Friday, March 2, 2012

Peak Everything and a Perpetual No Growth Economy

Preamble: Several stories over the past few days have prompted this post: stories about shrinking global supplies of oil and rising gasoline prices, stories about the EU's entrance into a prolonged recession and the implementation of absurd austerity programs, stories about a significant  de-acceleration of the Chinese economy, stories about the fragility of the U.S. economy, and, finally, stories  about a relative growth Canadian economy that is about to be whacked by ill-conceived and unnecessary deep cuts to federal government departments and programs that will affect everyone.
Many heterodox economists and post-carbon researchers – most notably Richard Heinberg in several books but particularly in his seminal The End of Growth and Chris Martenson in The Crash Course - have recognized that, among other lesser causes, because of peak oil, the core source of energy that has been driving our economy for over a century, we have entered into in the global economy a real aggregate no growth – or at best relative, residual growth (that is, a stagnating, up one month, down the next) – economy that, in effect, is in the process of subtly hollowing out capitalism as we know it. For in market-driven capitalism, there is no such thing as stasis: only growth or contraction in a highly unstable and irrational system completely dependent on debt. I mean growth here both in a conventional economic sense of growth – that is, growth in GDP or, in practical terms, consumption – and growth in the broader sense in which Heinberg refines it: “growth in the sense of the expansion of the overall size of the economy (with more people being served and more money changing hands) and of the quantities of energy and material goods flowing through it.” Some economists say that a no growth, static-state economy is, in economic theoretical terms, a wave, not a cycle, and that it will last for 10 (Mark Carney) or 20 (Steve Keen) years. Some, like Heinberg argue – and I agree - that it will last forever and that we will will have no choice but to adapt to it if we wish to survive.

That economies should grow always and forever is of course the fundamental error of neoliberalism and its ever faithful companion neo-classical economic theory. In fact, as Heinberg notes, Nicholas Georgescu-Roegen, tellingly in 1971 - around the time the deep financialization of our economy began - pointed out that neo-classical economies have always failed to acknowledge the second law of thermodynamics by not accounting for the natural erosion of energy and matter that axiomatically undermines growth. And far too often if not always the effects of that depletion of energy and matter are treated misleadingly as mere externalities, the costs of which are not accounted for directly within any market transaction. (Externalities are the costs or benefits from a production transaction that are not reflected in the price but borne by someone or something else.) But one could argue that energy and the natural, material world are in facts forms of wealth or capital themselves, and as such they're subject, as all capital garnered for the production of wealth is, to the process of depletion. So excluding the negative effects on them skews the real costs to society and undermines the credibility and functionality of the growth model itself. One could offer a supplementary argument of course, as Dave Gardner does in the film Growthbusters, that growth in and of itself leads to only a deeper destruction of the planet and human communities because any kind of economic growth is dependent in some fashion on that destruction.

Energy and the natural, material world – exploitation of these is what makes a growth economy based on debt* work, but what happens when energy and the natural material world on which that growth model depends for its exploitation peak and subsequently begin their inevitable decline towards depletion? As both Heinberg and Martenson definitively argue, oil of course has been the foundation of the growth paradigm, for it has been our primary source of energy – so much so we probably can't imagine life without it. But countless research has shown that oil has unequivocally peaked in the sense of being at the point where resources have gradually begun to decline with a consensus estimate for full depletion being about 90 to 100 years. We can see the decline of conventional sources quite readily in the fact that almost all new finds are off shore in oceans, in such places as the Alberta tar sands and U.S. shale, and in the Arctic and that gas is being fracked from shale, coal beds, and "tight sands" – all unconventional sources requiring much more energy to extract than conventional sources.  And of course there is absolutely no way alternate sources of energy – wind, bio-fuel, solar, for example - can possibly make up for the amount of energy to which we have become accustomed or could possibly be as cost effective as oil has been with its well established infrastructure of use and economic performance. A tiny offset is the best we can hope for there. We will simply have to learn to live with much less.

Add to this key depletion of our main nonrenewable energy source the well-documented depletion of other resources such as minerals and fresh water and other impending crises such as growing food shortages, unsustainable population growth, the growing devastating effects, both to the planet and to the economy, of climate change, and the inevitable implosion of the financial system – all unheeded but well-documented – and we have a live action disaster movie on our hands. All of these are significant, but oil depletion as our main source of energy and the full havoc of which has yet to be visited upon us of climate change stand out. Of necessity we will have to decrease our wants. We will have to adapt. We will have to develop local sustainable economies just to survive because there is, according to Heinberg, Martenson, and Dave Gardner in Growtbusters, no other choice. Agreed with one small caveat.

In my correspondence with Richard Heinberg, I asked him about the part the occupy movement could play in his survival scenario. This is his response and my reply:

Richard: The book was written before Occupy emerged. If I could have, I would have written a section on it, talking about how important collective action on a national scale could be to upend systemic corruption (but I would also have pointed out that it's a risky strategy). Both US political parties serve Wall St., the oil companies, and the military-industrial complex, so normal means of political change are blocked. It is partly the observation that national politics are incapable of dealing with the end-of-growth crisis that leads to the localist solution. But localism also follows from the inevitability that, with less energy, we are headed toward a slower, less mobile, more local world anyway, so we'd better get busy building the infrastructure for that now.

Barry: I agree that with depleting resources and the increasing associated costs - energy and food in particular - it's inevitable that we will have to move to local economies of some sort. But while doing so now as individuals and community groups could be, as you suggest, preparatory in establishing some needed infrastructure, it can also become a kind of alibi for absenting oneself from the wider core political struggle - a withdrawal of sorts resulting in an abandonment of action on that wider collective level you mention. I might argue too that the wide collective action emerging in the occupy movement consists of many discrete local occupy groups around the world. In that sense, the movement, I think, is more cooperative than collective. It's both a decentralized and uncentered movement - what I call incremental, sloppy democracy - that clearly acknowledges, in my judgement, that the normal political power structures don't work. Hence the call for system change, not revision of the current political-economic complex. (This spring should tell us much.) So while you would point out risk on the collective level, I would point out the risk of an unwitting isolationist structuring on the local level. Better, perhaps, to work on both fronts since there may not really be, the post-structuralist in me would say, a binary opposition, either-or proposition, at work here at all - as I would argue on another occasion.

    *With fractional reserves lending, banks extend credit to businesses and individuals – which is really the creation of money by way of loans - in amounts that are much larger than their deposit base. Because interest has to be paid on those loans, this debt-based currency can only function effectively in an expanding economy. So money is based on debt, and growth in debt thus grows the money supply and,  in turn,  the economy. So we can see why banks, who like to keep us all in debt for profit motives, are crucial to a market economy. But here's the kicker: because money is created through bank loans, there can never be enough money to pay back all the outstanding loans with interest. In other words, if the system doesn’t keep growing, it will collapse in on itself – which is exactly where we're headed. See Marstenson in both Growthbusters and his book.