Question Everything

Have a reflective and hopeful Thanksgiving

My own approach to this holiday is to, indeed, remember how thankful to the Universe and evolution for creating the conditions under which I came to exist and might have come to glimmer just a bit of how things work. Mostly I think I am thankful to have a naturally curious mind and have so many questions to ask. OK, maybe I am just a monkey named Curious George, but my life has been full. And I fully realize what incredible fortune I have had to have lived this particular life.

For much of humanity, no matter the income levels in absolute terms, we have had a glorious ride on this planet. Now it is time to start working hard to give back. We will have to give a whole lot back. The party is over (as Richard Heinberg said). Now its time to clean up the mess.

Regards to all readers, no matter your political persuasion, spiritual beliefs, or any other ideology. Ask questions.

George

Its the net energy, stupid!

Recall Bill Clinton's famous rejoinder to George Bush the Elder? "It's the economy, stupid". Well, it is the economy, but the economy is based on net energy flow for the production of all things important to human existence*.

A few blogs back I wrote about the computer model I've been developing with Charlie Hall, here at SUNY-ESF. In it, I mentioned the fact that net energy is the stuff that drives our economy, not the gross energy such as barrels of oil. Except for heating oil, which isn't actually the stuff out of the ground, we refine oil to usable forms like diesel and gasoline. It is those products that we use and it still takes some energy to transport them to the points of use. So it is the net of the gross energy (e.g. barrels of oil, or tons of coal) minus the energy invested in extraction, refinement, and transportation that really counts as usable in the economy.

As I worked more on the paper that Hall and I will co-produce, I began realizing that this is much more significant than anybody seems to have realized. As I outlined in that prior blog, if gross energy is near or at peak (and some say it may be past a theoretical peak; that we are in a bumpy plateau due to the fluctuations in the financial markets) then this means that we are already passed peak net energy. Moreover we long ago passed the point of inflection where net energy ceased to be rising exponentially fast and started to decelerate (the curve transitions from always going up faster in each time increment to going up more slowly in each time increment). It was that point of onset of deceleration that was the beginning of the end of the party, the energy consumption binge. That point appears to have been about 40 to 50 years ago in my model. Even accounting for some increases in energy efficiency due to improved technology, that probably translates into more than 30 years since the onset of the decline in net energy.

If this proves to be the case we are in very serious trouble (unless someone discovers some new magical source of energy like cold fusion). The problem is compounded by the fact that we haven't actually been paying attention to net energy available per unit time. We count barrels of oil and tons of coal and cubic feet of natural gas, all measures of gross energy, and have obsessed on the peaks of production of these, since they are finite resources. It should be obvious to all that peaks of production of raw (gross) energy are extremely worrisome since over 80% of global energy use comes from fossil fuels. As I have noted many times, the build-out and scale up of alternative energy capital equipment and supporting infrastructure, to replace fossil fuels in the time remaining before the law of diminishing returns catches up to us, is, for all practical purposes, infeasible (I note that I see more similar sentiments being expressed in the press these days as more scientists are coming to similar conclusions). 

But focusing on gross energy fails to recognize and detect the impact of what is happening with net energy flow. That is what really impacts the economy. And if my model is even a little bit right on this, then my suppositions about reduced energy flow being the root cause of all the economic shifts we've been witness to for the last several decades is greatly strengthened. Globalization, for example, was more about finding cheap labor to replace expensive energy for machines and expensive American labor that needed to be supported in energy-hungry lifestyles than finding new markets. The current housing bubble fiasco and Wall Street excesses, as well as so many corporate frauds being foisted on the American and world's working class are nothing more than attempts to hide the fact that it is increasingly hard to produce real assets because the net energy is diminishing! The growing disparity between the richest 1% and everybody else is not just due to greed. It is also a result of the pie shrinking.

So-called "green jobs" can't be counted on to actually reverse this situation even if implemented in a new jobs stimulus program. No one is going to get rich or make a great living doing green work or producing green products unless they magically figure out how to beat the 2nd Law of Thermodynamics. Going green will, at best, partially stanch the blood loss. But with net energy going into decline (if we have already passed peak net energy) there is no physical way to make more wealth tomorrow than we made today. We cannot grow the asset base any more. Period.

The point of this research is that we had better, start to focus on measuring net energy flow to the economy as a function of time to see if we are approaching, at, or passed the peak of production. We need to know and we need to know now. The policies we adopt are critically dependent on knowing the situation.

But, you say, George, don't be naive. Our leaders don't do anything right now even knowing that peak oil is upon us. Why would you expect them to do the right things knowing peak net is passed? And of course this is the real fly in the ointment. Political will is weak. Political wisdom is absent without leave. Political hope trumps science even while the head politico of the country promises us science will lead policy (evidence against him is the continued hope that 'clean coal' will save the day). Even so, I will pursue understanding. Who knows, maybe when the SHTF for real (look for the next even deeper recession coming soon to an economy near you), then TPTB will realize the errors in their ways and start listening to us scientist in earnest. Right. And monkeys will start to fly out of my behind (thanks to Mike Meyers for that disturbing vision).

[*Edit note: In my haste I forgot to tie the title into the text! So the first paragraph attempts to rectify that oversight. Apologies to all readers who have already visited here.]

Acid Test Results - A Post Mortem

What happened to change and hope?

When Obama was inaugurated I posted my thoughts about the likelihood of the Obama administration doing the right things: This is the acid test. In it I said "If Obama can't pull it off, no one can I suspect."

Obama was clearly a different kind of politician, or at least seemed so in contrast to the other candidates and the previous administration. I think a large majority of us looked upon his election as a real relief. My own thoughts were that now we might have someone who would dare to tell the truth about climate change and energy depletion and would use the bully pulpit to promote real action. Of course I realized that the vast majority of people who supported Obama had something a little different in mind. For them the issue was getting the economy going again, ending the wars, and basically returning to that seemingly prosperous time of the late 1990s. The majority wanted and believed in business as usual (BAU) only colored green somehow. I just wanted him to address the fact that we would never go back to BAU, even green. The days of cheap energy were over and the sooner this was acknowledged the sooner we start to take actions that might spare us the worst possible outcomes. I reserved the right to be skeptical, of course. That is why I called it the 'acid test'.

