What is Working?

I started a kind of list. I had been tracking a number of institutions (like higher education) and organizations (like the US government) and casually chronicling their growing dysfunction. The list was getting long and the seriousness of the dysfunctionalities was getting extreme. It occurred to me that it would be easier to keep a list of those institutions and organizations (including geo-political and economic regions, countries, cities, etc.) where things seemed to be going well.

I define “ well” as conditions where the processes of the systems seem to be functioning and the people involved are happy and productive. What has become disconcerting for me is that I am having problems finding examples to add to this list. In fact, the list has exactly zero items on it. My initial assumption was that we would find the number of dysfunctional items would exceed the number of functional ones, which would suggest that the net of human happiness would probably be negative; a finding consistent with the hypothesis that civilization is in the throes of collapse, but still at an early stage.

In addition to a simple additive list, we should probably weight the items by the magnitude of their impact on individuals' lives. For example, a commercial organization where the real wages of workers have been going down while the work load put on those workers has been increasing would have a direct and clearly felt impact on those individuals, whereas a dysfunction in city government that affected garbage collection might be an annoyance but not a cause for deep concern in the short run. The US Congress is possibly one of the most dysfunctional governance institutions/organizations on the planet (followed all too closely by the Supreme Court and the Presidency) given its enormous resources and historical context. Their inability to grasp the real nature of the economic woes and to find solutions that will help, for example, the working poor, is having a major negative impact on human happiness, but it is insidious and subtle in how it plays out. Discerning exactly how it works is a lot like trying to ascertain how global warming is “causing” any particular weather catastrophe. We know the causal links exist but tracing them through all of the connections in a complex network of relations is a daunting task.

When I started enumerating institutions and organizations at multiple scales that were showing clear evidence of dysfunction it became clear that I would be at it indefinitely. So I started to search for evidence of non-dysfunctional instances. With the exception of a few well-run corporations that are in still high demand markets and where their CEOs are not taking exorbitant paychecks at the expense of the workers, I was having trouble coming up with any truly good examples. A few Northern European countries still seem stable and their citizens seem, on the whole, to be content. But even there there are ominous clouds gathering. For example the rise of extreme right-wing political parties that have found a platform on anti-immigration responses to the increasing influx of Islamic refugees from the Middle East and Northern Africa (designated as the MENA region) portends power struggles within the governments of those countries. There have already been civil unrest incidents and some violence that has been linked to anti-immigrant sentiments.

So I am rather at a loss to say much about where things are going well. I cannot find much that is working. But that may just be me. One could reasonably argue that I am, after all, biased and will tend to ignore evidence against my basic hypothesis, that civilization must necessarily collapse due to the decline of net free energy (i.e. peak oil combined with declining energy return on investment — EROI — and still growing populations). I am probably not immune to such selective bias. Thus I put it to you, the readers, to let me know of any evidence of some reasonably impactful institutions or organizations that seem to be working and contributing positively to human happiness (please also include estimates of the magnitude of such impact). As I was writing this one possible example did come to mind, if I allow that some kinds of religious experiences are positive (and I do even if I do not believe in most of what religions teach about an ethereal world). The current Pope of the Catholic faith (Francis), it seems to me, has done some worthwhile things that could have a positive impact on the followers of that religion, if not on other states owing to their leaders paying deference to what the Holy See says (e.g. calls for peace). But I reserve judgment of the effectiveness of his reign on the Church. For example, will he ferret out gross behaviors like child sex abuses or financial corruption in the Vatican's dealings?

If you have any contributions please make them in comments here. Let's see what sort of list we come up with. But please do not post examples of dysfunction. We already know so many it would be an act of waste of bandwidth.

