“Peak Cement” may have taken place in 2015, stopping the exponentially growing curve that would have led us to turn the Earth into a bowling ball, similar to the fictional planet Trantor, Galactic capital in Isaac Asimov’s series “Foundation” (image source).
Signs of economic slowdowns are everywhere now….. last night in the news, Alan Kohler showed a chart describing how Chinese car sales flipped from growing at 10% to shrinking at 10%, in just three months, and evidence od Chinese economic collapse are even on mainstream news now…. Retail sales in Australia are taking a hit too. And now this from Ugo Bardi’s Cassandra’s Legacy…
When giving an example of an exponentially growing production curve, I used to cite cement production. Look at the data up to 2013: a beautiful growing curve with a doubling time of — very roughly — 10 years. Then, if we assume that the current concrete covered area in the world is about 2% (an average of the data by Schneider et al., 2009and the Global Rural-Urban Mapping Project, 2004) then we would get to Trantor — bowling ball planet — in some 50 years. Of course that wasn’t possible, but it was still a surprise to discover how abrupt the change has been: here are the most recent data (the value for 2018 is still an estimate from cemnet.com)
Impressive, right? Steve Rocco, smart as usual, had already noticed this trend in 2017, but now it is clearer. It looks like a peak, it has the shape of a peak, it gives the impression of a peak. Most likely it is a peak — actually, it could be the start of an irreversible decline in the global cement production.
Now, what caused the decline? If you look at the disaggregated data, it is clear that the slowdown was mainly created by China, but not just by China. Several countries in the world are going down in terms of cement production — in Italy, the decline started in 2010.
My impression — that I share with the one proposed by Rocco — is that this is not a blip in the curve, nor a special case among the various mineral commodities produced nowadays. It is a symptom of a general problem: it may be the clearest manifestation of the concept of “peak civilization” that the 1972 “Limits to Growth” study had placed for some moment during the 1st or 2nd decades of the 21st century.
And, of course, we know that another major commodity went through a global peak in 2014: coal. (data from bp.com)
So, are we really facing “peak civilization”? It is hard to say. On a time scale of a few years, many things could change and, in any case, you don’t expect peaking to take place at the same time for all mineral commodities, everywhere. A strong indication that the whole world system is peaking would come from the behavior of the global GDP. Rocco had proposed that also the GDP had peaked in 2015, but the data available at present are insufficient to prove that.
In any case, it has been said that we would see the great peak “in the rear mirror”and this may well be what we are seeing. Whatever is happening it will be clearer in the future but, if it is really “the peak“, expect the Seneca cliff to open up in front of us in the coming years. And maybe it won’t be such a bad thing(*): did we really want to turn the Earth into a bowling ball?
Another incisive self explanatory article by Gail Tverberg explaining the recent volatility and what outcomes we can expect from that this coming year (and next) MUST READ.
Financial markets have been behaving in a very turbulent manner in the last couple of months. The issue, as I see it, is that the world economy is gradually changing from a growth mode to a mode of shrinkage. This is something like a ship changing course, from going in one direction to going in reverse. The system acts as if the brakes are being very forcefully applied, and reaction of the economy is to almost shake.
What seems to be happening is that the world economy is reaching Limits to Growth, as predicted in the computer simulations modeled in the 1972 book, The Limits to Growth. In fact, the base model of that set of simulations indicated that peak industrial output per capita might be reached right about now. Peak food per capita might be reached about the same time. I have added a dotted line to the forecast from this model, indicating where the economy seems to be in 2019, relative to the base model.
Figure 1. Base scenario from The Limits to Growth, printed using today’s graphics by Charles Hall and John Day in Revisiting Limits to Growth After Peak Oil with dotted line at 2019 added by author. The 2019 line is drawn based on where the world economy seems to be now, rather than on precisely where the base model would put the year 2019.
The economy is a self-organizing structure that operates under the laws of physics. Many people have thought that when the world economy reaches limits, the limits would be of the form of high prices and “running out” of oil. This represents an overly simple understanding of how the system works. What we should really expect, and in fact, what we are now beginning to see, is production cuts in finished goods made by the industrial system, such as cell phones and automobiles, because of affordability issues. Indirectly, these affordability issues lead to low commodity prices and low profitability for commodity producers. For example:
The sale of Chinese private passenger vehicles for the year of 2018 through November is down by 2.8%, with November sales off by 16.1%. Most analysts are forecasting this trend of contracting sales to continue into 2019. Lower sales seem to reflect affordability issues.
Coal is reported not to have an economic future in Australia, partly because of competition from subsidized renewables and partly because China and India want to prop up the prices of coal from their own coal mines.
The Significance of Trump’s Tariffs
If a person looks at history, it becomes clear that tariffs are a standard response to a problem of shrinking food or industrial output per capita. Tariffs were put in place in the 1920s in the time leading up to the Great Depression, and were investigated after the Panic of 1857, which seems to have indirectly led to the US Civil War.
Whenever an economy produces less industrial or food output per capita there is an allocation problem: who gets cut off from buying output similar to the amount that they previously purchased? Tariffs are a standard way that a relatively strong economy tries to gain an advantage over weaker economies. Tariffs are intended to help the citizens of the strong economy maintain their previous quantity of goods and services, even as other economies are forced to get along with less.
