(The Earth Debate: Part 5)
I am angry. I’m angry at the world. I’m angry at the direction it is headed, not so much because of the direction itself, but more because it was within the power of a handful of men to choose this direction, and they deliberately chose to betray the trust of future generations for their own selfish gains. Not only is this betrayal taking us on a collision course with the destruction of our own civilization, many who are able to change this course, willfully lie to us about it, and how it came to be this way.
Rather than just sit here and complain (and write some rather ambiguous poetry) I have decided to take a more positive and pro-active approach to these grievances. Firstly, I’m going to apply to various schools to undertake a PhD in economics. Secondly, I’m going to list below a few little tidbits which aren’t necessarily very widely-known, yet have a huge impact on the whole-earth-equation.
Energy is absolutely essential to the advancement of civilization. Since early antiquity, every civilization that ever did anything of significance, did so because they found a way to harness a lot of energy into a short space of time. Basically, large, advanced civilizations are all built on the back of cheap energy, whether it be in the form of domesticated animals, slaves, or chemical reactions. Take for example the advantage of iron weapons over bronze – iron takes a great deal more energy to produce than bronze does. An easier example is the use of firearms, or mounted soldiers. A more peaceful example is the use of chemical fertilizers in modern agriculture. Steam power, followed by electricity in the 19th century set the stage of the explosive growth of human civilization which we have somehow become accustomed to. More and more people require more and more energy, but where does all this energy come from?
Coal and oil provide the vast majority of the world’s energy. There may be a lot of windmills in Germany and the Netherlands, but without fossil fuels, the economies of either country would grind to a halt. Coal and Oil are both renewable resources – that is if your time frame is geological time. Both are formed by organic material (mostly plants, so basically solar power) which has become buried under certain conditions and then subject to extreme pressure and high temperature over millions of years. In the time frame of human existence, especially considering we’ve only been using the stuff for about 200 years, we can safely consider it a finite resource.
Here is the origin of one of the first (important) lies I was told by adults whom I trusted (I was quite young at the time). One is often told that new oil deposits are being found all the time, and that there is estimated to be about 800 years worth of coal left in the earth. These statements are both technically true, but they don’t take away from the fact that these resources are finite. We will eventually run out, the question is: when will that happen? The obvious implication in the whole “new discoveries” line is that we are nowhere near that limit and that there is nothing to worry about. At this point, if someone is trying to tell you this, you should quickly slap them in the face with considerable force (or a fish, if one is handy).
We are running out of coal and oil. In the 50s a clever fellow by the name of M. King Hubbert made a very obvious observation: That you cannot extract a finite resource at an exponentially increasing rate over an infinite amount of time. He proposed, based on well-known observations and science, that most oil wells’ extraction curves followed the same bell-shaped pattern. Oil exists in the ground in a way rather like water is absorbed in a sponge. You stick a straw into it, and it comes gushing out because it’s under pressure. After you discover it, you stick more straws in so that you can get it out more quickly. Eventually, you have to pump it out. After a while, it becomes more and more difficult to extract. Since the stuff is so valuable these days, we’ve come up with all manner of clever ways of getting those last little bits of oil out of the sponge, but the fact remains that the extraction curve tapers off because the amount of energy required to extract the oil eventually comes too close to the amount of energy contained in the oil to make it worthwhile.
The same pattern is generally true for any finite resource that has to be extracted from the ground. The other wonderful thing about this bell-curve is that the curve for number of new discoveries and the curve for actual extraction looks exactly the same and is only separated by a slight time-lag. The time lag is caused by the delay between finding a new oil field and setting everything up to extract the oil from it. The really bad news is this – it is generally agreed that oil discoveries peaked in about the year 2000. Coal is predicted to peak anywhere from 20 to 50 years later.
Oil discoveries peaked in about the year 2000
Here’s the rub. Unlike other natural resources, like a lot of rare earth metals, oil has a very low substitutability. What does that mean? Lets say that for some unknown reason, tomorrow the world ran out of butter and the means by which to produce it were somehow forgotten (c’mon, use your imagination here). Would this be a disaster? Not really. For a start, there are many substitutes for butter. Of course, it is also possible for human civilization (but not French restaurants) to continue without butter or any of its substitutes. This is not true for oil.
