Monday, November 15, 2010

The economy doesn't require any growth

A recurring claim in doomer literature is that our economy must either grow or collapse. This claim is frequently made on peak oil and doomer websites, like theoildrum.com, energyresources.net, and elsewhere. It's also frequently re-iterated by adherents of the "ecological economics" school of thought such as George Mobus.

The growth-or-collapse claim has an argument which runs like this. In our economy, debt is extremely widespread. The government has debt, corporations have debt, and individuals have debt. But debt is nothing more than a requirement to pay more money in the future. The only way we'll be able to pay more money in the future, is if we have more money in the future, through economic growth. Without growth, we cannot possibly pay additional money in the future, because there will be no additional money in the future with which to pay. Therefore, an economy with widespread debt must either grow or collapse.

Or so goes the argument. This argument (which I've called the "growth-or-collapse" argument) is extremely widespread in doomer circles. It's rarely spelled out in any great detail. Usually, it's presented very briefly or just assumed. Nevertheless, it comes up very frequently in doomer literature.

Unfortunately, the growth-or-collapse argument is false. It relies upon two mistaken assumptions, outlined below.

First, the growth-or-collapse argument relies upon the implicit assumption that all our income is devoted to debt servicing. Only then would we require more money in the future to avert collapse. At present, however, we (including our government) devote only a small fraction of our income to debt servicing. As a result, we could continue to make debt payments despite no growth in income by sacrificing consumption spending. Let me give an example. Suppose someone (we'll call her Alice) makes $50,000 per year and takes out a loan of $5,000, payable in one year with 10% interest. In other words, she owes $500 more at the end of the year than the value of the loan she took out. As it turns out, Alice doesn't receive an expected pay raise. Nevetheless, she must pay back $500 more at the end of the year. Is she bankrupt? No, because she can pay her debt by sacrificing a small fraction of her consumption. Only about 1% of her income is devoted to paying interest, which is less than her discretionary spending, so she would not face bankruptcy even if she underwent a relatively severe contraction of her income.

What about people who are so heavily indebted that they cannot possibly pay their debts using their current income? What about people who bought million-dollar homes and could not afford any of the payments without an increase in their salaries? Only those people require income growth to avert bankruptcy. By the way, that situtation is not faced by our government or most of our corporations. At present, our government pays only a relatively small fraction of its income for debt servicing and therefore does not require any growth in revenues to avoid default; and the same goes for the vast majority of corporations and people.

But there are some people and corporations who require growth in their incomes to avert bankruptcy. Do they face collapse? Will they cause the collapse of the whole economy?

No. That's the second mistaken assumption of the growth-or-collapse argument: it conflates bankruptcy with collapse. Bankruptcy is nothing more than a transfer of ownership of assets from one entity to another, along with a legal debt cancellation. Nothing more. It does not imply collapse, not even for the entity declaring bankruptcy, much less for society more generally. For example, assume a manufacturing corporation which cannot pay its debts and which declares bankruptcy. It's assets are transferred from stockholders to banks and bondholders who now own the company, and its debts are cancelled. The bondholders will continue to run the company if it's profitable without the prior debts. The new owners have no more incentive to destroy its assets than the previous owners did. In other words, bankruptcy and debt have no effect whatsoever on whether factories will continue to run. Bankruptcy changes ownership, that's all. The only time a company is dissolved, and its factories closed, is when it's not needed anymore, because its products or factories are obsolete or there's a surplus of the products it supplies. For example, GM almost dissolved because of competition from many other automakers who provide the same kind of products, so GM is not necessary in the world at all, any more than AMC was in the 1980s. (Even if GM had been allowed to fail by the US government, it still wouldn't mean collapse in the doomer sense of that word, because its capital equipment (like factories and machine tools) would be sold to competitors who would increase their production. Again: bankruptcy is a transfer of ownership, even in the case of legal dissolution, which is rare. Bankruptcy is a paper procedure which has nothing to do with physical destruction or collapse).

In short. The growth-or-collapse argument is false. It relies upon two implicit assumptions, both of which are false. It would be refuted if either of its assumptions were false, but both of them are false.

The economy requires no growth to survive. It could continue along with 0% growth for decades or longer, despite loans at interest, without any risk of collapse. (In fact, that very situation is what happened almost everywhere for the vast majority of human history, without any society collapsing from debts). In fact, the economy could withstand declining income because debtors could continue to pay their debt by sacrificing other expenditures. Furthermore, those who are forced into bankruptcy cause nothing more than a paper transfer of ownership and legal procedures of debt cancellation. As a result, debt poses no risk of economic collapse and does not create a requirement for growth.

