Horns of Our Dilemma

SUBHEAD: We are more likely to allocate our financial reserves to keeping current players on their feet than we are to finance meaningful changes. Image above: 19th century cartoon Robber Barons with subtitle "History repeats itself - The robber barons of the Middle Ages and the robber barons of today." From (http://madamepickwickartblog.com/anarchist-paving-company). By Jeff Berg on 10 November 2010 in Countercurrents - (http://www.countercurrents.org/berg101110.htm) I had something of a 'eureka' moment the other day. A momentary burst of insight, alas over almost as soon as it began. But before it departed it revealed something I've often felt lurking just out of the range of my sight as I've studied the issues of energy and emissions over the past six years. And what was revealed in that flash is the effect that scarcity is likely to have over the next few decades. Scarcity arising both out of the exhaustion of various non-renewable resources, as well as the collapse of various renewable resources. The latter occurring almost entirely due to our profligate misuse of the former.

There can no longer be any doubt that the zeitgeist of the 21st century will be defined by our transition from the 'Age of Fossil Fuels' to whatever comes next. This was the context of my momentary insight. And as is the case with a stroke of lightning at the height of a storm or in the dead of night, for a split second what was previously dark could be seen. And what I saw in that momentary flash of illumination were the jaws of the progress trap that we have engineered for ourselves.

I've yet to find the best analogy for it. Chinese finger trap? The harder you pull the tighter the trap? No, not really. For one thing we can't be said in any meaningful way to be trying to pull away from this trap. Not yet at least. A mobius trap? As in we can only see one side of it? Closer but still no. If you think of one let me know.

The outlines of our dilemma:

1) We are using our non-renewable resources in such a way as to collapse our renewable resources.

2) As our renewables are collapsed, e.g. ocean fisheries, topsoil, forests, potable water, etc., scarcity sets in.

3) As our non-renewables are exhausted, e.g. oil, gas, phosphorus, rare earths, etc., scarcity sets in.

4) Scarcity causes economic activity to contract and prices to rise; this causes job loss and inflation thereby doubly impoverishing those being forced to do without by 'demand destruction' and unemployment.

5) Rapidly rising prices of scarce commodities further enrich those able to stay in the game giving political cover to the dynamic.

What the above outline delineates is the fact that some will have a vested interest in scarcity as it creates a window of opportunity for "windfall profits". The logical corollary to this is that these same economic players will have a negative economic interest in paying for strategies designed to mitigate scarcity.

The Axioms of Scarcity:

Postulate A: Those who can pay; those who can't don't.

This is definitionally true and so unfalsifiable. Nonetheless it is a statement that contains information in this context. I.e. As our globally unsustainable economic practices begin to contract our national economies mitigating measures will be tried. Somehow they will be financed

Postulate B: The Golden Rule. Those with the gold make the rules. The information this cliche is meant to convey in this instance is that it is very difficult for politicians or activists to get a sunset industry to pay for measures designed to accelerate their demise. We are seeing this truth play out in N.A. as policy makers and environmentalists look for ways to raise the price of carbon.

Postulate C: Substance abuse endears the substance.

As the substance being abused destroys everything else in ones life it becomes to an ever greater extent the best/only relief you have left. The momentariness of that relief becoming ever less relevant to decision making as the decline progresses.

For example it is the people from the Gulf coast who were the most vocal about restarting the deep water oil and gas business. Why? With their fisheries and tourism industries so grievously compromised the $300 million a month in wages this industry represents had become even less dispensable in many residents eyes.

We have seen this story play out once already in the Prince William Sound in Alaska when the herring fishery was destroyed, the oil and gas industry kept right on going.

It seems obvious - even tautological - to say that those with the money will have to fund the transition from the Age of Fossil Fuels to what comes next. What I like to call 'The Electric Generation'. After all who else is going to do it? Those without money? This strategy has already been tried over the last thirty years as can be seen by the rise in regressive taxation and upward shift of wealth throughout the Anglosphere. (Britain's VAT just went to 20%. Canada has an HST of 13%)

So far at least debts and deficits are undeterred, and services are showing significant signs of strain. Meanwhile the transition from fossil fuels cannot be said to be faring even this well.

Increasingly as economic contraction and scarcity get more severe prices and the cost of doing business will rise. This will remain true even if deflation is the outcome. I.e. The numbers will change but the mathematical relations will maintain. This means that the most profitable companies will be those whose prices rise faster than their expenses, and those who experience what I call the 'beneficial lag'. I.e. The price they charge goes up before their expenses do. E.g. The NOC's and IOC's. (National and International Oil Companies)

By contrast those who are engaged in the harvesting of renewable resources - like the grains from the topsoil or the fish from the sea - will find as the environment further degrades their expenses keep rising at least as fast as the price they can command. They will also suffer from the opposite force as the former group, what I call the 'destructive lag'. I.e. Their expenses go up before their prices. E.g. Farmers and fishermen.

This means that scarcity will in the near to mid-term further advantage the non-renewable resource sectors. In addition because of the accelerating collapse of various renewable resource sectors the economic activity created by the non-renewable extractive sectors will become even more important to our economy than they were in more affluent times. This may not translate to an increase in their lobbying power, and increased support among the general public. I.e. Resistance to phase-out, but I wouldn't bet my last day labor dollar on it.

There is a further force working against our escape that may well be the most potent of them all. This being what I refer to as "the power of the last man standing". What this denotes is the fact that we are more likely to allocate our financial reserves to keeping current players on their feet than we are to finance meaningful changes. However needed. Even if this means keeping unsustainable practices in place and thereby blocking sustainable ones from taking their place. E.g. Internal combustion versus electric motor. The reasons for this counter productive behavior are not hard to find. First and foremost is the fact that most incentives run the wrong way.

A) Market forces respond to conditions as they obtain not as they will be. Irrespective of scientific certainty about future conditions.

B) Political power rests with the economy we've built not the one that needs building.

C) Capital investment demands to be maximized. Be it a coal plant or a windmill.

D) Sunk costs are abandoned only in the most extreme circumstances. Meaning urban sprawl will go down fighting and will not go alone. Aka. The tyranny of previous investment.

E) The future is heavily discounted both in market theory and in market practice. That is, liquidation trumps husbandry, as the present does the future. (NPV)

F) Better the devil you know. Developers, engineers, and capital markets are no less likely than individuals to trust what they know. A conservative human characteristic that only becomes more pronounced when the making of money and scarcity are involved.

The bail out of Goldman Sachs, AIG, Fannie Mae, Freddy Mac, GM, et al, is another equally clear example that pretty much all of our major incentives and signals run in the opposite direction to change. Even when that change is one that pretty much everyone at the very least suspects is needed. There can be no greater proofs of this than the reflation of the securitization and derivatives markets, and the fact that the Obama Presidency spends more on the military than any government in history.

There is no lack of perversity to this state of affairs, but such are the facts. Facts we ignore at our peril. For any analysis that fails to take these facts into consideration is doomed to fail. Take for example the Kyoto Protocols.

'The Limits to Growth' was published in 1972. The peak oil thesis in 1956. The first oil shock was in 1973, and the idea of sustainable development has been bandied about for decades. We know what we know. Action not solutions or information is what is lacking. On at least one point however all can agree. Prolonged delay in the face of needed change tends to foreclose options.

.