Foreword
Having set out the basic principles of the surplus energy economy in the previous article, we turn here to projections for the period between now and 2050. Growth in material economic prosperity has already ended, and contraction lies ahead.
There is nothing that can be done to prevent this from happening. The material economy cannot be reinvigorated with monetary stimulus, and there can be no technological ‘fix’ for the laws of thermodynamics.
Beyond simple unawareness of the material dynamics of economic prosperity, our greatest problem is an absolute refusal to accept this process, and adapt accordingly.
The very idea that the consumerist economic model has run out of time is an anathema, not just to the beneficiaries of this system but also to a general public which still believes that there need never be any end to economic expansion within the confines of a finite planet.
We are already seeing the consequences of inflexion from economic growth into contraction. We are seeing it in the widening immiseration so ably chronicled by Charles Hugh Smith, and in the fiscal and political stresses created by the ending of growth.
These pressures will soon build to a point at which profound social and political changes must occur.
As discussed later, we should expect to be subjected to propaganda assuring us that none of this need happen – that fossil fuel energy isn’t scarce, that renewable energy offers a complete and seamless transition away from oil, natural gas and coal, that environmental degradation is some kind of ‘hoax’, and that there’s no need to make fundamental changes in order to manage the ending of the era of fossil-powered consumerism.
In the real world, however, politics – both domestic and international – is already being reshaped by intensifying competition for scarce and dwindling resources.
1. Prospective Decline in Supply of Physical Products and Services
Between now and 2050, aggregate material economic prosperity – the supply of physical products and services to society – is likely to decline by about 17%. Based on current population trends, this would leave the World’s average person about 31% poorer in 2050 than he or she is today.
Over that same period, this person’s real cost of essentials is likely to rise by rather more than 50%. On this basis, his or her PXE – meaning Prosperity eXcluding Essentials, and loosely analogous to “disposable income” – is set to decrease by nearly 70%.
This doesn’t just mean that the affordability of “travel, tech, toys and tat” will contract rapidly, eliminating millions of jobs and destroying vast amounts of invested capital.
It also means that the household sector will become wholly unable, long before 2050, to support its grotesquely-inflated burdens of debts and quasi-debts.
Even where liabilities are formally the responsibilities of governments and private corporations, what really matters is the carrying capacity of the citizen, in his or her role as consumer and taxpayer.
2. Why Meaningful Economic Growth is Heading into Reverse
There is no great mystery about why meaningful economic growth is heading into reverse, and no lack of evidence for the proposition that this process is already under way.
To understand why, we need to know that economic prosperity is, and always has been, determined by the availability and use of energy.
At the symbolic start of the industrial age in 1776 – when James Watt completed the first truly efficient machine for converting heat into work – the global population was barely 700 million people.
That number has since soared past 8 billion yet, for most of the intervening years, economic resources have dramatically out-grown population numbers. We can estimate that energy use per person may have multiplied by a factor of about 350 during the industrial era.
The connection between energy, population numbers and the economic means of their support is illustrated in Fig. 1A. The simultaneous timing of the exponential take-offs in population numbers and energy use was no coincidence at all. The causative factor was the harnessing of vast reserves of fossil fuel energy.
Though enormous, these resources are ultimately finite. For much of the industrial era, the efficiency with which these energy resources are consumed has advanced.
The search for fossil fuel energy has spanned the globe, delivering successively larger and lower-cost pools of resources. The energy industries have reaped the benefits of economies of scale, and there has been a gradual but continuous improvement in energy extracting technologies.
There is, though, an equally continuous process known as depletion, which describes a natural preference for using lowest-cost resources first and leaving costlier alternatives for later.
There comes – and, now, has come – a point at which, with the potential of geographic reach and economies of scale exhausted, depletion becomes the primary driver of the economics of energy.
3. Energy is Never Free
The best way to capture these trends is by reference to ECoE.
Energy is never “free”, because it cannot be put to use without an energy-accessing infrastructure, which might be mines, wells, refineries, pipelines, solar panels, wind turbines, power grids or electricity storage systems.
Since all of these systems are material, none of them can be created, operated, maintained or replaced without the use of energy.
What this means, colloquially, is that we must ‘use’ energy to ‘get’ energy. More formally, “whenever energy is accessed for our use, some of that energy is always consumed in the access process, and is unavailable for any other economic purpose”.
If, as here, we describe this “consumed in access” component as the Energy Cost of Energy, the result is the principle of ECoE.
This concept divides the aggregate supply of energy to the system into cost and surplus energy, the latter defined as the total supply of energy minus ECoE.
The concept of surplus energy describes a process common to life itself – for an animal or a bird to survive, the energy it derives from its food must exceed the energy it expends in obtaining that food.
