Tuesday, 20 February 2018

The Bumpy Road Down, Part 5: More Trends in Collapse

Bitteersweet Berries
Still on the vine in February

In my last post I started talking about some of the changes that will happen along the bumpy road down and the forces and trends that will lead to them. (The bumpy road down being the cyclic pattern of crash and partial recovery that I believe will characterize the rest of the age of scarcity). These changes will be forced on us by circumstances and are not necessarily how I'd like to see things turn out.

The trends I covered last time were:

  • our continued reliance on fossil fuels
  • the continuing decline in availability, and surplus energy content, of fossil fuels
  • the damage the FIRE industries (finance, insurance and real estate) will suffer in the next crash, and the effects this will have
  • the increase in authoritarianism, as governments attempt to optimize critical systems and relief efforts during and after the crash

Oscillating overshoot with declining carrying capacity

I've once again included the stepped or "oscillating" decline diagram from previous posts here to make it easier to visualize what I'm talking about. This diagram isn't meant to be precise, certainly not when it comes to the magnitude and duration of the oscillations, which in any case will vary from one part of the world to the next.

The trends I want to talk about today are all interconnected. You can hardly discuss one without referring to the others, and so it is difficult to know where to start. But having touched briefly on a trend toward increased authoritarianism at the end of my last post, I guess I should continue trends in politics.

More Political Trends

Currently there seems to be a trend towards right wing politics in the developed world. I think anyone who extrapolates that out into the long run is making a basic mistake. Where right wing governments have been elected by those looking for change, they will soon prove to be very inept at ruling in an era of degrowth. Following that, there will likely be a swing in the other direction and left wing governments will get elected. Only to prove, in their turn, to be equally inept. Britain seems to be heading in this direction, and perhaps the U.S. as well.

Another trend is the sort of populism that uses other nations, and/or racial, ethnic, religious and sexual minorities at home as scapegoats for whatever problems the majority is facing. This strategy is and will continue to be used by clever politicians to gain support and deflect attention from their own shortcomings. Unfortunately, it leads nowhere since the people being blamed aren't the source of the problem.

During the next crash and following recovery governments will continue to see growth as the best solution to whatever problems they face and will continue to be blind to the limits to growth. Farther down the bumpy road some governments may finally clue in about limits. Others won't, and this will fuel continued growth followed by crashes until we learn to live within those limits.

One thing that seems clear is that eventually we'll be living in smaller groups and the sort of political systems that work best will be very different from what we have now.

Many people who have thought about this assume that we'll return to feudalism. I think that's pretty unlikely. History may seem to repeat itself, but only in loose outline, not in the important details. New situations arise from different circumstances, and so are themselves different. Modern capitalists would never accept the obligations that the feudal aristocracy had to the peasantry. Indeed freeing themselves of those obligations had a lot to do with making capitalism work. And the "99%" (today's peasantry) simply don't accept that the upper classes have any right, divine or otherwise, to rule.

In small enough groups, with sufficient isolation between groups, people seem best suited to primitive communism, with essentially no hierarchy and decision making by consensus. I think many people will end up living in just such situations.

In the end though, there will still be a few areas with sufficient energy resources to support larger and more centralized concentrations of population. It will be interesting to see what new forms of political structure evolve in those situations.

Economic Contraction

For the last couple of decades declining surplus energy has caused contraction of the real economy. Large corporations have responded in various ways to maintain their profits: moving industrial operations to developing countries where wages are lower and regulations less troublesome, automating to reduce the amount of expensive labour required, moving to the financial and information sectors of the economy where energy decline has so far had less effect.

The remaining "good" industrial jobs in developed nations are less likely to be unionized, with longer hours, lower pay, decreased benefits, poorer working conditions and lower safety standards. The large number of people who can't even get one of those jobs have had to move to precarious, part time, low paying jobs in the service industries. Unemployment has increased (despite what official statistics say) and the ranks of the homeless have swelled.

Since workers are also consumers, all this has led to further contraction of the consumer economy. We can certainly expect to see this trend continue and increase sharply during the next crash.

Our globally interconnected economy is a complex thing and that complexity is expensive to maintain. During the crash and the depression that follows it, we'll see trends toward simplification in many different areas driven by a lack of resources to maintain the existing complex systems. I'll be discussing those trends in a moment, but it is important to note that a lot of economic activity is involved in maintaining our current level of complexity and abandoning that complexity will mean even more economic contraction.

At the same time, small, simple communities will prove to have some advantages that aren't currently obvious.

Conservation

All this economic contraction means that almost all of us will be significantly poorer and we'll have to learn to get by with less. As John Michael Greer says, "LESS: less energy, less stuff, less stimulation." We'll be forced to conserve and will struggle to get by with "just enough". This will be a harshly unpleasant experience for most people.

Deglobalization

For the last few decades globalization has been a popular trend, especially among the rich and powerful, who are quick to extol its many supposed advantages. And understandably so, since it has enabled them to maintain their accustomed high standard of living while the economy as a whole contracts.

On the other hand, as I was just saying, sending high paying jobs offshore is a pretty bad idea for consumer economies. And I suspect that in the long run we'll see that it wasn't really all that good for the countries where we sent the work, either.

During the crash we'll see the breakdown of the financial and organizational mechanisms that support globalization and international trade. There will also be considerable problems with shipping, both due to disorganization and to unreliable the supplies of diesel fuel for trucks and bunker fuel for ships. I'm not predicting an absolute shortage of oil quite this soon, but rather financial and organizational problems with getting it out of the ground, refined and moved to where it is needed.

This will lead to the failure of many international supply chains and governments and industry will be forced to switch critical systems over to more local suppliers. This switchover will be part of what eventually drives a partial recovery of the economy in many localities.

In a contracting economy with collapsing globalization there would seem to be little future for multi-national corporations, and organizations like the World Bank and the IMF. While the crash may bring an end to the so called "development" of the "developing" nations, it will also bring an end to economic imperialism. At the same time, the general public in the developed world, many of whom are already questioning the wisdom of the "race to the bottom" that is globalization, will be even less likely to go along with it, especially when it comes to exporting jobs.

Still, when the upcoming crash bottoms out and the economy begins to recover, there will be renewed demand for things that can only be had from overseas and international trade will recover to some extent.

Decentralization

Impoverished organizations such a governments, multi-national corporations and international standards groups will struggle to maintain today's high degree of centralization and eventually will be forced to break up into smaller entities.

Large federations such as Europe, the US, Canada and Australia will see rising separatism and eventually secession. As will other countries where different ethnic groups have been forced together and/or there is long standing animosity between various localities. If this can be done peacefully it may actually improve conditions for the citizens of the areas involved, who would no longer have to support the federal organization. But no doubt it will just as often involve armed conflict, with all the destruction and suffering that implies.

Relocalization

The cessation of services from the FIRE industries and the resulting breakdown of international (and even national) supply and distribution chains will leave many communities with no choice but to fend for themselves.

One of the biggest challenges at first will be to get people to believe that there really is a problem. Once that is clear, experience has shown that the effectiveness of response from the victims of disasters is remarkable and I think that will be true again in this case. There are a lot of widely accepted myths about how society breaks down during disaster, but that's just what they are: myths. Working together in groups for our mutual benefit is the heart of humanity's success, after all.