I see Trump’s trade policies primarily as evidence of an underlying problem, namely, the falling affordability of goods and services for a major segment of the population. Thus, Trump’s tariffs are one of the pieces of evidence that lead me to believe that the world economy is reaching Limits to Growth.
The Nature of World Economic Growth
Economic growth seems to require growth in three dimensions (a) Complexity, (b) Debt Bubble, and (c) Use of Resources. Today, the world economy seems to be reaching limits in all three of these dimensions (Figure 2).
Figure 2.
Complexity involves adding more technology, more international trade and more specialization. Its downside is that it indirectly tends to reduce affordability of finished end products because of growing wage disparity; many non-elite workers have wages that are too low to afford very much of the output of the economy. As more complexity is added, wage disparity tends to increase. International wage competition makes the situation worse.
A growing debt bubble can help keep commodity prices up because a rising amount of debt can indirectly provide more demand for goods and services. For example, if there is growing debt, it can be used to buy homes, cars, and vacation travel, all of which require oil and other energy consumption.
If debt levels become too high, or if regulators decide to raise short-term interest rates as a method of slowing the economy, the debt bubble is in danger of collapsing. A collapsing debt bubble tends to lead to recession and falling commodity prices. Commodity prices fell dramatically in the second half of 2008. Prices now seem to be headed downward again, starting in October 2018.
Figure 3. Brent oil prices with what appear to be debt bubble collapses marked.
Figure 4. Three-month treasury secondary market rates compared to 10-year treasuries from FRED, with points where short term interest rates exceed long term rates marked by author with arrows.
Even the relatively slow recent rise in short-term interest rates (Figure 4) seems to be producing a decrease in oil prices (Figure 3) in a way that a person might expect from a debt bubble collapse. The sale of US Quantitative Easing assets at the same time that interest rates have been rising no doubt adds to the problem of falling oil prices and volatile stock markets. The gray bars in Figure 4 indicate recessions.
Growing use of resources becomes increasingly problematic for two reasons. One is population growth. As population rises, the economy needs more food to feed the growing population. This leads to the need for more complexity (irrigation, better seed, fertilizer, world trade) to feed the growing world population.
The other problem with growing use of resources is diminishing returns, leading to the rising cost of extracting commodities over time. Diminishing returns occur because producers tend to extract the cheapest to extract commodities first, leaving in place the commodities requiring deeper wells or more processing. Even water has this difficulty. At times, desalination, at very high cost, is needed to obtain sufficient fresh water for a growing population.
Why Inadequate Energy Supplies Lead to Low Oil Prices Rather than High
In the last section, I discussed the cost of producing commodities of many kinds rising because of diminishing returns. Higher costs should lead to higher prices, shouldn’t they?
Strangely enough, higher costs translate to higher prices only sometimes. When energy consumption per capita is rising rapidly (peaks of red areas on Figure 5), rising costs do seem to translate to rising prices. Spiking oil prices were experienced several times: 1917 to 1920; 1974 to 1982; 2004 to mid 2008; and 2011 to 2014. All of these high oil prices occurred toward the end of the red peaks on Figure 5. In fact, these high oil prices (as well as other high commodity prices that tend to rise at the same time as oil prices) are likely what brought growth in energy consumption down. The prices of goods and services made with these commodities became unaffordable for lower-wage workers, indirectly decreasing the growth rate in energy products consumed.
Figure 5.
The red peaks represented periods of very rapid growth, fed by growing supplies of very cheap energy: coal and hydroelectricity in the Electrification and Early Mechanization period, oil in the Postwar Boom, and coal in the China period. With low energy prices, many countries were able to expand their economies simultaneously, keeping demand high. The Postwar Boom also reflected the addition of many women to the labor force, increasing the ability of families to afford second cars and nicer homes.
Rapidly growing energy consumption allowed per capita output of both food (with meat protein given a higher count than carbohydrates) and industrial products to grow rapidly during these peaks. The reason that output of these products could grow is because the laws of physics require energy consumption for heat, transportation, refrigeration and other processes required by industrialization and farming. In these boom periods, higher energy costs were easy to pass on. Eventually the higher energy costs “caught up with” the economy, and pushed growth in energy consumption per capita down, putting an end to the peaks.
Figure 6 shows Figure 5 with the valleys labeled, instead of the peaks.
Figure 6.
When I say that the world economy is reaching “peak industrial output per capita” and “peak food per capita,” this represents the opposite of a rapidly growing economy. In fact, if the world is reaching Limits to Growth, the situation is even worse than all of the labeled valleys on Figure 6. In such a case, energy consumption growth is likely to shrink so low that even the blue area (population growth) turns negative.
In such a situation, the big problem is “not enough to go around.” While cost increases due to diminishing returns could easily be passed along when growth in industrial and food output per capita were rapidly rising (the Figure 5 situation), this ability seems to disappear when the economy is near limits. Part of the problem is that the lower growth in per capita energy affects the kinds of jobs that are available. With low energy consumption growth, many of the jobs that are available are service jobs that do not pay well. Wage disparity becomes an increasing problem.
