Created Thursday 29 March 2018
After the release of my book ‘The Third Curve – The End of Growth as we know it’ I received various responses that questioned my fundamental argument that real economic growth is actually over globally and that we are now going to be in perpetual economic shrinkage. There even was an article called "7 Points of Energy Happiness" in a local newspaper that tried to tell everyone that all was fine in the Energy world so all would be fine in the Perpetual Growth world. So someone sent me these 7 points and here are my counter responses to them.
Our gut response would be that end of growth is unacceptable and therefore impossible. Acceptable or not we have to consider the possibility first. Is perpetual economic growth possible? To evaluate this we need to be aware of 2 main points:
- the direct relationship between cheap energy (fossil fuels) and our exponential economic growth.
- the principles of energy accounting called Energetics that are defined by the laws of energy in the universe (thermodynamics) and even more the limits to energy on a finite planet (geology).
I leave the details of the argument for the reader to explore in my book and other excellent references that I site at the end of the book. But for here I would like to counter a recent article in a newspaper that claimed that ‘the best news in oil is not about prices’. The article was trying to reassure the world with 7 points why we have no problem with energy supply anymore. In short that exponential growth can continue to be a viable path. I have come across such statements innumerable times over the last 14 years. These are all uni-dimensional responses and ignore the larger implications of energy as the driver of real economic growth.
Here are my responses to those 7 Points of Energy Happiness.
Point # 1: The Grip of Oil over the Global Economy is loosening.
Where is this evidence? This is merely a fanciful statement made by governments and business community. All the unfolding economic reality globally is indicating to the opposite. The fundamentals for oil and energy as key inputs for an industrial economy are the same. If not then the US would not choose to carry out desperate, expensive and environmentally ruthless measures such as fracking and deep water drilling. Canada would not be willing to rip apart its most pristine forests, drain a river and burn loads of natural gas to come up with a low net-energy fuel called Syncrude. And US would not be fighting a trillion dollar (escalating) war in oil rich countries. China would not be buying large parts of Northern Africa to secure its energy needs and building the largest standing army to follow up their plans.
The reality is more evident in the state of global economy. The US is in an ICU with an exponentially increasing 17 trillion dollar debt (read as printing money and borrowing from the future). UK is following the line of the US with fake symbolic investments ready to implode. Japan is in constant recession. The Euro is in severe trouble. India and China (the only last bastions of growth thanks to cheap resources, land labour and a government willing to bend backwards to steal the commons from the people and everything from the environment), are struggling to get a hold on their past record of blistering growth and finding it really hard despite opening all stops which include removing any semblance of equity, environmental safe-guards, sovereignty of local people and national interests.
Sorry but from all indicators, if truly and more holistically considered, the grip of oil and cheap energy which comes only in the form of fossil fuels is in fact tightening on the world. We are just pretending that we have other ways to get out of it, such as alternative energies and technology. Both of these are completely dependent on fossil fuels. All kinds of fanciful things were possible when we were ascending the bell curve of all resources (not only oil) on this planet. Now we are descending that bell curve and the rules invert.
Point # 2: Earlier Growth led to higher Oil demand. This is changing. The US economy grew by 2.4% in Q3. Oil demand fell by 0.3%
I am afraid to say that this is a typical nit-picking argument presented by economists to obfuscate the big picture. Looking at just one quarter is not at all an indicator of macro factors. Economies can grow for a short while with all kinds of sops and fine-tunings, dropping interest rates and injecting cheap money (read printing dollars). It is no indication of stability and especially not of a sound economy that will continue to grow in the future. The measure of GDP itself has become so grey that it is suspect whether it is measuring any real growth.
A fall in oil demand has always been an indicator of lower real growth. My book amply explains the numerous ways used to show artificial growth through contrived definitions (M0, M1, M2, M3 as different shades of money) and mathematical constructs from hedge funds to derivatives of all hues.
And then again, why are we only quoting the US? Is that the indicator of global economic fitness? And does it mean that what is possible in the US should be replicable all over the world? This is particularly true when I see Indians celebrating about shale gas and tar sands. What has that got to do with us? We don’t have anything like that to fall back on even in the short term? So we are celebrating because our neighbors are having a party.
Point # 3: Mileage of US cars has improved.
Here is the magic ‘efficiency’ card again. Efficiency does not mean lesser energy consumption. In fact it is quite the opposite in a growth-based economy. Please read Pg. 120 of my book. This is amply explained there. It is no surprise that this argument is accepted as an anomaly of our times enshrined in Jevon’s Paradox. As it is a bit tricky to grasp (that is why it is called a ‘paradox’) I have given 3 separate analogies in my book to help the reader grasp the reality behind the illusion of an ‘efficiency will save the day’ argument.
Allow me to repeat one of the arguments here: Over the last 150 years all man-made devices have been more energy efficient, not just our cars or our light bulbs. Then how come gross energy consumption is going up exponentially (refer to the graph on page 120 of my book too)? The answer is that we live in an exponential money paradigm(compounding interest) and we will always use the gains in efficiency to make more products and systems and services, to make money grow exponentially. And cumulatively this process results in a Gross Increase of energy consumption. That is the requirement of the financial system premised on perpetual exponential growth.
So energy efficiency in fact hastens the consumption of the balance energy and the resources available on the planet. It extends the game but it exacerbates the issue if we believe in perpetual growth, which is the main contention of my book. On the flip side, if we stop chasing exponential growth, energy efficiency can certainly be useful. But that is not what we are talking about. We are constantly talking about how to make growth happen – whether it is real or not.
Point # 4: Petrol use in the US has dropped by 3.7% since 2010.
Ouch! But it has increased throughout the rest of the world to more than compensate for it. Remember the US is doing most of its manufacturing in other countries especially emerging economies. Exporting their manufacturing does not assure that peak oil and energy descent will not happen.
And once again why are we citing only what is happening in the US. India and China are countries where the US has sold its consumerist lifestyle and a growth model to match. This is where the action really is. Can you tell me the same about petrol consumption in India and China?
Point # 5: Investments in renewable energy are rising.
And so are the subsidies. Without subsidies alternatives just don’t work. Because they either produce expensive energy or are energy deficient and so simply need to be subsidized via the money route to work. Evaluating them in terms of money is misleading. Subsidizing alternatives is only a way of diverting the real energy costs onto tax payers and other public systems. That is the main argument of Energetics vs Economics. Please dwell on this to realize that this is not solving any energy problem but creating a big illusion through false accounting of energy with the help of an illusory discipline called economics. Chapter 3 of my book deals in great detail on the illusions and fallacies of alternatives that ignore fundamental energy accounting.
Point # 6: India will build 20,000 MW of solar capacity in 4 – 5 years.
Well then we have nothing to worry about. Right?. Sure we do.
For a start, I emphasize that no one is saying that solar is not a good idea. Yes, solar has its place but in a completely different paradigm. It helps if it is locally distributed and if there is a context of lower consumption which implicitly means ‘powering down’. To imagine that solar is going to save the day for business and growth-based economics-as-usual is a dangerous fallacy. So yes, it is good that India is building this solar capacity but it is quite a different matter to imagine that this will help run the prime part of our industry and economy that will always be fossil-fuel based. And even more false to imagine that solar will perpetuate growth (again a fundamental argument of my book).
Solar is intermittent, has low energy density, requires expensive batteries and only gives electricity. Therefore solar can never provide for the requirements of a growth-based economy. It can act as a minor supplement at best. Besides, it gets more and more limited as you move into the higher latitudes due to the declination of the sun. Therefore, I would say, the hard facts are quickly glossed over by solar advocates.
And what about the by-products of petroleum – bitumen, plastics, lubricants, insulators, pesticides, pharmaceuticals, synthetic materials and an endless list that never even enters the discussion? No solar panel, windmill, nuclear plant or fuel cell gives you these.
Once again please read Chapter 3 of my book to understand the multiple, limiting and defining aspects of fossil fuels and energy laws.
Point # 7: Brazil, US and India are promoting use of ethanol in motor fuel.
Another feel-good incomplete truth. Promoting something does not mean it is proving or going to prove to solve the basic issue at hand – namely how do we keep growth going. Ethanol has a very low Energy Returned on Energy Invested (ERoEI). It is at best a last ditch desperate effort to juice our soils of their nutrients and divert them to grow fuel for our cars instead of food for people. And that too at a marginal energy gain (very low EROEI). Wow what a grand scheme! It fails energetically, environmentally and equitably. If anything, it is an indicator of the signs of energy descent. It is living proof that we are living in desperate energy times. It is nothing to celebrate about and it will prove its own futility in due course.
So dear Reader, why is all this happening? Why does the world need to come up with this hastily assembled list of 7 desperate and shady statements to assure everyone that all is well? I would suspect this very gesture itself when reality erupting all around me is indicating the exact opposite.
Forget the ‘THEY’ but consider why are WE denying that we live on a finite planet, with its own laws of geology (bell curve of resources) and laws of thermodynamics (immutable energy laws).
Even more, why are WE not examining that this is not only about energy constraints but all kinds of other constraints? Land, water, eco-systems, clear air, equity and other qualitative aspects of social and ecological limits that are thrown on the wayside against all reason and sensitivity. No wonder the increased level of resource wars, land acquisition battles, breakup of communities and even invasion of countries. Hardly a pleasing recipe to offer at the altar of perpetual growth.
So why are WE in denial when intuitively and instinctively we all know that limitless quantitative growth is not possible?
The reason is simply that we find that we are now trapped. Our exponential definition of money defines the related financial and industrial system. And so if money has to grow with time then these systems too can only function when they grow. They falter and fail when that growth does not happen. Therefore there is no option but to make them work at all costs. Even if it means denying all science and data while burning the remaining energy, resources & living systems of the planet to chase a fading mirage.
So we are between a rock and hard place. We are willing to overlook all the science, data and even common sense just to believe that if we don’t look hard enough, it will go away. I am sorry to be the messenger carrying this disturbing news but this growth is indeed over. We are just experiencing economic shrinkage in various forms. This truth will not go away because we cloak it in crafty one-line arguments. In fact it will hit us harder through denial. We will premise & build more economic systems and businesses on the assumption that one day it will all be miraculously solved. If you don’t agree with me please test it over time for the next 5 years. The energetics perspective will appear to explain most of the unfolding reality. And classical economics will appear to fail more and more.
Oh and by the way, the current sharp drop in oil prices is not a good sign as many are quick to conclude. It is the canary in the coal-mine of a deeper malaise of energy implications. The very same indicators before the 2008 Global Financial Crash are emerging now. Be ready for another huge financial collapse.
In fact this behavior of oil price swings was already explained and predicted by energy and Peak Oil experts. It is called ‘ramping’. These are indicators of the end of cheap energy: the fundamental driver of growth. It comes as no surprise to people who understand energy principles.
These principles are very well explained in dozens of articles on the Internet. Here are some links to understanding the reasons and implications of the recent drop in oil prices.
Understanding Peak Oil, Energetics and Limits to Growth is a slippery slope because we have all been conditioned into believing that Growth is a given and a must and therefore it has to be perpetuated and that it can be perpetuated. We feel that perpetuating growth is merely a matter of human ingenuity and political will. All previous civilizations had the same opinion till they ran out of resources in their local area and moved on. Sadly we are doing it now at a global scale and there is no place to move to except outer space.
To sum it up:
- Energetics is the real law of the universe and not economics.
- Either we align with understanding this reality or we will make very painful mistakes (already happening). Reality is not going to compromise.
The 7 points mentioned in the article ignore all these realities and are a great way to lull ourselves into a sense of ‘all is well’. As Ayn Rand said ‘We can ignore reality but we cannot ignore the consequences of ignoring reality’.
Am I being negative when we say that growth may be over – no way. What I am suggesting is that there are ways of shaping a far more beautiful, healthy and equitable world that is more likely to work in the face of the hard reality of energy descent. That is covered in Chapter 6 of my book, under the title ‘Transition’. But to move toward that we have to first get out of denial.
As you must have gathered by now, the subject is vast and delicate and needs to be unfolded slowly to de-condition our 250 year cultural belief in Perpetual Exponential Quantitative Growth. So it will take time for us to come to terms with this reality. As another wise person said, ‘Deal with Reality or Reality will Deal with you’.
Reality does not negotiate or compromise!