocalypse has a great deal in common with the belief that asset prices can have an infinite upside. Both beliefs offer grand narratives that replace the ordinary patterns of human existence with a something-for-nothing fantasy. The bubble believers insist that they can have limitless wealth without having to work for it; the 2012 believers insist that they can have the new and improved world they think they want—whether that amounts to a new age of enlightenment, on the one hand, or a Hollywood movie world of heroic survivors blazing away against hordes of roving zombies, on the other—without having to work for it. In either case, what drives the fantasy is the conviction that it makes sense to sit on your backside and wait for the market, or the space brothers, or something else to give you the future you think you deserve.

That’s a very appealing notion for many people in America these days, and it’s worth glancing at the reasons why that should be so. To begin with, of course, a great many people in America do sit on their backsides and get rich. Most of them sit in the corner offices of large corporations, where they spend their time making decisions that, to judge by the results, would be better off made with one of those Magic 8-Balls: “reply hazy, ask again later.” John Kenneth Galbraith pointed out with a commendable lack of restraint in his book The Culture of Contentment that in America, as a rule, the more money you make, the less work you have to do—and, one might add, the less value you have to produce. Consider the upper reaches of the American banking industry, with their multimillion-dollar annual bonuses: what, other than misery for millions of ordinary people, do they actually produce?

For that matter, the vast majority of those who insist they’re part of the 99% these days benefit hugely from the systematic imbalances that give the 5% of humanity that live in the United States around a quarter of the world’s energy resources and around a third of its raw materials and industrial output. If Americans suddenly had to live on their fair share of the world’s resources and economic output, as I’ve pointed out more than once in the past, we’d have to take the equivalent of an 80% pay cut. This implies that, if you’re near the average, only around twenty per cent of your lifestyle is paid for by your own labor. The rest? Most Americans don’t want to know, and will insist at the top of their lungs that wealth can pop into being out of thin air or, well, almost any other absurdity you care to imagine; it beats thinking about just who is paying the costs of their comfortable lives.

Still, I’ve come to think that the most important force driving all these something-for-nothing fantasies is a subtler and more pervasive thing: the faith in progress that is the established but unmentionable religion of the modern industrial world. The belief in perpetual progress embodies exactly the same kind of grand narrative as speculative bubbles and apocalyptic prophecies: such everyday realities as diminishing returns and limits to growth are brushed aside by the conviction that the future must, by some irrevocable law of existence, always be shinier than the past. That’s what motivates the people who pop up on this and every other peak oil-related blog to insist that we can keep on powering our SUVs and Blackberries forever by building thorium reactors or harnessing zero point energy or turning the state of Nevada into one vast algae farm. It’s not incidental, either, that the vast majority of these people aren’t actually doing anything to make these dayreams happen; as with the rest of the something-for-nothing fantasies, reasons to do nothing have an important role in the payoff.

It’s the popularity of faith in progress, in turn, that makes believing apocalyptic fantasies so easy for so many people. If you’ve already bought into the idea that history is a grand narrative that assigns you a privileged place in the overall scheme of things, it’s easy to shift from one grand narrative to another—say, from the one that identifies people in today’s industrial societies as destiny’s darlings to the one that identifies them as wicked environmental sinners in the hands of an angry Gaia, or urges them to wait for salvation from outer space with all the fervor and most of the rhetoric of a Melanesian cargo cult, or claims that the Creator of the cosmos is about to unleash His genocidal fury on every human being who doesn’t buy into some particular religious ideology, or—well, you can fill in the blanks yourself, because at heart, they’re all pretty much the same. In the face of a cosmos that generally fails to cater to our sense of entitlement, they all offer narratives that make believers feel special, promise them some variation on pie in the sky, and offer them a good hearty helping of excuses for not taking action at a time in which action desperately needs to be taken.

These days, the old time faith in progress is becoming increasingly hard to sustain. It’s symptomatic that Gordon Moore himself has stated that Moore’s Law, long central to the rhetoric of technological triumphalism, no longer applies. The vagaries of the collective imagination are not one of the things that can be reliably predicted about the future, but the giddy claims about December 21, 2012 have me worried. There’s good reason to think that in the year to come we’ll be facing very hard times—not, please note, the imaginary cataclysms of apocalyptic rhetoric, but the sort of slow, plodding, frustratingly mundane hard times our grandparents or great-grandparents faced during the Great Depression before this one—and in such times the glittering promises of apocalyptic fantasy can be hard to resist.

