A Complex Predicament – Part Two: The Economic Predicament
How Our Energy, Economic and Ecological Systems are Connected: Should We Try to Precipitate Economic Collapse to Mitigate Runaway Climate Change?
By Dave Pollard
This is the second of three articles on understanding complexity, and how positive feedback loops are leading inexorably to civilization’s collapse – and what we can and can’t do about it. In Part One I looked at our global energy and resource systems, and the complex relationship between resource prices, regulation, exploration, supply and demand, and how they are pushing us towards disastrous resource exhaustion.
In Part Two, I look at the complexities of our global economic systems, and explore whether, although it won’t ‘save’ civilization, the dismantling or crumbling of our current industrial growth economy, sooner rather than later, might lessen the hardship and suffering of the collapse we and our descendants are likely to face.
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David Holmgren, one of the founders of the Permaculture Movement, recently stirred up a firestorm of controversy with his Crash on Demand essay, suggesting that it would be useful for us to precipitate economic collapse as a means of mitigating both energy/resource exhaustion and runaway climate change. He summarizes:
My argument is essentially that radical, but achievable behaviour change from [being] dependent consumers to [becoming] self-reliant producers (by some relatively small minority of the global middle class) has a chance of stopping the juggernaut of consumer capitalism from driving the world over the climate change cliff. It may be a slim chance, but a better bet than current herculean efforts to get the elites to pull the right policy levers… My argument suggests this could happen by reducing capital enough to trigger a crash of the fragile global financial system.
This insight shows David’s appreciation of the nature of complex systems and the interrelationship between our global energy/resource, economic and ecological/climate systems.
The chart below, reproduced from Part One of this series, illustrates the main components of the global economic system and its connection to the other two systems.
As the chart shows, economic expansion is dependent on energy/resource supply, which is itself a function of the price, demand, investment and regulation variables I described in Part One, and in any case is not endlessly sustainable even if the economy is able to support higher and higher extraction and development costs. A significant drop in energy/resource demand and use will precipitate a strong economic contraction (which has happened each time energy costs have moved significantly above the $100/bbl level).
But an even greater threat to the continuation of our current “grow or collapse” economy is the realization that current levels of debt in our economy are unsustainable. When that realization becomes impossible for markets to ignore, we will face the greatest depression in human history; no amount of ‘stimulus’ will be able to mitigate it, and there is no deus ex machina like war spending or the discovery of new cheap resources to get us out of it. More about that scenario, which even many economists can’t seem to comprehend, later in this article.
Back to David Holmgren’s proposal: The reactions to his article have been swift and sometimes harsh. Transition founder Rob Hopkins called David’s suggestions “a dangerous route to go down”. Rob remains firmly in denial about the inevitability of collapse, citing several optimistic ‘prosperity-without-growth’ economists in support of his belief that a concerted global effort by a broad coalition of knowledgeable, influential people can pull us out of the positive feedback loops currently leading us towards economic collapse (and indeed, End Games in all three major systems). I’ll look at that argument later in this article as well.
Dmitry Orlov essentially dismissed David’s argument as being inadequate to the task, but said that despite its futility, “Don’t let that stop you from trying because, regardless of results (if any) it’s a good thing to be trying to do.”
Nicole Foss, who David acknowledges as one of his influences, takes the opposite point of view to Rob’s. She has repeatedly argued that economic collapse will come soon in any case, with or without our attempts to undermine the current economic system (or for that matter, prolong it). She writes:
Once the financial system has the accident that is clearly coming, we will be looking at a substantial fall in societal complexity, but that fall in complexity will eliminate the possibility of engaging in such highly complex activities as fracking, horizontal drilling, exploiting the deep offshore or producing solar photovoltaic panels and inverters… [Because they will be completely unaffordable, none of these will ever be] a meaningful energy source.
In fact, some US states are already dealing with large-scale abandonment of quickly-exhausted fracking sites (with their commensurate ecological damage), and Shell recently announced it is abandoning its Arctic drilling programs because they are not economic, even at today’s $100+/bbl oil prices.
