The “Wind and Solar Will Save Us” story is based on a long list of misunderstandings and apples to oranges comparisons. Somehow, people seem to believe that our economy of 7.5 billion people can get along with a very short list of energy supplies. This short list will not include fossil fuels. Some would exclude nuclear, as well. Without these energy types, we find ourselves with a short list of types of energy — what BP calls Hydroelectric, Geobiomass (geothermal, wood, wood waste, and other miscellaneous types; also liquid fuels from plants), Wind, and Solar.
Unfortunately, a transition to such a short list of fuels can’t really work. These are a few of the problems we encounter:
[1] Wind and solar are making extremely slow progress in helping the world move away from fossil fuel dependence.
In 2015, fossil fuels accounted for 86% of the world’s energy consumption, and nuclear added another 4%, based on data from BP Statistical Review of World Energy. Thus, the world’s “preferred fuels” made up only 10% of the total. Wind and solar together accounted for a little less than 2% of world energy consumption.
Figure 1. World energy consumption based on data from BP 2016 Statistical Review of World Energy.
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Our progress in getting away from fossil fuels has not been very fast, either. Going back to 1985, fossil fuels made up 89% of the total, and wind and solar were both insignificant. As indicated above, fossil fuels today comprise 86% of total energy consumption. Thus, in 30 years, we have managed to reduce fossil fuel consumption by 3% (=89% – 86%). Growth in wind and solar contributed 2% of this 3% reduction. At the rate of a 3% reduction every 30 years (or 1% reduction every ten years), it will take 860 years, or until the year 2877 to completely eliminate the use of fossil fuels. And the “improvement” made to date was made with huge subsidies for wind and solar.
Figure 2. World electricity generation by source based on BP 2016 Statistical Review of World Energy.
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The situation is a little less bad when looking at the electricity portion alone (Figure 2). In this case, wind amounts to 3.5% of electricity generated in 2015, and solar amounts to 1.1%, making a total of 4.6%. Fossil fuels account for “only” 66% of the total, so this portion seems to be the place where changes can be made. But replacing all fossil fuels, or all fossil fuels plus nuclear, with preferred fuels seems impossible.
[2] Grid electricity is probably the least sustainable form of energy we have.
If we are to transition to a renewables-based economy, we will need to transition to an electricity-based economy, since most of today’s renewables use electricity. Such an economy will need to depend on the electric grid.
The US electric grid is often called the “World’s Largest Machine.” The American Society of Civil Engineers gives a grade of D+ to America’s energy system. It says,
America relies on an aging electrical grid and pipeline distribution systems, some of which originated in the 1880s. Investment in power transmission has increased since 2005, but ongoing permitting issues, weather events, and limited maintenance have contributed to an increasing number of failures and power interruptions.
Simply maintaining the electric grid is difficult. One author writes about the challenges of replacing aging steel structures holding up power lines. Another writes about the need to replace transformers, before they fail catastrophically and interrupt services. The technology to maintain and repair the transmission lines demands that fossil fuels remain available. For one thing, helicopters are sometimes needed to install or repair transmission lines. Even if repairs are done by truck, oil products are needed to operate the trucks, and to keep the roads in good repair.
Electricity and, in fact, electricity dispensed by an electric grid, is in some sense the high point in our ability to create an energy product that “does more” than fossil fuels. Grid electricity allows electric machines of all types to work. It allows industrial users to create very high temperatures, and to hold them as needed. It allows computerization of processes. It is not surprising that people who are concerned about energy consumption in the future would want to keep heading in the same direction as we have been heading in the past. Unfortunately, this is the expensive, hard-to-maintain direction. Storms often cause electrical outages. We have a never-ending battle trying to keep the system operating.
[3] Our big need for energy is in the winter, when the sun doesn’t shine as much, and we can’t count on the wind blowing.
Clearly, we use a lot of electricity for air conditioning. It is difficult to imagine that air conditioning will be a major energy use for the long-term, however, if we are headed for an energy bottleneck. There is always the possibility of using fans instead, and living with higher indoor temperatures.
In parts of the world where it gets cold, it seems likely that a large share of future energy use will be to heat homes and businesses in winter. To illustrate the kind of seasonality that can result from the use of fuels for heating, Figure 3 shows a chart of US natural gas consumption by month. US natural gas is used for some (but not all) home heating. Natural gas is also used for electricity and industrial uses.
Figure 3. US natural gas consumption by month, based on US Energy Information Administration.
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Clearly, natural gas consumption shows great variability, with peaks in usage during the winter. The challenge is to provide electrical supply that varies in a similar fashion, without using a lot of fossil fuels.
[4] If a family burns coal or natural gas directly for winter heat, but then switches to electric heat that is produced using the same fuel, the cost is likely to be higher. If there is a second change to a higher-cost type of electricity, the cost of heat will be even greater.
There is a loss of energy when fossil fuels or biomass are burned and transformed into electricity. BP tries to correct for this in its data, by showing the amount of fuel that would need to be burned to produce this amount of electricity, assuming a conversion efficiency of 38%. Thus, the energy amounts shown by BP for nuclear, hydro, wind and solar don’t represent the amount of heat that they could make, if used to heat apartments or to cook food. Instead, they reflect an amount 2.6 times as much (=1/38%), which is the amount of fossil fuels that would need to be burned in order to produce this electricity.
As a result, if a household changes from heat based on burning coal directly, to heat from coal-based electricity, the change tends to be very expensive. The Wall Street Journal reports, Beijing’s Plan for Cleaner Heat Leaves Villagers Cold:
Despite electricity subsidies for residential consumers, villagers interviewed about their state-supplied heaters said their overall costs had risen substantially. Several said it costs around $300 to heat their homes for the winter, compared with about $200 with coal.
The underlying problem is that burning coal in a power plant produces a better, but more expensive, product. If this electricity is used for a process that coal cannot perform directly, such as allowing a new automobile production plant, then this higher cost is easily absorbed by the economy. But if this higher-cost product simply provides a previously available service (heating) in a more expensive manner, it becomes a difficult cost for the economy to “digest.” It becomes a very expensive fix for China’s smog problem. It should be noted that this change works in the wrong direction from a CO2 perspective, because ultimately, more coal must be burned for heating because of the inefficiency of converting coal to electricity, and then using that electricity for heating.
How about later substituting wind electricity for coal-based electricity? China has a large number of wind turbines in the north of China standing idle. One problem is the high cost of erecting transmission lines that would transport this electricity to urban centers such as Beijing. Also, if these wind turbines were put in place, existing coal plants would operate fewer hours, causing financial difficulties for these coal generating units. If these companies need subsidies in order to continue paying their ongoing expenses (including payroll and debt repayment), this would create a second additional cost. Electricity prices would need to be higher, to cover these costs as well. A family who had difficulty affording heat with coal-based electricity would have an even greater problem affording wind-based electricity.
Heat for cooking and heat for creating hot water are similar to heat for keeping an apartment warm. It is less expensive (both in energy terms and in cost to the consumer) if coal or natural gas is burned directly to produce the heat, than if electricity is used instead. This again, has to do with the conversion efficiency of turning fossil fuels to electricity.
[5] Low energy prices for the consumer are very important. Unfortunately, many analyses of the benefit of wind or of solar give a misleading impression of their true cost, when added to the electric grid.
How should the cost of wind and solar be valued? Is it simply the cost of installing the wind turbines or solar panels? Or does it include all of the additional costs that an electricity delivery system must incur, if it is actually to incorporate this intermittent electricity into the electric grid system, and deliver it to customers where it is needed?
The standard answer, probably because it is easiest to compute, is that the cost is simply the cost (or energy cost) of the wind turbines or the solar panels themselves, plus perhaps an inverter. On this basis, wind and solar appear to be quite inexpensive. Many people have come to the conclusion that a transition to wind and solar might be helpful, based on this type of limited analysis.
Unfortunately, the situation is more complicated. Perhaps, the first few wind turbines and solar panels will not disturb the existing electrical grid system very much. But as more and more wind turbines or solar panels are added, there get to be additional costs. These include long distance transmission, electricity storage, and subsidies needed to keep backup electricity-generation in operation. When these costs are included, the actual total installed cost of delivering electricity gets to be far higher than the cost of the solar panels or wind turbines alone would suggest.