Government response will take days or more likely weeks to organize, and in the meantime there is much we can do to help ourselves. Of course it helps to be prepared... (check out these posts from the early days of this blog: 1, 2) and I'll have more to say on that in upcoming posts.

The question then arises whether one would be better off in an urban center or a rural area such as a small town or a farm. Government relief efforts will be focused on the cities where the need will be greatest and the response easiest to organize. But just because of the millions of people involved, that response will be quite challenging.

Rural communities may well be largely neglected by relief efforts. But, especially in agricultural areas, they will find fending for themselves much more manageable.

I live in a rural municipality with a population of less than 12,000 people in an area of over 200 square miles (60 people per sq. mile, more than 10 acres per person). The majority of the land is agricultural, and supply chains are short, walking distance in many cases. Beef, dairy and cash crops are the main agricultural activities at present and they can easily be diverted to feed the local population. Especially if the food would go to waste anyway due to the breakdown of supply chains downstream from the farm.

So I think we're likely to do fairly well until the government gets around to getting in touch with us again, probably sometime after the recovery begins.

In subsequent crashes the population will be significantly reduced and those of us who survive will find ourselves living for the most part in very small communities which are almost entirely relocalized. The kind of economy that works in that situation is very different from what we have today and is concerned with many things other than growth and profit making.

Rehumanization

The move toward automation that we've seen in the developed world since the start of the industrial revolution has been driven by high labour costs and the savings to be had by eliminating labour from industrial processes as much as possible. That revolution started and proceeded at greatest speed in Britain where labour rates where the highest, and still hasn't happened in many developing nations where labour is very cheap.

Sadly, the further impoverishment of the working class in Europe and North American will make cheaper labour available locally, rather than having to go offshore. During the upcoming crash, and in the depression following it, impoverished people will have no choice but to work for lower rates and will out compete automated systems, especially when capital to set them up, the cutting edge technology needed to make them work, and the energy to power them are hard to come by. Again, the economic advantages of simplicity will come into play when it is the only alternative, and help drive the recovery after the first crash.

The Food Supply and Overpopulation

In the initial days of the coming crash there will be problems with the distribution systems for food, medical supplies and water treatment chemicals, all of which are being supplied by "just in time" systems with very little inventory at the consumer end of the supply chain. To simplify this discussion, I'll talk primarily about food.

It is often said that there is only a 3 day supply of food on the grocery store shelves. I am sure this is approximately correct. In collapse circles, the assumption is that, if the trucks stop coming, sometime not very far beyond that 3 day horizon we'd be facing starvation. There may be a few, incredibly unlucky, areas where that will be more or less true.

But, depending on the time of year, much more food than that (often more than a year's worth) is stored elsewhere in the food production and distribution system. The problem will be in moving this food around to where it is needed, and in making sure another year's crops get planted and harvested. I think this can be done, much of it through improvisation and co-operation by people in the agricultural and food industries. With some support from various levels of government.

There will be some areas where food is available more or less as normal, some where the supply is tight, and other areas where there is outright famine and some loss of life (though still outstripped by the fecundity of the human race). In many ways that pretty much describes the situation today but supply chain breakdown, and our various degrees of success at coping with it, will make all the existing problems worse during the crash.

But once the initial crash is over, we have a much bigger problem looming ahead, which I think will eventually lead to another, even more serious crash.

With my apologies to my "crunchy" friends, modern agriculture and the systems downstream from it supply us with the cheapest and safest food that mankind has known since we were hunters and gatherers and allows us (so far) to support an ever growing human population.

The problem is that this agriculture is not sustainable. It requires high levels of inputs--primarily energy from fossil fuels, but also pesticides, fertilizers and water for irrigation--mostly from non-renewable sources. And rather than enriching the soil on which it depends, it gradually consumes it, causing erosion from over cultivation and over grazing, salinating the soil where irrigation is used and poisoning the water courses downstream with runoff from fertilizers. We need to develop a suite of sustainable agricultural practices that takes advantage of the best agricultural science can do for us, while the infrastructure that supports that science is still functioning.

The organic industry spends extravagantly to convince us that the problem with our food is pesticide residues and genetically engineered organisms, but the scientific consensus simply does not support this. The organic standards include so called "natural" pesticides that are more toxic than modern synthetic ones, and allow plant breeding techniques (such as mutagenesis) that are far more dangerous than modern genetic engineering. Organic standards could certainly be revised into something sustainable that retains the best of both conventional and organic techniques, but this has become such a political hot potato that it is unlikely to happen.

As I said above, during the upcoming crash one of the main challenges will be to keep people fed. And I have no doubt that this challenge will, for the most part, be successfully met. Diesel fuel will be rationed and sent preferentially to farmers and trucking companies moving agricultural inputs and outputs. Supplies of mineral fertilizers are still sufficient to keep industrial agriculture going. Modern pesticides actually reduce the need for cultivation and improve yields by reducing losses due to pests. It will be possible to divert grains grown for animal feed to feed people during the first year when the crisis is most serious.

Industrial agriculture will actually save the day and continue on to feed the growing population for a while yet. We will continue to make some improvement in techniques and seeds, though with diminishing returns on our efforts.

This will come to an end around mid century with the second bump on the road ahead (starting at point "g" on the graph), when a combination of increasing population, worsening climate, and decreasing availability and increasing prices of energy, irrigation water, fertilizer, pesticides and so forth combine to drastically reduce the output of modern agriculture.

Widespread famine will result, and this, combined with epidemics in populations weakened by hunger, will reduce the planet's human population by at least a factor of two in a period of a very few years. Subsequent bumps as climate change further worsens conditions for farming will further reduce the population, resulting in a bottleneck towards the end of this century. Without powered machinery, synthetic fertilizers and pesticides and with drastically reduced water for irrigation, agricultural output will fall off considerably. And our population will fall to match the availability of food. I do think it unlikely that the human race will be wiped out altogether, but our numbers will likely be reduced by a factor of ten or more.

Turning to Violence as a Solution

It is a sad fact that many people, communities and nations, when faced with the sort of challenges I've been talking about here, will respond with violence.

In the remaining years leading up to the next crash, I think it is likely that even the least stable of world leaders (or their military advisors) will remain well aware of the horrific consequences of large scale nuclear war, and will manage to avoid it. As has been the case since the end of WWII, wars will continue to be fought by proxy, involving smaller nations in the developing world, especially where the supply of strategic natural resources are at issue.

War is extremely expensive though and, even without the help of a financial crash, military spending already threatens to bankrupt the U.S. As Dmitry Orlov has suggested, after a financial crash, the U.S. may find it difficult to even get its military personnel home from overseas bases, much less maintain those bases or pursue international military objectives.

But even in the impoverished post-crash world, I expect that border wars, terrorism, riots and violent protests will continue for quite some time yet.