Nicole’s concern about David’s approach is that, since economic collapse is (she believes) inevitable and reasonably imminent anyway, taking an activist approach to opting out of the dominant economic system in order to accelerate that collapse runs the risk of stirring up virulent opposition from the rich and powerful, who could then demonize the entire transition/collapse preparation movement as anti-human, and ultimately shift the blame for the suffering that collapse will inevitably bring about to the “anti-growth” activists. She writes: “Inviting blame for an inevitable outcome seems somewhat reckless given the likelihood that many will be casting about for scapegoats.”
It is hard to explain why the Ponzi scheme that is our modern growth-dependent industrial economic system is unsustainable. It’s all really about faith in the value of money. And on the surface it seems to be holding: Governments and corporations, working together, have been able to suppress interest rates to near-zero levels for more than a decade now. The banks and institutional investors don’t need high interest rates when they can make greater profits through a combination of high user fees, arbitrage, hedged speculation, the sale of high-risk bundled ‘investments’ to unwary investors, usurious credit card and poor-credit interest rates, and foreclosures – and be bailed out by their government friends with taxpayer money when their investments go bad. They also lie about real rates of inflation and unemployment to suppress citizen dissatisfaction about the true state of the economy.
The Australian group, Doing It Ourselves, have put together a terrific 12-minute explanation of why and how our economic system is dependent on perpetually-accelerating growth and commensurate levels of debt – and on our faith that this is possible. That growth cannot continue because the remaining energy and resource supplies of our planet are becoming exponentially more expensive, and because the current staggering levels of debt – government, corporate, mortgages and other personal debt – can only be repaid as long as land and other prices keep going up, and incomes and borrowing capacity combined keeps rising to make the payments on those debts possible (and as long as interest rates remain very low). When this capacity peaks – and Nicole Foss and her Automatic Earth colleagues have eloquently argued it already has – buying freezes up, housing and investment values commensurately tumble, lost collateral means a plunge in available credit and an explosion of foreclosures, margin calls and debt repayment demands, falling sales, layoffs, and defaults, to the point that a positive-feedback-loop – a chronic deflationary spiral – kicks in. Japan has been suffering from this for two decades, and most Western nations are poised for a similar collapse – starting with the current fall into poverty of most of the middle class.
To get an idea of what this means, consider that the median household net worth in real currency in most Western nations is not significantly different from what it was in the 1940s, before the Ponzi scheme and the era of cheap money began – that is, a net worth essentially not much more than zero. All of the increase in apparent affluence – owning instead of renting, much larger average homes, two cars per family, more expensive ‘average’ cars, more clothes, more energy use, more stuff of every kind – has been borrowed, in the expectation that all these debts can and will be repaid. How? By whom? We dare not ask, because the answer is, nobody knows. We just keep hoping against hope that growth can continue forever, real incomes will rise, more efficiency will keep prices down and profits rising, more cheap energy will be found, our pension investments will keep rising in value, and someone will be willing to offer us more for our home than we paid for it, so we have more collateral to borrow even more against.
The Great Depression and the Recession of 2008 are just two indications of what happens when we realize this is not sustainable.
Advocates of “austerity” claim that theirs is a response to this unsustainability. But history has shown that austerity programs simply precipitate collapse faster, and place the entire burden for it on the poor, disadvantaged, ill and unemployed. That’s why progressives keep arguing for “stimulus” programs that crank up the illusory growth machine even more. But when the stimulus amounts to just printing of more money, most of which ends up in the pockets of the bankers and the already-rich, it is just an acceleration of the unsustainable, and will inevitably lead to even more spectacular collapse and greater suffering for all.
A number of “third options” to prevent economic collapse have been proffered. A transition to a steady-state economy, coupled with a large-scale re-localization to a world of more self-sufficient communities producing more themselves, living within their means, and hence more resilient to collapse, is the most popular of these options. If our economic system were not global, and was simple, with a few people controlling the whole economy, this might be feasible. But we live in a staggeringly complex, global economic system with no one in control, not even in individual countries with autocratic regimes. The “market” determines and affects our economic actions, and it is the product of all of our activities, and cannot be stewarded to some idealistic, better economic reality, even if we could agree on what that would look like. Billions of people in struggling nations want an economic life like that of the wealthy in Western nations, and they will act in accordance with that desire, regardless of what we, or their governments, seek to impose on them. It is our nature to attend to the needs of the moment, to seek short-term betterment for ourselves and those we love, and to hope that future generations will be able to do likewise, even when faced with growing evidence that they will not.
Top-down reform of our economic system cannot succeed for the same reason top-down climate change prevention has not and will not succeed. No one is in control of large complex global systems. It is not the evil rich or evil corporations driving us to collapse. It is the ever-evolving systems in which we all participate and which no one influences enough to change direction in any coherent and sustained way that determine our trajectory to collapse. We want someone to blame, and even argue that “we are the system”, and we are all to blame, but we are not. The system will take its own course, as it always has. And all signs are that the courses our energy/resource, economic and ecological/climate systems are on, lead in each case to an End Game.
The economic collapse End Game has been vividly portrayed by Nicole in a ghastly list of “40 Ways to Lose Your Future”. No surprise that we don’t want to believe such collapse is now inevitable.
So back to the question that David Holmgren raises – about whether precipitating such a collapse before it happens anyway is (a) possible and (b) a good idea. I think it would be fair to say that David says ‘yes’ to both, Rob says ‘no’ to (b) and is afraid the answer is ‘yes’ to (a). Dmitry says ‘no’ to (a) but ‘yes’ to (b) anyway. And Nicole says ‘not really’ to (a) and hence ‘no’ to (b). I’d love to know what Charles Eisenstein would say. I suspect he’d agree with Eric Lindberg, who in a new article on the Historical Problem of Agency draws brilliantly on historical examples and the evolving narrative of human agency to these very tentative, thoughtful and honest conclusions:
What little agency humans might have [in complex systems] can only be achieved by understanding the underlying logic of history and by accepting the limits that logic imposes. When we realize this, we won’t try to grow the economy, develop the “developing world,” depend on genetically modified seeds and chemical fertilizers, look for a new source of fuel on Mars, and so on. Instead we will accept the coming contractions and adapt to them as best we can… Rob Hopkins is one of my heroes, but I read his response to Holmgren as a rather desperate attempt to maintain a course set by a narrative that is crumbling beneath us [as the runaway climate change narrative is eclipsing Transition’s peak oil narrative]…
Many of us understand the perils of revolution and violence, the simple fact that it has so infrequently worked. We understand, moreover, that the collapse of global economies, of civil society creates its own predictable violence. We understand that the result and consequences of any action that pursues radical, human designed change is neither controllable nor predictable. But at the same time, refraining from radical, potentially destructive, action is also a choice whose results are unpredictable and almost certainly dire. The stakes are as yet beyond comprehension. The question is no longer whether we can make history as we please, but whether “history” itself will continue to exist.
Eric concludes with a call for patience and tolerance and dialogue, and I think that’s a very sensible response to trying to cope with three intertwined complex global systems, all overextended to the breaking point and heading in disturbing directions very quickly. The economic system is the only one we may be able to intervene in (lunatic plans for geoengineering to prevent climate change aside), and the result of any intervention in our economic systems is doubtful and probably unpredictable. We can act, or we can, as Eric says, just accept what comes and adapt to it as best we can. The question of whether or not to try to precipitate economic collapse before it happens anyway, can only be answered in the context of your own personal (who you think you are) and cultural (who you think we are) narrative.
For many, the answer may depend on what we learn, in the coming months and years, about the accelerating melting of our planet’s polar regions, and the trajectory of runaway climate change. That’s the subject of Part Three of this series, in the next edition of SHIFT. I’ll explain how our biosphere is yet another complex system, look at some of the latest scenarios, and try to paint a picture of a future world as much warmer than our planet is today as it was colder at the coldest point in the Ice Ages of Earth’s recent past. And I’ll try to help you imagine the amazing, joyful future that is possible for the planet’s remaining humans a few millennia (not a long time, really) from now.