Though the necessary data does not go back as far as the early 1800s, we can confidently infer that ECoEs trended downwards for much of the history of the industrial age, when widening global reach, increasing economies of scale and gradual advances in energy-accessing technologies pushed costs steadily downwards.
We can also be pretty certain that the nadir of ECoEs occurred in the quarter-century after 1945. Just as oil was taking over from coal, so huge new petroleum resources were being brought on line, most obviously in the Middle East.
This explains why that twenty-five-year period was one in which material economic growth was at levels never previously experienced, and which have since become a distant memory.
Latterly, the Energy Costs of Energy have been rising relentlessly, from 2.0% in 1980 to 11.3% today, and are likely to be closing in on 29% by 2050 (Fig 1C).
We had a first brush with the consequences of energy depletion in the inter-war years, when the economic dynamic of coal was decelerating before oil and natural gas were quite ready to take over.
Had oil not been available, the Great Depression of the 1930s, far from ending, would have continued into the kind of secular contraction that is now unfolding in the twenty-first century.
Figure 1. Click on the image to enlarge.
4. There Is No Adequate Successor to Fossil Fuels
The stark difference today is that no superior (or even like-for-like) successor to fossil fuels exists.
Renewable energy cannot be developed, operated or replaced without the use of legacy energy from oil, gas and coal, a connection which links its ECoEs to those of fossil fuels.
Renewables are inferior in their characteristics, most obviously in their intermittency, and in their drastically lower portability.
The reported specific energies of renewables – the quantity of energy generated per unit of system mass – may appear higher than those of carbon fuels, but these are lifetime calculations, and do not incorporate the much lower specific energies of distribution and storage systems.
A modern wind turbine might generate about 510,000 Wh per kg of mass over 25 years in service, which is far higher than oil products at about 12,000 Wh-kg. But the bottleneck in the system is the much lower specific energies of power storage systems, which are unlikely ever to exceed about 500 Wh-kg.
This doesn’t just mean that wind and solar power cannot replace the economic value presently obtained from fossil fuels, but also suggests that electricity, however generated, may never be able to take over the ‘heavy lifting’ in the economy from oil, natural gas and coal.
5. Propaganda Rooted in Misconception, Denial, and Self-interest
These points must be emphasised because, as the material economy inflects from growth into contraction, the public will be subjected to an increasing amount of propaganda rooted in a combination of genuine misconception, denial and self-interest.
Almost nobody wants to acknowledge any inevitability about the ending and reversal of economic growth, not least because this process will invalidate the prevalent consumerist economic model, destroy jobs and invested capital at an epic scale, and render current inequalities of wealth and income untenable.
Accordingly, we’ll be variously informed that fossil fuel energy still exists in enormous abundance; or that the use of carbon fuels isn’t driving an environmental deterioration that might not be happening anyway; or that renewables, and perhaps even nuclear fusion, offer a “climate-friendly” future of never-ending economic expansion.
Beyond denial and self-interest, these fallacious claims are rooted in two misconceptions.
The first is the idea that monetary stimulus can overcome resource constraints to reinvigorate the material economy. Such claims disregard the obvious fact that money, having no intrinsic worth, commands value only in terms of those material products and services for which it can be exchanged.
This principle of money as claim requires us to think in terms of the two economies of the material and the monetary. Since money is a “claim on the material”, it cannot, of itself, drive changes in the direction of the material.
The second convenient misconception is that we can overcome economic inflexion through technological innovation. This disregards the fact that the potential scope of technology, far from being infinite, is bounded by the limits set by the laws of physics in general, and the laws of thermodynamics in particular.
This mistaken presumption accords with a contemporary deification of technology, a set of ideas which is collectively hubristic in its assertion that human ingenuity can exercise complete control over our economic and environmental conditions.
Financially, we have moved on from one bubble to the next as the material economy has decelerated towards contraction. When rising ECoEs began to subject the economy to “secular stagnation” in the 1990s, we started to pour vast amounts of new debt and quasi-debt into the system. When this “credit adventurism” led directly to the GFC of 2008-09, we doubled down with the “monetary adventurism” of QE, ZIRP and NIRP.
6. Fallacies of Monetary and Technological Fixes
Evidence for the ending of growth, and for the fallacies of monetary and technological fixes, is everywhere to be seen. Much of Europe is heading into fiscal catastrophe by trying to sustain levels of spending that neither tax revenues nor the material economy can support.
Even in the United States, reported “growth” in GDP is now exceeded by the issuance of government debt. Much of China’s past super-rapid growth has turned out to have been the product of a gigantic credit ponzi in real estate.
Likewise, the “cost of living crisis” isn’t remotely the temporary phenomenon that the word “crisis” implies. Excuses – wars, a pandemic, a politically-motivated disruption of trade – have proliferated, but the ending of a one-off era of growth made possible by fossil fuels is everywhere in evidence.
