Thursday , August 13 2020
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The symptom of our disease

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Imagine that you had to fight a pandemic without a theory of germs (some readers, no doubt, will point out that we don’t need to imagine, we just need to look at the cack-handed government response).  Anyway, you might get a few things right, albeit for the wrong reasons.  You might, for example, believe that the spread of disease that you witness all around you is a consequence of “foul air.”  As a result, you might wear a mask and avoid close contact with people in confined spaces.  There will, nevertheless, be many things that you will get wrong.  Prayer is unlikely to prevent the spread, and flagellating yourself to atone for the sins of humanity is just going to add your cadaver to the growing pile.

The same applies to the economists and politicians charged with fighting the biggest economic downturn since at least the 1930s, while lacking two key theories: a theory of money and a theory of energy.  The absence of a theory of money has been addressed to some extent by contrarian economist Steve Keen and by the campaign group Positive Money.  But a theory of energy is entirely absent from decision making, and this is likely to result in far more harm than good in the next few years.

The concept which almost all decision makers will agree is key to digging ourselves out of the current hole is “productivity”.  This tends to be seen as being a consequence of money; but is essentially energy-related.  Productivity is correctly understood as the means by which prosperity can be improved.  However, in the years since the 2008 crash, economists and politicians have been stymied by what they call the “productivity puzzle.”  Despite policies designed to stimulate increased productivity, nothing seems to work.  It appears we have run into some invisible barrier akin to the speed of light, beyond which we cannot pass.

At its simplest, productivity relates to the amount of something we obtain at the end of a process compared to the inputs required.  A productivity improvement, then, involves either:

  • using fewer inputs to get the same output,
  • using the same inputs to get more of the output, or
  • using fewer inputs to get more of the output.

To achieve this requires new technology (in the broadest sense of the term).  Switching from coal-fired steam engines to diesel or electric motors, for example, provided a big increase in output in the early twentieth century.  Similarly, switching from individual artisan production to factory production lines allowed for both mass production and mass consumption

There is a massive productivity difference between the Trevithick steam locomotive which hauled small quantities of iron down the Taff valley in 1804 and Gresley’s Mallard which set the world steam record of 126mph in 1938.  In the same way, there is an enormous difference between the Wright Flyer flying just over 850 feet in a minute in 1903 and the Concorde flying across the Atlantic in three hours in the 1980s.  In technology after technology we observe the same process.  Even the early prototype is better than what preceded it; but is quickly superseded as relatively simple modifications are made.  In time, though, the modifications get harder and are more expensive to make.  And eventually we hit a point at which the complexity and cost of further modification outweigh the benefits we derive in return.  At which point the technology is either replaced or simply remains at that level of productivity:

When technologies reach this limit, the only way in which productivity can be increased further is through a switch to a more powerful source of energy; after which the process repeats:

To most economists, at no time in this technological journey were we constrained – more than temporarily – by physical limits.  Rather like the European migrants who settled the North American continent, when resources became constrained we simply upped sticks and moved west into virgin territory.  It was from this abundant environment that economists derived idea of infinite substitutability – that humans would always find replacements for depleted resources.  If a metal ore is depleted, we will simply adopt a different one.  This may initially cause us to have to pay more.  But over time, competition and technological improvements will make it affordable again.

The problem is that we have never had to apply this substitutability problem to energy itself.  And because economists tend to view energy as just another cheap input to the process of production, neither they nor the decision makers they advise sees the looming energy crunch ahead.  Compared to the renewable energy it replaced, coal-fired steam-power was orders of magnitude more productive.  The switch to oil was equally dramatic in terms of raw power and versatility (liquid fuels are better than solid ones).  The energy-density difference, however, was relatively trivial.  A kilogram of wood contains around 4,300 kcals; a kilogram of coal contains around 6,000 kcals; and a kilogram of diesel contains around 10,900 kcals.  By contrast, two often proposed replacements for oil and coal are far more energy-dense.  A kilogram of hydrogen gas contains around 33,900 kcals; while a kilogram of uranium contains some 19,269,000,000 kcals (if only someone could figure out how to cheaply and safely utilise either).

