The political transformations that have occupied the last four posts in this sequence can also be traced in detail in the economic sphere. A strong case could be made, in fact, that the economic dimension is the more important of the two, and the political struggles that pit the elites of a faliing civilization against the proto-warlords of the nascent dark age reflect deeper shifts in the economic sphere. Whether or not that’s the case—and in some sense, it’s simply a difference in emphasis—the economics of decline and fall need to be understood in order to make sense of the trajectory ahead of us.
One of the more useful ways of understanding that trajectory was traced out some years ago by Joseph Tainter in his book The Collapse of Complex Societies. While I’ve taken issue with some of the details of Tainter’s analysis in my own work, the general model of collapse he offers was also a core inspiration for the theory of catabolic collapse that provides the basic structure for this series of posts, so I don’t think it’s out of place to summarize his theory briefly here.
Tainter begins with the law of diminishing returns: the rule, applicable to an astonishingly broad range of human affairs, that the more you invest—in any sense—in any one project, the smaller the additional return is on each unit of additional investment. The point at which this starts to take effect is called the point of diminishing returns. Off past that point is a far more threatening landmark, the point of zero marginal return: the point, that is, when additional investment costs as much as the benefit it yields. Beyond that lies the territory of negative returns, where further investment yields less than it costs, and the gap grows wider with each additional increment.
The attempt to achieve infinite economic growth on a finite planet makes a fine example of the law of diminishing returns in action. Given the necessary preconditions—a point we’ll discuss in more detail a bit later in this post—economic growth in its early stages produces benefits well in excess of its costs. Once the point of diminishing returns is past, though, further growth brings less and less benefit in any but a purely abstract, financial sense; broader measures of well-being fail to keep up with the expansion of the economy, and eventually the point of zero marginal return arrives and further rounds of growth actively make things worse.
Mainstream economists these days shove these increments of what John Ruskin used to call “illth”—yes, that’s the opposite of wealth—into the category of “externalities,” where they are generally ignored by everyone who doesn’t have to deal with them in person. If growth continues far enough, though, the production of illth overwhelms the production of wealth, and we end up more or less where we are today, where the benefits from continued growth are outweighed by the increasingly ghastly impact of the social, economic, and environmental “externalities” driven by growth itself. As The Limits to Growth pointed out all those years ago, that’s the nature of our predicament: the costs of growth rise faster than the benefits and eventually force the industrial economy to its knees.
Tainter’s insight was that the same rules can be applied to social complexity. When a society begins to add layers of social complexity—for example, expanding the reach of the division of labor, setting up hierarchies to centralize decisionmaking, and so on—the initial rounds pay off substantially in terms of additional wealth and the capacity to deal with challenges from other societies and the natural world. Here again, though, there’s a point of diminishing returns, after which additional investments in social complexity yield less and less in the way of benefits, and there’s a point of zero marginal return, after which each additional increment of complexity subtracts from the wealth and resilience of the society.
There’s a mordant irony to what happens next. Societies in crisis reliably respond by doing what they know how to do. In the case of complex societies, what they know how to amounts to adding on new layers of complexity—after all, that’s what’s worked in the past. I mentioned at the beginning of this month, in an earlier post in this sequence, the way this plays out in political terms. The same thing happens in every other sphere of collective life—economic, cultural, intellectual, and so on down the list. If too much complexity is at the root of the problems besetting a society, though, what happens when its leaders keep adding even more complexity to solve those problems?
Any of my readers who have trouble coming up with the answer might find it useful to take a look out the nearest window. Whether or not Tainter’s theory provides a useful description of every complex society in trouble—for what it’s worth, it’s a significant part of the puzzle in every historical example known to me—it certainly applies to contemporary industrial society. Here in America, certainly, we’ve long since passed the point at which additional investments in complexity yield any benefit at all, but the manufacture of further complexity goes on apace, unhindered by the mere fact that it’s making a galaxy of bad problems worse. Do I need to cite the US health care system, which is currently collapsing under the sheer weight of the baroque superstructure of corporate and government bureaucracies heaped on top of what was once the simple process of paying a visit to the doctor?
We can describe this process as intermediation—the insertion of a variety of intermediate persons, professions, and institutions between the producer and the consumer of any given good or service. It’s a standard feature of social complexity, and tends to blossom in the latter years of every civilization, as part of the piling up of complexity on complexity that Tainter discussed. There’s an interesting parallel between the process of intermediation and the process of ecological succession. Just as an ecosystem, as it moves from one sere (successional stage) to the next, tends to produce ever more elaborate food webs linking the plants whose photosynthesis starts the process with the consumers of detritus at its end, the rise of social complexity in a civilization tends to produce ever more elaborate patterns of intermediation between producers and consumers.
