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Archive for Fevereiro, 2015

Clusterfuck Nation, February 23, 2015

HOW GOES THE WAR?

Oh, you didn’t notice that World War Three is underway, actually has been for more than year? Well, that’s because most of it has been taking place in the banking sector, which for most people is just an alternative universe of math. The catch, which many people either miss or don’t care about, is that the math doesn’t add up.

For instance, the runaway choo-choo train of linked European sovereign bond obligations with its overloaded caboose of interest rate swaps and other janky derivatives of mass destruction. That train left the station in Athens a few weeks ago bound for Frankfurt. Ever since, the German government and its cohorts in the EU, the ECB, and the IMF have been issuing reassurances that the choo choo train will not blow up when it reaches its destination.

Few people grok that Greece is an entity with an economy not much bigger than North Carolina’s, yet it is burdened with roughly $350 billion of old debt that will never be paid back. The only thing at issue is how it will not be paid back, that is, what mode of pretense will be employed to disguise the inability to pay back this debt. The mode du jour has been the crude one of lending Greece more money to pay back the interest on the old debt. A seven-year-old ought to be able to understand where that leads.

It’s kind of up to the Greeks this week to possibly opt out of that farcical deal. They have at least two other present options: return to being a sunwashed semi-medieval backwater of olive farmers, shepherds, and inn-keepers, or perhaps lease out some cozy corner of their vast Mediterranean coastline to the Russian navy for enough annual walking-around money to keep the lights on for the aforementioned farmers, shepherds, and inn-keepers. Of course, that would drive the US and its NATO quislings batshit crazy.

We’ve already got our knickers in a twist over Ukraine, a so-called nation whose highest and best purpose over the millennia has been as a sort of lethal doormat in front of Russia, leaving adventurers like Napoleon and Hitler bleeding in the snow as they crawled back to their nations of origin. In short, Ukraine has worked so well for Russia that we must be insane to imagine that it would give up that traditional relationship. Yet the US and NATO persist in their foolishness and attempt to back up their Kievan intrigues with financial “sanctions” against Russia.

Russia is doing what it has always done in the face of adversity, which is to suck it up. And, anyway, these western financial monkeyshines don’t hold a candle to ordeals like the siege of Stalingrad. What’s more, the Russians, despite their peculiar alphabet and thuggish demeanor, are at least as clever with computers as our code jockeys. We (in the USA) think just because we’ve made it possible for everyman to drool over Kim Kardashian’s booty on an iPhone screen that we have some kind of immunity against cyber counter-attack from way out east.

It seems to me that Russia (with China and others) is very busy constructing an alternate financial network that will allow for international money transfers and other necessities for conducting normal trade operations, outside of systems like the SWIFT code, which the US has been using as a knout against our imagined enemies. The upshot will leave America high and dry in a lot of what remains of international trade, especially in oil.

Meanwhile we continue to tell ourselves the false and idiotic story of “energy independence,” based on the shale oil Ponzi scheme that blew up last fall — the consequences of which won’t really be felt for about another eight months, when all those wells drilled and fracked in 2013-14, start to fall off their production cliff, and the replacement wells will not have been drilled. We’re still importing almost 8 million barrels of oil a day, contrary to all the fairy tales we tell ourselves. What happens when the sellers decide they won’t take US dollars for it? Hmmmm….

 

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MG

The process of colonization of the Earth by the human species consists of creating new man-made ecosystems based on the available energy and resources. These new man-made ecosystems are subsequently filled with the new people. The real reason for exponential growth in the resource depletion is the fact that we not only create new man-made ecosystems, but also need to operate and maintain the man-made ecosystems that were built previously.

The fossil fuel era allowed the mankind to add new man-made ecosystems in a very fast pace. As we reach the limits, the Seneca cliff is inevitable, as these man-made ecosystems will crash more or less simultaneously. Not due to the lack of resources, but due to the lack of energy, as the energy allows us not just mining new ores, but also rebuilding the existing man-mad ecosystems using reprocessed resources.

The rising debt allowed us not only building new man-made ecosystems, but also rebuilding the existing ones. The mortgage crisis that peaked in 2008 was not mainly about the too hight debt regarding the houses itself. As we started to use more expensive energy, it was still quite easy to build new houses using new long-term debt.

The crucial is the fact that THE ENERGY FOR OPERATING these MAN-MADE ECOSYSTEMS MUST BE CHEAP. That is why the houses were built faster than it was possible to fill them with new people: we started to experience the lack of cheap energy that would allow the people to use these houses, i.e. to be able simultaneously repay the debt and secure everyday operation costs of their lives in such new dwellings and environments. While the mortgage, i. e. a one-time long term debt, can allow one-time use of costly energy for building a life-long dwelling, the debt for everyday expenses can not rise constatly with higher energy costs.

That is why we come to the point when the prices of oil, and of energy in general, crash. We also do not need new resources for new man-made ecosystems, as it proved that the system reaches its limits, the building of new houses with high energy costs is uneconomical. So the prices of commodities go down, too.

What we experience now are the limits of the expansion of the mankind: we are not able to build and operate new man-made ecosystems and fill them with new people, as we lack the cheap energy for operating these man-made ecosystems. The rising debt brought us new amounts of unconventional oil, but we do not need this costly oil, as we do not need building new man-made ecosystems using long-term debt.

What we really need is the cheap oil for the operation of already existing man-made ecosystems.

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3 x Momus

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Dmitri Orlov, February 10, 2015

Much as we may dislike the fact, the results from quantum physics are unequivocal: parallel universes do exist. Schrödinger’s cat is both alive and dead, at the same time, while it exists as a probability distribution, which is resolved into either a live cat or a dead one by the act of opening the box and observing it. But until the observation is made, both parallel universes can be said to exist, and there is no way for us to know which one of them we inhabit.

Quantum effects dominate in the micro realm of subatomic particles. For instance, the laptop on which I am typing this contains millions of transistors which are created by implanting ions into silicon substrates to create patches with built-in electric fields and interconnecting these patches with etched aluminum wiring. Each transistor relies on the phenomenon of quantum tunneling: while in normal physics it is impossible for an electron to find itself on the wrong side of a built-in electric field, in quantum physics the electron is a probability distribution, not a particle, and quantum tunneling works reliably enough to support the entire electronics industry. But if you scale your circuit up, the chance of a pickup truck successfully “tunneling” through a brick wall becomes too minuscule to be of practical interest. It is still possible, but it would take anywhere between right now and several lifetimes of the universe hence to observe that result.

Oddly enough, such quantum effects are quite normal to observe within the political space. Here the physical objects involved are far too large to give rise to the parallel universes of quantum physics, but the narratives they give rise to are not. This is because the narratives are a matter of perception, and there can be historical periods, such as the present one, when the peephole through which the political establishment and the mainstream media allow us to see the world becomes so tiny that it becomes a toss-up as to whether or not any given photon will manage to find its way through it.

