Unpacking Extinction Rebellion — Part III: The Fourth Industrial Revolution

28 09 2019

Kim Hill

Kim Hill, Sep 26 · 13 min read

Part I of this series investigated the corporate interests and fossil fuel companies behind the rebellion’s goal for net-zero emissions. In Part II we looked at XR’s goals, tactics and proposed solutions to the climate crisis, which are all serving capital at the expense of the natural world. In Part III, we dive in to the history of the climate movement, the tactics being used by the elites to co-opt activist movements into supporting corporate agendas, and what those agendas entail.

This article is largely a synthesis of the extensive research of Cory Morningstar into the manipulations of the climate movement by corporations and nonprofits, which is well worth reading, at Wrong Kind of Green, to get a deeper understanding of the actors involved and their elaborate marketing strategies.

Manufacturing Consent

The corporate sector, with its network of think-tanks, lobby groups, business associations, philanthropic foundations, global forums and summits, and co-opted environment groups, has been directing the climate movement towards its own goals for more than ten years. As this video puts it, “idealistic youth are simply being herded into pre-approved movements to create the illusion of a popular mandate for what the ruling classes have already determined to be the best course of action for preserving their dominance and control.”

Corporate power manufactures consent for its neoliberal agenda with a range of tactics:

· Advertising products as ‘green’ to appeal to concerned citizens, directing their energy into lifestyle actions and consumer choices rather than organising collectively to dismantle the global economy.

· Advocating market-based solutions to problems caused by the market itself, such as fossil fuel divestment schemes, that make no difference to the underlying economic system, as it is entirely powered by fossil fuels.

· Promoting over-hyped books and documentaries that offer lifestyle changes, new technologies and neoliberal reforms as solutions, and don’t mention the possibility of direct action or systemic political change. Al Gore’s An Inconvenient Truth, Naomi Klein’s This Changes Everything and the recent Ice on Fire are the lead culprits, but there are dozens of these.

· Providing training to activists, to direct them to campaign in ways that are beneficial to corporate interests. Al Gore, who sees the climate crisis as “the biggest investor opportunity ever writ in history” has been doing this for years with the Climate Reality Leadership Corps.

· Installing their own leaders into environmental movements, especially young people who have had no experience in grassroots organising. Climate Reality again, and Sunrise Movement, 350, the Youth Climate Coalitions, Zero Hour and others, through youth leadership training programs that offer careers and in some cases opportunities to meet world leaders at global summits.

· Inviting prominent activists to attend and speak at corporate events, to make it look like they really care. The celebrity status of Greta Thunberg is a recent example of this approach. I’m definitely not making a judgement of her choice to accept the invitations, as I probably would have done the same if I was in her position. The point here is that the motives for inviting her are to detract attention away from their underlying agenda of promoting economic growth.

· Providing favourable media coverage to symbolic actions and non-confrontational movements. The BBC and The Guardian have been consistently enthusiastic in their reporting of the XR protests.

· Offering jobs in their foundations and NGOs to effective activists, to direct their energy away from radical change and into reform. Even Big Oil is recruiting, wanting to “harness the power” of young activists, and bring the fossil fuel industry into the movement.

· Recruiting concerned citizens into supporting corporate-endorsed Big Green NGOs, such as Greenpeace, Avaaz, WWF and 350, and soliciting donations for these organisations, while starving legitimate grassroots groups of support, media and funding.

· Isolating people working towards systemic change from the movement, so they can’t be effective. Extinction Rebellion training specifically includes strategies on how to do this.

· Directing activists into electoral politics, to work within the current system. The UK Labour Party supports the rebellion, and in the US the Democrats are supporting climate activist groups. Rebels are then distracted from their goals by party politics, and drawn into compromises for the sake of the party.

· Offering grants and sponsorship, on the condition that the recipients align their goals with those of the sponsor. The Guardian reported on July 12: “A group of wealthy US philanthropists and investors have donated almost half a million pounds to support the grassroots movement Extinction Rebellion and school strike groups — with the promise of tens of millions more in the months ahead.” All on the condition of non-confrontational and corporate-friendly campaigning methods, of course. And among those wealthy philanthropists are oil tycoons.

· Offering support for the movement, and conceding to demands, but using this tactic for self-promotion, to market themselves as sustainable and green without making any real change to their business or governance practices. This brings activists over to their side, and activism becomes an advertising campaign for business.

· Dividing movements into those who accept the promises of green business, and those who see through the greenwash. In this way the movement is undermined by directing energy into infighting, rather than working together towards a clear goal of ending corporate power and control. It leads those who buy in to the promises of green growth to directly campaign against the activists who are defending the natural world.

The goal of the climate movement has become to sustain and expand the system of corporate dominance, in direct opposition to the environmental movement’s goals of dismantling this economic system, to protect and regenerate wild nature. Rebels have become unpaid corporate lobbyists. Big business has seized on popular anger at their abusive practices, and redirected it to prop up the very system that needs to be torn down.

Corporate leadership

In XR’s core leadership team are long-time corporate lobbyists Gail Bradbrook and Farhana Yamin.

Bradbrook works for Citizens Online, a telecommunications industry lobby group that campaigns for ‘digital inclusion’ to get as many people as possible to use their products, and to compel councils to accept the rollout of 5G networks. She has used her leadership position in XR to launch XR Business, a network of corporations who see the climate crisis as — you guessed it — a great business opportunity. The Astroturfing the way for the Fourth Industrial Revolution series of articles explores Bradbrook’s corporate connections and their influence on the rebellion.

Yamin is the CEO of Track 0, a non-profit that supports the goals of the Paris Agreement (a plan for continued economic growth that is completely out of touch with reality) and declares “Getting on track to net zero is an economic imperative as much as a scientific one. The prize is innovation opportunities, and an abundance of technologies and ideas that fuel economic growth, create jobs and fuel the track to a bright economic future”. According to her bio “She is widely credited with getting the goal of net-zero emissions by mid-century into the Paris Agreement.” She is also a member of the Global Agenda Council on Climate Change at the World Economic Forum, and an Associate Fellow at Chatham House, a think tank on international affairs.

Who put the fox in charge of the henhouse? That these people are in leadership shows that the rebellion has not been co-opted by corporate interests along the way, but has been wholly contrived from the beginning as a propaganda campaign. The very definition of an astroturf movement. The good intentions and hard work of many thousands of rebels count for nothing when these are the people running the show.

The goal of the corporate backers of the rebellion is to facilitate the transfer of trillions of dollars of government money into corporate profits. It’s a bailout for a global economy that is falling into recession. After the global financial crisis of 2007–2008, people are unlikely to support another bailout, so this time it is being presented as necessary to save us from supposedly catastrophic climate change. The money required is taken from working people in the form of pension funds, carbon taxes and climate emergency levies. It’s all being invested in the energy industry and infrastructure, thereby accelerating the process of genuinely catastrophic ecological collapse.

The Climate Markets and Investment Association states: “Much has been written about the nature and the scale of this economic opportunity. Most recently, the New Climate Economy estimated that bold action on climate change would result in incremental economic opportunities of $26 trillion and 65 million new jobs, that wouldn’t exist with a business as usual approach, between now and 2030.” Interesting how the potential profits are of the same order of magnitude as the amount governments are asked to invest.

For the capitalists, the crisis is that the economy is failing and ‘climate action’ can be used to save it. For the natural world, including any humans who identify as living beings rather than economic production units, the crisis is that capitalism is destroying us, and climate action to keep it going will cause total annihilation. Pick your crisis.

From anti-globalisation to inclusive capitalism

In the 1990s and 2000s, there were massive protests all around the world, against the World Economic Forum, World Bank, International Monetary Fund, and World Trade Organisation, which all exist to advance the interests of powerful corporations at the expense of the commons and the third world. These bodies, which are all unelected and have no popular mandate for their existence, spent millions on security and policing to protect their events from overwhelming opposition. The protesters demanded that these bodies be disbanded, and replaced by organisations that represent the people. Instead of conceding, the elites infiltrated, funded, and co-opted the resistance, and built their own mass movement, one that they could control and lead.

