Why we need to shrink, not “grow” the economy
Richard Heinberg, one of my favorite and most trusted sources for information about energy and economics, has a short new article out online that I recommend you check out here. As he starts out by saying, “the human economy is currently too big to be sustainable. We know this because the Global Footprint Network, which methodically tracks the relevant data, informs us that humanity is now using 1.5 Earths’ worth of resources.” We need to make major changes that will get things in balance soon, if we want to leave any kind of livable world to our children and grandchildren, and Heinberg has some good ideas on what those changes might be. If we do nothing, the economy will crash in our lifetimes anyway, due to its unsustainability, making life difficult or impossible for most of the planet’s 7+ billion people.
Washington’s Russia Sanctions
I’ve mentioned Richard Heinberg in this blog before — see “Our Energy Reality,” posted May 17th. He’s one of the best analysts of energy, economic, and ecological issues, including oil depletion, there is (his numerous books include The Party’s Over: Oil, War, and the Fate of Industrial Societies (2003), one of the first full-length analyses on the issue of peak oil; Powerdown: Options and Actions for a Post-Carbon World (2004); and The End of Growth: Adapting to Our New Economic Reality (2011)). Heinberg writes a monthly blog (see richardheinberg.com) and is a senior fellow at the Post Carbon Institute (postcarbon.org). His most important articles are posted on the institute’s site, and I thought this, his latest (7-30-14) was a good one:
“The New York Times reports that the US and Europe have kicked off ‘a joint effort intended to curb Russia’s long-term ability to develop new oil resources.’ The new sanctions would deny Russia access to western technology needed to access polar and deepwater oil, as well as ‘tight’ oil produced by hydrofracturing and horizontal drilling.
It’s good to know that a lot of Russian oil is likely to stay in the ground rather than being burned in Russian, Chinese, and European car and truck engines, adding to global climate change. But that’s not the intent of the sanctions,” which Heinberg and others believe are meant “to punish Vladimir Putin for resisting Western attempts to surround his nation with NATO bases and missiles.” Pushed by neoconservatives who never got over the Cold War, the Obama administration “seems intent on provoking a major confrontation with still nuclear-armed Russia.
As justification, we Americans are told that Russia was behind the downing of Malaysian Airlines flight 17, despite a remarkable lack of actual evidence to that effect.” Here Heinberg directs us to a July 29th article by veteran journalist Robert Parry in Consortium News. Parry points out that the US surveys Ukraine continuously by satellite, yet has been unable to produce images of the 16-feet-tall Russian-supplied Buk missile battery it claims downed the plane. He adds that the Washington Post has reported that the US commander of NATO forces in Europe said last month that Russian air-defense vehicles hadn’t been seen crossing the border yet. “It’s just as possible,” Parry writes, “that a Ukrainian government missile – either from its own Buk missile batteries fired from the ground or from a warplane in the sky – brought down the Malaysian plane. There were reports from eyewitnesses in the area of the crash that at least one Ukrainian jet fighter closed on the civilian plane shortly before it went down.”
Getting back to the sanctions against Russia and their intent, Heinberg writes that “the foreign policy wonks at the State Department may not understand that Russian oil production has just hit a post-USSR peak and will be declining anyway. The effect of the sanctions will be to speed the Russian decline, forcing up world oil prices as soon as US tight oil maxes out and goes into its inevitable nosedive in the 2017-2020 time frame. Russia, which will still be an oil exporter then, will benefit from higher oil prices, perhaps nearly enough to compensate for the loss of production resulting from the sanctions. But the US, which will still be one of the world’s top oil importers, will face a re-run of the 2008 oil shock that contributed to its financial crash.
No doubt State Department policy experts believe the recent hype about America as a new energy superpower capable of supplying Europe with oil and natural gas to replace Russia’s exports, and maybe the Europeans are foolish enough to have fallen for this delusion as well. But these will prove to be ruinous high-stakes bets. One can only hope that all the players will stir from these hallucinations before the game turns really ugly.”
I thought the comments on Heinberg’s post were interesting. “Guest53” says, “It’s already really ugly,” and “Justin” asks, “What would prevent the Chinese from supplying Russia with needed resource extraction technology in exchange for a discount on a nearby source of much-needed energy?”