None of this concedes that economic growth is at an end. Economic growth has not ended, and is not ending anytime soon. But that's a topic for another article.


33 comments:

  1. Interesting ideas Tom. There are a few things I need to resolve in my mind.

    The economy requires no growth to survive. It could continue along with 0% growth for decades or longer, despite loans at interest, without any risk of collapse.

    I can see that purely economically this statement is true, emphasis on survive; an analogy might be someone starving on a desert island surviving with zero food for some time - yes technically they are alive, but prospects aren't good. However a none-economic factor may destroy this type of economy, such as angry people with no prospects being provided by this zero growth model. Businesses need to borrow, people lend with the assumption that due to growth there will be a return on their investment. No growth, no investment, no loan, no development. I appreciate that the loan could be repayed, with interest, without the individual business growing but eating into them selves; this cannibalistic approach soon wouldn't last long on a economic wide scale. The business to repay the load needs to get bigger to accommodate the loan plus its other expenses ergo needs to grow.

    More generally I see a problem with a no-growth economy supporting a growing population. You say for the vast majority of human history this has been the situation, but then if you look at a time vs population graph you'd see population has been pretty static for the vast majority of human history. It is now through the roof. Maybe even more relevant is that demand is increasing as all these people aspire to have more luxuries and better life styles.

    I agree that there are other no growth models out there that would work fine in theory - the trick is going to be converting economies modelled on growth, to ones which are stable. I believe passionately that this can be done but it isn't going to be pretty in the slightest

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  2. "...the growth-or-collapse argument relies upon the implicit assumption that all our income is devoted to debt servicing."

    Here we go swatting at strawmen again - can you cite one example of this implicit assumption, where ALL our income is devoted to debt servicing? And even if ALL of income is not devoted to debt servicing, only the 9% at present, how much debt is too much?

    Your second strawman is the suggestion that someone has implied "conflating bankruptcy with collapse." Regardless of what you call it, the depression was no picnic, and that's what we're headed for. Either we devalue the currency and experience crippling inflation, or we default on our debts. Either way, it's very ugly. Call it what you want to, when an economy is predicated on lending fiat money, with interest, into an economy, when growth stops, someone gets hurt. The bigger the populace, the bigger the hurt for a given decline.

    Nothing grows forever in nature, yet we have designed an economy based on the idea that you can loan x dollars into existence and get back x + interest. TANSTAAFL.

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  3. gJ,

    "I can see that purely economically this statement is true, emphasis on survive; an analogy might be someone starving on a desert island surviving with zero food for some time - yes technically they are alive, but prospects aren't good."

    I should have used a word other than survive. What I meant to say was that the economy could continue along without major interrpution, even in the absence of any growth whatsoever.

    You used an anology of a person living on an island with insufficient food. But we're not talking about a lack of food here; we're talking about a lack of growth. A person could continue indefinitely without any growth in his daily caloric input, until he dies of other causes.

    "Businesses need to borrow, people lend with the assumption that due to growth there will be a return on their investment. No growth, no investment, no loan, no development."

    That's assuming your conclusion. Growth is not required for repayment, so it's not required for lending.

    It's crucial not to think of the whole economy as a gigantic firm, where economic growth is like profit. Economic growth isn't like profit at all, and the absence of growth doesn't imply the absence of profit. Neither is the whole economy like one big debtor, where its growth is like discretionary income that it would use to pay back its debts. Growth is not income and is not necessary to repay debts. Nor is growth like profit of a firm, where people would invest because they expect it.

    The question is: are the actors within an economy able to repay, and if not, what happens as a result of their interactions? Most actors could repay despite no growth, and those that couldn't would face an undesirable ownership change of what had been their assets. But there would be no fewer assets in society and no contraction of productive capacity.

    "I appreciate that the loan could be repayed, with interest, without the individual business growing but eating into them selves; this cannibalistic approach soon wouldn't last long on a economic wide scale."

    Cannabilism isn't implied here. We're talking about the reduction of dividends or discretionary consumption, which isn't "cannibalism" because it doesn't reduce our ability to produce in the future. Repaying debts in the absence of growth doesn't require "eating into" the capital stock or anything similar.