Economists' View the “New Normal”

Meanwhile if we just examine the state and trends of the global economy we get a basic picture of the developing collapse. An article in today's New York Times Business section by Tyler Cowen, a professor of economics at George Mason University “Signs of a Shakier New Normal”, May 17, 2015, brought into focus a variety of comments made by a number of neoclassical economists of late (including, from time to time, the titular representative of ‘liberal’ economists, Paul Krugman) that we have entered a new kind of economic situation that they don't quite understand but have labeled “the new normal.” I suppose they are trying to subtly say that they expect the current set of conditions to continue indefinitely into the future. But, their reasons for saying so have nothing to do with their understanding the dynamics of the real economy and making predictions based on their bogus models. They are just tacitly admitting that something unusual is happening and it has persisted long enough now to be acknowledged as possibly permanent.

While the US government and a variety of media talking heads are hailing the “recovery” the reality of life for the vast majority of Americans does not demonstrate recovery. They continue to grow poorer, budgets are stretched even for those who have jobs, the real cost of living is still going up even in spite of the recent relief in energy costs, in short for most people there is no recovery. And that is what these economists are referring to (academically) as the new normal.

If the old normal was living a life in which incomes grew and outpaced inflation, material wealth grew and made life more enjoyable (questionable), and the future looked brighter still for the next generation, then indeed the current outlook is “new.” For most of the last 300 years life for western/northern economies, fueled by increasing access to fossil energies, has generally always looked to be improving. Now that energy is in decline we have a new reality to face. My children are struggling now to keep their heads above water and have dim prospects for ever rising to the upper middle class status that would have been their “birthrights” (please note the scare quotes!) due to my status from the mid twentyth century rapidly growing wealth production and the sheer luck of having been born into the white middle class that had grown out of the economic expansion after WWII.

Unless humanity discovers a new high-EROI source of energy with the right power and convenience properties sans the pollution problems associated with fossil fuels the future is not bright for anyone (no pun intended).

The “Why” Hasn't Changed

I have been writing about the problem we face for many years now. While the signs of a collapse scenario are now coming into sharp relief throughout the world, the basic fundamental reason for the collapse of global civilization that I have belabored over that time has not changed. Civilization is facing increasing declines in net free energy per capita. Free energy (also called exergy) is that which enables useful economic work, i.e. producing food, shelter, etc. Of course it can also be used to build frivolous products and services (e.g. i-Pads, phones, watches, giant home entertainment centers, etc.) Many people today will not see these as frivolous (must have my ability to send an instant tweet) until they think about how the energy used has been diverted from doing useful work, like getting food to those who have little. The problem for us is that we live with a shrinking pie, not a growing one. So each new slice takes away some from others. We are in a zero-sum game with an increasing number of players entering all the time. And yet we believe we are still rich. We fully believe we can put that iPhone on our credit card with impunity. That is we do until it is time to pay the bills.

In spite of my writing (which includes work in my new book on systems science) about this fundamental problem the idea doesn't seem to get much purchase with the politicians and neoclassical economists who still see the world economy as being able to grow exponentially (meaning compound) measured in dollar value of gross domestic product, GDP, (or gross global product, GGP, once all these trade deals are in place!) To me this has always been an astounding example of sheer idiocy and complete ignorance of how the Universe works. Nothing grows infinitely. Not even cancers can grow forever because they destroy their host bodies in trying to do so. How, I wonder, did these supposedly smart people ever get so stupid. Economists are supposed to learn a form of calculus and they certainly have access to all of the literature of system dynamics. How then can they just ignore basic physics and systems theory to continue to believe that a growing economy is a healthy economy? Of course I've answered my own question with my work on the nature of sapience and the lack of wisdom in our species Homo sapiens.

Perhaps it has to do with another reality that seems more immediate. The other part of the problem of per capita decline in energy is the increase in population that drives the “need” for growth of the economy. The simple fact is that as long as we keep making more people while working hard to prevent their demise the population will continue to grow and put increasing stresses on the resources we extract from the Earth. Look at what we are doing in the extraction of tight oil (fracking shale deposits), bituminous (tar) sands (mining), and mountain top removal for coal. These are very expensive and very low EROI operations (not to mention environmentally destructive) that clearly indicate how desperate we are for fossil energy. But we need that energy to support growing more jobs to accommodate the increasing number of people who need work. Population growth is also subject to limits but crashing into those is almost always painful for any species that reaches or exceeds the carrying capacity of its environment. And while we humans have seemingly moved our carrying capacity upward through technology, that route has its own limits as well. You can't apply Moore's law to energy or general equipment. And even Moore's law has practical limits. Any study of the current situation with respect to drinking water, soil erosion, mineral supplies, etc. will show that we have, in fact, reached very close to natural limits in several different areas.

