[Pops]

If we can’t change our economic system, our number’s up

Economic growth is an artefact of the use of fossil fuels. Before large amounts of coal were extracted, every upswing in industrial production would be met with a downswing in agricultural production, as the charcoal or horse power required by industry reduced the land available for growing food. Every prior industrial revolution collapsed, as growth could not be sustained. But coal broke this cycle and enabled – for a few hundred years – the phenomenon we now call sustained growth.

It was neither capitalism nor communism that made possible the progress and pathologies (total war, the unprecedented concentration of global wealth, planetary destruction) of the modern age. It was coal, followed by oil and gas. The meta-trend, the mother narrative, is carbon-fuelled expansion. Our ideologies are mere subplots. Now, with the accessible reserves exhausted, we must ransack the hidden corners of the planet to sustain our impossible proposition.


... Statements of the bleeding obvious, the outcomes of basic arithmetic, are treated as exotic and unpardonable distractions, while the impossible proposition by which we live is regarded as so sane and normal and unremarkable that it isn’t worthy of mention. That’s how you measure the depth of this problem: by our inability even to discuss it

This was on the front page and the comments went right to fiat money, banking, etc, I started to comment there but put in too much time so thought I'd start a thread. LOL


Currency must come from somewhere, collecting pretty seashells or caco nuts; "mining" Bitcoins or gold are all ways of creating money from thin air; it just happens that we do it by double entry accounting.

The bank enters some digits into a deposit account and some into a loan account and voila, you have "money" to buy a house. Nothing is actually created, certainly not by the bank: it has a loan paper (asset) and a "deposit" in your name (liability) - add them together and they equal zero. You write a check and you have the same; an asset: nominal ownership and a liability: the mortgage: add them together and they equal zero. The bottom line in double entry accounting is always zero, assets minus liabilities [plus equity]. The only thing real in the transaction is the house and the ability to buy it today instead of tomorrow, that is paid for in interest, just rent on money.

What happens after you buy the house is where actual new value is created and actual growth happens - YOU go out and create value by applying your time and skill to some task or raw material (like building another house) and whatever value is left over is the only real new value in the system, that is growth. So when you say "growth" think about your paycheck, because some part of it (and your boss's profits) are the reality of growth.

Turns out, that real value you created allows you to pay off the interest on the loan, the money rent.

Just like you trade some of the actual value you create for various goods and services provided by others, you also trade some of that value for the bank's service, which is allowing you to "buy" a house today and pay for it with money you'll make tomorrow. Again, the only "growth" in the whole system is created by the individual creating something of value - it isn't banks or governments or corporations - take all those away and one person doing a job of work will still create new value: growth, just the same as has been going on since forever.

Not exactly evil and if that were the extent of it it wouldn't be all that bad. The problem is that borrowing against the future as we have designed the system today enables our basic greedy nature. Consuming today at the expense of tomorrow accelerates consumption and the extraction of "natural resources. So it isn't banking and it isn't "growth" that is necessarily evil, it is the base human desire to have more and have it now.


Having said all that, all modern work and supercharged rates of growth are just a fad, a fossil fueled hot air balloon ride. Take away the fuel and the balloon deflates and descends. The only radical thing you need to understand is that the ride is temporary, the fuel tank will eventually empty and you should be prepared for landing or at least decent. Whether or not the ride is over before we trash the place is still to be seen.

[Timo]

Excellent, excellent points! Two thoughts emerge. #1, what does the word "mortgage" actually mean? Two parts: "mort" and gage". Mort is easy. "Death". "Gage"? It's a pledge. A mortgage is a pledge until death. It's like getting married to some one who lends you money. You pledge to pay it back until the day you die. Second thought is if nothing of real value is created through normal financial transactions, like the mortgage on your house, and any real value is created only after you buy it, then perhaps the answer is a ramped-up value added tax in order to keep our collective government afloat. Company A buys some raw product worth only what they pay for it. They add value to that product by making it into something else, thus value added. They then sell it to someone else who changes it a little more to add value, sell it, repeat until that product becomes obsolete. Ahh! That's the demise of our system. Our products are created to be disposable! Value can be added until its lifespan is over. Then, we throw it all away. Raw product gone, along with all of the added value that it ever had. All that's left is the money used to purchase everything that went into it. Whowever bought that product is now lacking their original investment. Nothing of real, sustained value created at all.

[GHung]

As I posted over at CNN/Money this morning (a thread on the so-called jobs recovery):

As the fossil fuel age winds down, so will our unprecedented prosperity. Your job is entirely an artifact of burning things. Whomever your leaders are, they are stuck with that reality.

It still hasn't sunk in that leadership is impotent as they attempt to react to a greater, massively systemic process. Humans need to believe they are in control, at least on some level. As the sins of their fathers become glaringly self-evident, society's reaction will be interesting, but predictable; blame the other guy. We'll continue to make war on ourselves, until we can't. It's the fallback solution to everything. I call it 'Plan W".

[Timo]

As I posted over at CNN/Money this morning (a thread on the so-called jobs recovery):

As the fossil fuel age winds down, so will our unprecedented prosperity. Your job is entirely an artifact of burning things. Whomever your leaders are, they are stuck with that reality.

It still hasn't sunk in that leadership is impotent as they attempt to react to a greater, massively systemic process. Humans need to believe they are in control, at least on some level. As the sins of their fathers become glaringly self-evident, society's reaction will be interesting, but predictable; blame the other guy. We'll continue to make war on ourselves, until we can't. It's the fallback solution to everything. I call it 'Plan W".

If you stop and think about it, and look at the nature and character of our "leaders" now days, thier collective MO is to get relected, or simply to get elected on the promise of maintaining, or restoring the status quo. Addressing reality to us, the voters, won't win in todays polysystem. Address reality in a meaningful way and you lose. Todays politics is about gaining control, not addressing reality.

[efarmer]

I am glad to get all of this information right away when I want it instead of having to wait until I have paid for it, the interest is low right now, which always makes me hot to buy. Thanks Pops!

[Pops]

cuba goes here please
topic69842.html

[manicthrasher]

Two parts: "mort" and gage". Mort is easy. "Death". "Gage"? It's a pledge. A mortgage is a pledge until death.

Hi Timo. In the legal sense, a mortgage is a method of financing where the creditor has title to the property until the debt is repaid. This is in contrast to unsecured debt, where the creditor has no title to specific property. In regard to your quote, I see the 'mort' part referring to the 'death' of the debt, and not the physical death of the debtor. We are indentured to debt, for sure, but it's not necessarily an arrangement that we (individually) take to our graves. Although I would have liked to have been the sleazy banker who came up with the term! Cheers.

[americandream]

As I have been banging on since I joined this site, the problem is systemic, it stems from a social economy that sprung out of the ravaged Enclosure era feudal England and is utterly unsuited to a world of 7 billion plus. We cannot wish away the modernity of Reason. However, we can manage it within a communal set of social relations (communism), relations based around the satisfying of needs, not fabricated wants. Either that or eventual extinction as we sail past the planets limits and into history.

[Ibon]

The author said, That’s how you measure the depth of this problem: by our inability even to discuss it

Are we getting anywhere nearer then say 10 years ago as a society to confront this fallacy of growth?

I would say we have inched a little closer but are still a ways away.

I believe that at some point the desperation in chasing the last of the carbon fuel reserves accompanied by continued stagnant economic growth will create pressures that will bust through this collective denial.

And once this is acknowledged and discussed. Then what?

I am trying to forecast how our society dropping the denial will then move forward.

[Ibon]

However, we can manage it within a communal set of social relations (communism), relations based around the satisfying of needs, not fabricated wants. Either that or eventual extinction as we sail past the planets limits and into history.

Without all the excess wants we will fall back to focussing on needs. And most of us will live in communal living arrangements.

The process of getting from here to there is mind numbing when you consider the asset and cultural inertia that is now in place supporting the current doomed economic model.

Do we have any examples in world history that come anywhere close to the transition we are talking about here?

[vtsnowedin]

As I have been banging on since I joined this site, the problem is systemic, it stems from a social economy that sprung out of the ravaged Enclosure era feudal England and is utterly unsuited to a world of 7 billion plus. We cannot wish away the modernity of Reason. However, we can manage it within a communal set of social relations (communism), relations based around the satisfying of needs, not fabricated wants. Either that or eventual extinction as we sail past the planets limits and into history.

Once the denial phase is past and leaders see the new reality I think capitalism will out perform socialism in providing the most possible from the resources still available. It will become a competition of who can do more with less.

[Tanada]

Sorry Pops but I have a hard time taking seriously any posting on the internet that starts out with so many fundamental flaws. First off the author assumes that humans went directly from muscle power from slaves or livestock to steam power and this is the only way we managed to create fiat money. That is incorrect in every particular.
Muscle power lead to mechanical advantage, which in turn lead to water and wind mills. The reason every little stream in Europe and the East Coast of North America had towns scattered all over was access to hydro power for mill works. Long before that the Dutch used wind mills to pump water out of their diked off swamps and turn the marshes into farm fields. Even further back the western Roman Empire used hydraulic mining techniques in Spain to mine gold deposits.

Speaking of the Roman Empire, they were one of the first to invent fiat currency as well. Back then it was done by adding copper to the gold coins to keep the color as nice as possible while spreading the money around further. Every once in a generation or two people would cry foul from gold coins becoming copper coins with a small percentage of gold and the Empire would revert to 'real' money for a while, until someone in power got greedy and debased the money again. The same thing took place many times between 40 AD and 1700 AD, there is after all nothing new under the sun when it comes to human behavior. Then in the latter quarter of the 18th century the American Revolution printed up paper currency, each a promise to pay the barer 1 ounce of silver per dollar. Naturally being poor colonies without the power to effectively tax they printed far more 'Continentals' than they had silver to cover, and the counterfeiters didn't help the problem any. For a hundred years the phrase 'Not worth a Continental' meant worthless in the American usage.

All of that building and expanding and debasing and fiat money printing was invented long before the steam engine became the dominant form of power used anywhere on the planet. Greed is a fundamental part of human nature, and those who give in too its constant nagging act in ways detrimental to all of us. I don't care if they are called Emperor, First Prince, President, or Chairman of the Federal Reserve.

[Ibon]

As I have been banging on since I joined this site, the problem is systemic, it stems from a social economy that sprung out of the ravaged Enclosure era feudal England and is utterly unsuited to a world of 7 billion plus. We cannot wish away the modernity of Reason. However, we can manage it within a communal set of social relations (communism), relations based around the satisfying of needs, not fabricated wants. Either that or eventual extinction as we sail past the planets limits and into history.

Once the denial phase is past and leaders see the new reality I think capitalism will out perform socialism in providing the most possible from the resources still available. It will become a competition of who can do more with less.

Fundamental change breaks polarities. And so as you say it will be about who can do more for less. Well, in a more shared economy which moves toward communal use of a common resource that will be the way we acheive what you are saying....... And thus partially breaking the polarity.

The future reality will make these ideological discussions mute!

[ralfy]

Once the denial phase is past and leaders see the new reality I think capitalism will out perform socialism in providing the most possible from the resources still available. It will become a competition of who can do more with less.

Capitalism doesn't lead to using less as underutilized resources are used elsewhere for more profits.

Also, it will outperform socialism only as long as peak oil and environmental damage coupled with global warming do not take place.

[vtsnowedin]

Capitalism doesn't lead to using less as underutilized resources are used elsewhere for more profits.

Also, it will outperform socialism only as long as peak oil and environmental damage coupled with global warming do not take place.

Post peak their will be few if any underutilized resources. The competition will be to use what little exists for the highest priority and at the highest efficiency.
Capitalism will out perform socialism regardless of energy supply levels or climate and environmental conditions. Capitalism rewards those that apply intelligence and effort to a problem and penalizes those who apply less of either. Socialism pretends to distribute resources equally so that those that contribute the least receive a higher return on their invested effort.
Corruptions of both systems exist of course and obscure the outcomes but socialism is flawed at it's core as it defies human nature and greed while capitalism acknowledges it and works with reality.

[Pops]

T,
I don't think anyone would argue we had no ideas before FFs, fire was nice, the wheel was fun too.

But using population as a gauge, looks like we pretty well hit the jackpot three hundred years ago. The inflection point on this chart is labeled the beginning of the second ag revolution, I take that to be the invention of the mechanical seeder by Jethro Tull in 1700, although those of us in the know remember the steam engine was invented in 1698, to pump water from coal mines.



I think that chart is from a book called Abundance: The Future is Better Than You Think, by Peter Diamandis. It is a good plot, but interestingly it sorta leaves FFs off the timeline. No mention of FFs, though it does mention Watt's steam engine (which was an improvement on Newcomb's engine and it too was used to pump water from coal mines) and railroads, and electrification and autos and airplanes as if they run on brainwaves, LOL

I guess neglecting FFs is so we amazing humans can take credit for abundance and as a result, the future will look better than we think, LOL, remind you of anyone?


Here is one more to the point


Link

So as far as human population goes, I'd say not much did happen before coal. If you believe Diamond, all those prior civilizations collapsed because they wore out the local environment and no matter how much technology and slave power they threw at the problem they simply couldn't support the bloated population* - it had nothing to do with whatever they used for currency.

*I might add, this seems to be the definition of "civilization" - a bloated population.


So the point I was picking on was more about the whole "growth is required" fallacy and the constant yammer about how the system will collapse without it. I think saying civilization depends on constant growth is as wrong as defining civilization as some multiple of the non-agricultural carrying capacity of a particular area. Why isn't a small population near or only a few multiples of natural carrying capacity a civilization?

At any rate the author says
"Economic growth is an artefact of the use of fossil fuels."
Which I take to mean that without FFs we'll revert to a previous level of growth after some period of adjustment. I explained where money "comes" from because that seems to be at the heart of most rants about growth and Interest is always a part of the conspiracy but interest is just rent on money, it's not magical or necessarily evil.

My key point (and his) is that growth is the result of dense energy, not capitalism or communism or or any other -ism and is not some magical elixir. Its just an effect, just a result of the real elixir, which of course is FF.

[AgentR11]

In regards to economic growth and ff, and an idea that we're somehow near the apex of growth, let me throw in a counter argument to think about.

Currently, we have so much FF available, and at such a low price, that low skilled laborers STILL use the stuff to avoid walking a few miles to buy some beer.

I would suggest, that we are experiencing a transition period, not where growth fails, but where the type of growth distribution changes; the fuel required to grow and deliver calories to the market is trivial. The fuel required to go fetch a beer is obscene. Increases in relative price, reduce the latter, enabling the former to continue and grow in terms of pricing power and calories delivered. This is real growth, even though it makes for a rather flat GDP number. There is no lost economic activity as a result of Bob walking for beer; the fuel and mechanical simply changed buyers; but the addition of real value / material goods to the economy does grow, even as Bob walks.

This is why I suspect this plateau is going to be a very long, tedious, and grindingly dangerous experience. There is a lot of "Bob goes for beer" slack to be eradicated. And more than a few will not appreciate the eradication.

This ties to currency because we've all come to accept that a $1 does not equate to a fixed amount of energy or even labor. There's no magic that says a gallon of fuel works at $3 and not $300. Its just a decimal place. It has no ethical or moral basis. What matters more is how much fuel does a common laborer earn in an hour of work. THAT matters. The trick, and our Fed guys are apparently once in a generation geniuses at this, is to inflate the money supply at just the right rate so that fuel gradually increases in price, stated inflation stays positive, and the amount of fuel earned in one hour of labor gradually declines without anyone starving. That *is* growth; at least growth in the sense that the market requires for operation, but it comes at the price of a continuous slide down in economic comfort for the lower 80% of the population.

[Tanada]

Pops I have seen these same argument points brought up frequently regarding fossil fuel abundance and the population explosion. My main issue is the one of timing. North America along with most of Central and South America was not agriculturally developed in the sense of the word we would mean in most circumstance today. In the year 1600 AD the estimated population of Europe was 89 million, while at the same time the estimated population of all of the America's was only 15 million. On the physical globe much of Europe is mountains or extends into the far northern climate zones, however even animal labor agriculture produced enough abundance for the population to be almost six times that of the America's. My contention has always been that if the America's had been fully converted over to the Agricultural practices of the time before the Steam revolution began the population would have been much higher than that of Europe. At the time Europe was pretty well developed, while vast stretches of the America's were raw wilderness or lightly managed range lands like the west coast. I don't claim the plow is what makes land civilized, but it is a truism that intensive agriculture supplies enough food for a far larger population than even well managed lands supply to hunter gatherer cultures. In a way unplowed land represents its own form of dense energy supplies and when agricultural people move into those kind of lands they reap the benefit of that previously untapped energy.

So in my opinion (and I know I am often alone in this opinion) you need to separate out the agricultural expansion of the 1500-1850 period from the steam revolution of the 1850-2000 period. Sure weak steam engines were invented close to 1700 and slowly improved for 150 years before they became the dominant power source and force of industrialization. It wasn't the -'ism of whomsoever's choice that made the growth happen, on that we are in full agreement. What made growth possible at first was expansion of European crops and agricultural practices into the America's, both the cattle herding of early Argentina and the wheat crops of Pennsylvania. Both introduced much more abundant food calories to the populations moving into or being born in all of the America's no matter if they were First Peoples, Enslaved African's or European Immigrants. Shortly after the year 1800, when steam engines were still a novelty item, European population exceeded 200 Million for the first time. Around the same time the entire United States had about 3.5 Million, most of them squeezed into the band within 100 miles of the Atlantic coastline. Within 20 years the population of the USA alone exceeded the population of all of the America's in 1600. That was when the Louisiana Purchase and Texas were pretty low in population and agriculture had not even spread to most of the lands west of the Mississippi.

When Fossil Fuels became dominant they just piled on to the already booming population from exploiting arable and pasture useable land that had been little managed before then. Then along came the Green Revolution about 50 years ago and redoubled the impact again. No wonder when all these impacts come together we see a massive population spike, because just like the bacteria when we have resources we exploit them until we can't.

[Graeme]

Peak Oil Revisited...

In a lecture to the Columbia University Center on Global Energy Policy in February of 2014 Steven Kopits, who is the Managing Director of the consultancy, Douglas Westwood explains how conventional “legacy” oil production peaked in 2005 and has not increased since. All the increase in oil production since that date has been from unconventional sources like the Alberta Tar sands, from shale oil or natural gas liquids that are a by-product of shale gas production. This is despite a massive increase in investment by the oil industry that has not yielded any increase in ‘conventional oil’ production but has merely served to slow what would otherwise have been a faster decline.

More specifically the total spend on upstream oil and gas exploration and production from 2005 to 2013 was $4 trillion. Of that $3.5 trillion was spent on the ‘legacy’ oil and gas system. This is a sum of money equal to the GDP of Germany. Despite all that investment in conventional oil production it fell by 1 million barrels a day. By way of comparison investment of $1.5 trillion between 1998 and 2005 yielded an increase in oil production of 8.6 million barrels a day.

Further to this, unfortunately for the oil industry, it has not been possible for oil prices to rise high enough to cover the increasing capital expenditure and operating costs. This is because high oil prices lead to recessionary conditions and slow or no growth in the economy. Because prices are not rising fast enough, and costs are increasing, the costs of the independent oil majors are rising at 2 to 3% a year more than their revenues. Overall profitability is falling and some oil majors have had to borrow and sell assets to pay dividends. The next stage in this crisis has then been that investment projects are being cancelled – which suggests that oil production will soon begin to fall more rapidly.


Now lets put that in a bigger context. In a presentation to the All party Parliamentary Group on Peak Oil and Gas Charles Hall showed a number of diagrams on slides to express the consequences of depletion and rising energy costs of energy. I have taken just two of these diagrams here – comparing 1970 with what might be the case in 2030. (Hall C. , 2012) What they show is how the economy produces different sorts of stuff – some of the production is consumer goods – either staples (essentials) or discretionary (luxury) goods. The rest of production is devoted to goods that are used in production – investment goods in the form of machinery, equipment, buildings, roads, infrastracture and their maintenance. Some of these investment goods must take the form of energy acquisition equipment. As a society runs up against energy depletion and other problems more and more production must go into energy acquisition, infrastructure and maintenance – less and less is available for consumption, and particularly for discretionary consumption.

Over the last few years central banks have had a policy of quantitative easing to try to keep interest rates low – the economy cannot pay high energy prices AND high interest rates so, in effect, the policy has been to try to bring down interest rates as low as possible to counter the stagnation. However, this has not really created production growth – it has instead created a succession of asset price bubbles. The underlying trend continues to be one of stagnation, decline and crisis. The severity of the recessions may be variable in different countries because competitive strength in this model goes to those countries where energy is used most efficiently and which can afford to pay somewhat higher prices for energy. Such countries are likely to do better but will not escape the general decline if they stay wedded to the conventional growth model. Whatever the variability this is still a dead end model and at some point people will see that entirely different ways of thinking about economy and ecology are needed – unless they get drawn into conflicts and wars over energy by psychopathic policy idiots. There is no way out of the Catch 22 within the growth economy model. That’s why de-growth is needed.

zerohedge

[Ibon]

Peak Oil Revisited...
As a society runs up against energy depletion and other problems more and more production must go into energy acquisition, infrastructure and maintenance – less and less is available for consumption, and particularly for discretionary consumption.

This perhaps is the sweet spot we can hang in long enough to reconfigure our economic system.