    "More generally I see a problem with a no-growth economy supporting a growing population. You say for the vast majority of human history this has been the situation, but then if you look at a time vs population graph you'd see population has been pretty static for the vast majority of human history."

    This I grant. If we have a growing population and we wish to retain our standard of living, we must have a growing economy. In some areas, they must have economic growth for population growth even to be possible.
    -tom

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  4. Anon:
    "Regardless of what you call it, the depression was no picnic, and that's what we're headed for."

    That's true; the depression was no picnic. But the depression wasn't caused by a lack of growth. Just the other way around: the lack of growth was caused by depression. The financial panic in 1929 and the subsequent banking collapse both occurred before growth stopped.

    In some ways, the depression is evidence against collapse. During the depression, the US economy contracted by 30% over 10 years. Still, the economy didn't collapse. Granted, it was no picnic, but it wasn't collapse either. If the economy could contract drastically over a decade without collapsing, then it could certainly withstand stagnation without collapsing.

    Another example is Japan. Japan is in a severe and long-lived recession, which started in 1989 and continues today. They've had little or no growth during that time, despite massive debts. Nevertheless, their industrial output and agricultural production are similar to what they were in 1989.

    Note that lending in Japan is much more common after the end of growth than it was before.

    I realize you didn't claim that collapse is imminent. You claimed only that the end of growth wouldn't be pretty and people would get hurt. And I agree with you about both of those points. The end of growth would be a rude awakening, especially for stock investors but also for others. Certainly, people would get hurt; just ask the Japanese. The purpose of my website is not to argue that everyting will always be fine, but rather, than we do not face any kind of doomer scenario as the result of inevitable trends.
    -tom

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  5. "...than we do not face any kind of doomer scenario as the result of inevitable trends."

    Doomer or not, we do face a very painful fate, which is indeed the result of inevitable trends. The US economy functions by printing money and loaning it into existence, instead of printing money and using it to pay for government. The money loaned into existence must be paid back with interest. This dictates that others must borrow as well, and growth must occur for the loans to be repaid with interest. And we can see that the US has certainly grown over the last two centuries.

    Before the advent of computers and high frequency trading, this process was viable as long as those in power didn't abuse their power to cause bubbles, with a notable exception or two like the Depression. Now that we have the internet, high frequency trading and a very casually regulated market, it is possible for a very small number of people to manipulate the economy for their own benefit. The size and complexity of the economic system makes it much more prone to manipulation and failure, and the trends of growth and complexity continue. In a rare moment of candor, a Bush actually got it right when he described Ronald Reagan's (and most Americans') idea of economics "voodoo economics." You cannot get something for nothing. You cannot spend your way out of debt, and given the opportunity, those in power will steal from the less fortunate. Technology only amplifies and accelerates these inevitable trends.

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  6. No, Bush 1 was wrong. It was Reagan that got it right. The problem with the economy under Carter (much like now under Oblahblah) was too much government. Government run "planned" economies have always been dismal failures. That's why Russia and China finally woke up and started adopting free market mechanisms.

    And the US government needs to print money to pay for all the free entitlement programs. Programs that have gotten waaayyy out of hand. Why find a job when you can collect an unemployment check indefinately? The government is making the recession worse by extending unemployment benefits.

    And you don't need growth to pay back debt. You only need to operate at a profit. There's nothing structurally wrong with the debt system. The mortgage problem came about because of the liberal socialist policies of requiring banks to make home loans to unqualified buyers. This was another "social engieering" idea of the liberal left, starting with Carter's "Community Reinvestment Act". The policy was greatly expanded under Clinton. The real estate/mortgage market was turned into a speculative bubble. The Bush 2 Admin warned about the problems with mortgages and the GSEs, but the left wing Congress ignored it. How much money did Franklin Raines get from Fannie May?

    http://www.youtube.com/watch?v=_MGT_cSi7Rs

    BTW, the real estate/mortgage collapse had nothing to do with "peak oil".

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  7. "No, Bush 1 was wrong. It was Reagan that got it right."

    Tea Party manure. The deregulated casino economy started in the Reagan years is exactly what got us to this present juncture, with massive mortgage fraud and Goldman Sachs alums running the show.

    Expensive oil just makes the whole sordid mess sting even more unpleasant than it would have been with cheap oil or, god forbid, no inflation.