When wage disparity grows, the share of low wage workers rises. If businesses try to pass along their higher costs of production, they encounter market resistance because lower wage workers cannot afford the finished goods made with high cost energy products. For example, auto and iPhone sales in China decline. The lack of Chinese demand tends to lead to a drop in demand for the many commodities used in manufacturing these goods, including both energy products and metals. Because there is very little storage capacity for commodities, a small decline in demand tends to lead to quite a large decline in prices. Even a small decline in China’s demand for energy products can lead to a big decline in oil prices.
Strange as it may seem, the economy ends up with low oil prices, rather than high oil prices, being the problem. Other commodity prices tend to be low as well.
What Is Ahead, If We Are Reaching Economic Growth Limits?
1. Figure 1 at the top of this post seems to give an indication of what is ahead after 2019, but this forecast cannot be relied on. A major issue is that the limited model used at that time did not include the financial system or debt. Even if the model seems to provide a reasonably accurate estimate of when limits will hit, it won’t necessarily give a correct view of what the impact of limits will beon the rest of the economy, after limits hit. The authors, in fact, have said that the model should not be expected to provide reliable indications regarding how the economy will behave after limits have started to have an impact on economic output.
2. As indicated in the title of this post, considerable financial volatility can be expected in 2019if the economy is trying to slow itself. Stock prices will be erratic; interest rates will be erratic; currency relativities will tend to bounce around. The likelihood that derivatives will cause major problems for banks will rise because derivatives tend to assume more stability in values than now seems to be the case. Increasing problems with derivatives raises the risk of bank failure.
3. The world economy doesn’t necessarily fail all at once. Instead, pieces that are, in some sense, “less efficient” users of energy may shrink back. During the Great Recession of 2008-2009, the countries that seemed to be most affected were countries such as Greece, Spain, and Italy that depend on oil for a disproportionately large share of their total energy consumption. China and India, with energy mixes dominated by coal, were much less affected.
Figure 7. Oil consumption as a percentage of total energy consumption, based on 2018 BP Statistical Review of World Energy data.
Figure 8. Energy consumption per capita for selected areas, based on energy consumption data from 2018 BP Statistical Review of World Energy and United Nations 2017 Population Estimates by Country.
In the 2002-2008 period, oil prices were rising faster than prices of other fossil fuels. This tended to make countries using a high share of oil in their energy mix less competitive in the world market. The low labor costs of China and India gave these countries another advantage. By the end of 2007, China’s energy consumption per capita had risen to a point where it almost matched the (now lower) energy consumption of the European countries shown. China, with its low energy costs, seems to have “eaten the lunch” of some of its European competitors.
In 2019 and the years that follow, some countries may fare at least somewhat better than others. The United States, for now, seems to be faring better than many other parts of the world.
4. While we have been depending upon China to be a leader in economic growth, China’s growth is already faltering and may turn to contraction in the near future. One reason is an energy problem: China’s coal production has fallen because many of its coal mines have been closed due to lack of profitability. As a result, China’s need for imported energy (difference between black line and top of energy production stack) has been growing rapidly. China is now the largest importer of oil, coal, and natural gas in the world. It is very vulnerable to tariffs and to lack of available supplies for import.
Figure 9. China energy production by fuel plus its total energy consumption, based on BP Statistical Review of World Energy 2018 data.
A second issue is that demographics are working against China; its working-age population already seems to be shrinking. A third reason why China is vulnerable to economic difficulties is because of its growing debt level. Debt becomes difficult to repay with interest if the economy slows.
5. Oil exporters such as Venezuela, Saudi Arabia, and Nigeria have become vulnerable to government overthrow or collapse because of low world oil prices since 2014. If the central government of one or more of these exporters disappears, it is possible that the pieces of the country will struggle along, producing a lower amount of oil, as Libya has done in recent years. It is also possible that another larger country will attempt to take over the failing production of the country and secure the output for itself.
6. Epidemics become increasingly likely, especially in countries with serious financial problems, such as Yemen, Syria, and Venezuela. Historically, much of the decrease in population in countries with collapsing economies has come from epidemics. Of course, epidemics can spread across national boundaries, exporting the problems elsewhere.
7. Resource wars become increasingly likely. These can be local wars, perhaps over the availability of water. They can also be large, international wars. The timing of World War I and World War II make it seem likely that these wars were both resource wars.
Figure 10.
8. Collapsing intergovernmental agencies, such as the European Union, the World Trade Organization, and the International Monetary Fund, seem likely. The United Kingdom’s planned exit from the European Union in 2019 is a step toward dissolving the European Union.
9. Privately funded pension funds will increasingly be subject to default because of continued low interest rates. Some governments may choose to cut back the amounts they provide to pensioners because governments cannot collect adequate tax revenue for this purpose. Some countries may purposely shut down parts of their governments, in an attempt to hold down government spending.
10. A far worse and more permanent recession than that of the Great Recession seems likely because of the difficulty in repaying debt with interest in a shrinking economy. It is not clear when such a recession will start. It could start later in 2019, or perhaps it may wait until 2020. As with the Great Recession, some countries will be affected more than others. Eventually, because of the interconnected nature of financial systems, all countries are likely to be drawn in.