Our standards of living, all of our technology, all of the wonderful complexity that we take for granted is built upon cheap coal and oil. After the peak, which is happening very soon if it hasn’t happened already, the world as we known it will come crashing down rather hard. Astute readers will point out that the curve is bell-shaped and so we can use all the time we have on the downward part of the curve to figure out alternatives. Even more astute readers will have figured out that the curve is for extraction, not any measure of cost per unit of energy, which will continue to skyrocket because the cost of extraction will become ever greater.
The smart thing to do, is to come up with substitutes before the crunch, while we still have cheap energy and the high productivity that comes with it. Nuclear is a nice stop-gap option because it is high in energy and low in CO2 emissions (I’ll get to that later) but for similar reasons (Uranium is actually very rare) it can’t last long. Wind supplies about 1.5% of the world’s electricity, and ultimately may never supply more than about 20% because of intermittency problems. Solar really is the only way to go, but using current technology, we would need an area of solar panels equivalent to the size of Spain to supply the world’s current demands (and what happens if it’s cloudy in Spain!?). Lighter and more efficient batteries should also be high on the priority list to support completely electric cars, and eventually aircraft.
There’s another good reason to switch to renewable energy apart from the fact that we are fast running out of non-renewables, and that is because we will emit a great deal less CO2 into the atmosphere and take a first and important step to addressing climate change. Perhaps we would have been better off if there wasn’t so much coal or oil in the earth, because then we would have been forced to wean ourselves off our carbon-based economy before climate change really had a chance to make our lives even more difficult.
Right now, the amount of energy that comes out of agriculture is about a third the amount of energy that goes in (think about the energy required to make the fertilizers, and the petroleum that goes into farm machinery). As climate change starts making agriculture less productive, we are going to need ever-increasing energy inputs to produce the same amount of food. (If only we could eat petrol) Running out of energy doesn’t only mean not being able to drive cars, or turn lights on… it will mean starvation for untold billions.
The trouble with modern democracies is that you need to get elected. It is quite widely known, if not widely accepted, that getting elected isn’t just a matter of having good policies, leadership qualities, or good intentions (although these things, one would hope, still factor into the electorate’s decision – I remain an optimist), but also a matter of having enough money to run a campaign against whoever else is on the ballot. It is for this reason that many politicians come from very wealthy backgrounds, or have accumulated wealth by being captains of industry. In other cases, a candidate may receive support from an established political party, who in turn receives support from whoever is kind enough to donate.
Here’s how it works – say some big company doesn’t want the government to ban product X, which is known to accidentally kill hundreds of people a year. Some politicians are like “no way, that’s absurd”, while others are like “umm… I’m kinda low on campaign funds”. The company sees an opportunity to provide an incentive for a politician to vote in their favor. So while you and I vote for someone to be in government, and our collective points of view is supposed to somehow imperfectly translate to their votes, there are some very wealthy entities out there who vote in a very different and much more effective way.
The result of this is a lot of very bad policy which favors the short term interests of a small group of people (who are, btw, already obscenely wealthy) at the expense of the long term interests of the people, and the planet.
A good example is agriculture subsidies. Just about every wealthy western democracy does this, and it’s simple – they heavily subsidize farmers to produce more food. This is politically a very easy thing to do because everyone likes the idea of food security. The result is a very large amount of food, much more than is required to feed the population. What happens to this food? A lot of things actually. I would recommend the interested reader to watch the documentary “Food Inc.” for more information on the industrialization of the food industry. When you have a surplus of something, you want to trade it. In this globalized world, what happens is all this extra (and very cheap) food gets dumped in developing countries. Countries whose farmers cannot possibly compete, not only with the huge advantages afforded by economies of scale in advanced western agriculture, but with subsidies effectively pricing these products below cost. The result of this is, at the very least, a severe hampering of an entire sector to be able to grow or function properly, and at worst, the complete destruction of the agricultural industry of a country.
This is difficult to stop for several reasons. First of all, not many people know that this happens to this extent. Secondly, if one country engages in heavily subsidizing its agriculture, then other countries (if they are able) must follow suit, or else they risk pricing their own industry out of business on the international markets. Why doesn’t everybody just agree to stop? Because in many countries, the US being the main culprit, the food industry is extremely wealthy and powerful and able to buy votes and engage in morally-questionable (I’m being charitable in my language here, the appropriate language to use in this case is “fucked up”) legal actions against anyone brave enough to stand in its way.