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  8. I remember getting a mortgage when Reagan was president, and it wasn't easy. It was Clinton that repealed Glass-Steagal, and opened up the mortgage market to Wall Street. The Clinton Admin also lowered the lending requirement to anyone with a heartbeat. Even left wing rags were warning of the impending crisis from this new policy:

    "In moving, even tentatively, into this new area of lending, Fannie Mae is taking on significantly more risk, which may not pose any difficulties during flush economic times. But the government-subsidized corporation may run into trouble in an economic downturn, prompting a government rescue similar to that of the savings and loan industry in the 1980's."

    ''From the perspective of many people, including me, this is another thrift industry growing up around us,'' said Peter Wallison a resident fellow at the American Enterprise Institute. ''If they fail, the government will have to step up and bail them out the way it stepped up and bailed out the thrift industry.''

    http://query.nytimes.com/gst/fullpage.html?res=9C0DE7DB153EF933A0575AC0A96F958260&sec=&spon=&pagewanted=1

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  9. I think Jimmy Carter was the only president who had some inkling about responsible government - it just happened to be George H. W. Bush who - in a moment of campaign rhetoric - put the most appropriate label on the US economy - "voodoo economics."

    Republican and Democrat - all have engaged in the fantasy that we can get something for nothing through monetary trickery. They all engage in the fantasy that any all spending is good, regardless of what's being bought and sold. We've all bought into the fantasy that we need cheap computers and TVs, designer clothes and trinkets made in China, that we can outsource the essentials, buy our oil from our enemies and call it progress.

    These fantasies and the enormous debts they've spawned will cripple the US for decades to come. There will inescapable pain and suffering.

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  10. "Republican and Democrat - all have engaged in the fantasy that we can get something for nothing through monetary trickery. They all engage in the fantasy that any all spending is good, regardless of what's being bought and sold."

    I'll have to agree with you on that point.


    "We've all bought into the fantasy that we need cheap computers and TVs, designer clothes and trinkets made in China, that we can outsource the essentials, buy our oil from our enemies and call it progress."

    The outsourcing of manufacturing jobs is the real problem with the US economy. Government deficits are exacerbated by the loss of revenue from personal and corporate income taxes. Democrats have done their part by supporting labor unions and environmentalists. Republicans helped by supporting capital interests and "free trade". The genius economists coming out of universities have said for many years that manufacturing was a dinosaur, and the trade deficit didn't matter. Perhaps they were wrong?

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  11. "Furthermore, those who are forced into bankruptcy cause nothing more than a paper transfer of ownership and legal procedures of debt cancellation."

    Yes, it's that simple, folks. Bankruptcy is a simple, painless procedure that's no more invasive or demoralizing than a flu shot. Just sign a few papers and off you go, scott-free, happy as a clam.

    You're almost stupid if you don't declare bankruptcy. And if you're stupid enough to have lost your job, or contracted cancer, or let some other tragedy empty your bank account, well, you probably deserve a good bankruptcy.

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  12. Don't worry, there won't be any growth. Oil - despite the enormous glut of the stuff - is back at $90, just like it was before the last bubble burst around your pointy little heads.

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  13. "First, the growth-or-collapse argument relies upon the implicit assumption that all our income is devoted to debt servicing."

    um - according to whom? Rather extreme premise which systemically undermines your argument.

    Freewheelin' Franklin

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  14. You can download a PDF copy of the recent book "Oil Panic and the Global Crisis" by Stanford Prof Stephen Gorelick here:

    http://www.mediafire.com/?v0m66jj7fyr7e95

    A review is posted here:
    http://onlinelibrary.wiley.com/doi/10.1111/j.1468-8123.2010.00297.x/full

    Also an article at PhysOrg about it:
    http://www.physorg.com/news/2010-11-oil-price.html

    It's an excellent book. The author details the arguments on both sides of the peak oil debate (the anti-peak oil argument is the more convincing case, although the author lets the reader reach his/her own conclusions).

    And please feel free to comment at the thread here:
    http://peakoil.com/forums/new-book-oil-panic-and-the-global-crisis-t59992.html

    Thanks

    Carlhole

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  15. So bountiful, it's going to be $100 again soon. Praise the lord.

    http://www.marketwatch.com/video/asset/markets-hub-is-100-oil-coming-2010-12-10/DD4E89A0-033D-4739-935E-E6C0BE6DBB98?dist=countdown#!DD4E89A0-033D-4739-935E-E6C0BE6DBB98

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  16. Anon,

    You would have a better argument for peak oil with a lower price. Higher prices as a result of the eco-socialists in Washington, and the OPEC cartel, only push the peak oil date back further. Look up "demand destruction". Praise the Lord indeed.