Energy researchers talk about the evaluation problem as being a “boundary issue.” What costs really need to be considered, when a decision is made as to whether it makes sense to add wind turbines or solar panels? Several other researchers and I feel that much broader boundaries are needed than are currently being used in most published analyses. We are making plans to write an academic article, explaining that current Energy Return on Energy Invested (EROEI) calculations cannot really be compared to fossil fuel EROEIs, because of boundary issues. Instead, “Point of Use” EROEIs are needed. For wind and solar, Point of Use EROEIs will vary with the particular application, depending on the extent of the changes required to accommodate wind or solar electricity. In general, they are likely to be far lower than currently published wind and solar EROEIs. In fact, for some applications, they may be less than 1:1.
A related topic is return on human labor. Return on human labor is equivalent to how much a typical worker can afford to buy with his wages. In [4], we saw a situation where the cost of heating a home seems to increase, as a transition is made from (a) burning coal for direct use in heating, to (b) using electricity created by burning coal, to (c) using electricity created by wind turbines. This pattern is eroding the buying power of workers. This direction ultimately leads to collapse; it is not the direction that an economy would generally intentionally follow. If wind and solar are truly to be helpful, they need to be inexpensive enough that they allow workers to buy more, rather than less, with their wages.
[6] If we want heat in the winter, and we are trying to use solar and wind, we need to somehow figure out a way to store electricity from summer to winter. Otherwise, we need to operate a double system at high cost.
Energy storage for electricity is often discussed, but this is generally with the idea of storing relatively small amounts of electricity, for relatively short periods, such as a few hours or few days. If our real need is to store electricity from summer to winter, this will not be nearly long enough.
In theory, it would be possible to greatly overbuild the wind and solar system relative to summer electricity needs, and then build a huge amount of batteries in order to store electricity created during the summer for use in the winter. This approach would no doubt be very expensive. There would likely be considerable energy loss in the stored batteries, besides the cost of the batteries themselves. We would also run the risk of exhausting resources needed for solar panels, wind turbines, and/or batteries.
A much more workable approach would be to burn fossil fuels for heat during the winter, because they can easily be stored. Biomass, such as wood, can also be stored until needed. But it is hard to find enough biomass for the whole world to burn for heating homes and for cooking, without cutting down an excessively large share of the world’s trees. This is a major reason why moving away from fossil fuels is likely to be very difficult.
[7] There are a few countries that use an unusually large share of electricity in their energy mixes today. These countries seem to be special cases that would be hard for other countries to emulate.
Data from BP Statistical Review of World Energy indicates that the following countries have the highest proportion of electricity in their energy mixes.
- Sweden – 72.7%
- Norway – 69.5%
- Finland – 59.9%
- Switzerland – 57.5%
These are all countries that have low population and a significant hydroelectric supply. I would expect that the hydroelectric power is very inexpensive to produce, especially if the dams were built years ago, and are now fully paid for. Sweden, Finland, and Switzerland also have electricity from nuclear providing about a third of each of their electricity supplies. This nuclear electricity was built long ago, and thus is now paid for as well. The geography of countries may also reduce the use of traffic by cars, thus reducing the portion of gasoline in their energy mixes. It would be difficult for other countries to create equivalently inexpensive large supplies of electricity.
In general, rich countries have higher electricity shares than poorer countries:
- OECD Total – (Rich countries) – 2015 – 44.5%
- Non- OECD (Less rich countries) – 2015 – 39.3%
China is an interesting example. Its share of energy use from electricity changed as follows from 1985 to 2015:
- China – 1985 – 17.5%
- China – 2015 – 43.6%
In 1985, China seems to have used most of its coal directly, rather than converting it for use as electricity. This was likely not difficult to do, because coal is easy to transport, and it can be used for many heating needs simply by burning it. Later, industrialization allowed for much more use of electricity. This explains the rise in its electricity ratio to 43.6% in 2015, which is almost as high as the rich country ratio of 44.5%. If the electricity ratio rises further, it will likely be because electricity is being put to use in ways where it has less of a cost advantage, or even has a cost disadvantage, such as for heating and cooking.
[8] Hydroelectric power is great for balancing wind and solar, but it is available in limited quantities. It too has intermittency problems, limiting how much it can be counted on.
If we look at month-to-month hydroelectric generation in the US, we see that it too has intermittency problems. Its high month is May or June, when snow melts and sends hydroelectric output higher. It tends to be low in the fall and winter, so is not very helpful for filling the large gap in needed electricity in the winter.
Figure 4. US hydroelectric power by month, based on data of the US Energy Information Administration.
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It also has a problem with not being very large relative to our energy needs. Figure 5 shows how US hydro, or the combination of hydro plus solar plus wind (hydro+S+W), matches up with current natural gas consumption.
Figure 5. US consumption of natural gas compared to hydroelectric power and compared to hydro plus wind plus solar (hydro+W+S), based on US Energy Information Administration data.
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Of course, the electricity amounts (hydro and hydro+S+W) are “grossed up” amounts, showing how much fossil fuel energy would be required to make those quantities of electricity. If we want to use the electricity for heating homes and offices, or for cooking, then we should compare the heat energy of natural gas with that of hydro and hydro+S+W. In that case, the hydro and hydro+S+W amounts would be lower, amounting to only 38% of the amounts shown.
This example shows how limited our consumption of hydro, solar, and wind is compared to our current consumption of natural gas. If we also want to replace oil and coal, we have an even bigger problem.
[9] If we need to get along without fossil fuels for electricity generation, we would have to depend greatly on hydroelectric power. Hydro tends to have considerable variability from year to year, making it hard to depend on.
Nature varies not just a little, but a lot, from year to year. Hydro looks like a big stable piece of the total in Figures 1 and 2 that might be used for balancing wind and solar’s intermittency, but when a person looks at the year by year data, it is clear that the hydro amounts are quite variable at the country level.
Figure 6. Electricity generated by hydroelectric for six large European countries based on BP 2016 Statistical Review of World Energy.
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In fact, hydroelectric power is even variable for larger groupings, such as the six countries in Figure 6 combined, and some larger countries with higher total hydroelectric generation.
Figure 7. Hydroelectricity generated by some larger countries, and by the six European countries in Figure 6 combined, based on BP 2016 Statistical Review of World Energy.
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What we learn from Figures 6 and 7 is that even if a great deal of long distance transmission is used, hydro will be variable from year to year. In fact, the variability will be greater than shown on these charts, because the quantity of hydro available tends to be highest in the spring, and is often much lower during the rest of the year. (See Figure 4 for US hydro.) So, if a country wants to depend on hydro as its primary source of electricity, that country must set its expectations quite low in terms of what it can really count on.
And, of course, Saudi Arabia and several other Middle Eastern countries don’t have any hydroelectric power at all. Middle Eastern countries tend not to have biomass, either. So if these countries choose to use wind and solar to assist in electrical generation, and want to balance their intermittency with something else, they pretty much need to use something that is locally available, such as natural gas. Other countries with very low amounts of hydro (or none at all) include Algeria, Australia, Bangladesh, Denmark, Netherlands, and South Africa.
These issues provide further reasons why countries will want to continue using fossil fuels, and perhaps nuclear, if they can.
[10] There has been a misunderstanding regarding the nature of our energy problem. Many people believe that we will “run out” of fossil fuels, or that the price of oil and other fuels will rise very high. In fact, our problem seems to be one of affordability: energy prices don’t rise high enough to cover the rising cost of producing electricity and other energy products. Adding wind and solar tends to make the problem of low commodity prices worse.
Ultimately, consumers can purchase only what their wages will allow them to purchase. Rising debt can help as well, for a while, but this has limits. As a result, lack of wage growth translates to a lack of growth in commodity prices, even if the cost of producing these commodities is rising. This is the opposite of what most people expect; most people have never considered the possibility that peak energy will come from low prices for all types of energy products, including uranium. Thus, we seem to be facing peak energy demand (represented as low prices), arising from a lack of affordability.
We can see the problem in the example of the Beijing family with a rising cost of heating its apartment. Economists would like to think that rising costs translate to rising wages, but this is not the case. If rising costs are the result of diminishing returns (for example, coal is from deeper, thinner coal seams), the impact is similar to growing inefficiency. The inefficient sector needs more workers and more resources, leaving fewer resources and workers for other more efficient sectors. The result is an economy that tends to contract because of growing inefficiency.
