Thursday, December 8, 2011


Greetings Peaksters

      If there is one thing we can all agree on, whether we be  libertarians, Marxists, environmentalists, , gun nuts, vegetarians, occupiers, global warming deniers, whatever   -  it that Economic Growth Is Good.   I think its in the constitution - or maybe the bible?

Of course  there may be variations - green growth, smart growth, clean growth, new growth, and lets not forget -  old growth.  :>)       But, just listen to the politicians, the pundits, the talking heads - its all about growth

       I know its heresy.  But lets do a thought experiment.  Consider the following propositions.

    1.  Economic growth is bad for humans and other living things.
     2. Economic growth cannot be maintained, and will soon cease.

     Now, imagine you met someone who believed one, or both, of those statements.  It would be kind of like talking to a person from outer space.    Now, imagine how public policy debates would be framed, if people came to believe one or both of those statements!

    Here are some interesting perspectives on growth.  Ugo Bardi explains the systems science of economic growth  and the role of money as a catalyst.   Erik Lindberg makes an interesting argument that conservative climate deniers are more reality based than liberal economists, because the conservatives understand that in order to stop global warming, you have to stop growth, something the liberals are unwilling to admit.   Finally Rick Heller shows a way of breaking the underlying addictive mind set that supports the belief in infinite economic growth -  the mental habit of a continual desire for more and more.    

Why is economic growth so popular?
by Ugo Bardi
< the new Italian Prime Minister, Mr. Mario Monti <> , gave his acceptance speech <>  to the Senate, a few days ago, he used 28 times the term "growth" and not even once terms such as "natural resources" or "energy". He is not alone in neglecting the physical basis of the world's economy: the chorus of economic pundits everywhere in the world is all revolving around this magic world, "growth".  But why? What is that makes this single parameter so special and so beloved?
During the past few years, the financial system gave to the world a clear signal when the prices of all natural commodities spiked up to levels never seen before. If prices are high, then there is a supply problem. Since most of the commodities we use are non-renewable - crude oil, for instance - it is at least reasonable to suppose that we have a depletion problem. Yet, the reaction of leaders, decision makers, and economic pundits of all kinds was - and still is - to ignore the physical basis of the economic system and promote economic growth as the solution to all our problems; the more, the better. But, if depletion is the real problem, it should be obvious that growth can only make it worse. After all, if we grow we consume more resources and that will accelerate depletion. So, why are our leaders so fixated on growth? Can't they understand that it is a colossal mistake? Are they stupid or what?
Things are not so simple, as usual. One of the most common mistakes that we can make in life is to assume that people who don't agree with our ideas are stupid. No, there holds the rule that for everything that exists, there is a reason. So, there has to be a reason why growth is touted as the universal cure for all problems. And, if we go in depth into the matter, we may find the reason in the fact that people (leaders as well as everybody else) tend to privilege short term gains to long term ones. Let me try to explain.
Let's start with observing that the world's economy is an immense, multiple-path reaction driven by the thermodynamic potentials of the natural resources it uses. Mainly, these resources are non-renewable fossil fuels that we burn in order to power the whole system. <> We have good models that describe the process; the earliest ones go back to the 1970s with the first version of "The Limits to Growth <> " study. These models are based on the method known as "system dynamics <> " and consider highly aggregated stocks of resources (that is, averaged over many different kinds). Already in 1972, the models showed that the gradual depletion of high grade ores and the increase of persistent pollution would cause the economy to stop growing and then decline; most likely during the first decades of the 21st century. Later studies of the same kind generated similar results. The present crisis seems to vindicate these predictions.

So, these models tell us that depletion and pollution are at the root of the problems we have, but they tell us little about the financial turmoil that we are seeing. They don't contain a stock called "money" and they make no attempt to describe how the crisis will affect different regions of the world and different social categories. Given the nature of the problem, that is the only possible choice to make modelling manageable, but it is also a limitation. The models can't tell us, for instance, how policy makers should act in order to avoid the bankruptcy of entire states. However, the models can be understood in the context of the forces that move the system. The fact that the world's economic system is complex doesn't mean that it doesn't follow the laws of physics. On the contrary, it is by looking at these laws that we can gain insight on what's happening and how we could act on the system.
There are good reasons based in thermodynamics that cause economies to consume resources at the fastest possible rate and at the highest possible efficiency (see this paper <>  by Arto Annila and Stanley Salthe). So, the industrial system will try to exploit first the resources which provide the largest return. For energy producing resources (such as crude oil) the return can be measured in terms of energy return for energy invested (EROEI <> ). Actually, decisions within the system are taken not in terms of energy but in terms of monetary profit, but the two concepts can be considered to coincide as a first approximation. Now, what happens as non-renewable resources are consumed is that the EROEI of what is left dwindles and the system becomes less efficient; that is, profits go down. The economy tends to shrink while the system tries to concentrate the flow of resources where they can be processed at the highest degree of efficiency and provide the highest profits; something that usually is related to economies of scale. In practice, the contraction of the economy is not the same everywhere: peripheral sections of the system, both in geographical and social terms, cannot process resources with sufficient efficiency; they tend to be cut off from the resource flow, shrink, and eventually disappear. An economic system facing a reduction in the inflow of natural resources is like a man dying of cold: extremities are the first to freeze and die off.