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  17. Franklin,

    I meant that the assumption is implicit. The assumption isn't stated, but it's required for the doomer argument to be true.

    -tom

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  18. "Anon, the word "bountiful" refers to an amount."

    Conventional wisdom is that when some commodity is in abundance, it's also cheap. Conversely, if something is expensive, that makes it rare. This conventional wisdom does not apply to oil. The higher the price that can be paid for oil, the more there is. At $90/barrel, there's several trillion barrels of supply. This high price also opens up an opportunity for alternatives.

    One of the more common doomer myths is that the world economy cannot support high oil prices, and would collapse. Clearly there is still robust world GDP growth, in spite of high oil prices.

    Peak oil collapse theory has gone from "there isn't any more oil" to "you can't produce it fast enough" to "the world economy cannot sustain such high oil prices". The last doomer myth has been disproved. Peak oil is dead.

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  19. "Argues that energy is abundant and will become more so as time passes."

    Analogous to postulating that perpetually accelerating perpetual motion machines are feasible.

    The author's argument seems to be 'Energy is abundant [constant] over time, therefore the machine maintains motion over time (perpetual motion). Furthermore, as times passes energy becomes more abundant [increases], therefore machine moves ever faster (perpetual acceleration).

    Of course, this is really an economics blog so please substitute economy for machine in the preceding paragraph.

    Economics may be the dismal science but it's not this abysmal!

    There are no circumstances under which any want or whimsy of economic theory will alter the fundamental reality of basic physics.

    The post on the sustainability of zero growth economies was quite welcome. Very few have recognized that viable models for stable zero growth or contracting economies are somewhat prerequisite to maintaining social order in the face of dwindling core economic resources.

    Anyone know of up and coming pioneers in socially acceptable zero or negative economic growth theory?

    Freewheelin' Franklin

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  20. New post about what's really going on with global warming over at dieoff debunked:

    http://dieoffdebunked.blogspot.com/2010/12/dieoff-by-global-warming.html

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  21. "Analogous to postulating that perpetually accelerating perpetual motion machines are feasible."

    Exactly.

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  22. Im suprised the author of this blog allows DB to troll/spam his own blog on this discussion post;

    DB - as you, like the US government it seems courtesy of Julian Assange, practice censorship on your blog let me give you my thoughts on your latest 'debunking':

    You make a very minor attempt to scratch the surface of climate science and make the classic noob mistake of saying 'well Co2 was at this level then, and things were alright'. Wrong. Again let me assure you physical systems are about rate of change - try decelerating from 100 mph to 0 in a 1/10th second as opposed to 30 seconds to see the difference if you need to prove this yourself. Aside from the paragraph on past co2 levels the debunking then veers off to some vague conspiracy hokum about China and Russia getting the upper hand, as if it matters when the ecosystem collapses. I give it no stars out of 5

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  23. Carl,

    I don't think anything in my post is analogous to perpetual motion. Nowhere do I claim that the increase in energy will be perpetual or infinite. Although I do claim that usable energy will increase, I don't claim it will increase to infinity or anything similar. Not every increase in energy implies perpetual motion.

    Look at it this way. We have already increased the amount of energy generated worldwide, by a tremendous degree, over the past century. We've also issued many loans with interest, over centuries, that were repaid, even though the growth rate is much lower than the interest rate. Did those things violate the 2nd law of thermodynamics? If so, how did they happen? Since they did happen, why can't they continue? Why can't interest and growth continue along as they have in the past? It seems to me that something which has already happened in the past can't violate the laws of thermodynamics.

    Obviously there's a limit to energy generation at some point. That limit could be roughly calculated. Take the total irradiance received by all the world's deserts, plus the fraction of the total irradiance of the oceans which we could capture indirectly from offshore wind farms, plus the the energy we could gain continuously by fusing elements all the way down to iron, minus some loss due to carnot efficiency. That limit is millions of times higher than our current worldwide energy generation. Obviously we may never approach that limit but then we'll never approach the limits imposed by thermodynamics. Anything less does not violate the 2nd law.

    The laws of thermodynamics definitely don't imply that we're approaching some kind of energy peak. The laws of thermodynaamics apply only to a closed system, but the earth is not a closed systrm; it receives energy from the sun.