If we want to operate a double system, using wind and solar when it is available, and using fossil fuels at other times, the cost will be very high. The problem arises because the fossil fuel system has many fixed costs. For example, coal mines and natural gas companies need to continue to pay interest on their loans, or they will default. Pipelines need to operate 365 days per year, regardless of whether they are actually full. The question is how to get enough funding for this double system.
One pricing system for electricity that doesn’t work well is the “market pricing system” based on each producer’s marginal costs of production. Wind and solar are subsidized, so they tend to have negative marginal costs of production. It is impossible for any other type of electricity producer to compete in this system. It is well known that this system does not produce enough revenue to maintain the whole system.
Sometimes, additional “capacity payments” are auctioned off, to try to fix the problem of inadequate total wholesale electricity prices. If we believe the World Nuclear Organization, even these charges are not enough. Several US nuclear power plants are scheduled for closing, indirectly because this pricing methodology is making older nuclear power plants unprofitable. Natural gas prices have also been too low for producers in recent years. This electricity pricing methodology is one of the reasons for this problem as well, in my opinion.
A different pricing system that works much better in our current situation is the utility pricing system, or “cost plus” pricing. In this system, prices are determined by regulators, based on a review of all necessary costs, including appropriate profit margins for producers. In the case of a double system, it allows prices to be high enough to cover all the needed costs, including the extra long distance transmission lines, plus all of the high fixed costs of fossil fuel and nuclear power plants, operating for fewer hours per year.
Of course, these much higher electricity rates eventually will become unaffordable for the consumer, leading to a cutback in purchases. If enough of these cutbacks in purchases occur, the result will be recession. But at least the electricity system doesn’t fail at an early date because of inadequate profits for its producers.
Conclusion
The possibility of making a transition to an all-renewables system seems virtually impossible, for the reasons I have outlined above. I have outlined many other issues in previous posts:
The topic doesn’t seem to go away, because it is appealing to have a “solution” to what seems to be a predicament with no solution. In a way, wind and solar are like a high-cost placebo. If we give these to the economy, at least people will think we are treating the problem, and maybe our climate problem will get a little better.
Meanwhile, we find more and more real life problems with intermittent renewables. Australia has had a series of blackouts. A several-hour blackout in South Australia was tied partly to the high level of intermittent energy on the grid. The ways of reducing future recurrences appear to be very expensive.
Antonio Turiel has written about the problems that Spain is encountering. Spain added large amounts of wind and solar, but these have not been available during a recent cold spell. It added gas by pipeline from Algeria, but now Algeria has cut back on the amount it is supplying. It has added transmission lines north to France. Now, Turiel is concerned that Spain’s electricity prices will be persistently higher, because he believes that France has not taken sufficient preparations to meet its own electricity needs. If there were little interconnectivity between countries, France’s electricity problems would stay in France, rather than adversely affecting its neighbors. A person begins to wonder: Can transmission lines have an adverse impact on new electricity supply? If a country can hope that “the market” will supply electricity from elsewhere, does that country take adequate steps to provide its own electricity?
In my opinion, the time has come to move away from believing that everything that is called “renewable” is helpful to the system. We now have real information on how expensive wind and solar are, when indirect costs are included. Unfortunately, in the real world, high-cost is ultimately a deal killer, because wages don’t rise at the same time. We need to understand where we really are, not live in a fairy tale world produced by politicians who would like us to believe that the situation is under control.
ABOUT THE AUTHOR
Gail Tverberg is an actuary interested in finite world issues - oil depletion, natural gas depletion, water shortages, and climate change. Oil limits look very different from what most expect, with high prices leading to recession, and low prices leading to inadequate supply.
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Economic Growth — A Primer
Erik Lindberg
This article was originally published in
Resilience, 22 February 2017
REPRINTED WITH PERMISSION
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SERIES ON GROWTH & GROWTHISM
Growthism - Part 1, Erik Lindberg, Resilience, 12 December 2016
Growthism - Part 2, Erik Lindberg, Resilience, 22 December 2016
Growthism - Part 3, Erik Lindberg, Resilience, 17 January 2017
Donald Trump and Economic Growth: A Brief Interregnum on Growthism, Erik Lindberg, Resilience, 24 January 2017
Growthism - Part 4, Erik Lindberg, Resilience, 7 February 2017
Economic Growth — A Primer, Erik Lindberg, Resilience, 22 February 2017
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Our Most Pressing Problem[i]
Economic growth– we hear about it all the time, so often that most of us probably don’t notice it any more than we’d notice someone saying that things are going well, or that everything is on track. In the world of economic reporting–the sort you might hear every hour or so throughout the day on NPR, or as highlighted in press-releases from the Federal Reserve–economic growth is the measure against which everything else in its orbit is judged; and it has a large orbit. It has become a synonym for “good,” for “well-functioning ”or“ basic progress.” And, in the reverse, an economy that is not growing is described as facing some sort of temporary “headwinds,” and we can be sure that economists, industry leaders, and the government are fast at work on the “recovery” that will bring things back to “normal.”
But if you listen to the words of politicians and policy-makers a bit more closely, you might notice that all this talk indicates something more like a preoccupation or obsession, and hear the urgency and anxiety surrounding it. This is not surprising, as elections are usually won or lost over the issue or economic growth, or who has the best-sounding plan to keep the economy growing. If you are anything like I was before I started looking into these issues, you probably take this preoccupation with economic growth and the sense that it is a necessary part of our national well-being in unquestioning stride. After all, there is rarely anyone out there suggesting that something other than economic growth should be our number one priority. Democrats and Republicans are in equal agreement over its importance, arguing only about how we might achieve the best, fastest, and most sustainable kind of economic growth. And during times when the economy is not growing as fast as all the economists say it should be, people do lose jobs, houses go into foreclosure, and our political system starts appearing a little rougher around the edges. Maybe economic growth is a justifiable synonym for the common good.
People familiar with my other writings or who hear my grousings on Facebook from time to time may then wonder why I am so focused on economic growth, but not in a positive way. What, after all, could be wrong with keeping employment high, with rising wages, and the constant improvement of the goods and services that we are able to afford and enjoy? What could be wrong with a growing pie that brings hope and possibility to the poor? What, here, is not to like?
True, economic growth does provide some short-term benefits and gains, and recessions are legitimately painful and destructive. But economic growth is nevertheless the greatest threat to humanity today, and those most devoted to economic growth will, as its consistent performance begins to wane in the future, perhaps be the greatest political threat to ordinary people of the world. There is no issue, I would argue, that is more important than ending economic growth, and doing so in a just and equitable way, whether from the perspective of long term social-justice, political stability and, most acutely, the ecology of the planet and life on Earth.
What is Economic Growth?
Until I began a pretty serious course of study about these issues, I had only a vague sense of what economic growth really was, and likewise didn’t really understand what a recession meant. Assuming many others may be in a similar position, let’s start with some basics and work our way towards some of the more serious and complicated political, economic, and ecological issues.
Economic growth measures positive change in the GDP or gross domestic product. To put this more plainly, a growing economy is one in which there are more goods and services being bought and sold, and thus more money changing hands. Economists like to see a minimum of about 3% growth annually. This simply means that in aggregate there are 3% more cars being sold, haircuts being given, vacations being taken, houses being bought, TVs being bought, roads being built, Netflix subscriptions made, and so on and so on. Economic growth is a measure of how much stuff we have and can do (at least the stuff we pay for), and because most people like having and doing, the more the merrier, right?
Sometimes we hear the suggestion, even within mainstream culture, that we are too fixated on stuff and would be better off focusing on our families and our communities, or on helping people, none of which necessarily adds to the GDP. But despite these vague complaints about our culture, the perceived benefits of economic growth far outweigh this downside. Why? Although some of us have far more than we need, and certainly would be just fine if next year we have the same amount of stuff we do now, there are plenty of people who don’t have enough even of the basics. To redistribute our current stock of stuff would cause untold political problems, while increasing the size of the economy does not. To put this simplistic argument simply, I may not need 3% more stuff, but I’m willing to take it if it helps others who really need more stuff. Far more people are willing to support this growing of the pie that we split than an outright recutting of the current metaphorical pie into smaller pieces.