Migration and Refugees

Whether from the ravages of war, climate change or economic contraction many areas of the world, particularly in areas like the Middle East, North Africa and the U.S. southwest, will become less and less livable. People will leave those areas looking for greener pastures and the number of refugees will soon grow past what can be managed even by the richest of nations. This will be a problem for Europe in particular, and more and more borders will be closed to all but a trickle of migrants. Refugees will accumulate in camps and for a while the situation will find an uneasy balance.

As we continue down the bumpy road, though, many nations will lose the ability to police their borders. Refugees will pour through, only to find broken economies that offer them little hope of a livelihood. Famine, disease and conflict will eventually reduce the population to where it can be accommodated in the remaining livable areas. But the ethnic makeup of those areas will have changed significantly due to large scale migrations.

In Conclusion

I've been talking here about some of the changes that will be forced upon us by the circumstances of collapse. I've said very little about what I think we might do if we could face up to the reality of those circumstances and take positive action. That's because I don't think there is much chance that we'll take any such action on a global or even national scale.

It's time now to wrap up this series of posts about the bumpy road down. At some point in the future I intend to do a series about of coping with collapse locally, on the community, family and individual level. I think there is still much than can be done to improve the prospects of those who are willing to try.

Thursday, 1 February 2018

What I've Been Reading, January 2018

Links

These links appear in the order I read them, rather than any more refined sort of organization. You may find some of the best ones are near the bottom—it varies from month to month.

Minimum Wage Increase

Here in Ontario the minimum wage increased from $11.60 to $14.00 on January 1, 2018. Next year it goes up to $15.00. Those are Canadian dollars, of course, so that's not as much money as it may seem, and it still doesn't seem like much. But percentage wise it's a big jump and, predictably, businesses are raising quite a big stink. Here are some links discussing the issue. If they seem one sided, well, OK, but the other side has already been well represented in the mass media.

Books

Not a big month for reading—I spent too much time writing, and shoveling snow.

Fiction

Non-Fiction

  • There's no App for That by Richard Heinberg, The Post Carbon Institute.
    Technology and Morality in the Age of Climate Change, Overpopulation, and Biodiversity Loss. Great stuff, which I can highly recommend. Not technically a book, but I printed it out to read at my leisure rather than sitting in front of the computer.

And to fill out this month, here are some gems from my bookshelf, aimed at those of us in the northern hemisphere who can only dream about gardening at this time of year.

Friday, 26 January 2018

The Bumpy Road Down, Part 4: Trends in Collapse

Bamboo in Winter

This time I'm going to look at some of the changes that will happen along the bumpy road down and the forces and trends that will lead to them. If you followed what I was saying in my last post, you'll have realized that the bumpy road will be a matter of repeatedly getting slapped down as a result of going into overshoot—exceeding our limits, crashing, then recovering, only to get slapped again as we go into overshoot yet again.

Along the way, where people have a choice, they will choose to do a range of different things (some beneficial, others not so much), according to their circumstances and inclinations. Inertia is also an important factor—people resist change. And politicians are adept at "kicking the can down the road"—patching together the current system to keep it working for little while longer and letting the guy who gets elected next worry about the consequences.

Because the world will become a smaller place for most of us, we'll feel less influence from other areas and in turn have less influence over them. There will be a lot more "dissensus"—people doing their own thing and letting other people do theirs. I expect this will lead to quite a variety of approaches, some that fail and some that do work to some extent. In the short run, of course, "working" means recovering from whatever disaster we are currently trying to cope with. But in the long run, the real challenge is learning to live within our limits and accept "just enough" rather than always striving for more. Trying a lot of different approaches to this will make it more likely that we find some that are successful.

Anyways—changes, forces and trends...and how they will work on the bumpy road down.

I've included the stepped or "oscillating" decline diagram from my last post here to make it easier to visualize what I'm talking about.

Energy Decline

Because I'm a "Peak Oil guy" and because energy is at the heart of the financial problems we're facing, I'll talk about energy first. As I said in a recent post:

"Despite all the optimistic talk about renewable energy, we are still dependent on fossil fuels for the great majority of our energy needs, and those needs are largely ones that cannot be met by anything other than fossil fuels, especially oil. While it is true that fossil fuels are far from running out, the amount of surplus energy they deliver (the EROEI—energy returned on energy invested) has declined to the point where it no longer supports robust economic growth. Indeed, since the 1990s, real economic growth has largely stopped. What limited growth we are seeing is based on debt, rather than an abundance of surplus energy."

It is my analysis that there is zero chance of implementing any alternative to fossil fuels remotely capable of sustaining "business as usual" in the remaining few years before a major economic crash happens and changes everything. So the first trend I'll point to is a continued reliance on fossil fuels. Fuels of ever decreasing EROEI, which will increase the stress on the global economy and continue contributing to climate change and ocean acidification.

Those who are mainly concerned about the environmental effects of continuing to burn fossil fuels would have us stop using those fuels, whatever the cost. But it is clear to me that the cost of such a move would be a global economic depression different only in the details from the one I've been predicting. Lack of energy, excess of debt, environmental disaster—take your pick....

It has been interesting to watch the governments of Canada and the US take two different approaches to this over the last couple of years.

The American approach has been based on denial. Denial of climate change on the one hand, and denial of the fossil fuel depletion situation on the other. "Drill baby, drill!" is expected to solve the energy problem without causing an environmental problem. I don't believe that either expectation will be borne out over the next few years.

Our Canadian government under Prime Minister Justin Trudeau has made quite a bit of political hay by acknowledging the reality of climate change and championing the Paris Climate Agreement in the international arena. Here at home, though, it is clear that Trudeau understands the role of oil in our economy and he has been quick to quietly reassure the oil companies that they have nothing to fear, approving two major pipeline projects to keep oil flowing from Alberta to the Pacific coast and, eventually, to Chinese markets.

Yes, Ottawa has set a starting price of $10 a tonne on carbon dioxide emissions in 2018, increasing to $50 a tonne by 2022. This is to be implemented by provincial governments who have until the end of the year to submit their own carbon pricing plans before a national price is imposed on those that don't meet the federal standard. It will be interesting to see how this goes and if the federal government sticks to its plan. Canada is one of the most highly indebted nations in the world and I wouldn't be surprised if our economy was one of the first to falter.

At any rate, sometime in the next few years the economy is going to fall apart (point "c" in the diagram). As I've said, this may well be initiated by volatility in oil prices as the current oil surplus situation comes to an end. This will lead to financial chaos that soon spreads to the rest of the economy.

On the face of it this isn't too different from the traditional Peak Oil scenario—the collapse of industrial civilization caused by oil shortages and sharply rising oil prices. But as you might guess by now, this isn't exactly what I think will happen.

In fact, I think that we'll see an economic depression where the demand for oil drops more quickly than the natural decline rate of our oil supplies and the price falls even further than it did in 2014-15. We won't be using nearly so much oil as at present, so we will once again accumulate a surplus, and we'll even leave some reserves of oil in the ground, at least initially. This will help drive a recovery after the depression bottoms out (point "e" in the diagram). Please note that I am talking about the remaining relatively high EROEI conventional oil here. Unconventional sources just don't produce enough surplus energy to fuel a recovery.

