Our economic growth system is reaching limits in a strange way

http://ourfiniteworld.com/2016/03/17/our-economic-growth-system-is-reaching-limits-in-a-strange-way/

Economic growth never seems to be as high as those making forecasts would like it to be. This is a record of recent forecasts by the International Monetary Fund:

Figure 1. World GDP Forecasts by the International Monetary Fund.

1. Rising debt is an issue because fossil fuels give us things that would never have been possible, in the absence of fossil fuels. For example, thanks to fossil fuels, farmers can have such things as metal plows instead of wooden ones and barbed wire to separate their property from the property of others. Fossil fuels provide many more advanced capabilities as well, including tractors, fertilizer, pesticides, GPS systems to guide tractors, trucks to take food to market, modern roads, and refrigeration.

The benefits of fossil fuels are immense, but can only be experienced once fossil fuels are in use. Because of this, we have adapted our debt system to be a much greater part of the economy than it ever needed to be, prior to the use of fossil fuels. As the cost of fossil fuel extraction rises, ever more debt is required to place these fossil fuels in use. The Bank for International Settlements tells us that worldwide, between 2006 and 2014, the amount of oil and gas company bonds outstanding increased by an average of 15% per year, while syndicated bank loans to oil and gas companies increased by an average of 13% per year. Taken together, about $3 trillion of these types of loans to the oil and gas companies were outstanding at the end of 2014.

As the cost of fossil fuels rises, the cost of everything made using fossil fuels tends to rise as well. Cars, trucks, and homes become more expensive to build, especially if they are intended to be energy efficient. The cost of capital goods purchased by businesses rises as well, since these too are made with fossil fuels. Needless to say, the amount of debt to purchase all of these goods rises as well. Part of the reason for the increased debt is simply because it becomes more difficult for businesses and individuals to purchase needed goods out of cash flow.

As long as fossil fuel prices are rising (not just the cost of extraction), this rising debt doesn’t look like a huge problem. The rising fossil fuel prices push the general inflation rate higher. But once prices stop rising, and in fact start falling, the amount of debt outstanding suddenly seems much more onerous.

As energy products are burned, we also have an increasing pile of debt, increasing pollution (that our sinks become less and less able to handle), and increasing wealth disparity.

Figure 6. Chart by economist Emmanuel Saez based on an analysis IRS data, published in Forbes.

Conclusion

If a person doesn’t understand what the problem is, it is easy to come to the wrong conclusion. Part of our problem is that we need a growing amount of net energy, per capita, to keep the economy from collapsing. Part of our problem is that entropy problems such as rising debt, increased pollution, and increasing complexity tend to bring the system down, even when we seem to have plenty of energy supplies. These are the two big problems we are facing that few people recognize.

Another part of our problem is that it is necessary for common laborers to have good paying jobs, and in fact rising pay, if the economy is to continue to grow. As much as we would like everyone to have advanced training (and training that changes with each new innovation), the productivity of workers does not rise sufficiently to justify the high cost of giving advanced education to a large share of the population. Instead, we must deal with the fact that the world’s economy needs large numbers of workers with relatively little training. In fact, we need rising pay for these workers, because there are so many of them, and they are the ones who keep the “demand” part of the commodity price cycle high enough.

Robots may be very efficient at producing goods and services, but they cannot recycle the earnings of the system. In theory, businesses could pay very high taxes on the output of automated systems, so that governments could create make-work projects to hire all of the unemployed workers. In practice, the idea is impractical–the businesses would simply move to an area with lower taxes.

Growth now is slowing because of all of the entropy issues involved. People in China cannot stand any more pollution. Too many laborers in developed countries are being marginalized by globalization and by competition with ever more intelligent machines that can replace much of the function of humans. None of this would be a problem, except that we have a huge amount of debt that needs to be repaid with interest, and we need commodity prices to rise high enough to encourage production. If these problems are not fixed, the whole system will collapse, even though there seems to be a surplus of energy products.

Stāvoklis ir pārsteidzošs un paradoksāls. To, ka jebkura bioloģiska populācija iet bojā tad, kad izbeidzas barošanas bāze, nevar noliegt. Izskatās, ka nevar noliegt arī to, ka, ja cilvēce tuvākā g.s. laikā neapgūs lētas kodolenerģijas ražošanu, tad tās ‘barošanas bāze’ būtiski samazināsies. Kad kāds (gandīz neierobežoti) drukā naudu, tad kaut kad vajaga parādīties inflācijai. Kāpēc mēs pieredzam (daļēju, dažās vietās) deflāciju? Varbūt tiešām ir tā, kā skaidro autors (skat. rakstus viņa mājaslapā): pēdējos 45 gados 90% ASV iedzīvotāju dzīves līmenis (nemainīgi ieņēmumi mīnus palielināti izdevumi) un pirktspēja ir samazinājušies.  Mazāks pieprasījums, lielāks bezdarbs, samazinās ieņēmumi, u.t.t., iestājas pozitīvā saite. I.V. 

About basicrulesoflife

Year 1935. Interests: Contemporary society problems, quality of life, happiness, understanding and changing ourselves - everything based on scientific evidence. Artificial Intelligence Foundation Latvia, http://www.artificialintelligence.lv Editor.
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