It’s important, though, that at least some of us resist those promises. The grand narratives we’re discussing have another thing in common—they always fail sooner or later—but the narratives of apocalypse by and large fail sooner, more completely, and with more drastic consequences, than most others. The research for my most recent book, Apocalypse Not: Everything You Know About 2012, Nostradamus, And The Rapture Is Wrong was among other things a first-class education in the pointlessness of apocalyptic prophecy. There’s nothing in today’s advance press for December 21, 2012 that doesn’t have precise equivalents in a thousand similar prophecies for a thousand similar dates when nothing happened. One thing this implies, of course, is that there’s precisely no reason to take this prophecy any more seriously.

As I’ve tried to suggest here more than once, on the other hand, there’s a lot that can be done and indeed has to be done to help individuals, families, and communities deal with the prosaic but potent mix of difficulties our society’s misguided choices have brewed up for us. Sitting on our backsides waiting for the space brothers or the Rapture to solve our problems is no more helpful than sitting our our backsides waiting for progress or the free market or algal biodiesel farms to solve our problems. These two ends of the spectrum are twins—think of them as the Tweedledoom and Tweedledee of the imaginary Wonderland that dominates so much collective thinking these days—and getting past them, it seems to me, is an essential step on the way to less futile responses to a challenging future.

Over the next year, as a result, I plan on celebrating Nothing Happened Day in advance with a new weekly feature: the End of the World of the Week Club. Every week, after the usual (or unusual) essay, I’ll be posting a brief discussion of one of the many apocalypses that slipped past its pull date. It should be entertaining and, just possibly, enlightening. If it manages to help at least a few people step outside the hall of mirrors constructed by all those grand narratives that celebrate our supposedly special status, and begin to notice what the world is like when we stop treating ourselves as the center of attention for the entire cosmos, it may even do some good.

Two notes before we get there. First, I’m pleased to report that I was able to talk Viva Editions, the publisher of Apocalypse Not, into offering a winter solstice present to readers of The Archdruid Report. (Yes, one of the benefits of Druidry is that you get your holiday presents a few days early.) From now until January 1, if you go to the Viva Editions website, buy a copy of Apocalypse Not, and type the code APOCNOT25 on the order form where it asks for coupon codes and the like, you’ll get a 25% discount off the cover price. A happy solstice, or whatever else you celebrate at this time of year, to all!

Second, I’m equally pleased to report that Valerie Green and DanceEntropy will be performing Rise and Fall, a work inspired by my book The Long Descent, as part of their show Eternal Return at the Baruch Performing Arts Center in New York City, January 20, 21, and 22—details and tickets are here. If you’re located anywhere near New York, or will be there in late January, check it out.


End of the World of the Week #1

Chicago, December 20, 1954. A circle of typical American suburbanites gathers in a typical backyard on a typical Midwestern winter evening. As evening deepens, they frantically get rid of every scrap of metal on them, down to the eyelets on their shoes. For the last few months they’ve gathered around a housewife turned channeler, Dorothy Martin, who believes she is in contact with intelligent beings from a distant planet, and has been told that a cataclysmic flood will sweep over North America the next day and destroy everything in its path. Martin and her followers have been promised that they will be lifted to safety aboard a flying saucer that night; the prohibition against metal has something, though no one knows quite what, to do with the alien technologies that they believe will save their lives.

The saucer didn’t show, of course, and neither did the flood. The group scattered over the weeks that followed; Martin left Chicago in time to miss a psych evaluation that probably would have landed her in an institution, took the new name of Sister Thedra, and spent the rest of her life preaching the alien gospel to a mostly uninterested world. The entire affair would have passed all but unnoticed, except that a handful of the group’s members were ringers—graduate students from the University of Minnesota who joined the little cult as part of a study. When Prophecy Fails, the book that came out of that study, has become a classic of American sociological literature, and remains well worth reading today—not least because a great deal of the belief system that’s clustered around the supposed end of the Mayan calendar in 2012 comes from sources not noticeably different from the ones that sent Dorothy Martin on her long strange trip.
—story from Apocalypse Not

Wednesday, December 14, 2011

The Future Can't Pay Its Bills

I want to expand here on some of the points raised in last week’s post, because they deal with factors in our situation that operate well below the surface. One of the things that makes the predicament of industrial society so difficult for most people to notice, in fact, is that its effects are woven so deeply into the patterns of everyday life. Over the last decade, for example, crude oil prices have more than tripled; over the last decade, behind a froth of speculative booms and busts, the world’s industrial economies have lurched deeper into depression. Peak oil researchers have pointed out for years that the former trend would bring about the latter, but long after events proved them right, the connection still remains unnoticed by most people.