Lower per capita energy translates into lower per capita real wealth since less real work can be accomplished per unit of time. For a brief time from the mid 1900s to the crash in 2008-9 we fooled ourselves into thinking we had somehow transcended the need to produce real wealth with the explosion of the use of credit to finance current consumption. This move is tricky and does not immediately appear to be problematic. Everyone basically understands the use of credit in monetary terms. You borrow an amount of money to finance something and you pay back the principal with interest to pay for the use of someone else's money over time. The theory has always been that you use the money to invest in some money-making or money-saving venture and because the economy is growing you will be earning more than enough to pay it back with interest. But the notion that this same mechanism could be applied to strictly consumption behaviors (trading up to bigger houses, buying bigger cars, and lots of fun stuff) was novel and completely unexamined critically. We jumped into it just because we could. Or at least we thought we could.

This did work as long as the economy was expanding and there would be more profit in the future. But what happens when you take out loans that either do not go to investments in profit-making or saving ventures but to finance frivolous entertainments? Or what happens when even investments in profit-making ventures fall flat because of higher than anticipated costs and thus lower profits?

Recessions happen because some of these credit financed investments have failed to provide the expected return on investment and thus investors and bankers become leery (rightly so) and withhold capital at a time when the economy has come to rely on credit to keep things going. Depressions happen when everybody loses confidence in everything.

The relation of credit and energy is a little harder to grasp. But that is only because credit also distorts the relation between money and energy. As I have written many times, the origin of money was as an information carrying token system used to regulate the flow of exergy into desired work processes. When you buy something with real money (however tokenized) you are directing the current or future flow of energy into the process that produced that something. The banking credit system, however, distorts the size of the money supply through fractional reserve banking practices that artificially inflates the supply, at least for a while. The less actual reserves are required the more distorted the money supply becomes and the illusion of having more energy available encourages investment in those frivolous efforts. But since costs (in both money terms and energy terms) are real in any work process, and profits derive from driving down costs, there has been a concerted effort to reduce them by shifting costs to externalities (pollution) and off-shoring labor (to lower energy lifestyle populations) all conveniently enabled by technologies in transportation (container ships) and telecommunications (off-shoring service jobs). By finding cheaper alternatives to getting work done, our high-energy civilizations have been able to hide the declining local net energy and continue to borrow against the future, even while that future will never support paying off the debts.

This strategy, not entirely unconsciously developed, could not hold. The costs of energy have been steadily climbing since the 1980s due to declining EROIs. Some of this has been masked by the very same debt-based financing practices applied to the extractive industries. But even that charade is rapidly coming to exposure. When the fracking revolution flooded the US markets with oil and drove the price of oil downward it did so rapidly leaving the financial condition of oil producers exposed. The costs of producing the next barrel of oil was too high to allow sustaining further exploration and drilling. Moreover already producing wells were declining much more rapidly than happens in conventional wells, with total output much less per well than with conventional wells. Companies have been diminishing their development and capital expenditures are down significantly in the oil and gas businesses and as there will be rapid diminshment of supply before much longer you can imagine what this will ultimately do to the prices for oil and gas. What has seemed like a reprieve from high energy prices will come to a crashing halt as energy prices reflect rapidly depleting supplies. Of course with a return to very high prices, the extractive companies that managed to survive will try to get back into the business (say in the Arctic Ocean), but the continuing decline in EROI of those plays will simply cause the same feedback phenomena to recur. This roller coaster ride will end more likely with the cars going off the tracks than a gentle stop.