Contemporary industrial civilization has taken intermediation to an extreme not reached by any previous civilization, and there’s a reason for that. White’s Law, one of the fundamental rules of human ecology, states that economic development is a function of energy per capita. The jackpot of cheap concentrated energy that industrial civilization obtained from fossil fuels threw that equation into overdrive, and economic development is simply another name for complexity. The US health care system, again, is one example out of many; as the American economy expanded metastatically over the course of the 20th century, an immense army of medical administrators, laboratory staff, specialists, insurance agents, government officials, and other functionaries inserted themselves into the notional space between physician and patient, turning what was once an ordinary face to face business transaction into a bureaucratic nightmare reminiscent of Franz Kafka’s The Castle.
In one way or another, that’s been the fate of every kind of economic activity in modern industrial society. Pick an economic sector, any economic sector, and the producers and consumers of the goods and services involved in any given transaction are hugely outnumbered by the people who earn a living from that transaction in some other way—by administering, financing, scheduling, regulating, taxing, approving, overseeing, facilitating, supplying, or in some other manner getting in there and grabbing a piece of the action. Take the natural tendency for social complexity to increase over time, and put it to work in a society that’s surfing a gargantuan tsunami of cheap energy, in which most work is done by machines powered by fossil fuels and not by human hands and minds, and that’s pretty much what you can expect to get.
That’s also a textbook example of the sort of excess complexity Joseph Tainter discussed in The Collapse of Complex Societies, but industrial civilization’s dependence on nonrenewable energy resources puts the entire situation in a different and even more troubling light. On the one hand, continuing increases in complexity in a society already burdened to the breaking point with too much complexity pretty much guarantees a rapid decrease in complexity not too far down the road—and no, that’s not likely to unfold in a nice neat orderly way, either. On the other, the ongoing depletion of energy resources and the decline in net energy that unfolds from that inescapable natural process means that energy per capita will be decreasing in the years ahead—and that, according to White’s Law, means that the ability of industrial society to sustain current levels of complexity, or anything like them, will be going away in the tolerably near future.
Add these trends together and you have a recipe for the radical simplification of the economy. The state of affairs in which most people in the work force have only an indirect connection to the production of concrete goods and services to meet human needs is, in James Howard Kunstler’s useful phrase, an arrangement without a future. The unraveling of that arrangement, and the return to a state of affairs in which most people produce goods and services with their own labor for their own, their families’, and their neighbors’ use, will be the great economic trend of the next several centuries.
That’s not to say that this unraveling will be a simple process. All those millions of people whose jobs depend on intermediation, and thus on the maintenance of current levels of economic complexity, have an understandable interest in staying employed. That interest in practice works out to an increasingly frantic quest to keep people from sidestepping the baroque corporate and bureaucratic economic machine and getting goods and services directly from producers.
That’s a great deal of what drives the ongoing crusade against alternative health care—every dollar spent on herbs from a medical herbalist or treatments from an acupuncturist is a dollar that doesn’t go into feeding the gargantuan corporations and bureaucracies that are supposed to provide health care for Americans, and sometimes even do so. The same thing is driving corporate and government attacks on local food production, since every dollar a consumer spends buying zucchini from a backyard farmer doesn’t prop up the equally huge and tottering mass of institutions that attempt to control the production and sale of food in America.
It’s not uncommon for those who object to these maneuvers to portray them as the acts of a triumphant corporate despotism on the brink of seizing total power over the planet. I’d like to suggest that they’re something quite different. While the American and global economies are both still growing in a notional sense, the measures of growth that yield that result factor in such things as the manufacture of derivatives and a great many other forms of fictive wealth.
Subtract those from the national and global balance sheet, and the result is an economy in contraction. The ongoing rise in the permanently jobless, the epidemic of malign neglect affecting even the most crucial elements of America’s infrastructure, and the ongoing decline in income and living standards among all those classes that lack access to fictive wealth, among many other things, all tell the same story. Thus it’s far from surprising that all the people whose jobs are dependent on intermediation, all the way up the corporate food chain to the corner offices, are increasingly worried about the number of people who are trying to engage in disintermediation—to buy food, health care, and other goods and services directly from the producers.