To be fair, the way most people and nearly all economists think about economics makes this sort of blindness to the obvious hard to avoid. It’s standard these days to treat the circulation of money—the tertiary economy, to use a term from my book The Wealth of Nature—as though it’s all that matters, and to insist that the cycles of nature and the production of goods and services (the primary and secondary economies) will inevitably do whatever we want them to do, so long as there’s enough money. This is why, for instance, you’ll hear economists insisting that the soaring price of oil is good for the economy; after all, all the money being spent to buy oil is getting spent in turn on other things, right?

What this ignores, of course, is the fact that the price of oil is going up, in large part, because petroleum is getting steadily more difficult to extract as we exhaust the easily accessible sources, and so the cost of oil production is going up while the amount of oil being produced is not. As a growing fraction of industrial civilization’s capacity to produce goods and services has to be diverted into oil extraction in order to keep the oil flowing, the amount of that capacity that can be used for anything else decreases accordingly. Notice, though, that this diversion isn’t an obvious thing; it happens one transaction at a time, throughout the economy, as laborers, raw materials, capital, and a thousand other things go into oil production instead of some other economic sector.

The place to begin making sense of the shape of the process under way, it seems to me, is the intriguing article by green economist Herman Daly, cited in last week’s post, about the way that the World Bank’s pursuit of global growth via the worship of economic orthodoxies ran headfirst into a shortage of "bankable projects"—in plain English, economic projects that would yield the ten per cent or so per year necessary to pay off the loan and also make a profit. The World Bank, as Daly recounts, tried to make up for the shortage by lowering its standards, and pouring money into projects that counted as bankable only in the same imaginary world where stock and subprime mortgage-backed securities count as good investments.

The point I’d like to make here, though, is that a shortage of bankable projects has been a problem for some time now in regions not normally consigned to the Third World. The Rust Belt town where I live, Cumberland, Maryland, is one example. Until 1974 it was a significant industrial center, with two large breweries, a tire factory, a fabric mill, and several smaller concerns. 1974, though, was the year that the consequences of America’s first brush with peak oil hit home, and Cumberland was one of the targets. A combination of soaring raw material costs, slumping sales, and competition from overseas shuttered every factory in town, and none ever reopened. Cumberland, like the rest of the Rust Belt, suddenly had a shortage of bankable projects. The shortage wasn’t total—a handful of "big box" stores found construction loans during the retail-empire boom of the 1990s, for example—but rock-bottom real estate prices, favorable tax policies, low labor costs, and two colleges nearby to provide workforce training at state expense couldn’t lure factory jobs back into the region.

That same experience is being repeated now all over America, and for that matter across much of the industrial world. Capital shortage isn’t an issue—with two rounds of quantitative easing and a tacit agreement on the part of bank regulators not to raise awkward questions about the actual value of the paper assets owned by banks, there’s plenty of money available to lend—but loans aren’t being made, and the reason given by bank after bank is that next to nobody who wants to borrow money has a credible plan that will allow them to pay it back. That claim has been rejected with some heat by commentators, but I’ve come to suspect that it may be more accurate than not. That was exactly what happened to Cumberland, after all; in the changed economic environment after 1974, a factory built here wouldn’t have made enough money to pay back the loans that would have been needed to build it, and so the loans weren’t made. Increasingly, that seems to be true of the industrial world as a whole.

All this can be described, in the terms I used in The Wealth of Nature, as a widening mismatch between the tertiary economy of money and the secondary economy of goods and services—or, to put the matter even more simply, a rising tide of paper wealth chasing a falling tide of actual value. Still, I’ve come to think that there’s another way of looking at it—one that unfolds from the perspectives I’ve been discussing here over the last few weeks.

Let’s step away for a moment from the game of arbitrary tokens we call "money," and look at the economy from a thermodynamic perspective, as a system for producing goods and services by applying energy to an assortment of raw materials. Until the coming of the industrial revolution, the vast majority of the energy that went into human economic systems went from sunlight to crops to human and animal muscle, which produced and distributed goods and services. The industrial revolution transformed that equation adding torrents of cheap abundant fossil fuel energy to the annual income from photosynthesis. Only a small fraction of the labor force and other resources had to be diverted from food production to bring this flood of energy into the economic equation, and only a small fraction of fossil fuels had to be cycled back into the fossil fuel extraction process; the rest of the labor force, other resources, and all that additional energy from fossil fuels could be poured into the rest of the economy, producing goods and services in unparalleled amounts.