Summary
It is not entirely clear exactly what is ahead if we are reaching Limits to Growth. Perhaps that is for the best. If we cannot do anything about it, worrying about the many details of what is ahead is not the best for anyone’s mental health. While it is possible that this is an end point for the human race, this is not certain, by any means. There have been many amazing coincidences over the past 4 billion years that have allowed life to continue to evolve on this planet. More of these coincidences may be ahead. We also know that humans lived through past ice ages. They likely can live through other kinds of adversity, including worldwide economic collapse.
A new study published in Nature has found evidence for 467 ways in which climate hazards due to global warming are making life on the planet harder for humans. It confirms that we are witnessing a shift in the functioning of the Earth system as a whole, a shift to a new state that is unsympathetic to the continued flourishing of human life.
A changing climate is only one feature of a warming globe. Human activity has bounced the Earth into a state that has no equivalent in its 4.5 billion year history.
Clive Hamilton
The Earth’s new trajectory as it spins into the future has led scientists to tell us we have entered a new geological epoch, the Anthropocene. We have crossed a threshold and the geological clock cannot be turned back. The disruption we have caused is increasingly unpredictable and uncontrollable, and it has no endpoint.
There are, therefore, two questions humankind must face. What must we do to prevent serial disasters becoming existential catastrophe? And how can we make our social and economic systems flexible enough to cope with the new dispensation?
There are several reasons an international agreement has proven so hard. The leading one is sabotage by climate science deniers. Can it be countered? Climate science denial was invented and propagated mainly in the United States by the fossil fuel industry in the 1990s and early 2000s.
Activists know how to thwart an industry lobbying campaign. But then something calamitous happened – rejecting climate science became caught up in the culture war. The Tea Party and Fox News were largely responsible for the shift. Before then, even a conservative like Sarah Palin accepted the science and called for action. But after 2009, rejecting climate science became a badge of political identity for conservatives.
From that point onwards, facts no longer mattered.
So the challenge is no longer how to use information to change people’s minds. The challenge is how to change a culture. No one knows how to do that.
Yet it’s too easy to blame the world’s slowness to act on crazy American deniers. Because, in a way, we are all climate science deniers.
The full truth of what humans have done is almost impossible to take in. To fully embrace the message of the climate scientists means giving up the deepest presupposition of modernity – the idea of progress. Relinquishing our belief in progress means we must let go of the future, because we have been taught from infancy that the future is progress.
In our minds, replacing the old future defined by progress with a new future defined by endless struggle requires a period of grieving. Not many people have the stomach for that.
While most people in most countries accept the truth of climate science, they don’t accept its implications. What can be done to change that?
When it comes to communicating the science’s message to the public, there is no magic potion to be found. A lot has been tried and some of it works reasonably well, up to a point. The scientists must keep doing their research and putting it out. Accusing them of alarmism is a calculated political slander; in truth, they have consistently been too cautious in their warnings, especially in IPCC reports.
Yet the meaning of their reports has not sunk in. It’s clear that an Earth warmer by four degrees – and after the unwinding of the 2015 Paris agreement that is the path we have returned to – will impose enormous stresses on all societies.
In poorer countries, it will lead to mass migrations, many deaths and violent conflict. The effects in wealthy countries will depend on who holds power and how they govern. Disasters, food shortages and waves of immigration will magnify resentment against the rich, who will be attempting to insulate themselves from the turmoil around them.
But they too depend on the infrastructure of urban life – electricity and water supply, sewerage and waste disposal, transport systems for food and so on. And they can’t insulate themselves from social upheaval.
Some communities will learn to adapt more effectively. Smaller, cooperative communities will be best placed to adapt themselves to endure the troubles.
But however humans live or die on the new Earth we have made, we are approaching the endpoint of modernity and must accept that it is finally true that man is the environment of man.
• Clive Hamilton is professor of public ethics at Charles Sturt University in Canberra and author of Defiant Earth: The fate of humans in the Anthropocene
https://ScientistsWarning.TV – Kevin and Hugh are back with us this year discussing the new ‘climate glitterati’ that come annually to Davos to feign concern about the climate while they discuss techno-fixes that might allow the (in their minds at least) to continue their excessive lifestyle that is heading us directly for runaway climate change and collapse.
Here, in the 18th year of the New Millennium, the 28th Year of Our Internet (delivering unlimited information to all), and the 30th year of the Great Harangue over Climate Change (dating it from James Hansen’s testimony to the Senate), this is where we are:
The world’s emissions of greenhouse gases — the kinds of pollution that trap solar radiation like greenhouse windows and heat the climate — not only increased in 2018, but increased faster, setting a new all time record — despite the wildly hyped growth of “renewable” energy sources — according to two new studies published last week. Scientists said the emissions’ growth and the resulting acceleration of climate change, resembles a “speeding freight train.”
The world’s people bought more cars, and drove them farther, in 2018 than in any year in history, driving oil consumption up for the fifth consecutive year despite the advent of hybrid and electric vehicles.