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  24. gJ:

    I tend to play things fast and loose here. I don't have strict guidelines about what kind of messages I'll allow. On occasion I do delete something, but only when it's totally devoid of serious content. I allow almost anything else. I allow anyone to argue any point, which of course means I won't always agree with everything posted here.

    With regard to global warming. I personally believe that it's a very serious problem. I also believe that the best solution is a carbon tax and a massive reinvestment in nuclear power.

    I'm a strong nuclear advocate. I think it was a catastrophic mistake for us to abandon nuclear power 30 years ago, and I think the environment has paid the price.

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  25. "The laws of thermodynaamics apply only to a closed system, but the earth is not a closed systrm; it receives energy from the sun."

    No, the laws of thermodynamics apply everywhere, and it doesn't matter if the earth is 'closed' or not. We receive energy from the sun, but we can only capture and use a tiny fraction of all that energy. But the economy runs on money, and we don't receive money from the sun. We print it. The engine of the economy can only dissipate so much heat. Any engine run without feedback eventually accelerates until it destroys itself, regardless of the energy 'available' in the system.

    The point here is that the engine of our economy has been running way too hot for far too long and the feedback loop has been corrupted.

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  26. Tom,

    There is a difference between power and energy.

    "Look at it this way. We have already increased the amount of energy generated worldwide," Incorrect assertion! We have not generated any energy, we have converted various sources of energy to power to perform work with some degree of energy to power conversion loss in the process. Along the way we have increased the scale and efficiency of power conversion resulting in more available power.

    Neither energy source and reserve consumption nor power conversion efficiency can exceed 100% which oddly enough you concede "Obviously there's a limit to energy generation at some point." without acknowledging that real physical resource limits apply to economic growth theories or the impact of the law of diminishing returns on near infinite investments in incremental increases in power generation.

    "Why can't interest and growth continue along as they have in the past?" Finite planet Tom. No infinite growth.

    "Obviously there's a limit to energy generation at some point. " You mean power, right? Bear in mind that ethanol and hydrogen are power storage mediums, not energy sources. Nuclear Energy is also a misnomer for nuclear power. I.e. Nuke plants generate power, not energy.

    And one more time. "The laws of thermodynamics definitely don't imply that we're approaching some kind of energy peak." This discussion is all about power, not energy. There is enough energy in one day's solar insolation to power humanity for a century but power alone will not get the job done as power without resources to convert to goods and services will not sustain perpetual economic growth.

    Suggest you argue how near infinite solar energy resources utilized with 100% resource consumption and power conversion efficiency can be combined with finite physical resources to support infinite economic (the production of goods & services) growth.

    Also, please bone up on basics physics before making wide ranging assertions regarding our 'energy' future.

    Freewheelin' Franklin

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  27. Hi Tom,

    I'm back. Silly me for forgetting until now to point out that ever increasing power reserves means nothing absent a corresponding increase in non-energy resource reserves to fuel the resource to goods conversion process we like to call 'the economy'.

    A thought experiment:

    Imagine your bedroom is the entire world and it is powered directly by all of the energy of the sun - you have effectively infinite energy and power reserves yet your world's economy is constrained by the size of the bedroom even if we grant the caveat of instantly appearing, near infinite non-energy resources for conversion to goods and services through he application of various forms of work (power). Not to mention the corresponding shortage of goods and services consumers dictated by finite sleeping quarters...

    Power without resources to convert has no work to do.

    Freewheelin' Franklin

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  28. Oil prices peaked at $92 on New Year's Eve. A harbinger of this to come in the New Year?

    Let's have some predictions for 2011. I'll say we'll see $100+ oil and Dow at 10,000 by mid-year. Unemployment continues to rise. More banks fail.

    But don't let it get you down - it's only assets transferring...Cheers and Happy New Year!

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  29. Anon:

    "No, the laws of thermodynamics apply everywhere, and it doesn't matter if the earth is 'closed' or not. "

    The 2nd law of thermodynamics is a property of closed (or isolated) physical systems. From the wikipedia definition: "The second law of thermodynamics is an expression of the tendency ... to equilibrate in an isolated physical system. [emphasis added]"

    "The point here is that the engine of our economy has been running way too hot for far too long and the feedback loop has been corrupted."

    Anon, I can see the general idea you're getting at, but I don't have enough detail to evaluate it. Which feedback loop are you referring to here? Could you provide more detail about the feedback loop, and how it became corrupted?

    -tom

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  30. Carl,

    "You mean power, right?"