Then, what's the role of the financial system - aka, simply "money"? Money is not a physical entity, it is not a natural resource. It has, however, a fundamental role in the system as a catalyst. In a chemical reaction, a catalyst doesn't change the chemical potentials that drive the reaction, but it can speed it up and change the preferred pathway of the reactants. For the economic system, money doesn't change the availability of resources or their energy yield but it can direct the flow of natural resources to the areas where they are exploited faster and most efficiently. This allocation of the flow usually generates more money and, therefore, we have a typical positive (or "enhancing") feedback. As a result, all the effects described before go faster. Depletion can be can be temporarily masked although, usually, at the expense of more pollution. Then, we may see the abrupt collapse of entire regions as it may be the case of Spain, Italy, Greece and others. This effect can spread to other regions as the depletion of non renewable resources continues and the cost of pollution increases.
We can't go against thermodynamics, but we could at least avoid some of the most unpleasant effects that come from attempting to overcome the limits to the natural resources. This point was examined already in 1972 by the authors of the first "Limits to Growth" study on the basis of their models but, eventually, it is just a question of common sense. To avoid, or at least mitigate collapse, we must stop growth; in this way non renewable resources will last longer and we can use them to develop and use renewable resources. The problem is that curbing growth does not provide profits and that, at present, renewables don't yet provide profits as large as those of the remaining fossil fuels. So, the system doesn't like to go in that direction - it tends, rather, to go towards the highest short term yields, with the financial system easing the way. That is, the system tends to keep using non renewable resources, even at the cost of destroying itself. Forcing the system to change direction could be obtained only by means of some centralized control but that, obviously, is complex, expensive, and unpopular.  No wonder that our leaders don't seem to be enthusiastic about this strategy.
Let's see, instead, another possible option for leaders: that of "stimulating growth". What does that mean, exactly? In general, it seems to mean to use the taxation system to transfer financial resources to the industrial system. With more money, industries can afford higher prices for natural resources. As a consequence, the extractive industry can maintain its profits, actually increase them, and keep extracting even from expensive resources. But money, as we said, is not a physical entity; in this case it only catalyzes the transfer human and material resources to the extractive system at the expense of subsystems as social security, health care, instruction, etc. That's not painless, of course, but it may give to the public the impression that the problems are being solved. It may improve economic indicators and it may keep resource flows large enough to prevent the complete collapse of peripheral regions, at least for a while. But the real attraction of stimulating growth is that it is the easy way: it pushes the system in the direction where it wants to go. The system is geared to exploit natural resources at the fastest possible rate, this strategy gives it fresh resources to do exactly that. Our leaders may not understand exactly what they are doing, but surely they are not stupid - they are not going against the grain. 
 <> The problem is that the growth stimulating strategy only buys time (and buys it at a high price). Nothing that governments or financial traders do can change the thermodynamics of the world system - all what they can do is to shuffle resources from here to there and that doesn't change the hard reality of depletion and pollution. So, pushing economic growth is only a short term solution that worsens the problem in the long run. It can postpone collapse but at the price of making it more abrupt in the form known as the Seneca Cliff <> . Unfortunately, it seems that we are headed exactly that way.
[This post was inspired by an excellent post on the financial situation written by Antonio Turiel with the title "Before the Wave <> " (in Spanish). ]
"Demand-side" economics and the liberal denial of realityby Erik LindbergWhen, after 9-11, George Bush told us to "go shopping" he in fact demonstrated a correct understanding of mainstream economics, liberal and conservative alike. As all economists know, a decline in consumer spending, confidence, and optimism, can plunge an economy into recession. This entirely uncontroversial view is one step away from its categorical version which turns out to be the foundation of liberal economics: that not only can a lack of demand cause a recession, the lack of demand—when considered in its broadest sense--is really the ONLY thing that could cause an economic recession or slow down. While this is also the foundation of conservative economics to just a slighter extent, I will conclude by reflecting on this slight, but significant, difference.
When economists talk about demand in this way, they are referring to something somewhat broader than demand in the everyday sense of the word. Demand, here, is not only a matter of the desire of consumers for new things, but also whether because of unemployment, inflation, or interest rates they are able to afford these new things. Thus a banking or currency crisis, whether it creates a tight credit market or a trade imbalance and capital flight, or just a more general crisis in consumer confidence are considered to be problems with demand.
