Question Everything

The Fourth Annual Biophysical Economics Conference

Report From the Conference — The Gund Institute for Ecological Economics, University of Vermont

This conference was started by Charlie Hall in 2008 at SUNY-ESF (State University of New York, Environmental Sciences and Forestry) in Syracuse NY. I attended after some e-mail exchanges between myself and Charlie regarding the analysis of energy return on energy invested (EROI or ERoEI, depending on your insistence on the second acronym reference to energy), a concept he had developed from his systems ecology studies under Howard Odum. Charlie had recognized that the same energetics that dominates the dynamics of ecosystems was relevant to the human economic system as well. Of course many others, including Odum, saw this relationship and began trying to apply the concepts of systems ecology to economics. Herman Daly and Robert Constanza were two of the founders of Ecological Economics, the branch of economics that advanced the notion of taking the environment into account when considering so-called external costs of resource depletion and damage due to pollution.

The conference was cosponsored by SUNY-ESF and The Gund Institute at the University of Vermont, where the meeting was held. This could be an historical event in bringing researchers from EcoEcon and Biophysical Econ together to explore overlaps and common interests. We will have to see how it unfolds over the long run. But my impressions from many off-line conversations is that it could be very fruitful — at least from a scientific point of view.

As long-term readers probably realize I don't have much hope that the science, which, in my opinion, is maturing and quite solid, will ever have much impact on policies that would make a difference in what is coming our way. Even so I am excited about being here and interacting with some really bright minds who are able to see past the BS that the neoclassical economics people (along with their acolyte politicians) put out. This is a crowd of intellects that I really feel comfortable being with.

A sampling of the program (I will post the link to the conference site as soon as it is available):

Day 1

Friday morning, after the general greeting comments, the first plenary panel session was an overview of EROI, the State of the Field. Charlie Hall and two of his grad students presented a number developments in the analysis of EROI and interpretations of what these mean for our understanding of the phenomena. EROI is essentially a version of the law of diminishing returns applied to energy systems. It is the physical analog of the law in capital investments or production scale expansion. At a deep level the law versions are all related and just another manifestation of the Second Law of Thermodynamics.

My own impression of the developments is that the science is improving and the breadth of evidence for the basic phenomenon having an increasing impact on economics is gaining. In a sense there is nothing radically new here. It does, however, importantly strengthen the veracity of the theory. It truly looks like we cannot expect any countervailing evidence that would relieve us of the worry about the ultimate effect.

The second Friday morning session was another plenary panel consisting of Dennis Meadows, Joshua Farley, and myself, moderated by Matthew Burke (Josh and Matthew are of the Gund Institute), on the subject of Energy, Money, and Debt. Each of us gave a 15 minute presentation and then we had about 45 minutes of Q&A. This format was somewhat constraining so we each simply touched on some high points rather than get into anything deeply substantive. I'll save for later regarding what I had to present.

Dennis Meadows kicked it off with a deep yet simple insight into the major disconnect between the financial system and the real asset economy. The biophysical economy, is dominated by negative feedback loops that tend to keep the system stable (or would) whereas the financial system is dominated by positive feedback (e.g. speculation) that is based on exponential growth, inherently impossible. In the current paradigm (debt financing and speculation) and sheer size of the financial sector, these two systems are incompatible. The financial system will explode at some point. Point made.

Dennis made his extraordinarily important contribution to understanding the dynamics of the global economic system back in 1972 with the publication of The Limits to Growth. That work did not explicitly deal with energy as separate from other resources and peak oil/EROI were not on the radar screen except as implicit to the way all non-renewable resources deplete. Nevertheless the dynamics revealed in LTG, the modeling that produced a series of graphs that told a scary story were still right on with respect to how the world worked, up to that point and how it would work in the (then) future. Meadows, et al., did a “30-Year Update” in which the authors pointed out that what had changed was not the dynamics projections, but that because much of what those projections anticipated has been realized and the main agenda now should be learning how to adapt to the decline phase.

On a personal level this was an incredible honor for me to be on the same bill with such a famous luminary as Dennis. We stayed in the same hotel and I had an opportunity to have breakfast with him before the meeting started. It turns out we have a mutual interest in permaculture! I was able to ask him several questions that I have had about systems. I was also crass enough to ask him to sign my copy of the 30-Year Update book. I also got to tell him about my systems courses at The Institute of Technology. What a thrill. Then to be introduced as, essentially, a colleague of this great man was deeply humbling. I would still consider myself his student since I still have much to learn about systems dynamics.

Josh Farley gave us an amazing summary of how money comes into existence and how it is destroyed. Money in the US (and most everywhere) is a fiat currency. The role of the Fed, banks, etc. and the operations of these entities is extremely complex so it was amazing how well Josh was able to explain the “system” in a short presentation. I learned some new things regarding the transactions that take place between the government (Treasury), the Fed (quasi-government), big banks (Wall Street), and others and how it impacts the money supply and interest rates. He also covered some of the recent Fed actions in their attempt to boot the economy growth. What I came away with was an amazement at how complex these transactions are. It is becoming clear to me why most people, even in the financial sector, cannot grasp how this system works (or perhaps I should say works in theory).

After lunch Chris Martenson, of The Crash Course, gave a talk about the issue of how ordinary people can be educated about peak oil, climate change, and other devastating news. He related the process that people go through when they start to understand what is happening to our world and what will be happening to our civilization to Kubler-Ross's stages of grief (on learning that one is about to die). As I understood him, his approach to educating people is to recognize what stage they are in (if in one) and shape the message accordingly (as counselors would work with those approaching death). Also he spoke to the problems bringing the original message to those who have not yet heard it and have counter beliefs that have to be overcome.

Chris is a masterful presenter, very persuasive and, I think, has a very sound approach for the most part. I recommend him to anyone who wants to have a guest speaker on the subjects. I am, of course, less and less convinced that books and presentations are really going to do much good in moving the discourse away from Kim Kardasian and Justin Bieber to peak oil and a contracting economy. Thus my own meanderings here on QE are just that. I write mostly for me, to capture my own thoughts in a way that is public enough for others (like you) to critique and comment. My hope is that others who see the ideas as useful will take whatever actions they choose to get through what is coming. I have no illusions that anything I can come up with or suggest is going to &lquo;fix” anything. I don't really have any suggestions about what you should do. I just want to explore the problems, using systems thinking, to understand those and their relation with evolution. So while Chris does a good job of explaining difficult stuff in a way that most people can understand, I suspect that there will never be a sufficient number (critical mass) who will really get it and act on it such that it will make a difference. Still I applaud his efforts and hope he will soldier on.

The first afternoon session offered two break-out sessions, “Energy Taxes in a Fiscally Challenged Politics”, and “Great Economic Thinkers & Biophysical Economics”. Thinking that taxes or any other mechanism is going to have much effect on the outcomes of fossil fuel depletion or carbon loading on the atmosphere, I skipped that session. OTOH, I always like to understand history better so as to see how things developed to what we have today.

The later afternoon breakouts were devoted to “Connecting our Normative Disciplines to Science: Helping the Orphan Disciplines Find a Biophysical Home” and “Economic Implications of EROI”. I have to admit that the title of the first session was intimidating! So I stuck with the second where I had hope of understanding what they were talking about.

Day 2

The first plenary session focused on “Biophysical Economics and the Financial System and Industry” moderated by Sam Hopkins of Hopkins & Associates. Sam had gotten an honest to good Wall Street investment management guy to speak about his impressions of the financial system as it relates to peak oil and declining EROI. I had a chance to talk to the fellow, Peter Tcherepine, President of Loeb Partners Management, Inc. at diner and again the next day. He didn't seem to be getting this whole EROI business until I mentioned the law of diminishing returns and how it works in all such economic systems as the scale increases exponentially. That he got and then he started paying attention to the idea that one day, not only will the oil deplete to a non-recoverable state but that it would do so largely because the costs (in both energy and money) would be too great relative to the profit return on the effort. I think he went away with something to think about. We'll see.

Sam also got Steven Kopits of Douglas Westwood, Inc, a guy who definitely gets PO and EROI very well and gave a riveting talk on the financial implications. He gets it. I wonder why other Wall Street types are failing to do so?

The second plenary session, “Energy, Democracy, and the Political Economy of Change: Strategies for the Change We Know is Needed”, was right to the heart of the issues. Eric Zencey, author of The Other Road to Serfdom and the Path to Sustainable Democracy, moderated (and was the after lunch plenary speaker). Tom Prugh from Worldwatch Institute gave an update that was revealing. Worldwatch and all other such institutes exist for the purpose of affecting change in society in order to save the human race from decimating itself and the world they live in. By definition such organizations have to be optimistic and though the folks at Worldwatch are fighting to the end for that purpose, privately they are beginning to get pretty pessimistic. Given that it has been since 1975 that Lester Brown has been developing the warning message and starting to provide policy makers with vital information and still today the public discourse remains “growth of a consumer economy” you can easily imagine the discouragement they must be feeling.

Niel Glazer from Foundation Earth is engaged in a similar effort, working on the costs of externalities and getting those incorporated non-voluntarily into corporate cost reporting so that we have a much better understanding of what ecological damage, including global warming are costing society. Corporations need to be held accountable for all those invisible costs that the rest of us bare in terms of health challenges and other expenses. Getting that kind of legislation passed looks like a daunting task to me, but I am all for his and his compatriots' efforts. They will at least advance our knowledge of what is involved and knowledge is always a good thing. You never know when it will have an impact on the system!

The after-lunch plenary speaker was Eric Zencey. The title of his talk was “Energy as Master Resource”, a reference to economist Milton Friedman's recognition of energy as a necessary concern for the economic engine while at the same time promoting the commodification of money, essentially de-linking money from its role as mediating the flow of energy to the work processes desired (see below). Zencey's point, of course, is that energy is the master resource for all economic activity and should be treated as such. As all biophysical economists have come to realize, energy makes a one-way pass through the economy and can never be recycled (unlike material which can, in principle, be recycled if you have enough energy to process scrap) and should therefore be considered the master resource.

There were three breakout sessions after Zencey's talk. One was titled “Transportation and Energy: Challenges and Lessons from a Rural State”. I would have loved to have gone to this one just to see what sort of findings they had. Transportation in rural areas is going to be an increasingly challenging problem as fuels from oil, in particular, get more expensive (or less affordable). Another session was “Energy Use in Food Systems: The Realities of Relocalization”, also one I would have loved to attend. But I felt I had studied the issues of food systems, sustainability (e.g. permaculture), and security to the point that I probably would not have learned anything really new. So I went to the third session, “Communicating Biophysical Economics”. This is an issue that keeps haunting me. On the one hand a biophysical interpretation of economics seems so incredibly obvious that I can't really understand why it is so hard to get the ideas across to the ordinary person in the street. And yet, not even the majority of economists, who should be smart enough and open enough to scientific arguments, seem able to grasp it. Or perhaps they simply do not want to grasp it. The moderator, Jessica Lambert, provided some insights regarding typical approaches to communicating a new idea wherein it is common to challenge belief systems with the “new” ideas, which results in an automatic shutdown. Even smart people have belief systems that are tied to their emotional states. Challenge them and you get an emotional rather than rational reaction. I have certainly seen a lot of that.

My Talk

My session was to focus on the relation between money, energy, and debt. These were not really the usual kind of conference presentation on new research. Rather they were to be summaries of what is known about these issues more generally. I tried to cover all of these from a theoretical, systems perspective. My slides can be found at: Energy and Money (PDF). The core of my thinking is that money needs to represent useful economic work, which is really just biophysical work. Work is accomplished by energy flowing through a system. Unfortunately not all of the potential energy is used effectively when there are many stages of processing involved. Between low efficiencies and wastage a lot of raw energy is simply dissipated as waste heat long before the final economic work is done. Engineers have a designation for the actual energy used to do useful work. It is called exergy. It is that amount of energy that produces the useful work and can be substantially different from the total energy content in a flow.

My thesis is that a unit of money should be tied to the amount of exergy that is available to society, either in terms of new flows or already accomplished work as in embodied energy. The latter is money that represents existing assets, while the former represents work to be done. The total money supply can only ever represent the amount of work an economy has accomplished or will accomplish in the near term. Thus the value of money is tied to existing assets and to the stocks of fuels that are available. Note that as the latter declines due to the peaking and decline of non-renewable resources like fossil fuels along with the declining energy return on energy invested (or exergy available after doing work to produce that exergy) this would imply a shrinking money supply. There would be less work and thus less stuff so there would be less need for cash to represent it. Obviously this doesn't correspond to anything like the way the monetary systems of the world operate today.

I finished up by showing some of my earlier results having to do with energy production dynamics and the curves showing the relation between gross energy (e.g. barrels of oil in BTUs), energetic costs (e.g. EROI), net energy, and asset accumulation (in embodied energy) and how, as the resource depletes and gets more costly to extract, we go into a steep decline (see: Economic Dynamics and the Real Danger. The graph in this presentation has been updated and shows slightly different values as I was trying some new rate constants in the model run from which the graph was taken. But, as you can see the dynamics do not really change in form.

OK, I assert that pegging the value of a unit of money to a unit of exergy is a necessary condition to make money actually a measure of real wealth. Monetary policy should be simple: print the amount of money that represents our future ability to do useful work. Money already in circulation represents existing wealth (real assets). The only money that can be borrowed is from the stocks of exergy yet to be used. And then that borrowing has to produce work that increases the future stocks of exergy, i.e. it is really an investment. Everything else is stupid!

Of course this will never happen. Bankers have got a real scam going and they own the government, so there will be no changes that are going to destroy their lifestyles. As smart as our species is, we generally use those smarts to figure out how to ignore nature rather than how to produce a truly sustainable society. We're great problem solvers but we just don't really understand what problems we should actually solve.

---

So now more politicians are starting to recognize the relation between global warming, climate change, and how that will impact society (dare I say civilization?) Nature has to slap us around pretty badly before we start paying attention. But, as it happens, probably too little, too late.

if (length(day) == length(night)) HappyEquinox();

Another inflection point in the year. Now we are diving into the predominance of cold and darkness. And I am talking about the political season not just the autumnal season.

I really don't have anything more to say about the state of politics in the US than I've already said. It is still a spectacle of the very worst form of decision making with respect to how we shall govern our society in the future. There is not one rational voice in the lot of candidates or the media pundits who comment on the races. Neoclassical economists still hold sway over the rhetoric and what passes as policy deliberations. The Republicans (and Libertarians) remain dumbfoundingly irrational in their beliefs that tax reductions (especially for the already rich) are the route to prosperity for all. We have collected so much evidence that this is not the case but they stubbornly cling to that mantra. Of course the party was taken over by the anti-science, anti-intellectual crowd a while back so I guess this isn't terribly surprising. Santorum's recent comment about how the “smart people will never support” US is so revealing and so terribly sad. But it seems to very much reflect the current state of the Republican party members' minds. They have become masters of rationalization in turning greed and selfishness into a virtue. All that brain power going to support what is probably the most destructive force on the planet.