Protest has become a commodity, a marketable product that the corporate sector can buy, and the nonprofits are happy to sell for some funding, media attention and good feelings. The protesters themselves are both a disposable product, and consumer of the protest message, sold on feelings of guilt, fear, virtue, and their need to take action.

In the lead up to the school strikes in March, the World Economic Forum released this video advertisement, encouraging young people to join the strikes. As if the strikes are a product, and the youth the target market. Think about that. The very institution that was the target of a massive international protest movement not long ago, due to its promotion of unjust and environmentally destructive practices on a global scale, is now directly advertising a protest movement that appears to have exactly the same concerns.

Instead of identifying the corporate-controlled economic system as the cause of ecological collapse, this new movement is guided to direct their protest at some nebulous ideas about changing atmospheric conditions. A massive, international movement is quite literally protesting against a load of hot air. And somehow, the story that the corporate sector are the saviours, who can fix everything if only we demand our governments bail out the collapsing economy, and give them a few trillion dollars to invest in new infrastructure and energy sources, is rarely questioned. It’s all wrapped up in the innocuous and undefined term Climate Action, which is widely accepted as a worthy and necessary goal, with barely any inquiry into what it actually means.

The World Economic Forum aims for ‘inclusive capitalism’, and as capitalism is an economic system that sees everyone and everything as resources to be exploited, being included in the scheme isn’t likely to be on anyone’s wish list. Our imagination, creativity, skills and wishes to make the world better are turned into innovation, entrepreneurship, and human resources. Our insecurities, ambitions, and basic needs are a resource to be extracted and sold back to us as products, services, and experiences. Every living being, every natural feature, and everything the world needs to survive and live well, is all included in capitalism.

In an economy that sees all of nature and all of human experience as a resource to be traded, even protest movements can have their energy extracted. People power is just another energy source to be harnessed and used to fuel economic growth.

The Fourth Industrial Revolution

Just as carbon dioxide is captured and used as a resource to suck the last drops of oil from the planet, so too is resistance (a useful waste product of the destructive economic system) captured and used to extract every last drop of our human resources. And the corporate elites have a specific plan for what they want to do with these human resources.

According to their website, “The World Economic Forum provides a platform for the world’s 1,000 leading companies to shape a better future.” I really don’t want to imagine what kind of future a thousand multi-national corporations might envision when they get together. And I don’t have to, as they’ve laid it all out in gruesome detail. It’s called the Fourth Industrial Revolution.

It is characterized by a fusion of technologies that is blurring the lines between the physical, digital, and biological spheres. The possibilities of billions of people connected by mobile devices, with unprecedented processing power, storage capacity, and access to knowledge, are unlimited. And these possibilities will be multiplied by emerging technology breakthroughs in fields such as artificial intelligence, robotics, the Internet of Things, autonomous vehicles, 3-D printing, nanotechnology, biotechnology, materials science, energy storage, and quantum computing.”

“The revolution could yield greater inequality, particularly in its potential to disrupt labor markets. As automation substitutes for labor across the entire economy, the net displacement of workers by machines might exacerbate the gap between returns to capital and returns to labor,” meaning the rich get richer and the poor get poorer. And “governments will gain new technological powers to increase their control over populations, based on pervasive surveillance systems and the ability to control digital infrastructure.” And “The Fourth Industrial Revolution will also profoundly impact the nature of national and international security, affecting both the probability and the nature of conflict… As this process takes place and new technologies such as autonomous or biological weapons become easier to use, individuals and small groups will increasingly join states in being capable of causing mass harm… the Fourth Industrial Revolution may indeed have the potential to ‘robotize’ humanity and thus to deprive us of our heart and soul.”

That’s quite a sales pitch. Extreme poverty, war, surveillance, government and corporate control, and soullessness. These are the people promoting the climate strikes, and using Greta’s message to advance their goals.

The definition of fascism as “a merger of state and corporate power” has been attributed to Mussolini, and is an accurate description of this latest phase of globalization.

Another event promoting the Fourth Industrial Revolution was the Global Climate Action Summit, held in September 2018. Involving a lot of the same corporations as the WEF, and sponsored by Google, Facebook and Amazon, it states in its Exponential Climate Action Roadmap:

“To halve emissions by 2030 requires the implementation and scaling of a set of technologies which are at different levels of development. Mobile internet, cloud computing, big data, apps, smart devices and first-generation industrial automation are mature technologies and can serve as a foundation for big efficiency gains in all industries by providing connectivity and computing. The next technologies down the ramp are artificial intelligence, 5G networks, digital fabrication, smart sensors, the large-scale deployment of the internet of things and drones. These will enable a further level of emissions cuts before 2030. Finally come the technologies which are in a relatively early phase at the time of writing — blockchain, immersive user experiences like virtual- and augmented-reality, 3D printing, gene editing, advanced robotics, and digital assistants. At this stage it’s impossible to quantify their potential impact on emissions, but it can be assumed to be substantial.”

Note the word exponential in the title. Exponential growth. Exponential climate action. Exponential rate of extinction. All this new technology is predicted to use up to one fifth of global electricity by 2025, mooting any claims of efficiency gains. And another thing: most of these things are weapons and surveillance technologies. This plan has nothing to do with scaling back any polluting or life-destroying industries, and everything to do with going to war, and monitoring, manipulating and controlling the population. I feel I need to repeat, in capitals, that THESE THINGS ARE WEAPONS. And all being passed off as climate action.

Now making weapons would be an entirely appropriate response to ongoing environmental devastation, if the weapons were to be used by living beings acting in self-defence, to drive out the industrialists destroying the land that provides our food, water and shelter. But here the opposite is happening: the industrialists are using the weapons to repress the very essence of our human nature, and control our actions and thoughts, and even our genes. This is the ultimate panopticon: smart cities, smart meters, smart grids, smart appliances, facial recognition, all monitoring our every move, every interaction and every transaction. A world where we talk to machines more often than we talk with other people, and we definitely don’t speak with trees or spirits. Where even lampposts chat with you, and trees are replaced with smart trees. No possibility of dissent or resistance. We’ve been led into demanding our own subjugation and oppression.

If this happened in the real world, the one where people get to think for themselves and act in their own self-interest, the population would rise up and burn down every one of these 1000 corporations, and destroy all their assets and infrastructure. But here in the screen-mediated propaganda-sedated techno-fantasy world, where the only thoughts on offer in the marketplace of ideas are mass-produced corporate-branded delusions, we’re presented with a kid whose script says “I want you to panic” so we do that instead.

I’ll end this section with a quote from Cory Morningstar: “What better way to create a demand for something detrimental to both the environment and the populace, than to package it under climate change solutions, with the lovely and innocent face of Greta. With reality turned on its head, industry doesn’t have to impose its will on the people — the people will impose it on themselves, via Avaaz et al. The people are thus engineered to demand the very false solutions that the corporations have had up their sleeves for years and even decades.”

+ + + + + + + + +

Part IV will look at ways the rebellion might be turned around to serve life instead of profit, and offer some principles for effective action.





Dick Smith on growth; emphatically yes…and no

16 08 2017

tedtrainer

Ted Trainer

Another article by my friend Ted Trainer, originally published at on line opinion……

The problems of population and economic growth have finally come onto the public agenda, and Dick Smith deserves much of the credit…but he doesn’t realise what’s on the other end of the trail he’s tugging.

For fifty years a small number of people have been saying that pursuing population and economic growth on a finite planet is a very silly thing to do. Until recently almost no one has taken any notice. However in the last few years there has emerged a substantial “de-growth” movement, especially in Europe. Dick Smith has been remarkably successful in drawing public attention to the issue in Australia. He has done more for the cause in about three years than the rest of us have managed to achieve in decades. (I published a book on the subject in 1985, which was rejected by 60 publishers…and no one took any notice of it anyway.) Dick’s book (2011) provides an excellent summary of the many powerful reasons why growth is absurd, indeed suicidal.

