Consciousness of Sheep
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Perhaps the most despicable thing about climate change denial is that the science behind the greenhouse effect is long established. As I noted in my book – The Consciousness of Sheep:
“French mathematician and physicist, Joseph Fourier, first discovered the ‘greenhouse effect’ in 1824, when he discovered that gases such as water vapour and carbon dioxide can act like a blanket, preventing excess solar energy being radiated back into space. In the 1850s, British physicist John Tyndall accurately calculated the heat absorption of carbon dioxide. In 1896, Swedish physicist and chemist Svante Arrhenius calculated the additional impact of fossil fuel emissions. Although this early science did not offer an accurate prediction of global warming rates, it was sufficient to demonstrate that man-made global warming should be taken seriously.
“Despite the early science, it was only in 1958 that American scientist Charles Keeling began monitoring atmospheric carbon dioxide levels. Keeling was able to demonstrate that one in every four carbon dioxide atoms in the atmosphere was man-made. Moreover, Keeling produced the now famous ‘Keeling Curve‘ that demonstrates the causal relationship between human carbon dioxide emissions and global average temperature rises.”
But here we are 193 years after the greenhouse effect was discovered and 59 years after Keeling first began his work, still debating whether human activity adds to atmospheric carbon dioxide levels; and if it does, whether this has any impact on the climate – ignoring, of course that you can now stand up to your shins in floodwater on the sunniest of days in towns and cities along the USA’s eastern seaboard, because the sea level has risen above the drainage systems. Closer to home, the frequency and severity of north Atlantic storms now threatens to bankrupt the beleaguered UK insurance industry with bi-annual multi-billion pound storm damage claims. For our peace of mind, we should probably ignore the shift in polar air flows this winter, which resulted in barely below freezing air over the North Pole as polar air brought a freeze to central and southern Europe – along the way killing a large part of the early crops that Europe takes for granted in the lean weeks of February/March.
It should be obvious enough to anyone who has been paying attention to the climate change story that we are not going to do anything to stop global temperatures from rising to dangerous levels. Indeed, although this is an unpopular thing to say, it is now time for at least some of our leading minds to begin thinking about how we might mitigate at least some of the worst impacts of perhaps 5 or 6 degrees of warming above pre-industrial levels. At least that way, some of you may at least survive the disaster that is coming.
Unfortunately, climate change relates to just one of what have come to be known as “The Three E’s” – Environment, Energy and Economy. In both energy and economy, we have also been engaged in wilful ignorance to the point that we stand on the edge of disaster.
Ironically, the least critical of these – economy – is the one that most of our efforts are being wasted on. This, perhaps is because it is the most obvious and the one that affects us most immediately. In the UK, the economic news sections of the mainstream media look like a war zone. To give just three example headlines on the BBC website at the time of writing:
“UK economy ‘loses momentum’ as services growth slows”
“‘Long shadow’ of financial crisis hits incomes”
“Zero hours contracts reach record levels”
A great deal of political and journalistic effort has gone into inventing stories to persuade people that these signs of collapse can be blamed on the UK’s decision to leave the EU. But anybody who has been following economic trends since the crash of 2008 or even earlier will fully understand that in fact it is Brexit – and, indeed, Donald Trump and the rise of the European hard-right – that is the symptom of the collapse that these indicators point to.
Underlying the collapse of our economy is one simple fact – capitalism begins with debt. Indeed, the terms capital and debt are almost interchangeable. A capitalist invests (i.e. lends) to a business in order to reap an additional return (profit/interest) on his or her capital.
How is this trick achieved?
This is where the human economy intersects with the real world. The currency invested is used to pay for the machinery/technology; natural and manufactured-from-natural resources; the energy; and the human labour required to produce a good or service that has more value than its component parts; and that can be sold for a greater return than the original investment.
In the wake of the 1929 Wall Street Crash, which triggered a depression around the world, English Noble Prize winning chemist and economist Frederick Soddy was one of a small band of quickly silenced contrarian economists who set out exactly why the crash and ensuing depression occurred. The reason, in a word, was counterfeiting. It ought to be obvious enough. But we have largely been too polite to mention the fact that people cheat. And while we prosecute incompetent amateurs when they create obviously forged notes and coins, we actively reward banks and central banks when they do exactly the same thing.
The point Soddy was getting at was this: Capital is meant to be a store of pre-existing wealth – you have to give up some wealth in order to lend it. But in the run up to the 1929 crash, banks had been creating money in the form of debt out of thin air. Unfortunately, Soddy’s books are currently out of print. But in my book The Root of All Evil, I use this quote from his book Wealth and Debt: The solution of the economic paradox (he is using the British Imperial System of pounds, shillings and pence – £sd):
“Before the [1914-18] War it was considered “safe” for the banker to keep some £15 per £100 of cash against deposits. That is, for every £100 deposited £15 of cash sufficed for the small cash demands, most of the depositors’ purchasing power being exercised by cheque. We may take this 15 per cent for purpose of illustration only. It is doubtful if as much has been necessary for a very long time.