The jump in raw energy from one source to another is sufficient to start a new industrial revolution which generates economic growth across the board.  Initially, though, most of the new energy is wasted as unproductive heat.  Productivity improvements boil down to utilising as much of the available energy for work while minimising the amount lost as heat.  There is, however, no such thing (outside a vacuum at absolute zero) as a waste-free energy conversion.  And even at the limits at which productivity improvements become too expensive to be worthwhile, most of the energy is lost in conversion.  For example even the most energy-efficient small petrol-powered cars “waste” around two-thirds of the energy contained in the fuel – around a third is lost directly as heat, another third is required to prevent the engine from overheating (a small amount is also lost to friction).  Household electrical appliances fare better; but only because most of the heat loss occurs in electricity generation and transmission.

There is, then, an energy-economic complexity-cost limit which is as much of a barrier to productivity as the (higher) absolute limits set by the laws of thermodynamics.  Although this appears to be a monetary phenomenon – further improvement costs more than it is worth – it is actually an energy constraint – the energy required to further improve productivity is greater than the energy it saves.  This is the bit that economists miss because – in part from wilful blindness – they have never had to face up to hard limits before.

Modern Economics: Goldilocks is dead

In fact, we have witnessed at least three occasions in the past 1,000 years when we have experienced precisely this type of limit; and on each occasion the results have been catastrophic.  The first occasion was the end of the prolonged period of benign climate in medieval Europe prior to 1300.  Abundant harvests allowed the population to grow toward the limit of the agricultural technology of the day.  And then the climate changed.  A series of bad harvests led to widespread malnutrition and localised famines which also curbed productivity, leading to even worse harvests.  Eventually, malnutrition served to weaken immune systems to the point that they were at extreme risk from pathogens introduced from the outside.  The result, when an airborne strain of plague arrived in Crimea before boarding ship for Italy, was that more than a third – and possibly as many as two-thirds – of the population of Europe died between 1347 and 1351.

The second occasion flowed from the first.  Among the casualties of the Black Death was the feudal economic system itself.  Labour shortages led to the widespread adoption of cash payment, while in some regions landlords found it more profitable to enclose land to rear sheep and cattle; driving former peasants into the growing towns in search of alternative employment.  When, eventually, the economy began to pick up, trade (with all of the horrors that word obfuscates) emerged as a more effective means of raising productivity.  One impact of the growing Atlantic trade system on Europe was a new energy crisis – this time in the over-consumption of the continent’s wood supplies.  As Historian Clive Ponting notes:

“A timber shortage was first noticed in Europe in specialised areas such as shipbuilding… In the 1580s when Philip II of Spain built the armada to sail against England and the Dutch had to import timber from Poland… Local sources of wood and charcoal were becoming exhausted – given the poor state of communications and the costs involved it was impossible to move supplies very far.  As early as 1560 the iron foundries of Slovakia were forced to cut back production as charcoal supplies began to dry up.  Thirty years later the bakers of Montpellier in the South of France had to cut down bushes to heat their ovens because there was no timber left in their town…”

The impact was recessionary, and helps to explain some of the rebellions which arose at that time and at least some of the motivation behind European migration to the Americas.  It also explains why Europeans began to adopt what they had considered to be an inferior fuel – coal.  Because of the energy-density difference between wood and coal, the latter would cause furnaces and foundries to burn out far sooner.  But once technology was adapted to safely harness the additional power of coal, the basis for an industrial revolution had been laid.