One more clever but very unwise invention has masked the real story on the economy and the relation between money and energy. Over the last several decades we have witnessed what has been called the financialization of the economy. This really means the growth of speculative investments through bonds and stocks (initially) and more recently by a slew of “instruments” that purport to provide value through the management of portfolio risk. The fundamental belief in financialization is that money begets more money directly. In theory you no longer have to wait for profits to be made by productive enterprises; you can reap a reward by just moving funds around between stocks — buy low, sell high. Well, as I said above, investment in productive processes either do generate more energy per unit time or help us save energy leading to the effects of profit. The original stock and bond markets were set up to facilitate this kind of investment. But of recent times the stock market, in particular, has turned into a casino where gamblers are paid to gamble with other peoples' money. Returns on investment no longer depend on companies making profits and paying dividends. Money is made on trades. GDP increases with transactions even when no real wealth is produced. As with fractional reserve banking this whole business tends to distort the relation between energy and money making it seem that you really don't need to produce anything (other than financial services), you can gamble your way to wealth.

The financial markets have turned into a giant Ponzi scheme. There is no real wealth at the base. Profits are created out of smoke and mirrors. The financial sector crash of 2009 was nothing more than a bursting of the bubble with one important difference. In this case the power of the financial giants was such that they could, without shame, go to the government with hands out and argue that they were too big to fail; that failure would bring the whole economy down. So they were bailed out. People worse than robber-barons walked away with fortunes under the protection of the United States government and the Federal Reserve (in collusion) while the rest of the nation anted up to pay the bills. And what is now different as a result? What lessons did we learn about this shady industry? Apparently none. The recent “Dodd-Frank Wall Street Reform and Consumer Protection Act” has been severely criticized for its ambiguity and weakness that essentially lets Wall Street firms pretty much do as they please still (one of those examples of an institutional failure writ large).

An interesting question that a number of people who see this charade for what it is ask, “Why aren't people up in arms about this nonsense?” Why are we not lynching the hyper-robber-barons? One possible answer is that we have been conditioned so deeply to believe in the neoliberal capitalism model and believe that we, ourselves, might one day be a beneficiary of its largess so that we are prevented from seeing the evils it fosters. We want ours too.

In truth the bandits were probably right to claim that collapse of the banking system would lead to a collapse of the economy. The government acted to prevent another depression to avert the kind of suffering that took place in the 1930s. Were they right to do so? It is the terrible irony of our situation that by preventing such a situation they have merely put off the inevitable for a short time more. In reality there is suffering now. It is perhaps more diffuse and lower key than what was seen in the 1930s but it is still happening. Moreover, by kicking the can down the road they have simply ensured that the next bubble burst, and there will be one before much longer, will be even worse.

The problem with our politicians, economists, and basically just about everyone else, is that they just can't get their heads around the reality of what the economy actually is and what rules truly govern it. They have grown so used to thinking in neoclassical economics, neoliberal capitalistic, and ideological terms that they simply have no way to recognize reality when it slaps them in the face. They will continue to want to return to a “healthy” growth-based economy where it is possible in theory for everyone to get rich. And so they (which includes everyone who buys into this claptrap) will never do the right things to transition societies into low-energy, simpler lifestyles consistent with diminishing energy. They will never introduce notions of population control geared to humanely reduce the size of the population commensurate with a minimum acceptable per capita share of net free energy. And so we can expect chaos to ensue as the reality pounds our civilization further into oblivion.

Advice

I'm afraid I have little to give. Who would take it anyway? My guess is that younger families should probably try to decouple from society as best they can. Grow your own food, and all of that. I've given suggestions in the past about what sort of plan might succeed, but it is based on radical decoupling that most people will simply not believe is necessary. For myself I am too old to worry about it. I'll just observe for as long as I can. My kids (the ones struggling to stay afloat) never listen to my advice anyway so they're going to have to find their own way.

Just keep monitoring the major trends in the major institutions and organizations. Use your best judgment as to when you should take action, if any. Think now about what action you might be able to take and how you can maximize your success (whatever that is going to mean).

And good luck.