Image result for dick smith

Dick Smith

The problem with the growth-maniacs, a category which includes just about all respectable economists, is that they do not realise how grossly unsustainable present society is, let alone what the situation will be as we continue to pursue growth. Probably the best single point to put to them is to do with our ecological “footprint”. The World Wildlife Fund puts out a measure of the amount of productive land it takes to provide for each person. For the average Australian it takes 8 ha of to supply our food, water, settlement area and energy. If the 10 billion people we are likely to have on earth soon were each to live like us we’d need 80 billion ha of productive land…but there are only about 8 billion ha of land available on the planet. We Australians are ten times over a level of resource use that could be extended to all people. It’s much the same multiple for most other resources, such as minerals, nitrogen emissions and fish. And yet our top priority is to increase our levels of consumption, production, sales and GDP as fast as possible, with no limit in mind!

The World Wildlife Fund also puts the situation another way. We are now using resources at 1.4 times the rate the planet could provide sustainably. We do this by for example, consuming more timber than grows each year, thereby depleting the stocks. Now if 10 billion people rose to the “living standards” we Australians would have in 2050 given the 3% p.a. economic growth we expect, then every year the amount of producing and consuming going on in the world would be 20 times as great as it is now.

Over-production and over-consumption is the main factor generating all the alarming global problems we face is. Why is there an environmental problem? Because we are taking far more resources from nature, especially habitats, than is sustainable. Why do about 3+ billion people in the Third World wallow in poverty? Primarily because the global economy is a market system and in a market resources go to those who can pay most for them, i.e., the rich. That’s why we in rich countries get almost all the oil, the surpluses produced from Third World soils, the fish caught off their coasts, etc. It’s why “development” in the Third World is mostly only development of what will maximise corporate profit, meaning development of industries to export to us. Why is there so much violent conflict in the world? Primarily because everyone is out to grab as many of the scarce resources as they can. And why is the quality of life in the richest countries falling now, and social cohesion deteriorating? Primarily because increasing material wealth and business turnover has been made the top priority, and this contradicts and drives out social bonding.

Dick has done a great job in presenting this general “limits to growth” analysis of our situation clearly and forcefully, and in getting it onto the public agenda. But I want to now argue that he makes two fundamental mistakes.

The first is his assumption that this society can be reformed; that we can retain it while we remedy the growth fault it has. The central argument in my The Transition to a Sustainable and Just World (2010a) is that consumer-capitalist society cannot be fixed. Many of its elements are very valuable and should be retained, but its most crucial, defining fundamental institutions are so flawed that they have to be scrapped and replaced. Growth is only one of these but a glance at it reveals that this problem cannot be solved without entirely remaking most of the rest of society. Growth is not like a faulty air conditioning unit on a house, which can be replaced or removed while the house goes on functioning more or less as before. It is so integrated into so many structures that if it is dumped those structures will have to be scrapped and replaced.

The most obvious implication of this kind is that in a zero growth economy there can be no interest payments at all. Interest is by nature about growth, getting more wealth back than you lent, and this is not possible unless lending and output and earnings constantly increase. There goes almost the entire financial industry I’m afraid (which recently accounted for over 40% of all profits made.) Banks therefore could only be places which hold savings for safety and which lend money to invest in maintenance of a stable amount of capital stock (and readjustments within it.) There also goes the present way of providing for superannuation and payment for aged care; these can’t be based on investing to make money.

The entire energising mechanism of society would have to be replaced. The present economy is driven by the quest to get richer. This motive is what gets options searched for, risks taken, construction and development underway, etc. The most obvious alternative is for these actions to be come from a collective working out of what society needs, and organising to produce and develop those things cooperatively, but this would involve an utterly different world view and driving mechanism.

The problem of inequality would become acute and would not only demand attention, it would have to be dealt with in an entirely different way. It could no longer be defused by the assumption that “a rising tide will lift all boats”. In the present economy growth helps to legitimise inequality; extreme inequality is not a source of significant discontent because it can be said that economic growth is raising everyone’s “living standards”.

How would we handle unemployment in a zero-growth economy? At present its tendency to increase all the time is offset by the increase in consumption and therefore production. Given that we could produce all we need for idyllic lifestyles with a fraction of the present amount of work done, any move in this direction in the present economy would soon result in most workers becoming unemployed. There would be no way of dealing with this without scrapping the labour market and then rationally and deliberately planning the distribution of the (small amount of) work that needed doing.

Most difficult of all are the cultural implications, usually completely overlooked. If the economy cannot grow then all concern to gain must be abandoned. People would have to be content to work for stable incomes and abandon all interest in getting richer over time. If any scope remains for some to try to get more and more of the stable stock of wealth, then some will succeed and take more than their fair share of it and others will therefore get less…and soon it will end in chaos, or feudalism as the fittest take control. Sorry, but the 500 year misadventure Western culture has had with the quest for limitless individual and national wealth is over. If we have the sense we will realise greed is incompatible with a sustainable and just society. If, as is more likely we won’t, then scarcity will settle things for us. The few super privileged people, including Australians, will no longer be able to get the quantities of resources we are accustomed to, firstly because the resources are dwindling now, and secondly because we are being increasingly outmanoeuvred by the energetic and very hungry Chinese, Indians, Brazilians…

And, a minor point, you will also have to abandon the market system. It is logically incompatible with growth. You go into a market not to exchange things of equal value but to make money, to get the highest price you can, to trade in a way that will make you richer over time. There are “markets” where people don’t try to do this but just exchange the necessities without seeking to increase their wealth over time e.g., in tribal and peasant societies. However these are “subsistence” economies and they do not operate according to market forces. The economies of a zero-growth society would have to be like this. Again, if it remains possible for a few to trade their way to wealth they will end up with most of the pie. This seems to clearly mean that if we are to have a zero-growth economy then we have to work out how to make a satisfactory form of “socialism” work, so that at least the basic decisions about production, distribution and development can be made by society and not left to be determined by what maximises the wealth of individuals and the profits of private corporations competing in the market. Richard Smith (2010) points this out effectively, but some steady-staters, including Herman Daly and Tim Jackson (2009) seem to have difficulty accepting it.

Thus growth is not an isolated element that can be dealt with without remaking most of the rest of society. It is not that this society has a growth economy; it is that this is a growth society.

So in my view Dick has vastly underestimated the magnitude of the changes involved, and gives the impression that consumer-capitalist society can be adjusted, and then we can all go on enjoying high levels of material comfort (he does say we should reduce consumption), travel etc. But the entire socio-economic system we have prohibits the slightest move in this direction; it cannot tolerate slowdown in business turnover (unemployment, bankruptcy, discontent and pressure on governments immediately accelerate), let alone stable levels, let alone reduction to maybe one-fifth of present levels.

This gets us to the second issue on which I think Dick is clearly and importantly mistaken. He believes a zero growth economy can still be a capitalist economy. This is what Tim Jackson says too, in his very valuable critique of the present economy and of the growth commitment. Dick doesn’t offer any explanation or defence for his belief; it is just stated in four sentences. “Capitalism will still be able to thrive in this new system as long as legislation ensures a level playing field. Huge new industries will be created, and vast fortunes are still there to be made by the brave and the innovative.” (p. 173.) “I have no doubt that the dynamism and flexibility of capitalism can adjust to sustainability laws. The profit imperative would be maintained and, as long as there was an equitable base, competition would thrive.” (p. 177.)

Following is a sketch of the case that a zero growth economy is totally incompatible with capitalism.

Capitalism is by definition about accumulation, making more money than was invested, in order to invest the surplus to have even more…to invest to get even richer, in a never-ending upward spiral. Obviously this would not be possible in a steady state economy. It would be possible for a few to still own most capital and factories and to live on income from these investments, but they would be more like rentiers or landlords who draw a stable income from their property. They would not be entrepreneurs constantly seeking increasingly profitable investment outlets for ever-increasing amounts of capital.

Herman Daly believes that “productivity” growth would enable capitalism to continue in an economy with stable resource inputs. This is true, but it would be a temporary effect and too limited to enable the system to remain capitalist. The growth rate which the system, and capitalist accumulation, depends on is mostly due to increased production, not productivity growth. Secondly the productivity measure used (by economists who think dollars are the only things that matter) takes into account labour and capital but ignores what is by far the most important factor, i.e., the increasing quantities of cheap energy that have been put into new productive systems. For instance over half a century the apparent productivity of a farmer has increased greatly, but his output per unit of energy used has fallen alarmingly. From here on energy is very likely to become scarce and costly. Ayres (1999) has argued that this will eliminate productivity gains soon (which have been falling in recent years anyway), and indeed is likely to entirely stop GDP growth before long.