“Now the whole secret of the system is contained in the fact that when a bank creates a loan and lends £100 to a borrower, to do so it need only have £15 of its depositors’ money, or whatever the “safe” ratio may be.
“Thus, dealing throughout with averages, against the original depositor of £100, £15 of legal tender must be kept in the till, leaving £85 available to be lent to a borrower. It is true this borrower might demand it in cash, but, on the average for him no less than for the original depositor, only 15 per cent of cash, or £12 15s. is necessary, leaving £72 5s. free to be lent to a second borrower. Of this 15 per cent, or £10 17s., again suffices to be retained, leaving £61 8s. available to be lent to a third borrower. So it goes on until each £100 of original cash becomes a total of £666 13s. 4d. Of this £100 are due to the depositor and £566 13s. 4d. is owing to the bank from the borrowers.
“The borrowers have to deposit with the bank acceptable collateral securities, which, if they default, the bank can sell, or try to sell, to recoup itself. But such securities are usually not sold. The bank charges interest upon the fictitious loan. At the modest 5 per cent bank rate the interest on £566 13s. 4d. is £28 6s. 8d. per year, which is, it must be admitted, not a bad return on £100 which the original “depositor” has not lent.
“If the truth were known it would probably be found that this estimate is altogether too modest. At least since, if not before, the War the figures suggest rather a 7 per cent “safe” limit than 15 per cent. On this basis a client depositing £100 of cash in current account enables the bank to loan £1,330, which at 5 per cent brings in £66 10s. 9d. per annum.”
That was the now largely defunct Fractional Reserve Banking system, which was eclipsed from the mid-1980s by the system of securitised derivatives, which allowed banks to explode the volume of debt-based currency in circulation to the point that cash accounts for less than three percent of our currency stock, and less than one percent of our transactions. The key point, however, is that all of this is fraudulent. The “capital” that banks, governments and even ordinary savers have been investing was never a store of wealth because there was no pre-existing wealth to store. The banks simple printed (and continue to print) currency out of thin air – and charge us rent (interest) for the privilege of using it. What could possibly go wrong?
We began to get a feel for the crisis that is coming when the entire global economy came close to meltdown in 2008. But why did 2008 happen? For today’s contrarian economists, the answer is simple enough. The ratio of private debt (i.e. the counterfeit money that banks create) to GDP (a somewhat flawed indicator of economic growth) grew above 200:1 – a level that historically seems to result in collapse. But what, exactly is happening in the real world?
Money printing – whether by governments or banks – has a cyclical effect. At the start of a cycle, as the economy recovers from the last recession, spare capital is locked up in “safe haven” assets like property, gold and fine art. This acts as a break on investment, and is part of the reason for recession. When a government prints or a bank loans currency to businesses, this new currency effectively brings forward future production. New resources are mined, new fuels recovered, new technologies deployed and new products and services created and sold. But the economic system has a blind spot to the resource implications. There comes a point in the cycle when the real economy can no longer bring forward the quantities of resources, energy, capital and labour required to maintain growth. Toward the end of the cycle, the ratio of currency/debt to GDP gets too high. Costs increase. Growth stalls. Investors flee. People stop buying. Businesses close. Suddenly we find ourselves back in another recession.
Note that the only way in which we can get the economy out of a recession is to print/loan-into-existence sufficient new currency to bring forward (in an environmentally damaging way) additional resources, fuels, capital and labour. But, as we now understand from our climate scientists, we have already done this beyond the point where it is going to destroy the habitat that allows humans to exist. At this stage, any politician or economist who promises further growth is effectively promising to murder your children!
Climate change and environmental destruction, however, is just one jaw of a vice that has humanity firmly trapped. On the other side is a looming crisis in energy. And again, humanity cannot say it was not warned:
“In 1956, an American geologist working for the Shell oil company, Marion King Hubbert made the (then) staggering prediction that US oil production would peak around 1970. At the time, his arguments were dismissed as unrealistic speculation. In 1971, Hubbert was mocked by oil industry insiders who pointed out that US oil fields were more productive at that point than they had ever been… it turned out that they would never be as productive again.
“Peak discovery of oil reserves in the US had been in the 1930s. Thereafter, the number of discoveries of new deposits fell away rapidly. Hubbert calculated a roughly 40 year time lag between peak discovery and peak production – accounting for the time it takes to develop the infrastructure to reach maximum production. Hubbert made a similar calculation for global oil production. By putting all of the known reserves and predicted discoveries together, it was possible to calculate that a similar global peak would be reached about forty years after the peak of discoveries. Since the peak discovery of new oil deposits came in 1964, the production peak was likely to occur sometime around 2004. It now appears that global production of conventional crude oil peaked in 2005.”
