Why It's Going to Get Worse
4/9/11 20:36![[identity profile]](https://www.dreamwidth.org/img/silk/identity/openid.png){kind=small}
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talkpoliticsYes, that's a pretty goading subject line. It's supposed to be. Here's my backing evidence.
George Stephenson's Rocket, the first
commercially practical steam locomotive.
This is the beast that started it all, The Rocket. In 1829, this coal powered locomotive won the prize offered for practical mechanical means of conveyance. Coal had been fueling industrial production for a century prior to the Rocket; wind, captured by sails, had been bringing raw materials to and delivering finished goods from those coal-powered factories.
By the 1820s the choke point was overland transport. The distance between Liverpool's docks and Manchester's factories still had to suffer track cart deliveries at a horse team's pace.
The Rocket, clocked at 35 mph during the competition, would break the horse pace by an order of magnitude. It was the first time fossil fuel powered transport significantly. This event closely corresponds to another interesting factoid, one that until recently, bettered the lives of all of us:
This increase was due to a large part to the growing reliance society placed on replacing human and animal labor with mechanical. As mechanical labor grew, the time it took to accomplish traditional tasks fell, and made new accomplishments possible. As these tasks reduced our needed minimum of daily labor, hours were freed to pursue different labors, increasing the productivity of people everywhere.
This increased productivity led to increased wealth. An expanding economy, made possible by the shift from strict specie of gold and silver to wealth that recognized only a fraction of the held specie in fractional reserve lending, led to assumptions. Going over the recent history of economies, it seemed that growth could be infinite, since history had since 1820 allowed growth. There was, therefore, no real need to create a stable economy, since downturns were historically short-lived.
This is changing. Evidence of the peak extraction levels for both coal and oil are abundant; I will therefore not bore you with repetition. Knowledge of how this affects our economy, however, is not widespread. First, understand that (for the most part) governments do not print money. Banks do. Commercial banks issue new money whenever they lend, accepting assets as collateral and delivering in exchange credit and a contract to repay that credit. Since only the principal is created at the time of the loan, other loans taken by other people must continue to grow the money supply. If that doesn't happen and the economy stalls, previously good loans turn bad, leading to defaults that continue the process. Our economies are driven by a positive feedback mechanism: when times are good, the money supply grows quickly; when times are bad, it contracts quickly through cascading defaults.
Without access to the cheap energy that literally fuels our economies, though, we hit a stall that promises a fall.
What we need right now is not the next new source of motive fuel (though that would be nice). What we need is to systemically restructure our economies to allow for periods of graceful degradation, where the money supply can be supplemented by entities other than traditional lending institutions, and added in ways that do not exacerbate debt loads. Sadly, this needed overhaul appears daunting not just in scope, but well nigh impossible given the current schisms and struggles in which traditional political institutions find themselves embroiled.
Still, until these needed changes happen, don't expect anything but continuing recessions, as our heads bang again and again on the Gas Ceiling.
George Stephenson's Rocket, the first
commercially practical steam locomotive.
This is the beast that started it all, The Rocket. In 1829, this coal powered locomotive won the prize offered for practical mechanical means of conveyance. Coal had been fueling industrial production for a century prior to the Rocket; wind, captured by sails, had been bringing raw materials to and delivering finished goods from those coal-powered factories.
It is metaphorically satisfying to talk about threads being woven together when talking about cotton, but the thread that mattered to the Liverpool & Manchester Railway was made of iron: thirty miles of it, smelted, forged, and wrought in ironworks . . ., and laid down as rails between the two cities that were now producing, in their mundane way, more wealth in a year than the entire Roman Empire could in a century.
(William Rosen, The Most Powerful Idea in the World: A Story of Steam, Industry, and Invention, Random House, 2010, p. 303.)
By the 1820s the choke point was overland transport. The distance between Liverpool's docks and Manchester's factories still had to suffer track cart deliveries at a horse team's pace.
The Rocket, clocked at 35 mph during the competition, would break the horse pace by an order of magnitude. It was the first time fossil fuel powered transport significantly. This event closely corresponds to another interesting factoid, one that until recently, bettered the lives of all of us:
From 1820 to 1970, over every decade, average real wages rose, enabling a rising standard of consumption. These 150 years rooted workers' belief that the US was a "chosen" place where every generation would live better than its parents. (Richard D. Wolff, Capitalism Hits the Fan, Olive Branch Press, 2010, p. 51.)
This increase was due to a large part to the growing reliance society placed on replacing human and animal labor with mechanical. As mechanical labor grew, the time it took to accomplish traditional tasks fell, and made new accomplishments possible. As these tasks reduced our needed minimum of daily labor, hours were freed to pursue different labors, increasing the productivity of people everywhere.
This increased productivity led to increased wealth. An expanding economy, made possible by the shift from strict specie of gold and silver to wealth that recognized only a fraction of the held specie in fractional reserve lending, led to assumptions. Going over the recent history of economies, it seemed that growth could be infinite, since history had since 1820 allowed growth. There was, therefore, no real need to create a stable economy, since downturns were historically short-lived.
This is changing. Evidence of the peak extraction levels for both coal and oil are abundant; I will therefore not bore you with repetition. Knowledge of how this affects our economy, however, is not widespread. First, understand that (for the most part) governments do not print money. Banks do. Commercial banks issue new money whenever they lend, accepting assets as collateral and delivering in exchange credit and a contract to repay that credit. Since only the principal is created at the time of the loan, other loans taken by other people must continue to grow the money supply. If that doesn't happen and the economy stalls, previously good loans turn bad, leading to defaults that continue the process. Our economies are driven by a positive feedback mechanism: when times are good, the money supply grows quickly; when times are bad, it contracts quickly through cascading defaults.
Without access to the cheap energy that literally fuels our economies, though, we hit a stall that promises a fall.
What we need right now is not the next new source of motive fuel (though that would be nice). What we need is to systemically restructure our economies to allow for periods of graceful degradation, where the money supply can be supplemented by entities other than traditional lending institutions, and added in ways that do not exacerbate debt loads. Sadly, this needed overhaul appears daunting not just in scope, but well nigh impossible given the current schisms and struggles in which traditional political institutions find themselves embroiled.
Still, until these needed changes happen, don't expect anything but continuing recessions, as our heads bang again and again on the Gas Ceiling.
(no subject)
Date: 5/9/11 15:56 (UTC)(no subject)
Date: 6/9/11 00:18 (UTC)I don't see any reason to believe that.
(no subject)
Date: 6/9/11 04:41 (UTC)The more honest estimates use accelerating consumption rates, but I've seen plenty that assume flat or nearly flat rates. Why? I have no idea.
(no subject)
Date: 6/9/11 17:48 (UTC)(no subject)
Date: 6/9/11 18:34 (UTC)Hubbert himself got it right, back in 1956. He nailed the contiguous US production peak in that year, and was only five years off the world-wide peak estimate of 2000. In his defense, he could not have anticipated the OPEC embargo of the seventies and the artificial effect that reduction in consumption had both on extraction rates and future consumption rates.
(Regarding future consumption, Alan Greenspan pointed out that the US economy doubled in efficiency in ten years, from needing 2 gallons of gas to produce a dollar's GDP in 1970, to needing only 1 gallon ten years later. Without OPEC's impact, there would have been no real economic need to pursue technology that helped reduce consumption that drastically.)