Therefore in a steady state economy the scope for continued capitalist accumulation via productivity gains would be very small, and confined to the increases in output per unit of resource inputs that is due to sheer technical advance. There would not be room for more than a tiny class, accumulating greater wealth very gradually until energy costs eliminated even that scope. Meanwhile the majority would see this class taking more of the almost fixed output pie, and therefore would soon see that it made no sense to leave ownership and control of most of the productive machinery in the hands of a few.

But the overwhelmingly important factor disqualifying capitalism has yet to be taken into account. As has been made clear above the need is not just for zero-growth, it is for dramatic reduction in the amount of producing and consuming going on. These must be cut to probably less than one-fifth of the levels typical of a rich country today, because the planet cannot sustain anything like the present levels of producing and consuming, let alone the levels 9 billion people would generate. This means that most productive capacity in rich countries, most factories and mines, will have to be shut down.

I suspect that Dick Smith is like Tim Jackson in identifying capitalism with the private ownership of firms, and in thinking that “socialism” means public ownership. This is a mistake. The issue of ownership is not central; what matters most is the drive to accumulate, which can still be the goal in socialism of the big state variety (“state capitalism”.) In my ideal vision of the future post-capitalist economy most production would take place within (very small) privately owned firms, but there would be no concern to get richer and the economy would be regulated by society via participatory democratic processes.

So I think Dick has seriously underestimated the magnitude of the change that is required by the global predicament and of what would be involved in moving to a zero-growth economy. The core theme detailed in The Transition… is that consumer-capitalist society cannot be fixed. Dick seems to think you can retain it by just reforming the unacceptable growth bit. My first point above is that you can’t just take out that bit and leave the rest more or less intact. In addition you have to deal with the other gigantic faults in this society driving us to destruction, including allowing the market to determine most things, accepting competition rather than cooperation as the basic motive and process, accepting centralisation, globalisation and representative big-state “democracy”, and above all accepting a culture of competitive, individualistic acquisitiveness.

The Transition… argues that an inevitable, dreadful logic becomes apparent if we clearly grasp that our problems are primarily due to grossly unsustainable levels of consumption. There can be no way out other than by transition to mostly small, highly self-sufficient and cooperative local communities and communities which run their own economies to meet local needs from local resources… with no interest whatsoever in gain. They must have the sense to focus on the provision of security and a high quality of life for all via frugal, non-material lifestyles. In this “Simpler Way” vision there can still be (some small scale) international economies, centralised state governments, high-tech industries, and in fact there can be more R and D on important topics than there is now. But there will not be anything like the resources available to sustain present levels of economic activity or individual or national “wealth” measured in dollars.

I have no doubt that the quality of life in The Simpler Way (see the website, Trainer 2011) would be far higher than it is now in the worsening rat race of late consumer-capitalism. Increasing numbers are coming to grasp all this, for instance within the rapidly emerging Transition Towns movement. We see our task as trying to establish examples of the more sane way in the towns and suburbs where we live while there is time, so that when the petrol gets scarce and large numbers realise that consumer-capitalism will not provide for them, they can come across to join us.

It is great that Dick is saying a zero-growth economy is no threat to capitalism. If he had said it has to be scrapped then he would have been identified as a deluded greenie/commie/anarchist out to wreck society and his growth critique would have been much more easily ignored. What matters at this point in time is getting attention given to the growth absurdity; when the petrol gets scarce they will be a bit more willing to think about whether capitalism is a good idea. Well done Dick!





How Do You Degrow an Economy, Without Causing Chaos?

16 05 2017

An article written by a Facebook friend of mine, Jonathan Rutherford, who is Coordinator of the New International Bookshop and a ‘Simpler Way’ activist. Originally published at the Resillience website.  The real challenge for those in charge is not ‘jobs and growth’, it is how to best manage the looming contraction……

‘Houston, we have a problem’. On the one hand, there is growing acceptance among environmentally conscious people that rich nations and affluent regions of the global economy must dramatically reduce overall resource and energy consumption levels – that is, undergo a process of ‘degrowth’ – if humanity is to bring about a sustainable world order. On the other hand, we have a growth economy that cannot go two steps in this direction without causing huge economic and social problems.

If you doubt the first part of this statement (i.e. the need for ‘degrowth’), consider just one metric – the material footprint (MF) indicator. This measures consumption of all natural resources (biomass, fossil fuels, metal ores and minerals) extracted from the environment. Humanity’s current MF is about 70 billion tonnes – a figure that has more than trebled since the 1970s. As we know, already this rate of consumption is generating waste, pollution and land-use change that are driving environmental problems such as global warming and species extinction. But now consider the fact that the per capita rich nation (i.e OECD) MF is about 30 tonnes. If the 9+ billion humans expected to be living on earth by 2050 rose to this level, we would need 270 billion tonnes per annum – that is, four times the present rate, which is unsustainable. Using similar figures in the 1990s Friedrich Schmidt Bleek estimated that rich nations need to make ‘factor 10’ reductions in overall resource use (renewable and non-renewable), if we are to move down to a globally fair share and at sustainable levels. And that estimate, it should be noted, does not factor in the likely increase in MF that, recent history suggests, will inevitably result from the continuous pursuit of economic growth by all nations, included the wealthiest.

Many people hope that we can make ‘factor 10’ reductions via technological advance and efficiency gains alone, without having to make cut overall rates of production, consumption (i.e. GDP). But, as argued in a recent peer reviewed article by Giorgos Kallis there are strong reasons to think that this will not be viable. Few want to admit it, but the kind of radical reductions we need to make will require GDP contraction i.e. de-growth.

But if we in the rich world need to degrow the economy, as it appears we do, how is that done without causing utter social chaos and breakdown?  The problem was recently illustrated in a series of articles run by the ABC. The first article highlighted the trend among some young Australians to adopt relatively frugal lifestyles of reduced income expenditure and increased savings. A follow up article, however, asked: what would happen to the economy if everyone did this? The answers were revealing, and implicitly revealed fundamental flaws in our existing economic system.

The article cited data which suggest every year Australians spend $955 billion on all forms of consumption. Of this about $416 billion (44%) is made up items such as ‘food, clothing, housing, utilities, health, transport, insurance’ which the article defined as ‘necessities’ (note: one, of course, may question whether i.e. all clothes consumption are truly ‘necessities’!). The other $523 billion was made up what the article defined as discretionary items. Economist, Saul Eslake pointed out that, even if we exclude from this discretionary figure the $100+ billion worth of imported goods & services, if  all Australian households ceased all the remaining discretionary spending, GDP would be immediately reduced by 25 per cent. But, as Eslake pointed out, the impact on the economy would eventually be far greater than this, due to knock-on effects. The reduced spending, for example, would result in firm bankruptcy and thus laid off workers which, in turn, would further reduce aggregate demand in a cycle of downward depression familiar to students of economic history.

But while all this is entirely correct, reducing societal consumption – degrowing the economy – need not necessarily result in chaotic economic breakdown, as the ABC article implicitly assumed. This is indeed an inevitable outcome within our present economic system, but possibly not others.

Our present system – both in Australia and now most of the world – is, of course, the capitalist market economy. This 500-year-old system has certain defining features that mark it out as unique compared to other economic systems humans have devised.  It is a system in which a) most (if not all) the major means of production are privately (these days corporately) owned by a small minority of the population; and b) where the fundamental economic problems (what, how, and for whom to produce) are solved “automatically”, through the price mechanism, rather than through conscious social decisions.

Importantly, for this discussion, the system is characterised by a growth compulsion. Due to competition, all firms – particularly large shareholder firms – are under constant pressure to invest in new techniques, methods of production and products, to improve competitiveness and their sales figures. If they fail to do this, they not only risk profits margins but also eventually being taken-over by other firms, or made bankrupt. Since no firm wants to perish, and since all must expand if they want to continue to exist, a general growth compulsion arises, not just for individual firms, but for the macro economy as whole. So, while almost everyone wants growth, it is also true that the system needs growth for its basic functioning.

