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Submitted
by James H. Kunstler via Peak
Prosperity blog,
The word that sticks in the craw of many who cogitate over economics is growth. The
condition that the word refers to has proven disturbingly problematic in
recent years, especially as world’s population continues to expand
exponentially and the global ecology suffers in response. In fact, Thomas
Carlyle (1795 – 1881) called economics “the dismal science”
in direct reference to the work of the Rev. Thomas Malthus, because the
Malthusian conclusions were so unappetizing - that sooner or later rising
human populations would outstrip the world’s capacity to provide for
them.
Now it
happened that the Reverend Malthus’s notorious Essay on the Principle of Population
was first published in 1798, which was about exactly the take-off moment for
the industrial revolution. That
extravagant melodrama was about marshaling mechanical invention with fossil
fuel. The first act ran on coal and allowed populations to
expand because it extended the extractive reach for resources by colonialist
nations. The second act featured exploitation of oil, which was more powerful
and versatile than coal. It also lent itself much more directly than coal to
being converted into food for people. The use of oil powered farming
machines, oil and gas (an oil byproduct) based herbicides, insecticides, and
fertilizers, and oil based long distance food transport, has allowed us to
convert oil into food pretty directly. This has led to the
“hockey-stick” swerve of population growth that took human
numbers worldwide from under 2 billion in the year 1900 to more than 7
billion today.
We are in the third act of the industrial melodrama now where the dire
sub-plot of peak oil has taken stage. Despite
the wishful thinking and happy-talk propaganda lighting up the media-space,
we have arrived at the problematic point of the story: the end of cheap oil.
This is poorly understood by the public and, apparently, by leaders in
business, politics, and the media, too. They misunderstand because they
insist on thinking that peak oil was simply about running out of oil.
It’s not. It’s about running out of the ability to extract it
from the earth in a way that makes economic sense — that is, at a price
we can afford in terms of available capital and energy invested (and also
ecological destruction). That dynamic is now exerting a powerful influence on
modern civilizations. We ignore it -- even at the highest levels of
intellectual endeavor -- because we have made no alternate plans for running
the complex operations of everyday life, and because the early manifestations
of the dynamic present themselves in the realm of finance, which is dominated
by academic viziers and money-grubbing opportunists who benefit from
obfuscating reality.
The sad, stark fact is that oil is now too expensive to permit further
expansion of economies and populations.
Expensive oil upsets the cost structure of virtually every system we need to
run modern life: transportation, commerce, food production, governance, to
name a few. In particular expensive oil destroys the cost structures of
banking and finance because not enough new wealth can be generated to repay
previously accumulated debt, and new credit cannot
be extended without a reasonable expectation that more new wealth will be
generated to repay it. Through the industrial age, our money has become an
increasingly abstract and complex product of debt creation. As Chris Martenson has put it so succinctly in The Crash Course, money is loaned into
existence. Thus, the growth of debt (allowing the growth of money) has played
a crucial role at the heart of our banking operations, and the very word
“growth” has become shorthand for this process in the lingo of
current economic discourse.
It is quite clear that the banking system has been thrown into great
disarray as the price of oil levitated from $11-a-barrel in 1999 to the great
spike of $140 in 2008, and then settled into a range between $75 and $110
since 2010. Most of this disarray is a result of
attempts to offset the failure to create new real wealth with fake wealth
generated by accounting fraud, "innovative" swindling, insider
chicanery, high frequency front-running, naked shorting of securities, and
the construction of a vast untested network of derivative counterparty wagers
that give every sign of being booby-trapped. All this private monkey business
has been abetted by public mischief in central bank interventions and market
manipulations, fiscal irresponsibility, political payoffs for favorable
legislation, statistical misreporting, and the failure to apply the rule of
law in cases of blatant misconduct (e.g., the MF Global confiscation of
segregated client accounts; the Goldman Sachs “Timberwolf”
CDO scam… the list is very long).
In short, a society with deeply impaired capital formation has turned to
crime, corruption, fakery, and subterfuge in order to pretend that
“growth” — i.e. expansion of capital — is still
happening. The consequences are many and profound. The
chief one is that the manufacture of fake wealth is such an alluring activity
that some of the smartest people in society have devoted their waking hours
to making a profit off it. It absorbs all their energies and they are simply
not available for other work, such as figuring out a sane and practical way
to run civilization in the absence of cheap energy. Added to this is the administrative effort and the work-arounds needed to support all this corruption and
dishonesty, which occupy the hours of another class of smart people who work
in government, academia, public relations, and the media. The sustenance of these parasitical
cohorts more and more continues at the expense of everybody else in society,
who cannot find work, or cannot make enough money to pay their living
expenses, and who have become deeply discouraged,
disappointed, demoralized, and disengaged in their losing struggle to thrive.
Hence there is little public vigor to even mount a discussion of these vexing
problems and the final result is the greater wholesale failure to construct a
coherent consensus about what is happening to us and what we might do about
it.
Another consequence to these disorders of capital is the massive malinvestment directed into things with no future in
themselves or, much worse, things that actively undermine the future of everything
needed to support any civilized future. For
instance, the "innovation" in securitizing and repackaging
mortgages -- which continues to be a boon for the giant banks in concert with
the thoroughly dishonest and technically bankrupt "government sponsored
enterprises" Fannie Mae and Freddie Mac -- expresses itself in the
activity we call "housing starts." Economists overwhelmingly agree
that a higher number of housing starts is a good thing for the economy and
hence for society. But what do housing starts actually represent? These days
they mostly take the form of new suburban housing subdivisions, which are
inevitably joined by the kit of the strip mall, the big box store, and all
the other furnishings of the highway strip. In short, all that glorious
"innovation" by the banks produces more suburban sprawl and
destruction of rural land, which is about the last thing this society needs
when faced with the realities of peak cheap oil, since it is absolutely
certain to make these things obsolete, and very soon. It is not any better,
either, if the nominal capital -- nominal because it is sure to someday
represent a loss for some bond-holder or stockholder -- gets invested in a
30-story high rise apartment because, contrary to a lot of current delusional
thinking, skyscrapers also have no practical future for reasons I have
explained in other essays here.
Similarly, the public investments going into "shovel-ready"
highway projects, although the fiscal outlays are more transparently based on
money that doesn't really exist. The
public, as well as leaders all across society, serenely believe that the
Happy Motoring matrix will find a way to go on forever, and that therefore we
must make provision for it, not to mention the beneficial side of effect of
"job creation" for all the additional workers. Yet the dynamic at
work must be obvious: oil will never be cheap again; it will impair future
capital formation; there will be far fewer car loans; there will dwindling
public funds to maintain the roads; and there is no practical substitute for
gasoline that scales to the existing system, nor any prospect of one within a
time frame that makes sense -- not to mention the gigantic background problem
of pouring evermore carbon into the sky.
If these things I mention -- highways, tract houses, condo towers, strip
malls -- represent our current idea of "growth," and if they are
self-evidently bad investments, then we can infer that our current concept of
"growth" no longer applies to a reality-based model of our economic
prospects. We ought to junk the term and what it
implies about the daily business of mankind, and come up with a new way of
understanding the place we're at.
In Part II: Getting To a Future That Has a Future, we take a
hard look at the critical task facing humanity if we want to enjoy a future
of any worth -- and that's managing
contraction. We have to reorganize all the major systems
of civilized daily life. We have to produce our food differently,
we have to do commerce differently, and so on with any number of ongoing
endeavors including transportation, manufacturing, governance, banking,
education, health care, and more.
Click here to access Part II of this report (free executive summary; enrollment required
for full access).
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