But the demand for oil will still be a lot less than it is today and this will have a very negative effect on oil companies. Some governments will subsidize the oil industry even more than they have traditionally, just to keep to it going in the face of low prices. Other governments will outright nationalize their oil industries to ensure oil keeps getting pumped out of the ground, even if it isn't very profitable to do so. Bankruptcy of critical industries in general is going to be a problem during and after the crash. More on that in my next post.

During the upcoming crash and depression fossil fuel use may well decline enough to significantly reduce our releases of CO2 into the atmosphere—not enough perhaps to stop climate change, but enough to slow it down. As we continue down the bumpy road, though, our use of fossil fuels and the release of CO2 from burning them will taper off to essentially nothing, allowing the ecosphere to finally begin a slow recovery from the abuses of the industrial age.

The other trend involving fossil fuels, as we go further down the bumpy road, will be their declining availability as we gradually use them up. Eventual our energy consumption will be determined by the local availability of renewable energy that can be accessed using a relatively low level of technology. Things like biomass (mainly firewood), falling water, wind, passive solar, maybe even tidal and wave energy. Since these sources vary in quantity from one locality to another, the level of energy use will vary as well. Where these sources are intermittent, the users will simply have adapt to that intermittency.

No doubt some of my readers will be wondering why I don't think high tech renewables like solar cells and large wind turbines will save the day. The list of reasons is a long one—difficulty raising capital in a contracting economy, low EROEI, intermittency of supply and the difficulty (once fossil fuels are gone) of building, operating, maintaining and replacing such equipment when is wears out—to mention just a few.

Large scale storage of power to deal with intermittency will in the long run prove infeasible. Certainly batteries aren't going to do it. There are a few locations where pumped storage of water can be set up at a relatively low cost, but not enough to make a big difference. And on top of all that, I very much doubt that large electrical grids are feasible in the long run (and I spent half my life maintaining on one such grid).

The FIRE Industries

The next trend I can see is in the FIRE (financial, insurance and real estate) sector of the economy. During the growth phase of our economy over that last couple of centuries the FIRE industries embodied a wide range of organizational technologies that facilitated business, trade and growth. Unfortunately, because they were set up to support growth, they were unable to cope with the end of real growth late in the twentieth century. They have supported debt based growth for the last couple of decades as the only alternative that they could deal with. This led to the unprecedented amount of debt that we see in the world today. Much of this debt is quite risky and will likely lead to a wave of bankruptcies and defaults—the very crash I've been talking about.

The FIRE industries will be at the heart of that crash and will suffer horribly. Many, perhaps the majority, of the companies in that sector won't survive. In today's world they wield a great deal of political power. During the global financial crisis (GFC) in 2007-8 that power was enough to see them through largely unscathed. This is unlikely to be the case in the upcoming crash, creating a desperate need for their services and an opportunity to fill that need which will be another factor in the recovery after the crash bottoms out. But of course there is more than one way it can be done.

In the 3rd, 4th, 5th, 6th and 7th posts in my " Collapse Step by Step" series, I dealt with the political realities of our modern world, which limit what can be done by democratic governments. I identified a political spectrum defined by those limits. At the left end of this spectrum we have Social Democratic societies, which still practice capitalism, but where those in power are concerned with the welfare of everyone within the society. At the right end we have Right Wing Capitalist societies where the ruling elite is concerned only with accumulating more wealth and power for itself.

Since the FIRE industries are crucial to the accumulation and distribution of wealth in our societies, the way they are rebuilt following the crash will be largely determined by the political goals of those doing the rebuilding.

At the left end of the spectrum there is much can be done to regulate the FIRE industries and stop their excesses from leading immediately to further crises.

At the right end of the political spectrum the elite is so closely tied to the FIRE industries and so little concerned with the welfare of the general populace, that those industries will likely be rebuilt on a plan very similar to their current organization. A policy of "exterminism" is likely to be followed, where prosperity for the elite and an ever shrinking middle class is seen as the only goal and the poor are a burden to be abandoned or outright exterminated.(Thanks for Peter Frase, author of Four Futures—Life After Captialism for the term "exterminism".)

In the case of either of these extremes, or anywhere along the spectrum between them, there are some common things I can see happening.

The whole FIRE sector depends on trust. In the last few decades (since the 1970s) we have switched from currencies based on precious metals to "fiat money" which is based on nothing but trust in the governments issuing it. This was done to accommodate growth fueled by abundant surplus energy and then to facilitate issuing ever more debt as the surplus energy supply declined. I don't advocate going back to precious metals—what we need is a monetary system that can accommodate degrowth, of which a great deal lies in our future. Unfortunately we don't yet know what such a system might look like.

It is clear, though, that the coming crash is going to shake our trust in the FIRE industries to its very roots. Since central banks will have been central to the monetary problems leading to the crash, they may well be set up as scapegoats for that crash and their relative lack of success in coping with it. People will be very suspicious after watching the FIRE industries fall apart during the crash and their lack of trust will force those industries to take some different approaches.

I think governments will take over the functions of central banks and stop charging themselves interest on the money they print. Yes, I know that printing money has often led to runaway inflation, but the conditions during the crash and its aftermath will be so profoundly deflationary that inflation will not likely be a problem.

The creation of debt will be viewed much less favourably and credit will be much harder to get. And of course this will make the crash and following depression that much worse. In response to this many areas will create local banks and currencies to provide the services and credit that local businesses need to get moving again.

During the last couple of decades there has been a move to loosen regulations in the FIRE industries, to let single large entities become involved in investment banking, business and personal banking, insurance and real estate. Most such entities began as experts in one of those areas, but one has to question their expertise in the new areas they moved into. In any case they became "too big to fail" and their failure threatened the stability the whole FIRE sector. Following the GFC there was only minor tightening of regulations to discourage this sort of thing. After the upcoming crash I suspect many governments, especially toward the left end of the political spectrum, will institute a major re-regulation of the FIRE industries and a splitting up of the few "too big to fail" companies which didn't actually fail.

It is all very well to talk about business and even governments failing when their debt load becomes too great. But there is also a lot of personal debt that is, at this point, unlikely ever to get paid back. What does it mean, in this context, for a person to fail? What I carry as debt is an asset for someone else—probably the share holders of a bank. They are understandably reluctant to watch their assets evaporate, and I have to admit that there is a moral hazard involved in just letting people walk away from their debts. That feeling was so strong in the past that those who couldn't pay their debts ended up in debtors' prisons. Such punishment was eventually seen as futile and the practice was abandoned and personal bankruptcies were allowed.

One suspects that in the depression following the coming crash it will be necessary to declare a jubilee, forgiving large classes of personal debt. What might become of all the suddenly destitute people depends on where their country lies on the political spectrum. I wouldn't rule out debtors prisons or work camps, the sort of modern slavery that is already gaining a foothold in the prison system of the United States.

If we were willing to give up growth as the sole purpose of our economic system, there are many changes that could be made to the FIRE industries that would allow them to provide the services needed by businesses and individuals without stimulating the unchecked growth that leads to collapse. I think we are unlikely to see this happen after the upcoming crash—we will be desperate for recovery and that will still mean growth at destructive levels.