In fact, the system cannot possibly tolerate even a slow-down in the rate of growth, let alone a contraction. Richard Smith points out that even when capitalism approaches a ‘steady state’ of zero GDP growth, such as what happened in the USA in the wake of the GFC, the outcome for society at large is ugly. The situation is characterised by “capital destruction, mass unemployment, devastated communities, growing poverty, foreclosures, homelessness and environmental considerations shunted aside in the all-out effort to restore growth.” Obviously, nobody wants this, including advocates of degrowth.

What then would be required to contract the economy, in an orderly and fair way? The influential ‘Steady-State’ theorist Herman Daly argues that we can do so, while retaining a basically capitalist system, on the condition that the state steps in to play a far more active regulatory role than at present. Among other policy suggestions, Daly proposes that the state impose escalating resource depletion quotes, that can be traded in a market, while retaining private enterprise and the market system.

An emerging school of eco-socialists argue, however, that this will not work. Saral Sarkar points out three flaws with Daly’s plan.

“1) The contraction of the economies of the world must occur in an orderly way. Otherwise there will be unbearable breakdowns of whole societies. An orderly contraction can only take place in a planned economy, not in a capitalist market economy. 2) Only a socialist political order can achieve, by means of egalitarian distribution of the costs and benefits, a broad acceptance of the necessary contraction, 3) Only in a planned socialist economy can the problem of unemployment be solved, which would otherwise become more and more acute in a contracting economy. To this end, a planned economy can consciously use labor-intensive technologies and methods, which, in addition, result in less use of resources.” (Sarkar, 2012, 325)

Let me just briefly elaborate on the first reason given by Sarkar (for greater detail see Sarkar 1999) – the idea that contracting the economy within a capitalist market system would result in chaotic breakdown. Sarkar points out that the famed ‘efficiency’ of the market system only works well (if at all) when there is a buyers’ market, leading to strong competition between suppliers to meet customer demand. But in a contractionary scenario, most markets would be ‘suppliers’ markets, as there would be, in general, a shortage of supply relative to demand. This would mean even poorly run, high cost firms would be able to survive. And, as with any market economy, you would still have a situation where increasingly scarce resources were tended to be allocated to meeting the money backed demands of the already wealthy, rather than to meeting the vital needs for all – a recipe for social chaos in a context of heightened scarcity.

For these reasons, and as unfashionable as it is today, Sarkar argues that a socialist economic framework will be necessary if we are to contract the economy in an orderly, peaceful and socially just way. This would involve a process in which the state nationalises and/or shuts down most large-scale firms in the economy and actively plans the process of contraction via mechanisms such as quantitative controls, price controls, a quota system etc. But what about smaller firms and co-ops, operating at the local level? Here, it is plausible that a quasi-market economy – albeit operating within a very different no-growth culture and firmly under social control –  would be viable. Another eco-socialist Richard Smith elaborates:

“In arguing for large-scale industrial planning, I’m not saying that we should nationalize family farms, farmers’ markets, artisans, groceries, bakeries, local restaurants, repair shops, workers’ cooperatives, and so on. Small producers aren’t destroying the world. But large-scale corporations are. If we want to save the planet, the corporations would have to be nationalized, socialized, and completely reorganized. Many will need to be closed down, others scaled back, others repurposed. But I don’t see any reason why small-scale, local, independent producers cannot carry on more or less as they are, within the framework of a larger planned economy.”

Eventually the goal will be to move to a situation in which most (if not all) people live and work within highly localised economies, using local resources to meet local needs. As Ted Trainer argues, this is not optional if we want to reduce our ecological footprint to sustainable one planet levels that all can share. Gladly, there is a case that the quality of life could be very high within such communities.

But herein lies a problem for the eco-socialist, and wider degrowth movement. Trainer points out that these new local communities will not work well unless they are based on the active participation and cooperation of most, if not all, ordinary citizens in the locality. This will be necessary to ensure that all are provided for and the economy works within local eco-system limits. Active and inclusive participation by all (or at least most), Trainer argues, is ‘the crucial prerequisite… that will be needed if ordinary citizens are to eventually run highly self-sufficient local communities well.’ Widespread civic participation and cooperation simply cannot be imposed ‘top-down’ via states, even if they wanted to. In any case, Trainer argues, only if movements for localism and simpler living emerge first, is there any chance of building the eventual political will that will make a process of societal degrowth at the national and global levels possible.

For this reason, we ‘Simpler Way’ advocates tend to see the eco-socialist state directed process described above as ‘only’ a final, albeit necessary, step in a long multi phased transition towards sustainability. The first (and hardest) phase of the revolution happens when ordinary citizens, not states or corporations, take it upon themselves to start building today, even in small ways, the new self-reliant economies in the towns and suburbs where they live.

Having said that, the above sets a parallel challenge for participants within existing localist movements such as Transition Towns, eco-village, permaculture, simpler living etc. For it is equally true that we will not make a successful transition to sustainability – and the new local communities and economies will not function well – unless participants within these movements become aware of, and begin advocating for, the eventual need for an orderly process of ‘de-growth’ – a process that, for reasons mentioned briefly above, is only likely to go well within an eco-socialist framework. Ultimately, unless both these local and national-global processors occur, will not make a successful transition to a sustainable society.

Of course, today, across the world we are miles away from the necessary political and cultural awareness needed for such a transition. It is likely that the coming oil crunch and global financial contraction will aid our cause and encourage more people to see the sense in localism and de-growth – but, until then, activists must doggedly go on raising awareness wherever they can. Even if it does not feel like it, every conversation counts!

Reference:

Saral Sarkar, Eco-Socialism or Eco-Capitalism? – A Critical Analysis of Humanity’s Fundamental Choices. London: Zed Books. 1999.





The Trouble with Permaculture

4 10 2016

With the recent passing of Bill Mollison, much has been published on the interweb about Permaculture; While Glenda was here for nine days, I didn’t spend much time at this laptop, preferring to help her set her own stamp on the Fanny Farm and using her very able gardening skills to get stuck into some planting…. and fixing the goose tractor in readiness for the acquisition of more birds, but there will be time for that some place else on this site.

Having published Samuel Alexander’s epitaph for Bill Mollison by merely copying and pasting the Conversation article, I didn’t bother following the links therein; luckily, Greg Bell did, and posted a couple in a comment he left here, many thanks Greg…. as he says in his comment, “Those two “here” links to critiques of permaculture are the two most important things I’ve read all year (and they, in turn, link to even more)……

The first link is to Resilience.org and bears the same title as this entry. Fascinating reading indeed, as are the comments below it.