Physicist Ilya Prigogine has shown by way of intricate equations that the flow of energy through a system increases the complexity of the system. If any further evidence was needed to back up his claims, the history of the world’s industrial economies provides it. The three centuries that followed the development of the first functional steam engines saw economic complexity, measured by the creation of new job categories, soar to a level almost unimaginably greater than any previous civilization had achieved. The bonanza of wealth produced by adding fossil fuel energy to the sun’s annual contribution spread throughout the industrial economies, and the ways and means by which money sprayed outwards from the pockets of coal magnates and oil barons quickly became institutionalized.

Governments, businesses, and societies ballooned in complexity, creating niches for entire ecosystems of office fauna to do tasks the presidents and tycoons of the nineteenth century had accomplished with a tiny fraction of the personnel; workloads obeyed Parkinson’s Law—"work expands so as to fill the time available for its completion"—and everyone found that it was easier to add more staff to get a job done than to get the existing staff to do it themselves. The result, in most industrial societies, is an economy in which only a small fraction of the labor force actually has anything directly to do with the production of goods and services, while the rest are kept busy managing the sprawling social and economic machinery that has come into being to organize, finance, manage, staff, market, advertise, sell, analyze, tax, regulate, review, praise, and denounce the production of goods and services.

What seems to have been lost sight of, though, is that this immense superstructure all rests on the same foundation as any other economy, the use of energy to convert raw materials into goods and services. More to the point, it depends on a certain level of surplus that can be produced in this way, and that depends in turn on being able to add plenty of fossil fuel energy to the economic system without having to divert too large a fraction of the labor force, resource base, and energy supply into the extraction of fossil fuels. Some sense of the difference made by fossil fuels can be measured by comparing the economies of the industrial age to those of societies that, by any other standard, were near the upper end of human social complexity—Tokugawa Japan and Renaissance Italy are the ones that come to mind. Urban, literate, and highly cultured, each of these societies had the resources to support extraordinary artistic, literary, and intellectual creativity. Still, they did this with economies vastly simpler than anything you’ll find in a modern industrial society.

The division of the labor force among economic roles makes a good measure of the difference. In both societies, the largest economic sector, employing around fifty per cent of the adult population (nearly all adult women and most elderly people of both sexes), was the household economy; a good half of the total economic value produced in each society came out of the kitchen gardens, spindles, looms, and other economic facilities associated with households. Another thirty per cent or so of the population in each society, including most of the adult men, was engaged full time in farming and other forms of direct food production; maybe ten per cent of the adult population worked in the skilled trades; and the remaining ten per cent or so was divided between religious professionals, military professionals, artists and performers, aristocrats, and merchants who lived by buying and selling goods produced by others.

The limited range of categories available in those societies was not the result of inadequate cleverness. If some Italian despot or Tokugawa shogun had decided he needed a staff of human resource managers, corporate image consultants, strategic marketing specialists, and the rest of the occupational apparatus of modern business life, say, he would have been out of luck, and if he tried anyway, he would have been out of a job—the resources needed to train and employ some equivalent of modern office fauna would have had to be diverted from more immediate necessities such as training and employing an adequate force of condottieri or samurai, which was not exactly a viable strategy in those times. This is why Italian despots and Tokugawa shoguns got by with relatively small staffs of clerks, scribes, feudal subordinates, and maybe an astrologer; that’s what their economic systems could afford.

Equally, an aspiring craftsman or merchant faced real challenges in expanding his business beyond fairly sharp limits. In a few cases, a combination of luck, technical skill, and adequate transport allowed one region to take on a commanding role in some specific export market, profit considerably from that, and build up an impressive degree of infrastructure; the golden age of Greece was paid for by the profits from Greek wine and olive oil exports, for example, and the woolen trade brought similar benefits to late medieval Flanders. Far more often, though, local needs had to be supplied by local production, because the surplus energy that would have been needed to power long distance trade on a large scale simply didn’t exist, or couldn’t be spared from more pressing needs. Thus the institutional arrangements that governed economic life before the industrial age were as closely tailored to a world of relatively scarce energy, in which most people worked in the household or farming sectors of the economy, as today’s institutional arrangements are tailored to a world awash in cheap abundant energy.

That last point defines the crisis of our times, however, because we no longer live in a world awash in cheap abundant energy. We’ve still got a lot more energy than Renaissance Italy or Tokugawa Japan had, to be sure, but the per capita surplus is not what it once was, and a growing fraction of what we’ve got has had to be diverted to cover increases in direct and indirect energy costs of energy production. Meanwhile, the institutional arrangements are still firmly fixed in place, and they aren’t optional; try starting a business sometime without dealing with banks, real estate companies, licensing boards, tax authorities, et al., and you’ll quickly discover how non-optional these arrangements are.