This, essentially, is why both internal and international politics has been deteriorating into a series of raw-knuckle fights over scarce and dwindling economic resources.
Neither can we contend that we’ve had no prior notice about the ending and reversal of growth. Using then then-new science of system dynamics, the authors of The Limits To Growth gave us a prescient warning of the shape of things to come back in 1972.
More recently, SEEDS analysis indicates that a climacteric was crossed in the early years of this century. Between 1980 and 2007, material economic prosperity expanded more rapidly (+57%) than global population numbers increased (+51%). Since then, though, the population (+20.7%) has out-grown prosperity (+18.7%).
7. The Monetary and the Energy Costs of Energy
Once the fundamentals of material prosperity are understood, forecasting future trends becomes comparatively straightforward. In addition to the principle of money as claim and the principle of ECoE, we also need to know that physical supply is delivered by using energy to convert raw materials into products, and into those artefacts and infrastructures without which no worthwhile service can be provided.
ECoE operates as a ‘first call deduction’ on this material supply, and can be thought of as an economic rent payable on the use of the planet’s energy resources. Money then operates in a subsidiary capacity for the distribution and exchange of the resulting material economic prosperity.
On base-case SEEDS projections, the supply of primary energy may not peak until the early 2040s, at which point non-fossil alternatives become unable to grow rapidly enough to offset an accelerating decline in the availability of fossil fuels (Fig. 2A).
In modern times, the conversion ratio governing the efficiency with which energy use translates into material economic supply has trended gradually downwards.
What this means is that the non-energy resource base – which includes metal ores, non-metallic mining products, biomass and water – has been degrading at rates slightly exceeding those at which the efficiency of the broad swathe of conversion technologies has advanced (Fig. 2B).
The forward trajectory of the conversion ratio is assumed here to be broadly flat, reflecting a shift of emphasis away from discretionary (non-essential) products and services.
On this basis, a projected 6.3% increase in energy supply between now and 2050 translates into a 3.5% rise in top-line economic output, known in SEEDS terminology as C-GDP (Fig. 2C).
But the relentless rise in ECoEs is destined to continue, driving a widening wedge between top-line C-GDP output and ex-ECoE prosperity (Fig. 2D).
Figure 2. Click on the image to enlarge.
8. Prosperity Decline, Population Growth, and Cost of Essentials
The foregoing projections indicate that aggregate global prosperity will decline by about 17% between now and 2050. But the negative consequences of this trend are likely to be compounded by two adverse factors – continuing increases in population numbers, and relentless rises in the real costs of essentials.
The annual rate of global population expansion has slowed markedly, from just over 1.8% per annum between 1980 and 1990 to slightly less than 1.2% between 2010 and 2020. Some observers have suggested that population numbers might peak at some point in the latter half of this century.
But the probability remains that the population is likely to increase by about 20% between now and 2050, translating a 17% decrease in aggregate prosperity into a 31% decline in the prosperity of the World’s “average” person.
This “average” person is, of course, something of a statistical fiction, and one of our contributors has suggested that this projected “average” decline might reduce the median person to destitution.
We cannot, though, presuppose that contemporary levels of inequality will continue, because asset prices are destined to slump, with no store of wealth guaranteed to survive the coming turbulence in financial and political systems.
The second compounding factor is the relentless rise in the real cost of essentials. These costs can only ever be estimates, since the definition of “essential” varies both geographically and over time. Things once deemed to be “luxuries” are now regarded as necessities, a process that is likely to reverse as material economic prosperity contracts.
SEEDS calibrates “essentials” by combining an estimated cost of household necessities with sums spent by governments on public services. This does not by any means imply that all public services are “essential”, but recognises that the individual has no discretion (“choice”) about paying for them.
Many necessities – including housing, infrastructure, distribution, domestic energy use and the costs of food and water – are energy-intensive in character, as are many of the services provided by governments.
Whilst fiscal pressures can be expected to result in a re-prioritization of public services, the costs of household necessities per person are likely to grow at real rates of between 2.0% and 2.5% per annum.
Of all of the charts generated by SEEDS, the one shown here as Fig. 3B is perhaps the most disturbing, portraying a relentless narrowing of the gap between prosperity per person and the estimated cost of essentials.
As can be seen in Fig. 3C, this translates, at the aggregate level, into a rapid, leveraged compression of the affordability of discretionary (non-essential) products and services.
The final chart compares discretionary affordability – proxied as PXE, meaning Prosperity eXcluding Essentials – with soaring burdens of debt and quasi-debt.
As governments try (and fail) to counter economic contraction with monetary stimulus – and as individuals increasingly resort to credit to support accustomed ways of life – we can see that the inherent instability in the system will build to a point at which the system topples over, probably through a combination of cascading defaults and an inflationary destruction of the purchasing power of money.
Figure 3. Click on the image to enlarge.