Unfortunately this isn’t the way the economy works, as economic growth has overwhelmingly helped those at the top of the income brackets, at least over the past 40 years. But this hasn’t always been the case, and with some aggressive tax policies, at least in theory, we could see to it that the rich are able to hold steady while the neediest achieve a greater degree of benefit from the increased quantity of good and services that a growing economy provides. In theory, some might say, economic growth could be used to alleviate poverty. This hope is what passes for a left-leaning progressive economic point of view these days. But there is far more at stake than the pain-free distribution of wealth that economic growth promises to liberals and conservatives alike.
The Ecological Consequences of Growth
My concern with economic growth, then, is not primarily with the consumerist society that it tends to foster and reward—though I do have grave misgivings about it. And I do strongly believe that we need to redistribute our wealth, but don’t believe it can be “pain” free. Rather, my main concern with economic growth is ecological and environmental. This suggestion strikes some people as odd or overstated, especially wealthy people working in management or marketing. What, they might ask, does economic growth have to do with the environment? From within the management sector of the global economy, after all, it is easy to forget that economic activity is not just about computers and graphs or new sales pitches and fancy branding campaigns, none of which seem to require all that much energy or create that much waste (and certainly my teleconferencing saves energy, right?).
But the global economy is an industrial economy. It is about using energy, mainly in the form of fossil fuels, to turn raw materials, many of them non-renewable, into useful goods and services, many of which end up in landfills. There is a lot of talk these days about a “knowledge economy,” but this is an unsubstantiated myth based on the myopic vision of those who are lucky enough to work in the relatively small “knowledge sector” of the global economy. Many of these people only know other knowledge workers, while the academics and journalists who might set us straight on these issues are also part of the knowledge economy.
But the reality of it is that the global economy is overwhelmingly a material economy. As Charles Hall and Kent Klitgaard have extensively shown, economists “tend to give personal or social explanations even to biophysical processes,” while wealth actually comes “from the use of energy and the exploitation of physical resources.”[ii] I think we need to consider these material aspects in at least two ways. First, is the sheer quantity of the materials used in the global economy. The world economy requires about 90 million barrels of liquid fuels each and every day, and about 600 million tons of steel every year. Cement production in 2016 stood at around one hundred million metric tons. All this mining and burning takes its toll as does the accompanying “development.” About fifty thousand square kilometers of arable land are lost each year to soil degradation, largely from industrial agricultural practices. Deforestation around the Earth occurs at the rate of about an acre per second, round the clock, three hundred and sixty-five days a year. The global economy needs forest products, and it needs the land to grow food and biofuels, or to locate new housing developments and Taco Bell restaurants. Our ecological destruction is not the fault of Republicans; it doesn’t happen simply because of deregulation or because Donald Trump doesn’t give a hoot about the environment. It occurs because the consumer goods that we use and demand require this out-put of materials.
Because Americans consume at a rate about six times the global average, we are the worst offenders. The wealthier you are, I’m sorry to say, the more ecological destruction there is performed for your benefit. Because the global numbers are so large as to defy comprehension on a human scale (what does a hundred million tons of concrete look like or do?), it may be useful to break this down into the amount of energy and materials required for the average American middle class life style. As Juliet Schor has calculated it, “[In 2000] total U.S material consumption . . .was 17.9 billion metric tons. That works out to 59.8 metric tons, or 132,000 pounds of oil, sand, grain, iron ore, coal, and wood for every person, to produce the United States’ GNP. Divide that by 365 and it yields an eye-popping 362 pounds a day. It’s not a sustainable number.”[iii] Americans also use about 80 to 100 gallons of water per day and create about 5 pounds of solid waste each day, or around 1800 lbs. per year.
It is true that some of this material is renewable, like timber and grain, and some of it can be recycled, but only with considerable inputs of energy. However, we are consuming renewable products at a rate far faster than the Earth can renew them, cutting into the fish supply, for instance, that will spawn enough fish for next year, or into the forests that might produce enough seedlings to maintain the world’s stock of lumber, not to mention regulate our atmosphere and maintain biodiversity. If you aggregate and average-out all our renewable resources, it turns out that we’ve used our yearly supply by August. The rest of the year we are drawing down on the stocks necessary to maintain that renewal. Our ability to renew these materials thus decreases every year, even as we continue to demand more.
And then, of course, there are the non-renewable materials, especially oil, coal, and natural gas, which are finite in quantity and at the cusp of going into permanent decline in terms of the amount retrievable every year. Their replacement by wind and solar, which require their own natural resources, is overstated and not likely to occur nearly as quickly as hoped nor as completely as expected. Even taking into account renewable energy and recycling, if we divided the planet’s arable land equally among all the people of the world, we’d each get around 4 acres to live off. Just and equitable sustainability would require you to limit your supply of food, energy, and raw materials, while absorbing your waste, to what that idealized four acres can produce and absorb. However, the average American lifestyle requires about 20 such acres, while the lifestyles of people making over $100,000 per year requires upwards of 40, even 80 acres. There just isn’t enough land for anyone to live like that, or even like Europeans who “only” consume at a rate three times the global average.[iv]
If the first main point we need to know about economic growth is that the economy requires lots of finite resources, and currently uses renewable resources faster than they can renew themselves, the second points is that a growing economy will require more of these same things, a mind-boggling more. For those who may remain skeptical about the fact that the use of all this material and energy is an economic issue (whatever else could it be?), the correlation between economic growth and increased uses of material and energy provides a pretty solid case. Consider, for instance, a few graphs below, all of which plot rising world GDP alongside a key material or energy source. Except with a few minor exceptions, there has never been economic growth without an increase in oil consumption, nor without an increase in iron-ore use, deforestation, species extinction, or carbon emissions. Our destruction of the planet’s life-sustaining ecosystem walks nearly lock-step with the size of the economy, for the size of the economy, it turns out, is a measure of how much energy we use to turn how much of our natural resources into sellable products.
This graph puts world steel use along side total GDP, and below that copper and zinc.
Source: [v]
Source: [vi]
Below we see the world GDP rising just a little faster than total carbon dioxide emissions, something also seen with metal demand. But all growth still results in more CO2, just as with metal demand.
Source: [vii]
Similar to this is the correspondence of GDP with total energy use.
Source: [viii]
By examining a shorter time span we see both how energy use vacillates even with small changes in economic activity, and not just decade long trends, and also how tied to oil use the global economy remains. Oil still provides well over a third of the global economy’s energy, with coal and natural gas providing far more than half of the rest.[ix]
If we put them all together, we see a startling correspondence. As the global economy grows, species go extinct, rainforests are permanently lost, carbon emissions grow, and the world becomes hotter and hotter. These trends are not reversing, nor is there any credible sense that they might.
Source: [x]
Unsustainability x 10x
Even at its current size, then, our global economy is entirely unsustainable. We are hurtling towards an unlivable planet, scarce in necessary resources, yet overflowing with waste, and heated to a point where the planet’s ecology will spin out of control. But the official policy of every major government and international agency across the globe is to maintain economic growth. The pursuit of economic growth was even enshrined in American law with the Employment Act of 1946. To call this “unsustainable” would seem a gross understatement; this is madness and would seem to belie all reason. We wonder at past beliefs in witches, demonic possession, and bloodletting; and yet with all the data and tools of observation we have at our disposal this is our chosen course? Those were the Dark Ages? Good God, we must then be blinded by our light.
It occurs to me that many people remain skeptical of this data, or are unable to absorb it, because they cannot believe that were it actually true, world leaders would maintain their policy of economic growth. But this data is correct, and I could fill pages with data showing the connection between economic growth and ecological destruction using only information from the UN, American Government Agencies, even BP and Exxon Mobil (the only difference is that, as above, you’d see things side by side that are usually kept separate). We are not only heading for a disaster, our policies determine that we shall accelerate towards it all the more quickly. There is a mystery here, one which needs to be answered in order for us to understand the phenomenon of economic growth and our near universal addiction to it: How has this issue remained so distant from our political discourse?
But before I address this mystery, at least partially (very partially, here), I want to say a few words about unsustainability and put an exclamation point on just how unsustainable economic growth is by taking very brief detour into the scary and mind-boggling world of exponential growth. Economic growth is always measured—and pursued—in terms of a percentage increase, and not just a fixed rate of increase. Economists aren’t calling for 10 million new cars every year; they are calling for 3% (or whatever) more new cars per year, every year, a number that goes from 10 million to 20 million in a couple of decades. The way any exponential growth starts out slowly and then accelerates more and more quickly can be seen in the shape of the graphs I presented above, but it is worth thinking about it in terms of just the numbers as well.