The mismatch between the economy we’ve got and the economy we can afford has many implications, but one of the largest is precisely the issue I raised earlier in this post: across the industrial world, there are very few bankable projects to be found, even at a time when there are millions of people who need work, and who would happily buy products if they had the chance to earn the money to do so. Our economy is burdened with an unproductive superstructure it can no longer support. The globalization fad of the 1990s, which arbitraged the difference in wage costs between Third World sweatshops and industrial-world factories, was in effect an attempt to evade the resulting difficulties by throwing the industrial nations’ working classes under the bus, and it only worked for a decade or so; as so often happens in the declining years of a civilization, a short term fix was treated as a long term solution, and a brief remission of symptoms allowed the underlying crisis to worsen steadily.

Over the long run, the mismatch is a problem that will solve itself; once the unraveling of the industrial economy goes far enough, the superstructure will come apart, leaving a great many human resource managers, corporate image consultants, strategic marketing specialists, and the like with about as much chance of finding jobs in their fields as they would have had 17th-century Osaka or 14th-century Milan. In the short and middle term, though, the mismatch will almost certainly continue to show itself in exactly the same way that it’s been visible over the last few decades: more and more often, business ventures simply won’t be able to make enough money to cover startup costs or to stay in business.

Of course there will be exceptions. We are talking about a shift that will appear, as it has appeared so far, as a shifting of statistical averages, and the background of ordinary economic fluctuations will make it more than usually difficult to tease out the signal from the noise. Even in hard times, some ventures make fortunes; what makes hard times differ from boomtimes is that the fortunes are fewer, and the odds of making one of them come more and more to resemble the odds of walking away from a Vegas casino with a six-figure jackpot.

All this has two implications, it seems to me, that are of core importance for the shape of our future. The first is simply that those of my readers whose plans for the future depend on holding down a job may have a very hard row to hoe. The shift under way in the economy will more than likely squeeze the current model of economic life from both ends—as it becomes harder to find, keep, and earn a decent living at an ordinary job, businesses will continue to fold, debase their products, or both, and so it will also become harder to convert the income from an ordinary job back into goods and services worth having. One of the core themes I’ve been discussing here for some time now, the need to move at least one family member out of employment into the household economy, is in part a response to that situation; what you produce yourself for your own consumption doesn’t pay a share of the costs of the economic superstructure. Beyond that, the deterioration of the official economy is accompanied, as pretty much always happens, by the growth of alternative economic networks that allow goods and services to be exchanged outside normal channels; it may be a while before those networks become solid enough to support more than a few people, but taking part in exchanges through these networks even in their early stages may be worthwhile.

The second implication also relates to a core theme of this blog, though it’s on a larger scale. While other economic arrangements are certainly imaginable, the one we have right now is strictly limited in what it can accomplish by what can make a profit: to repeat Daly’s term, it has to be a bankable project, or by and large, it won’t get done. This may just turn out to be a far more dangerous limitation than anybody has yet realized. There are, after all, any number of plans for grand projects in response to the end of the age of cheap abundant energy; each of them would require the investment of a great deal of capital, labor, raw materials, and other resources; and under present arrangements, none of them can go forward unless someone can count on making a profit from making them happen. Under present arrangements, in turn, it’s likely that none of them will be profitable enough to get a construction loan or to cover their operating costs once they get built.

We’ve already seen a solid prefigure of this in the ethanol bubble of a few years ago, in which firms in corn states rushed to build ethanol plants. Even with government subsidies and a guaranteed market, a great many of those plants are now bankrupt and shuttered. It’s an open secret that many recent solar and wind energy projects make money only because of government subsidies. Grandiose plans to turn large swathes of Nevada into algal biodiesel farms or vast solar arrays are arguably even more likely to be subject to the same rule—and the subsidies in these latter cases would be ruinously expensive. Earlier posts here have discussed some of the other reasons why such projects will not be built; if the pattern I’ve sketched here is anything to go by, though, the future these projects imagine won’t arrive, because it won’t be able to pay its bills.

Wednesday, December 07, 2011

What Peak Oil Looks Like

There are times when the unraveling of a civilization stands out in sharp relief, but more often that process makes itself seen only in the sort of scattered facts and figures that take a sharp eye to notice and assemble into a meaningful picture. How often, I wonder, did the prefects of imperial Rome look up from the daily business of mustering legions and collecting tribute to notice the crumbling of the foundations on which their whole society rested?