Again, this is about growth. Nobody is claiming that the world is going to “run out” of oil. Rather, we are getting close to the point where we will no longer be able to increase global oil production. There will still be lots of oil in the ground. We will just find it increasingly difficult and costly to recover. Think of it this way: imagine that you receive a solicitor’s letter informing you that due to the sad death of a distant relative, you have inherited £10 million. Isn’t that great news? Well, it would be except for a small clause in the will that forbids you from withdrawing more than £12,000 in any year. Worse still, with each year that passes the amount you can withdraw in any year is going to go down by £100. Yes, you are a multi-millionaire. But in terms of income, you are no better off than the guy on the checkout counter of your local supermarket.
Although the energy companies have been able to maintain growth, the rate of growth has slowed dramatically since 2005. More importantly, the amount of capital spending required to bring new oil fields into production has increased from an average of 0.9% between 1985 and 2000 to 10.9% between 2000 and 2014 (CAGR = Compound Annual Growth Rate – see Gail Tverberg’s article for further discussion). This is the financial manifestation of a phenomenon that is far more problematic for humanity – falling energy return on energy invested (EROEI) and rising energy cost of energy (ECoE).
We see this most obviously in the historical development of the oil industry. There is clearly a big difference in the energy required to drive a steel tube 70 feet into a pressurised underground oil deposit than there is to recover oil that is two miles below a seabed that is itself three miles beneath the surface. In the same way, recovering oil from tar sands and hydraulically fracturing oil shales is hugely expensive in energy terms compared to recovering conventional land-based oil deposits.
There is a more important way of viewing this problem, however. That is to think of our energy as being available for discretionary and non-discretionary use. The non-discretionary component is the energy we must use to generate our future energy (to paraphrase Steve Keen: an economy without energy is an art installation). This includes recovering fuels, but also includes such things as producing components for power stations, maintaining the grid infrastructure, and even producing the biros and paper required by the people who administer our energy systems. Discretionary energy refers to everything else we do in the global economy.
The problem is that as we reach the limits of a finite planet, we are running out of new, external energy to draw upon to keep the discretionary sector growing. Instead, as both the energy and financial cost of producing energy increases, so both energy and currency has to be diverted away from our discretionary activities. As Tim Morgan explains:
“This shows up most obviously in household budgets as a rise in the cost of essentials, which leaves the individual or household less to spend on everything else. Again taking Britain as an example, the cost of household essentials rose by 48% between 2006 and 2016, far outstripping much smaller increases in wages (+21%) and general CPI inflation (+25%). At the level of national economies, much the same occurs, with the cost of essentials outpacing both income and broad inflation as ECoE increases.
“This is one reason why seemingly-positive data on the economy as a whole increasingly clashes with individual experience – the data says the economy is growing, but the individual feels poorer, not wealthier. An increasing ECoE – and its transmission through the cost of essentials – helps explain this apparent contradiction. As neither conventional economics nor governments understand this mechanism, policymakers find themselves baffled by trends which do not seem to accord with the data available to them.”
Which is why we see those troubling economic indicators being reported in the business sections of mainstream media, and why it is much easier to blame it all on Brexit or Trump than it is to question the ideological assumptions behind the environmentally destructive infinite-growth/progress belief system that brought us to this point.
To the unthinking eye, a collapse in the global economy and the end of fossil carbon fuels is taken as a good thing. After all, permanent recession coupled to the end of oil, coal and gas burning is probably the only thing that will prevent humans from inflicting a runaway greenhouse effect on our planet. Blind faith causes us to simply assume that we can swap out fossil fuels for a combination of wind, solar and tidal power (some would add nuclear) and then carry on growing. The trouble is that our renewable/green technologies are also products of our industrial economy. They have pretty much the same supply chains as any other product in the economy. They require the use of diesel powered machinery to mine and haul the raw materials, coal-powered Chinese factories to turn these into components, oil-powered ships to take them to a coal, gas or nuclear-powered assembly plant, and diesel-powered lorries and cranes to deploy them.
This is not to say that we should not deploy renewables or that we should not seek to electrify as many industrial process as we can in the time we have left. Rather, it is simply pointing out that the task before us is going to be far more (energy and capital) expensive and time consuming than we are being led to believe. Moreover, substituting renewables for fossil carbon fuels is precisely the switch from discretionary to non-discretionary spending that falling EROEI and rising ECoE implies.
In the future – assuming humanity gets to have such a thing – we are all going to be consuming a lot less stuff and doing far fewer things as our economy falls back onto producing whatever energy (including the food calories we depend upon) we still have available to us. We already see this manifested in the form of growing unemployment and (particularly) under-employment, falling incomes, increasing fuel poverty, food banks, and the collapse of public services. We also see it politically in the collapse of the neoliberal centre ground. And we witness it socially as a growing majority reject globalism in favour of an emerging nationalism.
There may still be time to turn this around, provided that we can develop the wisdom to let go of an economic system that is doomed in any case. But as the title of this site suggests, I am not optimistic. I think it is far more likely that we are in the early stages of an existential economic collapse that will be compounded by growing energy and resource shortages coupled to severe environmental changes. And the final irony is that we can’t even say we were not warned.