A Market Collapse Is On The Horizon

18 02 2016

The bit that worries me the most is this……:
The many problems of 2016 (including rapid moves in currencies, falling commodity prices, and loan defaults) are likely to cause large payouts of derivatives, potentially leading to the bankruptcies of financial institutions, as they did in 2008. To prevent such bankruptcies, most governments plan to move as much of the losses related to derivatives and debt defaults to private parties as possible. It is possible that this approach will lead to depositors losing what appear to be insured bank deposits.
I better spend that money quick smart.  Just had a quote for $17,000 for the blocks to go into the retaining wall.  By the time I’ve bought the double glazing and the roof, most of my big expenses, apart from the footings and slab, will have gone…..
~~~~~~~~~~~~~~~~~~~~~~~~~~~~~~~~~~~~~~~~~~~~~~
By

tverberg

Gail Tverberg

Posted on Sat, 13 February 2016

What is ahead for 2016? Most people don’t realize how tightly the following are linked:

1. Growth in debt
2. Growth in the economy
3. Growth in cheap-to-extract energy supplies
4. Inflation in the cost of producing commodities
5. Growth in asset prices, such as the price of shares of stock and of farmland
6. Growth in wages of non-elite workers
7. Population growth

It looks to me as though this linkage is about to cause a very substantial disruption to the economy, as oil limits, as well as other energy limits, cause a rapid shift from the benevolent version of the economic supercycle to the portion of the economic supercycle reflecting contraction. Many people have talked about Peak Oil, the Limits to Growth, and the Debt Supercycle without realizing that the underlying problem is really the same–the fact the we are reaching the limits of a finite world.

There are actually a number of different kinds of limits to a finite world, all leading toward the rising cost of commodity production. I will discuss these in more detail later. In the past, the contraction phase of the supercycle seems to have been caused primarily by too high a population relative to resources. This time, depleting fossil fuels–particularly oil–plays a major role. Other limits contributing to the end of the current debt supercycle include rising pollution and depletion of resources other than fossil fuels.

The problem of reaching limits in a finite world manifests itself in an unexpected way: slowing wage growth for non-elite workers. Lower wages mean that these workers become less able to afford the output of the system. These problems first lead to commodity oversupply and very low commodity prices. Eventually these problems lead to falling asset prices and widespread debt defaults. These problems are the opposite of what many expect, namely oil shortages and high prices. This strange situation exists because the economy is a networked system. Feedback loops in a networked system don’t necessarily work in the way people expect.

I expect that the particular problem we are likely to reach in 2016 is limits to oil storage. This may happen at different times for crude oil and the various types of refined products. As storage fills, prices can be expected to drop to a very low level–less than $10 per barrel for crude oil, and correspondingly low prices for the various types of oil products, such as gasoline, diesel, and asphalt. We can then expect to face a problem with debt defaults, failing banks, and failing governments (especially of oil exporters).

The idea of a bounce back to new higher oil prices seems exceedingly unlikely, in part because of the huge overhang of supply in storage, which owners will want to sell, keeping supply high for a long time. Furthermore, the underlying cause of the problem is the failure of wages of non-elite workers to rise rapidly enough to keep up with the rising cost of commodity production, particularly oil production. Because of falling inflation-adjusted wages, non-elite workers are becoming increasingly unable to afford the output of the economic system. As non-elite workers cut back on their purchases of goods, the economy tends to contract rather than expand. Efficiencies of scale are lost, and debt becomes increasingly difficult to repay with interest. The whole system tends to collapse.

How the Economic Growth Supercycle Works, in an Ideal Situation

In an ideal situation, growth in debt tends to stimulate the economy. The availability of debt makes the purchase of high-priced goods such as factories, homes, cars, and trucks more affordable. All of these high-priced goods require the use of commodities, including energy products and metals. Thus, growing debt tends to add to the demand for commodities, and helps keep their prices higher than the cost of production, making it profitable to produce these commodities. The availability of profits encourages the extraction of an ever-greater quantity of energy supplies and other commodities.

The growing quantity of energy supplies made possible by this profitability can be used to leverage human labor to an ever-greater extent, so that workers become increasingly productive. For example, energy supplies help build roads, trucks, and machines used in factories, making workers more productive. As a result, wages tend to rise, reflecting the greater productivity of workers in the context of these new investments. Businesses find that demand for their goods and services grows because of the growing wages of workers, and governments find that they can collect increasing tax revenue. The arrangement of repaying debt with interest tends to work well in this situation. GDP grows sufficiently rapidly that the ratio of debt to GDP stays relatively flat.

Over time, the cost of commodity production tends to rise for several reasons:

1. Population tends to grow over time, so the quantity of agricultural land available per person tends to fall. Higher-priced techniques (such as irrigation, better seeds, fertilizer, pesticides, herbicides) are required to increase production per acre. Similarly, rising population gives rise to a need to produce fresh water using increasingly high-priced techniques, such as desalination.

2. Businesses tend to extract the least expensive fuels such as oil, coal, natural gas, and uranium first. They later move on to more expensive to extract fuels, when the less-expensive fuels are depleted. For example, Figure 1 shows the sharp increase in the cost of oil extraction that took place about 1999.

Figure 1. Figure by Steve Kopits of Westwood Douglas showing the trend in per-barrel capital expenditures for oil exploration and production. CAGR is “Compound Annual Growth Rate.”

3. Pollution tends to become an increasing problem because the least polluting commodity sources are used first. When mitigations such as substituting renewables for fossil fuels are used, they tend to be more expensive than the products they are replacing. The leads to the higher cost of final products.

Related: The Hidden Agenda Behind Saudi Arabia’s Market Share Strategy

4. Overuse of resources other than fuels becomes a problem, leading to problems such as the higher cost of producing metals, deforestation, depleted fish stocks, and eroded topsoil. Some workarounds are available, but these tend to add costs as well.

As long as the cost of commodity production is rising only slowly, its increasing cost is benevolent. This increase in cost adds to inflation in the price of goods and helps inflate away prior debt, so that debt is easier to pay. It also leads to asset inflation, making the use of debt seem to be a worthwhile approach to finance future economic growth, including the growth of energy supplies. The whole system seems to work as an economic growth pump, with the rising wages of non-elite workers pushing the growth pump along.

The Big “Oops” Comes when the Price of Commodities Starts Rising Faster than Wages of Non-Elite Workers

Clearly the wages of non-elite workers need to be rising faster than commodity prices in order to push the economic growth pump along. The economic pump effect is lost when the wages of non-elite workers start falling, relative to the price of commodities. This tends to happen when the cost of commodity production begins rising rapidly, as it did for oil after 1999 (Figure 1).

The loss of the economic pump effect occurs because the rising cost of oil (or electricity, or food, or other energy products) forces workers to cut back on discretionary expenditures. This is what happened in the 2003 to 2008 period as oil prices spiked and other energy prices rose sharply. (See my article Oil Supply Limits and the Continuing Financial Crisis.) Non-elite workers found it increasingly difficult to afford expensive products such as homes, cars, and washing machines. Housing prices dropped. Debt growth slowed, leading to a sharp drop in oil prices and other commodity prices.

Figure 2. World oil supply and prices based on EIA data.

It was somewhat possible to “fix” low oil prices through the use of Quantitative Easing (QE) and the growth of debt at very low interest rates, after 2008. In fact, these very low interest rates are what encouraged the very rapid growth in the production of US crude oil, natural gas liquids, and biofuels.

Now, debt is reaching limits. Both the US and China have (in a sense) “taken their foot off the economic debt accelerator.” It doesn’t seem to make sense to encourage more use of debt, because recent very low interest rates have encouraged unwise investments. In China, more factories and homes have been built than the market can absorb. In the US, oil “liquids” production rose faster than it could be absorbed by the world market when prices were over $100 per barrel. This led to the big price drop. If it were possible to produce the additional oil for a very low price, say $20 per barrel, the world economy could probably absorb it. Such a low selling price doesn’t really “work” because of the high cost of production.

Debt is important because it can help an economy grow, as long as the total amount of debt does not become unmanageable. Thus, for a time, growing debt can offset the adverse impact of the rising cost of energy products. We know that oil prices began to rise sharply in the 1970s, and in fact other energy prices rose as well.

Figure 3. Historical World Energy Price in 2014$, from BP Statistical Review of World History 2015.

Looking at debt growth, we find that it rose rapidly, starting about the time oil prices started spiking. Former Director of the Office of Management and Budget, David Stockman, talks about “The Distastrous 40-Year Debt Supercycle,” which he believes is now ending.

Figure 4. Worldwide average inflation-adjusted annual growth rates in debt and GDP, for selected time periods. See post on debt for explanation of methodology.