Democrats don't get a pass either. Here we see someone like Energy Secretary Stephan Chu, a Nobel physicist, still playing as if technology (like clean coal) will win the day and we can get the economy going again. Economic growth is physically impossible and somewhere in that man's mind he has to grasp that. Real economic growth depends on increasingly turning physical resources into assets that humans use (and use up). It depends on increasingly available energy to do useful work. It is NOT increasingly printing money just to say we have liquidity! In my mind that fellow is guilty of criminal deceit in not declaring the physical truth.

I can somewhat understand Obama's lack of grasp of the situation. He is trained as a lawyer and lawyers think mostly in terms of winning positions (which is why so many politicians are lawyers). They pick and choose the evidence that will advance their cases. They are not scientists and they are not sensitive to counter evidence to their positions until such evidence becomes overwhelming and obvious to all observers. And that is exactly what is going to happen in the not-too-distant future when regional economies fall right and left as the global economy falters and eventually fails. But then, of course, it is too late to do anything meaningful about it.

Both parties, the ideologues in both camps, the neoclassical economists stubbornly asserting their model of how the world works, all hold to the idea that growth means a healthy economy. A healthy economy creates jobs and lets everyone consume to their hearts' contents. Consumption means demand. Demand drives the economy to grow. THIS HAS GOT TO BE THE ABSOLUTELY STUPIDEST MODEL THAT EVER EXISTED! There is no rational way on Earth that anyone can justify this notion of infinite growth.

So they don't. They just keep mouthing the rhetoric over and over. And the masses just soak it up mindlessly. Their biggest problem is deciding which candidate is more likely to “create more jobs”, the one who says he has a plan, or the one who says he has a plan!

Neither candidate can really claim to understand the real situation and thus have a workable plan. Romney can only bluster that he can do it because his business experience gives him the skills. Of course he doesn't say exactly how he would do it. Obama, has advanced a few of the typical (and completely wrong) Keynesian ideas of government spending (e.g. infrastructure repair) to prime the pump and get demand back up until the economy is then self sustaining. Not only is he talking about the absolutely worst investments in infrastructure (assets that will be stranded such as roads in the post-oil economy) but it is all contingent on there being energy to run such an economy. Ain't gonna happen.

Directing some government investment toward alternative energy research might have a small payoff but the more we learn about the efficacy of these energy sources (solar, wind) the more we realize that the total power that we can expect to get from an all electric system would be many orders of magnitude less than we currently use. We could not expect to have anything even remotely close to the standard of living we have now even after you squeeze all of the waste and inefficiencies out of the system. All Obama's plan does is attempt to kick the can down the road a bit with fingers crossed that a miracle will happen. Well I hope a miracle happens too, but I am not basing an action plan on it doing so.

In a very real sense the acceptance by the vast majority of people of the idea that a growing economy even if feasible, if not desirable, reflects on the abysmal state of knowledge and the education that we get in this country (though it isn't really any different in the rest of the world, is it?) I strongly suspect that this is a result of having reached the limits of the average human brain to grasp reality that is so complex as much as a failure of the education system. I think the system and the increasing insular attitudes toward complex knowledge in the vast majority of the population is the result of a coevolution, or rather a devolution. We don't develop an adequate education system because the students are really not generally capable of dealing with the complexities of knowledge the modern world has to offer. And those same students are the ones who eventually go out into the world, muddling through as best they can, and either complain about the state of education (when Johnny or Jane can't pass the standardized math tests that most of them couldn't pass either), or become teachers and administrators charged with reforming/modifying the system and educating the next generation. We're caught in a downward spiral, negative feedback loop just because our brains have reached their level of incompetence relative to the knowledge environment our own science and engineering efforts have created.

Fall is here. For both the physical season and for the human condition. We are headed for winter and those seeking to run things aren't even thinking of how to prepare for that cold, dark season. Instead they are promising spring and summer as if we could just skip winter. Of course spring will come for the physical season. I seriously doubt that the human condition will know anything other than a long and terrible winter. Fall should be the season of harvest and storing energy for the winter and spring. Instead our political leaders aren't even paying attention to reality.

Is This a Radical Idea, or What?

How to Teach Math — Abolish Math Courses!

A Sunday (July 29) New York Times opinion piece started me thinking about something I have often wondered about. Why are so many college students turned off on mathematics? The article's title was provocative: "Is Algebra Necessary?" The author, Andrew Hacker is an emeritus professor of political science at Queens College, City University of New York and author of the book, "How Colleges Are Wasting Our Money and Failing Our Kids — and What We Can Do About It". Well, that certainly got my attention.

Here is the gist. Our system of education forces all students (K-12) to take math courses and expects all students to complete some level of algebra. Algebra is considered the minimum level of math competency for college and we (society) have decided that essentially everyone is supposed to go to college. Even students in the humanities are expected to master some level of algebra. But here is the problem: Algebra turns most students off! Surprise, surprise.

Therein is the rub. Turn the students off because you are forcing them to learn something that purports to be a subject onto itself with the lame excuse that they will need it later (and, of course later never comes) or because it will help them think analytically/quantitatively (without explaining why that is important, or even what it is!) and you have lost them. I claim, unnecessarily.

Right now our country is in a panic. Fewer American students are choosing science and engineering as careers and they are doing more poorly on standardized math exams than kids from many other countries. We're in a panic because we hold firm to the idea that we have to compete with other countries economically. It is important, supposedly, to be number one when it comes to technology and science. And god forbid we fall behind in producing Nobel laureates (even if most of our prior laureates were actually foreign born!) Calls from politicians, business leaders, and social commentators (like Tom Friedman) extol us to knuckle down and do a better job in teaching kids math and science. The problem is that once we have turned kids off on math, we've lost them in science and engineering too. We are caught in a vicious cycle where we force feed more math only to make kids dislike it more and then we can only think to push it harder.

Hacker's article claims that kids don't need algebra. Indeed, they don't need most formal mathematics as taught in standalone courses. He argues, and I agree with him, that forcing kids to take such courses actually works to turn them off to school more generally and learning as a self-directed, internally motivated process. In short we are killing our education system by forcing kids to take really dry courses that are de-motivating and mentally numbing for the vast majority. There are certainly math-oriented individuals who like the topic as a topic and will go on to major in math as a subject onto itself. But these are rare persons. Most kids are not interested in memorizing the quadratic equation.

They are, however, intensely interested in relations! How does this relate to that? They are actually capable of thinking algebraically if given a chance to pursue that thinking in a motivating context.

What is Math Good For?

There have been a number of studies now that show that the vast majority of people, in their jobs, never actually use anything as sophisticated as algebra — explicitly. On the other hand almost everyone deals with relations and functions of variables to one degree or another. Anyone who has to convert proportions (e.g. in resizing a recipe) is faced with a simple form of algebraic relation.

Math is fundamental to measuring and transforming things. We all use it in one form or another, usually without realizing it. And all too often people face situations where they have to consider things like relative rates of change in processes that matter to them.In other words, math beyond arithmetic can be highly relevant. We just don't teach it that way.

We teach rules and axioms. We expect students to memorize facts that they will never explicitly use again in their lives. And in that process we turn them away from the very thing we dearly want them to learn. Talk about shooting one's self in the foot. It is true that math is foundational in the sense that our modern world operates on principles that can only be expressed meaningfully through mathematics. OK. So it is not unreasonable that children and young adults grasp the basics in order to function in this world and contribute to it. Even though calculators will do the arithmetic (I still think it is useful to teach arithmetic at an early age) the decisions about which operations to use, in what order, and on what variables, etc. is the kind of skill they need to develop. And it turns out many people do develop some rudimentary capabilities when their livelihoods depend on it.

Kids are born curious. They are born with the drive to find out why things are the way they are. They want to know how things relate to one another and what causes this and that to happen. They will naturally wonder “how much?” and “when?” and always “why?”. Our school system methodically beats that natural tendency out of them. By the time I see them in college they are programmed well to simply want to know what do they have to memorize to get a good grade in this course. Forget curiosity. Forget a drive to understand. The one thing they have been taught to understand is that in this system the GPA is the coin of the realm and their job is to maximize that quantity (see they are thinking mathematically even in spite of the system). I find myself agreeing with Hacker. We are killing the very thing we want to cultivate in the minds of our kids. We have to look at this whole thing with new eyes.

Many More Students Could be Scientists!

Many and perhaps most kids are natural born scientists. Anyone who has observed fourth graders on a field trip knows this is true. What happens then to kids as they grow older and get more schooling? The answer is that we are systematically squashing that natural curiosity and pounding any interest in understanding relations out of their minds with the way we go about schooling them.

There will always be students who by virtue of their superior intellects and indomitable curiosity will rise above the beating they get from schools. Such students will do well in math and science. They will go on to become engineers and scientists in spite of school, not because of it. But, unfortunately, there are so many more who are more fragile and are too easily intimidated by our overbearing force of subjects onto their minds. These kids are actually potentially capable of being scientist and engineers with something more nurturing than what our school system offers. They need to be allowed to mature at their own natural rate. And they need to see themselves as being able to consider problems from their own understanding rather than being told they need to memorize formulas. These are the vast majority. They do not need to be force fed mathematics to appreciate the natural world. They can learn mathematics in the context of their understanding that natural world.

And that is why I say abolish math courses! They do not really advance our objectives in having children and young adults understand the world. They intimidate kids. They stultify curiosity. Math is not a subject unto itself (unless you wish to become a theoretical mathematician!). It is a language for thinking about and expressing how the world works. It is really no different from spoken languages except that it is generally more precise. Once appreciated, the rules of relations in nature can become as natural to thinking as syntax is to natural languages.

The solution is to teach science better. By that I mean expose kids at an early age to the natural world with emphasis on how things relate to one another. Start exposing them to systems thinking early and reinforce it in every subject they take, even art and language classes. Start providing them with developmental stage-appropriate challenges, especially problems that can be studied and answered by a small group of peers. Let them discover the barriers to coming up with solutions that only some kind of math will get over. Let them puzzle on it for a while and then provide guidance with some examples of similar problems. If they are motivated because they really want to meet the challenge they will readily learn the math as a consequence of wanting to solve the bigger problem ^[1].

I became convinced of this approach while watching some seventh and eighth graders working with Lego robots to perform certain challenging tasks. These robots are an excellent exploratory environment for kids to try out ideas (hypothesize and experiment) and discovering how a little algebra can get the job done. The challenges involve multiple sensor inputs, light (with color values), touch, sonar readings, etc. The mobile robots have to perform some task such as following a black line on a white field while avoiding objects. This requires that their programs get varying values from the sensors and determine the significance of the values, especially relative to one another (for this age the programming environment is very friendly, a visual drag-and-drop construction tool kit). In other words they have to construct functions that produce motor output results in the proper fashion. Kids who wouldn't know an algebraic formula from their behinds are able to work out the relations and even come up with multiplicative factors that put variables in the proper scales. They naturally need some guidance to get started but they are soon working with these formulas and even trying variations and new formulas if they think they can improve a behavior.

The sciences, and I do mean all of the sciences not just the natural kind^[2], are full of mathematical challenges that could provide the framework for learning math. Put the math where it belongs and let the kids have fun exploring the world they want desperately to know about. Stop teaching mathematics as a required subject in grade, middle, and high school. Embed math in the subjects they will take as the language they need to understand in order to communicate within that subject.

It is possible that by high school there will be some students who show a natural ability and interest in math as a subject. So there should be options in courses that resemble those now taught for these students to go further with formal mathematics. Quite possibly these are future math majors at the universities. There will always be a few who find pleasure in math just for its own sake and they should be given the opportunity to pursue that as well. They will be our future mathematicians and we need a few of them to work on pure math.

But the vast majority of students will only find interest in math if it is seen to serve a useful purpose for them. They need to experience math as part of a general problem solving process directed at challenges that truly interest them. This can extend to college as well. Students who take introductory sciences (e.g. Biology 101) should be exposed to more advanced algebra and even some calculus. They can be explicitly exposed to statistics when they do experiments, collect data, and then have to answer questions about the phenomenon they just witnessed. Ask a biology class to determine how much energy flows through a given ecosystem, first yearly, then monthly, then daily, then in minutes, etc. By doing this, exposing them to the notion of sample rates at smaller and smaller scales you've just started them down the road to understanding limits and infinitesimals. College level science courses (and many other subjects as well) could be designed to have a math learning skeleton upon which the flesh of the subject is hung. In other words the course designs would start with an outline of the mathematics that the community of educators agreed should be learned in the context of the subject. The professor's job becomes one of fashioning the subject content into challenges that are guaranteed to expose the need for those maths and then be ready to aid the students as they work through what techniques they need and how to use them. It is possible that an introductory science course might end up taking a whole year (2 semesters or 3 quarters) to complete because math is being taught within the context of the subject. So what? Students will learn both the math and the science much better as a result of learning them together in the context of solving complex challenging problems. It will take a different kind of professor than you typically see today (which is why this will never be adopted I suppose). The professor's job is to design problem-based curricula and act as a guide and mentor rather than a lecturing fount of all knowledge. I personally know a few professors who would be hard pressed to play that role. After all it is actually pretty easy to simply prepare lectures and grade assignments.

In our current paradigm we expect students to take the necessary math courses as prerequisites to taking the science courses. We expect them to have retained the math and be able to apply it as appropriate to the kinds of domain-specific problems the professor assigns. In other words, learn the math first, then take the science. We believe that is more efficient. Unfortunately you will hear many professors complain that the students are simply not prepared for the subject because they don't know the relevant math. It is easy to blame the high schools for failing to teach them what they need to know to be successful in the science courses. What no one seems able to see or understand is that the failure comes from the way we go about teaching math as a standalone subject. Even when a math text attempts to motivate a word problem with an example from “real life” it fails because as far as the student is concerned it isn't real. It is not the students. It is not the difficulty of the subject per se. It is the way we teach it that is the problem.

If we want to have more kids solidly learn math and science (and engineering) then we had better get our act together and stop beating them up with the subjects the way we are now. Of course it isn't just the math and sciences education that has to be radically reformed. The whole K-12 education system is based on efficiently moving kids through a system designed to produce worker bees. Then we all complain that kids can't think when they get out. For years reformers have been beating around the edges of true reform. They have been trying to fix things by tweaking the existing school system, curriculum, and pedagogy but never really taking a systems approach to designing a system that will truly educate. The proposal to abandon math courses and embed math within other subjects is a little more than a tweak. And as such it will buck the established system and thus be untenable. Moreover there is the problem of finding good science teachers who could actually pull this off. This is especially true at the K-12 level but, as I alluded to above, is also problematic at the college level. The kind of teaching that is called for is hard, highly skilled work. Perhaps if society recognized this they would agree to pay teachers more and thus attract those qualified people. Oh wait. I forgot, society is comprised of people who were schooled in the current paradigm! They are not likely to see the value in their children really learning because for the most part they never experienced it themselves. Another vicious cycle.

---

Footnotes

[1] It is true that learning math within a specific context has some problems with respect to transference to other situations where the same math would be applicable. We humans do have a tendency to not be able to naturally abstract or decontextualize instances of an exemplar. Kids could learn how to use a second-order polynomial function in one situation and completely fail to recognize how it might apply in a different setting. For example the exponential growth function is found applicable in so many different settings. If kids were to learn it in, say, a population biology setting, they might not recognize it use in an economics setting. But this is why I insist that systems science and thinking be taught everywhere. Once someone becomes more proficient in systems thinking it becomes much easier to use math abstractions in a variety of settings.

[2] And this extends to not just subjects that have science in their names, e.g. computer science, but to professional school subjects like business, social work, etc.

Watching the Political System (er, Circus)

What Happened to the Political System?

As I write this it is very hard to juxtapose those two words — political and system. What we are observing today is, at best, a broken system. It is a moribund system. All organization is in tatters. It is failing miserably to perform its historical function in society, providing a basis for governance and generating policies to achieve governance objectives. And if you think I am merely writing about the political system in the United States you haven't been paying attention to the rest of the world. Politics is a mess everywhere.

This is by no means the first time in history when a political decision system has broken down and taken governance with it. We have seen this phenomenon many times throughout history as great civilizations have collapsed when their systems of governing fell to the machinations of a dysfunctional political process. Societies under stresses, such as resource declines, seem to most often respond first with a breakdown in the political system. That drags down the quality of governance since it is the political process that determines who the actors making the decisions are going to be.

The stresses are invariably first felt in the economic system, as previously noted. But that leads to the stresses felt by political leaders to “do something”. And since, as a general rule those leaders really don't know what to do, or even what the real causes of the stresses are, they do what politicians are best at — they point fingers at the usual suspects, make stuff up and hope no one will realize it. The political game then becomes one of convincing the electorate (or the financial powers) that one story is better than another just to get the job. Even in those rare cases where a political leader (in power or trying to get power) might know a bit about the real causes they are loathe to tell that story. No one wants to hear that the end is near and inevitable. Whoever tells that story won't be elected, or if in power, won't stay long. Remember Jimmy Carter?

The political process as it is playing out in the United States this summer and early fall will be something else to watch. I seriously doubt that there are too many observers of what has been going on so far who do not believe that the system is broken badly. The presidential race is an amplified version of a comedy that is playing out all over the world, at all scales of governance districts. Corrupt, stupid, narcissistic, politicians are playing into the hands of corrupt, stupid, narcissistic capitalists everywhere and in every level of governments. These days even those few earnest and generally honest politicians who got into public service because they really believed they could help the system and people living under it find they have to play the game by the rules that have evolved which are mostly about money, power, and getting re-elected (or not getting assassinated in a coup). In the US this season is further made preposterous by the Supreme Court's Citizen United decision which basically gave corporate powers carte blanche in purchasing the best candidates for representing their interests. Judges are supposed to exercise good judgment. The courts and laws are the backbone of civil society. When the back is broken, nothing else will work properly. What happened with the justices who found in favor of this abomination? What they will have done is simply accelerate the collapse of the political process and the collapse of governance.

How did we come to this? Every nation starts out with big hopes to provide a wonderful home for their citizens. Today many nations have citizen participation (some form of democracy) to allow citizen voices to be heard, at least in principle. Even those countries where democracy is not the form of governance, at least leaders are wary of unrest to the point of trying to maintain stability. Usually, as we've been seeing in the Middle East, that leads to strong arm techniques with violent consequences. But the best intentions of governments and leaders have proven ineffectual in producing working governments that produce livable conditions in their countries. What went wrong?

The United States is actually a very good example of how the political process can fail and destroy what might otherwise have been an effective form of governance. I will take examples of this from what is happening in the presidential race and the workings (or failures to work) of the three branches of government.

First, I would like to dissect the whole notion of the polity a bit and separate the mechanisms (subsystem) of governance from the political subsystem. In the US we have a stark version of these two subsystems working at odds with one another. Originally, the term polity meant to reference both the political process and the governance that resulted. Once upon a time that confluence seemed reasonable. Once when there were clearly socialist governments or democratic governments the business of developing principles for governing from the prevailing ideology was seemingly straightforward. The only differences that had to be worked out in the process of choosing leaders and legislators were the ideas about which policies should be set and how to implement them.

 

Figure 1. A systems diagram of an idealized political system in the context of the whole social, economic, and governance system. If everything worked in balance, this system should be able to produce a functional governance subsystem that monitors the well being of the social system and applies the governance principles generally shared by all members of the society, e.g., constitutions. The political system provides the selection process by which governance will be guided by the balance of political theories from either liberal (exploratory-empathetic) or conservative (exploitative-self-serving) ideological perspectives (see below for explanation). The governance principles are expected to evolve somewhat over time as society evolves (e.g. with changes in technology). This model does not take into account the limits of non-renewable resources or the ecological impacts of waste production. If the society were in a steady-state condition and at or just below carrying capacity, then the system would be in balance (what I have called a sapient society). Governance principles would have to include monitoring the environment (resource and waste flows relative to the Ecos' capacities) and regulating consumption/population to maintain balance. Humans never really developed a sense of need for such governing principles, and in fact strongly believed they could be ignored, which is a big part of why we find ourselves in a predicament today.

 

The political process is where society, under the influence of political theories and the influence of political advocates, must decide which persons among them will produce the most viable governance body. In democracies this is worked out, as it would seem to be doing in the US, through an election cycle. Our two-party+independent voters get to hash out what they believe is the best political theory (and political platforms) to follow given their understanding of the conditions of their social system and its relation to other systems in the world. Unfortunately their perceptions of those conditions are now largely controlled by the political parties, especially through a media that has become decidedly political (vs. apolitical). In this incredibly complex world where real knowledge is in short supply, almost everything has turned into a political debate using opinions in place of facts. It is understandable how the politics of economics has come under this influence given the deplorable state of economics as a social science. But even something like global warming due to human consumption and climate change resulting therefrom has become politicized in spite of the overwhelming scientific evidence available to inform policy making.

Politics ought to be based on facts interpreted through considered theories (not just ideologies) through deliberation, consultation, dialog, and debate carried out by people of reason in front of a citizenry who can exercise critical thinking (based on a well founded education) and exercise their voices to influence the process. Those we send to govern should be the best and the brightest and able to sort fact from fiction to arrive at good policies.

That is what it ought to be if it were going to work properly. But there is a weak link in this concept and that is human nature. It is especially the case when it comes to the level of sapience had by the average human, let alone that had by those who seek to be governors. Figure 1 represents a mythical system. One most of us want to believe exists, but in fact, is just an idealization that cannot come close given our shortcomings as a species in the realm of developing wisdom. What a pity.

Our politics, instead, arise from two seemingly at-odds needs that arise from our biological mandate that we have not yet evolved the appropriate internal regulations that come from higher sapience. All of life is constantly faced with a trade-off between exploration (e.g. finding some new kind of food) and exploitation (e.g. gobbling up an existing food resource). Exploration entails risks. You might expend a lot of energy trying something new, or looking for something new, and end up with a failed effort. You would have squandered energy (and possibly other resources) as a result. Exploitation looks less risky at first. Consume a known resource; you don't have to waste energy looking for it and you know what the payoff will be.

But animals need to participate in both kinds of activities over time for the simple reason that exploiting resources often leads to depletion effects. If the animal never explored the territory for new resources, then depletion of the known exploitable resource will lead to destruction of the animal. Thus it is incumbent on animals to be somewhat exploratory in order to avoid getting stuck in a resource hole. They need to have options. On the other hand they should not spend too much time and energy exploring where there is still an adequate supply of a resource since this would be a waste of time and energy with no real payback. It is important to recognize that this trade-off dynamic plays out at the individual, population, and species levels of organization. Evolution is a great example of the trade-off between exploration (new mutations and their effect on genotypes) and exploitation (stable phenotypes conserved in stable environments). But, as pointed out, individual organisms have to work with this same dynamic.

Where is the optimum in the exploratory-exploitation spectrum? For many lower species the “sweet spot” is determined evolutionarily, that is for the species through their collective fitness in particular environments. Some creatures, like barnacles, sit themselves down in a suitable location, anchor for life, and spend their entire adult lives staying in the same place just reaching out to grab food as it floats by. Others, like lion prides on the African plains must be able to explore a wide territory for game if they can't exploit the fact that game come to a water hole where they can just wait for food to come by. They have to solve a dynamic problem for how much exploration to do relative to the opportunities for exploitation. Every species has a programmed sweet spot that guides their behaviors. The higher species seem to have a larger interval of acceptable trade-offs around that sweet spot; they can shift the trade-off as circumstances dictate. But they still have a basic sweet spot that is conditioned evolutionarily by their fitness in their niche over the long haul.

In humans we have an extremely interesting variation of this exploratory-exploitive behavior. For most of our history it has served us well, but now I'm not so sure it is contributing to the fitness of the species. As with all animal species humans have an evolved sweet spot with a rather large range of positions that have varying payoffs. But over the last ten to twenty thousand years I think something very profound has been evolving due to the change from hunter-gatherer societies to settled agrarian societies. It appears that humans are evolving not one, but two sweet spots on either side of the original one. In other words, humans are seeming to be bifurcating into those who are more exploratory leaning and those who are more exploitative leaning. Those who are more willing to try new things and those who are happiest just continuing to do what they have been doing all along. Sound familiar?

Interestingly a similar bifurcation seems to be taking place on the altruism/empathy — self-serving/self-referencing spectrum (the personality type that can lead to narcissism). It is now clear that there are people who lean toward communitarianism versus those who lean toward individualism. And, I would hazard a guess that what we are seeing in this separation into two camps or ends of a spectrum, is that these two spectra are actually linked genetically. I'm betting that if we discover genes that influence someone's tendency toward exploration versus exploitation we will find them coupled with those that influence communitarianism versus individualism such that the former in each category are linked as are the latter in each category. All that is necessary is that they be on the same chromosome and so close together as to be relatively immune from cross-over during mieosis! That shouldn't be hard to demonstrate.

OK, so that is a bit speculative but come up with a better theory to explain what we are seeing in the separation between progressive/liberal persuasions and libertarian/conservative ones. The contrast is stark as is the widening chasm that separates these two “types”. We may be looking at two subspecies of humans based on these personality divisions. They even seem to breed selectively (assortative mating), which would accelerate evolution toward speciation!

Republicans and Democrats are becoming less and less able to see each other as fellow humans because they are evolving to be less like each other. They are evolving away from an ability to cooperate (though it seems the Democrats are a little more willing to try to find a cooperative solution, perhaps because they are the more exploratory and communitarianists).

There is, however one common idea that they are seemingly able to agree on that has grown in importance to both mind sets. It too is a result of the biological mandate, but taken to an extreme. It is the notion of profits as the raison d'être for the economy. Growth, just because we all accept that as the good, for its own sake, is universally taken as the only way to live on this world. Industry through capitalism emerged as a commonly held belief that this was the route to human happiness, that greed, which drives capitalists, was good. No matter what your political leanings this one idea trumped all others. The political perspective determined not whether capitalism and profit were the good, but only how they were to best be executed. Exploratory/communitarianism calls for regulation to keep the system from getting out of hand and a fair sharing of the rewards with all. The exploitative/individualists are convinced that it is every man for himself and the invisible hand that Adam Smith wrote about will take care of regulation from within. Neither group disputes the rightness of capitalism as a model for economics. They just differ in terms of how they think it best achieved.

Now, it turns out the one thing they all agree about, growth and capitalism, is the worst thing for both humanity and the Ecos. And what they do not agree about, how to achieve it, amplified by this process of sub-speciation, is leading us down the worst possible path toward destruction. They will fight tooth and nail to prevail.

Because growth and capitalism have now started to diminish well being as resource limits are being approached, the system as a whole is starting to fail. And that motivates each side in the various debates to insist more strongly that their political philosophies are the most appropriate to ‘fix’ things. It never occurs to either side that the problem is in the one thing they both agree on. Talk about irony. The figure below shows a somewhat different (though similar to Figure 1) view of the political system as things have evolved with the dynamics produced by these political theories motivated by greed.

 

Figure 2. A systems diagram of a general political/governance system evolving under the prevailing beliefs in growth and greed (modern capitalism). Processes are shown outside the social system (purple oval) but are in fact composed from components within that system, namely people. Resources are shown entering that system and wastes (material and heat) exit in balance. The clouds represent ideas and beliefs held by the polity. These are not necessarily informed by science (and most often are not), but rather by experience that has developed over the ages. Ovals are processes. Governance principles are the results of ideas that have been codified in constitutions, governmental institutions, laws, and general mores. The government, represented by the dashed oval, carry out logistical and tactical decision making, setting policies and issuing instructions to the civil society, economy, etc. that makes up the society, however arranged (i.e. representative democracy, confederated states, free enterprise, etc.). Human nature is clearly a subsystem operating within society to produce ideological principles (e.g. conservative approaches to problem solving) and an overarching set of beliefs that can produce negative effects on those ideological frameworks (lightening coming from dark cloud). Capitalism, as now practiced, would seem to be such a harmful effect on both left and right leaning ideologies.

 

The still believed promises of wealth from capitalism drive both sides of the political spectrum and even those in the independent category. As the whole system fails to deliver on that promise all parties have become shrill in promoting their particular ideological fix and blaming the other side for all that is wrong. But they will not face up to the reality. For example, consider the situation with the financial system, especially the culpability of the bankers and investment brokers in the many clearly fraudulent practices that have taken place since the demise of the Glass-Steagall Act. In spite of the severe damage done to individuals (e.g. wealth disparities and job losses) neither party has the intestinal fortitude to force serious investigations or punishments. Why? Because they are convinced they need the bankers and brokers to keep the economy going, and they foremost believe in “free enterprise”, capitalism, and growth, which right now depends entirely on expanding the money supply through financialization. If you put those guys in jail the entire system comes crashing down — the illusion of prosperity disappears in a puff.

The Show Must Go On

It doesn't matter if the clowns are crying. The show must and will go on. We haven't even gotten to the really interesting acts here in the US. We still have conventions and debates to watch. We still need to be thrilled by the Republican VP selection. We still have to watch the intensifying horse race (who will win the most dollars in campaign contributions?) We still have to watch in apt amazement as candidates attack more viciously their opposition. This is going to get a lot better — if you like blood and gore.

Shakespeare said it best (as usual),
“It is a tale
Told by an idiot, full of sound and fury
Signifying nothing.”
Macbeth (Act 5, Scene 5).

Our political process is in a shambles and has been for a very long time. I assert this is the case at all scales but is most acute, and most felt, at the national levels. There is no global level since there is nothing really close to a global governing body (though the UN and NATO are rough attempts toward that end). Nation states are faltering in increasing numbers. And it is all because the politicians and citizens are failing to recognize a simple fact. We are in contraction not expansion. The old ideas about economy and social justice, and governance simply do not hold under these conditions. And the idiots, as Shakespeare said, are blabbering nonsense at increasing volumes. They are in open combat (e.g. the debt ceiling standoff) and unable to find any way to move forward. Of course that is simply because they have no idea what a way forward looks like. They have no idea what is happening to our world so they simply do what comes naturally and blame the other side for all woes.

I have decided, after more than forty years of participating in the political process, that the system is so badly broken that further participation is futile. My general conclusion is that it really doesn't matter who wins the presidential race. It won't matter what party prevails in either houses of Congress. No matter who the electorate sends up (and I am convinced that will be people bought by corporate interests, certainly not public awareness and understanding) they will be unable to do anything useful. Neither party has a handle on the real crises we face let alone formulas for fixing anything. Besides that, I think the collapse of the whole process is imminent. It may even come with the election cycle in full swing. A major riot at one or both conventions will almost certainly put big nails in the coffins of the two-party system in the US. The new Greek government, in acquiescing to the EU's demands for more austerity may find itself in deep trouble and full blown revolts. Same for Spain. And then what?

From my limited perspective the only thing to do now is sit back and watch the show. It may provide entertainment value, but little else. There will be an election in the US. Someone will take over the White House and some party will dominate one or both houses of Congress. The Supreme Court won't change much but they have already shown themselves to be completely clueless so we should continue to see idiotic decisions in any case that involves economics or politics or social values (the court decision on health care, where Chief Justice Roberts may have accidentally sided with the liberals and calling the insurance mandate a tax still hasn't been figured out, was a fluke). The President will be ineffectual regardless of who sits on the throne. The Congress will continue to do damage to the country and the world regardless of which party prevails. In short I expect things to get noticeably worse after January. Most of that is because we still haven't found the magical neoclassical economics way to substitute for critical materials and cheap high power energy. And without doing so there is only one direction the economy can go. But also, I expect the problems associated with this to be amplified by a political and governance system that simply doesn't work anywhere near what an ideal system would. The one thing you can count on is human nature. Sadly.

Watching the Global Economic System

Why the Global Economy Is Such a Good Indicator

Among other systems-related factors, the economy is what all of us actually experience on a daily basis. The very first signs of collapse will be felt there. Long before we watch sea levels rise dramatically, long before even Republican nut cases like James Inhofe admit that the weather patterns are due to human-induced climate change, we will all feel the impacts of collapse through the economic conditions of life. Our jobs, our incomes, even our ability to find food on the grocery store shelves or gasoline at the pump, will all be subject to seismic shifts of unpredictable magnitude and direction. The vectors of change in everyday life will be chaotic at best. So it is probably a good idea to try to grasp the big picture of what is happening in the global economy.

As I was writing this piece a very important report came out of the FEASTA (Foundation for the Economics of Sustainability) group by David Korowicz titled: Trade Off: Financial system supply-chain cross contagion - a study in global systemic collapse. QE commentator Mark N. had posted another link to this work in a comment to the previous blog. If you have a limited amount of time and have to choose between reading my thoughts below versus reading this report, choose the latter! It sums up a lot of what I was planning to say about the economic system (focusing somewhat on the supply chain criticality) and the role of the financial subsystem in keeping this system afloat. He tackles the problems using the systems approach so actually captures everything I might have to say about the situation. Even if you decide to read my ramblings below, take time to read David's very important work.

What we both have to say is kind of simple. If the financial bubble bursts, the economic system comes crashing down and that will result in massive destruction to the globalized, interdependent world. We will leave a lot of oil in the ground, as it turns out, simply because we cannot get over the most driving aspect of economic activity. We won't do anything unless we can see how it produces a profit in the short term. “We” means everybody (well, perhaps except for the most sapient beings who actually can see into the future).

The Financial System is a Key Subsystem within the Global Economy

The reason I first chose to focus on the financial subsystem was that it is pivotal to many other aspects of the global economy. That is, the financial system forms a nexus through which every other aspect of economic activity must pass. It is a king pin for the economy and the bowling ball is headed right for it.

Now I want to step back (or perhaps I should say go to a higher elevation) and take a look at the larger system and see how the financial subsystem affects the other subsystems that constitute the economy. We need to map out (even if roughly) the other major subsystems in the economy as well as consider what we consider the boundary and interfaces of that system with other relevant systems, both human-centered, and with the Ecos as a whole.

First, though, let's consider the current views on the economy and what people believe drive it in being the engine of our wealth and well being.

Growth is Good (Not!)

What do most people mean by a “healthy” economy? Of course they mean a “growing” economy. Growth of national and global gross domestic product (GDP) is the sine quo non of economic health in the vast majority of people's eyes. The principles that apply are self-obvious, after all. In a growing economy there is an expansion of production that leads to job creation. People with jobs receiving living wages are able to buy the stuff they need which reinforces the growth. As long as there is continuing growth in the population, there will need to be growth in the economy to sustain everyone getting jobs and living decent lifestyles. It is obvious.

What everyone agrees on today, both conservatives and liberals, for example, is that the economy is in trouble. It is not growing (or growing rapidly enough) to be healthy and create those jobs. Of course parties from both extreme positions politically have differing views on what is causing this lack of growth, but they at least agree on the symptoms.

It is ironic, though, that the very thing that everyone is just so sure is the cure to the problem, growth, is actually the cause of our predicament in the first place. Economic growth at a time of approaching limits of critical resources is exactly the opposite of a healthy economy. The economy is entering a phase, a permanent phase, of on-going contraction that no one will be able to halt with any conceivable fiscal or monetary policies. In the end they won't even be able to slow the contraction down after it builds momentum.

To be clear about what I mean by growth let's consider the diagram I used in the last Watching blog, reproduced here.

 

Figure 1. From the blog post What Am I Watching?, this represents an economy that is growing. The relevant particulars are the import of raw materials and energy, work done on the materials to produce assets and the eventual decay/consumption of assets to produce wastes. The Ecos is represented by the open rectangles, which are sources of resource and sinks for material wastes. Energy waste - low temperature heat - is transported to space. Money is the method for communicating the “value” of assets in the economy. In this model the history of growth in assets, especially in the surpluses, creates an expectation of growth continuing in the future that allowed the creation of credit-based borrowing or the creation of money that is not actually backed by real assets. That increase in money, however, acts to speed up the production of assets as long as the inputs of resources can keep up.

 

In this model of the early economy an accumulation of surplus assets (e.g. grains in a granary) could be used as an investment in producing yet more assets. This is the basis of physical growth but also true economic growth. The physical size of the economy, including the biomass assets of our selves, grew proportional to the rest of the Ecos, which has remained essentially fixed in terms of total biomass and materials. The driver for this system is energy flow from the sun through the system, doing constructive work, to deep space as waste heat. We don't see it in this model, but as the size of the system increases, the complexity of the assets also increases with technological and social developments. Thus growth and complexity go hand-in-hand. In fact, increasing complexity seems to be a consequence of solving the problems resulting from growth, e.g. developing more complex farming practices in response to a growing population's demand for more food.

As I suggested in the last blog about financing, initially the borrowing practice, called investment, was from the existing surpluses, from savings. For the majority of the history of banking this has been the case with the exception that fractional reserve banking (as long as it didn't get out of hand) provided a form of borrowing against future, presumed to yet be produced, assets rather than existing assets. This was made possible by the use of money, which became an abstract representation for assets, either real or to be realized. The problem with fractional reserve banking is that it artificially expands the money supply, which in turn can be interpreted as an expansion of the asset base. As I said, as long as this practice was constrained by prudence and there was always an ability to find and utilize a surplus of energy and raw materials this did not seriously hurt anything. Indeed it was probably a catalyst for progress. That was the birth of financing.

Once, a long time ago, growth in the asset base for humanity was good thing. Those assets made it possible for humans to lead increasingly less dangerous lives. They gave humans more time to contemplate both their navels and the Universe. The surplus allowed a few bright individuals to construct more sophisticated ideas about how the world worked. In turn those ideas helped develop better assets and more surplus. Our clever species had transcended a boundary that life had been constrained by since its inception. The reduction of risks by our agriculture and technology meant that we were no longer as subject to the whims of nature as our predecessors and all prior living things had been. Growth in population was also a good thing when we were a rare species. With more people there is more variability in the gene pool and more opportunities for more clever individuals to emerge, which they certainly did. As noted above, with growth in assets comes increase in complexity. And that too was a good thing. Complexity, such as trade relations in neighboring villages, at some level leads to increased flexibility and resiliency. Living cells are the paradigm model of just the right amount of complexity. They are unimaginably complex in some ways (as our biology continues to discover), but not too complex in the sense that they become subject to the costs of complexity. Nor does their complexity increase until they suffer the law of diminishing returns on increased complexity, ala Joseph Tainter's hypothesis regarding human civilization collapse. Cells have evolved a high degree of variation in the exact forms of complexity they possess, but not in the level of complexity.

In the course of evolution of life on Earth, single celled organisms did not grow beyond a biophysical limit, nor did they increase in levels of complexity. Instead they started doing something more interesting. They started to aggregate and cooperate — they auto-organized to form multi-cellular clusters that took on a life cycle of their own. Different kinds of cell clusters would become competitive with each other. That is what gave rise to further evolution right up to the present. But cells, individually, remained at the relatively low level of complexity (and size) leaving the further development of higher complexity to the emergent multi-cellular organization.

The human economy has had a similar emergence of a new level of organization that could accommodate increases in complexity. The “firm” or production organization has acted as an analogue to multi-cellular organisms, allowing new forms of complexity to develop. Civilization has acted as a yet higher level of organization allowing firms to interact in both cooperative and competitive ways. But civilizations were still fragmented and semi-autonomous entities, much like multi-cellular life forms in a larger environment. They also competed and cooperated. But now comes globalization, the advent of a new level of organization for the whole globe. Only now there is no larger environment to occupy. There are no other globalized civilizations with which to compete and cooperate. And, wouldn't you know it, this all comes about just at the time when we have reached a depletion limit on our main source of energy, the source that allowed this growth and development to reach the level it has. We are starting to experience a decline in net energy from fossil fuels. Growth and increasing complexity are no longer options.

Economic Reality 101

It is hard to believe that universities give people PhDs for learning how to ignore reality. That seems to be the case in economics and political science. These “soft”, social sciences have no use for physics, chemistry, and biology. They have everything important to say about political economy wrapped up in neo-classical economic theories. And those theories require growth to continue no matter what. Indefinitely into the future. Infinite growth and development. After all, we humans have transcended the laws of physics, haven't we?

The economists, the politicians, and the sycophant media are still telling us that a healthy economy is a growing economy. In one perspective that is true. And that perspective is the continuing wanting of more stuff. More stuff (assets, whether useful or not) represents wealth and everybody wants to be more wealthy as time goes on. We want to grow. Ergo, growth must be good.

But rather suddenly, seemingly, we are faced with a reality that imposes on the nice neat picture that neo-classical economics has painted. It turns out we are subject to the laws of physics after all. And one of the laws of physics, the conservation principle, states that when you use something at a rate faster than it can be replenished, you tend to deplete the stock! Who knew? Economists had worked very hard to convince themselves and everyone else that in a market-based economy as a resource became scarce and more expensive, we would simply find substitutes at lower costs and get on with things, business as usual. They had never heard of Leibig's law of the minimum, which says there is some critical resource that is needed in every dynamic system that will regulate that system, especially if the dynamic is growth. That is biophysical reality and remember, economists don't worry about physics (or reality).

Here is a similar graphic to Figure 1 above. It has been modified to show two explicit realities that no one in the powers that be, (PTB) seems able to come to grips with. First the bubble inside the money bin is all of the hot air “money” that doesn't actually exist. Or rather it exists (printing presses and bank accounts go nuts) but doesn't represent anything real, not usable assets or asset surpluses. It represents, strictly, an expectation that something real will be in place some day in the future to fill the same space. This is the collective debt that we have created to make it look like everything would be just fine. Note that it feeds on itself. This is the Wall Street players paying themselves huge bonuses for keeping the smoke and mirrors preventing the rest of us from seeing what is really happening. That is a good trick. But it is just a trick. And unfortunately it is tied into the real investment loop that keeps productive work going.

The problem is that productive work can only be accomplished if you have adequate resources to work with. The advent of peak oil is a wake up call telling us that resources are not infinite. Peak oil by itself is not the central problem, but it is sounding an alert that should get us looking more closely at what the real problem is. And that is that because of diminishing returns on energy extraction (EROI) we are able to put less net energy back into the real economy. We thus can do less real work and produce less real goods and services. Everyone is getting poorer without seeming to really understand why. In a similar vein, some critical material resources are depleting so that it takes increasingly greater amounts of energy to keep up the same extraction flow rates. It takes more work to get the same metal out of less concentrated ores.

And there are no substitutes for high powered energy and low entropy material resources. The alternative energy technologies are just not up to the capability to produce the same substantial power that fossil fuels have provided. They may work OK to run a greatly reduced economy, some day, but they will never be able to provide the energy needed to run the current level of economic activity. So between the decline in net energy from fossil fuels and the low power production from alternatives the economy has nowhere to go but into contraction.

 

Figure 2. The economy after the on-set of declining resources will necessarily contract. Our current situation is that our expectation of continued growth of asset surpluses will continue into the future. We have created a financial (debt to be paid in the future) bubble in our monetary system that continues to skew decisions about investments and profit potentials.

 

Social Effects of Economic Contraction

The Great Depression of the 1930s is going to look like a cake walk. It wasn't WWII that brought the US out of depression as is generally believed (by who else but economists). That activity only acted as a trigger to spur the work fueled by more abundantly available fossil fuels. We had energy to waste, so waste it we did. The war put people to work, to be sure, building tanks and bombs (the ultimate in a consumption economy!). And once the energy flow infrastructure was in place in support of the war, then when the war ended there was abundant energy to do whatever else we wanted to do. And what we wanted to do was have fun, at least in the west. The eastern world had slightly different priorities and a different way of doing things (communism as it was practiced there) but they still wanted to go on wasting energy on creature comforts and weapons to dominate world politics.

The point is that the Great Depression came to an end and just about everybody believed it would some day. Remember Franklin D. Roosevelt's famous fear speech? There was never any doubt that good times would return one day. And sure enough after the war, the economy started growing again and there were all kinds of jobs. The recovery was a confluence of wartime inspired technological magic and the sheer volume of fossil fuels that were cheaply available. The economists put in their two cents. The Keynesian economists had been arguing that government stimulus (pump priming) would spur economic growth to the point that any debt incurred by the government would be more than paid back by the growth of the economic engine in the future. It did seem to work, didn't it?

So the whole notion of a deep recession or even a depression, while painful in the short run, never really bothered economists (it bothered incumbent politicians) because they were so sure that the end would come and that in the long run the economy would produce wondrous results for all of society if we just didn't constrain the markets too much, or from a libertarian point of view, don't encumber the markets at all!

The world is currently suffering a major economic slowdown if not outright recession. It varies in intensity in different parts of the world. China says it's doing OK for now, but word leaking out from civil society there tells a different story. The EU is suffering major problems in some members that threaten the very existence of the Union but more immediately could spell major economic problems as the financial system there is unable to compensate for past excesses in those few members. The US is probably best described by the word malaise. Of course for those long-term unemployed who have essentially given up on working an honest job for a living wage it isn't malaise, it is depression already. The prospects for getting out of these economic doldrums are looking more bleak every day. Even economists are starting to take precaution when predicting future growth. Not a small number of economists as well as the common sense man/woman on the street have started feeling that there is something very fundamentally different about the current situation as compared with prior recessions and the Great Depression. No one sees any way to get out of this.

That is for a very good reason, unfortunately. There is no way out. Declining resources, especially net energy to do economic work, is the controlling factor now. Decline means decline, period. We are all part of biophysical system that requires energy to do anything. If the energy flow declines the work declines. The wealth generation (real asset production) declines. Everyone has access to less and less in terms of material goods and services. This is so stupidly simple that it continues to confound me how supposedly intelligent people in government and academia just can't grasp it.

Of course they will grasp it eventually. Unfortunately it will be too late to do anything constructive about it. Actually I think it is already too late. Contraction, unlike unfettered growth, requires careful planning and execution of logistics for managing that contraction with the least pain possible. And our brilliant leaders (thought and political) have already blown it. Planning takes time and knowledge. They put off opening their eyes so long that we now don't have the necessary time. And, to be blunt, I doubt that they will ever have the kind of knowledge needed to develop plans. Thus, I'm afraid society will react to the acceleration of the contraction that is already underway as most societies in the past have reacted to collapse.

Preparations

The only thing that anyone might do to prepare for the economic collapse is to collect a complete set of tool assets that will allow the production of food, shelter, obtaining water, etc. in the future. Of course I am talking about hand tools, not power tools! The principles of biophysical economics are the same they have been since the very beginning of human commerce (my arrow heads for your corn). Future economics will work the same way. Humans need not give up completely and revert to hunter-gatherers in small extended family tribes. But they will have to adapt to a world without fossil fuels or big high-tech wind turbines.

The big unknown will be what happens in society while the contraction is gaining momentum. The one thing you can say for sure about chaos is that just about anything that can happen will happen. There is no way to predict the details in advance. So the only advice I can offer is to use your intelligence as best you can to put together your survival kit (including any community you want to be part of), situate yourself somewhere you think might be hidden of at least defensible, and keep attuned to local signs and conditions. In the end, almost nothing you can come up with is a guarantee of success. Thus my real recommendation is just be prepared to adapt as the situations change. Or be prepared to depart for another location if adaptation is not possible.

This is an appeal to the laws of statistics! If enough people try enough different approaches a few are bound to work.

Economic Predictions

Of course prediction is a fools game, which is, I suppose, why economists and politicians play it. But let me try my hand at constructing a likely scenario. It's actually not too hard. I started with the financial subsystem because that looks the weakest to me. Many kinds of forces are poised to prick the bubble and bring the house of cards down. But what will happen when that bubble bursts is pretty clear. Our economy is utterly dependent on debt-based financing to keep things going. When it dawns on everyone that those debts of yesterday will never be paid back let alone servicing future ones, financing will simply crumble. And when that happens everything else will follow (see Korowicz's report linked above for a description of the interplay between the financial system and supply chains). One of the most critical victims of this domino effect will be the energy supply industry. It takes a lot of money to discover, drill, pump, and refine oil. It takes a lot of capital to extract coal. And frac'ing ain't free. The extraction industries are super dependent on the financial system to keep them in business and once the financial system crumbles the necessary cash infusions will evaporate. No more energy, no matter what price. I suspect that national governments will, at some point intervene, not by bailing out the multiple times failed financial institutions, but by nationalizing the energy sector. One good argument for doing so is that of national security. It takes a lot of energy to run an army and navy. The US DOD is already investing a lot of research money into alternative sources of energy for operations. When they ultimately discover that the Second Law of Thermodynamics has not yet been repealed they will put pressure on Washington to take over the fossil fuel industry because the profit motive won't be working any more.

It takes energy to pump water. It takes energy to keep homes and buildings warm or cool in temperate climates. OK, you can forego the cooling maybe, except that pesky thing about global warming causing severe heat waves and droughts (already underway, thank you Jim Inhofe et al). It takes energy for everything we do. We can't even sleep without expending energy. So look for severe energy rationing as the military takes charge of the supplies and meters it out stingily to the populace.

The financial system will never recover. It started with savings of surplus grain and that is all that we will have in the future, if we are lucky. Debt financing is over or soon will be. There might be localized surpluses under the protection of a few war lord types ala Jim Kunstler's vision in his novels (World Made By Hand). But there will never be the kind of borrowing against future surpluses because everyone is going to finally get that there will barely be enough productive work done to maintain current assets let alone produce future surpluses (one caveat to this is that if the population undergoes a tremendous downsizing there will be a temporary surplus of lots of stuff, but without the energy to maintain it, it too will decay away - no surpluses last for that long.)

When You Watch the Economy

Unless you know how to sift through tons of economics data, your only real access to a view of the economy, unfortunately, is through the main stream media. And the problem with that is that they simply don't have a clue. The best advise I can give here is that you keep track of a few relevant trends. Your can't always trust the raw data reported, such as the jobless rate, or jobs created rate, etc. But what you can do is track the number of times those numbers advance or decline over time. You can even keep track of the amount of advance or decline and then do a form of weighted averaging over time to smooth out the noise. What you will find is that declines outnumber (and outweigh) advances, in measures where a decline signals bad times such as jobs creation, over time. The opposite for data where advances are a bad thing, such as number of unemployed workers.

Another thing to keep an eye on is the number of times some economist or media type grasps onto the slightest bit of seemingly good news. Two years ago these folks were happy as hell when there was the slightest up tick because they just knew that there had to be an end to the economic woes and so these early signs showed that we would recover soon. Today, not so much. Many more economists are warning that we should approach such up ticks with caution. Who knows maybe they are developing a bit of wisdom after all!

Another major trend I am watching in the economy is the number of fraud events that are taking place in our most venerable, historically strong institutions. Mostly now we are watching this drama in the financial industry but it wasn't that long ago we were aghast at the shenanigans at Enron and the demise of Arthur Anderson Accounting as a result. Many big corporations were cooking the books and there probably are still many more doing the same. Get what you can while the getting is good. As people who have access to more detailed information about profits and such get increasingly panicky you can expect to see much more of this, if they get caught. Governments are increasingly strapped to provide investigation or enforcement so there is probably a lot that is going to go under the radar.

Then, of course, there is the jobs situation. The kinds of jobs that are available are increasingly low paying types. Or some previously higher paying jobs are being downgraded because, lets face it, it is a buyers market (corporations are the buyers!) Sooner or later the governments are going to have to take some action on this and it doesn't matter if the Democrats or Republicans are in charge. Only another Nero would ignore the powder keg conditions when a significant proportion of young people are out of work. Actually the news coming out about Romney's tenure at Bain Capital suggest he might just be another Nero. Great choice the Americans have in November, a well meaning but clueless incumbent or a would-be King Louis XVI (see: French Revolution!) Good luck with that.

Let me depart on a somewhat positive note. I've been noticing the number of news items about neighborhood organic gardens and yard gardens have been increasing. The indication is that more people are doing what I've been doing for a few years, converting more and more ornamental planting areas to food plants. I'm locked into my house for a number of sensitive reasons. But I do what I can. The reason this is positive is that people must be sensing that they will need to take charge of their destiny somehow. And they are practicing for self-reliance which is probably going to be the key to riding the economic roller coaster as it passes that first big peak. I'm trying to make sauerkraut this year! Wish me luck.

Watching the Financial System

The Big Picture

In systems science the Big Picture starts with the largest known boundary of the system of interest and the time scale over which the system has grown and developed if it is a complex adaptive system (CAS). I want to apply this analysis to one of the several subsystems of the Ecos, the financial system of the human economy, that is looking more like a flash point for collapse. It appears to me, from all of the news events of the last several years that this system is the one under the greatest immediate stress, but also the one that financial “wizards” can most easily manipulate to make it appear resilient, hence hide from the rest of us what the real problems are. I don't think it really is that resilient, and I suspect after the Barclay's Bank fiasco with the London Interbank Offered Rate (LIBOR) fixing scandal, a lot more people will agree with that.

That scandal is just the latest in a series of revelations about shenanigans in the banking and securities/futures markets that comprise the global financial system (also see: J.P. Morgan Chase trading loss). With each new revelation we find increasing evidence that the financial system is out of control, meaning that there are neither internal feedback loops nor external regulatory mechanisms able to keep the system performing the function that everybody believed it provided. So, in my estimation, this subsystem of the human-built subsystem of the Ecos may be one of the first catastrophic collapses we will witness as civilization comes undone, and the repercussions for all else will be tremendous.

The financial system has grown in importance within the economic subsystem over the last several decades, especially as globalization has preceded along. Financialization is the term used to describe the process by which the financial sector of the economy has grown to dominate the traditional production/service and agricultural sectors as a percentage of gross domestic product (GDP). Quoting from the Wikipedia article: “In 2000, trading in U.S. equity markets was $14.222 trillion, or 144.9 percent of GDP.” This represents the turnover in the financial markets but not the supposed income produced by the financial markets. The latter is a component of GDP and has become a significant one at that. Most of the growth of GDP over the last several decades has likely been in this sector, for example the incomes from trades and share prices of brokerage houses (not to mention the outrageous compensations given to their executives).

Financialization has been essential in keeping capitalism going. It is fundamentally pretty simple. Basically an aggregate in capital has to be raised from multiple sources in order to construct a new business venture. The money is effectively borrowed from “investors” with a promise to pay back both principal and interest from the profits of the enterprise. The expectation is that there will be future profits sufficient for both reinvestment and to pay down the debt (see below re: expectations of growth).

At the same time that the concept of borrowing against future profits to support growth is simple, the system itself has grown hopelessly complex. This is why we need to consider the Big Picture and the boundary conditions of the dynamics in order to hope for any understanding of what is going wrong. It will help to go back and look at the earliest versions of financing of enterprise. We need to understand where the ideas of borrowing came from in order to understand why the problem of financial bubbles and collapse are a concern today and in the near future.

The Past

The notion of an economy is also quite simple. We look at natural ecosystems and the exchanges that go on in living metabolism to see all of the same basic mechanisms at work. Figure 1 shows the concept in its simplest form. In Figure 1 A we see that an economy is simply the acquisition (capture) of materials and energy from the environment into work processes that convert them into useful assets. Assets, here, means not only artifacts, like clothing or shelter or spears, but also human biomass itself. Humans use and or consume assets so produce waste heat and waste material. Also, assets decay due to the Second Law of Thermodynamics (entropy). This simple model applies to all living systems at all scales of complexity.

 

Figure 1. The whole of the economy can be summed up as a system process whereby energy and raw materials are converted to useful assets (both artifacts and biomass) which are used/consumed. A) A hunter-gatherer economy uses short-term solar energy (food, animal hides, wood) and little in the way of material resources to produce assets (mostly biomass) that eventually degrades to waste heat and material. Such an economy does not accumulate a surplus of assets. B) An economy that has gained leverage by producing some assets (tools) that improve the capture of energy and raw materials can develop surpluses and set up a positive feedback loop (investment) into the work process which then generates even more surplus. The economic system is then growing.

 

The key concept to grasp in understanding the origins of finacialization is that of investment (Figure 1 B). Human beings have been investing time and energy into creating artifacts (tools) that would increase the efficiency of their access to resources — additional energy and materials. This single factor, born of the tremendous cleverness of humans compared with their predecessor species, is at the base of what made Homo sapiens so spectacularly successful evolutionarily. Cleverness increased our species fitness in essentially every kind of environment (except Antarctica) by extending the notion of adaptability beyond mere physiological or long-term evolutionary modification. We found ways to protect our bodies from inclemency and to supplement our direct metabolic energy requirements. With cleverness, once an insight threshold is passed, you take a little bit of time and energy to produce something that will return multiples of both time and energy in the future. You realize a profit which can then be reinvested in keeping the process going. The rate of change in technologies was originally very slow so that humans were still not a huge threat to the rest of the Ecos in terms of over appropriating material and energy that would have gone to other species until about ten thousand years ago. All of that changed with the insight threshold that gave rise to agriculture.

With agriculture a new phenomenon emerged — the surplus of energy, both operational and embodied began to grow. Settling in one location year round, and reorganizing social systems to accommodate the planting-harvesting cycles plus the need to protect a better defined territory changed so much that it is hard to encapsulate the effects in a few sentences. Nevertheless we must recognize this transition as extraordinarily fundamental in converting us from wild animals to domesticated workers, and all that follows psychologically from that. The advent of surpluses changed everything about human beings' relation to the Ecos. We were, of course, only following our biological mandates to protect ourselves from the vagaries of nature and to procreate as much as possible. That didn't really change. In fact it is the first mandate that drove our desires to continue building surpluses even when there might have actually been adequate stores to buffer against any reasonable contingency.

In our wild days the contingencies of survival were stark. Climate changes could change the availability of food in short order. As nomads this meant moving. As farmers this wasn't an obvious option. Surpluses, especially of grains, were a hedge against the contingencies of nature. Food in storage (which probably started early in agricultural history; see below) provided a reduction in risk of losing one's life and so fulfilled the first mandate perfectly. It also began the process of removing a natural negative feedback loop on human population sizes. Nature was constantly testing humans for survivability, and in that testing came two results. First the fittest (read most clever as well as wisest) survived and procreated. Second, the population numbers were reasonably kept in check in exactly the same way that all species are kept in check. Deaths tended to equal births on average, at least at first. Ever so slowly humans changed that equation through their use of technology (spears and fire, etc.) And they spread out into new environs. Thus the results of the second mandate began to be amplified by the success of the first mandate. Population growth and habitat invasion began.

The surpluses from the agricultural lifestyle accelerated this process even more. But it also produced increasing complexity in emerging societies. Specialization in trades emerged to increase efficiency yet more. People found that they were no longer self-sufficient and needed to trade goods and services. The first nascent complex economies emerged and developed, first with simple barter and later with marks on clay tablets representing value (e.g. bushels of grain in storage). As things continued to complexify money was invented to allow convenient trading of unlike goods and services where an agreed upon price provided equitable transactions. Money was a good thing in that environment. It made more complex trading possible which led to yet further increases in surpluses because it was a major time and energy saver in its own right.

Money could be used as an information feedback mechanism to control the flow of goods and services and also the rate of investment. Figure 2 shows two stages in the path toward financialization. First there was the creation of a money supply that was roughly correlated with the supply of real assets (Figure 2 A). As assets grew so did the money supply. This model, of course, does not address the distribution of either asset wealth or the money representing it. That distribution was probably subject to the same rules that apply today. Those who controlled the social structure siphoned off more assets and their representational form just because they were providing a coordination function that made them more “special” than the workers. The picture started to get distorted when coinage and the use of precious metals took on a value life of its own. Treasure in the form of gold and silver, jewels, etc. captured the imagination of many humans as being actual wealth. This was only possible because humans had developed so many surpluses of various kinds of real assets that the coupling between money stocks and asset stocks became weakened. The era of mercantilism further distorted the relation and money took on a new role as a kind of wealth on its own. Of course the underlying value was always based on its ability to purchase real assets but the strength of that connection was severely weakened such that the amount of money and the amount of embodied energy in assets (related to the work of producing those assets) became semi-independent of each other. In everyday life the prices of things ceased reflecting the true costs of making those things for many reasons. Many costs were hidden or ignored in order to support the notion of making profits. Sheer complexity of products and services reduced any possibility of cost transparency, even for the producers.

What was realized, at some point, was that over time the asset base was growing, both in absolute amounts and per capita. Bankers saw an opportunity here. Banking originally emerged from the practices of ancient granaries in which a portion of the overall stock of grain could be loaned out to new farmers to allow them to start their own cultivation. Surpluses of grain were such in many regions of the world that growth in farming could be easily supported by simply borrowing some seeds and repaying them when the new harvest came in. Of course this was a little risky if there was a bad crop season or the new farmer was not competent. But most of the risk was countered by the sheer amount of grains being stored for all of the other farmers for safe keeping. By the time the new farmer returned what he owed, everyone got their shares back and there was enough left over to feed the granary keeper to boot.

So a system of borrowing an asset, as a form of investment, to generate more assets had been established probably not long after mass agriculture started, say 5,000 to 8,000 years ago. Thus the notion of growth of the economy to keep up with the demands of a market (more mouths to feed) emerged.

Early bankers were not much more than granary managers except that they kept peoples' money rather than barley. Banks fulfilled a purpose in keeping money safe but at the same time accessible to the money owners. Bankers charged a small fee for their service. But as bankers noted that the money kept in their vaults, which actually represented surpluses, seemed to be growing and noting that most people would leave their money alone a bright idea occurred. Suppose a new tradesman wanted to start a business but needed a lump of cash to do so, to buy tools, materials, rent space, etc. Why not dip into the money stocks and take a small fraction out of each savers' account to package a loan for this worthy fellow^[1]. He could pay it back out of his profits in the future, along with interest, and everybody would be happy. In fact, the banker might reward his savings customers by paying into their account a small fee just for leaving their money alone, thus ensuring the scheme would work.

 

Figure 2. Money was created as a means for representing the assets and especially the surplus. Money could be used as a medium of exchange (assets for work/work for assets). A) Money became a dominant medium of exchange as well as the means for controlling investment in new work (the valve objects represent a control based on information, green and purple arrows, from measuring quantities and changes in quantities). B) Once humans noticed that surpluses tended to grow with the abundant supplies of energy and materials, made possible by better technology, they created expectations for future growth in surpluses and so created money representing future assets rather than just current assets. That money could be used to control investments with an expectation of increasing surpluses. Unfortunately, the same money can be used to regulate consumption of non-investment goods and services. Thus emerged fractional reserve banking that had the basic effect of artificially, and for a time, increasing the money supply (Figure 2 B).

 

The idea that money could be created out of a debt obligation caught on in its own right. Before long all kinds of promissory instruments were created to handle different ways of aggregating capital for investments in future earnings. And that practice has not abated to the present. Somewhere along the line financial markets themselves became creators of investment opportunities as when people caught on to arbitrage practices. Since money had no necessary ties to real assets other than through negotiated prices for goods and services, people actually imagined that they were creating wealth by taking advantage of price differences in market valuations. On the surface it looks the same as buying up a good at one price and then finding someone else to buy it at a higher price, pocketing the difference as profit. That's what middle men do, after all. But the good in this case is not a physical product but a piece of paper carrying some nominal value marked in the coin of the realm but having little necessary connection with any underlying physical assets. Stock markets, originally developed to provide easy liquidity for investors who might have to sell their shares in emergencies, soon turned into betting parlors where money was made on betting on differences occurring, not just the differences themselves.

As things became even more complex, and once the pretense of tying monetary value to some kind of physical asset (gold, in this case) was removed, the stage was set for bankers and investment brokers to invent all kinds of markets buying and selling all kinds of instruments (paper) that had nothing to do with the real economy (hard assets, for example). Each sale was recorded as a real transaction in monetary value. So the seller booked revenues while the buyer booked a piece of paper, essentially a mere promise that somewhere in that complex world they could redeem the paper for a real asset, as if it were an asset. Then a funny thing happened on the way to ruin. Paper assets started appreciating much like real properties did. Real estate had always been recognized as becoming more valuable over time simply because the growth in population always meant the demand for space would continue upward in the long run. Appreciation of real estate made sense to everyone, but if it was the case for that kind of asset, why not for paper ones as well?

That is when the financial world departed from the real world for good (see the definiton of delusional!). The financial world expanded the money supply irrespective of the state of the physical economy. Bankers and brokers created money out of thin air, patted themselves on the back, and then paid themselves very healthy bonuses for doing so. Their rewards were not for creating real wealth but for creating the illusion of creating wealth. The expansion of the money supply may have helped some legitimate growth in the physical economy, but too much more went to growth of the financial sector. As this sector reported profits (income) the GDP rose. They made it look as if the economy was growing. Politicians loved it!

The Present

The financial subsystem is essentially a house of cards built on top of a bubble, or a composite bubble (see Figure 3). We got a taste of this when the defecant hit the fan in the housing bubble/sub-prime mortgage markets leading to a large number of bank failures and a substantial bailout for the surviving institutions by governments^[2]. The situation is similar in many parts of the world, not just the US. Europe is in the grip of financial emergencies of several sorts and the EU is constantly trying to apply band aids to stanch the bleeding from really large wounds (Greece, Spain, etc.). There are reports that China is suffering a real estate bubble about to burst.

As in Figure 3, there is a pin (probably several) that are poised to burst the bubble and bring the whole house of cards down. It isn't always possible to see what the pin could be. By definition bubble bursts cannot be predicted so far as what will cause it and when it will happen. All we know for sure is that bubbles do eventually bust and often with devastating consequences.

 

Figure 3. The financial system is a house of cards built on top of the bubbles it created to give the illusion of growth of wealth. The only real wealth that will sustain society is the embodied energy in the ‘real’ assets. What pin prick will burst the bubbles? What happens to the house of cards when the foundation explodes beneath it?

 

The real economy is based on real physical assets plus the capacity for producing new assets. The latter comes down to the availability of physical resources, especially energy. It is necessary that a certain proportion of assets be held as surplus so that it is available to ‘loan’ to ventures seeking to acquire those resources and produce more assets (note that this does not necessarily imply a growth economy, however). But the borrowing is against existing surplus (savings) not speculative assets to be produced sometime in the future.

Where we stand today is that non-renewable resources have been dwindling with over extraction. Net energy per capita, available to the economy, has been declining. So whatever surplus we held, our collective savings, have been eroded such that it was necessary for the past several decades to create illusory assets on speculation that somehow the production economy would once again rev up and produce a sufficient surplus in the future to compensate for current deficits. We did this by reducing much further the reserve requirements on banks and large funds like pension funds that invest in equities. The apparent creation of money then made it possible to continue the illusion of investing in real asset production. But it just wasn't so.

Society made the mistake of treating superfluous trinkets and entertainments as if they were actually assets. They definitely cost money to produce but less in the way of resources. Moreover, they were not likely to contribute in any meaningful way to the future generation of assets. iTunes might make it more tolerable for copy clerks to make it through their mind-numbing days at the office, but that really isn't the same as producing tools that will increase our resource flows in the future. We are spending a lot of illusory wealth on illusory (and hence worthless) asset-like stuff while all the time getting poorer.

The pin poised to burst the bubble could be anything. The recent scandal of Barclay's is being considered as the tip of the iceberg of financial institution malfeasance, fraud, and other illicit behaviors (not to mention just downright unethical ones). Perhaps the house of cards will destroy itself and in doing so burst the bubble. Or the austerity measures the financial world wants to impose on populations may backfire and lead to such a loss of production that the asset base will crumble under the bubbles leading to their bursting. Or the populations may revolt against such measures, and I mean a violent revolt. The riots and demonstrations that have been taking place world-wide may just be the signal of a major bloody revolution in many countries.

One way or another this whole financial system is on the verge of collapse. What happens when it does?

The Future

The collapse of the financial system may be the trigger event that leads to the collapse of civilization. This comes about because our current consumer economy based on capitalist markets can only function with a financial system such as we have evolved. That system has to continue to create money out of thin air in order to keep capitalist enterprises in business, let alone start new ones. And, perversely, the financial system needs capitalist markets to keep itself afloat. They both need the consumer-based economy that simply consumes junk and diminishes resources without any real asset creation taking place.

One thing is absolutely certain. With net energy in decline, and energy being the single most important key ingredient in useful asset production, the machine for producing real wealth is grinding to a halt. And all of the financialization in the world is not going to compensate for the decline in real wealth that is starting to take place. As an example of this decline consider the problems with infrastructure maintenance. The citizens aren't willing to pay more taxes because their real earnings rates have been in decline (in correlation with the decline in net energy per capita) and they feel it. At the same time the infrastructure needs ever more expensive maintenance so governments have to go further into debt just to pay for some minimal amount — and that maintenance isn't proving to be enough! We are in a downward spiral from which there is no recovery. Everyone and all institutions are actually substantially poorer today than just thirty years ago but we've inflated the dollar values of everything (expanded the money supply) such that it hides their real situation.

There is no escape from this spiral. Financialization as a strategy to make us feel like things are still going as they always have (when energy supplies were in the ascendancy) is starting to fall apart. Our politicians (especially the current president of the US) still believe that we somehow have to keep the financial world healthy and all will be well eventually. They are right that if the financial world collapses it will take the rest with it. But they are dead wrong believing that it can be held together until better times come along. Debt and speculation-base financing is betting on a future that will not arrive. There will be no future of such substantial production of assets that it will more than compensate for the decades of reliance on drawing down our surpluses and then pretending there were more surpluses that could keep us going until this economic climate catastrophe came to an end.

One of the things I find interesting in all of this, and something that shows up from a systems perspective, is that the bankers and brokers and traders were never trying to maintain an illusion in any conscious sense. They were and still are just plain greedy. What they are doing is trying to get everything they can get out of the system as quickly as they can. Perhaps subconsciously they realize that this is all too good to be true, from their perspective. So they hustle, lie, and cheat to book huge rewards. But what they are doing is really just a consequence of the nature of the financial system. They are not the causes of our woes. Their behaviors are just more symptoms of what is really wrong. Ironically, for them, their monetary wealth, accumulated at the expense of everyone outside of Wall Street (and London, etc.) will evaporate into the thin air out of which it came in the first place. Ashes to ashes, dust to dust, and air to air. They will end up sitting in their mansions in their exclusive communities staring at bare cupboards just like everybody else. Perhaps the pain they will then feel will be a bit more acute than that felt by the rest of us who are now acclimatizing to the reality that is imposing itself on civilization. I suppose that will make some of us feel better.

Collapse Trigger?

This post has focused on the financial system because it has been in the news so much of late. It really looks like a system in danger of imploding. But it is only one of the many subsystems that are experiencing severe stresses right now. In Figure 4 I give a simplified view of the several subsystems that are showing signs of collapse. Will there be a first one? Hard to say. But something has to give.

 

Figure 4. All of these subsystems are interconnected. They are all under stresses that could cause them to fail. Which will be the first is hard to predict. In fact they could all implode at once!

 

If J.P. Morgan or Barclay's Bank fold anytime soon watch out. Let us not forget the whole area of sovereign debt or private debt. Of course they are all tied to the same basic process. Everybody was borrowing in an attempt to keep the gravy train rolling. But that train is coming off of its tracks as we focus our attention on the Kardashians (I can't believe I even know who they are!) Next time you go to an NFL game or a NASCAR event, do enjoy it. Next time you line up to buy the latest iPxxx product savor the fact that you will be spending inflated dollars on worthless junk. Those things that keep you from thinking about what is really happening are all you have left of the world of our memories. Party on dudes and dudettes.

---

Footnotes

1. The practice of lending probably started before there were granaries or banks. Soon after the advent of cooperatively managed agriculture there emerged rich people who may have made loans to wannabe farmers. The concept of a tenant farmer is probably as old as agriculture itself.

2. It is now becoming clear that one of the real triggers for the bursting of the sub-prime mortgage bubble was the sudden spike in oil prices in 2008 resulting in rapid increases in gasoline prices. People living on the edge found it impossible to both pay their mortgages and pay for gasoline just to get to whatever jobs they were holding down. The oil price-mortgage maintenance domino effect resulted in the collapse of mortgage-backed security instruments and the rest, as they say, is history.

What Am I Watching?

Signs that the End is Nigh

[edit note: Neigh changed to Nigh! OK, it was late, I was tired... So thanks to those who pointed out the distinction. And my apologies to those who came here looking for something about horse language!]

The boundary conditions for human civilization and, indeed, our species have been identified. Even though economists are loathe to admit it, we are in the throes of resource limitations that thwart any kind of future economic growth, that is growth of real wealth not that phoney debt-based paper stuff. No amount of technological twiddling is going to change the fact that we have used up the most easily accessed critical resources. It would take a technological miracle, probably based on a radical physics discovery (a lot more than the recent announcement of data patterns at CERN compatible with the existence of the Higgs boson!) of a completely new kind of energy source, previously unimagined. With adequate energy it would be feasible in principle to recycle much of our current wasted material resources. We could, for example extract fertilizer nutrients from the runoff water from agriculture, thus preventing soil depletion and dead zones in the oceans. It takes energy to combat entropy. Every time concentrated or configured material wealth is consumed and dissipated we come that much closer to entropy's take over. The material flow through in our economic system is largely one way at present, with only minor amounts of things like aluminum and copper being actually recycled.

The major source of energy for human civilization is that stored in fossil fuels. We are depleting those at the fastest rate possible constrained only by social factors I will discuss below. We have reached the peak of conventional oil extraction (in spite of the recent distortions being reported by the mainstream media and people like George Monbiot, the fact is that we are at peak oil extraction) and combined with the declining energy return on energy invested in both conventional and newer non-conventional fuels, such as shale oil, there is no hope that fossil fuels will provide the energy needed for the future maintenance of civilization, let alone growth.

Indeed it is even worse than that. To a very large degree we have been frittering our inheritance of fossil sunlight away on frivolous pleasures, meaningless toys and gadgets, that provide no real gain to our wealth. Consider how many different versions of iPxxs have been bought and abandoned just because of some new ‘design’ innovation. How many ‘smart’ phones have been thrown into the trash heap because the newest models provide wow features? Actually just consider the whole marketing game. Its about getting people to buy stuff they might enjoy (for a little while) but not something they actually need, or is an investment in their ability to live in the future. And most of this stuff is used up or even thrown away long before it wears out. For what purpose?

Well, in a sense it doesn't really matter if we understand the purpose of human profligacy or not. It is what it is and it doesn't look like there is much chance of changing that before it is too late. In fact, if my calculations are right it is already too late so it is no longer worth fretting about.

That being the case I want to share with you the kinds of things I am watching in the world which will mark events and trends signifying the collapse of our global civilization. I don't expect to be around to see the most severe cataclysmic events (although I must admit that at the rates of change we are seeing in many of these processes I may have to re-assess that assumption). Rather I focus on processes and trends and rates of change. I select these various processes based on their systemic interrelations, particularly the kinds of feedback effects we see that will dampen some kinds of processes (like economic growth) and accelerate other kinds of processes (like methane escape increasing the rate of global warming).

The processes I am watching have all been covered in various forms in my previous blogs. What I will be doing now is simply pointing out when I think I see a significant change or event that may provide us with a better handle on how rapidly the decline is happening. I will also examine the systemic relations between these processes and try to assess how changes in one may affect changes in the others. Call it observational systems science applied to the global human civilization. Should be interesting.

The Systems Viewpoint

The processes that most directly affect daily lives around the globe are economics and politics. Those two are tightly intertwined but not in the ways most people think. Political actions cannot make the economy better, certainly not in any permanent sense. They can only make matters worse, and we are seeing this in action right now. Interestingly a number of pundits are recognizing and saying that the president, for example, really can't do a whole lot about certain economic conditions. The recognition of this realization is amplified in the US political season that we all must endure. Discussions about what either the incumbent president or the challenger could do once the election is done abound with an increasing consensus that promises being made now are probably worthless. Neither the incumbent nor the challenger actually have a science-based model of the economy. They are running on pure party-line ideological beliefs. So even if they somehow managed to get legislation through that was designed to accomplish something, say jobs creation, they would fail miserably (in terms of restoring the income potentials of all those wanting to work). The reason is that the economy is governed by laws neither of the candidates understand or are even aware of. And their respective ideologies are actually counterproductive with respect to what actions might actually work.

So I expect to see a lot of mismanagement ensuing in the not-too-distant future. It doesn't even matter which party gets control of the White House. They will both screw things up equally badly, just trying different approaches. We know that the incumbent will do so because he already has, with his views on the financial system favoring bankers and Wall Street. He is in their pockets by all accounts. And the Wall Street bankers and investment houses are guaranteed to steal from the rest of society (of course it isn't limited to Wall Street; Barclay's Bank showed us that it is a global phenomenon so Wall Street is just a symbol for the general condition). Even worse than merely stealing real wealth, bankers create money out of thin air and pay themselves huge bonuses for doing so. They happily create debt and gambling bubbles that are guaranteed to implode on everybody else and pay themselves huge bonuses for doing so. And as our current president has demonstrated, they can do this with impunity because when the defecant hits the fan, the government will willingly bail them out so they can do it again. Dodd-Frank? Give me a break!

The economy is governed by energy flow. So I continue to watch that very carefully. While a lot of analytic focus continues to be placed on peak oil as a critical phenomenon, as I have said the real issue is net energy available to do useful work per capita. That is the limiting factor. I will continue to try and piece together the combined effects of declining EROI and peak or declining fossil fuel extraction as they relate to declining net energy. It would be nice to have some kind of direct measure of net energy, instead of just looking at oil extraction, but that doesn't seem to be technically feasible given our current accounting systems. The only thing we can do is estimate it based on the physical amount of fossil fuels we have and our best estimates for EROI. Still I think we should get some warning signs by that effort.

The major belief structure operating in the world today is that a capitalistic, market-based, consumer-oriented economy is the BEST approach to creating wealth. We have to give credit where credit is due. Once upon a time that was really true, at least before the emphasis started to shift toward the consumeristic aspects. Profit motive, entrepreneurism, competition to drive down prices, and all of the mechanisms that are entailed in this kind of economy did indeed produce enormous wealth for a segment of humanity. But the whole premise is based on continuous growth (for profits to grow) and that required the shift to consumption orientation. In order to keep the engine going you needed to have ever expanding purchasing of stuff and services even if that stuff and services did not contribute one bit to fulfilling lifestyles. Today the capitalist economies are trapped needing growth to maintain investment opportunities against a loss of the very basis of wealth creation — energy. Without the latter capitalism will die.

Watching the political process in this country is like watching the clown act in a circus. All chaos and loud noises. Everybody trying to squeeze into one of two (or three) tiny vehicles that aren't going anywhere anyway. The clowns batter each other with outsized plastic baseball bats just to get the crowd to laugh. Only the general crowd in the US doesn't get the joke. They take everything the clowns do seriously. They think it really means something. Candidates saying outrageous things just to get attention. It is just ridiculous.

The only justification for watching this spectacle is what it can tell you about the human society's likely responses to the traumas that are descending. The Republicans are still denying global warming (though they are starting to come around on the fact of climate change). George Will, today on one of the talking head shows, proclaimed the cause of the massive heat spell covering most of the country was (get ready for this) summer! The depth of stupidity here is mind boggling. Just what kind of evidence do you need to get you realizing that something important is happening, let alone what is causing it? Moreover, at what rate do you need to see these changes taking effect before you admit that there is something different about this time. Democrats, unfortunately, are really not much better in regard to their responses. They acknowledge the science of global warming, for example, but then turn around and ignore hard science when it comes to wishful thinking about “going green”. They continue to spout off about how, if only we would subsidize solar or wind, all of our problems will be solved by technology. And, they think, with no real evidence to go on, that that shift to “green” will create wonderful new, high paying jobs. They are no more realists than the Republicans. And the Libertarians are so completely out of touch with reality that I don't have anything else to say about them.

Then there is the biophysical realities of climate conditions, water over-consumption, soil degradation, food production declines, and biodiversity loss. These are all symptoms of what is ailing us. As with all symptoms we need to monitor them just to understand the progression of the disease. Environmentalist have never gotten past the point of worrying about what humans have done to the environment as being THE number one problem. They won't touch population issues and they are equally guilty of counting on technological solutions as the Democrats, politically. Of course there is a lot of overlap between environmentalists and Democrats so this isn't surprising. Their purposes were well intentioned but the diverted attention from the real underlying causes of our plight. They put undo weight on one of the many symptoms and in doing so alienated a number of people who might have otherwise taken a look at the underlying systemic problem.

Climate change, while merely symptomatic, may be one of the most critical factors to keep an eye on. Radical weather anomalies and general shifts in climate parameters will provide some of the worst kinds of stresses on societies. Populations will be displaced, or more likely due to the rapid onset we might see they will simply expire in place. The energetic (and hence financial) costs of mitigation and adaptation will be prohibitive given the decline in net energy. Thus I suspect there will be little real large-scale adaptation attempted. All one has to do is look at the failures of our governments to simply maintain critical infrastructure now! Where will they get the resources to pay for mitigation and adaptation if the climate chaos is as bad as some climate scientists now claim it is likely to be? We will not only have to suffer political failure but failure of governance in general. Our system of governance is so brittle (and I don't just mean that in the US) that it cannot possibly adapt itself to the rapidly changing needs. Rather we may witness many revolutions not unlike what we saw in Egypt, and likely with similar, though more bloody, outcomes. This is as true for the United States as it is for any other country. The revolutionaries will not be able to do any better and so there could be waves of revolutions as long as there is some energy to drive the effort. But those revolutions will likely destroy the very capabilities of extracting energy and so counteract their own continuance.

I consider the twin (Siamese) predicaments of energy decline and climate change stresses (with all of their ramifications in terms of other vital resource availabilities) to provide the greatest forces driving collapse. So I will keep an especially sensitive eye on developments there.

From a systems viewpoint it appears that the real “cause” of our dilemma is our own mental weaknesses. We are not truly rational creatures. We are subject to thinking guided more by heuristics and producing biases that we nevertheless mistake for rationality (when in fact it is rationalization). Our brains are simply not evolved enough to allow us to override limbic influences and use knowledge-based judgments in guiding decisions. This weakness extends to everything from decisions to buy a hot looking car because a hot looking babe was in the advertisement to choosing a science career because the subject happens to be the hot topic de jour. For that matter it probably guides an awful lot of decisions about what sorts of experiments to do and how to frame the results to put the scientist in the best possible light. None of us is immune from insufficient sapience (except for those rare few), not even the supposed brightest among us. Science, thank the stars, works not because individual scientists are objective, rational beings, but because the process produces self-correction when false understandings prevail. And then there are the financial wizards and bankers — the capitalists who truly believe that their creation of paper assets based on smoke is doing God's work. They just cannot help themselves letting limbic drives take over. Anyone who has spent time in a trading pit knows the meaning of animal spirits.

So I will be watching people. I will continue to observe how people in general react to the various events that portend decay, decline, and collapse. They are in the news on a daily basis at present. But most people go about looking at each debacle as isolated and independent events. I've even talked to people who, even though they think things in general are bad and maybe are going to get worse, still think the main cause is just a string of bad luck events, e.g. the housing bubble/sub-prime market and the gasoline price spike were coincident and the bursting of that bubble just caught Wall Street off guard. Once the housing market bottoms out, we'll get back on track for economic growth again — you know, the normal way. But the truth is that these events are connected at a deep level. My past blogs have attempted to demonstrate that all of these events are rooted in the same basic phenomenon, our imprudent reliance on finite fossil fuels, our imprudent extraction as if there were no tomorrow, and the resulting bursting of the biggest bubble of all, the energy bubble. We are imprudent in all that we do to use that energy, including and especially expanding our populations and profligate consumption of junk just for the sake of consuming. We have no consciousness of the long-term consequences because our brains are incapable, on average, to compute those models.

I think it will ultimately come down to how people react to contraction once it sets in in earnest and the pain simply cannot be ignored. To be honest I have no idea how people will generally react. We've speculated on various scenarios in the blogs and comments, but how could we really know what to expect from a truly unprecedented phenomenon. It is true that other civilizations have collapsed and different cultures have produced different reactions. But in all of those cases the civilizations were fairly localized yet there was knowledge of a world beyond the civilization. People had other examples to look at and other places to go when the going got hard. In a global collapse there are no other examples and no other places to run and hide. Everything and everyone will be subject to similar conditions. And given that the dominant culture of the day is greedy capitalism I suspect strongly that the predominant reaction will be violence, both in terms of attempts to take away and attempts to protect what people possess.

But we will just have to see what happens.

Hospice For Humanity

The business and economics news has been full of reports and analyses of the jobs situation in the US, which may be signaling a continuing weakening economy. Here is what I had to say way back in October of 2009: Jobs: When Will They Come Back? Answer: Never. The basis of my prognostication was extraordinarily simple. Jobs require that there is work to do. Work requires energy flow. Energy flows are on the decline. Ergo: Jobs are in pretty much permanent decline. At least the kinds of jobs we've been used to.

The neoclassical economists and the talking media heads are still puzzling over what has happened, and haven't got a clue about what is going to happen. They incessantly continue to blame (depending on their political leanings) the banks, government overspending and environmental rules, lazy southern Europeans, schools (well actually that one may be legitimate), greed, you name it. But all of these are really just symptoms of something deeper going wrong. Our civilization is moribund and no one seems to realize it. The jobs situation, the financial crises of various forms, are all just symptoms of the disease that will kill civilization and most of humanity. Other symptoms include stupidity and ignorance. It is a genetic-based disease. It is due to a lack of sapience. [Metaphors aside, the root problem is that our species is no longer fit for its environment since the latter no longer harbors growing supplies of high power energy.]

Contraction and Collapse

The reason I don't write books is because I really don't have anything to sell. Certainly not a plan to resurrect a growth-oriented economy. People aren't really interested in buying a book that doesn't at least provide some kind of hope that things could get better. If you look at the vast majority of books on the subjects of peak-this and that, collapse, etc. they all tend to end with a prescription that, “if only our leaders would do thus and so, we could weather the storm, maybe get a little battered, but basically come out the other end OK.” With one exception, even the most doomerish books assume that somehow our species will go on and one day rebuild some kind of society. William Catton's, Bottleneck, is the only book, and Catton the only author, I've read that simply ends by saying that it is too late. We are past the tipping point, and we are going to face extinction or at very least an evolutionary bottleneck event. In the latter case survivors generally form the seed population that will undergo further selection and lead to the evolution of new species (plural as a rule). Either way, Homo sapiens is destined to extinction.

And that thought does not really sell books. I don't know what number of copies Catton has sold, but I haven't seen the title on the New York Times bestseller list and don't expect to.

My message, playing the role of a modern day Cassandra (and there are actually a few of us doing so, like Catton) is basically the same. Civilization is doomed to collapse on a global scale. Humanity is doomed to contraction simply because it takes our modern kind of civilization, based on cheap, high power energy sources, to support the amount of biomass that the human population represents (which includes food crops and animals, pets, ornamental plants, etc.) Civilization runs on that cheap energy and the availability of that is starting into decline. I know the media and so-called experts are declaring that we are awash in oil. Well, in part that is because many folk are already feeling too poor to buy the fuels that come from oil. In part it is because in our desperation we are turning to much more expensive sources like tar sands and shale oils. Even so, the rate of increase in oil extraction is still decelerating relative to what it was even 20 years ago.

But that isn't the real issue. The issue is net energy available to do physical and physiological work. Net energy is what you have left over after you account for all the energy inputs it took to get the next increment of raw energy out and processed to a usable form. In simple economic terms it is the energy profit that is applied to supporting civilization and that profit has been diminishing at an increasing rate over the last thirty years or more. Moreover, the population has continued to increase meaning that there is less per capita net energy. And that is why there are so many poor people in the world. And that is why so many formerly middle class people are getting poorer every day [1].

So I don't write books because no one would want to buy my message. I do this for free in hopes that some of it will make sense and some people may benefit from anticipating the future I see. As always I hope I am wrong.

The title I've chosen for this piece reflects the above sentiment along with an unreasonable hope that somehow enough people will get it and learn to accept reality and get on with shutting down gracefully. Because that is what we are talking about. When people accept that they are dying and need assistance (if not pain relief) to die in dignity, they turn to hospice care. That is what our species should do — go extinct with dignity. We should provide ourselves with a process of contraction that will minimize the hardships of collapse. We should, but...

If Understanding and Wisdom Prevailed

What would a sufficiently sapient species do if faced with imminent extinction? What would a hospice for humanity look like? Several goals might be set forth regarding the desire that the fewest number of individuals possible would suffer greatly. Society would need to begin organizing around the dynamics of contraction in such a way that the ravages of disease and loss of numerous services would be less impactful than if we just sit around and did nothing (or as is more likely going to happen we start killing each other off). There are a number of focal social processes that would need to be strengthened and become the recipients of all our resources.

In addition, another thought arises from the possibility that there might actually be survivors of a bottleneck event who would form the breeding population that just might keep the genus Homo in the game. And that would be to deconstruct the human built world as parts are no longer needed due to contraction of the population. The pieces still represent low entropy materials (e.g. steel and concrete) that could be salvaged and cached for possible future use. These materials exist because we have expended large amounts of energy doing work to reduce the entropy (e.g. going from iron ore to steel). That “embodied” energy would ultimately go to waste if these materials are simply left to decay as a result of exposure to the natural elements (c.f. Alan Weisman's. World Without Us for an examination of how quickly the natural world would overwhelm and reabsorb mankind's handiworks). Properly preserved (mostly by burying) many materials could be protected from rapid decay, thus making them available for reuse sometime in the distant future. Much of our past and current civilizations' energy expenditures have been on the extraction and entropy reduction work that has produced these materials. A future society might be able to reuse these with a lower energy flow economy, one based on real-time solar vs. fossil sunlight.

In this scenario we would consciously (and conscientiously) deconstruct our complex and unneeded infrastructure, carefully preserving the pieces, and, in a sense knowingly let nature take over the spaces that we abandon. We would be doing both our possible successors and the natural world a huge favor.

How could this kind of activity be accomplished? Through manual labor. I am not talking about massive, fast deconstruction (or demolition and clearing to a landfill!) but rather careful, deliberate taking things apart and storing the components, so to speak, so that they can be accessed with manual labor in the future.

What I am suggesting is that our near future economy would change from a growth orientation to a rational devolution with the intent to salvage low entropy materials and minimize harm to still living individuals.

There Will Be Jobs

The key to understanding this is in recognizing that there will be increasingly less high-power energy sources available to power rapid and massive work, the kind we have become accustomed to in a growth economy fueled by fossil energy and machines doing the heavy lifting. We will have to shift more and more to manual labor to perform critical work that is directed at meeting the kinds of goals we have set up. Put simply, the currently out of work youths and even the underemployed middle agers will find there are plenty of jobs available. Its just that those jobs are not going to be glamorous nor will they produce income levels that allow one to live the high consumption lifestyles promised in the past. Basically, and crassly, if you are able to work you will work or you won't eat! If you do cooperate and do your part, your basic needs, and those of your family, will be taken care of. Nobody is promising it will be fun or enriching. But, neither does it necessarily have to be mere subsistence if we are smart about how we do it.

All I am saying is that as society and the human population contract (preferably through natural deaths rather than mass starvation) those remaining and of able bodies will need to carry out specific work aimed at providing the basic needs of life to the remainder. Below is an outline of what I think would make for a feasible approach.

I've boiled it down to five fundamental work functions that will be needed as the energy flows wind down. There will be many job types and specialties within each of these categories. These are just the foci of what social organization might look like.

One further note. As energy flows diminish the possibility of long distance travel and transport will likewise diminish. Population centers will become increasingly isolated and must work toward local versions of the below activities. I have already written about the use of permaculture as a guide to finding local optimal solutions in the face of climate and other resources.

Food Production

I would not be surprised if fifty years hence more than fifty percent of the able-bodied population, that is all women and men between the ages of, say, ten and fifty-five would be engaged in growing food plants, processing and preserving, and transporting/distributing food products. I won't speculate on what kinds of food are going to be possible. I do suspect there will be a good deal less meat in most diets, but that is likely to be conditioned by regional influences such as range land, etc. The mix of vegetables, grains, and fruits will be based on local climate. Those of us in the Pacific Northwest can essentially kiss winter-time tomatoes goodbye (no plastic greenhouses either since plastic is a product made from petroleum-based feedstock), and with a few exceptions we might be largely without tomatoes all year round. Every region will need to find what grows best and what mix of food plants will provide the maximum yield and balanced nutrition.

The important point is that as me move more into manual labor and local production/consumption a significant percentage of the working population will be needed to provide any kind of sustainable supply. And clearly this is the most important issue that will face future society.

I am lumping the supply of potable water into this category as well. Food and water are the most fundamental essentials for life. And adequate supplies are essential for reasonably comfortable living. I would count this focus of activity as central to everything else. And the sooner communities start organizing around the capability to produce food and water, the better off they will be (absent radical impacts from climate changes).

Critical Infrastructure Maintenance

Next in importance is the maintenance of what we will come to recognize as the TRUE critical infrastructure. I'm not talking about highways and bridges, not even the Internet. I am referring to houses and workshops and local roads. I am referring to soils and water catchments. This also includes clothing supplies, general tools, and anything that is needed to maintain a workable and reasonably comfortable lifestyle for the community.

Entropy is a hard task master. It constantly eats away at organization and structure. Yet organization and structure are the very things that define life and differentiate it as a state of matter far from equilibrium. Work is needed to continually combat entropy in all its forms. Therefore some portion of the population will be spending some or all of their time repairing and rebuilding the infrastructure needed to support the living community. The iconic image is the blacksmith. Another is the potter. These are trade specialties, skilled labor, that will be needed at the most basic level of maintaining a working community. If you don't want to work in the fields all day, learn to shoe a horse! Or, something to that effect.

Carpenters will probably be among the most sought after tradesmen. Maybe plumbers, especially if the number four activity (below and discussed above) is successful.

It might take fifteen to twenty percent of the population engaged in these activities. It is hard to say. Again, climate will have a lot to do with deciding on the needed investment. Harsher climates have a greater impact on the decay of structures and tools.

Health Care and Public Health Maintenance

One area that cannot be overlooked is maintaining some form of health care and public health facilities. This might take a rather small fraction of the population to accomplish but its importance cannot be overstated.

In the energy depleted future we cannot expect anything like the current health care or public health systems. We cannot keep our dying elders alive with medications or operations, or whatever it takes. We will revert to the very basics of health care, basic nursing and doctoring of injuries and minor diseases. There will be no annual flu shots, no magnetic resonance imaging technology; really not much more than stethoscopes and tongue depressors. Medicines will eventually need to be manufactured from naturally occurring compounds, like aspirin. On the plus side, people will be so much more engaged in physical labor that they will not be succumbing to couch potato diseases. And, if enough attention and knowledge is applied to the food issue above, i.e. making sure the nutrition is right, and if the labor done is done smartly so as not to be overly draining on physiques and psyches, general health should be achievable. After all we are animals that evolved to deal many threat factors, especially with immune systems that are fairly resilient (especially after we stop pumping out so many foreign chemicals into the environment).

There will be a need for some small part of the population to engage in jobs that would be maintaining public health in the form of sewage treatment (composting!), drinking water safety, etc. They would monitor the community for signs of diseases that might spread and work to isolate those infected.

In some ways the health care work will resemble that done in the 1800s but with a distinct difference. Medical practitioners today can work from a great deal more knowledge than doctors had back then. Most of what gets done in medicine today isn't about just maintaining health in productive people and children. It is geriatric care. It is emergency room care for drugs and bullet wounds and car accidents. It is performing heroic surgeries to remove brain tumors, etc. In other words, much of our health system is devoted to keeping people alive when their problems are largely caused by living the kinds of lives we live now. The pharmaceutical industry makes a healthy profit (no pun intended) by keeping men capable of sexual congress when their libidos have suffered the stresses of modern society.

As the energy runs down two things will happen together. One, people won't have the resource nor lead the complex lifestyles that result in so much of modern disease. Two, we will lose the ability to treat the diseases and injuries that result from the current form of lifestyle. So there will be no way, nor even incentive, to save the lives of people who do not live in moderation and take care of themselves. We are not a frail species. Most of our current health care needs (or wants) are simply the result of living stupidly (and I mean that in the collective sense as much as the individual sense, e.g. the effects of pollutants on all of us).

The main purpose of health care in the energy depleted world will be to prevent epidemics as much as possible. It will be to treat treatable wounds and diseases so as to prevent the deaths of the able bodied and children who will grow into workers one day. Practicing health care will not be easy, nor will it be easy to get used to the idea of not having modern medicines and tests for diagnosis. It will take a few special people who would have the ability to work under these circumstances.

Deconstruction, Salvage, and Preservation

Cities will be abandoned once people realize the food delivery system is no longer going to function. Electricity and water will vanish and it will no longer be tenable to live in these monuments to man's cleverness. At the same time cities contain a tremendous amount of salvageable materials that could be used by the relocalizing communities. But I think more important still is to look at some of this salvage as investments in the future of humanity.

Up to this point readers of John Michael Greer's work, especially The Long Descent: A User's Guide to the End of the Industrial Age would recognize similarities [2]. In the footnote I supply an explanation of some differences in beliefs about just how bad societal collapse might be. Here I want to point out that one of the reasons for doing the salvage isn't just to keep some semblance of civilization going (as I interpret his thoughts). Rather the main reason I propose it is to preserve low entropy material goods for future generations to have available. Presumably a future society of beings better fit for a real-time solar energy world could at least find advantages in using the low entropy materials. They would not have to extract and refine them if they can just dig them up. They might have enough energy resources to shape the materials into useful forms — tools to make life more comfortable.

So I think that the surviving population owes it to the future of a human species (a hopefully wiser one) to make some sacrifices in order to make these kinds of investments. They would think of it as a sacrifice for their children just as many parents have considered their sacrifices made to benefit their actual children.

Coordination

With four interacting but somewhat distinct work process foci there will be a need for tactical and logistical coordination (I have a whole series of articles on systems science, and sapience, indexed here; go to the bottom of the page. Or you can read the relevant work on coordination and management here). From the standpoint of hierarchical control theory (as outlined in the links above) communities will need some kind of oversight from a council of wise elders (for strategic management). But they will also need specialists who understand how to manage coordination between work processes and organizing resource acquisition activities.

In an ideal (but non-expanding) world the coordinators would be chosen from the most knowledgeable and wisest members of the community. In other words, exactly the opposite of what happens now.

Therein lies the rub. All of the above is a rational species and community response to contraction. Such a response would make the contraction far less painful than it might be otherwise. But...

What Will Be vs. What Could Be

Humanity will need hospice care to ease the suffering. We could provide it to ourselves by following a a regimen such as above. No hospice experience is fun. But wouldn't it be nice to avoid the kinds of horror that the alternative brings? Dying in hospice care is at least peaceful, for the most part. Dying alone and under violent conditions is a sad way to end life. So too, for a species. We are the first species that has literally set in motion the very selection forces that will bring our extinction. And not unlike that of the dinosaurs, ours promises to be violent. That is, unless we were to somehow organize our own species hospice care. We are the first species that could actually do that.

Unfortunately, as I have argued often, the vast majority of human beings are neither wise nor understanding. I imagine they will deny any need to consider this concept until they are already suffering mightily and it is too late. I suffer no illusions that a plan of action such as this will be undertaken. I've largely come to the conclusion that there is not one world leader who has the wherewithal to make it clear to the people what the future will bring. They either don't grasp it, or they just want to hold onto a cushy job as long as they can, so are willing to lie through their teeth. You will have to decide about your own leaders, which they are, dumb idiots or lairs. In fact, I've come to the conclusion that just holding the job as leader today means that you are one or the other. Who in their right mind would want to have the job if they fully understood the consequences?

I have once again indulged in a futile exercise in exploring a feasible future that might actually reduce pain and suffering. The collapse is inevitable. The pain that goes with it certain. The way in which it happens is still a matter of choice. But I have no doubt what the majority of humanity will choose. It is sad.

References/Footnotes

1. I cannot recommend this book too highly. If you really want a comprehensive, scientific view of the economy based on energy please read Hall, C.A.S., and Klitgaard, K. (2012). Energy and the Wealth of Nations: Understanding the Biophysical Economy, Springer, New York.

2. Greer, J.M. (2008). The Long Descent: A User's Guide to the End of the Industrial Age, New Society Publishers. Greer and I see many aspects in similar light, certainly the need to relocalize and turn to permaculture and simpler living as a strategy for continued survival. On the other hand, Greer believes in something he calls catabolic collapse by which I think he means a transition to a lower energy life, but not a catastrophic collapse of society. He bases his arguments on the history (or his understanding of it) of prior civilization collapses which have never been outright catastrophic. But what I think he hasn't taken into account is that those prior collapses happened in the context of civilizations that were mostly, if not completely, dependent on real-time solar energy inputs, and were localized to regions surrounded by non-collapsing societies. The latter provided a buffer in the sense of leaking energy into the collapsing civilization, thus keeping the latter from sheer collapse. The situation today is much different. Our world is globalized to the extent that there are no buffers surrounding us. Today it is more of an all-or-none situation. Unfortunately neither he or I will be able to compare notes when events unfold.

Update and a Good Link

As promised I've been sparse in posting, but it is because there is so much going on in the systems science arena. Today I will be submitting an article dealing with the framing of sustainability by the principles of systems science to a journal. I will write a summary of it one day. Can't post it as is because the journals stipulate that a submission must not have already been published and blog posts sometimes are treated as publication! Who knew.

Sustainability, as treated in the scientific literature (as opposed to how businesses and politicians use the word), is an extremely transdisciplinary subject. It requires knowledge of so many different aspects. Biophysical economics, which is very much transdisciplinary, is essentially the best framework I can suggest for understanding what is feasible sustainability. And BPE takes its roots in systems science, particularly systems ecology. Ergo, I am suggesting that the principles of systems science can directly provide a general framework for tackling problems in sustainability science. Wish me luck getting it accepted!

This Friday my campus will be hosting a workshop on systems engineering in an undergraduate degree program. We have a number of people from industry who will be sharing their ideas about what students need to learn to be effective systems engineers in their companies. We will also have representatives from education who will present some ideas about how such a program might be implemented.

Meanwhile I want to provide you all with a link to a very good book review of Charlie Hall and Kent Klitgaard's new book, "Energy and the Wealth of Nations", by Dick Burkhart. He wrote it for Amazon.com but I thought it captured the essence really well and asked if I could host a copy and make it available to my readers. You can find it here. Dick taught math at UNC Wilmington for a number of years and then went to work for Boeing. He has been following the energy situation for a long time and really gets the problems we are facing. I had been thinking to write a review, but 1) as most of you know I tend to get long-winded and 2) I'm probably biased having spent time with Charlie and think he is a genius!

So keep the (systems) faith. I will be writing more as time permits. I'm so fed up with the political process in the USA that I just don't know what to say anymore. There is just no honesty or knowledge out there, either in the politicians or the public, and it makes me sick to contemplate what has happened to get us to this point. Do you really wonder why I write this whole "system" off?

Revision to My Systems Science Slides

From comments given here at QE, in e-mails I have received, and from colleagues, I got the message that maybe tackling global warming might be a reach beyond! Taking all of that into consideration, but especially doing an informal focus group test (with students), and in thinking through how I would actually get through examples, I am happy to announce a revision of my original slide set for the upcoming summer course I plan to teach!!!!

Actually, I can't believe, in retrospect, that I hadn't thought of this before. But it hit me like a bolt of lightening last night, and I have been feverishly working on the revision all morning. Instead of focusing on a scary PROBLEM, I've settled on focusing on ... (drum roll) PERMACULTURE.

I've been preaching the virtues of permaculture as the application of systems science (specifically systems ecology) to achieve sustainable living for a long time now. What better model to use in explicating the virtues of systems science than this??? Rather than talk about a downer predicament that might not really have any solution, systems engineered or otherwise, and come to the end of the course without answers, wouldn't it be better to present an already worked out "solution" to sustainable living as a framework for learning about systems science and thinking?

Many heartfelt thanks to those of you who urged caution and reconsideration of my chosen motivating topic. I actually think I will bring much more passion to the course as a result of switching to permaculture. I'm even thinking about some field trips to see local permaculture operations.

If you want to see the revisions the revised slides have replaced the old ones at:

Thinking Systemically I

Thinking Systemically II

George