Tuapte Semper Ingredere Via

Community, People, Localization – a return to a human scale

“What gets us into trouble is not what we don’t know, it’s what we know for sure that just ain’t so.” —Mark Twain

leave a comment »

Limits to Growth
Up until the millenium began I was a dyed in the wool, flag waving fan of the benefits of the capitalist system.  Generally it was working for me, or so I thought.   Save, invest and the future was there for a great life.  That seems to be the message coming across from investment advisors, the government, and workplaces that have pensions available.  Growth was good and would make both me and world better off.

Gradually after returning to Canada in 2004 I kept looking at the market gains, my income and wondering why I had this uneasy feeling that day to day life was becoming more challenging financially.   Money just did not seem to go as far.  Just a blip I thought, markets will correct and things will get better.   By late 2006 and into 2007 I began to notice that odd things were happening particularily around commodities – their demand, price and supply levels.  So I started searching around (thank god for the internet) and looking at production levels as it was clear demand was soaring for everything and prices kept going up. The CPI has gone up 350% since 1978, but the price of a barrel of oil has risen 800% over the same time frame

It became clear early on that for most commodities, including oil, that all the easy stuff had been found and exploited starting back in the late 50’s and early 60’s.   Cheap easy energy allowed the western economies to achieve extraordinary economic growth and a standard of living.  Governments and central banks provided cheap money to keep growth going in the late 1990’s as growth slowed in industrial factories and was then outsourced.  Cheap money encouraged switching to a society of consumerism and services growth from industrialization in the west.  Banks made money making bad loans and encouraging consumers to consume more in all countries. (Canada for example has the highest rate of personal debt in the western world)

Most of the new production was coming from harder to reach places and much smaller sources.   Oil is sort of keystone commodity.  Energy underlies commoditiy extraction (can’t do it on an industrial scale without it) and is used throughtout the product lifecycle to produce and then used by the buyer.  As all these commodity costs go up the prices for finished products goes up more and producers look for ways to subsitute other things for the higher priced items.

The interesting discovery we are making now is that some of these commodities can’t be substituted for.  Oil for example.  In the past we moved on from wood and charcoal to coal, to oil but there does not appear to be an available substitute for oil.  Even after 2008 and the long economic downturn oil prices remain stubbornly high.

Along that path we seemed to have lost our relationship to nature.

Economic growth in both the formal and informal economies depends on energy inputs.  Life depends on energy inputs.  Energy availability dictates the quality and quantity of life we have available.  Places that have never had much of it are the third world. Places that did have it are the western countries and a few places like the mid east and currently well off.  Extraction of commodities is sort of like a faucett.  You can slowly turn it on and then increase the flow until it reaches a point you can’t exceed.   Usually flowing great for a household but if it suddenly has to supply more and more people with water from the one faucett…it gets harder to provide all with a supply.

This concept of limits is what we are running into now.  Limits on commodities, food, energy.  Basics of life and our industrial economies.  Start reducing the supply of the basics and people get upset and economies start to do odd things.  These often play out over the space of months if not years so our attention span sometimes ignores this as we have so many other distractions now.

National Debt

Revolutions have overthrown rulers in Tunisia, Egypt, and Libya. Unrest and bloodshed continues in Syria, Gaza, Yemen, Bahrain and Saudi Arabia. The European Union is disintegrating before our very eyes and violent protests against austerity measures flare up on a daily basis in Greece, Italy and Spain. Debt overhang in every country still needs to deflate. Actual versus real inflation rate along with currency devalution invisibly erodes our spending power thanks to government action. Disparity between those who have and have not increases. Food yields per acre have been dropping. Soil erosion increases globally.  Droughts have caused the slaugtering of cattle in Texas (cheap beef the past summer) and shut down power plants.  We have entered the 2nd stage of this crisis – the more violent and dangerous stage. I can sense fear and uneasiness among the more connected members of society. The drones, which constitute a large portion of the west, are highly focused on Kim Kardashian’s divorce after 72 days and a $10 million wedding.

Umemployment has remained stubbornly hight in almost every western country, Canada included.  The degree in difference seems tied to how badly a country was affected by the intial financial collapse and whether the country is predominatly commodity oriented.  Australia and Canada remain commodity exporting countries and have statistically done well although loosing more and more of their industrial capacity as their currencies have risen.  Youth unemployment in most western countries remains dangerously high.

