Question Everything

Doha - Going Through the Motions

The lips will be moving starting tomorrow at the climate talks in Doha, Qatar. There will be actual words spoken. But it is really just a ruse. Anybody with half a brain who thinks about CO₂ emissions and climate change knows something for absolute certain. Nothing short of massive reductions in burning fossil fuels will have any effect whatsoever on CO₂ emissions. And any such reduction will kill economic activity. It isn't even a question of stalling economic growth. We are talking about shutting down most economic activity period. Over 80% of global economic work comes from burning fossil fuels. Anything short of massive shut down is just pretending that there are things we can do to avoid catastrophic climate change like "reducing" our emissions by 10% by 2020.Given the rate at which we are seeing changes already, indeed the acceleration of such changes, it is clear that the greenhouse gasses we have already pumped into the atmosphere and oceans is enough to guarantee catastrophe.

The people involved know this is true. But they need to go through the motions in an attempt to keep the rest of the citizenry (or should I say consumers) from panicking. They will engage in "serious" talks about the needs for rich countries to help out poor countries adapt to things like sea level rise. They will make pledges to do better next time, but right now with the world economy in such poor shape, not even rich countries have the wherewithal to help themselves, let alone poor ones. They will work really hard to form a framework for the next round of talks, once again putting off the inevitable reality. They will kick the can down the road yet again.

They can get by with this simply because as yet nothing so brutally catastrophic has happened that can readily be tied to global warming so as to make the matter urgent. Sure Katrina and Sandy gave a taste of potential problems. The heat wave over much of the US this last summer portended bad things to come. But those bad things are still out in the future. We got through the latest inconveniences so no need to panic just yet.

People will go about their lives only mildly concerned at best. They will leave it to the negotiators and climate ministers to work out solutions. Somebody will invent something that will fix it all anyway!

I continue to watch this fiasco unfold. What a remarkable time in human history to be alive. We're sitting in deck chairs on the Titanic while some of the crew are busy moving other furniture around, we just watch the ship approach the ice berg. This is going to be interesting.

 

Does Humanity Have a Death Wish?

Happy Holidays

That season is upon us when we gorge ourselves with feasts and try to outdo one another with gift giving. This coming Thursday thousands of ‘shoppers’/‘consumers’ will camp out overnight to be first in line for real bargains in what has become known as “Black Friday”, meaning retailers hope to get into the black ink on their books by this ritual of acquiring more mostly useless stuff. There is a sad irony about this. What, on the surface, seems a burst of finding happiness following the American way of life, is, in fact, simply accelerating the consumption of now precious resources in a frenetic gasp to preserve our God-given right to hedonic pleasure. And over the years there has actually been a feedback loop that has been increasing the number of shoppers in lines on that day. We are getting poorer with each passing year. As a result, more people find they really need to find bargains in order to keep up the charade of ability to afford all that gift giving. This year I have actually talked to several people who are going to try to take advantage of the Black Friday bargains in order to get things for themselves that they feel they really need. Otherwise, they wouldn't be able to afford them during the rest of the year. Those kinds of products don't generally go on sale after the holidays because they can be sold all year around. I guess marketers have discovered that lowering the prices on these items (like refrigerators or furniture) during the holiday shopping season will bring more customers into the stores and their overall sales will go up.

Americans are by far the worst when it comes to gluttony, I think. But many parts of the developed world are really not that far behind. The American way of life has long been the model of what capitalism produces in the way of lifestyle possibilities for so many people around the world. When immigrants get to these shores they very quickly adopt the consumption habits of non-immigrants, at least as soon as they can afford to. For certain their children have no problem adopting this consumption-based culture. The people of developing nations are busy as we speak attempting to have what are to them luxuries, that we take for granted, and see their societies one day having the same stuff at affordable prices. And, of course, their governments do nothing to persuade them otherwise. Quite the contrary.

This season the happy news is that we are awash in oil and natural gas. And by 2025 or so America will be energy independent. That is cause for joy. Except that when you actually do the numbers you find that the cost in energy to get all of this non-conventional fuel is substantially higher than generally acknowledged. Another great irony is that we probably will be energy independent but only because the current supposed glut will evaporate and drive prices (in dollars) sky high so that demand will drop precipitously. Ergo we will buy quite a lot less fuel, and only for absolutely essential (cost is no object) needs. Ah well, economists who know how to interpret a conventional balance sheet and income statement have not yet realized that the same kind of accounting process that produced those instruments should be used on energy units so you could see that we are no longer in the black in energy terms. Indeed our energy costs are rapidly approaching our gross energy gains (e.g. the recent supposed increase in oil and gas extractions). It turns out that fracking and extracting tar sands oil takes considerable energy. Moreover the production dynamics of fracked wells, both gas and oil, are such that they tend to produce higher volumes than conventional wells, at first. And then the volumes fall much more rapidly with a total volume often less than the presumed recoverable reserves numbers suggested. The glut of gas, for instance, has led to a lower price on the market. But how much of that glut is due to the early rapid production curves wherein the growth in drilling has been in hydrofracking plays (shale). Even now operators are shutting down wells and not increasing their activities in new drilling. Why? Could it be that they are already discovering that the marginal costs are greater than the marginal revenues? Could profits be falling or at least not growing? Only those companies will know from the impact it will ultimately create on their standard accounting books. Meanwhile they will do whatever they can to keep up appearances and preserve their cash flows. So the real news here isn't really happy after all.