In recent years, we have been reaching a situation where commodity prices have been rising faster than the wages of non-elite workers. Jobs that are available tend to be low-paid service jobs. Young people find it necessary to stay in school longer. They also find it necessary to delay marriage and postpone buying a car and home. All of these issues contribute to the falling wages of non-elite workers. Some of these individuals are, in fact, getting zero wages, because they are in school longer. Individuals who retire or voluntarily leave the work force further add to the problem of wages no longer rising sufficiently to afford the output of the system.

The US government has recently decided to raise interest rates. This further reduces the buying power of non-elite workers. We have a situation where the “economic growth pump,” created through the use of a rising quantity of cheap energy products plus rising debt, is disappearing. While homes, cars, and vacation travel are available, an increasing share of the population cannot afford them. This tends to lead to a situation where commodity prices fall below the cost of production for a wide range of types of commodities, making the production of commodities unprofitable. In such a situation, a person expects companies to cut back on production. Many defaults may occur.

China has acted as a major growth pump for the world for the last 15 years, since it joined the World Trade Organization in 2001. China’s growth is now slowing, and can be expected to slow further. Its growth was financed by a huge increase in debt. Paying back this debt is likely to be a problem.

Figure 5. Author’s illustration of problem we are now encountering.

Thus, we seem to be coming to the contraction portion of the debt supercycle. This is frightening, because if debt is contracting, asset prices (such as stock prices and the price of land) are likely to fall. Banks are likely to fail, unless they can transfer their problems to others–owners of the bank or even those with bank deposits. Governments will be affected as well, because it will become more expensive to borrow money, and because it becomes more difficult to obtain revenue through taxation. Many governments may fail as well for that reason.

The U. S. Oil Storage Problem

Oil prices began falling in the middle of 2014, so we might expect oil storage problems to start about that time, but this is not exactly the case. Supplies of US crude oil in storage didn’t start rising until about the end of 2014.

Related: Why Today’s Oil Bust Pales In Comparison To The 80’s

Figure 6. US crude oil in storage, excluding Strategic Petroleum Reserve, based on EIA data.

Cushing, Oklahoma, is the largest storage area for crude oil. According to the EIA, maximum working storage for the facility is 73 million barrels. Oil storage at Cushing since oil prices started declining is shown in Figure 7.

Figure 7. Quantity of crude oil stored at Cushing between June 27, 2014, and June 1, 2016, based on EIA data.

Clearly the same kind of run up in oil storage that occurred between December and April one year ago cannot all be stored at Cushing, if maximum working capacity is only 73 million barrels, and the amount currently in storage is 64 million barrels.

Another way of storing oil is as finished products. Here, the run-up in storage began earlier (starting in mid-2014) and stabilized at about 65 million barrels per day above the prior year, by January 2015. Clearly, if companies can do some pre-planning, they would prefer not to refine products for which there is little market. They would rather store unneeded oil as crude, rather than as refined products.

Figure 8. Total Oil Products in Storage, based on EIA data.

EIA indicates that the total capacity for oil products is 1,549 million barrels. Thus, in theory, the amount of oil products stored can be increased by as much as 700 million barrels, assuming that the products needing to be stored and the locations where storage are available match up exactly. In practice, the amount of additional storage available is probably quite a bit less than 700 million barrels because of mismatch problems.

In theory, if companies can be persuaded to refine more products than they can sell, the amount of products that can be stored can rise significantly. Even in this case, the amount of storage is not unlimited. Even if the full 700 million barrels of storage for crude oil products is available, this corresponds to less than one million barrels a day for two years, or two million barrels a day for one year. Thus, products storage could easily be filled as well, if demand remains low.

At this point, we don’t have the mismatch between oil production and consumption fixed. In fact, both Iraq and Iran would like to increase their production, adding to the production/consumption mismatch. China’s economy seems to be stalling, keeping its oil consumption from rising as quickly as in the past, and further adding to the supply/demand mismatch problem. Figure 9 shows an approximation to our mismatch problem. As far as I can tell, the problem is still getting worse, not better.

Figure 9. Total liquids oil production and consumption, based on a combination of BP and EIA data.

There has been a lot of talk about the United States reducing its production, but the impact so far has been small, based on data from EIA’s International Energy Statistics and its December 2015 Monthly Energy Review.

Figure 10. US quarterly oil liquids production data, based on EIA’s International Energy Statistics and Monthly Energy Review.

Based on information through November from EIA’s Monthly Energy Review, total liquids production for the US for the year 2015 will be about 700,000 barrels per day higher than it was for 2014. This increase is likely greater than the increase in production by either Saudi Arabia or Iraq. Perhaps in 2016, oil production of the US will start decreasing, but so far, increases in biofuels and natural gas liquids are partly offsetting recent reductions in crude oil production. Also, even when companies are forced into bankruptcy, oil production does not necessarily stop because of the potential value of the oil to new owners.

Figure 11 shows that very high stocks of oil were a problem, way back in the 1920s. There were other similarities to today’s problems as well, including a deflating debt bubble and low commodity prices. Thus, we should not be too surprised by high oil stocks now, when oil prices are low.

(Click to enlarge)

Figure 11. US ending stock of crude oil, excluding the strategic petroleum reserve. Figure by EIA.

Many people overlook the problems today because the US economy tends to be doing better than that of the rest of the world. The oil storage problem is really a world problem, however, reflecting a combination of low demand growth (caused by low wage growth and lack of debt growth, as the world economy hits limits) continuing supply growth (related to very low interest rates making all kinds of investment appear profitable and new production from Iraq and, in the near future, Iran). Storage on ships is increasingly being filled up and storage in Western Europe is 97% filled. Thus, the US is quite likely to see a growing need for oil storage in the year ahead, partly because there are few other places to put the oil, and partly because the gap between supply and demand has not yet been fixed.

What is Ahead for 2016?

1. Problems with a slowing world economy are likely to become more pronounced, as China’s growth problems continue, and as other commodity-producing countries such as Brazil, South Africa, and Australia experience recession. There may be rapid shifts in currencies, as countries attempt to devalue their currencies, to try to gain an advantage in world markets. Saudi Arabia may decide to devalue its currency, to get more benefit from the oil it sells.

Related: OPEC-Russia Rumors Persist After Comments From Rosneft Chief

2. Oil storage seems likely to become a problem sometime in 2016. In fact, if the run-up in oil supply is heavily front-ended to the December to April period, similar to what happened a year ago, lack of crude oil storage space could become a problem within the next three months. Oil prices could fall to $10 or below. We know that for natural gas and electricity, prices often fall below zero when the ability of the system to absorb more supply disappears. It is not clear the oil prices can fall below zero, but they can certainly fall very low. Even if we can somehow manage to escape the problem of running out of crude oil storage capacity in 2016, we could encounter storage problems of some type in 2017 or 2018.

3. Falling oil prices are likely to cause numerous problems. One is debt defaults, both for oil companies and for companies making products used by the oil industry. Another is layoffs in the oil industry. Another problem is negative inflation rates, making debt harder to repay. Still another issue is falling asset prices, such as stock prices and prices of land used to produce commodities. Part of the reason for the fall in price has to do with the falling price of the commodities produced. Also, sovereign wealth funds will need to sell securities, to have money to keep their economies going. The sale of these securities will put downward pressure on stock and bond prices.

4. Debt defaults are likely to cause major problems in 2016. As noted in the introduction, we seem to be approaching the unwinding of a debt supercycle. We can expect one company after another to fail because of low commodity prices. The problems of these failing companies can be expected to spread to the economy as a whole. Failing companies will lay off workers, reducing the quantity of wages available to buy goods made with commodities. Debt will not be fully repaid, causing problems for banks, insurance companies, and pension funds. Even electricity companies may be affected, if their suppliers go bankrupt and their customers become less able to pay their bills.
5. Governments of some oil exporters may collapse or be overthrown, if prices fall to a low level. The resulting disruption of oil exports may be welcomed, if storage is becoming an increased problem.

6. It is not clear that the complete unwind will take place in 2016, but a major piece of this unwind could take place in 2016, especially if crude oil storage fills up, pushing oil prices to less than $10 per barrel.