Most economists believe that, in order to be “healthy,” the world economy should grow at about 3% per year. Treasury Secretary Mnuchin exclaimed upon his nomination by Donald Trump that 3% annual growth is “sustainable.” He’s obviously using the word much differently than we are, thinking only in terms of available investment, capital expansion, inflation, and monetary policy. Their enclosure in this world of economic data helps keep economists unaware of the ecological impacts of the economy or economic growth. Economists, moreover, are charged with the task of figuring out how to grow the economy, not question the value of growth except in purely economic terms that have to do, surprise-surprise, with economic growth.
At any rate, an economy that grows at 3% per year doubles every 23 years. That means that by the time my five year old boys are 30, the global economy would[xi] require perhaps twice as much energy and raw materials as it does now and about three times as much by the year 2050. By the time my boys are 50, we are talking about a quadrupling of resource demands and pollution. But to return to the twenty-three year mark, in 2040 if economists and policy makers have their way, the global economy would require about 180 million barrels of liquid fuels per day (or an equivalent) and we would be emitting carbon dioxide into the atmosphere at an unfathomable rate, while deforestation would be occurring at a rate of 3 acres per every second. We are already beginning to see the increase in catastrophic weather events at our current level of global warming, yet the official policy has as its direct effect to keep heating it up even more.
The standard response to this sort of calculation comes in the form of usually vague references to increased efficiencies and an alleged “decoupling” of economic growth from energy and materials, often unaccompanied by any sense of what, exactly people would be buying and selling if it didn’t have a material element to it. People like Mark Zuckerberg routinely talk about a coming “knowledge economy” based on ideas rather than energy and materials; but I would bet that a tour of his Palo Alto residence (and a glimpse into his travel logs) reveal a distinct taste for things and experiences that require raw material and energy. And as Charles Hall has extensively shown, economists speak about “efficiency” in general terms, without parsing-out where the efficiencies are actually coming from. As it turns out, “efficiency” almost never means energy efficiency. Rather, it means that profits have increased by replacing expensive labor with less expensive energy in the form of automation. Most economic “efficiencies” turn out to require more energy than the “less efficient” predecessor approach.[xii]
Even if some energy efficiency is occurring, a brief look into the numbers will suggest that the idea of combining economic growth with decreasing overall (rather than marginal or relative) ecological impact is a matter of evidence-free wishful thinking. As Ted Trainer has figured it, if the entire world were to live at the level of Americans by 2050, but in an ecologically sustainable manner, the efficiency of our production, travel, and construction would have had to increase by an unimaginable factor of 27; even doubling our efficiency, rather than multiplying it by 27, remains entirely unrealistic within a meaningful timeframe. As Trainer puts it, “by 2050 technical advance must have reduced the resource demand and environmental impact per unit of output to under 4% of their present levels.”[xiii] That means that a car would be manufactured with 4% of the materials it currently requires and that it would be getting about 800 miles to the gallon. Even if we achieved the equally impossible dream of running this all on renewable energy, our housing, our roads, our food, our clothes, and everything else we have and do would have to require about 4% the material input per unit of production compared to what is currently necessary if we are to maintain the sort of economic growth that would create a just and egalitarian world order. Even the most optimistic engineers working on things like industrial efficiency don’t even dream of advances half as great as these, most of which can only be imagined only in a world free from the very real laws of thermodynamics.[xiv]
Economic growth is not sustainable—not even close. It is a material and energy intensive highway to ecological ruin. Unsustainable means “cannot continue.” Either it can’t continue because the materials needed just don’t or won’t exist, or it won’t continue because we will have made the world uninhabitable by trying to maintain economic growth, though it is more likely that we will see a mixture of the two, with lots of finger-pointing, blaming, and political and social disruption as a bewildered populace wonder why levels of affluence are not living up to the promises made by our politicians and business leaders. This is why we need to think about economic growth and ecological sustainability at the same time, and make difficult choices. But as Barbara Kingsolver has quipped, when someone says “your money or your life,” this is generally interpreted as a rhetorical question, not one that requires lots of pondering. In principle, at least, the question is not difficult.
The Growthist Gun to our Head
But why, in any case, has this issue gone unnoticed? It would seem like the story of the century, the biggest scoop a journalist could possibly deliver. Of if our journalists and academics aren’t running around with their hair on fire over this issue, you’d think–if it were as dire and clear-cut as I have been suggesting–that environmental activists would turn this into their number one issue, would take to the streets, would sabotage the economy, would shout out from every soap box on every corner. While there are a handful of researchers and activists who are working diligently on these issues, and largely without institutional support, it remains an unaddressed topic, a colossal elephant in the room with hardly a historical equivalent. Why? Why this absence of attention?
The main reason is denial, something that I have discussed elsewhere,[xv] as have a number of very accomplished and articulate writers to whom I humbly bow[xvi]. To denial we might add the fact that degrowth has no specific constituency (except all of us) while growth has innumerable ones–under current historical conditions almost everyone. It is a place where labor and management, liberals and conservatives, atheists and evangelicals all meet. Their plans, strategies, and tactics all depend on growth and the denial of its limits. Instead of addressing that denial in its broader dimensions, I want to discuss a sub-species of that denial, something that helps feed and reinforce this denial while building an ever-larger Growthist constituency.
For, quite simply, over the past few centuries, and especially starting after World War II, we have designed our life-systems around the principle of economic growth. We depend on economic growth, at this point, not so much because we need more stuff, but because economic growth keeps the system going. Our economy is designed so that it must grow just to survive. If it doesn’t grow at about 3% per year, we aren’t simply required to “make do” with less than 3% new stuff. If it doesn’t grow steadily, and permanently, it crashes. If it doesn’t grow, people lose jobs and homes, go hungry, while farms and factories lay idle, able to produce except for the lack of a working system of banking, credit, and loans or a population of would-be buyers with available money in their pockets. This isn’t because economic growth is necessary to keep us fed; it is because we have strapped agriculture to an economy designed (a design not easily unwound) to grow or fail.
This is what makes the issue of economic growth a complex one. We desperately need to reduce our ecological footprints, and fast—and doing so will also reduce the size of the economy. But ending economic growth would take-down all the systems of trade and commerce necessary for our basic requirements, like food or basic shelter. Economic growth, we might say, has a gun to our head. Our economy is like the bus in the movie “Speed” that will blow up if it drops below a speed of 50 miles per hours. If the economy crashes, so do we. But, here’s the rub. If the economy doesn’t crash, again, so do we—into the ecological limits of our finite planet.
How Our Economy Actually Works
In order to explain this, I’ll need to provide a basic explanation of the way our economy works, specifically the monetary system that, it turns out, is the ultimate driver of economic growth.[xvii] The way our monetary system works, not unlike the information I provided about economic growth above, renders many people incredulous. I invite any skeptics to confirm my description by visiting the website of the Federal Reserve, which has provided some fairly accessible explanations matching mine.[xviii] In a way that is both farcical and tragic, maddening but also somewhat hopeful, our commitment to economic growth has much to do with the way we create money in modern economies. So there is hope to be found here. We have designed a monetary system around growth and so might we also design one around economic contraction. There is nothing written into some universal laws of trade, commerce, or even material well-being that says economies must grow. We only need to figure out how to slow the bus down without it blowing up.
So let’s talk about money. Money, of course, is not the same things as wealth. Rather it is a token or an IOU that may be redeemed for goods and services. Rich people may have lots of money in the bank. But this would be meaningless if they couldn’t redeem it for second homes, first class airplane tickets, fine works of art, and their army of cleaners, landscapers, and dog walkers. Something similarly snarky could be said about middle class people’s plump paychecks and their (our) oversized homes nevertheless bursting with consumerist detritus. There are a lot of social explanations about why some people have lots of money and some have little. But these don’t answer the more primary question for us right now: where did this money come from in the first place, and who decides how much of it there should be.