Nowadays, certainly, that broader vision is hard to find. It’s symptomatic that in the last few weeks I’ve fielded a fair number of emails insisting that the peak oil theory—of course it’s not a theory at all; it’s a hard fact that the extraction of a finite oil supply in the ground will sooner or later reach a peak and begin to decline—has been rendered obsolete by the latest flurry of enthusiastic claims about shale oil and the like. Enthusiastic claims about the latest hot new oil prospect are hardly new, and indeed they’ve been central to cornucopian rhetoric since M. King Hubbert’s time. A decade ago, it was the Caspian Sea oilfields that were being invoked as supposedly conclusive evidence that a peak in global conventional petroleum production wouldn’t arrive in our lifetimes. Compare the grand claims made for the Caspian fields back then, and the trickle of production that actually resulted from those fields, and you get a useful reality check on the equally sweeping claims now being made for the Bakken shale, but that’s not a comparison many people want to make just now.

On the other side of the energy spectrum, those who insist that we can power some equivalent of our present industrial system on sun, wind, and other diffuse renewable sources have been equally vocal, and those of us who raise reasonable doubts about that insistence can count on being castigated as “doomers.” It’s probably not accidental that this particular chorus seems to go up in volume with every ethanol refinery or solar panel manufacturer that goes broke and every study showing that the numbers put forth to back some renewable energy scheme simply don’t add up. It’s no more likely to be accidental that the rhetoric surrounding the latest fashionable fossil fuel play heats up steadily as production at the world’s supergiant fields slides remorselessly down the curve of depletion. The point of such rhetoric, as I suggested in a post a while back, isn’t to deal with the realities of our situation; it’s to pretend that those realities don’t exist, so that the party can go on and the hard choices can be postponed just a little longer.

Thus our civilization has entered what John Kenneth Galbraith called “the twilight of illusion,” the point at which the end of a historical process would be clearly visible if everybody wasn’t so busy finding reasons to look somewhere else. A decade ago, those few of us who were paying attention to peak oil were pointing out that if the peak of global conventional petroleum production arrived before any meaningful steps were taken, the price of oil would rise to previously unimagined heights, crippling the global economy and pushing political systems across the industrial world into a rising spiral of dysfunction and internal conflict. With most grades of oil above $100 a barrel, economies around the world mired in a paper “recovery” worse than most recessions, and the United States and European Union both frozen in political stalemates between regional and cultural blocs with radically irreconcilable agendas, that prophecy has turned out to be pretty much square on the money, but you won’t hear many people mention that these days.

The point that has to be grasped just now, it seems to me, is that this is what peak oil looks like. Get past the fantasies of sudden collapse on the one hand, and the fantasies of limitless progress on the other, and what you get is what we’re getting—a long ragged slope of rising energy prices, economic contraction, and political failure, punctuated with a crisis here, a local or regional catastrophe there, a war somewhere else—all against a backdrop of disintegrating infrastructure, declining living standards, decreasing access to health care and similar services, and the like, which of course has been happening here in the United States for some years already. A detached observer with an Olympian view of the country would be able to watch things unravel, as such an observer could have done up to now, but none of us have been or will be detached observers; at each point on the downward trajectory, those of us who still have jobs will be struggling to hang onto them, those who have lost their jobs will be struggling to stay fed and clothed and housed, and those crises and catastrophes and wars, not to mention the human cost of the broader background of decline, will throw enough smoke in the air to make a clear view of the situation uncommonly difficult to obtain.

Meanwhile those who do have the opportunity to get something approaching a clear view of the situation will by and large have every reason not to say a word about what they see. Politicians and the talking heads of the media will have nothing to gain from admitting the reality and pace of our national decline, and there will be a certain wry amusement to be had in watching them scramble for reasons to insist that things are actually getting better and a little patience or a change of government will bring good times back again. There will doubtless be plenty of of the sort of overt statistical dishonesty that insists, for example, that people who no longer get unemployment benefits are no longer unemployed—that’s been standard practice in the United States for decades now, you know. It’s standard for governments that can no longer shape the course of events to fixate on appearances, and try to prop up the imagery of the power and prosperity they once had, long after the substance has slipped away.