The sensibility of linking these seemingly disparate elements together under one side of a supply and demand equation becomes apparent when we consider the cures that mainstream economists, especially liberal ones, like to administer to an ailing economy. Though they may come in the form of interest-rate adjustments, bailouts, public works and stimulus programs, even the conservative-favored tax cuts, they have as their end-goal one thing and one thing only: to increases consumer spending, or, in other words, demand.
Thus in a widely circulated 2 minute video, Robert Reich asks "what is Wrong with the Economy argues that our current economic problems can be attributed to a declining middle class. “The vast middle class,” Reich concludes, “unable to borrow as it once could, no longer has the purchasing power to get the economy growing again.” The solution is of course to increase demand and thus spending. Nobel Prize notwithstanding, Paul Krugman is unable to suggest, as a final goal, anything much beyond this. As he puts it in “The Return of Depression Economics,” today, like during The Great Depression, we are experiencing “failures on the demand side of the economy—insufficient private spending.” (182). As he analyzes recent economic crises, Krugman sees a world that “is lurching from crisis to crisis, all of them crucially involving the problem of generating sufficient demand.”(184). His recommendation to policy makers? “Get credit flowing again and prop up spending” (184).
Like most post-carbon thinkers, I entered this world carried by some strong values associated with a traditional liberal or progressive position. Talk like this from two of our most well-known and seemingly astute liberal economists tempts me to sever all personal ties with the label “liberal.” Even if we set aside the ecological havoc that this consumption imperative has and will continue to cause, the suggestion that our principle public goal should be to increase spending and consumption is embarrassing and violates every spiritual and moral tradition that I can think of, except the ones that have sprung up as clear apologies for this sort of being in the world.
If the moral or spiritual dimensions of the liberal imperative to spend and consume are troubling, on some level we might be relieved to be reminded that it might not plague us with its numbing value all that much longer. As has been widely discussed in postcarbon circles in recent months, growthism is about to run headlong into some very uncompromising natural limits, of which economists on the mainstream right and left appear completely unaware. Though as I will argue later, conservatives may, in fact, be showing more awareness, if we can call it that, than the liberals. For it is not simply that a Krugman or Reich believe that this most recent economic crisis in fact happened to be caused by problems on the demand side of thing, the field of economics in general insists almost without exception that demand is the ONLY thing that could really end economic growth. Thus in an otherwise interesting book about the various cultural preconditions for the past 300 years of economic growth, investment banker William Bernstein declares that “ecological, economic, and demographic forces to not thus seem likely impediments to growth.” As he explains it, “Economic historian Simon Kuznets pointed out that a slowdown in economic growth can come from either of the two basic economic sources: supply or demand. He believed that supply, driven by man’s innate curiosity and industry, could not be the source of stagnation” (The Birth of Plenty, 375,374).
This of course causes economists, or those in the throes of their thinking, to say some pretty silly things about energy and oil which one would ordinarily see as subject to laws other than that of a demand-side economics. As another Nobel Laureate, Robert Solow infamously put it, [Since] “it is very easy to substitute other factors for natural resources, then there is, in principle, no problem. The world can, in effect, get along without natural resources." Or in a book proclaimed by Bill Gates as “the only book I’ve seen that really explains energy, its history and what it will be like going forward,” Peter Huber and Mark Mills boast, “What lies at the bottom of the bottomless well isn’t oil, it’s logic. Fuels recede, demand grows, efficiency makes things worse, but logic ascends, and with the rise of logic we attain the impossible—infinite energy, perpetual motion, and the triumph of power. It will run out but we will always find more” (The Bottomless Well xix). Similar to this are Krugman’s closing lines in “The Return of Depression Economics”: “the true scarcity in Keynes’s world—and ours—was therefore not of resources, or even of virtue, but of understanding”; “I believe the only structural obstacles to world prosperity are the obsolete doctrines that clutter the minds of men” (191).