I think the crash following that recovery will involve the food supply and still unchecked population growth and sadly a lot of people won't make it through (more on this in my next post). Following that, it's even possible that in some areas people may reach the conclusion that growth is the problem and quit sticking their heads up to get slapped down again. They'll have to find a more sustainable way to live, but with it will come a less bumpy road forward.

Authoritarianism

In the aftermath of the next crash, I think we'll see an increase in authoritarianism in an attempt to optimize the systems that failed during the crash—to make them work again and work more effectively. Free market laissez faire economics will be seen to have failed by many people. Others will hang tight, claiming that if they just keep doing yet again the same thing that failed before, it will finally work.

As is always the case with this sort of optimization, it will create a less resilient system, much more susceptible to subsequent crashes. And after those crashes government will be reduced to such a small scale affair that authoritarianism won't be so much of an issue.

Fortunately, beyond authoritarianism, there are some other trends that will lead to increased resilience and sustainability. We'll take a look at those in my next post.

Monday, 15 January 2018

The Bumpy Road Down, Part 3

Winter on Lake Huron

In the last post in this series I talked about the next financial crash and how it may well be serious enough to spread into the non-financial sectors of the economy and effect supply chains and critical systems in ways that we did not see in the Global Financial Crisis of 2007-08. Systems that most of us depend on for the necessities of life may fail and many kollapsniks see this leading immediately and inevitably to a hard, fast and permanent crash of industrial civilization.

I disagree, seeing this as just one more bump on the road down, the cyclic pattern of crash and partial recovery that I believe will characterize the rest of the age of scarcity.

To understand why I hold this opinion, I said we need to do a couple of things:

1) take a systems dynamic approach to the events we are talking about. Specifically, we need to look at what happens when overshoot occurs in nature, in systems like the one we inhabit. Which is, after all, a subset of the ecosphere. Overshoot is a common enough phenomenon and usually works in fairly predictable ways.

2) look at the sort of things governments, communities and individuals can do to limit the damage of a financial crash and its spread to other critical systems.

Today we are going to do that.

(Note: all three of the graphs below are smoothed out, idealized and imprecise representations of the processes they illustrate. The point is to allow me to make some points visually. I hope not to get into much in the way of quibbling over minor details, of which no doubt a few are missing, inaccurate or outright wrong.)

So, first, let's take a look at how overshoot works. Take moment or two with your favourite search engine and you will find a graph that looks something like this:

1) typical overshoot situation with constant carrying capacity

The green line shows the behaviour over time of the population of a species which finds itself initially at a level well below the carrying capacity of its environment (the dashed blue line). Because that environment provides lots of whatever the species need to grow, it does grow. This tendency to grow in response to favourable conditions seems to be an inhernet property of life. As is always the case, this is exponential growth—it starts out slowly but eventually reaches a point where it takes off and quickly exceeds the carrying capacity of the environment.

What happens then is interesting, especially since we currently find ourselves in just such a situation. You get some oscillation of the species population, above and below the carrying capacity, until it finally settles out somewhat below the carrying capacity.

First, let's be clear that it is possible to exceed carrying capacity in the short run, at the cost of damaging the environment and reducing its capacity—overpopulation has a negative effect on that capacity. There is also some time delay built in to the effect of population growth, as newly born individuals add relatively little to the species impact on the environment compared to what they will add once they have grown up. The negative feedback and the time delay result in the oscillation shown in the graph.

Of course, the straight line representing carrying capacity would actually have some peaks and valleys, corresponding to how the environment responds to the stress of overpopulation and how it recovers when the population falls. If we idealized both the blue and green lines into something like a sine wave, we would see that the variation in the carrying capacity leads the variation in the population by about 90 degrees.

The red line, by the way, represents a fast and permanent collapse. In order for this to happen the carrying capacity has to fall all the way down to basically nothing. This can happen for a variety of reasons, but overshoot isn't one of them, because as soon as the population falls off below the carrying capacity, the stress on the environment is relieved and it begins to recover.

There is, in fact, no such thing as a "balance of nature" and it is by no means inevitable that the oscillations damp out and the population settles down just below the carrying capacity. In many cases what we actually get is the situation in the next graph, where populations oscillate on an ongoing basis.

2) continual oscillation of predator and prey populations such as foxes and rabbits

You might think that the population of rabbits and foxes in an ecosystem would level out at steady values, but that is not in fact what is observed.

If we start at a moment when there are relatively few of each species, we see that the population of rabbits (the prey, dashed blue line) grows rapidly. It is well below the carrying capacity of the ecosystem for rabbits and there are relatively few foxes (the predators, green line). But the increasing number of rabbits make hunting easier for the foxes, and their population starts to increase too. Eventually there are enough foxes to overhunt the rabbits, resulting in a crash in the rabbit population. This is followed by a crash in the fox population, since there are no longer enough rabbits to support it. This brings us back to where we started and the cycle carries on.

The reason the cycle can carry on indefinitely is that the foxes limit the rabbit population so that it never exceeds the carrying capacity of the ecosystem for rabbits—the plants the rabbits are eating never get over grazed.

The situation for the human population of this planet is, as you might expect, more complex.

The impact (I) that the human population has on our environment is determined not just by the size of that population (P), but also by the level of affluence (A) we are living at and effectiveness of the technology (T) we are using to maintain that affluence.

This gives us the famous equation, I=PAT. Since I am going to be using the term "T" in another equation shortly, I'll change this to I=PAD, where "D" stands for decoupling. Decoupling is the use of technology to produce affluence at a lower cost to thge environment and it is a number between 0 and 1, with 0 being the goal we would aim for, eliminating our impact altogether. In fact it is proving so difficult to get decoupling anywhere near zero that it is very unlikely to be the solution to our problems.

Carrying capacity (C) also works somewhat differently for human populations.

We can increase the size (S) of our environment by expanding into new areas of the world and habitats previously occupied by other species or by "indigenous" humans.

We can tap into forms of energy (E) beyond just food. For somewhere between two and three million years we've been using fire for landscaping, for cooking our food and for heating our shelters. In each case we were using the energy in burning biomass to increase the carrying capacity of our environment, increase the value of our food, and/or expand the range of environments that we can live in. For the last few hundred years we've been using the energy of fossil fuels to radically increase the carrying capacity of our environment in many seemingly clever ways.

Since whatever method we use to acquire energy consumes energy in the process, it's actually the energy that is left over, available for use (the surplus energy) that's important. This is best expressed as "Energy Returned on Energy Invested", EROEI. This is a dimensionless number and the larger it is, the more surplus energy. When the EROEI is equal to one, the process is just breaking even and there is no point in doing it—we want a much higher EROEI.

Hunter-gather and pre-industrial agricultural societies managed average EROEI's in the high single digits at best. Industrial societies based on fossil fuels in the twentieth century had EROEI's many times that high, which made possible high levels of growth and the development and use of technologies which had previously been completely out of reach. Today the average global EROEI is around 11.