What is marring this holiday season, however, is the so-called “fiscal cliff”, the automatic kick-in of actions that resulted from Congress's (the super committee) inability to find a compromise on a package of spending cuts and tax increases aimed at slowing down the growing deficit. As of right now, the posturing on both sides is leading most business leaders to have such a sense of uncertainty, and a consequent dread of the business climate going forward, that they are continuing to sit on cash and failing to hire workers. Or so the story goes.

There is a lot of uncertainty in what is ahead of this country. But for that matter this applies to the whole world. There isn't a country in the world, not China, not India, not Germany, where there isn't a great deal of uncertainty about the future. Some countries, mostly northern European, seem stable at the present, but they have been buffered by central European economies that until recently seemed in much better shape. Once the bite is taken out of Germany, and it will with the destabilization of the Eurozone, even those countries will start feeling the pinch. This is especially true since the North Sea oil production has gone into steep decline.

The claim is that if the country goes over the cliff (and nothing is done to fix the matter soon afterward) that it will push the US economy into another recession. That is kind of funny since there are plenty of people who don't believe we ever really got out of the 2009 recession. Recessions are defined by growth (or non-growth) in Gross Domestic Product (GDP). It turns out that after Hurricane Sandy GDP will rise due to spending increases on repairs. The way the government figures GDP (basically just counting things that look like incomes) and fails to take into account costs, the official reports would seem to show that the economy has been growing, even if only weakly. Look deeper and not so much. Economic wealth is the net of income minus costs. Standards of living go up when wealth increases, for sure, but not just when income seems to go up.

Getting back to the holidays and consumer spending. The country and the world will breathe a sigh of relief if the Christmas shopping season puts retailers in the black. If they report record numbers of shoppers and sales you can bet the media will be all happy and joyful to report the economy is growing again. What nobody will probably report is the increased costs that the retailers will bear to get those sales. They won't be reporting yearly profits for a while yet and that is the numbers we need to really see.

But I will cheer if the season produces poor results. I'm nearly sure it won't, but I wish it would. That's right. I wish that the economy would not be touted as growing again. I wish that, in fact, it would continue to shrink. The sooner people understand that growth is not coming back the sooner they may start to pay attention to reality. It isn't that I want people to be out of work and not have incomes to support themselves. But I have made several suggestions as to how to handle a transition to a non-profit, contracting economy in which the unemployed could be employed doing useful (really useful) work rebuilding our soils and establishing localized secure food production. There is still a chance that we could lessen the harm that will befall civilizations by doing this. We still have an opportunity to fund such an effort by first taxing the wealthy at a rate that would preserve the government's ability to keep offering sucker bond investors those borrowing instruments. The government would also have to nationalize the energy business to make this work. That's right. You heard me. The government would have to take over the extraction of fossil fuels and management of the power grid in order to coordinate the proper channeling of resources to support the transition to a contracting economy with the least pain. While they are at it they should also nationalize the rail systems and most distance transportation. Local governments would be responsible for the management of local agricultural lands. Of course, permaculture is the way to accomplish this. Unfortunately not all lands are optimal for sufficient local production. So the transition must include moving people out of those areas and into areas where local food production could support them.

But then that always raises the elephant in the room, of course. The population has to also be managed. And by that I mean it has to stop growing and start shrinking. No easy choice, but absolutely necessary to make the rest of it work. I've already written extensively about this, so I won't rehash the problem and solutions here. Just take note that it has to be done.

In the end, of course, none of this will be done. The US government won't take on the responsibility for managing de-growth. The ideological libertarians would freak out beyond belief and the ideological progressives would probably do so as well. They solidly buy into capitalism as the means to make progress and they deeply believe in progress as the route to salvation for all humanity. The political middle is clueless and mindless as well so look for no rational response there. In short the so-called political will to do anything that would actually matter is not just not there. It seems hell bent on doing nothing.

And that brings me round to the ‘death wish’. You and I know that humanity, and especially the portion that occupies the North American continent is not likely to do anything along those lines. Indeed humanity seems to want to commit suicide! There are any number of smart people who actually do get the nature of exponential growth and diminishment of natural resources, especially fossil fuel energy. But they have not shown any inclination to think the problems through to their logical conclusions. Whether they are afraid to do so or just really don't have the wisdom to do so is not clear. The point is they won't act in a sufficiently timely fashion as to affect the kinds of changes needed. The rest of the crowd clearly do not have the wherewithal to do that kind of thinking. They don't want to even try. The fact that nearly half of the people in the United States don't even understand evolution well enough to realize it isn't a question of belief should show us that there is a fundamental intellectual deficit in this country.

But, as I said, that deficit is actually a global phenomenon. People around the world who clamor for what the Americans have had and don't actually bother to look at how negatively those possessions have affected the American psyche, are just as guilty. Materialism and consumerism, wrought by various forms of capitalism is killing our species and many others to boot. And almost no one seems to care.

Of course the really big picture is that this is just the cycle of species evolution. A species comes into being because it is more fit than its predecessor in some environment. It continues to evolve through, for example, genetic drift as the environment changes gradually. But then one day the environment is too different and new selection criteria obtain. The species cannot adapt fast enough to continue being sufficiently fit and then it goes out of existence. For humans, who did all of the creating of our current environment, this was a self-inflicted destiny. So perhaps what we witness in the human proclivity to not recognize the dangers is, in fact, a kind of death wish built into the species, just as senescence is built into cells and tissues. We Homo sapiens were meant to die. Since we created the conditions under which we have become unfit it is only natural that we are the agents of failure to somehow adapt.

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PS. Based on what I have seen so far, after the election, I don't think President Obama will be saving us either.

The Fourth Annual Biophysical Economics Conference - Followup

As promised, here is the link to the BPE program and in it, links to presented talks, if slides were used. Not everyone did PP slides, so there may not be links to follow.

I plan to elaborate on my presentation at some time in the future, when time permits.

George

 

Who will win???

I can tell you who has already lost. The citizens of the US (and the world). The global ecosystem. Future generations. Countless species.

Wouldn't it be nice to be able to do a real scientific experiment. We need three earths, all starting from the same state as of today. On one earth we elect Romney. On one we elect Obama. And on the third we elect a completely random person (a kind of control!) Now we observe the evolution of the planets over the next four years. What would you hypothesize the outcomes?

Many people are voting for Obama as the least worst - do the least damage - candidate. Many are voting for Romney as the least likely to go socialist candidate who will restore America to her exceptionalist roots. All of these voters have very different visions about how things will unfold under the two different scenarios (no on thinks about the third). But all of those "hypotheses" are based on completely incorrect assumptions about the state of the world and what is "possible" in the future.

The reality is that the forces at play that will shape our world in the years to come are already too powerful and too advanced for either real candidate, or even the control president, to have any significant impact on what is unfolding. We are inexorably running down on net energy to do useful work. The climate is now past the point of no return in terms of devastating change. From here out you will not be able to detect the difference between what either a president Obama or president Romney does for better or worse. Neither has a clue what is causing our global economy to collapse, so neither has any idea about what to do to lessen the pain, let alone reverse the course. We might as well have elected an arbitrary person to the job.

Of course, because both are blind, either will do damage as they attempt to 'fix' things according to their ideologies and beliefs about how the world works. Obama has already done irreparable damage to the real economy in allowing the financial world to continue to rob us blind. That will just get worse. And his belief that somehow, investment in alternative energies could make things better, if not turn things around (you know - green jobs, and all), is uninformed with scientific reality, even though his Sec. of energy is a Nobel physicist! This damage is insidious because on the surface it looks like attempts to preserve normalcy. It even appears, to the naive, that Obama's policies are working. The jobs situation looks a bit better (but look deeper, for example at the actual wages being earned by those new job fillers). But I suspect the current seeming improvement in economic numbers will soon evaporate after the election. If Obama wins, in fact, we could see a very rapid fall into an earnest recession/depression as the Republicans pull a scorched earth move and push us over the so-called fiscal cliff.

For his part, Romney will do damage just by not having any clues about what to do at all. He is driven by ideology (pushed, for example by the Koch brothers) that is the very set of beliefs that drove us to the point we are at now. And if he wins I'm betting there will be a significant Democratic resistance the mirrors what the Republicans have done in the Senate while Obama has served. Stalemate.

And if you are worried about the effect on the Supreme Court of a Romney presidency, don't. First there is really no reason to believe Obama wouldn't put someone in place that isn't already owned by corporatocracy and Wall Street. He might, but his lack of any significant action against Citizens United suggests that he too is a wholly owned subsidiary of business. He believes that capitalism is the answer to the problems after all. Second, the time scale over which any effect of a judge appointment would be noticeable is too long compared to the time we actually have before the wheels come off the track. If people today are worried about what the court will do re: things like abortion rights or gay marriage, they will soon be forgetting those issues as the real problems of getting adequate food and other resources start to dominate the scene. The Supreme Court will become as irrelevant as is the Congress and the presidency now.

My hypothesis is that observed from a certain distance you will not be able to tell any difference between the three planets. There is simply nothing that any human can do to reverse or even significantly slow down the innevitable contraction of the global economy and the impacts of severe weather events. And those are going to make much more of a difference in our lives than anything else.

Happy voting.

 

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.

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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.