As I mentioned earlier, such thinking is likely to be overrun by unignorable aspects of reality. To the extent that liberals cling to the notion of demand as the source of all economic problems, their thinking will become increasingly irrelevant to future debates. I would like to conclude by noting that in a way that is equally alarming, conservative economics, even it its most naïve and populist forms, are more likely to find a prominent place in serious discussions about the economy in this future. As I mentioned above, though the differences are slight for most practical purposes, conservatives have ventured on to the near side of the supply and demand equation, though in a highly troubling way.
While the prominent conservative notion that our economic woes have been caused by too much regulation and taxation carry considerable political weight, very few independent economists really believe this. But what is interesting about this position is the way that instead of addressing only the issue of demand, conservatives are more inclined to consider supply and productive capacity and thus in at least one sense, occupy the same reality-based world that postcarbon economics currently owns, even as these conservative thinkers, in my estimation, have stumbled upon this important terrain completely unaware (only looking for tax cuts and a competitive advantage, a cynic might suggest). As long as liberal economists are only able to think about demand, in other words, to the extent that there will be a real debate, it may increasingly be among those of us trying to explain why our industrial capacity has begun to decrease.
It is already possible to see the outlines of this debate, such as it is. Postcarbonites believe that the peaking of oil and other natural resources, as well as the mounting ecological costs of a destroyed planet will decrease the amount of net energy that we, as a species, will be able to direct towards the creation of all our industrial wonders. Conservatives, in contrast, will argue that it is precisely this belief in limits that is decreasing our economic capacity, or supply—whether through the environmental regulations that make off-shore drilling more expensive or the malaise or “lethargy,” to use a word favored by Huber and Mills, that this belief in limits will cause.
It is also easy enough to see how this debate will sharpen in coming years. For regulations that do attempt to preserve our planet for another generation or two, however justified, will in fact limit productive capacity. There will be increasingly difficult choices to be made between the last remnants of ecological health and a world economy that will crash, or continue to crash, if its remaining industrialists are not allowed unrestricted access to the natural resources they want. Part of the attractiveness of the current demand-side liberalism is that, enchanted by its magical thinking of perpetual low-energy economic innovation, it needn’t concern itself with these unsettling difficulties.
Conservatives, on the other hand, have begun to confront these challenges and arm themselves for the upcoming fight. As Naomi Klein has discussed in a recent article from The Nation (November 28), climate change deniers, for instance, see the belief in global warming as a plot to destroy capitalism, the market economy, and fundamental freedoms. As Klein puts it, “there is a significant cohort of Republicans who care passionately, even obsessively, about climate change—though what they care about is exposing it as a ‘hoax’being perpetrated by liberals to force them to change their light bulbs, live in Soviet-style tenements and surrender their SUVs. For these right-wingers, opposition to climate change has become as central to their worldview as low taxes, gun ownership and opposition to abortion.”
Despite the absence of science and a tendency towards paranoid conspiracy theories, this growing conservative obsession with denying global climate change is grounded in a crucial economic view of things. This fear springs from a true concern--far more reality-based in some ways than the demand-side focus of most liberals--that our future ability to obtain the supply of goods and products necessary to maintain economic growth may be hampered by environmental concerns. As Klein points out, “the deniers did not decide that climate change is a left-wing conspiracy by uncovering some covert socialist plot. They arrived at this analysis by taking a hard look at what it would take to lower global emissions as drastically and as rapidly as climate science demands.” Looked at this way, the great deniers are Krugman, Reich, and the other spokespeople of an Obama type liberalism. Klein continues: “when it comes to the real-world consequences of those scientific findings, specifically the kind of deep changes required not just to our energy consumption but to the underlying logic of our economic system,” hardcore conservative climate change deniers “may be in considerably less denial than a lot of professional environmentalists, the ones who paint a picture of global warming Armageddon, then assure us that we can avert catastrophe by buying ‘green’ products and creating clever markets in pollution.”
The argument about economics, then, will ultimately be one of values and priorities, rather than technocratic decisions over government spending or balanced budgets, of how we as a society and a planet will find a balance between competing ecological limits and human needs, between a sustainable future and the economic freedoms we have come to expect. As long as they are arguing about how we might increase consumer spending or assure continued access to credit, this battle will have to be fought without the help of traditional liberal economists.


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