Energy and the Economy

Some excellent articles summarizing the oil/economy situation, the first from the always excellent Our Finite World blog. Some interesting points here:

More reasons why we are reaching limits to growth (Our Finite World)

Now, with globalization, we have reached the logical maximum in our geographical reach. Those who are rich enough can buy foods from around the world. We also have access to computers and other high-tech devices that can only be made with inputs from around the world. Most people’s expectation is that somehow we will keep up this wide reach, even if our world financial system fails due to debt defaults, but we have no guarantee that this really will be possible.

If we start re-localizing, we will likely run into problems that people have had since the dawn of agriculture. It is hard to grow a wide range of crops in one area. Weather conditions are often bad in one year, necessitating either multiple-year storage of crops, or trade with other areas. If we cannot maintain our use of antibiotics and of water and sewer treatment, deaths from infections may soar.

****
From the point of view of profit-making businesses, globalization is wonderful. Workers can be found in “less developed” areas of the world who will work for lower wages. As a result, wages of workers in the Global North are put in direct competition with wages for workers in the Global South. Wages in the Global South can be lower for several reasons:

•Workers may expect to work more hours per week to earn the funds needed to support themselves and their families.
•Payments to workers do not need to include as much for healthcare benefits, or as much for retirement payments to the elderly, because of the younger workforce, and differences in the healthcare systems.
•Energy costs of workers are likely to be lower because of greater use of coal, smaller homes, less needed for heating in warm climates, and use of bicycles instead of cars.

But there are adverse effects of sending manufacturing oversees:

•The unemployed need to be taken care of by government programs, even if they don’t have jobs.
•Demand for goods produced may fall. Neither the low-wage workers producing the goods in the Global South nor the workers without jobs in the Global North are likely to be able to afford the products that are being produced.
•Economic growth is likely to decline in countries of the Global North that outsource manufacturing and other processes.
•Debt is likely to become more of a problem in countries of the Global North, because of low economic growth or actual contraction. Laid-off workers are likely to find themselves less able to repay their loans. Governments are likely to find themselves in difficulty because of low tax revenues, high benefits to laid-off workers, and high debt levels.

Thus, globalization sows the seed of its own demise.

****

Part of our problem in going back is that we can’t even imagine what web of businesses and traditions would be needed to support a lower fuel use than we have now. We can build a garden in our backyard, and we can print some “local currency” for local citizens to trade, but these types of activities do not really fill the major void that would be left if our current approach to civilization fails.

Also: Peak Oil and Growth (Macrobusiness)

Often forgotten is that fixed resource inputs, even critical ones, don’t always stop growth. There are always 24 hours in a day, but that doesn’t stop us producing more each day. If a shortage of hours was encountered, would a sudden change to 23hrs (a 4% decline) have a dramatic impact? Or would society easily adjust to this new environment with minimal impact on quality of life?

While a smooth transition to prosperity under much greater limits on energy resource inputs to the economy is theoretically possible, I don’t expect this to be our future reality. Self interested governments, businesses and the general public will react to short term shocks in unexpected ways, potentially promoting conflict, and taking the bumpy road. But the peak of oil production itself will not stop progress altogether.

And see this: World lacks enough fuel, food, as population soars: U.N.

ADDENDUM: Clinging to economic growth suffocates the imagination. After 40 years, the message of The Limits to Growth report is still not being heard. We need other ways to share a finite planet (The Guardian)

Listen to the news today and you would think that economic growth was the only answer to all our problems. But 40 years ago The Limits to Growth, written by a group of scientists at the Massachusetts Institute of Technology and published by The Club of Rome, broke a modern taboo: it suggested that growth itself might be the problem.

It wasn't the first time someone had suggested that an economy endlessly expanding in scale was neither possible nor necessarily desirable. As long ago as 1821, David Ricardo wrote of the ultimate equilibrium to which economic development led. And, in his Principles of Political Economy, 1848, John Stuart Mill raised and answered the question like this:

"Towards what ultimate point is society tending by its industrial progress? When the progress ceases, in what condition are we to expect that it will leave mankind? It must always have been seen, more or less distinctly, by political economists, that the increase of wealth is not boundless: that at the end of what they term the progressive state lies the stationary state, that all progress in wealth is but a postponement of this."

Why, then, did The Limits to Growth shock in 1972, and why does questioning growth today still provoke incredulity and anger? The report itself became something of an albatross for the green movement. The view entered folklore that it contained predictions about resource use that were alarmist and plain wrong. But, as New Scientist magazine reported recently, it was the critics of the book who turned out to be mistaken.

Excellent article throughout. The conclusion is the most important part, goring a number of sacred cows:

There is a popular view that economic growth can be saved by efficiency measures, recycling and technological substitution, such as nuclear and renewable energy replacing fossil fuels. Yet the model allowed even for these variables, and crashed under the pressure of growth just the same

And while I have yet to see any figures to illustrate how growth in rich countries can, in perpetuity, be compatible with environmental limits, several assessments point to the opposite conclusion. The Tyndall Centre for Climate Change Research at Manchester University found that to prevent dangerous global warming, economic growth in rich countries would not be possible. With colleagues at the New Economics Foundation, I came to a similar conclusion.

One thing is sure: advocates of growth need to be able to show not only that environmental impact can be cancelled out by efficiency and resource substitution, but that deep, absolute reductions in resource use can be achieved simultaneously, and that such gains can be made year, after year, after year, ad infinitum

A key insight by the original MIT group was the problem of time lag. Environmental problems became obvious and were acted on too late. Damage became locked in. This is the moment we are now living through. Nasa climate scientist James Hansen recently pointed out that if the rich world had started reducing emissions as recently as 2007, the annual reductions necessary would have been 3%. Wait until next year and the figure rises to 6%, wait further until 2020 and the annual target leaps to a staggering 15% reduction per year.

Bear in mind that the Stern Review on the economics of climate change found that annual emissions reductions greater than 1% have "been associated only with economic recession or upheaval".

There are many problematic issues to do with growth that can't be covered here. Clinging to growth, however, suffocates the imagination needed to devise more convivial ways to share a finite planet. At the very least, and with so much evidence to the contrary, the burden of proof now lies heavily on those who reject the original message of the Limits report, for them to demonstrate how, and under what circumstances, we could possibly enjoy "growth forever" in a finite world. Kenneth Boulding, the founder of general systems theory, thought this to be a view held only by "madmen and economists".