In November the Trump White House published findings by 13 Federal agencies and hundreds of scientists concluding that climate change is well under way and will cost the economy hundreds of billions of dollars by the end of the century. Never mind the millions of deaths, the migrations, the homelessness, the dislocations — we have to put a dollar value on it to pay any attention to it. Asked what he thought of the report, President Trump said “I don’t believe it.”
In October the UN’s Intergovernmental Panel on Climate Change issued an alarming report warning that greenhouse gas emissions are rising so fast that they will cause widespread food shortages, wildfires, coastal flooding and population displacement, not by the end of the century, but by 2040. One of the latest studies — the “speeding freight train” one — says all those effects may be seen by 2030. That would be just over 11 years from now
Last week, the Climate Change Conference meeting in Poland — this is among other things the conference of 200 nations that agreed to and is trying to implement the Paris Agreement on how to combat climate change — refused to adopt the October IPCC report on objections by the United States, Saudi Arabia, Russia and Kuwait. Thus what one major international UN organization had concluded about the facts of climate change were deliberately ignored by another major international UN organization working on climate change.
Last week, France cancelled a planned increase in taxation of fossil fuels, part of a four year effort to reduce carbon emissions and slow global warming. Carbon taxes have long been advocated as one of the few effective things government could to to reduce emissions. The prospect of this tax ignited violent protests by thousands of so-called “yellow vest” demonstrators who threatened to destabilize the country, and continue to do so after the cancellation of the fuel tax.
The secretary general of the United Nations, Antonio Guterres, told the climate change conference in Poland now in session, “We are in trouble. We are in deep trouble with climate change.” He went on to say, as hundreds of scientists and bureaucrats before him have said, that we are not doing enough. But he’s dead wrong about that. We are not doing anything. We are making it worse, faster. In part by jetting hundreds and thousands of people hither and yon around the world to conduct endless air-conditioned meetings on what we might think about doing, if we were ever going to do anything.
Here’s how I would put it: forget Brace for Impact, it’s way too late for that. What we need to do now, collectively, is bend over, take a firm grip on our knees, and …. well, you know the rest.
It’s so nice reading an article that joins the dots…. I get so sick of people concentrating on one issue or another, ignoring everything else troubling civilisation. From Consciousness of Sheep, who else….?
Britain has – apparently – been thrown into crisis overnight. Meanwhile across the channel, French president Macron is desperately trying to extinguish the flames of another weekend of mass protests that have now spread to Belgium and Holland. In Eastern Europe the hard-right are gaining support; even undermining the previously untouchable Angela Merkel’s power base in the former East Germany. Across the Atlantic meanwhile, the lines between deranged Democrats and MAGA nationalists are being drawn in readiness for America’s second civil war. We are surely living through the greatest crisis in modern history.
Well, yes indeed we are. But everything set out in the first paragraph is no more than the froth on the beer. These political spasms are merely the outward manifestation of a human catastrophe that has been decades in the making.
Two far greater symptoms of our predicament have gained at least some public traction this year. First was an all too visible plastic pollution crisis that is increasingly difficult to ignore now that China has ceased acting as the West’s rubbish dump. Second is the somewhat less visible insect apocalypse that has seen the near extinction of a raft of pollinating insect species; without which we humans are doomed to starvation. Interestingly, while these two symptoms are only tenuously related to climate change, they have tended to be included under that shorthand heading. Plastic certainly damages the environment, but its build up owes far more to the ongoing power of the petrochemicals industry and the myth of recyclingthan to changes in climate. The same goes for the insects. While there may have been some climactic impact on migrations and reproduction, the main cause is the vast quantities of chemical insecticides required by an industrialised agriculture tasked with feeding 7.5 billion humans on a planet that could barely feed one seventh of that without fossil fuels and agrochemicals.
In the affected areas, local populations have been stunned by a series of “red tide” events that result in the mass deaths of fish and other marine creatures. Climate change is indirectly involved in these events because of the increased rainfall from warmer storms. But once again it is our industrial agriculture that is the primary cause – the giant oxygen-free zones beneath algae and phytoplankton blooms that form because of artificial fertilisers washed off the land when it rains. When marine creatures stray into these oxygen-free zones (which are pinkish-red in colour due to concentrated hydrogen sulphide) they suffocate before they can swim to safety.
Off most people’s radar is the ongoing sixth mass extinction, as we lose thousands of species every year. Again, while some of this is directly due to the changing climate, the larger part is due to human activities like agriculture, deforestation and strip mining simply chewing up natural habitats to make way for the creation of the various resources – including food – required to sustain a human population that is projected to reach 10 billion by mid-century.
The use of the term “climate change” to describe these catastrophes is deceptive. If we were looking at our predicament in totality, we would include these crises alongside climate change as a series of (often interacting) sub-sets of a much greater problem… let’s call it the “human impact crisis.”
Crucially, by focussing solely on a changing climate, we can exercise a form of psychological denial in which human civilisation is able to continue chasing infinite growth on a finite planet while yet-to-be-invented technologies are deployed to magically heal the damage that our over-consumptive lifestyles are having on the human habitat.