Which brings us to our use of tools and technology (T). With just Neolithic technology (fire, stone tools, weaving, tanning, pottery, boats, agriculture) we spread over the whole planet except for the Antarctic, occupying and thriving in environments very different from the ones where we evolved. Since the Renaissance, the Enlightenment and the Industrial Revolution our use of technology has exploded. And not just material technology, but financial, organizational and information technologies as well. All of which has enabled both our population and affluence to grow at heretofore unprecedented rates.

So, the carrying capacity of this planet for the human race can be represented by the equation C=SET. Clearly, I (Impact) must be less than C (carrying capacity) or we are in overshoot. And since sometime in the late 1970s we have indeed been in overshoot. Currently the level of overshoot is around 60%. That is, our impact on the environment is 1.6 times what can be sustained on an ongoing basis.

3) oscillating overshoot with declining carrying capacity

From left side of this graph to point "a" we see the long and very slow growth of the human population before the discovery of the New World. After point "a" the carrying capacity began to increase significantly as the size of our environment effectively took a large jump with the European settlement of the New World, as the use of fossil fuels greatly increased the amount of surplus energy available and as we developed numerous new technologies to use that energy. Human impact increased with the carrying capacity, as our population grew and affluence increased.

The growth of carrying capacity continued until the last quarter of the twentieth century, point "b", when depletion of fossil fuels and reduction of their EROEI, diminishing returns on technological innovation and stress on the environment from human activities started to reduce the carrying capacity.

Human impact has continued to grow since then, and is now so far above carrying capacity that one has to expect a crash in the near future, point "c". As I said in my last post, this is likely to start with a financial crash. The financial sector of the economy, since it deals largely with non-material things that don't have much inertia, can change very quickly. It is currently under a lot of strain from huge amounts of risky debt. I favour a scenario where a spike in the price of oil, brought about as the current surplus of oil bottoms out, sets off a currency crash in one of more countries, leading to a wave of bankruptcies and governments defaulting on their debts. After point "c" human impact will start to decrease rapidly, primarily due to the effect of the financial crash on affluence.

Note that I have again included a red line (and a light blue line), which represent a fast and permanent crash of both carrying capacity and population. This is possible and some would argue that climate change and ocean acidification (among other things) may be damaging the environment enough to make it the most likely outcome. I don't think so. The ecosphere is amazingly resilient, once human impact is reduced. People have gotten the wrong impression about this because we have been playing the silly game of upping our impact and then wondering why the situation keeps gets worse, as if it wasn't our fault.

To the right is a little chart that contains some shocking information. The top 20% of the human population (in terms of affluence) is responsible for 76.6% of our impact. A financial crash will be very hard on those top 20% and in the process will drastically reduce human impact. Sadly, myself and most of my readers are in that top 20%.

Referring back to diagram 3, I expect that at point "d", where "I" is finally less than "C", the carrying capacity will begin to recover, and a while later at point "e", human impact will begin to increase once again as well.

Remember also that carrying capacity is defined by C=SET, and there is much that humanity can do to change the value of "T" in that equation. I am by no means saying that we will find a "solution" to our problems based on material technology. What I mean is that a major factor in the big decrease in carrying capacity during the upcoming crash will be the failure of our financial and organizational technology to cope with the situation. And there is a lot we can do to reorganize our financial, economic and political systems to work better under the new conditions. Once we are forced to do it. So I do expect there will be a recovery after this crash.

It is very likely that during the crash the financial chaos will spread to the rest of the economy and that there will be some reduction in the growth rate of our population as the support structures provide by industrial civilization fail completely in some parts of the world. But it seems likely that human population will continue to grow until it once again outstrips carrying capacity, at point "f". And then at point "g" we will have another crash. I suspect depletion of fossil fuels, water for irrigation and phosphorous for fertilizer, and the effects of climate change will lead to a collapse of agriculture in many parts of the world. Famine and epidemics will at that point start to rapidly reduce our population and eventually reduce it back below a once more reduced carrying capacity (point "h") and another recovery will begin (point "i").

Beyond point "i" it is hard to say much about exact details or how many more crashes will take place. But the trend of continued oscillation with decreases in both carrying capacity and human impact will continue. The downward trend is because our current system relies on non-renewable resources that we are using up. That trend will continue until our impact can be sustained solely by renewable resources. Along the way we will go through some very hard times (point "i" and subsequent valleys in the green line) because of the damage done to the planet in the process. But eventually, with our impact drastically reduced, the ecosystems will recover. I expect that at this point we will have retained some of our technology and because of this the overall carrying capacity and our population/impact will settle out a bit above what it was in pre-industrial times.

One further thing I want to emphasize is how uneven this whole process will be. Yes it is likely that the impending financial crash, because it involves systems that are highly interconnected and global in scale, will be felt to some extent over the whole planet. But the degree to which the financial chaos spreads to the rest of the economy will vary greatly from place to place. And subsequent crashes, once the high degree of global interconnection has been broken, will most likely occur at different times in different places.

Wherever people are not completely dependent on global supply chains, the effects will be less severe. To the extent that they are not ravaged by climate change, some parts of the developing world where subsistence agriculture is practiced may continue on with little change. Unfortunately many areas will suffer the ravages of climate change—droughts, flooding and heat waves. Many countries (particularly in Africa and the Middle East) do not produce enough food for their own populations. With supply chains broken and agriculture struggling everywhere, these areas will find it difficult to continue importing the food they rely on. Supplies of energy and water will also prove problematical.

I am well aware that all these graphs and explanations do not constitute a proof of my assertions about the bumpy road down. But I hope I have succeeded in making what I'm trying to say much clearer. It's up to you to decide if there is anything to it or not, now that you know what "it" is.

The other area I wanted to touch on today is the sort of things governments, communities and individuals can do to limit the damage when a financial crash spreads to other critical systems.

As the financial crash starts to gain momentum, governments will (to whatever extent they can) use the same tools as they did in 2008 to get things under control— loans and bailouts for faltering businesses, and keeping interest rates very low. It also seems likely that, as the situation worsens, "bail-ins" will be used as well, where depositors are required to accept discounts on their deposits to reduce the pressure on failing banks. And "haircuts" where bond holders have to accept discounts on the value of those bonds in order to reduce the pressure on the governments that issued them.

These efforts will have mixed results and the crash will no doubt spread to the non-financial sectors of the economy. Many governments will try switching failing critical systems over to a direct command “martial law” economy. This will be done with varying degrees of skill (or ineptitude as the case may be) and varying degrees of co-operation from their citizens. Vital materials which are in short supply due to supply chain and production breakdowns will be placed under government control and rationed (food, energy—especially diesel fuel, water treatment and medical supplies), and attempts will be made to patch supply chains and production facilities back together with whatever comes to hand.

I have no doubt that this can be made to work, at least to some extent. It does require convincing the public that it is necessary and that it is being done fairly—applied equally to the rich and powerful as it is to the poor and weak. And inevitably there will be thriving black markets.

Governments that already operate some of these systems directly will be better prepared and experience greater success. System that have been contracted out to the lowest bidder—companies that are primarily responsible to their stock holders rather than their customers—may fail in a variety of ghastly ways.