The third occasion came in the first half of the twentieth century as the industrial states of Europe began to hit the coal limits of coal.  Britain – the first country to switch to coal – saw its production peak in 1913, confirming the fears of economist William Stanley Jevons (of paradox fame):

“Renewed reflection has convinced me that my main position is only too strong and true.  It is simply that we cannot long progress as we are now doing.  I give the usual scientific reasons for supposing that coal must confer mighty influence and advantages upon its rich possessor, and I show that we now use much more of this invaluable aid than all other countries put together.  But it is impossible we should long maintain so singular a position; not only must we meet some limit within our own country, but we must witness the coal produce of other countries approximating to our own, and ultimately passing it…

“To part in trade with the surplus yearly interest of the soil may be unalloyed gain, but to disperse so lavishly the cream of our mineral wealth is to be spend thrifts of our capital—to part with that which will never come back. And after all commerce is but a means to an end, the diffusion of civilization and wealth. To allow commerce to proceed until the source of civilization is weakened and overturned is like killing the goose to get the golden egg.”

By 1913 the UK had been overtaken by both Germany and the USA; but only the latter had access to the fuel source which would provide the foundation for another industrial revolution.  The tragedy for Europe was that the industrial economies built upon initially abundant coal stocks hit a coal-powered limit (in the oil age, far more coal would be extracted but this was only possible because of the additional power of oil) just at the point where they had developed industrialised military machines.  And while it would be reductionist to blame the conflicts between 1914 and 1945 entirely on energy shortages, it would be equally foolish to underestimate the impact of energy and productivity limits on political and social tensions.  Energy-constrained economies are always plagued by political extremism.

Today the entire world is in a similar position to Europe in the months leading up to the First World War.  Oil production – including the fracking and tar sands which kept us afloat for a decade – finally peaked in 2018.  There is far more oil beneath the ground than we have burned thus far; but we have reached the cost-complexity limit on oil extraction technology beyond which – for new deposits – further extraction costs more energy than it is worth.  Unlike Europe in 1913, however, there is no alternative lower cost energy substitute capable of being deployed on an industrial scale.  Worse still, our oil-based technologies have also reached or are close to reaching their cost-complexity limit.

There is, then, no “puzzle” behind our inability to increase productivity; it is a symptom of our economic disease.  We are, quite simply, out of power.  We are running the economic machine as fast as it can go.  We have squeezed all of the economically viable productivity improvements out of our technologies and are now dependent upon raw energy – which is currently declining globally across the non-energy sectors of the economy – to drive further growth.

This was already a crisis long before SARS-CoV-2 put in an appearance; as witnessed by the divisions and extremities that gave rise to the Brexit vote in the UK, the election of Donald Trump in the USA and the wave of nationalist-populism around the world.  Sadly, this is only a taste of what lies in store if the energy available to us continues to decline.  Only a more energy-dense, zero-carbon and at least equally versatile alternative to oil can save the day.  And for now at least, no such alternative exists.  Renewable energy is neither dense nor versatile enough; although it may slow the decline in fossil fuel energy.  Hydrogen is three times more powerful but it doesn’t exist freely in nature; meaning that most of its energy would have to be used in separating it from natural gas or (even more expensively) water.  Nuclear has enormous theoretical energy but as yet nobody has figured out how to safely and productively utilise it.  And even if one of the many new reactor designs were to be economically viable, it will be the 2030s and beyond before these put in an appearance and long after 2050 to deploy them on anything like the scale required to replace the energy we currently obtain from oil.

Like medieval plague doctors seeking to respond to the Black Death, without a theory of energy modern economists blithely imagine that our problems can be overcome by simply printing new currency out of thin air.  The left would choose to invest it in non-renewable renewable energy-harvesting technologies for which there is simply not enough left of Planet Earth to achieve more than a fraction of the intended aim.  The right, on the other hand, will go full steam ahead in attempting to extract fossil fuels which lie beyond the hard limits of an oil-powered economy.  Whichever path we take, the final destination will be the same – a much smaller population living a much less consumptive life on a largely depleted planet whose changing climate may ultimately render even that life unsustainable. 

With a theory of energy, we might, perhaps, cushion the blow by saving the best of our current way of life – like access to clean drinking water and basic healthcare – before it is too late.  But, at a time when emotions outweigh data and reason in decision making; I’m not holding my breath.

As you made it to the end…

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