Of course, subsidies can be used for good as well as evil. For a long time, the US led the way in developing renewable energy because it provided subsidies in the form of tax breaks to those who developed it. Of course, during the 8 years of the Bush administration, this was effectively reversed and, instead, the oil industry was rewarded with many policy “favors” including, but not exclusive to, the war in Iraq. At this point, I expect many libertarians to use this as evidence that all government intervention is bad. Predictably, I would disagree by pointing out that the bad stuff isn’t really a result of the government intervening in the market, but rather, the market intervening with the government – the invisible hand is not as invisible as many laissez-faire advocates would have us believe.
How can this be stopped? With great difficulty. Huge campaign reform needs to happen in every country in the world and huge multinational corporations need to be made a lot less powerful. That’s kind of a tall order. No matter how accountable you can make governments, and how strong you can build international institutions and treaties, it will always be very difficult to hold large corporations accountable. Public companies are at least theoretically accountable to their shareholders, so if shareholders begin to care about things other than dividends and share prices, then we could see some progress (ha ha ha). Even then, I’m a shareholder in a handful of companies, and I don’t get a huge amount of input into the decisions that the companies make.
Strong international laws which are enforced, cross-border accountability, and corporate responsibility are all lofty dreams. However, the world of multinational corporations is effectively self-policing at the moment. The kind of strong, socially-responsible leadership that is needed isn’t likely to surface, especially when boards of directors will pay someone much more money to behave like a total dickhead.
The Money Supply
The way money functions in the modern economy is more than just a philosophical question. Many people have theories on how money works based on stupid anecdotes (and I should know, my father is an accountant). I should take this opportunity to debunk some of the sillier myths about how money works, and how some people think that it should work within a historical context. Then point out some of the problems with the way things are currently sailing.
A long, long time ago, we bartered goods. Barter has many limitations, of course. Who is to say how many sheep are worth two cows? Even if this value is accurately known, there would be fractions of this and that, and transactions would be horribly complicated. So we invented currency. Currency originally took the form of rare metals like gold and silver, which eventually became impractical to carry so paper money and coinage was invented to take it’s place. These forms of currency were basically receipts for gold and were simply substitutes. The world has been on and off the gold standard for a long time and in the 1970s went off it for good (the US started it).
There’s no compelling reason that we need to be on a gold standard. The value of something is simply how much you are willing to pay for it. Not having a gold standard also makes it easier for governments to generate liquidity in a short space of time, which can be a very useful thing. Of course, one of the big fears of people who advocate going back to the gold standard is inflation. To ordinary people, inflation is when things become more expensive. Slightly more numerate people will complain about inflation when the inflation of commodities exceeds that of income. Inflation is a very tricky thing to deal with because it involves dealing with numbers in a way that isn’t intuitively obvious and which requires more education than most people ever receive.
The number doesn’t matter! Money has about as much to do with economics as numbers have to do with mathematics. My interpretation of what an amount of money means, is that is represents the value of an economy.
If the money supply increases relative to the amount of goods and services that exist in an economy, then we get inflation. Everything costs more, but in reality, nothing has changed. How does this happen? A bank might lend out some money, then there is theoretically more money in the system because the money saved in a bank is counted (sort-of twice) as invested. That’s how banks make money, they lend at interest (necessarily a higher rate than they pay out to deposits). The idea is that you borrow from a bank and use that money on something that will return a higher value than what you started with, and a higher value than your loan plus interest. Then you’ve made a profit, the bank gets its money back and has a little bit more than when it started.
What does the interest rate mean? If we assume perfect competition and perfect information (optimal market conditions) then everyone operates at what is called the “zero profit line”. Then the interest rate represents the growth in productivity in the economy. If the money supply precisely follows this, then it increases in step with the increase in the value of goods and services, which is the result of this increased productivity. Of course, if everyone spent their loan-money on stuff that turned out not to increase as much in value as previously predicted, then defaulted on their loans, or if everyone who had money in a bank suddenly decided they wanted to withdraw it all, then all these interest rates must fall otherwise the banks would loose money. The banks would also make it more and more difficult to borrow money, and so there would be less liquidity in the economy, so there would be less productivity, so less people would put money in the bank… and so the spiral continues. This sort-of happened on an epic scale in mid-2008 and precipitated the financial crisis. (There’s a really good explanation of it here)
One of the perceived problems of this system is that it assumes infinite growth in productivity. You may have heard how the current evil capitalist system is obsessed with growth. I used to think that growth was immoral because, to achieve growth, you had to exploit something – be it a natural resource, the rights of another human being, or the environment. To me, growth had to be at the expense of something else. But, I was wrong – economics is not a zero-sum game. The principle of comparative advantage allows us to achieve growth simply by dividing labor. Trade was simply an extension of the same principle over larger distances and time. Technology also allows us to increase productivity for free. In principle, it is actually possible for there to be sustainable economic growth for an infinite amount of time. The trouble really is – nobody ever talks about sustainability.