“EVHappy” concludes: “The resource wars are coming and most governments and military forces know this, even if they don’t want to panic their ignorant civilians.” “Ed” agrees: “There is a lot of talk in the blogosphere about the role of Ukrainian tight oil and shale gas in the conflict. The US wants to muscle their way in at Russia’s expense. Resource wars are picking up speed.”
Bernie Edwards says, “This is a chess game and Putin is a master, Obama a novice. Annexing Crimea was a masterstroke by Putin. Anyway, all bets were off as soon as it became clear that the US and EU were meddling in Ukraine, creating a puppet government as a move to get hold of real Russian oil and gas to replace their own phantom reserves. That’s the real reason for this outbreak of trouble and I wouldn’t be surprised if the plan for the downing of MH17 couldn’t be found somewhere within that little gang of plotters. It certainly wasn’t attributable, as all the non-evidence shows, to either Russia or the separatist fighters in East Ukraine.”
Edward Kerr writes, “Were we to wake up from this insanity and transition away from fossil fuels, we could have full employment worldwide and could, if we chose to, treat each other as if we were actually human beings. This truly is the age of stupid.” (Kerr’s referring to “The Age of Stupid,” a 2009 film about a man living alone in the devastated world of 2055, watching archive footage from the mid-to-late 2000s and asking “Why didn’t we stop climate change when we had the chance?”)
P.S. Heinberg’s The End of Growth is really a must-read. As soon as I can, I’ll post my notes on it in the resources section.
Our energy reality
According to Richard Heinberg’s latest article, “The Gross Society” (4-28-14), oil companies have given up on discovering new deposits of conventional oil, the fuel that’s powered our “way of life” for almost 200 years. Almost all new “oil” production is deepwater or shale oil or bitumen from Canadian tar sands. These resources are more expensive to produce, and give us less bang for the buck than conventional oil.
Not surprisingly, oil prices are rising and, as a result, demand is 20% what it would have been had everything stayed the same since the halcyon days of the 1950s or ‘60s. Bill McKibben says that in order to address climate change we need to allow the price of oil to reflect the true costs of its usage. European governments are closer to this than ours is, but a move in this direction would be way too unpopular for any US government to make.
Heinberg’s main concern is dealing with “energy descent,” the increasing unavailability of the kind of energy we’re used to at reasonable prices, and the fact that “there is virtually no discussion occurring among officials about the larger economic implications of declining energy returns on investment. Indeed, rather than soberly assessing the situation and its imminent economic challenges, our policy makers are stuck in a state of public relations-induced euphoria, high on temporarily spiking gross US oil and gas production numbers.
The obvious solution to declining fossil fuel returns on investment is to transition to alternative energy sources as quickly as possible. But from an energy accounting point of view, this may not offer much help. Renewable energy sources like solar and wind have characteristics very different from those of fossil fuels: the former are intermittent, while the latter are available on demand. Solar and wind can’t affordably power airliners or 18-wheel trucks. Moreover, many renewable energy sources have a relatively low energy profit ratio.”
So, what’s going to happen? Whether planned or not (and the latter looks most likely), we’re soon going to be living in what Heinberg calls a “leaner” society, one in which there will be a greater requirement for human labor and the skills of our great-great-grandparents. Society, Heinberg says, will be “able to support relatively few specialists in other activities.” We’ll be using some renewable energy sources, but they won’t be powering “a rerun of Dallas. This will be a simpler, slower, and poorer economy.
If our economy runs on energy, and our energy prospects are gloomy, how is it that the economy is recovering? The simplest answer is, it’s not,” Heinberg says, “except as measured by a few misleading gross statistics. Each month the Bureau of Labor Statistics releases figures for new jobs created, and the numbers look relatively good at first glance (175,000 net new jobs for February 2014). But most of these new jobs pay less than jobs that were lost in recent years. And unemployment statistics don’t include people who’ve given up looking for work. Labor force participation rates are at the lowest level in 35 years. All told, according to a recent Gallup poll, more Americans say they are worse off today than they were a year ago (as opposed to those who say their situation has improved).
Claims of economic recovery fixate primarily on one number: Gross Domestic Product, or GDP. That number is going up, albeit at an anemic pace in comparison with rates common in the 20th century; hence, the economy is said to be growing.” But a higher GDP can reflect lots of things, like increased military spending or higher healthcare costs, “that don’t actually improve people’s lives.” It also means increased burning of fossil fuels and worsening climate change. “Altogether, Gross Domestic Product does a really bad job of capturing how our economy is doing on a net basis.
Second, a growing money supply (which is implied by GDP growth) depends on the expansion of credit – increasing levels of outstanding debt, and there are limits to a country’s ability to perpetually grow GDP by increasing its total debt (government plus private). A warning sign that these limits are being reached would be a trend toward diminishing GDP returns on each new unit of credit created, exactly what we’ve been seeing in the US in recent years. Back in the 1960s, each dollar of increase in total US debt was reflected in nearly a dollar of rise in GDP. By 2000, each new dollar of debt corresponded with only 20 cents worth of GDP growth. The trend line will reach zero in 2016.
Meanwhile, since rates of consumer borrowing have been stuck in neutral since the start of the Great Recession, to keep total debt growing and the economy expanding, if only statistically, the Federal Reserve has kept interest rates low by creating up to $85 billion per month through a mere adjustment of its ledgers, using the money to buy Treasury bills (US government debt) from Wall Street banks. When interest rates are low, people find it easier to buy houses and cars (hence the recent rise in house prices and the auto industry’s rebound); it also makes it cheaper for the government to borrow. The Fed’s Quantitative Easing (QE) program props up the banks, the auto companies, the housing market, and the Treasury. But, with overall consumer spending still anemic, the trillions of dollars the Fed has created have generally not been loaned out to households and small businesses; instead, they’ve just accumulated in the big banks. This is money constantly prowling for significant financial returns, nearly all of which go to the one percenters. Fed policy has thus generated a stock market bubble, as well as a bubble of investments in emerging markets, and these can only continue to inflate for as long as QE persists.
The obvious way to keep these bubbles from growing and eventually bursting (with attendant financial toxicity spilling over into the rest of the economy) is to stop QE. But doing that will undermine the ‘recovery,’ such as it is, perhaps sending the economy into depression. The Fed’s solution to this damned if you do, damned if you don’t quandary is to ‘taper’ QE, reducing it gradually over time. This doesn’t solve anything; it’s just a way to delay and pretend.
Cheap, high-energy-returned-on-energy-invested energy and genuine economic growth are disappearing,” and we’re refusing to face these facts and adapt to “our new reality. We teach our kids to operate machines so sophisticated that almost no one can build one from scratch, but not how to cook, sew, repair broken tools, or grow food.
What would the world look and feel like if we deliberately and intelligently nudged the brakes on material consumption, reduced our energy throughput, and re-learned some general skills? You don’t have to move to an ecovillage to join in the fun; there are thousands of Transition initiatives worldwide running essentially the same experiment in ordinary towns and cities, just not so intensively. Take a look at http://www.Resilience.org to see reports on these experiments and tips on what you can do to adapt more successfully to our new economic reality.
These efforts are self-organized and -directed, not funded or overseen by government, which is not likely to be of much help in present circumstances. Even a little large-scale planning and support would help, and without it the transition will be more chaotic than necessary and a lot of people will be hurt needlessly.” But, Heinberg says, our political system is “broken.” I’d say totally in bed with the corporations more concerned with squeezing the last morsels of profit out of a dying system than facing and dealing with reality. But that’s the nature of the corporate beast.
“When it comes to energy,” Heinberg concludes, “we’ve deluded ourselves into believing that gross is the same as net. In the early days of fossil fuels, it very nearly was. But now we have to go back to thinking the way people did when energy profit margins were smaller. We must learn to operate within budgets and limits. This means decentralization, simplification, and localization. Becoming less reliant on long-term debt, paying as we go. It means living closer to the ground, learning general skills, and becoming involved in basic productive activities like growing food.
We can make this transition successfully, if not happily, if enough of us embrace Lean Society thinking and habits. But things likely won’t go well at all if we continue to hide reality from ourselves with gross numbers that delay our adaptation to accelerating, inevitable trends.”