The focus on climate change also permits us to avoid any examination of those human activities that increasingly stand in the way of the bright green technological future we keep promising ourselves. Shortages in a range of key resources, including several rare earths, cobalt, lithium, chromium, zinc, gold and silver are very likely to materialise in the next decade if Western countries get anywhere close to their targets for switching to renewable electricity and electric cars (even though even these are just a fraction of what would be required to decarbonise the global economy).
Energy is an even bigger problem. For the first time since the dark ages, humanity is switching from high-density energy sources (nuclear, coal, gas and oil) to ultra-low density energy sources (tide, wind, wave and solar). We are – allegedly – choosing to do this. However, because we have depleted fossil fuels on a low-hanging fruit basis, it is costing us more in both energy and money to maintain the energy needed to power the global economy. As more of our energy has to be channelled into energy production (e.g. the hugely expensive Canadian bitumen sands and the US fracking industry) ever less energy is available to power the wider economy. This has forced us into a crisis I refer to as “Schrodinger’s renewables,” in which the technologies being deployed supposedly to wean us off fossil fuels end up merely being added in order to maintain sufficient economic growth to prevent the entire civilisation collapsing.
This, of course, brings us back to the increasingly heated debates in the US Congress, the UK Parliament and the streets of 100 French towns and cities. Economic growth is the fantasy that almost everyone is buying into as a solution to our predicament. Sure, some call it “green growth,” but it isn’t. In reality it is, and always was central bank growth. Why? Because every unit of currency in circulation in the West was created with interest attached. In such a system, we either grow the economy or we inflate the value currency back to something more in line with the real economy. The former is impossible and the latter is devastating… which is why central bankers around the world have been quietly panicking for the best part of a decade.
To be clear, since 1980 the western economic system has inflated a series of asset bubbles, each of which has subsumed and outgrown its predecessor. In the 1980s companies bailed out failing companies to save themselves. In the 1990s stock markets bailed out companies to save stock markets. In the 2000s banks bailed out stock markets and then states and central banks bailed out banks. Next time around it will be states and currencies that need bailing out. And in the absence of space aliens, it is not clear who is going to be riding to the rescue. What that means, dear reader, is that everything you depend upon (but didn’t know it) for life support – inter-bank lending systems, letters of credit and freight insurance, international trade arrangements, employment, state pensions, etc. – is going to go away (at least until some kind of debt-write-off (either directly or via “helicopter money”) and a new currency system can be put into place.
The other legacy from this period of debt-based asset inflation is a series of grossly unequal societies; divided, ultimately, between those who get to spend the (uninflated) debt-based currency first and those (the 99 percent) who only get the currency after its value has been inflated away – primarily those who depend upon a wage/salary from employment rather than an income from shares and other investments. Most people accept some inequality. However a lack of economic growth (outside banking and tech) has created deep hostility to those political parties that cling to the pre-2008 neoliberal orthodoxy. The result has been a growth in populist movements claiming to know how to restore the economy to rates of growth last seen in the 1990s. Political economist Mark Blyth summed up the difference between the left and right wing variants of populism thus:
The right says neoliberalism ruined the economy and immigrants took your jobs
The left says neoliberalism ruined the economy and capitalists took your jobs.
Needless to say – as the boy Macron is learning to his cost – now is not a happy time to be a neoliberal politician. The broader problem, however, is that the proposed solutions from the populists are no more likely to result in another round of economic growth simply because western civilisation is already well past the point of overshoot. China – the place where most of the jobs went and where most of the stuff we consume is made – already consumes half of the world’s coal, copper, steel, nickel and aluminium. It also consumes nearly two-thirds of the world’s concrete. To grow at just 3.5 percent would require that China consume all of the world’s reserves of those resources by 2038 – at which point it would also be consuming a quarter of the world’s oil and uranium and half of the world’s grain harvest. The impossibility of this is what people mean when they use the word “unsustainable” to describe our situation.
Nevertheless, even supposedly green parties cling to the promotion of economic growth as an electoral strategy. Rather than admit the impossibility of further growth, however, they reach instead for some mythical “green growth” that will supposedly follow the industrial scale deployment of non-renewable renewable energy harvesting technologies like wind turbines and solar panels that require fossil fuels in their manufacture , and for which the planet lacks sufficient material reserves. Promising de-growth is, however, politically toxic in the current climate.
Most green growth advocates imagine a switch from extraction and manufacturing to (largely digital) services that will somehow decouple resource and energy growth from GDP. That is, we can all continue to prosper even as our use of planetary resources falls back to something like the amounts consumed in the 1750s. Writing in Resilience, Jason Hickel gives the lie to this:
“This sounds reasonable on the face of it. But services have grown dramatically in recent decades, as a proportion of world GDP — and yet global material use has not only continued to rise, but has accelerated, outstripping the rate of GDP growth. In other words, there has been no dematerialization of economic activity, despite a shift to services.
“The same is true of high-income nations as a group — and this despite the increasing contribution that services make to GDP growth in these economies. Indeed, while high-income nations have the highest share of services in terms of contribution to GDP, they also have the highest rates of resource consumption per capita. By far.