On the other hand, I think there will also be quite a bit of quiet heroism on the part of companies and individuals in critical industries whose job it is to keep things working. These folks are for the most part competent and highly motivated, and their efforts will be more successful than you might think.

Some governments will be so successful that their citizens may hardly be aware that anything is going on. In other countries, people will be reduced to relying almost entirely on what can be done locally, with locally available resources. Right wing capitalist governments whose primary obligation is to the rich and power will begin to practice wholesale abandonment of the poor and unfortunate.

There are also things that can be done by local communities, families and individuals to be more self sufficient—to be able to carry on during those periods when industrial society fails to supply the necessities. Increasing local inventories in order to be more resilient in response to supply chain failures would be a good beginning. But just being clear about what the necessities are and not wasting resources try to maintain luxuries will be one of the biggest challenges. The first step is realizing that much of what we consider necessary is, in fact, not.

So, as I've already said, I'm expecting a recovery, or rather a series of recoveries after a series of crashes. These crises are going to cause some changes in the way things work, resulting in a very different world. We'll have a look at the trends that will lead to that new world in my next post.

P.S.
If Blogger's statistics and Google Analytics are right, a lot of people are reading this blog on mobile devices. I'd be interested to hear how the graphics in this post worked on those devices.

Sunday, 7 January 2018

The Bumpy Road Down, Part 2

Lake Huron shore looking north to Bruce B Nuclear Generating Station
Taken Dec 17/17—there is much more ice on the lake now.

In the last post in this series I started talking about the bumpy road down—the cyclic pattern of crash and partial recovery that I believe will characterize the rest of the age of scarcity and make for a slow step by step collapse, rather than a single hard and fast crash. Because I expect this to take place differently in various parts of the world and for people of various social classes, I guess it should really be "The Bumpy Roads Down".

At any rate, this led to looking at the next expected bump in the process—a financial crash of even greater magnitude than the global financial crisis in 2007-8. We looked at what's leading up to this (a huge debt bubble), how it might start (with one or more currency crashes) and what might trigger the process (a spike in the price of oil).

From where I sit this crash seems essentially inevitable. We are living beyond our means—the available surplus energy is simply not enough to support the continued growth that our economy requires. Some degree of "degrowth" is going to happen, whether we like it or not. The only uncertainly is exactly when it will occur, how far it will take us down and by what route. I'd be surprised if it started sooner than the fall of 2018. I don't really care to guess how much longer it might take to get started—years, easily.

Of course, as we learned in the Global Financial Crisis of 2007-08, these things tend to teach us new things about how they work as they are happening. While we learn more with each crisis, there are things about each one that we would never have guessed in advance. And I am certainly not claiming to be exempt from this.

Since I wrote that last post, I read David Korowicz's "Financial system supply-chain cross contagion – a study in global systemic collapse", and much of what I have to say in this post has been influenced by Korowicz's ideas.

His essay directly addresses how things may proceed once a crash gets started, and how difficult it will be to do something about it. He focuses on the degree of interconnection in our modern world and how a financial crash can spread to other parts of the economy. He also looks closely at how fragile our globalized economy is, with many supply chains based on "just in time delivery" and minimal inventories of important supplies.

Before going on with the rest of this post, I'd like to share some thoughts that came to me as I was reading Korowicz's essay. It seems to me that when talking about such subjects, one has to consider one's audience and what one is trying to achieve.

Korowicz clearly feels he is speaking to a doubtful audience and he is eager to convince them. As he says, "The consensus view, even if backed by experts is not, in and of itself, a justification for the consensus view." I sympathize with him in that—the majority of people today are functioning at a high level of complacency and denial. They will latch onto any morsel of hope and use it to convince themselves that everything is going to be fine and that no extraordinary action is required. If you give them that morsel, the rest of what you have to say may well be lost on them.

And so it is very tempting to spin (and Korowicz has spun) a rather one sided story, lacking the sorts of subtleties and nuances that are needed for a solid understanding of any subject and which I have tried to make an identifying characteristic of this blog. I am not going to change that goal, and so some of my readers will see what follows, in this and my next few posts, as unreasonably optimistic. If that is what is necessary to take a balanced approach to the subject, then so be it.

David Korowicz is an intelligent and well informed man and so even he makes some qualifying statements about the solidly gloomy picture he paints: "a collapse could have intermediate states, characterised by partial breakdown and semi-stable states." And near the end of his essay he suggests that we should classify countries as red, amber and green, according to the likelihood of their suffering severely in the crash he is talking about. And he admits that there are indeed some green countries, and interestingly (to me) includes the U.S. in that group. But the essay was written in 2012 and things have changed in the U.S. since then.

For those looking for nothing but hope and reassurance, I'm sorry, but I must make it clear that the bump I am talking about here is likely to be a big one and solidly jarring, especially to those who aren't expecting it. When I say that this shouldn't be considered a fast collapse, I mean that a significant number of people will still be able to get food, shelter, clothing—that "just enough" will still be attainable for most of us. I meet people quite regularly who clearly consider that any change in their lifestyle, however minor, amounts to "the end of the world", and who are simply unwilling to consider that such things may happen. I know they find most of what I have to say to be way too pessimistic. I think they are in for a rude awakening.

But enough of that, let's take a closer look at how the coming crash is likely to proceed. Tim Morgan predicts that it will start with a "currency crash?" What does he mean by this? Simply that at some point currency traders will lose faith in the value of some particular currency. They will all start selling out of it pretty much at once—what is known as a "run". This would cause the price of that currency to drop drastically compared to others, with negative effects on the economy of the effected country, perhaps leading it to default on its debts. But why this loss of trust? In the case of Britain, Morgan (a Brit himself) points to a lack of economic growth, high debt, Brexit and poor economic management by governments over the last couple of decades, including a laisser faire approach to regulating business and the financial industry.

It will probably only take one currency crash (or maybe not even that many, if the price of oil spikes high enough) to trigger a loss of faith in debt and start a wave of bankruptcies and government defaults. Banks and other financial institutions will be at the head of that wave. Modern banking is based on the idea of a fractional reserve—banks are allowed to create money out of thin air when they make a loan, rather than just loaning out money they already have. The loan itself then becomes an asset, a claim on the future productivity of the debtor, based on trust that the debtor will prosper and be able to pay back the money he has borrowed, with interest. Under this system banks' real assets amount to only 2 to 9% of their total assets. The rest is debt, or from the viewpoint of the bank, credit they have extended as loans. It is normal to have a very small percentage of debtors default on their loans, but according to Korowicz, defaults of around 4% are enough to leave a bank in big trouble, and it may end up going out of business, as the financial community loses faith in the debts it holds.

Since the amount of risky debt is much larger than ever before, it seems likely that many of those "too big to fail" banks will indeed be in trouble this time around. In 2008 governments took steps to prevent this, but governments whose currency has crashed and/or who have defaulted on their debts, won't be able to be of much help. Even governments which aren't in financial trouble themselves will face a bigger challenge than they did in 2008, since interest rates are already pretty much as low as they can go. And also because more banks (and other businesses) will need help, in the form of loans on very favourable terms, or outright bailouts. Still, because the effect of a crash like this touch on pretty much everyone, there will be immense pressure on governments to do whatever they can.