Their worries are entirely rational. One of the results of the contraction of the real economy is that the costs of intermediation, financial and otherwise, have not merely gone through the roof but zoomed off into the stratosphere, with low earth orbit the next logical stop. Health care, again, is among the most obvious examples. In most parts of the United States, for instance, a visit to the acupuncturist for some ordinary health condition will typically set you back well under $100, while if you go to an MD for the same thing you’ll be lucky to get away for under $1000, counting lab work and other costs—and you can typically count on thirty or forty minutes of personal attention from the acupuncturist, as compared to five or ten minutes with a harried and distracted MD. It’s therefore no surprise that more and more Americans are turning their backs on the officially sanctioned health care industry and seeking out alternative health care instead.
They’d probably be just as happy to go to an ordinary MD who offered medical care on the same terms as the acupuncturist, which happen to be the same terms that were standard a century ago for every kind of health care. As matters stand, though, physicians are dependent on the system as it presently exists; their standing with their peers, and even their legal right to practice medicine, depends on their willingness to play by the rules of intermediation—and of course it’s also true that acupuncturists don’t generally make the six-figure salaries that so many physicians do in America. A hundred years ago, the average American doctor didn’t make that much more than the average American plumber; many of the changes in the US health care system since that time were quite openly intended to change that fact.
A hundred years ago, as the United States moved through the early stages of its age of imperial excess, that was something the nation could afford. Equally, all the other modes of profiteering, intermediation, and other maneuvers aimed at maximizing the take of assorted economic sectors were viable then,since a growing economy provides plenty of slack for such projects. As the economics of growth gave way to the economics of stagnation in the last quarter of the 20th century, such things became considerably more burdensome. As stagnation gives way to contraction, and the negative returns on excess complexity combine with the impact of depleting nonrenewable resources, the burden is rapidly becoming more than the US economy or the wider society can bear.
The result, in one way or another, will be disintermediation: the dissolution of the complex relations and institutions that currently come between the producer and the consumer of goods and services, and their replacement by something much less costly to maintain. “In one way or another,” though, covers a great deal of ground, and it’s far from easy to predict exactly how the current system will come unglued in the United States or, for that matter, anywhere else.
Disintermediation might happen quickly, if a major crisis shatters some central element of the US economic system—for example, the financial sector—and forces the entire economy to regroup around less abstract and more local systems of exchange. It might happen slowly, as more and more of the population can no longer afford to participate in the intermediated economy at all, and have to craft their own localized economies from the bottom up, while the narrowing circle of the well-to-do continue to make use of some equivalent of the current system for a long time to come. It might happen at different rates in different geographical areas—for example, cities and their suburbs might keep the intermediated economy going long after rural areas have abandoned it, or what have you.
Plenty of people these days like to look forward to some such transformation, and not without reason. Complexity has long since passed the point of negative returns in the US economy, as in most other aspects of American society, and the coming of disintermediation across a wide range of economic activities will arguably lead to significant improvements in many aspects of our collective life. That said, it’s not all roses and affordable health care. The extravagant rates of energy per capita that made today’s absurdly complex economy possible also made it possible for millions of Americans to make their living working in offices and other relatively comfortable settings, rather than standing hip deep in hog manure with a shovel in their hands, and it also allowed them to earn what currently passes for a normal income, rather than the bare subsistence that’s actually normal in societies that haven’t had their economies inflated to the bursting point by a temporary glut of cheap energy.
It was popular a number of years back for the urban and suburban middle classes, most of whom work in jobs that only exist due to intermediation, to go in for “voluntary simplicity”—at best a pallid half-equivalent of Thoreau’s far more challenging concept of voluntary poverty, at worst a marketing gimmick for the consumption of round after round of overpriced “simple” products. For all its more embarrassing features, the voluntary simplicity movement was at least occasionally motivated by an honest recognition of the immediate personal implications of Tainter’s fundamental point—that complexity taken past the point of diminishing returns becomes a burden rather than a benefit.
In the years ahead of us, a great many of these same people are going to experience what I suppose might best be called involuntary simplicity: the disintermediation of most aspects of economic life, the departure of lifestyles that can only be supported by the cheap abundant energy of the recent past, and a transition to the much less complex—and often, much less comfortable—lifestyles that are all that’s possible in a deindustrial world. There may be a certain entertainment value in watching what those who praised voluntary simplicity to the skies think of simple living when it’s no longer voluntary, and there’s no way back to the comforts of a bygone era.
In other news, I'm pleased to report that Twilight's Last Gleaming, my novel of the fall of America's empire based on 2012's "How It Could Happen" series of posts, is hot off the press and available from the publisher with free shipping worldwide. The novel also has its own Facebook page for fans of social media. By all means check it out.