    No. I'm referring to usable energy here, not power. When I say "generating energy" I'm using the term "energy" in its colloquial sense; I'm using the term "energy" in the same way it's generally used. Obviously if we use the technical definition of the term, then we're not really generating energy, but converting it from one form to another.

    I explained this explicitly in a footnote to the first article. In the footnote, I explained that I was referring to "usable energy," and that we aren't really generating energy, but converting it.

    I'll add another footnote to this article to explain what I mean, just to avoid any confusion.

    "Bear in mind that ethanol and hydrogen are power storage mediums, not energy sources. Nuclear Energy is also a misnomer for nuclear power. I.e. Nuke plants generate power, not energy."

    Ethanol and hydrogen are energy storage mediums, not power storage mediums. You can't store power, because power (in its technical physics sense, which I assume you're using here) refers to a rate, usually a rate of conversion.

    "Finite planet Tom. No infinite growth."

    Carl, I explained clearly and repeatedly that I wasn't arguing for infinite economic growth. In fact, I clearly stated exactly the opposite. When I asked "why can't economic growth continue" I was clearly referring to economic growth now, and in the immediate future. Doomers have claimed that economic growth will cease now or at least in the relatively immediate future, like within the next few decades. I was responding to their claim of imminent decline. Any talk of infinity is just a straw man because I clearly didn't claim it.

    "There is enough energy in one day's solar insolation to power humanity for a century but power alone will not get the job done as power without resources to convert to goods and services will not sustain perpetual economic growth."

    Again, perpetual economic growth isn't the issue.

    With regard to resources and running out of them. We have vast amounts of certain common elements, such as silicon (as silicates), iron, aluminum, and calcium, because those elements constitute the vast majority of the Earth's crust. Out of those common elements we can make steel, glass, aluminum, cement, computer chips, plasticky substances (silicones) and so on. We could build everything necessary for industrial civilization from the extremely common elements. Those elements are so abundant that we could cover the entire terrestrial land mass with a mile-deep layer of industrial equipment, apartment high-rises, and plasticky (silicone) crap. Obviously we can't really do that, because of manufacturing constraints and ecological concerns, but we would have enough materials to do it.

    Take silicon as an example. Silicon is just above carbon on the periodic table. As a result, silicon atoms can be "chained together" like carbon to create a wide variety of complicated and very different molecules. Out of silicon you can make almost anything: electrical conductors, electrical insulators, plastic-like substances, hard substances, fleshy substances, computer chips, glass, structural building materials, etc. Silicates make up 60% of the Earth's crust, so we're not running out of them.

    Just to be clear, I'm not saying that we have infinite materials, but I am claiming that we are nowhere near exhausting them.

    -tom

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  31. Tom said:

    "The laws of thermodynaamics apply only to a closed system, but the earth is not a closed systrm; it receives energy from the sun."

    You're implying that the laws of thermodynamics don't apply to the earth because it's not a "closed system." Obviously that's false, because the laws of thermodynamics DO apply to all the activities that take place on planet earth.

    The energy in sunlight is only useful if you can capture it and use it.

    Any engine, amplifier, or system that converts energy into useful work produces some sort of waste, and a given system can only do a finite amount of work without overheating, stalling or otherwise self-destructing.

    Feedback mechanisms take a portion of the work and feed it back - out of phase - into the input - like a governor or rev limiter on a gas engine or a the negative feedback loop on an electronic amplifier. The amplifier with no feedback, or corrupted feedback, oscillates and destroys itself with waste heat.

    Our economy has lost its feedback loop and is in the process of wild oscillations. Taxes for infrastructure are the most obvious forms of feedback for an economy. The prevalent attitude in the US is that the engine of our economy can run without feedback, and we are watching the economy destroy itself.

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  32. Tom you've made some good arguments.

    Oil consumption in the US has been pretty flat for a few years now, and we have the strongest economy the USA has ever seen. Just look at the Stock Market and the GDP!

    I liked the rebuttal on high prices actually increase the quantity of oil in the Earth. The real danger is pricing it so high that covers the Earth and drowns us all. Imagine if we priced it so high that the mass of oil on the Earth exceeded the mass of the sun!

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  33. Hi Tom,

    Guess what? China just signed a nifty Australian mineral rights lease so they can begin IMPORTING COAL.

    http://www.guardian.co.uk/world/2011/apr/12/china-australia-mining-iron-coal

    Happy now you ninny you?

    Freewheelin' Franklin

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