As I understand it, what governments have done and will no doubt do in the next crash is to print money to offset the bad debts of failing financial institutions and other businesses. This has been done indirectly, by borrowing money from the central bank of the country. Because it ends up on the government's balance sheet as debt, owed to the central bank, paying the interest is a big budgetary problem. Paying back the principle is a problem for future generations.

Conventional economic wisdom holds that printing too much money causes inflation—the price of goods goes up to match the excess money circulating in the market. This didn't happen to any significant extent in the years following 2008, perhaps because that excess money, rather than going into circulation, was poured into the black holes of the banks' balance sheets.

It seems likely to me that central banks will take a lot of blame for "letting" this next crash happen. There is actually no reason that governments have to borrow money for bailouts from independent central banks. Those banks could be eliminated and governments could take on their role themselves, creating money without incurring debt or interest charges. And as long as that money goes straight to paying off bad debts, the amount in circulation won't increase, and it shouldn't cause inflation.

If this disaster was limited to the financial industry alone it would be bad enough. It is important to realize that in our capitalist system if a business is not profitable, or if investors lose hope of it eventually becoming profitable, it's not going to be running for long, especially in the middle of an economic crash. Even if it is the sole provider of goods and services that folks like you and I consider to be necessities. One would hope that governments would step in to preferentially bail out companies that really do have a vital role to play.

The financial sector also provides many critical services to businesses and in a crash such as we're talking about, those services may not be readily available, thus hurting businesses that would otherwise still be viable.

Perhaps the most basic of those services is moving wealth from what we think of as "investments" (where the point is to earn a return) to ordinary money with which one can buy goods and services. We take this for granted in "normal" times and are largely unaware of what is going on in the background to make it happen so smoothly. During a crash and in its aftermath, this will no longer be the case and without that ready access, businesses and individuals will find it difficult to continue operating as usual.

To judge from what happened in 2008, those banks that are still in business will also get very conservative in their lending practices and much less trusting of the banks at the other end of transactions. The free flow of credit and funds that the commercial world counts on would grind to a halt, at least temporarily, and so the financial crash would spread to the commercial sector. From the viewpoint of ordinary people this is very bad news.

Mind you, in 2008 things were pretty serious. Many people lost their houses because they couldn't pay their variable rate mortgages when the payments went up—indeed that was what started that crash. In the recession that followed, many businesses downsized or went bankrupt and laid people off. Some of the unemployed fell through the cracks in the social/community/family safety nets and ended up homeless and destitute. A lot of wealth and savings disappeared into thin air. But despite all this, the supply of consumer goods continued unabated. If you could afford to shop, the shelves were far from bare.

I think this is likely not to be the case in the upcoming crash. There will be some noticeable effects in the day to day lives of ordinary people, beyond the obvious increasing unemployment, tighter credit and a decrease in the value of whatever savings you may have left.

The basic issue is that today, more than at any time in our history or prehistory, we rely on a complex, internationally networked economy to provide us with the necessities of life. Supply chains have been optimized, with minimal inventories and "just in time" delivery so that they are very efficient, but also very fragile. One little thing can go wrong, a long way down the chain, and within days (sometimes within hours), the whole supply chain begins grinding to a halt.

The global economy relies of a few critical systems, which enable supply chains to function.

The first of those systems is banking itself. The sort of day to day transactions that all of us take part in really are necessary to keep the world working. Most individuals and businesses rely on chequing accounts, over draughts, lines of credit, debit cards, credit cards and so forth, all of which will stop working if your bank fails. At the international level, banks issue letters of credit that facilitate the shipping of goods from one country to another.

Shipping is itself a critical system, and is dependent not just on banking but also, among other things, on energy, mostly in the form of petroleum products: bunker fuel for ships, diesel fuel for trucks and jet fuel for air freight. I suspect that shipping will suffer a good deal of disruption during this crash, not just at the international level, but also among the trucking companies who move goods around within countries, and on which we are very dependent.

Even if mining, forestry, fishing, agriculture, the electric grid, manufacturing and retail remain untouched in a crash (which is by no means certain), problems with just banking and shipping can make for very unreliable supplies of things that we have come to take completely for granted.

When it comes to necessities, water seems straightforward, right? It comes out of the tap. But most municipal water treatment facilities keep only a very few day's supply of treatment chemicals on hand. If deliveries of those chemicals stop, it won't be long—as very few days—before you can no longer rely on the safety of your water supply.

And there is always food on the supermarket shelves, right? But that's only because of daily deliveries that rely on many long and complex supply chains. If those deliveries stop, there is probably only about three days of food available in most communities, less than that of perishable items.

In the developed world, and even many areas in the developing world, access to medical care is taken for granted (the U.S. is an exception). But modern medicine relies on pharmaceuticals and other consumable supplies of which hospitals keep a very limited inventory, relying instead on regular deliveries.

I mention those three areas because they are necessities for everyone, and the supply chains that provide them to us are likely to be negatively affected during a financial crash. In fact, it will be hard to find any industry that isn't affected to some degree.

Now the conventional thing for a collapse writer to do at this point is to suggest that once this starts, it will be impossible to stop and everything will grind to a halt, bringing industrial civilization to an abrupt end and likely enough the human race with it. When you've been studying collapse for a while and coping with disbelief from most of those around you, it is natural, I suppose, to be eager for something to finally happen that will prove you right beyond all doubt.

But I am not that sort of kollapsnik. I'm pretty sure that collapse has been going on for decades not and that it will take a few decades more before it is complete. And along the way, what is happening will be far from obvious to the many people.

To understand why I hold this opinion, we need to do a couple of things:

1) take a systems dynamic approach to the events we are talking about. First off, the model of a fast collapse with a catastrophic impact at the "bottom" is fundamentally flawed. It may portray fairly accurately what happens when you jump (or are pushed) off a cliff, but that is not exactly the situation our civilization faces. We need to look at what happens when overshoot occurs in nature, in systems more like the one we inhabit. Which is, after all, a subset of the ecosphere. Overshoot is a common enough phenomenon and usually works in fairly predictable ways.

2) look at the sort of things governments, communities and individuals can do to limit the damage when a financial crash spreads to other critical systems.

I set out recently to draw some graphs illustrating overshoot and pretty quickly gained some new insights into this process—insights that I think are worth sharing.

So I'll wrap this post up now and carry on with points 1 and 2 above next time.

Sunday, 31 December 2017

What I've Been Reading, December 2017

Links

These links appear in the order I read them, rather than any more refined sort of organization. You may find some of the best ones are near the bottom—it varies from month to month.

Books

Fiction

  • Out in the Open by Jesus Carrasco
  • The End of the World Running Club by Adrian J. Walker
  • Down Station by Simon Morden
  • Who's Afraid by Maris Lewis
    I normally don't read books about werewolves, vampires or zombies. I picked this one (which is about werewolves) up in a bookstore, and without the benefit of the kind of description Amazon provides, I didn't know what i was getting into. Not a bad read, but even though it begs for a sequel, if one comes out I won't be reading it.

Non-Fiction

And to round out this month, here are some gems from my bookshelf: