Sunday, February 20, 2011

energy decline equals economic decline

Some time ago a young relative who was an avid supporter of Ron Paul remarked to me that he "didn't like economics". My reply to him was the "economics is everything".
I do believe that all social change in complex society is a function of the economic currents changing.
People often do not recognize the larger forces that are causing the change, but they realize something is happening, or they just feel "things have to change".
The change that is happening in the world lately: Currency devaluations, resource inflation, food prices, interest rate manipulations, and riots.

Looked at from an energy perspective, the world money system has been functioning for over 100 years with the cheap oil input to economies. What we are seeing now is the result of energy that is getting relatively more expensive. A world predicated on limitless cheap energy expects continued "growth". This growth has been predicated on borrowing. Debt. Debt is what creates money/currency. Growth is what allows the creation of debt.  Oil is what has allowed that growth.
Most of the people in the world do not understand economics. They just want things to be better. Or in the case of the developed world, they just want things the way they used to be. But the decreased availability of cheap energy is changing the equation.
How does a world view that considers "growth" essential, change?

Economics is a social phenomena. Liberals, conservatives, bleeding hearts and gun nuts. Both sides are wrong in the sense that they are going to get deflation eventually. Neither side recognizes that fact. The "liberals" want to continue the debt creation and "growth" in the face of declining resources. The "conservatives" want to cut spending now, though I don't think they realize the political backlash that will come when the economy actually slows down.The conservative side says if we cut our debt, private enterprise will grow us out of our troubles. However, growth is, and has been the result of cheap oil energy.

We all may want growth, but the earth doesn't care what we want. What we have going on today in the world is a case of unrealistic expectations running smack up against physics. Oil is getting increasingly harder to find and is getting increasingly more expensive to get to market. Oil makes the modern economy function. Not money. Oil.
Poor people in the rest of the world just look on the internet and the television and want what we've got. To avoid continued unrest, either they must change their expectations, or the consuming western world must modify our expectations. It seems the moral thing to do would be for us to quit wasting and using oil for nonessential uses. And we WILL reduce our usage, one way or another. It would be nice if we could all wrap our minds around this problem, and work to solve it from a realistic perspective in an "adult" manner.

1 comment:

  1. Greg ... lots of thought about economics. That is way out of my league. Economics seems so complicated and sometimes vague. Hard for me to get my mind around it. Investment in gold and silver seems to come and go. I don't understand a lot of that.

    But on the bigger picture of economics. My favorite book about this overall topic is "The Rise and Fall of the Great Powers" by Paul Kennedy. It is long and tedious but I think you may do well with it. Read about the book and author on Wikipedia or other sources.

    His main thesis is about the changes, mostly economic, that cause the rise and fall of powers. Often powers chose to spend money on weapons or war at the expense of their economy ... hastening their decline. He maintains that economic power is ahead of military power ... is the source of military power. He goes through many past "great powers" and what led to their rise and fall. When it came out in the 1980 Atlantic magazine had a long article that also set our his main points.

    Dale Kurtz


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