Here, reality becomes fractured into parallel universes as soon as we make the realization that we are being lied to. Were there weapons of mass destruction in Iraq? No, and the vial of white powder which Colin Powell menacingly held up at the UN was fake. The Iraqi mobile biological weapons factories did not exist. Was Al Qaeda active in Iraq prior to the US invasion? No, we know that it wasn’t. These lies are now known to be factual—uncontested, commonplace knowledge. Next: do we make the arbitrary leap of judgment and declare that that’s all the lies we will have ever been told, or do we admit the possibility that this is only the tip of an iceberg of lies, that lying is a modus operandi for the operatives behind them? If we do, then, to be conservative, for every official narrative we must construct one or more unofficial but also plausible (and perhaps much more plausible) narratives. Each of them constitutes a parallel universe, and we can’t know which of them we inhabit until some happy accident—a leak, an investigation, a damning bit of physical evidence, or an outright admission of complicity or guilt—collapses the probability waveform, destroying all the parallel universes but the real one.

Many people have been conditioned to think that this is the realm of “conspiracy theory.” Unfortunately, the term doesn’t apply. First, the existence of a conspiracy has to be accepted as a given: nobody ever perpetrates a heinous act of murder, mayhem and destruction by telegraphing their intentions ahead of time. If they do, the event usually doesn’t go off as planned, and in such cases it is usually announced that a conspiracy has been uncovered and a plot thwarted. Thus, the use of the term “conspiracy” is gratuitous; it goes without saying that there always is one. Secondly, the term “theory” is gratuitous as well: a theory is a mental construct designed to account for a given set of observations. But what if all you do is point out the observations (which are in the public domain, there for all to see) and make no effort whatsoever to account for them?

However, there is one theory that accounts for a very large class of such observations, and it is so simple that it is often overlooked. It is this: that the government and the official sources of information are normally lying. We already know that they have lied in the past (Iraqi WMD and al Qaeda in Iraq are two particularly well-known examples, but there are many others). The question then becomes, When did they stop lying (if in fact they did)? Was there a conspiracy to stop lying? There would have to have been one, because we certainly haven’t heard any statements made by public officials to the effect that “We will now stop lying.” Or did they spontaneously all stop lying at the same time? The probability of that happening is pretty low; it could, of course happen—any time between right now and several lifetimes of the universe hence. So if you believe that they have indeed stopped lying, then I suppose that makes you a conspiracy theorist par excellence. The conservative assumption is that they are still lying.

(mais…)

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The Problem of Debt as We Reach Oil Limits

(This is Part 3 of my series – A New Theory of Energy and the Economy. These are links to Part 1 and Part 2.)

Many readers have asked me to explain debt. They also wonder, “Why can’t we just cancel debt and start over?” if we are reaching oil limits, and these limits threaten to destabilize the system. To answer these questions, I need to talk about the subject of promises in general, not just what we would call debt.

In some sense, debt and other promises are what hold together our networked economy. Debt and other promises allow division of labor, because each person can “pay” the others in the group for their labor with a promise of some sort, rather than with an immediate payment in goods. The existence of debt allows us to have many convenient forms of payment, such as dollar bills, credit cards, and checks. Indirectly, the many convenient forms of payment allow trade and even international trade.

Figure 1. Dome constructed using Leonardo Sticks

Each debt, and in fact each promise of any sort, involves two parties. From the point of view of one party, the commitment is to pay a certain amount (or certain amount plus interest). From the point of view of the other party, it is a future benefit–an amount available in a bank account, or a paycheck, or a commitment from a government to pay unemployment benefits. The two parties are in a sense bound together by these commitments, in a way similar to the way atoms are bound together into molecules. We can’t get rid of debt without getting rid of the benefits that debt provides–something that is a huge problem.

There has been much written about past debt bubbles and collapses. The situation we are facing today is different. In the past, the world economy was growing, even if a particular area was reaching limits, such as too much population relative to agricultural land. Even if a local area collapsed, the rest of the world could go on without them. Now, the world economy is much more networked, so a collapse in one area affects other areas as well. There is much more danger of a widespread collapse.

Our economy is built on economic growth. If the amount of goods and services produced each year starts falling, then we have a huge problem. Repaying loans becomes much more difficult.

Figure 2. Repaying loans is easy in a growing economy, but much more difficult in a shrinking economy.

In fact, in an economic contraction, promises that aren’t debt, such as promises to pay pensions and medical costs of the elderly as part of our taxes, become harder to pay as well. The amount we have left over for discretionary expenditures becomes much less. These pressures tend to push an economy further toward contraction, and make new promises even harder to repay.

The Nature of Debt

In a broad sense, debt is a promise of something of value in the future. With this broad definition, it is clear that a $10 bill is a form of debt, because it is a promise that at some point in the future you, or the person you pass the $10 bill on to, will be able to exchange the $10 bill for something of value. In a sense, even gold coins are a promise of value in the future. This is not necessarily a promise we can count on though. At times in the past, gold coins have been confiscated. Derivatives and other financial products have characteristics of debt as well.

To understand how important debt is, we need to think about an economy without debt. Such an economy might have a central market where everyone brings goods to exchange. But even in such an economy, there will be a problem if there is not a precise matching of needs. If I bring apples and you bring potatoes, we could exchange with each other (“barter”). But what if I don’t have a need for potatoes? Then we might need to bring a third person into the ring, so each of us can receive what we want. Because barter is so cumbersome, barter was never widely used for everyday transactions within communities.

 

An approach that seemed to work better is one mentioned in David Graeber’s book, Debt: The First 5,000 Years. With this system, a temple would operate a market. The operator of the market would provide a “price” for each object, in terms of a common unit, such as “bushels of wheat.” Each person could bring goods to the market (and perhaps even services–I will work for a day in your vineyard), and have them exchanged with others based on value. No “money” was really needed because the operator would take a clay tablet and on it make a calculation of the value in “bushels of wheat” of what a person brought in goods, The operator would also calculate the value in “bushels of wheat” that the same person was receiving in return, and make certain that the two matched.

Of course, as soon as we start allowing “a day’s worth of labor ” to be exchanged in this way, we get back to the problem of future promises, and making certain that they really happen. Also, if we allow a person to carry over a balance from one day to another–for example, bringing in a large quantity of goods that cannot be sold in one day–then we get into the area of future promises. Or if we allow a farmer to buy seed on credit, with a promise to pay it back when harvest comes in a few months, we again get into the area of future promises. So even in this simple situation, we need to be able to handle the issue of future promises.

Future Promises Even Before Debt

Whenever there is division of labor, there needs to be some agreement as to how that division will take place–what are the responsibilities of each participant. In the simplest case, we have hunters and gatherers. If there is a decision that the men will do the hunting and the women will do the gathering and care for children, then there needs to be an agreement as to how the arrangement will work. The usual approach seems to have been some sort of “gift economy.” In such an economy, everyone would share whatever they were able to obtain with others, and would gain status by the amount they could offer to share.