Government Debt

Limits also apply to the costs of industrialization.  Most of these costs we have dumped in land fills, into the oceans, the skies and often our backyards.   There is a limit to what one can dump in one’s backyard.  With declining fish stocks and coral reefs dying our oceans are telling us that.   Increasingly frequent bad weather and changing weather patterns, decreasing ice coverage in cold areas and thawing of tundra is the earth telling us something is wrong.  By pushing for growth not only are we taking the future from the next generation but we are doing the same to the oceans, to freshwater, to topsoil and to biodiversity.  We have created government and personal deficits but they are are not nearly as dangerous as the deficits we have created in vital and complex natural systems.

Both the economic and planetary symptoms are complex adapative systems responding to these limits.  They should be setting up red flashing lights to us that changes are coming.  Changes we can participate in or react to. Economic growth, the greatest achievement of the human race, has also opened up a pandora’s box of symptoms and how we deal with these will determine our future.

Growth has brought my parents and their generation a golden age of “stuff” and an easy retirement (if they lived in the west).  Expectations now are that my generation and future generations will be worse off (as measured by quantity) than past generations going back 200 years.

In the west we have bought into an economic system whereby our years of service with an employer will then lead to a comfortable retirement collecting a pension.   Funds are collected as we work and both paid out to current claimants and invested on our behalf.  Works great so long as the system is functioning.   Once growth slows, stops or reverses it breaks.   Pension funds generally base there acturial tables on an estimated return on investment (8 per cent), age of members and pay out rates.   Mostly they invest in bonds and equities in the stock market. Currently bonds pay no where near an 8 per cent return.  Stock markets have rebounded but this was driven by the trillons of dollars pumped into it by central banks around the globe in hopes economic growth would come back.  It hasn’t and central banks are running out of options.   As investment returns drop our pensions are faced with only a few choices.  Reduce the pay out rate and or raise the age they start until growth returns.  If it doesn’t the fund will eventually pay out what it can until it collapses.

Using Inflation to destroy wealth

Public pension funds already seem to be addressing this.  The age at which one can be paid has risen in almost all countries.  This is likely to continue.  Canada has yet to raise its age at which one can get CPP.  In Greece pensioners have stopped receiving their pensions months ago.  Italy will likely follow as they are dependent upon borrowing money internationally to keep things working.  The second problem with public funds is that the government controls.  There are calls in many countries now such as the UK to take pensioners money and use it on job creation schemes.  Gambling this will boost growth and give returns back to the fund.  If growth does not occur the fund position worsens or collapses.

Its increasingly a certainity that those 40 years and younger will not receive much if any pension now.  How things unwind shortly will tell us more about those 40 and over.

The limiting factors to growth will cause even more imbalance that just our retirement.  Feeding ourselves, shelter, heat, water, currency defaults are just a few of the problems that are increasingly jumping out for our attention these days.  And how are societies going to handle this (if they aren’t all ready at some level behind the scenes ). We are part of a slow moving train wreck as the planet’s complex adaptive system responds to change and our increasingly brittle economic system suffers more and more shocks within that complex adaptive system.  Unexpected outcomes are a certainity.

The question remains as to how we address these predicatments or if we just go back to something more easily understood like Kim Kardashian’s divorce after 72 days and a $10 million wedding.

Best hopes

References
Effect of reduced use of oil
http://www.zerohedge.com/news/observations-engineer

Genetics and Behaviour Constraints and our inability to comprehend the large picture
http://ourworld.unu.edu/en/science-wants-to-save-us-from-ourselves/

Pensions
http://www.financialsense.com/contributors/charles-hugh-smith/2011/11/08/next-in-line-for-implosion-pension-plans

Using Pension funds to stimulate economy
http://www.guardian.co.uk/politics/2011/nov/13/pension-funds-stimulate-uk-economy

Advertisements

Written by dcveale13

November 20, 2011 at 8:29 pm

Leave a Reply

Fill in your details below or click an icon to log in:

WordPress.com Logo

You are commenting using your WordPress.com account. Log Out / Change )

Twitter picture

You are commenting using your Twitter account. Log Out / Change )

Facebook photo

You are commenting using your Facebook account. Log Out / Change )

Google+ photo

You are commenting using your Google+ account. Log Out / Change )

Connecting to %s

%d bloggers like this: