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Robert Ayres

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This is the first post in a series of three, in which I will analyze the major trends that will define the next ten years and their likely impacts on global regions. To put these forecasts into context, I must first describe the narrative through which I view the history of the post-WW2 era (the Oil Age, the Age of Hubris, or as John M. Greer aptly described it, the “age of abundance industrialism” – now on the verge of meeting its Nemesis, the waning of Pax Americana and the demise of global Western hegemony), which is dominated by the concept of “limits to growth” – the 1972 Club of Rome thesis that finite resources and pollution sinks will ensure that business-as-usual economic growth can never continue indefinitely on planet Earth.

A Short History of Abundance Industrialism

Driven by an electro-mechanical revolution powered by a windfall of cheap oil, the world registered its highest GDP growth rates in the 1950-1973 period. The era was defined by self-confidence and a secular “myth of progress”, which reached its apogee with the 1969 moon landings. But the next decade saw the arrival of major discontinuities. American oil production peaked in 1970, and went into decline. Saudi Arabia settled into its role as the world swing producer, enabling it to inflict a severe “oil shock” on Western economies in 1973 to punish them for their support for Israel, to be followed by another in 1979 coinciding with the Islamic Revolution in Iran. The decade also saw milestones such as the publication of Limits to Growth, the ending of hyperbolic growth of the world system, and a new emphasis on conservation and sustainability (which led to significant improvements in fuel efficiency and pollution control – back then, the fruits were all low-hanging, so impressive results were not hard to achieve). Yet the first tentative steps towards sustainability were not to be followed through, as the newly-elected Reagan took office proclaiming “Morning in America!”, with its implicit promise of a return to a past with no future. It was a false dawn.

Thus began the “age of diminished expectations”. In the US, physical production by volume and real working class wages stalled in the 1970′s, and have since been on a plateau (slightly tilted up according to official statistics, slightly tilted down according to unofficial ones). The age of Mammon saw rising inequality, both within and between nations (the sole major exception being China whose ascent to world power began in the late 1970′s). As the American industrial base entered its long atrophy, its economy shifted towards construction, services, and finance, – symbolized by metastasizing suburbia – and made possible by new drilling by the oil majors in remoter areas like Alaska, the Mexican Gulf, and the North Sea, a political-security rapprochement with Saudi Arabia, the IT revolution, and the rise of multinational corporations exploiting globalizing markets and cybernetic technology in a flattening world. Sustainability went out the window; quite literally, as Carter’s solar panels were removed from the White House roof in 1986. Finally, the US harnessed its new role as the focal point of the emerging global neoliberal system to open up their economies to the world, unleashing China’s “surplus armies of labor” and the former USSR’s energy resources in the service of Pax Americana.

overshoot

[Source: Tracking the ecological overshoot of the human economy, PNAS.]

This new era of international neoliberalism and developed country post-industrialism coincided with the genesis of humanity’s ecological overshoot of the carrying capacity of the Earth. Though the first global pollution alarm in the form of the “ozone hole” led to an impressive response involving a global agreement on the withdrawal of CFC production, the reaction to the growing specter of runaway climate change caused by man-made CO2 emissions – which is ultimately a far more serious issue – has been muted right up until 2009′s Copenhagen fiasco and today. Instead, the party continued in full blast throughout the 1990′s, for the US was too busy basking in the glow of the ostensible end-of-history triumph of “Western liberal democracy as the final form of human government”.

These hubristic visions of imminent utopia, of global drive-in democracy, collided with hard reality in the first decade of what was supposed to be a “new American century”. The United States is in a state of severe economic disequilibrium and has been in rapid decline relative to its competitors – a condition reminiscent of the USSR in the 1980′s. The probable decline and fall of the global order of which it is the locus will constitute the defining trend of the next decade.

Shifting Winds: The End of Pax Americana

What is Pax Americana? It is the liberal, internationalist, post-Cold War order, which has extended its reach throughout the whole world barring a few socialist holdovers like Cuba and North Korea. Globalization, rule of law, human rights, liberal democracy, free markets, economic growth – these are its self-defined values, which it considers to be the apex of humanity’s socio-political evolution. Its critics, from Western leftists to Third World nationalists, decry it as an exploitative, ruinous, imperialist, hypocritical, end-of-history theology, with voluminous references to the inconsistent ways in which these values are practiced by their own sponsors, or wielded as weapons against its ideological and geopolitical competitors.

But these arguments will soon become academic. As demonstrated by Robert Ayres, there is a glaring hole at the center of modern macroeconomic theory – accounts of growth neglect the vital role of “useful work” (a function of exergy and technical efficiency), whose contribution far outweighs that of labor and capital combined. Both factors have been flattening in the US in recent years, making further growth unsustainable. Furthermore, studies in systems dynamics indicate that brittle systems, with poor “shock absorbers”, can be subject to so-called “cascade collapse“, in which failures at one node produce a self-amplifying resonance that causes many other nodes to fail. If this is an accurate description of the global System, then a setback in any one sphere – be it economic, financial, geopolitical, etc – could usher in a vicious spiral into anarchic apolarity on the international stage.

Pax Americana and its neoliberal ideological superstructure rests on three pillars: cheap oil, American dollars, and the US Navy. Like the legs of a tripod, they all survive – or fall – together. And today, they are crumbling. Let us examine the forces that will be undermining these pillars in the next decade:

Peak Oil

Contrary to the “doomer” worldview, it is almost certainly possible to sustain an industrial civilization without a drop of oil (though ceteris paribus it will be a materially poorer one, because of oil’s uniquely high EROEI). The problem is that today’s industrial system, especially in the US, is built in such a way – gas-guzzling SUV’s on asphalt roads slithering across endless vistas of soulless suburbia – that cheap oil is indispensable to making the commutes and credit flows, the jet flights and JIT production systems, function. An even bigger problem is that Hubbert’s predictions of a global oil peak are (roughly) on schedule: though delayed by the 1970′s oil shocks, it is likely that either 2008 or 2010 was the all-time peak, and oil production will now decline at an accelerating rate – even without accounting for possible discontinuities like a global credit implosion, a sudden collapse of Ghawar, the spread of revolution to Saudi Arabia, or Iranian mining of the Straits of Hormuz.

oil-production

[Source: World Oil Production Forecast - Update November 2009, Oil Drum. Click to enlarge.]

The US spent prodigious sums to fight a war to open up Iraq’s oil reserves, but today its oil production is no higher than in 2000 (and hopes of massively increasing it are probably unrealistic). Russia has reconsolidated state control over its hydrocarbon deposits, discounting Western recriminations over its “resource nationalism”, and has successfully pushed back against Washington-backed “color revolutions”. Central Asia never proved to be the black gold lode of American geostrategic fantasy, and in any case it has since been closed off again by Russia. Due to their immense capital costs, environmental impact, and low energy-return-on-energy-invested (EROEI), there can be no salvation in tar sands or shale. Nor have there been any efforts at mitigation of the kind recommended in the Hirsch report. Any energy transition will be a very drawn-out process, considering the sheer scale of the infrastructure that will have to be replaced – and using continuously lower-EROEI energy sources!

As such, it can be said with a high degree of certainty that the world will soon experience a severe shortfall in liquid fuels. Because of its high degree of dependence on cheap oil, this will affect the US disproportionately, which will have to make good with demand destruction. The consequences will include major knock-on effects on consumers, who constitute the mainstay of American economic power.

State Insolvency

The geological realities of peak oil (2005-2010), in combination with soaring demand from industrializing Asia, have led to the worst crisis since the Great Depression, with the free-fall only being checked by a dizzying panoply of monetary flooding, fiscal stimulus, and government bailouts. As if this weren’t enough, the US faces rising entitlements costs as the baby boomers start retiring, a bloated military-industrial complex, and increasing commitments to Afghanistan with no timetable in sight (where there are now more US troops than there were at the peak of the Soviet intervention).

us-budget-woes

[The US budget deficit is predicted to permanently remain in the red even under the rosiest assumptions. As of now, it is the more pessimistic scenarios that are being born out - Republican refusals to raise tax rates or cooperate on Medicare; Soviet-like rhetoric about "defense cuts" while real military spending continues rising; etc.]

Now the major reason why the US has been able to afford both guns (the US military) and butter (its double deficits) in the face of deindustrialization was by giving its many foreign investors an atrocious rate of return, which they accepted in return for America’s “alpha” – its reputation as the largest economy, sole superpower, and global financial center, in other words, the “safe haven” par excellence. It also draws immense strength from the US dollar’s role as the global reserve currency, for instance by allowing it to comfortably buy oil at $-denominated prices even when the currency is weak. But with its “imperial overstretch” (see Afghanistan), moribund financial system, and a budget deficit north of 10% of GDP and projected to remain in the red for the foreseeable future – by some measures, US debt and fiscal metrics are worse than those of the PIGS on aggregate – will this American “alpha” survive? Probably not for much longer.

The creeping monetization of US debt will destroy investor confidence that they will ever make a positive return on their US bond investment. The withdrawal of a single major investor, especially if it coincides with a geopolitical shock, could set off a “cascading collapse” as other investors scurry away from US Treasury bonds. This will leave the US incapable of generating the primary surpluses to service its negative net foreign investment position, leading either to a compound debt trap or a classic emerging market-style currency crisis. Ice or fire? Given America’s democratic system and the bipartisan consensus on fiscal profligacy, I would bet on the latter.

Economic Decline

The collapse of what in some respects resembles an informal tributary system, channeling global (i.e. Asian) savings to the American consumer, will sound the death knell for Pax Americana. As Paul Kennedy argued in The Rise and Fall of the Great Powers, military power is ultimately subordinate to the economic base which supports it. The industrial base that won the Second World War and forged the American superpower has been in decline since the 1970′s – though on paper it boasted a high productivity growth rate, it masked a huge decline in the size and complexity of its “industrial ecosystem”. Mundane manufacturing, the automotive industry, and machine building have all experienced rapid decline; the heavily-subsidized aerospace and defense industries constitute the only major exceptions to this trend.

Now as long as globalization, free trade, and stability reigned, this did not portend international decline. Industrial hallowing out simply freed up workers into sectors that were more in demand, like restaurants, construction, services of all kinds, etc; and women gained many more economic opportunities. The US could get its manufactures from abroad, like Spain during its (literal) Golden Age. Furthermore, the transition from manufacturing to consumption and finance is historically not without precedents, being observed in the halcyon days of empires like Holland and Great Britain. After these former empires had established their initial industrial supremacy through mercantile means, they transitioned to free-trade regimes designed to reinforce their economic hegemony – and in so doing “kicked away the ladder” from countries trying to catch up. (The United States itself was one of the world’s most protectionist nations until the Second World War, at the end of which it accounted for half of global industrial output and drastically reduced tariff rates).

However, as pointed out above, the crumbling of two pillars of Pax Americana, cheap oil and the US dollar, makes the survival of today’s comfortable globalization highly unlikely. When the inflows of cheap credit from abroad cease; when oil flows decline due to geological, political, and geopolitical factors – the US will no longer be able to maintain its privileged position as the world’s “market dominant minority“, its overstretched armed forces will no longer have access to the lavish funding of the days of yore, and the neoliberal world order they upheld will come to an end.

Geopolitical Shocks

Facing the twinned specter of peak oil and fiscal insolvency and supported by an atrophied industrial base, Pax Americana could in fairness be described as a “brittle system” under a growing threat of collapse. Though it may yet fade away gradually into the night, to be slowly displaced by the state-centered, neo-Westphalian, mercantile reality of “world without the West“, it is altogether possible that geopolitical shocks will make the transition far more abrupt and chaotic than expected.

Though nothing’s certain, it is possible, likely even, that the biggest shock will emanate from a confrontation between Iran and the US in the Persian Gulf. Since 2005, the hardline IRGC paramilitary / intelligence clan, whose figurehead is Ahmadinejad), has been in the ascendant in Iran. Their power was further reinforced in 2009 when the Supreme Leader Khamenei sided with the IRGC in the aftermath of the abortive “Green Revolution” spearheaded by the waning “moderate” clerical clan (headed by Rafsanjani), in response to Mousavi’s electoral loss. These internal Iranian developments occurred in tandem with the rising tensions with Israel, Saudi Arabia, and the US over Iran’s pursuit of an nuclear bomb, amidst the window of opportunity left open to the Islamic Republic by the US quagmire in Iraq. Iran sees the Bomb as the best guarantor of regime security by allowing it to establish a regional hegemony in the Persian Gulf region.

This is unacceptable to everyone in the region. Israel views an Iranian bomb as an existential threat; Ahmadinejad expresses the opinion of 62% of Iranians when he says the Israel state should be wiped off the map. The Jewish state is now ruled by Benjamin Netanyahu, a man who in 2007 opined: “It’s 1938, and Iran is Germany, and Iran is racing to arm itself with atomic bombs”. Not much room for compromise there. The rulers of Saudi Arabia, beset by Iranian-stoked ferment amongst their Shi’ite population and undermined by the Iran-backed al-Houthi insurrection on their Yemeni border, view the prospect of an Iranian bomb with similar trepidation. Though they will protest in public, they will be quite happy to see an Israeli-American strike on Iran; rumor has it that Saudi officials have given Israel permission to fly over their territory via backdoor diplomatic channels.

The US is hesitant. Striking Iran carries great risks. First, no matter how good and accurate your bombs are – the US has accelerated the development of a bunker-buster capable of penetrating 60m of reinforced concrete – they are only worth their weight if you know precisely where to strike. Iranian nuclear facilities are highly dispersed and concealed, making the extent of US intelligence on them uncertain. Second, Iran can mine the Strait of Hormuz and harass oil tankers with coastal shore batteries, diesel submarines, and merchant raiders. This will put at risk 20% of the global oil supply; even if the blockade proves ineffective, as predicted by most analysts, soaring insurance rates may result in oil prices spiraling into new highs due to unprecedentedly tight supplies. Third, the Islamic Republic has a panoply of retaliatory options at its disposal: a renewed Hezbollah missile barrage against Israel, increased support for Shi’ite insurgencies in the Arabian peninsula, and above all a resurgence of political violence and state instability in Iraq. As mentioned above, hopes have been pinned on Iraq to delay global peak oil by another decade. Yet it has always been a land of unfulfilled potential, its imminent oil production takeoff regularly stymied once per decade – in 1979 with the outbreak of the Iran-Iraq War, in 1991 with the Gulf War, in 2003 with the US invasion. It would not be out of character for its oil production to plummet again in 2012, in the face of renewed internecine warfare, Iranian incursions, and mining of the Strait of Hormuz.

Given all these risks and uncertainties, it is not surprising that the US is pursuing a cautious approach, restraining Israel and pushing for “crippling” sanctions on Iran, targeting its gasoline imports. However, the latter will not achieve much, especially since Russia – which has not received the firm recognition of its sphere of influence over the post-Soviet space that it really wants from Washington – will be able to torpedo any sanctions by allowing Iran to import gasoline through its Central Asian surrogates. Israel may grow impatient and eventually jump the gun without US permission. But Iran will likely consider Israeli and US actions to have been coordinated, and will embark on its “Project Mayhem.” The US may be forced to rush in and respond unprepared to contain the fallout as best it could. Now it is true that alarmist predictions that the US Navy will be crippled by Iranian low-tech swarm attacks are largely unsubstantiated, and there is no question that the US will have no trouble in gaining full air superiority over the obsolete Iranian integrated air defense system. However, defeating Iran’s dispersed retaliatory assets in detail may be a difficult and prolonged undertaking, perhaps even requiring the military occupation of strategic Iranian regions such as Khuzestan and Kish Island.

The US finds itself caught in a Catch-22 situation. Let Iran be, and it develops a nuclear deterrent allowing it to make a bid for regional hegemony – if it is not preempted by an Israeli strike. Attack Iran, and needless to say, anything worse than the most optimistic scenarios (in which the Strait of Hormuz only remains blocked for a few days) will constitute a tremendous physical and psychological shock for Pax Americana, a shock in which all its three pillars come under strain in the form of oil supply disruptions, financial turbulence, and prolonged aeronaval operations.

Endgame

In conclusion, given the inherent fragility of the neoliberal world order and the mounting stresses on it in the years ahead, stresses that could be explosively released in a major geopolitical crisis – possible in Iran, though major clashes in other hotspots like the Caucasus or the East China Sea cannot be dismissed – it is unlikely that Pax Americana will survive the decade.

Yet its collapse will not herald a global collapse and a sudden descent into the Olduvai Gorge, for Pax Americana is ultimately just a subsystem of a larger system – that of global industrialism, the System that encompasses virtually the entire world, with the sole exception of hunter-gatherer remnants in the Amazonian fastnesses and a few mystical recluses. The American empire, much like the Soviet one, will retreat from globalist pretensions, while maintaining a continental hegemony. In the meantime, powered by domestic coal and a new kind of resource tributary system – one based on bilateral deals instead of open markets – China will be well on its world-historical “great reconvergence” with the West, making it the preeminent superpower of the age of scarcity industrialism.

The geopolitics of scarcity industrialism are the topic of the next monograph in this series.

(Republished from Sublime Oblivion by permission of author or representative)
 
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The standard view of the American economy is one of exponential growth: even if interrupted by a recession once a decade and a Depression once every two generations (the 1890′s, the 1930′s, the 2010′s?), the engines of industry would always come back roaring again. Output per American could always be expected to increase as it has from 1790 until the present day. There has never been a decade, even during America’s two Depressions, when US GDP was lower at the end than at the beginning.

However, another point of view on the US economy can be developed by drawing on observations of factors such as median income, energy consumption and inequality. Broadly speaking, this picture is one relative stagnation from 1890-1940, and again from 1973-today, punctuated by the truly remarkable “miracle economy” of the post-war boom. Furthermore, the US is now about to transition to a new phase: economic stagnation and anarchic stasis, to be followed by oligarchic Caesarism. This first post will be, for now, just a series of observations that I believe to be inextricably linked, but lack the theoretical foundations to put on a sound footing. Feel free to skip it, as it might be hard to follow and I’m mostly writing it to get greater understanding for myself. More polished version(s) to follow.

1. Median incomes (the ones that matter to ordinary Americans) tell a radically different story from the GDP figures. As shown below, they remained at a virtual plateau from 1914 to 1940. During the WW2 mobilization, spare capacity filled up, as factories began to produce the tanks, ships, planes, jeeps and misc. that played a crucial role in the Allied victory. After the war, what might have been a new plateau from the 1940-50 base accelerated, literally driven by the automative revolution; it is during this time that the US became a suburban, oil-based civilization.

ave-us-income-saez

However, the oil shocks of the 1970′s threw a jackhammer into that arrangement. Since then, the only discernible rise took place in the 1990′s: a period that saw the opening up of the Chinese “reserve army of labor” and the Soviet resource base to global markets. These began creating powerful deflationary effects in the US. But things went into reverse altogether during the past “lost decade“.

The median household income in 2008 was $50,303. The median household income in 1999, expressed in 2008 dollars, was $52,748.

You’ve got to figure 2009 will see another decline in income, in which case Americans will end the decade significantly less well off than when they started it. We’re not just treading water. We’re going backwards. …

Still, the 2000s have been especially barren. Median income rose only in three years—2005, 2006 and 2007, and even at the cyclical peak in 2007 it was below the levels of 1999 and 2000.

2. More on the energy developments during the period. During 1950-70, the US enjoyed very rapid growth both in absolute energy consumption and the energy efficiency of its techno-industrial base. Therefore, the quantity of “useful work” available for exploitation by American labor and capital increased very rapidly.

But this growth moderated since the 1970′s. Given the continuing reduction in the EROEI of oil, the peaking of the net energy flowing into the US economy from coal in 1998, and the turn to costly shale gas to maintain natural gas production volumes observed within the last decade, this trend must have only strengthened in the 2000′s. Graphs are taken from Economic Growth and Cheap Oil (Robert Ayres).

us-exergy-services-supply

The growth in the”technical efficiency” with which exergy is converted to “useful work” by the American economy has been flattening since the 1980′s (probably due to diminishing returns to investments into more efficiency: see Tainter, etc). Though Obama’s drive to increase energy efficiency is laudable, it will be hard to achieve big results given that most of the low-hanging fruit have already been picked.

technical-efficiency-us-exergy-services

If further improvements in technical efficiency are low, then the US will be going into a permanent hyper depression in the years ahead according to Ayres’ calculations. As of today, the observed results match the Low forecast.

ayres-us-gdp-forecasts

There’s little reason for hope. The potential for squeezing more “useful work” – the single biggest factor in GDP growth – out of the current US energy base are very limited. Coal, oil and natural gas are roads to nowhere. While nuclear and renewables are far more sustainable in the long-term (for maintaining an industrial base), they need 1) several decades to be build up and 2) given the same investments in K and L generate less useful work than today’s hydrocarbons because of their low EROEI’s.

3. Another interesting thing is that the period of stagnant US median incomes is linked with rising inequality. (This explains the continued moderate growth in consumption and GDP – its just that since 1973 a very large portion of it has been accruing to the guys at the top of the pecking order).

Now in stagnant systems – e.g. overpopulated agrarian societies – this is explained (Turchin) by the fact that land, food and credit prices have a tendency to go up, benefiting the elites (landowners, financiers, etc) relative to the rest of the population. While similar processes apply to industrial societies (see Marx), its effects can be combated by the powerful redistribution mechanisms available to the modern state (that were lacking in the agrarian states of yore). Hence, despite the fact that since the 1980′s Western Europe has been on much the same vastly lower growth trajectory, inequality in states such as France and Germany has remained low.

On the other hand, the US – having progressively deregulated the financial sector and knocked down marginal tax rates – has experienced a massive increase in inequality that may now be approaching the levels of the Gilded Age.

marginal-tax-rates

4. Fertility rates are linked to economic conditions. One of the many explanations for the post-war baby boom in the US is that soldiers were returning home, social conservatism, etc. But none of them are very convincing as comprehensive explanations.

us-fertility-rate

Instead, one may interpret the above graph as follows:

  • 1900-1940: stagnant median incomes; TFR approaches replacement level rates as the US ceases being an agrarian society.
  • 1940-1970: the baby boom as US middle class living standards expand rapidly. Populations tend to expand rapidly when their resource base expands. Interesting why TFR expansion started dropping in early 1960′s, though: perhaps looking at cohort TFR’s (which adjust for average age of childbearing) would yield a better fit with the economic stats?
  • 1970-2010: roughly replacement level TFR’s, stable median incomes.
  • 2010+: if median incomes begin to fall in the future, due to energy constraints and/or fiscal collapse, we might well see the TFR drop to something like 1.5.
  • A comparison: Russia completed its post-agrarian fertility transition by the mid-1960′s; after that, the TFR remained stable at around 1.9-2.1 until 1990 (as we know this was a time of zastoi / stagnation, esp. in the later part of this period). But in the 1990′s Russia’s TFR fell off a cliff, along with real living standards (not only did average incomes fall, soaring inequality made most people’s income fall even faster). The nadir was reached in 1999 (TFR=1.16) and has since risen up to 2009 (TFR=1.56).
  • Of course, non-material factors also play a big role: e.g., why is German TFR so much lower than France’s? etc…

5. Preliminary speculations. The reason I’m very skeptical on the Keynesian / Krugman vs. Austrian / Tea Party “debate” is that both positions, though ostensibly opposite, are based on the same presumption: that further economic growth is still possible, if only their policy prescriptions were to be followed. (In a recent Oil Drum posting Gregor MacDonald laid out my thoughts very well in Hollow Men of Economics.

So, Krugman draws many simplistic graphs showing how growth was bigger during the (Keynesian) 1950′s-1960′s than during the (monetarist) 1980′s-2000′s, ergo, the government should throw more and more money at the economy, the deficits and debts be damned. Then there his ridiculous “invisible” bond vigilantes argument: if the US can sell debt so cheaply, why should we worry about exploding budget deficits? Only a few things wrong with this theory…

  1. It’s a complete strawman! By the time the bond vigilantes take off their invisibility cloak, the costs of servicing debt – much of it now in short-term bonds which have to be frequently rolled over – will begin to spike, leading to an irreversible death spiral.
  2. Makes the questionable assumption that the US will grow at 2-3% in the future, whereas 1) the necessity of deleveraging, 2) the exergy situation and 3) the fragile geopolitical situation makes this highly unlikely.

Of course, the Austrians / WSJ are no less insane. If only the rich could get more tax breaks, if only banksters and oil corporations could be coddled even more than they are already, everything would be fine and dandy and we’ll be growing our way into a Randian paradise of abundance.

Both sides UTTERLY fail to consider the vital factor of useful work to economic growth. Useful work is a function of exergy & technical efficiency. Exergy is likely to peak and go into decline within the decade, given the trends in the energy base; technical efficiency appears to have a trend of flattening out. If investors were to suspect there are no prospects for future growth, the credit system – the economic equivalent of fertilizer in agriculture – as it exists today would collapse (why give out loans if there’s little prospects they will be repaid?), and the consequent drop off in investment will lead to depreciation overtaking and the capital stock beginning to contract. Finally, while the labor force will continue to expand, its quality will not because American IQ has been flat since around the 1980′s because of the cessation of the Flynn effect. (The *only* positive, productivity enhancing trend at work is the continued informatization of the economy, which may gain a boost with the appearance of ubiquitous, specialized and highly effective AI’s by the 2020′s.)

This is not an attractive view to take, because it basically means that whatever the government does or doesn’t do, GDP decline is inevitable. But the alternatives aren’t rosy either:

  • If Krugman “wins” the debate: the economy sputters along for a few years, never getting onto a sustainable growth trajectory. Awning budget deficits and ballooning of the public debt (which is now at 140% of GDP if you also count local/municipal debt and Freddie Mac/Freddie Mae liabilities). The result: an Argentina 2000/Latvia 2009-style collapse, probably sometime around 2012-15 (might be triggered by a “geopolitical shock”). End-result: some kind of American Caesarism.
  • If Austrians “win” the debate: the decline is grinding and gradual, rather than sudden and catastrophic.

Instead, it would perhaps be a better idea to craft policies in such a way as to minimize the harm done for (as I suggested in my abortive “Collapse Party” project) and at the same time make the foundations of the American state stronger.

  • Reintroduce the high marginal tax rates of the 1950′s-60′s to reduce inequality and shift the burden to those able to shoulder it. Might prevent the soaring inequality / corruption / resentment that leads to crony Caesarist outcomes. Problem: ACHTUNG SOCIALISM!
  • Allow the financial system to contract / collapse as needed. Today, it is a rotting dead weight on the US – both economically (there’s no need for such a huge financial sector in the first place) and morally (they are a class apart from normal Americans). Problem: institutional capture means same banksters wield immense influence over both parties of power.
  • Reduce military expenditures. There’s a lot that can be cut. First, the metastasized “war on terror” apparatus. Second, the expeditionary/naval component can be cut. There’s no long-term hope of containing China, but the Western US itself is secure. The Pacific Fleet can be reduced. Get out of Afghanistan. On the other hand, maintaining dominance in the Atlantic (core US interest) and the Middle East (oil) is useful. Third, saved money can be used to 1) continue research into next-generation military technologies, 2) reducing deficit. It’s not really a choice, actually. Military contraction is inevitable in the next decade: the only question is whether it will be uncontrolled (as during 1990′s Russia, when c.70% of Soviet military assets depreciated into junk) or controlled (with the result that core strengths will be preserved). Problem: suggesting reductions in military spending is unpatriotic & goes against the powerful defense & MIC lobby.
  • Obamacare is imperfect, but one of the administration’s best achievements. Leave as is.
  • Use savings from cutting off subsidies to the MIC & financial mafias – and the bigger tax intakes – to launch a coordinated restructuring of the US energy base. To accelerate the transition to sustainability, start planning and building lots of new nuclear power plants, and renewables. Start phasing out coal. First, makes a positive contribution to helping the world avoid catastrophic climate change. Second, this transition is in any case inevitable once the EROEI of hydrocarbons dips to lower levels – but by then, switching will harder because there’ll be many other challenges on the plate (e.g. mitigating the increasing effects of global warming; coping with the dearth of capital). So make a head start now. Problem: requires the kind of forward thinking that institutions are chronically incapable of.
  • How do solve all these problems? Obama needs to take a gamble, revolutionize his leadership, launch an all out political assault against the enemies of progress. Problem: not going to happen.

And that’s the story of it.

If I had to bet on it, I’d say US GDP per capita will be 5-25% lower in 2020 than it is now – even though we’re in recession. (Unlike with the 1930′s Depression, there’s no abundant, very high-EROEI energy subsidy on the horizon waiting to propel the US to another level). Inequality will be no lower than today, because of the power of today’s stakeholders in the system, hence – coupled with lower output and the waning of the credit system – median incomes will be a lot lower; hence, many more people in outright destitution. The center of gravity (economy, population) shifting back to the north and east (above all the Great Lakes region) from the south and west. The Presidency will have transitioned to some kind of Caesarism, served by a clique of politically-connected oligarchs. Any imperialist adventures now confined to the Western hemisphere. The citizenry too atomized, apathetic and preoccupied with quotidian concerns to do much about it.

I appreciate your thoughts and criticisms of this post, but do note that it is not meant to be final or “serious”; more like a strange mix of relatively obscure economic concepts, lazy extrapolations and personal impressions. As I said at the beginning, I hope to refine and connect these ideas into a more rigorous and logical framework in the future.

(Republished from Sublime Oblivion by permission of author or representative)
 
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Although I have several articles on the threats posed to industrial civilization by runaway global warming and ecological degradation on Sublime Oblivion (see 1, 2, 3, 4, 5), I have yet to cover the Charybdis of resource depletion in as much detail (1, 2, 3, 4). As such, I have assembled many links to relevant articles on blogs such as the Oil Drum and Energy Watch Group to provide a foundation for the layman interested in exploring these very important concepts. With time I will write short descriptions next to some of the more important links summarizing what they are about.

EDIT Dec 2010: The Best of TheOilDrum.com 2005-2010 is ultra-recommended.

Basic Summaries

Core Books on Resource Depletion

  • Limits to Growth: The 30 Year Update (Meadows et al)
  • The Last Oil Shock (David Strahan)
  • Beyond Oil (Kenneth Deffeyes)
  • The Party’s Over (Richard Heinberg)
  • Twilight in the Desert (Matthew Simmons)
  • The Long Emergency (James Kunstler)
  • Global Catastrophes and Trends (Vaclav Smil)
  • The Long Descent (Michael Greer)
  • Our Ecotechnic Future (Michael Greer)
  • When the Rivers Run Dry (Fred Pearce)
  • The Collapse of Complex Societies (Joseph Tainter)
  • Collapse (Jared Diamond)
  • World Made by Hand (James Kunstler)

Peak Oil Projections

Energy Accounting & Geopolitics

Energy & the Economy

Limits to Growth

Coal, Natural Gas & Uranium

Renewables

Metals & Mineral Depletion

Energy & Societal Collapse

Regional Analyses

Politics & Psychology of Resource Depletion

(Republished from Sublime Oblivion by permission of author or representative)
 
Green Communism is humanity's last and only chance to avert environmental catastrophe.
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Communism is not usually regarded as a green political system.The lack of attention to negative environmental externalities on the part of central planners bequeathed the areas under their control a legacy of wilted forests, poisoned waters and darkened skies. The dissolution of the Soviet empire revealed these failures to the world – the overflowing chemical sink of Dzerzhinsk, the black sulfurous snows of Norilsk and, most iconically, the radioactive zone of Chernobyl. The post-Soviet economic collapse idled the smokestacks and destroyed many of the most egregiously polluting enterprises; yet the hellish mills grind on in China, home of 16 of the world’s 20 most polluted cities. So the claim that Communism could have saved the planet from ecological oblivion will no doubt be met with a fair amount of skepticism.

However, we must first define what kind of pollution we’re talking about. For instance, European medieval cities lacked the most basic sanitation and epicenters of pestilence. Until the nineteenth century, their death rates were permanently higher than their death rates, and needed a constant influx of people from the countryside to sustain themselves. However, in that period humanity’s ecological footprint, even measured per capita, was very small and sustainable. This is because that kind of pollution was extremely localized. Modern man would no doubt find life in the medieval city unbearable, at least initially. However, if you venture outside its (typically small) perimeter, a lost world of bucolic idyll would open up before you. (Then you’d get hanged for vagrancy or killed by bandits or starve to death, but that’s beside the point).

In pre-industrial and early industrial civilizations, although localized pollution may be extreme, global pollution is minimal. As is well-known, CO2 is the major greenhouse gas that contributes to anthropogenic global warming. Between 1000 and 1840, the global CO2 concentration fluctuated between 275-285ppm. It only began rising appreciably when the world entered the age of iron and steel around 1850, still very slowly albeit extremely fast by geological standards. Although disrupted by the discontinuities of the Great Depression and the Second World War, the post-1950 age of cheap oil that fueled the American economic miracle, European recovery and the large-scale industrialization of the Soviet bloc and Japan turbocharged CO2 emissions. The 1970′s oil shocks moderated but did not check this secular trend. High oil prices spurred investment into oil operations in remoter regions free of OPEC’s price-setting and eventually brought prices down. The opening of China from the late 1970′s resulted in its becoming the coal-powered workshop of the world by the new millennium. This was part of a general global trend in which the developing world ditched Marxist-inspired theories of economic development in favor of freer markets, albeit outside Asia the economic results were usually mixed. Meanwhile, CO2 emissions again spike on up, while its atmospheric concentration kinks ever more upwards – a dark singularity that may potentially doom human civilization.

Viewed from a long timescale, the past century of environmental vandalism looks like a singularity. Unlike the human lifespan, which is measured in decades, the biosphere is measured in hundreds of millions of years. As such, to Gaia humanity already appears as a disruptive and alien technological Singularity. From the dialectical materialist perspective, this is the Law of Negation at work - just as each class begets its own gravedigger, so homo sapiens builds its civilization upon the bones of the biosphere that gave it birth, leaving behind only desert.

Viewed from a long timescale, the past century of environmental vandalism looks like a singularity. Unlike the human lifespan, which is measured in decades, the biosphere is measured in hundreds of millions of years. As such, to Gaia humanity already appears as a disruptive and alien technological Singularity. From the dialectical materialist perspective, this is the Law of Negation at work – just as each class begets its own gravedigger, so homo sapiens builds its civilization upon the bones of the biosphere that gave it birth, leaving behind only desert.

One of the effects of Communism in the twentieth century was that it stifled the growth rates of the countries it infected. In 1950, China and Taiwan had similar levels of economic development. However, there was a generational difference between when these two countries opened themselves up to globalization. Taiwan began developing as a market-driven export hub from the 1950′s; China joined the Asian tigers only in the 1980′s. Today Taiwan belongs to the rich club of nations, while China is still in the throes of development and only recently moved into the ‘lower middle-income’ rank. Since these countries are culturally similar (most of the world recognizes them de jure as ‘one China’) and were at roughly the same level of development prior to the Chinese Revolution, the difference between them can be safely attributed to Maoist inefficiency and chaos.

Energy, or more precisely exergy that is used for useful work, is a key factor of growth – a neglected topic in classical economic growth theory that has only relatively recently been addressed by the work of Robert Ayres and others. Since up till now the most intense and effective energy sources have been hydrocarbon based, they make up the lifeblood of our industrial civilization. Burning fossil fuels releases CO2. First, heavy industrialization boosts CO2 emissions per capita to around 5-10 tons; afterward, automobiles and other consumption push them up by another 5-10 tons. From 1990 to 2003, Taiwanese CO2 emissions doubled to 12.4 tons as its citizens became rich and bought up vehicles and household appliances. South Korea went up from 5.6 tons in 1990 to 9.8 tons in 2004. Massive industrial expansion in China raised their emissions from a meager 2.1 tons in 1990, to 3.8 tons in 2004 and more than 5 tons by 2007 – the consequence of becoming the world’s largest producer of steel, cement, aluminium and a whole host of other heavy industrial products. The difference, however, is that the combined population of South Korea and Taiwan are less than 10% that of China, so increasing per capita emissions in the latter are having a vastly greater global impact. In absolute terms the increase in world CO2 emissions since the millennium has been the greatest in human history.

Although China’s economic potential was the most suppressed of any country under Communism in absolute size, Russia’s has been held down for the longest period. At the dawn of World War One, the Russian Empire enjoyed the fastest rate of industrial growth of any European country. Without the ‘lost decades’ of the Civil War (1916-28) and the Great Patriotic War (1941-50), it is entirely feasible that it could have become a fully industrialized country by the 1950′s, instead of the 1970′s. Furthermore, like Japan it would have developed a mature consumer economy by the 1970′s, instead of the 2010′s or 2020′s as seems likely today. The demographic dividend from cutting out the Civil War, Stalinism, World War Two (it is unlikely that Hitler could have come to power in Germany were it not for the Communist specter) and falling post-1965 life expectancy would have meant that Russia’s population today, assuming similar fertility trends, would be around 200mn rather than 141mn. This demographic dividend would also be reflected in Eurasia and east-central Europe in general. What all this implies is that per capita CO2 emissions would have reached around 20 tons per capita by the 1970′s (similar to Canada or the US – remember that Russia is a cold, resource-rich country). In conclusion, Eurasia’s and east-central Europe’s potential contributions to CO2 emissions could have been as as great or even greater than China’s during the course of a non-Communist twentieth century, due to the fact that their development (and pollution) was suppressed for a longer period of time.

Finally, without a respected and powerful bastion of Communism in the world in the form of the Soviet superpower, Marxist economic ideas would not have enjoyed such wide traction in the post-colonial developing world. The ‘License Raj’ might not have been a feature of Indian life, thus possibly accelerating its development by one or two decades such that today it would be an industrialized if not yet consumer-orientated country. Without its legacy of import substitution and bureaucratic overload, Latin America would probably be both richer and a bigger global pollutant. (This is not to say, however, that the region will have converged to advanced country living standards. Like the Arabs and Africans, and unlike east Europeans or the Chinese, the low emphasis these cultures place on education means their basic economic problem, low human capital, would have put a plateau on their potential GDP well below developed standards, as I argued extensively here).

Taking historical CO2 emissions since 1950 as my base, I constructed two scenarios – Capitalist China, in which the Chinese Revolution of 1949 was averted; and No Communism, in which the 1917 Russian Revolution was thwarted and no other severely anti-capitalist ideology took over a large share of the world’s economic capacity in the twentieth century.

To construct Capitalist China, I assumed historical CO2 emissions up to 1975, a rise to 5 tons per capita (versus historical 2.1 tons) by 1990, and a further rise to 10 tons per capita (versus 3.8 tons) by 2004. This assumes that like South Korea or Taiwan, the latter stages of heavy industrialization occur in 1975-1990 (in reality: 1990-2008) and that 1990-2004 sees the development of a prosperous consumer economy. In No Communism, I just crudely assumed a flat 50% increase in CO2 emissions for 1950-2006.

To construct Capitalist China, I assumed historical CO2 emissions up to 1975, a rise to 5 tons per capita (versus historical 2.1 tons) by 1990, and a further rise to 10 tons per capita (versus 3.8 tons) by 2004. This assumes that like South Korea or Taiwan, the latter stages of heavy industrialization occur in 1975-1990 (in reality: 1990-2008) and that 1990-2004 sees the development of a prosperous consumer economy. In No Communism, I just crudely assumed a flat 50% increase in CO2 emissions for 1950-2006.

The Capitalist China scenario is, I believe, robust albeit crude. I worked out a new value for 1990 and for 2004 global CO2 emissions, assuming the above increases in Chinese pollution, and linearly connected them with straight lines. It suffocates the details out of the picture, e.g. the oil shocks and their effect on CO2 emissions. Nonetheless, this is permissible since we’re talking about an alternate history decades down from its branching point, so assuming a simple repetition of the Arab oil embargoes is pointless. It does however show the huge impacts on cumulative CO2 pollution caused by delayed Chinese industrialization.

Since there is no ordered data for national CO2 emissions prior to 1990 (and in any case aggregating and manipulating them all would require far more work than I’m willing to do – we’re talking generalities here), I basically assume a 50% increase of CO2 every year over historical levels. Although towards the high end, I do believe it’s justified. If Russia and its peripheries had become industrialized by the 1950′s, rather than the 1970′s, that would have added around 250mn more people into the industrialized world, at a time when it consisted of perhaps 350mn Europeans whose economies were devastated by war and 150mn Americans. The Third World would have started developing a great deal quicker without the influence of Marxist thought on economics, which is pernicious to traditional growth. The oil shocks of the 1970′s would instead have correlated to the oil shock of 2008, the harbinger of peak oil. After that, with renewable energies still in their infancy, the late twentieth century would have seen the substitution of oil for much dirtier coal, whose increased pollution would have canceled out the effects of more natural gas and nuclear power, let alone fledgling wind or as yet non-existent solar. Therefore, overall I think the 50% over historical levels CO2 pollution is a reasonable assumption for a non-Communist century.

That said, what role would these increased emissions have had on atmospheric CO2 levels, in a world where Eurasia and the Third World declined Marxist economics and China followed Taiwan’s and South Korea’s development path?

When looking at the historical data, I found that in any year the gross amount of CO2 emissions and the increase in the level of atmospheric CO2 are very closely correlated (to the extent that there's no need to even bother with a proper straight line fit). This stands to reason - human emissions of greenhouse gases have long since far surpassed the ability of the world's sinks to swallow them. After simplifying the relation between emissions and CO2 levels as a basic linear formula, I applied it to the two emissions scenarios detailed above and came up with this graph. Note - to account for Eurasian industrialization and no World War Two between 1917 and 1950, the CO2 level in 1950 is set at 317ppm, corresponding to the real 1960 level, instead of the real 1950 level of 311ppm.

When looking at the historical data, I found that in any year the gross amount of CO2 emissions and the increase in the level of atmospheric CO2 are very closely correlated (to the extent that there’s no need to even bother with a proper straight line fit). This stands to reason – human emissions of greenhouse gases have long since far surpassed the ability of the world’s sinks to swallow them. After simplifying the relation between emissions and CO2 levels as a basic linear formula, I applied it to the two emissions scenarios detailed above and came up with this graph. Note – to account for Eurasian industrialization and no World War Two between 1917 and 1950, the CO2 level in 1950 is set at 317ppm, corresponding to the real 1960 level, instead of the real 1950 level of 311ppm.

As of 2006, the atmospheric CO2 level was at 382ppm and soaring at a blistering rate. However, had just one country, China, embraced globalized markets just a generation before it did, the CO2 level in 2006 would have been a full 10ppm higher, at 392ppm. That it did not, bought the world five additional years in which to curb material throughput or make a technological breakthrough that would avert climate catastrophe. Furthermore, if the globalized idyll of before 1914 were not shattered and if Communism remained confined to the world’s libraries and universities, CO2 levels in 2006 would have been at 421ppm – at today’s rate of CO2 increase, equivalent to fifteen years of breathing space. Peoples suffered under Communist regimes so that humanity could survive.

That is a bold statement that might seem rather insane and perhaps callous. Let me explain. The EU defined anything greater than a 2C rise in global temperatures to be a ‘dangerous’ level of warming and set itself targets to avoid it. Although at those temperatures the Great Plains breadbasket, coral reefs and the Arctic icecap are all doomed to desertification and extinction, truly catastrophic warming and widespread human ‘die-off’ are likely to be averted. According to climate modeler Meinshausen, meeting the 2 degrees C climate target means that atmospheric CO2 levels have to be stabilized somewhere around 400ppm – and even then, we’re only giving ourselves a slightly greater than break even chance. For this to occur, emissions must peak by 2015, halve from 1990 levels by 2050 and peak atmospheric CO2 levels must not exceed about 450ppm. (Consult the linked paper for more details, it has caveats on probabilities, the effects of other ‘CO2 equivalent’ greenhouse gases, etc).

Furthermore, the above work neglects recent research into positive feedbacks in the global climate system. Should the global temperature reach a certain ‘tipping point’, it is possible that it will unleash self-reinforcing ‘runaway warming’. The vegetation and forests of the world will switch from being carbon sinks to carbon sources, as decay overtakes growth. Large parts of the Amazon are projected to burn up and become desert, releasing more CO2. In possibly the most under-reported story of 2008, vast tracts of Siberian permafrost and Arctic gas hydrates are already melting rapidly and releasing methane, a gas twenty times as potent as CO2 in its contribution to global warming. The past decade saw the biggest relative growth of global CO2 emissions since the 1960′s (and the biggest in absolute terms), so we are very far from stabilizing them. The current economic crisis is hurting the renewable energy industry and public commitment to green projects, even as the world once again bathes in a cheap noxious brew of hydrocarbons. And all this is quite disturbing.

We are already at the edge of the precipice, and this in a world where Communism suppressed the economic and polluting potential of vast swathes of humanity like a compressed spring for most of a century. If Eurasia had been allowed to become a normal consumer economy and if China and the rest of the old Third World hadn’t been stalled in their large-scale industrialization by the shackles of socialism, we would already be at an atmospheric CO2 level of 420ppm or so and well on the road to oblivion. Meanwhile, we would still be at around the same technological level as we are today. Thus, Communism played a key role in the last century in the salvation of mankind.

However, as discussed above, the survival of advanced civilization is still far from assured. Yes, we might still be rescued by a technological breakthrough. For instance, recursively self-improving machine intelligence could negate humanity and transcend its climatic problems. Unfortunately, the dates postulated for the technological Singularity by most thinkers, around the middle of the century, are just about the time when credible ‘business-as-usual’ models of climate catastrophe and resource depletion foresee the collapse of advanced industrial civilization amid a global die-off. It would do no good if computer scientists finally unlock the inner secrets of the human brain just before their lab is stormed by a starving mob that lynches them and destroys the machine that just minutes before had passed the Turing test with flying colors… The twenty-first century will be a make or break century – Olduvai Gorge or technological Singularity. Of course, it’s possible that just before falling over the cliff, humanity does manage to incubate machine intelligence, which will precede to take over the world on the bones of their biological parents, just as we in our time took over the biosphere and left behind deserts. That would make for a most sublime demonstration of the Laws of Negation and of Transformation in dialectical materialism.

It should be transparently clear that Green Communism is the wave of the future. The capitalists are morally, and now financially, bankrupt, with the Ponzi scheme that is global finance unraveling before our eyes. We can live without the Madoffs and made-offs of this world; we cannot live in a world of metastasizing deserts and encroaching oceans. The zombie masses of the consumerist have blindly worshipped the false Gods of material growth, directed in their idolatry by cultural hegemony of the capitalist elites. The masses must be woken from their gasoline-fume induced stupor, before stern Mother Nature does it for us. Green Communism is the road to redemption for consumerist sins of greed and gluttony.

The Europeans are too soft and effete to give up on their luxuries, the Americans too enamored of their bankrupt and soulless capitalist system. Russias are already infected with the poisoned chalice of mass consumerism, and never made good Communists anyway. Ironically, the best hopes of foisting a true values shift upon the world may lie in China. They have finished building up their heavy industrial base, but have not yet developed to the stage of mindless consumerism. Now they stand at a crossroads. Their Communist party can either opt for the patently bankrupt philosophy and way of life that is neoliberalism, or they could ignore the temptations of listening to shallow popular sentiment and start focusing on material and spiritual transformation.

The world must arise as one in revolt against the neoliberal System, overthrow the warmongers and capitalists and institute a global network that will focus its energies on technological innovation and spiritual advancement – surely worthier goals than today’s prevailing commodity fetishism. China may be the locus, but whichever nation or region first takes upon itself the holy burden should not be left alone – otherwise, surrounded by predatory and cynical capitalist Powers, it will fall into the same militarism and parochialism that destroyed the Soviet soul and ultimately its material foundations. Society should be fundamentally restructured. The productive capacities already exist to provide everyone with food, shelter and a reasonable standard of living. Economic activity should be geared almost exclusively to technological research, as well as maintaining existing productive capacities and social obligations. Material throughput must be drastically reduced and all major economic activities subject to stringent sustainability criteria. Patents and elite universities should be replaced by and the collaborative spirit that is aspired to in academia and free, quality education over the Internet (on the model of MIT’s courses). The workers must be guided out of their false consciences, which the elites hoisted so long upon them to imprison them, and new, smaller generations should be reared in factory incubators. The development of bottom-up nano-manufacturing and deep machine intelligence will bridge the Olduvai Gorge and transform human civilization into the post-scarcity paradise that is Green Communism.

Notes: My main sources were the Earth Policy Institute for global CO2 emissions and atmospheric levels, and Wikipedia for national CO2 data. You can also look over the data file (.opd) used.

(Republished from Sublime Oblivion by permission of author or representative)
 
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Anatoly Karlin
About Anatoly Karlin

I am a blogger, thinker, and businessman in the SF Bay Area. I’m originally from Russia, spent many years in Britain, and studied at U.C. Berkeley.

One of my tenets is that ideologies tend to suck. As such, I hesitate about attaching labels to myself. That said, if it’s really necessary, I suppose “liberal-conservative neoreactionary” would be close enough.

Though I consider myself part of the Orthodox Church, my philosophy and spiritual views are more influenced by digital physics, Gnosticism, and Russian cosmism than anything specifically Judeo-Christian.