It’s no longer necessary to speculate, then, about what kind of future the end of the age of cheap abundant energy will bring to the industrial world. That package has already been delivered, and the economic rigor mortis and political gridlock that have tightened its grip on this and so many other countries in the industrial world are, depending on your choice of metaphor, either part of the package or part of the packing material, scattered across the landscape like so much bubble wrap. Now that the future is here, abstract considerations and daydreaming about might-have-beens need to take a back seat to the quest to understand what’s happening, and work out coping strategies to deal with the Long Descent now that it’s upon us.

Here again, those scattered facts and figures I mentioned back at the beginning of this week’s post are a better guide than any number of comforting assurances, and the facts I have in mind just at the moment were brought into focus by an intriguing essay by ecological economist Herman Daly.

In the murky firmament of today’s economics, Daly is one of the few genuinely bright stars. A former World Bank official as well as a tenured academic, Daly has earned a reputation as one of the very few economic thinkers to challenge the dogma of perpetual growth, arguing forcefully for a steady state economic system as the only kind capable of functioning sustainably on a finite planet. The essay of his that I cited above, which I understand is scheduled to be published in an expanded form in the journal Ecological Economics, covers quite a bit of ground, but the detail I want to use here as the starting point for an unwelcome glimpse at the constraints bearing down on our future appears in the first few paragraphs.

In his training as an economist, Daly was taught, as most budding economists are still taught today, that inadequate capital is the most common barrier to the development of the so-called "developing" (that is, nonindustrial, and never-going-to-develop) nations. His experience in the World Bank, though, taught him that this was almost universally incorrect. The World Bank had plenty of capital to lend; the problem was a shortage of "bankable projects"—that is, projects that, when funded by a World Bank loan, would produce the returns of ten per cent a year or so that would be needed to pay off the loan and and also contribute to the accumulation of capital within the country.

It takes a familiarity with the last half dozen decades of economic literature to grasp just how sharply Daly’s experience flies in the face of the conventional thinking of our time. Theories of economic development by and large assume that every nonindustrial nation will naturally follow the same trajectory of development as today’s industrial nations did in the past, building the factories, hiring the workers, providing the services, and in the process generating the same ample profits that made the industrialization of Britain, America, and other nations a self-sustaining process. Now of course Britain, America, and other nations that succeeded in industrializing each did so behind a wall of protective tariffs and predatory trade policies that sheltered industries at home against competition, a detail that gets discussed next to nowhere in the literature on development and was ignored in the World Bank’s purblind enthusiasm for free trade. Still, there’s more going on here.

In The Power of the Machine, Alf Hornborg has pointed out trenchantly that the industrial economy is at least as much a means of wealth concentration as it is one of wealth production. In the early days of the Industrial Revolution, when the hundreds of thousands of independent spinners and weavers who had been the backbone of Britain’s textile industry were driven out of business by the mills of the English Midlands, the income that used to be spread among the latter went to a few mill owners and investors instead, with a tiny fraction reserved for the mill workers who tended the new machines at starvation wages. That same pattern expanded past a continental scale as spinners and weavers across much of the world were forced out of work by Britain’s immense cloth export industry, and money that might have stayed in circulation in countries around the globe went instead into the pockets of English magnates.

Throughout the history of the industrial age, that was the pattern that drove industrialism: from 18th century Britain to post-World War II Japan, a body of wealthy men in a country with a technological edge and ample supplies of cheap labor could build factories, export products, tilt the world’s economy in their favor, and make immense profits. In the language of Daly’s essay, industrial development in such a context was a bankable project, capable of producing much more than ten per cent returns. What has tended to be misplaced in current thinking about industrial development, though, is that at least two conditions had to be met for that to happen. The first of them, as already mentioned, is exactly the sort of protective trade policies that the World Bank and the current economic consensus generally are unwilling to contemplate, or even to mention.

The second, however, cuts far closer to the heart of our current predicament. The industrial economy as it evolved from the 18th century onward depended utterly on the ability to replace relatively expensive human labor with cheap fossil fuel energy. The mills of the English Midlands mentioned above were able to destroy the livelihoods of hundreds of thousands of independent spinners and weavers because, all things considered, it was far cheaper to build a spinning jenny or a power loom and fuel it with coal than it was to pay for the skilled craftsmen and craftswomen who did the same work in an earlier day. In economic terms, in other words, industrialism is a system of arbitrage.

Those of my readers who aren’t fluent in economic jargon deserve a quick definition of that last term. Arbitrage is the fine art of profiting off the difference in price between the same good in two or more markets. The carry trade, one of the foundations of the global economic system that came apart at the seams in 2008, was a classic example of arbitrage. In the carry trade, financiers borrowed money in Japan, where they could get it at an interest rate of one or two per cent per year, and then lent it at some higher interest rate elsewhere in the world. The difference between interest paid and interest received was pure profit.