In Feb. I revisited the situation in The acid test revisited. There I gave the President good marks for choosing the right problems to tackle, but had to slam him for his objectives. My greatest fears were being rekindled by his appointments to key economic positions. As is now all too apparent the positions taken by, Treasury Secretary Geithner, National Economic Council Director Lawrence Summers, and the other White House minions, along with keeping Federal Reserve Chairman Ben Bernanke in place have led to a crises in the real American economy — not the bankers and Wall Street jockeys mind you — with real unemployment at something close to 17% (the government statistics ignore those who have given up looking for jobs).

Actually I reported the final results of the acid test back in August: Is Obama passing the acid test? I pretty much wrote him off since the stimulus package was clearly designed to help the fat cats and not very geared toward the would-be working stiffs who were losing their homes. Now some thoughts on the post mortem of American politics and governance

Broken political process, broken governance process

The skill set needed to win elections isn't the same skill set needed to govern. That is the great flaw in the American political framework. Whereas partisan politics are useful for sorting out the issues and debating the qualities of candidates during primaries, bringing the same partisanship (based on pure ideology) to the Senate floor is completely wrong. Governors need to be more like scientists, look at and use the best evidence available to debate legislation. Then there is the situation with lobbyists. Once upon a time, lobbyists sort of did provide legislators with information. Unfortunately as TV campaigning became more expensive and lobbyists started providing more than information the whole process broke down. Getting elected meant collecting lots of money. And it was the monied interests who could field the best promoters/lobbyists. Now the game the politicians have to play is completely different from what it should have been.

One of Obama's campaign promises was to do something about K Street. He could certainly ban the lobbyists from the White House. That would be a start. But it never happened. Indeed what we've witnessed in the on-going saga of health care reform is an elevated role for lobbyists in the process. Sure Obama may argue that looking for a compromise on multiple issues, like the public option, will require all parties cooperation and he would, perhaps, assert that he has to invite the various business interests to the table to hash things out. But is that really true, or is it just convenient?

Obama promised change; change we could believe in. Today there are quite a few dissatisfied folks who have yet to see any results of change. Right now it still looks like the fat cats rule and are going to increase the disparity in incomes between the rich and everybody else.

I suspect it is all part of an intentional illusion, designed to lull the public into waiting just a few more years until the real shit hits the fan. We have been fed the story that if we can just get the economy going again, all will be well. But it is crap.

Trying to restore to a growth-oriented, consumer-based economy is impossible. Growth and consumption depend on cheap energy flowing through. And we have long passed the point at which net energy flow is growing faster than we can produce assets. Indeed, for all we know net energy flow could now be in decline. We don't measure it in any meaningful way. Everyone in the energy business has focused on gross oil production and oil prices. But it is the net flow that powers the economy, that drives the production of wealth. And with the peaking of net energy from all sources without a substantial and expensive crash build-out of an alternative energy infrastructure, we will never be able to recover the flowthroughs needed. Ever.

The old economy is never coming back. We might restore some segments of the old economy, as now the bankers and Wall Streeters seem to be doing OK. But it will be very spotty and short-lived. The financial system is ultimately based on the real asset economy even if it has become over abstracted from its basis. So even if the banks are reporting profits now, even if the stock market is up, it won't be for long. You can't create wealth without increasing energy flow. It is just that simple.

And Obama seems oblivious to this. All of his financial advisers are oblivious. The majority of citizens are oblivious. The corporate giants are oblivious. Or maybe instead of going to regular school and learning some basic science all of these people went to Hogwarts and learned magic. Maybe I and my colleagues are the only ones who don't know that you really can have a free lunch; that you really can make something out of nothing.

An alternative hypothesis, one that keeps the illusion of hope alive, is that Obama IS aware and is blocked by potent forces that prevent him from telling the people the truth. It is easy to imagine the power brokers (Bilderberg conspiracy anyone?) using Obama as a perfect puppet, keeping the people filled with hope while all of the remaining wealth is confiscated by the rich and powerful. Because some of these power brokers must know the truth. It is just high school physics for god's sake. What would you do if you were a master of the universe and if you knew the world as we've known it was coming to an end; that all the wealth that would ever be created would soon be all there was? If word got out there would be a concerted attempt to hoard. There would be violent competition for the spoils. The only way to prevent that would be to keep everybody hoping for a better outcome by telling them that such an outcome was still feasible. Then by the time it became clear to all that it wasn't, it would be too late.

These ideas are floating around even now. It is pretty damn hard to explain the failures of governance and the disappointment in Obama without invoking some kind of conspiracy theory. Most people already succumb to the feeling that their lives are fated (ill in this case).

Personally I don't know. I don't have an explanation. I just know that we are still headed at pellmell speed toward a gigantic cliff and there is no attempt to even test the brakes let alone push the brake peddle to the floor. We are either in the hands of conspirators or the hands of idiots (or as I fear, idiotic conspirators!) But then, I'm the one who has been claiming all along that humans are just not very sapient after all.

Abstracting labor

Let me introduce Steve^* the worker. Steve is a typical human being who will take a role in the center of all of our abstractions. This is a person-centric view in accord with our Energy Cocoon. Here we see Steve as having a job for which he is paid a wage, some means of turning around and purchasing things he needs and wants for himself and his family. That is, he is paid if he does a good job.

Steve's job entails operating a machine that transforms inputs of energy and raw materials into a finished product with embodied energy value. Steve is skilled in that he needs to observe how the machine is performing and issuing commands to the machine to make sure it is producing an optimal product. This is important because the Boss is monitoring the product quality in order to make sure the customer is getting a good product. The customer will pay for a good product, which is income to the company (as represented by the Boss). In turn, the Boss pays Steve a wage that he, in turn, can use to purchase necessaries like food. Steve needs food to be able to perform his duties (which entails living at home and supporting a family). Both machine and Steve give off waste heat and waste materials. We won't pursue that notion any further.

Note Steve's boss. Don't make too much out of the fact that the boss is frowning. Bosses always seem to frown. His job is to monitor the quality of Steve's work, sell the product to a customer, and receive an income (payment) from the customer. He keeps some for running the rest of the operation, some for himself, and pays Steve a wage along with giving him 'directions' or commands regarding any quality or rate of work issues. Like Steve the worker, the boss needs to eat and eliminate wastes too.

This diagram represents a more modern view of labor. The machine could be anything from a mill, a press, to a computer. It could even be a whole department of a more complex company. The central issues are:

• the machine accounts for a larger percentage of energy/material throughput than does Steve
• even so, Steve has an energy/matter flow through his subsystem
• Steve's role is to manage the machine according to some preordained quality attributes
• the machine acts as a work amplifier with Steve providing the control current

In olden times, before machines that took significant external energy flows to operate, a worker in Steve's place supplied the majority of energy and his efforts went to applying one or more hand tools (machine) to the production process. And he still needed skill to make sure it was done correctly. The situation is captured very well by the story of the weaving loom (see: Wikipedia article). Before water mills were employed to provide the working power to looms, women (generally) had to operate a foot peddle to move the arms of the loom separating the threads. I suspect it was hard work. Later, water wheels provided motive power and the machine age using external energy was being born (same story for windmills in Holland, and even earlier uses of animals to walk around a central hub creating radial force to mill grains, etc.) Things really got going when Frenchman Basile Bouchon invented a paper roll control device that was used to manipulate the threads without human intervention, which led eventually to the Jaccard loom, controlled by punched cards using essentially the same principle but with more reliability. Incidentally, the Jaccard cards were the predecessors of the IBM punch cards used in the earliest computers!

If you read my blog post, "What is value?" you may recall the labor theory of value, which supposes the value added to a product comes from the efforts of the laborer. In olden times that was the case. Now, what are we to make of Steve's situation when the means of production are more largely represented by the machine and its ability to use external energy, like electricity, to do the heavy lifting? [Note the similarity to of the above figure to Figure 1 in the prior post. One of these days I will consolidate the different views!]

Suppose, for a moment, that the product being produced by Steve (with machine) is essentially what it was when Steve's long-ago predecessor made it by hand. Then it is clear that the addition of the machine and its energy input is what we mean by improvement in technology and productivity. Basically Steve can make many more widgets per unit of time than even a small army of workers could have done in the olden days. Steve needs a different set of skills to control the machine than was needed to pound the hammer to form the widget. But it is possible that the skill level and complexity is about comparable to what his predecessor needed. What we have done is to substitute a machine and new skills in operating it for that small army of workers producing by hand. If we hold the volume of production constant, i.e.., same number of widgets per unit of time as in olden times, have we merely substituted one form of input energy (external to the machine) for an equivalent amount of input to the workers in the form of food? It is an interesting question. [Another interesting question is what happens when the skills needed to operate a machine are significantly less than in olden times? Bosses still lay claim to the worker's time, but the effects on workers can be demoralizing and sometimes dehumanizing. I'm reminded of Charlie Chaplin in Modern Times.]

One of the things that has motivated bosses to invest in machines that effect this kind of substitution is the perception, right or wrong, that the productivity of a machine is preferable to having a small army of workers. According to financial analysis, it is cheaper and therefore better for profits (I'll ignore some other very valid arguments such as the fact that an automatic machine often improves quality while increasing the rate of production). Investment in a machine can be shown to payback at a better rate than if the boss continued paying out wages to the displaced workers. Yet I wonder if this analysis only works in the case of a growing business and economy. Isn't it the case that the best justification for automating processes is that you can produce more per unit time and thereby increase your sales? Buying another machine is certainly preferable to hiring many more workers who might or might not be adequately trained. It seems the whole growth orientation is a stronger incentive for bosses to lay out the investment in capital equipment of this sort.

Back to Steve. What should the Boss pay Steve? Surely he cannot earn the same wage as was earned by the small army of his predecessors even though he is producing the same number of units per unit of time. There would be no incentive for the Boss to invest in the machine if he ended up paying out that much money still. So Steve will make something considerably less than the sum of what his predecessors made, the difference being accounted for in the investment in (and maintenance of) the machine plus, more than likely, a nice increase in profits, a point that has always stuck in the craw of Marxists.

What Steve makes is largely a function of what Steve needs to earn for himself and his family. But, obviously, there will be a lot of room for interpretation of need here. This is actually one of the areas where market mechanisms have worked rather well historically, except when Bosses, or employees like Steve, get greedy! Steve may have had to invest some of his time and energy in learning the skills needed to run the machine. He will tend to put a, perhaps, higher premium on the value of that investment in his salary calculus. At the same time he will be competing with many other potential workers who could try to under bid him to get his job. But if he is highly skilled the Boss is going to think twice about firing Steve and hiring someone else whose skills are unproven. Uninterrupted quality production is generally worth more than the differential between what Steve is making and what someone else would make. Generally, through the jostlings of the labor market a 'fair' wage is struck between Steve and the Boss and both are satisfied with the arrangement.

Unless, of course, one or the other, or both do get greedy, which is not uncommon. Human nature, being what it is, is easily tempted to try to eek out that little extra. The Boss may want to replace Steve with cheaper labor or Steve might demand more wages regardless of any actual increase in his contribution to value added (there is always the cost of living/inflation argument; but what most people don't give much thought to is the fact that when workers get raises, to supposedly cover the cost of living increase, they are simply contributing to inflation!) We can think of all kinds of fly's that get into the ointment here. The system is already sufficiently complex that information might not be available to all parties. And there is that human nature element to contend with. The only worker not causing trouble is the machine. That is another reason Bosses like them.

Somehow, through the magic of accounting (both financial and managerial) these issues get sorted out. The Boss won't stay in business if his wage costs exceed their fair proportion of total costs. Unfortunately, cutting costs by eliminating workers is the easiest way to get control of costs. If the company goes out of business, no one wins. The accountants keep careful track of costs and income to make sure the arrangements all work out. Unless they get creative like the guys at Enron and Arthur Anderson!

But let's, for the moment, say that generally everything tends to work and Steve gets paid something reasonable, the Boss makes a reasonable profit, and the customer is happy with the widget. A remaining, very important question is: "What is the value added by this whole arrangement?" In other words, how shall we establish the price of the product? This is where the market isn't always our friend. In a barter system, in days of yore, everyone had a pretty good idea of what things were worth to them relative to the value of what they produced for trade. One cow should equal two goats. The value of the products were transparent and while it was still human nature to dicker over details and try to fudge a bit of profit, in general both parties came away relatively happy with the trade. Even when comparing apples with oranges, or rather arrow heads with beaver skins, people could gauge their own efforts, and their need for the other product and come to a sufficiently equitable agreement.

But the situation gets more clouded when external energy, machine work, and machine operation skills come into play. Machine skills necessitate specialization and thereby preclude a general understanding of effort expended by the laborer in making a product. On top of that, as soon as bosses came into the picture, ostensibly to organize the company and coordinate the activities, the value added to create more complicated products became increasingly hard to judge. [Incidentally a very similar argument can be made about modern public education. Teachers aren't exactly using ordinary machines so much as new complex organizations (schools) to produce their 'products'. It is even more complicated to determine what the quality of the product is (standardized tests, in spite of everything people want to believe, tell you nothing about the value of the education received) and what is fair compensation to teachers for their efforts. I, of course, have my biased opinion on the matter!]

Today, how do you know how much you should pay for an iPod^TM? All you really know is that you perceive that you have some discretionary income to throw at entertainment valued products and services. And there is the market. Somehow, magically-seeming, a price is set and people flock to buy at that price. The bosses attempt to keep prices reasonable so as to optimize sales volume and profits. If competitors come into the market that is supposed to drive prices down (but what about quality issues? Bosses still like the same profit margins, so something has to give.) But the reality is that no one has a real clue what anything is worth any more. Its all a big game we play and there are some real winners (windfall profiteers) and many losers (also known as consumers).

Where is Steve in all of this? Well the boss has to figure out how to fight off competition and lowering prices is a handy tool. Unfortunately that means margins are going to be cut. One solution is to grow the capacity by adding another machine and one additional laborer (of course it isn't at all that simple, but this is an abstraction after all). The increased volume at a slightly lower margin can compensate for the profit losses per unit. This is the growth strategy. Another strategy is to convince Steve that he is paid too much for the current market conditions and for the good of the company as a whole (these days meaning the bosses bonuses) he needs to take a pay cut. More often than not that is a crock. And Steve generally knows it.

Where does all this leave us? What I have tried to do is give a small demonstration of how our modern complex, machine-based production of goods and services has blurred the image of value, costs, and trade. Economists recognize this blur and seem to be satisfied with letting markets tell us what things are worth — a very lazy approach in my view. We need a tool to help us do the hard work of understanding. If we harken back to a simpler time and construct an abstraction of workers and bosses that captures the relevant relations between energy, work, skills, materials, tools, wastes, and products, and then use that abstraction to study modern work processes, especially incomes in terms of needs, wants, and fairness, we might stand a chance of grasping our current situation much better.

That's the idea anyway. We are not much different beings than we were thousands of years ago, before the agricultural and industrial revolutions. Our needs are the same even if our opportunities for enjoying the benefits of the machine age have grown immensely. So our psychological proclivities today are about what they were then, but with, perhaps, some new temptations and certainly new challenges for understanding. But in the end, the energy and material flow budgets have to balance out. What someone gets from the pool of assets our economy creates probably should be based on their contribution to the work processes they control. The boss probably does have a more complicated job than does Steve. So it doesn't seem untoward that he make some more income than Steve. But it is unlikely that the bosses value added to the whole operation is hundreds of times greater than is Steve's. What the abstract Worker Steve (and his boss) can do is show us what we need to look at in analyzing work flow and compensation flow. It also gives us a handle on valuing products from the standpoint of external energy inputs through machine labor. In a future post I will take a closer look at the role of worker skills and investment in training a bit more closely as we try to figure out what it means to be paid fairly for one's work.

Our current economic views have over abstracted to the point where we have no clear insights into costs, prices, values, and what information flows would provide those insights. And that over abstraction has gotten us into a lot of trouble, both socially and ecologically. This simple abstraction takes us back to fundamental relations that have never changed over history. It is another example of a systems approach to understanding our world.

Next, I will examine Steve using some of his income for purchases, finding out he doesn't have enough saved from prior earnings, and goes to a banker because he really wants a boat.

---

^* No particular significance to the name Steve. It just popped into my head and sounded good. Of course who knows what devious thoughts are going on subconsiously?

Over abstraction redux

From a colleague's e-mail:

George,
In your blog about over abstraction you made a big deal about consistency, at least in the realm of math. The whole point, I thought, was to warn against abstractions that were more wishful thinking than real. But your last blog on your abstract economy model, isn't that in danger of over abstraction? In other words, are you failing your own consistency test?

Let's see if he is right.

My colleague is more of a mathematician than am I, so he naturally focused on that part of the blog. But my real point was more about how over abstraction leads to an inability to ground an abstraction (eventually) in reality. I claim that my abstract economy model is grounded in that it starts with physical principles regarding work and energy flows. That part of the model is only abstract in that I did not attempt to parameterize the flows with any real time scales since there is much we don't know about actual peaking of the fossil fuels. As far as the depletion dynamics and the increasing difficulty encountered in obtaining the next unit of gross energy, that part is real and has been demonstrated for oil in several countries, including the United States.

The real abstraction starts with the idea of assets and their production. In a sense my colleague is correct. I have substituted a wholly abstract relation for the real one and there is no guarantee that I did it correctly. However, and this is the beauty of science, the abstraction is testable in the real world. We can collect data and see if the relation holds in the real world. In fact, one of Charlie Hall's grad students is doing just that. He is going to look at global steel and concrete production as surrogates for the broader base of assets and compare them with net energy production based on declining EROI for the last fifty years. Our hypothesis is that during the last twenty years, or so, the gap between net energy and steel/concrete accumulation (measured in emergy units) has narrowed or actually crossed over as per the model dynamics. If so, we will have made a beginning case for the reality pointed to by the model. It will not have been over abstracted. If not, then we go back to the drawing board. What we don't do is build an elaborate theory of economics out of a simple model without ever knowing if it corresponds to reality.

Of course, some will argue that economists followed the same path. They are forever testing their hypothesis by collecting data and plotting it to see if their projections match the regressions they come up with. And that is partially true. But it points to a subtle error in doing science that I hope we can avoid. It will be hard because scientists can do it unconsciously. And that is picking data that confirm the hypothesis a priori. It takes a lot of caution, skepticism, and eye balls to avoid the pitfalls of such errors. My main take on practitioners within many mainstream schools of economics is that they so thoroughly believed their school's dogma that they were more like religious zealots than scientists in pursuing the truth. Once again, witness Alan Greespan's confession before Congress that he was in shock that markets didn't work the way he had always believed. [Note: such zealotry pertains particularly to Randian market fundamentalists who are so convinced of the ability of free markets that they never question anything about the premise. The parallel with having a religious belief is stronger still. Since there never has been anything approximating a truly free market, just as there has never been convincing evidence of knowledge of God's will, there is nothing to refute or disprove.]

Time will tell if my abstract model of the economy is too abstract. One hopes we will know sooner than later.

What this has gotten me to thinking about, however, is a further explication of some other abstractions that can be used to build more detailed models of the economy. I've already written about the abstraction called money, for example, and this is along the lines I have in mind. I want to further explore debt as a set of layered abstractions on top of money. The simplest statement of this is that debt represents a promise to pay back a monetized value at some specified point in the future. In my next blog, assuming real world events don't intervene, I will start looking at debt and jobs/income as abstract models in the hopes that we can see a way to better understand our current predicaments in the financial and jobs markets.

Energy and the economy

Report on My Activities at SUNY-ESF

As many regular readers know I have been in Syracuse, NY, at the State University of New York, Environmental Sciences and Forestry (SUNY-ESF) working with Dr. Charles Hall on biophysical economics. I've been here since Sept. 15 and it has been an absolutely dream kind of sabbatical leave. I've always thought of myself as a student-for-life and a PhD was my ticket to being able to devote my life to learning everything I could that seemed important to know (see my post: "Subjects of Interest").

I have long had an on-going interest in how energy and the economy related to one another. That is based on a very simple observation: it takes energy to do work, and the economy is nothing if not about doing work to create wealth. Therefore, energy must lie at the heart of how the world's economies function. Realizing that the vast majority of energy used by modern industrial societies, and those wanting to become industrialized, comes from fossil fuels, and fossil fuels are a fixed, finite resource, it long-ago occurred to me that industrial economies could not be sustained. The fuels are going to eventually run out. This was even before greenhouse gasses and global warming had come to the fore.

Over the last several years my interest in energy and the economy has been rekindled by the advent of peak oil. I've been spearheading several efforts to get energy systems curriculum into higher education and started exploring research questions that I might pursue. Several years ago, while reading various articles in The Oil Drum blog, I encountered the concept of energy return on energy invested (EROI or EROEI), which I found comported with my own developing ideas about the possibility that some of the proposed alternative energy methods might not actually be sustainable if it took more energy to build the systems than they would contribute to our energy needs. The concept was the brainchild of Charlie Hall who had developed it after years of studying energy flow in ecosystems. He had learned his trade from Howard T. Odum, the world famous ecologist who pretty much invented systems ecology.

Objective

Originally I had several objectives in coming here to learn about EROI analysis and how I might use it to determine the real sustainability potential for various alternative energy systems. I had built a basic model of what I called a sustainability criterion. What the model was supposed to do was determine if the total energy output from a system, say a photovoltaic (PV) system, would be enough to not only supply the user demand, but also produce enough excess power over its lifetime to feed into replicating itself. Imagine a solar PV manufacturing plant that was run entirely from a PV array. But you would also need to run the parts manufacturing plants from PV arrays, do the shipping using energy derived from PV arrays, and, in fact, run the farms that supplied the food to all the workers using PV arrays. Not so simple.

The motivation for wanting to know if many PV arrays could be generated from a few such arrays is actually essential in knowing whether or not PV is truly sustainable. Of course the above scenario would have to be modified to recognize that PV provides intermittent power, so all of those operations would have to have backup power supplied from the grid. But this would be borrowed power that would be paid back when the sun was shining so that the net effect would be as if everything was powered by PV (e.g., wind and nuclear might also contribute to the grid providing an array of sources to cover each other during down time). Right now, all of the manufacturing of wind turbines, solar collectors, etc. is actually powered by fossil fuels or existing hydroelectric. Fossil fuels are the only way to transport parts and finished products as it stands, and coal or natural gas are burned in most Midwest, southwest, and eastern states to produce electricity. Thus the whole alternative energy industry is currently subsidized by fossil fuels and it is by no means clear — no one has demonstrated with data — that these alternatives could take care of their own power needs while still building out the needed capacity to run the economy.

I came here with the idea that I would learn how to apply EROI methods to the analysis for data to fuel my model. But what I learned is that this is a daunting task. As the above example suggests, the web of interrelations between all the manufacturers, shippers, suppliers, materials extractors, even the food support system for the workers is extremely complex. The strength of the links gets more attenuated the farther from the final manufacturing plant you go. Then there is the installation and maintenance activities to consider. All in all, it is currently a nearly impossible task to collect all of the energy consumption data that would be needed to do a good job of modeling and evaluating the systems. That was the first thing I learned.

But while I was coming to this realization, I was developing another idea that had suggested itself to me in thinking about modeling energy systems in general. There is a concept called the 'boundary limits' which basically tells you something about where you should draw the line around the system of interest to prevent infinite regress. You can see this in the above problem where the tractability of analysis can only be bought by deciding to cut off the analysis effort at some reasonable distance from the center, say we decided to ignore everything beyond the first tier of parts manufacturing and shipping. We could forget about those efforts further out in the web because their total contribution might be negligible in terms of each PV system manufactured. Knowing where to draw the line is as much art as science.

The boundary problem exists for these kinds of complex systems when you are doing a 'bottom-up' kind of analysis. That got me to thinking along the lines of a 'top-down' approach. Sometimes it is easier to model a 'whole' system leaving out a lot of detail, yet capturing the essence of the system's behavior. This is, in fact, the approach I had used in modeling synapses and neurons in my days developing artificial brains for robots. Rather than trying to emulate every little detail of a system, it is sometimes possible to start from first principles and develop a model that captures the overall dynamics of the system and allows you to make predictions about system behavior under different conditions.

So for the last month+ I have been working on a macro-model of what I am calling an 'abstract economy'. It looks strictly at the energy flow dynamics of an economy based on a fixed, finite fuel source — not much different from our own real economy. What makes an economy is that energy is used to make artifacts that users need and or want (no moral judgments here). These are the assets of an economy. Some are long-lived, like buildings and railroads. Others have intermediate life spans, like washing machines and toasters. Others are consumable, like food, entertainment, and socks. But over time, when there is sufficient available energy, the economy will use that energy to convert natural resources (metals, salts, trees, etc.) into assets. With the realistic assumption that consumers are insatiable if the energy is available, then I posit a growth constant used to compute exponential growth in energy extraction and asset accumulation. In other words, it looks a lot like the classical developed world economy. I've now got a computer model running and some early, somewhat expected results. But I also have a result that would have been hidden from view had I not built the model.

My Model

I started with the idea of a reservoir of fixed, finite size (arbitrary in the model). The reservoir contains unrefined fuels of average energy density. Extracting the fuels from the reservoir takes work. You are working to find places to drill, working to do the drilling, working to do the extraction, and working to alter the fuel for consumption at the end uses (e.g. refining oil to gasoline and kerosene, etc.). All of that work requires energy from the stream of energy flow, and it takes more work to accomplish the same energy production as the resource depletes. This is the EROI aspect. So the model computes for each time step the gross energy extracted, the energy cost of extraction, the net energy available to asset production (gross minus costs — a concept any accountant or financial person can appreciate), and the accumulation of assets. Here is a graph from a typical run of the model.

The model correctly behaves with respect to the peaking of gross energy production (e.g. peak oil; top, blue line) and increasing costs (bottom, red line). Net energy available for asset production can also be seen peaking. But curiously, it peaks before gross energy. The time units are about 5 years, so net peaks about 20 - 25 years before gross peaks. This is significant in that it is the net energy that runs the rest of the economy.

If it is true that we are currently at or past (or about to get to) the peak of oil production, and all of the data are consistent with this hypothesis, and since oil is the 'kingpin' energy source, needed to extract and transport every other fuel, then it is conceivable that we are also very near the peak of gross energy as depicted. If that is the case then this supports evidence that we have already passed the peak of net energy and hence we are in the phase of decelerating asset production.

I have written for some time about this possibility, but I have only had anecdotal evidence in the economic crises we have been faced with for the last ten years or so (seeing globalization and offshoring of manufacturing and jobs as a crisis for the US workers, as well as our general neglect of critical infrastructure). Now this model reinforces what I suspected. It isn't peak oil that will get us, so much as peak net has already done some damage.

Note how even after net energy flow peaks asset accumulation continues. This is because there still is some net energy available to build new assets. But after a while the decline in net energy becomes so intense that asset accumulation itself peaks and its all downhill from there.

It is easy to understand why energy from a fixed, finite resource peaks and then declines after a time. What isn't completely obvious is why assets would decline the way they do. The reason is that the 2^nd Law of Thermodynamics is always at work on our assets. Plus, we are constantly consuming some of those assets. Entropic decay eats at our bridges and buildings. Physical things age and fall apart unless there is a constant supply of energy to fix them up, repair damage (from use), or replace a worn out object. The rate of asset decay is probably less than shown in the graph because for this first pass I have lumped all types of asset into one class and set a somewhat arbitrary decay rate for them all. As I improve the model's resolution and details I will subclass at least three types of assets (long-term, well-built; intermediate-term; and consumable over the time steps used) and have them decay or be consumed at more realistic rates. But that will not change the general trend over the very long term. The decline in net energy is not unrealistic given the assumption that it comes from a finite resource.

A next step in model refinement will be to add back in the less-than 20% gross energy supplied by supposed renewable sources, esp. hydroelectric and nuclear, with provisions for a growth rate in alternatives like wind and solar. Then we can test how various rates of build-out of the alternatives may shape the future of gross and net energies. We fully expect that a large growth rate for alternatives will extend the gross line at a higher level (but below peak for the non-renewables) for a longer time. But what we don't yet know is what the effect will be on the net energy. Everything depends on the wide-sense EROI of these sources. If they are high (meaning above 20:1) and the growth rate of build-out is sufficiently high (which is a research question to ask the model) then we may be able to see net energy maintaining a higher level and at least keep our asset base from shrinking. My own speculations lead me to believe that it will take an EROI of more than 50:1 and a build-out growth rate greater than 15% per annum for the first 20 years followed by steadily declining rates over the next decades as we approach 100% replacement. That is what the model might be able to tell us. And it is important to know.

If we determine that our assets can be stabilized at something like the above numbers, then it is crucial to know which alternatives will provide us with adequate sustainability (high, sustained EROI) and direct our remaining net energy investments into building those top performers at a rate that will achieve that stability. Right now we are guessing and hoping, hardly a predicament to be in for a supposedly scientific age and mind set.

But therein lies the real problem. We have scientists like Hall and many others who are earnestly trying to ascertain the numbers so we can make informed decisions. The problem is we are in the minority and often just ignored because we bring potentially bad economic and political news to the only people who can do something about all of this. And our less than sapient leaders, indeed the majority of the citizens, just don't want to hear bad news. Achieving what I have in mind will take extreme sacrifice on the part of everyone to allow diversion of our remaining ability to do useful work toward the build-out of these alternative energy sources (and, BTW, this also includes increased efficiency and conservation efforts). No politician is ready to spread the message of sacrifice. I'm sorely disappointed in Obama in not following through on his inaugural address when he said that we would need to sacrifice. In retrospect I guess this was code for 'all you working class folks are going to have to sacrifice (lose your income) while the bankers prosper'. Too bad.

There is one more thing I need to point out that will seem a little untoward, but is essential to grasp. The assets I mentioned include all human biomass! That may sound perverse, but the fact is that our population is supported by the energy flow through the economy. A lot of that energy flow is actually directed to managing the agricultural and food distribution system. More net energy means more and bigger (obese) people are able to exist. Consider, if you will, what the meaning of a crash, as depicted in the graph, means for human life. I'll leave you with that thought. And with a question: What do you think we should do about it?

Humanity's Impending Impasse?

Book Review

Bottleneck: Humanity's Impending Impasse, by William R. Catton, Jr.

Reviewed by George Mobus

First I should confess to a strong bias toward the content of this book. As readers of my blog, Question Everything, will realize, I have been moving inexorably toward the same conclusion as the author, so you will perhaps forgive me if you think I may be suffering from a lack of sufficient critical thinking. Put bluntly, I think this is a book every thinking human being should read, and then consider for themselves.

To a growing number of people it is looking more and more like mankind is about to undergo a most unpleasant transition. One might write such views off as being what kooks and apocalyptic religious fanatics hold to, and we know they are crazy. But over the last five years many deep thinking and well respected people have been sounding some alarms that are not as easily put aside. In 2004 Martin Rees, the Astronomer Royal in Britain and clearly no intellectual harebrain, wrote Our Final Hour: A Scientist's Warning, Basic Books. In it he gives humanity about a 50/50 chance of surviving through the century. Not really good chances when you think about it.

Last year James Gustave Speth, dean of the Yale School of Forestry and Environmental Studies at Yale University, wrote a sobering call for a massive revision of capitalism and an end to growth in The Bridge at the Edge of the World: Capitalism, the Environment, and Crossing from Crisis to Sustainability, Yale University Press. Like many authors have done, he painted a picture of what was wrong and why, but then pointed to remedies that might presumably fix the problems. That is, if only our leaders and our citizens would see the light and do what is necessary we might avoid total collapse. Most of these authors offer humanity an escape hatch, but point out that we have to be willing to sacrifice substantially, in terms of material wealth, for it to work.

The realization that mankind is damaging its planet is certainly not new. Rachel Carson (The Silent Spring, 1962) may have started the trend in increasing awareness that we are doing things, in our zeal to control nature, that were starting to backfire, threatening to leave us worse off if we didn't change our ways and attitudes. Environmentalism has largely operated on this theme for decades. We've been warned of environmental degradation, global warming, and peak oil, and how these are interlinked. We've been made immanently aware of the dangers we have ourselves created.

Now William R. Catton, Jr., Emeritus Professor of Sociology at my state's other PhD granting institution, Washington State University, brings on the sequel to his first book in this genre, Overshoot: The Ecological Basis of Revolutionary Change, University of Illinois Press, in which he sounded an alarm being heard more frequently. Like Speth, Catton, in that earlier book, pointed out the problems as he saw them, from the viewpoint of a sociologist, and then declared that if we heed these warnings we might yet escape the worst.

In the sequel, Bottleneck: Humanity's Impending Impasse, Xlibris Corporation, he drops the part about we can evade the worst. The subtitle says it all. Now he concludes that it is already too late to mend our ways and somehow avoid the collapse of civilization. Indeed the main title refers to an impending collapse of the human population. An ecological bottleneck (also called an population bottleneck) is where radical changes in the environment of a species causes a die-off of all but the most hardy of the population; hardy, that is, in terms of the selection pressures arising from the change. Of course there may be no sufficiently hardy individuals left or the ones that manage to survive cannot reproduce sufficiently to produce a new population. In that case the species goes extinct.

Catton's arguments for why this is the most likely outcome for humanity boil down to something I have written about in my blog for several years now. It is the rate of change that matters as much as the degree or magnitude of change when it comes to shocking a population. If we look at the rate of climate change due to anthropogenic forcing, or the rate at which our fossil fuel energy sources are depleting, or the rate of aquifer depletion, or the rate of population increase, or the rate of consumption increase per captia in the developed and developing worlds, or... You get the picture. We are changing the world in ways unfavorable to human survivability more rapidly than we can either adapt or mitigate. And we have already passed the point of no return.

As to why we are in this state of affairs, Catton calls on several sociological theories surrounding the evolution of culture and especially the development of over-specialization or 'division of labor'. The latter was touted by Adam Smith as the reason we were so efficient in our manufactures. And Catton, like many authors who deplore modern capitalism and corporatism, recognizes that at a time this was indeed a beneficial capacity. Today, however, he says that we overdid it and that the tendency toward deep specialization has tended to dehumanize and isolate each of us from the benefit of interpersonal relations. He further argues that we have come to think of others as instruments, mere means to our own ends. This he says is the end result of taking the abstraction of money as representing wealth too far in our thinking.

This idea that once things like money and capitalism, etc. fulfilled good purposes and were good for society as a whole, but have simply been overdone in our modern technologically-driven world, is actually one of the common themes sounded by many writers. It is certainly something I have subscribed to in my evaluation of human affairs. Early in mankind's history, these inventions, these institutions, served a purpose to make man more fit as a species, to quell the negative selective forces of nature and allow humans to succeed evolutionarily. But somewhere along the line humans failed to recognize that too much of a good thing is actually bad.

The failure to recognize this is the lack of wisdom, to which I will return in a bit. But to understand how humans got so carried away it is important to recognize, as Catton and others have done, that humans, like all animals, have a biological dictate to maximize their access to energy. For humans this took the shape of learning to control fire, making clothing, building shelters, and later finding additional external energy sources to supplement their bodily abilities. This included the invention of tools and agriculture. And it essentially culminated in the discovery of fossil fuels that allow modern humans incredible power over their environment. Catton renames a subset of Homo sapiens as a 'quasi-species', Homo colossus, those being the people in developed countries who consume massive amounts of fossil fuels to motivate and control machines that do orders of magnitude more work than a human can do with muscle power alone. To achieve this we are combusting carbon to produce CO₂ and returning fossil carbon deposits to the atmosphere and oceans after sequestration for millions of years. And it is the rapidity with which this is happening which leads Catton, and others, to conclude that it is infeasible to put the brakes on for this train. That is, you can try to brake, but you won't stop in time to avoid a crash.

Unfortunately for mankind, there are now far too many of Homo colossus in the global population. And the damage is done. NASA climatologist James Hanson has claimed that the concentration of CO₂ in the atmosphere should not be over 350 parts per million (ppm) in order to avoid calamitous climate shifts. But we are already at 385ppm and climbing, even though the global recession has slowed the burning of fossil fuels. It just isn't enough to stop let alone reverse the growth in carbon in the air. But beyond the damage done already, and the potential damage to come due to climate changes and sea level rise, Catton sees an impending threat from the fact that we are going to run out of this magical fuel one day. Or at least we will hit a barrier where the cost of extraction exceeds the benefit of having the fuels. When that happens what becomes of Homo colossus? Indeed what happens to Homo sapiens in toto? Even though peoples in developing and underdeveloped nations don't burn the fuels directly, they still rely on the developed world for aid produced by burning those fuels.

Catton bases his analysis on the idea of carrying capacity. Fossil fuels have artificially boosted the carrying capacity of earth for human occupancy (if you ignore the damage we've done to other species). We are in overshoot, the theme of his previous book. We are like the cartoon character, Wile Coyote, who would race off a cliff in futile pursuit of the Roadrunner and would remain suspended in mid air until he realized his predicament; then it was too late and he would fall. When the fossil fuels are effectively used up, what will replace them? As things stand now, there simply is no realistic or viable alternative energy source that could scale up to the level needed by modern civilization in time to take over the job. Once again, it's the rate of change that gets us. In spite of continued pie-in-the-sky thinking by even engineers and scientist who should know better, no one has shown how real time solar energy in all of its many forms (thermal, photovoltaic, wind, even hydroelectric) will ever match the power in fossil fuels. These came from ancient photosynthesis over millions of years compressed and cooked into a convenient package over more millions of years. The scope of concentration is literally unimaginable (apparently) yet very serious people dream of capturing current solar influx and replacing fossil fuels with it. They may be serious but they are also dreamers or delusional. While in theory, the total daily influx of solar energy to the earth would provide many times over what we need to sustain our current civilization and provide development for the lesser developed nations, our systems of capture would have to cover gigantic areas of the planet. Our energy storage and distribution systems would have to be radically redesigned and rebuilt. And all of this comes just as we recognize the impacts of declining net energy from fossil fuels; those fuels being needed to subsidize the building of all that energy infrastructure.

The root cause of humanity's impending impasse, however, is not his lack of will, or cleverness, or even sufficient energy resources. The root cause is his lack of wisdom. Catton points to this on page 190, speaking about his great-grandson:

...by the time surviving members of his generation have emerged from the coming bottleneck, when he may himself have somewhere a great-grandson he will wish to visit, somehow his contemporaries will have attained the wisdom Linneus implied was characteristic of our species when he named us Homo sapiens.

(Emphasis mine)

For several years now I have been pursuing a quest to understand better why our species is not, on average, more wise. With all of the history we have experienced, with all of the science we have learned, with all the cleverness our kind has for solving local (in time and space) problems, you would think that we would have developed greater wisdom than we have in fact. What I came to realize was that the brain capacity for wisdom (which I have boiled down to: good judgment in complex social issues, strategic thinking, highly developed systems thinking, and strong moral sentiment) was a relatively new emergent capacity coupled with symbolic thinking and language and second order consciousness (conscious of being conscious) for early Homo sapiens. But it was evolved, as Catton notes, to meet the needs of the late Pleistocene existence of our species. It is not, on average, up to the task of modern complex society. One of my main conclusions is that our species is simply not sufficiently wise (or I prefer the term sapient to differentiate between a native capacity and an actualized capability) to deal with the world we have created. For a more in-depth treatment of this subject, readers are directed to my working papers at: http://faculty.washington.edu/gmobus/Background/seriesIndex.html.

It is this lack of inherent wisdom that will keep us, has kept us, from doing the right things to prevent the impending impasse. Catton's 'Prognosis for Humanity', page 206, is alarming.

...with great reluctance and regret, I am compelled to doubt that we can confidently hope to avoid a serious "crash" as the focal human experience of the 21st century—envisioned also as our species having to pass through an ecological "bottleneck".

This is by far the most explicit statement of what we would call doom of any author in the popular book trade. There have been many writers, especially in the blogosphere, who have expressed similar conclusions. But I have yet to see a writer of some eminence such as Catton go all out and claim that the end is near. Unfortunately, I happen to agree with him.

The question for me is: Will humanity come through this bottleneck with a gene pool competent to meet the challenges of a changed world AND have a stronger native capacity for sapience, for wisdom? Assuming some remnant of humanity does survive, that is no guarantee that our descendants will go on to evolve a better ability to make good, long-term judgments in that future world. Nor are we guaranteed that they will be able to reconstruct anything like modern technology-based society in order to re-achieve a species fitness allowing them to survive and thrive in the very long run.

My only complaint with Catton's thesis is that he didn't go far enough in suggesting what those of us who see this coming might do now to save our genus from extinction or, in the case of my concern, to increase the likelihood that our descendants will inherit genetic components leading to higher sapience. He assumes that some humans may survive and the future environment may select for greater wisdom. I'm not so sure that will be the case. His parting words simply express thankfulness that he lived during the epitome of human achievements in science and understanding as well as freedoms to travel the world. My question is: Now what do we do?

I have to applaud Catton for writing so honestly about what he has concluded. I have contemplated writing a book on the evolution of what I call eusapience, true sapience, as the future of the genus Homo. Necessarily, the species sapiens must go extinct to allow the rise of a new, wiser, species of humans. And an evolutionary bottleneck would be the most likely mechanism for this to happen. But I have hesitated, realizing this is a message no one wants to hear! Every other author of books on end-of-the-world scenarios at least offers that if we would only come to our senses... the world won't end. William Catton does not do this. Sorry for the spoiler but you should know in advance. Thus this probably isn't a book easily digested by everyone, even though I think everyone who believes themselves to be a critical thinker should read it.

The reviewer is an Associate Professor of Computing and Software Systems at the University of Washington Tacoma. He is currently on sabbatical leave studying biophysical economics and energy-related issues at the State University of New York, Environmental Sciences and Forestry in Syracuse NY. His blog is Question Everything at: http://questioneverything.typepad.com