I can start explaining this by presenting a basic problem that exists for all economies, the issue of the money supply—how much money there should be in circulation. The amount of money needs to keep pace with the amounts of available goods and services. If not, the economy will experience either inflation or deflation. Most people think of inflation as suddenly rising prices, something that can be especially disrupting if they are living on a fixed income or have a large savings for the future: as prices rise this money, in effect, loses value. But rising prices are only a symptom of a simple issue with the money supply—namely that there is too much money in relationship to the amount of available goods and services. Think about this in terms of supply and demand: too much money chasing too few goods and services, and the price of everything will rise.[xix]
The opposite of this is deflation, in which there is not enough money chasing the available goods and services, causing prices to fall, but also wages and salaries. This is a problem for those, for instance, who are trying to pay back loans: current prices may be low, but the price of the house that you bought 10 years ago was loaned to you in pre-deflation dollars and you planned on paying your mortgage with your pre-deflation salary. This is why, as economists like to say, stability is good for business. Wages and debts can adjust over time to inflation or deflation, but if it occurs at anything but a glacial pace, it will put economic relations into an overheated uproar.
If you’re designing an economy, then, you need to figure out how to increase and decrease the money supply in order to keep prices relatively stable so neither borrowers or lenders, savers or speculators, see their fortunes or livelihoods ripped away through no fault of their own. In the early years of modernity and the industrial revolution, when there was a sudden influx of new goods and services, deflation was a constant threat. Booms in production needed to be matched with booms in the growth of the money supply. But if the money supply was backed by a gold-standard, as it often was, then you’d better hope that your gold-mining abilities kept pace with your introduction of automobiles, canned food, quickly built suburban homes, and vacations to Atlantic City.
The main solution to this problem in the era of rapid economic growth has been either to remove money from any sort of backing (like the gold standard) or to require only a small fraction of the money supply to be backed by gold or silver (fractional reserve banking). This, for instance, allowed the raising of the previously unimaginable capital necessary to build the interstate highway system to be performed without an equivalent boom in gold mining. If the interstate highway system needed twenty-five billion dollars, then twenty five billion new dollars could be brought into existence. People usually assume that large loans like this are drawn from peoples’ savings. But this is not how it works. Because the interstate highway system represented a growth in the available amount of goods and services, there needed to be an equivalent increase in the money supply. Otherwise, you guessed it, there would be the onset of deflation–too few dollars chasing too many goods and services.
Where Money Comes From[xx]
So how, then, do we create this “new money”? And who does it? And how do they figure out how much to create? Before explaining how our system works, I want to talk briefly about one other similar system–one, moreover, which many people assume we actually operate with. This is the idea that governments are responsible for printing money. This system has been used throughout the industrial era. While it can often work for a while, it usually has disastrous results at some point.
Here’s why. When a government is able to print money whenever it wants, it may attempt to introduce currency responsibly, matching estimates about the size of the real economy (i.e. the goods and services) with increased currency. But what happens when these otherwise responsible governments face a budget shortfall, or if government is overtaken by reckless fools with grandiose visions? They print themselves a lot of money.
Or consider this scenario: suppose you are the dictator of a small island country and defending your territory from invaders has required vast military expenditures and an increasing payroll of military personnel. Faced with a rising crisis of invaders at your doorstep, and a restive military waiting to get paid, why not print a couple of truckloads of new currency to pay your soldiers. This may work for a few weeks. But as we discussed above, unless there is an equivalent increase in available goods and services (which there usually isn’t during a war or any other sort of crisis that inspires the sudden printing of money), you’ve got inflation on your hands—too much money chasing too few goods and services. As the available money becomes worth less and less, the usual response is to print yet more money in hopes of solving the crisis for another few days. Of course this never works, but instead leads to hyperinflation and, eventually, complete monetary collapse.
I mention this technique of increasing the money supply mainly to demonstrate how clever, by contrast, the one that we and other advanced industrial nations tend to use is. In the United States, the only way to increase the money supply is by taking out a loan. Yes, that’s right. All dollars are loaned into existence. While a large amount of the money supply is funneled through the Federal Reserve, which buys and then resells interest-bearing Treasury Bonds to investors around the world, the easiest way to understand the process is to consider how it works at your local neighborhood bank.
Let’s say you want to build a new home on a beautiful cul de sac, and you builder tells you it will cost you $400,000. Having a good credit record and a well-paying job in the management sector of the global industrial economy, you can trot down to your bank and apply for a loan of $400,000. If the bank agrees, it will write you a check (actually it goes into escrow). But here’s the interesting part: the bank is not writing a check based on funds it actually has. Rather, simply by writing that check, it is creating $400,000 of money (excepting that small fraction indicative of the “fractional” part of fractional reserve banking) that previously did not exist[xxi].
Sound crazy? It’s actually not. In fact it is a very elegant system that works beautifully—at least under conditions of steady economic growth. By loaning this money into existence, the bank has created an additional $400,000 of currency to match a new increase in $400,000 of goods and services (the materials and labor that go into that house construction) that will, at the end of the building process, now exist in the economy. The issue of how to balance the money supply with the available goods and services is almost miraculously solved. Unlike the situations in which governments are printing money to pay down unmanageable expenses, in our home construction scenario, we are more or less insured (if the bank vets its borrowers, that is) that the economy contains a buyer who wants something and is willing to pay for it, and a supplier or seller who has the necessary quantities of materials and labor needed to complete the construction. If, in contrast, the world has run out of trees, the builder won’t be able to promise a new house, or if buyers don’t have well-paying jobs or good prospects of job security, they won’t demand a $400,000 new house. In either case, then, there won’t be new money loaned into existence, and won’t see an inflated money supply. The invisible hand can work quite well.
Why Growth is a Structural Necessity
In fact, we might ask, what could go wrong? Well, it turns out, everything can go wrong, for lots of reasons that are beyond the scope of this explanation. But it is also true that as long as growth remains steady, most of these bad possibilities don’t occur often enough to crash the economy. But we still haven’t answered the question why economic growth is absolutely necessary to a system in which money is loaned into existence. The reason is quite simple to say, but may take a few moments to make sense. The simple reason is that all the loans that have created every dollar there is come with interest attached.
Let’s go back to our example of the new house. The bank may create $400,000 new dollars when it makes that home loan, while the builder creates a house worth $400,000. But because there is interest on that loan, the bank will demand quite a bit more than the $400,000 new dollars it created by the time the loan is paid back. Where does this additional money come from? Of course it comes from other parts of the economy, for money under conditions of stability exchanges hands but doesn’t generally disappear.
But that’s precisely where things get sticky. Because every dollar in our economy was loaned into existence, every dollar comes a promise to pay someone back more than that dollar. There is no money out there that one can draw upon that doesn’t also have some debt attached to it. If you add the promise of interest to all the dollars there are, by definition, there isn’t enough extra money to account for this promise of interest—except creating more money but with yet more promises. Because this is complicated, and hard to visualize, I’ll say it again.
Again, the question is, how do we make sure these additional dollars to pay back interest on the loan exist? They don’t exist from the “original” loaned-into-existence supply of money, nor do they exist from the money that changes hand as people buy and sell things. Rather, this extra money, needed to service debt (which is to say service the economy) comes from Growth! As long as the economy is growing—in other words as long as more people are taking out more and bigger loans–there will be a enough new money created every year to service the debts on previously created money. We are on a dollar-creating treadmill that cannot be easily stopped. But not only this, we need more treadmills moving at a faster clip each and every year. The only other way to increase the money supply, recall, is inflationary.
This is why our economy is so focused on increasing economic activity every year, forever. For if, in contrast, there is a decrease in the rate of borrowing and lending, new money won’t enter the economy fast enough to service all the existing debts out there, and then the defaults begin, and when defaults occur, and loans are written off, money is leaving the economy by a process pretty close to the reverse of the way it entered into the economy in the first place.[xxii] People often assume that defaults are caused by foolish people taking unwarranted risks, which is sometimes the case. But when an economy designed like ours is not growing, defaults are inevitable and for entirely structural reasons: because there just isn’t enough money in the system to service our debt load, which, incidentally, is growing every year. That’s why the economy needs to grow exponentially.
Consider as an example of this sort of structural problem what happens when, say oil prices suddenly rise to $120/barrel and most consumers have no extra money to spend; big corporations will likely decide, both in response to their own energy prices and the fact that consumers aren’t buying new stuff, to mothball their new factory expansion, thus raising the unemployment rate and lowering wages; Fewer people will go to banks to borrow money, and banks may realize that the would-be borrowers who straggle through the doors aren’t likely to be able to make their loan payments, and all of a sudden the money supply doesn’t grow. In order to realize what would happen next, one need only think back to 2008 when the housing bubble burst. And when bubbles burst, a lot of money that is assumed to be in the system in the form of secured loans also disappears, leading to more foreclosures, and more disappearing money, and then the economy is heading towards the sort of death spiral that precipitated the Great Depression. Only renewed growth, and at an unprecedented level, ended the Great Depression. But unlike the present, the world still had vast supplies of untapped resources as well as fresh and quickly growing markets. Put that financial crisis into a world with today’s resource and energy outlook, as well as its debt-load, and the ending will not be so happy.
To return to the issues that I raised at the very beginning of this piece, the reason why politicians and economists are obsessed with economic growth is that they don’t want any of this to happen. In fact, they are so obsessed with avoiding this sort of problem, that few consider the very basic issue that there may be design flaws in our economic system. Things are of course a bit more complicated than the way I’ve described them, especially when we consider the role the government plays in borrowing and spending money[xxiii]; but this is the basic dynamic of recessions and depressions.
Perhaps because they rely too much on The Great Depression as the model for the way a modern political economy can collapse, or perhaps it is just a part of their neo-classical echo chamber, most economists are concerned about maintaining high demand, assuming that demand, plus innovation, will always create supply—forever, into perpetuity. [xxiv] Demand, according to economists, refers to desire for goods and the means to buy them—effective demand, in other words. When the government provides a stimulus package or attempts to “jump start the economy,” they are applying methods Keynes devised during the Great Depression to current problems. As Robert Reich is wont to say, we need to put more money in the hands of consumers to get the economy going—a low point to which liberalism has descended.
It is true that a slackening in demand, whatever its cause, can create recessions or depressions (i.e. when not enough new money is being loaned into existence), and that stimulus packages or quantitative easing (the closest thing the U.S. government has to printing money) can get the economy growing again; but it also turns out that 9 of the last 11 U.S. recessions have been preceded by a sudden spike in oil prices. While this fact has either been ignored or been interpreted as an issue of demand (higher costs reduce discretionary income), at the very least this fact should remind us that issues of supply can also put an end to economic growth, and, I believe, have been for a number of years. It is not that we are running out of our key resources and energy supplies, per se. Rather, the low hanging fruit that led to huge surpluses and fantastic growth rates have been picked over. If we spend more of our energy and labor in pursuit of energy, pursuing lower grades of ore, farming in depleted soil with ever-more fertilizer and pesticides, we are creating fewer goods and services, have fewer “bankable projects,” and can in this way also set off a deflationary spiral.[xxv] The same thing is true of money spent after weather catastrophes. Economists don’t have many tools in their war chests for supply problems, beyond deregulation (spit in a dry bucket), investment in new technologies (which usually require more overall energy to run) and prayer for the next technological breakthrough (which may never happen).
To put this in another way, the solutions that economists and policy-makers are familiar with assume that we live on an infinite planet and that there are no limits to growth; for the fact of our actual finite planet with uncounted ecological limits, they have nothing to offer.
Beating the Horse and Wagging the Dog
One of the terrible ironies of this system, or maybe it is a tragedy set to return as farce, is that at some point the requirements of a growing money supply dictate the production of goods and services. [xxvi] Whether or not we actually need or want new things, if we don’t comply and make more stuff and buy more stuff and throw more stuff away, our economy will crash. This is why advertising and marketing play such an oversized role in consumer economies—namely to convince people that their current stuff isn’t good enough and that they should buy new stuff, regardless of the consequences.
It doesn’t matter that the ecological systems which nourish all life are imperiled by our current level of economic activity, the economy must still grow, all to protect the financial system. Just as marketers will go to any length to goad people into buying more stuff, people at the supply end of the formula will go to any length to keep the flow of raw materials and energy coming. They will create underground explosions (fracking), blow the tops off mountains, enslave entire people under the rule of a cruel royal family, poison our water, and dump 5 million barrels into the Gulf of Mexico (Deepwater Horizon—incidentally, 5 million barrels is only about 4 hours of the American oil diet). Of most immediate consequence, though not immediate enough, we have all made a half-conscious pact to heat the planet to the point at which life and civilization as we know it will be over, all so that we don’t threaten our financial system.
This is why I’m writing this piece and why I write in general. Because most people aren’t aware of the nature of our economic/ecological system, and those few who do understand it in totality generally have the most to lose if we make necessary adjustments.
Earlier I emphasized that this system is one which has been designed, though one might argue that “evolved” provides a better description. But the hopeful upshot of this is that it can be redesigned. It is possible to create a monetary system that can withstand contraction and that can thrive at a steady state. Money doesn’t have to be loaned into existence; that just seemed like a good way of doing things when it appeared as if there were no limits to economic growth.
But before we get too hopeful about easily disposing of this system and selecting another (and thus don’t continue to pursue the very difficult aspects of our systematic problem), I need to conclude by discussing some of the ways it will be difficult to unravel our current monetary system. First of all, economic growth isn’t only a necessary part of our economy as currently structured; it also greases the skids of politics in ways that I’ve been discussing these last months in Resilience.org. And beyond that, any sort of change–especially change that will upset current power relations and commitments to consumption, to deregulation, or individual sovereignty in nearly all matters–is extremely difficult. As I have been suggesting lately, the election of Donald Trump and the new world order that is developing around a fracturing Europe, a Russia on the rise, and a Middle-East in uproar represent a new scramble for power and for resources as the familiar liberal order is coming apart and is no longer to pay for peace through rising affluence. In other words, the supply side of the economic system is pushing back, while the rising costs of environmental damage are causing what economists blandly refer to as “headwinds.” These will only continue to blow more fiercely.
But the fact that money was loaned into existence causes some direct problems specific to itself, when it comes to unravelling that particular system. If all money has debt attached, which it does, then all money has some lender who is expecting all their money back with interest. If we collectively decided to put limits on economic growth in conjunction with ecological sustainability, a lot of people would, at this point, realize they weren’t going to be paid back in full. And because lenders tend to be the most powerful among us, it is impossible to overstate the resistance any such changes will be met with. We have seen what happens when a relatively contained housing bubble pops. I’m talking about the popping of the entire money bubble. If history is our guide, we are in for an unprecedented unleashing of fury.
The immediate response of some more orthodox left-leaning people among us is that this change and disruption might mainly affect the rich and powerful members of the “financial service industry,” and that they have it coming anyways. While it is true that people who work in this “industry” may be the most resistant to changing our money system, it is important to remember that financial disruption affects us all. It is far more likely that my bank account will be emptied (as happened to the people of Crete) and that I will be evicted from my house, long before the wealthy and powerful sacrifice their ledgers in any substantial way. That, of course, can be addressed by way of traditional leftist politics.
Unfortunately, though, we have strapped our food production and delivery systems to this unsustainable system of economic growth, as well as medicine, shelter, and almost everything else. This is why “sustainability activists” have, in light of our seemingly intractable system, also become “resilience activists” as well. But beyond the fact of basic disruption, a great deal of our citizenry is in a sense part of the lender class. If, for instance, you have a pension or a 401K, you have, in essence, been lending money to the financial markets, and, like the CEO of Goldman Sachs, you are only going to have this money available to you if the economy keeps on growing. Are you going to sit by idly, while this all goes up in a puff of deflationary smoke when we choose degrowth? Are you going to accept it philosophically, admitting that you didn’t fully understand the system you were all but forced to buy into? If so, how many others are there like you?
Of course it is not likely that we will come to some fork in the road where we might decide whether or not to redesign our economy so that we can all contract our lifestyles to a sustainable level, and according to fair and equitable measures. It is more likely, I believe, that we will continue to whip energy and raw materials out of the ground, and whip the desire for consumer goods into each other, long after we have breached a point of ecological no return. Economic growth won’t end because we’ve come to our senses. It will end because the Earth can no longer supply us with the materials it requires at the rate growth needs.
Just as economists see slowing economic growth as a social or organizational issue, so do we see the end of growth in political terms, and ones that often take a nasty turn. Thus what is really an issue in the Earth’s capacity to support too many affluent lifestyles gets interpreted as the product of greed on the part of a very few, of economic mismanagement, as cultural problems of laziness and entitlement, as caused by immigrants and refugees. We then attempt to “manage” a decline in the material wealth and capacity of our natural systems with solutions that are full of blame, hate, and focus on individuals and groups rather than broader forces. War and repression are the usual result of such grand misnamings of historical change; we say we only hate the haters, but with more hate flowing this becomes an exponential growth industry that will make the current Twitter eruptions appear mildly proportionate to that medium’s imbecilic name. I look to the future with a combination of fascination and dread. Economic growth cannot continue. But how will it end?
But there is also a chance that we can evolve with the onset of crises, both economic and ecological—a chance that we may, as a global population, find our way to a system of commerce and production suited to a finite planet through some combination of evolution, redesign, experimentation, and plain good luck. But this cannot happen until people begin to understand what economic growth really means and what it really does. There may be no short-term constituency for degrowth; but maybe, just maybe, there are enough people willing to take a moral stand, sacrifice immediate self-interest, build other systems of plentidude for the long term good of our children, grandchildren, and all those who may–or may not–be able to call the blue planet home.
Endnotes
[i] For readers of my On Growthism series, this is both an installment of that and an attempt to articulate these thoughts for a wider audience. As I suggested in my introduction to On Growthism, Growth is among other things embedded in our current systems. This piece supports that claim. For those readers poised to remind me that I haven’t talked about power, ideology, or inequality, please say what you will, but also know that this series has at least one more installment.
[ii] Hall, Charles A, and Kent A. Kitsgaard. Energy and the Wealth of Nations: Understanding the Biophysical Economy (New York: Springer, 2010) pp. 7, 34.
[iii] Schor, Juliet. Plenitude: The New Economics of True Wealth (New York: Penguin Press, 2010), p. 44.
[iv] For a discussion of ecological footprinting, see the wonderful Jim Merkel’s Radical Simplicity: Small Footprints on a Finite Earth (Gabriel Island B.C.: New Society Publishers, 2003).
[v] https://archive.treasury.gov.au/documents/1042/HTML/docshell.asp?URL=02_Resource_commodities.asp
[vi] http://worldcomplex.blogspot.com/2011_09_01_archive.html
[vii] http://www.resilience.org/stories/2016-03-29/again-and-again-supposed-evidence-for-decoupling-emissions-from-growth-is-not-what-it-seems/
[viii] https://ourfiniteworld.com/2011/11/15/is-it-really-possible-to-decouple-gdp-growth-from-energy-growth/
[ix] http://www.theenergycollective.com/gail-tverberg/176761/how-high-oil-prices-lead-recession-energy-independence
[x] http://blog.naver.com/PostView.nhn?blogId=tigermas&logNo=220607520674&parentCategoryNo=4&categoryNo=&viewDate=&isShowPopularPosts=true&from=search
[xi] I use the word “would” instead of “will” because there aren’t enough resources to maintain this sort of growth.
[xii] As Hall and Klitsgaard explain, after applying mathematical models and empirical testing, “We conclude that neoclassical economics when applied does not increase wealth by increasing efficiency in any measurable way but only by increasing the rate of resource exploitation,” p. 203.
[xiii] http://www.resilience.org/stories/2016-04-07/a-critique-of-leigh-phillips-assertion-of-the-tech-fix-ecomodernist-faith/
[xiv] And if we did achieve these efficiencies, then we wouldn’t have addressed the issue of economic growth, for efficiency makes things cheaper while the economy, as I show below, is required to grow in ways that justify increasing costs. There is a name for charging more money for goods and services that use less resources and energy: inflation. This will become more clear below.
[xv] http://www.resilience.org/stories/2014-03-31/the-future-of-an-illusion/
[xvi] See especially Wendell Berry, Pat Murphy, Richard Heinberg, Juliet Schor, John Michael Greer, Barbara Kingsolver, James Kunstler, Charles Hall, Kent Kilitgaard, and Naomi Klein.
[xvii] This statement is made not without considerable thought. I am, indeed, making a speculative and interpretive philosophical argument that, today, the requirements of the monetary system have assumed the driver’s seat. However, this is not to say that there aren’t other historical, cultural, and moral reflexes at play. Greed and the pursuit of power, the desire for novelty, an expansionist ethos—these all did precede a fractional reserve banking system, which was designed, perhaps, to manage these other cultural forces. There is no short way of describing these various cultural and economic forces and their interplay; such a description is the goal of the series of essays on Growthism, of which this is one. However, one might say, you could remove greed and the morality of acquisition from our culture, and economic growth would still have a gun to our heads.
[xviii] https://itsworking.americansforprosperityfoundation.org/the-federal-reserve-system/?gclid=CjwKEAiAoaXFBRCNhautiPvnqzoSJABzHd6h2CQCIQwOELgnT84QMUBRsuxnA;file:///C:/Users/user/Downloads/banking2%20(1).pdf
[xix] I borrow this phrase from Nicole Foss, whose work and excellent presentations have been central to my understanding of these issues as has Gail Tverberg’s work in www.ourfiniteworld.com Foss can be found at www.theautomaticearth.com
[xx] Chris Martenson’s “Crash Course” provides an excellent overview. https://www.peakprosperity.com/crashcourse
[xxi] excepting that small fraction indicative of the “fractional” part of fractional reserve banking.
[xxii] Most money, mind, doesn’t exist in the form of cash, but as numbers in ledgers, something possible only in a system where money is loaned into existence.
[xxiii] I’ve not mentioned, for instance, issues like assets and depreciation, or the way complicated collateralized debt packaging works. Government debt, moreover, creates money that isn’t expressly tied to goods and services the way the bank loan for a new house is. As I understand it, government debt is collateralized by a general belief that the economy as a whole, will continue to grow fast enough for governments to continue to assume uncollateralized debt without excessive inflationary risk. If the economy cannot continue to grow (it can’t), then we have the mother of all bubbles—a generalized money bubble, and this bubble will likely contain shrapnel.
[xxiv] See, http://physics.ucsd.edu/do-the-math/2012/04/economist-meets-physicist/
[xxv] In this vein, the golden wand of “infrastructure projects” needs to be reconsidered. In a highly expandable setting (say the U.S. before the transcontinental railroad or the Interstate Highway system), the completion of such projects greatly expanded access to new resources and sources of energy, and efficient access to markets. The growth potential can be seen in the records of economic growth subsequently achieved. Now, however, we are mainly talking about repairing existing infrastructure. These won’t result in expansion and more growth. Rather, it is a matter of pouring lots of energy and resources into maintaining what we already have. This is not the recipe for growth that accomplished economists assume it to be; it is a recipe, at best, of stemming the inevitable tide of degrowth. It does not give us more goods and services in aggregate. Rather we spend a greater percentage of our current stocks of energy and resources on maintenance. Rebuilding a stone wall doesn’t give you a new stone wall! For this reason, our infrastructure investments should be made with an eye to living more lightly, not maintaining a semblance of our past glories.
[xxvi] There is a very important point that I think most economists seem to miss. They sometimes act as if economic growth is about increasing our standards of living, and then promise to do that by way of increased efficiencies and dematerializing the economy. Most of this is fantasy-driven even if the intentions are good, but beyond that, they seem at this point to forget that making more stuff for less cost isn’t exactly economic growth, and the demands of the interest-demanding money supply would still be there regardless of how much more crap we have made more efficiently. I don’t think the profession of economics in its prevailing form has yet asked itself whether it is in the make more crap business or the increase the GDP in monetary terms business, for they are not exactly the same thing. The moment you actually confront this question, moreover, you may find yourself blinded on the road to Damascus. As a particularly interesting example of someone who has become half-aware of this distinction see Robert J. Gordon’s The Rise and Fall of American Growth (Princeton: Princeton University Press, 2016). See also note xii.
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ABOUT THE AUTHOR
Erik Lindberg received his Ph.D. in English and Comparative Literature in 1998, with a focus on cultural theory. After completing his degree, Lindberg began his career as a carpenter, and now owns a small, award-winning company that specializes in historical restoration. In 2008 he started Milwaukee’s first rooftop farm, and was a co-founder of the Victory Garden Initiative, as well as a member of Transition Milwaukee’s inaugural steering committee. He lives in Milwaukee with his wife and young twin boys.
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