“Why is this? Partly because services require resource-intensive inputs (cinemas and gyms are hardly made out of air). And partly also because the income acquired from the service sector is used to purchase resource-intensive consumer goods (you might get your income from working in a cinema, but you use it to buy TVs and cars and beef).”
And, of course, without the income derived from making all of that stuff for service providers to consume, nobody can afford to buy the services and the economy will collapse. Not that anyone has noticed this for now, as we are descend into the politics of blame in which widening inequality and poverty at the bottom is blamed on one or other of a culture’s preferred out groups – Tories, Democrats, socialists, libertarians, migrants, the banks, the European Union, Israel, Angela Merkel, the Rothschild family, Donald Trump… choose your favourite pantomime villain; but don’t expect to be going anywhere but down.
Politics matter, of course. In a future of economic contraction it is far better to be governed consensually by people who understand the predicament and who plan a route to deindustrialisation that has as few casualties as possible on the way down… one reason not to keep voting for parties that dole out corporate welfare at the top while driving those at the bottom to destitution. That road tends to end with guillotines and firing squads.
For all of its passion and drama, however, the role of politics in our current predicament is somewhat akin to the choice of footwear when setting out to climb a mountain. Ideally you want to choose a pair of stout climbing boots; but nobody is offering those. For now the choice is between high heels and flip-flops to climb the highest mountain we have ever faced. If we are lucky, the political equivalent a half decent pair of training shoes might turn up, but while the world is focussed on economic growth; that is the best we can hope for… and we still have to climb the mountain whatever shoes we wear.
Between my French origins and the opinions expressed within this little blog, I have taken more than a passing interest in the events happening in France, especially when it’s fuelled by passionate and restless wwoofers who come from there too! As you will or should know, I believe the real economy runs on energy, not money, and surplus energy in particular…… as a result, I have been following Tim Morgan’s Surplus Energy Economics blog for a while, which I would encourage you all to follow too. This is Tim’s latest gem, which proves that when you do the math……. the truth comes out!
This weekend, the authorities plan to field 89,000 police officers across France in response to anticipated further mass protests by the ‘gilets jaunes’. In the capital, the Eiffel Tower will be closed and armoured cars deployed, whilst restaurateurs and shopkeepers are being urged to close their businesses at one of the most important times of their trading year.
Though the government has climbed down on the original cause célèbre – the rises in fuel taxes planned for next year – there seems to be no reduction in the worst protests experienced in the country since the 1960s. Reports suggest that as many as 70% of French citizens support the protestors, and that the movement may be spreading to Belgium and the Netherlands.
For the outside observer, the most striking features of the protests in France have been the anger clearly on display, and the rapid broadening of the campaign from fuel prices to a wider range of issues including wages, the cost of living and taxation.
The disturbances in France should be seen in a larger context. In France itself, Emmanuel Macron was elected president only after voters had repudiated all established political parties. Italians have entrusted their government to an insurgent coalition which is on a clear collision-course with the European Union over budgetary matters. The British have voted to leave the EU, and Americans have elected to the White House a man dismissed by ‘experts’ as a “joke candidate” throughout his campaign.
Obviously, something very important is going on – why?
Does economics explain popular anger?
There are, essentially, two different ways in which the events in France and beyond can be interpreted, and how you look at them depends a great deal on how you see the economic situation.
If you subscribe to the conventional and consensus interpretation, economic issues would seem to play only a supporting role in the wave of popular unrest sweeping much of the West. You would concede that the seemingly preferential treatment of a tiny minority of the very rich has angered the majority, and that some economic tendencies – amongst them, diminishing security of employment – have helped fuel popular unrest.
Beyond this, though, you would note that economies are continuing to grow, and this would force you to look for explanations outside the purely economic sphere. From this, you might conclude that ‘agitators’, from the right or left of the political spectrum, might be playing a part analogous to the role of “populist” politicians in fomenting public dissatisfaction with the status quo.
If, on the other hand, you subscribe to the surplus energy interpretation of the economy professed here, your view of the situation would concentrate firmly on economic issues.
Though GDP per capita may be continuing to improve, the same cannot be said of prosperity. According to SEEDS (the Surplus Energy Economics Data System), personal prosperity in France has deteriorated by 7% since 2000, a trend starkly at variance with the growth (of 12%) in reported GDP over the same period.
Not only is the average French person poorer now than he or she was back in 2000, but each person’s share of the aggregate of household, business and government debt has increased by almost 70% since 2000. These findings are summarised in the following table, sourced from SEEDS.
Two main factors explain the divergence between the conventional and the surplus energy interpretations of the economy. One of these is the pouring of enormous quantities of cheap debt and cheap money into the system, a process which boosts recorded GDP without improving prosperity (for the obvious reason that you can’t become more prosperous just by spending borrowed money). The other is the exponential rise in the energy cost of energy (ECoE), a process which impacts prosperity by reducing the share of output which can be used for all purposes other than the supply of energy itself.
In France, and with all sums expressed in euros at constant 2017 values, GDP grew by 23% between 2000 and 2017. But this growth, whilst adding €433bn to GDP, was accompanied by a €3.07tn increase in aggregate debt. This means that each €1 of reported growth in the French economy has come at a cost of more than €7 in net new debt. Put another way, whilst French GDP is growing at between 1.5% and 2.0%, annual borrowing is running at about 9.5% of GDP.