What sets industrialism apart from other arbitrage schemes was that it arbitraged the price difference between different forms of energy. Concentrated heat energy, in the form of burning fossil fuel, was cheap; mechanical energy, in the form of complex movements performed by the hands of spinners and weavers, was expensive. The steam engine and the machines it powered, such as the spinning jenny and power loom, turned concentrated heat into mechanical energy, and opened the door to what must have been the most profitable arbitrage operation of all time. The gargantuan profits yielded by this scheme provided the startup capital for further rounds of industrialization and thus made possible the immense economic transformations of the industrial age.

That arbitrage, however, depended—as all arbitrage schemes do—on the price difference between the markets in question. In the case of industrialism, the difference was always fated to be temporary, because the low price of concentrated heat was purely a function of the existence of vast, unexploited reserves of fossil fuels that could easily be accessed by human beings. For obvious reasons, the most readily accessible reserves were mined or drilled first, and so as time passed, production costs for fossil fuels—not to mention the many other natural materials needed for industrial projects, and thus necessary for the arbitrage operation to continue—went up, slowly at first, and more dramatically in the last decade or so.

I suspect that the shortage of bankable projects in the nonindustrial world that Herman Daly noted was an early symptom of that last process. Since nonindustrial nations in the 1990s were held (where necessary, at gunpoint) to the free trade dogma fashionable just then, the first condition for successful industrialization—a protected domestic market in which new industries could be sheltered from competition—was nowhere to be seen. At the same time, the systemic imbalances between rich and poor countries—themselves partly a function of industrial systems in the rich countries, which pumped wealth out of the poor countries and into corner offices in Wall Street and elsewhere—meant that human labor simply wasn’t that much more expensive than fossil fuel energy.

That was what drove the "globalization" fad of the 1990s, after all: another round of arbitrage, in which huge profits were reaped off the difference between labor costs in industrial and nonindustrial countries. Very few people seem to have noticed that globalization involved a radical reversal of the movement toward greater automation—that is, the use of fossil fuel energy to replace human labor. When the cost of hiring a sweatshop laborer became less than the cost of paying for an equivalent amount of productive capacity in mechanical form, the arbitrage shifted into reverse; only the steep differentials in wage costs between the Third World and the industrial nations, and a vast amount of very cheap transport fuel, made it possible for the arbitrage to continue.

Still, at this point the same lack of bankable projects has come home to roost. A series of lavish Fed money printing operations (the euphemism du jour is "quantitative easing") flooded the banking system in the United States with immense amounts of cheap cash, in an attempt to make up for the equally immense losses the banking system suffered in the aftermath of the 2005-2008 real estate bubble. Pundits insisted, at least at first, that the result would be a flood of new loans to buoy the economy out of its doldrums, but nothing of the kind happened. There are plenty of reasons why it didn’t happen, but a core reason was simply that there aren’t that many business propositions in the industrial world just now that are in a position to earn enough money to pay back loans.

Among the few businesses that do promise a decent return on investment are the ones involved in fossil fuel extraction, and so companies drilling for oil and natural gas in shale deposits—the latest fad in the fossil fuel field—have more capital than they know what to do with. The oil boomtowns in North Dakota and the fracking projects stirring up controversy in various corners of the Northeast are among the results. Elsewhere in the American economy, however, good investments are increasingly scarce. For decades now, profits from the financial industry and speculation have eclipsed profits from the manufacture of goods—before the 2008 crash, it bears remembering, General Motors made far more profit from its financing arm than it did from building cars—and that reshaping of the economy seems to be approaching its logical endpoint, the point at which it’s no longer profitable for the industrial economy to manufacture anything at all.

I have begun to suspect that this will turn out to be one of the most crucial downsides of the arrival of peak oil. If the industrial economy, as I’ve suggested, was basically an arbitrage scheme profiting off the difference in cost between energy from fossil fuels and energy from human laborers, the rising cost of fossil fuels and other inputs needed to run an industrial economy will sooner or later collide with the declining cost of labor in an impoverished and overcrowded society. As we get closer to that point, it seems to me that we may begin to see the entire industrial project unravel, as the profits needed to make industrialism make sense dry up. If that’s the unspoken subtext behind the widening spiral of economic dysfunction that seems to be gripping so much of the industrial world today, then what we’ve seen so far of what peak oil looks like may be a prologue to a series of wrenching economic transformations that will leave few lives untouched.