What does this have to do with the money supply? Well, governments have invented a system of controlling money called “central banking”. All it means is that there is a central bank in charge of the money supply. When the government needs money that it doesn’t have, it borrows money from the central bank out of thin air. The ledger has some negative numbers on it, and there’s suddenly more money in the system. If you think this sounds very iffy, that’s because it is. It is not a fatal flaw though. It is my opinion that it is vitally important that governments are able to engage in deficit spending. Isn’t there a problem if governments can spend money that almost seems to not exist? It can be.
If the economy is doing very badly and there is high unemployment, the government has a responsibility to do something about it. For reasons of market equilibrium, it is possible for an economy to get stuck in a depressed state. What the government can do is spend this money that, in a way, doesn’t exist, and stimulate the economy. You see, the principle is the same as borrowing from a bank except on a much larger scale. If the money is spent on increasing productivity (for example, increasing employment by engaging in building large-scale infrastructure) then that increase in productivity will be reflected in an increase in tax revenues which can be used to pay back the loan.
Of course, governments are not always so wise in their spending. It is a well-advertised fact that the US has a huge deficit. Unfortunately, their recent spending patterns aren’t great. If you spend on things like infrastructure, you increase productivity and get your money back. However, if you spend money on very expensive wars, then these are expenditures that aren’t likely to ever pay you back. As my dad once said of me, it is a poor “return on investment”. What does this mean in the “whole earth equation”? It means that it is more politically difficult for governments (especially the US) to spend money on things that they really need to spend money on (yes, I am implying that the wars are not strictly necessary to the betterment of humankind).
I’ve left this until last because it is probably the most important. We’re screwing up the climate. A great deal of misinformation is being passed around by some very loud voices and most of it is so amazingly wrong that it’s almost funny. The main arguments about man-made climate change are detailed in the previous installments of the earth debate (box on the right -> ). Even if you don’t believe that we are responsible for the mess we’re making for the climate, there are plenty of good reasons to take precautions. Like the precautionary principle.
Think about it this way. There are four possibilities – (1) we’re right about climate change, and we do something about it (2) we’re right about climate change, and we don’t do anything about it (3) we’re wrong about climate change, and we do something about it (4) we’re wrong about climate change, and we don’t do anything about it.
Possibilities (1) and (4) are good outcomes, and we can put them aside. Possibilities (2) and (3) are possible mistakes that we might make.
If we’re wrong about climate change and we take action on climate change, where does that leave us? Well, less reliant on oil, and more technologically advanced with regard to renewable energy. Both of these are more or less inevitable anyway. The cost? Well… in truth, the only real losers would be large oil companies. Also, as you have just read, there are many other reasons than climate change to stop using fossil fuels.
If we’re right about climate change, and we don’t do anything about it, then what? We will make the planet increasingly difficult to inhabit for humans. We will make it increasingly energy-intensive for us to get the same amount of productivity out of our agriculture. We will continue to fight over a smaller and smaller amount of resources and eventually destroy our civilization, and possibly species.
So… there’s a fairly obvious rational course of action. I realize that most of the people who read my website agree with me on most, or all, of these points. But perhaps they have a friend (or not a friend) who is sitting on the fence, or whose rational decision making ability is being obscured by the mountains of information (and disinformation) that is being pushed by a largely amoral and irresponsible news media.
Eventually, we will have to rely on technology to save us. Even if we stopped emitting CO2 tomorrow, there’s a lot of damage that needs to be undone to stabilize the earth’s climate. The climate is a very complicated system, and the safest course of action is not to mess with it. We desperately need to invest in mitigation as well as adaptation. Many misinformed people believe that mitigation is useless and adaptation is all we need… however, as detailed above, if all we do is adaptation, we’re still facing an epic energy crunch. We need to demand access to good information, call out the liars for what they are, and take desperately needed action to save ourselves from… ourselves. We have no time to waste.
“All I have is a voice
to undo the folded lie
the romantic lie in the brain
of the sensual man in the street
and the lie of authority
whose buildings grope the sky
there is no such thing as the state
and no man exists alone
hunger allows no choice
to the citizen or the police
we must love one another
or die” ~ W. H. Auden