Cutting to the chase here, SEEDS concludes that very little (about €100bn) of the reported €433bn rise in GDP since 2000 has been sustainable and organic, with the rest being a simple function of the spending of borrowed money. Shorn of this credit effect, underlying or clean GDP per capita is lower now (at €29,550) than it was in 2000 (€30,777).
Meanwhile, trend ECoE in France is put at 7.8%. Though by no means the worst amongst comparable economies, this nevertheless represents a relentless increase, rising from 4.6% back in 2000. At the individual or household level, rising ECoE is experienced primarily in higher costs of household essentials. In the aggregate, ECoE acts as an economic rentdeduction from clean GDP.
Between 2000 and 2017, clean GDP itself increased by only 5.7%, and the rise in ECoE left French aggregate prosperity only marginally (2.2%) higher in 2017 than it was back in 2000. Over that same period, population numbers increased by 10%, meaning that prosperity per person is 7.1% lowernow than it was at the millennium.
In France, as elsewhere, the use of credit and monetary adventurism in an effort to deliver “growth” has added markedly to the aggregate debt burden, which is €3.1tn (86%) higher now than it was in 2000. The per capita equivalent has climbed by 69%, making the average person €41,800 (69%) more indebted than he or she was back in 2000.
The prosperity powder-keg
Gilets Jaunes Acte 3 – Samedi 1er Décembre – Perpignan
To summarise, then, we can state the economic circumstances of the average French citizen as follows.
First, and despite a rise in official GDP per capita, his or her personal prosperity is 7.1% (€2,095) lower now than it was as long ago as 2000.
Second, he or she has per capita debt of €102,200, up from €60,400 back in 2000.
Third, the deterioration in prosperity has been experienced most obviously in costs of household essentials, which have outpaced both wages and headline CPI inflation over an extended period.
This is the context in which we need to place changes in the workplace, and a perceived widening in inequality.
On this latter point, part of the explanation for the anger manifested in France can be grasped from this chart, published by the Institut des Politiques Publiques.
In the current budget, policy changes hurt the disposable incomes of the poorest 10% or so (on the left of the scale), but ought to be welcomed by most of the rest – and perhaps might be, were it not for the huge handouts seemingly being given to the very wealthiest. Moreover, these benefits aren’t being conferred on a large swathe of “the rich”, but accrue only to the wealthiest percentile.
This is part of a pattern visible throughout much of the West. Unfortunately, perceptions of hand-outs to a tiny minority of the super-rich have arisen in tandem with a deteriorating sense of security. Security is a multi-faceted concept, which extends beyond security of employment to embrace prosperity, wages, living costs and public services.
Even in the euphoric period immediately following his election, it seemed surprising that French voters would back as president a man committed to ‘reform’ of French labour laws, a process likely to reduce workers’ security of employment. Add in further deterioration in prosperity, and an apparent favouring of the super-rich, and the ingredients for disaffection become pretty obvious.
Where next?
The interpretation set out here strongly indicates that protests are unlikely to die down just because the government has made some concessions over fuel taxes – the ‘gilet jaunes’ movement might have found its catalyst in diesel prices, but now embraces much wider sources of discontent.
Given the context of deteriorating prosperity, it’s hard to see how the government can respond effectively. Even the imposition of swingeing new taxes on the super-rich – a wildly unlikely initiative in any case – might not suffice to assuage popular anger. It seems likelier that the authorities will ramp up law enforcement efforts in a bid to portray the demonstrators as extremists. The scale of apparent support for the movement – if not for some of its wilder excesses – suggests that such an approach is unlikely to succeed.
Of course, it cannot be stressed too strongly that the French predicament is by no means unique. Deteriorating prosperity, a sense of reduced security and resentment about the perceived favouring of the super-rich are pan-European trends.
In the longer term, trends both in prosperity and in politics suggest that the West’s incumbent elites are fighting a rear-guard action. The credibility of their market economics mantra suffered severe damage in 2008, when market forces were not allowed to run to their logical conclusions, the result being a widespread perception that the authorities responded to the global financial crisis with rescues for “the rich” and “austerity” for everyone else.
This problem is exacerbated by the quirks of the euro system. In times past, a country like Italy would have responded to hardship by devaluation, which would have protected employment at the cost of gradual increases in the cost of living. Denied this option, weaker Euro Area countries – meaning most of them – have been forced into a process of internal devaluation, which in practice means reducing costs (and, principally, wages) in a way popularly labelled “austerity”. The combination of a single monetary policy with a multiplicity of sovereign budget processes was always an exercise in economic illiteracy, and the lack of automatic stabilisers within the euro system is a further grave disadvantage.
Finally, the challenge posed by deteriorating prosperity is made much worse by governments’ lack of understanding of what is really happening to the economy. If you were to believe that rising GDP per capita equates to improving prosperity – and if you further believed that ultra-low rates mean that elevated debt is nothing to worry about – you might really fail to understand what millions of ordinary people are so upset about.
After all, as somebody might once have said, they can always eat brioche.