Instead of a formal debt being involved, there was an understanding that if people were to participate in the group, they had to follow the rules that the particular culture dictated, including, very often, sharing everything. People who didn’t follow the rules would be thrown out. Because of the difficulty in living in such an environment alone, such people would likely die. Thus, participants were in some sense bound together by the customs that underlay gift economies.

At some point, as more of an economy was built up, there would be a need for one or more leaders, as well as some way of financially supporting those leaders. Thus, there would need to be some sort of taxation. While taxation to support the leader would not be considered debt, it has many of the same characteristics as debt. It is an ongoing payment obligation. The leader and the other members of the group plan their lives as if this situation is going to continue. In a way, the governmental services and the resulting taxation help bind the economy together.

Benefits of Debt

The benefits of debt are truly great, including the following:

  1. Debt allows transactions to take place that are not precisely at the same time and place. I can order goods and have them delivered to my home. An employer can pay me for a month’s work with a check, rather than needing to give me food or some other barter item corresponding to each hour I work. There is no need to have billions of gold coins (or other agreed up metal currency) to facilitate each and every transaction, and to transport around. We can each have bank accounts. From the bank’s perspective, the amount in a bank account is a liability (debt) owed to the depositor.
  2. Additional debt gives additional purchasing power to individuals, governments or businesses. The additional funds available can be spent immediately. Very often, repayment (with interest) is spread over several years, making goods that would not be affordable, affordable. Thus debt raises “demand” for goods and also for the commodities used to create these goods.
  3. Because debt makes goods more affordable, additional debt tends to “pump up” the price of commodities. These higher prices make it worthwhile for businesses to extract more minerals (including fossil fuels) from the earth, and make it worthwhile to plant more acres of food. Debt, particularly cheap debt, makes building new factories and opening new mines more affordable for businesses.
  4. Debt allows a steep step-up in standard of living, such as that obtained by adding coal or oil to an economy. Debt allows goods to be purchased that will substantially change a person’s future, such as transit to a new country, or purchase of a college education, or purchase of a delivery vehicle that can be used to start a business. Without debt, it is unlikely that fossil fuels could ever have been extracted; consumers would never have been able to afford the goods provided by fossil fuels, and businesses would have had difficulty financing the many new factories required to make goods using these fuels. See my post, Why Malthus Got His Forecast Wrong.
  5. Adding debt is self-reinforcing. Suppose a considerable amount of debt is added for what is deemed a good purpose, such as extracting oil in North Dakota. Oil companies will use the debt they receive for many different purposes–including paying employees, paying royalties to land owners, and paying taxes to the state. Employees will buy new houses and cars, taking out loans in the process. North Dakota residents who receive royalty payments may decide to take out home improvement loans to fix up their homes, expecting that the royalties will continue. The state may fix its roads with its revenue, giving additional income (which may lead to more debt) to road workers. A grocery chain may decide to build a new store (borrowing money to do so), further pushing the chain along. What happens is that indirectly, the new oil company debt makes a lot of people at least temporarily wealthier. These temporarily wealthier individuals can then “qualify” for more in loans than would otherwise be the case, giving them more to spend, and allowing yet others to qualify for loans.
  6. Arrangements that are not debt, but more of the nature of contingent debt, make people feel more confident of the current system. There are insurance programs for pension programs and for bank accounts, up to a selected balance per account. These insurance programs generally don’t have very much money in them, relative to what they are insuring. But they make people feel good, especially if there is a government that might come in and take over, beyond the actual funding of the insurance program.

What Goes Wrong with Debt and Other Financial Promises

1. As mentioned at the beginning of the post, debt works very badly if the economy is contracting.

It becomes impossible to repay debt with interest, without reducing discretionary income. Government programs, such as health care for the elderly, become more expensive relative to current incomes as well.

2. Interest payments on debt tend to transfer wealth from the poorer members of society to the richer members of society.

Economists have tended to ignore debt, because it represents a more or less balanced transaction between two individuals. The fact remains, though, that the poorer members of society find themselves especially in need of debt, and many pay very high interest rates. The ones lending money tend to be richer. Because of this arrangement, over time, interest payments tend to increase wealth disparities.

3. All too often, the payment stream upon which debt depends proves unsustainable.

In the example given above, everyone thinks the North Dakota oil will continue for a while, so takes out loans as if this is the case. If it doesn’t, then this is an “Oops” situation.

In the case of US student loans, many students are never able to get jobs with high enough wages to pay back the loans they were given.

4. Governments tend to put programs into place that are more expensive than they really can afford, for the long term.

As an economy gets wealthier (because of more fossil fuel use), there is a tendency to add more programs. Representative government is used instead of a monarch. Medical care and pensions for the elderly are added, as are unemployment benefits, and more advanced levels of schools.

Unfortunately, it is hard to properly estimate what long-run cost of these programs will be. Also, even if the programs were affordable with a high level of fossil fuels, they almost certainly will not be affordable if energy availability declines. It is virtually impossible to roll programs back, even if they are not guaranteed, once people plan their lives on the new programs.

Figure 3 shows a graph of US government spending (all levels) compared to wages (including amounts paid to proprietors, including farmers). I use this base, rather than GDP, because wages have not been keeping up with GDP in recent years. The amounts shown include programs such as Social Security and Medicare for the elderly, in addition to spending on things such as schools, roads, and unemployment insurance.

Figure 3. Comparison of US Government spending and receipts (all levels combined) based on US Bureau of Economic Research Data.

Clearly, government spending has been rising much faster than wages. I would expect this to be true in many countries.

5. There is no real tie between amounts of debt issued and what will actually be produced in the future. 

We are told that money is a store of value, and that it transfers purchasing power from the present to the future. In other words, we can count on balances in our bank accounts, and in fact, in all of the paper securities that are outstanding.

This story is only true if the economy can continue to create an increasing amount of goods and services forever. If, in fact, the production of goods and services drops off dramatically (most likely because prices cannot rise high enough to encourage enough extraction of commodities), then we have a major problem.

In any year, all we have available is the actual amount of resources that can be pulled out of the ground, plus the actual amount of food that can be grown. Together, these amounts determine how many goods and services are available. Money acts to distribute the goods that are available. Presumably, the people who work at extraction and production of these goods and services need to be paid first, or the whole process will stop. This basically leaves the “leftovers” to be shared among those who are now being supported by tax revenue and by those who hold paper securities of some sort or other. It is hard to see that anyone other than the workers producing the goods and services will get very much, if we lose the use of fossil fuels. Workers will become less efficient, and production will drop by too much.

6. Derivatives and other financial products expose the financial system to significant risks.

Certain large banks have found that they can earn considerable revenue by selling derivatives and other financial products, allowing people or businesses to essentially gamble on certain outcomes–such as the price of oil falling below a certain price, or interest rates rising very rapidly, or a certain company failing. As long as everything goes well, there is not a huge problem. The concern now is that with rapidly changing commodity prices, and rapidly changing levels of currencies, companies may fail and there may be major payouts triggered.

In theory, some of these payments may be offsetting–money owed by one client may offset money owed to another client. But even if this is the case, these defaults can sometimes take years to settle. There may also be issues with one of the parties’ ability to pay.

One particular problem with many of the products is the use of the Black-Scholes Pricing Model. This model is applicable when events are independent and normally distributed. This is not the case, when we are approaching oil limits and other limits of a finite world.

 7. Governments tend to be badly affected by a shrinking economy, so may be of little assistance when we need them most.

As noted previously, payments to governments act very much like debt. As an economy shrinks, programs that seemed affordable in the past become less affordable and badly need to be cut. Thus, governments tend to have problems at the exactly same time that banks and other lenders do.

Governments of “advanced” countries now have debt levels that are high by historical standards. If there is another major financial crisis, the plan seems to be to use Cyprus-like bail-ins of banks, instead of bailing out banks using government debt. In a bail-in, bank deposits are exchanged for equity in the failing bank. For example, in Cyprus, 37.5% of deposits in excess of 100,000 euros were converted to Class A shares in the bank.

This approach has a lot of difficulties. Businesses have a need for their funds, for purposes such as paying employees and building new factories. If their funds are taken in a bail-in, the ability of the business to continue may be damaged. Individual consumers depend on their bank balances as well. As noted above, deposit insurance is theoretically available, but the actual amount of funds for this purpose is very low relative to the amount potentially at risk. So we get back to the issue of whether governments can and will be able to bail out banks and other failing financial institutions.

8. More debt is needed to hide the lack of economic growth in an ailing world economy. This debt becomes increasingly difficult to obtain, as wages stagnate because of diminishing returns. 

If wages are rising fast enough, wages by themselves might be used to pump demand for commodities, and thus raise their prices. Our wages are close to flatmedian wages have been falling in the US. If wages aren’t rising sufficiently, increasing debt must be used to raise demand. Debt is growing slowly in the household sector, according to figures compiled by McKinsey Global Institute. Household debt has grown by only 2.8% per year between Q4 2007 and Q4 2014, compared to 8.5% per year in the period between Q4 2000 and Q4 2007.

Even with business demand included, debt isn’t rising rapidly enough to keep commodity prices up. This lack of sufficient growth in debt (and lack of growth in demand apart from growing debt) seems to be a major reason for the drop in prices since 2011 in many commodity prices.

9. Differing policies with respect to interest rates and quantitative easing seem to have the possibility of tearing the world financial system apart.

In a networked economy, not moving too far from the status quo is a definite advantage. If the US’s policies have the effect of raising the value of the dollar, and the policies of other countries have the tendency to lower their currencies, the net effect is to make debt held in other countries but denominated in US dollars unpayable. It also makes goods sold by American companies unaffordable.

The economy, as it exists today, has been made possible by countries working together. With sanctions against Iran and Russia, we are already moving away from this situation. Low oil prices are now putting the economies of oil exporters at risk. As countries try different approaches on interest rates, this adds yet another force, pulling economies apart.

10. The economy begins to act very strangely when too much of current income is locked up in debt and debt-like instruments.

Economic models suggest that if oil prices drop, demand for oil will grow robustly and supply will drop off quickly. If oil producers are protected by futures contracts that lock in a high price, they may not respond in the manner expected. In fact, if they are obligated to make debt payments, they may continue drilling even when it may not otherwise make financial sense to do so.

Likewise, consumers are also affected by prior commitments. If much of consumers’  income is tied up with condominium payments, auto payments, and payment of taxes, they may not have much ability to respond to lower oil prices. Instead of increasing discretionary spending, consumers may pay off some of their debt with their newfound income.

Conclusion

If the current economic system crashes and it becomes necessary to create a new one, the new system will have to deal with having an ever-smaller amount of goods and services available for a fairly long transition time. Because of this, the new system will have to be very different from the current one. Most promises will need to be of short duration.  Transfers among people living in a particular area might still be facilitated by a financial system, but it would be hard to have long-term or long-distance contracts. As a result, the new economy will likely need to be much simpler than our current economy. It is doubtful it could include fossil fuels.

Many people ask why we can’t just cancel all debt, and start over again. To do so would probably mean canceling all bank accounts as well. Most of our current jobs would probably disappear. We would probably be without grid electricity and without oil for cars. It would be very difficult to start over from such a situation. We would truly have to start over from scratch.

I have not talked about a distinction between “borrowed funds” and “accumulated equity”. Such a distinction is important in terms of the rate of return investors expect, but it is not as important in a crash situation. Similarly, the difference between stocks, bonds, pension plans, and insurance contracts becomes less important as well. If there are real problems, anything that is not physical ends up in the general category of “paper wealth”.

We cannot count on paper wealth (or for that matter, any wealth) for the long term. Each year, the amount of goods and services the economy can produce is limited by how the economy is performing, given limits we are reaching. If the quantity of these goods and services starts falling rapidly, governments may fail in addition to our problems with debts defaulting. Those holding paper wealth can’t count on getting very much. Workers producing whatever goods and services are actually being produced will likely need to be paid first.

(mais…)

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Poema

FIM

Enquanto confundíamos o belo
com o fácil e o fácil com o bom,
numa sociopatia de narcisos
viciados em picões de dopamina,
a nossa casa natural apodrecia
como o ventre das abelhas quando passa
o glifosato da ganância liberal.

Enquanto amealhávamos promessas
de crescer eternamente, numa torpe
miopia de peritos em feitiços
financeiros, enfeitávamos com fitas
de sucesso o extermínio de culturas
ou espécies concorrentes com a nossa
e destruíamos o mundo por dinheiro

Enquanto varejávamos a árvore
da vida cientista e vendíamos
os frutos à elite conserveira,
amontoávamos gordura no bestunto
cortical, a mercancia de muletas
prosperava e ninguém via a ligação
umbilical entre saber e destruir.

Enquanto omitíamos limites,
travestidos de titã desenfreado,
e celebrávamos a mancha do progresso
e almoçávamos petróleo (pensando
que comíamos cozido à portuguesa!),
entropia entrava em cena e declarava,
terminante: “Acabou a brincadeira”.

Enquanto levantávamos estátuas
a Húbris ou à mãe da ironia,
o carbono cumulava-se em medusas
de dióxido marinho, rabiscava
“cataclismo”no azul dos festivais
e o metano libertado da Sibéria
preparava o seu discurso de vitória.

Enquanto no cinema fumegavam
as cortinas e o filme apocalíptico
passava para as ruas, a espécie
racional repudiava a evidência
da catástrofe, brandia o seu bilhete
como carta de nobreza, proclamava
o seu direito a divertir-se até ao fim:

“Não saímos!” E de facto não saíram,
nem podiam – chefiados por impulsos
de lemingue, por quimeras de calor
industrial, pelo bíblico preceito
de surfar o vagalhão das energias
decrescentes, só podíamos seguir
o planograma do genoma e perecer.

Publicado in Cão Celeste, Nº 6

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8-)

~hj

funny-nature-images-5-1

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Charts showing the long-term GDP-energy tie

In Part 1 of this series, I talked about why cheap fuels act to create economic growth. In this post, we will look at some supporting data showing how this connection works. The data is over a very long time period–some of it going back to the Year 1 C. E.

We know that there is a close connection between energy use (and in fact oil use) and economic growth in recent years.

Figure 1. Comparison of three-year average growth in world real GDP (based on USDA values in 2005$), oil supply and energy supply. Oil and energy supply are from BP Statistical Review of World Energy, 2014.

In this post, we will see how close the connection has been, going back to the Year 1 CE. We will also see that economies that can leverage their human energy with inexpensive supplemental energy gain an advantage over other economies. If this energy becomes high cost, we will see that countries lose their advantage over other countries, and their economic growth rate slows.

A brief summary of my view discussed in Part 1 regarding how inexpensive energy acts to create economic growth is as follows:

The economy is a networked system. With cheap fuels, it is possible to leverage the expensive energy that humans can create from eating foods (examples: ability to dig ditches, do math problems), so as to produce more goods and services with the same number of workers. Workers find that their wages go farther, allowing them to buy more goods, in addition to the ones that they otherwise would have purchased.

The growth in the economy comes from what I would call increasing affordability of goods. Economists would refer to this increasing affordability as increasing demand. The situation might also be considered increasing productivity of workers, because the normal abilities of workers are leveraged through the additional tools made possible by cheap energy products.

Thus, if we want to keep the economy functioning, we need an ever-rising supply of cheap energy products of the appropriate types for our built infrastructure. The problem we are encountering now is that this isn’t happening–more energy supply may be available, but it is expensive-to-produce supply. Our networked economy sends back strange signals–namely inadequate demand and low prices–when the cost of energy products is too high relative to wages. These low prices are also a signal that we are reaching other limits of a networked economy, such as too much debt and taxes that are too high for workers to pay.

Looking at very old data – Year 1 C. E. onward

Some very old data is available. The British Economist Angus Maddison made GDP and population estimates for a number of dates between 1 C. E. and 2008, for selected countries and the world in total. Canadian Energy Researcher Vaclav Smil gives historical energy consumption estimates back to 1800 in his book Energy Transitions – History, Requirements and Prospects.

If we look at the average annual increase in GDP going back to the Year 1 C. E., it appears that the annual growth rate in inflation-adjusted GDP peaked in the 1940 to 1970 period, and has been falling ever since. So the long-term downward trend in world GDP growth has lasted at least 44 years at this point.

Figure 2. Average annual increase in GDP per capita, based on work of Angus Maddison through 2000; USDA population/real GDP figures used for 2000 to 2014.

A brief synopsis of what happened in the above periods is as follows:

  • 1 to 1000 – Collapse of several major civilizations, including the Roman Empire. Metal was made using charcoal from wood, but this led to deforestation and soil erosion. Egypt and the Middle East had extensive irrigation of crops using river water. Some trade by ship. Most of the population were farmers.
  • 1000 to 1500 – Early use of peat moss for heat energy for industrialization, particularly in Netherlands, leading to increased trade. Continued use of wood in cold countries, with deforestation issues.
  • 1500 to 1820 – European empire expansion to the New World and to colonies in Africa, allowing world population to grow. Britain began using coal. Netherlands added wind turbines beside greater use of peat moss.
  • 1820 to 1900 – Coal allowed metals to be made cheaply. Parts of farm work could be transferred to horses with greater use of metal tools. Coal allowed many types of new technology including hydroelectric dams, trains, and steam powered boats.
  • 1900 to 1940 – Expanded use of coal, with beginning use of oil as a transportation fuel. Depression was during this period.
  • 1940 to 1970 – Post war rebuilding of Europe and Japan and US baby boom led to hugely expanded use of fossil fuels. Antibiotic use began; birth control pills became available. Food production greatly expanded with fertilizer, irrigation, pesticides.
  • 1970 to 2000 – 1970 was the beginning of the great “oops,” when US oil production started to decline, and oil prices spiked. This set off a major push toward efficiency (smaller cars, better mileage) and shifts to other fuels, including nuclear.
  • 2000 to 2014 – Another big “oops,” as oil prices spiked upward, when North Sea and Mexican oil began to decline. Much outsourcing of manufacturing to countries where production was cheaper. Huge financial problems in 2008, never completely fixed.

 

Growth in GDP in Figure 2 generally follows the pattern we would expect, if fossil fuels and earlier predecessor fuels raised GDP and the great “oopses” during the 1970-2000 and 2000-2014 periods reduced economic growth.

Population Growth vs Growth in Standard of Living

GDP growth is composed of two different types of growth: (1) population growth and (2) rise in the standard of living (or per capita GDP growth). We can look at these two kinds of growth separately, using Maddison’s data. My discussion earlier about cheap energy having a favorable impact on the amount of goods an economy could create relates primarily to the second kind of growth (rise in the standard of living). There would be a carry-over to population growth as well, because parents who have more adequate resources can afford more children.

If we compare the population growth pattern in Figure 3 with the total GDP growth pattern shown in Figure 2, we notice some differences. One such difference is the lower population growth rate in the 2000-2014 period. Compared to the period before fossil fuels (generally before 1820), the population growth rate is still exceedingly high.

Figure 3. Average annual increase in world population, based on work of Angus Maddison through 2000; USDA population figures used for 2000 to 2014.

If we look at world per capita GDP growth by time-period (Figure 4), we see practically no growth until the time of fossil fuels–in other words, 1820 and succeeding periods.

Figure 4. Average annual increase in GDP per capita, based on work of Angus Maddison through 2000; USDA population/real GDP figures used for 2000 to 2014.

In other words, in these early periods, civilizations were often able to build empires. Doing so seems to have allowed greater population and more building of cities, but it didn’t raise the standard of living of most of the population by very much. If we look at the earliest periods, (Years 1 to 1000; 1000 to 1500, and even most places in 1500 to 1820), the average per capita income seems to have been equivalent to about $1 or $2 per day, today.

 

I earlier showed how world per capita energy consumption has grown since 1820, based on the work of Vaclav Smil (Figure 5).

Figure 5. World Energy Consumption by Source, Based on Vaclav Smil estimates from Energy Transitions: History, Requirements and Prospects together with BP Statistical Data for 1965 and subsequent divided by population estimates by Angus Maddison.

It is clear from Figure 5 that the largest increase in energy consumption came in the 1940 to 1970 period. One thing that is striking is that world population took a sharp upward turn at the same time more fossil fuel use was added (Figure 6).

Figure 6. World population growth, based on data of Angus Maddison.

While this increase in population holds for the world in total, analyzing population growth by country or country grouping yields very erratic results. This is true all the way back to the Year 1. If we look at percentages of world population at various points in time for selected countries and country groups, we get the distribution shown in Figure 7.  (The list of country groups shown is not exhaustive.)

Figure 7. Share of world population from Year 1 to 2014, based primarily on estimates of Angus Maddison.

Part of what happens is that economic collapses (or famines or epidemics) set population back by very significant amounts in local areas. For example, Maddison shows the population of Italy as 8,000,000 in the Year 1, but only 5,000,ooo in the Year 1000, hundreds of years after the fall of the Roman Empire.

Per capita GDP for Italy dropped by half over this period, from about double that of most other countries to about equivalent to that of other countries. Thus, wages might have dropped from the equivalent of $3.oo a day to the equivalent to $1.50 a day. None of the economies were at a very high level, so most workers, if they survived a collapse, could find work at their same occupation (generally farming), if they could find another group that would provide protection from attacks by outsiders.

If we look at the trend in population shown on Figure 7, we see that the semi-arid, temperate areas seemed to predominate in population in the Year 1. As peat moss and fossil fuels were added, population of some of the colder areas of the world could grow. These colder areas soon “maxed out” in population, so population growth had to slow down greatly or stop. The alternative to population growth was emigration, with the “New World” growing in its share of the world’s population and the “Old World” contracting.

Each part of the world has its own challenges, from Africa’s problems with tropical diseases to the Middle East’s challenges with water. To the extent that work-arounds can be found, population can expand. If the work-around is cheap (immunization for a tropical disease, for example), population may be able to expand with only a small amount of additional energy consumption.

One point that many people miss is that Japan’s low growth in GDP in recent years is to a significant extent the result of low population growth. In the published GDP figures we see, no distinction is made between the portion that is due to population growth and the portion that is due to rise in the standard of living (that is, rise in GDP per capita).

Growth in Per Capita GDP in the “Advanced Economies” 

As noted above, the big increase in per capita energy use shown in Figure 5 came in the 1940 to 1970 period. No breakdown by country is available, but this period includes rebuilding period after World War II for Europe and Japan, and the period with a huge increase in consumer debt in the United States. Thus, we would expect those three country/groups would benefit disproportionally. In fact, we see very large increases in per capita GDP for these countries, as fossil fuels were added, particularly oil.

Figure 8. Average increase in per capita GDP for the United States, Western Europe, and Japan, based on work of Angus Maddison.

These three economies (Western Europe, USA, and Japan) are all fairly high users of oil. If we look at long-term world oil production versus price (Figure 9), we see that growth in consumption was rising rapidly until about 1970.

Figure 9. World oil consumption vs. price, based on BP Review of World Energy data after 1965, and Vaclav Smil data prior to 1965.

In fact, if we calculate average annual increase in oil consumption for the periods of our analysis, we find that they are

  • 1900 to 1940 – 6.9% per year
  • 1940 to 1970 – 7.6% per year
  • 1970 to 2000 – 1.5% per year
  • 2000 to 2013 – 1.1% per year

Growth in oil production “hit a wall” in 1970, when US oil production unexpectedly stopped growing and started declining. (Actually, this pattern had been predicted by M. King Hubbert and others). Oil prices spiked shortly thereafter. The situation was more or less resolved by making a number of changes to the economy (switching electricity production from oil to other fuels wherever possible; building smaller, more fuel efficient vehicles), as well as ramping up oil production in places such as the North Sea, Alaska, and Mexico.

Oil prices were brought down, but not to the $20 per barrel level that had been available prior to 1970. Most of the infrastructure (roads, pipelines, electrical transmission lines, schools) in the USA, Europe, and Japan had been built with oil at a $20 per barrel level. Changing to a higher price level is very difficult, because repair costs are much higher and because an economy that uses very much high-priced oil in its energy mix is not competitive with countries using a cheaper fuel mix.

Figure 10. Percentage of energy consumption from oil, for selected countries/groups, based on BP Statistical Review of World Energy 2014 data.

In the 2007-2008 period, oil prices spiked again, leading to a major recession, especially among the countries that used very much oil in their energy mix. With these higher prices, the leveraging impact of oil in bringing down the cost of human energy was disappearing. All of the “PIIGS” (countries with especially bad financial problems in the 2008 crisis) had very high oil concentrations, up near Greece on the chart above. Japan’s oil consumption was very high as well, as a percentage of its energy use. When we looked at the impact of the recession, the countries with the highest percentage of oil consumption in 2004 had the worst economic growth rates in the period 2005 to 2011.

Figure 11. Average percent growth in real GDP between 2005 and 2011, based on USDA GDP data in 2005 US$.

Getting back to Figure 9, after the financial crisis in 2008, oil prices stayed low until the United States began its program of Quantitative Easing (QE), helping keep interest rates extra low and providing extra liquidity. Oil prices immediately began rising again, getting to the $100 per barrel level and remaining about at that level until 2014. The combination of low interest rates and high prices encouraged oil production from shale formations, helping to keep world oil production rising, despite a drop in oil production in the North Sea, Alaska and Mexico. Thus, for a while, the conflict between high prices and the ability of economies to pay for these high prices was resolved in favor of high prices.

The high oil prices–around $100 per barrel–continued until United States QE was tapered down and stopped in 2014. About the same time, China made changes that made debt more difficult to obtain. Both of these factors, as well as the long-term adverse impact of $100 per barrel oil prices on the economy, brought oil price down to its current level, which is around $50 per barrel (Figure 10). The $50 per barrel price is still very high relative to the cost of oil when our infrastructure was built, but low relative to the current cost of oil production.

Figure 12. World Oil Supply (production including biofuels, natural gas liquids) and Brent monthly average spot prices, based on EIA data.

If a person looks back at Figure 9, it is clear that high oil prices brought oil consumption down in the early 1980s, and again for a very brief period in late 2008-early 2009. But since 2009, oil consumption has continued to rise, thanks to high prices and the additional oil from US shale.

The low prices we are now encountering are a message from our networked economy, saying, “No, the economy cannot really afford oil at this high a price level. It looked like it could for a while, thanks to all of the financial manipulation, but this is not really the case.” Meanwhile, we see in Figure 8 that for the combination of the EU, USA, and Japan, growth in per capita GDP has been very low in the period since 2000, reflecting the influence of high oil prices on these economies.

Growth in Per Capita GDP for Selected Other Economies

In recent years, per capita GPD growth has shifted dramatically. Figure 13 below shows increases in GDP per capita for selected other areas of the world.

Figure 13. Average growth in per-capita GDP for selected economies, based on work of Angus Maddison for Year 1 to 2000, and based on USDA real GDP figures in 2010 US$ for 2000 to 2014 .

The “stand out” economy in recent growth in GDP per capita is China. China was added to the World Trade Organization in December 2001. Since then, its coal use, and energy use in general, has soared.

Figure 14. China's energy consumption by source, based on BP Statistical Review of World Energy data.

If we calculate the growth in China’s energy consumption for the periods we are looking at, we find the following growth rates:

  • 1970 to 2000 – 5.4% per year
  • 2000 to 2013 – 8.6% per year

A major concern now is that China’s growth rate is slowing, in part due to debt controls. Other factors in the slowdown include the impact pollution is having on the Chinese people, the slowdown in the European and Japanese economies, and the fact that the Chinese market for condominiums and factories is rapidly becoming “saturated”.

There have been recent reports that the factory portion of the Chinese economy may now be contracting. Also, there are reports that Chinese coal consumption decreased in 2014. This is a chart by one analyst showing the apparent recent decrease in coal consumption.

Figure 15. Chart by Lauri Myllyvirta showing a preliminary estimate of 2014 coal consumption in China.

Where Does the World Economy Go From Here?

In Part 1, I described the world’s economy as one that is based on energy. The design of the system is such that the economy can only grow; shrinkage tends to cause collapse. If my view of the situation is correct, then we need an ever-rising amount of  inexpensive energy to keep the system going. We have gone from trying to grow the world economy on oil, to trying to grow the world economy on coal. Both of these approaches have “hit walls”. There are other low-income countries that might increase industrial production, such as in Africa, but they are lacking coal or other cheap fuels to fuel their production.

Now we have practically nowhere to go. Natural gas cannot be scaled up quickly enough, or to large enough quantities. If such a large scale up were done, natural gas would be expensive as well. Part of the high cost is the cost of the change-over in infrastructure, including huge amounts of new natural gas pipeline and new natural gas powered vehicles.

New renewables, such as wind and solar photovoltaic panels, aren’t solutions either. They tend to be high cost when indirect costs, such as the cost of long distance transmission and the cost of mitigating intermittency, are considered. It is hard to create large enough quantities of new renewables: China has been rapidly adding wind capacity, but the impact of these additions can barely can be seen at the top of Figure 14. Without supporting systems, such as roads and electricity transmission lines (which depend on oil), we cannot operate the electric systems that these devices are part of for the long term, either.

We truly live in interesting times.

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John Michael Greer

Wednesday, February 04, 2015

 

I was saddened to learn a few days ago, via a phone call from a fellow author, that William R. Catton Jr. died early last month, just short of his 89th birthday. Some of my readers will have no idea who he was; others may dimly recall that I’ve mentioned him and his most important book, Overshoot, repeatedly in these essays. Those who’ve taken the time to read the book just named may be wondering why none of the sites in the peak oil blogosphere has put up an obituary, or even noted the man’s passing. I don’t happen to know the answer to that last question, though I have my suspicions.

I encountered Overshoot for the first time in a college bookstore in Bellingham, Washington in 1983. Red letters on a stark yellow spine spelled out the title, a word I already knew from my classes in ecology and systems theory; I pulled it off the shelf, and found the future staring me in the face. This is what’s on the front cover below the title:

carrying capacity: maximum permanently supportable load.

cornucopian myth: euphoric belief in limitless resources.

drawdown: stealing resources from the future.

cargoism: delusion that technology will always save us from

overshoot: growth beyond an area’s carrying capacity, leading to

crash: die-off.

If you want to know where I got the core ideas I’ve been exploring in these essays for the last eight-going-on-nine years, in other words, now you know. I still have that copy of Overshoot; it’s sitting on the desk in front of me right now, reminding me yet again just how many chances we had to turn away from the bleak future that’s closing in around us now, like the night at the end of a long day.

Plenty of books in the 1970s and early 1980s applied the lessons of ecology to the future of industrial civilization and picked up at least part of the bad news that results. Overshoot was arguably the best of the lot, but it was pretty much guaranteed to land even deeper in the memory hole than the others. The difficulty was that Catton’s book didn’t pander to the standard mythologies that still beset any attempt to make sense of the predicament we’ve made for ourselves; it provided no encouragement to what he called cargoism, the claim that technological progress will inevitably allow us to have our planet and eat it too, without falling off the other side of the balance into the sort of apocalyptic daydreams that Hollywood loves to make into bad movies. Instead, in calm, crisp, thoughtful prose, he explained how industrial civilization was cutting its own throat, how far past the point of no return we’d already gone, and what had to be done in order to salvage anything from the approaching wreck.

As I noted in a post here in 2011, I had the chance to meet Catton at an ASPO conference, and tried to give him some idea of how much his book had meant to me. I did my best not to act like a fourteen-year-old fan meeting a rock star, but I’m by no means sure that I succeeded. We talked for fifteen minutes over dinner; he was very gracious; then things moved on, each of us left the conference to carry on with our lives, and now he’s gone. As the old song says, that’s the way it goes.

There’s much more that could be said about William Catton, but that task should probably be left for someone who knew the man as a teacher, a scholar, and a human being. I didn’t; except for that one fifteen-minute conversation, I knew him solely as the mind behind one of the books that helped me make sense of the world, and then kept me going on the long desert journey through the Reagan era, when most of those who claimed to be environmentalists over the previous decade cashed in their ideals and waved around the cornucopian myth as their excuse for that act. Thus I’m simply going to urge all of my readers who haven’t yet read Overshoot to do so as soon as possible, even if they have to crawl on their bare hands and knees over abandoned fracking equipment to get a copy. Having said that, I’d like to go on to the sort of tribute I think he would have appreciated most: an attempt to take certain of his ideas a little further than he did.

The core of Overshoot, which is also the core of the entire world of appropriate technology and green alternatives that got shot through the head and shoved into an unmarked grave in the Reagan years, is the recognition that the principles of ecology apply to industrial society just as much as they do to other communities of living things. It’s odd, all things considered, that this is such a controversial proposal. Most of us have no trouble grasping the fact that the law of gravity affects human beings the same way it affects rocks; most of us understand that other laws of nature really do apply to us; but quite a few of us seem to be incapable of extending that same sensible reasoning to one particular set of laws, the ones that govern how communities of living things relate to their environments.

If people treated gravity the way they treat ecology, you could visit a news website any day of the week and read someone insisting with a straight face that while it’s true that rocks fall down when dropped, human beings don’t—no, no, they fall straight up into the sky, and anyone who thinks otherwise is so obviously wrong that there’s no point even discussing the matter. That degree of absurdity appears every single day in the American media, and in ordinary conversations as well, whenever ecological issues come up. Suggest that a finite planet must by definition contain a finite amount of fossil fuels, that dumping billions of tons of gaseous trash into the air every single year for centuries might change the way that the atmosphere retains heat, or that the law of diminishing returns might apply to technology the way it applies to everything else, and you can pretty much count on being shouted down by those who, for all practical purposes, might as well believe that the world is flat.

Still, as part of the ongoing voyage into the unspeakable in which this blog is currently engaged, I’d like to propose that, in fact, human societies are as subject to the laws of ecology as they are to every other dimension of natural law. That act of intellectual heresy implies certain conclusions that are acutely unwelcome in most circles just now; still, as my regular readers will have noticed long since, that’s just one of the services this blog offers.

Let’s start with the basics. Every ecosystem, in thermodynamic terms, is a process by which relatively concentrated energy is dispersed into diffuse background heat. Here on Earth, at least, the concentrated energy mostly comes from the Sun, in the form of solar radiation—there are a few ecosystems, in deep oceans and underground, that get their energy from chemical reactions driven by the Earth’s internal heat instead. Ilya Prigogine showed some decades back that the flow of energy through a system of this sort tends to increase the complexity of the system; Jeremy England, a MIT physicist, has recently shown that the same process accounts neatly for the origin of life itself. The steady flow of energy from source to sink is the foundation on which everything else rests.

The complexity of the system, in turn, is limited by the rate at which energy flows through the system, and this in turn depends on the difference in concentration between the energy that enters the system, on the one hand, and the background into which waste heat diffuses when it leaves the system, on the other. That shouldn’t be a difficult concept to grasp. Not only is it basic thermodynamics, it’s basic physics—it’s precisely equivalent, in fact, to pointing out that the rate at which water flows through any section of a stream depends on the difference in height between the place where the water flows into that section and the place where it flows out.

Simple as it is, it’s a point that an astonishing number of people—including some who are scientifically literate—routinely miss. A while back on this blog, for example, I noted that one of the core reasons you can’t power a modern industrial civilization on solar energy is that sunlight is relatively diffuse as an energy source, compared to the extremely concentrated energy we get from fossil fuels. I still field rants from people insisting that this is utter hogwash, since photons have exactly the same amount of energy they did when they left the Sun, and so the energy they carry is just as concentrated as it was when it left the Sun. You’ll notice, though, that if this was the only variable that mattered, Neptune would be just as warm as Mercury, since each of the photons hitting the one planet pack on average the same energetic punch as those that hit the other.

It’s hard to think of a better example of the blindness to whole systems that’s pandemic in today’s geek culture. Obviously, the difference between the temperatures of Neptune and Mercury isn’t a function of the energy of individual photons hitting the two worlds; it’s a function of differing concentrations of photons—the number of them, let’s say, hitting a square meter of each planet’s surface. This is also one of the two figures that matter when we’re talking about solar energy here on Earth. The other? That’s the background heat into which waste energy disperses when the system, eco- or solar, is done with it. On the broadest scale, that’s deep space, but ecosystems don’t funnel their waste heat straight into orbit, you know. Rather, they diffuse it into the ambient temperature at whatever height above or below sea level, and whatever latitude closer or further from the equator, they happen to be—and since that’s heated by the Sun, too, the difference between input and output concentrations isn’t very substantial.

Nature has done astonishing things with that very modest difference in concentration. People who insist that photosynthesis is horribly inefficient, and of course we can improve its efficiency, are missing a crucial point: something like half the energy that reaches the leaves of a green plant from the Sun is put to work lifting water up from the roots by an ingenious form of evaporative pumping, in which water sucked out through the leaf pores as vapor draws up more water through a network of tiny tubes in the plant’s stems. Another few per cent goes into the manufacture of sugars by photosynthesis, and a variety of minor processes, such as the chemical reactions that ripen fruit, also depend to some extent on light or heat from the Sun; all told, a green plant is probably about as efficient in its total use of solar energy as the laws of thermodynamics will permit.

What’s more, the Earth’s ecosystems take the energy that flows through the green engines of plant life and put it to work in an extraordinary diversity of ways. The water pumped into the sky by what botanists call evapotranspiration—that’s the evaporative pumping I mentioned a moment ago—plays critical roles in local, regional, and global water cycles. The production of sugars to store solar energy in chemical form kicks off an even more intricate set of changes, as the plant’s cells are eaten by something, which is eaten by something, and so on through the lively but precise dance of the food web. Eventually all the energy the original plant scooped up from the Sun turns into diffuse waste heat and permeates slowly up through the atmosphere to its ultimate destiny warming some corner of deep space a bit above absolute zero, but by the time it gets there, it’s usually had quite a ride.

That said, there are hard upper limits to the complexity of the ecosystem that these intricate processes can support. You can see that clearly enough by comparing a tropical rain forest to a polar tundra. The two environments may have approximately equal amounts of precipitation over the course of a year; they may have an equally rich or poor supply of nutrients in the soil; even so, the tropical rain forest can easily support fifteen or twenty thousand species of plants and animals, and the tundra will be lucky to support a few hundred. Why? The same reason Mercury is warmer than Neptune: the rate at which photons from the sun arrive in each place per square meter of surface.

Near the equator, the sun’s rays fall almost vertically. Close to the poles, since the Earth is round, the Sun’s rays come in at a sharp angle, and thus are spread out over more surface area. The ambient temperature’s quite a bit warmer in the rain forest than it is on the tundra, but because the vast heat engine we call the atmosphere pumps heat from the equator to the poles, the difference in ambient temperature is not as great as the difference in solar input per cubic meter. Thus ecosystems near the equator have a greater difference in energy concentration between input and output than those near the poles, and the complexity of the two systems varies accordingly.

All this should be common knowledge. Of course it isn’t, because the industrial world’s notions of education consistently ignore what William Catton called “the processes that matter”—that is, the fundamental laws of ecology that frame our existence on this planet—and approach a great many of those subjects that do make it into the curriculum in ways that encourage the most embarrassing sort of ignorance about the natural processes that keep us all alive. Down the road a bit, we’ll be discussing that in much more detail. For now, though, I want to take the points just made and apply them systematically, in much the way Catton did, to the predicament of industrial civilization.

A human society is an ecosystem. Like any other ecosystem, it depends for its existence on flows of energy, and as with any other ecosystem, the upper limit on its complexity depends ultimately on the difference in concentration between the energy that enters it and the background into which its waste heat disperses. (This last point is a corollary of White’s Law, one of the fundamental principles of human ecology, which holds that a society’s economic development is directly proportional to its consumption of energy per capita.) Until the beginning of the industrial revolution, that upper limit was not much higher than the upper limit of complexity in other ecosystems, since human ecosystems drew most of their energy from the same source as nonhuman ones: sunlight falling on green plants. As human societies figured out how to tap other flows of solar energy—windpower to drive windmills and send ships coursing over the seas, water power to turn mills, and so on—that upper limit crept higher, but not dramatically so.

(mais…)

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