7. Whether or not oil storage fills up, oil prices are likely to remain very low, as the result of rising supply, barely rising demand, and no one willing to take steps to try to fix the problem. Everyone seems to think that someone else (Saudi Arabia?) can or should fix the problem. In fact, the problem is too large for Saudi Arabia to fix. The United States could in theory fix the current oil supply problem by taxing its own oil production at a confiscatory tax rate, but this seems exceedingly unlikely. Closing existing oil production before it is forced to close would guarantee future dependency on oil imports. A more likely approach would be to tax imported oil, to keep the amount imported down to a manageable level. This approach would likely cause the ire of oil exporters.

8. The many problems of 2016 (including rapid moves in currencies, falling commodity prices, and loan defaults) are likely to cause large payouts of derivatives, potentially leading to the bankruptcies of financial institutions, as they did in 2008. To prevent such bankruptcies, most governments plan to move as much of the losses related to derivatives and debt defaults to private parties as possible. It is possible that this approach will lead to depositors losing what appear to be insured bank deposits. At first, any such losses will likely be limited to amounts in excess of FDIC insurance limits. As the crisis spreads, losses could spread to other deposits. Deposits of employers may be affected as well, leading to difficulty in paying employees.

9. All in all, 2016 looks likely to be a much worse year than 2008 from a financial perspective. The problems will look similar to those that might have happened in 2008, but didn’t thanks to government intervention. This time, governments appear to be mostly out of approaches to fix the problems.

10. Two years ago, I put together the chart shown as Figure 12. It shows the production of all energy products declining rapidly after 2015. I see no reason why this forecast should be changed. Once the debt supercycle starts its contraction phase, we can expect a major reduction in both the demand and supply of all kinds of energy products.

Figure 12. Estimate of future energy production by author. Historical data based on BP adjusted to IEA groupings.

Conclusion

We are certainly entering a worrying period. We have not really understood how the economy works, so we have tended to assume we could fix one or another part of the problem. The underlying problem seems to be a problem of physics. The economy is a dissipative structure, a type of self-organizing system that forms in thermodynamically open systems. As such, it requires energy to grow. Ultimately, diminishing returns with respect to human labor–what some of us would call falling inflation-adjusted wages of non-elite workers–tends to bring economies down. Thus all economies have finite lifetimes, just as humans, animals, plants, and hurricanes do. We are in the unfortunate position of observing the end of our economy’s lifetime.

Most energy research to date has focused on the Second Law of Thermodynamics. While this is a contributing problem, this is really not the proximate cause of the impending collapse. The Second Law of Thermodynamics operates in thermodynamically closed systems, which is not precisely the issue here.

We know that historically collapses have tended to take many years. This collapse may take place more rapidly because today’s economy is dependent on international supply chains, electricity, and liquid fuels–things that previous economies were not dependent on.





More living on the land…

25 11 2015

I’ve been rather crook for the past couple of weeks, a virus I’m certain I caught right here at the Geeveston Community Centre (henceforth recognised as Geco), and whilst I have been getting some things done, it’s been a struggle.

I’ve almost finished building a second insulated bolt hole, initially for the family visiting over Christmas, but mostly to house wwoofers, because there’s no way I can manage the farm on my own…

I’ve been agisting the neighbour’s cattle for the past two or three weeks, a rather large – too large? – mob of thirty or so heads that have taken my grass down to sub fire hazard levels, and left piles of manure I will deal with later when it dries.

Now the grass is down, all the thistles have become clearly visible, and I’ve been hoeing them (in their many hundreds!) rather than spraying as the neighbour was threatening to do…. It’s chop and drop on a large scale. Lots of walking, I just wish I could breathe properly. This morning was the first one I almost felt human again, so I’m on the mend, but it’s so unusual for me to get this sick, it’s knocked my socks off.

DSC_2070Yesterday I attended the Huon Producers Network’s inaugural market in Huonville. Well attended with 600 or so visitors counted, it had a great atmosphere, great food, great music, and it was an opportunity to mix with the locals, most of whom I’ve been avoiding so as not to spread the dreaded lurgy.

The wind dropped off, and the sun came out even; must be a good omen!

The network is one of the main reasons we settled on Geeveston; the
DSC_2085energy for the operation started here and in the surrounding area, and I intend to join as soon as I’m in a position to actually produce some food. Which could be sooner rather than later, because the next season of apples is well underway.

DSC_2040The trees were only just beginning to bloom as Richard and I first arrived two and a half months ago, and now those blooms are turning into fruit which is fast needing thinning out to ensure good size fruit.

Apples produce clusters of six flowers, five outer ones and a central one known as the king blossom. At this stage, there are bees everywhere, and without a word of a lie, you can hear the orchard buzz…..

DSC_2091In no time at all, all those flowers turn into grape sized apples, and the trees are just covered in fruit. If left like this, the apples don’t grow much, and whilst they are still delicious, they look far too small to be salable, though they would make excellent cider. I’m also told that pickers are paid by weight, and for them to pick a tonne (say) requires picking loads more apples, which takes longer, making pickers unhappy.


DSC_2092It feels very strange to literally break of hundreds of potential apples; it seems counter-intuitive, but that’s what all the locals tell me to do, and what do I know about apples?

Clusters should be no more than 2 or 3 apples, and must be at least 10cm apart. In their natural state, they look more like grapes than apples, so closely knit are they on the tree……. so off they have to come.DSC_2093

Some trees would easily have 300 tiny apples on them, and there’s no way a tree less than 2m tall could bring so much fruit to maturity. Last season, nothing was done to the trees because everyone involved was busy selling/buying/moving. Most of the crop went to waste apart from a trailer load that went to Charlotte Cove where my sailor friends recently moved to. This is where they were turned into cider by Werner, who, as it happens, has now decided to retire back in New South Wales…… and kindly decided to leave us his cider making equipment!

No prizes for guessing what I’ll be doing next year, watch this space!





Global Economic Red Alert revisited

9 07 2015

Hot on the heels of publishing Global Economic Red Alert, this pops up over on ZeroHedge, an article from Phoenix Capital Research which gets a guernsey in this morning’s post too….

Greece is Just the First of MANY Countries That Will Be Going Belly-Up

Red-Alert-Button-460x306ALL of the so called, “economic recovery” that began in 2009 has been based on the Central Banks’ abilities to rein in the collapse.

The first round of interventions (2007-early 2009) was performed in the name of saving the system. The second round (2010-2012) was done because it was generally believed that the first round hadn’t completed the task of getting the world back to recovery.

However, from 2012 onward, everything changed. At that point the Central Banks went “all in” on the Keynesian lunacy that they’d been employing since 2008. We no longer had QE plans with definitive deadlines. Instead phrases like “open-ended” and doing “whatever it takes” began to emanate from Central Bankers’ mouths.

However, the insanity was in fact greater than this. It is one thing to bluff your way through the weakest recovery in 80+ years with empty promises; but it’s another thing entirely to roll the dice on your entire country’s solvency just to see what happens.

In 2013, the Bank of Japan launched a single QE program equal to 25% of Japan’s GDP. This was unheard of in the history of the world. Never before had a country spent so much money relative to its size so rapidly… and with so little results: a few quarters of increased economic growth while household spending collapsed and misery rose alongside inflation.

This was the beginning of the end. Japan nearly broke its bond market launching this program (the circuit breakers tripped multiple times in that first week). However it wasn’t until late 2014 that things truly became completely and utterly broken.

We are, of course, referring to the Bank of Japan’s decision to increase its already far too big QE program, not because doing so would benefit the country, but because it would bring economists’ forecast inline with governor Kuroda’s intended inflation numbers.

This was the “Rubicon” moment: the instant at which Central Banks gave up pretending that their actions or policies were aimed at anything resembling public good or stability. It was now about forcing reality to match Central Bankers’ theories and forecasts. If reality didn’t react as intended, it wasn’t because the theories were misguided… it was because Central Bankers simply hadn’t left the paperweight on the “print” button long enough.

At this point the current financial system was irrevocably broken. We simply had yet to feel it.

That is, until, January 2015, when the Swiss National Bank lost control, breaking a promise, and a currency peg, losing an amount of money equal to somewhere between 10% and 15% of Swiss GDP in a single day, and showing, once and for all, that there are problems so big that even the ability to print money can’t fix them.

This process is now accelerating in Europe where a country that comprises less than 2% of the EU’s total GDP (Greece) has managed to be FIVE-YEAR problem that cannot be resolved through more debt or money printing.

The ECB and EU have tried everything to kick the Greek “can” down the road. History has shown us time and again that Central Banks first attempt to deal with a debt problem by printing money… but eventually the debt default/haircut has to occur.

This process has now begun in Greece. The fact the markets are imploding should give you an idea of how fragile the system is. One can only imagine what will happen when a larger player such as Spain or France or even Japan goes belly up.

The Big Crisis, the one in which entire countries go bust, has begun. It will not unfold in a matter of weeks; these sorts of things take months to complete. But it has begun.